<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 0-27836
EMBASSY ACQUISITION CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0643773
------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1428 Brickell Avenue, Suite 105
Miami, Florida 33131
----------------------------------------
(Address of principal executive offices)
(305) 374-6700
---------------------------
(Issuer's Telephone Number)
----------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE> 2
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of September 30, 1997 the Company had a total of 2,540,000 shares
(the "Shares") of Common Stock, par value $.0001 per share (the "Common Stock")
outstanding. Additionally, as of such date Underwriter Options to purchase
120,000 shares of Common Stock (the "Underwriter Options") remain outstanding
and unexercised. Each Underwriter Option entitles the holder thereof to purchase
one share of Common Stock at a purchase price of $7.80 per share through April
1, 2001.
Traditional Small Business Disclosure Format (check one) Yes X No
--- ---
DOCUMENTS INCORPORATED BY REFERENCE None
(ii)
<PAGE> 3
EMBASSY ACQUISITION CORP.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I ........................................................................................... 1
ITEM 1. FINANCIAL STATEMENTS ........................................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION .................................................. 1
PART II .......................................................................................... 4
ITEM 1. LEGAL PROCEEDINGS .............................................................. 4
ITEM 2. CHANGES IN SECURITIES .......................................................... 4
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................................ 5
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS .............................. 5
ITEM 5. OTHER INFORMATION .............................................................. 5
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................... 5
SIGNATURES ....................................................................................... 6
FINANCIAL STATEMENTS ............................................................................. F-1
</TABLE>
(iii)
<PAGE> 4
PART I
ITEM 1. FINANCIAL STATEMENTS
The unaudited, condensed financial statements included herein,
commencing at page F-1, have been prepared in accordance with the requirements
of Regulation S-B and supplementary financial information included herein, if
any, has been prepared in accordance with Item 310(b) of Regulation S-B and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in accordance with generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial information for the interim periods reported have been made. Results
of operations for the three and nine months ended September 30, 1997 are not
necessarily indicative of the results for the year ending December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Embassy Acquisition Corp. (the "Company") was formed in November 1995
to seek to effect a merger, exchange of capital stock, asset acquisition or
similar business combination (a "Business Combination") with an acquired
business (an "Acquired Business"). In connection with its initial
capitalization, the Company issued an aggregate of 1,160,000 shares of Common
Stock to its officers, directors, and other shareholders for an aggregate sum of
$76,078. On April 2, 1996, the Company's Registration Statement on Form SB-2
(the "Registration Statement") was declared effective by the U.S. Securities and
Exchange Commission (the "SEC"). Pursuant to the Registration Statement, the
Company, in its initial public offering of securities, offered and sold
1,380,000 shares of Common Stock, par value $.0001 per share, at a purchase
price of $6.00 per share (the "Offering") and received net proceeds of
approximately $7,052,300 after the payment of all expenses of the Offering (the
"Net Proceeds"). In addition, the Company issued Underwriter Options to purchase
120,000 shares of Common Stock. The Offering was a "blank check" offering.
Liquidity and Capital Resources/Plan of Operation
As of September 30, 1997 and December 31, 1996, the Company had cash
and cash equivalents of $655,033 and $763,965, respectively, and restricted cash
and cash equivalents of $6,800,767 and $6,566,206, respectively. As of September
30, 1997 and December 31, 1996, the Company had total liabilities of $77,748 and
$79,963, respectively, and common stock subject to redemption of $7,386,524 and
$7,260,022, respectively. 90% of the Net Proceeds ($6,347,070) (the "Escrow
Fund") were delivered to Fiduciary Trust International of the South, as Escrow
Agent, to be held in escrow by such firm, until the earlier of (i) written
notification by the Company of its need for all or substantially all of the
Escrow Fund for the purpose of implementing a Business Combination; or (ii) the
exercise by certain shareholders of the Redemption Offer (as defined in the
Registration Statement). As of September 30, 1997, there was $6,800,767 (at
market value) in
1
<PAGE> 5
the Escrow Fund. The Escrow Fund is currently invested in United States
government-backed short-term securities.
Other than the Escrow Fund, the Company, as of September 30, 1997, had
$655,033 in cash and cash equivalents all of which was received from the initial
capitalization and the Offering (other than interest income earned thereon) (the
"Operating Funds"). The Company believes the Operating Funds will be sufficient
for its cash requirements for at least the next twelve months.
For the three and nine month periods ended September 30, 1997, the
Company incurred $16,609 and $67,019, respectively, of operating expenses and
derived interest income of $91,140 and $258,793, respectively, as compared with
the three and nine month periods ended September 30, 1996 when the Company
incurred $11,655 and $26,247, respectively, of operating expenses and derived
interest income of $58,517 and $116,100, respectively.
On May 6, 1997, the Company entered into a Letter of Intent with
Orthodontix, Inc., (the "Letter of Intent") a Florida corporation
("Orthodontix"), regarding a business combination of the Company or its
wholly-owned subsidiary and Orthodontix, Inc. (the "Transaction"). The intended
principal business activity of Orthodontix is providing practice management
services to orthodontic practices. Orthodontix has conducted no operations to
date other than in connection with its agreements in principle to acquire
certain assets, assume certain liabilities, and provide long-term management
services to certain orthodontic practices (the "Practices") in exchange for cash
and shares of common stock (the "Practice Acquisitions").
On August 29, 1997, the Company and Orthodontix amended the terms of
the Letter of Intent to provide that either party can terminate the Letter of
Intent if a definitive agreement had not been executed by October 30, 1997. The
Letter of Intent had previously provided that either party could terminate the
Letter of Intent if a definitive agreement regarding the Transaction had not
been executed by August 30, 1997. As of October 30, 1997, the Company and
Orthodontix entered into an Agreement and Plan of Merger and Reorganization (the
"Agreement") regarding the Transaction. Pursuant to the Agreement, the parties
shall engage in the Transaction, which at the closing of the Transaction (the
"Closing") will result in Orthodontix becoming a wholly owned subsidiary
corporation of the Company in exchange for that number of shares of Common Stock
of the Company (the "Merger Stock") representing approximately 56% of the
Company's outstanding shares of Common Stock after giving effect to the
Transaction but without giving to any options or warrants to acquire shares of
Common Stock which are contemplated to be outstanding at the Closing. The actual
number of shares to be issued in connection with the Transaction is subject , in
part, to the average of the closing bid and ask price, as reported on the OTC
Electronic Bulletin Board or similar quotation board of the Company's shares of
Common Stock for the 15 trading days immediately preceding the date of the
Closing (the "Share Value").
2
<PAGE> 6
Pursuant to the terms of the Agreement, the recipients of 1,300,000
shares of the Merger Stock (approximately 23% of the Company's outstanding
shares of Common Stock after giving effect to the Transaction, assuming an
Embassy Share Value of $8.00 per share) and the shares of Merger Stock to be
issued in connection with the Practice Acquisitions (approximately 33% of
Embassy's outstanding shares of Common Stock after giving effect to the
Transaction assuming an Embassy Share Value of $8.00 per share), respectively,
have agreed, for a period of 15 months and six months, respectively, from the
date of the Closing, not to make any offer, sale or disposition of any of the
Merger Stock to be issued to them in connection with the Transaction. The
Transaction is contemplated to be tax-free to the Company and its shareholders.
Based on information received from Orthodontix, at the Closing,
Orthodontix shall provide practice management services to approximately 24
orthodontic practices, which practices generate gross revenue of approximately
$16 million annually.
The Closing is subject to, among other conditions, the closing of the
Transaction by April 1, 1998 (unless that date is extended by mutual agreement
of the parties), approval of the Transaction by the shareholders of the Company
and Orthodontix, certain regulatory and third party approvals and consents, and
the closing of the Practice Acquisitions. There can be no assurance that the
proposed Transaction will be consummated on these or any other terms.
Based upon the price per share of the common stock of the Company as of
October 30, 1997, at the closing of the Practice Acquisitions (assuming the
Practice Acquisitions represent orthodontic practices totaling $16 million of
revenue) and the Transaction, the Company would be obligated to issue
approximately 3.3 million shares of Common Stock and expend up to approximately
$3.0 million in consideration for the Transaction. The Company currently has
outstanding 2,540,000 shares of Common Stock and options entitling the holder to
purchase an additional 120,000 shares of Common Stock. Upon effectiveness of the
Transaction, the Company would change its name to "Orthodontix, Inc.," Stephen
J. Dresnick, M.D., a member of the Company's Board of Directors, President and
Chief Executive Officer of Sterling Healthcare Group, Inc. and Vice Chairman of
the Board of FPA Medical Management, Inc. and Glenn Halpryn, Chairman of the
Company would continue to be members of the Board of Directors of the Company
with Dr. Dresnick assuming the role of Chairman of the Company. There can be no
assurance that the proposed Transaction will be consummated on these or any
other terms.
Key-man Insurance
The Company has obtained a $1,000,000 "key man" policy insuring the
life of Glenn L. Halpryn, the Company's President and a member of the Board of
Directors. There can be no assurances that such "key man" insurance will be
maintained at reasonable rates, if at all. The loss, incapacity or
unavailability of Mr. Halpryn at the present time or in the foreseeable future,
before a qualified replacement was obtained, could have a material, adverse
effect on the Company's operations.
3
<PAGE> 7
Conflicts of Interest
None of the Company's key personnel are required to commit their full
time to the affairs of the Company and, accordingly, such personnel may have
conflicts of interest in allocating management time among various business
activities. The Company's officers devote approximately 20% of their time to the
affairs of the Company. Certain of these key personnel are or may in the future
become affiliated with entities, including other "blank check" companies,
engaged in business activities similar to those intended to be conducted by the
Company.
In the course of their other business activities, including private
investment activities, the Company's officers and directors may become aware of
investment and business opportunities which may be appropriate for presentation
to the Company as well as the other entities with which they are affiliated.
Such persons may have conflicts of interest in determining to which entity a
particular business opportunity should be presented. In general, officers and
directors of corporations incorporated under the laws of the State of Florida
are required to present certain business opportunities to such corporations.
Accordingly, as a result of multiple business affiliations, the Company's
officers and directors may have similar legal obligations relating to presenting
certain business opportunities to multiple entities. In addition, conflicts of
interest may arise in connection with evaluations of a particular business
opportunity by the Board of Directors with respect to the foregoing criteria.
There can be no assurances that any of the foregoing conflicts will be resolved
in favor of the Company.
In order to minimize potential conflicts of interest which may arise
from multiple corporate affiliations, each of the Company's officers and
directors have agreed that, in the event any of them believes that a business
combination opportunity would be appropriate to be considered by an entity other
than the Company with which such officer or director is affiliated (the "Other
Entity"), so long as this affiliation with the Other Entity existed prior to
November 30, 1995, then the Company will be presented with the business
combination opportunity only after the Other Entity has determined not to pursue
such business combination opportunity.
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to, nor is it aware of, any pending
litigation to which it is a party or of which its property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
4
<PAGE> 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
During the third quarter ended September 30, 1997, no matters were
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated November 7, 1997 regarding
the Transaction.
5
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
EMBASSY ACQUISITION CORP.
Date: November 11, 1997 By: /s/ Glenn L. Halpryn
--------------------------------------
Glenn L. Halpryn, President
Date: November 11, 1997 By: /s/ Craig A. Brumfield
--------------------------------------
Craig A. Brumfield, Vice President,
Treasurer, Principal Financial Officer
and director
6
<PAGE> 10
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets as of September 30, 1997 and December 31, 1996............................................ F-2
Statement of Operations for the Three and Nine Months Ended September 30, 1997
and 1996 and for the Period from November 30, 1995 (date of inception)
to September 30, 1997............................................................................... F-3
Statements of Cash Flows for the Three and Nine Months Ended September 30, 1997
and 1996 and the Period from November 30, 1995 (date of inception) to
September 30, 1997.................................................................................. F-4
Notes to Financial Statements ....................................................................... F-5 - F-8
</TABLE>
F-1
<PAGE> 11
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 655,033 $ 763,965
Restricted cash and cash equivalents 6,800,767 6,566,206
Accrued interest receivable -- 1,342
---------- ----------
Total current assets 7,455,800 7,331,513
Deferred tax assets 8,472 8,472
---------- ----------
Total assets $7,464,272 $7,339,985
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ -- $ 3,487
Income taxes payable 77,748 76,476
---------- ----------
Total liabilities 77,748 79,963
COMMON STOCK SUBJECT TO REDEMPTION 7,386,524 7,260,022
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value, 100,000,000 shares
authorized, 2,540,000 issued and outstanding at September 30,
1997 and at December 31, 1996 -- --
Retained earnings accumulated during the development stage -- --
Total stockholders' equity -- --
---------- ----------
Total liabilities and stockholders' equity $7,464,272 $7,339,985
========== ==========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 12
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period from
For the Three Months Ended For the Nine Months Ended November 30, 1995
September 30, September 30, (date of inception) to
1997 1996 1997 1996 September 30, 1997
----------- ----------- ----------- ----------- ---------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ---------
OPERATING EXPENSES:
General and administrative 16,609 11,655 67,019 26,247 111,077
----------- ----------- ----------- ----------- ---------
Total operating expenses 16,609 11,655 67,019 26,247 111,077
----------- ----------- ----------- ----------- ---------
Loss from operations (16,609) (11,655) (67,019) (26,247) (111,077)
----------- ----------- ----------- ----------- ---------
Other income:
Interest income 91,140 58,517 258,793 116,100 502,536
----------- ----------- ----------- ----------- ---------
Other income 91,140 58,517 258,793 116,100 502,536
----------- ----------- ----------- ----------- ---------
Income before income tax provision 74,531 46,862 191,774 89,853 391,459
Income tax provision 25,340 17,620 65,271 33,798 133,275
----------- ----------- ----------- ----------- ---------
Net income $ 49,191 $ 29,242 $ 126,503 $ 56,055 $ 258,184
=========== =========== =========== =========== =========
Net income per share $ 0.02 $ 0.01 $ 0.05 $ 0.03
=========== =========== =========== ===========
Weighted average common and common stock
equivalent shares outstanding: 2,540,000 2,540,000 2,540,000 2,039,560
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 13
EMBASSY ACQUISITION CORP.
(A Development Stage Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period From
For the Nine Months Ended November 30, 1995
September 30, (date of inception) to
1997 1996 September 30, 1997
----------- ----------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 126,503 $ 56,055 $ 258,184
Adjustment to reconcile net income to net cash used in
operating activities:
Deferred income taxes -- -- (8,472)
Net interest on restricted cash and cash equivalents (258,794) (116,100) (502,537)
Changes in certain assets and liabilities:
Accrued interest receivable 1,342 (1,461) 1,342
Accrued expenses (3,487) 246 --
Income taxes payable 1,272 33,798 77,748
----------- ----------- -----------
Net cash used in operating activities (133,164) (27,462) (173,735)
----------- ----------- -----------
Cash flows from investing activities:
Increase (decrease) in restricted cash and cash
equivalents 24,232 (6,331,602) (6,299,573)
----------- ----------- -----------
Net cash provided by (used in) investing activities 24,232 (6,331,602) (6,299,573)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issue of common stock -- 7,052,263 7,128,341
----------- ----------- -----------
Net cash provided by financing activities -- 7,052,263 7,128,341
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (108,932) 693,199 655,033
Cash and cash equivalents at beginning of period 763,965 76,078 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 655,033 $ 769,277 $ 655,033
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE> 14
EMBASSY ACQUISITION CORP.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The accompanying interim financial statements presented herein do not include
all disclosures provided in the annual financial statements. These unaudited
financial statements should be read in conjunction with the annual financial
statements and the footnotes for the fiscal year ended on December 31, 1996
thereto contained in the Form 10-KSB of Embassy Acquisition Corp. (the
"Company") as filed with the U.S. Securities and Exchange Commission on March
27, 1997.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the financial statements. The results of operations for the
three and nine months ending September 30, 1997 are not necessarily indicative
of the results of operation to be expected for the full year.
(2) ORGANIZATION:
On April 9, 1996, the Company sold to the public 1,380,000 shares of its common
stock, including 180,000 shares purchased by the underwriter to cover
overallotments, $0001 par value at a price of $6 per share (the "Offering").
Proceeds totaled $7,053,700, which was net of $1,226,300 in underwriting and
other expenses.
In connection with the Offering, the Company sold to the managing underwriter
(the "Underwriter") and its designees, for total consideration of $10, stock
purchase options ("the "Underwriter Options") to purchase up to 120,000 shares
of the Company's common stock at an exercise price of $7.80 per share. The
Underwriter Options will be exercisable for a period of five years from the
effective date of the Company's Registration Statement. The Company has also
agreed to certain registration rights with respect to the shares underlying the
Underwriter Options.
In accordance with the Offering, 90% of the net proceeds therefrom were placed
in an interest bearing escrow account (the "Escrow Fund") subject to the earlier
of (I) written notification by the Company of its need for all or substantially
all of the Escrow Fund for the purpose of implementing a business combination,
(ii) the
F-5
<PAGE> 15
EMBASSY ACQUISITION CORP.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(2) ORGANIZATION (CONTINUED):
exercise by certain shareholders of the Redemption Offer, as defined, or (iii)
the expiration of no more than 30 months from the date of the Offering. Amounts
in the Escrow Fund, including interest earned thereon, are prohibited from being
used for any purpose other that a business combination. Such amounts are
included in restricted cash and cash equivalents at September 30, 1997.
In the event the Company does not successfully effect a business combination
within 24 months (or in certain circumstances 30 months) from the date of the
consummation of the Offering, the Company will submit a proposal to liquidate
the Company. If such proposal is approved, the Company will distribute the
Company's Liquidation Value, as defined, to the Public Stockholders. Since the
Company may be required to refund all available equity to the Public
Shareholders, such amounts have been classified in the accompanying balance
sheet as common stock subject to redemption. Periodic changes in the Liquidation
Value are reflected as adjustments to stockholders' equity.
(3) BUSINESS COMBINATION:
On May 6, 1997, the Company entered into a letter of intent with Orthodontix,
Inc., a Florida corporation ("Orthodontix"), regarding a business combination of
the Company or a newly formed wholly-owned subsidiary and Orthodontix, Inc. (the
"Transaction"). The intended principal business activity of Orthodontix is
providing practice management services to orthodontic practices. Orthodontix has
conducted no operations to date other than in connection with its agreements to
acquire certain assets, assume certain liabilities, and provide long-term
management services to certain orthodontic practices (the "Practices") in
exchange for cash and shares of common stock (the "Practice Acquisitions").
On August 29, 1997, the Company and Orthodontix amended the terms of the Letter
of Intent to provide that either party can terminate the Letter of Intent if a
definitive agreement had not been executed by October 30, 1997. The Letter of
Intent had previously provided that either party could terminate the Letter of
Intent if a definitive agreement regarding the Transaction had not been executed
by August 30, 1997. As of October 30, 1997, the Company and Orthodontix entered
into an Agreement and Plan of Merger and Reorganization (the "Agreement")
regarding the Transaction. Pursuant to the Agreement, the parties shall engage
in
F-6
<PAGE> 16
EMBASSY ACQUISITION CORP.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(3) BUSINESS COMBINATION (CONTINUED):
the Transaction, which at the closing of the Transaction (the "Closing") will
result in Orthodontix becoming a wholly owned subsidiary corporation of the
Company in exchange for that number of shares of Common Stock of the Company
(the "Merger Stock") representing approximately 56% of the Company's outstanding
shares of Common Stock after giving effect to the Transaction but without giving
to any options or warrants to acquire shares of Common Stock which are
contemplated to be outstanding at the Closing. The actual number of shares to be
issued in connection with the Transaction is subject, in part, to the average
of the closing bid and ask price, as reported on the OTC Electronic Bulletin
Board or similar quotation board of the Company's shares of Common Stock for the
15 trading days immediately preceding the date of the Closing (the "Share
Value").
Pursuant to the terms of the Agreement, the recipients of 1,300,000 shares of
the Merger Stock (approximately 23% of the Company's outstanding shares of
Common Stock after giving effect to the Transaction, assuming an Embassy Share
Value of $8.00 per share) and the shares of Merger Stock to be issued in
connection with the Practice Acquisitions (approximately 33% of Embassy's
outstanding shares of Common Stock after giving effect to the Transaction
assuming an Embassy Share Value of $8.00 per share), respectively, have agreed,
for a period of 15 months and six months, respectively, from the date of the
Closing, not to make any offer, sale or disposition of any of the Merger Stock
to be issued to them in connection with the Transaction. The Transaction is
contemplated to be tax-free to the Company and its shareholders.
Based on information received from Orthodontix, at the Closing, Orthodontix
shall provide practice management services to approximately 24 orthodontic
practices, which practices generate gross revenue of approximately $16 million
annually.
The Closing is subject to, among other conditions, the closing of the
Transaction by April 1, 1998 (unless that date is extended by mutual agreement
of the parties), approval of the Transaction by the shareholders of the Company
and Orthodontix, certain regulatory and third party approvals and consents, and
the closing of the Practice Acquisitions. There can be no assurance that the
proposed Transaction will be consummated on these or any other terms.
F-7
<PAGE> 17
EMBASSY ACQUISITION CORP.
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
Based upon the price per share of the common stock of the Company as of October
30, 1997, at the closing of the Practice Acquisitions (assuming the Practice
Acquisitions represent orthodontic practices totaling $16 million of revenue)
and the Transaction, the Company would be obligated to issue approximately 3.3
million shares of Common Stock and expend up to approximately $3.0 million in
consideration for the Transaction. The Company currently has outstanding
2,540,000 shares of Common Stock and warrants entitling the holder to purchase
an additional 120,000 shares of Common Stock. Upon effectiveness of the
Transaction, the Company will change its name to "Orthodontix, Inc.," Stephen J.
Dresnick, M.D., a member of the Company's Board of Directors, President and
Chief Executive Officer of Sterling Healthcare Group, Inc. and Vice Chairman of
the Board of FPA Medical Management, Inc. and Glenn Halpryn, Chairman of the
Company would continue to be members of the Board of Directors of the Company
with Dr. Dresnick assuming the role of Chairman of the Company. There can be no
assurance that the proposed Transaction will be consummated on these or any
other terms.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings Per Share" was issued. SFAS No. 128 establishes new standards for
computing and presenting earnings per share ("EPS"). This statement replaces the
presentation of primary EPS and will require a dual presentation of basic and
diluted EPS. SFAS No. 128 is effective for financial statements issued for
periods ended after December 31, 1997 and requires restatement of all
prior-period EPS data presented. The Company does not believe the adoption of
SFAS No. 128 will have a material impact on the Company's financial statements
when adopted.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 655,033
<SECURITIES> 6,800,767
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,455,800
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,464,272
<CURRENT-LIABILITIES> 77,748
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
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<INCOME-PRETAX> 191,774
<INCOME-TAX> 65,271
<INCOME-CONTINUING> 126,503
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<NET-INCOME> 126,503
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
