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 June 30, 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
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(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
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(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 August 1, 2005, there were 30,607,486 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
Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December
31, 2004
Consolidated and Combined Statement of Operations for the three and six
months ended June 30, 2005 and June 30, 2004 (unaudited)
Consolidated and Combined Statement of Stockholders' Equity (Deficit)
Consolidated and Combined Statement of Cash Flows for the Six Months Ended
June 30, 2005 (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
Consolidated Balance Sheets..................................................F-3
Consolidated/Combined Statements of Operations...............................F-4
Consolidated Statement of Stockholders' Equity (Deficit).....................F-5
Consolidated/Combined Statements of Cash Flows...............................F-6
Notes to Consolidated/Combined Financial Statements..........................F-7
F-1
UNION DENTAL HOLDINGS INC.
Consolidated Balance Sheets
June 30, December 31,
2005 2004
------------------- --------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 48,627 $ 42,294
Accounts receivable, net of allowance of $7,200 and $7,200 361,213 317,077
Inventory 25,185 24,055
Prepaid expenses 4,865 3,509
------------------- --------------------
Total current assets 439,890 386,935
------------------- --------------------
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 521,647 237,730
Accumulated depreciation (193,859) (188,254)
------------------- --------------------
Total property and equipment 327,788 49,476
------------------- --------------------
OTHER ASSETS
Other assets 9,513 10,513
------------------- --------------------
Total other assets 9,513 10,513
------------------- --------------------
Total Assets $ 777,191 $ 446,924
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 19,832 $ 56,744
Accounts payable - related party 0 110,839
Accrued expenses 9,448 0
Income taxes payable 36,450 0
Notes payable - current portion 269,513 299,435
Line of credit 17,663 47,813
Customer deposits 32,961 30,802
Unearned memberships 326,514 326,326
------------------- --------------------
Total current liabilities 712,381 871,959
------------------- --------------------
LONG-TERM LIABILITIES
Note payable -bank 1,117,933 972,000
------------------- --------------------
Total long-term liabilities 1,117,933 972,000
------------------- --------------------
Total Liabilities 1,830,314 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;
29,373,840 and 28,519,939 issued and outstanding, respectively 2,937 2,852
Additional paid-in capital 692,737 519,067
Accumulated (deficit) earnings (305,588) (379,925)
------------------- --------------------
Subtotal stockholders' equity before shareholder transactions 390,186 142,094
Shareholder transactions (1,443,309) (1,539,129)
------------------- --------------------
Total stockholders' equity (deficit) (1,053,123) (1,397,035)
------------------- --------------------
Total Liabilities and Stockholders' Equity $ 777,191 $ 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 Statements of Operations
Three and Six Months Ended June 30,
(UNAUDITED)
Consolidated Combined Consolidated Combined
Three months Three months Six months Six months
2005 2004 2005 2004
----------------- --------------- -------------- ---------------
REVENUES $ 610,924 $ 405,622 $ 1,124,561 $ 1,091,861
OPERATING EXPENSES
Salaries 160,335 115,750 329,055 231,768
General and administrative expenses 367,379 306,914 619,715 485,158
Advertising 20,552 1,833 21,770 6,275
Depreciation 2,802 300 5,605 748
----------------- --------------- -------------- ---------------
Total expenses 551,068 424,797 976,145 723,949
----------------- --------------- -------------- ---------------
Income from operations 59,856 (19,175) 148,416 367,912
OTHER INCOME (EXPENSE)
Interest income 0 0 0 13
Interest expense (24,746) (11,447) (37,628) (25,822)
Reserve for bad debt 0 0 0 0
----------------- --------------- -------------- ---------------
Total other income (expense) (24,746) (11,447) (37,628) (25,809)
----------------- --------------- -------------- ---------------
Income tax expense (11,550) 0 (36,450) 0
----------------- --------------- -------------- ---------------
Net income $ 23,560 $ (30,622) $ 74,338 $ 342,103
================= =============== ============== ===============
Income per weighted average common shares
- basic $ 0.00 $ (30.62) $ 0.00 $ 342.10
================= =============== ============== ===============
Income per weighted average common shares
- fully diluted $ 0.00 $ (30.62) $ 0.00 $ 342.10
================= =============== ============== ===============
Number of weighted average common shares
outstanding - basic 28,964,023 1,000 28,763,650 1,000
================= =============== ============== ===============
Number of weighted average common shares
outstanding -fully diluted 29,714,023 1,000 29,513,650 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)
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 120,000 0 12 0 59,988 0 0 60,000
Stock issued for assets 733,901 0 73 0 113,682 0 0 113,755
Stockholder loan to Company 0 0 0 0 0 0 95,820 95,820
Net income 0 0 0 0 0 74,337 0 74,337
------------ ---------- -------- ---------- ------------ ---------- ------------- ------------
Ending Balance, June 30, 2005
(unaudited) 29,373,840 1,000,000 $ 2,937 100 $ 692,737 $ (305,588)$ (1,443,309)$ (1,053,123)
============ ========== ======== ========== ============ ========== ============= ============
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 Statements of Cash Flows
Six Months Ended June 30,
(unaudited)
Consolidated Combined
2005 2004
--------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 74,337 $ 342,103
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation 5,605 748
Stock issued for services 0 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (51,336) (64,529)
(Increase) decrease in inventory (1,130) 0
(Increase) decrease in prepaid expenses (1,356) (10,000)
(Increase) decrease in other assets 1,000 0
Increase (decrease) in accounts payable (147,753) (14,821)
Increase (decrease) in accrued expenses 9,448 7,323
Increase (decrease) in income tax payable 36,450 0
Increase (decrease) in customer deposits 2,159 177
Increase (decrease) in unearned memberships 188 (27,334)
--------------------- --------------------
Net cash provided by operating activities (72,388) 233,667
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (170,162) (12,426)
--------------------- --------------------
Net cash used by investment activities (170,162) (12,426)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 0 175,000
Proceeds from long-term debt 250,000 0
Payments on line of credit (30,150) 0
Net income distributed 0 (283,677)
Payments on notes payable (126,787) (82,372)
Common stock sold for cash 60,000 0
Proceeds from loan from officer/shareholder 95,820 0
--------------------- --------------------
Net cash provided (used) by financing activities 248,883 (191,049)
--------------------- --------------------
Net increase (decrease) in cash 6,333 30,192
--------------------- --------------------
CASH, beginning of period 42,294 16,656
--------------------- --------------------
CASH, end of period $ 48,627 $ 46,848
===================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 37,628 $ 14,375
===================== ====================
Non-Cash Financing Activities:
Issuance of common stock to acquire assets $ 113,755 $ 0
===================== ====================
Stockholder loan offset in stockholder transactions $ 95,820 $ 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
six months ended June 30, 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 31as 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. 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 occasionally issues
shares of common stock in exchange for services rendered. The costs of the
services are valued according to generally accepted accounting principles
and are 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. In May 2005, the
Company acquired certain assets of Dental Visions, Inc., (DVI), in exchange
for 733,901 shares of common stock valued at $113,755 and payment of DVI
debt in the amount of $169,486, for a total valuation of $283,241.
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 were separate entities under common control.
f) Revenue recognition The Company's revenues are generated through
provision of dental services and the sale of the right to provide dental
services to labor union members in an exclusive geographic area 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.
F-5
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(1) Summary of Significant Accounting Principles
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.
Repairs and maintenance charges which do not increase the useful lives of
the assets are charged to operations as incurred. Depreciation expense was
$2,802, $300, $5,605 and $748 for the three and six months ended June 30,
2005 and 2004, 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. At June 30,
2005, DDS represents approximately 17% of total assets, 27% of revenues and
40% of net income. UDC represents approximately 46% of total assets, 73% of
revenues and 60% 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, and remains
unchanged at June 30, 2005. 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.
F-6
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(1) Summary of Significant Accounting Principles
n) Interim financial information The financial statements for the three and
six months ended June 30, 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 six months are not indicative of a full year results.
(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
29,373,840 shares of common stock issued and outstanding at June 30, 2005.
The Company had issued 1,000,000 of its shares of preferred stock at June
30, 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.
F-7
UNION DENTAL HOLDINGS INC.
(UNION DENTAL CORP. and DIRECT DENTAL SERVICES, INC.)
Notes to Consolidated and Combined Financial Statements
(2) Stockholders' Equity, continued.
In the first and second quarter 2005, the Company issued 120,000 shares of
restricted common stock in exchange for $60,000 in cash, or $0.50 per
share. In the second quarter the Company issued 733,901 shares of
restricted common stock in exchange for assets valued at $113,755, or
$0.155 per share, (see note 1d).
(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 $200 for the
first half-year 2005. The tax liability was calculated at 15%, or $30.
(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. In the second quarter of 2005, this loan was
increased $250,000 as part of the acquisition of $283,241 of fixed assets.
F-8
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. In May 2005, the Company assumed a
lease for additional space as part of the DVI asset acquisition. This lease
also has five years remaining, expiring May 2010, and the monthly payment
is $2,175, or $26,100 per year, for a total of $53,700 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 half-year 2005, this net amount is further reduced by a loan
from the stockholder in the amount of $95,800.
F-9
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.
(10) Subsequent events
a) Stockholders' equity In July 2005, the Company issued 325,000 shares
under the Form S-8 and 5,000 shares of restricted under Rule 144 common
stock to two and one persons, respectively, in exchange for services
rendered. These shares were valued at $48,750 and $375 in total, or $0.15
and $0.075 per share, respectively.
On July 1, 2005, the Company filed a Form S-8 to register up to 5,000,000
shares to be issued under its Stock Option Plan. Except for the 325,000
shares of common stock described above, no shares or options have been
issued pursuant to this Plan.
F-10
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
plans to expand its line of business by acquiring dental practices and
recruiting new dental practitioners to join its dental network servicing the
union contracts. The Company may also expand and offer participating unions
other professional services such as chiropractic and eye glass providers.
Management's current focus is the expansion of its network of dental
providers, who will provide their services to the union members. 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. In furtherance of these objectives,
during our last fiscal quarter we acquired substantially all of the assets of a
dental practice located in Coral Springs, Florida ("Dental Visions") for a
purchase price of $283,241 consisting of the assumption of $169,486 in debt and
the issuance of 733,901 shares of our common stock with an agreed value of $.155
per share. We successfully integrated the operations of Dental Visions into UDC.
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 June 30, 2005 to the
Quarter Ended June 30, 2004
Revenues
Revenues for the three months ended June 30, 2005 as compared to June 30,
2004 were $610,924 as compared to $405,622, an increase of approximately 50%.
Revenues for the six months ended June 30, 2005 were $1,124,561 as compared to
$1,091,861 for the six months ended June 30, 2004, an increase of approximately
3%. The increase in revenues, especially during the second quarter of 2005 is
attributable to two factors: Increased revenues as a result of the acquisition
and integration of the assets of Dental Visions into UDC and management's
ability to focus on expanding the operations of the business.
14
Operating Expenses
Operating expenses for the three months ended June 30, 2005 as compared to
the three months ended June 30, 2004 increased by $126,271, increasing from
$551,068 and $976,145, an increase of approximately 77%. The increase in our
operating expenses is a result of increased general and administrative expenses
and salaries. Many of the additional general and administrative expenses were
the result of increased marketing expenses for DDS, consulting and professional
fees incurred as a result of the filing of our annual report during the first
quarter of 2005 and increased costs associated with the purchase of the assets
and assumption of liabilities of Dental Vision. The increase in salaries relates
to adding additional personnel and normal wage increases.
Operating expenses for the six months ended June 30, 2005 as compared to
the six months ended June 30, 2004 increased from $424,797 and $723,949, an
increase of approximately 70%. This increase is attributable to increased
general and administrative expenses and increased salaries which the Company has
incurred as it expands its operations.
Interest Expense
Interest expense for the three and six months ended June 30, 2005, was
$24,746 and $37,628 as compared to $11,447 and $25,809 for the three and six
months ended June 30, 2004. The increase is primarily attributable to increased
borrowing costs associated with an increase in our bank line of credit.
Net Income
Our net income for the three months ended June 30, 2005 was $73,052 as
compared to a net loss of $30,622 for the three months ended June 30, 2004. The
reversal of the loss is primarily attributable to increased revenues.
Our net income for the six months ended June 30, 2005 was $74,338 as
compared to net income of $342,103 for the six months ended June 30, 2004, a
decline of $267,765. The overall decline in our net income over this period is
primarily attributable to an increase in general and administrative expenses and
an increase in salaries despite an increase in revenues for the six month period
from $1,091,861 to $1,124,561.
We recorded zero (-0-) in income per share for both the three and six
months ended June 30, 2005 as compared to a loss per share of $(30.62) for the
three months ended June 30, 2004 and net income per share of $342.10 for the six
months ended June 30, 2004.
15
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 are required to pay income tax on the
net income we generate.
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 intend to seek additional financing to fully implement our business
plan. Additional financing will enable us to expand our dental network and
acquire additional dental practices. 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.
If we are successful in securing additional financing, we believe that our
business model can be expanded into other professional fields. We believe that a
niche market exists in both the chiropractic and optometry fields. If we
determine that we can successfully market these services to unions together with
our dental program, we will attempt to secure a network of chiropractors and
optometrists.
Assets and Liabilities
Our total assets were $777,191 as of June 30, 2005 as compared to $446,924
as of December 31, 2004. respectively. Our assets as of June 30, 2005 consisted
primarily of our accounts receivable, net of allowance of $361,213 furniture,
fixtures and equipment of $327,788 (net of depreciation), inventory of $25,185
and cash of $48,627. As of December 31, 2004, accounts receivable, net of
allowance was $317,077, furniture, fixtures and equipment was $49,476 (net of
depreciation) inventory was $24,055 and cash of $42,294.
Accounts receivable increased by approximately $44,000 while our property
and equipment increased by $278,312. The increase in both our accounts
receivable and the value of our property and equipment is primarily attributable
to our acquisition of Dental Visions.
Total Current Liabilities as of June 30, 2005 were $712,381 consisting
primarily of $326,514 in unearned membership interests, $269,513 representing
the current portion of a note payable, $36,450 in income taxes payable and
$32,961 in customer deposits. Total current liabilities as of December 31, 2004
16
were $871,959 consisting primarily of $326,326 in unearned memberships, $299,435
representing the current portion of a note payable, $110,839 due a related party
and $47,813 from our line of credit.
Our long-term liabilities increased from $972,000 as of December 31, 2004
to $1,117,933, an increase of approximately 15%. This increase was primarily
attributable to refinancing our loan with the bank to enable us to finance
additional acquisitions.
As of June 30, 2005, we have a stockholders deficit of $(1,053,123). This
compares to a stockholders deficit of $(1,397,035) as of December 31, 2004. The
reduction of our stockholders deficit is due to three factors; net income of
approximately $74,000, a net change of $96,000 relating to a loan received from
a principal stockholder, less any notes receivable from the same principal
shareholder, plus stock issued for $60,000.
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 June 2005, the Company issued 70,000 shares of
restricted common stock in exchange for $35,000 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.
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.
17
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
During the second quarter of 2005, DDS was sued by a former member of our
DDS network. The suit alleges that the company breached the exclusivity
provisions of its agreement with DDS by selling the territory to another dentist
The lawsuit was filed in Dade County, Florida (Case No. 05-08811 CA 2).
Management believes that it has a meritorious defense to this action in that the
territory was only sold after the plaintiff failed to make the required payments
due under the management agreement to remain part of the DDS network.
During the second quarter of 2005 we were sued by another dentist who was
previously a DDS member, The suit was filed in Dade County, Florida (Case No.
05-0077-99) and alleges tortuous interference with a business relationship and
liable. Management believes that it has meritorious defenses in that this action
was brought in response to a lawsuit filed by the company against the same
dentist for breach of contract, slander, tortuous interference with a business
relationship and injunctive relief (Case No. 04-12109 CA 10). The Company filed
this action when the dentist failed to pay the required fee to remain a member
of the DDS network and attempted to create his own network of service providers.
Item 2 - Changes in securities, use of proceeds and small business issuer of
equity securities
In May 2005, we issued a total of 733,901 shares of our common stock to a
single investor in consideration for the transfer of the assets and assumption
of certain liabilities of Dental Vision.
During June 2005, the Company issued 70,000 shares at a cost of $.50 per
share to an investor.
The transactions were exempt from registration claimed under section 4(2)
of the Securities Act of 1933, as amended and neither of the identified
transactions included a public distribution or offering.
Item 3 - Defaults upon senior securities
None
Item 4 - Submission of matters to a vote of security holders
None
18
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 Chief Executive Officer, dated May 14, 2005, pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
32.1 * Certification 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:
1. Form 8-K filed May 24, 2005.
19
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: August 17, 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.
20