<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 1998

               [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                        Commission File Number 000-27836

                                ORTHODONTIX, INC.
                                -----------------
              (Exact name of small business issuer in its charter)

                 FLORIDA                                    65-0643773
    ------------------------------                      -------------------
    (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                      Identification No.)

           2222 PONCE DE LEON BLVD., 3RD FLOOR, CORAL GABLES, FL 33134
           -----------------------------------------------------------
                    (Address of principal executive offices)

                                 (305) 446-8661
                                 --------------
                (Issuer's telephone number, including area code)

Indicate by check mark whether the issuer: (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 issuer 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 outstanding of the issuer's common stock, par value $.0001
per share (the "Common Stock") as of August 13, 1998 was 5,914,637.

Traditional Small Business Disclosure Format (check one):  Yes  [X]  No  [ ]

DOCUMENTS INCORPORATED BY REFERENCE:   None



<PAGE>   2



                                ORTHODONTIX, INC.

                                   FORM 10-QSB
                       FOR THE QUARTER ENDED JUNE 30, 1998

 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
PART I.       FINANCIAL INFORMATION......................................................................1

     Item 1.      Financial Statements...................................................................1

     Item 2.      Management's Discussion and Analysis or Plan of Operation..............................1

PART II.      OTHER INFORMATION..........................................................................5

     Item 1.      Legal Proceedings......................................................................5

     Item 2.      Changes in Securities..................................................................5

     Item 3.      Defaults Upon Senior Securities........................................................5

     Item 4.      Submission of Matters to Vote of Security Holders......................................5

     Item 5.      Other Information......................................................................6

     Item 6.      Exhibits and Reports on Form 8-K.......................................................6

SIGNATURES...............................................................................................7

FINANCIAL STATEMENTS...................................................................................F-1
</TABLE>



<PAGE>   3




                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         The unaudited, condensed consolidated financial statements included
herein, commencing at page F-1, have been prepared in accordance with the
requirements of Regulation S-B and, therefore, omit or condense certain
footnotes and other information normally included in financial statements
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial information for
the interim periods reported have been made. Results of operations for the three
and six months ended June 30, 1998 are not necessarily indicative of the results
of operations expected for the year ending December 31, 1998.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         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
Orthodontix, Inc. (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 filings with the
Securities and Exchange Commission.

OVERVIEW

         Orthodontix Subsidiary, Inc. (f/k/a Orthodontix, Inc.) consummated a
merger with Embassy Acquisition Corp. ("Embassy"), a publicly held Florida
corporation, resulting in Orthodontix becoming a wholly owned subsidiary
corporation of Embassy (the "Merger"). Under the terms of the Merger, Embassy,
among other things, issued a total of 3,374,637 shares of its Common Stock
(representing approximately 57.1% of its Common Stock subsequent to the Merger)
in exchange for all of the outstanding shares of Common Stock of Orthodontix,
the acquisition of certain assets and the assumption of certain liabilities of
26 orthodontic practices (the "Founding Practices") and the entering into of
long-term Administrative Services Agreements. In connection with the closing of
the Merger, Embassy changed its name to Orthodontix, Inc. (the "Company") and
began providing practice management services to the Founding Practices. The
Company's Registration Statement on Form S-4, (SEC File No. 333-48677), relating
to the Merger is incorporated by reference herein. The Merger resulted in both a
change in the majority equity ownership and management of Embassy and the
cessation of Embassy's business operations as previously conducted. The Merger
was accounted for as a capital transaction equivalent to the issuance of stock
by the Company, for the net monetary assets of Embassy accompanied by a
recapitalization of Orthodontix. Results of

                                        1


<PAGE>   4


operations for the three and six months ended June 30, 1998 reflect the
organizational efforts of the Company prior to the date of the Merger and
therefore, in the Company's opinion, are not comparable to the corresponding
periods in the preceding year.

         The Founding Practices included 26 orthodontists operating 40 offices
in 11 states. Unless the context otherwise requires, references to
(i) "Affiliated Practices" include the Founding Practices, and any orthodontic
practice which entered or enters into a similar arrangement with the Company
whereby it is provided practice management services by the Company, with
orthodontic services provided by the Affiliated Orthodontists; and
(ii) "Affiliated Orthodontists" include orthodontists directly employed by the
PA Contractors or the Practitioner PAs, as hereinafter defined.

         The Company provides practice management services to the Affiliated
Practices pursuant to a long-term Administrative Services Agreement with
separately organized affiliated professional associations (collectively, the "PA
Contractors"). Under the Administrative Services Agreements, the Company has
control over all non-orthodontic functions of the PA Contractors, including all
administrative, management, billing and support functions. Pursuant to the
Administrative Services Agreements, the Company incurs the expenses necessary to
manage and administer each Affiliated Practice. Such expenses include, but are
not limited to, salaries, wages and benefits of Affiliated Practice
non-professional personnel (excluding orthodontists and, in some cases, certain
clinical personnel) and the office (general and administrative) expenses of the
Affiliated Practices. The Company also incurs personnel and administrative
expenses in connection with maintaining corporate offices, from which the
Company provides the management services. The PA Contractors pay the Company a
management fee for its services. In certain states, the fee is equal to a
percentage of the gross revenue generated by the underlying Affiliated Practices
contracting with the PA Contractors as well as a percentage of the income of
such underlying Affiliated Practices. In other states, the management fee
consists of a flat base fee, which is determined on an annual basis. Each of the
Administrative Services Agreements has a term of 40 years and is subject to
renegotiation at the end of such term.

         The PA Contractors directly employ Affiliated Orthodontists pursuant to
Employment Agreements or affiliate with other separately formed professional
associations owned by Affiliated Orthodontists pursuant to Service Agreements
(the "Practitioner PAs"), where such Practitioner PAs directly employ the
Affiliated Orthodontists to provide orthodontic services. The Employment
Agreements and Service Agreements have terms ranging from two to ten years. The
Affiliated Orthodontists generally receive a percentage of the gross revenue
generated at the Affiliated Practice as well as a percentage of the income
derived from the Affiliated Practice. The Affiliated Orthodontists are required
to hold a valid license to practice orthodontics in the jurisdiction in which
the Affiliated Orthodontist practices. The Company is responsible for billing
patients and third party payors for services rendered by the Affiliated
Orthodontist. All of the Affiliated Orthodontists have agreed, for a period of
one to two years after the termination of employment or affiliation, not to
compete with the Company or the PA Contractor within a defined geographic area
and not to solicit Affiliated Orthodontists, other employees or patients of the
Affiliated Practices. In all cases, the Company directly employs all
non-orthodontic personnel and subject to applicable law directly owns the
tangible equipment and other assets used in the practices.




                                        2


<PAGE>   5



RESULTS OF OPERATIONS (UNAUDITED)

         The financial statements of the Company for the three months ended June
30, 1998 reflect a net loss of $45,840 on revenues of $2,318,637.

         The following table sets forth the percentage of certain items in
relation to revenues for the three month period ended June 30, 1998.

                  Management service fee revenue....................100.0%

                  Direct expenses
                      Salaries and benefits..........................36.3%
                      Orthodontic supplies...........................14.0%
                      Rent...........................................10.0%
                      Depreciation and amortization...................2.5%
                      Other..........................................15.2%
                  Total direct expenses .............................78.0%

                      Depreciation and amortization...................0.0%
                      General and administrative.....................23.1%
                  Total expenses....................................101.1%

                  Net operating loss.................................(1.1%)
                  Other (expense) income.............................
                      Interest expense...............................(1.6%)
                      Interest income.................................0.6%
                  Total other (expense) income.......................(1.0%)
                  Net loss...........................................(2.1%)

         MANAGEMENT SERVICE FEE REVENUE. Management service fee revenue reported
by the Company is derived by applying the appropriate management fee percentage
against adjusted accrual based patient revenue, and adding the reimbursement
from the Affiliated Practices of practice expenses paid by the Company.

         DIRECT PRACTICE AND OTHER CORPORATE EXPENSES. Expenses include clinical
expenses paid and corporate expenses incurred during the quarter and
year-to-date. All expense categories are consistent with management's
expectations based upon expense information provided by the Affiliated Practices
prior to affiliation with the Company.

         INTEREST INCOME. This represents interest earned on excess cash
balances invested primarily in short-term money market accounts and loans to
Affiliated Practices.

         For the three month period ended June 30, 1998, the Company incurred
$2,342,723 of expenses and derived management service fee revenue of $2,318,637.
Included in expenses is a non-cash expense of $108,000 related to the issuance
of certain stock options to Affiliated Orthodontists and certain employees of
the Company (the "Non-Cash Stock Option Charge"). After giving effect



                                        3


<PAGE>   6



to the Non-Cash Stock Option Charge, the Company incurred a net loss of $45,840
($.01 per share). Before giving effect to the Non-Cash Stock Option Charge, the
Company generated net income of $62,160 ($.01 per share).

LIQUIDITY AND CAPITAL RESOURCES/PLAN OF OPERATION

         Patient accounts receivables are recorded on the Company's balance
sheet at net realizable value on the date such account receivable is created.
Any subsequent uncollectible account is written off by the Company and is funded
by the Affiliated Practice. These accounts receivable should generate funds
required for (i) the expenses incurred by the Company to manage and administer
the Affiliated Practices, (ii) the management fees, and (iii) salaries for other
employees of the Affiliated Practices, with the balance due to the Affiliated
Orthodontists of the Affiliated Practices.

         As of June 30, 1998, the Company had a working capital balance of
approximately $2.9 million. The Company continues to anticipate the primary uses
of capital will include additional affiliation with orthodontic practices,
certain costs related to the development of operational efficiencies and funding
the working capital needs of the Company and the Affiliated Practices. The
Administrative Services Agreements provide for advances by the Company to the
Affiliated Practices for working capital requirements and other purposes. Such
loans generally bear interest at prime and are repayable over varying periods of
time. It is anticipated that the foregoing capital expenditures will be funded
from the Company's cash flow from operations and existing working capital.

         As of June 30, 1998 and December 31, 1997, the Company had cash and
cash equivalents of $2,846,113 and $84,920, respectively. As of June 30, 1998
and December 31, 1997, the Company had total liabilities of $1,129,366 and
$851,290, respectively. The Company's cash is currently invested daily in
overnight repurchase obligations. The Company believes that its operating funds
will be sufficient for its cash expenses for at least the next twelve months.
The Company is currently seeking debt financing and other sources of financing.
There can be no assurance that such additional sources of financing will be
found.














                                        4


<PAGE>   7



                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         The Company is not a party to, nor is it aware of, any pending
litigation to which it is a party or of which its property is subject.

ITEM 2.  CHANGES IN SECURITIES

         In connection with the Merger, the Company issued options to acquire an
aggregate of up to 956,303 shares of Common Stock (the "Merger Stock Options")
subject to certain conditions precedent to exercise. The Company relied upon the
exemption in Section 4(2) of the Securities Act of 1933 in connection with the
issuance of the Merger Stock Options.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         A special meeting of the Company's shareholders was held on April 16,
1998 (the "April 16 Special Meeting"). The holders of 2,540,000 shares of Common
Stock were entitled to vote at such meeting, and there were present, in person
or by proxy, 2,254,200 shares of Common Stock. The following matters were voted
upon at the April 16 Special Meeting:

<TABLE>
<CAPTION>
                MATTERS SUBMITTED TO VOTE                                    VOTES FOR            VOTES AGAINST
                -------------------------                                    ---------            -------------
<S>                                                                           <C>                         <C>
Approval and adoption of the Agreement and Plan of
Merger and Reorganization dated October 30, 1997 by and
among Embassy Acquisition Corp. and Orthodontix, Inc.                         2,254,200                   0
providing for the merger of a wholly owned subsidiary of
Embassy with and into Orthodontix, Inc.

Approval and adoption of Amended and Restated Articles
of Incorporation to provide for an authorized class of
Preferred Stock consisting of 100,000,000 shares, par value                   2,254,200                   0
$.0001 per share, with rights, preferences and designations
of such shares to be determined by the Board of Directors

Approval and adoption of the 1997 Stock Option Plan                           2,254,200                   0

</TABLE>



                                        5


<PAGE>   8



ITEM 5.  OTHER INFORMATION

         On August 12, 1998, Robert J. Leahy, the Company's Chief Financial
Officer and Treasurer informed the Company's Board of Directors that he intends
to resign as the Company's Chief Financial Officer and Treasurer effective at
the end of August 1998. Mr. Leahy informed the Company's Board of Directors that
his resignation was motivated by his decision to accept a position with a firm
unaffiliated with the Company and to pursue what Mr. Leahy considers to be a
career change. Upon receipt of this information, the Company commenced an active
search for candidates to replace Mr. Leahy.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits.

                  11.1     Statement Re: Computation of Per Share Earnings

                  27       Financial Data Schedule (for SEC use only)

                  99.1     Safe Harbor Compliance Statement.

         (b)      Reports on Form 8-K.

                  On June 30, 1998 the Company filed a Current Report on Form
8-K/A dated April 16, 1998 reporting certain financial information relating to
the Merger.




























                                        6


<PAGE>   9



                                   SIGNATURES

         In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        ORTHODONTIX, INC.
                                        (Registrant)



Date: August 13, 1998                   By: /s/ F.W. Mort Guilford
                                            -----------------------
                                            F.W. Mort Guilford
                                            President



Date:  August 13, 1998                  By: /s/ Robert Leahy
                                            -----------------
                                            Robert Leahy
                                            Treasurer, Chief Financial Officer


























                                        7


<PAGE>   10



                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>




<S>                                                                                                  <C>

         Condensed Consolidated Balance Sheets as of June 30, 1998
           and December 31, 1997.....................................................................F-2

         Condensed Consolidated Statements of Operations for the Three
           and Six Months Ended June 30, 1998 and 1997...............................................F-3

         Condensed Consolidated Statements of Cash Flows for the Six
           Months Ended June 30, 1998 and 1997.......................................................F-4

         Notes to Condensed Consolidated Financial Statements........................................F-5
</TABLE>





































                                       F-1


<PAGE>   11
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORTHODONTIX, INC.
F/K/A EMBASSY ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  June 30, 1998      December 31,
                               ASSETS                                              (Unaudited)        1997
                                                                                ----------------   ----------------
<S>                                                                                  <C>             <C>       
Current assets:
    Cash and cash equivalents                                                        $2,846,113      $   84,920
    Patient receivables and unbilled patient receivables, net of allowance
        of $804,000 at June 30, 1998                                                    979,275               0
    Prepaid expenses and other current assets                                           178,937             130
                                                                                     ----------      ----------

      Total current assets                                                            4,004,325          85,050

Property and equipment, net of accumulated depreciation of
   $3,907,050 at June 30, 1998 and $377 at December 31, 1997                            835,092           3,400
Note and other receivables                                                              227,468          50,000
Other assets                                                                             18,403           5,215
                                                                                     ----------      ----------

      Total assets                                                                   $5,085,288      $  143,665
                                                                                     ==========      ==========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities                                         $  678,173      $   57,502
    Patient prepayments                                                                  21,718               0
    Bank line of credit                                                                       0         496,283
    Income taxes payable                                                                375,945               0
                                                                                     ----------      ----------

      Total current liabilities                                                       1,075,836         553,785

Leases payable                                                                           53,530               0
Due to shareholders                                                                           0         297,505
                                                                                     ----------      ----------

      Total liabilities                                                               1,129,366         851,290
                                                                                     ----------      ----------

Commitments and contingencies

Stockholders' equity:
    Preferred stock, $.0001 par value, 100,000,000 and 1,000,000 shares
        authorized at June 30, 1998 and December 31, 1997, respectively,
        shares issued and outstanding                                                         0               0
    Common stock, $.0001 par value, 100,000,000 shares authorized, 5,914,637
        shares and 1,300,000 shares issued and outstanding at June 30, 1998 and
        December 31, 1997, respectively                                                     591             130
    Additional paid-in capital                                                        5,390,513               0
    Less: deferred compensation - stock options                                        (485,401)              0
    Accumulated deficit                                                                (949,781)       (707,755)
                                                                                     ----------      ----------

      Total stockholders' equity (deficit)                                            3,955,922        (707,625)
                                                                                     ----------      ----------

      Total liabilities and stockholders' equity                                     $5,085,288      $  143,665
                                                                                     ==========      ==========

</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.



                                      F-2
<PAGE>   12



ORTHODONTIX, INC.
F/K/A EMBASSY ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                                JUNE 30,                            JUNE 30,
                                                      -----------------------------       -----------------------------
                                                          1998             1997               1998             1997
                                                      ------------      -----------       -----------       -----------
<S>                                                   <C>               <C>               <C>               <C>        
Management service fee revenue                        $ 2,318,637       $         0       $ 2,318,637       $         0
                                                      -----------       -----------       -----------       -----------

Direct practice expenses:
    Salaries and benefits                                 840,802                 0           840,802                 0
    Orthodontic supplies                                  324,750                 0           326,059                 0
    Rent                                                  232,004                 0           232,004                 0
    Depreciation and amortization                          56,833                 0            56,833                 0
    Other                                                 353,390                 0           355,945                 0
                                                      -----------       -----------       -----------       -----------

      Total direct practice expenses                    1,807,779                 0         1,811,643                 0

Depreciation and amortization                                 495                 0               684                 0
General and administrative                                534,449           138,718           717,225           242,039
                                                      -----------       -----------       -----------       -----------

      Total expenses                                    2,342,723           138,718         2,529,552           242,039
                                                      -----------       -----------       -----------       -----------

      Net operating loss                                  (24,086)         (138,718)         (210,915)         (242,039)

Other (expense) income:
    Interest expense                                      (36,188)                0           (45,559)                0
    Interest income                                        14,434                10            14,448                14
                                                      -----------       -----------       -----------       -----------

      Total other (expense) income                        (21,754)               10           (31,111)               14
                                                      -----------       -----------       -----------       -----------

Net loss                                              $   (45,840)      $  (138,708)      $  (242,026)      $  (242,025)
                                                      ===========       ===========       ===========       ===========

Earnings per common and common equivalent share:
    Basic                                             $     (0.01)      $     (0.11)      $     (0.07)      $     (0.19)
                                                      ===========       ===========       ===========       ===========
    Diluted                                           $     (0.01)      $     (0.11)      $     (0.07)      $     (0.19)
                                                      ===========       ===========       ===========       ===========
Weighted average number of 
  common equivalent shares
  outstanding - Basic and Diluted                       5,153,983         1,300,000         3,237,638         1,300,000
                                                      ===========       ===========       ===========       ===========
</TABLE>









THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.




                                      F-3
<PAGE>   13


ORTHODONTIX, INC.
F/K/A EMBASSY ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>

                                                                           SIX MONTHS ENDED
                                                                                JUNE 30,
                                                                         1998              1997
                                                                     -----------       -----------

<S>                                                                  <C>               <C>         
Cash flows from operating activities:
    Net loss                                                         $  (242,027)      $  (242,025)
    Adjustments to reconcile net loss to net cash provided
        by (used in) operating activities (net of practice 
        assets acquired):
      Depreciation and amortization                                       57,517                 0
      Noncash compensation expense                                       108,374                 0
      Changes in assets and liabilities:
         Patient receivables and unbilled patient receivables            (39,418)                0
         Prepaid expenses and other current assets                      (178,807)                0
         Other assets                                                    (13,188)                0
         Accounts payable and accrued liabilities                        610,670            52,971
         Patient prepayments                                              21,718                 0
                                                                     -----------       -----------

            Net cash provided by (used in) operating activities          324,839          (189,054)
                                                                     -----------       -----------

Cash flows from investing activities:
    Purchase of property and equipment                                   (10,074)                0
    Purchase of practice assets                                       (3,365,589)                0
    Payment of notes receivable                                           52,532                 0
    Investment in notes receivable                                      (230,000)                0
                                                                     -----------       -----------

            Net cash used in investing activities                     (3,553,131)                0
                                                                     -----------       -----------

Cash flows from financing activities:
    Payment of lease obligation                                          (12,500)                0
    Payment of bank line of credit, net                                 (496,283)                0
    Proceeds from merger, net of costs                                 6,795,773                 0
    (Repayments to) advances from shareholders, net                     (297,505)          187,459
                                                                     -----------       -----------

            Net cash provided by financing activities                  5,989,485           187,459
                                                                     -----------       -----------

Net increase (decrease) in cash and cash equivalents                   2,761,193            (1,595)

Cash and cash equivalents at beginning of period                          84,920             2,682
                                                                     -----------       -----------

Cash and cash equivalents at end of period                           $ 2,846,113       $     1,087
                                                                     ===========       ===========
</TABLE>



THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.





                                      F-4
<PAGE>   14


ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)



1.     BASIS OF PRESENTATION:

       The accompanying unaudited condensed consolidated interim financial
       statements of Orthodontix, Inc. (f/k/a Embassy Acquisition Corp.) (the
       "Company" or "Orthodontix") presented herein do not include all
       disclosures required by generally accepted accounting principles for a
       complete set of financial statements. In the opinion of management, these
       financial statements include all adjustments, consisting of normal
       recurring adjustments, necessary for a fair presentation of the results
       of interim periods.

       The results of operations for the three and six months ended June 30,
       1998 are not necessarily indicative of the results of operations to be
       expected for the year ended December 31, 1998. The unaudited condensed
       consolidated interim financial statements should be read in conjunction
       with the Form S-4 of Embassy Acquisition Corp. ("Embassy") as filed with
       the U.S. Securities and Exchange Commission on March 26, 1998.

       The consolidated financial statements are prepared in accordance with the
       consensus reached by the Financial Accounting Standards Board's Emerging
       Issues Task Force with respect to physician practice management
       companies. The Company does not meet the conditions and, therefore, does
       not consolidate the results of operations of the Founding Practices (See
       Note 2) into its consolidated statements of operations.

2.     ORGANIZATION:

       Effective April 16, 1998, the merger of Orthodontix and Embassy with and
       into Embassy (the "Merger") was completed. Each Orthodontix common share
       converted to one share of Embassy common stock. As a result of the
       Merger, the outstanding common stock of Orthodontix converted into shares
       of Embassy common stock. Embassy's outstanding common stock and Embassy's
       articles of incorporation were amended to change Embassy's name to
       Orthodontix, Inc. Additionally, the Company authorized a class of
       Preferred Stock consisting of 100,000,000 shares, par value $.0001. The
       Merger has been treated as a capital transaction equivalent to the
       issuance of stock, 2,540,000 shares, by the Company for the net monetary
       assets of Embassy of approximately $7.4 million at the closing
       accompanied by a recapitalization of Orthodontix. The Company incurred
       merger costs of approximately $600,000 in connection with the Merger.











                                      F-5

<PAGE>   15


ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)


2.     ORGANIZATION, CONTINUED:

       On April 16, 1998, the Company acquired, simultaneously with the closing
       of the Merger, certain assets and assumed certain liabilities of 26
       orthodontic practices (the "Founding Practices") (collectively referred
       to as the "Affiliated Acquisitions"), with a net book value of
       approximately $1.4 million, in exchange for 2,074,637 million shares of
       common stock and approximately $3.4 million in cash. The Company will not
       employ orthodontists or control the practice of orthodontics by the
       orthodontists employed by the professional corporations (collectively,
       the "PCs"). The Company executed Administrative Services Agreements and
       does not hold any equity ownership interest in the PCs, therefore, the
       Affiliated Acquisitions were not deemed to be business combinations.
       Because each of the owners of the Founding Practices was a Promoter of
       the transaction, in accordance with the Securities and Exchange
       Commission's Staff Accounting Bulletin No. 48, "Transfers of Nonmonetary
       Assets by Promoters or Shareholders", transferred nonmonetary assets and
       assumed liabilities are accounted for at the historical cost basis of the
       Founding Practices and any monetary assets assumed and any monetary
       liabilities included in the Affiliated Acquisitions are recorded at fair
       value. The cash consideration paid in excess of net assets transferred is
       reflected as a dividend paid by the Company. 

       In addition, the Company recorded additional paid-in capital of
       approximately $594,000 in connection with stock options issued in
       connection with the Merger (See Note 5).

       The Company provides practice management services and has entered
       long-term Administrative Services Agreements with the PCs or
       orthodontists. Under the Administrative Services Agreements, the Company
       will provide management services which include consultation and other
       activities regarding the suitability of facilities and equipment,
       nonprofessional staffing, regulatory compliance, productivity
       improvements, inventory and supplies management, information systems
       management, and, subject to applicable law, other services as the Company
       deems necessary to meet the day-to-day requirements of the Founding
       Practices. The practices pay the Company a management fee for its
       services under the Administrative Services Agreements which have terms of
       40 years and are subject to renegotiation at the end of such terms.

3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       CASH AND CASH EQUIVALENTS

       For the purposes of the statement of cash flows, the Company considers
       all highly liquid financial instruments with maturities of three months
       or less at the date of purchase to be cash equivalents.

       PROPERTY AND EQUIPMENT, NET

       Property and equipment is stated at historical cost. Depreciation of
       property and equipment is calculated using the straight line method over
       the estimated useful lives of the assets of three to five years. Routine
       maintenance and repairs are charged to expense as incurred, while costs
       of betterments and renewals are capitalized.








                                      F-6

<PAGE>   16
ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)



3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       ACCOUNTS RECEIVABLE

       After the Affiliated Acquisitions by the Company, the Company continues
       to purchase patient accounts receivable generated by the Founding
       Practices and records these receivables on the balance sheet of the
       Company. The receivables are recorded at net realizable value on the date
       of purchase. Any subsequent uncollectible account is written off by the
       Company and the Founding Practice revenue is reduced accordingly. The
       impact on the Company from such write-offs is a loss of management fees
       revenue because practice revenue is reduced.

       Unbilled patient receivables represent the earned revenue in excess of
       billings to patients as of the end of each period. Patient prepayments
       represent collections from patients or their insurance companies which
       are received in advance of the performance of the related services.

       MANAGEMENT FEE REVENUE

       Revenue from managing the practices is recognized on a monthly basis as
       the services are provided. The revenue of the Company consists of the sum
       of the management service fees and such amounts equal to the operating
       expenses of orthodontic practices assumed by the Company under such
       Administrative Services Agreements.

       In general, the Administrative Services Agreements provide for the
       payment of fees to the Company based on a negotiated percentage of the
       accrued patient revenue of each Founding Practice. Patient revenue is
       recognized by the Founding Practice as orthodontic services are
       performed. If the patient enters into a long-term orthodontic contract,
       approximately 24% of the contract value is recognized at the initial
       treatment date. The 24% estimated revenue is based on the estimated costs
       incurred by each Founding Practice at that time as compared to the total
       costs of providing the contracted services and is consistent with
       industry standards. The percentage includes the estimated costs of
       diagnosis and treatment plan development, initial treatment by
       orthodontic personnel, orthodontic supplies, and associated
       administrative services. Expenses not required to be paid by the Company
       pursuant to the Administrative Service Agreements primarily consist of
       professional expenses of the orthodontists.





















                                      F-7
<PAGE>   17
ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)



3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       INCOME TAXES

       The Company accounts for income taxes in accordance with Statement of
       Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
       Taxes," which requires recognition of deferred tax assets and liabilities
       for expected future tax consequences of events that have been recognized
       in the financial statements or tax returns. Under this method, deferred
       tax assets and liabilities are determined based on the differences
       between the financial statement carrying amounts and the tax bases of
       such assets and liabilities using enacted tax rates and laws in effect in
       the years in which the differences are expected to reverse.

       The Company has incurred a net loss for the three and six months ended
       June 30, 1998. The Company has recognized no tax benefit from this loss.
       Management is currently evaluating whether such losses can by utilized
       to offset the income tax liability related to certain assets acquired in
       connection with the Affiliated Acquisitions. Due to the uncertainty
       associated with the recognition of such income tax benefits, no amounts
       have been reflected in the accompanying Statement of Operations.

       EARNINGS PER SHARE

       Basic earnings per share is calculated by dividing the net loss by the
       weighted average number of common shares outstanding during the period.
       Diluted earnings per share is calculated by dividing the net loss by the
       weighted average number of common and potential common equivalent shares
       outstanding during the period. Potential common shares consist of the
       dilutive effect of outstanding options calculated using the treasury
       stock method. Potential common shares for 1998 are antidilutive and,
       thus, are excluded from the calculation of earnings per share.

       STOCK OPTIONS

       SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
       does not require, companies to recognize compensation expense for grants
       of stock, stock options and other equity instruments based on fair value
       accounting rules. The Company has chosen not to apply the fair value
       accounting rules in the statements of operations for employee stock-based
       compensation. Such treatment is required for non-employee stock-based
       compensation, including options granted to the orthodontists.











                                      F-8
<PAGE>   18
ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)



4.     ACCOUNTS PAYABLE AND ACCRUED EXPENSES: 

       Accounts payable and accrued expenses consists of the following:

                                          JUNE 30,     DECEMBER 31,
                                            1998          1997
                                          --------     ------------

       Accounts payable                   $478,486      $ 54,279
       Accrued salaries and benefits       199,687         3,223
                                          --------      --------

                                          $678,173      $ 57,502
                                          ========      ========

5.     STOCK OPTIONS:

       In conjunction with the Merger, the Company adopted an option plan (the
       "Option Plan") that provides for granting up to 500,000 shares of common
       stock by November 18, 2007. The Option Plan provides for the issuance of
       incentive stock options and non-qualified stock options. Under the Option
       Plan, options may be granted at not less than the fair market value of
       the stock on the date of the grant. The term of each option generally may
       not exceed ten years. At June 30, 1998, no options had been granted under
       the Option Plan.

       In connection with the Merger, certain directors, officers, employees and
       non-employees of the Company were awarded 956,303 stock options outside
       the Option Plan at exercise prices ranging from $7.29 to $9.11 per share.
       The options vest over varying periods of time.

       As part of the 956,303 stock options granted, the Company recognized
       compensation expense of approximately $72,000 for the three and six
       months ended June 30, 1998 related to 185,000 options granted to
       employees for which the fair value of the stock on the date granted
       exceeded the exercise price. In addition, the Company determined the fair
       market value of the 97,500 options granted to members of the Advisory
       Board, who are non-employees, to be approximately $522,000 based on the
       Black-Scholes option-pricing model (the "Model"). Of such amount,
       approximately $36,000 was recorded as compensation expense for the three
       and six month periods ended June 30, 1998 and $486,000 is recorded as
       unearned compensation at June 30, 1998 which will be amortized over the
       three year period that these options vest. Unearned compensation with
       respect to these options is included as a separate component of
       stockholders' equity at June 30, 1998. The fair value of each option
       granted to a nonemployee is estimated on the date of grant using the
       Model with the following weighted average assumptions used: no dividend
       yield; expected volatility of the underlying stock of 70%; risk-free
       interest rate of 5.57% covering the related option periods; and expected
       lives of the options of 2 to 5 years based on the related option periods.







                                      F-9
<PAGE>   19
ORTHODONTIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)


5.     STOCK OPTIONS, CONTINUED:

       As part of the 956,303 stock options granted, options to purchase up to
       291,303 shares were granted to certain orthodontists. Such options are
       not exercisable unless the orthodontists' practices reach certain revenue
       levels over a five year period. If such options were exercisable on the
       date of the Merger, the Company would have recorded an additional
       compensation expense of approximately $1.4 million over a five year
       period based on the Model. Compensation expense, if any, will be recorded
       to the extent the performance criteria are attained based on the value of
       the options using the Model on the date such performance criteria are
       attained.

6.     COMMITMENTS AND CONTINGENCIES:

       The Company leases office facilities, certain furniture and equipment,
       and automobiles under noncancelable operating leases which expire at
       various dates. Additionally, the Company leases equipment under a capital
       lease which expires at June 30, 2002.

7.     RELATED PARTIES:

       In April 1998, the Company advanced $230,000 to two shareholders of the
       Company. These notes bear interest at 6% per annum. Such amounts are due
       in monthly installments through May 2013.















                                      F-10