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 September 30, 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
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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 November 14, 2000, the number of shares of Common Stock of the
issuer outstanding was 3,933,571.
Traditional Small Business Disclosure Format (check one) Yes [X] No [ ]
Documents Incorporated By Reference None
ORTHODONTIX, INC.
FORM 10-QSB
QUARTER ENDED September 30, 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.............................4
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
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 (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 three
and nine months ended September 30, 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, among others, risks
related to the terms upon which and the extent to which the Company terminates
its affiliation with the Remaining Practice (as defined below), the ability of
the Company to locate and consummate an acquisition with an acquired business
and risks detailed in the Company's filings with the Securities and Exchange
Commission.
OVERVIEW
As of June 6, 2000, the Company terminated its affiliation with all
orthodontic practices except Dr. Stephen Grussmark's practice. The Company is in
discussions with Dr. Grussmark regarding his practice's affiliation with the
Company. 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
orthodontic practices, the Company sold orthodontic practice assets back to the
practices, terminated its management relationship with such practices, and
received in the aggregate $1,376,285 in cash, $691,300 in notes receivable and
2,026,504 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
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 and nine months ended September 30,
2000. For the three and nine months ended September 30, 1999, the Company
generated approximately $167,000 and $3,510,000, respectively.
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 and nine months ended
September 30, 2000 compared to approximately $156,000 and $2,733,000 for the
three and nine months ended September 30, 1999, respectively. 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 $16,000 and $162,000 for the three and nine months ended September
30, 2000, respectively, compared to approximately $425,000 and $1,426,000 for
the three and nine months ended September 30, 1999, respectively. Included in
general and administrative expenses for the three and nine months ended
September 30, 2000 are non-cash expenses of approximately $0 and $22,000,
respectively, compared to $9,000 and $582,000 for the three and nine months
ended September 30, 1999. In addition, approximately $28,000 and $116,000 for
the three and nine months ended September 30, 1999, respectively, related to the
previous issuance of certain stock options.
The Company for the three and nine months ended September 30, 1999
recognized a provision for losses on advances to affiliated practices of $0 and
$270,000, respectively, and an asset impairment charge of approximately $0 and
$285,000, respectively, as a result of the sale by the Company of certain
practice assets. The Company recorded a gain of approximately $0 and $32,000 for
the three and nine months ended September 30, 2000, respectively, as a result of
the sale by the Company of certain practice assets.
OTHER INCOME
Interest income represents interest earned on excess cash balances
invested primarily in short-term money market accounts and certificates of
deposits as well as amounts payable from certain formerly affiliated
orthodontists. For the three and nine months ended September 30, 2000, the
Company's interest income was approximately $28,000 and $88,000, respectively.
For the three and nine months ended September 30, 1999, the Company's interest
income was approximately $17,000 and $55,000, respectively.
2
NET INCOME (LOSS)
For the three and nine months ended September 30, 2000, the Company had
income of approximately $12,000 ($.00 per share) and a loss of approximately
$41,000 ($.01 per share), respectively. For the three and nine months ended
September 30, 1999, the Company recorded a net loss of approximately $211,000
($.04 per share) and $621,000 ($.11 per share).
Included in the expenses for the three and nine months ended September
30, 2000 are non-cash expense items of approximately $0 and $22,000,
respectively, related to previously issued stock options compared to
approximately $28,000 and $116,000 for the three and nine months ended September
30, 1999, respectively. During the three and nine months ended September 30,
2000, the Company's income, excluding non-cash expense items, was approximately
$12,000 and a loss of $19,000, respectively. During the three and nine months
ended September 30, 1999, the Company had a loss of $174,000 and income of
$77,000, respectively, excluding non-cash expense items.
Computations 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 September 30, 2000, the Company had a working capital balance of
approximately $1,397,000. 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 September 30, 2000 and December 31, 1999, the Company had cash
and cash equivalents of approximately $380,000 and $407,000, respectively. As of
September 30, 2000 and December 31, 1999, the Company had total liabilities of
approximately $391,000 and $459,000, respectively. As of September 30, 2000, the
Company had short-term investments of approximately $1,110,000 which consist of
certificates of deposit. 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
On June 29, 2000, the Company was served with a Complaint from a firm
which had provided consulting services to the Company, for damages arising out
of the firm's allegations that the Company has breached its obligation to pay
for services. The firm has alleged damages in the amount of $67,188. The lawsuit
is pending in the Circuit Court of the 17th Judicial Circuit in Broward County,
Florida. The Company is defending against the complaint.
On October 3, 2000, the Company entered into a settlement agreement
whereby the Company paid $35,000 and returned to a third party lessor its
remaining computer equipment in exchange for the Company being released from its
obligation to pay to the third party lessor $71,552.
3
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the third quarter ended September 30, 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
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: November 14, 2000 By: /s/ F.W. Mort Guilford
----------------------------------------
F.W. Mort Guilford
President (Principal Executive Officer)
Date: November 14, 2000 By: /s/ Alan Jay Weisberg
----------------------------------------
Alan Jay Weisberg
Acting Chief Financial Officer
(Principal Financial and Accounting
Officer)
5
INDEX TO FINANCIAL STATEMENTS
Pages
Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999 F-2
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the
Nine Months Ended September 30, 2000 (Unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited) F-5
Notes to the Condensed Consolidated Financial Statements F-6
F-1
Orthodontix, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
September 30, 2000 December 31,
ASSETS (Unaudited) 1999
------------------ -------------
Current assets:
Cash and cash equivalents $ 379,918 $ 407,474
Investment 1,110,098 1,061,709
Prepaid expenses and other current assets 298,110 174,604
------------- -------------
Total current assets 1,788,126 1,643,787
Advances to Founding Practices, net of allowance of $117,000 at
September 30, 2000 and $528,000 at December 31, 1999 5,747 14,929
Assets held for sale, net 9,318 65,597
Notes and other receivables 30,783 249,972
Deferred tax asset 73,825 73,825
------------- -------------
Total assets $ 1,907,799 $ 2,048,110
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 294,679 $ 327,703
Lease payable 22,833 57,833
Deferred tax liability 73,825 73,825
------------- -------------
Total current liabilities 391,337 459,361
------------- -------------
Total liabilities 391,337 459,361
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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,
3,933,571 and 4,200,849 shares issued and outstanding
at September 30, 2000 and December 31, 1999, respectively 393 420
Additional paid-in capital 4,409,502 4,527,496
Accumulated deficit (2,893,433) (2,852,423)
Less: deferred compensation - stock options -- (86,744)
------------- -------------
Total stockholders' equity 1,516,462 1,588,749
------------- -------------
Total liabilities and stockholders' equity $ 1,907,799 $ 2,048,110
============= =============
The accompanying notes are an integral part of these 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,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Management service fee revenue $ -- $ 166,750 $ -- $ 3,511,277
----------- ----------- ----------- -----------
Direct practice expenses:
Salaries and benefits -- 56,747 -- 1,274,759
Orthodontic supplies -- 35,572 -- 456,953
Rent -- 30,324 -- 501,948
Depreciation and amortization -- 3,378 -- 73,027
Other -- 30,091 -- 426,351
----------- ----------- ----------- -----------
Total direct practice expenses -- 156,112 -- 2,733,038
General and administrative 15,573 425,420 161,559 1,426,384
Provision for losses on advances to Founding Practices -- -- -- 270,000
Asset impairment charge -- -- -- 285,000
Gain on sale of certain assets of Founding Practices (Note 4) -- (196,342) (32,151) (555,181)
Depreciation and amortization -- 9,009 -- 26,997
----------- ----------- ----------- -----------
Total expenses 15,573 394,199 129,408 4,186,238
----------- ----------- ----------- -----------
Net operating loss (15,573) (227,449) (129,408) (674,961)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 27,998 16,660 88,398 55,495
Interest expense -- (164) -- (1,113)
----------- ----------- ----------- -----------
Total other income 27,998 16,496 88,398 54,382
----------- ----------- ----------- -----------
Net income (loss) $ 12,425 $ (210,953) $ (41,010) $ (620,579)
=========== =========== =========== ===========
Income (loss) per common and common
equivalent share:
Basic $ 0.00 $ (0.04) $ (0.01) $ (0.11)
=========== =========== =========== ===========
Diluted $ 0.00 $ (0.04) $ (0.01) $ (0.11)
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding -
basic and diluted 3,933,571 4,953,475 4,041,572 5,452,734
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
Orthodontix, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
for the nine months ended September 30, 2000
- --------------------------------------------------------------------------------
Additional
Common Stock 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 (267,278) (27) (52,972) -- -- (52,999)
Amortization of deferred
compensation -- -- -- -- 21,722 21,722
Forfeiture of deferred
compensation -- -- (65,022) -- 65,022 --
Net loss for the period -- -- -- (41,010) -- (41,010)
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2000 3,933,571 $ 393 $ 4,409,502 $(2,893,433) $ -- $ 1,516,462
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
Orthodontix, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
--------------------------------
2000 1999
------------- -------------
Cash flows from operating activities:
Net loss $ (41,010) $ (620,579)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization -- 100,024
Bad debt expense -- 116,946
Noncash compensation expense 21,722 116,198
Provision for advances to Founding Practices -- 270,000
Asset impairment charge -- 285,000
Gain on sale of doctor practices (32,151) (555,181)
Changes in assets and liabilities (137,288) (1,030,630)
------------- -------------
Net cash used in operating activities (188,727) (1,318,222)
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment -- (31,376)
Proceeds from sales of certain practices assets 35,000 984,562
Payments received from notes receivable 161,171 356,791
------------- -------------
Net cash provided by investing activities 196,171 1,309,977
------------- -------------
Cash flows from financing activities:
Payment of lease obligation (35,000) (6,304)
------------- -------------
Net cash used in financing activities (35,000) (6,304)
------------- -------------
Net decrease in cash and cash equivalents (27,556) (14,549)
Cash and cash equivalents, beginning of period 407,474 1,289,481
------------- -------------
Cash and cash equivalents, end of period $ 379,918 $ 1,274,932
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
Orthodontix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 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 nine months ended September 30, 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:
September 30, 2000 December 31,
(Unaudited) 1999
-------------------- --------------
Accounts payable $ 203,279 $ 312,304
Other accrued expenses 91,400 15,399
-------------------- --------------
$ 294,679 $ 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 nine months periods ended
September 30, 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
Orthodontix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2000 (Unaudited)
- --------------------------------------------------------------------------------
4. Assets Held for Sale and Termination of Affiliation with Certain Founding
Practices
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 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 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 $0 and $32,000
for the three and nine months ended September 30, 2000, respectively.
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 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 related to the
one remaining Founding Practice as assets held for sale at September 30,
2000 as follows:
F-7
Orthodontix, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 2000 (Unaudited)
- --------------------------------------------------------------------------------
4. Assets Held for Sale and Termination of Affiliation with Certain Founding
Practices, Continued
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. 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 nine months ended September 30,
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
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
5
9-MOS
DEC-31-2000
JAN-01-2000
SEP-30-2000
379,918
1,110,098
0
0
0
1,788,126
0
0
1,907,799
391,337
0
0
0
393
1,516,069
1,907,799
0
0
0
129,408
0
0
0
(41,010)
0
(41,010)
0
0
0
(41,010)
(.01)
(.01)
