SEC Filing - Protalix BioTherapeutics

1 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 EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2000 [ ] 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. 000-27836 ORTHODONTIX, INC. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) FLORIDA 65-0643773 ------------------------------ ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 600 Brickell Avenue, Suite 300 M Miami, Florida 33131 - -------------------------------------------------------------------------------- (Address of principal executive offices) (305) 373-1002 - -------------------------------------------------------------------------------- (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 May 12, 2000, the number of shares of Common Stock of the issuer outstanding was 3,987,563. Traditional Small Business Disclosure Format (check one): Yes [X] No [ ] Documents Incorporated By Reference: None.

2 ORTHODONTIX, INC. FORM 10-QSB QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION....................................................................................1 Item 1. Financial Statements.....................................................................................1 Item 2. Management's Discussion And Analysis or Plan of Operation................................................1 PART II - OTHER INFORMATION.......................................................................................3 Item 1. Legal Proceedings........................................................................................3 Item 2. Changes in Securities and Use of Proceeds................................................................3 Item 3. Defaults upon Senior Securities..........................................................................4 Item 4. Submission of Matters to a Vote of Security Holders......................................................4 Item 5. Other Information........................................................................................4 Item 6. Exhibits and Reports on Form 8-K.........................................................................4 SIGNATURES........................................................................................................5 INDEX TO FINANCIAL STATEMENTS...................................................................................F-1

3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The unaudited, condensed consolidated financial statements 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 generally accepted accounting principles. In the opinion of management, all adjustments (consisting of 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 three months ended March 31, 2000 are not necessarily indicative of the results of operations expected for the year ending December 31, 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis 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 Orthodontix, Inc. (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 whether and to what extent the Company is able to terminate its affiliation with the Remaining Practice (as defined below) and whether and to what extent the Company is able to attract a business combination candidate, and, among others, risks detailed in the Company's filings with the Securities and Exchange Commission. CESSATION OF THE ORTHODONTIC PRACTICE MANAGEMENT BUSINESS As of May 12, 2000, the Company has terminated its affiliation with all orthodontic practices except two. The Company has entered into an agreement in principle with one of the remaining practices to terminate its affiliation with the Company and is in discussions with the other remaining practice regarding its affiliation with the Company. The remaining practice which has not entered into an agreement in principle is Dr. Grussmark's practice. Dr. Grussmark is the Chief Executive Officer and a member of the Board of Directors of the Company. The Company has not provided any management services since November 1999 and accordingly, has generated no fee revenue since November 1999. In connection with the termination of its affiliation with the Founding Practices, the Company sold orthodontic practice assets back to the practices, terminated its management relationship with such practices, and received in the aggregate $1,341,285 in cash, $691,300 in notes receivable and 1,894,158 shares of the Company's Common Stock. To the extent the Company terminates its affiliation with Dr. Grussmark's practice (the "Remaining Practice"), the Company presently intends to seek to effect a business combination with an acquired business. There can be no assurances that the Company will enter into an arrangement to terminate its affiliation with the Remaining Practice on terms favorable to the Company, if at all. 1

4 RESULTS OF OPERATIONS (UNAUDITED) MANAGEMENT SERVICE FEE REVENUE Management service fee revenue reported by the Company was derived by principally applying the appropriate management fee percentage to the adjusted accrual based patient revenue and adding the reimbursement from the affiliated practices of practice expenses paid by the Company. The Company generated no management service fee revenue for the three months ended March 31, 2000. For the three months ended March 31, 1999, the Company generated approximately $2.16 million in management service fee revenue. DIRECT PRACTICE AND CORPORATE EXPENSES Direct practice expenses include clinical and other practice expenses. Corporate expenses include corporate general and administrative expenses. The Company incurred no direct practice expenses for the three months ended March 31, 2000 compared to approximately $1.66 million for the three months ended March 31, 1999. The Company's direct practice expenses consisted primarily of salaries and benefits, orthodontic supplies, rent, advertising and marketing, and depreciation. The Company also incurred corporate general and administrative expenses of approximately $68,000 for the three months ended March 31, 2000, compared to approximately $564,000 for the three months ended March 31, 1999. Included in general and administrative expenses for the three months ended March 31, 2000 and 1999 are non-cash expenses of approximately $17,000 and $43,000, respectively, related to the previous issuance of certain stock options. In addition, for the three months ended March 31, 1999, the Company also recorded a provision for losses on advances to Founding Practices of $40,000 and an asset impairment charge of $285,000. Such amounts were recorded during the three month period ended March 31, 1999 in connection with the negotiation and subsequent termination of the affiliations with practices. INTEREST INCOME Interest income represents interest earned on excess cash balances invested primarily in short-term money market accounts and overnight repurchase agreements as well as amounts payable from certain formerly affiliated orthodontists. For the three months ended March 31, 2000, the Company's interest income was approximately $27,000. For the three months ended March 31, 1999, the Company's interest income was approximately $26,000. 2

5 NET LOSS For the three months ended March 31, 2000, the Company recorded a net loss of approximately $41,000 or approximately ($.01 per share). For the three months ended March 31, 1999, the Company recorded a net loss of approximately $372,000 or approximately ($.06 per share). Included in the expenses for the three months ended March 31, 2000 and 1999 are non-cash expense items of approximately $17,000 and $43,000, respectively, related to previously issued stock options. In addition, for the three months ended March 31, 1999, the Company also recorded non-cash expense items related to an allowance for losses on advances to Founding Practices of $40,000, an asset impairment charge of $285,000 and depreciation of $9,000. During the three months ended March 31, 2000 and 1999, the Company's loss, excluding non-cash expense items (other than the allowance and asset impairment charge), was approximately $24,000 or ($.01 per share) and $320,000 or ($.05 per share), respectively. Losses excluding non-cash expense items is not presented as an alternative to operating results or cash flow from operations as determined by generally accepted accounting principles (GAAP) but rather to provide additional information related to the ability of the Company to meet its cash flow needs. This information should not be considered in isolation from, or construed as having greater importance than GAAP operating income/loss or cash flows from operations as a measure of an entity's performance. LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION As of March 31, 2000, the Company had a working capital balance of approximately $1,197,000. The Company anticipates that the primary uses of capital will include the costs related to the unwinding of the Remaining Practice and funding the working capital needs of the Company. As of March 31, 2000 and December 31, 1999, the Company had cash and cash equivalents of approximately $376,000 and $407,000, respectively. As of March 31, 2000 and December 31, 1999, the Company had total liabilities of approximately $423,000 and $459,000, respectively. The Company's cash is currently invested in certificates of deposit and short term money market accounts. In addition, as of March 31, 2000, the Company had short-term investments of approximately $1,075,000 which consist of certificates of deposits. The Company believes that its operating funds will be sufficient for its cash expenses for at least the next twelve months. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the three months ended March 31, 2000, the Company terminated its affiliation with two affiliated practices pursuant to which these affiliated orthodontists terminated their affiliation 3

6 with the Company and repurchased practice assets in exchange for an aggregate of 134,932 shares of the Company's Common Stock. Subsequent to March 31, 2000, the Company terminated its affiliation with one additional affiliated practice pursuant to which this affiliated orthodontist terminated his affiliation with the Company and repurchased practice assets in exchange for an aggregate of $35,000 cash and 78,354 shares of the Company's Common Stock. Upon receipt by the Company of its shares of Common Stock in connection with these asset sales, the Company retires such shares and the shares become authorized but unissued shares of the Company. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the first quarter ended March 31, 2000, 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. 27.1 Financial Data Schedule (b) Reports on Form 8-K None. 4

7 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) Date: May 12, 2000 By: /s/ F.W. Mort Guilford -------------------------------------- F.W. Mort Guilford President (Principal Executive Officer) Date: May 12, 2000 By: /s/ Alan Jay Weisberg -------------------------------------- Alan Jay Weisberg Acting Chief Financial Officer, Chief Accounting Officer 5

8 INDEX TO FINANCIAL STATEMENTS Pages ----- Condensed Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and December 31, 1999 F-2 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 (Unaudited) F-3 Condensed Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended March 31, 2000 (Unaudited) F-4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 (Unaudited) F-5 Notes to the Condensed Consolidated Financial Statements F-6 F-1

9 ORTHODONTIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 2000 DECEMBER 31, (UNAUDITED) 1999 ------------- ----------- ASSETS Current assets: Cash and cash equivalents $ 375,557 $ 407,474 Investment 1,074,584 1,061,709 Prepaid expenses and other current assets 169,179 174,604 ----------- ----------- Total current assets 1,619,320 1,643,787 Advances to Founding Practices, net of allowance of $275,000 at March 31, 2000 and $528,000 at December 31, 1999 14,929 14,929 Assets held for sale, net 58,877 65,597 Notes and other receivables 203,617 249,972 Deferred tax asset 73,825 73,825 ----------- ----------- Total assets $ 1,970,568 $ 2,048,110 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 291,152 $ 327,703 Lease payable 57,833 57,833 Deferred tax liability 73,825 73,825 ----------- ----------- Total current liabilities 422,810 459,361 ----------- ----------- Total liabilities 422,810 459,361 ----------- ----------- Commitments and contingencies 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, 4,065,917 and 4,200,849 shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively 407 420 Additional paid-in capital 4,469,012 4,527,496 Accumulated deficit (2,893,809) (2,852,423) Less: deferred compensation - stock options (27,852) (86,744) ----------- ----------- Total stockholders' equity 1,547,758 1,588,749 ----------- ----------- Total liabilities and stockholders' equity $ 1,970,568 $ 2,048,110 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-2

10 ORTHODONTIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ----------------------------------- 2000 1999 ----------- ----------- Management service fee revenue $ -- $ 2,162,728 ----------- ----------- Direct practice expenses: Salaries and benefits -- 799,926 Orthodontic supplies -- 274,820 Rent -- 282,598 Depreciation and amortization -- 51,240 Other -- 253,310 ----------- ----------- Total direct practice expenses -- 1,661,894 General and administrative 68,180 564,183 Provision for losses on advances to Founding Practices -- 40,000 Asset impairment charge -- 285,000 Depreciation and amortization -- 9,059 ----------- ----------- Total expenses 68,180 2,560,136 ----------- ----------- Net operating loss (68,180) (397,408) ----------- ----------- Other income (expense): Interest income 26,794 25,822 Interest expense -- (473) ----------- ----------- Total other income 26,794 25,349 ----------- ----------- Net loss $ (41,386) $ (372,059) =========== =========== Loss per common and common equivalent share: Basic $ (0.01) $ (0.06) =========== =========== Diluted $ (0.01) $ (0.06) =========== =========== Weighted average number of common and common equivalent shares outstanding - basic and diluted 4,183,112 5,881,721 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-3

11 ORTHODONTIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2000 Common Stock Additional ----------------------------- Paid-In Accumulated Deferred Shares Amounts Capital Deficit Compensation Total ----------- ----------- ----------- ----------- ------------ ----------- Balance, December 31, 1999 4,200,849 $ 420 $ 4,527,496 $(2,852,423) $ (86,744) $ 1,588,749 Shares retired in connection with sale of assets (134,932) (13) (16,854) -- -- (16,867) Amortization of deferred compensation -- -- -- -- 17,262 17,262 Forfeiture of deferred compensation -- -- (41,630) -- 41,630 -- Net loss for the period -- -- -- (41,386) -- (41,386) ----------- ----------- ----------- ----------- ----------- ----------- Balance, March 31, 2000 4,065,917 $ 407 $ 4,469,012 $(2,893,809) $ (27,852) $ 1,547,758 =========== =========== =========== =========== =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-4

12 ORTHODONTIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ----------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $ (41,386) $ (372,059) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization -- 60,299 Bad debt expense -- 63,050 Noncash compensation expense 17,262 43,469 Provision for advances to Founding Practices -- 40,000 Asset impairment charge -- 285,000 Changes in assets and liabilities (59,082) (631,039) ----------- ----------- Net cash used in operating activities (83,206) (511,280) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment -- (34,255) Payment of notes receivable 51,289 17,147 ----------- ----------- Net cash provided by (used in) investing activities 51,289 (17,108) ----------- ----------- Cash flows from financing activities: Payment of lease obligation -- (6,305) ----------- ----------- Net cash used in financing activities -- (6,305) ----------- ----------- Net decrease in cash and cash equivalents (31,917) (534,693) Cash and cash equivalents, beginning of period 407,474 1,289,481 ----------- ----------- Cash and cash equivalents, end of period $ 375,557 $ 754,788 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. F-5

13 ORTHODONTIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (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 generally accepted accounting principles 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 three months ended March 31, 2000 are not necessarily indicative of the results of operations to be expected for the year ended December 31, 2000. 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, 2000. 2. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following: March 31, 2000 December 31, (Unaudited) 1999 -------------- ------------ Accounts payable $260,753 $312,304 Other accrued expenses 30,399 15,399 -------- -------- $291,152 $327,703 ======== ======== 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 three month periods ended March 31, 2000 and 1999, 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

14 ORTHODONTIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000, CONTINUED (UNAUDITED) 4. ASSETS HELD FOR SALE AND TERMINATION OF AFFILIATION WITH CERTAIN FOUNDING PRACTICES: During the three months ended March 31, 2000, the Company sold certain practice assets, consisting principally of accounts receivable and property and equipment, and certain liabilities to two of the Founding Practices. As a result of these transactions, the Company received 134,932 shares of the Company's common stock which was valued at $16,867. Such consideration received include amounts repaid to the Company by the Founding Practices related to amounts outstanding that previously had been classified as Advances to Founding Practices. The assets sold or settled as a result of the transactions, described above, were as follows: Billed and unbilled patient receivables, net $ 35,921 Property and equipment, net 13,670 Other assets and liabilities, net (32,724) -------- $ 16,867 ======== 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 $13,926 for the three months ended March 31, 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 March 31, 2000 as follows: Billed and unbilled patient receivables, net $ 78,017 Property and equipment, net 20,786 Other assets and liabilities, net (9,926) -------- 88,877 Less: asset impairment charge (30,000) -------- Assets held for sale $ 58,877 ======== F-7

15 ORTHODONTIX, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000, CONTINUED (UNAUDITED) 4. ASSETS HELD FOR SALE AND TERMINATION OF AFFILIATION WITH CERTAIN FOUNDING PRACTICES, CONTINUED: Subsequent to March 31, 2000, the Company sold certain practice assets and liabilities to an additional Founding Practice. In connection with this transaction, the Company received $35,000 in cash and 78,354 shares of the Company's stock. The Company continues discussion with the remaining Founding Practices. 5. STOCK OPTIONS: In March 1999, the Company granted one of the non-employee directors an option exercisable for a period of two years to acquire 80,000 shares of the Company's common stock as compensation for the director's other services which he had and would provide to the Company over the two year period. In March 2000, the non-employee director resigned from the Company's Board of Directors and all board committees and he returned his options to the Company. As a result, the Company recorded a reduction in deferred compensation of $27,704 for the three months ended March 31, 2000. 6. CONTINGENCIES: The Company is exposed to various asserted and unasserted claims in its normal course of business. In the opinion of management, the resolution of these matters will not have a material effect on the Company's financial position, results of operations or cash flows. F-8

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF ORTHODONTIX, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 375,557 1,074,584 0 0 0 1,619,320 0 0 1,970,568 422,810 0 0 0 407 1,547,351 1,970,568 0 0 0 0 68,180 (68,180) 0 (41,386) 0 (41,386) 0 0 0 (41,386) (0.01) (0.01)