U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT
OF 1934
For the transition period from to
Commission File No. 000-27836
ORTHODONTIX, INC.
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(Exact name of small business issuer as specified in its charters)
Florida 65-0643773
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1428 Brickell Avenue, Suite 105
Miami, Florida 33131
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(Address of principal executive offices)
(305) 371-4112
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(Issuer's Telephone Number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [-].
On November 9, 2001, the number of shares of outstanding Common Stock of
the issuer was 2,915,428.
Traditional Small Business Disclosure Format (check one) Yes [X] No [_]
Documents Incorporated by reference: None
ORTHODONTIX, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Plan of Operation 1
PART II
Item 1. Legal Proceedings 2
Item 2. Changes in Securities 2
Item 3. Defaults upon Senior Securities 2
Item 4. Submission of Matters to a Vote of Security Holders 3
Item 5. Other Information 3
Item 6. Exhibits and Reports on Form 8-K 3
SIGNATURES 4
INDEX TO FINANCIAL STATEMENTS F-1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed consolidated financial statements for
Orthodontix, Inc. (the "Company") included herein, commencing at page F-1,
have been prepared in accordance with the requirements of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America. In the
opinion of management, all adjustments (including all normal recurring
adjustments) necessary for a fair presentation of the financial information
for the interim periods reported have been made.
Results of operations for the nine months ended September 30, 2001 are
not necessarily indicative of the results of operations expected for the year
ending December 31, 2001.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
The following discussion contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on current plans and expectations of the Company
and involve risks and uncertainties that could cause actual future activities
and results of operations to be materially different from those set forth in
the forward-looking statements. Important factors that could cause actual
results to differ include, among others, risks relating to the ability of the
Company to locate and consummate an acquisition of an operating business.
The discussion of management's plan of operation should be read in
conjunction with the Company's unaudited, condensed consolidated financial
statements and notes thereto included elsewhere in this Report and the
Company's Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission.
CESSATION OF THE ORTHODONTIC PRACTICE MANAGEMENT BUSINESS
By December 31, 2000, the Company had ceased its orthodontic practice
management business, had terminated its affiliation with all orthodontic
practices except one, and had sold practice assets back to the practices. On
May 14, 2001, the Company terminated its affiliation with the one remaining
orthodontic practice and recorded a $94,000 loss for the quarter ended March
31, 2001. During the quarter ended June 30, 2001, and in connection with the
Company's termination of the orthodontic practice management business,
certain of the Company's executive officers resigned and returned to the
Company common stock and options to acquire common stock. Except for the
termination of the last affiliation in May 2001, the Company had recorded the
sales of all the practice assets and the shares returned in connection with
the resignations of management as of December 31, 2000, and such transactions
1
are reflected in the Company's Annual Report on Form 10-KSB for the year
ended
December 31, 2000.
With the cessation of the orthodontic practice management business, the
Company intends to utilize its capital resources to effect a business
combination with an operating business in an industry unrelated to
orthodontic practice management. There can be no assurance that the
Company's efforts to effect such a business combination will be successful.
OPERATING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
The Company had a net loss of $48,325 and $273,113 for the three and
nine months ended September 30, 2001, respectively. Such losses are
primarily a result of the Company's general and administrative expenses,
which were $58,673 for the three months ended September 30, 2001 and $229,545
for the nine months ended September 30, 2001, and a $94,000 loss relating to
the termination of the Company's affiliation with the last orthodontic
practice. The Company does not expect to incur any further costs relating to
the termination of the orthodontic practice management business. The Company
received interest income during the three and nine months ended September 30,
2001 of $10,348 and $50,432, respectively.
As of September 30, 2001, the Company had current assets of $986,709,
consisting primarily of cash and cash equivalents of $932,843, and had
current liabilities of $133,982. The Company expects that the primary use of
working capital will be to fund its general and administrative expenses. The
Company believes that its current level of funds will be sufficient for its
cash expenses for at least the next twelve months. However, in the event
that the Company locates an operating business with which to effect a
business combination, the Company may require additional capital beyond the
current level of funds available.
OTHER ACCOUNTING MATTERS
In July 2001, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS No. 141,
"Business Combinations," requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, establishes
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off. SFAS
No. 141 is effective for all business combinations effective after June 30,
2001. SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the
accounting for goodwill and intangible assets subsequent to their
acquisition. SFAS No. 142 is effective for fiscal years beginning after
December 31, 2001. The Company does not believe that the adoption of these
pronouncements will have a material impact on the Company's financial
position or results of operations.
2
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended September 30, 2001, no matters were
submitted to a vote of security holders of the Company through the
solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
None.
3
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ORTHODONTIX, INC.
(Registrant)
Dated: November 9, 2001 By: /s/ Glenn L. Halpryn
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Glenn L. Halpryn
Chairman and President (Principal
Executive Officer)
Dated: November 9, 2001 By: /s/ Alan Jay Weisberg
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Alan Jay Weisberg
Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)
4
INDEX TO FINANCIAL STATEMENTS
Pages
Condensed Consolidated Balance Sheets as of September 30, 2001 (Unaudited)
and December 31, 2000 F-2
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2001 and 2000 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2001 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (Unaudited) F-5
Notes to the Condensed Consolidated Financial Statements F-6
F-1
ORTHODONTIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, 2001 DECEMBER 31,
(UNAUDITED) 2000
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Current assets:
Cash and cash equivalents $ 932,843 $ 390,739
Investment - 1,217,218
Prepaid expenses and other current assets 53,866 191,178
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Total current assets 986,709 1,799,135
Advances to Founding Practices, net of allowance of $117,000 at
December 31, 2000 - 5,747
Assets held for sale, net - 9,318
Notes and other receivables 75,415 16,411
Deferred tax asset 73,825 73,825
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Total assets $ 1,135,949 $1,904,436
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 60,157 $ 486,783
Deferred tax liability 73,825 73,825
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Total current liabilities 133,982 560,608
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Commitments
Stockholders' equity:
Preferred stock, $.0001 par value, 100,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.0001 par value, 100,000,000 shares authorized,
2,915,428 and 3,933,571 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively 292 393
Additional paid-in capital 4,232,821 4,409,502
Accumulated deficit (3,231,145) (2,958,032)
Less: common stock receivable - (108,035)
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Total stockholders' equity 1,001,967 1,343,828
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Total liabilities and stockholders' equity $ 1,135,949 $ 1,904,436
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
ORTHODONTIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Management service fee revenue $ - $ - $ - $ -
----------- ----------- ----------- -----------
Direct practice expenses - - - -
General and administrative 58,673 15,573 229,545 161,559
Loss (gain) on sale of certain assets of Founding
Practices (Note 4) - - 94,000 (32,151)
----------- ----------- ----------- -----------
Total expenses 58,673 15,573 323,545 129,408
----------- ----------- ----------- -----------
Net operating loss (58,673) (15,573) (323,545) (129,408)
----------- ----------- ----------- -----------
Other income:
Interest income 10,348 27,998 50,432 88,398
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Total other income 10,348 27,998 50,432 88,398
----------- ----------- ----------- -----------
Net (loss) income $ (48,325) $ 12,425 $ (273,113) $ (41,010)
=========== =========== =========== ===========
(Loss) income per common and common
equivalent per share:
Basic $ (0.02) $ 0.00 $ (0.08) $ (0.01)
=========== =========== =========== ===========
Diluted $ (0.02) $ 0.00 $ (0.08) $ (0.01)
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding -
basic and diluted 2,915,428 3,933,571 3,332,863 4,041,572
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
ORTHODONTIX, INC. AND SUBSIDIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(UNAUDITED)
for the nine months ended September 30, 2001
Additional Common
Common Stock Paid-In Accumulated Stock
Shares Amounts Capital Deficit Receivable Total
------------ ------------- ------------- ------------- ---------------- -----------
Balance, December 31, 2000 3,933,571 $ 393 $ 4,409,502 $ (2,958,032) $ ( 108,035) $ 1,343,828
Shares returned in connection (1,018,143) (101) (176,681) - 108,035 (68,747)
with sale of assets and
settlements
Net loss for the period - - - (273,113) - (273,113)
------------ ------------- ------------- ------------- ---------------- -----------
Balance, September 30, 2001 2,915,428 $ 292 $ 4,232,821 $ (3,231,145) $ - $ 1,001,967
============ ============= ============== ============= ================ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
ORTHODONTIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
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2001 2000
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Cash flows from operating activities:
Net loss $ (273,113) $ (41,010)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Noncash compensation expense - 21,722
Loss (gain) on sale of doctor practices 94,000 (32,151)
Changes in assets and liabilities 715,159 (137,288)
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Net cash provided by (used in) operating activities 536,046 (188,727)
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Cash flows from investing activities:
(Cash used in) proceeds from sales of certain practices assets (78,935) 35,000
Payments received from notes receivable 84,993 161,171
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Net cash provided by investing activities 6,058 196,171
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Cash flows from financing activities:
Payment of lease obligation - (35,000)
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Net cash used in financing activities - (35,000)
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Net increase (decrease) in cash and cash equivalents 542,104 (27,556)
Cash and cash equivalents, beginning of period 390,739 407,474
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Cash and cash equivalents, end of period $ 932,843 $ 379,918
============= ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-5
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
of Orthodontix, Inc. ("Orthodontix" or the "Company") presented herein
do not include all disclosures required by accounting principles
generally accepted in the United States of America for a complete set of
financial statements. In the opinion of management, these financial
statements include all adjustments, including normal recurring
adjustments, necessary for a fair presentation of the results of interim
periods.
The results of operations for the nine months ended September 30, 2001
are not necessarily indicative of the results of operations to be
expected for the year ending December 31, 2001. The unaudited condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and
Exchange Commission on April 14, 2001.
2. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
September 30, 2001 December 31,
(Unaudited) 2000
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Accounts payable $ 4,214 $ 83,884
Other accrued expenses 55,943 402,899
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$ 60,157 $ 486,783
============= ============
3. EARNINGS PER SHARE:
Basic earnings per share is calculated by dividing net income or loss by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share is calculated by dividing net income
or loss by the weighted average number of common shares and potential
common equivalent shares outstanding during the period. Potential
common shares consist of the dilutive effect of outstanding options
calculated using the treasury stock method. For the nine months periods
ended September 30, 2001 and 2000, the potential common shares were
antidilutive; thus there was no difference in the basic net income per
share and the diluted net income per share.
F-6
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, Continued
(UNAUDITED)
4. ASSETS HELD FOR SALE AND TERMINATION OF AFFILIATION WITH CERTAIN
FOUNDING PRACTICES
In April 2001, the Company's Chairman of the Board of Directors and the
Company's President and Chief Operating Officer, who also was a member
of the Board of Directors, resigned their positions. In connection with
their resignations and the execution of mutual releases with the
Company, these individuals returned 507,980 shares of the Company's
common stock and the Company cancelled stock options to acquire 350,000
shares of common stock with exercise prices ranging from $8.00 to $9.11.
As a result of this transaction, the Company recorded other income and a
corresponding common stock receivable at December 31, 2000 in the amount
of $95,246.
The Company also settled certain outstanding liabilities to companies
that had provided professional services to the Company. In connection
with the settlement with certain professional services firms who had
provided services to the Company, 68,207 shares of the Company's common
stock were returned to the Company and the Company cancelled stock
options to acquire 47,500 shares of common stock with an exercise price
of $9.11. As a result of this transaction, the Company recorded a
reduction of general and administrative expenses and a corresponding
common stock receivable at December 31, 2000 in the amount of $12,789
related to the value of the common stock returned to the Company. In
addition, the Company recorded a reduction of $58,417 to general and
administrative expenses for the year ended December 31, 2000 related to
amounts previously expensed by the Company with respect to professional
services.
During the quarter ended June 30, 2001, 576,187 shares, described above,
were returned to the Company and were subsequently retired.
On May 14, 2001, the Company terminated its affiliation with the one
remaining Founding Practice owned by Dr. Stephen M. Grussmark and sold
certain practice assets, consisting principally of accounts receivable
and property and equipment, and certain liabilities to the remaining
Founding Practice. In connection with this transaction, the Company
received 96,571 shares of the Company's common stock from the remaining
Founding Practice.
In addition, in connection with this transaction, the Company paid
$115,000 in cash to Dr. Grussmark as consideration for the return of
345,385 shares of the Company's common stock to the Company. All the
shares received from the remaining Founding Practice have been retired
and are no longer outstanding.
F-7
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, Continued
(UNAUDITED)
4. ASSETS HELD FOR SALE AND TERMINATION OF AFFILIATION WITH CERTAIN
FOUNDING PRACTICES, CONTINUED:
The Company also paid $30,000 for the legal expenses incurred by the
remaining Founding Practice and Dr. Grussmark, individually, in
connection with the transaction.
In connection with these transactions, the Company and Dr. Grussmark
executed certain mutual releases and Dr. Grussmark resigned as the
Company's Chief Executive Officer and a member of the Company's Board of
Directors.
As a result of the transactions, the Company recorded a loss in the
amount of $94,000 for the three months ended March 31, 2001 in
connection with the sale of the certain assets and satisfaction of
certain liabilities and other matters described above.
During the nine months ended September 30, 2000, the Company sold
certain practice assets, consisting principally of accounts receivable
and property and equipment, and certain liabilities to four of the
Founding Practices. As a result of these transactions, the Company
received $35,000 in cash and 267,278 shares of the Company's common
stock. Such consideration received includes amounts repaid to the
Company by the Founding Practices related to amounts outstanding that
previously had been classified as Advances to Founding Practices. The
total consideration received in connection with these transactions was
valued at $87,999. As a result of these transactions, the Company
recorded a net gain on the disposition of assets of approximately
$32,000 for the nine months ended September 30, 2000.
The assets sold or settled as a result of the transactions, described
above, were as follows:
Billed and unbilled patient receivables, net $ 63,283
Property and equipment, net 25,926
Advances to Founding Practices, net 9,182
Other assets and liabilities, net (42,543)
------------
$ 55,848
============
In addition, in connection with these transactions, certain
orthodontists who were affiliated with the Founding Practices and served
on the Company's Advisory Board resigned such positions and their vested
options were returned to the Company and their unvested options were
F-8
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001, Continued
(UNAUDITED)
4. ASSETS HELD FOR SALE AND TERMINATION OF AFFILIATION WITH CERTAIN
FOUNDING PRACTICES, CONTINUED:
cancelled. As a result, the Company recorded a reduction in deferred
compensation of $37,318 for the nine months ended September 30, 2000.
In 1999, in connection with the discussions to terminate the affiliation
with the remaining Founding Practices, the Company entered into
standstill arrangements with these Founding Practices. Therefore, the
Company classified certain practice assets and liabilities as assets
held for sale at December 31, 2000 as follows:
Billed and unbilled patient receivables, net $ 50,655
Property and equipment, net 8,530
Other assets and liabilities, net (19,867)
------------
39,318
Less: asset impairment charge (30,000)
------------
Assets held for sale $ 9,318
============
5. AUTHORITATIVE PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board issued two new
Statements of Financial Accounting Standards ("SFAS"). SFAS No. 141,
"Business Combinations," requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001,
establishes specific criteria for the recognition of intangible assets
separately from goodwill and requires unallocated negative goodwill to
be written off. SFAS No. 141 is effective for all business combinations
effective after June 30, 2001. SFAS No. 142, "Goodwill and Other
Intangible Assets," addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 31, 2001. The Company does not
believe that the adoption of these pronouncements will have a material
impact on the Company's financial position or results of operations.
F-9