<PAGE> 1
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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 JUNE 30, 1999
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21535 HAWTHORNE BOULEVARD, SUITE 200
TORRANCE, CALIFORNIA 90503
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 792-1300
(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 [X] No [ ]
<TABLE>
<CAPTION>
Issued and
Class Outstanding at August 13, 1999
----- ------------------------------
<S> <C>
Class A Common Stock, $.001 par value 13,197,961
Class B Common Stock, $.001 par value 249,292
</TABLE>
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ORTHALLIANCE, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION .......................................................................................3
Item 1. Financial Statements.........................................................................................3
Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998..................3
Unaudited Condensed Consolidated Statements of Income for the Three Month and
Six Month Periods Ended June 30, 1999 and June 30, 1998......................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Month Periods
Ended June 30, 1999 and June 30, 1998........................................................................5
Notes to Unaudited 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 Disclosures about Market Risk..................................................14
PART II. OTHER INFORMATION...........................................................................................15
Item 1. Legal Proceedings...........................................................................................15
Item 2. Changes in Securities and Use of Proceeds...................................................................15
Item 3. Defaults Upon Senior Securities.............................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.........................................................15
Item 5. Other Information...........................................................................................16
Item 6. Exhibits and Reports on Form 8-K............................................................................16
Signatures..................................................................................................17
Exhibit Index...............................................................................................18
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ORTHALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 7,703 $ 3,226
Patient receivables, net of allowances of $492 and $435 at
June 30, 1999 and December 31, 1998, respectively...... 9,122 7,765
Unbilled patient receivables, net of
allowances of $416 and $385 at June 30, 1999 and
December 31, 1998, respectively........................ 3,743 3,462
Amounts due from Allied Practices........................ 9,977 9,880
Income taxes receivable.................................. -- 1,102
Current deferred tax assets.............................. 221 578
Other current assets..................................... 329 331
------------- -----------
Total current assets.................................... 31,095 26,344
Property and equipment, net................................. 6,286 4,585
Notes receivable............................................ 4,041 3,607
Non-current deferred tax assets............................. 2,383 2,918
Intangible assets, net...................................... 68,866 50,912
Other, net.................................................. 607 214
------------- -----------
Total assets............................................ $ 113,278 $ 88,580
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 2,053 $ 2,417
Accrued liabilities...................................... 2,574 2,368
Patient prepayments...................................... 4,893 4,777
Practice affiliation payable............................. 4,737 1,760
Income taxes payable..................................... 229 --
Amounts due to Allied Practices.......................... 2,372 1,787
------------- -----------
Total current liabilities............................... 16,858 13,109
------------- -----------
Line of credit borrowings................................... 31,500 15,500
Non-current deferred tax liabilities........................ 674 715
------------- -----------
Total liabilities....................................... 49,032 29,324
------------- -----------
Commitments and Contingencies
Stockholders' equity:
Class A Common Stock, $.001 par value, 70,000,000 shares
authorized, 13,197,961 shares issued and outstanding 13 13
at June 30, 1999 and December 31, 1998.................
Class B Common Stock, $.001 par value, 250,000 shares
authorized, 249,292 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively.... -- --
Additional paid-in capital.................................. 65,188 65,188
Accumulated earnings (deficit).............................. 364 (3,597)
Treasury stock, at cost, 98,940 shares at June 30, 1999 and
170,024 shares at December 31, 1998, respectively....... (1,319) (2,348)
------------- -----------
Total stockholders' equity.............................. 64,246 59,256
------------- -----------
Total liabilities and stockholders' equity.............. $ 113,278 $ 88,580
============= ===========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
<PAGE> 4
ORTHALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues................................ $ 23,860 $ 18,712 $ 45,162 $ 33,362
-------------- ------------- ------------- -------------
Costs and expenses:
Salaries and benefits....................... 7,111 5,855 13,867 10,350
Orthodontic and dental supplies............. 2,241 1,850 4,270 3,183
Rent........................................ 2,036 1,647 3,770 2,959
-------------- ------------- -------------- --------------
Total direct expenses 11,388 9,352 21,907 16,492
General and administrative.................. 6,747 5,518 12,579 9,745
Depreciation and amortization .............. 988 588 1,810 1,074
-------------- ------------- -------------- --------------
Total expenses......................... 19,123 15,458 36,296 27,311
-------------- ------------- -------------- --------------
Net operating income........................ 4,737 3,254 8,866 6,051
Interest expense............................ (489) (87) (883) (94)
Interest income............................. 105 92 192 196
-------------- ------------- -------------- --------------
Income before income taxes.................. 4,353 3,259 8,175 6,153
Provision for income taxes.................. 1,997 1,400 3,685 2,670
-------------- ------------- -------------- --------------
Net income.................................. $ 2,356 $ 1,859 $ 4,490 $ 3,483
============== ============= ============== ==============
Net income per share- basic and diluted..... $ 0.18 $ 0.14 $ 0.34 $ 0.27
=============== ============== ============== ==============
Weighted average number of
common shares outstanding:
Basic..................................... 13,348,313 13,037,235 13,310,886 12,756,440
============== ============= ============== ==============
Diluted................................... 13,348,750 13,191,143 13,332,461 12,841,330
============== ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE> 5
ORTHALLIANCE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................................... $ 4,490 $ 3,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ....................................................... 1,810 1,074
Deferred tax expense ................................................................ 479 --
Changes in assets and liabilities, excluding effects of
acquisitions:
Increase in patient receivables, net .............................................. (272) (324)
Increase in due from Allied Practices ............................................. (97) (1,945)
Decrease (increase) in other current assets ....................................... 27 (166)
Decrease in taxes receivable ...................................................... 1,331 --
(Increase) decrease in other, net ................................................. (11) 19
Increase (decrease) in accounts payable
and accrued liabilities ......................................................... 259 (281)
Increase in amounts due to Allied Practices ....................................... 585 1,023
(Decrease) increase in patient prepayments ........................................ (104) 428
Decrease in income taxes payable .................................................. -- (509)
-------- --------
Net cash provided by operating activities ............................................ 8,497 2,802
-------- --------
Cash flows from investing activities:
Payment for new practice affiliations ............................................. (16,001) (15,578)
Increase in notes receivable ...................................................... (986) (1,120)
Principal payments on notes receivables ........................................... 527 197
Capital expenditures .............................................................. (650) (405)
-------- --------
Net cash used in investing activities ................................................ (17,110) (16,906)
-------- --------
Cash flows from financing activities:
Reduction in bank overdraft ....................................................... (417) (529)
Proceeds from exercise of stock options ........................................... -- 255
Treasury shares purchased ......................................................... (260) --
Increase in line of credit borrowings ............................................. 16,500 8,000
Line of credit refinancing fees ................................................... (473) --
Repayment of debt ................................................................. (2,260) (907)
-------- --------
Net cash provided by financing activities ......................................... 13,090 6,819
-------- --------
Net increase (decrease) in cash and cash equivalents ................................. 4,477 (7,285)
Cash and cash equivalents at beginning of period ..................................... 3,226 12,647
-------- --------
Cash and cash equivalents at end of period ........................................... $ 7,703 $ 5,362
======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest .......................................................................... $ 940 $ 48
Income taxes ...................................................................... 2,354 3,179
Non-cash investing and financing activities:
Acquisition of intangible assets:
Fair value of assets acquired ..................................................... $ 21,462 $ 34,033
Less: Issuance of common stock .................................................... (760) (17,675)
Less: Practice affiliation payable ................................................ (4,737) --
Less: Cash paid ................................................................... (15,965) (15,578)
-------- --------
Notes payable and liabilities assumed ............................................. $ -- $ 780
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
ORTHALLIANCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1999 AND 1998
AND FOR EACH OF THE PERIODS THEN ENDED ARE UNAUDITED
NOTE 1. BUSINESS AND ORGANIZATION
OrthAlliance, Inc. ("OrthAlliance" or the "Company"), a Delaware
corporation, was founded in October 1996 to provide practice management and
consulting services (collectively "management services") to orthodontic and
pediatric dental practices in the United States. Effective prior to the closing
of the initial public offering of shares of OrthAlliance's Class A Common Stock
(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 shares
of Class A Common Stock ("Common Stock") and shares of Class B Common Stock
("Class B Common Stock"). On August 26, 1997, OrthAlliance acquired (the
"Acquisitions") simultaneously with the closing of the IPO certain operating
assets of or the stock of entities holding certain tangible and intangible
assets and assumed certain liabilities of 55 orthodontic practices in exchange
for shares of Common Stock and cash. The Acquisitions have been accounted for in
accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin No. 48.
OrthAlliance has five wholly-owned subsidiaries including PedoAlliance,
Inc, and OrthAlliance Finance, Inc. formed in December 1997; PedoAlliance
Properties Inc., OrthAlliance Properties, Inc., and OrthAlliance Services Inc,
formed in April 1999. The subsidiaries have been formed to provide practice
management, patient financing and consulting and other services to
OrthAlliance's allied practices (the "Allied Practices") and their patients.
OrthAlliance, Inc. and its subsidiaries are collectively referred to as
"OrthAlliance" or the "Company".
NOTE 2. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements of
OrthAlliance are unaudited and reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results for the interim
period in accordance with Securities and Exchange Commission instructions for
Form 10-Q. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated statements of income for the current
interim period are not necessarily indicative of results to be expected for the
current year or any other period.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes thereto
as well as other information included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 and other Company filings with the
Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Consolidation
The Company does not consolidate the operations of the Allied Practices
which it manages as the Company's arrangements with its Allied Practices does
not meet the requirements for consolidation as set forth in EITF 97-2.
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to classifications used in the current period.
6
<PAGE> 7
ORTHALLIANCE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1999 AND 1998
AND FOR EACH OF THE PERIODS THEN ENDED ARE UNAUDITED
NOTE 3. NEW AFFILIATIONS
During the six months ended June 30, 1999 the Company entered into practice
affiliation agreements with 23 practitioners, including eleven orthodontists and
twelve pediatric dentists to provide management services and acquire certain
operating assets for a total consideration (including acquisition costs) of
$21.5 million. This consideration consisted of 93,584 shares of Common Stock
with an aggregated value at various acquisition dates of $0.8 million and cash
obligations of $20.7 million. These Allied Practices operate 44 locations and
generated patient revenue of approximately $20.3 million during the 12-month
period prior to 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.
NOTE 4. PRACTICE AFFILIATION PAYABLE
As of June 30, 1999 and December 31, 1998, practice affiliation payables
approximated $4.7 million and $1.8 million related to the acquisition of
management agreements executed prior to June 30, 1999 and December 31, 1998,
respectively. The amounts are unsecured and do not bear interest. These
amounts were paid by the Company in full in July 1999 and January 1999,
respectively.
NOTE 5. BANK LINE OF CREDIT
On December 30, 1997, the Company entered into a $25 million Revolving
Credit Facility with First Union N.A. which expires in December 2000, with
interest on borrowings at variable rates including the bank's prime lending rate
plus up to 0.5% or LIBOR plus up to 1.5% as determined by certain factors
defined in the Revolving Credit Agreement. Amounts borrowed are secured by the
Company's assets including accounts receivable, management and service
agreements and the capital stock of the Company's wholly owned subsidiaries.
Effective March 26, 1999, the Company executed an amended Revolving Credit
Facility for borrowings of up to $55 million with First Union National Bank, US
National Bank Association, and Union Bank of California N.A. (due March 2002)
under substantially the same terms and conditions as the previous Revolving
Credit Facility which was repaid in full at the closing. As of June 30, 1999 and
December 31, 1998, the outstanding borrowings under the Revolving Credit
Facilities were $31.5 million and $15.5 million, respectively. As of June 30,
1999 the Company was in compliance with the terms and covenants of the Revolving
Credit Facility.
NOTE 6. SUBSEQUENT EVENTS
New Orthodontic Affiliations
The Company entered into agreements with two practices affiliated with the
Company during July 1999 to provide management services and to acquire certain
operating assets for a total consideration (including acquisition costs) of $1.2
million, paid in cash. These Allied Practices operate two locations and
generated historical patient revenue over the prior 12 months of approximately
$1.2 million. Prior patient revenue is not necessarily indicative of the level
of revenue that these practices may be expected to generate in the future.
Registration Statement
On July 30, 1999, the Company filed a registration statement on Form S-4
under the Securities Act of 1933 to register the offering of common stock,
convertible subordinated notes, debt securities, preferred stock and warrants
with an aggregated offering price of up to $65 million. This registration
statement became effective on August 6, 1999 and these underlying securities may
be issued in future practice affiliation transactions.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Statement
The information contained in this Form 10-Q is intended to update the
information contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998 and presumes that readers have access to, and will have
read, the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information contained in such Form 10-K and
other Company filings with the Securities and Exchange Commission ("SEC").
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 and such forward-looking statements are
subject to the safe harbors created thereby. For this purpose, any statements
contained in this Form 10-Q except for historical information may be deemed to
be forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements. In
addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties, as well as on
certain assumptions 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 other things, risks associated with Allied Practice
affiliations, availability of capital or that the Company will remain in
compliance with its credit facilities, fluctuations in operating results because
of affiliations and variations in stock price, continued compliance with the
listing requirements for the Nasdaq national market listing, changes in
government regulations, competitive conditions, risks of operations and growth
of existing and newly affiliated practices, and other risks.
Additional factors that may affect future operating results are discussed
in more detail in the Exhibit 99.1 of the Company's Annual Report on Form 10-K.
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 the assumptions underlying the forward-looking statements
are reasonable, the business and operations of the Company are subject to risks
that increase the uncertainty inherent in the forward-looking statements, and
the inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company will
be achieved. In addition, risks uncertainties and assumptions change as events
or circumstances change. The Company disclaims any obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances occurring subsequent to the
filing of this Form 10-Q with the SEC or otherwise to revise or update any oral
or written forward-looking statement that may be made from time to time by or on
behalf of the Company.
The information contained in this Form 10-Q is not a complete description
of the Company's business or the risks associated with an investment in the
Company. Readers are urged to carefully review and consider the various
disclosures made by the Company in this Report and in the Company's other
filings with the SEC, that attempt to advise interested parties of certain
risks, uncertainties and other factors that may affect the Company's business.
General
The Company began providing practice management services to Allied Practices
in the United States on August 26, 1997. The initial 55 Allied Practices
included 82 practitioners operating 147 offices in 16 states. By the end
of 1997, the Company had affiliated with 11 new practices, including 17
additional practitioners operating out of 31 new locations. In 1998, the Company
affiliated with 36 new practices, including 45 additional orthodontists and
pediatric dentists operating out of 70 locations. During the six month period
ended June 30, 1999, the Company affiliated with 21 new practices, including 23
practitioners operating out of 44 locations. The Company anticipates that future
growth will come from new affiliations, satellite expansion of Allied Practices,
the development of new orthodontic practices and through improved operating
efficiencies.
The Company earns revenue by providing services pursuant to long-term
service agreements or consulting agreements (collectively, "Management
Agreements") with Allied Practices. The Company provides management or
consulting services to each Allied Practice and assumes substantially all
operating expenses except for compensation to the allied orthodontists and
pediatric
8
<PAGE> 9
dentists ("Allied Orthodontists") and other employees that the Company cannot
employ according to applicable state laws. In exchange for assuming these
expenses and providing services, the Company records revenues in amounts equal
to the assumed expenses plus a service fee or consulting fee, as described
below. In general, the Management Agreements provide for the recognition of fees
to the Company based on a negotiated percentage of the "Adjusted Patient
Revenue" of Allied Practices. The timing of the payment of such service fees is
based upon cash collected. 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 services are performed.
For orthodontic services, approximately 20% of the orthodontic contract revenues
are 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. The
percentage includes the estimated costs of diagnosis and treatment plan
development, initial treatment by orthodontic personnel, orthodontic supplies,
and associated administrative services.
The service fee is earned and paid monthly to the Company by each Allied
Practice using one of three different fee structures set forth in the Management
Agreements:
(i) a designated percentage of Adjusted Patient Revenue, ranging from
13.5% to 20%, subject to an annual adjustment based upon improvements in the
Allied Practice's operating margin in the most recent calendar year as
compared with the immediately preceding calendar year. No annual adjustment
will be made which would result in reducing the designated percentage below
the percentage applicable during the first year of the Management Agreement.
Operating margin is defined as the percentage determined by dividing
operating profit by Adjusted Patient Revenue. Operating profit is equal to
Adjusted Patient Revenue less operating expenses, excluding the management
fee and such expenses associated with the Allied Practices which the Company
is prohibited from incurring, primarily consisting of orthodontist
compensation. The average designated percentage is 16.9% for the Allied
Practices subject to this fee structure.
(ii) a designated percentage ranging from 13.5% to 20% of Adjusted
Patient Revenue with a potential annual adjustment of 25% of the increase in
operating margin (as defined in subparagraph (i) above) in a calendar year
as compared to the preceding calendar year multiplied by the Adjusted
Patient Revenue for the current calendar year. The supplemental fee for
improvement in operating margin, if applicable, is paid in a lump sum
payment upon final determination of the Allied Practice's operating margin
for the calendar year. The average designated percentage is 16.7% for the
Allied Practices subject to this fee structure. In some cases, the Allied
Orthodontist must guarantee a minimum level of management fees to be paid by
the Allied Practice for a portion of the agreement ranging from one to 25
years.
(iii) a fixed dollar fee with annual fixed dollar increases for each
year of the term of the Management Agreement.
The Company has entered into agreements with certain Allied Practices to
make the payment of service fees after the first two years contingent on various
factors, including practice profitability compared to acquisition consideration,
timely reporting of information, participation in practice improvement programs
and orthodontist hours worked.
Expenses reported by the Company include certain of the expenses to operate
the orthodontic or pediatric dental offices and all of the expenses of any
corporate offices, facilities or functions. Therefore, salaries and benefits
include the wages, benefits, taxes or other employment costs for all employees
of the Company, including practice office staff, business office staff and
management personnel. Rent includes facility expenses for both practice offices
and corporate offices. General and administrative expenses include professional
services, such as legal and accounting, utilities, advertising, marketing,
insurance, telephone, license fees, office supplies and shipping expenses.
Advertising and marketing costs, which are included in general and
administration costs, includes practice activities to attract new patients and
corporate activities to attract new orthodontists or pediatric dentists to join
the Company. Practice supplies include only those expenses required by the
Allied Orthodontists to provide treatment to patients.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth certain selected condensed consolidated income
statement data for the periods indicated in thousands of dollars and as a
percentage of total net revenues:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------------- -------------------------------------------
1999 1998 1999 1998
------------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues $23,860 100.0% $18,712 100.0% $45,162 100.0% $33,362 100.0%
-------- ----- -------- ----- ------- ----- ------- -----
Costs and expenses:
Salaries and benefits....................... 7,111 29.8 5,855 31.3 13,867 30.7 10,350 31.0
Orthodontic and dental supplies............. 2,241 9.4 1,850 9.9 4,270 9.5 3,183 9.5
Rent........................................ 2,036 8.5 1,647 8.8 3,770 8.3 2,959 8.9
-------- ----- --------- ------ ------ ----- ------- -----
Total direct expenses 11,388 47.7 9,352 50.0 21,907 48.5 16,492 49.4
General and administrative.................. 6,747 28.3 5,518 29.5 12,579 27.9 9,745 29.2
Depreciation and amortization............... 988 4.1 588 3.1 1,810 4.0 1,074 3.2
-------- ----- --------- ------ ------ ----- ------- -----
Total operating expenses............... 19,123 80.1 15,458 82.6 36,296 80.4 27,311 81.9
-------- ----- --------- ------ ------ ----- ------- -----
Operating income............................ 4,737 19.9 3,254 17.4 8,866 19.6 6,051 18.1
Interest expense............................ (489) (2.0) (87) (0.5) (883) (2.0) (94) (0.3)
Interest income............................. 105 0.4 92 0.5 192 0.4 196 0.6
-------- ----- -------- ------ ------ ---- ------- -----
Income before income taxes.................. 4,353 18.2 3,259 17.4 8,175 18.1 6,153 18.4
Provision for income taxes.................. 1,997 8.4 1,400 7.5 3,685 8.2 2,670 8.0
-------- ----- -------- ------ ------ ----- ------- -----
Net income.................................. $ 2,356 9.9 $ 1,859 9.9 $4,490 9.9 $3,483 10.4
======= ===== ======== ====== ====== ===== ====== =====
</TABLE>
Net Revenues
Net revenues for the three months ended June 30, 1999 increased 27.5% to
$23.9 million from $18.7 million in the comparable 1998 quarter. Net revenues
for the six months ended June 30, 1999 increased 35.4% to $45.2 million from
$33.4 million in the comparable 1998 period.
The increase in net revenues for the three months and the six months ended
June 30, 1999 was primarily due to increased affiliations of Allied Practices
and an increase in the internal growth of comparative same-store collections of
more than 9 %. Net revenues as reported by the Company generally include the
Company's contractual service or consulting fee based in part on patient
revenues, as well as reimbursed expenses of the Allied Practices.
Operating Expenses; Net Operating Income
Total operating expenses increased 23.7% to $19.1 million, or 80.1% of net
revenues, in the three months ended June 30, 1999 from $15.5 million, or 82.6%
of net revenues, for the comparable 1998 quarter. Total operating expenses
increased 32.9% to $36.3 million, or 80.4% of net revenues, in the six months
ended June 30, 1999 from $27.3 million, or 81.9% of net revenues, for the
comparable 1998 period.
Direct expenses including salaries and benefits, orthodontic and dental
supplies, and rent increased 21.8% to $11.4 million, or 47.7% of net revenues,
in the three months ended June 30, 1999 from $9.4 million, or 50.0% of net
revenues, for the comparable 1998 quarter. Direct expenses increased 32.8% to
$21.9 million, or 48.5% of net revenues, in the six months ended June 30, 1999
from $16.5 million, or 49.4% of net revenues, for the comparable 1998 period.
Direct expenses have shown an increase in absolute dollars related to the
acquisition of additional Allied Practices during the periods as well as the
expansion and growth of previously existing Allied Practices. The decrease of
direct expenses as a percentage of net revenues in the three months and six
months ended June 30, 1999 was primarily attributable to operating efficiencies
gained as a result of an increased net revenue base and the Company's
10
<PAGE> 11
practice enhancement services. The Company expects that in future periods direct
expenses will increase in absolute dollars, but may vary as a percentage of net
revenues.
General and administrative expenses increased 22.3% to $6.7 million, or
28.3% of net revenues, in the three months ended June 30, 1999 from $5.5
million, or 29.5% of net revenues, for the comparable 1998 quarter. General and
administrative expenses increased 29.1% to $12.6 million, or 27.9% of net
revenues, in the six months ended June 30, 1999 from $9.7 million, or 29.2% of
net revenues, for the comparable 1998 period. General and administrative
expenses have shown an increase in absolute dollars primarily related to the
acquisition of additional Allied Practices during the periods as well as the
expansion and growth of previously existing Allied Practices offsetting
reductions in marketing and advertising and other costs.
Depreciation and amortization expenses increased approximately $0.4 million
or 68.0% to $1.0 million for the three months ended June 30, 1999 and $0.7
million or 68.5% to $1.8 million for the six months ended June 30, 1999, as
compared to $1.1 million for the same periods in 1998. This increase is
attributable to the increase in intangible assets associated with the
affiliations of Allied Practices. Intangible assets, net, increased $18.0
million to $68.9 million at June 30, 1999 from $50.9 million at December 31,
1998. Depreciation and amortization expenses primarily relate to the
depreciation of capital assets and the amortization of excess cost over the fair
value of net assets acquired and certain other intangibles. The Company's policy
is to amortize goodwill over the expected period to be benefited, not to exceed
the term of the Management Agreements or other related agreements.
Interest Expense, net
Interest expense, net increased to $0.4 million for the three months ended
June 30, 1999 from $0.0 in the comparable period in 1998 and increased to $0.7
million for the six month period ended June 30, 1999 from interest income, net
of $0.1 million for the comparable period in 1998. The increase was primarily
due to increased borrowings under the Company's Revolving Credit Facility in
support of Allied Practices affiliated during the period. Company borrowings
under the Revolving Credit Facilities increased from $15.5 million at December
31, 1998 to $31.5 million as of June 30, 1999.
Provision for Income Taxes
The provision for income taxes increased 42.7% to $2.0 million for the three
month period ended June 30, 1999 from $1.4 million for the comparable 1998
period. For the six months ended June 30, 1999 and 1998, the provision for
income taxes was $3.7 million and $2.7 million, respectively. The Company's
effective income tax rates for the periods ended June 30, 1999, were higher than
the statutory tax rate primarily due to the amortization of certain intangible
assets not being deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash flow
from operations, the use of its Revolving Credit Facility and from the proceeds
from the IPO. As of June 30, 1999 and December 31, 1998 the Company had a
working capital balance of $ 14.2 million and $13.2 million, respectively. As of
June 30, 1999 the Company's principal sources of liquidity included cash and
short term investments of approximately $7.7 million and the Revolving Credit
Facility with a balance of $31.5 million bearing interest at the prime interest
rate plus a margin or the LIBOR plus a margin. This facility expires on March
26, 2002. Under the terms of the Revolving Credit Facility (as in effect on
March 26, 1999) the Company had available additional borrowings of $23.5 million
up to its borrowing limit of $55 million. The Company believes that it will be
able to renew its Revolving Credit Facility or obtain alternate financing on
reasonable terms, however, there can be no assurance that the Company will be
able to renew or replace its Revolving Credit Facility or obtain alternate
financing on reasonable terms, if at all. The Company is currently in compliance
with all terms of this facility.
The Company's primary capital needs include additional affiliations with
Allied Practices, certain costs related to the development of Allied Practice
enhancements, development of Allied Practice satellite offices, capital asset
additions, and working capital needs of the Company and Allied Practices and
will be funded through operating cash, the Revolving Credit Facility and other
available capital sources. The Company's operating activities generated cash of
$8.5 million during the six month period ended June 30, 1999 and $2.8 million
during the six months ended June 30, 1998.
Cash provided by financing activities approximated $13.1 million in the six
month period ended June 30, 1999 and $6.8 million in the six months ended June
30, 1998 and resulted primarily from the proceeds from borrowings under the
Revolving Credit Facilities.
Cash used in investing activities of $17.1 million in the six month period
ended June 30, 1999 consisted of payments in connection with Allied Practices
affiliated and capital expenditures, primarily for office and computer equipment
used in Company
11
<PAGE> 12
operations. Cash used in investing activities was $16.9 million in the six month
period ended June 30, 1998 and consisted of payments in connection with Allied
Practices affiliated and capital expenditures, primarily for office and computer
equipment used in Company operations. The Company does not currently have any
material commitments with respect to any capital expenditures.
The working capital requirements and capital resources needed to continue
acquisition and development efforts will be funded through a combination of cash
flows provided by ongoing operations, the Revolving Credit Facility, the
issuance of equity and debt securities, as described in the Company's $65
million registration statement, which became effective on August 6, 1999, and
other sources. Management believes that these sources of capital will be
sufficient to meet the Company's funding requirements for the next twelve
months. The Company may choose to issue debt or equity to meet its future
long-term capital needs, as management deems appropriate. There can be no
assurance that the Company will be able to raise such additional working capital
on acceptable terms, if at all. In the event the Company is unable to raise
additional working capital, further measures would be necessary including,
without limitation, the delay, or scale back of its operations, Allied Practice
affiliations, marketing programs and other actions. Certain of such measures may
require third party consents or approvals, including the Company's bank, and
there can be no such assurance that such consents or approvals can be obtained.
The Management Agreements provide for short-term advances by the Company to
the Allied Practices for working capital requirements and other purposes on
terms to be mutually agreed upon. These items are advanced and repaid in a
revolving manner. Generally, advances are repaid when Allied Practices deposit
patient revenue into their depository accounts. Advances occur when the Allied
Practice operating expenses paid exceed patient revenue earned.
STOCK REPURCHASE PLAN
On October 22, 1998 the Company announced that the Board of Directors
approved the repurchase of shares of its Common Stock up to $5 million. The
Company is authorized to purchase shares over a 12-month period on the NASDAQ
National Market at prevailing prices. As of June 30, 1999, the Company had
repurchased 22,500 shares under this stock repurchase plan.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Therefore, they do not
properly recognize a year that begins with "20" rather than "19". Others do not
correctly process "leap year" dates. As a result, such systems and applications
could fail or create erroneous results unless corrected so that they can
correctly process data related to the Year 2000 and beyond. The Company relies
on its systems and applications in operating and monitoring all major aspects of
its business, including financial systems (such as general ledger, accounts
payable and payroll modules), customer services, networks and telecommunications
systems equipment and end products. The Company also relies, directly and
indirectly, on external systems of suppliers for the management and control of
business enterprises such as customers, suppliers, creditors, financial
organizations, and governmental entities for accurate exchange of data. The
Company could be affected through disruptions in the operation of the
enterprises with which the Company interacts or from general widespread problems
or an economic crisis resulting from noncompliant Year 2000 systems. Despite the
Company's efforts to address the Year 2000 impact on its internal systems and
business operations, there can be no assurance that such impact will not result
in a material disruption of its business or have a material adverse effect on
the Company's business, operating results and financial condition.
Corporate Office
The Company has performed a comprehensive Year 2000 evaluation of the
hardware and software systems utilized by the corporate office in all areas of
office automation, including payroll, payables, general ledger and data
management. As far as can be determined, all computer network systems are in
full compliance. Necessary certificates of compliance have been obtained from
hardware and software vendors.
In the event the Company fails to identify all of the systems at risk for
possible failure due to the Year 2000 issue, the Company plans to retain a
complete backup of the systems and data in use prior to December 31, 1999. If,
after the Company begins operations in the Year 2000, it is determined that a
system has failed, the Company can reset all system clocks to a date prior to
January 1, 2000 and restore the affected systems from the copy. This will
provide the Company with more time to repair the affected systems.
The Company has requested Year 2000 compliance certificates from its
material third party suppliers and vendors. The Company received compliance
certificates from approximately 70% of such parties. The Company will verify the
status of the remaining parties
12
<PAGE> 13
through follow-up requests. The Company is uncertain whether the risks of
non-Year 2000 compliance by such parties will materially affect the Company's
operations or financial position. The Company has determined it is not
substantially reliant on any one vendor and expects to use alternate resources
in order to continue daily operations. There can be no assurance that these
parties will not suffer a Year 2000 business disruption which could have an
adverse effect on the Company's results of operations or financial position.
The corporate office does not have any "Non-IT" systems that might be
affected by the Year 2000 issue. As an example, the Company does not own any
automated machinery, elevators, telephone switches, or other equipment that
might contain micro-controllers. Therefore, the Company does not believe that it
is at risk from any failure associated with these kinds of devices.
Because the Company started operations in August 1997, most of the corporate
office systems were already Year 2000 compliant. Accordingly, any costs
associated with Year 2000 upgrades, including fiscal year 1998 and year-to-date
as of August 13, 1999 have not been significant. Additionally, the Company does
not expect to incur any significant costs in the future.
Allied Practice Locations
The Company has completed a survey of all practice hardware and software to
identify non-compliant systems and to make the necessary recommendations for
achieving compliance. The Company is currently advising the Allied Practices to
install upgrades and replace hardware and software as necessary. The Allied
Practices are contractually responsible to reimburse the Company for any costs
the Company incurs to upgrade the Allied Practices' hardware and software,
whether owned by themselves or the Company.
The Company believes that the significant systems that may impact the Allied
Practice's operations are the practice management and billing system and the
accounts payable system. In the event that the Allied Practices have not
upgraded or replaced their hardware, software or non-IT devices, the Company
believes that the impact on Allied Practice operations would be minimal.
In the event that these systems are not Year 2000 compliant, certain
procedures can be utilized to minimize the affect on practice operations. These
procedures may include the following: manual billings, manual posting of
payments to patient records and manual preparation of vendor payments. Although
additional staffing may be necessary to perform these tasks without the benefit
of the affected automated systems, these functions are not critical to providing
orthodontic or pediatric dental services.
Additionally, the Company plans to advise the Allied Practices to have
contingency plans, including a complete backup of all systems and data prior to
December 31, 1999. If the Allied Practices determine that a system has failed
after operations commence in the year 2000, they can reset all system clocks to
a date prior to January 1, 2000 and restore the affected systems from the
backup. This will provide the Allied Practice with more time to repair the
affected systems.
The Company has advised the Allied Practices to request Year 2000 compliance
certificates from their key material third party vendors and suppliers. The
Company is uncertain whether the risks of non-Year 2000 compliance by such third
parties will materially affect the Company's operations or financial position.
The Company has determined that the Allied Practices are not substantially
reliant on any individual third party and expects them to use alternate
resources if necessary to continue daily operations.
The Company may own some "Non-IT" systems in practice offices that might be
affected by the Year 2000 issue. The Company has not yet determined which
offices may contain such devices. The Company has advised each Allied Practice
to evaluate all equipment to determine if any such devices exist. In the event
that some of the Allied Practices have not upgraded their significant non-IT
systems, such as x-ray and imaging machines, the Allied Practices can outsource
the procedures in order to continue its daily operations. The Allied Practices
are contractually required to reimburse the Company for any costs the Company
incurs to repair or replace any non-compliant devices, whether owned by
themselves or the Company.
Other
The Company has estimated that the total cost of Year 2000 compliance is
negligible and management's current estimate is that the costs associated with
the Year 2000 issue should not have a material adverse effect on the results of
operations or financial position of the Company in any given year. The Company
does not have a formal contingency plan as the impacts have not been deemed
significant, however the Company will consider developing a formal plan on the
completion of the Year 2000 compliance assessments.
The foregoing statements are based upon management's best estimates at the
present time, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third party
modification plans and other factors.
13
<PAGE> 14
There can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the nature and amount of programming
required to upgrade or replace each of the affected programs, the rate and
magnitude of related labor and consulting costs and the success of the Company's
external suppliers and Allied Practices in addressing the Year 2000 issue. The
Company's evaluation is ongoing and it expects that new and different
information will become available to it as the evaluation continues.
Consequently, there can be no assurance that all material elements will be Year
2000 compliant in time.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." This statement establishes disclosure requirements
related to the reporting of comprehensive income and its components. The Company
did not have any comprehensive income for the year ended December 31, 1998 and
for the six months ended June 30, 1999.
Effective January 1, 1998, the Company implemented SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." This standard
established disclosure requirements related to the reporting of the Company's
operating segments. As of June 30, 1999, the Company does not have any
reportable segments.
The Emerging Issues Task Force of the Financial Accounting Standards Board
issued its Consensus Opinion 97-2 ("EITF 97-2"), which addresses certain
specific matters pertaining to the physician, dentistry and veterinary practice
management industries. EITF 97-2 became effective for the Company for its year
ending December 31, 1998. EITF 97-2 addresses the ability of certain practice
management companies to consolidate the results of certain practices with which
it has an existing contractual relationship. The Company currently does not
consolidate the operations of the practices that it manages. The guidance in
EITF 97-2 did not change the Company's accounting method because the Company's
arrangements with its Allied Practices do not meet the requirements for
consolidation as set forth in EITF 97-2.
Effective January 1, 1999, the Company implemented SOP 98-5 "Reporting on
Costs of Start-up Activities." The SOP requires net costs of start-up
activities, including organizational costs, to be expenses as incurred. In
addition, the SOP requires that previously capitalized start-up costs be
expenses upon the effective date. The Company did not have any start-up costs
capitalized as of the implementation date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is involved in various legal proceedings,
claims and litigation matters arising in the ordinary course of business,
including labor and personnel related issues. In the opinion of management, the
outcome of such routine matters will not have a material adverse effect on the
Company's business, financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) None
(d) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Company was held on Thursday,
June 3, 1999. At this meeting, the following matters were voted upon by the
Company's stockholders.
(b) Election of Class II Directors
Randall K. Bennett, D.D.S., M.S., G. Harry Durity and Raymond G.W. Kubisch,
D.D.S., M.S.D. were elected to serve as Class II directors of the Company
until the 2002 Annual Meeting of Stockholders or until their successors are
elected and qualified. The vote was as follows:
<TABLE>
<CAPTION>
VOTES CAST IN VOTES CAST AGAINST ABSTENTIONS
NAME FAVOR OR WITHHELD NON VOTES
---- ------------- ------------------ -----------
<S> <C> <C> <C>
Randall K. Bennett, D.D.S., M.S. 10,048,352 16,900 0
G. Harry Durity 10,048,352 16,900 0
Raymond G.W. Kubisch, D.D.S., M.S.D. 10,048,352 16,900 0
</TABLE>
The following directors continued in office following the meeting:
<TABLE>
<CAPTION>
NAME TERM EXPIRES
---- -------------
<S> <C>
Randall K. Bennett, D.D.S., M.S. 2002
Douglas D. Durbin, D.M.D., M.S.D. 2001
Raymond G.W. Kubisch, D.D.S., M.S.D. 2002
Craig L. McKnight 2000
W. Dennis Summers, Esq, 2001
Sam Westover 2000
Jonathan E. Wilfong 2000
</TABLE>
(c)(i) Approval of Amendment to the 1997 Employee Stock Option Plan
The stockholders of the Company approved an increase in the number of shares
of Common Stock which may be issued subject to options granted under the 1997
Employee Stock Option Plan from 1,500,000 shares to 2,000,000 subject to certain
anti-dilution provisions set forth in the plan. The vote was as follows:
15
<PAGE> 16
VOTES CAST IN VOTES CAST AGAINST ABSTENTIONS
FAVOR OR WITHHELD NON VOTES
------------- ------------------ -----------
7,567,463 87,875 2,409,914
(c)(ii) Approval of Amendments to the 1997 Non-Employee Director Stock Plan
The stockholders of the Company approved amendments to the 1997
Non-Employee Director Stock Plan ("Director Plan") to provide that each director
who is not a full-time employee of the Company shall receive an automatic grant
of 10,000 options to purchase Common Stock upon election or appointment of the
director (pro-rated to the next annual meeting if appointed mid-term) and 10,000
options to purchase Common Stock at the end of each year such director serves as
a member of the Board of Directors in lieu of discretionary grants of options to
any directors as determined by the Compensation Committee and to change the name
of such plan to the "1997 Director Stock Plan". The vote was as follows:
VOTES CAST IN VOTES CAST AGAINST ABSTENTIONS
FAVOR OR WITHHELD NON VOTES
------------- ------------------ -----------
9,938,188 88,485 38,579
(c)(iii) Approval of the 1997 Orthodontist Stock Option Plan
The stockholders of the Company approved amendments to the 1997
Orthodontist Stock Option Plan to expand the group of eligible participants in
the plan to include consultants of the Company and to increase the number of
shares of Common Stock authorized to be issued pursuant to grants under the 1997
Orthodontist Stock Option Plan from 100,000 to 300,000. The vote was as follows:
VOTES CAST IN VOTES CAST AGAINST ABSTENTIONS
FAVOR OR WITHHELD NON VOTES
------------- ------------------ -----------
7,549,623 106,075 2,409,554
(c)(vi) Selection of Independent Auditors
The stockholders of the Company ratified the appointment of Arthur Andersen
LLP as the Company's independent auditors for the fiscal year ending December
31, 1999. The vote was as follows:
VOTES CAST IN VOTES CAST AGAINST ABSTENTIONS
FAVOR OR WITHHELD NON VOTES
------------- ------------------ -----------
9,886,376 173,186 5,690
(d) None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated as of June 16, 1999 between
OrthAlliance, Inc. and James Wilson (incorporated by reference
to Exhibit 10.18 of the Company's Form S-4 Registration
Statement, number 333-84197).
27.1 Financial Data Schedule for the six month period ended June 30,
1999.
99.1 Safe Harbor Compliance Statement (incorporated by reference to
Exhibit 99.1 of the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1997).
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1999.
16
<PAGE> 17
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: August 13, 1999 By: /s/ Sam Westover
------------------------------------------
Sam Westover,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1999 By: /s/ James C. Wilson
------------------------------------------
James C. Wilson,
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.1 Employment Agreement dated as of June 16, 1999 between OrthAlliance,
Inc. and James Wilson (incorporated by reference to Exhibit 10.18 of the
Company's Form S-4 Registration Statement, number 333-84197).
27.1 Financial Data Schedule for the six month period ended June 30, 1999.
99.1 Safe Harbor Compliance Statement (incorporated by reference to Exhibit
99.1 of the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1997).
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,703,000
<SECURITIES> 0
<RECEIVABLES> 13,773,000
<ALLOWANCES> (908,000)
<INVENTORY> 0
<CURRENT-ASSETS> 31,095,000
<PP&E> 11,541,000
<DEPRECIATION> (5,255,000)
<TOTAL-ASSETS> 113,278,000
<CURRENT-LIABILITIES> 16,858,000
<BONDS> 31,500,000
0
0
<COMMON> 13,000
<OTHER-SE> 64,233,000
<TOTAL-LIABILITY-AND-EQUITY> 113,278,000
<SALES> 0
<TOTAL-REVENUES> 45,162,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,104,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 883,000
<INCOME-PRETAX> 8,175,000
<INCOME-TAX> 3,685,000
<INCOME-CONTINUING> 4,490,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,490,000
<EPS-BASIC> .34
<EPS-DILUTED> .34
</TABLE>
