UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2005
[_] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
Commission file number 000-32563
UNION DENTAL HOLDINGS, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 000-26703 65-0710392
---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
1700 University Drive, Suite 200
Coral Springs, FL 33071
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 575-2252
N/A
-------------------------------------------------------------
(Former name or former address, if changes since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
As of May 20, 2005, there were approximately 28,569,939 shares of the Issuer's
common stock, par value $0.0001 per share outstanding.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-QSB contain or may
contain forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, economic, political and market
conditions and fluctuations, government and industry regulation, interest rate
risk, U.S. and global competition, and other factors including the risk factors
set forth in our Form 10-KSB. Most of these factors are difficult to predict
accurately and are generally beyond our control. You should consider the areas
of risk described in connection with any forward-looking statements that may be
made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers should carefully review this quarterly report in its entirety, including
but not limited to our financial statements and the notes thereto. Except for
our ongoing obligations to disclose material information under the Federal
securities laws, we undertake no obligation to release publicly any revisions to
any forward-looking statements, to report events or to report the occurrence of
unanticipated events. For any forward-looking statements contained in any
document, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
INDEX
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004
Interim Income Statement for the period ended March 31, 2005 and March 31,
2004 (unaudited)
Interim Statement of Cash Flows for the period ended March 31, 2005 and
March 31, 2004 (unaudited)
Notes to Interim Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operations
Item 3. Controls and Procedures
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in securities, use of proceeds and small business issuer of
equity securities
Item 3. Defaults upon senior securities
Item 4. Submission of matters to a vote of security holders
Item 5. Other information
Item 6. Exhibits and reports on Form 8-K
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheet.......................................................F-2
Statements of Operations............................................F-3
Statement of Stockholders' Equity...................................F-4
Statements of Cash Flows............................................F-5
Notes to Financial Statement........................................F-6
UNION DENTAL HOLDINGS INC.
Consolidated Balance Sheet
March 31, 2005
(unaudited)
March 31, 2005 December 31, 2004
------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 18,810 $ 42,294
Accounts receivable, net of allowance of $7,200 and $7,200 442,055 317,077
Inventory 22,665 24,055
Prepaid expenses 3,978 3,509
------------------------------------
Total current assets 487,508 386,935
------------------------------------
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 238,406 237,730
Accumulated depreciation (191,057) (188,254)
------------------------------------
Total property and equipment 47,349 49,476
------------------------------------
OTHER ASSETS
Other assets 10,013 10,513
Due from officer 0 0
------------------------------------
Total other assets 10,013 10,513
------------------------------------
Total Assets $ 544,870 $ 446,924
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,855 $ 56,744
Accounts payable - related party 0 110,839
Accrued expenses 13,164 0
Income taxes payable 11,000 0
Deferred income tax expense 13,900 0
Notes payable - current portion 282,575 299,435
Line of credit 30,160 47,813
Customer deposits 33,756 30,802
Unearned memberships 419,110 326,326
------------------------------------
Total current liabilities 835,520 871,959
------------------------------------
LONG-TERM LIABILITIES
Note payable -bank 904,500 972,000
------------------------------------
Total long-term liabilities 904,500 972,000
------------------------------------
Total Liabilities 1,740,020 1,843,959
------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.0001 par value, authorized 25,000,000 shares; 1,000,000
issued and outstanding, respectively 100 100
Common stock, $0.0001 and $1 par value, authorized 300,000,000 shares;
28,569,939 and 28,519,939 issued and outstanding, respectively 2,857 2,852
Additional paid-in capital 544,062 519,067
Accumulated (deficit) earnings (329,147) (379,925)
------------------------------------
Subtotal stockholders' equity before shareholder transactions 217,872 142,094
Shareholder transactions (1,413,022) (1,539,129)
------------------------------------
Total stockholders' equity (deficit) (1,195,150) (1,397,035)
------------------------------------
Total Liabilities and Stockholders' Equity $ 544,870 $ 446,924
====================================
The accompanying notes are an integral part of the financial statements
F-2
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Consolidated and Combined Statement of Operations
Three Months Ended March 31, 2005 and 2004
(unaudited)
Consolidated Combined
2005 2004
-------------------- --------------------
REVENUES $ 513,637 $ 686,239
OPERATING EXPENSES
Salaries 168,720 116,018
General and administrative expenses 252,336 178,244
Advertising 1,218 4,442
Depreciation 2,803 448
-------------------- --------------------
Total expenses 425,077 299,152
-------------------- --------------------
Income from operations 88,560 387,087
OTHER INCOME (EXPENSE)
Interest income 0 13
Interest expense (12,882) (14,375)
Reserve for bad debt 0 0
-------------------- --------------------
Total other income (expense) (12,882) (14,362)
-------------------- --------------------
Income tax expense (24,900) 0
-------------------- --------------------
Net income $ 50,778 $ 372,725
==================== ====================
Income per weighted average common shares - basic $ 0.00 $ 372.73
==================== ====================
Income per weighted average common shares - fully diluted $ 0.00 $ 233.17
==================== ====================
Number of weighted average common shares outstanding - basic 28,561,050 1,000
==================== ====================
Number of weighted average common shares outstanding -fully diluted 29,311,112 1,000
==================== ====================
The accompanying notes are an integral part of the financial statements
F-3
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Consolidated and Combined Statement of Stockholders' Equity (Deficit)
Three Months Ended March 31, 2005
(unaudited)
Number Common Total
Number of of Stock Preferred Additional Retained Stockholders
Shares Shares Par Stock Paid-In Earnings Shareholder Equity
Common Preferred Value Par Value Capital (Deficit) Transactions (Deficit)
---------------------------------------------------------------------------------------------------
BEGINNING BALANCE,
December 31, 2002 1,000 0 $1,000 $0 $0 $237,935 $0 $238,935
Net income 0 0 0 0 0 762,168 0 762,168
Net income distributed 0 0 0 0 0 (764,053) 0 (764,053)
---------------------------------------------------------------------------------------------------
BALANCE, December 31, 2003 1,000 0 1,000 0 0 236,050 0 237,050
Net income distributed 0 0 0 0 0 (384,914) 0 (384,914)
Reorganization 27,499,000 1,000,000 1,750 100 9,295 (236,050) (1,539,129) (1,764,034)
Conversion of notes - $0.50/sh 913,939 0 91 0 456,783 0 0 456,874
Stock issued for services -
$0.50/sh 106,000 0 11 0 52,989 0 0 53,000
Net income 0 0 0 0 0 4,989 0 4,989
---------------------------------------------------------------------------------------------------
BALANCE, December 31,2004 28,519,939 1,000,000 2,852 100 519,067 (379,925) (1,539,129) (1,397,035)
Stock issued for cash 50,000 0 5 0 24,995 0 0 25,000
Stockholder loan to Company 0 0 0 0 0 0 126,107 126,107
Net income 0 0 0 0 0 50,778 0 50,778
---------------------------------------------------------------------------------------------------
Ending Balance, March 31,
2005 (unaudited) 28,569,939 1,000,000 $2,857 100 $544,062 $(329,147) $(1,413,022) $(1,195,150)
===================================================================================================
The accompanying notes are an integral part of the financial statements
F-4
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Consolidated and Combined Statement of Cash Flows
Three Months Ended March 31, 2005 and 2004
(unaudited)
Consolidated Combined
2005 2004
-------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,778 $ 372,725
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation 2,803 448
Stock issued for services 0 0
Stock issued for interest expense 0 0
Reserve for bad debt 0 0
Deferred income tax expense 13,900 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (124,978) (99,643)
(Increase) decrease in inventory 1,390 0
(Increase) decrease in prepaid expenses (469) 0
(Increase) decrease in other assets 500 0
(Increase) decrease in due from officer 0 0
Increase (decrease) in accounts payable (135,728) 9,498
Increase (decrease) in accrued expenses 13,164 0
Increase (decrease) in income tax payable 11,000 0
Increase (decrease) in customer deposits 2,954 (2,087)
Increase (decrease) in unearned memberships 92,784 (29,349)
-------------------------------------
Net cash provided by operating activities (71,902) 251,592
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (676) (5,825)
-------------------------------------
Net cash used by investment activities (676) (5,825)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 0 0
Payments on line of credit (17,653) 0
Net income distributed 0 (201,880)
Cash acquired in reorganization 0 0
Payments on notes payable (84,360) (20,577)
Common stock sold for cash 25,000 0
Proceeds from loan from officer/shareholder 126,107 0
-------------------------------------
Net cash provided (used) by financing activities 49,094 (222,457)
-------------------------------------
Net increase (decrease) in cash (23,484) 23,310
-------------------------------------
CASH, beginning of period 42,294 6,656
-------------------------------------
CASH, end of period $ 18,810 $ 29,966
=====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 12,882 $ 14,375
=====================================
Non-Cash Financing Activities:
Issuance of common stock to convert short-term debt $ 0 $ 0
=====================================
Issuance of common stock to effectuate reorganization $ 0 $ 0
=====================================
Stockholder loan offset in stockholder transactions $ 126,107 $ 0
=====================================
The accompanying notes are an integral part of the financial statements
F-5
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(Information with regard to the three
months ended March 31, 2005 and 2004 is unaudited)
(1) Summary of Significant Accounting Principles
The Company Union Dental Holdings, Inc., (f/k/a National Business Holdings,
Inc.), (the Company) is a Florida chartered corporation which conducts business
from its headquarters in Ft. Lauderdale, Florida. The Company was incorporated
on November 26, 1996 and has elected December 31 as its fiscal year end. The
Company has two distinct lines of business. Union Dental Corp., (UDC), acquired
the assets of G.D. Green, DDS, P.A. and manages the operation of that general
dental practice. Direct Dental Services, Inc., (DDS), negotiates contracts with
labor union locals for the provision of dental services to union members in
seventeen states, through network member dentists.
The following summarize the more significant accounting and reporting policies
and practices of the Company:
a) Use of estimates The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statements of financial condition and revenues and expenses for the period then
ended. Actual results may differ significantly from those estimates.
b) Net income per share Basic income per weighted average common share is
computed by dividing the net income by the weighted average number of common
shares outstanding during the period. Fully diluted per weighted average common
share is computed by dividing the net income by the weighted average number of
common shares outstanding during the period had the outstanding options been
exercised at the beginning of the period.
c) Stock compensation for services rendered The Company issues shares of
common stock in exchange for services rendered. The costs of the services are
valued according to generally accepted accounting principles and have been
charged to operations.
d) Significant acquisition In December 2004, the Company entered into an
agreement to acquire Union Dental Corp. and Direct Dental Services, Inc., both
Florida corporations, in a reverse merger, which was accounted for as a
reorganization of UDC and DDS, in exchange for 17,500,000 restricted common
shares and 1,000,000 restricted preferred shares.
e) Principles of consolidation and combination The consolidated financial
statements include the accounts of Union Dental Holdings, Inc. and its wholly
owned subsidiaries. Inter-company balances and transactions have been
eliminated. The financial statements of UDC and DDS for 2004 are presented as
combined pursuant to Accounting Research Bulletin, (ARB), No. 51, since they are
separate entities under common control.
F-6
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
f) Revenue recognition The Company's revenues are generated through
provision of dental services and the sales of exclusive areas of dental service
provision to labor unions through various contracts with the labor unions. The
Company records revenue when dental services are provided and the dentist member
fees are amortized over the term of the contract.
g) Cash and equivalents The company considers investments with an initial
maturity of three months or less as cash equivalents.
h) Property and equipment All property and equipment are recorded at cost
and depreciated over their estimated useful lives, using the straight-line
method. Upon sale or retirement, the costs and related accumulated depreciation
are eliminated from their respective accounts, and the resulting gain or loss is
included in the results of operations. Repairs and maintenance charges which do
not increase the useful lives of the assets are charged to operations as
incurred. Depreciation expense was $2,803, $3,260 and $9,880 and $7,530 for the
three months ended March 31, 2005 and 2004 and for the years ended December 31,
2004 and 2003, respectively.
i) Inventory The Company values inventory of dental supplies at the lower
of cost or market, using the specific unit cost method.
j) Segment information The Company has two distinct related lines of
operations, the management of a general dental practice through UDC and
maintaining a network of dental practices providing services through provider
contracts with labor union locals negotiated by DDS. DDS represents
approximately 26% of total assets, 19% of revenues and 100% of net loss. UDC
represents approximately 73% of total assets, 81% of revenues and 100% of net
income.
k) Bad debt reserve The Company reviews its accounts receivable regularly,
(at least quarterly), to evaluate the need to modify its reserve for
uncollectible accounts receivable. At December 31, 2004, the Company has
established a reserve for bad debt in the amount of $7,200. The Company does not
believe that this amount will become a significant amount, as its receivables
are from numerous individual patients, several insurance companies and numerous
dentists in its network, each of which is relatively small in individual amount.
l) Unearned memberships Dentists enroll and renew their contracts for one
or one and one-half year terms at various times throughout the year. Most of the
membership fees are paid at the signing of the contract and renewal. The fees
are amortized over the term of the related contract.
m) Advertising Advertising costs are expensed when incurred.
n) Interim financial information The financial statements for the three
months ended March 31, 2005 and 2004, are unaudited and include all adjustments
which in the opinion of management are necessary for fair presentation, and such
adjustments are of a normal and recurring nature. The results for the three
months are not indicative of a full year results.
F-7
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(2) Stockholders' Equity
The Company has authorized 300,000,000 shares of $0.0001 par value common stock,
and 25,000,000 shares of $0.0001 par value preferred stock. Rights and
privileges of the preferred stock are to be determined by the Board of Directors
prior to issuance. The Company had 28,569,939 shares of common stock issued and
outstanding at March 31, 2005. The Company had issued 1,000,000 of its shares of
preferred stock at March 31, 2005. These preferred shares carry super voting
rights equal to 15,000,000 common shares.
In November 1996, the Company issued 1,000,000 shares of common stock to its
founders for services rendered in connection with the organization of the
Company, valued at $0.001 or $900. In May 1997, the Company issued 8,900,000
shares of common stock for $89,000 in cash, or $0.01 per share. In January 1998,
the Company issued 275,000 shares of common stock for $400,000 in cash, or $1.45
per share. In February 1998, the Company issued 50,000 shares of common stock
for $72,727 in cash, or $1.45 per share. In September 1998, 3,900,000 shares
that had been purchased for $39,000 were contributed back to the Company. In
October 1998 the Company retired 6,938,796 shares as a result of a 1 for 20
reverse split of the stock. In December 1998, the Company issued 5,000,000
shares of common stock for $1,000,000 in cash, or $0.20 per share.
In February 2004, the Company issued 10,000,000 shares of common stock for
$25,000 in cash, or $0.0025 per share. In May 2004, the Company retired
15,001,373 shares as a result of a 1 for 40 reverse split of the stock. In May
2004, the Company issued 3,100,000 shares to acquire 100% of the issued and
outstanding shares of Shava, Inc. This transaction was valued at $7,750, or
$0.0025 per share. In October 2004, the Company issued 18,800,000 shares to its
then sole officer and director in exchange for services valued at $18,800. In
October 2004, the Company issued 10,000,000 shares for the conversion of
convertible notes payable in the amount of $27,500. At the time of the reverse
merger the Company had 32,284,831 shares issued and outstanding. In December
2004, the Company issued 17,500,000 shares of restricted common stock and
1,000,000 restricted preferred stock to acquire Union Dental Corp. and Direct
Dental Services, Inc. At the same time, as part of the merger agreement, a
stockholder contributed 22,284,831 shares to the Company. In December 2004, the
Company issued 783,140 restricted common shares in exchange for $417,006 in
convertible short-term debt and accrued interest and 106,000 shares in exchange
for services valued at $53,000, or $0.50 per share.
In the first quarter 2005, the Company issued 50,000 shares of restricted common
stock in exchange for $25,000 in cash, or $0.50 per share.
F-8
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(3) Income Taxes
Deferred income taxes (benefits) are provided for certain income and expenses
which are recognized in different periods for tax and financial reporting
purposes. The operating entities had elected Sub-chapter S status under the IRC
Code and therefore were not subject to taxation at the corporate level.
Distributions were made each year to the stockholder/s of the companies to allow
for the payment of income taxes on a personal level. Sub-chapter S status is
revoked automatically under the IRS Code as of the day the companies became
wholly-owned subsidiaries of a publicly traded entity.
At December 31, 2004, the Company has a book-tax timing difference. This is the
result of accounting for customer deposits, ($30,802), and unearned memberships,
($326,326), as deferred revenue for book purposes and as income on the cash
basis income tax returns. As such, this $357,128, will not be taxed on the
Company's 2005 income tax return and will reduce the Company's 2005 tax
liability in an amount ranging from approximately $53,500 (15% rate) to $135,700
(38%) on the Company's federal return and approximately $19,600 on the Company's
Florida return. These savings are entirely dependent on the Company's tax rate
inclusive of this income for 2005. The Company has established a deferred tax
asset in the amount of $74,000, utilizing the lowest possible income tax rates.
However, the Company has established a 100% valuation allowance against this
asset as there is no assurance that the Company will be able to utilize this
benefit in 2005., which is the only year it is available. This is due to
multiple factors: 1 - this is a newly reorganized company and is publicly traded
for the first time, as such there are significant additional expenditures
expected related to this status and 2 - the Company is expecting to expand its
business and expects significant expenditures related to this expansion.
The Company has established a deferred income tax liability for the change in
unearned membership fee income. This change was $92,800 for the first quarter
2005. The tax liability was calculated at 15%, or $13,900.
(4) Long-term debt
In December 2004, DDS agreed to assume the debt obligation of the principal
stockholder for the bank loan utilized to purchase 50% of DDS from its founder
and former owner and the remaining balance owed on the original 50% acquisition.
The interest rate of this debt is LIBOR plus 2.55% and requires payments of
$20,250 plus accrued interest monthly, or $243,000 plus accrued interest
annually. This loan matures on December 31, 2009. The loan is collateralized
with 100% of the assets of DDS, UDC and the principal stockholder, tangible and
intangible. The principal stockholder and UDC are also guarantors of this loan.
In addition, the Company, on a consolidated basis, must maintain a minimum
Global Debt Service Ratio, as defined by the bank, which is calculated annually,
based on the Company's year end financial statements. The Company must also
maintain property and casualty insurance on the business as well as a minimum of
$700,000 of life insurance on the principal stockholder, assigned to the bank.
F-9
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(5) Long-term debt to stockholder
A portion of the purchase price of the assets of G.D. Green, DDS, PA is a note
payable to the principal stockholder in the amount of $1,000,000. This note
carries a 5% interest rate and is payable $100,000 plus accrued interest
annually for ten years. At the closing of the reverse merger the principal
stockholder agreed to a set-off between this payable to him and the then
existing balance he owed the combined companies of approximately $560,000.
(6) Commitments and contingencies
The Company leases its office facility under a five year lease that expires May
2007. The monthly lease payments are $2,300 per month or $27,600 per year.
(7) Related party transactions
On March 20, 2004, UDC, a wholly owned subsidiary of the Company, entered into
an employment agreement with the principal stockholder , the sole officer of
UDC, with a term of 7 years. This contract provides for a base salary to the
principal stockholder of $225,000 in year 1, $125,000 in year 2, $185,500 in
year 3, $196,630 in year 4, $208,427 in year 5, $220,932 in year 6 and $234,187
in year 7. This contract also provides for the issuance of options to the
principal stockholder upon signing , 750,000 options, (1 share per option), with
an exercise price of $0.60 per share, half vested immediately and half vesting
after two years , having an exercise life of five years. This contract also
provides for the issuance of options to the principal stockholder as well, if
certain revenue milestones are reached: at $3,000,000 in gross revenue for any
calendar year he receives 332,500 options, (1 share per option), with an
exercise price at the market price of the underlying common stock at issue date
and the same again at $4,000,000 and $5,000,000 in gross revenue for a calendar
year.
As a private company, DDS and UDC have, at various times loaned the sole
stockholder money, which has been repaid in part. These advances and repayments
have the characteristics of a line of credit. At December 31, 2004 and 2003, the
now principal stockholder of the consolidated company owed DDS and UDC combined
$0 and $280,654, respectively.
Shareholder transactions in the net amount of $1,539,129 are the result of the
following: a) UDHI acquiring UDC for a note payable to the principal stockholder
in the amount of $1,000,000; b) DDS entered into a note payable in the amount of
$1,215,000 to the bank replacing an existing note payable from the principal
stockholder and c) these items are reduced by a note receivable from the same
principal stockholder in the amount of $675,871. In the first quarter 2005, this
net amount is further reduced by a loan from the stockholder in the amount of
$126,107.
F-10
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(8) Short-term debt
From April through December 2004, the Company raised $417,006 in short-term
debt, via a Regulation D Rule 506 offering. At the closing of the reorganization
on December 27, 2004, this short-term debt was converted at $0.50 per share into
913,939 shares of restricted under Rule 144 common stock
(9) Stock option plan
In October 2004, UDC adopted a Stock Option Plan that allows for both incentive
based options as well as non-qualified options. As part and parcel to the
reorganization on December 27, 2004, UDHI adopted this Plan. Under the terms of
the Plan, the Plan Committee will set the option term and the exercise price.
The Plan limits the ability to exercise incentive options for a first time
holder in any one calendar year to $100,000 aggregate fair market value, based
on grant date. The Plan also allows for the issuance of Stock Appreciation
Rights to allow for cash-less exercise of underlying issued options. The Company
issued 793,000 options, with an exercise price of $0.50 per share, under this
plan as of December 31, 2004, in addition to those discussed in Note 7 above.
The Company accounts for outstanding options in accordance with Accounting
Principles Board, (APB), Opinion 25. Financial Accounting Standards Board,
(FASB), SFAS No. 148 requires footnote disclosure of the effects on the
financial statements if the Company had accounted for the options under the fair
value method , (Black-Scholes), in accordance with SFAS No. 123. Using the
Black-Scholes model, the Company would have recorded $0 expense for these
options, therefore there would have been no effects on the financial statements
as published.
F-11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with our
Financial Statements and Notes thereto appearing elsewhere in this Report on
Form 10-QSB as well as our other SEC filings.
Plan of Operations
We operate our business through our two wholly owned subsidiaries, Direct
Dental Services, Inc. ("DDS") and Union Dental Corp. ("UDC"). DDS operates a
network of duly licensed dental providers. Members of the dental network pay an
annual management service fee for the right to be a member of the dental
network. UDC operates a dental practice in Coral Springs, Florida. The Company
intends to expand its network of dental providers. The Company may also expand
and offer participating unions other professional services such as chiropractic
and eye glass. The Company may also acquire additional dental practices which
the Company believes application of its Dental Practice Management Model will
improve operating performance.
Management's current focus is the expansion of its dental network. We
intend to expand in existing markets primarily by enhancing the operating
performance of our existing office, by acquiring dental practices, by adding
union contracts in states where we currently do not have union contracts and by
developing dental network union contracts with other unions. At this time it is
not possible to project what income or expenses will result from the expansion
of these services.
Comparison of Operating Results for the Quarter Ended March 31, 2005 to the
Quarter Ended March 31, 2004
Revenues
For the three months ended March 31, 2005 as compared to the three months
ended March 31, 2004, we generated revenue of $513,637 as compared to $686,239.
The decrease in revenues is attributable to two factors: In order to assist
dentists who have agreed to join our network in establishing a strong
relationship with our unions, we have extended the term of most of our contracts
from twelve to eighteen months. As a result revenues have declined and unearned
memberships have increased. We also believe that management's decision to focus
on closing the reverse merger with National Business Holdings, Inc., including
time and effort in negotiating the transaction and coordinating with the
auditors in connection with the audit and filing its 10KSB also contributed to a
decline in our revenues.
Operating Expenses
Operating expenses increased by $125,925 from $299,152 for the three months
ended March 31, 2004 to $425,077 for the three months ended March 31, 2005. The
increase in our operating expenses is due to increased general and
administrative expenses and salaries we incurred for the three months ended
March 31, 2005. Many of the additional general and administrative were the
result of increased marketing expenses for DDS and consulting and professional
fees incurred as a result of the filing of our 10KSB during the first quarter of
2005. The increase in salaries relates to adding additional personnel and normal
wage increases.
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Interest Expense
Interest expense for the three months ended March 31, 2005, and for the
three months ended March 31, 2004 were $12,882 and $14,375 respectively.
Net Income
Our net income for the three months ended March 31, 2005 as compared to the
three months ended March 31, 2004 was $50,778 as compared to $372,725. The
significant decrease in net income is primarily attributable to an increase in
general and administrative expenses, an increase in salaries and the reduction
of revenues.
We recorded $0.00 in income per share for the three months ended March 31,
2005 as compared to 233.17 (fully diluted) for the three months ended March 31,
2004. The significant decline in income per share is due to the increased number
of outstanding shares (from 1,000 to 28,569,939), which is primarily
attributable to the Reorganization.
Income Tax Consequences
Prior to their acquisition by Union Dental Holdings, both Union Dental
Corp. and G.D. Green, DDS, P.A. were operated as an S corporations and any
income tax payable were paid by their shareholders. With the subsequent
acquisition by Union Dental Holdings, we will be required to pay income tax on
the net income we generate.
As of March 31, 2005, our accumulated deficit was $329,147 which is the result
of a shareholder distribution to a related party.
Liquidity and Capital Resources
We use available finances to fund ongoing operations. Funds will be used
for general and administrative expenses, website maintenance and development,
marketing and expenses related to the filing and preparation of our SEC filings.
We will require additional financing to fully implement our business plan,
expanding our dental network and acquiring additional dental practices. We will
also need additional financing if we intend to create a network of chiropractic
physicians and offer their services to various unions. Additional working
capital may be available through third party financing sources. There can be no
assurance that we will be successful in securing any type of debt or equity
financing.
Assets and Liabilities
Our total assets were $544,870 and $446,924 for the three months ended
March 31, 2005 and for the twelve months ended December 31, 2004, respectively.
Our assets consist primarily of our accounts receivable, net of allowance of
$7,200 of $442,055, furniture, fixtures and equipment of $238,446, inventory of
$22,665 and cash of $18,810 for the three months ended March 31, 2005.
Total Current Liabilities were $835,520 and $871,959 for the three months
ended March 31, 2005 and for the twelve months ended December 31, 2004
respectively. Our current liabilities consist primarily of unearned membership
fees of $419,110 and the current portion of our note payable to the bank of
$282,575.
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For the three months ended March 31, 2005, we had cash and accounts
receivable totaling $18,810 and $442,055 respectively. We had total current
assets of $487,508 as compared to $386,935 as of December 31, 2004. Our total
current liabilities were $835,520 as compared to $871,959 as of December 31,
2004.
Our long-term liabilities decreased from $972,000 as of December 31, 2004
to $904,500 as of March 31, 2005.
For the three months ended March 31, 2005, we received a loan from a
principal shareholder in the amount of $126,107. As a result, we have recorded
shareholder transactions totaling $1,413,022 as compared to $1,539,129 for the
period ended December 31, 2004. The $1,539,129 in shareholder transactions is
the result of UHI acquiring from UDC a note payable in the amount of $1 million;
DDS having entered into a note payable in the amount of $1,215,000 to the bank
which replaced an existing note payable from the principal stockholder. These
items are reduced by a note receivable from the same principal shareholder
totaling $675,871. In the first quarter of 2005, this net amount was further
reduced by a loan from the stockholder in the amount of $126,107.
As a result of the foregoing accounting treatment of the various
transactions, Dr. Green will be required to repay a portion of these sums to the
Company. As of the date hereof, no repayment schedule has been established. To
the extent that any sums are due as a result of any reclassification of
goodwill, no payments will be made by Dr. Green.
No trends have been identified which would materially increase or decrease our
results of operations or liquidity.
The only significant cash transaction other than that generated and used in
operations has been that during January 2005, the Company issued 50,000 shares
of restricted common stock in exchange for $25,000 in cash, or $0.50 per share.
You are urged to review the accompanying financial statements and financial
footnotes in order to fully understand our financial condition.
Critical Accounting Policies
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
materially from those estimates.
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Income per share: Basic income per share excludes dilution and is computed
by dividing the income attributable to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that shared in the income of
the Company. Diluted income per share is computed by dividing the income
available to common shareholders by the weighted average number of common shares
outstanding for the period and dilutive potential common shares outstanding
unless consideration of such dilutive potential common shares would result in
anti-dilution. Common stock equivalents were not considered in the calculation
of diluted income per share as their effect would have been anti-dilutive for
the periods ended March 31, 2005 and 2004.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Item 3 - Controls and Procedures
Our management, which includes our Chief Executive Officer who also serves
as our principal financial officer, have conducted an evaluation of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-14(c) promulgated under the Securities and Exchange Act of 1934, as amended)
as of a date (the "Evaluation Date") as of the end of the period covered by this
report. Based upon that evaluation, our management has concluded that our
disclosure controls and procedures are effective for timely gathering, analyzing
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended. There have been no
significant changes made in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the end of the period
covered by this report based on such evaluation.
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
None.
Item 2 Changes in securities, use of proceeds and small business issuer of
equity securities
During January 2005, the Company conducted a private placement offering of
our securities whereby we received proceeds in the amount of $25,000 pursuant to
promissory notes that were subsequently converted into 50,000 shares of our
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restricted common stock. The debt was converted into our common stock at $.50
per share. This transaction was exempt from registration claimed under section
4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D
promulgated thereunder. The shares were sold to one investor who was introduced
to the Company by its officers and directors. The transaction did not include a
public distribution or offering.
Item 3 Defaults upon senior securities
None
Item 4 Submission of matters to a vote of security holders
None
Item 5 Other information
None
Item 6 Exhibits and reports on Form 8-K
(a) The following sets forth those exhibits filed pursuant to Item 601 of
Regulation S-K:
Exhibit
number Descriptions
-------- -----------------------
31.1 * Certification of the Chief Executive Officer, dated May 14, 2005,
pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2 * Certification of the Acting Chief Financial Officer, dated May 14,
2005, pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 * Certification of the Chief Executive Officer, dated May 14, 2005,
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2 * Certification of the Acting Chief Financial Officer, dated May 14,
2005, pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
------------
* Filed herewith.
(b) The following sets forth the Company's reports on Form 8-K that have
been filed during the quarter for which this report is filed:
None.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Union Dental Holdings, Inc.
By: s/ George D. Green
---------------------------
George D. Green
Chief Executive Officer,
President and Chairman of the Board*
Date: May 23, 2005
George D. Green has signed both on behalf of the registrant as a duly
authorized officer and as the Registrant's principal accounting officer.
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