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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, 2004
[ ] 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 Identification No.)
incorporation or organization)
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.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the Company based on the average of the bid and
asked price of $0.20 of such Common Stock, as of March 23, 2005, is $416,225
based upon 2,081,127 shares of the Company's Common Stock outstanding as of
March 21, 2005, 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, 2005, 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, 2004
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 -2-
PART II -2-
Item 5. Market for Common Equity and Related Stockholder
Matters -2-
Item 6. Management's Discussion and Analysis and Plan of
Operation -3-
Item 7. Financial Statements -4-
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure -5-
Item 8A. Controls and Procedures -5-
PART III -5-
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act -6-
Item 10. Executive Compensation -7-
Item 11. Security Ownership of Certain Beneficial Owners
And Management and Related Stockholder Matters -9-
Item 12. Certain Relationships and Related Transactions -10-
Item 13. Exhibits And Reports on Form 8-K -11-
Item 14. Principal Accountant Fees and Services -11-
SIGNATURES -13-
EXHIBIT INDEX -14-
-i-
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. By November 1999, the Company had ceased providing practice
management services. By May 2001, the Company had terminated its affiliation
with all the Practices. The Company sold certain Practice assets back to the
Practices and assumed certain liabilities. During the years ended December
31, 2000 and 2001, the Company terminated its affiliation with all of the
Practices and recorded the sales of all the Practice assets and the shares of
Common Stock returned in connection with the transactions. In addition, the
Company recorded the Common Stock returned in connection with the
resignations of management. Such transactions are reflected in the Company's
Annual Reports on Form 10-KSB for the years then ended. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION" at page 3 for a further
discussion.
FUTURE PLANS
The Company intends to effect a merger, acquisition or other business
combination with an operating company by using a combination of Common Stock,
cash on hand, or other funding sources that the Company reasonably believes
are available. Management devotes substantially all of its time to
identifying potential merger or acquisition candidates. The Company is
searching for an established business, principally in South Florida, and the
Company has evaluated companies operating in selected industries, including
business services, health care, manufacturing, distribution, aviation,
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 future 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 shareholder.
1
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/or
directors.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 2004, 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
- ---------------------------------- ------------- ------------
2004
First Quarter $.20 $.20
Second Quarter $.20 $.30
Third Quarter $.20 $.30
Fourth Quarter $.20 $.20
2003
First Quarter $.11 $.15
Second Quarter $.10 $.15
Third Quarter $.15 $.18
Fourth Quarter $.18 $.20
2
The Company has approximately 61 stockholders of record as of March 21,
2005, 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 clearinghouse 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.
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 that 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 Financial
Statements and Notes thereto included elsewhere in this Report.
FINANCIAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31,
2003.
REVENUES. The Company ceased providing orthodontics practice management
services to the Practices as of November 1999. No management service fee
revenue or other operating revenue was recorded by the Company during the
years ended December 31, 2004 and 2003. 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 $165,600 and $143,100 for the years ended
December 31, 2004 and 2003, respectively. During 2003 and 2004, such
expenses consisted primarily of executive officer compensation, insurance,
and legal and accounting costs.
The Company anticipates that its general and administrative expenses
will remain low until such time as the Company effects a merger or other
business combination with an operating company.
3
INTEREST INCOME. Interest income of approximately $6,000 and $7,000 for
the years ended December 31, 2004 and 2003, respectively, represents interest
earned on excess cash balances invested primarily in short-term money market
accounts. The decrease in interest income for year 2004 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, 2004 and 2003, the Company
recorded a net loss of approximately $160,000 and $141,000, respectively, or
$0.05 and $0.05 per share, respectively.
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 that 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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2004, the Company had cash and cash equivalents of
approximately $564,000, no investments, and total liabilities of
approximately $70,000. The Company's cash is currently invested in money
market accounts and overnight repurchase agreements. 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, 2004, the Company had no ongoing contractual
commitments or off-balance sheet arrangements.
PLAN OF OPERATION
Management of the Company intends to continue devoting substantially all
of its time to identifying merger or acquisition candidates, targeting
established businesses that operate principally in South Florida and in
selected industries, including business services, health care, manufacturing,
distribution, aviation, pharmaceutical and banking. In the event that the
Company locates an acceptable operating business, the Company intends to
effect the transaction by using a 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.
4
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 12, 2004, PricewaterhouseCoopers LLP ("PwC") resigned as the
independent Registered Certified Public Accounting firm for Orthodontix, Inc.
(the "Company").
Except as disclosed in the next sentence of this paragraph, the reports
of PwC on the Company's financial statements for the years ended December 31,
2003 and 2002 did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principle. As discussed in Note 1 to the Company's financial statements as
of and for the years ended December 31, 2003 and 2002, the Company terminated
its affiliation with all of its founding practices and 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.
During the years ended December 31, 2003 and 2002, and through November
12, 2004, there were no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of PwC,
would have caused PwC to make reference thereto in their reports on the
financial statements for such years.
During the years ended December 31, 2003 and 2002, and through November
12, 2004, there were no reportable events (as defined in Item 304(a)(1)(v) of
Regulation S-K).
The Company engaged Salberg & Co. on February 2, 2005. The Company's
Board of Directors approved the decision to retain Salberg & Co. The Company
has authorized PwC to respond fully to the inquiries of Salberg & Co.
ITEM 8A. CONTROLS AND PROCEDURES
The Company's management concluded an evaluation, under the supervision
and with the participation of the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of December 31, 2004. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective
as of December 31, 2004.
In addition, the Chief Executive Officer and Chief Financial Officer
have determined that there have been no changes in the Company's internal
control over financial reporting during the period covered by this report
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
5
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 44 Chairman of the Board of
Directors, Chief Executive
Officer, President and
Secretary
Alan Jay Weisberg 59 Acting Chief Financial and
Accounting Officer, Director
Noah M. Silver 46 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. During 2002, Mr. Halpryn became a director of Ivax Diagnostics,
Inc., a publicly held corporation, and is a member of its audit committee.
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., Boca Raton,
Florida. Mr. Weisberg has been the principal financial officer of United
Security since June 1987.
6
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.
AUDIT COMMITTEE FINANCIAL EXPERTS
The Board of Directors has determined that the Company has two audit
committee financial experts serving on its audit committee--Noah M. Silver
and Alan Jay Weisberg. Only Mr. Silver is independent.
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 year ended December 31,
2004, 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.
CODE OF ETHICS
The Company adopted a code of ethics that applies to all officers,
directors and employees of the Company. Any person may obtain a copy of the
code of ethics at no charge from the Company by writing to the Company at
1428 Brickell Avenue, Suite 105, Miami, Florida 33131.
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
During the year ended December 31, 2004, 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. Noah Silver and Jay Weisberg each received an additional
$500 payment for their accounting analysis of a potential acquisition during
2004. During 2004, 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 year ended December 31, 2004.
7
EXECUTIVE COMPENSATION
No executive officer of the Company was compensated more than $100,000
during the year ended December 31, 2004. The following table sets forth all
the compensation earned 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
- ----------------------------------------------------------------------------------------------
Glenn Halpryn, 2004 $41,700 $ 0 $ 0 0 $900
Chief Executive 2003 $50,000 $ 0 $ 0 0 $300
Officer(1) 2002 $50,000 $ 0 $ 0 0 $600
(1) In January 2002, Mr. Halpryn reduced his salary to $50,000 annually.
In October 2004, Mr. Halpryn waived his salary for the balance of 2004.
STOCK OPTION GRANTS IN 2004
No options to purchase shares of the Company's Common Stock were granted
to any executive officer during the year ended December 31, 2004. The
following table sets forth certain summary information concerning grants of
options to purchase shares of the Company's Common Stock during the year
ended December 31, 2004:
Number of Securities % of Total Options Exercise/
Underlying Options Granted to Employees Base Price/ Expiration
Name Granted in Fiscal Year Share Date
- ----------------------------------------------------------------------------------------
Glenn Halpryn N/A --- --- ---
STOCK OPTION EXERCISES IN 2004
AND 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 year ended
December 31, 2004 and at December 31, 2004, 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, 2004:
8
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 Exercisable/Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------
Glenn L. Halpryn --- N/A 0/0 $0/$0
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
AND RELATED STOCKHOLDER MATTERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of March 21, 2005
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, 2005, there were 2,915,428
shares of Common Stock outstanding.
9
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 North Kendall Drive Suite 704
Miami, FL 33156
Glenn L. Halpryn 380,100 13.0%
1428 Brickell Avenue, Suite 105
Miami, FL 33131
Alan Jay Weisberg 4,201 0.14%
1428 Brickell Avenue, Suite 105
Miami, FL 33131
Noah Silver 0 0%
1428 Brickell Avenue, Suite 105
Miami, FL 33131
All Officers and 384,301 13.2%
Directors as a Group(2)
Total Shares Outstanding
as of March 21, 2005 2,915,428
(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, 2005 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, which firm
was paid $4,850 and $6,200 during the years ended December 31, 2004 and 2003,
respectively.
10
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.
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
Exhibit Index are filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K:
The Form 8-K filed on November 18, 2004 is incorporated by reference
as part of this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
PricewaterhouseCoopers LLP, the principal accountant for the Company
during 2004, billed the Company $27,800 in 2004 and $28,000 in 2003 for
professional services rendered for the audit of the Company's annual
financial statements and review of financial statements included in the
Company's Forms 10-QSB.
AUDIT-RELATED FEES
The Company paid no fees to its principal accountant except the audit
fees reported above for 2003 and 2004.
TAX FEES
The Company paid no fees to its principal accountant for tax compliance,
tax advice or tax planning during the past two fiscal years. The Company
paid $1,235 in 2004 and $1,215 in 2003 to another accounting firm that filed
the Company's tax returns.
ALL OTHER FEES
The Company paid only the audit fees reported above to its principal
accountant during 2003 and 2004.
11
AUDIT COMMITTEE PRE-APPROVAL POLICIES
The Audit Committee pre-approved all services performed by the Company's
principal accountant before the accountant was engaged in accordance with the
Audit Committee's procedure of requiring the details of the services to be
performed.
12
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 28, 2005
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 28, 2005
By: /s/ Alan Jay Weisberg_
Alan Jay Weisberg, Acting Chief Financial
and Accounting Officer, Director
March 28, 2005
By: /s/ Noah Silver_______
Noah Silver, Director
March 28, 2005
13
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public Accounting
Firm--Salberg & Company, P.A. F-2
Report of Independent Registered Certified Public
Accounting Firm--PricewaterhouseCoopers LLP F-3
Financial Statements
Balance Sheet F-4
Statements of Operations F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 - F-13
F-1
Report of Independent Registered Accounting Firm
To the Board of Directors
of Orthodontix, Inc.
We have audited the accompanying balance sheet of Orthodontix, Inc. as of
December 31, 2004 and the related statements of operations, changes in
stockholders' equity and cash flows for the years then ended. 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 audit. The financial statements of Orthodontix, Inc. as of December
31, 2003, were audited by other auditors whose report dated March 19, 2004,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Orthodontix, Inc. as of
December 31, 2004, and the results of their operations, changes in
stockholders' equity and cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of
America.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 16, 2005
F-2
Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and
Shareholders of Orthodontix, Inc.
In our opinion, the accompanying statements of operations, stockholders'
equity and cash flows present fairly, in all material respects, the results
of operations and cash flows of Orthodontix, Inc. (the "Company") for the
year ended then December 31, 2003 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 audit. We conducted our audit of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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 audit provides a reasonable basis for our opinion.
As discussed in Note 1, the Company terminated its affiliation with all of
its Founding Practices and 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 19, 2004
F-3
ORTHODONTIX, INC.
BALANCE SHEET
December 31, 2004
- ------------------------------------------
2004
Assets
Current assets:
Cash and cash equivalents $ 563,713
Prepaid expenses 2,123
------------
Total current assets 565,836
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,213
Accrued liabilities 66,261
------------
Total current liabilities 70,474
------------
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 shares outstanding 292
Additional paid-in capital 4,232,821
Accumulated deficit (3,737,751)
------------
Total stockholders' equity 495,362
------------
Total liabilities and stockholders' equity $ 565,836
============
See Accompanying Notes to Financial Statements.
F-4
ORTHODONTIX, INC.
Statements of Operations
For the years ended December 31, 2004 and 2003
- ----------------------------------------------
2004 2003
Operating Expenses:
General and administrative expenses $ 165,582 $ 143,135
Other operating expenses - 4,250
------------ ------------
Total operating expenses 165,582 147,385
------------ ------------
Loss from Operations (165,582) (147,385)
------------ ------------
Other income:
Interest income 5,512 6,671
------------ ------------
Total other income 5,512 6,671
------------ ------------
Net loss $ (160,070) $ (140,714)
============ ============
Net Loss per share--Basic and Diluted $ (0.05) $ (0.05)
============ ============
Weighted average number of shares outstanding
during the year--basic and diluted 2,915,428 2,915,428
============ ============
See Accompanying Notes to Financial Statements.
F-5
ORTHODONTIX, INC.
Statements of Changes in Stockholders' Equity
For the years ended December 31, 2004 and 2003
- -----------------------------------------------
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------------------- --------- ---------- ----------- ------------ ----------
Balance, December 31, 2002 - $ - 2,915,428 $ 292 $ 4,232,821 $(3,436,967) 796,146
Net loss for the year ended
December 31, 2003 - - - - - (140,714) (140,714)
----------- --------- --------- ---------- ----------- ------------ ----------
Balance, December 31, 2003 - - 2,915,428 292 4,232,821 (3,577,681) 655,432
Net loss for the year ended
December 31, 2004 - - - - - (160,070) (160,070)
----------- --------- --------- ---------- ----------- ------------ ----------
Balance, December 31, 2004 - $ - 2,915,428 $ 292 $ 4,232,821 $(3,737,751) $ 495,362
=========== ======== ========= ========== =========== ============ ==========
See Accompanying Notes to Financial Statements.
F-6
ORTHODONTIX, INC.
Statements of Cash Flows
For the years ended December 31, 2004 and 2003
- -----------------------------------------------
2004 2003
------------- ------------
Cash flows from operating activities:
Net loss $ (160,070) $ (140,714)
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss on notes receivable - 4,250
Changes in operating assets and liabilities
Prepaid expenses and other current assets 294 33
Accounts payable and accrued liabilities (8,349) (251)
------------- ------------
Net cash used in operating activities (168,125) (136,682)
------------- ------------
Cash flows from investing activities:
Purchase of investments - (552,359)
Redemption of Certificate of Deposit 552,359 -
Payment on notes receivable - 60,881
------------- ------------
Net cash provided by (used in)
investing activities 552,359 (491,478)
------------- ------------
Net increase (decrease) in cash and cash equivalents 384,234 (628,160)
Cash at beginning of period 179,479 807,639
------------- ------------
Cash at end of period $ 563,713 $ 179,479
============= ============
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Income taxes $ - $ -
============= ============
Interest $ - $ -
============= ============
See Accompanying Notes to Financial Statements.
F-7
ORTHODONTIX, INC.
Notes to Financial Statements
December 31, 2004 and 2003
- ------------------------------------------
1. Nature of Operations
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").
During the year ended December 31, 1999, the Company began to
terminate its affiliation with the Founding Practices. During the year ended
December 31, 2001, the Company terminated its affiliation with all 26
Founding Practices.
The accompanying 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 $3.7 million at
December 31, 2004 as a result of operations and the termination of its
affiliation with the Founding Practices. The Company incurred net losses of
approximately $160,000 and $141,000 for the years ended December 31, 2004 and
2003, respectively. The Company also reflects net cash used in operations of
approximately $168,000 and $137,000 for the years ended December 31, 2004 and
2003, respectively.
The Company currently 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
believes are available. During the year ended December 31, 2004, 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. Therefore, the going concern is mitigated.
F-8
ORTHODONTIX, INC.
Notes to Financial Statements
December 31, 2004 and 2003
- ------------------------------------------
2. Summary of Significant Accounting Policies
Use of Estimates
In preparing financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and revenues and expenses during the periods
presented. Actual results may differ from these estimates.
Significant estimates during 2004 and 2003 include a valuation
allowance for deferred tax assets.
Cash and Cash Equivalents
For the purpose of the cash flow statements, the Company considers all
highly liquid investments with original maturities of three months or less at
the time of purchase to be cash equivalents. During 2004 the Company
redeemed a certificate of deposit with the proceeds being transferred into a
money market account.
Concentrations
The Company maintains its cash in bank deposit accounts, which, at
times, exceed federally insured limits. As of December 31, 2004, the Company
had deposits of $440,753 in excess of federally insured limits. The Company
has not experienced any losses in such accounts through December 31, 2004.
Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("Statement 109"). Under
Statements 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period, which includes the
enactment date.
Earnings Per Share
In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share", basic earnings per share is computed by dividing
the net income (loss) less preferred dividends for the period by the weighted
F-9
ORTHODONTIX, INC.
Notes to Financial Statements
December 31, 2004 and 2003
- ------------------------------------------
average number of shares outstanding. Diluted earnings per share is computed
by dividing net income (loss) less preferred dividends by the weighted
average number of shares outstanding including the effect of share
equivalents. At December 31, 2004 and 2003, there were no common share
equivalents, which could potentially dilute future earnings per unit.
Stock Options
The Company accounts for options granted to employees using the
intrinsic value method. 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 loss and loss per share as if the fair value accounting rules were used
for options granted to employees.
The Company had no stock options outstanding during the years ended
December 31, 2004 and 2003. Therefore, there was no impact of fair value
accounting rules on the Company's net loss and net loss per share--basic and
diluted for the years ended December 31, 2004 and 2003.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS 153 "Exchanges of Non-monetary
Assets"--an amendment of APB Opinion No. 29. This Statement amended APB
Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. The adoption
of this Standard is not expected to have any material impact on the Company's
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based
Payment". This Statement requires that the cost resulting from all share-
based transactions be recorded in the financial statements. The Statement
establishes fair value as the measurement objective in accounting for share-
based payment arrangements and requires all entities to apply a fair-value-
based measurement in accounting for share-based payment transactions with
employees. The Statement also establishes fair value as the measurement
objective for transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions. The Statement replaces
F-10
ORTHODONTIX, INC.
Notes to Financial Statements
December 31, 2004 and 2003
- ------------------------------------------
SFAS 123 "Accounting for Stock-Based Compensation" and supersedes APB Opinion
No. 25 "Accounting for Stock Issued to Employees". The provisions of this
Statement will be effective for the Company beginning with its fiscal year
ending 2005. The Company is currently evaluating the impact this new
Standard will have on its financial position, results of operations or cash
flows.
3. Loss on Collection of Notes Receivable
At December 31, 2002, the Company had a note receivable as a result of
the termination of the affiliation with a Founding Practice with an
outstanding balance of approximately $65,000. Such note receivable was due
in monthly payments through August 2004. On March 31, 2003, the Company
entered into an agreement for the Founding Practice to settle the outstanding
balance on the note receivable for a payment of approximately $60,900. As a
result of the agreement, the Company recorded other operating expenses in the
amount of $4,250 for the year ended December 31, 2003.
4. Income Taxes
There was no income tax expense for the years ended December 31, 2004
and 2003 due to the Company's net losses.
The Company's tax expense differs from the "expected" tax expense for
the years ended December 31, 2004 and 2003, (computed by applying the Federal
Corporate tax rate of 34% to loss before taxes and 5.5% for State Corporate
taxes), as follows:
2004 2003
Computed "expected" tax expense
(benefit)--Federal $ (51,430) $ (45,104)
Computed "expected" tax expense
(benefit)--State (8,804) (7,721)
Change in valuation allowance 60,234 52,825
----------- -----------
Total $ - $ -
=========== ===========
The effects of temporary differences that gave rise to significant
portions of deferred tax assets at December 31, 2004 are as follows:
F-11
ORTHODONTIX, INC.
Notes to Financial Statements
December 31, 2004 and 2003
- ------------------------------------------
Deferred tax assets:
Accrued expenses $ 5,090
Net operating loss carryforward 1,060,161
-----------
Total gross deferred tax assets $1,065,251
Less valuation allowance (1,065,251)
-----------
Net deferred tax assets $ -
===========
The Company has a net operating loss carryforward of approximately
$2,817,330 available to offset future taxable income expiring 2024.
The valuation allowance at December 31, 2003 was $1,005,017. The net
change in valuation allowance during the year ended December 31, 2004 was an
increase of $60,234.
5. 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 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.
There were no options outstanding as of or for the years ended
December 31, 2004 and 2003.
6. Related Party Transactions
During 2004 and 2003, the Company paid accounting fees and directors
fees to its CFO. Additionally, salary and directors fees were paid to the
Company's President and CEO. The following is a summary of these payments
for the years ended December 31, 2004 and 2003, respectively:.
F-12
2004 2003
Accounting Fees--CFO $ 4,850 $ 6,200
Salary--President and CEO 41,667 50,000
Directors Fees--President and CEO 900 900
Directors Fees--CFO 1,400 900
F-13
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.
14.1** Code of Ethics
31.1 Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, Certification of Chief
Executive Officer and Chief Financial Officer
- ---------------------------
* 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.
**Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2003.
14
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Glenn L. Halpryn, certify that:
1. I have reviewed this report on Form 10-KSB of Orthodontix, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on our evaluation;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
Dated: March 28, 2005 By: /s/ Glenn L. Halpryn
---------------------------------------
Glenn L. Halpryn
Chief Executive Officer
15
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Alan Jay Weisberg, certify that:
1. I have reviewed this report on Form 10-KSB of Orthodontix, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of the
period covered by this report based on our evaluation;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
Dated: March 28, 2005 By: /s/ Alan Jay Weisberg
---------------------------------------
Alan Jay Weisberg
Acting Chief Financial Officer
16
Exhibit 32
CERTIFICATION PURSUANT TO RULE 13a-14(b) AND SECTION 906 OF THE SARBANES-
OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, TITLE 18, UNITED
STATES CODE)
In connection with the Annual Report on Form 10-KSB of Orthodontix,Inc.
for the period ended December 31, 2004 as filed with the Securities and
Exchange Commission (the "Report"), we, Glenn L. Halpryn, Chief Executive
Officer of Orthodontix, Inc., and Alan Jay Weisberg, Acting Chief Financial
Officer of Orthodontix, Inc., hereby certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
Orthodontix, Inc.
Dated: March 28, 2005 By: /s/ Glenn L. Halpryn
---------------------------------------
Glenn L. Halpryn
Chief Executive Officer
Dated: March 28, 2005 By: /s/ Alan Jay Weisberg
---------------------------------------
Alan Jay Weisberg
Acting Chief Financial Officer
17