As filed with the Securities and Exchange Commission on Septembe
Registration Number 333-128241
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POS-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Union Dental Holdings, Inc.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Florida 6199 65-0710392
--------------------------------------------------------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Coral Springs, FL, 33071
(954) 575-2252
--------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
Dr. George Green
Chief Executive Officer
Union Dental Holdings, Inc.
1700 University Drive, Suite 200
Coral Springs
Florida 33071
(954) 575-2252
--------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
Darrin Ocasio, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
Tel: (212) 930-9700
Fax: (212) 930-9725
------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
Proposed Proposed
Title of Each Class Maximum Maximum Amount of Amount of
of Securities to Amount Offering Price Aggregate Registration
be Registered Registered Per Share(1) Offering Price Fee
--------------------------------------------------------------------------------
Common Stock, par value
$.0001(2) 1,304,348 $.19 $ 247,826.12 $29.17
--------------------------------------------------------------------------------
Common Stock, par value
$.0001(3) 500,000 $.19 $ 95,000 $11.18
--------------------------------------------------------------------------------
Common Stock, par value
$.0001(4) 38,461,538 $.19 $7,307,692.22 $860.12
--------------------------------------------------------------------------------
Common Stock, par value
$.0001(5) 8,857,396 $.19 $1,682,905.24 $198.00
--------------------------------------------------------------------------------
Total 49,123,282 $.19 $9,333,423.58 $1,098.55*
--------------------------------------------------------------------------------
* Previously paid
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. The average of
the bid and asked price per share of the Registrant's Common Stock on the
Over the Counter Bulletin Board as of August 30, 2005 was $0.205 per share.
(2) Represents shares issuable upon exercise of warrants.
(3) Represents shares issuable upon exercise of warrants.
(4) Represents shares issuable upon sales under the Investment Agreement.
(5) Represents shares issuable upon conversion of the Debenture
The registrant hereby amends this registration statement on such date or date(s)
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
The information in this prospectus is not complete and may be changed. The
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
EXPLANATORY NOTE
THIS FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK.
RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY
REGISTERED ON FORM SB-2 FILED ON SEPTEMBER 9, 2005. IN ACCORDANCE WITH THE
AGREEMENT WITH THE SELLING SHAREHOLDERS, WE ARE OBLIGATED TO MAINTAIN AN
EFFECTIVE REGISTRATION STATEMENT FOR A SPECIFIC PERIOD OF TIME.
The information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by Union
Dental Holdings, Inc. with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
PROSPECTUS
Subject to Completion, Dated September 8, 2006
Union Dental Holdings, Inc.
49,123,282 Shares of Common Stock
This prospectus relates to the resale by the selling stockholders of up to
49,123,282 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions.
The total number of shares sold herewith includes the following shares owned by
or to be issued to Dutchess Private Equities Fund II, LP ("Dutchess"): (i) up to
8,857,396 shares issuable upon conversion of convertible debentures, (ii)
1,304,348 shares issuable upon exercise of warrants, and (ii) up to 38,461,538
shares of common stock issuable pursuant to a "put right" under the Investment
Agreement, also referred to as an Equity Line of Credit with Dutchess Private
Equities Fund II, LP. We are not selling any shares of common stock in this
offering and therefore will not receive any proceeds from this offering. We
will, however, receive proceeds from the sale of the 38,461,538 shares of common
stock under the Investment Agreement with Dutchess Private Equities, LLP and the
exercise of warrants issued to Dutchess and Hawk Associates to purchase an
aggregate of 1,804,348 shares of common stock. All costs associated with this
registration will be borne by us.
A "put right" permits us to require Dutchess to buy shares of our common stock
pursuant to the terms of the Investment Agreement. That Investment Agreement
permits us to "put" up to $5,000,000 in shares of our common stock to Dutchess.
Dutchess will pay us 95% of the lowest closing Best Bid price (highest posted
bid price) of our common stock during the five trading day period immediately
following the date of our notice to them of our election to put shares pursuant
to the Equity Line of Credit.
Our common stock currently trades on the Over the Counter Bulletin Board ("OTC
Bulletin Board") under the symbol "UDHI.OB."
On September 7, 2006, the last reported sale price for our common stock on the
OTC Bulletin Board was $0.090 per share.
The securities offered in this prospectus involve a high degree of risk. See
"Risk Factors" beginning on page 3 of this prospectus to read about factors you
should consider before buying shares of our common stock.
With the exception of Dutchess, which is an "underwriter" within the meaning of
the Securities Act of 1933, no other underwriter or person has been engaged to
facilitate the sale of shares of common stock in this offering.
THIS FILING DOES NOT INVOLVE THE REGISTRATION OF ANY NEW SHARES OF COMMON STOCK.
RATHER, THIS FILING UPDATES THE REGISTRATION OF THE COMMON STOCK ORIGINALLY
REGISTERED ON FORM SB-2 FILED ON SEPTEMBER 9, 2005. IN ACCORDANCE WITH THE
AGREEMENT WITH THE SELLING SHAREHOLDERS, WE ARE OBLIGATED TO MAINTAIN AN
EFFECTIVE REGISTRATION STATEMENT FOR A SPECIFIC PERIOD OF TIME.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September 8, 2006
TABLE OF CONTENTS
Page
Prospectus Summary......................................................... 1
Risk Factors............................................................... 3
Forward Looking Statements................................................. 8
Use of Proceeds............................................................ 8
Management's Discussion and Analysis or Plan of Operation.................. 13
Business................................................................... 19
Description of Property.................................................... 22
Legal Proceedings.......................................................... 22
Directors and Executive Officers........................................... 22
Executive Compensation..................................................... 23
Security Ownership of Certain Beneficial Owners
and Management............................................................. 25
Market for Common Equity and Related
Stockholder Matters........................................................ 26
Selling Shareholders....................................................... 27
Certain Relationships and Related Transactions............................. 28
Description of Securities.................................................. 29
Plan of Distribution....................................................... 29
Legal Matters.............................................................. 31
Experts.................................................................... 31
Where You Can Find More Information........................................ 31
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................................. 31
Index to Financial Statements.............................................. F-1
You may only rely on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. Union Dental
Holdings, Inc. is referred to throughout this prospectus as "Union Dental," "we"
or "us."
General
We are operating two business lines: (1) a network of duly licensed dental
providers to a network of union members through Direct Dental Services, Inc. and
(2) management of a dental practice through Union Dental Corp.
Direct Dental Services, Inc.
Direct Dental Services, Inc. ("DDS") is a Florida corporation that operates a
network of duly licensed dental providers (the "Dental Referral") who provide
dental services through the network to union members in accordance with
arrangements between DDS and various labor unions. DDS is not limited as to the
type of labor union which DDS may solicit. DDS charges a annual management
services fee to the participating dentists to practice in an "area of
exclusivity" for union members. DDS currently has exclusive contracts with local
unions, such as Communications Workers of America ("CWA"), International
Brotherhood of Electrical Workers ("IBEW") and General Electric's International
Union of Electronic, Electrical, Salaried, Machine and Furniture Workers -
Communications Workers of America ("IUE-CWA").
Members of the Dental Network are assigned "areas of exclusivity" established by
DDS which grants the Dental Network provider primary responsibility to provide
for the general dentistry and specialist services required by covered union
members. DDS's Network dentists accept as payment in full for covered services
the scheduled amount payable by the applicable union sponsored dental benefit
plan together with a relatively small co-payment from the covered union member.
The copayment to be paid by the union member is generally substantially lower
than the scheduled copayment set forth in the applicable dental benefit plan,
resulting in significant savings to the union member.
Union Dental Corp.
Union Dental Corp., ("UDC") is a Florida corporation that has acquired the
assets (minus the client list) of Dr. George D. Green, P.A. effective October
15, 2004. Subsequent thereto, on May 17, 2005, UDC acquired certain assets and
assumed certain liabilities of DORA VILK-SHAPIRO, D.M.D., P.A. d/b/a Dental
Visions, a Florida corporation ("Dental Vision") for a purchase price of
$283,241.
UDC utilizes the services of 17 individuals pursuant to a management agreement
with Dr. George D. Green, DDS, P.A. The Coral Springs office is comprised of two
licensed dentists, a licensed associate dentist, two hygienists, four nurses,
two office managers, a union dental insurance specialist, a union dental
administrative director and four managerial staff members.
1
Investment Agreement
On August 17, 2005, we entered into an Investment Agreement with Dutchess
Private Equities Fund II, L.P. Pursuant to this Agreement, Dutchess committed to
purchase up to $5,000,000 (the "Line") of our Common Stock over the course of 36
months ("Line Period"), after a registration statement has been declared
effective by the SEC (the "Effective Date"). On September 9, 2005, we filed a
registration statement with the SEC which included the shares issuable pursuant
to the Investment Agreement, which was declared effective by the SEC on
September 15, 2005. The amount that we shall be entitled to request from each of
the purchase "Puts", shall be equal to either (1) $100,000 or (2) 200% of the
averaged daily volume (U.S market only) ("ADV") of our Common Stock for the 20
Trading days prior to the "Put" notice, multiplied by the average of the 3 daily
closing prices immediately preceding the Put Date. The Pricing Period shall be
the five (5) consecutive trading days immediately after the Put Date. The Market
Price shall be the lowest closing bid price of the Common Stock during the
Pricing Period. The Purchase Price shall be set at 95% of the Market Price. The
Put Date shall be the date that the Investor receives a Put Notice of draw down
by us of a portion of the Line. There are put restrictions applied on days
between the Put Date and the Closing Date with respect to that Put. During this
time, we shall not be entitled to deliver another Put Notice. We shall
automatically withdraw that portion of the put notice amount, if the Market
Price with respect to that Put does not meet the Minimum Acceptable Price. The
Minimum Acceptable Price is defined as 75% of the lowest closing bid price of
the common stock for the ten (10) trading day period prior to the Put Date.
Debenture Agreement
Also on August 17, 2005, we issued a five year convertible debenture in the
principal amount of $600,000 to Dutchess Private Equities Fund II, L.P. The
debenture bears interest at 10% per annum (payable in cash or stock at Dutchess'
option). We have granted a security interest to Dutchess in all of our assets to
insure repayment of the Debenture, which security interest is subordinate to the
interests of Bank of America in our assets. We currently maintain a line of
credit with Bank of America. The conversion price of the debenture is $.092 per
share. We also issued Dutchess a warrant to purchase 1,304,348 shares of common
stock with a strike price of $.092 per share. The warrant may be exercised for a
period of five years.
Our principal executive office is located at 1700 University Drive, Suite 200,
Coral Springs, FL 33071and our telephone number at that location is (954)
575-2252.
2
THIS OFFERING
Shares offered by Selling
Stockholders........Up to 49,123,282 shares, including 8,857,396 shares issuable
upon conversion of a debenture; up to 38,461,538 shares
issuable under the Investment Agreement; and an aggregate of
1,504,348 shares issuable upon exercise of warrants*
Common Stock to be
outstanding after
the offering........88,235,702
Use of Proceeds.....We will not receive any proceeds from the sale of the common
stock hereunder. We will, however, receive proceeds from the
sale of our common stock pursuant to the Investment
Agreement and the exercise of warrants to purchase shares of
our common stock. See "Use of Proceeds" for a complete
description.
Risk Factors........The purchase of our common stock involves a high degree of
risk. You should carefully review and consider "Risk
Factors" beginning on page 3.
OTC Bulletin
Board Trading
Symbol..............UDHI.OB
-------------------
* Based on the current issued and outstanding number of shares of 39,112,420 as
of September 7, 2006, and assuming issuance of all shares registered herewith,
the number of shares offered herewith represents approximately 126% of the total
issued and outstanding shares of common stock.
RISK FACTORS
An investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to the
risks and uncertainties described below. Our actual results could differ
materially from those anticipated by our forward-looking statements as a result
of the risk factors below. See "Forward-Looking Statements."
Risks Related to Our Business
We have a limited operating history and may need to raise additional capital
which may not be available on acceptable terms or at all.
3
We have a limited operating history in connection with our network provider
business, Direct Dental, upon which an evaluation of our future success or
failure can be made. Our ability to achieve and maintain profitability and
positive cash flow over time will be dependent upon, among other things, our
ability to (i) identify and execute exclusive contracts with the unions and (ii)
raise the necessary capital to operate during this period. At this stage in our
development, it cannot be predicted how much financing will be required to
accomplish our objectives.
Our auditors have issued a going concern opinion due to the fact that we had net
losses of $1,440,083 for the year ended December 31, 2005, a working capital
deficiency of $2,448,227 and a stockholders' deficit of $2,012,314 at December
31, 2005 and for the year ended December 31, 2005, used cash in operations of
$525,016. While we are attempting to increase sales, our growth has not been
significant enough to support our daily operations. In order to raise funds, on
August 2005, we entered into an Investment Agreement, a Debenture Agreement, and
issued a Promissory Note to Dutchess Private Equities Fund, LP. We also have a
note payable to a bank. Management may attempt to raise additional funds by way
of a public or private offering. While we believe in the viability of this
strategy to improve sales volume and in our ability to raise additional funds,
there can be no assurances to that effect. Our limited financial resources have
prevented us from aggressively advertising our products and services to achieve
consumer recognition. Our ability to continue as a going concern is dependent on
our ability to further implement our business plan and generate increased
revenues. Management believes that the actions presently being taken to further
implement our business plan and generate additional revenues provide the
opportunity for us to continue as a going concern. However, there can be no
assurance that these actions will be successful.
Our success is dependent upon a limited number of people.
The ability to implement our business plan is dependent upon the efforts of our
President, Dr. George D. Green. The loss of Dr. Green's services could have a
material adverse affect on us. Our business will be harmed if we are unable to
manage growth. If we lose the services of Dr. Green or are unable to attract or
retain qualified personnel, our business could suffer.
Our business may experience periods of rapid growth that will place significant
demands on our managerial, operational and financial resources
Our business may experience periods of rapid growth that will place significant
demands on our managerial, operational and financial resources. In order to
manage this possible growth, we must continue to improve and expand our
management, operational and financial systems and controls. We will need to
expand, train and manage our employee base. No assurances can be given that we
will be able to timely and effectively meet such demands. The issuance of shares
through our stock compensation and incentive plans may dilute the value of
existing shareholders.
We have used and anticipate continuing to use stock options, stock grants and
other equity-based incentives, to provide motivation and compensation to our
officers, employees and key independent consultants. The award of any such
incentives will result in an immediate and potentially substantial dilution to
our existing shareholders and could result in a decline in the value of our
stock price.
4
We have financed part of our growth over the past year through an equity line of
credit and the sale of convertible debt instruments. The use of these financing
tools will result in further dilution to our existing shareholders and could
result in the decline in the value of our common stock.
We have not voluntarily implemented various corporate governance measures in the
absence of which, shareholders may have more limited protections against
interested director transactions, conflicts of interest and similar matters.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or the Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges and Nasdaq are
those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. While our board of directors has adopted a
Code of Ethics and Business Conduct, we have not yet adopted any of these other
corporate governance measures and, since our securities are not yet listed on a
national securities exchange or Nasdaq, we are not required to do so. It is
possible that if we were to adopt some or all of these corporate governance
measures, shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and that
policies had been implemented to define responsible conduct. For example, in the
absence of audit, nominating and compensation committees comprised of at least a
majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.
Provisions of our Articles of Incorporation and Bylaws may delay or prevent
take-over, which may not be in the best interest of our stockholders.
Provisions of our articles of incorporation and bylaws may be deemed to have
anti-takeover effects, which include when and by whom special meetings of our
stockholders may be called, and which may delay, defer or prevent a takeover
attempt. In addition, certain provisions of the Florida Statutes also may be
deemed to have certain anti-takeover effects , which include that control of
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless these voting rights are approved by a majority of a
corporation's disinterested stockholders. In addition, our articles of
incorporation authorize the issuance of up to 25,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
our board of directors, of which 1,000,000 shares of Class A Preferred Stock are
issued and outstanding as of April 13, 2005. Each share of Class A Preferred
shall have 15 votes per share. Our board of directors may, without stockholder
approval, issue preferred stock with dividends, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
the holders of our common stock.
5
We may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have those controls attested to by our
independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal controls over financial
reporting in their annual reports, including Form 10-KSB. In addition, the
independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls. We were
not subject to these requirements for the fiscal year ended December 31, 2005.
We are evaluating our internal control systems in order to allow our management
to report on, and our independent auditors to attest to, our internal controls,
as a required part of our Annual Report on Form 10-KSB beginning with our report
for the fiscal year ended December 31, 2008.
While we expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive an
unqualified opinion from our independent auditors. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive an unqualified
opinion from our independent auditors with respect to our internal controls,
investors and others may lose confidence in the reliability of our financial
statements and our ability to obtain equity or debt financing could suffer.
Risks Related to the Company's Common Stock
We do not expect to pay dividends in the foreseeable future.
We have never paid cash dividends on our common stock and have no plans to do so
in the foreseeable future. We intend to retain earnings, if any, to develop and
expand our business.
"Penny stock" rules may make buying or selling the common stock difficult and
severely limit their market and liquidity.
Trading in our common stock is subject to certain regulations adopted by the SEC
commonly known as the "Penny Stock Rules". Our common stock qualifies as penny
stock and is covered by Section 15(g) of the Securities and Exchange Act of
1934, as amended (the "1934 Act"), which imposes additional sales practice
requirements on broker/dealers who sell our common stock in the market. The
"Penny Stock" rules govern how broker/dealers can deal with their clients and
"penny stock". For sales of our common stock, the broker/dealer must make a
special suitability determination and receive from clients a written agreement
prior to making a sale. The additional burdens imposed upon broker/dealers by
the "penny stock" rules may discourage broker/dealers from effecting
transactions in our common stock, which could severely limit its market price
and liquidity. This could prevent investors from reselling our common stock and
may cause the price of our common stock to decline.
Although publicly traded, our common stock has substantially less liquidity than
the average trading market for a stock quoted on other national exchanges, and
our price may fluctuate dramatically in the future.
6
Although our common stock is listed for trading on the Over-the-Counter
Electronic Bulletin Board, the trading market in the common stock has
substantially less liquidity than the average trading market for companies
quoted on other national stock exchanges. A public trading market having the
desired characteristics of depth, liquidity and orderliness depends on the
presence in the marketplace of willing buyers and sellers of our common stock at
any given time. This presence depends on the individual decisions of investors
and general economic and market conditions over which we have no control. Due to
limited trading volume, the market price of our common stock may fluctuate
significantly in the future, and these fluctuations may be unrelated to the
Company's performance. General market price declines or overall market
volatility in the future could adversely affect the price of our common stock,
and the current market price may not be indicative of future market prices.
Our stock price may be volatile
The market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
o technological innovations or new products and services by us or our
competitors;
o additions or departures of key personnel;
o sales of our common stock;
o our ability to integrate operations, technology, products and services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments;
o economic and other external factors; and
o period-to-period fluctuations in our financial results.
Because we have a limited operating history with our Direct Dental Services,
business, you may consider any one of these factors to be material. Our stock
price may fluctuate widely as a result of any of the above listed factors.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
Risks relating to the Debenture Agreement:
Dutchess, the holder of a Convertible Debenture issued by us on August 16, 2005
has the option of converting the Debenture into shares of our common stock.
Dutchess may also exercise their common stock purchase warrants. If the
Debenture is converted or the warrants exercised, there will be dilution of your
shares of our common stock.
The issuance of shares of our common stock upon conversion of the Debenture will
result in the dilution to the interests of other holders of our common stock,
since Dutchess may sell all of the resulting shares into the public market.
The principal amount of the Debenture plus accrued interest may be converted at
the option of the Dutchess into shares of our common stock at a conversion price
equal to the lesser of (i) the lowest closing bid price during the fifteen (15)
days of full trading prior to the filing date or (ii) $.092.
7
The following table sets forth the number and percentage of our common stock
that would be issuable if the entire principal amount of the Debenture is
converted at the current conversion price of $.092.
Number of Shares (1)Percentage of Class (2)(3)
Debenture in the principal
amount of $600,000 at a price
of $.092. 6,521,739 16.68%
1) Represents the number of shares issuable if all of the outstanding principal
under the Debenture were converted at the indicated conversion price. For ease
of reference, any shares of common stock that may be issued upon conversion of
interest under the Debenture have been excluded. The outstanding principal under
the Debenture bears interest at the rate of 10% per annum, calculated on the
basis of a 360-day year.
(2) Based on 39,112,420 common shares issued and outstanding on September 7,
2006.
(3) Percentage of the total outstanding common stock represented by the shares
issuable on conversion of Debenture without regard to any contractual or other
restriction on the number of securities the selling stockholders may own at any
point in time.
If we fail to timely deliver certificates evidencing the number of shares which
Dutchess requests conversion, we are required to pay liquidated damages to
Dutchess.
In the event that we fail to deliver certificates for the number of shares into
which Dutchess has requested conversion, for any reason other than the
unavailability of the authorized but unissiued shares of our common stock, we
are required to pay to Dutchess 3 % of the dollar value of the Debentures being
converted, compounded daily, per each day after the 3rd business day following
the conversion date that the common stock is not delivered to Dutchess. There is
no guarantee that we will have cash readily available to make such payments in
the event of our failure to timely deliver certificates in accordance with a
conversion request by Dutchess. In addition, such payments may leave us with
little or no capital in our business. This would have an adverse effect on our
continuing operations.
Sales of a substantial number of shares of our common stock into the public
market by the holder of our Convertible Debenture may result in significant
downward pressure on the price of our common stock and could affect the ability
of our stockholders to realize the current trading price of our stock.
If Dutchess converts the Convertible Debenture and any accrued interest,
Dutchess may acquire and resell up to 8,857,396 shares of our common stock. The
issuance of the shares of our common stock upon conversion of the convertible
Debenture will result in dilution to the interests of the other holders of our
common stock. The resale of our common stock will increase the number of
publicly traded shares which could depress the market price of our common stock
and thereby affect the ability of our shareholders to realize the current price
of our common stock. In addition, as all of the shares we issue to Dutchess will
be available for resale, he mere prospect of our sales to them could depress the
market price of our common stock.
8
We are currently in default under the Convertible Debenture and our Promissory
Note with Dutchess
As of June 30, 2006, we are delinquent in our payment obligations under the
Convertible Debenture. Dutchess has the right to among other things: (a) elect
to secure a portion of the Company's assets not to exceed 200% of the Face
Amount of the Debenture, in Pledged Collateral; (b) elect to garnish revenue
from us in an amount that will repay Dutchess on the payment schedule; (c)
exercise its right to increase the Face Amount of the debenture by ten percent
(10%) as an initial penalty and for each Event of Default under the Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%) per
month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily. Although, we have not received a notice of
default from Dutchess, any attempt by Dutchess to take any of the actions
outlined above may cause us to curtail or cease operations.
Risks relating to the Investment Agreement:
There are a large number of shares underlying our periodic equity investment
agreement that are being registered in this prospectus and the sale of these
shares may depress the market price of our common stock.
The issuance and sale of shares upon delivery of an advance by Dutchess Private
Equities Fund II, LP ("Dutchess") pursuant to the Investment Agreement in the
amount up to $5,000,000 and the conversion of the Debenture and exercise of
warrants by Dutchess are likely to result in substantial dilution to the
interests of other stockholders. As of September 7, 2006, we had 39,112,420
shares of common stock issued and outstanding. We have registered 49,123,282
shares of common stock pursuant to this registration statement (based on the
market prices of our common stock at the time of the filing of the Registration
Statement on September 5, 2005), of which up to 38,461,538 are reserved for
issuance pursuant to the Investment Agreement with Dutchess Private Equities
Fund II, LP.
Assuming the issuance of shares under the Investment Agreement, existing
shareholders will experience substantial dilution of our shares of Common Stock.
Our Investment Agreement with Dutchess contemplates the potential issuance and
sales of up to $5,000,000 of our Common Stock to Dutchess subject to certain
restrictions and obligations. Given our current capital needs and the market
price of our common stock, we presently have no intention of drawing down the
entire amount available to us unless the market price of our common stock
increases. To date, we have received $162,279 of net cash proceeds pursuant to
the Investment Agreement.
The following is an example of the shares of our common stock that are issuable
upon the entire drawdown of $5,000,000 on our equity line based on a current
price of $.059 and prices at 25%, 50% and 75% below $.059.
------------------- ---------- --------------- ----------------- ---------------
Number of %
Price shares Shares of Outstanding
% Below price per share issuable (1) outstanding (2) stock(3)
------------------- ---------- --------------- ----------------- ---------------
Purchase price (4) $.059 84,745,763 123,858,183 68.42%
------------------- ---------- --------------- ----------------- ---------------
25% $.015 338,983,051 378,095,471 89.66%
------------------- ---------- --------------- ----------------- ---------------
50% $.030 169,491,525 208,603,945 81.25%
------------------- ---------- --------------- ----------------- ---------------
75% $.044 112,994,350 152,106,770 74.29%
--------------------------------------------------------------------------------
9
(1) Represents the number of shares issuable if the entire $5,000,000 under the
equity line of credit, was drawn down at the indicated price.
(2) Based on 39,112,420 common shares issued and outstanding on September 7,
2006.
(3) Percentage of the total outstanding common stock represented by the shares
issuable on draw down on the equity line of credit without regard to any
contractual or other restriction on the number of securities the selling
stockholders may own at any point in time.
(4) Based on a price of $.059 which is 95% of the lowest closing price of our
common stock during the five day period commencing August 29, 2006 through
September 5, 2006.
The lower the stock price, the greater the number of shares issuable under the
Investment Agreement.
The number of shares that Dutchess will receive under its agreement with us is
calculated based upon the market price of our common stock prevailing at the
time of each "put". The lower the market price, the greater the number of shares
issuable under the agreement. Upon issuance of the shares, to the extent that
Dutchess will attempt to sell the shares into the market, these sales may
further reduce the market price of our common stock. This in turn will increase
the number of shares issuable under the agreement. This may lead to an
escalation of lower market prices and ever greater numbers of shares to be
issued. A larger number of shares issuable at a discount to a continuously
declining stock price will expose our shareholders to greater dilution and a
reduction of the value of their investment.
The sale of our stock under the Dutchess agreement could encourage short sales
by third parties, which could contribute to the future decline of our stock
price and materially dilute existing stockholders' equity and voting rights.
Neither the Investment Agreement or the Debenture Agreement contain restrictions
on short selling. Accordingly, any significant downward pressure on the price of
our common stock can encourage short sales by them or others, subject to
applicable securities laws. This is particularly the case if the shares being
placed into the market exceed the market's ability to absorb the increased
number of shares of stock or if we have not performed in such a manner to show
that the equity funds raised will be used by us to grow. Such an event could
place further downward pressure on the price of our common stock. Even if we use
the proceeds under the agreement to grow our revenues and profits or invest in
assets, which are materially beneficial to us, the opportunity exists for short
sellers and others to contribute to the future decline of our stock price. If
there are significant short sales of our stock, the price decline that would
result from this activity will cause the share price to decline more so, which,
in turn, may cause long holders of the stock to sell their shares thereby
contributing to sales of stock in the market. If there is an imbalance on the
sell side of the market for the stock, our stock price will decline. If this
occurs, the number of shares of our common stock that is issuable pursuant to
the Investment Agreement will increase, which will materially dilute existing
stockholders' equity and voting rights.
10
FORWARD-LOOKING STATEMENTS
Our representatives and we may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a) volatility or decline of our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement our business plans;
(e) inadequate capital to continue business;
(f) changes in demand for our products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside parties;
(i) insufficient revenues to cover operating costs.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the Selling Stockholders. We will receive proceeds
from the sale of shares of our common stock to Dutchess under the Investment
Agreement. The purchase price of the shares purchased under that agreement will
be equal to 95% of the lowest closing Best Bid (highest posted bid price of our
common stock) for the five trading days following the day that we submit a Put
Notice to Dutchess that we intend to sell shares to it. We may also receive
proceeds from the exercise of the warrants issued to Dutchess.
We have the ability to draw down up to $4,837,721 to the Investment Agreement;
however we may draw down less than that amount. To date we have exercised put
notices in accordance with the agreement and received $162,279 of net cash
proceeds for which the Company issued 2,022,496 shares of its common stock to
Dutchess.
For illustrative purposes, we have set forth below our intended use of proceeds
for the range of net proceeds indicated below to be received under the
Investment Agreement assuming a sale of 10%, 25%, 50% and 100% of the shares
issuable under that agreement. The table below assumes estimated offering
expenses and fees of $36,098.55 (includes (a) estimated legal fees and expenses
of $25,000, (b) estimated accounting fees and expense of $10,000 and (c) SEC
filing fees of $1,098.55).
11
10% 25% 50% 100%
---------- ------------- ------------- =-----------
Gross Proceeds $500,000 $1,250,000 $2,500,000 $5,000,000
Net Proceeds
after offering
expenses and fees $463,901.45 $1,213,901.45 $2,463,901.45 $4,963,901.45
Use of proceeds:
General Working Capital $463,901.45 $1,213,901.45 $2,463,901.45 $4,963,901.45
=========== ============= ============= =============
Investment Agreement
On August 17, 2005, we entered into an Investment Agreement with Dutchess
Private Equities Fund II, LP, ("Dutchess") a Delaware limited partnership, for
the future issuance and purchase of shares of our common stock. This Investment
Agreement established what is sometimes termed an equity line of credit or an
equity drawdown facility. To date we have exercised put notices in accordance
with the Investment Agreement and received $162,279 of net cash proceeds, for
which the Company issued 2,022,496 shares of its common stock to Dutchess. We
have the ability to draw down up to $4,837,721 to the Investment Agreement;
however we may draw down less than that amount.
In general, the drawdown facility operates as follows: Dutchess has committed to
provide us up to $5,000,000, as we request it over a 36 month period from
September 15, 2005 through September 15, 2008, in return for common stock we
issue to Dutchess. We, in our sole discretion, may during the Open Period
deliver a "put notice" (the "Put Notice") to Duchess which states the dollar
amount which we intend to sell to Dutchess on the Closing Date. The Open Period
is the period beginning on September 15, 2005, the trading day after this
Registration Statement was declared effective by the SEC (the "Effective Date")
and which ends on the earlier to occur of, 36 months from the Effective Date or
termination of the Investment Agreement in accordance with its terms. The
Closing Date shall mean no more than 7 trading days following the Put Notice
Date. The Put Notice Date shall mean the Trading Day immediately following the
day on which Dutchess receives a Put Notice, however a Put Notice shall be
deemed delivered on (a) the Trading Day it is received by facsimile or otherwise
by Dutchess if such notice is received prior to 9:00 am EST, or (b) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am EST on a Trading Day.
The amount that we shall be entitled to Put to Dutchess shall be equal to, at
our election, either: (A) Two Hundred percent (200%) of the average daily volume
(U.S. market only) of the Common Stock for the twenty (20) Trading Days prior to
the applicable Put Notice Date, multiplied by the average of the three (3) daily
closing bid prices immediately preceding the Put Date, or (B) One Hundred
Thousand dollars ($100,000). During the Open Period, we shall not be entitled to
submit a Put Notice until after the previous Closing has been completed. The
Purchase Price for the Common Stock identified in the Put Notice shall be equal
to ninety-five percent (95)% of the lowest closing Best Bid price of the Common
Stock during the Pricing Period. The Pricing Period is the period beginning on
the Put Notice Date and ending on and including the date that is 5 trading days
after such Put Notice Date.
Dutchess' Obligation to Purchase Shares
Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall
be required to purchase from us, during the period beginning on the Put Notice
Date and ending on and including the date that is 5 Trading days after such Put
Notice, that number of shares having an aggregate purchase price equal to the
12
lesser of (a) the Put Amount set forth in the Put Notice and (b) 20% of the
aggregate trading volume of our common stock during the applicable Pricing
Period times (x) the lowest closing bid price of our common stock during the
specified Pricing period, but only if such said shares bear no restrictive
legend and are not subject to stop transfer instructions, prior to the
applicable Closing Date.
Conditions to Dutchess' obligation to purchase shares
We shall not be entitled to deliver a Put Notice and Dutchess shall not be
obligated to purchase any shares at a closing unless each of the following
conditions are satisfied:
A. a Registration Statement shall have been declared effective and shall
remain effective and available at all times until the Closing with respect to
the subject Put Notice for the resale of all the common stock issuable pursuant
to the Investment Agreement,;
B. at all times during the period beginning on the related Put Notice Date
and ending on and including the related Closing Date, the Common Stock shall
have been listed on the Principal Market and shall not have been suspended from
trading thereon for a period of two (2) consecutive Trading Days during the Open
Period and we shall not have been notified of any pending or threatened
proceeding or other action to suspend the trading of our Common Stock;
C. we have complied with our obligations and are otherwise not in breach of
a material provision of, or in default under, the Investment Agreement and the
Registration Rights Agreement or any other agreement executed in connection with
the Investment Agreement, which has not been corrected prior to delivery of the
Put Notice Date;
D. no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and
C. the issuance of the Securities will not violate any shareholder approval
requirements of the Principal Market.
If any of the foregoing events occurs during a Pricing Period, then Dutchess
shall have no obligation to purchase the Put Amount of Common Stock set forth in
the applicable Put Notice.
Mechanics of Purchase of shares by Dutchess
The closing of the purchase by Dutchess of Shares (a "Closing") shall occur on
the date which is no later than seven (7) Trading Days following the applicable
Put Notice Date (each a "Closing Date"). Prior to each Closing Date, (I) we
shall be required to deliver to Dutchess pursuant to the Investment Agreement,
certificates representing the Shares to be issued to Dutchess on such date and
registered in the name of Dutchess; and (II) Dutchess shall deliver to us the
purchase price to be paid for such Shares.
As compensation to Dutchess for a delay in issuance of the Shares beyond the
Closing Date, we have agreed to pay late payments to Dutchess for late issuance
of the Shares (delivery of the Shares after the applicable Closing Date) in
accordance with the following schedule (where "No. of Days Late" is defined as
the number of trading days beyond the Closing Date. The Amounts are
cumulative.):
13
LATE PAYMENT FOR EACH
NO. OF DAYS LATE $10,000 OF COMMON STOCK
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Over 10 $1,000 + $200 for each Business Day late beyond 10 days
We shall pay any late payments in immediately available funds upon demand by
Dutchess.
Overall Limit on Common Stock Issuable.
If during the Open Period we become listed on an exchange that limits the number
of shares of our common stock that may be issued without shareholder approval,
then the number of Shares issuable by us and purchasable by Dutchess, including
the shares of Common Stock issuable to Dutchess, shall not exceed that number of
the shares of Common Stock that may be issuable without shareholder approval,
subject to appropriate adjustment for stock splits, stock dividends,
combinations or other similar recapitalization affecting the Common Stock (the
"Maximum Common Stock Issuance"), in excess of the Maximum Common Stock Issuance
shall first be approved by our shareholders in accordance with applicable law
and our By-laws and Amended and Restated Certificate of Incorporation, if such
issuance of shares of Common Stock could cause a delisting on the Principal
Market. Our failure to seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the issuance and sale of
Securities or Dutchess' obligation in accordance with the terms and conditions
of the Investment Agreement to purchase a number of Shares in the aggregate up
to the Maximum Common Stock Issuance limitation, and that such approval pertains
only to the applicability of the Maximum Common Stock Issuance limitation.
Term
The Investment Agreement shall expire (a) when Dutchess has purchased an
aggregate of $5,000,000 of our Common Stock or (b) September 15, 2008, whichever
occurs earlier.
Suspension
The Investment Agreement shall be suspended upon any of the following events and
shall remain suspended until such event has been rectified:
A. the trading of our Common Stock is suspended by the SEC, the Principal
Market or the NASD for a period of two (2) consecutive Trading Days during the
Open Period; or,
B. Our Common Stock ceases to be registered under the 1934 Act or listed or
traded on the Principal Market.
Upon the occurrence of one of the above-described events, the Company shall send
written notice of such event to the Investor.
14
Sample Calculation of Stock Purchases
The following is an example of the calculation of the drawdown amount and the
number of shares we would issue to Dutchess in connection with that drawdown
based on the assumptions noted in the discussion below.
Sample Put Amount Calculation
The Put amount may at our election be either (a) $100,000 or (b) 200% of the
average daily volume (U.S. market only) of the Common Stock for the twenty (20)
Trading Days prior to the applicable Put Notice Date, multiplied by the average
of the three (3) daily closing bid prices immediately preceding the Put Date.
The calculation below is based upon average daily volume of our common stock
prior to a Put Notice Date of September 5, 2006
Set forth below is a trading summary of our Common Stock for the period from
July 31, 2006 through September 5, 2006.
Date Open High Low Close/Last Volume
--------- ----- ----- ----- ---------- --------
9/5/2006 0.075 0.08 0.075 0.08 278,950
9/1/2006 0.075 0.075 0.07 0.075 280,279
8/31/2006 0.07 0.075 0.068 0.0725 289,500
8/30/2006 0.06 0.068 0.06 0.068 29,700
8/29/2006 0.057 0.065 0.057 0.0625 169,180
8/28/2006 0.057 0.061 0.057 0.06 329,000
8/25/2006 0.056 0.059 0.04 0.059 234,226
8/24/2006 0.056 0.06 0.056 0.06 40,000
8/23/2006 0.055 0.057 0.055 0.057 242,900
8/22/2006 0.056 0.06 0.056 0.06 115,650
8/21/2006 0.06 0.06 0.055 0.06 44,750
8/18/2006 0.062 0.062 0.055 0.055 25,100
8/17/2006 0.06 0.065 0.055 0.062 148,000
8/16/2006 0.06 0.0699 0.055 0.065 167,200
8/15/2006 0.06 0.072 0.052 0.055 482,900
8/14/2006 0.052 0.057 0.051 0.055 317,350
8/11/2006 0.051 0.052 0.051 0.051 56,540
8/10/2006 0.048 0.051 0.048 0.051 154,000
8/9/2006 0.045 0.045 0.045 0.045 157,950
8/8/2006 0.049 0.049 0.041 0.045 61,500
8/7/2006 0.043 0.043 0.041 0.041 60,000
8/4/2006 0.04 0.047 0.04 0.043 389,350
8/3/2006 0.04 0.04 0.04 0.04 7,900
8/2/2006 0.04 0.04 0.035 0.035 114,615
8/1/2006 0.035 0.04 0.035 0.035 27,000
7/31/2006 0.035 0.035 0.035 0.035 500
The Average Daily volume for the 20 trading days prior to August 28, 2006 based
upon the foregoing table is 142,372. 200 % of the average daily volume is
284,743.
The Average of the 3 daily closing bid prices immediately preceding the Put Date
of August 28, 2006 ($0.059 + $0.06+ $0.057 divided by 3) is $0.06. The total Put
Amount based upon the assumptions set forth above is $16,704.93 (200% of the
average daily volume of the Common Stock for the twenty (20) Trading Days prior
to the applicable Put Notice Date (284,743), multiplied by the average of the
three (3) daily closing bid prices immediately preceding the Put Date ($0.06)).
15
Sample Calculation of Purchase Price
The Purchase Price shall be equal to ninety-five percent (95%) of the lowest
closing Best Bid price of the Common Stock during the Pricing Period. The
Pricing Period is the period beginning on the Put Notice Date and ending on and
including the date that is five (5) Trading Days after such Put Notice Date.
Using the same hypothetical set forth above, the pricing period is August 29,
2006 through September 5, 2006. The lowest closing Best Bid Price of the Common
Stock during this period is $.0625. The Purchase Price per share is $.059 (95 %
of the lowest Best Bid Price of $.0625). Therefore and based upon the foregoing,
Dutchess shall be required to purchase 283,134 shares at a price of $.059 and
shall pay to us $16,704.93.
Debenture Agreement
On August 17, 2005 we issued a debenture to Dutchess in the aggregate principal
amount of $600,000 with a maturity date of August 17, 2010.
Interest and Payments
We will pay 10% annual coupon on the unpaid face amount of the Debenture. We are
required to make payments as set forth on the table below.
Convertible
Amount Interest Rate Redemption
$600,000.00 10% 120%
Amount with
Accrued Interest Applied to Applied to Applied to
Amount Due for Period Payment Principal Interest Redemptions
8/1/2005 $600,000.00 $604,951.15 $ 4,951.15 $0.00 $4,951.15 $0.00
9/1/2005 $600,000.00 $604,951.15 $ 4,951.15 $0.00 $4,951.15 $0.00
10/1/2005 $600,000.00 $604,951.14 $ 4,951.15 $0.00 $4,951.15 $0.00
11/1/2005 $599,999.99 $604,951.14 $ 62,715.56 $48,137.01 $4,951.15 $9,627.40
12/1/2005 $551,862.98 $556,416.91 $ 62,715.56 $48,468.03 $4,553.93 $9,693.61
1/1/2006 $503,394.95 $507,548.92 $ 62,715.56 $48,801.33 $4,153.97 $9,760.27
2/1/2006 $454,593.63 $458,344.89 $ 62,715.56 $49,136.91 $3,751.27 $9,827.38
3/1/2006 $405,456.71 $408,802.51 $ 62,715.56 $49,474.81 $3,345.79 $9,894.96
4/1/2006 $355,981.91 $358,919.44 $ 62,715.56 $49,815.03 $2,937.53 $9,963.01
5/1/2006 $306,166.88 $308,693.34 $ 62,715.56 $50,157.58 $2,526.46 $10,031.52
6/1/2006 $256,009.30 $258,121.86 $ 62,715.56 $50,502.50 $2,112.57 $10,100.50
7/1/2006 $205,506.80 $207,202.63 $ 62,715.56 $50,849.78 $1,695.82 $10,169.96
8/1/2006 $154,657.02 $155,933.24 $ 62,715.56 $51,199.46 $1,276.22 $10,239.89
9/1/2006 $103,457.56 $104,311.29 $ 62,715.56 $51,551.53 $853.72 $10,310.31
10/1/2006 $51,906.03 $52,334.36 $ 62,715.56 $51,906.03 $428.32 $10,381.21
TOTALS $0.00 $0.00 $ 767,440.20 $600,000.00 $47,440.20 $ 120,000.00
Subsequent to the Effective Date, Dutchess can either request a payment as set
forth in the table above to elect to convert a portion of the Debenture in an
amount equal to the payment amount.
16
Conversion
Dutchess may convert the face amount of the Debenture, plus accrued interest, in
whole or in part by giving us written notice. The conversion price shall be
equal to the lesser of (i) the lowest closing bid price during the 15 full days
of trading prior to the filing date of the Registration Statement filed on
September 9, 2005 or (ii) $.092. No fractional or scrip shares will be issued on
conversion. In addition, in the event that any portion of the Debenture remains
outstanding on the Maturity Date, such outstanding amount shall be automatically
converted into shares of our common stock. In the event that we do not make
delivery of the common stock as instructed by Dutchess, we shall be obligated to
pay to Dutchess 3% in cash of the dollar value of the Debentures being
converted, compounded daily, per each day after the 3rd business day following
the conversion date that the Common Stock is not delivered to Dutchess.
The number of shares included in this Registration Statement with respect to the
Debenture is 8,857,396. This is based upon a conversion price of $.092. This
also includes interest calculated at 10% per annum for a period of 5 years
($47,440.20).
Events of Default
We will be considered in default if any of the following events occurs:
(a) we do not make a Payment of the principal of the Debenture by
conversion into Common Stock within five (5) business days of the Maturity Date,
upon redemption or otherwise;
(b) we do not make a payment, other than a payment of principal, for a
period of three (3) business days thereafter;
(c) any of our representations or warranties contained in the Subscription
Agreement (executed in connection with the Debenture Agreement) or the Debenture
were false when made or we fail to comply with any of our the agreements
executed in connection with Debenture and such failure continues for a period of
five (5) business days, and such default in not cured within five (5) business
days after the receipt of notice from Dutchess;
(d) we, pursuant to or within the meaning of any Bankruptcy Law; (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against us in an involuntary case; (iii) consents to the appointment of a
Custodian on our behalf or for all or substantially all of our property or (iv)
makes a general assignment for the benefit of our creditors or (v) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against us in an involuntary case; (B) appoints a Custodian on
our behalf or for all or substantially all of our property or (C) orders our
liquidation, and the order or decree remains unstayed and in effect for sixty
(60) calendar days;
(e) our Common Stock is suspended or no longer listed on any recognized
exchange including electronic over-the-counter bulletin board for in excess of
five (5) consecutive Trading Days;
(e) we violate any terms and conditions of the Registration Rights
Agreement executed by us in connection with the Debenture Agreement.
17
In the Event of Default, Dutchess may among other things:
(a) elect to secure a portion of our assets not to exceed 200% of the Face
Amount of the Note, in Pledged Collateral;
(b) elect to garnish Revenue from us in an amount that will repay the
Holder on the payment schedule set forth above;
(c) exercise its right to increase the Face Amount of the Debenture by ten
percent (10%) as an initial penalty and for each Event of Default under the
Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%)
per month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily;
If the Registration Statement, of which this Prospectus forms a part, underlying
the Debenture is not declared effective by the SEC within twelve (12) months of
the Issuance Date, Dutchess may elect to switch the Conversion Price to such
amount as shall be equal to the lesser of a) $.092 or b) seventy percent (70%)
of the lowest closing bid price of the Common Stock during the fifteen (15)
trading days prior to conversion.
Limitation on Amount of Conversion and Ownership
The Debenture provides that Dutchess shall not be entitled to convert that
amount of Debenture into common stock, which when added with the sum of the
number of shares beneficially owned by Dutchess would exceed 4.99% of the number
of shares of our common stock outstanding on the conversion date.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our condensed
financial statements and notes to those statements. In addition to historical
information, the following discussion and other parts of this quarterly report
contain forward-looking information that involves risks and uncertainties.
Overview
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
optometrists. The Company may also acquire additional dental practices which the
Company believes 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.
In order to finance our operations, growth and expansion, on August 17, 2005, we
entered into an Investment Agreement with Dutchess Private Equity Fund II, LLP
("Dutchess"). Pursuant to this Agreement, Dutchess will commit to purchase up to
$5,000,000 of our Common Stock over the course of 36 months, beginning September
15, 2005, the date our registration statement was declared effective by the SEC.
Under the agreement, we may sell to Dutchess on each occasion, either (1)
$100,000 in shares of our common stock or (2) 200% of the averaged daily volume
(U.S. market only).
18
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the Securities and
Exchange Commission (the "SEC"), encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The Company's consolidated financial statements include a
summary of the significant accounting policies and methods used in the
preparation of the consolidated financial statements. Management believes the
following critical accounting policies affect the significant judgments and
estimates used in the preparation of the financial statements.
Use of Estimates - Management's discussion and analysis or plan of operation is
based upon the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including those related to allowances for doubtful accounts
receivable and long-lived assets. Management bases these estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We review the carrying value of property
and equipment for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
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
optometrists. 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.
19
In order to finance our operations, growth and expansion, on August 17, 2005, we
entered into an Investment Agreement with Dutchess Private Equity Fund II, LLP
("Dutchess"). Pursuant to this Agreement, Dutchess will commit to purchase up to
$5,000,000 of our Common Stock over the course of 36 months, beginning September
15, 2005, the date our registration statement was declared effective by the SEC.
Under the agreement, we may sell to Dutchess on each occasion, either (1)
$100,000 in shares of our common stock or (2) 200% of the averaged daily volume
(U.S market only) of our Common Stock for the 20 trading days prior to our "Put"
notice, multiplied by the average of the 3 daily closing prices immediately
preceding the Put Date. The Market Price shall be the lowest closing bid price
of our common stock during the Pricing Period. The Purchase Price shall be set
at 95% of the Market Price. This Investment Agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: Dutchess, has committed
to provide us with up to $5,000,000 as we request over a 36 month period, in
return for common stock that we issue to Dutchess. We may, in our sole
discretion, during the Open Period deliver a "put notice" (the "Put Notice") to
Duchess which states the dollar amount which we intend to sell to Dutchess on
the Closing Date. The Open Period is the period beginning on the trading after
the Effective Date and which ends on the earlier to occur of 36 months from the
Effective Date or termination of the Investment Agreement in accordance with its
terms. The Closing Date shall mean no more than 7 trading days following the Put
Notice Date. The Put Notice Date shall mean the Trading Day immediately
following the day on which Dutchess receives a Put Notice, as defined in the
agreement.
During the Open Period, we are not entitled to submit a Put Notice until after
the previous Closing has been completed.
Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall
be required to purchase from us, during the period beginning on the Put Notice
Date and ending on and including the date that is 5 trading days after such Put
Notice, that number of shares having an aggregate purchase price equal to the
lesser of (a) the Put Amount set forth in the Put Notice, or (b) 20% of the
aggregate trading volume of our common stock during the applicable Pricing
Period times (x) the lowest closing bid price of our common stock during the
specified Pricing period, but only if such said shares bear no restrictive
legend and are not subject to stop transfer instructions, prior to the
applicable Closing Date.
As a result of this variable price feature, the number of shares issuable
pursuant to the agreement will increase if the market price of our stock
decreases. In addition there is no upper limited on the number of shares
issuable pursuant to the agreement. Therefore our shareholders may be subject to
significant dilution and face the prospect of a change in control. (See Footnote
4 to our Financial Statements).
As of December 31, 2005, the Company had not delivered any Put Notices nor
utilized the Line of Credit with Dutchess. However, as of April 24, 2006 the
Company exercised put notices in accordance with its Investment Agreement with
Dutchess (see note 4 to our financial statements) and received $162,279 of net
cash proceeds for which the Company issued 2,022,496 shares of its common stock
to Dutchess.
Because of the significant decline in the price of our common stock since the
execution of our Line of Credit with Dutchess, it is unlikely that we will be
able to draw down the entire $5,000,000. As a result, we may have to obtain
additional operating capital from other sources to enable us to execute our
business plan. We anticipate that we may be able to obtain a portion of any
additional required working capital through the private placement of Common
20
Stock to domestic accredited investors pursuant to Regulation D of the
Securities Act of 1933, as amended. We may also rely on the exemption afforded
by Regulation S of the Securities Act of 1933, as amended, and solicit non-U.S.
citizens. There is no assurance that we will obtain the additional working
capital that we need through the private placement of our Common Stock. In
addition, such financing may not be available in sufficient amounts or on terms
acceptable to us.
Also in connection with the Dutchess financing, on August 17, 2005, we entered
into a Debenture Agreement with Dutchess, an accredited investor, for the
issuance and sale of $600,000 of 10% secured convertible debenture due August
17, 2010 in a private transaction exempt from registration under the Securities
Act of 1933 in reliance on exemptions provided by Section 4(2) and Regulation D
of the Act. At the time of signing the Debenture Agreement, we also issued
Dutchess a five-year common stock purchase warrant to purchase 1,304,348 shares
of our common stock at $.092 per share.
Interest is payable on the secured convertible debentures at the rate of 10% per
year. Amortizing payments will be made by us in satisfaction of this Debenture.
Payments shall be made monthly on the first day of each business day of each
month while there is an outstanding balance on the Debenture, to the Holder, in
the amounts outlined below on the following schedule:
Payment for Month 1: $4,951
(due within three (3) days of the Issuance Date)
Payment for Month 2: $4,951
Payment for Month 3: $4,951
Payment for Month 4
and each month thereafter: $62,716
The principal amount of the Debenture plus accrued interest may be converted at
the option of Dutchess into shares of our common stock, anytime following the
closing date, at a conversion price equal to the lesser of (i) the lowest
closing bid price during the 15 days of full trading, as defined, prior to the
conversion date; or (ii) $0.092. In addition, in the event that any portion of
the debenture remains outstanding on the maturity date of August 17, 2010, such
outstanding amount shall be automatically converted into shares of our common
stock. In the event that we do not make delivery of the common stock as
instructed by Dutchess, we shall be obligated to pay to Dutchess 3% in cash of
the dollar value of the debentures being converted, compounded daily, per each
day after the 3rd business day following the conversion date that the common
stock is not delivered to Dutchess. In the event of default as defined in the
Debenture Agreement, Dutchess may among other things:
(a) elect to secure a portion of the Company's assets not to exceed 200% of
the Face Amount of the Note, in Pledged Collateral;
(b) elect to garnish Revenue from us in an amount that will repay the
Holder on the payment schedule set forth above;
(c) exercise its right to increase the Face Amount of the debenture by ten
percent (10%) as an initial penalty and for each Event of Default under the
Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%)
per month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily.
The debenture provides that Dutchess shall not be entitled to convert that
amount of Debenture into common stock, which when added with the sum of the
number of shares beneficially owned by Dutchess would exceed 4.99% of the number
of shares of our common stock outstanding on the conversion date.
In order to secure its obligations under the secured convertible debenture and
related documents, we have granted Dutchess a security interest in all of our
assets and property.
21
On December 22, 2005, the Company signed a promissory note (the "Note") in favor
of Dutchess in the amount of $960,000 (the "Face Amount") and received gross
proceeds in the amount of $800,000 less $60,075 in fees associated with the
financing for net proceeds of $739,925. The Company is obligated to repay the
Investor the Face Amount on or before December 23, 2006. There is no stated
interest rate on the Note. Payments are to be made by the Company from each Put
from the Company's Equity Credit Line we have with Dutchess. The Company is
obligated to pay Dutchess the greater of a) 50% of each Put to the Investor or
b) $80,000 until the face Amount minus any fees have been paid. The first
payment was due and made on February 15, 2006 and all subsequent payments will
be made at the Closing of every Put to Dutchess thereafter. The Put Amount will
be the maximum amount allowed under the Investment Agreement with Dutchess.
Payments made by the Company in satisfaction of this Note shall be made from
each Put from the Equity Line of Credit with Dutchess. Additionally, in
connection with this obligation, the Company issued 1,500,000 shares of common
stock.
We issued 50 signed Put Notices to Dutchess as collateral. In the event, that
Dutchess uses the collateral in full, we are obligated to immediately deliver to
Dutchess additional Put Sheets as requested. In the event that on the maturity
date we have any remaining amounts unpaid on this Note (the "Residual Amount"),
the Holder can exercise its right to increase the Face Amount by ten percent
(10%) as an initial penalty and an additional 2.5% per month paid, pro rata for
partial periods, compounded daily, as liquated damages ("Liquidated Damages").
Additionally, in the event of a default as defined in the agreement, the Holder
shall have the right, but not the obligation, to 1) switch the Residual Amount
to a three-year ("Convertible Maturity Date"), interest-bearing convertible
debenture. If the Holder chooses to convert the Residual Amount to a Convertible
Debenture, we shall have 20 business days after notice of the same (the "Notice
of Convertible Debenture") to file a registration statement covering an amount
of shares equal to 300% of the Residual Amount. Such registration statement
shall be declared effective under the Securities Act of 1933, as amended (the
"Securities Act"), by the Securities and Exchange Commission (the "Commission")
within 40 business days of the date we file such Registration Statement. In the
event we do not file such registration statement within 20 business days of the
Holder's request, or such registration statement is not declared by the
Commission to be effective under the Securities Act within the time period
described above, the Residual Amount shall increase by $5,000 per day.
The Holder is entitled to convert the Debenture Residual Amount, plus accrued
interest, anytime following the Convertible Maturity Date, at the lesser of (i)
50% of the lowest closing bid price during the 15 trading immediately preceding
the Convertible Maturity Date or (ii) 100% of the lowest bid price for the 20
trading days immediately preceding the Convertible Maturity Date ("Fixed
Conversion Price").
We are in default under this obligation. We have not however received notice of
Default from Dutchess.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005
Revenues
For the six months ended June 30, 2006, we generated revenues of $1,088,343
compared to $1,124,561 for the six months ended June 30, 2005, a decrease of
$36,218 or 3.2%. For the three months ended June 30, 2006, we generated revenues
of $525,284 compared to $610,924 for the three months ended June 30, 2005, a
decrease of $85,640 or 14.0%. The primary reasons for this decrease in revenues
is due to our write-off of that portion of insurance reimbursement which are
being waived as a result of agreements with the unions and/or insurance
carriers. Beginning with the third quarter of 2006, we will make these
adjustments on a quarterly basis.
22
Total Operating Expenses
The Company's total operating expenses increased $374,932 or 38.4% for the six
months ended June 30, 2006 as compared to the 2005 period. These increases
include: o Cost of services performed - Cost of services performed expense
consists of personnel cost, dental supplies, and lab costs. For the six months
ended June 30, 2006, the cost of services performed were $240,118 as compared to
$232,613 for the 2005 period, an increase of $7,505 or 3.2%. These increases
were the result of additional dental personnel employed by the Company. o
Salaries, related taxes and stock-based compensation - Salaries, related taxes
and stock-based compensation expense consists of personnel cost and the fair
value of common shares issued for services to employees. For the six months
ended June 30, 2006, salaries, related taxes and stock-based compensation costs
were $402,622 as compared to $329,055 for the 2005 period, an increase of
$73,567 or 22.4%. The increase in salaries relates to adding additional
personnel and normal wage increases including additional staff personnel
resulting from the acquisition of the assets of Dental Visions. o For the six
months ended June 30, 2006, we recorded depreciation expense of $33,806 as
compared to $5,605 for the 2005 period. In mid 2005, we acquired the assets of
Dental Visions which we began amortizing in the third quarter of 2005. o For the
six months ended June 30, 2006, we incurred professional fees of $140,571 as
compared to $53,100 for the 2005 period, an increase of $87,471 or 164.7%.
During the six months ended June 30, 2006, we incurred legal fees of $26,000
from the issuance of common shares for services rendered and incurred legal fees
related to other corporate legal matters. Additionally, we incurred increased
accounting fees related to the audit of our books and records and SEC filings. o
For the six months ended June 30, 2006, we incurred consulting fees of $145,522,
including $70,469 of stock based consulting fees, as compared to $42,500 for the
2005 period, an increase of $103,022. For the six months ended June 30, 2006, we
incurred investor relations fees of $57,000 as compared to $0 for the six months
ended June 30, 2005. o For the six months ended June 30, 2006, we incurred other
general and administrative expenses of $388,438 as compared to $313,272 for the
2005 period, an increase of $75,166 or 24%. Other general and administrative
expenses consisted of the following:
For the six months
Ended June 30,
-------------------------------
2006 2005
--------------- ---------------
Rent $ 50,729 $ 42,570
Insurance 54,266 47,925
Postage 37,499 20,404
Printing 23,405 22,376
Other 222,539 179,997
--------------- ---------------
Total $ 388,438 $ 313,272
=============== ===============
o Increases in rent of $8,159 are attributable to additional costs we
incurred as a result of the acquisition of the dental practice owned by Dr.
Dora Vilk-Shapiro, d/b/a Dental Visions where we assumed the leasehold
obligation.
o During the six months ended June 30, 2006, we had an increase in insurance
expense of $6,341 compared to the 2005 period primarily related with an
increase in health insurance costs.
o For the six months ended June 30, 2006, postage amounted to $37,499 s
compared to $20,404 for the six months ended June 30, 2005, an increase of
$17,095 or 83.4%. This increase was attributable to the mailing of
promotional materials to union members in new contracted areas.
o For the six months ended June 30, 2006, printing amounted to $23,405 as
compared to $22,376 for the six months ended June 30, 2005, an increase of
$1,029 or 4.6%. This increase was attributable to the printing of
promotional materials for union members in new contracted areas.
23
o Other general and administrative expenses consisted of casual labor, office
expenses, utilities, maintenance, computer expenses, postage, travel, and
other expenses. The increase for the six months ended June 30, 2006 as
compared to the 2005 period of $42,542 is attributable to an increase in
operational activities.
Other income (expenses)
o For the six months ended June 30, 2006, we recorded amortization of debt
issuance costs of $88,400 as compared to $0 in the 2005 period.
o For the six months ended June 30, 2006, we recorded a gain from the
revaluation of a derivative liability of $239,845 which was attributable to
our stock volatility and the value of our stock price.
o For the six months ended June 30, 2006, interest expense was $795,051 as
compared to $37,628 for the 2005 period, an increase of $757,423 and was
attributable to the amortization of discount on our debenture and note
payable.
Net loss
As a result of these factors, we reported a net loss of $(906,340) or $(.03) per
share for the six months ended June 30, 2006 as compared to net income of
$74,338 or $.00 per share for the six months ended June 30, 2005. For the three
months ended June 30, 2006, we reported a net loss of $(868,597) or $(.02) per
share as compared to net income of $23,560 or $0.00 per share for the three
months ended June 30, 2005.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
Revenues
For the year ended December 31, 2005 as compared to December 31, 2004 we
generated revenue of $2,066,944 as compared to $1,931,570.
Net Income
We incurred a net loss of $1,440,183 for 2005 as compared to net income of
$4,989 in the prior year. The significant decline in net income and resulting
loss is primarily attributable to an increase in salaries and related expenses
from $692,099 to $843,204, an increase in depreciation and amortization from
$9,880 to $39,467, an increase in professional fees from $106,336 to $199,018,
an increase in consulting fees from $92,405 to $373,215, an increase in general
and administrative expenses from $594,570 to $762,057 and an increase in our
interest expense from $40,587 to $521,523 of which $401,927 represents a non
cash expense as a result of the amortization of the discount of the debenture
and note payable.
In addition, we had other non-cash expenses totaling $283,361. Specifically, we
issued a total of 2,158,646 shares of our common stock as stock based
compensation including $107,975 in legal fees and $175,386 for consulting
services.
Our depreciation expense for the year increased from $9,880 to $39,467 due
primarily to the acquisition of the assets of Dental Vision. Professional fees
increased from $106,336 to $199,018 due primarily to costs incurred with respect
to closing our funding agreements with Dutchess and the filing of a Registration
Statement in connection therewith.
The significant increase in the interest expense is primarily associated with
fees associated with the costs incurred in connection with our loan obligation
with Dutchess and to a lesser extent, an increase in our bank line of credit
with Bank of America.
24
We recorded a net loss of (0.05) per share in 2005 computed on a basic and
diluted basis as compared to no income ($0.00) per share in 2004.
Compensation
During the year ended December 31, 2005 and 2004, the Company incurred $843,204
and $692,099 respectively, for salaries. The increase in salaries relates to
adding additional personnel and normal wage increases including additional staff
personnel resulting from the acquisition of the assets of Dental Visions.
General and Administrative expenses/amortization and depreciation
During the year ended December 31, 2005 and 2004, we incurred $762,057 and
$594,570, respectively in general and administrative expenses, and $39,467 and
$9,880 in depreciation expense, respectively. A substantial portion, of the
increase in general and administrative expenses were marketing expenses for DDS.
The increase in our depreciation expense is attributable to the acquisition of
the assets of Dental Vision.
Professional Fees
Professional fees increased from $106,366 to $199,018 of which $107,975
represents non-cash compensation paid to certain professionals in consideration
for services rendered.
Liquidity and Capital Resources
At June 30, 2006, we had cash and accounts receivable amounting to $10,695 and
$287,341, respectively. We had total current assets of $332,386 and our total
assets were $637,895. Our total current liabilities were $3,042,060. We have a
working capital deficit as of June 30, 2006 of $2,709,674. Our working capital
deficit is attributable primarily to two factors:
We have recorded $1,130,267 as a short term loan liability representing the
entire principal balance due and owing Bank of America. The loan was established
to finance our ongoing operations and as a result of our agreement in December
2004 to assume the debt obligation of the principal stockholder for a 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 original note was in
the amount $1,215,000. On May 17, 2005, the Company entered into an Amended and
Restated Promissory Note in the amount of $1,384,000. We have made all required
monthly payments under this obligation. However, we have failed to comply with
certain covenants contained within the loan documentation and have received a
notice of default from Bank of America. We have met with our Bank of America
account representative and their legal counsel to discuss this matter further.
While we have discussed the possibility of entering into some type of
forbearance agreement with Bank of America while this loan agreement remains in
default, we have not discussed the specific terms or conditions of such an
agreement nor can there be any assurance that we will be able to come to any
type of agreement with respect to the execution of a forbearance agreement.
In order to finance our ongoing operations, we entered into several different
financing arrangements with Dutchess Private Equity Fund II, LLP (See Footnotes
2, 3, and 4 of our financial statements). As a result of these financings, at
June 30, 2006, we have recorded $231,651 as the outstanding current portion of
the convertible debenture, a derivative liability totaling $978,641, and a note
payable totaling $256,883. The derivative liability which we recorded on our
books is the result of the convertibility feature and the registration rights
which we have granted to Dutchess. We have failed to comply with the terms and
conditions of the note payable due Dutchess and are in default. We have not
received any notice of default from Dutchess. (See Footnotes 2, 3 and 4 of our
financial statements).
25
We have also recorded a liability for unearned membership fees totaling
$265,787.
To the extent that revenues are insufficient to support ongoing operations and
satisfy existing debt obligations, the Company was required to draw against its
equity line of credit. With our stock price currently trading below the
conversion price of $.092 per share, it is unlikely that Dutchess would convert
any portion of the outstanding obligation at the fixed conversion price.
Moreover, we were required to deliver Put notices to Dutchess to satisfy the
terms and conditions of the $960,000 promissory note. In connection with these
puts, for the six months ended June 30, 2006, we issued 2,257,496 shares of
common stock for net proceeds of $66,938 and the reduction of its debenture
payable and convertible note payable of $106,428 for an aggregate Put value of
$173,366.
Since we will continue to draw down our equity line of credit, we will have to
issue additional shares of our common stock which will cause further dilution
and likely downward pressure on the price of our common stock. If the price of
our common stock continues to decline, we will not have registered a sufficient
number of shares of common stock to draw against the equity credit line. For the
period from January 21, 2006 to June 30, 2006, the Company exercised put notices
in accordance with its Investment Agreement with Dutchess (see note 4) and
received $173,366 of net cash proceeds for which the Company issued 2,257,496
shares of its common stock to Dutchess.
We have an accumulated deficit of $2,726,448 and a stockholders' deficit of
$2,404,165 at June 30, 2006.
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.
You are urged to review the accompanying financial statements and financial
footnotes in order to fully understand our financial condition.
BUSINESS
Overview
Business Development. National Business Holdings, Inc., a Florida corporation,
was incorporated on November 26, 1996 as Stirus Research & Development, Inc. We
were originally in the business of development and sales distribution of medical
devices. We later changed our name to Mecaserto, Inc. on November 9, 1998, when
we acquired a French subsidiary, Mecaserto, S.A., whose business was the
manufacture and sale of a medical imaging device.
On or about May 1, 2002, Pieter Durand, our former officer and director, loaned
us $25,000 to support our working capital requirements. This indebtedness was
evidenced by a Convertible Note, convertible into our Common Stock at the
election of the holder. Pursuant to the December 27, 2004 Reorganization
Agreement, this debt has been canceled.
On or about May 5, 2003, our French subsidiary faced liquidation in a French
court and we relinquished our ownership interest in this subsidiary to our
French shareholders in exchange for such holders' agreement to assume the debts
and liabilities of the French subsidiary. Since the conclusion of this
transaction and prior to our reorganization with Union Dental Corp and Direct
Dental Services on December 27, 2004, we had no assets, liabilities or business
operations except our Convertible Note indebtedness and miscellaneous payables.
26
On or about February 2, 2004, we accepted a subscription from Gala Enterprises
Ltd. for 10,000,000 shares of our restricted, unregistered common stock for cash
proceeds of $25,000 in order to support our short-term working capital
requirements. We relied upon Section 4(2) of the Securities Act of 1933, as
amended ("Securities Act"), and Rule 506 of Regulation D promulgated thereunder.
This transaction did not involve a public offering and was exempt from
registration under the Securities Act. No underwriters were used in connection
with this transaction.
On February 2, 2004, Pieter Durand, the principal of Gala Enterprises Ltd., was
appointed to serve as a member of our Board of Directors until the next meeting
of the shareholders in which directors are elected. Subsequently, on February 6,
2004, Dennis Rault, our former sole officer and director, tendered his
resignation, leaving Mr. Durand as our sole officer and director.
On May 4, 2004, our Board of Directors ratified and accepted and the majority
shareholders approved by written consent an Amended and Restated Articles of
Amendment to the Articles of Incorporation, filed with the State of Florida on
May 11, 2004, changing our name from Mecaserto, Inc. to National Business
Holdings, Inc. Our Restated Articles of Incorporation allow us to issue up to
300,000,000 shares of common stock, par value of $.001, of which 29,510,585
shares are issued and outstanding at the present time. The Restated Articles of
Incorporation also allow us to issue up to 25,000,000 shares, $0.0001 par value,
of preferred stock with the specific terms, conditions, limitations and
preferences to be determined by the Board of Directors without shareholder
approval, of which 1,000,000 shares are issued and outstanding at the present
time.
On May 10, 2004, our Board of Directors ratified and accepted and a majority of
shareholders approved by written consent a subdivision of the issued and
outstanding common stock of the Company (a reverse split) at a ratio of one (1)
share for each forty (40) shares of common stock issued and outstanding,
effective May 24, 2004.
On May 28, 2004, we entered into a Share Exchange Agreement with Shava, Inc.
("Shava"), whereby we acquired one hundred percent (100%) of all the outstanding
shares of common stock ("Shava Common Stock") of Shava from Roger E. Pawson,
Shava's sole officer, director and shareholder, in exchange for 3,100,000
post-reverse split shares of our common stock in order to effect a reverse
acquisition of Shava. As a part of the transaction, the Company changed its
fiscal year end from December 31 to May 31. We filed a Form 10-KSB for the
transition period from January 1, 2004 to May 31, 2004 in accordance with the
Securities Exchange Act of 1934.
After the May 28, 2004 change in control, we decided to initiate a new business
plan of lending and investing. In June 2004, we formed a new wholly owned
subsidiary in Florida, National Business Investors, Inc. with headquarters in
Falls Church, Virginia and San Diego, California. This subsidiary has not
conducted any business to date.
On December 27, 2004, we entered into a Share Exchange and Reorganization
Agreement ("Reorganization") with both Union Dental Corp, a Florida corporation
and Direct Dental Services, Inc., a Florida corporation whereby Union Dental and
Direct Dental became wholly-owned subsidiaries of us in exchange for an
aggregate of 17,500,000 shares of our common stock and 1,000,000 shares of our
preferred stock with each share of preferred stock providing voting rights equal
to 15 shares of our common stock. In addition, we agreed to recognize the
3,452,250 issued and outstanding options to purchase Union Dental common stock
as options to purchase our common stock. Pursuant to the Reorganization
Agreement, 22,287,977 shares of our common stock were canceled.
27
Effective October 15, 2004, Union Dental acquired substantially all of the
assets (except the patient list) of George D. Green D.D.S., P.A. in Coral
Springs, Florida. Pursuant to this Asset Purchase Agreement, the aggregate
purchase price payable by Union Dental for these assets was One Million Dollars
($ 1,000,000.00), payable pursuant to a Promissory Note (the "PA Note") in the
amount of One Million Dollars ($1,000,000.00) with interest thereon of five
percent (5%) per annum, and which note shall be payable in ten (10) equal yearly
installments.
Direct Dental operates a network of duly licensed dental providers who provide
dental services through the network to union members in accordance with
arrangements between Direct Dental and various unions. Pursuant to the Stock
Purchase Agreement, on August 14, 2000, Dr. Green acquired two hundred fifty
(250) shares of common stock of Direct Dental from Melvyn Greenstein, Direct
Dental and Irene Greenstein, the initial shareholders and Sellers (collectively
the "Greensteins"), for the purchase price of One Million Eight Hundred Fifty
Thousand Dollars ($1,850,000.00) (1st DDS Purchase Price"). The 1st DDS Purchase
Price was payable as follows: One Million Four Hundred Fifty Thousand Dollars
($1,450,000.00) at closing and a promissory note of Four Hundred Thousand
Dollars ($400,000.00). On December 31, 2003, Dr. Green acquired the remaining
two hundred fifty (250) shares of common stock of Direct Dental from the
Greensteins for the purchase price of Eight Hundred Fifty Thousand Dollars
($850,000.00) (2nd DDS Purchase Price"). As a result of the 1st DDS Purchase
Price and the 2nd DDS Purchase Price, Dr. Green owned of record and beneficially
all of the issued and outstanding common stock of DDS, consisting of five
hundred (500) shares of Direct Dental.
On January 11, 2005, we amended our Articles of Incorporation to change our name
from National Business Holdings, Inc. to Union Dental Holdings, Inc. On February
8, 2005, we further amended our Articles of Incorporation to issue 1,000,000
shares of preferred stock with each share of preferred stock providing voting
rights equal to 15 shares of our common stock to Dr. Green.
Unless the context indicates otherwise, references hereinafter to the "Company",
"we", "us" or "Union" include both Union Dental Holdings, Inc., a Florida
corporation and our wholly owned subsidiaries, Union Dental Corp., a Florida
corporation, Direct Dental Services, Inc., a Florida corporation. Our principal
place of business is 1700 University Drive, Suite 200, Coral Springs, Florida
33071, and our telephone number at that address is (954) 575-2252.
Business of the Company
During the fiscal year ended December 31, 2005, we operated two business lines:
operating a network of duly licensed dental providers to a network of union
members through Direct Dental and managing a dental practice through Union
Dental.
Direct Dental Services, Inc.
Direct Dental Services, Inc. is a Florida corporation that operates a network of
duly licensed dental providers, the Dental Referral, who provide dental services
through the network to union members in accordance with arrangements between
Direct Dental and various labor unions. Direct Dental is not limited as to the
type of labor union which Direct Dental may solicit. Direct Dental charges an
annual management services fee to the participating dentists to practice in an
"area of exclusivity" for union members. Direct Dental currently has exclusive
contracts with local unions, such as Communications Workers of America,
International Brotherhood of Electrical Workers and General Electric's
International Union of Electronic, Electrical, Salaried, Machine and Furniture
Workers - Communications Workers of America.
28
Members of the Dental Network are assigned "areas of exclusivity" established by
Direct Dental which grants the Dental Network provider primary responsibility to
provide for the general dentistry and specialist services required by covered
union members. Direct Dental 's Network dentists accept as payment in full for
covered services the scheduled amount payable by the applicable union sponsored
dental benefit plan together with a relatively small co-payment from the covered
union member. The copayment to be paid by the union member is generally
substantially lower than the scheduled copayment set forth in the applicable
dental benefit plan, resulting in significant savings to the union member.
Exclusive Agreements
Direct Dental selects certain dentists in selected geographical areas to
represent Direct Dental. The dentist enters into an exclusive agreement with
Direct Dental for an annual management services fee, which ranges from $3,000 to
$6,000, which is based on each specialty the dentist provides to the patients on
a per office basis. Direct Dental receives a yearly membership fee from each
dentist in order for him/her to maintain the exclusive area of each specialty
that the dentist provides. Currently, areas of specialties include: (1) General
Dentistry (2) Orthodontics (3) Periodontics (4) Pedodontics (5) Endodontics (6)
Prosthodontics (7) Oral & Maxillofacial Surgery, (8) Implants and (9) TMJ.
Direct Dental enters into contracts with labor unions to be the exclusive
provider of dental services to its memberships under existing dental benefit
plans. Presently, Direct Dental has a contract with the CWA covering its members
in 19 states, including employees of AT&T, Lucent, Verizon, Bell South,
Cingular, Verizon, Qwest and SBC/Pactell. We also entered into agreements with
the International Brotherhood of Electrical Workers Local #824 in Tampa, Florida
and Local # 728 in Ft. Lauderdale, FL and General Electric's International Union
of Electronic, Electrical, Salaried, Machine and Furniture Workers -
Communications Workers of America Local 761 in Louisville, Kentucky. We intend
to pursue other labor unions as part of our expansion program.
Dental Network
The Dental Network currently consists of approximately 300 licensed dentists
located in 13 states. The territory served by the Dental Network is divided into
geographic areas using a predetermined formula that allocated approximately one
general dentist to approximately 500-1,000 insured union employees which
includes their immediate family members. Exclusive areas for specialists were
allocated approximately 1,000-3,000 insured union employees, which include their
immediate family members, per specialist. Each member of the Dental Network
enters into an annual network provider agreement with Direct Dental for his or
her respective Exclusive Area. Consideration paid by the Dental Network member
is determined based upon the size of the Exclusive Area and the number of
specialties covered under the respective member's contract.
Union Dental Corp.
Union Dental Corp., ("UDC") is a Florida corporation that has acquired the
assets (minus the client list) of Dr. George D. Green, P.A. effective October
15, 2004. Subsequent thereto, on May 17, 2005, UDC acquired certain assets and
assumed certain liabilities of DORA VILK-SHAPIRO, D.M.D., P.A. d/b/a Dental
Visions, a Florida corporation ("Dental Vision") for a purchase price of
$283,241.
Acquisition Of Additional Practices
We intend to acquire existing dental practices in selected geographical areas
throughout the United States to further expand our base of operations by
providing additional locations for the benefit of union members. This expansion
will be accomplished by having the licensed dentist train at the corporate
headquarters prior to being placed into the newly acquired dental practices.
29
After a period of time the dentist will be evaluated in his/her management
skills and operating procedures. At that time, we intend to allow these dentists
to purchase the existing dental practice from us, after the completion of a
transition period. We intend to finance the acquired business when it is sold to
the new dentist. We believe this will allow us to expand our network of
exclusive areas in a timely manner.
MARKETING AND SALES
Brochures And Posters
The union itself is a viable component of our marketing strategy. We anticipate
that the respective unions will be extremely helpful with promoting the dental
benefits provided to their members. Currently, although we pay all the costs
associated with the printing, distribution and mailing of the brochures, the
individual unions are responsible for mailing all pamphlets and other literature
designed and produced by us. We will also design and distribute poster boards to
be placed in heavily frequented areas within the employer's offices, factories
or lunchrooms. These poster boards contain brochures which provide information
about the union's dental coverage and list the Dental Network members in their
respective geographical area. We pay for the printing and mailing of the
brochures and poster boards.
Seminars
We intend to hold seminars where prospective Network members can learn about us
and the benefits of Dental Network membership. Prospective members will have the
opportunity to meet with current network members and other prospective members.
Web Site Development
We developed a website for use in the expansion of our Dental Network. Our
website will be used as an informative site, and dental directory, for union
patients who are in need of the services offered by the dentists in the network
and to locate a network dentist. The website provides patients with information
about each member of the Dental Network to better inform the patient of the
doctor's professional credentials. The web site will also be used to establish a
direct link between the patient and the doctor. We believe this approach will
enhance the dentist-patient relationship, improve patient loyalty, and increase
utilization of dental services. We have two websites located at
www.uniondental.com and www.uniondentalcorp.com respectively. To date, several
unions have hyperlinked their website to our website in order to avail their
members more access to the dental benefits offered to them and current
information of dental providers in the network.
We presently derive our sales from the following: (1) sales of the "Areas
of Exclusivity" in the selected geographical areas to dentists who provide
dental services to the union employees in those specific areas; and (2)
operating two dental practices located in Coral Springs, Florida.
Subsequent Events. Pursuant to the December 28, 2004 reorganization
transaction, on March 30, 2005, our Board of Directors elected to change our
fiscal year-end from May 31 to December 31. See 8-K filed on March 30, 2005.
Competitive Business Conditions
The fields of dental practice and dental network participation with unions are
highly competitive. We compete with a number of businesses that provide the same
or similar services. Many of these competitors have a longer operating history,
greater financial resources, and provide other services to insurance companies
that we do not provide. Principal competitors include national firms, as well as
many regional firms. We believe that quality of service, high caliber dental
services, proper pricing and range of services offered are the principal factors
that will enable us to compete effectively.
30
Government Regulations
As a participant in the health care industry, our operations are subject to
extensive and increasing regulation by a number of governmental entities at the
federal, state and local levels. We also are subject to laws and regulations
relating to business corporations in general. We believe our operations are in
material compliance with applicable laws and will be able to maintain compliant
in an ever increasing regulatory environment.
Costs and Effects of Compliance with Environmental Laws.
Some of the services provided by the Company will produce byproducts or waste,
the disposal of which is regulated by Federal or State guidelines. The Company
is aware of the requirements of these regulating agencies and has taken steps to
ensure compliance with the legal requirements.
Employees
We operate our business through our wholly owned subsidiaries. Dr. Green, our
chief executive officer, is the only employee of Union Dental Holdings. UDC
employs a total of seventeen (17) individuals that assist in the operation of
both Dr. George D. Green, DDS, P.A. and Dental Vision. We anticipate hiring
additional employees over the next twelve months if we are successful in
implementing our plan of operations.
DESCRIPTION OF PROPERTY
Our offices are located at 1700 University Drive, Coral Springs, Florida 33071.
We have leased suite 200 since 1997. Suite 200 consists of approximately 2,200
square feet of professional dental practice space. The lease expires in April
2006 and we are in negotiations to extend the lease term. Our current monthly
rent for suite 200 inclusive of sales tax and common area maintenance is
approximately $4,347 per month. With the acquisition of the dental practice of
Dora Vilk-Shapiro M.D., P.A. we assumed the leasehold obligation for suite 202
at a cost of approximately $2,200 per month inclusive of sales tax and common
area operating expenses. We also lease on a month to month basis suite 304 which
is utilized as an administrative office. We pay a monthly rent of $1,643 plus
common area operating expenses. We believe that the foregoing space is adequate
to meet our current and planned operations.
LEGAL PROCEEDINGS
During the second quarter of 2005, Direct Dental was sued by a former member of
our network. The suit alleges that the company breached the exclusivity
provisions of its agreement with Direct Dental 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 our
network.
During the second quarter of 2005 we were sued by another dentist who was
previously a Direct Dental member. The suit was filed in Dade County, Florida
(Case No. 05-0077-99) and alleges tortuous interference with a business
relationship and libel. Management believes that it has meritorious defenses in
that this action was brought in response to a lawsuit filed by the company
31
against the same dentist for breach of contract, slander, tortuous interference
with a business relationship and injunctive relief (Case No. 04-12109 CA 10). We
filed this action when the dentist failed to pay the required fee to remain a
member of the Direct Dental network and attempted to create his own network of
service providers.
We have been sued in the Court of Common Pleas in Lebanon County, Pennsylvania
individually and on behalf of a class (Jaromir Kovarik and Daria Kovarikova v
Union Dental Corp. and George Greeen. The complaint alleges violation of 47
U.S.C. Section 227(b)(1)(c) and related sections in connection with the
distribution of an unsolicited facsmile transmissions. The suit seeks class
action certifications. The lawsuit was previously filed and was dismissed by the
Court. The Company believes that it has meritorious defenses to the action.
DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table sets forth current information regarding our executive
officer and director:
Name Age Position(s) with Company Election Date
--------------- --- ----------------------------------- --------------
Dr.George D. Green 47 Chief Executive Officer, President, December 2004
Secretary and Director(1)
Business Experience
Dr. George D. Green 47, is Chairman of the Board of Directors, President and
Chief Executive Officer of Union Dental Corp. He currently serves as our sole
officer and director. He graduated from the University of Miami in 1983. He
attended Georgetown University School of Dentistry where he graduated in 1985
with his Doctor of Dental Surgery (DDS) degree. Dr. Green started his general
dentistry practice in Florida in 1986 and currently maintains that office. He
has been President of the Coral Springs Business Club from 1993-96 and President
of the Coral Springs/Parkland Rotary Club from 1996-97. He is the Founder of
Union Dental Corp., and has held the management positions of the Company since
inception. Dr. Green has been a Dental Network participant since 1992 in General
Dentistry, Endodontics and Periodontics. In August 2000, he purchased 50%
ownership of DDS and on December 31, 2003, he purchased the remaining 50% of
DDS.
Committees of the Board of Directors
We presently do not have an audit committee, compensation committee, nominating
committee, an executive committee of our board of directors, stock plan
committee or any other committees.
Compensation of Directors
Our directors do not receive cash compensation for their services as directors
or members of committees of the board, but are reimbursed for their reasonable
expenses incurred in attending board or committee meetings.
Terms of Office
There are no family relationships among our directors and/or officers. Our
directors are appointed for one-year terms to hold office until the next annual
general meeting of the holders of our Common Stock or until removed from office
in accordance with our by-laws. Our officers are appointed by our board of
directors and hold office until removed by our board of directors.
32
Involvement in Certain Legal Proceedings
Except as indicated in this Annual Report, no event listed in Sub-paragraphs (1)
through(4) of Subparagraph (d) of Item 401 of Regulation S-B, has occurred with
respect to any of our present executive officers or directors or any nominee for
director during the past five years which is material to an evaluation of the
ability or integrity of such director or officer.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
For companies registered pursuant to section 12(g) of the Exchange Act, Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who beneficially own more than ten percent of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, based solely on a review of the
copies of reports furnished to us and written representations that no other
reports were required, Section 16(a) filing requirements applicable to our
officers, directors and greater than ten percent beneficial owners were complied
with on a timely basis for the period which this report relates.
Code of Ethics
On December 28, 2004, we adopted a Code of Ethics that meets the requirements of
Section 406 of the Sarbanes-Oxley Act of 2002. We will provide to any person
without charge, upon request, a copy of such Code of Ethics. Persons wishing to
make such a request should contact George D. Green, Chief Executive Officer,
1700 University Drive, Suite 200, Coral Springs, Florida 33071.
Indemnification of Officers and Directors.
Our By-Laws provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities on behalf of the Company. We
will also bear the expenses of such litigation for any of our directors,
officers, employees, or agents, upon such persons promise to repay the Company
therefor if it is ultimately determined that any such person shall not have been
entitled to indemnification. This indemnification policy could result in
substantial expenditures by us, which we may not be able to recoup.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by the Company, as well
as certain other compensation paid or accrued, during the fiscal years ended
December 31, 2005, 2004 and 2003 to the Company's President and highest paid
executive officers. No restricted stock awards, long-term incentive plan payouts
or other types of compensation, other than the compensation identified in the
chart below, were paid to these executive officers during these fiscal years.
[Balance of this page intentionally left blank.]
33
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------ ------- -------------------------------------- ---------------------- ---------- -------------
Annual Compensation Awards Payouts
------------------ ------- ------------ ---------- -------------- ----------- ---------- ---------- -------------
Other Restricted Securities LTIP All Other
Name and Annual Stock Underlying Payouts Compensation
Principal Year Salary ($) Bonus ($) Compensation Award(s) Options/
Position ($) ($) SARs
------------------ ------- ------------ ---------- -------------- ----------- ---------- ---------- -------------
George D. Green, 2005 190,000
CEO & President 2004 118,000
2003 505,587(1)
Dr. Melvyn
Greenstein 2005 $ -0-
Former 2004 $ -0-
Director (a) 2003 $ 270,259(2)
--------------------------
Except as set forth above, during the last three years received any compensation
from the Company for serving as an officer or directors.
(a) On January 5, 2004, Dr. Melvyn Greenstein resigned from DDS as a
director, president and registered agent. He was succeeded as president and
registered agent by Dr. George D. Green.
(1) In 2003 Dr. George Green received from DDS $235,464.00 and $270,123.00
from George D. Green, DDS, PA.
(2) In 2003 Dr. Melvyn Greenstein received from DDS $38,321.00 and his
management company (Gopher International) received $231,938.00 from DDS.
Compensation of Directors
We have no standard arrangements for compensating our board of directors for
their attendance at meetings of the Board of Directors.
Bonuses and Deferred Compensation
We do not have any bonus, deferred compensation or retirement plan. Such plans
may be adopted by us at such time as deemed reasonable by our board of
directors. We do not have a compensation committee, all decisions regarding
compensation are determined by our board of directors.
Stock Option Plans.
In June 2005 the Board of Directors adopted the 2005 Equity Compensation Plan
(the "2005 Plan"). The Plan permits the granting of an aggregate of 5,000,000
Shares. The Plan also permits the granting of either incentive or nonstatutory
options. The 2005 Plan was filed with the Securities and Exchange Commission on
Form S-8. During the year ended December 31, 2005, we issued a total of
1,200,000 shares of our common stock pursuant to the Plan. There were no
incentive or nonstatutory options granted under the Plan.
34
Option Grants in Last Fiscal Year to Executive Officers
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted (#) in Fiscal Year ($/sh) Date
---------------- ----------- -------------- --------- ----------
George D. Green 500,000* 49.6% $0.15 2009
* Dr. Green was initially issued 750,000 options at an exercise price of $.60
per share. On December 30, 2005, the Company cancelled these options and
issued Dr. Green a total of 500,000 options at an exercise price of $0.15
per share. At the time of the grant, the closing bid price of the Company's
common stock was $.10 per share. All options are now fully vested. The
Company has issued a total of 1,008,000 options to various employees
including Dr. Green.
During the year ended 2004, Dr. Green was granted 997,500 performance based
options. These options vest at the market value calculated as of the date the
following revenue milestones are met: 332,500 shares upon the Company reaching
$3,000,000 in revenue, 332,500 shares upon the Company reaching $4,000,000 in
revenue, and 332,500 shares upon the Company reaching $5,000,000 in revenue. The
Company has issued a total of 1,245,000 performance options
On October 15, 2004, the Board of Directors adopted the 2004 Stock Option Plan
(the "2004 Plan"). The 2004 Plan permits the granting of an aggregate of
5,000,000 Shares. As of March 15, 2006 we have issued a total of 1,508,000
options under this Plan at exercise prices ranging from $0.13 to $0.50 per share
plus an additional 1,740,000 performance based options which are issuable at the
then current market price. Under the 2004 Plan, either incentive stock options
or nonstatutory options may be granted as an incentive to key employees
(including directors and officers who are key employees), non-employee
directors, independent contractors and consultants of the Company and to offer
an additional inducement in obtaining the services of such individuals. The Plan
also permits the award of common stock to qualified recipients.
The exercise price of the Shares under each option is determined by a committee
appointed by the Board of Directors; provided, however, that the exercise price
shall not be less than the fair market value of the Shares on the date of the
grant for statutory options. The term of each option granted pursuant to the
2004 Plans is established by the committee appointed by the Board of Directors,
in its sole discretion, provided that the term shall not exceed ten years from
the date of the grant.
All of the Company's Plans provide that the number of Shares subject thereto and
the outstanding options and their exercise prices are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends, stock
splits or combinations of shares.
The following table summarizes the number and dollar value of unexercised stock
options at September 6, 2006 for the Named Executive Officers.
Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying Unexercised In-the-Money Options
Name on Exercise (#) ($) Options at FY-End (#) at FY-End ($)(1)
----------------- -------------- ---------- ------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
----------- ------------- ----------- -------------
George D. Green -0- -0- 500,000 997,500 $ -0- -0-*
35
(1) The closing price of the Company's Shares on September 6, 2006 as reported
by OTC Bulletin Board was $0.0849 per Share. * The value of the exercisable
and unexercisable options shall be determined upon the date of issuance.
ermination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to be
received from us, with respect to any person named in cash compensation set out
above which would in any way result in payments to any such person because of
his resignation, retirement, or other termination of such person's employment
with us or our subsidiaries, or any change in control of us, or a change in the
person's responsibilities following a changing in control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 30, 2006 information with respect
to the beneficial ownership of our common stock by (i) persons known by us to
beneficially own more than five percent of the outstanding shares, (ii) each
director, (iii) each executive officer and (iv) all directors and executive
officers as a group. As of September 7, 2006, there were issued and outstanding
39,112,420 shares of Common Stock and 1,508,000 Shares of Common Stock issuable
upon the exercise of presently exercisable stock options and warrants.
Common Stock
Beneficially Owned
itle of ----------------------------
Name and Address Class Number Percent (3)
-------------------------------------------------------------------------
George D. Green Common 18,122,500(1)(2) 46.34%
1700 University Drive
Coral Springs, FL 33071
All Executive Officers and
Directors as a Group Common 18,122,500 46.34%
(One (1) person)
-----------------------------
(1) Includes a total of 75,000 and 50,000 shares which Dr. Green transferred to
his children, Jacyln and Joshua. However, Dr. Green has disclaimed
beneficial ownership of these transferred shares.
(2) Includes options to purchase 500,000 shares which are either currently
exercisable or which become exercisable within 60 days of the date of April
10, 2006. George D. Green holds 1,000,000 shares of our preferred stock
that provides for 15 to 1 voting rights. See Notes to our Financial
Statements.
(3) Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes
the power to vote, or to direct the voting of shares; and (ii) investment
power, which includes the power to dispose or direct the disposition of
shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power
to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
36
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of common stock actually outstanding on
August 30, 2006. As of August 30, 2006, there were 39,112,420 shares of our
common stock issued and outstanding.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a) Market Information. Our common stock began trading on the
Over-the-Counter Bulletin Board (the "OTCBB") on October 6, 2004. Prior thereto,
our stock was traded on the Pink Sheets. Our current stock symbol is "UDHI.OB".
The following table sets forth, for the periods indicated, the range of high and
low bid quotations for our common stock as quoted on the OTCBB. The reported bid
quotations reflect inter-dealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual transactions. Prices set
forth below have been adjusted to give effect to the one for forty reverse stock
split which was approved by the stockholders on May 10, 2004.
Year 2003- There was no market for our common stock.
Year 2004 High Low
------------------- ------ -----
First Quarter $.0 $.0
Second Quarter .01 .01
Third Quarter .02 .01
Fourth Quarter .55 .02
Year 2005 High Low
------------------- ------ -----
First Quarter $.74 $.17
Second Quarter $.21 $.06
Third Quarter $.22 $.01
Fourth Quarter $.15 $.09
Year 2006 High Low
------------------- ------ -----
First Quarter $.12 $.05
Second Quarter $.85 $.02
Such market quotations reflect the high bid and low prices as reflected by the
OTCBB or by prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions. Some of the companies who serve as
market makers for our common stock include WM. V. Frankel & Co., Hill Thompson
Magid & Co, Knight Equity Markets, L.P. and Schwab Capital Markets L.P. Our
shares are subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security that has
a market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be penny stock unless
that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 persuade) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Since our shares are deemed to be "penny stocks", trading in the
37
shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers to
trade and/or maintain a market in our Common Stock and may affect the ability of
shareholders to sell their shares.
Transfer Agent
Our transfer agent is Interwest Transfer Co. Inc., 1981 East Murray Holiday
Road, Suite 100, Salt Lake City, UT 84117. Their telephone number is (801)
272-9294.
(b) Holders. As of September, 2006, there were 1,126 shareholders of record
of our common stock.
(c) Dividend Policy. We have not declared or paid cash dividends or made
distributions in the past, and we do not anticipate that we will pay cash
dividends or make distributions in the foreseeable future. We currently intend
to retain and reinvest future earnings, if any, to finance our operations.
(d) Securities authorized for issuance under equity compensation plans
SELLING SHAREHOLDERS
The following table presents information regarding the selling shareholders.
--------------------------------------------------------------------------------------------------------------------------------
Percentage of
Common Shares Outstanding Common Shares
Beneficially Owned Shares Issuable upon
by Selling Beneficially Exercise of Shares
Shareholder Before owned Before Securities forming Registered in Benefical Ownership
Name of Selling Shareholder Offering (1) Offering part of this Offering this Offering after this Offering (2)
--------------------------------------------------------------------------------------------------------------------------------
Number of Percent (3)
Shares
--------------------------------------------------------------------------------------------------------------------------------
Dutchess Private Equities 1,304,348 3.34% 49,123,282 (5) 49,123,282 None 0.0%
Fund II, LLP (4)
312 Stuart Street
Boston, MA 02116
--------------------------------------------------------------------------------------------------------------------------------
Hawk Associates, Inc. (6) 500,000 1.28% 500,000 (7) 500,000 None 0.0%
227 Atlantic Blvd
Key Largo, FL 33037
--------------------------------------------------------------------------------------------------------------------------------
38
(1) Ownership as of September 7, 2006, for the selling stockholders based on
information provided by the selling stockholders or known to us.
(2) Because the selling stockholders may offer all or only some portion of the
shares of common stock to be registered, no estimate can be given as to the
amount or percentage of these shares of common stock that will be held by
the selling shareholder upon termination of the offering. Accordingly, it
is assumed that all of the shares of common stock offered pursuant to this
prospectus will be sold, although the selling stockholders are under no
obligation known to us to sell any shares of common stock at this time.
(3) A total of 39,112,420 shares of common stock were issued and outstanding as
of September 7, 2006.
(4) Michael Novielli and Douglas Leighton, the managing members of Dutchess
Capital Management, LLC, the general partner of Dutchess Private Equities
Fund II, LLP share dispositive and voting power with respect to shares held
by Dutchess Private Equities Fund II, LLP.
(5) Represents (i) all of the common stock that potentially may be issued upon
the draw down of $5,000,000 on our equity line at $0.13 per share in an
aggregate amount of 38,461,538 shares, (ii) all of the common stock that
potentially may be issued upon the conversion of $600,000 convertible
debenture at a conversion price of $0.11 per share in an aggregate of
8,857,396 shares, and (iii) all of the common stock that potentially may be
issued upon the exercise of 1,304,348 common share purchase warrants issued
to the named selling stockholder. The Debenture Agreement contains
contractual restrictions on beneficial share ownership limiting Dutchess'
beneficial ownership to 4.99%.
(6) Represents shares issuable to Hawk Associates upon exercise of warrants.
(7) Frank Hawkins and Julie Marshall share dispositive and voting power with
respect to shares held by Hawk Associates.
The following is a description of the selling shareholders relationship to us
and how each the selling shareholder acquired the shares to be sold in this
offering:
(A) On August 17, 2005, we entered into an Investment Agreement with
Dutchess Private Equities Fund II, LLP ("Dutchess") providing for the sale of up
to $5,000,000 of our common stock over a period of up to 36 months after the
effective of the registration statement of which this prospectus forms a part.
Under the agreement, Dutchess is required to purchase "Puts" which shall be
equal to either (a) $100,000 or (b) 200% of the averaged daily volume (U.S
market only) of our Common Stock for the 20 Trading days prior to the "Put"
notice, multiplied by the average of the 3 daily closing prices immediately
preceding the Put Date.
US EURO Securities, Inc. a registered broker-dealer, acts as the exclusive
placement agent for the shares to be issued under the Investment Agreement.
In connection with the Investment Agreement we entered into a Debenture
Agreement providing for the sale of $600,000 in principal amount of our five
year convertible debentures to Dutchess. These debentures bear interest at 10%
per annum (payable in cash or stock at Dutchess' option). The first $300,000
(less expenses) has been funded, with an additional $300,000 to be funded
39
immediately upon filing of the registration statement of which this prospectus
forms a part. Our obligation to repay Dutchess is secured by a security
agreement, which we have entered into with Dutchess. We have pledged all of our
assets to insure repayment of this obligation. Dutchess' security interest in
our assets will be subject to any claims by our bank, which provides us with a
line of credit. Subject to adjustment as more fully set forth in the Debenture
Agreement, the fixed conversion price of the debenture shall be $.092 per share
or; the lowest closing bid price of the common stock during the fifteen days
trading days prior to the filing with the SEC of the registration statement of
which this prospectus forms a part covering the shares issuable on the
underlying debt.
We also issued to Dutchess a warrant to purchase 1,304,348 shares of common
stock with a strike price of $.092 per share. The warrant may be exercised for a
period of five years and the strike price is subject to adjustment if certain
conditions are not met.
(B) On August 18, 2005, we entered into an Agreement with Hawk Associates,
Inc. to provide us with consulting and advisory services, including, but not
limited to, company identity, investor relations, financial media relations and
other consulting and advisory services. Pursuant to the terms of the Agreement
we agreed to issue to Hawk Associates, warrants to purchase 500,000 shares of
our common stock at an exercise price of $.20. We have agreed to register the
shares underlying the warrants in this registration statement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, none of the following persons has any direct or
indirect material interest in any transaction to which we are a party during the
past two years, or in any proposed transaction to which the Company is proposed
to be a party:
(A) any director or officer;
(B) any proposed nominee for election as a director;
(C) any person who beneficially owns, directly or indirectly, shares
carrying more than 5% of the voting rights attached to our common stock; or (D)
any relative or spouse of any of the foregoing persons, or any relative of such
spouse, who has the same house as such person or who is a director or officer of
any parent or subsidiary.
Union Dental entered into a Management Services Agreement and a Business
Associate Agreement with Dr. George D. Green, DDS, P.A. ("Green PA") on October
15, 2004. Pursuant to these agreements, Union Dental shall manage the operations
of Green PA for a management fee pursuant to the agreements.
On March 20, 2004, Union Dental, a wholly owned subsidiary of the Company,
entered into an employment agreement with Dr. Green, the sole officer of Union
Dental and our chief executive officer, for a term of seven years. The agreement
provides for a base salary to Dr. Green of $225,000 in year one, $125,000 in
year two, $185,000 in year three, $196,630 in year four, $208,427 in year five,
$220,932 in year six and $234,187 in year seven. The agreement also provides for
the issuance of options to Dr. Green upon signing, 750,000 options 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. The agreement also
provides for the issuance of options to Dr. Green as well, if certain revenue
milestones are reached: If we achieve gross revenues of $3,000,000 in for any
calendar year, Dr. Green will be issued 332,500 options with an exercise price
at the market price of the underlying common stock at issue date. Additional
options pursuant to the same terms and conditions will be issued if the Company
achieves $4,000,000 and again at $5,000,000 in gross revenue for any calendar
year.
40
On October 15, 2004, Dr. Green sold his interest in his dental practice to Union
Dental, an entity that he previously controlled, for $1,000,000, which amount
was recorded by the Company as a shareholder loan. Specifically, in the
financial statement presentation, the amount of the purchase price that exceeded
the net book value of the dental practice assets acquired has been treated as a
shareholder loan. This amount was deducted from the Company's stockholder's
equity because the transaction was with a related party and such amount is not
reflective of any funds due from Dr. Green.
In 2004 we incurred a charge to stockholders' equity in the amount of
$1,539,129. This charge was a result of three related party transactions. First,
UDC issued a $1 million note payable to Dr. Green, our controlling shareholder,
as consideration for the purchase of the assets (minus the client list) of his
dental practice, Dr. George D. Green, DDS, P.A. The Second transaction related
to DDS executed a note payable to a bank in the amount of $1,215,000 to satisfy
an outstanding liability of Dr. Green to purchase shares of DDS prior to the
Reorganization. These amounts are offset by $675,871, representing a note
receivable from Dr. Green resulting from the above transactions, net of other
payables.
In December 2005, the Company cancelled the 750,000 options previously granted
to Dr. Green with an exercise price of $.60 per share in consideration for the
grant of 500,000 options at an exercise price of $.15 per share. At the time of
the cancellation and grant, our common stock was trading at $.10 per share.
UDC entered into an employment agreement with Robert Gene Smith on February 15,
2004, pursuant to which Mr. Smith became a member of the Board of Directors of
UDC and received an annual compensation of $24,000. The current agreement
expired February 15, 2006. The parties have verbally agreed to extend the
agreement on an annual basis pursuant to the same terms and conditions. However,
it can be cancelled at any time by the Company on written notice to Mr. Smith.
Mr. Smith was previously granted 250,000 options to purchase shares of common
stock at $0.50 per share and an additional 247,500 options dependent upon the
achievement of certain revenue milestones.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock, par value
$.0001. As of September 9, 2005, there were 31,157,486 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
Preferred Stock
We are authorized to issue 25,000,000 shares of preferred stock, par value
$.0001. As of September 9, 2005 there were 1,000,000 shares of preferred stock
outstanding. Holders of the preferred stock are entitled to 15 votes per share
on all matters to be voted upon by the stockholders. The Preferred stock has no
conversion rights.
41
Warrants
We have issued to Dutchess Private Equities Fund II, LLP, warrants to purchase
1,304,348 shares of our common stock at an exercise price of $.092 per share
which are exercisable for a period of five years. The warrants were issued in
connection with the Investment Agreement dated August 17, 2005.
We have issued warrants to Hawk Associates, Inc., to purchase 500,000 shares of
our common stock at an exercise price of $.20. The warrants were issued in
connection with a Consulting Agreement dated August 18, 2005 pursuant to which
Hawk Associates will provide consulting and advisory services, including, but
not limited to, company identity, investor relations, financial media relations
and other consulting and advisory services.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Interwest Transfer Co.,
Inc., 1981 East Murray Holiday Road, Suite 100, Salt Lake City, UT 84117. Their
telephone number is (801) 272-9294.
PLAN OF DISTRIBUTION
The selling stockholder, or its pledgees, donees, transferees, or any of its
successors in interest selling shares received from the named selling
stockholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be a selling
stockholder) may sell the common stock offered by this prospectus from time to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholder may sell the common stock by one or more of
the following methods, without limitation:
o Block trades in which the broker or dealer so engaged will attempt to sell
the common stock as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o An exchange distribution in accordance with the rules of any stock exchange
on which the common stock is listed;
o Ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o Privately negotiated transactions;
o In connection with short sales of company shares;
o Through the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
o By pledge to secure debts of other obligations;
o In connection with the writing of non-traded and exchange-traded call
options, in hedge transactions and in settlement of other transactions in
standardized or over-the-counter options;
o Purchases by a broker-dealer as principal and resale by the broker-dealer
for its account; or
o In a combination of any of the above.
These transactions may include crosses, which are transactions in which the same
broker acts as an agent on both sides of the trade. The selling stockholders may
also transfer the common stock by gift. We do not know of any arrangements by
the selling stockholders for the sale of any of the common stock.
The selling stockholders may engage brokers and dealers, and any brokers or
dealers may arrange for other brokers or dealers to participate in effecting
sales of the common stock. These brokers or dealers may act as principals, or as
an agent of a selling stockholder. Broker-dealers may agree with a selling
42
stockholder to sell a specified number of the stocks at a stipulated price per
share. If the broker-dealer is unable to sell common stock acting as agent for a
selling stockholder, it may purchase as principal any unsold shares at the
stipulated price. Broker-dealers who acquire common stock as principals may
thereafter resell the shares from time to time in transactions in any stock
exchange or automated interdealer quotation system on which the common stock is
then listed, at prices and on terms then prevailing at the time of sale, at
prices related to the then-current market price or in negotiated transactions.
Broker-dealers may use block transactions and sales to and through
broker-dealers, including transactions of the nature described above. The
selling stockholders may also sell the common stock in accordance with Rule 144
or Rule 144A under the Securities Act, rather than pursuant to this prospectus.
In order to comply with the securities laws of some states, if applicable, the
shares of common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledgees, secured parties or person to whom the shares have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for that selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell the
shares short, and, in those instances, this prospectus may be delivered in
connection with the short sales and the shares offered under this prospectus may
be used to cover short sales.
To the extent required under the Securities Act, the aggregate amount of selling
stockholders' shares being offered and the terms of the offering, the names of
any agents, brokers, dealers or underwriters, any applicable commission and
other material facts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or a post-effective amendment to the
registration statement of which this prospectus is a part, as appropriate. Any
underwriters, dealers, brokers or agents participating in the distribution of
the common stock may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a selling stockholder and/or purchasers of
selling stockholders' shares, for whom they may act (which compensation as to a
particular broker-dealer might be less than or in excess of customary
commissions). Neither we nor any selling stockholder can presently estimate the
amount of any such compensation.
The selling stockholders and any underwriters, brokers, dealers or agents that
participate in the distribution of the common stock may be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers or affiliates of registered
broker-dealers may be underwriters under the Securities Act. We will not pay any
compensation or give any discounts or commissions to any underwriter in
connection with the securities being offered by this prospectus.
A selling stockholder may enter into hedging transactions with broker-dealers
and the broker-dealers may engage in short sales of the common stock in the
course of hedging the positions they assume with that selling stockholder,
including, without limitation, in connection with distributions of the common
stock by those broker-dealers. A selling stockholder may enter into option or
43
other transactions with broker-dealers, who may then resell or otherwise
transfer those common stock. A selling stockholder may also loan or pledge the
common stock offered hereby to a broker-dealer and the broker-dealer may sell
the common stock offered by this prospectus so loaned or upon a default may sell
or otherwise transfer the pledged common stock offered by this prospectus.
The selling stockholders and other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under the Exchange Act, including
Regulation M. This regulation may limit the timing of purchases and sales of any
of the common stock by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. Regulation M may restrict the ability of any person engaged in the
distribution of the common stock to engage in market-making activities with
respect to the particular common stock being distributed for a period of up to
five business days before the distribution. These restrictions may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common stock.
We have agreed to indemnify the selling stockholder and any brokers, dealers and
agents who may be deemed to be underwriters, if any, of the common stock offered
by this prospectus, against specified liabilities, including liabilities under
the Securities Act. The selling stockholder has agreed to indemnify us against
specified liabilities.
The issued and outstanding common stock, as well as the common stock to be
issued offered by this prospectus was originally, or will be, issued to the
selling stockholders pursuant to an exemption from the registration requirements
of the Securities Act, as amended. We agreed to register the common stock issued
or to be issued to the selling stockholders under the Securities Act, and to
keep the registration statement of which this prospectus is a part effective
until all of the securities registered under this registration statement have
been sold. We have agreed to pay all expenses incident to the registration of
the common stock held by the selling stockholders in connection with this
offering, but all selling expenses related to the securities registered shall be
borne by the individual holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
We cannot assure you that the selling stockholders will sell all or any portion
of the common stock offered by this prospectus. In addition, we cannot assure
you that a selling stockholder will not transfer the shares of our common stock
by other means not described in this prospectus.
We engaged U.S. Euro Securities, Inc. ("U.S. Euro") as our placement agent with
respect to the securities to be issued under the Equity Line of Credit. To our
knowledge, U.S. Euro has no affiliation or business relationship with Dutchess
Private Equities Fund II, LP. U.S. Euro will be our exclusive placement agent in
connection with the Investment Agreement and shall render consulting services to
us and will be available for consultation in connection with the advances to be
requested by us, pursuant to the Investment Agreement. Dutchess shall not be
obligated to sell any securities and this Offering by U.S. Euro shall be solely
on a "best efforts basis. We agreed to pay to U.S. Euro a maximum fee of $10,000
for drawing down of the equity line of credit, $2,000 of which was paid upon
execution of the Placement Agreement. The Placement Agent agreement terminates
when our Investment Agreement with Dutchess Private Equities Fund II, LP
terminates pursuant to the terms of that Investment Agreement. U.S. Euro is a
registered broker-dealer.
LEGAL MATTERS
The validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP, New York, New York.
44
EXPERTS
Union Dental's financial statements for the fiscal year ended December 2004,
included in the Prospectus have been audited by DeMeo, Young, McGrath,
independent registered public accountants, as stated in their report appearing
herein and are so included herein in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act for the common stock to be sold in this offering. This prospectus
does not contain all of the information in the registration statement and the
exhibits and schedules that were filed with the registration statement. For
further information with respect to the common stock and us, we refer you to the
registration statement and the exhibits and schedules that were filed with the
registration statement. Statements made in this prospectus regarding the
contents of any contract, agreement or other document that is filed as an
exhibit to the registration statement are not necessarily complete, and we refer
you to the full text of the contract or other document filed as an exhibit to
the registration statement. A copy of the registration statement and the
exhibits and schedules that were filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, NW, Washington, DC 20549. Copies of all or
any part of the registration statement may be obtained from the SEC upon payment
of the prescribed fee. Information regarding the operation of the public
reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the site is http://www.sec.gov.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section 607.0850 of the Florida Business Corporation Act authorizes a
corporation to provide indemnification to a director, officer, employee or agent
of the corporation against expenses reasonably incurred by him in connection
with a proceeding to which he or she is a party by reason of the fact that he or
she was or is a director, officer, employee or agent of the corporation, if such
party acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that with respect to any action which results in a
judgment against the person and in favor of the corporation or with respect to
an action in which it is determined that the person derived an improper personal
benefit, the corporation may not indemnify unless a court determines that the
person is fairly and reasonably entitled to the indemnification. Section
607.0850 of the Florida Business Corporation Act further provides that
indemnification shall be provided if the party in question is successful on the
merits.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers, employees or agents of
the Company pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Company of
expenses incurred or paid by a director, officer, employee or agent of the
Company in the successful defense of any proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered, The Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
45
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................F-2
Consolidated Financial Statements:
Consolidated Balance Sheet
At December 31, 2005................................................F-3
Consolidated Statements of Operations
For the Years Ended December 31, 2005 and 2004.....................F-4
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2005 and 2004.....................F-5
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2005 and 2004...............................F-7
Notes to Consolidated Financial Statements...................................F-9
Consolidated Balance Sheet (Unaudited)
As of June 30, 2006................................................F-27
Consolidated Statements of Operations (Unaudited)
For the Three and Six Months Ended June 30, 2006 and 2005..........F-28
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2006 and 2005....................F-29
Notes to Unaudited Consolidated Financial Statements........................F-36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Union Dental Holdings, Inc. and Subsidiaries Coral Springs, Florida
We have audited the accompanying consolidated balance sheet of Union Dental
Holdings, Inc. and Subsidiaries as of December 31, 2005 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years ended December 31, 2005 and 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amount and disclosures in the
consolidated 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
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Union Dental
Holdings, Inc. and Subsidiaries as of December 31, 2005, and the results of
their operations and their cash flows for the years ended December 31, 2005 and
2004, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 10 to the
consolidated financial statements, the Company has net losses of $1,440,083 for
the year ended December 31, 2005, had a working capital deficiency of $2,448,227
and a stockholders' deficit of $2,012,314 at December 31, 2005 and for the year
ended December 31, 2005, used cash in operations of $525,016. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 10. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ De Meo, Young, McGrath
-----------------------------
Certified Public Accountants
Fort Lauderdale, Florida
March 31, 2006
F-2
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 2005
ASSETS
CURRENT ASSETS:
Cash $ 557,272
Accounts receivable, less allowance for doubtful accounts of $69,700 310,833
Inventory of supplies 28,885
Prepaid expenses and other current assets 4,646
-------------------
Total current assets 901,636
Property and equipment, net 293,925
Debt issuance costs, net 126,275
Other assets 15,713
-------------------
Total Assets $ 1,337,549
===================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable, net $ 25,475
Convertible debenture payable, net 206,491
Note payable - bank 1,268,667
Accounts payable 19,886
Accrued expenses 65,380
Customer deposits 35,997
Unearned membership fees 313,374
Derivates liability 1,414,593
-------------------
Total current liabilities 3,349,863
-------------------
Commitments and contingencies
SHAREHOLDERS' DEFICIT:
Preferred stock ($.0001 Par value; 25,000,000 share authorized;
1,000,000 shares issued and outstanding) 100
Common stock ($.0001 Par value; 300,000,000 share authorized;
33,676,303 shares issued and outstanding) 3,368
Additional paid-in capital 1,309,007
Accumulated deficit (1,820,108)
Shareholder transactions (1,489,711)
Less: deferred compensation (14,970)
-------------------
Total shareholders' deficit (2,012,314)
-------------------
Total liabilities and shareholders' deficit $ 1,337,549
===================
See accompanying notes to consolidated financial statements.
F-3
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
--------------------------------------
2005 2004
------------------ -----------------
Revenues, net $ 2,066,944 $ 1,931,570
------------------ -----------------
Operating Expenses:
Cost of services performed 488,187 382,967
Salaries and related taxes 843,204 692,099
Depreciation and amortization 39,467 9,880
Professional fees 199,018 106,336
Consulting fees 373,215 92,405
Other general and administrative 762,057 594,570
------------------ -----------------
2,705,148 1,878,257
------------------ -----------------
(Loss) income from operations (638,204) 53,313
------------------ -----------------
Other income (expense):
Amortization of debt issuance costs (6,725) -
Loss from valuation of derivatives liability (273,731) -
Impairment of goodwill - (7,750)
Interest income - 13
Interest expense (521,523) (40,587)
------------------ -----------------
Total other income (expense) (801,979) (48,324)
------------------ -----------------
Net (loss) income $ (1,440,183) $ 4,989
================== =================
Net loss per common share:
Net loss per common share - basic and diluted $ (0.05) $ 0.00
================== =================
Weighted average common shares outstanding - basic 29,702,912 27,511,177
================== =================
Weighted average common shares outstanding - diluted 29,702,912 28,261,112
================== =================
See accompanying notes to consolidated financial statements.
F-4
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDER' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2005 and 2004
Preferred Stock Common Stock
$.0001 Par Value $.0001 Par Value
-----------------------------------------------
Number of Number of Paid-in
Shares Amount Shares Amount Capital
----------------------------------------------------------
Balance - December 31, 2003 1,000,000 $ 100 17,500,000 $ 1,750 $ (850)
Recapitalization of Company - - 10,000,000 1,000 10,145
Distributions to prior shareholders of
S-Corporation - - - - -
Common stock issued for debt
conversion at $.50 per share - - 913,939 91 456,783
Common stock issued under
consulting agreement - - 106,000 11 52,989
Net income for the year - - - - -
----------------------------------------------------------
Balance - December 31, 2004 1,000,000 100 28,519,939 2,852 519,067
Common stock in connection
with note payable - - 1,500,000 150 134,850
Common stock issued for
acquisition of assets - - 733,901 74 113,681
Common stock issued for
debenture conversion - - 590,000 59 54,221
Common stock issued for interest - - 53,817 5 4,947
Common stock issued for services
- - 2,158,646 216 238,237
Warrant value related to
debenture payable - - - - 124,138
Common stock issued in
private placement - - 120,000 12 59,988
Grant of stock options - - - - 59,878
Repayment of shareholder loan - - - - -
Net loss for the year - - - - -
----------------------------------------------------------
Balance - December 31, 2005 1,000,000 $ 100 33,676,303 $3,368 $1,309,007
==========================================================
(Continued on next page.)
See accompanying notes to consolidated financial statements.
F-5
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDER' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2005 and 2004
(Continued)
Additional Total
Accumulated Shareholder Deferred Stockholders'
Deficit Transactions Compensation Equity (Deficit)
-------------------------------------------------------------------------
$ 236,050 $ - $ - $ 237,050
(236,050) (1,539,129) - (1,764,034)
(384,914) - - (384,914)
- - - 456,874
- - - 53,000
4,989 - - 4,989
-------------------------------------------------------------------------
(379,925) (1,539,129) - (1,397,035)
- - - 135,000
- - - 113,755
- - - 54,280
- - - 4,952
- - - 238,453
- - - 124,138
- - - 60,000
- (14,970) 44,908
- 49,418 - 49,418
(1,440,183) - - (1,440,183)
-------------------------------------------------------------------------
$(1,820,108) $ (1,489,711) $ (14,970) $ (2,012,314)
=========================================================================
See accompanying notes to consolidated financial statements.
F-6
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
-------------------------------------
2005 2004
---------------- -------------------
Cash Flows From Operating Activities:
Net (loss) income $ (1,440,183) $ 4,989
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 39,467 9,880
Stock-based compensation and consulting 283,361 111,763
Common stock issued for interest 4,952
Provision for bad debt 62,500 7,200
Impairment of goodwill - 7,750
Amortization of debt issuance costs 6,725 -
Amortization of discount of debenture and note payable 401,927 -
Loss from valuation of derivatives 273,731 -
Changes in assets and liabilities:
Accounts receivable (56,256) (51,504)
Inventory of supplies (4,830) -
Prepaid expenses and other current assets (1,137) 10,300
Other assets (5,200) (10,513)
Accounts payable (36,857) 136,205
Accrued expenses 65,380 -
Due to related parties (110,839) (279,525)
Customer deposits 5,195 4,189
Unearned membership fees (12,952) 61,663
---------------- -------------------
Net cash provided by (used in) operating activities (525,016) 12,397
---------------- -------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (170,161) (12,603)
Cash acquired in reorganization - 2,000
---------------- -------------------
Net cash used in investing activities (170,161) (10,603)
---------------- -------------------
Cash Flows From Financing Activities:
Net proceeds from sales of common stock 60,000 -
Distribution to shareholders' - (384,914)
Proceeds from note payable 800,000 -
Payment on short-term debt (50,581) 417,006
Proceeds from line of credit - 47,813
Proceeds from debenture payable 600,000 -
Payment on debenture payable (115,682) -
Payment of placement fees (133,000) -
Repayment of other stockholder transaction 49,418 -
Payments on notes payable - (56,061)
---------------- -------------------
Net cash provided by financing activities 1,210,155 23,844
---------------- -------------------
(Continued on next page.)
See accompanying notes to consolidated financial statements.
F-7
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Years Ended
December 31,
-------------------------------------
2005 2004
---------------- -------------------
Net increase in cash 514,978 25,638
Cash - beginning of year 42,294 16,656
---------------- -------------------
Cash - end of year $ 557,272 $ 42,294
================ ===================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 114,644 $ 624
================ ===================
Cash payments for income taxes $ $ -
================ ===================
Non-cash investing and financing activities:
Issuance of common stock for debt $ 54,280 $ 417,006
================ ===================
Stockholder loan offset in stockholder transactions $ - $ 560,179
================ ===================
Common stock issued for asset acquisition $ 113,755 $ -
================ ===================
Common stock issued in connection with promissory note $ 135,000 $ -
================ ===================
Warrants granted in connection with discount of debentures $ 124,138 $ -
================ ===================
Derivitives liabilty reflected as discount to debenture
and note payable $ 1,140,862 $ -
================ ===================
See accompanying notes to consolidated financial statements.
F-8
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Union Dental Holdings, Inc., (f/k/a National Business Holdings, Inc.), (the
"Company") is a Florida corporation which conducts business from its
headquarters in Ft. Lauderdale, Florida. The Company was incorporated on
November 26, 1996. On December 27, 2004, the Company entered into a Share
Exchange and Reorganization Agreement ("Reorganization") with both Union Dental
Corp. ("UDC"), a Florida corporation and Direct Dental Services, Inc. ("DDS"), a
Florida corporation, whereby UDC and DDS became wholly-owned subsidiaries of the
Company in exchange for an aggregate of 17,500,000 shares of its common stock
and 1,000,000 shares of its preferred stock issued to Dr. George Green with each
share of preferred stock providing voting rights equal to 15 shares of the
Company's common stock. In addition, the Company agreed to recognize the
3,452,250 issued and outstanding options to purchase UDC common stock as options
to purchase the Company's common stock. Pursuant to the Reorganization
Agreement, 22,287,977 shares of the Company's common stock were canceled. As a
result, UDC's and DDS's former stockholders became the Company's majority
stockholders with the Company's former shareholders retaining 10,000,000 shares
of common stock.
On January 11, 2005, the Company amended its Articles of Incorporation to change
its name from National Business Holdings, Inc. to Union Dental Holdings, Inc.
The acquisition of UDC and DDS by the Company was accounted for as a reverse
merger because on a post-merger basis, the former UDC and DDS shareholders hold
a majority of the outstanding common stock of the Company on a voting and fully
diluted basis. As a result, UDC and DDS were deemed to be the acquirer for
accounting purposes. Accordingly, the consolidated financial statements
presented for the period ending December 31, 2005, are those of the combined
results of UDC and DDS for all periods prior to the acquisition, and the
financial statements of the consolidated companies from the acquisition date
forward. The historical stockholders' deficit of the combined results of UDC and
DDS prior to the acquisition have been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
acquisition after giving effect to any differences in the par value of the
Company and the combined UDC and DDS common stock, with an offset to additional
paid-in capital. The restated consolidated retained earnings of the accounting
acquirer (UDC and DDS) are carried forward after the acquisition.
Through its wholly-owned subsidiaries, UDC and DDS, the Company operates two
distinct lines of business.
DDS operates a network of duly licensed dental providers, the Dental Referral,
who provide dental services through the network to union members in accordance
with arrangements between DDS and various labor unions. DDS is not limited as to
the type of labor union which it may solicit. DDS charges an annual management
services fee to the participating dentists to practice in an "area of
exclusivity" for union members. DDS currently has exclusive contracts with
several local unions.
UDC acquired the assets of George D. Green, DDS, PA and manages the operation of
that general dental practice.
Basis of presentation
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP"). The
consolidated financial statements of the Company include the Company and its
wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated.
F-9
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates in 2005 and 2004 include the allowance for
doubtful accounts, stock-based compensation, and the useful life of property and
equipment.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses, debenture and loans payable
approximate their fair market value based on the short-term maturity of these
instruments.
Accounts receivable
The Company has a policy of reserving for uncollectible accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At December 31, 2005, the Company has
established, based on a review of its outstanding balances, an allowance for
doubtful accounts in the amount of $69,700.
Inventory of dental supplies
The Company values inventory of dental supplies at the lower of cost or market,
using the specific unit cost method.
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", the Company examines the possibility of decreases in the
value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable.
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the
asset's estimated fair value and its book value. The Company did not consider it
necessary to record any impairment charges during the year ended December 31,
2005.
F-10
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
Through December 31, 2004, the Company was organized as a combination of
S-Corporations. In lieu of corporation income taxes, the shareholder of the
S-Corporation was eligible for his proportional share of the Company's net
income. Therefore, no provision or liability for Federal income taxes has been
included in the financial statements as of December 31, 2004.
The Company was taxed as an S-Corporation combination until December 31, 2004,
when the Company changed its form of ownership to a C corporation. As a result
of the change of ownership, the Company accounts for income taxes under the
liability method in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". Under this method, deferred income tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Had income taxes been determined based on an effective tax rate of 37.6%
consistent with the method of SFAS 109, the Company's net losses for all periods
presented would not materially change.
Loss per common share
In accordance with SFAS No. 128 "Earnings Per Share," Basic earnings per share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Diluted loss per common share is not presented
because it is anti-dilutive. The Company's common stock equivalents at December
31, 2005 include the following:
Convertible debentures 4,674,326
Derivatives options 11,294,118
Options 1,508,000
Warrants 1,304,348
-------------
18,780,792
=============
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectibility is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
DDS selects certain dentists in selected geographical areas to represent the
Company. The dentist enters into an exclusive agreement with DDS for an annual
management services fee, which is based on each specialty the dentist provides
to the patients on a per office basis. DDS receives a yearly membership fee from
each dentist in order for him/her to maintain the exclusive area of each
specialty that the dentist provides. Revenues from membership fees are
recognized over the term of the contract.
The Company recognizes revenue from its dental practice when dental services are
provided.
F-11
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation
Through December 31, 2005, the Company accounted for stock options issued to
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation cost is measured on the date of grant as
the excess of the current market price of the underlying stock over the exercise
price. Such compensation amounts are amortized over the respective vesting
periods of the option grant. The Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS 148,
"Accounting for Stock-Based Compensation -Transition and Disclosure", which
permits entities to provide pro forma net income (loss) and pro forma earnings
(loss) per share disclosures for employee stock option grants as if the
fair-valued based method defined in SFAS No. 123 had been applied. The Company
accounts for stock options and stock issued to non-employees for goods or
services in accordance with the fair value method of SFAS 123. Effective January
1, 2006, the Company adopted the provisions of SFAS No. 123(R), "Share-Based
Payment," under the modified prospective method. SFAS No. 123(R) eliminates
accounting for share-based compensation transactions using the intrinsic value
method prescribed under APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and requires instead that such transactions be accounted for using a
fair-value-based method. Under the modified prospective method, the Company is
required to recognize compensation cost for share-based payments to employees
based on their grant-date fair value from the beginning of the fiscal period in
which the recognition provisions are first applied. For periods prior to
adoption, the financial statements are unchanged, and the pro forma disclosures
previously required by SFAS No. 123, as amended by SFAS No. 148, will continue
to be required under SFAS No. 123(R) to the extent those amounts differ from
those in the Statement of Operations.
The exercise prices of all options granted by the Company equaled the market
price at the dates of grant. No compensation expense has been recognized. Had
compensation cost for the stock option plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS 123,
"Accounting for Stock Based Compensation", the Company's net income and income
per share would have been changed to the pro forma amounts indicated below for
the year ended December 31, 2005 and 2004:
2005 2004
------------ --------
Net (loss) income, as reported $ (1,440,183) $ 4,989
Less: stock-based employee compensation expense
determined under fair value based method,
net of related tax effect (97,686) -
Pro forma net (loss) income $ (1,537,869) $ 4,989
Basic and diluted net (loss) income per common share:
As reported $ (0.05) $ 0.00
Pro forma $ (0.05) $ 0.00
========================
The option grants are estimated as of the date of grant using the Black-Scholes
option-pricing model with the following assumptions used for grants as of
December 31, 2005: expected volatility of 307%; risk free interest rate of
3.75%; expected life of 5 years and annual dividend rate of 0%.
F-12
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of credit risk
The Company maintains its cash in bank deposit accounts, which, at times, exceed
federally insured limits. At December 31, 2005, the Company had approximately
$609,105 in United States bank deposits, which exceed federally insured limits.
The Company has not experienced any losses in such accounts through December 31,
2005.
Non-Employee Stock Based Compensation
The cost of stock based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force Issue ("EITF") 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18").
Common stock purchase warrants
The Company accounts for common stock purchase warrants in accordance with the
provisions of Emerging Issues Tack Force Issue ("EITF") issue No. 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock" ("EITF 00-19"). Based on the provisions of
EITF 00-19, the Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement, or (ii) gives the company a choice
of net-cash settlement or settlement in its own shares (physical settlement or
net-share settlement). The Company classifies as assets or liabilities any
contracts that (i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the
control of the company), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
Recent accounting pronouncements
In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective for the first fiscal year beginning after December 15,
2005. The Company is in process of evaluating the impact of this pronouncement
on its financial statements.
In April 2005, the Securities and Exchange Commission's Office of the Chief
Accountant and its Division of Corporation Finance has released Staff Accounting
Bulletin (SAB) No.107 to provide guidance regarding the application of FASB
Statement No. 123 (revised 2004), Share-Based Payment. Statement No. 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. SAB 107 provides interpretative
guidance related to the interaction between Statement No. 123R and certain SEC
rules and regulations, as well as the staff's views regarding the valuation of
share-based payment arrangements for public companies.
F-13
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements (continued)
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 154, "Accounting Changes and Error
Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS
154"). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.
APB Opinion No. 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balances
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement. When it is
impracticable to determine the cumulative effect of applying a change in
accounting principle to all prior periods, this Statement requires that the new
accounting principle be applied as if it were adopted prospectively from the
earliest date practicable. This Statement shall be effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company does not believe that the adoption of SFAS 154 will have a
significant effect on its financial statements.
On June 29, 2005, the EITF ratified Issue No. 05-2, "The Meaning of
`Conventional Convertible Debt Instrument' in EITF Issue No. 00-19, `Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock.'" EITF Issue 05-2 provides guidance on determining whether
a convertible debt instrument is "conventional" for the purpose of determining
when an issuer is required to bifurcate a conversion option that is embedded in
convertible debt in accordance with SFAS 133. Issue No. 05-2 is effective for
new instruments entered into and instruments modified in reporting periods
beginning after June 29, 2005. The adoption of this pronouncement did not have a
material effect on the Company's financial statements.
In September 2005, the EITF issued EITF No. 05-4, "The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19, `Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock.'" EITF 05-4 provides guidance to
issuers as to how to account for registration rights agreements that require an
issuer to use its "best efforts" to file a registration statement for the resale
of equity instruments and have it declared effective by the end of a specified
grace period and, if applicable, maintain the effectiveness of the registration
statement for a period of time or pay a liquidated damage penalty to the
investor. The Company has adopted view C of this pronouncement, which has
resulted in the registration rights being bifurcated and accounted for at fair
value and the common stock purchase warrants classified as equity.
F-14
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements (continued)
In September 2005, the FASB ratified the Emerging Issues Task Force's ("EITF")
Issue No. 05-7, "Accounting for Modifications to Conversion Options Embedded in
Debt Instruments and Related Issues," which addresses whether a modification to
a conversion option that changes its fair value affects the recognition of
interest expense for the associated debt instrument after the modification and
whether a borrower should recognize a beneficial conversion feature, not a debt
extinguishment if a debt modification increases the intrinsic value of the debt
(for example, the modification reduces the conversion price of the debt). This
issue is effective for future modifications of debt instruments beginning in the
first interim or annual reporting period beginning after December 15, 2005. The
adoption of this pronouncement did not have a material effect on the Company's
financial statements.
In September 2005, the FASB also ratified the EITF's Issue No. 05-8, "Income Tax
Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature,"
which discusses whether the issuance of convertible debt with a beneficial
conversion feature results in a basis difference arising from the intrinsic
value of the beneficial conversion feature on the commitment date (which is
recorded in the shareholder's equity for book purposes, but as a liability for
income tax purposes), and, if so, whether that basis difference is a temporary
difference under FASB Statement No. 109, "Accounting for Income Taxes." This
Issue should be applied by retrospective application pursuant to Statement 154
to all instruments with a beneficial conversion feature accounted for under
Issue 00-27 included in financial statements for reporting periods beginning
after December 15, 2005. The Company is currently in the process of evaluating
the effect that the adoption of this pronouncement may have on its financial
statements.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
Reclassifications
Certain prior periods' balances have been reclassified to conform to the current
period's financial statement presentation. These reclassifications had no impact
on previously reported results of operations or stockholders' equity.
F-15
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 2005, property and equipment consist of the following:
Useful Life
-----------
Computer equipment 5 Years $ 8,680
Office equipment 5 years 424,747
Office furniture and fixtures 7 Years 62,128
Leasehold improvements 10 Years 26,093
-------------------
521,648
Less accumulated depreciation (227,723)
-------------------
$ 293,925
===================
For the year ended December 31, 2005 and 2004, depreciation expense amounted to
$39,467 and $9,880, respectively.
In May 2005, the Company acquired certain office equipment from 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.
NOTE 3 - CONVERTIBLE DEBENTURES PAYABLE
On August 17, 2005, the Company entered into a Debenture Agreement with Dutchess
Private Equity Fund II, LLP ("Dutchess"), an accredited investor, for the
issuance and sale of $600,000 of 10% secured convertible debentures in a private
transaction exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) and Regulation D of that act. On
August 17, 2005, the Company issued Dutchess a $600,000 principal amount 10%
secured convertible debenture due August 17, 2010. At the time of signing the
Debenture Agreement, the Company also issued Dutchess five-year common stock
purchase warrants to purchase 1,304,348 shares of the Company's common stock at
$.092 per share.
Interest is payable on the secured convertible debentures at the rate of 10% per
year. Amortizing payments will be made by the Company in satisfaction of this
Debenture. Payments shall be made monthly on the first day of each business day
of each month while there is an outstanding balance on the Debenture, to the
Holder, in the amounts outlined below on the following schedule:
Payment for Month 1: $4,951
(due within three (3) days of the Issuance Date)
Payment for Month 2: $4,951
Payment for Month 3: $4,951
Payment for Month 4
and each month thereafter: $62,716
F-16
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 3 - CONVERTIBLE DEBENTURES PAYABLE (continued)
The principal amount of the Debenture plus accrued interest may be converted at
the option of the Dutchess into shares of the Company's common stock, anytime
following the closing date, at a conversion price equal to the lesser of (i) the
lowest closing bid price during the 15 days of full trading, as defined, prior
to the conversion date; or (ii) $0.092. In addition, in the event that any
portion of the debenture remains outstanding on the maturity date of August 17,
2010, such outstanding amount shall be automatically converted into shares of
the Company's common stock. In the event that the Company does not make delivery
of the common stock as instructed by Dutchess, the Company shall be obligated to
pay to Dutchess 3% in cash of the dollar value of the debentures being
converted, compounded daily, per each day after the 3rd business day following
the conversion date that the common stock is not delivered to Dutchess. In the
Event of default as defined in the Debenture Agreement, Dutchess may among other
things:
(a) elect to secure a portion of the Company's assets not to exceed 200% of the
Face Amount of the Note, in Pledged Collateral;
(b) elect to garnish Revenue from us in an amount that will repay the Holder on
the payment schedule set forth above;
(c) exercise its right to increase the Face Amount of the debenture by ten
percent (10%) as an initial penalty and for each Event of Default under the
Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%) per
month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily.
The debenture provides that Dutchess shall not be entitled to convert that
amount of Debenture into common stock, which when added with the sum of the
number of shares beneficially owned by Dutchess would exceed 4.99% of the number
of shares of our common stock outstanding on the conversion date.
In order to secure its obligations under the secured convertible debenture and
related documents, the Company has granted the debenture holder a security
interest in all of its assets and property.
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Debentures met the
criteria of an embedded derivative and therefore the conversion feature of the
debt needed to be bifurcated and accounted for as a derivative. Due to the reset
provisions of the Debentures, the debt does not meet the definition of
"conventional convertible debt" because the number of shares which may be issued
upon the conversion of the debt is not fixed. Therefore, the conversion feature
fails to qualify for equity classification under EITF 00-19, and must be
accounted for as a derivative liability.
The $600,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the warrants and conversion option would be
attributed to the debt. The beneficial conversion feature (an embedded
derivative) included in this debenture resulted in an initial debt discount of
$475,862 and an initial loss on the valuation of derivative liabilities of
$305,667. At December 31, 2005, the Company revalued this derivative liability,
For the year ended December 31, 2005, after adjustment, the Company recorded a
gain on valuation of derivative liability of $11,754. The associated warrants
are exercisable for 1,304,348 shares of common stock at an exercise price of
$0.092 per share. The warrants, which expire five years after issuance, were
assigned a value of $124,138, estimated using the Black-Scholes valuation model.
The following assumptions were used to determine the fair value of the warrants
using the Black-Scholes valuation model: a term of five years, risk-free rate of
3.75%, volatility of 363%, and dividend yield of zero. In accordance with EITF
No. 00-19, EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments, the values assigned to both the debenture, conversion feature and
the warrants were allocated based on their fair values. The amount allocated as
a discount on the debenture for the value of the warrants and conversion option
will be amortized to interest expense, using the effective interest method, over
the term of the debenture.
F-17
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 3 - CONVERTIBLE DEBENTURES PAYABLE (continued)
The holders of the debenture and warrants have registration rights that required
the Company to file a registration statement with the Securities and Exchange
Commission to register the resale of the common stock issuable upon conversion
of the debenture or the exercise of the warrants. Under EITF No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock, the ability to register stock was deemed to
be outside of the Company's control. Accordingly, the initial aggregate fair
value of the derivatives (embedded and free-standing) of $781,529 was recorded
as a derivative liability in the consolidated balance sheet, and is marked to
market at the end of each reporting period. At December 31, 2005, this
derivative liability was $412,544. During the year ended December 31, 2005, the
recording of this derivative liability associated with this debt financing
resulted in a non-cash gain of $63,318 which was reflected in the consolidated
statement of operations for the year ended December 31, 2005. Additionally, the
initial aggregate fair value of the warrants of $124,138 was recorded as an
accrued warrant liability in the consolidated balance sheet. Upon effectiveness
of the registration statement in September 2005, the Company reclassified this
warrant liability to equity. For the year ended December 31, 2005, amortization
of the discount on debenture amounted to $376,452.
The convertible debenture liability is as follows at December 31, 2005:
Convertible debentures payable $ 430,039
Less: unamortized discount on debentures (223,548)
---------------
Convertible debentures, net $ 206,491
===============
NOTE 4 - EQUITY CREDIT LINE
On August 17, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund II, LLP ("Dutchess"). Pursuant to this Agreement,
Dutchess committed to purchase up to $5,000,000 (the "Line") of the Company's
common stock over the course of 36 months ("Line Period"), after the
registration statement was declared effective by the SEC in September 2005 (the
"Effective Date"). The amount that the Company shall be entitled to request from
each of the purchase "Puts", shall be equal to either (1) $100,000 or (2) 200%
of the averaged daily volume (US market only) ("ADV") of the Company's common
stock for the 20 trading days prior to the "Put" notice, multiplied by the
average of the 3 daily closing prices immediately preceding the Put Date. The
Pricing Period shall be the five (5) consecutive trading days immediately after
the Put Date. The Market Price shall be the lowest closing bid price of the
Company's common stock during the Pricing Period. The Purchase Price shall be
set at 95% of the Market Price. This Investment Agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: Dutchess, has committed
to provide the Company up to $5,000,000 as it requests over a 36 month period,
in return for common stock the Company issues to Dutchess. The Company, at its
sole discretion, may during the Open Period deliver a "put notice" (the "Put
Notice") to Dutchess which states the dollar amount which the Company intends to
sell to Dutchess on the Closing Date. The Open Period is the period beginning on
the trading after the Effective Date and which ends on the earlier to occur of
36 months from the Effective Date or termination of the Investment Agreement in
accordance with its terms. The Closing Date shall mean no more than 7 trading
days following the Put Notice Date. The Put Notice Date shall mean the Trading
Day immediately following the day on which Dutchess receives a Put Notice, as
defined in the agreement. During the Open Period, the Company shall not be
entitled to submit a Put Notice until after the previous Closing has been
completed. Additionally, Dutchess shall not be obligated to honor any Put Notice
if at the time of the Put Notice Dutchess would own more than 4.99% of the
Company's issued and outstanding common stock.
F-18
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 4 - EQUITY CREDIT LINE (continued)
Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall
be required to purchase from the Company, during the period beginning on the Put
Notice Date and ending on and including the date that is 5 trading days after
such Put Notice, that number of shares having an aggregate purchase price equal
to the lesser of (a) the Put Amount set forth in the Put Notice, or (b) 20% of
the aggregate trading volume of the Company's common stock during the applicable
Pricing Period times (x) the lowest closing bid price of the Company's common
stock during the specified Pricing period, but only if such said shares bear no
restrictive legend and are not subject to stop transfer instructions, prior to
the applicable Closing Date.
As of December 31, 2005, the Company had not delivered any Put Notices and has
not drawn on the equity line of credit.
NOTE 5 - NOTE PAYABLE
On December 22, 2005, the Company signed a promissory note (the "Note") in favor
of Dutchess Private Equities Fund, LP (the "Investor"), in the amount of
$960,000 (the "Face Amount") and received gross proceeds in the amount of
$800,000 less $60,075 in fees associated with the financing for net proceeds of
$739,925. The Company is obligated to repay the Investor the Face Amount on or
before December 23, 2006. There is no stated interest rate on the Note and
interest has been imputed at a rate of xx% per annum. Payments are to be made by
the Company from each Put from the Company's Equity Credit Line (see note 4)
with the Investor. The Company is obligated to pay the Investor the greater of
a) 50% of each Put to the Investor or b) $80,000 until the face Amount minus any
fees have been paid. The first payment was due on February 15, 2006 and all
subsequent payments will be made at the Closing of every Put to the Investor
thereafter. The Put Amount will be the maximum amount allowed under the
Investment Agreement with the Investor. As described in note 4, the Investment
Agreement provides in part that the maximum amount of each Put is either
$100,000 or 200% of the average daily volume multiplied by the average of the
three daily closing prices immediately preceding the Put Date. Payments made by
the Company in satisfaction of this Note shall be made from each Put from the
Equity Line of Credit with the Investor given by the Company to the Investor.
Additionally, in connection with Note, the Company issued 1,500,000 shares of
common stock. The shares were valued at fair market value at date grant of
$135,000 or $.09 per share and is reflected as a discount on the Note, which
will be amortized over the term.
The Company agreed to issue 50 signed Put Notices to the Investor to use as
collateral. In the event, the Investor uses the collateral in full, the Company
shall immediately deliver to the Investor additional Put Sheets as requested by
the Holder. In the event that on the maturity date the Company has any remaining
amounts unpaid on this Note (the "Residual Amount"), the Holder can exercise its
right to increase the Face Amount by ten percent (10%) as an initial penalty and
an additional 2.5% per month paid, pro rata for partial periods, compounded
daily, as liquated damages ("Liquidated Damages").
Additionally, in the event of a default as defined in the agreement, the Holder
shall have the right, but not the obligation, to 1) switch the Residual Amount
to a three-year ("Convertible Maturity Date"), interest-bearing convertible
debenture. If the Holder chooses to convert the Residual Amount to a Convertible
Debenture, the Company shall have 20 business days after notice of the same (the
"Notice of Convertible Debenture") to file a registration statement covering an
amount of shares equal to 300% of the Residual Amount. Such registration
statement shall be declared effective under the Securities Act of 1933, as
amended (the "Securities Act"), by the Securities and Exchange Commission (the
"Commission") within 40 business days of the date the Company files such
Registration Statement. In the event the Company does not file such registration
statement within 20 business days of the Holder's request, or such registration
statement is not declared by the Commission to be effective under the Securities
Act within the time period described above, the Residual Amount shall increase
by $5,000 per day.
F-19
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 5 - NOTE PAYABLE (continued)
The Holder is entitled to convert the Debenture Residual Amount, plus accrued
interest, anytime following the Convertible Maturity Date, at the lesser of (i)
50% of the lowest closing bid price during the 15 trading immediately preceding
the Convertible Maturity Date or (ii) 100% of the lowest bid price for the 20
trading days immediately preceding the Convertible Maturity Date ("Fixed
Conversion Price").
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Note met the criteria
of an embedded derivative and therefore the conversion feature of this debt
needed to be bifurcated and accounted for as a derivative. Due to the conversion
features of the Note which is convertible based on draws from the equity credit
line, the debt does not meet the definition of "conventional convertible debt"
because the number of shares which may be issued upon the conversion of the debt
is not fixed. Therefore, the conversion feature fails to qualify for equity
classification under EITF 00-19, and must be accounted for as a derivative
liability.
The $960,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the 1,500,000 common shares and conversion
option would be attributed to the debt. The beneficial conversion feature (an
embedded derivative) included in this Note resulted in a note discount of
$665,000. In accordance with EITF No. 00-19, EITF No. 00-27, Application of
Issue No. 98-5 to Certain Convertible Instruments, the values assigned to both
the Note, and conversion feature were allocated based on their fair values. The
amount allocated as a discount on the Note for the value of the conversion
option will be amortized to interest expense, using the effective interest
method, over the term of the Note.
The holders of the Note and the underlying shares on the equity credit line have
registration rights that required the Company to file a registration statement
with the Securities and Exchange Commission to register the resale of the common
stock issuable upon conversion of the debenture or the exercise of the warrants.
Under EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock, the ability to register
stock was deemed to be outside of the Company's control. Accordingly, the
initial aggregate fair value of the derivatives (embedded and free-standing) of
$1,002,049 was recorded as a derivative liability in the consolidated balance
sheet, and is marked to market at the end of each reporting period. During the
year ended December 31, 2005, the recording of this derivative liability
associated with this Note financing resulted in a non-cash loss of $337,049
which was reflected in the consolidated statement of operations for the year
ended December 31, 2005. For the year ended December 31, 2005, amortization of
the discount on the note amounted to $19,884.
The note payable is as follows at December 31, 2005:
Note payable $ 960,000
Less: unamortized discount on note (934,525)
---------------
Note payable, net $ 25,475
===============
F-10
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 6 - LONG-TERM DEBT
In December 2004, the Company agreed to assume the debt obligation of the
principal stockholder for a 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 original note was in the amount $1,215,000. On May 17, 2005,
the Company entered into an Amended and Restated Promissory Note in the amount
of $1,384,000. The interest rate on this note is the LIBOR Fixed Rate plus 255
basis points (6.92% at December 31, 2005) calculated by using the 365/360 day
method. The note requires monthly principal payments of $23,067 plus accrued
interest payable monthly, and is secured by all of the assets of the Company.
The principal stockholder is 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 October 2005,
as a result of a hurricane relief program, the bank extended the due date on the
November and December 2005, thereby extending the due Note due date to July 17,
2010. As of December 31, 2005 the Company is in default of loan covenants and
other terms of the agreement. Accordingly, the Company has shown the entire
principal balance in current liabilities. At December 31, 2005, the principal
amount outstanding on this note amounts to $1,268,667. At December 31, 2005, the
Company was in default of its loan covenants.
NOTE 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.
Shareholder transactions in the net amount of $1,539,129 in 2004 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.
F-20
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 8 - SHAREHOLDERS' DEFICIT
Common Stock
During 2004, prior to the recapitalization, the Company's S-Corporation
shareholder received distributions of $384,914.
In December 2004, the Company issued 913,939 restricted common shares in
exchange for $456,874 in convertible short-term debt and accrued interest.
In December 2004, the Company issued 106,000 shares of common stock in exchange
for services valued at $53,000, or $0.50 per share.
In the first and second quarter 2005, the Company issued 120,000 shares of
restricted common stock in exchange for $60,000 in cash.
In May 2005, the Company acquired certain assets of Dental Visions, Inc., (DVI),
a dental practice, 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.
On December 22, 2005, in connection with a note payable, the Company issued
1,500,000 shares of common stock. The Company valued the 1,500,000 common shares
at $.09 per share of $135,000 based on the recent selling price of the shares.
The fair value of $135,000 was treated as a discount on note payable (see note
5).
For the year ended December 31, 2005, the Company issued an aggregate 2,158,646
shares of common stock for services rendered. The Company valued these common
shares at the fair market value on the date of grant at per share prices ranging
from $.105 to $.13 or an aggregate of $238,453. In connection with issuance of
these shares, the Company recorded professional fees of $107,975 for legal
services performed and $130,478 in consulting fees for investor relation and
business development services performed.
In November and December 2005, the Company issued 590,000 shares of common stock
upon the conversion of the debenture payable at $.092 per share or $54,280.
Additionally, the Company issued 53,817 shares for settlement of interest of
$4,952
Stock Options
In October 2004, the Company 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.
In 2004, the Company issued 783,000 options to employees and officers, with an
exercise price of $0.50 per share, under this plan as of December 31, 2004. The
exercise price exceeded the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized.
F-21
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 8 - SHAREHOLDERS' DEFICIT (continued)
Stock Options (continued)
On August 17, 2005, the Company granted options to purchase 500,000 shares of
common stock to a consultant for investor relations serviced rendered. The
options expire on August 16, 2008 and are exercisable at $0.20 per share. These
options were valued using the Black-Scholes pricing method at a fair value of
$0.12 per option. Accordingly, the Company recorded stock-based consulting
expense of $44,908 and deferred compensation of $14,970, which will be amortized
into consulting expense over the remaining contract term.
On November 20, 2005, the Company granted options to purchase 25,000 shares of
common stock to an employee for services rendered. The options expire on
November 20, 2010 and are exercisable at $0.25 per share. The exercise price
exceeded the fair market value of the common stock at the grant date.
Accordingly, under APB 25, no compensation expense was recognized.
On December 30, 2005, the Company granted options to purchase 950,000 shares of
common stock to executives and certain employees of the Company for services
rendered. The options expire on December 30 2010 with 500,000 options
exercisable at $0.15 per share and 450,000 exercisable at $.13 per share. The
exercise price exceeded the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized.
A summary of the status of the Company's outstanding stock options as of
December 31, 2005 and changes during the period ending on that date is as
follows:
Weighted
Average
Exercise
Shares Price
-------------- ----------
Outstanding at December 31, 2004 1,533,000 $ 0.54
Granted 1,475,000 0.17
Exercised - (0.00)
Forfeited (1,500,000) (0.55)
-------------- ----------
Outstanding at December 31, 2005 1,508,000 $ 0.16
============== ==========
Options exercisable at end of period 1,508,000 $ 0.16
============== ==========
Weighted-average fair value of options
granted during the period $ 0.17
The following information applies to options outstanding at December 31, 2005:
Options Outstanding Options Exercisable
------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
ange of Contractual Exercise Exercise
xercise Prices Shares Life (Years) Price Shares Price
-------------- -------- ------------ ----------- --------- ----------
..13 - $.15 950,000 5.00 $ 0.14 950,000 $0.14
..20 - $ 25 525,000 2.74 $ 0.21 525,000 $0.21
$.50 33,000 4.00 $ 0.50 33,000 $0.50
Common Stock Warrants
In November and December 2005, in connection with a debenture payable, the
Company granted 1,304,348 warrants to purchase 1,304,348 shares of common stock
at $0.092 per share. The warrants expire on the three-year anniversary of the
date of issuance.
F-22
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 9 - INCOME TAXES
Through December 2004, the Company was organized as an S-Corporation. In lieu of
corporation income taxes, the shareholders of the S-Corporation were eligible
for their proportional share of the Company's net income. Therefore, no
provision or liability for income taxes has been included in the financial
statements as of December 31, 2004.
The Company was taxed as an S-Corporation until December 31, 2004, when the
Company changed its form of ownership to a C corporation. As of December 31,
2005, the Company had approximately $324,000 of U.S. federal and state net
operating loss carryforwards available to offset future taxable income which
begin expiring in 2025, if not utilized. Deferred income taxes reflect the net
tax effects of operating loss and tax credit carry forwards and temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. In assessing
the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
temporary differences representing net future deductible amounts become
deductible. Due to the uncertainty of the Company's ability to realize the
benefit of the deferred tax assets, the deferred tax assets are fully offset by
a valuation allowance at December 31, 2005.
The Company's tax expense differs from the "expected" tax expense for the year
ended December 31, 2005 is as follows:
Computed "expected" tax benefit $ (489,662)
State income taxes benefit (51,847)
Other permanent differences 259,378
Change in valuation allowance 282,131
------------
$ -
============
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2005 are as follows:
Deferred tax assets:
Net operating loss carryforward $ 122,002
Depreciation 5,640
Allowance for doubtful accounts 23,500
Unearned membership fees 117,829
Customer deposits 13,160
-----------
Total deferred tax asset 282,131
Less: Valuation allowance (282,131)
-----------
-
===========
The valuation allowance at December 31, 2005 was $282,131. The increase during
2005 was approximately $282,131.
F-23
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 10 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $1,820,108 and a working capital deficit of
$2,448,227 at December 31, 2005, net losses for the year ended December 31, 2005
of $1,440,183 and cash used in operations during the year ended December 31,
2005 of $525,016. While the Company is attempting to increase sales, the growth
has not been significant enough to support the Company's daily operations. In
order to raise funds, on August 2005, the Company entered into an Investment
Agreement and a Debenture Agreement (See Note 3 and 4), and a note payable
agreement (See note 5), and has a note payable to a bank. Management may attempt
to raise additional funds by way of a public or private offering. While the
Company believes in the viability of its strategy to improve sales volume and in
its ability to raise additional funds, there can be no assurances to that
effect. The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve consumer
recognition. The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business plan and
generate increased revenues. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. Management believes that the actions presently
being taken to further implement its business plan and generate additional
revenues provide the opportunity for the Company to continue as a going concern.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Employment Agreements
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 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, 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.
Operating Leases
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 expires in May 2010, and has monthly payments of
$2,175, or $26,100 per year, for a total of $53,700 per year.
Year Ended December 31,
2006 $ 53,700
2007 37,600
2008 26,100
2009 26,100
2010 10,875
-------------
otal minimum lease payments $ 154,375
=============
Rent expense for the year ended December 31, 2005 and 2004 was $95,820 and
$71,838, respectively.
F-24
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 12 - SUBSEQUENT EVENTS
In January 2006, the Company issued 75,000 shares of common stock upon the
conversion of the debenture payable at $.092 per share or $6,900.
During the three months ended March 31, 2006, the Company issued an aggregate
522,000 shares of common stock for services rendered. The Company valued these
common shares at the fair market value on the date of grant at per share prices
ranging from $.08 to $.09 or an aggregate of $43,600. In connection with
issuance of these shares, the Company recorded professional fees of $14,400 for
legal services performed and $29,200 in consulting fees for investor relation
and business development services performed.
For the period from January 21, 2006 to April 4, 2006, the Company exercised put
notices in accordance with its Investment Agreement with Dutchess (see note 4)
and received $162,279 of net cash proceeds for which the Company issued
2,022,496 shares of its common stock to Dutchess.
F-25
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2006
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 10,695
Accounts receivable, less allowance for doubtful accounts of $69,700 287,341
Inventory of supplies 30,500
Prepaid expenses and other current assets 3,850
----------------
Total current assets 332,386
Property and equipment, net 260,121
Debt issuance costs, net 37,875
Other assets 7,513
----------------
Total Assets $ 637,895
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Note payable, net $ 256,883
Convertible debenture payable, net 231,651
Note payable - bank 1,130,267
Accounts payable 29,551
Accrued expenses 97,411
Customer deposits 51,869
Unearned membership fees 265,787
Derivates liability 978,641
----------------
Total current liabilities 3,042,060
----------------
Commitments and contingencies
SHAREHOLDERS' DEFICIT:
Preferred stock ($.0001 Par value; 25,000,000 shares authorized;
1,000,000 shares issued and outstanding) 100
Common stock ($.0001 Par value; 300,000,000 share authorized;
38,612,420 shares issued and outstanding) 3,861
Additional paid-in capital 1,808,033
Accumulated deficit (2,726,448)
Shareholder transactions (1,489,711)
----------------
Total shareholders' deficit (2,404,165)
----------------
Total liabilities and shareholders' deficit $ 637,895
================
See accompanying notes to unaudited consolidated financial statements.
F-26
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
2006 2005 2006 2005
--------------- ----------------- --------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues, net $ 525,284 $ 610,924 $ 1,088,343 $ 1,124,561
--------------- ----------------- --------------- ---------------
Operating expenses:
Cost of services performed 104,097 130,962 240,118 232,613
Salaries and related taxes and stock-based compensation 179,298 160,335 402,622 329,055
Depreciation and amortization 16,904 2,802 33,806 5,605
Professional fees 70,954 36,994 140,571 53,100
Consulting fees 55,755 37,500 145,522 42,500
Other general and administrative 192,945 182,475 388,438 313,272
--------------- ----------------- --------------- ---------------
619,953 551,068 1,351,077 976,145
--------------- ----------------- --------------- ---------------
Income (loss) from operations (94,669) 59,856 (262,734) 148,416
--------------- ----------------- --------------- ---------------
Other income (expense):
Amortization of debt issuance costs (33,250) - (88,400) -
Gain (loss) from valuation of derivatives liability (357,266) - 239,845 -
Interest expense (383,412) (24,746) (795,051) (37,628)
--------------- ----------------- --------------- ---------------
Total other income (expense) (773,928) (24,746) (643,606) (37,628)
--------------- ----------------- --------------- ---------------
Income (loss) before provision for income taxes (868,597) 35,110 (906,340) 110,788
Income tax expense - (11,550) - (36,450)
--------------- ----------------- --------------- ---------------
Net income (loss) $ (868,597) $ 23,560 $ (906,340) $ 74,338
=============== ================= =============== ===============
Net loss per common share:
Net income (loss) per common share - basic and diluted $ (0.02) $ 0.00 $ (0.03) $ 0.00
=============== ================= =============== ===============
Weighted average common shares outstanding - basic 37,333,795 28,964,023 36,095,445 28,763,650
=============== ================= =============== ===============
Weighted average common shares outstanding - diluted 37,333,795 29,714,023 36,095,445 29,513,650
=============== ================= =============== ===============
See accompanying notes to unaudited consolidated financial statements.
F-27
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
--------------------------------------
2006 2005
------------------ -----------------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $ (906,340) $ 74,338
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 33,806 5,605
Stock-based compensation and consulting 110,030 -
Common stock issued for interest 28,085 -
Amortization of debt issuance costs 88,400 -
Amortization of discount of debenture and note payable 620,440 -
Gain from valuation of derivatives (239,845) -
Changes in assets and liabilities:
Accounts receivable 23,492 (51,336)
Inventory of supplies (1,615) (1,130)
Prepaid expenses and other current assets 796 (1,356)
Other assets 8,200 1,000
Accounts payable 9,665 (147,753)
Accrued expenses 32,030 9,447
Income taxes - 36,450
Customer deposits 15,872 2,159
Unearned membership fees (47,587) 188
------------------ -----------------
Net cash used in operating activities (224,571) (72,388)
------------------ -----------------
Cash Flows From Investing Activities:
Purchase of property and equipment - (170,162)
------------------ -----------------
Net cash used in investing activities - (170,162)
------------------ -----------------
Cash Flows From Financing Activities:
Net proceeds from sales of common stock 173,366 60,000
Proceeds from loans from officer/shareholder - 95,820
Proceeds from long-term debt - 250,000
Payments on line of credit - (30,150)
Payments on debenture payable (116,972) -
Payments on convertible note payable (240,000) -
Payments on notes payable (138,400) (126,787)
------------------ -----------------
Net cash provided by (used in) financing activities (322,006) 248,883
------------------ -----------------
Net increase (decrease) in cash (546,577) 6,333
Cash - beginning of year 557,272 42,294
------------------ -----------------
Cash - end of period $ 10,695 $ 48,627
================== =================
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 55,868 $ 37,628
================== =================
Cash payments for income taxes $ - $ -
================== =================
Non-cash investing and financing activities:
Issuance of common stock for debt $ 6,900 $ -
================== =================
Stockholder loan offset in stockholder transactions $ - $ 95,820
================== =================
Reclassification of derivative liability to equity $ 196,108 $ -
================== =================
Issuance of common stock to acquire assets $ - $ 113,755
================== =================
See accompanying notes to unaudited consolidated financial statements.
F-28
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, the consolidated financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and such adjustments are of a normal recurring nature. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 2005 and notes
thereto and other pertinent information contained in Form 10-KSB/A-1 of Union
Dental Holdings, Inc. (the "Company") as filed with the Securities and Exchange
Commission (the "Commission"). The results of operations for the six months
ended June 30, 2006 are not necessarily indicative of the results for the full
fiscal year ending December 31, 2006.
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP"). The
consolidated financial statements of the Company include the Company and its
subsidiaries. All material intercompany balances and transactions have been
eliminated.
Organization
Union Dental Holdings, Inc., (f/k/a National Business Holdings, Inc.), (the
"Company") is a Florida corporation which conducts business from its
headquarters in Coral Springs, Florida. The Company was incorporated on November
26, 1996. On December 27, 2004, the Company entered into a Share Exchange and
Reorganization Agreement ("Reorganization") with both Union Dental Corp.
("UDC"), a Florida corporation and Direct Dental Services, Inc. ("DDS"), a
Florida corporation, whereby UDC and DDS became wholly-owned subsidiaries of the
Company in exchange for an aggregate of 17,500,000 shares of its common stock
and 1,000,000 shares of its preferred stock issued to Dr. George Green with each
share of preferred stock providing voting rights equal to 15 shares of the
Company's common stock. In addition, the Company agreed to recognize the
3,452,250 issued and outstanding options to purchase UDC common stock as options
to purchase the Company's common stock. Pursuant to the Reorganization
Agreement, 22,287,977 shares of the Company's common stock were canceled. As a
result, UDC's and DDS's former stockholders became the Company's majority
stockholders with the Company's former shareholders retaining 10,000,000 shares
of common stock.
On January 11, 2005, the Company amended its Articles of Incorporation to change
its name from National Business Holdings, Inc. to Union Dental Holdings, Inc.
The acquisition of UDC and DDS by the Company was accounted for as a reverse
merger because on a post-merger basis, the former UDC and DDS shareholders hold
a majority of the outstanding common stock of the Company on a voting and fully
diluted basis. As a result, UDC and DDS were deemed to be the acquirer for
accounting purposes. Accordingly, the consolidated financial statements
presented for the period ending December 31, 2005, are those of the combined
results of UDC and DDS for all periods prior to the acquisition, and the
financial statements of the consolidated companies from the acquisition date
forward. The historical stockholders' deficit of the combined results of UDC and
DDS prior to the acquisition have been retroactively restated (a
recapitalization) for the equivalent number of shares received in the
acquisition after giving effect to any differences in the par value of the
Company and the combined UDC and DDS common stock, with an offset to additional
paid-in capital. The restated consolidated retained earnings of the accounting
acquirer (UDC and DDS) are carried forward after the acquisition.
F-29
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Organization (continued)
Through its wholly-owned subsidiaries, UDC and DDS, the Company operates two
distinct lines of business.
DDS operates a network of duly licensed dental providers, the Dental Referral,
who provide dental services through the network to union members in accordance
with arrangements between DDS and various labor unions. DDS is not limited as to
the type of labor union which it may solicit. DDS charges an annual management
services fee to the participating dentists to practice in an "area of
exclusivity" for union members. DDS currently has exclusive contracts with
several local unions.
UDC acquired the assets of George D. Green, DDS, PA and manages the operation of
that general dental practice.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates in 2006 and 2005 include the allowance for
doubtful accounts, stock-based compensation, the useful life of property and
equipment, and the valuation of derivative liabilities.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses, debenture and loans payable
approximate their fair market value based on the short-term maturity of these
instruments.
Accounts receivable
The Company has a policy of reserving for uncollectible accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At June 30, 2006, the Company has
established, based on a review of its outstanding balances, an allowance for
doubtful accounts in the amount of $69,700.
Inventory of dental supplies
The Company values its inventory of dental supplies at the lower of cost or
market, using the specific unit cost method.
Property and equipment
Property and equipment are carried at cost. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", the Company examines the possibility of decreases in the
value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable.
F-29
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Impairment of long-lived assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the assets
estimated fair value and its book value. The Company did not consider it
necessary to record any impairment charges during the year ended June 30, 2006.
Loss per common share
In accordance with SFAS No. 128 "Earnings Per Share," Basic earnings per share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Diluted loss per common share is not presented
because it is anti-dilutive. The Company's common stock equivalents at June 30,
2006 include the following:
Convertible debentures 19,135,438
Derivatives options 48,000,000
Options 1,508,000
Warrants 1,304,348
---------------
69,947,786
===============
Revenue recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectibility is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
DDS selects certain dentists in selected geographical areas to represent the
Company. The dentist enters into an exclusive agreement with DDS for an annual
management services fee, which is based on each specialty the dentist provides
to the patients on a per office basis. DDS receives a yearly membership fee from
each dentist in order for him/her to maintain the exclusive area of each
specialty that the dentist provides. Revenues from membership fees are
recognized over the term of the contract.
The Company recognizes revenue from its dental practice when dental services are
provided.
F-30
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Non-Employee Stock Based Compensation
The cost of stock based compensation awards issued to non-employees for services
are recorded at either the fair value of the services rendered or the
instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in Emerging
Issues Task Force Issue ("EITF") 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18").
Common stock purchase warrants
The Company accounts for common stock purchase warrants in accordance with the
provisions of the Emerging Issues Task Force ("EITF") issue No. 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock" ("EITF 00-19"). Based on the provisions of
EITF 00-19, the Company classifies as equity any contracts that (i) require
physical settlement or net-share settlement, or (ii) gives the company a choice
of net-cash settlement or settlement in its own shares (physical settlement or
net-share settlement). The Company classifies as assets or liabilities any
contracts that (i) require net-cash settlement (including a requirement to net
cash settle the contract if an event occurs and if that event is outside the
control of the company), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
Stock-based compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment ("SFAS No. 123R"). SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans. As required by SFAS No. 123R, the Company
recognized the cost resulting from all stock-based payment transactions
including shares issued under its stock option plans in the financial
statements.
Prior to January 1, 2006, the Company accounted for stock-based employee
compensation plans (including shares issued under its stock option plans) in
accordance with APB Opinion No. 25 and followed the pro forma net income, pro
forma income per share, and stock-based compensation plan disclosure
requirements set forth in the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"). For the six
months ended June 30, 2005, the Company did not grant any stock options.
Recent accounting pronouncements
In February 2006, the Financial Accounting Standards Board issued Statement No.
155 ("SFAS No 155"), "Accounting for Certain Hybrid Instruments: An Amendment of
FASB Statements No. 133 and 140". Management does not believe that this
statement will have a significant impact as the Company does not use such
instruments.
Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.
Reclassifications
Certain prior periods' balances have been reclassified to conform to the current
period's financial statement presentation. These reclassifications had no impact
on previously reported results of operations or stockholders' equity.
F-31
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 2 - CONVERTIBLE DEBENTURES PAYABLE
On August 17, 2005, the Company entered into a Debenture Agreement with Dutchess
Private Equity Fund II, LLP ("Dutchess"), an accredited investor, for the
issuance and sale of $600,000 of 10% secured convertible debentures in a private
transaction exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) and Regulation D of that act. On
August 17, 2005, the Company issued Dutchess a $600,000 principal amount 10%
secured convertible debenture due August 17, 2010. At the time of signing the
Debenture Agreement, the Company also issued Dutchess five-year common stock
purchase warrants to purchase 1,304,348 shares of the Company's common stock at
$.092 per share.
Interest is payable on the secured convertible debentures at the rate of 10% per
year. Amortizing payments will be made by the Company in satisfaction of this
Debenture. Payments shall be made monthly on the first day of each business day
of each month while there is an outstanding balance on the Debenture, to the
Holder, in the amounts outlined below on the following schedule:
Payment for Month 1
(due within three (3) days of the Issuance Date) $4,951
Payment for Month 2 $4,951
Payment for Month 3 $4,951
Payment for Month 4 and each month thereafter $62,716
The principal amount of the Debenture plus accrued interest may be converted at
the option of the Dutchess into shares of the Company's common stock, anytime
following the closing date, at a conversion price equal to the lesser of (i) the
lowest closing bid price during the 15 days of full trading, as defined, prior
to the conversion date; or (ii) $0.092. In addition, in the event that any
portion of the debenture remains outstanding on the maturity date of August 17,
2010, such outstanding amount shall be automatically converted into shares of
the Company's common stock. In the event that the Company does not make delivery
of the common stock as instructed by Dutchess, the Company shall be obligated to
pay to Dutchess 3% in cash of the dollar value of the debentures being
converted, compounded daily, per each day after the 3rd business day following
the conversion date that the common stock is not delivered to Dutchess. In the
event of default as defined in the Debenture Agreement, Dutchess may among other
things:
(a) elect to secure a portion of the Company's assets not to exceed 200% of the
Face Amount of the Note, in Pledged Collateral;
(b) elect to garnish Revenue from the Company in an amount that will repay the
Holder on the payment schedule set forth above;
(c) exercise its right to increase the Face Amount of the debenture by ten
percent (10%) as an initial penalty and for each Event of Default under the
Debenture;
(d) elect to increase the Face Amount by two and one-half percent (2.5%) per
month (pro-rata for partial periods) paid as a penalty for liquated damages
which will be compounded daily;
The debenture provides that Dutchess shall not be entitled to convert that
amount of Debenture into common stock, which when added with the sum of the
number of shares beneficially owned by Dutchess would exceed 4.99% of the number
of shares of our common stock outstanding on the conversion date.
F-32
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 2 - CONVERTIBLE DEBENTURES PAYABLE (continued)
In order to secure its obligations under the secured convertible debenture and
related documents, the Company has granted the debenture holder a security
interest in all of its assets and property.
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Debentures met the
criteria of an embedded derivative and therefore the conversion feature of the
debt needed to be bifurcated and accounted for as a derivative. Due to the reset
provisions of the Debentures, the debt does not meet the definition of
"conventional convertible debt" because the number of shares which may be issued
upon the conversion of the debt is not fixed. Therefore, the conversion feature
fails to qualify for equity classification under EITF 00-19, and must be
accounted for as a derivative liability.
The $600,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the warrants and conversion option were
attributed to the debt. At June 30, 2006, the Company revalued this derivative
liability. For the six months ended June 30, 2006, after adjustment, the Company
recorded a gain on revaluation of this derivative liability of $71,418 and
reclassified $68,051 of the derivative liability to paid-in capital due to the
payment or conversion of the debenture. For the six months ended June 30, 2006,
amortization of the discount on debenture amounted to $149,032. Additionally,
during the six months ended June 30, 2006, the Company issued 75,000 shares of
its common stock for settlement of $6,900 of the debenture.
The convertible debenture liability is as follows at June 30, 2006:
Convertible debentures payable $ 306,167
Less: unamortized discount on debentures (74,516)
----------------
Convertible debentures, net $ 231,651
===============
As of June 30, 2006, the Company is delinquent on its payments on the
convertible debenture by two payments. As of June 30, 2006, the Company had not
received notice of default from the holder of the convertible debentures.
NOTE 3 - EQUITY CREDIT LINE
On August 17, 2005, the Company entered into an Investment Agreement with
Dutchess Private Equities Fund II, LLP ("Dutchess"). Pursuant to this Agreement,
Dutchess committed to purchase up to $5,000,000 (the "Line") of the Company's
common stock over the course of 36 months ("Line Period"), after the
registration statement was declared effective by the SEC in September 2005 (the
"Effective Date"). The amount that the Company shall be entitled to request from
each of the purchase "Puts", shall be equal to either (1) $100,000 or (2) 200%
of the averaged daily volume (US market only) ("ADV") of the Company's common
stock for the 20 trading days prior to the "Put" notice, multiplied by the
average of the 3 daily closing prices immediately preceding the Put Date. The
Pricing Period shall be the five (5) consecutive trading days immediately after
the Put Date. The Market Price shall be the lowest closing bid price of the
Company's common stock during the Pricing Period. The Purchase Price shall be
set at 95% of the Market Price. This Investment Agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
F-33
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 3 - EQUITY CREDIT LINE (continued)
In general, the drawdown facility operates as follows: Dutchess, has committed
to provide the Company up to $5,000,000 as it requests over a 36 month period,
in return for common stock the Company issues to Dutchess. The Company, at its
sole discretion, may during the Open Period deliver a "put notice" (the "Put
Notice") to Dutchess which states the dollar amount which the Company intends to
sell to Dutchess on the Closing Date. The Open Period is the period beginning on
the trading after the Effective Date and which ends on the earlier to occur of
36 months from the Effective Date or termination of the Investment Agreement in
accordance with its terms. The Closing Date shall mean no more than 7 trading
days following the Put Notice Date. The Put Notice Date shall mean the Trading
Day immediately following the day on which Dutchess receives a Put Notice, as
defined in the agreement. During the Open Period, the Company shall not be
entitled to submit a Put Notice until after the previous Closing has been
completed. Additionally, Dutchess shall not be obligated to honor any Put Notice
if at the time of the Put Notice Dutchess would own more than 4.99% of the
Company's issued and outstanding common stock.
Upon the receipt by Dutchess of a validly delivered Put Notice, Dutchess shall
be required to purchase from the Company, during the period beginning on the Put
Notice Date and ending on and including the date that is 5 trading days after
such Put Notice, that number of shares having an aggregate purchase price equal
to the lesser of (a) the Put Amount set forth in the Put Notice, or (b) 20% of
the aggregate trading volume of the Company's common stock during the applicable
Pricing Period times (x) the lowest closing bid price of the Company's common
stock during the specified Pricing period, but only if such said shares bear no
restrictive legend and are not subject to stop transfer instructions, prior to
the applicable Closing Date.
For the six months ended June 30, 2006, the Company delivered Put Notices to
draw on the equity line of credit. In connection with these puts, the Company
issued 2,257,496 shares of common stock for net proceeds of $173,366.
NOTE 4 - NOTE PAYABLE
On December 22, 2005, the Company signed a promissory note (the "Note") in favor
of Dutchess Private Equities Fund, LP (the "Investor"), in the amount of
$960,000 (the "Face Amount") and received gross proceeds in the amount of
$800,000 less $60,075 in fees associated with the financing for net proceeds of
$739,925. The Company is obligated to repay the Investor the Face Amount on or
before December 23, 2006. There is no stated interest rate on the Note and
interest has been imputed at a rate of 32% per annum. Payments are to be made by
the Company from each Put from the Company's Equity Credit Line (see note 4)
with the Investor. The Company is obligated to pay the Investor the greater of
a) 50% of each Put to the Investor or b) $80,000 until the face Amount minus any
fees have been paid. The first payment was due on February 15, 2006 and all
subsequent payments will be made at the Closing of every Put to the Investor
thereafter. The Put Amount will be the maximum amount allowed under the
Investment Agreement with the Investor. As described in note 3, the Investment
Agreement provides in part that the maximum amount of each Put is either
$100,000 or 200% of the average daily volume multiplied by the average of the
three daily closing prices immediately preceding the Put Date. Payments made by
the Company in satisfaction of this Note shall be made from each Put from the
Equity Line of Credit with the Investor given by the Company to the Investor.
Additionally, in connection with note, the Company issued 1,500,000 shares of
common stock. The shares were valued at fair market value as of the date of
grant of $135,000 or $.09 per share and is reflected as a discount on the Note,
which will be amortized over the term.
F-34
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 4 - NOTE PAYABLE (continued)
The Company agreed to issue 50 signed Put Notices to the Investor to use as
collateral. In the event, the Investor uses the collateral in full, the Company
shall immediately deliver to the Investor additional Put Sheets as requested by
the Holder. In the event that on the maturity date the Company has any remaining
amounts unpaid on this Note (the "Residual Amount"), the Holder can exercise its
right to increase the Face Amount by ten percent (10%) as an initial penalty and
an additional 2.5% per month paid, pro rata for partial periods, compounded
daily, as liquated damages ("Liquidated Damages").
Additionally, in the event of a default as defined in the agreement, the Holder
shall have the right, but not the obligation, to 1) switch the Residual Amount
to a three-year ("Convertible Maturity Date"), interest-bearing convertible
debenture. If the Holder chooses to convert the Residual Amount to a Convertible
Debenture, the Company shall have 20 business days after notice of the same (the
"Notice of Convertible Debenture") to file a registration statement covering an
amount of shares equal to 300% of the Residual Amount. Such registration
statement shall be declared effective under the Securities Act of 1933, as
amended (the "Securities Act"), by the Securities and Exchange Commission (the
"Commission") within 40 business days of the date the Company files such
Registration Statement. In the event the Company does not file such registration
statement within 20 business days of the Holder's request, or such registration
statement is not declared by the Commission to be effective under the Securities
Act within the time period described above, the Residual Amount shall increase
by $5,000 per day.
The Holder is entitled to convert the Debenture Residual Amount, plus accrued
interest, anytime following the Convertible Maturity Date, at the lesser of (i)
50% of the lowest closing bid price during the 15 trading immediately preceding
the Convertible Maturity Date or (ii) 100% of the lowest bid price for the 20
trading days immediately preceding the Convertible Maturity Date ("Fixed
Conversion Price").
In accordance with Statement of Financial Accounting Standards No. 133,
`Accounting for Derivative Instruments and Hedging Activities', ("FASB 133"),
the Company determined that the conversion feature of the Note met the criteria
of an embedded derivative and therefore the conversion feature of this debt
needed to be bifurcated and accounted for as a derivative. Due to the conversion
features of the Note which is convertible based on draws from the equity credit
line, the debt does not meet the definition of "conventional convertible debt"
because the number of shares which may be issued upon the conversion of the debt
is not fixed. Therefore, the conversion feature fails to qualify for equity
classification under EITF 00-19, and must be accounted for as a derivative
liability.
The $960,000 face amount of the debenture was stripped of its conversion feature
due to the accounting for the conversion feature as a derivative, which was
recorded using the residual proceeds method, whereby any remaining proceeds
after allocating the proceeds to the 1,500,000 common shares and conversion
option would be attributed to the debt. The beneficial conversion feature (an
embedded derivative) included in this Note resulted in a note discount of
$665,000 in 2005. In accordance with EITF No. 00-19, EITF No. 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments, the values assigned to
both the Note, and conversion feature were allocated based on their fair values.
The amount allocated as a discount on the Note for the value of the conversion
option will be amortized to interest expense, using the effective interest
method, over the term of the Note.
F-35
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 4 - NOTE PAYABLE (continued)
The holders of the Note and the underlying shares on the equity credit line have
registration rights that required the Company to file a registration statement
with the Securities and Exchange Commission to register the resale of the common
stock issuable upon conversion of the debenture or the exercise of the warrants.
Under EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company's Own Stock, the ability to register
stock was deemed to be outside of the Company's control. Accordingly, in 2005,
the initial aggregate fair value of the derivatives (embedded and free-standing)
of $1,002,049 was recorded as a derivative liability in the consolidated balance
sheet, and is marked to market at the end of each reporting period. During the
six months ended June 30, 2006, the Company revalued this derivative liability.
For the six months ended June 30, 2006, after adjustment, the Company recorded a
gain on revaluation of this derivative liability of $168,427 and reclassified
$128,057 of the derivative liability to paid-in capital due to the payment of
the debenture. For the six months year ended June 30, 2006, amortization of the
discount on the note amounted to $471,408.
The note payable is as follows at June 30, 2006:
Note payable $ 720,000
Less: unamortized discount on note (463,117)
---------------
Note payable, net $ 256,883
===============
As of June 30, 2006, the Company is delinquent on its payments on the note
payable by two payments. As of June 30, 2006, the Company had not received
notice of default from the holder of the note payable.
NOTE 5 - LONG-TERM DEBT
In December 2004, the Company agreed to assume the debt obligation of the
principal stockholder for a 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 original note was in the amount $1,215,000. On May 17, 2005,
the Company entered into an Amended and Restated Promissory Note in the amount
of $1,384,000. The interest rate on this note is the LIBOR Fixed Rate plus 255
basis points (6.92% at June 30, 2006) calculated by using the 365/360 day
method. The note requires monthly principal payments of $23,067 plus accrued
interest payable monthly, and is secured by all of the assets of the Company.
The principal stockholder is also the guarantor 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 October 2005,
as a result of a hurricane relief program, the bank extended the due date on the
November and December 2005 payments, thereby extending the Note due date to July
17, 2010. As of June 30, 2006, the Company is in default of loan covenants and
other terms of the agreement. Accordingly, the Company has shown the entire
principal balance in current liabilities. At June 30, 2006, the principal amount
outstanding on this note amounts to $1,130,267.
F-36
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 6 - SHAREHOLDERS' EQUITY
Common Stock
In January 2006, the Company issued 75,000 shares of common stock upon the
conversion of the debenture payable at $.092 per share or $6,900.
For the period from January 21, 2006 to June 30, 2006, the Company exercised put
notices in accordance with its Investment Agreement with Dutchess (see note 3)
and received $157,005 of net cash proceeds for which the Company issued
1,947,496 shares of its common stock to Dutchess.
During the three months ended March 31, 2006, the Company issued an aggregate
522,000 shares of common stock for services rendered. The Company valued these
common shares at the fair market value on the date of grant at per share prices
ranging from $.08 to $.10 or an aggregate of $44,960. In connection with
issuance of these shares, the Company recorded professional fees of $16,000 for
legal services performed, stock-based compensation of $4,960, and $24,000 in
consulting fees for business development services performed.
On April 4, 2006, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 3) and received $5,273 of net cash
proceeds for which the Company issued 75,000 shares of its common stock to
Dutchess.
On April 25, 2006, the Company issued an aggregate 250,000 shares of common
stock for services rendered. The Company valued these common shares at the fair
market value on the date of grant at $.07 per share or $17,500. In connection
with issuance of these shares, the Company recorded consulting fees of $17,500
for business development services performed.
On April 25, 2006, the Company exercised a put notice in accordance with its
Investment Agreement with Dutchess (see note 3) and received $11,088 of net cash
proceeds for which the Company issued 235,000 shares of its common stock to
Dutchess.
On May 5, 2006, the Company issued an aggregate 622,000 shares of common stock
for services rendered. The Company valued these common shares at the fair market
value on the date of grant at $.05 per share or $31,100. In connection with
issuance of these shares, the Company recorded consulting fees of $12,500 and
professional fees of $18,600 for business development and professional services
performed, respectively.
During May 2006, the Company issued 1,109,621 shares of common stock to Dutchess
in accordance with its Investment Agreement for interest due amounting to
$28,085.
On June 21, 2006, the Company issued 100,000 shares of common stock for services
rendered. The Company valued these common shares at the fair market value on the
date of grant at $.015 per share or $1,500. In connection with issuance of these
shares, the Company recorded consulting fees of $1,500 for business development
services performed.
F-37
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 6 - SHAREHOLDERS' EQUITY
Stock Options
A summary of the status of the Company's outstanding stock options as of June
30, 2006 and changes during the period ending on that date is as follows:
Weighted
Average
Exercise
Shares Price
-------------- -------------
Outstanding at December 31, 2005 1,508,000 $ 0.16
Granted - -
Exercised - -
Forfeited - -
-------------- -------------
Outstanding at June 30, 2006 1,508,000 $ 0.16
============== ==============
Options exercisable at end of period 1,508,000 $ 0.16
============== ==============
Weighted-average fair value of options
granted during the period $ 0.00
The following information applies to options outstanding at June 30, 2006:
Options Outstanding Options Exercisable
---------------------------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price June 30, 2006 Life (Years) Price June 30, 2006 Price
------------ ----------------- --------------- ------------- ----------------- ------------
$ 0.13-0.15 950,000 4.50 $ 0.14 950,000 $ 0.14
$ 0.20-.0.25 525,000 2.25 $ 0.21 525,000 $ 0.21
$ 0.50 33,000 3.50 $ 0.50 33,000 $ 0.50
------------- ------------ ----------------- ------------
1,508,000 $ 0.16 1,508,000 $ 0.16
============= ============ ================= ============
Common Stock Warrants
In November and December 2005, in connection with a debenture payable, the
Company granted 1,304,348 warrants to purchase 1,304,348 shares of common stock
at $0.092 per share. The warrants expire on the three-year anniversary of the
date of issuance.
F-38
UNION DENTAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
NOTE 7 - GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company
had an accumulated deficit of $2,726,448 and a working capital deficit of
$2,709,674 at June 30, 2006, net losses for the six months ended June 30, 2006
of $906,340 and cash used in operations during the six months ended June 30,
2006 of $224,571. While the Company is attempting to increase sales, the growth
has not been significant enough to support the Company's daily operations. In
order to raise funds, on August 2005, the Company entered into an Investment
Agreement and a Debenture Agreement (See Note 2 and 3), and a note payable
agreement (See note 4), and has a note payable to a bank. Management may attempt
to raise additional funds by way of a public or private offering. While the
Company believes in the viability of its strategy to improve sales volume and in
its ability to raise additional funds, there can be no assurances to that
effect. The Company's limited financial resources have prevented the Company
from aggressively advertising its products and services to achieve consumer
recognition. The ability of the Company to continue as a going concern is
dependent on the Company's ability to further implement its business plan and
generate increased revenues. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. Management believes that the actions presently
being taken to further implement its business plan and generate additional
revenues provide the opportunity for the Company to continue as a going concern.
NOTE 8 - SUBSEQUENT EVENT
On July 8, 2006, the Company issued 500,000 shares of common stock for services
rendered. The Company valued these common shares at the fair market value on the
date of grant at $.017 per share or $8,500. In connection with issuance of these
shares, the Company recorded consulting fees of $8,500 for business development
services performed.
[Balance of this page intentionally left blank.]
F-39
Part II
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses payable by
the Company in connection with the offering described in this registration
statement. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee:
Securities and Exchange Commission Registration Fee $ 1,098.55
Accounting Fees and Expenses $10,000*
Legal Fees and Expenses $25,000*
----------
Total $36,098.55
----------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During February 2004, we issued 1 million shares of our common stock (250,000
post split) to a group of investors for $25,000 cash. The sale of the securities
was exempt from registration under Section 4(2)of the Securities Act of 1933, as
amended. The transaction did not include a public distribution or offering.
During April 2004 through December 2004, we conducted a private placement
offering of our securities whereby we received proceeds in the amount of
$417,006 pursuant to promissory notes that were subsequently converted into
913,939 shares of our restricted common stock. The debt was converted into our
common stock at $.50 per share as of the Reorganization and such conversion
included accrued interest of $39,963. 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 through the company's officers and directors to a total of 21 investors.
The transaction did not include a public distribution or offering.
During July 2004, UDC agreed to issue 100,000 shares of its common stock to The
Bulletin Board Productions, LLC in exchange for consulting services that
included video production and advertising services valued at $10,500 plus total
production and media costs of $39,500, representing an aggregate value of
$50,000. On the transaction date, UDC's common stock had no reliable market
value. UDC valued the shares issued by the value of the marketing expenditure at
$.50 per share. As a result, the Company recognized a stock-based compensation
expense totaling $50,000 in the accompanying financial statements. The
transaction was exempt from registration under Section 4(2) as the recipient of
the shares is a sophisticated investor and was provided with access to the
officers of UDC so as to receive all material information regarding UDC that the
recipient requested. The shares were issued with restrictive legend and the
transactions did not include a public distribution or offering.
During October 2004, the Company issued 18,800,000 shares of its common stock to
Roger Pawson for services rendered as our former sole officer and director. As a
result, the Company recognized a stock-based compensation expense totaling
$18,800 in the accompanying financial statements. The transaction was exempt
from registration under Section 4(2) as the recipient of the shares is a
sophisticated investor. The shares were issued with restrictive legend and the
transactions did not include a public distribution or offering. These shares
were subsequently cancelled as part of the Reorganization.
87
During October 2004, the Company issued 10,000,000 shares of its common stock to
various note holders upon the conversion of convertible notes payable in the
amount of $27,500. 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 through the company's
officers and directors. The transaction did not include a public distribution or
offering.
On December 27, 2004 we issued 17,500,000 shares of our common stock and one
million shares of our preferred stock pursuant to a Share Exchange and
Reorganization Agreement to our principal shareholder, Dr. George Green.
During the year 2005 we issued 55,000 shares of unregistered common stock to
various consultants, in consideration for services rendered.
Also, during 2005, we issued a total of 120,000 shares of our common stock to
various investors in consideration for a total of $60,000.
On August 17, 2005 we sold $600,000 in principal amount of our five-year
convertible debentures to Dutchess These debentures bear interest at 10% per
annum (payable in cash or stock at Dutchess' option). The conversion price of
these debentures is $.092 per share. The shares to be issued pursuant to this
convertible debenture were subsequently registered with the Securities and
Exchange Commission.
On December 22, 2005, the Company signed a promissory note (the "Note") in favor
of Dutchess Private Equities Fund, LP (the "Investor"), in the amount of
$960,000 (the "Face Amount") and received gross proceeds in the amount of
$800,000 less $60,075 in fees associated with the financing for net proceeds of
$739,925. The Company is obligated to repay the Investor the Face Amount on or
before December 23, 2006. Payments are to be made by the Company from each Put
from the Company's Equity Credit Line.
We have issued to Dutchess Private Equities Fund II, LLP, warrants to purchase
1,304,348 shares of our common stock at an exercise price of $.092 per share
which are exercisable for a period of five years. The warrants were issued in
connection with the Investment Agreement dated August 17, 2005.
We have issued warrants to Hawk Associates, Inc., to purchase 500,000 shares of
our common stock at an exercise price of $.20. The warrants were issued in
connection with a Consulting Agreement dated August 18, 2005 pursuant to which
Hawk Associates will provide consulting and advisory services, including, but
not limited to, company identity, investor relations, financial media relations
and other consulting and advisory services.
During the three month period June 30, 2006, we issued the following
unregistered securities:
Date Title Amount Consideration
-------------- ------- ------- ----------------
April 25, 2006 C/S(1) 250,000 Services
June 21, 2006 C/S(1) 100,000 Services
--------
Also during the three months ended June 30, 2006, we issued a total of 1,344,621
shares of our common and received a total of $39,173 shares of our common stock
pursuant to certain Put options under our equity credit line with Dutchess
Private Equities Fund II, L.P. We used the net proceeds from the sale of the
common stock for working capital purposes.
88
The securities issued in the foregoing transactions were made in reliance upon
an exemption from registration under Rule 701 promulgated under Section 3(b) of
the Securities Act and or Section 4(2) of the Securities Act. Alternatively,
these issuances of securities were undertaken under Rule 506 of Regulation D
under the Securities Act of 1933, as amended, by the fact that:
- the sale was made to a sophisticated or accredited investor, as defined in
Rule 502;
- we gave the purchaser the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering and to obtain any
additional information which we possessed or could acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
information furnished;
- at a reasonable time prior to the sale of securities, we advised the
purchaser of the limitations on resale in the manner contained in Rule
502(d)2; and
- neither we nor any person acting on our behalf sold the securities by any
form of general solicitation or general advertising.
ITEM 27. EXHIBITS
The exhibits required to be filed herewith by Item 601 of Regulation S-B, as
described in the following index of exhibits, are either filed herewith or
incorporated herein by reference.
Exhibit No. Description
----------- ----------------------------------------------------
2.2 Share Exchange Agreement between Shava, Inc. and National Business
Holdings, Inc. dated May 28, 2004.
2.3 Reorganization Agreement, dated December 28, 2004, by and among the
Company, Union Dental, Direct Dental and the shareholders of Union
Dental and DDS. (4)
2.4 Asset Purchase Agreement dated October 15, 2004 by and among Union
Dental and George D. Green, DDS, P.A. (4)
3(i).1 Amended and Restated Articles of Amendment to the Articles of
Incorporation of Mecaserto, Inc., A Florida Corporation
3(i).2 Articles of Incorporation of National Business Investors, Inc.
3(i).3 Articles of Incorporation of Union Dental Corp.(5)
3(i).4 Articles of Incorporation of Direct Dental Services, Inc. (5)
3(ii).1 Bylaws of National Business Holdings, Inc. (5)
3(ii).2 Bylaws of Union Dental Corp. (5)
3(ii).3 Bylaws of Direct Dental Services, Inc.
4.1 Form of Option issued to Union Dental optionholders. (4)
4.2 Warrant Agreement dated August 17, 2005 (6)
89
5.1 Opinion of Sichenzia Ross Friedman Ference, LLP*
10.1 Business Associate Agreement dated October 15, 2004 by and among Union
Dental and George D. Green, DDS, P.A. (5)
10.2 Management Services Agreement dated October 15, 2004 by and among
Union Dental and George D. Green, DDS, P.A. (5)
10.3 Employment Agreement dated March 20, 2004 by and among Union Dental
and Dr. George D. Green. (4)
10.4 Employment Agreement dated October 26, 2004 by and among Union Dental
and Dr. Leonard I. Weinstein. (4)
10.5 Shareholder's Agreement and Management Contract by and among Union
Dental and Tropical Medical Services. (4)
10.6 Employment Agreement dated February 15, 2004 by and among Union Dental
and Robert Gene Smith. (4)
10.7 2004 Stock Option Plan for Union Dental (4)
10.8 Form of Management Service Agreement with Participating Dentists
10.9 Form of Service Agreement with Participating Unions
10.10 Debenture Agreement executed between the Company and Dutchess Private
Equities Fund II, L.P. (6)
10.11 Debenture Registration Rights Agreement between the Company and
Dutchess Private Equities Fund II, LP. (6)
10.12 Warrant Registration Rights Agreement between the Company and Dutchess
Private Equities Fund II, LP. (6)
10.13 Equity Line of Credit Registration Rights Agreement dated August 17,
2005 between Union Dental Holdings, Inc. and Dutchess Private Equities
Fund II, LP. (6)
10.14 Investment Agreement between Union Dental Holdings, Inc. and Dutchess
Private Equities Fund II, LP. dated August 17, 2005 (6)
10.15 Security Agreement by and between Union Dental Holdings, Inc. and
Dutchess Private Equities Fund II, LP. Dated August 17, 2005 (6)
10.13 Subscription Agreement executed by Dutchess Private Equities Fund
II,LP. dated August 17, 2005 (6)
14.1 Code of Ethics (4)
16.1 Letter from Lawrence Scharfman to the Securities and Exchange (4)
17.1 Letter of Resignation of Dr. Melvyn Greenstein (4)
17.2 Letter of Resignation of Roger E. Pawson (4)
23.1 Consent of Sichenzia Ross Friedman Ference LLP*
23.2 Consent of De Meo, Young, Mcgrath*
-------------------
90
(1) Filed as Exhibits 2.1, 2.2, 2.3 to the Company's Form 10-SB filed with the
Securities and Exchange Commission on July 14, 1999, and incorporated by
Reference herein.
(2) Filed as Exhibit 3.1 to the Company's Form 8-K filed with the Securities
and Exchange Commission on March 10, 2003, and incorporated by reference
herein.
(3) Filed as Exhibits 16.1 and 16.2 to the Company's Form 8-K filed with the
Securities and Exchange Commission on May 7, 2004.
(4) Filed as Exhibits to the Company's Form 8-K filed with the Securities and
Exchange Commission on January 4, 2005.
(5) Filed as Exhibits to the Company's Form 8-K/A filed with the Securities and
Exchange Commission on February 4, 2005.
(6) Filed as Exhibit to the Company's Form 8-K filed with the Securities and
Exchange Commission on August 22, 2005
----------------------
* Filed herewith
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and Notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation From the low or high end of the estimated maximum offering range
may be reflected in the form of prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Coral Springs, Florida, on this 8th day of September,
2006.
Union Dental Holdings, Inc.
By: /s/ George D. Green
-----------------------------------
George D. Green
Chief Executive Officer, President and Director
92