<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[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 NUMBER 000-22975
-----------------------------
ORTHALLIANCE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4632134
(State or jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
23848 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90505
(Address of principal executive offices) (Zip code)
(310) 791-5656
(Registrant's telephone number, including area code)
-----------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X]*
*The Registrant became subject to the reporting requirements of Section 13
of the Securities Exchange Act of 1934 on August 21, 1997.
The number of shares of Class A Common Stock and Class B Common Stock of
the Registrant outstanding at October 31, 1997 was 11,147,455 and 250,000,
respectively.
<PAGE> 2
ORTHALLIANCE, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
----
PART I -- Financial Information ...................................... 3
Item 1 -- Financial Statements and General Information............. 3
Balance Sheets as of December 31, 1996 and
September 30, 1997 (unaudited).............................. 3
Statement of Operations for the Three Months Ended
September 30, 1997 and September 30, 1996 and the Nine
Months Ended September 30, 1997 and September 30, 1996
(unaudited)................................................. 4
Statement of Cash Flows for the Nine Months Ended
September 30, 1997 and September 30, 1996 (unaudited)....... 5
Statement of Changes in Stockholder's Equity (Deficit) as of
September 30, 1997.......................................... 6
Notes to Financial Statements............................... 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
Item 3 -- Quantitative and Qualitative Disclosure About
Market Risk.............................................. 12
PART II -- Other Information............................................ 13
Item 1 -- Legal Proceedings........................................ 13
Item 2 -- Changes in Securities and Use of Proceeds................ 13
Item 3 -- Defaults Upon Senior Securities.......................... 13
Item 4 -- Submission of Matters to a Vote of Security Holders...... 13
Item 5 -- Other Information........................................ 13
Item 6 -- Exhibits and Reports on Form 8-K......................... 13
2
<PAGE> 3
PART I
ITEM I. FINANCIAL STATEMENTS
ORTHALLIANCE, INC.
CONDENSED CONDOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER AS OF DECEMBER
30, 1997 31, 1996
------------ ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 17,472,165
Patient receivables, net of allowances of $207,591 3,769,120
Unbilled patient receivables,
net of allowances of $290,459 .................. 2,558,288
Other current assets ............................. 559,197
------------ ------------
Total current assets ............................ 24,358,770
Property and equipment, net ......................... 2,696,830
Notes receivable from affiliated practices .......... 1,031,971
Long-term deferred taxes ............................ 2,388,182
Intangibles, net .................................... 6,417,135
------------ ------------
Total assets ..................................... $ 36,892,888 $ 0
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Accounts payable and other accrued liabilities ... 3,730,634
Patient prepayments .............................. 2,521,456
Current portion of long-term debt ................ 1,544,075
Amounts due to affiliated practices .............. 1,585,877
------------ ------------
Total current liabilities ........................ 9,382,042
------------ ------------
Long-term deferred taxes ............................ 2,548,425
------------ ------------
Total liabilities ................................ 11,930,467 0
------------ ------------
Stockholders' equity (deficit):
Class A Common Stock, $.001 par value, 20,000,000
shares authorized, 11,147,455 shares and 1 share
issued and outstanding ........................... 11,147
Class B Common Stock, $.001 par value, 250,000
authorized, 250,000 and zero shares issued and
outstanding ...................................... 250
Additional paid-in capita ........................... 38,324,706
Warrants ............................................ 4,263,351
Retained deficit .................................... (17,637,033)
------------ ------------
Total stockholders' equity (deficit) ........... 24,962,421
------------ ------------
Total liabilities and
stockholders' equity (deficit) ................. $ 36,892,888 $ 0
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ORTHALLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET REVENUES .......................... $ 4,054,457 $ 0 $ 4,054,457 $ 0
COST AND EXPENSES:
Salaries and Benefit ............... 1,383,289 1,383,289
Orthodontic Supplies ............... 318,632 318,632
Rent ............................... 389,351 389,351
Depreciation and amortization ...... 52,747 52,747
General and administrative ......... 945,954 945,954
Non-Recurring Organizer Compensation 1,593,285 4,682,005
----------- -----------
Total cost and expense ............. 4,683,258 7,771,978
----------- -----------
LOSS BEFORE INCOME TAXES .............. (628,801) (3,717,521)
BENEFIT FROM INCOME TAXES ............. 251,520 1,487,124
NET LOSS .............................. (377,281) (2,230,397)
NET LOSS PER SHARE .................... (.08) (1.30)
----------- -----------
NUMBER OF SHARES USED IN CALCULATING
NET LOSS PER SHARE .................... 4,607,995 1,714,751
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ORTHALLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 1997 30, 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .............................................. ($ 2,230,397) $ 0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 52,747
Organizer Compensation Warrants .................... 3,725,020
Changes in assets and liabilities, excluding
effects of acquisitions:
Patient Receivables ................................ 339,712
Account receivables from/payable to practices ...... 1,048,125
Deferred income taxes .............................. (1,487,124)
Other Assets .......................................... 8,412
Decrease in accounts payable and accrued liabilities (339,378)
------------
Net cash provided by operating activities .......... 1,117,117
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures ............................. (8,275)
Investment in practices .......................... (830,799)
------------
Net cash used in investing activities ............ (839,074)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............. 33,368,400
Proceeds from issuance of warrants ................. 1,500
Dividend paid to shareholders of founding
affiliated practices ............................ (13,759,266)
Repayment of long-term debt ........................ (2,416,512)
------------
Net cash provided by financing activities .......... 17,194,122
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............. $ 17,472,165 $ 0
============ ====
Cash and Cash Equivalents at beginning of period ...... $ 0
Cash and Cash Equivalents at end of period ............ $ 17,472,165 $ 0
============ ====
Supplemental cash flow information:
Interest paid ...................................... 63,710
Noncash investing and financing activities
Acquisition of businesses:
Assets acquired ................................. 19,254,156
Liabilities assumed ............................. (10,687,816)
Issuance of common stock ........................ (7,735,541)
Cash paid ....................................... 830,799
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ORTHALLIANCE, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A AND B ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL WARRANTS DEFICIT EQUITY (DEFICIT)
---------- ----------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996 1 $ -- $ -- $ -- $ -- $ --
Issuance of
common stock
to public 2,990,000 2,990 30,597,572 -- -- 30,600,562
Transfers of
certain assets
and liabilities
by founders 7,882,984 7,883 1,434,031 -- (1,647,370) (205,456)
Dividend to
Shareholders
of Founding
Affiliated
Practices -- -- -- -- (13,759,266) (13,759,266)
Issuance of
common stock
for acquired
assets 524,470 524 6,293,103 -- -- 6,293,627
Net loss -- -- -- -- (2,230,397) (2,230,397)
Issuance of
warrants -- -- -- 4,263,351 -- 4,263,351
Balance at
September 30,
1997 11,397,455 $ 11,397 $ 38,324,706 $ 4,263,351 $(17,637,033) $ 24,962,421
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ORTHALLIANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND ORGANIZATION
ORGANIZATION AND BASIS OF PRESENTATION
OrthAlliance, Inc. ("OrthAlliance" or the "Company") was founded in October,
1996 to provide practice management and/or consulting (collectively
"management") services to orthodontic practices in the United States. On August
26, 1997, OrthAlliance acquired (the "Acquisitions") simultaneously with the
closing of the initial public offering (the "Offering" or "IPO") of its Class A
common stock, par value $.001 per share (the "Common Stock"), certain operating
assets of or the stock of entities holding certain tangible and intangible
assets, and assumed certain liabilities, of 55 orthodontic practices
(collectively, the "Founding Affiliated Practices") in exchange for 5,882,985
shares of Common Stock and $13.8 million in cash. The underwriters exercised an
overallotment option to purchase 390,000 shares of Common Stock, thereby
increasing the number of Shares of Common Stock offered in the IPO from
2,600,000 to 2,990,000. The net proceeds of the shares of Common Stock issued in
the IPO (after deducting the underwriting discounts and commissions) were
$33,368,400. In addition, other expenses incurred by the Company related to the
Offering total approximately $2.2 million. The Acquisitions have been accounted
for in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin No. 48.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Pursuant to such
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes the presentation
and disclosure herein are adequate to make the information not misleading. The
financial statements reflect all elimination entries and normal adjustments that
are necessary for a fair presentation of the results for the interim period
ended September 30, 1997.
Operating results for interim periods are not necessarily indicative of the
results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the Financial Statements of OrthAlliance
and related notes thereto, and management's discussion and analysis related
thereto, all of which are included in the Company's Registration Statement on
Form S-1 (No. 333-27143), as amended (the "Registration Statement"), filed with
the SEC in connection with the Offering.
BASIS OF PRESENTATION
In the opinion of Company management, the accompanying consolidated financial
statements include the accounts of the Company and all adjustments necessary to
present fairly the Company's financial position at December 31, 1996 and
September 30, 1997, and its results of operations and cash flows for the nine
months ended September 30, 1997 and September 30, 1996. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. These financial statements should be read in conjunction
with the Company's financial statements, and related notes thereto, included in
the Company's Registration Statement filed with the SEC. The results of
operations for the nine months ended September 30, 1997 may not be indicative of
the results for the full year.
7
<PAGE> 8
ORTHALLIANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ORTHODONTIST AFFILIATIONS
Between the date of the closing of the IPO (August 26, 1997) and September 30,
1997, ten additional orthodontists were affiliated with the Company. These
orthodontists operated out of six practices with 21 locations and generated
patient revenue of approximately $5.7 million during the 12 month period ending
December 31, 1996. Prior patient revenue is not necessarily indicative of the
level of revenue these practices may be expected to generate in the future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight line method over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
NET REVENUES
Revenue from managing the practices is recognized on a monthly basis as the
services are provided. The revenue of OrthAlliance consists of the sum of the
management fees and such amounts equal to the operating expenses of the
orthodontic practice assumed by OrthAlliance under such management agreements.
In general, the management agreements provide for the payment of fees to the
Company based on a negotiated percentage of the "Adjusted Patient Revenue" of
each orthodontic practice. Adjusted Patient Revenue is net patient revenue, as
determined under generally accepted accounting principles, including adjustments
for contractual allowances and other discounts, plus an adjustment for
uncollectible accounts. Patient revenue is recognized as orthodontic services
are performed. If the patient enters into a long-term orthodontic contract,
approximately 20% of the contract value is recognized at the initial treatment
date. The 20% estimated revenue is based on the estimated costs incurred by the
practice at that time as compared to the total costs of providing the contracted
services and is consistent with industry standards. The percentage includes the
estimated costs of diagnosis and treatment plan development, initial treatment
by orthodontic personnel, orthodontic supplies, and associated administrative
services. Expenses not required to be paid by OrthAlliance pursuant to the
management agreements primarily consist of professional expenses of the
orthodontist.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for expected future
tax consequences of events that have been recognized in the financial statements
or tax returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement carrying
amounts and the tax bases of such assets and liabilities using enacted tax rates
and laws in effect in the years in which the differences are expected to
reverse.
8
<PAGE> 9
ORTHALLIANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share." This statement establishes new standards for computing and
presenting earnings per share requiring the presentation of "basic" and
"diluted" earnings per share as compared to "primary" and "fully diluted"
earnings per share. The Company is required to adopt SFAS No. 128 for all fiscal
periods ending after December 15, 1997. Earlier adoption is not permitted and
restatement of all prior period earnings per share data is required.
3. SUBSEQUENT EVENTS
NEW ORTHODONTIC AFFILIATIONS
Subsequent to September 30, 1997, seven additional orthodontists have affiliated
with the Company. Six of these orthodontists operate from established practices
that affiliated with the company since September 30, 1997, while one has joined
an existing affiliated practice. The four practices that affiliated with the
Company since September 30, 1997 operate seven locations and generated
historical patient revenue over the prior 12 months of approximately $4.5
million. The Company has entered into agreements with certain Allied Practices
to make the payment of such management fees after the first two years contingent
on various factors, including relative practice profitability, acquisition
consideration, timely reporting of information, participation in practice
improvement programs and orthodontist hours worked. Prior patient revenue is not
necessarily indicative of the level of revenue that these practices may be
expected to generate in the future.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on current plans and expectations of the
Company and involve risks and uncertainties that could cause actual future
activities and results of operations to be materially different from those set
forth in the forward-looking statements. Important factors that could cause
actual results to differ include, among others, risks associated with
affiliations, fluctuations in operating results because of affiliations and
variations in stock price, changes in government regulations, competition, risks
of operations and growth of existing and newly affiliated orthodontic practices,
and risks detailed in the Company's SEC filings.
OVERVIEW
On August 26, 1997, the Company acquired simultaneous with the closing of its
IPO, certain operating assets of, or the stock of entities holding certain
operating assets of, 55 Founding Affiliated Practices. The Company also entered
into long-term management agreements to manage the businesses of the Founding
Affiliated Practices and ten additional orthodontic practices since August 26,
1997 (collectively the "Allied Practices").
The Company has entered into either a service agreement ("Service Agreement") or
a consulting and business services agreement ("Consulting Agreement") with each
Allied Practice (the Service Agreements and Consulting Agreements are referred
to herein collectively as "Management Agreements"). Under the Service
Agreements, the Company provides practice management services to Allied
Practices in exchange for certain management fees. Under the Consulting
Agreements, which allow the Company and the Allied Practices to comply with
certain state law restrictions on practice management, the Company provides
consulting services in exchange for consulting fees. From time to time the
Company may enter into agreements with certain Allied Practices to make the
payment of such management fees after a certain period of time contingent on
various factors, including relative practice profitability, acquisition
consideration, timely reporting of information, participation in practice
improvement programs and orthodontist hours worked. Except with respect to three
Service Agreements providing for the payment of flat fees, the management fees
earned by the Company are based on a negotiated percentage of the "Adjusted
Patient Revenue" of the Allied Practices. Adjusted Patient Revenue is net
patient revenue, as determined under generally accepted accounting principles,
including adjustments for contractual allowances and other discounts, plus an
adjustment for uncollectible accounts. Patient revenue is recognized as
orthodontic services are performed. If a patient enters into a long-term
orthodontic services contract, approximately 20% of the contract value is
recognized at the time of initial treatment. The balance of the contract revenue
is realized evenly over the remaining treatment period. The 20% estimated
revenue at the initial treatment date is based on the estimated costs incurred
by the practice at that time as compared to the total costs of providing the
contracted services and is consistent with industry standards.
10
<PAGE> 11
Pursuant to the Management Agreements, the Company incurs the expenses necessary
to manage and administer each Allied Practice and such expenses are paid from
funds generated by such Allied Practice. Such expenses include, but are not
limited to, salaries, wages and benefits of Allied Practice personnel (excluding
orthodontists and, in some cases, certain clinical personnel), the office
(general and administrative) expenses of the Allied Practices and depreciation
and amortization of assets acquired from the Allied Practices. The Company also
incurs personnel and administrative expenses in connection with maintaining
corporate offices, from which the Company will provide management,
administrative, marketing, development and acquisition services.
In accordance with Staff Accounting Bulletin ("SAB") No. 48, the Acquisitions of
all of the Founding Affiliated Practices are accounted for by the Company at
each Founding Affiliated Practice's historical cost of the nonmonetary assets
acquired net of liabilities assumed. The cash consideration paid at closing on
August 26, 1997 is reflected as a dividend by OrthAlliance to the owners of the
Founding Affiliated Practices in the quarter ended September 30, 1997. The
Company's future acquisitions of certain of the assets and liabilities of Allied
Practices will generally result in subsequent annual noncash amortization
charges for intangible assets in the Company's statement of operations.
RESULTS OF OPERATIONS (UNAUDITED)
OrthAlliance, Inc. (the "Company" or "OrthAlliance") was formed to create a
provider of practice management services to orthodontic practices. As a result
of a planned merger of US Orthodontic Care, Inc ("USOC") and Premier Orthodontic
Group, Inc. ("Premier") with and into the Company, the Company succeeded to the
rights and obligations of both USOC and Premier. Certain compensation expenses
were incurred by USOC and Premier during the period from inception (October 21,
1996) through August 26, 1997 in connection with the Offering. In the second
quarter of 1997, OrthAlliance issued warrants to owners of certain Founding
Affiliated Practices, Jonathan Wilfong and Craig Hethcox for their assistance in
attracting orthodontists to the Company and for assisting in the completion of
the initial public offering. OrthAlliance recorded compensation expense of
approximately $2,189,000 for the fair value of these warrants.
In the third quarter of 1997, following the completion of the merger between
USOC, Premier and OrthAlliance, Inc. but prior to the beginning of operations,
warrants held by Jonathan Wilfong and Robert Garces to purchase 225,000 shares
of USOC stock converted into warrants to purchase an equal number of shares of
OrthAlliance stock. OrthAlliance recorded compensation expense of $1,536,000
related to these warrants upon the successful completion of the Offering.
OrthAlliance conducted no significant operations through the date of the
Offering. Following completion of the IPO and the Acquisitions on August 26,
1997, the Company began operations. The unaudited financial statements of the
company for the three and nine month periods ended September 30, 1997 reflect a
net loss of $377,281 and $2,230,397, respectively, on revenues of $4,054,457 for
both periods. This revenue only reflects the Company's Management Agreements for
the period from August 26, 1997 to September 30, 1997, the period subsequent to
the IPO. Excluding the non-recurring compensation expense associated with
the warrants issued to certain organizers, the Company
11
<PAGE> 12
recognized pretax net income of $964,484.
LIQUIDITY AND CAPITAL RESOURCES
The Company continually purchases the patient accounts receivable generated by
each Allied Practice and records these receivables on the Company's balance
sheet.
The receivables are recorded at net realizable value on the date of
purchase. Any subsequent uncollectible account is written off by OrthAlliance
and is funded by the Allied Practice. These accounts receivable should generate
funds required for (i) the expenses incurred by the Company to manage and
administer the Allied Practices, (ii) the management fees, and (iii) salaries
for other employees of the Allied Practices, with the balance due to the owning
orthodontists of the Allied Practices.
As of September 30, 1997, the Company had a working capital balance of
approximately $15 million. The Company anticipates the primary uses of capital
will include additional affiliation with orthodontic practices, certain costs
related to the development of satellite offices and funding the working capital
needs of the Company and the Allied Practices. The Management Agreements provide
for advances by the Company to the Allied Practices for working capital
requirements and other purposes. Such loans generally bear interest at prime
plus one percent and are repayable over varying periods of time not to exceed
five years. It is anticipated that the foregoing capital expenditures will be
funded from the Company's cash flow from operations, existing capital resources
and borrowings under a revolving credit facility that the Company may obtain
in the future. The Company expects that available cash and cash equivalents will
be sufficient to meet its normal operating requirements over the near term.
During the three months ended September 30, 1997, the Company expended
approximately $831,000 of cash for the acquisition of additional practices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
12
<PAGE> 13
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
(a) None
(b) None
(c) None
(d) Pursuant to the registration statement on Form S-1, as amended (No.
333-27143), that became effective on August 21, 1997, the Company
offered and sold to the underwriters (managed by J.C. Bradford &
Co.) 2,990,000 shares of Class A Common Stock in the Company's
initial public offering ("IPO") for an aggregate offering price of
$35,880,000. As of September 30, 1997, the amount of expenses
incurred by the Company in connection with the issuance and
distribution of the Class A Common Stock in the IPO for underwriting
discounts and commissions, finders fees, expenses paid to or for
underwriters is approximately $2,511,600. As of September 30, 1997,
other expenses incurred by the Company in connection with the IPO
total approximately $2,231,000. The net proceeds received by the
Company after deducting the above expenses is approximately
$31,137,400. The Company has used the net proceeds from the Offering
as follows:
<TABLE>
<CAPTION>
<S> <C>
Dividend to Founding Practices $13,759,266
Payment of Debt Assumed in Merger $ 2,416,512
Acquisition of Allied Practices $ 830,799
-----------
$17,006,577
</TABLE>
Of the $2,416,512 used of payment of assumed debt, $271,461 was
paid to Sam Westover (President, Chief Executive Officer and
Director), $172,647 was paid to Paul H. Hayase (Senior Vice
President - Human Resources, General Counsel and Secretary),
$162,877 was paid to J. Dalton Gerlach (Senior Vice President-
Development) and $250,000 was paid to Jonathan E. Wilfong
(Chairman of the Board) for consulting services related to the
public offering.
Of the $13,759,266 used for payment of the dividend to the
Founding Practices, $280,403 was paid to Douglas D. Durbin
(Director), $107,432 was paid to Randall A. Schmidt (Director) and
$582,857 was paid to Randall K. Bennett (Director).
As of September 30, 1997, the remaining balance of approximately
$14,130,826 has been used for general corporate purposes or remains
available for working capital.
Item 3. Defaults Upon Senior Securities
(a) None
(b) None
Item 4. Submission of Matters to a Vote of Security Holders.
(a) None
(b) None
(c) None
(d) None
Item 5. Other Information.
On October 7, 1997, the Company created a wholly owned subsidiary,
OrthAlliance Finance, Inc., a Delaware corporation ("OFI"). OFI is establishing
a patient financing program to provide loan processing services to approved
patients of Allied Practices. OFI will purchase loans made by the Allied
Practices to patients who have met certain credit standards. OFI will pay the
Allied Practices approximately twenty (20%) of the total discounted
consideration that it is paying for the loan upon receipt of appropriate loan
documentation. The balance of the consideration will be paid to the Allied
Practices, with interest, over approximately a 24 to 36 month period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1997.
13
<PAGE> 14
SIGNATURES
Pursuant to 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.
ORTHALLIANCE, INC.
----------------------------------------
(Registrant)
Date November 12, 1997 By: [SIG]
----------------- ------------------------------------
Sam Westover,
President and
Chief Executive Officer
Date November 12, 1997 By: [SIG]
----------------- ------------------------------------
Robert Chilton,
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,472,165
<SECURITIES> 0
<RECEIVABLES> 6,825,458
<ALLOWANCES> 498,050
<INVENTORY> 0
<CURRENT-ASSETS> 24,358,770
<PP&E> 6,478,993
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0
0
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