<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 MARCH 31, 1998
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)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (310) 791-5656
---------------
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 [X] No [ ]
The number of shares of Class A Common Stock and Class B Common Stock of the
Registrant outstanding at March 31, 1998 was 12,472,950 and 250,000,
respectively.
===============================================================================
<PAGE> 2
<TABLE>
<CAPTION>
ORTHALLIANCE, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION...................................................... 3
Item 1 Financial Statements and General Information............................... 3
Condensed Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1998 (unaudited)....................................... 3
Condensed Consolidated Statement of Operations for the Three Months Ended
March 31, 1997 and March 31, 1998 (unaudited).................... 4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1997 and March 31, 1998 (unaudited).................... 5
Notes to Condensed Consolidated Financial Statements....................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 8
Item 3 Quantitative and Qualitative Disclosure about Market Risk.................. 10
PART II OTHER INFORMATION.......................................................... 10
Item 1 Legal Proceedings.......................................................... 10
Item 2 Changes in Securities and Use of Proceeds.................................. 10
Item 3 Defaults Upon Senior Securities............................................ 11
Item 4 Submission of Matters to a Vote of Security Holders........................ 11
Item 5 Other Information.......................................................... 11
Item 6 Exhibits and Reports on Form 8-K........................................... 11
</TABLE>
<PAGE> 3
PART I
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ORTHALLIANCE, INC.
CONDENSED CONDOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF AS OF
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash and cash equivalents ................... $ 3,907,000 $ 12,647,000
Patient receivables, net of allowances of $270,000
and $242,000 ....................................... 5,038,000 4,470,000
Unbilled patient receivables, net of
allowances of $304,000 and $293,000 ................ 2,740,000 2,642,000
Amounts due from Allied Practices .................... 4,053,000 2,489,000
Current deferred tax assets .......................... 984,000 984,000
Other current assets ................................. 298,000 67,000
------------ ------------
Total current assets ................................ 17,020,000 23,299,000
Property and equipment, net ............................. 4,502,000 3,214,000
Notes receivable from Allied Practices .................. 2,290,000 2,010,000
Non-current deferred tax assets ......................... 4,209,000 4,209,000
Intangible assets, net .................................. 28,802,000 11,313,000
Other, net .............................................. 282,000 318,000
------------ ------------
Total Assets ........................................ $ 57,105,000 $ 44,363,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities ....... $ 2,055,000 $ 3,024,000
Patient prepayments .................................. 2,913,000 2,710,000
Liabilities assumed from Allied Practices ............ 283,000 410,000
Line of Credit borrowings ............................ 2,000,000 --
Income taxes payable ................................. 542,000 1,308,000
Current deferred tax liabilities ..................... 1,672,000 1,672,000
Amounts due to Allied Practices ...................... 1,876,000 1,090,000
------------ ------------
Total current liabilities ........................... 11,341,000 10,214,000
------------ ------------
Non-current deferred tax liabilities .................... 121,000 121,000
------------ ------------
Total liabilities ................................... 11,462,000 10,335,000
------------ ------------
Commitments and Contingencies
Stockholders' equity:
Class A Common Stock, $.001 par value, 20,000,000
shares authorized, 12,472,950 shares and 11,486,761
shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively ................. 12,000 11,000
Class B Common Stock, $.001 par value, 250,000 shares
authorized, 250,000 shares issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively ........................................ -- --
Additional paid-in capital .............................. 55,195,000 45,149,000
Accumulated deficit ..................................... (9,564,000) (11,132,000)
------------ ------------
Total stockholders' equity .......................... 45,643,000 34,028,000
------------ ------------
Total liabilities and stockholders' equity .......... $ 57,105,000 $ 44,363,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
<PAGE> 4
<TABLE>
<CAPTION>
ORTHALLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Net revenues ................. $ 14,650,000 $ --
------------ ----
Direct expenses:
Salaries and benefits ........ 4,495,000 --
Orthodontic supplies ......... 1,334,000 --
Rent ......................... 1,312,000 --
------------ ----
7,141,000 --
Depreciation and
amortization ................ 486,000 --
General and administrative ... 4,228,000 --
------------ ----
Total expenses ............... 11,855,000 --
------------ ----
Net operating income ......... 2,795,000 --
Interest expense ............. (7,000) --
Interest income .............. 104,000 --
------------ ----
Income before income taxes ... 2,892,000 --
Provision for income taxes ... 1,271,000 --
------------ ----
Net income ................... $ 1,621,000 $ --
============ ====
Basic and diluted net
income per share ............. $ 0.13 $ --
============ ====
Number of shares used in
Calculating basic net
income per share ............. 12,472,525 1
============ ====
Number of shares used in
Calculating diluted net
income per share ............. 12,482,450 1
============ ====
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 5
<TABLE>
ORTHALLIANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................... $ 1,621,000 $--
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................ 486,000 --
Changes in assets and liabilities, excluding
effects of acquisitions:
Decrease in patient receivables ............. 95,000 --
Increase in due from Allied Practices ....... (1,553,000) --
Increase in other assets .................... (231,000) --
Decrease in accounts payable and accrued .... (321,000) --
liabilities
Increase in due to Allied Practices ......... 786,000 --
Increase in patient prepayments ............. 203,000 --
Decrease in income taxes payable ............ (766,000) --
------------ ----
Net cash provided by operating activities .... 320,000 --
------------ ----
Cash flows from investing activities:
Payment for new practice affiliations ....... (8,868,000) --
Loans to Allied Orthodontists ............... (338,000) --
Purchase of loans from Allied Practices ..... (79,000) --
Principal payments on loans ................. 73,000 --
Capital expenditures ........................ (293,000) --
------------ ----
Net cash used in investing activities ........ (9,505,000)
------------ ----
Cash flows from financing activities:
Reduction in bank overdraft ................. (648,000) --
Borrowing on line of credit ................. 2,000,000 --
Reduction in assumed liabilities............. (907,000) --
------------ ----
Net cash provided by financing activities ... 445,000
------------ ----
Net decrease in cash and cash equivalents ... $ (8,740,000) $--
============ ====
Cash and cash equivalents at beginning of .... $ 12,647,000 $--
period
Cash and cash equivalents at end of period ... $ 3,907,000 $--
============ ----
Supplemental cash flow information:
Interest paid ............................... $ 7,000 $--
Taxes paid .................................. $ 2,037,000 $--
Noncash investing and financing activities
Acquisition of businesses:
Fair value of assets acquired .............. $ 19,695,000 --
Less: Issuance of common stock ............. (10,047,000) --
Less: Cash paid ............................ (8,868,000) --
------------ ----
Liabilities assumed ........................ $ 780,000 $--
============ ====
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE> 6
ORTHALLIANCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS AND ORGANIZATION
Organization
OrthAlliance, Inc. ("OrthAlliance" or the "Company") (formerly known as
Premier Orthodontic Holdings, Inc.), a Delaware corporation, was founded in
October, 1996 to provide practice management and consulting services
(collectively "management services") to orthodontic practices in the United
States.
Effective prior to the closing of the initial public offering (the
"Offering" or "IPO"), Premier Orthodontic Group, Inc. ("Premier") and
US Orthodontic Care, Inc. ("USOC") merged with and into OrthAlliance. In the
merger, the outstanding common stock of USOC and Premier converted into an
aggregate of 1,750,000 shares of Class A Common Stock ("Common Stock") and
250,000 shares of Class B Common Stock ("Class B Common Stock"). Each share
of USOC common stock converted into 0.496 shares of Common Stock and 0.071
shares of Class B Common Stock. Each share of Premier common stock converted
into 5,250 shares of Common Stock and 750 shares of Class B Common Stock. The
USOC and Premier stockholders received an aggregate of 1,225,000 and 525,000
shares of Common Stock and 175,000 and 75,000 shares of Class B Common
Stock, respectively.
On August 26, 1997, OrthAlliance acquired (the "Acquisitions")
simultaneously with the closing of the IPO of its Class A 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 Practices") in exchange for 5,882,984 shares of
Common Stock and $13,800,000 in cash. The underwriters exercised an
overallotment option to purchase an additional 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 commission) were
$33,368,400. Other expenses incurred by the Company related to the Offering
totalled approximately $2,200,000 and these were recognized by Premier and USOC
prior to the merger. The Acquisitions have been accounted for in accordance with
the Securities and Exchange Commission's Staff Accounting Bulletin No. 48.
Basis of Presentation
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 March 31, 1998.
Operating results for interim periods are not necessarily indicative of
the results for full years. These condensed consolidated financial statements
should 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 Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, No. 000-22975 (the "Annual Report").
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 March 31, 1998
and December 31, 1997, and its results of operations and cash flows for the
three months ended March 31, 1998 and March 31, 1997.
6
<PAGE> 7
2. NEW ORTHODONTIST AFFILIATIONS
From January 1, 1998 to March 31, 1998, the Company entered into
agreements with seven Allied Practices which included 13 additional
orthodontists for a total consideration (including acquisition costs) of
$19,695,000. This consideration consisted of 990,829 shares of Common Stock
with an aggregated value at various acquisition costs of $10,047,000 and payment
of $8,868,000 cash. The Company also assumed $780,000 in debt related to assets
acquired. These orthodontists operated out of 30 locations and generated
patient revenue of approximately $15.9 million during a 12 month period
immediately preceding the date of affiliation. Prior patient revenue is not
necessarily indicative of the level of revenue these practices may be expected
to generate in the future. The Company has entered into agreements with certain
of these Allied Practices to make the payment of 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.
3. ORTHALLIANCE FINANCE, INC.
On October 7, 1997, the Company created a wholly owned subsidiary,
OrthAlliance Finance, Inc., a Delaware corporation ("OA Finance"). OA Finance
has established a patient financing program for approved patients of Allied
Practices, and purchases loans made by Allied Practices to these patients. OA
Finance either pays the Allied Practices approximately 20% of the total
discounted consideration that it is paying for the loan, upon receipt of the
appropriate loan documentation, and pays the balance, with interest, over
approximately 24 months. Alternatively, 100% of the discounted consideration is
paid at the option of the Allied Practice. As of March 31, 1998, OA Finance
purchased 28 loans for a total value of $79,000.
4. SUBSEQUENT EVENTS
New Orthodontic Affiliations
Subsequent to March 31, 1998, seven practices affiliated with the
Company which included 10 orthodontists. All of these orthodontists operate from
established practices that affiliated with the company since March 31, 1998. The
seven practices that affiliated with the Company since March 31, 1998 operate 12
locations and generated historical patient revenue over the prior 12 months of
approximately $6.5 million (unaudited). Prior patient revenue is not necessarily
indicative of the level of revenue that these practices may be expected to
generate in the future. The Company has entered an agreement with a certain
Allied Practice 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.
7
<PAGE> 8
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
The Company began providing practice management services to Allied
Practices in the United States on August 26, 1997 and therefore, comparisons
with the first quarter of 1997 are not meaningful. The initial 55 Allied
Practices included 82 Allied Orthodontists operating 147 offices in 16 states.
By March 31, 1998, the Company had affiliated with 30 additional orthodontists
operating out of 61 new locations.
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 has entered into and 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,
as compared to acquisition consideration, timely reporting of information,
participation in practice improvement programs and orthodontist hours worked.
Except with respect to five 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.
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 provides the management services.
8
<PAGE> 9
Results Of Operations (Unaudited)
The financial statements of the Company for the three months ended March
31, 1998 reflect net income of $1,621,000 on revenues of $14,650,000.
The following table sets forth the percentage of certain items in relation
to net revenues.
<TABLE>
<S> <C>
Net Revenue .......................................... 100.0%
Direct Expenses
Employee costs ................................. 30.7
Practice supplies .............................. 9.1
Rent ............................................ 9.0
-----
Total direct expenses .............................. 48.8
Depreciation and amortization .................. 3.3
General and Administrative ..................... 28.9
-----
Net operating income ................................ 19.0
Interest expense ............................... (0.1)
Interest income ................................ 0.7
-----
Income before income taxes .......................... 19.6
Provision for income taxes .................... 8.7
-----
Net income .......................................... 10.9
</TABLE>
Net Revenue. Net revenue reported by the Company is derived by applying
the appropriate management fee percentage against Adjusted Patient Revenue, and
adding the reimbursement from the Allied Practices of practice expenses paid by
the Company. In addition, the Company does include in revenue the amortization
of certain prepaid revenue balances that were acquired from the Allied
Practices. Prepaid revenue is recognized as the orthodontist provides the
services that were prepaid by patients before the practice affiliated with the
Company.
Direct Expenses. Direct expenses include clinical expenses paid and
corporate expenses incurred during the quarter. All expense categories are
consistent with management's expectations based upon expense information
provided by the Allied Practices prior to affiliation with the Company. Direct
expenses as a percentage to net revenue are consistent with levels seen within
the industry.
Depreciation and Amortization. Depreciation and amortization expense
relates to the depreciation of capital assets and the amortization of intangible
assets acquired resulting from new practice affiliations. Service agreement
intangibles are amortized over the expected period to be benefited, not to
exceed the term of the Management Agreements, which is 20 to 25 years.
Depreciation and amortization expense increased in the first quarter of 1998
compared with the fourth quarter of 1997 due to the additional service agreement
intangible assets amortization associated with new practice affiliations
completed in the first quarter. Total depreciation and amortization expense of
$486,000 is consistent with management's expectations based upon the number and
size of the affiliations completed.
Interest Income. This represents interest earned on excess cash balances
invested primarily in short-term money market accounts, loans to affiliated
practices and loans to patients through OA Finance. Earnings on invested excess
cash declined during the quarter as excess cash balances were used to pay the
consideration for practice affiliations.
9
<PAGE> 10
Interest Expense. This represents interest incurred on borrowings against
the First Union $25 million revolving credit facility.
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 March 31, 1998, the Company had a working capital balance of
approximately $5.7 million. The decline in working capital since December 31,
1997 is primarily attributable to the investment in new practice affiliations
during the quarter. The Company continues to anticipate 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 working capital
and borrowings under the revolving credit facility. During the three months
ended March 31, 1998, the Company expended approximately $8.9 million of cash
for the acquisition of certain net assets of and the affiliation with new
practices.
As of March 31, 1998, the Company has taken advances against the revolving
credit facility totaling $2,000,000. These borrowings were used, along with
other capital resources, for practice affiliations and to support the working
capital requirements of the Company. The Company expects to take additional
advances from the credit facility in the near-term to satisfy the Company's
working capital requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) None
(b) None
(c) None
10
<PAGE> 11
(d) Pursuant to the Company's 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 IPO for an
aggregate offering price of $35,880,000. As of March 31, 1998, the
amount of expenses incurred by the Company in connection with the
issuance and distribution of the 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 March 31, 1998,
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
$31,137,400. The Company has used the net proceeds from the Offering
as follows:
<TABLE>
<S> <C>
Dividend to Founding Affiliated
Practices................................$ 13,759,266
Payment of Liabilities Assumed in Merger...$ 4,407,812
Acquisition of Additional Allied
Practices................................$ 12,970,322
------------
$ 31,137,400
============
</TABLE>
Of the $2,416,512 used for payment of assumed liabilities, $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 IPO.
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 March 31, 1998, there was no remaining unused balance of IPO
proceeds.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 333-27143,
as amended).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement
on Form S-1 Registration No. 333-27143, as amended).
4.1 Amended and Restated Certificate of Incorporation of the Company,
including, without limitation Section 4 (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form S-1, Registration No. 333-27143, as amended.
4.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement
on Form S-1 Registration No. 333-27143, as amended.
27.1 Financial Data Schedule.
99.1 Safe Harbor Compliance Statement.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
March 31, 1998.
11
<PAGE> 12
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: May 12, 1998 By: /s/ Sam Westover
----------------------------------
Sam Westover,
President and
Chief Executive Officer
Date May 12, 1998 By: /s/ Robert Chilton
----------------------------------
Robert Chilton,
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,907,000
<SECURITIES> 0
<RECEIVABLES> 8,352,000
<ALLOWANCES> (574,000)
<INVENTORY> 0
<CURRENT-ASSETS> 17,020,000
<PP&E> 8,637,000
<DEPRECIATION> (4,502,000)
<TOTAL-ASSETS> 57,105,000
<CURRENT-LIABILITIES> 11,341,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 45,643,000
<TOTAL-LIABILITY-AND-EQUITY> 57,105,000
<SALES> 0
<TOTAL-REVENUES> 14,650,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,855,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> 2,892,000
<INCOME-TAX> 1,271,000
<INCOME-CONTINUING> 1,621,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,621,000
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<PAGE> 1
EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT
The Company believes that the following factors could cause actual
results to differ materially from those in forward-looking statements set forth
in this Form 10-Q.
1. The Company's ability to grow through affiliations with additional
orthodontic practices.
2. The Company's ability to identify suitable affiliation candidates and to
profitably manage or successfully integrate new Allied Practices with
the Company and its existing Allied Practices.
3. The level of competition in the orthodontic practice management
industries.
4. Regulatory development and changes in the United States healthcare
system and dental and orthodontic professions that may affect the
profitability of the Company or the enforceability of the Company's
operative agreements with its Allied Practices and Allied Orthodontists.
5. The Company's dependence on revenues generated by the Allied
Orthodontists of the Allied Practices.
6. The Company's ability to secure capital, and the related cost of such
capital, needed to fund the future growth of the Company through
affiliations with orthodontic practices as well as internal growth.
7. The Company's ability to staff the Allied Practices with appropriate
qualified personnel.
8. The continued availability to the Company of adequate insurance.
9. The Allied Practices' reputation for delivering high-quality patient
care and their ability to attract and retain patients.
The foregoing factors should not be construed as exhaustive or as an
admission regarding the adequacy of disclosures previously made by the Company.
All capitalized terms used in this Exhibit 99.1 not otherwise defined herein
have the same meanings as prescribed to such terms in the Form 10-Q.
