<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 0-21343
MEDICAL ALLIANCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 73-1347577
(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization) Identification No.)
2445 GATEWAY DRIVE, SUITE 150
IRVING, TEXAS 75063
(Address of principal executive offices)
(Zip Code)
(972) 580-8999
(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
--- ---
As of November 9, 1999 there were 6,146,152 shares outstanding of the
registrant's common stock, $0.002 par value.
===============================================================================
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
December 31, 1998 and September 30, 1999 (Unaudited).........3
Consolidated Statements of Operations (Unaudited)
Three and Nine months ended September 30, 1998 and 1999........4
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1998 and 1999................5
Consolidated Statement of Stockholders' Equity (Unaudited).........6
Nine months ended September 30, 1999
Notes to Consolidated Financial Statements (Unaudited).............7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........10
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................12
Signatures........................................................13
</TABLE>
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 14,377,781 $ 13,411,095
Accounts receivable, less allowance for doubtful accounts
of $1,001,851 and $611,352, respectively ................... 1,711,558 1,730,610
Prepaid expenses and other current assets .................. 1,090,736 1,431,181
Refundable federal and state income taxes .................. 205,297 133,545
Deferred taxes ............................................. 488,918 488,918
-------------- --------------
Total current assets .............................. 17,874,290 17,195,349
-------------- --------------
Property and equipment, net ......................................... 5,868,543 6,170,814
Intangible assets, net of amortization of
$265,934 and $305,639, respectively ................................ 778,232 738,527
-------------- --------------
Total assets ...................................... $ 24,521,065 $ 24,104,690
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................... $ 356,509 $ 593,912
Accrued expenses ........................................... 789,238 826,665
Capital lease obligations .................................. 202,593 103,447
Deferred revenue ........................................... 92,139 2,258
-------------- --------------
Total current liabilities ......................... 1,440,479 1,526,282
Capital lease obligations, net of current maturities ....... 37,336 28,769
Deferred taxes ............................................. 488,918 488,918
-------------- --------------
Total liabilities ................................. 1,966,733 2,043,969
-------------- --------------
Stockholders' equity:
Common stock, $0.002 par value, 30,000,000 shares
authorized; 6,117,079 and 6,145,371 shares issued and
outstanding, ............................................... 12,753 12,810
Capital in excess of par value ...................................... 26,664,309 26,700,498
Accumulated deficit ................................................. (3,277,976) (3,807,833)
Treasury stock at cost, 277,203 shares ............................. (844,754) (844,754)
-------------- --------------
Total stockholders' equity ........................ 22,554,332 22,060,721
-------------- --------------
Total liabilities and stockholders' equity ........ $ 24,521,065 $ 24,104,690
============== ==============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1999 1998 1999
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue ............................................. $ 3,854,658 $ 4,038,775 $ 12,168,495 $ 12,356,465
Costs and expenses:
Salaries and benefits ................................. 1,682,231 1,854,651 5,608,690 5,737,125
Selling, general and
administrative ..................................... 1,414,947 1,386,735 4,935,128 4,982,276
Depreciation and
amortization ....................................... 591,290 592,314 1,737,961 1,800,934
Provision for uncollectible
accounts ........................................... 362,270 270,920 1,386,699 858,987
------------ ------------ ------------ ------------
Total costs and
expenses ......................................... 4,050,738 4,104,620 13,668,478 13,379,322
------------ ------------ ------------ ------------
Operating loss ..................................... (196,080) (65,845) (1,499,983) (1,022,857)
Other (income) expense:
Interest income and other,
net ................................................ (212,122) (171,861) (624,459) (525,029)
Interest expense ...................................... 14,613 11,592 46,592 32,029
------------ ------------ ------------ ------------
Total other income ................................. (197,509) (160,269) (577,867) (493,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes ....................... 1,429 94,424 (922,116) (529,857)
Provision (benefit) for income taxes .................... 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) ....................................... $ 1,429 $ 94,424 $ (922,116) $ (529,857)
============ ============ ============ ============
Net income (loss) per share (basic) ..................... $ .00 $ .02 $ (.15) $ (.09)
============ ============ ============ ============
Net income (loss) per share (diluted) ................... $ .00 $ .02 $ (.15) $ (.09)
============ ============ ============ ============
Weighted average number of common shares and
common share equivalents (in thousands) (basic) ........ 6,204 6,141 6,245 6,131
============ ============ ============ ============
Weighted average number of common shares and
common share equivalents (in thousands) (diluted) ...... 6,243 6,141 6,245 6,131
============ ============ ============ ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
4
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (922,116) $ (529,857)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Gain from disposal of equipment .............................. (18,513) (28,268)
Depreciation and amortization ................................ 1,386,699 858,987
1,737,961 1,800,934
Changes in assets and liabilities net of effects from
acquisitions:
Accounts receivable .......................................... (436,239) (878,038)
Prepaid expenses and other current assets .................... 1,060,277 (268,694)
Accounts payable and accrued expenses ........................ (1,197,490) 274,830
Deferred revenue ............................................. 4,027 (89,881)
------------ ------------
Net cash provided by operating activities ................. 1,614,606 1,140,013
------------ ------------
Cash flows from investing activities:
Capital expenditures ..................................... (2,252,173) (1,989,515)
Proceeds from disposal of equipment ...................... 51,784 24,169
Other .................................................... (15,740) 0
------------ ------------
Net cash used in investing activities ................ (2,216,129) (1,965,346)
------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligations ................... (198,094) (177,599)
Purchase of treasury shares .............................. (731,439) 0
Proceeds from issuance of common stock ................... 427,679 36,246
------------ ------------
Net cash used in financing activities ................ (501,854) (141,353)
------------ ------------
Net decrease in cash and cash equivalents ............ (1,103,377) (966,686)
Cash and cash equivalents at beginning of period ......... 14,902,578 14,377,781
------------ ------------
Cash and cash equivalents at end of period ............... $ 13,799,201 13,411,095
============ ============
Supplemental schedule of noncash investing and financing
activities:
Capital lease obligations incurred ..................... $ -0- $ 69,886
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK CAPITAL IN EXCESS ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT OF PAR VALU E DEFICIT STOCK EQUITY
------------ ------------ ----------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .... 6,117,079 $ 12,753 $ 26,664,309 $(3,277,976) $ (844,754) $ 22,554,332
Options exercised (unaudited) ... 28,292 57 36,189 -- -- 36,246
Net loss (unaudited) ............ -- -- -- (529,857) -- (529,857)
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999
(unaudited) .................... 6,145,371 $ 12,810 $ 26,700,498 $ (3,807,833) $ (844,754) $ 22,060,721
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of September 30, 1999, and the
consolidated statements of operations for the three and nine months ended
September 30, 1998 and 1999 and the consolidated statements of cash flows for
the nine months ended September 30, 1998 and 1999, and the consolidated
statement of stockholders' equity for the nine months ended September 30, 1999,
have been prepared by the Company without audit. The December 31, 1998
consolidated balance sheet is derived from the audited consolidated balance
sheet as of that date. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly the
financial position at September 30, 1999, and the results of operations and cash
flows for all periods presented have been made. The results of operations for
the interim periods are not necessarily indicative of the operating results for
the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, these financial statements
should be read in conjunction with the audited financial statements and related
notes of the Company for the fiscal year ended December 31, 1998 included in the
Company's Form 10-K.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Medical equipment ................................. $ 9,155,481 $ 10,352,727
Furniture and fixtures ............................ 2,140,049 2,267,739
Vehicles .......................................... 1,255,940 1,914,964
Leasehold improvements ............................ 53,361 53,361
Equipment under capital leases .................... 1,493,533 1,563,419
------------ ------------
14,098,364 16,152,210
Less accumulated depreciation and amortization .... (8,229,821) (9,981,396)
------------ ------------
Net property and equipment ........................ $ 5,868,543 $ 6,170,814
============ ============
</TABLE>
Depreciation expense related to property and equipment was approximately
$564,000 and $583,000 for the three months ended September 30, 1998 and 1999,
respectively and $1,655,000 and $1,761,000 for the nine months ended September
30, 1998 and 1999, respectively.
Accumulated amortization related to equipment under capital leases was
approximately $1,195,000 and $1,339,000 at December 31, 1998 and September 30,
1999, respectively.
3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Basic:
Weighted average number of common shares outstanding (basic) ... 6,204,460 6,140,739 6,245,472 6,131,175
Net income (loss) .............................................. $ 1,429 $ 94,424 $ (922,116) $ (529,857)
Net income (loss) per share (basic) .......................... $ .00 $ .02 $ (.15) $ (.09)
=========== =========== =========== ===========
Diluted:
Weighted average number of common shares outstanding (basic) ... 6,204,460 6,140,739 6,245,472 6,131,175
Incremental common shares outstanding applicable to
"In the Money" options and warrants based on the estimated
quarter end fair market value of the stock .................... 38,409 0 (a) 0
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding (diluted) ... 6,242,869 6,140,739 6,245,472 6,131,175
Net income (loss) ................................................ $ 1,429 $ 94,424 $ (922,116) $ (529,857)
Net income (loss) per share (diluted) ............................ $ .00 $ .02 $ (.15) $ (.09)
=========== =========== =========== ===========
</TABLE>
(a) Incremental common shares outstanding applicable to "in the money" options
and warrants were not included in the computation of diluted earnings per share
for the nine months ended September 30, 1998 as their inclusion would be
antidilutive for the respective period. The shares not included totaled 38,409
for the nine months ended September 30, 1998.
Options and warrants excluded from the dilutive earnings per share computation
because to do so would have been antidilutive (including contingent options and
warrants) totaled 925,826 and 600,300 as of September 30, 1998 and 1999,
respectively.
4. SUBSEQUENT EVENT
On November 10, 1999, the Company commenced a share repurchase program of
up to one million shares or 16% of the Company's currently outstanding common
stock. The purchases are to be made from time to time over the next twelve
months at prices then prevailing on the Nasdaq National Market System or in
privately negotiated transactions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
NET REVENUES. Net revenues increased from $3,855,000 for the three months
ended September 30, 1998, to $4,039,000 for the three months ended September 30,
1999, an increase of $184,000 or 4.8%. Medical surgical procedures increased
from 6,965 for the three months ended September 30, 1998, to 7,762 for the three
months ended September 30, 1999, an increase of 797 or 11.4%. Aesthetic elective
procedures increased slightly from 10,971 for the three months ended September
30, 1998, to 11,030 for the three months ended September 30, 1999, an increase
of 59 or 0.5%.
The net patient service revenue per case increased slightly from $214 for
the three months ended September 30, 1998, to $215 for the three months ended
September 30, 1999. The net revenue per case for medical surgical increased from
$278 to $294, an increase of $16 or 5.8%, which is mainly due to the Company's
focus on maximizing contracted reimbursement rates on existing and new managed
care contracts.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense increased from
$1,682,000 for the three months ended September 30, 1998, to $1,855,000 for the
three months ended September 30, 1999, an increase of $173,000 or 10.3%. The
increase is related to pay rate increases given to employees on January 1, 1999
and additional bonuses and commissions earned by field employees. Total
employees for the Company increased from 150 at September 30, 1998, to 153 at
September 30, 1999, an increase of 3 or 2.0%. Salaries and benefits expense as a
percentage of net revenues increased from 43.6% for the three months ended
September 30, 1998, to 45.9% for the three months ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased from $1,415,000 for the three months ended
September 30, 1998, to $1,387,000 for the three months ended September 30, 1999,
a decrease of $28,000 or 2.0%. Selling, general and administrative expense as a
percentage of net revenues decreased from 36.7% for the three months ended
September 30, 1998, to 34.3% for the three months ended September 30, 1999. The
Company has continued its effort in controlling expenses related to selling,
general and administrative.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
slightly from $591,000 for the three months ended September 30, 1998, to
$592,000 for the three months ended September 30, 1999. For the nine months
ended September 30, 1999, the Company has incurred capital expenditures of $2.0
million, but this has been offset by various equipment and vehicles being fully
depreciated during 1999.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
decreased from $362,000 for the three months ended September 30, 1998, to
$271,000 for the three months ended September 30, 1999, a decrease of $91,000 or
25.1%. Provisions for uncollectible accounts as a percentage of net patient
service revenues, decreased from 9.4% for the three months ended September 30,
1998, to 6.7% for the three months ended September 30, 1999. This 2.7%
improvement is due to a shift in part from noncontracted to contracted payors
and the continued success from the Company's operational processes including
scheduling, preregistration, preverification and collections.
OPERATING LOSS. Operating loss decreased from $196,000 for the three months
ended September 30, 1998, to $66,000 for the three months ended September 30,
1999, a decrease of $130,000 or 66.3%.
INTEREST INCOME AND OTHER, NET. Interest income and other, net decreased
from $212,000 for the three months ended September 30,
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1998, to $172,000 for the three months ended September 30, 1999, a decrease of
$40,000 or 18.9%. This decrease is mainly due to the Company earning less
interest income due to a reduced commercial paper balance compared to the prior
period.
INCOME (LOSS) BEFORE INCOME TAXES. Income before income taxes was $94,000
for the three months ended September 30, 1999 compared to income of $1,000 for
the three months ended September 30, 1998, a change of approximately $93,000.
PROVISION (BENEFIT) FOR INCOME TAXES. For the three months ended September
30, 1998 and 1999, the Company did not record a current or deferred tax benefit
due to the Company's continuing operating loss trend and the uncertainty of
utilization of net operating loss carryforwards in future periods.
NET INCOME (LOSS). As a result of the items discussed above, the Company had
net income of $94,000 for the three months ended September 30, 1999, compared to
income of $1,000 for the three months ended September 30, 1998, a change of
$93,000.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
NET REVENUES. Net revenues increased from $12,168,000 for the nine months
ended September 30, 1998, to $12,356,000 for the nine months ended September 30,
1999, an increase of $188,000 or 1.5%. Medical surgical procedures increased
from 20,878 for the nine months ended September 30, 1998, to 22,358 for the nine
months ended September 30, 1999, an increase of 1,480 or 7.1%. Aesthetic
elective procedures decreased from 37,637 for the nine months ended September
30, 1998, to 36,649 for the nine months ended September 30, 1999, a decrease of
988 or 2.6%.
The net patient service revenue per case increased from $206 for the nine
months ended September 30, 1998, to $209 for the nine months ended September 30,
1999, an increase of $3 per case or 1.5%. The net revenue per case of medical
surgical increased from $278 to $291, an increase of $13 or 4.7%, which is
mainly due to the Company's focus on maximizing contracted reimbursement rates
on existing and new managed care contracts.
The net revenue increase was offset by a decrease in revenues related to
Company sponsored seminars, which decreased from $93,000 for the nine months
ended September 30, 1998, to $28,000 for the nine months ended September 30,
1999, a decrease of $65,000 or 69.9%.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense increased from
$5,609,000 for the nine months ended September 30, 1998, to $5,737,000 for the
nine months ended September 30, 1999, an increase of $128,000 or 2.3%. Salaries
and benefits expense as a percentage of net revenues increased slightly from
46.1% for the nine months ended September 30, 1998, to 46.4% for the nine months
ended September 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased slightly from $4,935,000 for the nine months
ended September 30, 1998, to $4,982,000 for the nine months ended September 30,
1999, an increase of $47,000 or 1.0%. This increase was related to an $850,000
nonrecurring charge related to the termination of a proposed merger. These costs
included legal, accounting, investment banking fees and other direct costs
associated with the merger. The nonrecurring charge was offset by the following:
Vehicle expense decreased from $1,020,000 for the nine months ended September
30, 1998 to $513,000, for the nine months ended September 30, 1999, a decrease
of $507,000 or 49.7%. This decrease is due to the buyout of vehicle leases that
occurred in the third quarter of 1998. Leasing expense decreased from $408,000
for the nine months ended September 30, 1998, to $201,000 for the nine months
ended September 30, 1999, a decrease of $207,000 or 50.7%. The decrease is
related to the purchase of certain medical equipment which was held under
operating leases for the nine months ended September 30, 1998. Selling, general
and administrative expense as a percentage of net revenues decreased slightly
from 40.6% for the nine months ended September 30, 1998, to 40.3% for the nine
months ended September 30, 1999. Without the nonrecurring charge of $850,000,
selling, general, and administrative expense as a percentage of net revenues
would have been 33.4% for the nine months ended September 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$1,738,000 for the nine months ended September 30, 1998, to $1,801,000 for the
nine months ended September 30, 1999, an increase of $63,000 or 3.6%. For the
nine months ended September 30, 1999, the Company has incurred capital
expenditures of $2.0 million, but this has been offset by various equipment and
vehicles being fully depreciated during 1999.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
decreased from $1,387,000 for the nine months ended September 30, 1998, to
$859,000 for the nine months ended September 30, 1999, a decrease of $528,000 or
38.1%. Provisions for uncollectible accounts as a percentage of net patient
service revenues decreased from 11.5% for the nine months ended September 30,
1998, to 7.0% for the nine months ended September 30, 1999. This 4.5%
improvement is due to a shift in part from noncontracted to contracted payors
and the continued success from the Company's operational processes including
scheduling, preregistration, preverification and collections.
OPERATING LOSS. Operating loss decreased from $1,500,000 for the nine months
ended September 30, 1998, to $1,023,000 for the nine months ended September 30,
1999, a decrease of $477,000 or 31.8%. During the second quarter of 1999, there
was a nonrecurring
9
<PAGE> 10
charge of $850,000. Without this nonrecurring charge of $850,000, the operating
loss for the nine months ended September 30, 1999 would have been $173,000.
INTEREST INCOME AND OTHER, NET. Interest income and other, net decreased
from $624,000 for the nine months ended September 30, 1998, to $525,000 for the
nine months ended September 30, 1999, a decrease of $99,000 or 15.9%. This
decrease is mainly due to the Company earning less interest income due to a
reduced commercial paper balance compared to the prior period.
INCOME (LOSS) BEFORE INCOME TAXES. Loss before income taxes decreased from
$922,000 for the nine months ended September 30, 1998, to $530,000 for the nine
months ended September 30, 1999, a decrease of $392,000. Without the $850,000 in
nonrecurring charges, there would have been income of $320,000 for the nine
months ended September 30, 1999.
PROVISION (BENEFIT) FOR INCOME TAXES. For the nine months ended September
30, 1998 and 1999, the Company did not record a current or deferred tax benefit
due to the Company's continuing operating loss trend and the uncertainty of
utilization of net operating loss carryforwards in future periods.
NET INCOME (LOSS). As a result of the items discussed above, the Company's
net loss decreased from $922,000 for the nine months ended September 30, 1998,
to $530,000 for the nine months ended September 30, 1999, a decrease of
$392,000. Without the nonrecurring charges of $850,000 there would have been net
income of $320,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 the Company has an accumulated retained deficit of
$3.8 million due to losses incurred during the twelve months ended December 31,
1997 and 1998 and the nine months ended September 30, 1999.
Net cash provided by operating activities was $1,615,000 and $1,140,000 for
the nine months ended September 30, 1998 and 1999, respectively. For its
investing activities, the Company consumed $2,216,000 and $1,965,000 for the
nine months ended September 30, 1998 and 1999, respectively, primarily for the
purchase of medical equipment and vehicles. Capital expenditures were $2,252,000
and $1,990,000 for the nine months ended September 30, 1998 and 1999,
respectively. Net cash consumed by financing activities was $502,000 and
$141,000 for the nine months ended September 30, 1998 and 1999, respectively.
YEAR 2000 COMPLIANCE
The Company has completed the majority of its evaluation of the Year 2000
("Y2K") compliance status. The Company has tested most of its information
technology, such as software regarding Y2K compliance and has received
certification of Y2K compliance from its third party vendors related to the
billing and accounting systems. The company plans to conduct further tests on
its accounting system during the Fourth Quarter of 1999. Based upon the
Company's current evaluation of the Y2K compliance of its information
technology, its polling of third party vendors, and its receipt of certification
of Y2K compliance from its third party vendors related to the billing and
accounting systems, the Company does not anticipate that there will be a
material Y2K problem with respect thereto.
However, certain of the Company's medical equipment contains embedded
technology that could have Y2K-related problems. The Company has polled the
manufacturers and vendors of such equipment regarding Y2K compliance and, based
on such polling, all equipment known to the Company to be non-Y2K compliant has
been replaced or upgraded. The Company does not expect to conduct independent
tests of its medical equipment to assess Y2K compliance. Based upon the
Company's actions in preparation for Y2K, and responses received from its
third-party vendors, the Company does not anticipate that there will be a
material Y2K problem with respect to its equipment. Furthermore, because its
equipment comes from third party vendors, which are being requested to replace
or upgrade all non-compliant equipment, the Company does not expect that its
Y2K-related expenditures with respect to embedded technology will be
significant.
Notwithstanding the foregoing, there can be no assurances (a) that the
representations provided by third party vendors with respect to Y2K compliance
will be accurate, or (b) that the Company will have any recourse against such
vendors if the representations prove to be inaccurate. A Y2K- related failure of
the Company's medical equipment and/or information technology could have a
material adverse effect on the Company and its results of operations.
Furthermore, there can be no assurances that Y2K-related failure caused by third
parties, such as utility providers, transportation companies or others, will not
have a material adverse effect on the Company.
Based on the Company's process of evaluating its Y2K compliance status, the
Company has currently expended an estimated $30,000 related to addressing Y2K
issues. The Company expects the total costs in regard to addressing Y2K issues
to be an estimated $50,000. The Company also anticipates the project to be
completed by the fourth quarter of 1999. Furthermore, there can be no assurance
that all Y2K issues will be addressed which could result in additional costs for
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
10
<PAGE> 11
PART II
ITEM 1. LEGAL PROCEEDINGS.
As of the date hereof, there are no legal proceedings pending against or
involving the Company that in the opinion of management, could have a material
adverse effect on the business, financial condition or results of operations of
the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement, dated March 18, 1996 between the Company
and Maasai Inc. (1) (2)
2.2 Asset Purchase Agreement, dated June 10, 1996 between the Company and
Mobile Laser Services, Inc. (1) (2)
2.3 Asset Purchase Agreement, dated as of January 21, 1997 among Stone
Treatment Center of New England, Inc., Gregory A. Mercurio, Vincent
A. Catallozzi, M.D., Alexander Calenda, M.D., Gerald Marsocci, M.D.,
Joseph C. Cambio, M.D. and the Company. (3)(2)
2.4 Amended and Restated Agreement and Plan of Merger, dated as of May 18,
1999 between Diagnostic Health Services, Inc. and the Company. (4)
2.5 Agreement to Terminate the Amended and Restated Agreement and Plan of
Merger, dated as of August 9, 1999 between Diagnostic Health Services,
Inc. and the Company.(4)
3.1 Amended and Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (1)
4.1 Specimen of Company Common Stock Certificate. (1)
4.2 Warrant to Purchase 15,651 Shares of Common Stock of the Company dated
July 27, 1995 between the Company and Paul R. Herchman. (1)
4.3 Warrant to Purchase 23,416 Shares of Common Stock of the Company dated
August 15, 1993 between the Company and Columbia General Corporation.
(1)
4.4 Warrant to Purchase 2,810 Shares of Common Stock of the Company dated
October 17, 1993 between the Company and Robert J. Matthews, M.D. (1)
4.5 Warrant to Purchase 2,342 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Shelly Burks. (1)
4.6 Warrant to Purchase 1,873 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery. (1)
4.7 Warrant to Purchase 6,556 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery. (1)
12.1 Subsidiaries of the Company. (1)
27.1 Financial Data Schedule. (5)
</TABLE>
- ----------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-09815) and incorporated herein by reference.
(2) Schedules and similar attachments to this Exhibit have not been filed
herewith. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the Commission upon request.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999.
(5) Filed herewith.
<PAGE> 13
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.
Medical Alliance, Inc.
DATE: November 15, 1999
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Paul R. Herchman
-----------------------------
Paul R. Herchman Chief Executive Officer
/s/ Mark A. Novy
-----------------------------
Mark A. Novy Vice President of Finance
</TABLE>
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement, dated March 18, 1996 between the Company
and Maasai Inc. (1) (2)
2.2 Asset Purchase Agreement, dated June 10, 1996 between the Company and
Mobile Laser Services, Inc. (1) (2)
2.3 Asset Purchase Agreement, dated as of January 21, 1997 among Stone
Treatment Center of New England, Inc., Gregory A. Mercurio, Vincent
A. Catallozzi, M.D., Alexander Calenda, M.D., Gerald Marsocci, M.D.,
Joseph C. Cambio, M.D. and the Company. (3)(2)
2.4 Amended and Restated Agreement and Plan of Merger, dated as of May 18,
1999 between Diagnostic Health Services, Inc. and the Company. (4)
2.5 Agreement to Terminate the Amended and Restated Agreement and Plan of
Merger, dated as of August 9, 1999 between Diagnostic Health Services,
Inc. and the Company.(4)
3.1 Amended and Restated Articles of Incorporation of the Company. (1)
3.2 Amended and Restated Bylaws of the Company. (1)
4.1 Specimen of Company Common Stock Certificate. (1)
4.2 Warrant to Purchase 15,651 Shares of Common Stock of the Company dated
July 27, 1995 between the Company and Paul R. Herchman. (1)
4.3 Warrant to Purchase 23,416 Shares of Common Stock of the Company dated
August 15, 1993 between the Company and Columbia General Corporation.
(1)
4.4 Warrant to Purchase 2,810 Shares of Common Stock of the Company dated
October 17, 1993 between the Company and Robert J. Matthews, M.D. (1)
4.5 Warrant to Purchase 2,342 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Shelly Burks. (1)
4.6 Warrant to Purchase 1,873 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery. (1)
4.7 Warrant to Purchase 6,556 Shares of Common Stock of the Company dated
May 31, 1994 between the Company and Thomas A. Montgomery. (1)
12.1 Subsidiaries of the Company. (1)
27.1 Financial Data Schedule. (5)
</TABLE>
- ----------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-09815) and incorporated herein by reference.
(2) Schedules and similar attachments to this Exhibit have not been filed
herewith. The Company agrees to furnish a copy of any such omitted
schedules and attachments to the Commission upon request.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999.
(5) Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 14,377,781 13,411,095
<SECURITIES> 0 0
<RECEIVABLES> 2,713,409 2,341,962
<ALLOWANCES> 1,001,851 611,352
<INVENTORY> 0 0
<CURRENT-ASSETS> 17,874,290 17,195,349
<PP&E> 14,098,364 16,152,210
<DEPRECIATION> 8,229,821 9,981,396
<TOTAL-ASSETS> 24,521,065 24,104,690
<CURRENT-LIABILITIES> 1,440,479 1,526,282
<BONDS> 239,929 132,216
0 0
0 0
<COMMON> 12,753 12,810
<OTHER-SE> 22,541,579 22,047,911
<TOTAL-LIABILITY-AND-EQUITY> 24,521,065 24,104,690
<SALES> 0 0
<TOTAL-REVENUES> 16,132,206 12,356,465
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,690,293 858,987
<INTEREST-EXPENSE> 59,306 32,029
<INCOME-PRETAX> (773,583) (529,857)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (773,583) (529,857)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (773,583) (529,857)
<EPS-BASIC> (.12) (.09)
<EPS-DILUTED> (.12) (.09)
</TABLE>
