U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
[ ] TRANSITION REPORT UNDER 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 in its charter)
FLORIDA 65-0643773
---------------------------- -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1428 Brickell Avenue, Suite 105
Miami, Florida 33131
----------------------------------------
(Address of principal executive offices)
(305) 371-4112
--------------------------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which
registered
------------------- -------------------------------
Common Stock, OTC Electronic Bulletin Board
par value $.0001 per share
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 [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $0.
The aggregate market value of the voting and non-voting stock
held by non-affiliates of the Company based on the closing sales
price of $0.38 of such Common Stock, as of March 21, 2002, is
$790,828 based upon 2,081,127 shares of the Company's Common
Stock outstanding as of March 20, 2002 held by non-affiliates.
For purposes of this computation, all executive officers,
directors and 5% beneficial owners of the Common Stock of the
registrant have been deemed to be affiliates. Such determination
should not be deemed to be an admission that such directors,
officers or 5% beneficial owners are, in fact, affiliates of the
registrant.
As of March 21, 2002, the Company had a total of 2,915,428
shares of Common Stock, par value $.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
ORTHODONTIX, INC.
FORM 10-KSB
FISCAL YEAR ENDED DECEMBER 31, 2001
TABLE OF CONTENTS
Page
----
PART I -1-
Item 1. Description of Business -1-
Item 2. Description of Property -2-
Item 3. Legal Proceedings -2-
Item 4. Submission of Matters to a Vote
of Security Holders -3-
PART II -3-
Item 5. Market for Common Equity and Related Stock
Matters -3-
Item 6. Management's Discussion and Analysis or
Plan of Operation -4-
Item 7. Financial Statements -6-
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure -6-
PART III -7-
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section
16(a) of the Exchange Act -7-
Item 10. Executive Compensation -9-
Item 11. Security Ownership of Certain Beneficial
Owners and Management -11-
Item 12. Certain Relationships and Related
Transactions -12-
Item 13. Exhibits And Reports on Form 8-K -13-
SIGNATURES -14-
EXHIBIT INDEX -15-
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Orthodontix, Inc. (the "Company") was formed as Embassy
Acquisition Corp., a Florida corporation, in November 1995 for
the purpose of effecting a merger with an operating business.
In April 1998, the Company merged with an orthodontic practice
management company and acquired certain assets and assumed
certain liabilities of 26 orthodontic practices (the
"Practices") in exchange for shares of the Company's Common
Stock and the entering into of practice management service
agreements with the Practices (the "Merger"). Upon completing
the Merger, the Company changed its name to Orthodontix, Inc.
and began managing the business aspects of the Practices,
including billing, collections, cash management and payroll
processing, in exchange for a management fee.
CESSATION OF THE ORTHODONTIC PRACTICE MANAGEMENT BUSINESS OF THE
COMPANY
By November 1999, the Company had ceased providing
practice management services to all the Practices and by
December 31, 2000, the Company had terminated its affiliation
with all the Practices except the orthodontic practice of Dr.
Stephen Grussmark, then a director of the Company and the
Company's Chief Executive Officer (the "Remaining Practice").
In connection with the termination of its affiliations and the
cessation of its practice management business, the Company sold
certain practice assets back to the Practices and assumed
certain liabilities. During April 2001, certain of the
Company's executive officers resigned and returned to the
Company shares of its Common Stock and options to acquire Common
Stock. On May 14, 2001, the Company terminated its affiliation
with the Remaining Practice, and Dr. Grussmark resigned his
positions with the Company. Except for the termination of the
Remaining Practice and the resignation of Dr. Grussmark in May
2001, the Company had recorded the sales of all the practice
assets and the shares of Common Stock 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 then ended. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION" at page 4 for a
further discussion.
1
FUTURE PLANS
With the cessation of the orthodontic practice management
business, the Company intends to effect a merger, acquisition or
other business combination with an operating company utilizing
any combination of its Common Stock, cash on hand, or other
funding sources that the Company reasonably believes are
available. Since June 2001, management has devoted
substantially all of its time to identifying potential merger or
acquisition candidates. The Company is looking at established
businesses, and the Company has evaluated more than 100 such
companies operating in selected industries, including business
services, health care, manufacturing, distribution,
pharmaceutical and banking.
Although the Company believes that it will be successful in
consummating a business combination with an operating company,
there can be no assurances that the Company will enter into such
a transaction in the near term or on terms favorable to the
Company, or that other funding sources will be available.
EMPLOYEES
Except for Glenn L. Halpryn, the Company's Chief Executive
Officer, the Company currently has no full-time or part-time
employees. The Company's Acting Chief Financial Officer, Alan
Jay Weisberg, is compensated by the Company on a project basis
through the accounting firm of Weisberg Brause & Co., a firm in
which Mr. Weisberg is a partner.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently maintains, at no cost to the Company,
its executive offices in approximately 500 square feet of office
space located at 1428 Brickell Avenue, Suite 105, Miami, Florida
33131. Such office space represents a portion of the corporate
offices of Transworld Investment Corporation ("TIC"), a company
in which Glenn L. Halpryn and Noah Silver, directors and
executive officers of the Company, are officers and directors.
ITEM 3. LEGAL PROCEEDINGS
None
2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December
31, 2001, no matters were submitted to a vote of security
holders of the Company.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is quoted for trading in
the over-the-counter electronic bulletin board market (the "OTC
Bulletin Board") under the symbol "OTIX." The following table
shows the reported high and low bid quotations for the Common
Stock obtained from the OTC Bulletin Board for the periods
indicated. The high and low bid prices for such periods are
interdealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions.
OTC Bulletin Board Low Bid High Bid
--------------------------- ------------- ------------
2001
First Quarter $.16 $.25
Second Quarter $.15 $.40
Third Quarter $.27 $.35
Fourth Quarter $.22 $.35
2000
First Quarter $.06 $.12
Second Quarter $.06 $.38
Third Quarter $.16 $.53
Fourth Quarter $.14 $.25
The Company has approximately 59 stockholders of record as
of March 21, 2002, inclusive of those brokerage firms and/or
clearinghouses holding the Company's shares of Common Stock for
their clientele (with each such brokerage house and/or clearing-
house being considered as one holder).
The Company has not paid or declared any dividends upon its
Common Stock since its inception and does not contemplate or
anticipate paying any dividends upon its Common Stock in the
foreseeable future.
3
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF
OPERATION
The following discussion with regard to the Company's
financial condition and results 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
substantial 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
from the Company's plans and expectations include, among others,
the Company's inability to consummate an acquisition of an
operating business on terms favorable to the Company or, in the
event the Company does consummate the transaction contemplated,
the Company's ability to successfully manage and operate the
combined business.
The discussion of the Company's financial condition and
plan of operation, should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto
included elsewhere in this Report.
FINANCIAL RESULTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2001
AND DECEMBER 31, 2000.
REVENUES. The Company had ceased providing orthodontic
practice management services to the Practices as of November
1999 and accordingly, no management service fee revenue or other
operating revenue was recorded by the Company during the fiscal
years ended December 31, 2001 and 2000. The Company does not
expect to generate operating revenue until such time as the
Company consummates a business combination with an operating
company.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses were approximately $292,000 and $382,000
for the fiscal years ended December 31, 2001 and 2000,
respectively. During fiscal year 2001, such expenses consisted
primarily of executive officer compensation totaling
approximately $70,800, office and other rents of approximately
$4,900, and legal and accounting costs including costs relating
to the Company's termination of its affiliation with the
Practices amounting to approximately $131,000.
4
The Company incurred costs during the fiscal year ended
December 31, 2001 in connection with the termination of its
practice management business, and the Company anticipates lower
general and administrative expenses until such time as the
Company effects a merger or other business combination with an
operating company.
INTEREST INCOME. Interest income of approximately $57,000
and $126,000, for the fiscal years ended December 31, 2001 and
2000, respectively, represents interest earned on excess cash
balances invested primarily in short-term money market accounts.
The decrease in interest income for fiscal year 2001 is primarily
attributable to lower market rates of interest combined with the
Company's having less excess cash invested during the year.
NET LOSS. For the years ended December 31, 2001 and 2000,
the Company recorded a net loss of approximately $329,000 and
$106,000, respectively, or $0.10 and $.03 per share,
respectively. Included in the financial results for fiscal year
2001 is a $94,000 loss relating to the Company's termination of
its affiliation with the Remaining Practice that occurred in May
2001. The Company sold back to the Remaining Practice its
practice assets and the Remaining Practice assumed certain
liabilities in exchange for 96,571 shares of the Company's Common
Stock. In connection with the sale of practice assets back to
the Remaining Practice, Dr. Grussmark returned to the Company an
additional 345,385 shares of Common Stock for a cash payment of
$115,000 and the payment of $30,000 of legal fees incurred in
completing the transactions, and Dr. Grussmark and the Company
exchanged mutual releases.
The financial results for the year ended December 31, 2000,
include an approximately $32,000 gain relating to the sale of
certain assets and liabilities back to the Practices and
approximately $118,000 of other income.
The Company does not expect to generate net income, if at
all, until such time as it effects a business combination with an
operating company. However, in the event the Company does
consummate a merger or an acquisition of an operating company,
there can be no assurances that the combined operation will
operate profitably.
5
LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION
As of December 31, 2001, the Company had cash and cash
equivalents of approximately $916,000 and total liabilities of
approximately $77,000. The Company's cash is currently invested
in money market accounts demand deposit accounts. The Company
continues to anticipate that the primary uses of working capital
will include general and administrative expenses and costs
associated with seeking to locate and consummate a business
combination. The Company believes that its operating funds will
be sufficient for its cash expenses for at least the next twelve
months. At December 31, 2001, the Company had no ongoing
contractual commitments.
Management of the Company intends to continue devoting
substantially all of its time to identifying merger or
acquisition candidates, targeting established businesses. The
Company has evaluated over 100 such businesses since June 2001.
In the event the Company locates an acceptable operating
business, the Company intends to effect the transaction utilizing
any combination of its Common Stock, cash on hand, or other
funding sources that the Company reasonably believes are
available. However, there can be no assurances that the Company
will be able to consummate a merger or acquisition of an
operating business on terms favorable to the Company, or that
other funding sources will be available.
ITEM 7. FINANCIAL STATEMENTS
The financial statements included herein, commencing at page
F-1, have been prepared in accordance with the requirements of
Regulation S-B.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
6
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are
as follows:
NAME AGE POSITION
---- --- --------
Glenn L. Halpryn 41 Chairman of the Board of
Directors, Chief Executive
Officer, President and
Secretary
Alan Jay Weisberg 56 Acting Chief Financial and
Accounting Officer, Director
Noah M. Silver 43 Director
Glenn L. Halpryn has been the Company's Chief Executive
Officer since May 2001 and Chairman of the Board of Directors,
President and Secretary of the Company since April 2001. Mr.
Halpryn has been a member of the Board of Directors since its
inception and served a previous term as President of the Company
from its inception through the closing of the Merger. Mr.
Halpryn is also Chief Executive Officer and a director of
Transworld Investment Corporation ("TIC"), serving in such
capacity since June 2001. From 1984 to June 2001, Mr. Halpryn
served as Vice President/Treasurer of TIC. From 1999, Mr.
Halpryn also served as Vice President of Ivenco, Inc.
("Ivenco") until Ivenco's merger into TIC in June 2001. In
addition, since 1984, Mr. Halpryn has been engaged in real estate
investment and development activities, including the management,
finance and leasing of commercial real estate. From April 1988
through June 1998, Mr. Halpryn was Vice Chairman of Central Bank,
a Florida state-chartered bank. Since June 1987, Mr. Halpryn has
been the President of and beneficial holder of stock of United
Security Corporation ("United Security"), a broker-dealer
registered with the NASD. From June 1992 through May 1994, Mr.
Halpryn served as the Vice President, Secretary-Treasurer of
Frost Hanna Halpryn Capital Group, Inc., a "blank check" company
whose business combination was effected in May 1994 with Sterling
Healthcare Group, Inc. From June 1995 through October 1996, Mr.
Halpryn served as a member of the Board of Directors of Sterling
Healthcare Group, Inc.
7
Alan Jay Weisberg has been the Company's Acting Chief
Financial Officer since September 1999 and a member of the Board
of Directors and Treasurer of the Company since April 2001. Since
July 1986, Mr. Weisberg has been a stockholder in the accounting
firm of Weisberg Brause & Co., Miami, Florida. Mr. Weisberg has
been the principal financial officer of United Security since
June 1987.
Noah M. Silver has been a member of the Company's Board of
Directors since April 2001 and was a consultant to the Company
during 1999. Mr. Silver has been the Chief Financial Officer of
TIC since June 2001, a firm in which Mr. Halpryn is the Chief
Executive Officer and a director. From March 2000, Mr. Silver
served as the Chief Financial Officer of Ivenco, serving in such
capacity until Ivenco's merger into TIC in June 2001. From
January 1997 through February 1999, Mr. Silver was the President
of Dryclean USA, Florida Division, and Dryclean USA Franchise
Company. From April 1995 through December 1996, Mr. Silver was
the Florida Division Controller and Vice President of Dryclean
USA, the parent company of Dryclean USA, Florida Division. Mr.
Silver is a Certified Public Accountant and a Certified
Management Accountant and has earned a Master of Accounting
Degree.
In May 2001, in connection with the Company's termination of
its affiliation with the Remaining Practice, Dr. Grussmark
resigned his positions with the Company as a director and as the
Company's Chief Executive Officer and Chief Clinical Officer,
positions that Dr. Grussmark had held since the Closing of the
Merger in April 1998.
COMPLIANCE WITH SECTION 16(a)
To the Company's knowledge, based solely upon the Company's
review of Forms 3, 4 and 5 furnished to the Company, for the
fiscal year ended December 31, 2001, no person who was a
director, officer or beneficial owner of more than ten percent of
the Company's outstanding Common Stock or any other person
subject to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") failed to file on a timely basis, reports
required by Section 16(a) of the Exchange Act.
8
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 2001, each
director of the Company (employee and non-employee directors
alike) received $300 for each Board meeting attended as well as
reimbursement for any reasonable business expenses incurred by
the director in connection with his activities on behalf of the
Company. During fiscal year 2001, the Company held three
meetings of the Board of Directors. In addition, directors are
entitled to receive stock options under the 1997 Orthodontix,
Inc. Stock Option Plan. No such stock options were granted to
directors during the fiscal year ended December 31, 2001.
EXECUTIVE COMPENSATION
No executive officer of the Company was compensated more
than $100,000 during the fiscal year ended December 31, 2001. The
following table sets forth all the compensation earned by Dr.
Grussmark, who served as Chief Executive Officer of the Company
during the fiscal years ended December 31, 2001, 2000 and 1999,
and by Glenn L. Halpryn, who has been the Company's Chief
Executive Officer since May 2001.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
----------------------- ------------------------------------------------
Name and Securities
Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
----------------- ----- ------ ----- ------------ --------- ------------
Stephen Grussmark 2001 $ 0 $ 0 $ 0 0 $ 0
Chief Executive 2000 $ 0 $ 0 $ 0 0 $ 0
Officer(1) 1999 $ 0 $ 0 $ 0 0 $ 0
Glenn Halpryn 2001 $71,000 $ 0 $ 0 0 $900
Chief Executive
Officer(2)
(1) Dr. Grussmark resigned from the Company in May 2001.
(2) In April 2001, the Board of Directors of the Company decided to
compensate Mr. Halpryn for his services to the Company during the years ended
December 31, 1999 and 2000 in the amount of $50,000 for each year and to
reimburse Mr. Halpryn for certain legal and accounting fees of approximately
$175,000 paid by Mr. Halpryn from January 1999 through April 2001 for advice
in connection with the termination of the Company's practice management
business and its affiliation with the Practices. Mr. Halpryn had not
previously received any compensation for any of the fiscal years reported.
Mr. Halpryn received $70,833 in salary and $900 in directors' fees during
2001.
9
STOCK OPTION GRANTS IN FISCAL YEAR 2001
No options to purchase shares of the Company's Common Stock
were granted to any executive officer during the fiscal year
ended December 31, 2001. The following table sets forth certain
summary information concerning grants of options to purchase
shares of the Company's Common Stock during the fiscal year ended
December 31, 2001:
Number of Securities % of Total Options Exercise/ Expiration
Underlying Options Granted to Employees Base Price/ Date
Name Granted in Fiscal Year Share
------------------ -------------------- -------------------- ---------- ----------
Stephen Grussmark N/A --- --- ---
Glenn Halpryn N/A --- --- ---
STOCK OPTION EXERCISES IN FISCAL YEAR 2001
AND FISCAL YEAR END OPTION VALUES
No options to purchase shares of the Common Stock of the
Company were exercised by any executive officer of the Company
during the fiscal year ended December 31, 2001 and at December
31, 2001, there were no unexercised options to purchase the
Company's Common Stock held by any executive officer of the
Company. The following table sets forth certain summary
information concerning exercised and unexercised options to
purchase shares of the Company's Common Stock as of December 31,
2001:
Shares Value of Unexercisable In-
Acquired Number of Unexercised the-money Options at FY-
on Value Options at FY-end end Exercisable /
Name Exercise Realized Excercisable/Unexercisable Unexercisable
----------------- -------- -------- -------------------------- ---------------------------
Stephen Grussmark --- N/A 0/0 $0/$0
Glenn L. Halpryn --- N/A 0/0 $0/$0
10
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-
CONTROL ARRANGEMENTS
Neither Mr. Halpryn, the Company's Chief Executive Officer,
nor any other executive officer of the Company, has an employment
agreement with the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information known to the
Company with respect to the beneficial ownership of its Common
Stock as of March 21, 2002 by (i) each stockholder known by the
Company to own beneficially more than 5% of the outstanding
Common Stock, (ii) each named executive officer of the Company,
(iii) each director of the Company, and (iv) all directors and
executive officers as a group. As of March 21, 2002, there were
2,915,428 shares of Common Stock outstanding.
PRINCIPAL SHAREHOLDERS
Name and Address Shares of Common Stock Percent
of Beneficial Owner Beneficially Owned(1) Owned
---------------------------- ---------------------- -------
Stephen Grussmark 450,000(2) 15.4%
7400 N. Kendall Dr., Suite 704
Miami, FL 33156
Glenn L. Halpryn 380,100 13.0%
1428 Brickell Ave., Suite 105
Miami, FL 33131
Alan Jay Weisberg 4,201 0.14%
1428 Brickell Ave., Suite 105
Miami, FL 33131
Noah Silver 0 0%
1428 Brickell Ave., Suite 105
Miami, FL 33131
All Officers and 384,301 13.2%
Directors as a Group
Total Shares Outstanding
as of March 21, 2002 2,915,428
11
(1) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60 days
after March 21, 2002 are deemed outstanding, while such shares
are not deemed outstanding for purposes of computing percentage
ownership of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have
sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where
applicable.
(2) Represents shares of Common Stock held in various trusts
for which either Dr. Grussmark or his wife is the sole trustee
and the beneficiaries of which are Dr. Grussmark, his wife or his
children.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alan Jay Weisberg, CPA, the Company's Acting Chief Financial
Officer since September 1999 and a member of the Company's Board
of Directors and Treasurer since April 2001, is a shareholder of
Weisberg Brause & Company, P.A., which firm was paid $8,683 and
$13,737 during the fiscal years ended December 31, 2001 and 2000,
respectively.
Noah Silver, in addition to directors' fees, received
$10,500 for services he provided to the Company, including travel
to review, analyze and investigate various potential
acquisitions that the Company considered during the fiscal year
ended December 31, 2001.
Since June 2001, the Company has utilized as its principal
office, a portion of the corporate offices of TIC, a company in
which Messrs. Halpryn and Silver are officers and directors. The
Company occupies such space free of rent.
12
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
1. Financial Statements
See page F-1.
2. Exhibits:
See Exhibit Index. The Exhibits listed in the
accompanying Exhibits Index are filed or incorporated by
reference as part of this report.
(b) Reports on Form 8-K:
None
13
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
By: /s/ Glenn Halpryn
Glenn Halpryn, Chief Executive Officer
March 27, 2002
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
By: /s/ Glenn Halpryn
Glenn Halpryn, Chairman of the Board,
Chief Executive Officer, President, Secretary
March 27, 2002
By: /s/ Alan Jay Weisberg
Alan Jay Weisberg, Acting Chief Financial
and Accounting Officer, Director
March 27, 2002
By: /s/ Noah Silver
Noah Silver, Director
March 27, 2002
14
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------ -------------------
2.1* Agreement and Plan of Merger and
Reorganization, dated October 30, 1997,
between Embassy Acquisition Corp. (now known
as Orthodontix, Inc. (the "Company")) and
Orthodontix, Inc. (now known as Orthodontix
Subsidiary, Inc.).
3.1* Amended and Restated Articles of Incorporation
of the Company.
3.2* Bylaws of the Company as amended.
4.1* Form of certificate representing shares of
Common Stock of the Company.
10.1* 1997 Orthodontix, Inc. Stock Option Plan.
10.2* Form of Administrative Services Agreement of
the Company.
10.3* Forms of Services Agreement of the Company.
10.4* Form of Agreement and Plan of Reorganization
of the Company.
10.5* Forms of Lock-Up Agreement.
---------------------------
* Incorporated by reference to the Company's Registration
Statement on Form S-4 declared effective on March 26, 1998 by the
Securities and Exchange Commission, SEC File No. 333-48677.
15
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Operations for the years ended
December 31, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and 2000 F-6
Notes to the Consolidated Financial Statements F-7
F-1
Report of Independent Certified Public Accountants
To the Board of Directors and
Shareholders of Orthodontix, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Orthodontix, Inc. (the "Company") at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Company terminated its affiliation with all of
its Founding Practices as of December 31, 2001. The Company intends to
effect a merger, acquisition or other business combination with an operating
company utilizing any combination of its common stock, cash on hand or other
funding sources.
PricewaterhouseCoopers, LLP
Miami, Florida
March 15, 2002
F-2
ORTHODONTIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 2001 and 2000
------------------------------------------
2001 2000
Assets
Current assets:
Cash and cash equivalents $ 915,635 $ 390,739
Investments - 1,217,218
Prepaid expenses and other current assets 40,493 191,178
------------ ------------
Total current assets 956,128 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 receivable and other assets 67,056 16,411
Deferred tax asset - 73,825
------------ ------------
Total assets $ 1,023,184 $ 1,904,436
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 77,276 $ 486,783
Deferred tax liability - 73,825
------------ ------------
Total current liabilities 77,276 560,608
------------ ------------
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 outstanding
at December 31, 2001 and 2000, respectively 292 393
Additional paid-in capital 4,232,821 4,409,502
Accumulated deficit (3,287,205) (2,958,032)
Less: Common stock receivable - (108,035)
------------ ------------
Total stockholders' equity 945,908 1,343,828
------------ ------------
Total liabilities and stockholders' equity $ 1,023,184 $ 1,904,436
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
ORTHODONTIX, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2001 and 2000
----------------------------------------------
2001 2000
General and administrative expenses $ 291,789 $ 381,852
Loss (gain) on the disposition of certain assets and liabilities
of Founding Practices (Note 4) 94,000 (32,151)
------------ ------------
Total expenses 385,789 349,701
------------ ------------
Operating loss (385,789) (349,701)
------------ ------------
Other income:
Interest income 56,616 126,013
Other income - 118,079
------------ ------------
Total other income 56,616 244,092
------------ ------------
Net loss $ (329,173) $ (105,609)
============ ============
Loss per common and common
equivalent share:
Basic $ (0.10) $ (0.03)
============ ============
Diluted $ (0.10) $ (0.03)
============ ============
Weighted average number of common and
common equivalent shares outstanding -
basic and diluted 3,228,504 4,014,572
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
ORTHODONTIX, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity
For the years ended December 31, 2001 and 2000
-----------------------------------------------
Additional Common
Common Stock Paid-In Accumulated Deferred Stock
Shares Amount Capital Deficit Subtotal Compensation Receivable Total
--------- ---------- ----------- ------------ ---------- ----------- ------------ ----------
Balance, December 31, 1999 4,200,849 $ 420 $ 4,527,496 $(2,852,423) $1,675,493 $ (86,744) $ - $1,588,749
Shares retired in connection
with disposition of assets (267,278) (27) (52,972) - (52,999) - - (52,999)
Shares returned in connection
with settlements - - - - - - (108,035) (108,035)
Net loss for the year ended
December 31, 2000 - - - (105,609) (105,609) - - (105,609)
Amortization of deferred
compensation - - - - - 21,722 - 21,722
Forfeiture of deferred
compensation - - (65,022) - (65,022) 65,022 - -
--------- ---------- ----------- ------------ ---------- ----------- ------------ ----------
Balance, December 31, 2000 3,933,571 393 4,409,502 (2,958,032) 1,451,863 - (108,035) 1,343,828
Shares retired in connection
with disposition of assets
and settlements (1,018,143) (101) (176,681) - (176,782) - 108,035 (68,747)
Net loss for the year ended
December 31, 2001 - - - (329,173) (329,173) - - (329,173)
--------- ---------- ----------- ------------ ---------- ----------- ------------ ----------
Balance, December 31, 2001 2,915,428 $ 292 $ 4,232,821 $(3,287,205) $ 945,908 $ - $ - $ 945,908
======== ========== =========== ============ ========== =========== ============ ==========
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
ORTHODONTIX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2001 and 2000
-----------------------------------------------
2001 2000
------------- ------------
Cash flows from operating activities:
Net loss $ (329,173) $ (105,609)
Adjustments to reconcile net loss to net cash used
in operating activities:
Noncash compensation expense - 21,722
Noncash stock settlement (66,293) (108,035)
Noncash gain on disposition of certain practice assets - (32,151)
Noncash gain on settlement of lease - (22,833)
Changes in assets and liabilities
(net of practice assets sold):
Assets held for sale 9,318 -
Advances to Founding Practices 5,747 (12,601)
Prepaid expenses and other current assets 2,934 25,105
Accounts payable and accrued liabilities (411,961) 181,294
------------- ------------
Net cash used in operating activities (789,428) (53,108)
------------- ------------
Cash flows from investing activities:
Proceeds from the disposition of certain practice assets - 35,000
Redemption of investments 1,217,218 2,244,662
Purchase of investments - (2,400,171)
Payment of notes receivable 97,106 191,882
------------- ------------
Net cash provided by investing activities 1,314,324 71,373
------------- ------------
Cash flows from financing activities:
Payment of lease obligation - (35,000)
------------- ------------
Net cash used in financing activities - (35,000)
------------- ------------
Net increase (decrease) in cash and cash equivalents 524,896 (16,735)
Cash and cash equivalents, beginning of year 390,739 407,474
------------- ------------
Cash and cash equivalents, end of year $ 915,635 $ 390,739
============= ============
Supplemental Disclosure of Cash Flow Information:
Interest paid $ - $ 24
============= ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
1. Description of Business
On April 16, 1998, Orthodontix, Inc. and subsidiaries
("Orthodontix" or the "Company") consummated a merger (the
"Merger") with Embassy Acquisition Corp. ("Embassy"), a
publicly held Florida corporation. Simultaneously with the
closing of the Merger, the Company acquired certain assets and
assumed certain liabilities of 26 orthodontic practices (the
"Founding Practices") (collectively referred to as the
"Affiliated Acquisitions").
At the time of the Affiliated Acquisitions, the Company
entered into Administrative Services Agreements, pursuant to
which the Company provided management services for which the
Company was paid a management fee.
During the year ended December 31, 1999, the Company began
to terminate its affiliation with the Founding Practices and in
November 1999, the Company ceased providing management services
to the Founding Practices. In connection with the termination of
its affiliation with the Founding Practices, the Company sold
certain practice assets, consisting principally of accounts
receivable and property and equipment, to the Founding Practices
and the Founding Practices assumed certain liabilities in
exchange for cash and shares of the Company's common stock. As
of December 31, 2000, the Company had terminated its affiliation
with 25 Founding Practices. The Company terminated its
affiliation with the one remaining Founding Practice during the
year ended December 31, 2001 (see Note 4).
The accompanying consolidated financial statements have
been prepared on the basis which assumes that the Company will
continue to operate as a going concern and which contemplates the
realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The Company has
generated an accumulated deficit of approximately $3.3 million at
December 31, 2001 as a result of operations and the termination
of its affiliation with the Founding Practices. The Company
incurred net losses of approximately $329,000 and $106,000 for
the years ended December 31, 2001 and 2000, respectively.
The Company has spent the last two years negotiating for
the termination of its affiliation with the Founding Practices,
which it completed during the year ended December 31, 2001. The
Company currently intends to effect a merger, acquisition or
other business combination with an operating company utilizing
F-7
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
any combination of its common stock, cash on hand or other
funding sources that the Company believes are available. Since
June 2001, management has devoted substantially all of its time
to identifying potential merger or acquisition candidates. There
can be no assurances that management's efforts to consummate a
merger, acquisition or business combination with an operating
company or management's efforts to identify other funding sources
will be successful. The Company anticipates that its current
working capital is sufficient to fund its operating expenses at
their current level for at least the next twelve months.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include
the accounts of Orthodontix and its wholly owned subsidiaries.
All significant intercompany transactions have been eliminated in
the preparation of the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial
instruments with maturities of 90 days or less at the date of
purchase to be cash equivalents.
The Company maintains its cash and cash equivalents, which
consist principally of demand deposit accounts and money market
accounts, with financial institutions. The balance in demand
deposit accounts, at times, may exceed FDIC insurance limits.
F-8
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
Investments
The Company's investments consisted of certificates of
deposit with maturities of 90 days or more at the date of
purchase. Such investments were with what management believed to
be high quality financial institutions, and thus, limited its
credit exposure. At times, balances in a certificate of deposit
with a financial institution were in excess of the federally
insured limit of $100,000. The investments were carried at cost
plus accrued interest, which approximated the fair value.
Advances to/Amounts Payable to Founding Practices
From time to time, certain funds were advanced to the
Founding Practices to cover expenses and for working capital
purposes. Such amounts were due to the Company on demand.
As a result of negotiating repayment terms with the
Founding Practices, the Company recorded an allowance of
approximately $117,000 at December 31, 2000, related to the
collectibility of such amounts. In connection with the Company's
termination of its affiliation with the Founding Practices, such
advances to/amounts payable to the Founding Practices were
settled.
Income Taxes
The Company utilizes the liability method of accounting
for income taxes. The liability method requires recognition of
deferred tax assets and liabilities based on the differences
between the financial statement and the tax bases of assets and
liabilities using enacted tax rates and laws in effect in the
years in which the differences are expected to reverse. Deferred
tax assets are also established for the future tax benefits of
loss and credit carryovers.
Earnings Per Share
Basic earnings per share is calculated by dividing the net
income or loss by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is
calculated by dividing the net income or loss by the weighted
F-9
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
average number of common 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. Potential common shares for 2001 and
2000 are antidilutive and, thus, are excluded from the
calculation of earnings per share.
Stock Options
The Company has chosen not to apply the fair value
accounting rules in the statements of operations for employee
stock-based compensation. But such treatment is required for
non-employee stock-based compensation. The Company has chosen
the alternative to disclose pro forma net income and earnings per
share as if the fair value based method was used.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board
(the "Board") issued Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations". The
provisions of SFAS No. 141 require that the purchase method of
accounting be used for all business combinations initiated after
June 30, 2001, provide specific criteria for the recognition of
intangible assets separately from goodwill and require
unallocated negative goodwill be written off immediately. SFAS
No. 141 is effective for business combinations effective after
June 30, 2001. In addition, the Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which addresses the
accounting for goodwill and intangible assets subsequent to their
initial recognition. SFAS No. 142 is effective for fiscal years
beginning after December 31, 2001. The adoption of these
pronouncements will not have a material impact on the Company's
financial position or results of operations.
In August 2001, the Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 addresses the recognition and measurement
of the impairment of long-lived assets to be held and used and
the measurement of long-lived assets to be disposed of by sale.
SFAS No. 144 is effective for all fiscal years beginning after
December 15, 2001. The adoption of this pronouncement will not
have a material impact on the Company's financial position or
results of operations.
F-10
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the
following at December 31, 2001 and 2000:
2001 2000
Accounts payable $ 4,214 $ 83,884
Other accrued expenses 73,062 402,899
------------- -------------
$ 77,276 $ 486,783
============= =============
4. Assets Held For Sale and Termination of Affiliation with
Certain Founding Practices
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 of
accounts receivable and property and equipment. In addition, the
Founding Practice assumed certain liabilities. The carrying
value of the practice assets sold less liabilities assumed was
$15,065 at the date of the transaction. Such amounts were
included in advances to founding practices and assets held for
sale, net. 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 for the return of an
additional 345,385 shares of the Company's common stock. The
Company also paid $30,000 for legal expenses in connection with
the transaction. All the shares received from Dr. Grussmark have
been cancelled and are no longer outstanding.
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 described above, the
Company recorded a loss in the amount of $94,000 for the year
ended December 31, 2001.
F-11
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
During the year ended December 31, 2000, the Company sold
certain practice assets, consisting of accounts receivable and
property and equipment, to four Founding Practices. These
Founding Practices assumed certain liabilities. The carrying
value of the practice assets sold less liabilities assumed was
$55,848 at the date of the transactions. As a result of the
transactions occurring during the year ended December 31, 2000,
the Company received $35,000 in cash and 267,278 shares of the
Company's common stock.
As a result of the transactions described above, the
Company recorded a gain of $32,000 for the year ended December
31, 2000.
At December 31, 2001, in connection with previous
transactions with other Founding Practices, the Company had notes
receivable with outstanding balances of $103,571, of which
$36,515 is included in prepaid expenses and other current assets
as such amounts are expected to be repaid in 2002. The interest
rates on these notes range from 6.5% to 8.0% per annum and have
aggregate maturities as follows:
Year ending December 31,
2002 $ 36,515
2003 23,798
2004 43,258
---------------
$ 103,571
===============
5. Commitments and Contingencies
At December 31, 2001, the Company has a month-to-month
operating lease for record storage. The Company incurred rental
expense for noncancelable operating leases and month-to-month
leases of approximately $4,900 and $10,300 for the years ended
December 31, 2001 and 2000, respectively.
The Company also leased equipment under a capital lease,
which was scheduled to expire in 2002. During the year ended
December 31, 2000, the Company settled this lease obligation in
full. As a result of the settlement, the Company paid $35,000 in
cash, returned the leased equipment to the lessor, and recorded
approximately $23,000 in other income related to the settlement
of this obligation for less than the remaining balance of the
lease payments.
F-12
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
In addition, in April 2001, the Company settled certain
outstanding liabilities to companies that had provided
professional services to the Company. In connection with the
settlement with those professional services firms, 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 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.
6. Related Party Transactions
In addition to transactions with related parties described
elsewhere, the Company had the following additional related party
transaction:
In April 2001, the individual who served as the Company's
former Chairman of the Board of Directors and the individual who
served as the President and Chief Operating Officer, 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 per
share. 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.
F-13
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
In April 2001, the Company's Board of Directors authorized
the payment of $100,000 to a member of the Company's Board of
Directors who currently serves as the Company's President. This
individual had provided services to the Company during the years
ended December 31, 2000 and 1999 and had previously been
uncompensated for such services. In addition, the Board of
Directors agreed to reimburse this individual for legal and
accounting fees incurred by the individual in the amount of
approximately $175,000. Such amounts related to services
provided during the years ended December 31, 2000 and 1999 in
connection with the termination of the Company's practice
management business and other Company matters. As a result of
the actions of the Company's Board of Directors, the Company
recorded general and administrative expenses in the amount of
approximately $275,000 for the year ended December 31, 2000.
7. Income Taxes
The components of the income tax expense are as follows
for the years ended December 31, 2001 and 2000:
2001 2000
Deferred:
Federal $ 105,763 $ (61,665)
State 18,105 (10,555)
Change in valuation allowance (123,868) 72,220
---------- -----------
Total $ - $ -
========== ===========
The differences between the effective rate, which was 0%
at December 31, 2001 and 2000, and the U.S. federal income tax
statutory rates are as follows for the years ended December 31,
2001 and 2000:
2001 2000
Tax benefit at statutory rate $ (111,919) $ (35,907)
State income tax, net of
federal benefit (11,949) (6,970)
Nontaxable income - (29,343)
Change in valuation allowance 123,868 72,220
---------- -----------
Total $ - $ -
========== ===========
F-14
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
The significant components of deferred income tax assets
and liabilities are as follows at December 31, 2001 and 2000:
2001 2000
Deferred tax assets:
Start-up expenses $ 79,048 $ 142,040
Net operating loss carryforward 800,998 504,421
Allowance for receivables
and advances - 55,269
Accrued expenses 3,612 37,630
Other, net - 3,074
---------- -----------
883,658 742,434
Valuation allowance (883,658) (668,609)
---------- -----------
$ - $ 73,825
========== ===========
Deferred tax liabilities:
Accounts receivable $ - $ 73,825
---------- -----------
Total $ - $ 73,825
========== ===========
The Company has recorded a valuation allowance at December
31, 2001 and 2000 with respect to the deferred tax assets to the
extent that management has determined that it is more likely than
not that the benefit of such amounts will not be realized.
The Company has net operating loss carryforwards for
federal and state tax purposes of approximately $2,104,000 and
$2,358,000, respectively, at December 31, 2001. Such net
operating loss carryforwards expire commencing in 2019.
8. Stock Option Plan
The Company adopted an option plan (the "Option Plan")
that provides for granting up to 500,000 shares of common stock
by November 18, 2007. The Option Plan provides for the issuance
of incentive stock options and non-qualified stock options.
Under the Option Plan, options may be granted at not less than
the fair market value of the stock on the date of the grant. The
term of each option generally may not exceed ten years.
F-15
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
In addition, the Company had issued underwriter options to
purchase 120,000 shares of common stock at an exercise price of
$7.80 per share. Such options were exercisable for a period of
five years commencing April 2, 1996. Such options expired
unexercised on April 2, 2001.
During 1998, the Company granted options to acquire 97,500
shares of the Company's common stock to members of the Company's
Advisory Board, who were affiliated with the Founding Practices
and were non-employees of the Company. The fair value of such
options was determined to be approximately $522,000 based on the
Black-Scholes option-pricing model (the "Model") at the time
the options were granted. Such amount was recorded as unearned
compensation and was being amortized over the three-year period
that these options vest. The fair value of each option granted
to such non-employee Advisory Board member was estimated on the
date of grant using the Model and the following assumptions: no
dividend yield; expected volatility of the underlying stock of
70%; risk-free interest rate of 5.57% covering the related option
periods; and expected lives of the options of 2 to 5 years based
on the related option periods. In connection with the
transactions discussed in Note 4, the Company's Advisory Board
members resigned such positions, their vested options were
returned to the Company and their unvested options were
cancelled.
As of December 31, 2001, there were no options
outstanding. The compensation expense related to the non-
employee directors and members of the Company's Advisory Board
was $21,722 for the year ended December 31, 2000. As a result of
the forfeiture of various stock options held by members of the
Advisory Board and other nonemployees of the Company, the Company
recorded a reduction in deferred compensation expense of $65,022
for the year ended December 31, 2000.
F-16
ORTHODONTIX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
------------------------------------------
A summary of the Company's stock option activity and related information is as
follows:
Weighted
Number Option Price Average Expiration
of Shares Per Share Exercise Price Date
---------- ------------ -------------- -------------
Outstanding at December 31, 1999 822,500 1.75 - 9.11 $6.95 2001 - 2004
Forfeited 142,500 1.75 - 9.11 2.91 2001 - 2004
---------- ------------ --------------
Outstanding at December 31, 2000 680,000 1.75 - 9.11 7.80 2001 - 2003
Forfeited 680,000 1.75 - 9.11 7.80 2001 - 2003
---------- ------------ --------------
Outstanding at December 31, 2001 - - -
========== ============ ==============
Exercisable at December 31, 2000 680,000 1.75 - 9.11 $7.80 2001 - 2003
========== ============ ==============
The Company has chosen to disclose pro forma net income and earnings per share as if
the fair value based method was used. Had compensation expense been determined based on
fair value, there would be no impact on the Company's net loss and net loss per share -
basic and diluted for the years ended December 31, 2001 and 2000.
F-17