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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, 2001                                             
| 
|  |  | 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)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 59-3136131                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|2502 Rocky Point Drive North, Suite 1000, Tampa, Florida |  | 33607     
|(Address of principal executive offices)                 |  | (Zip Code)

(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.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive Proxy Statement to be used in
connection with the Registrants 2001 Annual Meeting of Stockholders, which
will be filed on or before April 30, 2002, 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.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant on March 1, 2002, was approximately $2.9 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, 2002, there were 2,091,206 shares of outstanding
Common Stock.





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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                                       
|PART IV                                
|                                        | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|SIGNATURES                             
|Computation of Per Share Earnings(Loss)
|Consent of Deloitte & Touche LLP       



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##### Table of Contents



COAST DENTAL SERVICES, INC.
2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                       |  |  |    |      |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|         |  |                                                                                       |  |  |    | Page
|         |  |                                                                                       |  |  |    |     
|PART I   |  |                                                                                       |  |  |    |      |  | 
|        
|Item 1   |  | Business                                                                              |  |  | 1  |     
|Item 2   |  | Properties                                                                            |  |  | 7  |     
|Item 3   |  | Legal Proceedings                                                                     |  |  | 8  |     
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 8  |     
|        
|PART II  |  |                                                                                       |  |  |    |      |  | 
|        
|Item 5   |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  |  | 8  |     
|Item 6   |  | Selected Financial Data                                                               |  |  | 9  |     
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 10 |     
|Item 7A  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |  | 21 |     
|Item 8   |  | Financial Statements and Supplementary Data                                           |  |  | 25 |     
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 42 |     
|        
|PART III |  |                                                                                       |  |  |    |      |  | 
|        
|Item 10  |  | Directors and Officers of the Registrant                                              |  |  | 42 |     
|Item 11  |  | Executive Compensation                                                                |  |  | 42 |     
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 42 |     
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |  | 42 |     
|        
|PART IV  |  |                                                                                       |  |  |    |      |  | 
|        
|Item 14  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 42 |     





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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 managed or to be managed
by the Company pursuant to a services and support agreement; Coast Florida,
P.A., Coast Dental Services, P.A., Coast
Dental Services 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 the Company; Coast P.A. refers collectively to the Coast
Florida P.A., Coast Dental Services, P.A., Coast Dental Services 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
the Company has 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
the Company pursuant to a Services and Support Agreement with the Coast P.A.;
acquired Dental Centers refers to Dental Centers resulting from the
acquisition of an existing dental facility by the Company, combined with the
acquisition by the 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. (the Company) is a leading provider of
management services and support to general dentistry practices. The Company
was incorporated in August 1992 as Sunshine Health Services, Inc., a Florida
corporation, and changed its 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 the
Company in the State of Delaware and changing its corporate name. 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. The Company
obtains its revenue in the form of a service fee for the provision of
management services to the Coast P.A. at the Dental Centers. As of December
31, 2001, the Company provided management services to 118 Dental Centers
located in Florida, Georgia, Tennessee and Virginia. The Coast P.A. employed
146 Coast Dentists at December 31, 2001 and provided dental services to
approximately 700,000 patients during 2001.

Recent Developments

General Update

During 2001, the Company and the Coast P.A. embarked upon
several new initiatives, some of which are described in more detail later in this section,
to help return the Company to profitability and to better position the Company
if this turnaround is achieved. As noted in previous filings, there
is excess capacity in existing Dental Centers, which the Coast P.A. believes it can best utilize by increasing the number of dental professionals in these Dental
Centers. During the year, the Coast P.A. has made significant 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
the Companys ability to increase net revenue, leverage the fixed costs
associated with each Dental Center and improve profitability. The Company has
assisted the 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 de-emphasize and grow net revenue. In addition to shifting the
advertising and marketing approach, the Company has worked with the 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-service pricing which is comparable to private insurance pricing. As described
later in this section,





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the Company and the Coast P.A. have arranged for a
national financial institution to provide
financing to patients of the Coast P.A. who meet the credit issuers criteria
for lending. As also described later in this section, the Company and the
Coast P.A. have made significant progress in the rollout of the Dentist Equity
Model. In the first two months of 2002, these initiatives have had a
favorable impact on the net revenue of the Company due to a marked improvement in the
Coast P.A.s level of productivity. Net revenues for the two
months ended February 2002 averaged $4.5
million per month (unaudited) as compared to the average of
$3.6 million per month for the comparable period  in 2001 or a 23% increase. Earnings before interest, income
taxes, depreciation, amortization and dental center closing and impairment
charges (EBITDA) for the two months ended February 2002 was $1.0 million
(unaudited) compared to $0.3 million for the comparable period
in 2001.

Capacity Utilization

In an effort to
utilize its excess capacity, increase gross revenues and improve
profitability, commencing in July 2001 the Coast P.A. hired 39 (net) dentists in the second
half of 2001, increasing the number of Coast Dentists from 107 at
June 30, 2001 to 146 at December 31, 2001, representing an
increase of 36%. The
average Coast P.A. gross revenues per month has correspondingly increased from
approximately $5.1 million in the month of June 2001 to approximately $6.5 million
in the month of February 2002, representing an increase of 29%.

The increase in net
revenues to the Company from more dentists along with a change in the payor mix toward
higher margin fee-for-service and private insurance business and away
from managed care business has also increased the Companys profitability. As stated
previously, EBITDA for the two months ended February 2002 is
approximately $1.0 million (unaudited) compared to $0.3 million for
the comparable period in 2001.
In the period from December 2000 to February 2002, the payor mix has
been successfully shifted from 57% managed care to 33% managed care.
For the month ended February 28, 2002, 67% of the Coast P.A.s gross revenues are derived
from fee-for-service and private insurance business, up significantly
from 43% as of December 2000.

Patient Financing Program

In late January 2002,
a private label, Coast Dental revolving credit program sponsored by a
national financial institution became available to patients of the Coast P.A.
who meet certain minimum credit standards. The Company believes that this
program will increase incremental revenues because it provides an additional
payment option to patients of the Coast P.A. who otherwise might avoid or delay
the Coast P.A. treatment plan, or accept a lower cost or less effective
treatment due to the lack of ability to pay for the preferred treatment at the
time the service is rendered. In addition, the Company believes this program
will assist the Coast P.A. in reducing its exposure to future patient accounts receivable
and help to improve overall cash flow. There are a few basic financing
options available to patients at all times, with promotional-type
credit deals added several times during the year. In addition, the Company
is working with the national financial institution to develop and implement a
pre-approved credit program that will reduce patient wait time in the office
while credit lines are approved. The early results of this program
have been very positive. During the first eight weeks of the
program, patients using this financing option have charged
approximately $1,000,000 of gross revenue. The average patient
transaction utilizing the financing program has been approximately 6.5 times higher than the overall
average patient transaction.

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 19,700 memberships were
generated in 2001. The Coast P.A. generated $3.3 million in gross revenue
from  Coast Smile Plus members or 5% of its 2001 gross revenue. In
2002, the Company and the Coast P.A. are implementing 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. The Company
is optimistic that this initiative will expand the Coast P.A.s
patient list, further diversify its payor mix with business that has
higher margins than managed care payors and generate a new cash flow
stream.

Dental Center Closings

The Company continuously evaluates the performance of its Dental Centers.
In the fourth quarter of 2001, the Company closed eight (8) previously acquired
Dental Centers that were under-performing, five (5) of which had lease
expirations in the near future. In connection with these closures, the Company
recognized a non-cash charge of approximately $2.75 million in the fourth
quarter of 2001. Prior to the impact of this non-cash charge, these eight (8) Dental
Centers, in 2001, had combined gross losses of
approximately $365,000. The Company believes that closing these Dental Centers
will improve the overall financial performance of the Company in 2002 and beyond while
allowing management to focus its efforts on improving the performance at Dental Centers that remain open.

Managed Care Update

During the latter part of 2000, the 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 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 the Coast
P.A.s operation while the remainder were smaller and less significant. The
gross revenue lost to the 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. The Company continues to believe that, over time, this
lower margin business can be completely replaced 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. Management believes that net revenue lost from these
managed care contracts can be replaced 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
the Company. In 2001, this managed care business began to be replaced as
fee-for-service and private insurance gross revenues of Coast P.A. increased
approximately $10.5 million (an approximate 23% increase in non-managed care
production), which represented a net revenue increase to the Company of
approximately $7.0 million.

2



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Dentist Equity Model

Due to issues apparent in the dental practice management sector relative
to maximizing dentists long-term productivity and commitment to the success of
such relationships, the Company has structured, with the Coast P.A., a
significant change in the overall Dental Center business model. The Coast P.A.,
with the assistance of the Company, 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 the Coast P.A., and the
dental practice management industry in general, is facing. Hygienist retention,
while once a point of concern as well, has been mitigated for the Coast P.A. by
a change in the compensation structure. Since the date of compensation
structure conversion, hygienist retention and productivity has been at an
all-time high for the Coast P.A.

During the third quarter of 2001, the Coast P.A., with the assistance of
the Company, began the rollout of the Equity Model. Under the Equity Model, a
dentist has the opportunity to acquire up to a 50% ownership interest in a
Dental Center and participate in the potential profits of that Dental Center.
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%
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 resulting Dental Centers
will continue to operate under the existing Services and Support Agreement with
the Company. 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, if implemented, will have on the Companys 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, cash flows of the Company in
currently profitable Dental Centers can initially decline. As of December 31,
2001, ten (10) Dental Centers were converted to the Equity Model and, as of
March 1, 2002, three (3) additional Dental Centers were converted.

Through March 1,
2002, three (3) additional Dental Centers have been converted
to the Equity Model, increasing the number of Dental Centers
operating under the Equity Model to 13. In the seven month period
from August 1, 2001 to March 1, 2002, the Company and the
Coast P.A. have converted 11% of the Dental Centers to the Equity
Model. The Company expects to convert several more Dental Centers to
the Equity Model during the remainder of 2002.

To date, the Company
has experienced a favorable impact from the implementation of the
Equity Model. The Companys gross profit percentage for the
13 Dental Centers that have been converted through March 1,
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.

During 2001 and
through March 1, 2002, the sale of interests in the Dental
Centers was structured as a sale of a portion of the tangible and intangible
assets of each Dental Center. The Company owns the tangible assets and the
Coast P.A. owns the intangible assets. For each interest sold, the Company
sold a portion of the Dental Centers tangible assets to the dentist and a
portion to the Coast P.A. The Coast P.A. sold a portion of its intangible
Dental Center assets to the dentist. The Coast P.A. and the dentist then
contributed their respective tangible and intangible assets to a newly formed
professional association.

During 2001, the Company sold the 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 management fee receivable from the
Coast P.A. (approximately $580,000). Subsequently, the Coast P.A. assigned its
notes receivable of approximately $700,000 (arising from the dentists for the
purchase of the Coast P.A.s intangible assets) to the Company in exchange for
a $700,000 reduction to the management fee receivable from the Coast P.A.
Accordingly, the Company is the beneficiary of notes receivable totaling
approximately $924,000 from these transactions. The short- term notes
receivable totaling approximately $65,000 are at 10% for periods of three to
five months and require monthly payments of principal and interest. The
long-term portion of the notes receivable totaling $859,000 is at 10% with a
term of seven years, with the first year requiring monthly payments of interest
only. After the initial year of the term, payments of principal and interest
are required monthly.

From January 1,
2002 through March 1,
2002, the Company sold the tangible assets at their net book value,
which approximated market value, totaling approximately $305,000 and
recognized no gain or loss on the transactions. The Company received
proceeds totaling approximately $305,000 in the form of notes receivable
from dentists (approximately $76,000) and a management fee receivable
from the Coast P.A. (approximately $229,000). Subsequently, the Coast
P.A. assigned its notes receivable of approximately $149,000 (arising
from the dentists for the purchase of the Coast P.A.s intangible
assets) to the Company in exchange for an approximate $149,000
reduction to the management fee receivable from the Coast P.A.
Accordingly, the Company is the beneficiary of notes receivable
totaling approximately $225,000 from these transactions. The
short-term notes receivable totaling $22,500 are at 10% for periods
of three to five months and require monthly payments of principal and
interest. The long-term portion of the notes receivable totaling
$202,500 is at 10% with a term of seven years, with the first year
requiring monthly payments of interest only. After the initial year
of the term, payments of principal and interest are required monthly.

New Nasdaq Small Cap Market Listing

On July 17, 2001, the
Company moved the listing of its common stock from NASDAQs
National Market and began trading on NASDAQs Small Cap Market.

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Potential Recapitalization Abandoned

Late in 2000, an offer was presented to the Board of Directors to consider
a potential recapitalization transaction with a proposed corporate redemption
of substantially all of the shares representing the unaffiliated public float.
An independent committee of the Board (independent committee) was formed to
consider the offer. The offer was evaluated and given due consideration by the
independent committee. The independent committee hired legal counsel and other
advisors and negotiated terms in connection with the offer which, upon
completion, would have provided a premium to current market value for these
unaffiliated stockholders and would have resulted in the Company going private.

In late March, 2001, this proposed transaction was abandoned due to
difficulties in obtaining financing necessary to consummate the potential
transaction. The total cost incurred by the Company was approximately
$800,000, approximately $670,000 of which was recorded as an expense to the
Company during the first quarter of 2001 (the remainder was reflected in the
2000 financial statements).

Acquisitions and Developments of Dental Centers

When the Company
acquires an existing Dental Center, the Company acquires
the assets to the extent permitted by law. Typically, the Company acquires the
Dental Center lease as well as all dental and office equipment. The Coast P.A.
acquires the patient lists and related assets, and typically enters into
employment agreements with the acquired Dental Centers dentists and hygienists to
staff the Dental Center. When the Company internally develops Dental Centers,
the Company provides the Dental Center location and the necessary equipment and
support staff while the Coast P.A. provides dentists and dental hygienists. The
patient lists are the property of the Coast P.A.

The Company opened
17 internally developed Dental Centers in 1999, none in
2000 and 2 in 2001. These Dental Centers were opened in Florida, Georgia, and
Tennessee. During 1999, the Company and the Coast P.A. added 11 acquired Dental
Centers in Virginia. The purchase price of these acquired Dental Centers was
$2.1 million consisting of $1.2 million in cash and $0.9 million in promissory
notes and certain assumed liabilities. Additionally in 1999, the Company
consolidated one previously acquired Dental Center into an existing Dental
Center. The Company did not acquire any new Dental Centers during 2000 or 2001.
The Company, did, however, consolidate twelve (12) existing Dental Centers into
six (6) Dental Centers during 2000 to take better advantage of
market demographics. The Company also relocated one (1) Dental Center
during 2000. During 2001, the Company added two (2) internally developed Dental
Centers, one in the Atlanta, GA market and one in the Nashville, TN market.
During the fourth quarter of 2001, the Company made the decision to close eight
(8) previously acquired Dental Centers. In each of these situations, the
surrounding market demographics had evolved to the extent that it had become
increasingly difficult to effectively attract dental professionals and patients.
A non-cash charge of approximately $2.75 million was recognized in the fourth
quarter of 2001 for these Dental Center closings to provide for the related
asset impairments and remaining lease and facilities commitments. Of the 118
Dental Centers currently managed by the Company, 63 were internally developed
and 55 were acquired by the Company.

Services and Operations

The Company is primarily responsible for the management and administrative
functions of its Dental Centers, but does not provide dental care. The Company
provides financial, accounting, billing, training, marketing assistance and
collection services to the Coast P.A. and employs the Dental Centers
management and administrative personnel. The Coast P.A. maintains full control
over the dental practices of the Coast Dentists, employs the Coast Dentists and
their hygienists and sets standards of care in order to promote the provision
of quality dental care. The 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.

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The Company has entered into Services and Support Agreements with the
Coast P.A. pursuant to which the Company is the exclusive business manager, to
the extent allowable by law, of the Dental Centers. As Dental Centers are
acquired or internally developed by the Company and the 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 its management services under the current Services and
Support Agreements, the Company earns a monthly services and
support fee based upon a percentage of the gross revenue, net of refunds,
adjustments and discounts, of the Dental Center. Dental Center expenses paid by
the Company from the services and support fee include all operating and
non-operating expenses incurred at the Dental Center except for the salaries
and benefits of the Coast Dentists and dental hygienists. The Companys sole
customers are the Coast P.A., each of which are owned, controlled and managed
by Dr. Adam Diasti, a major stockholder, director and executive officer of the
Company. 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. Modifications, amendments or revisions to the
Services and Support Agreements are approved by the Audit Committee of the
Companys Board of Directors, which consists of all the independent outside
directors of the Company. The Company is dependent on revenue from the 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 the Company. See
Note 2 to the Financial Statements for further information.

The Company plans to continue to use the current form of its Services and
Support Agreements to the extent possible as it enters into new states in the
future or into arrangements with other dental practices. However, the terms of
future agreements may differ according to market conditions and the statutory
or regulatory requirements of the particular state in which the dental practice
is located.

Governmental and State Regulations

The Companys operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business and business corporations in general. The Company believes that it
exercises care in an effort to structure its 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 the Company operates 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 the 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, dentists may be employed by a corporation 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. The Company does not employ dentists or dental
hygienists and does not exercise control over any prohibited areas. While Dr.
Adam Diasti, a sole stockholder of Coast P.A., is also a major stockholder,
director and officer of the Company, he acts independently when making
decisions in these areas on behalf of the Coast P.A. and the Company 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 the Company and the Coast P.A. expressly provide
that the Company shall not exercise control over any matters that would violate
the requirements of the applicable state law.

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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 has recently 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.

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.
The Companys agreements and activities have not been examined by federal or
state authorities under these laws and regulations. For these reasons, there
can be no assurance that review of the Companys business arrangements or the
operation of the Dental Centers will not result in determinations that
adversely affect the Companys 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 the Company to change the form of
relationships entered into with dentists in a manner that restricts the
Companys operations in those states.

The Company believes that health care regulations will continue to change,
and as a result, the Company regularly monitors developments in health care
law. The Company expects to modify its 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 the
ability of the Company to operate as it currently does or to remain profitable
in doing so.

Competition

The Company is aware of several other companies that are actively engaged
in the consolidation of existing dental practices and providing management
services to dental practices, some of which may have longer operating histories
than the Company. The Company assumes that additional companies with similar
objectives may enter the Companys markets and compete with the Company. 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 facility and equipment. Coast Dentists
compete with other

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dentists who maintain group practices or operate in multiple offices. Many of
those dentists have more established practices in their markets.

Seasonality

The Company has traditionally experienced its highest volume of patient
visits during the first and last quarters of the year and its 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. 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, and by the increased percentage of
business performed in the markets served outside of Florida. For the years
ended December 31, 1999, 2000 and 2001, capitation revenue from managed care
contracts represented 22.5%, 24.9% and 16.2%, respectively, of total revenue to
the Coast PA. Dental Centers located outside of Florida provided 19.0%, 22.3%
and 22.8% of total revenue to the Coast P.A. for the years ended December 31,
1999, 2000 and 2001, respectively. The Company expects that capitation, as a
percent of total revenue, will continue to decline in 2002 as a result of the
negotiations and terminations of certain managed care contracts as previously
discussed. The Company also expects, however, that certain factors will
continue to mitigate this seasonality including growth in the markets served
outside of Florida, Coast Smile Plus (discount fee plan) membership programs
and patient financing programs.

Service Marks

The Company believes its service marks are important to the Company. The
Company has registered the service marks Coast Dental and the Company logo
with the United States Patent and Trademarks Office.

Employees

As of December 31, 2001, the Company had approximately 585 full-time and
part-time employees, of which approximately 63 were employed at the Companys
headquarters and 522 were employed at the Dental Centers. None of the Companys
employees are represented by a collective bargaining agreement. The number of
people employed by the Company has declined from the levels maintained in 1999
and 2000. The reduction was part of a cost reduction plan to maintain the
proper level of costs associated with the level of revenue achieved.




Item 2.Properties

The Company presently leases 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. The Company estimates 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. The
Company plans to continue to lease rather than purchase space for the Dental
Centers to preserve the Companys available capital.

The Company leases 10,000 square feet of office space in Tampa, Florida
for its corporate headquarters. This lease is for a term of five years and
expires January 31, 2003.

The Company anticipates that it can successfully renew or obtain suitable
new leases for its Dental Centers, but there can be no assurance that this will
be the case. The Company believes that its leased properties are adequate for
the purposes for which they are used and are suitably maintained for such
purposes. The Company will enter into new leases when it determines to open new
Dental Centers.

|                     |  |                     |     | 
|-------------------- |  | ------------------- | --- | 
|Current Locations    |  | Number of Locations
|                     |  |                    
|Southwest Florida    |  |                     | 13  | 
|West Central Florida |  |                     | 23  | 
|Central Florida      |  |                     | 20  | 
|Northeast Florida    |  |                     | 10  | 
|Northwest Florida    |  |                     | 10  | 
|Georgia              |  |                     | 24  | 
|Tennessee            |  |                     | 7   | 
|Virginia             |  |                     | 11  | 
|                     |  |                     |     | 
|Total                |  |                     | 118 | 
|                     |  |                     |     | 

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Item 3.Legal Proceedings

The Company is a
party to a number of legal proceedings or other claims arising from
the ordinary course of business, including two employee
compensation-related matters.  With respect to the two employee
compensation-related matters, there is potential for class action
status and the Company is unable to predict the outcome of the
pending suits and claims beyond a range.  The ultimate outcome of
these particular matters could have a material adverse impact on the
financial position and results of operations of the Company.  The
Company has accrued amounts it believes are appropriate at the
present time with respect to its legal proceedings based upon
discussions with its legal counsel and the nature and present status
of such proceedings.  The Company intends to vigorously defend its
positions.




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

None.




PART II




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

Market Information

The Common Stock of the Company is quoted on the National Association of
Securities Dealers Automated Quotation System (NASDAQ). The Common Stock of
the Company has been trading publicly under the symbol CDEN on the NASDAQ since
the Companys initial public offering on February 11, 1997.
Effective July 17, 2001, the Company completed a one-for-three
reverse split of its common stock and began trading on the NASDAQ Small Cap
Market. The following table sets forth the high and low closing sale price of
the Companys Common Stock as reported by NASDAQ for the periods indicated
(note that a one-for-three reverse stock split of the Companys 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
|     |  |                |  |      |       |    
|2000 |  | First Quarter  |  | $    | 8.626 |     |  | $ | 6.188 | 
|     |  | Second Quarter |  |      | 6.938 |     |  |   | 5.157 | 
|     |  | Third Quarter  |  |      | 5.907 |     |  |   | 4.313 | 
|     |  | Fourth Quarter |  |      | 5.813 |     |  |   | 3.000 | 
|2001 |  | First Quarter  |  |      | 4.500 |     |  |   | 2.813 | 
|     |  | Second Quarter |  |      | 2.730 |     |  |   | 1.875 | 
|     |  | Third Quarter  |  |      | 3.500 |     |  |   | 2.550 | 
|     |  | Fourth Quarter |  |      | 3.100 |     |  |   | 2.120 | 

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 as of March 1, 2002 was $2.80 and there
were approximately 28 stockholders of record as of that date. The number of
record holders was determined from the records of the Companys 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, the Company has
never paid cash dividends on its Common Stock. The Company presently intends to
retain all future earnings for the operation and expansion of its business and,
accordingly, the Company does not anticipate that any dividends will be
declared or paid on the Common Stock for the

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foreseeable future. In addition, the Companys existing bank credit facility
restricts the Companys ability to declare or pay cash dividends on its common
stock. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be dependent upon the Companys financial
condition, results of operations, capital requirements and such other factors
as the Board of Directors deem relevant.




Item 6.Selected Financial Data

The following selected financial data with respect to the Companys
statements of income (loss) and comprehensive income (loss) for the years ended
December 31, 1997, 1998, 1999, 2000 and 2001 and the balance sheet data as of
December 31, 1997, 1998, 1999, 2000 and 2001 are derived from the Financial
Statements of the Company which have been audited by Deloitte & Touche LLP,
independent auditors. The following data should be read in conjunction with
the Financial Statements of the Company and the related notes thereto and Item
7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|                                                                           |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |       | 
|-------------------------------------------------------------------------- | ------- | - | ------------ | ----- | ---- | - | ------------------------------------- | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                           |         |   | December 31,
|                                                                           |         |   |             
|                                                                           |         |   | 1997         |       | 1998 |   | 1999                                  |       | 2000 |   | 2001  
|                                                                           |         |   |              |       |      |   |                                       |       |      |   |       
|                                                                           |         |   |              |       |      |   | (in thousands, except per share data) |       |      |   |       
|STATEMENTS OF INCOME (LOSS) DATA FOR THE YEAR:                             |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |      
|Net revenue                                                                |         | $ | 20,035       |       |      | $ | 34,540                                |       |      | $ | 44,598 |       |  | $ | 45,826 |       |  | $ | 43,561 |      
|Income (loss) before cumulative effect
of a change in accounting principle |         |   | 3,409        |       |      |   | 4,171                                 |       |      |   | 656    |       |  |   | (1,264 | )     |  |   | (9,367 | )    
|Cumulative effect of a change in accounting principle(2)                   |         |   |             |       |      |   | 634                                   |       |      |   |       |       |  |   |       |       |  |   |       |      
|Net income (loss)                                                          |         |   | 3,409        |       |      |   | 3,537                                 |       |      |   | 656    |       |  |   | (1,264 | )     |  |   | (9,367 | )    
|Pro forma net income (loss)(1)                                             |         |   | 3,267        |       |      |   | 3,537                                 |       |      |   | 656    |       |  |   | (1,264 | )     |  |   | (9,367 | )    
|Basic earnings (loss) per common share:                                    |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |      
|Income (loss) before cumulative effect of a change
in accounting principle |         | $ | 1.72         |       |      | $ | 1.64                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Cumulative effect of a change in accounting
principle                      |         |   |             |       |      | $ | (0.25                                 | )     |      |   |       |       |  |   |       |       |  |   |       |      
|Net income (loss)                                                          |         | $ | 1.72         |       |      | $ | 1.39                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Pro forma net income (loss)(1)                                             |         | $ | 1.65         |       |      | $ | 1.39                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Diluted earnings (loss) per common share:                                  |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |      
|Income (loss) before cumulative effect
of a change in accounting principle |         | $ | 1.69         |       |      | $ | 1.62                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Cumulative effect of a change in accounting
principle                      |         |   |             |       |      | $ | (0.25                                 | )     |      |   |       |       |  |   |       |       |  |   |       |      
|Net income (loss)                                                          |         | $ | 1.69         |       |      | $ | 1.37                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Pro forma net income (loss)(1)                                             |         | $ | 1.62         |       |      | $ | 1.37                                  |       |      | $ | 0.29   |       |  | $ | (0.60  | )     |  | $ | (4.48  | )    
|Weighted average shares outstanding:                                       |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                           | Basic   |   |              | 1,978 |      |   |                                       | 2,538 |      |   |        | 2,302 |  |   |        | 2,098 |  |   |        | 2,091 | 
|                                                                           | Diluted |   |              | 2,017 |      |   |                                       | 2,573 |      |   |        | 2,302 |  |   |        | 2,098 |  |   |        | 2,091 | 
|BALANCE SHEET DATA AT YEAR END:                                            |         |   |              |       |      |   |                                       |       |      |   |        |       |  |   |        |       |  |   |        |      
|Total assets                                                               |         | $ | 64,836       |       |      | $ | 71,502                                |       |      | $ | 64,657 |       |  | $ | 64,204 |       |  | $ | 54,136 |      
|Long-term debt including current maturities                                |         | $ | 1,495        |       |      | $ | 2,920                                 |       |      | $ | 1,853  |       |  | $ | 2,214  |       |  | $ | 350    |      



---

|(1) |  | Pro forma adjusted to reflect a 39% income tax rate as if the Company
were taxed for the entire year as a C Corporation for 1997.                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|(2) |  | The Company 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

The Company opened
its first Dental Center in May 1992 and, since then, has
added 63 internally developed and 55 acquired Dental Centers, net of
consolidations and closings. The Company derives its revenue through fees
earned from the Coast P.A. for providing management services and support at the
Dental Centers, located in Florida, Georgia, Tennessee and Virginia. As of
December 31, 2001, 146 Coast Dentists were employed by the Coast P.A., serving
approximately 700,000 patients. In the near future, the Company plans to grow
by utilizing existing excess capacity. Once the excess capacity is optimized,
the Company expects to expand the Coast Dental Network in new and existing
markets through the addition of internally developed and strategically
opportunistic acquired Dental Centers.

Pursuant to the Services and Support Agreements with the Coast P.A., the
Company provides management services and support to facilitate the development
and growth of Dental Centers. Operating expenses incurred by the Dental
Centers, with the exception of compensation and benefits to the Coast Dentists
and dental hygienists, are expenses of the Company. The services and support
fees earned by the Company from the Coast P.A. have historically ranged from
65% to 76% of the Dental Centers gross revenue, net of refunds, adjustments
and discounts. The Company is dependent upon the future success of the Coast
P.A. and the ability of the Coast P.A. to grow with the Company. The services
and support fees between the parties have been and may be revised from time to
time based upon negotiations between the Company and the Coast P.A. Amendments
to the Service and Support Agreements are approved by the Companys Audit
Committee, which is comprised of independent directors. Effective February 1,
1999, the services and support fees were adjusted to 73% of the Dental Centers
gross revenue. The Audit Committee approved a further adjustment to the
services and support fees beginning in January 1, 2000, to 67% of the Dental
Centers gross revenue. The service and support fee was 67% for the entire year
in both 2000 and 2001.

Recent Developments

General Update

During 2001, the
Company and the Coast P.A. embarked upon several
new initiatives, some of which are described in more detail later in this section,
to help return the Company to profitability and to better position the Company
if this turnaround is achieved. As noted in previous filings, there is
excess capacity in existing Dental Centers, which the Coast P.A.
believes it can best utilize by increasing the number of dental professionals in these Dental
Centers. During the year, the Coast P.A. has made significant 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
the Companys ability to increase net revenue, leverage the fixed costs
associated with each Dental Center and improve profitability. The Company has
assisted the 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 de-emphasize and grow net revenue. In addition to shifting the
advertising and marketing approach, the Company has worked with the 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-service pricing which is comparable to private insurance pricing. As described
later in this section, the Company and the Coast P.A. have arranged for a national
financial institution to provide financing to patients of the Coast P.A. who meet the
financial institutions criteria for lending. As also described later in this section,
the Company and the Coast P.A. have made significant progress in the rollout of
the Dentist Equity Model. In the first two months of 2002, these
initiatives have had a favorable impact on the net revenue of the
Company due to a marked
improvement in the Coast P.A.s level of productivity. Net revenues for the two months ended February 2002
averaged $4.5 million per month (unaudited) as compared to the
average of $3.6 million per month for the comparable period in
2001 or a 23% increase. Earnings before interest,
income taxes, depreciation, amortization and dental center closing and
impairment charges (EBITDA) for the two months ended February
2002 was $1.0
million (unaudited) compared to ($0.3) million for the
comparable period in 2001.

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Capacity Utilization

In an effort to utilize its excess capacity,
increase gross revenues and improve profitability, commencing in July
2001 the Coast P.A.
hired 39 (net) dentists in the second half of 2001, increasing the
number of Coast Dentists from 107 at June 30, 2001 to 146 at
December 31, 2001, representing an increase of 36%. The average Coast P.A.
gross revenues per month has correspondingly increased from approximately
$5.1 million in the month of June 2001 to approximately
$6.5 million in the month of
February 2002, representing an increase of 29%.

The increase in net
revenues to the Company from more dentists along with a change in the payor mix toward
higher margin fee-for-service and private insurance business and away
from managed care business has also increased the Companys profitability. As stated
previously, EBITDA for the two months ended February 2002 is
approximately $1.0 million (unaudited) compared to
$0.3 million for the comparable period in 2001. In the period from December 2000 to February
2002, the payor mix has been successfully shifted from 57% managed
care to 33% managed care. For the month of February 2002, 67% of the Coast
P.A.s gross revenues are derived from fee-for-service and private
insurance business, up significantly from 43% as of December 2000.

Patient Financing Program

In late January 2002,
a private label, Coast Dental revolving credit program sponsored by a
national financial institution became available to patients of the Coast P.A.
who meet certain minimum credit standards. The Company believes that this
program will increase incremental revenues because it provides an additional
payment option to patients of the Coast P.A. who otherwise might avoid or delay
the Coast P.A. treatment plan, or accept a lower cost or less effective
treatment due to the lack of ability to pay for the preferred treatment at the
time the service is rendered. In addition, the Company believes this program
will assist the Coast P.A. in reducing its exposure to future patient accounts receivable
and help to improve overall cash flow. There are a few basic financing
options available to patients at all times, with promotional-type
credit deals added several times during the year. In addition, the Company
is working with the national financial institution to develop and implement a
pre-approved credit program that will reduce patient wait time in the office
while credit lines are approved. The early results of this program
have been very positive. During the first eight weeks of the
program, patients using this financing option have charged
approximately $1,000,000 of gross revenue. The average patient
transaction utilizing the financing program has been approximately 6.5 times higher than the overall
average patient transaction.

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 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 19,700 memberships were
generated in 2001. The Coast P.A. generated $3.3 million in gross
revenue from Coast Smile Plus members or 5% of its 2001 gross
revenue. In 2002, the Company and the Coast P.A. are implementing 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. The Company is optimistic that this initiative will expand
the Coast P.A.s patient list, further diversify its payor mix with
business that has higher margins than managed care payors and generate
a new cash flow stream.

Dental Center Closings

The Company continuously evaluates the performance of its Dental Centers.
In the fourth quarter of 2001, the Company closed eight (8) previously acquired
Dental Centers that were under-performing, five (5) of which had lease
expirations in the near future. In connection with these closures, the Company
recognized a non-cash charge of approximately $2.75 million in the fourth
quarter of 2001. Prior to the impact of this non-cash charge, these
eight (8) Dental Centers, in 2001, had combined gross losses of
approximately $365,000. The Company believes that closing these Dental Centers
will improve the overall financial performance of the Company in 2002 and beyond while
allowing management to focus its efforts on improving the performance at Dental Centers that remain open.

Managed Care Update

During the latter part of 2000, the 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 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 the Coast
P.A.s operation while the remainder were smaller and less significant. The
gross revenue lost to the 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. The Company continues to believe that, over time, this
lower margin business can be completely replaced 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. Management believes that net revenue lost from these
managed care contracts can be replaced 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
the Company. In 2001, this managed care business began to be replaced as
fee-for-service and private insurance gross revenues of Coast P.A. increased
approximately $10.5 million (an approximate 23% increase in non-managed care
production), which represented a net revenue increase to the Company of
approximately $7.0 million.

Dentist Equity Model

Due to issues apparent in the dental practice management sector relative
to maximizing dentists long-term productivity and commitment to the success of
such relationships, the Company has structured, with the Coast P.A., a
significant change in the overall Dental Center business model. The Coast P.A.,
with the assistance of the Company, 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 the Coast P.A., and the
dental practice management industry in general, is facing. Hygienist retention,
while once a point of

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concern as well, has been mitigated for the Coast P.A. by a change in the
compensation structure. Since the date of compensation structure conversion,
hygienist retention and productivity has been at an all-time high for the Coast
P.A.

During the third quarter of 2001, the Coast P.A., with the assistance of
the Company, began the rollout of the Equity Model. Under the Equity Model, a
dentist has the opportunity to acquire up to a 50% ownership interest in a
Dental Center and participate in the potential profits of that Dental Center.
The dentist acquires an ownership interest in certain of the assets of the
Dental Center and finance all or a portion of the purchase price with a
secured note payable. The general terms of the notes are seven years at 10%
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 resulting Dental Centers
will continue to operate under the existing Services and Support Agreement with
the Company. 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, if implemented, will have on the Companys 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, cash flows of the Company in
currently profitable Dental Centers can initially decline. As of December 31,
2001, ten (10) Dental Centers were converted to the Equity Model and, as of
March 1, 2002, three (3) additional Dental Centers were converted.

Through March 1,
2002, three (3) additional Dental Centers have been converted to
the Equity Model, increasing the number of Dental Centers operating
under the Equity Model to 13. In the seven month period from
August 1, 2001 to March 1, 2002, the Company and the Coast
P.A. have converted 11% of the Dental Centers to the Equity Model.
The Company expects to convert several more Dental Centers to the
Equity Model during the remainder of 2002.

To date, the Company
has experienced a favorable impact from the implementation of the
Equity Model. The Companys gross profit percentage for the 13
Dental Centers that have been converted through March 1, 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.

During 2001 and
through March 1, 2002, the sale of interests in the Dental
Centers was structured as a sale of a portion of the tangible and intangible
assets of each Dental Center. The Company owns the tangible assets and the
Coast P.A. owns the intangible assets. For each interest sold, the Company
sold a portion of the Dental Centers tangible assets to the dentist and a
portion to the Coast P.A. The Coast P.A. sold a portion of its intangible
Dental Center assets to the dentist. The Coast P.A. and the dentist then
contributed their respective tangible and intangible assets to a newly formed
professional association.

During 2001, the Company sold the 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 management fee receivable from the
Coast P.A. (approximately $580,000). Subsequently, the Coast P.A. assigned its
notes receivable of approximately $700,000 (arising from the dentists for the
purchase of the Coast P.A.s intangible assets) to the Company in exchange for
a $700,000 reduction to the management fee receivable from the Coast P.A.
Accordingly, the Company is the beneficiary of notes receivable totaling
approximately $924,000 from these transactions. The short- term notes
receivable totaling approximately $65,000 are at 10% for periods of three to
five months and require monthly payments of principal and interest. The
long-term portion of the notes receivable totaling $859,000 is at 10% with a
term of seven years, with the first year requiring monthly payments of interest
only. After the initial year of the term, payments of principal and interest
are required monthly.

From January 1,
2002 through March 1,
2002, the Company sold the tangible assets at their net book value,
which approximated market value, totaling approximately $305,000 and
recognized no gain or loss on the transactions. The Company
received proceeds totaling approximately $305,000 in the form notes
receivable from dentists (approximately $76,000) and a management fee receivable from the Coast P.A. (approximately $229,000).
Subsequently, the Coast P.A. assigned its notes receivable of
approximately $149,000 (arising from the dentists for the purchase of
the Coast P.A.s intangible assets ) to the Company in exchange
for an approximate $149,000 reduction to the management fee
receivable from the Coast P.A. Accordingly, the Company is the
beneficiary of notes receivable totaling approximately $225,000 from
these transactions. The short-term notes receivable totaling $22,500
are at 10% for periods of three to five months and require monthly
payments of principal and interest. The long-term portion of the
notes receivable totaling $202,500 is at 10% with a term of seven
years, with the first year requiring monthly payments of interest
only. After the initial year of the term, payments of principal and
interest are required monthly.

New Nasdaq Small Cap Market Listing

On July 17,
2001, the Company moved the listing of its common stock from NASDAQ's
National Market and began trading on NASDAQ's Small Cap Market.

Potential Recapitalization Abandoned

Late in 2000, an offer was presented to the Board of Directors to consider
a potential recapitalization transaction with a proposed corporate redemption
of substantially all of the shares representing the unaffiliated public float.
An independent committee of the Board (independent committee) was formed to
consider the offer. The offer was evaluated

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and given due consideration by the independent committee. The independent
committee hired legal counsel and other advisors and negotiated terms in
connection with the offer which, upon completion, would have provided a premium
to current market value for these unaffiliated stockholders and would have
resulted in the Company going private.

In late March 2001, this proposed transaction was abandoned due to
difficulties in obtaining financing necessary to consummate the potential
transaction. The total cost incurred by the Company was approximately
$800,000, approximately $670,000 of which was recorded as an expense to the
Company during the first quarter of 2001 (the remainder was reflected in the
2000 financial statements).

Growth Information

The Company 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. The
Company believes that as a result of its cost effective growth, principally
through the development model, and relatively debt free balance sheet, it is in
the financial position to maintain a reduced level of external growth in 2002,
and to achieve long term growth in a more cost effective and productive manner.

The Company opened 17 internally developed Dental Centers in 1999 in
Florida, Georgia and Tennessee. The Company did not open any internally
developed Dental Centers in 2000. During 2001, the Company opened two (2)
internally developed Dental Centers, one each in the Atlanta, GA and the
Nashville, TN markets. The average cost, to the Company, of an internally
developed Dental Center has been approximately $225,000, which includes the
cost of equipment, leasehold improvements and working capital. The Company
anticipates opening a minimal number of new Dental Centers during 2002.

During 1999, the Company 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. The Company and Coast P.A.
did not acquire any Dental Centers during 2000 and 2001.

During 1999, the Company consolidated one previously acquired Dental
Center into an existing Dental Center. During 2000, the Company consolidated
twelve (12) Dental Centers into six (6) Dental Centers to take advantage of
changing market demographics. In the fourth quarter of 2001,
the Company closed eight (8) previously acquired Dental Centers. A non-cash
charge of approximately $2.75 million was recognized in the fourth quarter of
2001 for these Dental Center closings to provide for the related asset
impairment and remaining lease and facilities commitments. In each of these
situations, the surrounding market demographics had evolved to the extent that
it had become increasingly difficult to effectively attract the desired caliber of dental professionals
and patients.

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

The following table
outlines the historical payor mix for the Coast P.A.s
gross revenue for the periods presented, which is not necessarily indicative of
the Companys expected payor mix performance. The Company earns its net
revenues by providing service and support to the Coast P.A. This fee has
historically been a percentage of the Coast P.A.s gross revenue.

|                                               |       |      |                          |      |   |      |    |     |   |  |    |     |  
|---------------------------------------------- | ----- | ---- | ------------------------ | ---- | - | ---- | -- | --- | - |  | -- | --- | -
|                                               |       |      | Years Ended December 31,
|                                               |       |      |                         
|Payor Mix                                      |       | 1999 |                          | 2000 |   | 2001
|                                               |       |      |                          |      |   |     
|Self-pay (Fee-for-service)                     |       |      | 33                       | %    |   |      | 25 | %   |   |  | 32 | %  
|Managed Care (HMOs)                           |       |      | 55                       |      |   |      | 57 |     |   |  | 41 |    
|Private insurers (Indemnity and PPO insurance) |       |      | 11                       |      |   |      | 18 |     |   |  | 27 |    
|Medicaid                                       |       |      | 1                        |      |   |      |   |     |   |  |   |    
|                                               |       |      |                          |      |   |      |    |     |   |  |    |    
|                                               | Total |      |                          | 100  | % |      |    | 100 | % |  |    | 100 | %
|                                               |       |      |                          |      |   |      |    |     |   |  |    |    

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B. Results of Operations

The following table sets forth, as a percentage of the Companys net
revenue (consisting of management fees derived pursuant to the Services and
Support Agreements), certain items in the Companys statements of income (loss)
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,
|                                                  |                                   |                              |       |                         
|                                                  |                                   |                              |       | 1999                     |      | 2000 |       | 2001
|                                                  |                                   |                              |       |                          |      |      |       |     
|Net revenue                                       |                                   |                              | 100.0 | %                        |      |      | 100.0 | %    |      |   | 100.0 | %   
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|Dental Center expenses:                           |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|                                                  | Staff salaries and employee costs |                              |       | 37.6                     |      |      |       | 42.0 |      |   |       | 40.8 |      
|                                                  | Dental supplies and lab fees      |                              |       | 15.6                     |      |      |       | 18.4 |      |   |       | 18.6 |      
|                                                  | Advertising                       |                              |       | 6.6                      |      |      |       | 4.0  |      |   |       | 4.9  |      
|                                                  | Rent and occupancy                |                              |       | 15.2                     |      |      |       | 15.8 |      |   |       | 16.5 |      
|                                                  | Depreciation                      |                              |       | 5.5                      |      |      |       | 6.8  |      |   |       | 7.6  |      
|                                                  | Other expenses                    |                              |       | 2.9                      |      |      |       | 3.4  |      |   |       | 3.9  |      
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|                                                  |                                   | Total Dental Center expenses |       |                          | 83.5 |      |       |      | 90.4 |   |       |      | 92.3  |  
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|                                                  |                                   | Gross profit                 |       |                          | 16.5 |      |       |      | 9.6  |   |       |      | 7.7   |  
|General and administrative expenses               |                                   |                              | 12.6  |                          |      |      | 11.9  |      |      |   | 18.4  |     
|Depreciation and amortization expense             |                                   |                              | 2.9   |                          |      |      | 2.8   |      |      |   | 3.0   |     
|Dental Center closings and
impairment charge      |                                   |                              |      |                          |      |      |      |      |      |   | 8.5   |     
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|                                                  |                                   | Operating profit (loss)      |       |                          | 1.0  |      |       |      | (5.1 | ) |       |      | (22.2 | )
|Interest income, net                              |                                   |                              | 1.3   |                          |      |      | 0.7   |      |      |   | 0.3   |     
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|Income (loss) before income tax expense
(benefit) |                                   |                              | 2.3   |                          |      |      | (4.4  | )    |      |   | (21.9 | )   
|Income tax expense (benefit)                      |                                   |                              | 0.9   |                          |      |      | (1.8  | )    |      |   | (0.4  | )   
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     
|Net income (loss)                                 |                                   |                              | 1.4   | %                        |      |      | (2.6  | )%   |      |   | (21.5 | )%  
|                                                  |                                   |                              |       |                          |      |      |       |      |      |   |       |     

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 the year ended December 31, 2000, to $43.6 million for the year ended
December 31, 2001. The decline in net revenue is attributable to the Coast
P.A.s termination of relationships with certain managed care companies. These
terminations represented a loss of approximately $9.3 million in net revenue to
the Company 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 the Companys 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. The Company believes 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 the Company.

Staff salaries and employee costs.Staff salaries and employee costs
decreased $1.5 million or 7.8% from $19.3 million for the year ended December
31, 2000, to $17.8 million for the year ended December 31, 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, the Company began evaluating the
staffing levels at each Dental Center in relation to the anticipated reduction
in business volume. As 2001 progressed, this evaluation

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continued, both in light of the termination of additional managed care
contracts and the added patient volume from other payor groups. The Company
plans 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 the year ended December 31, 2000, to
$8.1 million for the year ended December 31, 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 the 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.

Advertising.Advertising expense increased $0.3 million or 16.2% from $1.8
million for the year ended December 31, 2000, to $2.1 million for the year
ended December 31, 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. The Company expects 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.

Rent and occupancy.Rent and 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 lease during 2001. The
Company expects 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.

Depreciation.Depreciation expense at the Dental Centers increased $0.2
million or 5.4% from $3.1 million for the year ended December 31, 2000, to $3.3
million for the year ended December 31, 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. The Company expects 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.

Other expenses.Other expenses increased $0.1 million or 8.5% from $1.6
million for the year ended December 31, 2000, to $1.7 million for the year
ended December 31, 2001. This increase is primarily attributable to the rising
cost of property and liability insurance coverage. Management anticipates that
Dental Center other expenses will continue to rise slightly in future years.

General and administrative expenses.General and administrative expenses
increased $2.6 million or 47.6% from $5.4 million for the year ended December
31, 2000, to $8.0 million for the year ended December 31, 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 the Companys portion
of the Equity Model and other legal matters and pending litigation. Salaries increased as the Company
has 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 the Company
assisted the Coast P.A. with dentist and hygienist recruiting efforts in the
form of mailers, brochures and advertisements. The Company anticipates that
these costs will decline in dollars and percentage of net

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revenue in 2002 as certain cost containment initiatives are fully implemented,
as net revenues increase and the need for dentists at the 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 the year ended December 31, 2000 and the year ended December 31, 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.The Company continuously
evaluates the performance of its 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, the Company 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. The Company believes that closing
these eight Dental Centers will improve the overall performance of the Company
in 2002 and beyond while allowing management to focus its efforts on improving
the performance at the Dental Centers that remain open.

The Company 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 the year ended December 31, 2000, to $0.1 million for the year
ended December 31, 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 the year ended December 31, 2000, the Company recognized
an income tax benefit of approximately $0.8 million compared to an income tax
benefit of approximately $0.2 million for the year ended December 31, 2001.
This change was attributable the Companys 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.

On March 9, 2002, the Job Creation and
Worker Assistance Act of 2002 (Act) was signed into law.
This Act contains a provision that will enable the Company to carryback a
substantial portion of
its net operating losses and obtain additional refunds of federal income
taxes previously paid of approximately $1.0 million. The effect
of the change in tax law will be reflected as a reduction in the
valuation allowance and recognition of a tax benefit in 2002 when the
law was enacted.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net revenue.Net revenue increased 2.8% from $44.6 million for the year
ended December 31, 1999, to $45.8 million for the year ended December 31, 2000.
Gross revenue increased 12.0% to approximately $68.4 million in 2000. The
increase in revenue is attributable to managements focus on the improvement in
productivity and the number of patient visits. Patient visits increased by
12.0% from 602,736 in 1999 to 674,920 in 2000. The difference in the
percentages of increase for Net Revenue and Gross Revenue is due to the change
in the management fee effective January 1, 2000. The Company and the Coast P.A.
recognize that there is a downward pressure on the average patient transaction.
This downward pressure has been created over time by an increased concentration
of managed care patients and the drive by the

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Coast P.A. to provide service to a greater number of patients. To counteract
this pressure, the Coast P.A. has begun to hold and continues to hold,
discussions with managed care companies. The purpose of these discussions is to
increase the revenue derived from managed care patients and to find the proper
balance between these and other types of patients.

Staff salaries and employee costs.Staff salaries and employee costs
increased 14.9% from $16.8 million for the year ended December 31, 1999, to
$19.3 million for the year ended December 31, 2000. This increase in staff
salaries was caused, in part, by annual increases and in part by an increase in
Dental Center regional management and Dental Center staffing. During 1999, the
Company introduced a new level of management. The Regional Vice President of
Operations position was created midway through the year. As of December 31,
1999, three such positions had been filled. One for half the year and the
remaining two for the fourth quarter. As of December 31, 1999, one such
position was vacant. Early in 2000, the fourth position was filled and all four
positions remained filled throughout 2000. While no new Dental Centers were
added during 2000, the Company continued to staff existing Dental Centers in
anticipation of increased patient visits. This additional staffing also
contributed to the increased level of Dental Center salaries. However, in the
last quarter of 2000 and early 2001, the Company reduced Dental Center
staffing, which is expected to have a positive effect on the overall costs
related to staffing in 2001.

Dental supplies and lab fees.Dental supplies and lab fees increased
21.1%, from $7.0 million for the year ended December 31, 1999, to $8.4 million
for the year ended December 31, 2000. This increase was caused by the increase
in patient visits and dental services provided at the 124 Dental Centers. This
increase is due, in part, to the introduction of new affiliated Dentists to the
Coast Operating Model, as well as the addition of several new products to the
formulary. The Company continuously strives to research and analyze new
products as a means of providing the highest quality products and services to
patients. Often times, these products carry a higher cost initially, however
they generally tend to be more efficient and effective for the affiliated
dentists and patients, respectively.

Advertising.Advertising expense decreased 38.2% from $3.0 million for the
year ended December 31, 1999, to $1.8 million for the year ended December 31,
2000. This decrease is due to the decision, effective January 1, 2000, to
curtail the use of television advertising as a means of attracting customers.
The Company entered into the television advertising arena on a test basis
during the third quarter of 1998 and on a company-wide basis during the fourth
quarter of 1998. The television campaign remained in effect during all of 1999.

Rent and occupancy.Rent and occupancy expense increased 6.9% from $6.8
million for the year ended December 31, 1999, to $7.2 million for the year
ended December 31, 2000. This increase was caused primarily by the full year
impact of the 11 acquired and 17 internally developed Dental Centers added in
1999. Minor amounts of increased rent have been incurred for relocated Dental
Centers and Dental Centers where lease options have been accepted and
additional space added to allow for expansion. The latter situation has only
been executed for Dental Centers where the location is suitable to the
business, growth is strongly anticipated, but the existing capacity is not
adequate. Generally, these expansion situations relate to other, smaller Dental
Centers.

Depreciation.Depreciation expense at the Dental Centers increased 27.2%
from $2.5 million for the year ended December 31, 1999, to $3.1 million for the
year ended December 31, 2000. The increase was primarily associated with the
full year depreciation impact from the 11 acquired and 17 internally developed
Dental Centers added during 1999. In addition, a portion of the increase
relates to additional equipment added to Dental Centers during 2000 to allow
them to meet patient volume demands and additional equipment and leasehold
improvements associated with relocation, expansions, and remodels during 2000.
Generally, Dental Center consolidations require little or no additional capital
expenditures when the remaining location is suitable to properly handle the
increased patient volume.

Other expenses.Other expenses increased 22.3% from $1.3 million for the
year ended December 31, 1999, to $1.6 million for the year ended December 31,
2000. This increase was caused primarily by increases in insurance costs,
credit card discounts and other costs associated with the growth of the
business.

General and administrative expenses.General and administrative expenses
decreased 3.3% from $5.6 million for the year ended December 31, 1999, to $5.4
million for the year ended December 31, 2000. This decrease was due to the
increased focus on corporate costs including administrative salaries,
professional fees, rent and insurance costs. In addition, certain staff
reductions were made during December 2000. The impact of these reductions is
not expected until 2001. During 1999, the Company recognized certain one-time
charges related to the resignation of certain officers which was

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included in general and administrative expenses. There was no such recognition
in 2000. This also contributed to the decline from the year ended December 31,
1999.

Depreciation and amortization.Depreciation and amortization expenses
decreased 0.9% from December 31, 1999. The cost approximated $1.3 million for
both the year ended December 31, 1999, and December 31, 2000.

Interest income, net.Interest income, net, decreased 48.2% from $0.6
million for the year ended December 31, 1999, to $0.3 million for the year
ended December 31, 2000. This decrease was caused primarily by a decrease of
the Companys invested cash balances. This decline was partially offset by a
reduction of interest paid due to the repayment of notes payable issued as part
of the consideration for certain acquisitions.

Income taxes.Income taxes decreased 307.5% from the year ended December
31, 1999. For the year ended December 31, 1999, the Company incurred income tax
expense of approximately $0.4 million compared to an income tax benefit of
approximately $0.8 million for the year ended December 31, 2000. This decrease
was primarily attributable to the reduced level of earnings by the Company
during 2000 as compared to 1999. The effective tax rate increased from 37.4%
for the year ended December 31, 1999, to 39.1% for the year ended December 31,
2000.

C. Liquidity and Capital Resources

At December 31, 2001, the Company had cash and cash equivalents of $2.5
million. The Company had no available-for-sale investments at December 31,
2001. At December 31, 2000, the Company had cash, cash equivalents and
available-for-sale investments totaling $7.9 million for a year-to-year
reduction of $5.4 million. These funds were used to fund operations and
capital expenditures and pay down the credit facility and other indebtedness.

The Company and Bank of America, N.A. amended the existing revolving
credit facility during the year, reducing the aggregate credit line available
for working capital needs and Dental Center expansion from $20.0 million to
$5.0 million, in order to reduce the fees associated with the unused portion of
the facility. The Company paid down all amounts previously drawn
under the credit facility in August 2001 utilizing $2.5 million
of its cash and cash equivalents. The credit facility is a revolver, maturing November 4, 2002,
with interest at LIBOR plus a margin percentage ranging from 1.25% to 1.75%.
The margin percentage, as well as certain performance covenants, is based upon
funded debt to EBITDA ratios. As of December 31, 2001, the Company has no
outstanding balance on this facility. Under the terms of the 2001 amendment, no
funds will be available to the Company under this facility until such time as
the Company meets certain EBITDA performance levels and maintains acceptable
funded debt to EBITDA ratios. As of December 31, 2001, the Company has not met
the financial performance levels required to be able to draw under the
credit facility. With the credit facility expiring in 2002,
the Company intends to seek further amendment of the existing credit facility
on more favorable terms or obtain a replacement revolving credit facility with
its current lender or an alternative commercial lender. There can be no
assurance that the existing credit facility can be renewed or that a
replacement credit facility can be obtained.

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. On February 21,
2002, the Company made its first draw under the facility in the amount of
$218,000 to lease certain information technology assets. This commitment will
provide another means to finance capital expenditures and thereby enhance the
Companys liquidity.

On March 28, 2002 the
Company entered into a commitment with a financial institution
to provide a $2.5 million line of credit secured by a first lien on
pledged deposits and split-dollar life
insurance policy arrangements between the Company and Terek and Adam
Diasti, who are officers and directors of the Company.

During 2001, the Company incurred approximately $0.9 million in capital
expenditures, primarily related to the renovation, relocation and consolidation
of existing Dental Centers. The Company expects that capital expenditures
during 2002 will approximate $1.0 million.

As discussed in Managements Discussion and Analysis  Recent
Developments, the Company implemented a patient financing program through a
national financial institution in January 2002. This program will accelerate
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 finance charges.
Implementation of this program is expected to reduce the growth of the Coast
P.A.s accounts receivable and accelerate payment of the
management fee receivable and therefore accelerate cash flows of the
Coast P.A. and the Company, thereby
enhancing the Companys liquidity.

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As discussed in
MD&A  Results of Operations, due to a tax law enacted
in March 2002, the Company will carryback federal tax net operating
losses to tax years 1997 and 1998 and generate an incremental tax refund of
approximately $1.0 million that it expects to collect in the
second quarter of 2002.

Based upon the Companys anticipated capital needs for operations of its
business, general corporate purposes, the addition of Dental Centers and debt
service, management believes that the combination of the funds expected to be
available under the Companys current cash reserves, the
$2.5 million line of credit, the anticipated federal tax refund 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 2002. However, no assurance can be given that the Company's
operations will generate sufficient cash, that the Company will
receive the funds it anticipates from other sources, or that the
Company will not incur additional costs and expenses related to
litigation or other operational items. The Company could
seek to finance growth and future operations through other credit sources to the extent
they become available, and where desirable or necessary, through funding from
the sale of debt or equity securities to the extent such funding is available.
There can be no assurance that the existing credit facility can be renewed or
that the replacement credit facility will close in the manner
contemplated by the commitment.

In the event the
Company is unable to generate its expected cash flows, fails to
receive or access expected funds, or incurs additional costs and
expenses related to litigation or other operational items, the Company could face liquidity and working capital
constraints, which could adversely impact future operations and growth. These constraints
could be increased in the event the Company is
unable to utilize its credit facility, particularly given the unlikelihood of achieving, in the foreseeable
future, any or acceptable additional public financing and perhaps private
financing, under current market and industry sector conditions.

Acquisitions

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. The
Company plans to finance the addition of internally developed and strategically
opportunistic acquired Dental Centers for the foreseeable future principally
through existing cash and expected cash flow from operations and, to a lesser
extent, from debt.

During 1999, the Company and the Coast P.A. added 11 acquired Dental
Centers in Virginia. The purchase price for these acquired Dental Centers was
$2.1 million, consisting of $1.2 million in cash and $.9 million in promissory
notes and certain assumed liabilities. Had these acquisitions occurred at the
beginning of 1997, the additional net revenue earned by the Company would have
been $0.8 million, $1.0 million and $0.4 million for 1997, 1998 and 1999,
respectively. Additionally during 1999, the Company consolidated one previously
acquired Dental Centers into an existing Dental Center.

The Company added 17 internally developed Dental Centers in 1999 in
Florida, Georgia and Tennessee, at an average cost of approximately $225,000,
which includes the cost of equipment, leasehold improvements and working
capital.

On March 6, 1998, the Company announced that it had reached an agreement
with Mid Coast Dental Services, Inc., a Virginia corporation (MCDS) to
provide financing for the development of Dental Centers in Virginia. The
Company utilized a small portion of its cash reserves to build, equip and lease
fully equipped Dental Centers to MCDS. The Companys loans to MCDS were on a
senior secured basis with interest and rentals providing income to the Company.
In exchange for providing financing for the building and acquisition of Dental
Centers, the Company received an option to acquire MCDS beginning on December
31, 1999. The purchase price under the option agreement was to be based on an
agreed upon formula which approximated the fair value of MCDS. Effective April
1, 1999, the Company exercised this

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option and acquired nine Dental Centers from MCDS. The total purchase price was
$1.4 million, consisting of $.8 million in cash and $.6 million in promissory
notes and certain assumed liabilities. See Note 10-Related Party Transactions in
the Notes to Financial Statements for further information.

Share Repurchases

On February 10, 1999, the Company announced that its 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, the Company announced that its 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 the
Companys 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). The Company has 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 the Company has acquired all of the shares authorized for
repurchase, unless sooner terminated by the Board of Directors. No shares will
be repurchased from the Companys officers or directors. As of December 31,
2001, the Company has repurchased 1,331,800 (433,933 post-split) shares for
approximately $6.9 million. The Company has canceled these shares. Due to the
lower level of cash, cash equivalents and available-for-sale investments at
December 31, 2001, no share repurchase transactions are expected in 2002;
however, any repurchases of stock would reduce cash and cash equivalent levels.

The Companys capital resources could also be significantly reduced by any
material adverse results of the legal proceedings described in Note 11 to the
financial statements.

Recent Pronouncements

Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133) was effective
for all fiscal years beginning after June 15, 2000. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Under SFAS No. 133, certain contracts that were not
formerly considered derivatives may now meet the definition of a derivative.
The Company adopted SFAS No. 133 effective January 1, 2001. The adoption of
SFAS No. 133 has not had a significant impact on the financial position,
results of operations, or cash flows of the Company.

On June 29, 2001, Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business
Combinations was issued. SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. The Company
adopted SFAS No. 141 on July 1, 2001. The adoption of SFAS 141 did not have a
material impact on the Companys financial position, results of operations or
cash flows.

On July 29, 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.
The Company
is required to implement SFAS No. 142 on January 1, 2002.
The Company does not have any unidentifiable intangible assets
or goodwill, accordingly the adoption of this
standard will
not have any impact on the Company's financial position, results
of operations or
cash flows. 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.

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

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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 standard is effective for financial statements issued
for fiscal years beginning after December 15, 2001 with earlier application
encouraged. The provisions of this standard generally are to be applied
prospectively. The Company will adopt SFAS No. 144 effective
January 1, 2002 and is
evaluating the impact of this adoption on its financial statements.




Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Critical Accounting Policies and Significant Estimates

The Companys business, significant accounting policies and contracts from
which net revenues are derived are described in Notes 1, 2 and 4 of the Notes
to Financial Statements. As disclosed in Note 2 of the Notes to Financial
Statements, the preparation of financial statements in accordance with
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 the
Companys financial statements include estimates associated with the following
matters:



| |  |  | The Companys Services and Support Agreements with the Coast P.A. do
not constitute a controlling financial interest in Coast P.A. and,
accordingly the Company does 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company evaluates the
recoverability of long-lived tangible and intangible assets of the
Dental Centers based on its assessment of future cash flows
and, where an impairment has occurred, the impairment loss is measured
using estimated discounted cash flows. The Companys judgment as to
future cash flows and the discount rate used are significant estimates
in making these recoverability evaluations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | The Company evaluates the recoverability of the management fee
receivable from the Coast P.A. and has determined that this
management fee receivable is fully collectible. If the financial
condition of the 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | The Company records a valuation allowance to reduce its net deferred
tax assets to the amount that is more likely than not to be realized
under enacted tax law. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the Company
were to determine that it would be able to realize more of its deferred
tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax asset would increase reported income in
the period such determination was made. Likewise, should the Company
determine that it would not be able to realize all or part of its 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.
|
| |  |  | The Company has estimated the costs associated with the closure of
eight (8) Dental Centers during the fourth quarter of 2001. 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 2002. Conversely, if actual costs are significantly
less than expected, earnings could be improved in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|

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. The Company continuously re-evaluates 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.

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

The Company has a relatively low level of long-term debt, and expects to
finance future capital needs through available capital, anticipated future
earnings, if obtained, and bank lines of credit, if accessible.
The Companys exposure to
market risk for changes in interest rates is primarily in its cash equivalents
and/or investment portfolio. The Company, pursuant to investing guidelines,
mitigates exposure by limiting maturity, placing cash equivalents and/or
investments with high credit quality issuers and limiting the amount of credit
exposure to any one issuer. During the year ended December 31, 2001, the
Company earned investment income of approximately $226,000. If interest rates
had been 1% lower than they were during the year, investment income would have
been approximately $45,000 lower. The market risks associated with the
investment portfolio exposure have not changed materially during the year.

SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-K annual report, press releases and certain information
provided periodically in writing or orally by the Companys 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,
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 the Companys
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)  |  | the Companys future management fee; and                                                                                                           
|
| | (vii) |  | the potential effect of the continued implementation of the Equity Model.                                                                          

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)  |  | continued reductions in the Companys liquidity and working
capital;                                                                                                     
|
| | (iii) |  | any adverse effect or limitations caused by any governmental regulations or actions;                                                                                     
|
| | (iv)  |  | any continued or increased losses, or any future 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;                                                                                                               

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| | (vi)    |  | any negative results recognized with a change from the
Companys previous principal supplier of dental products and
supplies;                                                                               
| | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (vii)   |  | effect of further reduced cash position and future inability
to access borrowings in current credit facility;                                                                                               
|
| | (viii)  |  | any adverse impacts on our net revenue or operating margins due to
the costs associated with increased growth at existing Dental Centers
or any future increased managed care business having lower margins;
|
| | (ix)    |  | the future continued relationship with and success of our
professional association customers;                                                                                                               
|
| | (x)     |  | any further reduction of available borrowings under our credit
facility and current lack of accessibility to our credit facility;                                                                           
|
| | (xi)    |  | any inability to achieve additional net revenue or earnings
from the internally developed Dental Centers or new or combined
internally developed Dental Centers;                                            
|
| | (xii)   |  | any material decrease in the services and support fees agreed
to in the future between the Company and the Coast P.A.;                                                                                      
|
| | (xiii)  |  | unanticipated costs and expenses resulting from our focus on internal efficiencies which impact margins;                                                                                                    
|
| | (xiv)   |  | any slow down in the number of patients or the services
performed by Dentists which impacts revenue;                                                                                                        
|
| | (xv)    |  | any material decrease in the number of Dentists or hygienists
available to service patients, would adversely affect productivity
and impact overall net revenue;                                            
|
| | (xvi)   |  | resulting costs and any negatives, including any reduced net
revenues, incurred with implementing the Equity Model;                                                                                         
|
| | (xvii)  |  | any inability of the Coast P.A. to incentivize, motivate, retain and attract new dentists;                                                                                                                  
|
| | (xviii) |  | any future inability to substantially achieve the objectives
expected from the successful implementation of the Equity Model;                                                                               
|
| | (xix)   |  | the impact of the Coast P.A.s revised compensation plan on
the performance of the Coast P.A.;                                                                                                              
|
| | (xx)    |  | the combined decline of public market interest in the Companys
business sector and the Companys stock;                                                                                                    
|
| | (xxi)   |  | any future loss of the Companys listing under NASDAQ Small Cap Market;                                                                                                                                     
|
| | (xxii)  |  | general economic and market conditions and combined general downturn in the economy;                                                                                                                        
| | (xxiii) |  | impact of loss of managed care business and inability to replace with higher margin business;                                                                                                               
|
| | (xxiv)  |  | inability to generate positive cash flows and continuance of, or increased, negative cash flows;                                                                                                            

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| | (xxv)    |  | the potential impact of negative market influences on the
Companys portfolio of cash and cash equivalents;                                                                                                                                                                               
| | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (xxvi)   |  | inability to improve dentist retention or adverse affects of dentist turnover at the Coast P.A.;                                                                                                                                                                                          
|
| | (xxvii)  |  | any material decline in the number of patient visits at the Coast P.A.;                                                                                                                                                                                                                   
|
| | (xxviii) |  | any future inability of the Coast P.A.s to attract dentists;                                                                                                                                                                                                                             
|
| | (xxix)   |  | inability to successfully replace capitated managed care business with other forms of business;                                                                                                                                                                                           
|
| | (xxx)    |  | inability to implement a successful expanded patient financing program;                                                                                                                                                                                                                   
|
| | (xxxi)   |  | costs at the Dental Centers associated with the addition of 30 dentists in six months ended December 31, 2001, including the
inability of such dentists to generate sufficient revenue;                                                                                                   
|
| | (xxxii)  |  | any inability of dentists (under the Equity Model) to pay their obligations under the secured notes receivable as they come due;                                                                                                                                                          
|
| | (xxxiii) |  | any inability to successfully defend against claims and litigation matters;                                                                                                                                                                                                               
|
| | (xxxiv)  |  | any inability to successfully
improve revenue through the implementation of the patient financing
program;                                                                                                                                                                                
|
| | (xxxv)   |  | any inability to generate sufficient revenue to meet the cost
requirements associated with the patient financing program,  any
guarantee obligations, the
marketing expense associated with this program or other marketing
efforts or any other costs or expenses related to the program;
|
| | (xxxvi)  |  | any inability to access the
$2.5 line of credit;                                                                                                                                                                                                                                          
|
| | (xxxvii) |  | any failure to receive the
expected federal tax refund, and                                                                                                                                                                                                                               
|

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                                                                                     |  |      | 26 | 
|Balance Sheets as of December 31, 2001 and 2000                                                                  |  |      | 27 | 
|Statements of Income (Loss) and Comprehensive Income (Loss) for the Years
Ended December 31, 2001, 2000 and 1999 |  |      | 28 | 
|Statements
of Stockholders Equity for the Years Ended December 31, 2001,
2000 and 1999                          |  |      | 29 | 
|Statements
of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999                                    |  |      | 30 | 
|Notes to Financial Statements                                                                                    |  |      | 31 | 

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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, 2000 and 2001, and the related statements of
income (loss) and comprehensive income (loss), stockholders equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements 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, 2000 and 2001, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP
Certified Public Accountants

Tampa, Florida
March 
28,  2002

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##### Table of Contents



COAST DENTAL SERVICES, INC.
BALANCE SHEETS

|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |            |            |            |           | 
|------------------------------------------------------------------------------------------ | ------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------------ | ---------- | ------------ | ---------- | ---------- | ---------- | ---------- | --------- | 
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            | December 31,
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |             
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            | 2000         |            | 2001      
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|ASSETS                                                                                    
|Current assets:                                                                            |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           | Cash and cash equivalents                              |                                                                                                                                                                | $                    | 2,453,614                                        |            |              | $          | 2,545,770  |           
|                                                                                           | Available-for-sale investments                         |                                                                                                                                                                |                      | 5,353,381                                        |            |              |            |           |           
|                                                                                           | Management fee receivable from Coast P.A               |                                                                                                                                                                |                      | 10,451,761                                       |            |              |            | 12,996,820 |           
|                                                                                           | Notes receivable from Equity Doctors  current portion |                                                                                                                                                                |                      |                                                 |            |              |            | 20,504     |           
|                                                                                           | Supplies, inventory and small tools                    |                                                                                                                                                                |                      | 3,793,409                                        |            |              |            | 3,357,659  |           
|                                                                                           | Prepaid expenses and other assets                      |                                                                                                                                                                |                      | 705,957                                          |            |              |            | 507,542    |           
|                                                                                           | Deferred tax asset                                     |                                                                                                                                                                |                      | 184,655                                          |            |              |            |           |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        |                                                                                                                                                                | Total current assets |                                                  |            | 22,942,777   |            |            |            | 19,428,295 |          
|Property and equipment, net                                                                |                                                        |                                                                                                                                                                | 21,082,037           |                                                  |            |              | 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                               |                                                        |                                                                                                                                                                |                     |                                                  |            |              | 798,900    |           
|Non-compete
agreements, net of amortization $579,030 and$702,502, respectively             |                                                        |                                                                                                                                                                | 532,220              |                                                  |            |              | 392,081    |           
|Dental services agreements, net of amortization of $2,211,156
and $2,986,533, respectively |                                                        |                                                                                                                                                                | 17,143,459           |                                                  |            |              | 13,414,809 |           
|Other assets                                                                               |                                                        |                                                                                                                                                                | 2,274,481            |                                                  |            |              | 2,262,309  |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        |                                                                                                                                                                | Total assets         |                                                  | $          | 64,204,192   |            |            | $          | 54,135,606 |          
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                      
|Current liabilities:                                                                       |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        | Accounts payable                                                                                                                                               |                      | $                                                | 3,014,053  |              |            | $          | 2,436,672  |           
|                                                                                           |                                                        | Accrued salaries and employee costs                                                                                                                            |                      |                                                  | 1,130,338  |              |            |            | 1,329,485  |           
|                                                                                           |                                                        | Other accrued expenses                                                                                                                                         |                      |                                                  | 388,815    |              |            |            | 1,846,091  |           
|                                                                                           |                                                        | Current maturities of debt and capital lease obligations                                                                                                       |                      |                                                  | 1,863,495  |              |            |            | 257,520    |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        |                                                                                                                                                                |                      | Total current liabilities                        |            |              | 6,396,701  |            |            |            | 5,869,768 | 
|Long-term debt and capital lease obligations, excluding current maturities                 |                                                        |                                                                                                                                                                | 350,065              |                                                  |            |              | 92,750     |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        |                                                                                                                                                                |                      | Total liabilities                                |            |              | 6,746,766  |            |            |            | 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,
6,289,958 and 2,091,223 shares issued and 6,286,384 and 2,091,223 shares outstanding, respectively |                      |                                                  | 6,291      |              |            |            | 2,091      |           
|                                                                                           |                                                        | Additional paid-in capital                                                                                                                                     |                      |                                                  | 54,991,320 |              |            |            | 55,064,603 |           
|                                                                                           |                                                        | Retained earnings (deficit)                                                                                                                                    |                      |                                                  | 4,926,261  |              |            |            | (4,440,400 | )         
|                                                                                           |                                                        | Unrealized
loss on available-for-sale investments, net of income tax effect of
$50,456                                                                         |                      |                                                  | (82,323    | )            |            |            |           |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        |                                                                                                                                                                | 59,841,549           |                                                  |            |              | 50,626,294 |           
|                                                                                           |                                                        | Less: Stock option receivable from Coast P.A, non-interest bearing                                                                                             |                      |                                                  | (2,295,374 | )            |            |            | (2,453,206 | )         
|                                                                                           |                                                        |                                                                                                                                                                |                      | Treasury stock, 1,191 and 0 shares, respectively |            |              | (88,749    | )          |            |            |          | 
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        | Total stockholders equity                                                                                                                                     |                      |                                                  | 57,457,426 |              |            |            | 48,173,088 |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           
|                                                                                           |                                                        | Total liabilities and stockholders equity                                                                                                                     |                      | $                                                | 64,204,192 |              |            | $          | 54,135,606 |           
|                                                                                           |                                                        |                                                                                                                                                                |                      |                                                  |            |              |            |           

The accompanying notes are an integral part of these financial statements

27



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

|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |            |            |  
|-------------------------------------------------------- | --------------------------------- | ---------------------------- | ---------- | ------------------------ | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | ---------- | -
|                                                         |                                   |                              |            | Years Ended December 31,
|                                                         |                                   |                              |            |                         
|                                                         |                                   |                              |            | 1999                     |            | 2000 |            | 2001      
|                                                         |                                   |                              |            |                          |            |      |            |           
|Net revenue                                              |                                   | $                            | 44,597,715 |                          |            | $    | 45,825,978 |            |            | $ | 43,561,255 |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Dental Center expenses:                                  |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         | Staff salaries and employee costs |                              |            | 16,762,218               |            |      |            | 19,251,805 |            |   |            | 17,758,979 |           
|                                                         | Dental supplies and lab fees      |                              |            | 6,975,182                |            |      |            | 8,449,766  |            |   |            | 8,089,068  |           
|                                                         | Advertising                       |                              |            | 2,955,959                |            |      |            | 1,826,490  |            |   |            | 2,121,408  |           
|                                                         | Rent and occupancy                |                              |            | 6,775,521                |            |      |            | 7,244,695  |            |   |            | 7,201,360  |           
|                                                         | Depreciation                      |                              |            | 2,466,744                |            |      |            | 3,137,217  |            |   |            | 3,305,852  |           
|                                                         | Other expenses                    |                              |            | 1,288,417                |            |      |            | 1,576,126  |            |   |            | 1,710,136  |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         |                                   | Total Dental Center expenses |            |                          | 37,224,041 |      |            |            | 41,486,099 |   |            |            | 40,186,803 |  
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         | Gross profit                      |                              |            | 7,373,674                |            |      |            | 4,339,879  |            |   |            | 3,374,452  |           
|General and administrative expenses                      |                                   |                              | 5,622,786  |                          |            |      | 5,435,995  |            |            |   | 8,024,709  |           
|Depreciation and amortization                            |                                   |                              | 1,300,690  |                          |            |      | 1,289,645  |            |            |   | 1,305,299  |           
|Dental Center closings and impairment charge             |                                   |                              |           |                          |            |      |           |            |            |   | 3,703,330  |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         |                                   | Operating profit (loss)      |            |                          | 450,198    |      |            |            | (2,385,761 | ) |            |            | (9,658,886 | )
|Interest income, net                                     |                                   |                              | 597,605    |                          |            |      | 309,504    |            |            |   | 137,871    |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Income (loss) before income tax expense (benefit)        |                                   |                              | 1,047,803  |                          |            |      | (2,076,257 | )          |            |   | (9,521,015 | )         
|Income tax expense (benefit)                             |                                   |                              | 391,478    |                          |            |      | (812,317   | )          |            |   | (154,354   | )         
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Net income (loss)                                        |                                   |                              | 656,325    |                          |            |      | (1,263,940 | )          |            |   | (9,366,661 | )         
|Unrealized (loss)/gain on available-for-sale investments |                                   |                              | (106,393   | )                        |            |      | 24,070     |            |            |   | 82,323     |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Comprehensive income (loss)                              |                                   | $                            | 549,932    |                          |            | $    | (1,239,870 | )          |            | $ | (9,284,338 | )         
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Basic earnings (loss) per share:                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Net income (loss)                                        |                                   | $                            | 0.29       |                          |            | $    | (0.60      | )          |            | $ | (4.48      | )         
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Diluted earnings (loss) per share:                       |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Net income (loss)                                        |                                   | $                            | 0.29       |                          |            | $    | (0.60      | )          |            | $ | (4.48      | )         
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|Weighted average number of shares outstanding:           |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         | Basic                             |                              |            | 2,302,054                |            |      |            | 2,097,611  |            |   |            | 2,091,223  |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           
|                                                         | Diluted                           |                              |            | 2,302,054                |            |      |            | 2,097,611  |            |   |            | 2,091,223  |           
|                                                         |                                   |                              |            |                          |            |      |            |            |            |   |            |           

The accompanying notes are an integral part of these financial statements

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COAST DENTAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

|                                                                                   |  |   |        |   |                  |   |            |   |          |   |                 |   |              |   |               |   |                 |   |            |   |  |   |            |   |  |   |            |   | 
|---------------------------------------------------------------------------------- |  | - | ------ | - | ---------------- | - | ---------- | - | -------- | - | --------------- | - | ------------ | - | ------------- | - | --------------- | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | - | 
|                                                                                   |  |   |        |   |                  |   |            |   |          |   |                 |   |              |   |               |   |                 |   | 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 December 31, 1998                                                       |  | $ | 7,622  |   |                  | $ | 59,997,034 |   |          | $ | 6,603,397       |   |              | $ | (88,749       | ) |                 | $ |           |   |  | $ | (1,429,928 | ) |  | $ | 65,089,376 |  
|Issuance of common stock upon
exercise of options                                  |  |   | 1      |   |                  |   | 6,127      |   |          |   |                |   |              |   |              |   |                 |   |           |   |  |   |           |   |  |   | 6,128      |  
|Sale of stock options to Coast P.A.                                                |  |   |       |   |                  |   | 10,905     |   |          |   |                |   |              |   |              |   |                 |   |           |   |  |   | (10,905    | ) |  |   |           |  
|Unrealized loss on securities held for sale                                        |  |   |       |   |                  |   |           |   |          |   |                |   |              |   |              |   |                 |   | (106,393   | ) |  |   |           |   |  |   | (106,393   | )
|Purchase and retirement of common stock                                            |  |   | (1,219 | ) |                  |   | (5,586,317 | ) |          |   | (1,064,292      | ) |              |   |              |   |                 |   |           |   |  |   |           |   |  |   | (6,651,828 | )
|Net income for the year ended
December 31, 1999                                    |  |   |       |   |                  |   |           |   |          |   | 656,325         |   |              |   |              |   |                 |   |           |   |  |   |           |   |  |   | 656,325    |  
|                                                                                   |  |   |        |   |                  |   |            |   |          |   |                 |   |              |   |               |   |                 |   |            |   |  |   |            |   |  |   |            |  
|Balance on December 31, 1999                                                       |  |   | 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, 2001                                                       |  | $ | 2,091  |   |                  | $ | 55,064,603 |   |          | $ | (4,440,400      | ) |              | $ |              |   |                 | $ |           |   |  | $ | (2,453,206 | ) |  | $ | 48,173,088 |  
|                                                                                   |  |   |        |   |                  |   |            |   |          |   |                 |   |              |   |               |   |                 |   |            |   |  |   |            |   |  |   |            |  

The accompanying notes are an
integral part of these financial statements

29



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COAST DENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS

|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |            |           |  | 
|--------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------- | ----------- | ----------- | ------------------------ | - | ---------- | ---------- | --------- | - | ---------- | ---------- | --------- |  | 
|                                                    |                                                                                                    |                                              |             |             | Years Ended December 31,
|                                                    |                                                                                                    |                                              |             |             |                         
|                                                    |                                                                                                    |                                              |             |             | 1999                     |   | 2000       |            | 2001     
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |          
|CASH FLOWS FROM OPERATING ACTIVITIES:               |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|                                                    | Net income (loss)                                                                                  |                                              | $           | 656,325     |                          |   | $          | (1,263,940 | )         |   | $          | (9,366,661 | )        
|                                                    | Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities: |                                              |             |             |                          |   |            |            |           |   |            |            |          
|                                                    |                                                                                                    | Depreciation and amortization                |             |             | 3,767,434                |   |            |            | 4,426,862 |   |            |            | 4,611,151 | 
|                                                    |                                                                                                    | Dental Center closings and impairment charge |             |             |                         |   |            |            |          |   |            |            | 3,703,330 | 
|                                                    |                                                                                                    | Other                                        |             |             | (148,750                 | ) |            |            | 196,895   |   |            |            | 159,407   | 
|                                                    |                                                                                                    | Deferred income tax expense (benefit)        |             |             | 740,963                  |   |            |            | (364,747  | ) |            |            | 184,655   | 
|                                                    | Changes in operating assets and liabilities:                                                       |                                              |             |             |                          |   |            |            |           |   |            |            |          
|                                                    | Increase in management fee receivable from Coast P.A.                                              |                                              |             | (4,629,025  | )                        |   |            | (587,701   | )         |   |            | (2,665,296 | )        
|                                                    | Decrease in note receivable from Coast P.A.                                                        |                                              |             |            |                          |   |            | 300,000    |           |   |            |           |          
|                                                    | (Increase) decrease in supplies, inventory and small tools                                         |                                              |             | (1,115,062  | )                        |   |            | (196,795   | )         |   |            | 7,446      |          
|                                                    | Decrease (increase) in prepaid expenses and other assets                                           |                                              |             | 557,863     |                          |   |            | (166,949   | )         |   |            | 198,415    |          
|                                                    | Increase in accounts payable and accrued expenses                                                  |                                              |             | 137,645     |                          |   |            | 902,926    |           |   |            | 658,739    |          
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|Net Cash (Used in) Provided by Operating Activities |                                                                                                    |                                              | (32,607     | )           |                          |   | 3,246,551  |            |           |   | (2,508,814 | )         
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:               |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|                                                    | Capital expenditures                                                                               |                                              |             | (6,976,021  | )                        |   |            | (4,128,110 | )         |   |            | (1,042,571 | )        
|                                                    | Proceeds from sale of property and equipment                                                       |                                              |             |            |                          |   |            |           |           |   |            | 21,054     |          
|                                                    | Repayments
of notes receivable from Equity Doctors                                                 |                                              |             |            |                          |   |            |           |           |   |            | 142,596    |          
|                                                    | Acquired assets, including intangible assets                                                       |                                              |             | (2,791,688  | )                        |   |            | (93,334    | )         |   |            | (22,373    | )        
|                                                    | Purchase of available-for-sale investments                                                         |                                              |             | (20,000,000 | )                        |   |            | (276,726   | )         |   |            |           |          
|                                                    | Sale of available-for-sale investments                                                             |                                              |             | 25,552,422  |                          |   |            | 3,049,850  |           |   |            | 5,353,381  |          
|                                                    | (Increase) decrease in other assets                                                                |                                              |             | (601,939    | )                        |   |            | (428,367   | )         |   |            | 12,173     |          
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|Net Cash (Used in) Provided by Investing Activities |                                                                                                    |                                              | (4,817,226  | )           |                          |   | (1,876,687 | )          |           |   | 4,464,260  |           
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:               |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|                                                    | Proceeds from exercise of stock options                                                            |                                              |             | 6,128       |                          |   |            |           |           |   |            |           |          
|                                                    | Purchase of treasury stock                                                                         |                                              |             | (6,651,828  | )                        |   |            | (296,312   | )         |   |            |           |          
|                                                    | Proceeds from long term debt                                                                       |                                              |             | 374,333     |                          |   |            | 1,000,000  |           |   |            | 1,675,522  |          
|                                                    | Payments on long term debt                                                                         |                                              |             | (1,359,484  | )                        |   |            | (596,807   | )         |   |            | (3,526,246 | )        
|                                                    | Payments on capital leases                                                                         |                                              |             | (81,496     | )                        |   |            | (42,749    | )         |   |            | (12,566    | )        
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|Net Cash (Used in) Provided by Financing Activities |                                                                                                    |                                              | (7,712,347  | )           |                          |   | 64,132     |            |           |   | (1,863,290 | )         
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|(Decrease) Increase in Cash and Cash Equivalents    |                                                                                                    |                                              | (12,562,180 | )           |                          |   | 1,433,996  |            |           |   | 92,156     |           
|                                                    | Cash and cash equivalents at beginning of period                                                   |                                              |             | 13,581,798  |                          |   |            | 1,019,618  |           |   |            | 2,453,614  |          
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|                                                    | Cash and cash equivalents at end of period                                                         |                                              | $           | 1,019,618   |                          |   | $          | 2,453,614  |           |   | $          | 2,545,770  |          
|                                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:     |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|                                                    | Cash paid for interest                                                                             |                                              | $           | 183,941     |                          |   | $          | 113,242    |           |   | $          | 178,577    |          
|                                                    | Cash paid (received) for income taxes                                                              |                                              | $           | 540,080     |                          |   | $          | (756,732   | )         |   | $          | (154,385   | )        
|                                                    | Non-cash stock option receivable from Coast P.A.                                                   |                                              | $           | 10,905      |                          |   | $          | 854,541    |           |   | $          | 157,832    |          
|ASSET DISPOSALS:                                    |                                                                                                    |                                              |             |             |                          |   |            |            |           |   |            |           
|Book
value of assets disposed                       |                                                                                                    | $                                            |            |             |                          | $ |           |            |           | $ | 510,210    |           
|Notes receivable                                    |                                                                                                    | $                                            |            |             |                          | $ |           |            |           | $ | (953,500   | )         
|Supplies, inventory and small tools                 |                                                                                                    | $                                            |            |             |                          | $ |           |            |           | $ | 323,053    |           
|Management fee receivable                           |                                                                                                    | $                                            |            |             |                          | $ |           |            |           | $ | 120,237    |           

The accompanying notes 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

Coast Dental Services, Inc. (the Company), a Delaware corporation,
provides dental practice management services to the Coast Florida, P.A. and
Coast Dental Services, P.A. (collectively, the Florida
P.A.), Coast Dental Services of
Georgia, P.C. (Coast Georgia P.A.), Coast Dental Services of Tennessee, P.C.
(Coast Tennessee P.A.) and Adam Diasti, D.D.S. & Associates, P.C. (Coast
Virginia P.A.) (collectively, the Coast P.A.). The Coast P.A. is a related
party  See Notes 4 and 10. The Company has entered into a services and support
agreement with each entity included in the Coast P.A. (the Services and
Support Agreements) whereby the Company provides certain management support
services to the Coast P.A. in return for a services and support fee. The Coast
P.A. employs dentists and dental hygienists and provides all of the dental
services to patients. At December 31, 2001, the Company operated
118 dental
centers in Florida, Georgia, Tennessee and Virginia.

Pursuant to the Services and Support Agreements, the Company earns a
service and support fee from the Coast P.A. based on the gross revenues of the
Coast P.A. and the Coast P.A. retains the remaining gross revenues for dentist
and hygienist compensation and benefits and its other operating expenses. For
the services and support fee, operating expenses incurred by the Dental Centers
(with the exception of dentist and dental hygienist compensation and benefits)
are expenses of the Company. The service and support fee earned from the Coast
P.A. is based on a percentage of Dental Center patient revenues (including
capitation revenue, net of refunds, adjustments and discounts). 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. The Company does not employ dentists and
hygienists and, accordingly, Dental Center  Staff salaries and employee
costs presented on the Statements of Income (Loss) do not include the salaries
and benefits of dentists and dental hygienists.

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, the Coast P.A. Accordingly, the
financial statements of the Coast P.A. are not consolidated with those of the
Company.

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.

Relationship with the Coast P.A. and the Coast Dentists.The Company
receives fees for services provided to the Coast P.A. under its Services and
Support Agreements, but does not employ dentists or dental hygienists or
control the practices of the Coast Dentists. The Companys net revenue is
dependent on gross revenue generated by the Coast Dentists and, therefore,
effective and continued performance of the Coast Dentists during the term of
the Services and Support Agreements is essential to the Companys long term
success. Under the Services and Support Agreements, the Company receives a
monthly fee from the Coast P.A., ranging from 66% to 72% effective January 1,
2000, of the Dental Centers gross revenue, net of refunds,
adjustments and discounts. The
Company pays all of the operating and non-operating expenses incurred at the
Dental Centers, except for the salaries and benefits of the Coast dentists and
dental hygienists.

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.The short-term investments owned by the
Company are comprised of available-for-sale tax- free municipal bonds with
effective yields ranging from 4.0% to 5.0%. Available-for-sale securities are
stated at fair value with unrealized gains and losses included in comprehensive
income (loss). The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income, net. Realized gains and
losses, if any, are recognized when incurred. The cost of securities sold is
based on the specific identification method.

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

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

Management Fee Receivable.The management fee receivable represents the
indebtedness of the 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, advances funds under the Services and Support
Agreements to the Coast P.A. for operations or the Coast P.A.s acquisitions of
existing dental practices. The Company has not charged interest on the
receivable due to its short-term nature. This receivable is
considered fully collectible and no bad debt allowance is provided.

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.
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 is calculated using the straight-line method over the estimated
useful lives of the assets ranging from 5 to 15 years. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line
basis over the estimated useful life of the assets.

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 right to manage the practice for the Coast P.A. The
dental services agreement with the Coast P.A. represents the Companys
exclusive right to operate the Dental Centers during the term of the agreement.
The assigned value of the dental services agreement is amortized using the
straight-line method over its estimated life of twenty-five years.

Software Development Costs.Software costs that are incurred in the
preliminary project stage are expensed as incurred. Costs to develop internal
use computer software during the application development stage are capitalized
under a fixed-asset model, as long as those costs meet certain predefined
characteristics. Training and maintenance costs incurred during the
post-implementation operating stage are expensed as incurred.

Development Costs.The Company charges development costs and start-up
activities to expense as incurred.

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 approximates its 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. In the fourth quarter of 2001, the Company recorded an impairment
charge as further described in Note 5.

Comprehensive Income (Loss).Components of comprehensive income (loss)
include net income (loss) and unrealized gains (losses) on available-for-sale
investments (net of tax effect of $50,456) at December 31, 2000.

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

Stock-Based Compensation.The Company has elected to continue to account
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), were adopted. The
Company has not adopted the expense
recognition provisions of SFAS No. 123 for employee and director stock options.
The Company has adopted the expense recognition provisions of SFAS No. 123 for the
Affiliated Professionals Stock Option Plan for the Coast P.A. The Company
recognizes a stock option receivable from the Coast P.A. when the Coast P.A.
purchases stock options at fair value and the Coast P.A. recognizes the
compensation expense  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.

Earnings Per Common Share.The basic earnings per common share is 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 is 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, 1999, 2000 and 2001, the weighted average
number of common shares are the same for both the basic and diluted per share
computation because inclusion 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, with the exception of the total number
of authorized common shares which was unchanged, in the financial statements
have been adjusted to reflect the consummation of this stock split in 2001

New Accounting Standards.Statement of Financial Accounting Standard No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133) was effective for all fiscal years beginning after June 15, 2000. SFAS
No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company adopted SFAS No. 133 effective January
1, 2001. The adoption of SFAS No. 133 has not had a significant impact on the
financial position, results of operations, or cash flows of the Company.

On June 29, 2001, Statement of Financial Accounting Standards No. 141 (SFAS No. 141), Business
Combinations became effective. SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. The Company
adopted SFAS No. 141 on July 1, 2001. The adoption of SFAS 141 did not have a
material impact on the Companys financial position, results of operations or
cash flows.

On July 29, 2001, Statement of Financial Accounting
Standards No. 142 (SFAS No. 142),
Goodwill and Other Intangible Assets became effective.
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. The Company
is required to implement SFAS No. 142 on January 1, 2002.
The Company does not have any unidentifiable intangible assets or
goodwill and accordingly, the adoption of this standard will
not have any impact on the Company's financial position, results of operations or
cash flows. 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.

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

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

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 standard
is effective
for financial statements issued for fiscal years beginning after December 15, 2001 with
earlier
application encouraged. The provisions of this standard generally are to be applied
prospectively. The Company will adopt SFAS No. 144 effective
January 1, 2002 and is
evaluating the impact of this adoption on its financial statements.

NOTE 3  LIQUIDITY AND CAPITAL
RESOURCES

At December 31, 2001,
the Company had cash and cash equivalents of $2.5 million. The
Company had no available-for-sale investments at December 31, 2001.
At December 31, 2000, the Company had cash, cash equivalents and
available-for-sale investments totaling $7.9 million for a
year-to-year reduction of $5.4 million. These funds were used to fund
operations and capital expenditures and pay down the credit facility
and other indebtedness.

To improve cash flows
from patients, the Company and the Coast P.A. have arranged for a patient financing program
through a national financial institution in January 2002. This
program will accelerate 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. Implementation of
this program is expected to reduce the growth of the Coast P.A.s
accounts receivable and accelerate cash flows of the Company and the
Coast P.A., thereby
enhancing the Companys liquidity.

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. On February
21, 2002, the Company made its first draw under the facility in the
amount of $218,000 to lease certain information technology assets.
This commitment will provide another means to finance capital
expenditures and thereby enhance the Companys liquidity.

In late March 2002,
the Company entered into a commitment with a financial
institution to provide a $2.5 million line of credit secured by a
first lien on pledged deposits and split-dollar life insurance
arrangements between the Company and Terek and Adam Diarti. The
credit facility is a revolving line of credit, with a three year term
and interest at LIBOR plus 1.00%. The revolver provides for
performance covenants related to EBITDA, which will not be in effect
until December 31, 2002. Under the terms of the credit facility in
place with Bank of America, the execution of this new credit facility
voids the existing credit facility in place with Bank of America. At
March 28, 2002, the Company has not drawn any funds on the new credit
facility and no funds were outstanding on the Bank of America credit
facility.

Based upon the
Companys anticipated capital needs for operation of its
business, general corporate purposes, the addition of Dental Centers
and debt service, management believes that the combination of the
funds expected to be available under the Companys current cash
reserves, the $2.5 million line of credit, the anticipated federal
tax refund 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 2002. Additionally,
to the extent the Companys joint Dentist Equity Model
initiative with the Coast P.A., is successful, significant 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 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
receive or access expected funds, the Company could face liquidity and working capital
constraints, which could adversely impact future operations and growth.

NOTE 4  NET REVENUE

The Company has 40-year evergreen dental services agreements (Service and
Support Agreements) with the Coast P.A. whereby the Company receives fees for
services and support provided to the 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 at the Dental Centers is recorded by the Coast
P.A. at established rates, net of refunds, adjustments and discounts. The costs
incurred by the Coast P.A. include primarily dentist and dental hygienist
salaries and benefits (see Note 1). All arrangements for service and support
fees to date have been agreed between the principal and sole owner of the Coast
P.A., Dr. Adam Diasti (who is also a major stockholder and the President of the
Company), and the Chief Executive Officer of the Company, Terek Diasti, and
approved by the Audit Committee, which is comprised of independent directors.
The factors considered in setting those fees included 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 the 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 fees earned by the Company for its services to the Coast P.A. and
the actual expenses of the Company are reflected in the accompanying financial statements of
the Company. Neither the expenses of the Coast P.A. nor any of the patient
gross revenues retained by the Coast P.A. are reflected in the financial
statements of the Company. Any future changes to the Services and Support
Agreements and the related fees are approved by the independent
outside directors of the Companys Audit Committee. See also
Notes 1, 2 and 10.

NOTE 5  DENTAL CENTER CLOSINGS AND IMPAIRMENT CHARGE

The Company continuously evaluates the performance of its Dental Centers.
In the fourth quarter of 2001, the decision was made to close eight (8)
previously acquired Dental Centers that were under-performing, certain of which
had lease expirations in the near future. Performance in these Dental Centers
had deteriorated due to changing population demographics. These demographic
changes made it difficult to attract the quality of patients desired in the
Dental Centers and made it difficult for the Coast P.A. to attract the caliber
of dental professionals desired in these locations. In connection with these
closures, the Company 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 remaining charge 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. The net revenues provided by these
Dental Centers in 2001 were insignificant due to the changes in
market conditions and the difficulties in attracting patients and
dental professionals.

The Company 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 $0.95 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 to its carrying value.

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

NOTE 6  ACQUISITIONS AND DEVELOPMENTS

The Company and the Coast P.A. periodically have jointly entered into
asset purchase agreements with existing dental practices. In all cases, the
Coast P.A. acquires the patient lists and any other professional assets and the
Company acquires certain tangible assets, principally the dental equipment, and
assumes 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
unidentifiable intangible assets. The identifiable intangible assets allocation
relates to non-compete agreements, which are partially allocated to the Company
and partially allocated to the Coast P.A.

The amount allocated to the Coast P.A., on the other hand, is limited to
the value of the patient files and an amount representing the estimated value
of the 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 value of
the tangible assets and identifiable intangible assets acquired, the total
remaining purchase price representing unidentifiable intangible assets is
allocated to the Company and the Coast P.A. (value of the Services and Support
Agreements attributable to the Dental Center). All but one of the acquisitions
were purchases of assets and the operating results of the Company only include
the effects of operations of the acquired Dental Centers from the date of
acquisition.

During 1999, the Company and the Coast P.A. added 11 acquired Dental
Centers located in Virginia. The Companys portion of the purchase price for
these 11 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. Had these acquisitions occurred at the beginning of 1998, the
additional net revenue earned by the Company would have been $0.4 million
(unaudited) for 1999. The effect on net income and earnings per share, had all
acquisitions occurred on January 1, 1999, would have been insignificant to
fiscal year 1999.

During 2000 and 2001, the Company and the Coast P.A. added no additional
acquired Dental Centers. No additional internally developed Dental Centers were
added in 2000. During 2001, the Company added 2 additional internally
developed Dental Centers in the Atlanta, GA and Nashville, TN markets. In
December 2001, the Company made the decision to close eight (8) previously
acquired Dental Centers. The decision was made based upon an analysis of the
existing patient demographics in these areas. The changing population
demographics created difficulty in attracting the desired quality of patients
to the Dental Centers and made it difficult for the Coast P.A. to attract the
desired caliber of dental professionals  See Note 5.

NOTE 7  PROPERTY AND EQUIPMENT, NET

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

|                                  |                               |   |              |            |      |   |            |             |  
|--------------------------------- | ----------------------------- | - | ------------ | ---------- | ---- | - | ---------- | ----------- | -
|                                  |                               |   | December 31,
|                                  |                               |   |             
|                                  |                               |   | 2000         |            | 2001
|                                  |                               |   |              |            |     
|Furniture, fixtures and equipment |                               | $ | 16,804,644   |            |      | $ | 16,486,663 |            
|Leasehold improvements            |                               |   | 12,263,670   |            |      |   | 12,554,435 |            
|Leased equipment                  |                               |   | 300,387      |            |      |   | 300,387    |            
|                                  |                               |   |              |            |      |   |            |            
|                                  |                               |   | 29,368,701   |            |      |   | 29,341,485 |            
|                                  | Less accumulated depreciation |   |              | (8,656,887 | )    |   |            | (11,874,531 | )
|                                  |                               |   |              |            |      |   |            |            
|                                  |                               |   | 20,711,814   |            |      |   | 17,466,954 |            
|Construction in progress          |                               |   | 370,223      |            |      |   | 143,040    |            
|                                  |                               |   |              |            |      |   |            |            
|                                  | Total                         |   | $            | 21,082,037 |      |   | $          | 17,609,994  |  
|                                  |                               |   |              |            |      |   |            |            

Depreciation expense was $2,760,182, $3,530,394 and $3,712,302 for the
years ended December 31, 1999, 2000 and 2001, respectively. Leased equipment
was fully depreciated at December 31, 1999, 2000 and 2001.

During 2001, the
Company sold assets with a net book value of approximately $833,000
in connection with the Equity Model. Of this total, assets with net
book values of approximately $580,000 and $253,000 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.

35



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

NOTE 8  LONG-TERM DEBT AND CAPITAL LEASES

The Companys long-term debt consists of the following:

|                                                                                                                                   |  |              |            |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | December 31,
|                                                                                                                                   |  |             
|                                                                                                                                   |  | 2000         |            | 2001
|                                                                                                                                   |  |              |            |     
|Notes payable issued in connection with various acquisitions
with varying installments at interest rates ranging from 8.0% to 9.0% |  | $            | 1,200,994  |      |  | $ | 350,270  |  
|Revolving line of credit, maturing November 4, 2002 with interest
payable monthly tied to LIBOR                                    |  |              | 1,000,000  |      |  |   |         |  
|                                                                                                                                   |  |              |            |      |  |   |          |  
|Total long term debt                                                                                                               |  |              | 2,200,994  |      |  |   | 350,270  |  
|Less current maturities                                                                                                            |  |              | (1,850,929 | )    |  |   | (257,520 | )
|                                                                                                                                   |  |              |            |      |  |   |          |  
|Long-term debt, excluding current maturities                                                                                       |  | $            | 350,065    |      |  | $ | 92,750   |  
|                                                                                                                                   |  |              |            |      |  |   |          |  

The Company and Bank of America, N.A. amended the existing revolving
credit facility during 2001, reducing the aggregate credit line available
for working capital needs and Dental Center expansions from $20.0 million to
$5.0 million. The Credit Facility is a revolver, maturing November 4, 2002,
with interest at LIBOR plus a margin percentage ranging from 1.25% to 1.75%.
The margin percentage, as well as certain performance covenants, is based upon
funded debt to EBITDA ratios. As of December 31, 2001, the Company has no
outstanding balance on this facility. Under terms of the 2001 amendment, no
funds will be available to the Company under this facility until such time as
the Company meets certain EBITDA performance levels and maintains acceptable
Funded Debt to EBITDA ratios. As of December 31, 2001, the Company has not met
the financial performance measures required to be able to draw on the
credit facility. Once these initial performance ratios
are achieved and the Company has access to draw on the credit facility, the
credit facility contains various covenants which, among other things, require
the maintenance of certain financial ratios related to fixed charge coverage,
total debt to capital and debt to EBITDA. The facility also restricts the
Companys ability to declare or pay dividends on its common stock.

The Companys capital lease obligations are as follows:

|                                                                         |                                                          |   |              |        |      |   |   |   | 
|------------------------------------------------------------------------ | -------------------------------------------------------- | - | ------------ | ------ | ---- | - | - | - | 
|                                                                         |                                                          |   | December 31,
|                                                                         |                                                          |   |             
|                                                                         |                                                          |   | 2000         |        | 2001
|                                                                         |                                                          |   |              |        |     
|Capital lease obligations, at varying interest rates of imputed interest |                                                          |   |              |        |      |   |   |  
|                                                                         | From 15% to 21%, collateralized by fully amortized lease |   |              |        |      |   |   |   | 
|                                                                         | Equipment                                                |   | $            | 12,567 |      |   | $ |  | 
|Less current portion                                                     |                                                          |   | (12,567      | )      |      |   |  |  
|                                                                         |                                                          |   |              |        |      |   |   |   | 
|Capital lease obligations, net of current portion                        |                                                          | $ |             |        |      | $ |  |  
|                                                                         |                                                          |   |              |        |      |   |   |   | 

Scheduled payments on capital lease obligations and maturities of long-term debt as of December 31, 2001 are as follows:

|      |  |               |   |           |  |   |         | 
|----- |  | ------------- | - | --------- |  | - | ------- | 
|      |  | Capital Lease |   | Long-Term
|      |  | Obligations   |   | Debt     
|      |  |               |   |          
|2002  |  | $             |  |           |  | $ | 257,520 | 
|2003  |  |               |  |           |  |   | 92,750  | 
|      |  |               |   |           |  |   |         | 
|Total |  | $             |  |           |  | $ | 350,270 | 
|      |  |               |   |           |  |   |         | 

36



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##### Table of Contents



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

NOTE 9  INCOME TAXES

For the years ended December 31, 1999, 2000 and 2001, respectively, the
provision (benefit) for income taxes consisted of the following:

|          |                            |                                             |   |          |          |      |   |          |          |   |   |          |          |  
|--------- | -------------------------- | ------------------------------------------- | - | -------- | -------- | ---- | - | -------- | -------- | - | - | -------- | -------- | -
|          |                            |                                             |   | 1999     |          | 2000 |   | 2001    
|          |                            |                                             |   |          |          |      |   |         
|          | Current                    |                                             |   |          |          |      |   |          |          |   |   |          |         
|          | Federal                    |                                             | $ | (345,179 | )        |      | $ | (421,162 | )        |   | $ | (336,222 | )       
|          | State                      |                                             |   | (4,306   | )        |      |   | (26,408  | )        |   |   | (2,787   | )       
|          |                            |                                             |   |          |          |      |   |          |          |   |   |         
|          |                            | Total current income tax expense (benefit)  |   |          | (349,485 | )    |   |          | (447,570 | ) |   |          | (339,009 | )
|          |                            |                                             |   |          |          |      |   |          |          |   |   |         
|Deferred: |                            |                                             |   |          |          |      |   |          |          |   |   |         
|          | Federal                    |                                             |   | 606,330  |          |      |   | (287,792 | )        |   |   | 160,356  |         
|          | State                      |                                             |   | 134,633  |          |      |   | (76,955  | )        |   |   | 24,299   |         
|          |                            |                                             |   |          |          |      |   |          |          |   |   |         
|          |                            | Total deferred income tax expense (benefit) |   |          | 740,963  |      |   |          | (364,747 | ) |   |          | 184,655  |  
|          |                            |                                             |   |          |          |      |   |          |          |   |   |         
|          | Total current and deferred |                                             | $ | 391,478  |          |      | $ | (812,317 | )        |   | $ | (154,354 | )       
|          |                            |                                             |   |          |          |      |   |          |          |   |   |         

The components of
deferred tax assets (liabilities) as of December 31, 2000 and
2001, respectively, are as follows:

|                        |                                                        |                                    |   |              |           |      |   |           |            |  
|----------------------- | ------------------------------------------------------ | ---------------------------------- | - | ------------ | --------- | ---- | - | --------- | ---------- | -
|                        |                                                        |                                    |   | December 31,
|                        |                                                        |                                    |   |             
|                        |                                                        |                                    |   | 2000         |           | 2001
|                        |                                                        |                                    |   |              |           |     
|Deferred tax asset:     |                                                        |                                    |   |              |           |      |   |          
|                        | State taxes                                            |                                    | $ | 80,294       |           |      | $ |          |           
|                        | AMTcredit carryforward                                 |                                    |   | 515,383      |           |      |   | 300,836   |           
|                        | Net operating loss carryforwards                       |                                    |   |             |           |      |   | 1,891,462 |           
|                        | Accrued Dental Center closing costs                    |                                    |   |             |           |      |   | 158,160   |           
|                        | Impairment
Reserves                                    |                                    |   |             |           |      |   | 358,364   |           
|                        | Other accrued expenses                                 |                                    |   | 518,631      |           |      |   | 888,583   |           
|                        |                                                        |                                    |   |              |           |      |   |          
|                        |                                                        | Total deferred tax asset           |   |              | 1,114,308 |      |   |           | 3,597,405  |  
|                        |                                                        | Less: Valuation allowance          |   |              |          |      |   |           | (3,134,621 | )
|                        |                                                        |                                    |   |              |           |      |   |          
|                        |                                                        | Net deferred tax asset             |   |              | 1,114,308 |      |   |           | 462,784    |  
|Deferred tax liability: |                                                        |                                    |   |              |           |      |   |          
|                        | Basis difference in fixed assets and
intangible assets |                                    |   | (929,653     | )         |      |   | (462,784  | )         
|                        |                                                        |                                    |   |              |           |      |   |          
|                        |                                                        | Net deferred tax (liability) asset |   | $            | 184,655   |      |   | $         |           |  
|                        |                                                        |                                    |   |              |           |      |   |          

A reconciliation of the statutory federal income tax rate to the Companys
effective income tax rate as of December 31, 1999, 2000 and 2001
respectively, is as follows:

|                                                      |  |              |       |      |  |      |      |   |  |  |       |  
|----------------------------------------------------- |  | ------------ | ----- | ---- |  | ---- | ---- | - |  |  | ----- | -
|                                                      |  | December 31,
|                                                      |  |             
|                                                      |  | 1999         |       | 2000 |  | 2001
|                                                      |  |              |       |      |  |     
|Statutory federal rate                                |  |              | 34.0  | %    |  |      | 34.0 | % |  |  | 34.0  | %
|State income taxes, net of federal income tax benefit |  |              | 8.2   |      |  |      | 3.3  |   |  |  | (0.2  | )
|Tax exempt interest income                            |  |              | (16.1 | )    |  |      | 5.1  |   |  |  | 0.6   |  
|Non deductible intangibles                            |  |              | 7.3   |      |  |      | (2.7 | ) |  |  | (0.6  | )
|Change in valuation allowance                         |  |              |      |      |  |      |     |   |  |  | (32.9 | )
|Miscellaneous                                         |  |              | 4.0   |      |  |      | (0.6 | ) |  |  | 0.7   |  
|                                                      |  |              |       |      |  |      |      |   |  |  |       |  
|Effective tax rate                                    |  |              | 37.4  | %    |  |      | 39.1 | % |  |  | 1.6   | %
|                                                      |  |              |       |      |  |      |      |   |  |  |       |  

For the years ended December 31, 1999 and 2000, there were no federal net
operating loss carryforwards. The federal net operating loss carryforward for
the year ended December 31, 2001 was $4.8 million. This federal net operating
loss carryforward will expire if unused by December 31, 2021.

37



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##### Table of Contents



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

For the year ended December 31, 1999, there was no state net operating
loss carryforward. The state net operating loss carryforwards for the years
ended December 31, 2000 and 2001 were $1.6 million and $6.8 million,
respectively. These net operating loss carryforwards will expire if unused by
December 31, 2021.

The Company has incurred significant federal tax net operating losses in
both 2000 and 2001 and, accordingly, the Company has provided a full valuation
allowance on its net deferred tax asset.

On March 9, 2002, the Job Creation and
Worker Assistance Act of 2002 (Act) was signed into law. This
Act contains a provision that will enable the Company to carryback a
substantial portion of
its net operating losses and obtain additional refunds of federal income taxes previously
paid of approximately $1.0 million. The effect of the change in
tax law will be reflected as a reduction in the valuation allowance
and recognition of a tax benefit in 2002 when the law was enacted.

NOTE 10  RELATED PARTY TRANSACTIONS

The audit committee reviews and approves the Companys related
party transactions.

The Company has agreements to provide dental management,
services and support to the Coast P.A. The Companys
net revenue represents the aggregate fees charged to the
Coast P.A. under these agreements. Dr. Adam Diasti, a
Director and the President of the Company, is the sole owner of
the Coast P.A. See Notes 1 and 4 for a further
description of the relationship with the Coast P.A.

As of December 31, 2001, the balance of the management fee
receivable from the Coast P.A. was approximately $13.0
million. This amount is directly attributable to patient
revenues earned by the Coast P.A. for which the Company is
due its service and support fee. In addition, the Company has
paid certain expenses on behalf of the Coast P.A. 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 the Coast P.A. be unable to pay
its debts. This receivable is considered fully collectible and no bad
debt allowance has been provided.

The Company periodically advances funds to/from the
Coast P.A. These advances to and from the Coast P.A.
are reflected on the balance sheets as a note receivable from
the Coast P.A. for approximately $0.2 million at both
December 31, 2000 and December 31, 2001. These notes
receivable are non-interest bearing and are due upon demand.

The Company periodically advances funds to/from the majority
stockholders.  Advances to the majority stockholders, and
affiliates of majority stockholders, are non-interest bearing
 and were approximately $125,000 and $163,000 at
December 31, 2000 and 2001, respectively.

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 the
Coast P.A. are charged to the Coast P.A. and
reimbursed to the Company. Upon the departure or termination of
a dental professional from a 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 the Coast P.A. for reissuance to new dental
professionals. As a result of such forfeitures, the
Coast P.A. currently holds options to purchase 122,235
shares of the Companys common stock at exercise prices
ranging from $3.14 per share to $76.13 per share. At
December 31, 2000 and 2001, the Company has recorded a
receivable from the Coast P.A. in the amount of
$2.3 million and $2.5 million, respectively, in
accordance with the Affiliated Professionals Stock Plan. This
receivable represents the fair value of the options issued to
the dental professionals employed by the Coast P.A. and is
reimbursable to the Company from the Coast P.A. See
Note 12 for a further description of the plan. This receivable
is considered fully collectible and no bad
debt allowance has been provided.

During the third quarter of 2001, the Coast P.A., with the
assistance of the Company, began the rollout of the newly
developed 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.
Through March 1, 2002, the sale of interests in the Dental
Centers have been structured as a sale of a portion of the tangible and
intangible assets of each Dental Center. In each Dental Center, the Company owns the
tangible assets and the Coast P.A. owns the intangible
assets. For each interest sold, the Company sells a portion of
the Dental Centers tangible assets to dentist and a
portion to the Coast P.A. The Coast P.A. sells a
portion of its intangible Dental Center assets to the dentist
acquiring the interest. The Coast P.A. and the dentist then
contribute their respective tangible and intangible assets to a
newly formed professional association. In April 2002,
it is expected that the structure of future transactions under the Equity Model will
change such that only the Coast P.A. will sell assets to
the dentist.

During 2001, the Company and the Coast P.A. consummated the
sale of interests in ten (10) Dental Centers in accordance with
the terms of the Equity Model. The total sales price for the
interests sold was approximately $931,000, consisting of
$105,000 in cash, $57,000 in short-term notes receivable and
$769,000 in long-term notes receivable. Of the total sales
price, approximately $254,000 and $677,000 were attributable to
the Company and the Coast P.A., respectively. The Company
also sold approximately $580,000 worth of equipment, supplies
and inventory to the Coast P.A. in connection with these
transactions. In addition, the Coast P.A. assigned its notes receivable arising from these
transactions to the Company in exchange for a reduction to the
management fee receivable from the Coast P.A. The
short-term notes receivable are at 10% with a term of
approximately three to five months. The long-term notes receivable are
10% notes 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. The Company
has recorded no gain or loss on the sale of assets associated
with the consummation of the Model in these Dental Centers.

The Company has an agreement with Dr. Adam Diasti, 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 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.

On March 6, 1998, the Company announced that it had reached an
agreement with Mid-Coast Dental Services, Inc., a Virginia
corporation (MCDS), to provide equipped Dental
Centers in Virginia. The Company utilized a portion of its cash
reserves to build, equip and lease fully equipped Dental Centers
to MCDS. The Companys loans to MCDS were on a senior
secured basis with interest and rentals providing income to the
Company. In exchange for providing financing for the building
and acquisition of Dental Centers, the Company received an
option to acquire MCDS beginning on December 31, 1999. The
purchase price under the option agreement was based on an agreed
upon formula which was expected to approximate the fair value of
MCDS. Adam Diasti, President of the Company, was a major
stockholder of Adam Diasti, D.D.S., Kurt M.
Obeck, D.D.S. & Andrew S. Norman, D.D.S., P.C.
n/k/a/ Adam Diasti, D.D.S. & Associates, P.C., the
professional corporation that employs MCDSs doctors and
hygienists. Effective April 1, 1999, the Company exercised
this option and acquired nine Dental Centers from MCDS. The
total purchase price was $1.4 million, consisting of
$.8 million in cash and $.6 million in promissory
notes and certain assumed liabilities.

The Company entered into a Supply Agreement dated
September 27, 2000 with edentaldirect.com, Inc. Tim Diasti,
an affiliate of the Company, is an officer, director and
shareholder of edentaldirect.com, Inc. and brother of Terek and
Adam Diasti. The Companys officers and directors, Terek
Diasti and Adam Diasti, and its directors, Donald Millard and
Darrell C. Smith are also shareholders of
edentaldirect.com, Inc. Under the Supply Agreement, the Company
purchased dental products and supplies from edentaldirect.com,
Inc. During 2000 and 2001, the Company paid edentaldirect.com, Inc.
approximately $89,000 and $1,380,000, respectively, for dental products and
supplies, which
represents approximately 35% of the Companys total supply
purchases for such period. At December 31, the Company owed
edentaldirect.com approximately $420,000 for the purchase of dental
products and supplies, which is included in Accounts payable in the
accompanying financial statements. The Company ordered from several
different suppliers during 2001.

To
improve cash flows from patients, the Company and the Coast P.A.
arranged for a patient financing program through a national financial
institution in January 2002. This program will accelerate the
collection of net revenues to the Company, for patients that elect to
use the program and qualify for credit, as the financial institution
pays the financed amount, net of discounts, within twenty-four
hours. Adenta
Patient Financing LLC (Adenta) markets a private label
credit card program underwritten by Wells Fargo Financial National
Bank to dental patients, including patients of Coast P.A. on a
non-recourse basis to the Coast P.A. Pursuant to
this private label credit card program (the Program),
patients can charge their dental charges with the private label card.
Providers accepting the card pay discount fees ranging from
0% to 8.95% depending on the financing program being offered to the patient. This
discount is split between Wells Fargo and Adenta. For example, on a
3-month financing charge of $100, Adenta receives a fee of $2.00. In
addition, pursuant to the Program, each provider receives a machine
to process credit card charges. The machine is free to the provider
if the provider processes the minimum stated number of charges. If
the provider does not meet this threshold, then it is required to pay
$600 per machine. Adenta is responsible for collecting this amount
from the providers and paying it to the Wells Fargo. The Company guarantees
Adentas obligation in this regard for financed patients of the
Coast P.A. It is anticipated that the
Coast P.A. will benefit from the Program as a result of increased
dental sales and accelerated collection of revenues. The Company believes that the amounts charged by Adenta
for the Program are generally similar to or lower than the terms it
could obtain from unrelated parties. The Program was implemented in
January 2002 and neither the Company, nor the
Coast P.A., paid any sums to, or on behalf of, Adenta, nor did
Adenta pay any sums to the Company or the Coast P.A. during 2001.
Fifty percent of Adenta is owned, indirectly, by the Diasti Family
Limited Partnership (an affiliate of the Company) and Darrell C.
Smith (one of the Companys directors). The other 50% is owned
by an unaffiliated third party.

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. 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 on
the Companys balance sheet at December 31, 2001 is
$1.8 million, net of valuation allowances on the underlying
investments of the split dollar life insurance policies totaling
$510,000.

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##### Table of Contents



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. Rent and occupancy expenses for the years ended December
31, 1999, 2000 and 2001 were $6.8 million, $7.2 million and $7.2 million,
respectively.

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

|                         |  |                |           | 
|------------------------ |  | -------------- | --------- | 
|                         |  | Future Minimum
|Years Ended December 31, |  | Lease Payments
|                         |  |               
|2001                     |  | $              | 3,738,818 | 
|2002                     |  |                | 2,847,948 | 
|2003                     |  |                | 1,303,752 | 
|2004                     |  |                | 714,924   | 
|2005                     |  |                | 494,090   | 
|Thereafter               |  |                | 350,326   | 
|                         |  |                |           | 
|Total                    |  | $              | 9,449,858 | 
|                         |  |                |           | 

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 three to five years.

The Company is a
party to a number of legal proceedings or other claims arising from
the ordinary course of business, including two employee
compensation-related matters.  With respect to the two employee
compensation-related matters, there is potential for class action
status and the Company is unable to predict the outcome of the
pending suits and claims beyond a range.  The ultimate outcome of
these particular matters could have a material adverse impact on the
financial position and results of operations of the Company.  The
Company has accrued amounts it believes are appropriate at the
present time with respect to its legal proceedings based upon
discussions with its legal counsel and the nature and present status
of such proceedings.  The Company intends to vigorously defend its
positions.

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 are to provide directors, officers, key employees, advisors and dental
professionals employed by the Coast P.A. (subject to approval and reimbursement
by the 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 both plans is 750,000 shares and 750,000 shares,
respectively.

39



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##### Table of Contents



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

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

Professionals Plan:

|                                    |           |  |           |          |                 |   |                |                |         |   |          |       | 
|----------------------------------- | --------- |  | --------- | -------- | --------------- | - | -------------- | -------------- | ------- | - | -------- | ----- | 
|                                    |           |  |           |          |                 |   |                |                |         |   | Weighted
|                                    |           |  | Number of |          |                 |   |                |                | Average
|                                    |           |  | Shares    |          | Range Per Share |   | Exercise Price
|                                    |           |  |           |          |                 |   |               
|Outstanding as of December 31, 1999 |           |  | 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    |      
|                                    | 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    |          |                 |   |                |                |         |   |          |      
|                                    |           |  |           |          |                 |   |                |                |         |   |          |      

The fair value of the options at December 31, 2001, totaling $2,453,206, issued
to the dental professionals employed by the Coast P.A. is charged to the Coast
P.A. and reimbursed to the Company from the Coast P.A. Stock options forfeited
by dental professionals revert to the Coast P.A. under their original terms.

Incentive Plan:

|                                    |           |  |           |         |                 |   |                |               |         |   |          |       | 
|----------------------------------- | --------- |  | --------- | ------- | --------------- | - | -------------- | ------------- | ------- | - | -------- | ----- | 
|                                    |           |  |           |         |                 |   |                |               |         |   | Weighted
|                                    |           |  | Number of |         |                 |   |                |               | Average
|                                    |           |  | Shares    |         | Range Per Share |   | Exercise Price
|                                    |           |  |           |         |                 |   |               
|Outstanding as of December 31, 1999 |           |  | 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    |      
|                                    | 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    |         |                 |   |                |               |         |   |          |      
|                                    |           |  |           |         |                 |   |                |               |         |   |          |      

40



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##### Table of Contents



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

|                 |  |                     |         |                     |  |                |      |                |  |         |       |  |  |                |        |  |  |   |       | 
|---------------- |  | ------------------- | ------- | ------------------- |  | -------------- | ---- | -------------- |  | ------- | ----- |  |  | -------------- | ------ |  |  | - | ----- | 
|                 |  | Options Outstanding |         | Options Exercisable
|                 |  |                     |         |                    
|                 |  |                     |         |                     |  | Remaining Life |      | Exercise Price |  |         |       |  |  | Exercise Price
|Ranges of        |  |                     |         |                     |  | In Years       |      | Weighted       |  |         |       |  |  | Weighted      
|Exercise Prices  |  | Shares              |         | (Weighted Average)  |  | Average        |      | Shares         |  | Average
|                 |  |                     |         |                     |  |                |      |                |  |        
|under $10.00     |  |                     | 73,649  |                     |  |                | 8.21 |                |  | $       | 6.17  |  |  |                | 24,550 |  |  | $ | 6.17  | 
|$10.01 to $20.00 |  |                     | 24,849  |                     |  |                | 7.53 |                |  | $       | 14.19 |  |  |                | 16,318 |  |  | $ | 14.20 | 
|$20.01 to $30.00 |  |                     | 27,493  |                     |  |                | 6.16 |                |  | $       | 27.68 |  |  |                | 27,118 |  |  | $ | 27.77 | 
|$30.01 to $40.00 |  |                     | 582     |                     |  |                | 5.24 |                |  | $       | 36.97 |  |  |                | 582    |  |  | $ | 36.97 | 
|$40.01 to $50.00 |  |                     | 5,001   |                     |  |                | 5.55 |                |  | $       | 45.40 |  |  |                | 5,001  |  |  | $ | 45.40 | 
|$50.01 to $60.00 |  |                     | 460     |                     |  |                | 6.45 |                |  | $       | 54.38 |  |  |                | 460    |  |  | $ | 54.38 | 
|$60.01 to $70.00 |  |                     | 3,850   |                     |  |                | 5.92 |                |  | $       | 67.92 |  |  |                | 3,850  |  |  | $ | 67.92 | 
|$70.01 to $80.00 |  |                     | 10,355  |                     |  |                | 6.04 |                |  | $       | 74.04 |  |  |                | 10,355 |  |  | $ | 74.04 | 
|$80.01 to $90.00 |  |                     | 233     |                     |  |                | 5.80 |                |  | $       | 85.88 |  |  |                | 233    |  |  | $ | 85.88 | 
|                 |  |                     |         |                     |  |                |      |                |  |         |       |  |  |                |        |  |  |   |       | 
|Total            |  |                     | 146,472 |                     |  |                |      |                |  |         |       |  |  |                | 88,467 |  |  |   |       | 
|                 |  |                     |         |                     |  |                |      |                |  |         |       |  |  |                |        |  |  |   |       | 

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 income (loss) and earnings (loss) per share (both basic and diluted)
would have been $328,293 and $0.14, ($1,657,739) and $(0.79) and
$(8,981,145) and
$(4.29) for 1999, 2000 and 2000, respectively. The Company estimated the fair
value of the Incentive Plan options utilizing an option pricing model assuming
a market price and exercise price ranging from $4.59 to $85.88 per share, a
risk-free interest rate of 6.1% to 6.5%, a two to four year expected life, a
range of 0% to 77.6% expected volatility, and no dividends.

The weighted average remaining contractual life for the options
outstanding as of December 31, 2001, 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, 1999, 2000 and 2001, respectively,
there have not been any Company matching contributions.

NOTE 14  SUBSEQUENT EVENTS

In January 2002, the Coast P.A. began to offer a
financing program to its patients under a program offered by a
national financial institution. The program is being offered to
patients of the Coast P.A. under an agreement between the national financial institution and
Adenta, a related party. (See Note 10)

From January 1, 2002 through March 1, 2002, in
connection with the rollout of the Equity Model, the Company sold
tangible assets at their net book value, which approximated market
value, totaling approximately $305,000 and recognized no gain or loss
on the transactions. The Company received proceeds totaling
approximately $305,000 in the form of notes receivable from dentists
(approximately $76,000) and a management fee receivable from the
Coast P.A. (approximately $229,000). Subsequently, the Coast P.A.
assigned its notes receivable of approximately $149,000 (arising from
the dentists for the purchase of the Coast P.A.'s intangible assets)
to the Company in exchange for an approximate $149,000 reduction to
the management fee receivable from the Coast P.A. Accordingly, the
Company is the beneficiary of notes receivable totaling approximately
$225,000 from these transactions. The short-term notes receivable
totaling $22,500 are at 10% for periods of three to five months and
require monthly payments of principal and interest. The long-term
portion of the notes receivable totaling $202,500 is at 10% with a
term of seven years, with the first year requiring monthly payments
of interest only. After the initial year of the term, payments of
principal and interest are required monthly.

In February 2002, the Company entered into a Master
Lease Agreement with an equipment financing company whereby the
Company has a credit line of $1.5 million to be used in connection
with the leasing of information technology and telecommunications
equipment. On February 21, 2001, the Company made its first draw
under the facility in the amount of $218,000 to lease certain
information technology assets.

On March 28, 2002 the
Company entered into a commitment with a financial institution to provide a $2.5 million line of
credit secured by a first lien on pledged deposits and split-dollar life insurance arrangements between
the Company and Terek and Adam Diasti.

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, 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 | )

|                           |         |                |            |               |   |                    |            |                   |   |   |            |       |   |   |            |       |  
|-------------------------- | ------- | -------------- | ---------- | ------------- | - | ------------------ | ---------- | ----------------- | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|Quarter Ended              |         | March
31, 2000 |            | June 30, 2000 |   | September 30, 2000 |            | December 31, 2000
|                           |         |                |            |               |   |                    |            |                  
|Net revenue                |         | $              | 11,568,944 |               |   | $                  | 11,445,570 |                   |   | $ | 11,495,638 |       |   | $ | 11,315,826 |      
|Gross profit               |         | $              | 1,389,510  |               |   | $                  | 1,322,890  |                   |   | $ | 1,109,334  |       |   | $ | 518,145    |      
|Net loss                   |         | $              | (29,761    | )             |   | $                  | (81,445    | )                 |   | $ | (363,725   | )     |   | $ | (789,009   | )    
|Net loss per common share: |         |                |            |               |   |                    |            |                   |   |   |            |       |   |   |            |      
|                           | Basic   |                | $          | (0.01         | ) |                    | $          | (0.04             | ) |   | $          | (0.17 | ) |   | $          | (0.38 | )
|                           | Diluted |                | $          | (0.01         | ) |                    | $          | (0.04             | ) |   | $          | (0.17 | ) |   | $          | (0.38 | )

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
is approximately $(3.7) million and $(1.77) per share, respectively.

41



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##### Table of Contents



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




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, 2002.




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, 2002.




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, 2002.




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, 2002.




PART IV




Item 14.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.

42



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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 30, 2002. 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 30, 2002.

| |  |                                                                             
| |  | ----------------------------------------------------------------------------
| |  | COAST DENTAL SERVICES, INC.                                                 
|
|
| |  | By:   /s/ Terek Diasti, DVM                                                 
| |  |                                                                             
| |  | TEREK DIASTI, DVM                                                           
| |  | Chief Executive Officer, Chairman of the Board
(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, DDS                                                     
| |  |                                                                                
| |  | ADAM DIASTI, DDS                                                               
| |  | President and Director                                                         
|
|
| |  | By:   /s/ William H. Geary, III                                                
| |  |                                                                                
| |  | WILLIAM H. GEARY, III                                                          
| |  | Chief Financial Officer, Secretary and Treasurer
(Principal Accounting Officer)
|
|
| |  | By:   /s/ Donald R. Millard                                                    
| |  |                                                                                
| |  | DONALD R. MILLARD                                                              
| |  | Director                                                                       
|
|
| |  | By:   /s/ Geoffrey L. Faux                                                     
| |  |                                                                                
| |  | GEOFFREY L. FAUX                                                               
| |  | Director                                                                       
|
|
| |  | By:   /s/ Darrell C. Smith                                                     
| |  |                                                                                
| |  | DARRELL C. SMITH                                                               
| |  | Director                                                                       

43



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[NEED TO UPDATE FROM 9/30]

EXHIBIT INDEX

|                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber                                                                                                                                                                                                                            |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.1*                                                                                                                                                                                                                                     |  | Restated Certificate of Incorporation of Coast Dental Services, Inc. [2]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(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. 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. 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.)               

44



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##### Table of Contents



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                              
|              |  |                                                                                                                                                                                                                                                                                                                                                                                                  
|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]                                                                                                                                                                                                                                              
|10.24*        |  | 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
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]
|10.21*        |  | 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]                                                                                                                                                                                                                                                                                                                 
|11.1          |  | Computation of Per Share Earnings (Loss)                                                                                                                                                                                                                                                                                                                                                         
|23            |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                 



---

|* |  | 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                                                                                                              

45