U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _______________ TO __________________
COMMISSION FILE NUMBER: 0-23055
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OMEGA ORTHODONTICS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER)
DELAWARE 95-4596853
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3621 SILVER SPUR LANE
ACTON, CALIFORNIA 93510
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: 805-269-2841
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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 October 31, 1998, there were 5,052,584 shares of Common Stock outstanding
and 2,070,000 Redeemable Common Stock Purchase Warrants outstanding.
<PAGE>
OMEGA ORTHODONTICS, INC.
FORM 10-QSB REPORT INDEX
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets September 30, 1998 (Unaudited)
and December 31, 1997
Condensed Consolidated Statements of Operations for the Three Months
and Nine Months Ended September 30, 1998 and September 30, 1997
(Unaudited)
Condensed Consolidated Statement of Stockholders' Equity
September 30, 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and September 30, 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II -- Other Information
Item 1 - Legal Proceedings
Item 2 - Changes in Securities and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMEGA ORTHODONTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................... $ 1,262,268 $ 5,421,721
Receivable from affiliated practices, net ............... 2,901,129 926,271
Notes and interest receivable from affiliated practice .. 25,833 50,000
Notes and interest receivable from related parties ...... 127,159 120,859
Prepaid expenses ........................................ 49,820 55,791
----------- ---------
Total current assets ................................ 4,366,209 6,574,642
Property and equipment, net .................................. 907,473 503,339
Due from affiliated practices ................................ 205,518 53,194
Intangible assets, net ....................................... 9,812,446 5,099,043
Other assets ................................................. 102,195 80,303
----------- ---------
Total Assets ............................... $15,393,841 $12,310,521
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable ........................................ $ 230,482 $ 155,671
Accrued expenses ........................................ 227,989 354,513
Patient prepayments ..................................... 2,101,668 775,699
Current portion of long-term debt ....................... 343,000 76,130
Due to affiliated practices ............................. 415,881 147,955
Due to related parties .................................. -- 305,000
----------- ---------
Total current liabilities ........................... 3,319,020 1,814,968
Long-term debt, less current portion ........................ 1,170,828 468,551
----------- ---------
Total Liabilities .......................... 4,489,848 2,283,519
----------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value 9,500,000 shares authorized --
5,052,584 and 4,338,823 shares issued and outstanding
at September 30, 1998 and December 31, 1997, respectively 50,526 43,388
Additional paid-in capital ................................... 15,031,372 13,858,851
Accumulated deficit .......................................... ( 4,177,905) ( 3,875,237)
----------- ---------
Total stockholders' equity .......................... 10,903,993 10,027,002
----------- ---------
Total Liabilities and Stockholders' Equity . $15,393,841 $12,310,521
=========== =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Service fees .................. $ 1,997,345 $ -- $ 5,357,823 $ --
Consulting fees ............... 1,528 10,713 23,323 55,284
----------- --------- ---------- -----------
Total revenues ............ 1,998,873 10,713 5,381,146 55,284
----------- ---------- ----------- -----------
Costs and expenses:
Employee costs ................ 966,788 52,275 2,625,835 159,853
Other direct costs ............ 311,212 11,242 858,600 55,098
General and administrative .... 728,871 153,802 1,923,492 431,354
Depreciation and amortization . 128,160 914 312,081 2,742
Non-recurring consulting
expense .................... -- -- -- 2,867,400
----------- ----------- ---------- -----------
Total costs and expenses .. 2,135,031 218,233 5,720,008 3,516,447
----------- ----------- ----------- -----------
Loss from operations ............... ( 136,158) ( 207,520) ( 338,862) ( 3,461,163)
Interest expense ................... ( 25,119) ( 59,579) ( 71,336) ( 140,724)
Interest income .................... 23,156 233 107,530 2,556
----------- ----------- ----------- -----------
Net loss .................. ($ 138,121) ($ 266,866) ($ 302,668) ($3,599,331)
=========== =========== =========== ===========
Basic and diluted net loss per share ($ 0.03) ($ 0.16) ($ 0.06) ($ 2.14)
=========== =========== =========== ===========
Basic and diluted
shares outstanding ............... 4,965,253 1,685,000 4,843,747 1,685,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of $.01 Par Paid-in Accumulated Stockholders'
Shares Value Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1997 4,338,823 $ 43,388 $13,858,851 ($3,875,237) $10,027,002
Issuance of common stock
to new affiliated practices 707,511 7,076 1,164,146 -- 1,171,222
Issuance of common stock
to consultant ............. 6,250 62 8,375 -- 8,437
Net loss ....................... -- -- -- ( 302,668) ( 302,668)
----------- ----------- ----------- ----------- -----------
Balance, September 30,
1998 5,052,584 $ 50,526 $15,031,372 ($4,177,905) $10,903,993
=========== =========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net Cash used/provided by operating activities ..................... ($ 926,985) $ 459,852
Cash flows from investing activities:
Purchases of property and equipment ....................... ( 312,315) ( 1,712)
Increase in notes receivable from affiliated practice ..... ( 25,833) --
Increase in other assets .................................. ( 21,892) --
Acquisition of management services agreements
and related assets ............................... ( 2,749,355) --
----------- -----------
Net cash used by investing activities .............................. ( 3,109,395) ( 1,712)
----------- -----------
Cash flows from financing activities:
Repayment of borrowings ........................................ ( 131,510)
Deferred offering costs ........................................ -- ( 1,249,567)
Debt financing costs ........................................... -- ( 20,900)
Proceeds from issuance of notes payable ........................ -- 510,000
Issuance of common stock to consultant ......................... 8,437 --
----------- -----------
Net cash used by financing activities .............................. ( 123,073) ( 760,467)
----------- -----------
Net decrease in cash and cash equivalents .......................... ( 4,159,453) ( 302,327)
Cash and cash equivalents, beginning of period ..................... 5,421,721 321,057
----------- -----------
Cash and cash equivalents, end of period ........................... $ 1,262,268 $ 18,730
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .................. $ 72,899 $ 74,260
=========== ===========
Supplemental disclosure of cash flows related to affiliations:
Fair value of assets acquired, excluding cash ................ $ 5,296,903
Issuance of common stock ..................................... ( 1,171,222)
Issuance of notes payable .................................... ( 986,435)
Cash paid .................................................... ( 2,749,355)
-----------
Liabilities assumed ................................................ $ 389,891
===========
Supplemental disclosure of non cash items from investing activities:
Issuance of debt in connection with affiliations ............... $ 986,435
===========
Transfer of note receivable in connection with
affiliation .................................................. $ 50,000
===========
Transfer of note payable in connection with
affiliation .................................................. $ 33,588
===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
OMEGA ORTHODONTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet at September 30, 1998, the
condensed consolidated statements of operations for the three months and
nine months ended September 30, 1998 and September 30, 1997 and the
condensed consolidated statements of cash flows for the nine months ended
September 30, 1998 and September 30, 1997 are unaudited, but, in the opinion
of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of results for the interim
periods. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of results to be expected
for the entire year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997.
REVENUE RECOGNITION
The Company's services are provided under management services agreements
(Management Services Agreements) and interim management agreements with
affiliated practices (Affiliated Practices). Net revenue earned by the
Company under the management agreements is equal to approximately 25% of new
patient contract balances in the first month of new patient contracts plus a
portion of existing contract balances recorded by the Affiliated Practices,
less amounts retained by the Affiliated Practices. The Company provides
practice management and marketing services, facilities and non-professional
personnel and receives 65% to 75% of the Affiliated Practices' gross patient
fee collections as a management fee. The Affiliated Practices retain all
revenue not paid to the Company as the management fee. The amounts retained
by the Affiliated Practices are dependent on their financial performance,
based in significant part on their cash receipts and disbursements. If total
expenses of an Affiliated Practice are below prescribed percentages, the
Affiliated Practice is entitled to retain 50% of the difference. Under the
terms of the Management Services Agreement, the Affiliated Practices
assign their receivables to the Company in payment of their management fees.
The Company is responsible for collection. The Company also assumes its
portion of patient prepayments, which are deposits from patients for dental
care to be performed in future periods.
INCOME (LOSS) PER SHARE
Basic loss per share was determined by dividing net loss by the weighted
average common shares outstanding during the period. Diluted loss per share
is the same as basic loss per share as the effects of the Company's
potential common stock (options to purchase 528,333 shares of common stock
and 2,070,000 warrants as of September 30, 1998) are antidilutive. During
the period preceding the Company's initial public offering (IPO), the
Company issued 185,000 shares of common stock that have been treated as
"nominal issuances" in accordance with SAB 98.
<PAGE>
OMEGA ORTHODONTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTANGIBLE ASSETS
The value assigned to the Management Services Agreements with the
acquisition of the assets and liabilities of the management services
organizations (MSOs) and concurrent Management Services Agreements with the
Affiliated Practices has been accounted for by the Company in accordance
with the Emerging Issues Task Force ("EITF") Issue 97-2. Substantially all
of the intangible assets on the Company's condensed consolidated balance
sheet as of September 30, 1998 are related to the affiliations with the
Affiliated Practices. The Company evaluates each affiliation and establishes
an appropriate amortization period based on the underlying facts and
circumstances. Currently, the Company uses an amortization period ranging
from 25 to 40 years, consistent with the extended terms of the Management
Services Agreements. For all new affiliations subsequent to the IPO, the
Company used a 25-year amortization period. Subsequent to each affiliation,
the Company reevaluates such facts and circumstances to determine if the
related intangible assets continue to be realizable and if the amortization
period continues to be appropriate.
Amortization of the intangible assets on the Company's condensed
consolidated balance sheet as of September 30, 1998 produced amortization
expense of approximately $204,000 for the nine months ended September 30,
1998. Affiliations with additional Affiliated Practices will result in the
recognition of additional intangible assets and will cause amortization
expense to increase further. Although the net unamortized balance of
intangible assets on the Company's condensed consolidated balance sheet as
of September 30, 1998 was not considered to be impaired, any future
determination that a significant impairment has occurred would require the
write-off of the impaired portion of unamortized intangible assets, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
NEW ACCOUNTING STANDARD
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. The Company does not believe the
adoption of this accounting standard will have any impact on the Company's
financial position or results of operations.
. NEW AFFILIATED PRACTICES
During the nine months ended September 30, 1998, the Company completed
affiliations with nine new Affiliated Practices, three of which merged with
existing Affiliated Practices.
Total consideration related to the new Affiliated Practices is summarized as
follows:
Value of common stock $ 1,171,221
Cash paid 2,749,356
Notes payable 986,435
---------------
Total $ 4,907,012
===============
<PAGE>
The cost of the above new Affiliated Practices has been allocated on the basis
of the estimated fair value of the assets acquired and liabilities assumed,
resulting in management contract intangibles of approximately $4.9 million.
These allocations may be adjusted to the extent that management becomes aware of
additional information within one reporting year of the affiliation date which
results in a material change in the amount of any contingency or changes in the
estimated fair value of assets acquired and liabilities assumed.
The allocation of the purchase price of the new Affiliated Practices,
including acquisition costs of approximately $192,000, is as follows:
Property and equipment $ 196,094
Management service contract intangibles 4,921,210
Patient receivables and patient prepayments 179,599
Assumed liabilities ( 389,891)
--------------
Contract intagible assets $ 4,907,012
===============
During the nine months ended September 30, 1998, the Company entered into
an interim management agreement with two of the new affiliated practices,
pursuant to which the Company provides management services under essentially
the same terms as its Management Services Agreements. One of the interim
agreements was subsequently converted into a Management Services Agreement.
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases an office for its corporate headquarters which expires August
30, 2001. Future minimun lease payments as of September 30, 1998 are as follows:
1999 $18,600
2000 $18,600
2001 $17,050
-------
$54,250
=======
Rent expense for the operating lease was $1,550 for the nine months ended
September 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS REGARDING THE
PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS INCLUDING PLANS AND
OBJECTIVES RELATING TO THE DEVELOPMENT OF THE AFFILIATED PRACTICES. THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS
THAT INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. THE COMPANY'S PLANS AND
OBJECTIVES ARE BASED ON A SUCCESSFUL EXECUTION OF THE COMPANY'S EXPANSION
STRATEGY AND ASSUMPTIONS THAT THE AFFILIATED PRACTICES WILL BE PROFITABLE,
THAT THE ORTHODONTIC INDUSTRY WILL NOT CHANGE MATERIALLY OR ADVERSELY, AND
THAT THERE WILL BE NO UNANTICIPATED MATERIAL ADVERSE CHANGE IN THE COMPANY'S
OPERATIONS OR BUSINESS. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE
JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE
AND MARKET CONDITIONS AND FUTURE BUSINESS DECISIONS, ALL OF WHICH ARE
DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND
THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT ITS
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF
THE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED IN THE FOLLOWING WILL
PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN
THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, PARTICULARLY IN VIEW OF THE
COMPANY'S EARLY STAGE OF OPERATIONS, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE
<PAGE>
COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY
WILL BE ACHIEVED. THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE IN THIS REPORT AND THE
COMPANY'S PRIOR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
Omega was incorporated in Delaware in August 1996. Following its initial
public offering ("IPO") on October 6, 1997, the Company began to offer its
services primarily under an "affiliate" relationship whereby it purchases,
pursuant to an affiliation agreement ("Affiliation Agreement"), the equity
interests of the management services organization ("MSO") that holds certain
assets and is associated with an orthodontic or other dental specialty
practice ("Affiliated Practice") and enters into a long term management
services agreement ("Management Services Agreement") with the Affiliated
Practice of the selling orthodontist or other dental specialist ("Affiliated
Practitioner"). Pursuant to the Management Services Agreement, the Company
receives a monthly management fee for providing all of the Affiliated
Practice's practice needs, including facilities, support staff and supplies,
as well as a program of systems, methods and procedures designed to enhance
the growth, efficiency and profitability of the Affiliated Practice.
Pursuant to the Affiliation Agreement, the Affiliated Practitioner typically
converts his existing professional corporation into a general corporation
that will function as the MSO and creates a new professional corporation
(the Affiliated Practice) through which the Affiliated Practitioner will
continue to provide orthodontic or other dental specialty care. The MSO
retains certain assets and liabilities which typically include the lease for
the Affiliated Practice's office space, clinical supplies and equipment and
office furniture, supplies and equipment. The Affiliated Practice retains
certain other assets and liabilities (if any) which typically include all
cash and cash equivalents, real property, automobiles, patient records,
related patient information and notes payable unrelated to assets purchased.
The Company generally acquires all of the equity interest of the MSO from
the Affiliated Practitioner, the purchase price for which is determined
through an assessment of immediate and future return on investment. The MSO
typically is acquired for a combination of cash, five year notes and
unregistered Common Stock or stock options. As of September 30, 1998, the
Company had completed 17 affiliations with an average MSO purchase price of
approximately $577,000, of which the cash portion was approximately
$279,000.
The Management Services Agreement provides that the Affiliated Practice will
utilize the facility and the Company's services for a period of 20 years,
with two ten year extensions. While each Management Services Agreement is
negotiated based on specific circumstances, the management fees charged
typically range between 65% to 75% of the Affiliated Practice's gross
income, which is expected to be sufficient to pay all of the MSO's expenses
and provide a return on the Company's investment. If the Affiliated
Practice's expenses payable by the MSO are less than an agreed target amount
of expenses, the difference between the target amount and the actual
expenses will typically be shared equally by the MSO and the Affiliated
Practice. At the retirement, disability or death of the Affiliated
Practitioner, the Company will identify a replacement Affiliated
Practitioner to purchase the Affiliated Practice and assume the Management
Services Agreement.
Concurrent with the IPO, the Company executed Affiliation Agreements with
seven initial Affiliated Practices. In addition, between October and
December 31, 1997 the Company entered into Affiliation Agreements with two
additional Affiliated Practices. During the first nine months of 1998, the
Company entered into Affiliation Agreements with nine additional practices
(three
<PAGE>
of which merged with existing Affiliated Practices). Pursuant to those
collective agreements, the Company acquired the equity interests in the
MSOs. Each of the Affiliated Practices is typically operated with one
practitioner, who is typically supported by a staff of three dental
assistants and three office personnel. As of September 30, 1998, the Company
had 15 operating practices with 18 doctors in 21 offices in 10 states;
which includes an interim management agreement with one practice under
terms similar to its Affiliation Agreements.
In consideration for acquiring the nine MSOs during the nine months ended
September 30, 1998, the Company paid the aggregate of approximately $2.7
million in cash, issued an aggregate of approximately $986,000 in notes
bearing interest at 8.5%, assumed approximately $349,000 of liabilities and
issued an aggregate of 707,511 shares of Common Stock.
In light of current market conditions and the prevailing view of MSOs by the
dental industry, the Company expects that its future internal growth will
come from continuing to implement its Omega Exceptional Practice Model with
Affiliated Practices and the reduction of internal expenses. The ability of
the Company to achieve external expansion will depend upon the availability
of adequate financing to fund affiliations with orthodontic and other dental
specialty practices or through the development of strategic alliances with
other corporations. The Company is currently exploring a variety of
alternatives with the goal of maintaining the Company's focus on providing
quality practice management and promoting practice growth. There can be no
assurance that the Company's expansion strategy will be successful or that
modifications to the Company's strategy will not be required or that the
Company will be able to manage effectively and enhance the profitability of
its Affiliated Practices.
RESULTS OF OPERATIONS
For the three months and nine months ended September 30, 1998 compared to
the three months and nine months ended September 30, 1997.
REVENUES
Total revenues for the three months and nine months ended September 30, 1998
were approximately $2.0 million and $5.4 million, respectively, and
consisted of approximately $2.0 million and $5.4 million of service fees
revenue from fifteen Affiliated Practices, and approximately $1,500 and
$23,000 of other consulting fee revenue on a fee for service basis from non-
Affiliated Practices, respectively. For the three and nine months ended
September 30, 1997, the Company did not have any service fees revenue
because it had not yet affiliated with any Affiliated Practices. During
the three and nine months ended September 30, 1997, the Company earned
approximately $11,000 and $55,000, respectively, for consulting services
provided on a fee for service basis.
COST AND EXPENSES
The Company incurred operating costs and expenses of approximately $2.1
million and $5.7 million for the three and nine months ended September 30,
1998, respectively. The Company's costs and expenses consist primarily of
salaries and benefits, orthodontic supplies, rent, advertising and
marketing, general and administrative and depreciation and amortization. The
Company incurred operating costs and expenses of approximately $218,000 and
$3.5 million for the three and nine months ended September 30, 1997,
respectively, which represented corporate office expense, the cost of
providing certain management consulting services and the value ascribed to
certain stock compensation earned by consultants.
<PAGE>
The Company's costs and expenses include:
Employee Costs. Includes all salaries, payroll taxes and fringe
benefits of the dental assistants, office staff and corporate office
personnel.
Other Direct Costs. Includes dental and office supplies, laboratory
costs, facilities and equipment for the Affiliated Practices and
corporate office.
General Administrative. Includes all other operating expenses,
including advertising, repairs and maintenance, computer support,
telephone, utilities, taxes and licenses for the Affiliated Practices
and corporate office, as well as the cost of consultants, professional
fees and travel related to providing support to the Affiliated
Practices and corporate office.
Depreciation and Amortization. Includes depreciation of equipment and
leasehold improvements of the Affiliated Practices and amortization of
intangible assets related to the Management Services Agreement.
INTEREST EXPENSE
Interest expense of approximately $25,000 and $71,000 for the three and nine
months ended September 30, 1998, respectively, reflected the cost of
borrowings under notes payable to Affiliated Practices issued as part of the
purchase price for affiliating with those practices. Interest expense of
approximately $60,000 and $141,000 for the three and nine months ended
September 30, 1997, respectively, reflects the cost of borrowing under
bridge financing outstanding at that time used to finance the cost of
operations and IPO costs. The bridge financing notes were paid in full with
a portion of the proceeds of the IPO.
INTEREST INCOME
Interest income of approximately $23,000 and $108,000 for the three and nine
months ended September 30, 1998, respectively, reflected interest earned on
the Company's net proceeds from the IPO and notes from related parties.
Interest income of approximately $200 and $3,000 for the three and nine
months ended September 30, 1997, respectively, reflected interest earned on
the net proceeds of the bridge financing notes.
NET LOSS
As a result of the foregoing factors, the Company generated a net loss of
approximately $138,000 and $303,000, or $0.03 and $0.06 per share, for three
and nine months ended September 30, 1998, respectively, versus a net loss of
approximately $267,000 and $3.6 million, or $0.16 and $2.14 per share, for
the three and nine months ended September 30, 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING ACTIVITY
The Company has financed its capital requirements to date with borrowings
from bridge and interim notes and the issuance of equity securities.
The Company has experienced operating losses, negative cash flows (aside
from cash flows derived from the reinvestment of net proceeds from its IPO)
<PAGE>
a deficit in working capital and an accumulated deficit since its inception.
The Company's accumulated deficit from inception (August 30, 1996) to
October 1, 1997 (the Company's IPO) was approximately $3.9 million. The
Company reported a significant loss from operations for the year ended
December 31, 1997 due primarily to the value ascribed to certain stock
compensation earned by consultants in April 1997 and has reported a loss
from operations for the nine months ended September 30, 1998 of $338,862.
The Company makes routine cash advances from time to time to its Affiliated
Practices under its Management Services Agreements to fund any deficits in
monthly cash flows of the Affiliated Practices. Such advances will generally
be repaid by the Affiliated Practices to the Company without interest as
adequate funds are generated by the Affiliated Practices. The balance of
advances to Affiliated Practices as of September 30, 1998 was $205,518.
The Company's expansion strategy requires substantial capital resources.
Capital is needed not only for the affiliation with future Affiliated
Practices, but also for the effective integration, operation and expansion
of the existing and future Affiliated Practices. In addition, the Affiliated
Practices may from time to time require capital for renovation and expansion
and for the addition of equipment and technology.
Since consummation of the Company's IPO, the Company has funded its
affiliations through use of a combination of cash, notes and shares of its
Common Stock. Recently, the ability of the Company to use shares of Common
Stock for affiliations has been adversely affected by the decrease in the
market value of the Common Stock. The decrease, as well as the relatively
low market value of the Common Stock in dollar terms, has affected the
willingness of owners of potential affiliated practices to accept Common
Stock as full or partial payment of consideration for their affiliations.
Even if future affiliations could be funded with the Company's Common Stock,
its use due to the current market value of the Company's Common Stock, would
result in substantial dilution to existing stockolders. As a result, the
Company has not consummated an affiliation since August, 1998 and the
Company does not expect to be able to consummate future affiliations unless
there is a substantial improvement in the market value of the Company's
Common Stock and/or other financing or other strategic alternatives become
available. During the three months and nine months ended September 30, 1998,
the Company spent approximately $921,000 and $2.7 million in cash and issued
245,352 and 707,511 shares of Common Stock, respectively, in connection with
affiliations with Affiliated Practices.
Aside from cash flows derived from the investment of net proceeds from its
IPO, the Company has not realized positive cash flow from operations since
its inception. Accordingly, the Company has had to use net proceeds from its
IPO for its working capital requirements for its operations. At September
30, 1998 the Company had $1.3 million of working capital consisting
primarily of cash and cash equivalents, all of which represented remaining
net proceeds from its IPO.
In order for the Company to grow, it is likely that the Company will be
required to seek additional financing for working capital and liquidity
purposes. Further, any additional financing obtained by the Company could
have a dilutive effect on then existing stockholders. In the event the
Company fully utilizes the remaining net proceeds from its IPO to fund
additional affiliations and/or working capital requirements, and in the
event the Company is not able to thereafter continue to meet its working
capital requirements or liquidity needs with bank borrowings (which to date
have been unavailable to the Company), the Company will need to find other
public or private debt or equity sources. The availability of these capital
sources will depend on prevailing market conditions, interest rates and the
financial condition of the Company. There can be no
<PAGE>
assurance, however, that the Company will be able to obtain additional
financing for future affiliations or its working capital and liquidity
needs.
The Company anticipates an improvement in its operations and expects to
realize positive operating cash flow beginning in the last quarter of fiscal
1998 or in the first quarter of fiscal 1999. Moreover, the Company is
continuing with its efforts to improve the operating performance of its
Affiliated Practices. Concurrently, the Company is also pursuing additional
financing and considering other strategic alternatives including discussions
with potential partners regarding strategic alliances and capital investment
in the Company.
<PAGE>
YEAR 2000 DISCLOSURE
The Year 2000 ("Year 2000") computer issue is the result of computer
programs using a two-digit format, as opposed to a four-digit format to indicate
the year. Such computer programs will be unable to recognize date information
correctly when the year changes to 2000. The Year 2000 issue poses risks for the
Company's information technology systems, including those used by the Company in
providing its practice management and marketing services to its Affiliated
Practices.
The Company's information technology systems are based upon software
licenses and software maintenance agreements with third party software
companies. Based upon the Company's internal assessments and communications with
its software vendors, all of the software utilized by the Company is Year 2000
compliant software. The Company has used internal personnel to test its software
systems for Year 2000 compliance and such tests yielded positive results. The
Company will continue to monitor its Year 2000 readiness.
Each of the Affiliated Practices have their own information technology
systems (including systems for billing and collecting patient fees) based on
third party software licenses and maintenance agreements with various vendors.
The Company is currently evaluating an integrated system to replace all of the
information technology systems of its Affiliated Practices which, when
implemented in accordance with the Company's specifications, is expected to be
Year 2000 compliant. The Company is currently obtaining information from its
Affiliated Practices as to the readiness of their existing information
technology systems to be or to become Year 2000 compliant by the end of 1998.
Since the Company has already updated its own information technology systems to
be Year 2000 compliant and is in the process of implementing an integrated
system for all of its Affiliated Practices which will be new and Year 2000
compliant, the Company does not expect that it will incur any incremental costs
of a material amount to become Year 2000 compliant on a timely basis.
<PAGE>
Also, the Company does not anticipate difficulty to resolve any issues
related to imbedded technology in the equipment provided to the Company by other
manufacturers. The Company has made inquiry of each of its Affiliated Practices
as to issues related to imbedded technology in the equipment provided to the
Affiliated Practices by third party manufacturers. Once the Company receives and
analyzes the responses from its Affiliated Practices as to imbedded technology,
the Company intends to work on a contingency plan to address material risks, if
any, with respect to such imbedded technology in the equipment utilized by its
Affiliated Practices.
Based on the foregoing, the Company believes that it will be Year 2000
compliant on a timely basis and that future costs relating to the Year 2000
issue will not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS, INCLUDING FORWARD-LOOKING STATEMENTS REGARDING THE
COMPANY'S PLANS AND OBJECTIVES FOR FUTURE OPERATIONS AND THE COMPANY'S
DEVELOPMENT OF ITS AfFILIATED PRACTICES.
RISKS ASSOCIATED WITH EXPANSION. The success of the Company's expansion
strategy will depend on a number of factors, including (i) the Company's ability
to attract orthodontists to affiliate with the Company, the availability of
suitable markets and the Company's ability to obtain good locations within those
markets; (ii) the Company's ability to locate existing practices
for affiliations with such practices on favorable terms and successfully
integrate the affiliated operations into the Company's existing operations;
(iii) the availability of adequate financing to affiliate with orthodontic
practices; and (iv) regulatory constraints. A shortage of available
orthodontists with the skills and experience required by the Company would have
a material adverse effect on the Company's expansion plans. There can be no
assurance that the Company's expansion strategy will be successful, that
modifications to the Company's strategy will not be required or that the Company
will be able to manage effectively and enhance the profitability of its
Affiliated Practices.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's expansion strategy
will require substantial capital resources. The Company expects that its capital
needs over the next 12 months years will substantially exceed capital generated
from operations and the net proceeds of its IPO. To finance its future capital
needs, the Company plans to issue, from time to time, additional debt or equity
securities, including notes and Common Stock in connection with its planned
affiliations. There can be no assurance that the Company will be able to raise
additional funds when needed on satisfactory terms to the Company or at all. If
additional funds are raised through the issuance of equity securities, dilution
to the Company's stockholders may result, and if additional funds are raised
through the incurrence of debt, the Company likely would become subject to
financial covenants and restrictions on its operations and finances. If adequate
financing is not available when needed or on terms acceptable to the Company,
the Company's expansion strategy may be materially adversely affected.
RISKS ASSOCIATED WITH DECREASE IN THE MARKET VALUE OF THE COMPANY'S COMMON
STOCK. Since consummation of the Company's IPO, the Company has funded its
affiliations through use of a combination of cash, notes and shares of its
Common Stock. Recently, the ability of the Company to use shares of Common Stock
for affiliations has been adversely affected by the decrease in the market value
of the Common Stock. The decrease, as well as the relatively low market value of
the Common Stock in dollar terms, has affected the willingness of owners of
potential Affiliated Practices to accept Common Stock as full or partial payment
of consideration for their affiliations. Even if future affiliations could be
funded with the Company's Common Stock, its use due to the current market value
of the Company's Common Stock would result in substantial dilution to existing
stockholders. Accordingly, the Company does not expect to be able to consummate
future affiliations unless there is substantial improvement in the market value
of the Company's Common Stock and/or other financing or other strategic
alternatives become available.
<PAGE>
DEPENDENCE ON ORTHODONTIC AFFILIATES. The Company receives fees for
management services provided to Affiliated Practices under Management Services
Agreements, but does not employ orthodontists or control the practices of its
Affiliated Practices. The Company's revenue is dependent on revenue generated by
the Company's Affiliated Practices and, therefore, the performance and
professional reputation of affiliated orthodontists (those orthodontists who
practice through the Affiliated Practices) are essential to the Company's
success. Any material loss of revenue by the Affiliated Practices would have a
material adverse effect on the Company.
FLUCTUATIONS IN OPERATING RESULTS. The Company's results of operations may
fluctuate significantly from quarter to quarter or year to year. Results may
fluctuate due to a number of factors, including the timing of future
affiliations, seasonal fluctuations in the demand for orthodontic services and
future economic, competitive and market conditions. Accordingly, quarterly
comparisons of the Company's revenues and operating results should not be relied
upon as an indication of future performance, and the results of any quarterly
period may not be indicative of results to be expected for a full year.
RISK OF PROVIDING ORTHODONTIC SERVICES; ADEQUACY OF INSURANCE. The
Affiliated Practices provide orthodontic services to the public and are exposed
to the risk of professional liability and other claims. The Company does not
control the practice of orthodontics by its Affiliated Practices or the
compliance with regulatory and other requirements directly applicable to the
orthodontists and their practices. The Company might nevertheless be held liable
for negligence on their part.
Although the Management Services Agreements requires the Affiliated
Practices to maintain, at their expense, professional liability insurance for
themselves and each orthodontist employed by or otherwise providing orthodontic
services for the Orthodontic Affiliate in the minimum amount of $500,000 per
occurrence and $1,000,000 in the aggregate, the Company does not maintain
professional liability insurance for itself. In addition, although the Company
has obtained general liability insurance for itself and requires that it be
named as an additional insured party on the professional liability insurance
policies of its Affiliated Practices, there can be no assurance that the
Company's exposure in any particular case will be covered by such policies.
There can be no assurance that the Company, its employees, the Affiliated
Practices or the licensed orthodontists employed by or associated with the
Affiliated Practices will not be subject to claims in amounts that exceed the
coverage limits or that such coverage will be available when needed. Further,
there can be no assurance that professional liability or other insurance will
continue to be available to the Affiliated Practices in the future at adequate
levels or at an acceptable cost. A successful claim against the Company or an
Affiliated Practice in excess of the relevant insurance coverage could have a
material adverse effect upon the Company. Claims against the Company, regardless
of the merits or eventual outcomes, may also have a material adverse effect on
the Company.
<PAGE>
GOVERNMENT REGULATION. Federal and state laws extensively regulate the
relationships among providers of health care services, physicians and other
clinicians. These laws include federal fraud and abuse provisions that prohibit
the solicitation, receipt, payment, or offering of any direct or indirect
remuneration for the referral of patients for which reimbursement is made under
any federal or state funded health care program or for the recommending,
leasing, arranging, ordering or providing of services covered by such programs.
States have similar laws that apply to patients covered by private and
government programs. Federal fraud and abuse laws also impose restrictions on
physicians' referrals for designated health services covered under a federal or
state funded health care program to entities with which they have financial
relationships. Various states have adopted similar laws that cover patients in
private programs as well as government programs. There can be no assurance that
the federal and state governments will not consider additional prohibitions on
physician ownership, directly or indirectly, of facilities to which they refer
patients, which could adversely affect the Company. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil money penalties and exclusion from participation in
federal or state health care programs.
Moreover, the laws of many states prohibit physicians from sharing
professional fees, or "splitting fees," with anyone other than a member of the
same profession. These laws and their interpretations vary from state to state
and are enforced by the courts and by regulatory authorities with broad
discretion. Expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of the Company's form of
relationship with Affiliated Practices, which could have an adverse effect on
the Company. Although the Company believes its operations as currently expected
to be conducted are in material compliance with existing applicable laws, there
can be no assurance that review of the Company's business by courts or
regulatory authorities will not result in a determination that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's existing operations
or its expansion.
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF ORTHODONTICS.
The Affiliated Practices are formed as professional corporations owned by one or
more orthodontists licensed to practice dentistry under applicable state law in
states that prohibit the corporate practice of dentistry. Corporations such as
the Company are not permitted under certain state laws to practice dentistry or
exercise control over the dental judgments or decisions of practitioners.
Corporate practice of dentistry laws and their interpretations vary from state
to state and are enforced by the courts and by regulatory authorities with broad
discretion. The Company performs only non-orthodontic administrative services,
does not represent to the public that it offers orthodontic services and does
not exercise influence or control over the practice of orthodontics by the
practitioners with whom it contracts. Expansion of the operations of the Company
to certain jurisdictions may require structural and organizational modifications
of the Company's form of relationship with Affiliated Practices in order to
comply with the dental practice laws, which could have an adverse effect on the
Company. Although the Company believes its operations as currently expected to
be conducted is in material compliance with existing applicable laws, there can
be no assurance that the Company's structure will not be challenged as
<PAGE>
constituting the unlicensed practice of dentistry or that the enforceability of
the agreements underlying this structure will not be limited. If such a
challenge were made successfully in any state, the Company could be subject to
civil and criminal penalties under such state's laws and could be required to
restructure its contractual arrangements in that state. Such results or the
inability to restructure its contractual arrangements could have a material
adverse effect upon the Company.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent
upon the continued services of the Company's senior management, particularly
upon its Chief Executive Officer and President, Mr. Robert J. Schulhof, and
its Director of Affiliate Programs, Dr. Dean C. Bellavia. Both Mr. Schulhof
and Dr. Bellavia have entered into three year employment agreements with the
Company, but there can be no assurance that either of them will continue in
the employ of the Company for the full term of his employment agreement. The
Company has obtained a "key-man" life insurance policy on the life of Mr.
Schulhof providing benefits to the Company of $1 million upon the death of
Mr. Schulhof. The loss of the services of Mr. Schulhof or Dr. Bellavia, or
the inability to attract other qualified employees, could have a material
adverse effect on the Company.
COMPETITION. The business of providing orthodontic services is highly
competitive in each market in which the Company intends to operate. Each of the
Affiliated Practices faces competition from other orthodontists or general
dentists in the communities served, many of whom may have more established
practices in the market or greater financial and other resources than the
Affiliated Practices. At this time, the Company believes there are several other
companies actively involved in consolidating and managing orthodontic practices
throughout the United States. These companies have greater financial, marketing
and other resources than the Company. In addition, there are companies pursuing
similar strategies with respect to dental specialties, including orthodontics,
and additional companies with similar objectives may enter the Company's markets
and compete with the Company. Many of the Company's competitors may have
substantially greater financial and other resources than the Company. There can
no be assurance that the Company will be able to compete effectively.
CHANGES IN REGULATION OF THE DELIVERY OF AND PAYMENT FOR HEALTH CARE
SERVICES. Although Congress failed to pass comprehensive health care reform
legislation in 1996, the Company anticipates that Congress and state
legislatures will continue to review and assess alternative health care delivery
and payment systems and may in the future propose and adopt legislation
effecting fundamental changes in the health care delivery system. The Company
cannot predict the ultimate timing, scope or effect of any legislation
concerning health care reform. Any proposed federal legislation, if adopted,
could result in significant changes in the availability, delivery, pricing and
payment for health care services and products. Various states agencies also have
undertaken or are considering significant health care reform initiatives.
<PAGE>
Although it is not possible to predict whether any health care reform
legislation will be adopted or, if adopted, the exact manner and the extent to
which the Company will be affected, it is likely that the Company will be
affected in some fashion, and there can be no assurance that any health care
reform legislature, if and when adopted, will not have a material adverse effect
on the Company.
DEPENDENCE ON THIRD PARTY REIMBURSEMENT. A portion of the
revenue of the Affiliated Practices on which the Company's revenue will depend
comes from commercial dental insurance and preferred provider plans. These
providers and programs are regulated at the state or federal level. There are
increasing and significant public sector pressures to contain health care costs
and to restrict reimbursement rates for dental services. Changes in the level of
support by federal and state governments of health care services, the methods by
which such services may be delivered, and the prices of such services may all
have a material impact on revenue of the Affiliated Practices, which in turn
could have a material adverse effect on the Company.
NO ASSURANCE OF NASDAQ SMALL CAP MARKET LISTING; RISK OF LOW-PRICED
SECURITIES; RISK OF APPLICATION OF PENNY STOCK RULES. The Board of Governors of
the National Association of Securities Dealers, Inc. has established certain
standards for the initial listing and continued listing of a security on the
Nasdaq Small Cap Market. The standards for initial listing require, among other
things, that an issuer have net tangible assets of $4,000,000; that the minimum
bid price for the listed securities be $4.00 per share; that the minimum market
value of the public float (the shares held by non-insiders) be at least
$5,000,000; and that there be at least two market makers for the issuer's
securities. The maintenance standards require, among other things, that an
issuer have net tangible assets of at least $2,000,000; that the minimum bid
price for the listed securities be $1.00 per share; that the minimum market
value of the "public float" be at least $ 1,000,000; and that there be at least
two market makers for the issuer's securities. A deficiency in either the market
value of the public float or the bid price maintenance standard will be deemed
to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. Although the Company met the standards for initial
listing upon its IPO, there can be no assurance that the Company will continue
to satisfy the requirements for maintaining a Nasdaq Small Cap Market listing.
If the Company's securities were to be excluded from the Nasdaq Small Cap
Market, it would adversely affect the prices of such securities and the ability
of holders to sell them, and the Company would be required to comply with the
initial listing requirements to be relisted on the Nasdaq Small Cap Market.
<PAGE>
If the Company is unable to satisfy maintenance requirements and the price
per share were to drop below $5.00, then unless the Company satisfied certain
net asset tests, the Company's securities would become subject to certain penny
stock rules promulgated by the Securities and Exchange Commission (the
"Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock. If the Common Stock becomes subject to the penny stock rules,
holders of the Company's Common Stock may find it more difficult to sell their
shares.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Not applicable.
(d) The Company's Registration Statement on Form SB-2
(Registration No. 333-27179), as amended, with respect to the
offering of shares of the Common Stock and Redeemable Common
Stock Purchase Warrants in the Company's initial public
offering (the "IPO") was declared effective on September 30,
1997. The net proceeds to the Company from the IPO were $9.5
million. The Company used such net proceeds as follows:
(i)$1.1 million for the repayment of debt; (ii) $2.1 million
to consummate the affiliations with the seven initial
Affiliated Practices (the "Initial Affiliated Practices");
(iii) $3.2 million to consummate affiliations with additional
Affiliated Practices; and (iv) $1.8 million for working
capital, equipment, leasehold improvements and other corporate
purposes.
ITEM 3. Defaults upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OMEGA ORTHODONTICS, INC.
(Registrant)
Date: November 13, 1998 By: /s/Robert J. Schulhof
Robert J. Schulhof
Chief Executive Officer
Date: November 13, 1998 By:/s/Edward M. Mulherin
Edward M. Mulherin
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
27 Financial Data Schedule
(furnished to the Securities and Exchange
Commission for Electronic Data Gathering
Analysis, and Retrieval {EDGAR} purposes
only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,262,268
<SECURITIES> 0
<RECEIVABLES> 2,981,129
<ALLOWANCES> (80,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,366,209
<PP&E> 907,473
<DEPRECIATION> 104,274
<TOTAL-ASSETS> 15,393,841
<CURRENT-LIABILITIES> 3,319,020
<BONDS> 0
0
0
<COMMON> 50,526
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,393,841
<SALES> 5,381,146
<TOTAL-REVENUES> 5,381,146
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,720,008
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,336
<INCOME-PRETAX> (302,668)
<INCOME-TAX> 0
<INCOME-CONTINUING> (302,668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (302,668)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
