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 June 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 charter)
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)
_________________________________________________________________
(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 August 14, 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 JUNE 30, 2001
TABLE OF CONTENTS
PART I
Item 1. Financial Information 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 2
Item 5. Other Information 2
Item 6. Exhibits and Reports on Form 8-K 3
SIGNATURES 3
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.
The results of operations for the six months ended June 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
As of November 1999, the Company ceased providing management services to
orthodontic practices and, accordingly, has generated no management service fee
or other revenue since November 1999. In addition, at that time, the Company
began terminating its affiliation with orthodontic practices.
As of December 31, 2000, the Company had terminated its affiliation with
all orthodontic practices, except for the practice of Dr. Stephen M. Grussmark,
and had sold orthodontic practice assets back to the practices. On May 14,
2001, the Company terminated its affiliation with the orthodontic practice of
Dr. Grussmark.
In connection with the termination of the orthodontic practice management
business, the Company's Chairman of the Board, the Company's Chief Executive
Officer, who was a board member, and the Company's President and Chief Operating
Officer, who was also a board member, resigned their positions and, together
with the Company's counsel, returned 921,572 shares of common stock of the
Company during the quarter ended June 30, 2001.
In connection with the sale of the practice assets back to the practices
the Company received, in the aggregate, $1,341,285 in cash, $691,300 in notes
receivable and 2,044,721 shares of its Common Stock, of which 96,571 shares were
received during the three months ended June 30, 2001. In addition,
1
certain outstanding stock options were cancelled with exercise prices ranging
from $8.00 to $9.11. Except for the transaction with Dr. Grussmark, the Company
had recorded the sale of practice assets and the shares returned in connection
with the resignations of management as of December 31, 2000, and such
transactions 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 $52,524 and $224,788 for the three and six
months ended June 30, 2001, respectively. Such losses are primarily a result of
the Company's general and administrative expenses, which were $65,048 for the
three months ended June 30, 2001 and $170,872 for the six months ended June 30,
2001. The Company does not expect to incur significant future costs relating to
the termination of the orthodontic practice management business. The Company
received interest income during the three and six months ended June 30, 2001 of
approximately $12,524 and $40,084, respectively.
As of June 30, 2001, the Company had current assets of approximately
$1,101,000, consisting primarily of cash and cash equivalents of $946,000, and
had current liabilities of approximately $131,000. 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
2
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 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.
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: August 14, 2001 By: /s/ Glenn L. Halpryn
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Glenn L. Halpryn
Chairman and President (Principal
Executive Officer)
Dated: August 14, 2001 By: /s/ Alan Jay Weisberg
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Alan Jay Weisberg
Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)
3
INDEX TO FINANCIAL STATEMENTS
Pages
Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited)
and December 31, 2000 F-2
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended June 30, 2001 and 2000 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Six Months Ended June 30, 2001 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 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
JUNE 30, 2001 DECEMBER 31,
ASSETS (UNAUDITED) 2000
--------------- ------------
Current assets:
Cash and cash equivalents $ 946,193 $ 390,739
Investment - 1,217,218
Prepaid expenses and other current assets 154,463 191,178
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Total current assets 1,100,656 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 7,270 16,411
Deferred tax asset 73,825 73,825
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Total assets $ 1,181,751 $ 1,904,436
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 57,633 $ 486,783
Deferred tax liability 73,825 73,825
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Total current liabilities 131,458 560,608
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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 June 30, 2001 and December 31, 2000, respectively 292 393
Additional paid-in capital 4,232,821 4,409,502
Accumulated deficit (3,182,820) (2,958,032)
Less: common stock receivable - (108,035)
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Total stockholders' equity 1,050,293 1,343,828
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Total liabilities and stockholders' equity $ 1,181,751 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
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2001 2000 2001 2000
------------- ------------- ------------- --------------
Management service fee revenue $ - $ - $ - $ -
----------- ----------- ----------- -----------
Direct practice expenses - - - -
General and administrative 65,048 77,806 170,872 145,986
(Gain) loss on sale of certain assets of Founding
Practices (Note 4) - (32,151) 94,000 (32,151)
----------- ----------- ----------- -----------
Total expenses 65,048 45,655 264,872 113,835
----------- ----------- ----------- -----------
Net operating loss (65,048) (45,655) (264,872) (113,835)
----------- ----------- ----------- -----------
Other income:
Interest income 12,524 33,606 40,084 60,400
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Total other income 12,524 33,606 40,084 60,400
----------- ----------- ----------- -----------
Net loss $ (52,524) $ (12,049) $ (224,788) $ (53,435)
=========== =========== =========== ===========
Loss per common and common
equivalent share:
Basic $ (0.02) $ (0.00) $ (0.06) $ (0.01)
=========== =========== =========== ===========
Diluted $ (0.02) $ (0.00) $ (0.06) $ (0.01)
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding -
basic and diluted 3,149,591 4,008,032 3,541,581 4,095,572
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
ORTHODONTIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(UNAUDITED)
for the six months ended June 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
with sale of assets and
settlements (1,018,143) (101) (176,681) - 108,035 (68,747)
Net loss for the period - - - (224,788) - (224,788)
------------ -------- ------------ ------------- ----------- ------------
Balance, June 30, 2001 2,915,428 $ 292 $ 4,232,821 $ (3,182,820) $ - $ 1,050,293
============ ======== ============ ============= =========== ============
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)
SIX MONTHS ENDED
JUNE 30,
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2001 2000
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Cash flows from operating activities:
Net loss $ (224,788) $ (53,435)
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 700,412 (77,290)
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Net cash provided by (used in) operating activities 569,624 (141,154)
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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 64,765 130,705
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Net cash (used in) provided by investing activities (14,170) 165,705
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Net increase in cash and cash equivalents 555,454 24,551
Cash and cash equivalents, beginning of period 390,739 407,474
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Cash and cash equivalents, end of period $ 946,193 $ 432,025
================ ================
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 JUNE 30, 2001, Continued
(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 six months ended June 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:
June 30, 2001 December 31,
(Unaudited) 2000
---------------- ----------------
Accounts payable $ 57,633 $ 83,884
Other accrued expenses - 402,899
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$ 57,633 $ 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 six months periods ended June
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
JUNE 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 have been 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.
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.
F-7
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, Continued
(UNAUDITED)
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 six months ended June 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 three
and six months ended June 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 cancelled.
As a result, the Company recorded a reduction in deferred compensation of
$37,318 for the six months ended June 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
===========
F-8
ORTHODONTIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, Continued
(UNAUDITED)
5. SUBSEQUENT EVENT:
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