<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 JUNE 30, 2000
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 August 11, 2000, there were 6,119,563 shares outstanding of the
registrant's common stock, $0.002 par value.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 ................................................ 3
Consolidated Statements of Operations
Three and Six months ended June 30, 2000 and 1999..................................... 4
Consolidated Statements of Cash Flows
Six months ended June 30, 2000 and 1999 ............................................ 5
Consolidated Statement of Stockholders' Equity............................................ 6
Six months ended June 30, 2000
Notes to Consolidated Financial Statements ............................................... 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................................ 12
.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 13
Signatures................................................................................ 14
</TABLE>
<PAGE> 3
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................... $ 13,964,229 $ 13,393,646
Accounts receivable, less allowance for doubtful accounts
of $582,000 and $624,000, respectively .......................................... 2,251,464 2,080,143
Prepaid expenses and other current assets ....................................... 2,039,877 1,525,576
Refundable federal and state income taxes ....................................... 43,839 49,508
Deferred income taxes ........................................................... 263,331 263,331
------------ ------------
Total current assets ...................................................... 18,562,740 17,312,204
------------ ------------
Property and equipment, net ......................................................... 5,731,013 5,905,091
------------ ------------
Other assets:
Intangible assets, net of amortization of
$334,000 and $315,000, respectively ............................................. 710,644 729,143
------------ ------------
Total assets .............................................................. $ 25,004,397 $ 23,946,438
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................ $ 730,459 $ 673,539
Accrued expenses ................................................................ 593,881 643,890
Capital lease obligations ....................................................... 194,723 73,123
Deferred revenue ................................................................ 4,490 3,546
------------ ------------
Total current liabilities ................................................. 1,523,553 1,385,098
Capital lease obligations, net of current maturities ................................ 232,853 15,689
Deferred income taxes ............................................................... 263,331 263,331
------------ ------------
Total liabilities ........................................................ 2,019,737 1,664,118
------------ ------------
Stockholders' equity:
Common stock, $0.002 par value, 30,000,000 shares
authorized; 6,452,866 and 6,423,355 shares issued and 6,119,563 and 6,090,052
shares outstanding, respectively ............................................ 12,871 12,812
Capital in excess of par value .................................................. 26,766,856 26,701,496
Accumulated deficit ............................................................. (2,845,916) (3,482,837)
Treasury stock at cost, 333,303 shares .......................................... (949,151) (949,151)
------------ ------------
Total stockholders' equity ............................................... 22,984,660 22,282,320
------------ ------------
Total liabilities and stockholders' equity ............................... $ 25,004,397 $ 23,946,438
============ ============
</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 JUNE 30, 2000 AND 1999
AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue .................................................. $ 5,126,686 $ 4,190,839 $ 9,962,252 $ 8,317,690
------------ ------------ ------------ ------------
Costs and expenses:
Salaries and benefits ...................................... 2,145,095 1,912,796 4,224,864 3,882,474
Selling, general and
administrative .......................................... 2,062,076 2,235,708 3,858,430 3,595,542
Depreciation and
amortization ............................................ 529,515 594,666 1,084,189 1,208,620
Provision for uncollectible
accounts ................................................ 296,793 310,165 603,719 588,067
------------ ------------ ------------ ------------
Total costs and
expenses .............................................. 5,033,479 5,053,335 9,771,202 9,274,703
------------ ------------ ------------ ------------
Operating income (loss) ................................. 93,207 (862,496) 191,050 (957,013)
------------ ------------ ------------ ------------
Other (income) expense:
Interest income and other,
net ..................................................... (263,629) (175,669) (451,285) (353,168)
Interest expense ........................................... 4,077 8,620 5,414 20,437
------------ ------------ ------------ ------------
Total other (income) expense ............................ (259,552) (167,049) (445,871) (332,731)
------------ ------------ ------------ ------------
Net income (loss) before income taxes ........................ 352,759 (695,447) 636,921 (624,282)
Provision (benefit) for income taxes ......................... -- (28,466) -- --
------------ ------------ ------------ ------------
Net income (loss) ............................................ $ 352,759 $ (666,981) $ 636,921 $ (624,282)
============ ============ ============ ============
Net income (loss) per share (basic) .......................... $ .06 $ (.11) $ .10 $ (.10)
============ ============ ============ ============
Net income (loss) per share (diluted) ........................ $ .06 $ (.11) $ .10 $ (.10)
============ ============ ============ ============
Weighted average number of common shares and common share
equivalents (in thousands) (basic) ........................... 6,116 6,136 6,107 6,126
============ ============ ============ ============
Weighted average number of common shares and common share
equivalents (in thousands) (diluted) ........................ 6,361 6,136 6,335 6,126
============ ============ ============ ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $ 636,921 $ (624,282)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain from disposal of equipment ....................... (59,994) (21,438)
Provision for uncollectible accounts .................. 603,719 588,067
Depreciation and amortization ......................... 1,084,189 1,208,620
Changes in assets and liabilities:
Accounts receivable ................................... (775,040) (641,823)
Prepaid expenses and other current assets ............. (508,632) (282,088)
Accounts payable and accrued expenses ................. 15,911 102,048
Deferred revenue ...................................... 944 (16,411)
------------ ------------
Net cash provided by operating activities ............ 998,018 312,693
------------ ------------
Cash flows from investing activities:
Property and equipment purchases ......................... (597,907) (1,070,996)
Proceeds from disposal of equipment ...................... 143,578 17,669
------------ ------------
Net cash used in investing activities ................ (454,329) (1,053,327)
------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligations ................... (38,525) (118,892)
Proceeds from issuance of common stock ................... 65,419 27,596
------------ ------------
Net cash provided by (used in) financing activities ... 26,894 (91,296)
------------ ------------
Net decrease in cash and cash equivalents .................. 570,583 (831,930)
Cash and cash equivalents at beginning of period ........... 13,393,646 14,377,781
------------ ------------
Cash and cash equivalents at end of period ................. $ 13,964,229 $ 13,545,851
============ ============
Supplemental schedule of noncash investing and financing
activities:
Capital lease obligations incurred ....................... $ 377,289 $ 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 SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------------- CAPITAL IN EXCESS ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT OF PAR VALUE DEFICIT STOCK EQUITY
------------ ------------ ----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 ... 6,090,052 $ 12,812 $ 26,701,496 $ (3,482,837) $ (949,151) $ 22,282,320
Options exercised ........... 29,511 59 65,360 65,419
Net income .................. 636,921 636,921
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 ....... 6,119,563 $ 12,871 $ 26,766,856 $ (2,845,916) $ (949,151) $ 22,984,660
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION OF AND FOR THE THREE AND SIX MONTHS PERIOD ENDED
JUNE 30, 2000 AND 1999 IS UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of June 30, 2000, and the consolidated
statements of operations, for the three and six months ended June 30, 2000 and
1999 and the consolidated statements of cash flows for the six months ended June
30, 2000 and 1999, and the consolidated statement of stockholders' equity for
the six months ended June 30, 2000, have been prepared by Medical Alliance, Inc.
(the "Company") without audit. The December 31, 1999 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 June 30,
2000, 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 (the "SEC"). 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, 1999
included in the Company's Form 10-K.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 LIFE 1999 LIFE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Medical equipment ................................ $ 11,086,710 5 years $ 10,529,256 5 years
Furniture and fixtures ........................... 2,391,413 3 years 2,301,362 3 years
Vehicles ......................................... 2,036,598 4 years 1,997,208 4 years
Leasehold improvements ........................... 59,603 3 years 53,361 3 years
Equipment under capital leases ................... 1,616,708 5 years 1,563,419 5 years
------------ ------------
17,191,032 16,444,606
Less accumulated depreciation and amortization ... (11,460,019) (10,539,515)
------------ ------------
Net property and equipment ....................... $ 5,731,013 $ 5,905,091
============ ============
</TABLE>
Depreciation expense related to property and equipment was approximately
$520,000 and $584,000 for the three months ended June 30, 2000 and 1999,
respectively. Accumulated amortization related to equipment under capital leases
was approximately $1,353,000 and $1,388,000 at June 30, 2000 and December 31,
1999, respectively.
7
<PAGE> 8
3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Weighted average number of common shares outstanding (basic) .... 6,116,404 6,135,707 6,107,307 6,126,393
Net income (loss) ............................................... $ 352,759 $ (666,981) $ 636,921 $ (624,282)
Net income (loss) per share (basic) ............................. $ .06 $ (.11) $ .10 $ (.10)
============ ============ ============ ============
Diluted:
Weighted average number of common shares outstanding (basic) .... 6,116,404 6,135,707 6,107,307 6,126,393
Incremental common shares outstanding applicable to
"In the Money" options and warrants based on the average
market value of the stock for the respective period ended ...... 244,252 (a) 227,995 (a)
Weighted average number of common shares outstanding (diluted) .. 6,360,656 6,135,707 6,335,302 6,126,393
Net income (loss) ............................................... $ 352,759 $ (666,981) $ 636,921 $ (624,282)
Net income (loss) per share (diluted) ........................... $ .06 $ (.11) $ .10 $ (.10)
============ ============ ============ ============
</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 three and six months ended June 30, 1999 as their inclusion
would be antidilutive for the respective period. The shares not included totaled
26,803 and 32,298 for the three and six months ended June 30, 1999.
Options and warrants excluded from the dilutive earnings per share
computation because to do so would have been antidilutive totaled 57,960 and
732,884 for the three months ended June 30, 2000 and 1999, respectively. For the
six months ended June 30, 2000 and 1999, the options and warrants excluded
totaled 366,760 and 705,384, respectively.
4. STRATEGIC PARTNERS
On January 24, 2000, the Company announced that it had retained
Dallas-based Hoak Breedlove Wesneski & Co. to act as its financial advisor in
connection with the possible sale of its medical business. The Company also
announced that it intends to consider opportunities to merge with or acquire a
business or businesses in high growth industries, with a focus on the Internet
and technology sectors. On August 1, 2000, the Company announced that it had
retained Dallas-based Stonegate Securities, Inc. to act as its financial advisor
in exploring opportunities available to the Company, such as the possible sale
of the non-medical portion of the Company, including its cash and corporate
shell. The Company's Board of Directors continues to believe that consideration
of these alternatives is in the best interest of shareholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUES. Net revenues were $5,127,000 for the three months ended June
30, 2000 compared to $4,191,000 for the three months ended June 30, 1999, an
increase of $936,000 or 22.3%. The majority of the increase was related to
equipment/device sales of $632,000 for the three months ended June 30, 2000. The
Company had no sales related to equipment/devices during the three months ended
June 30, 1999. The remainder of the increase is due to aesthetic elective net
revenue which was $2,298,000 for the three months ended June 30, 2000 compared
to $1,969,000 for the three months ended June 30, 1999, an increase of $329,000
or 16.7%. The increase in aesthetic elective revenues is primarily due to the
utilization of the hair reduction lasers which generated a net revenue of
$205,000 for the three months ended June 30, 2000. The Company generated no
revenues related to hair reduction for the three months ended June 30, 1999.
Aesthetic elective procedures were 14,367 for the three months ended June 30,
2000 compared to 12,708 for the three months ended June 30, 1999, an increase of
1,659 or 13.1%. Total procedures were 21,999 for the three months ended June 30,
2000 compared to 20,205, an increase of 1,794 or 8.9%.
8
<PAGE> 9
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $2,145,000
for the three months ended June 30, 2000 compared to $1,913,000 for the three
months ended June 30, 1999, an increase of $232,000 or 12.1%. Salaries and
benefits expense as a percentage of net revenues was 41.8% for the three months
ended June 30, 2000 compared to 45.6% for the three months ended June 30, 1999.
This decrease is mainly due to the Company leveraging its existing
infrastructure to generate incremental revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense was $2,062,000 for the three months ended June 30, 2000
compared to $2,236,000 for the three months ended June 30, 1999, a decrease of
$174,000 or 7.8%. The Company incurred $45,000 in nonrecurring charges related
to the possible sale of the medical business during the three months ended June
30, 2000. The Company incurred an $850,000 nonrecurring charge during the three
months ended June 30, 1999 related to the termination of the merger agreement
between Diagnostic Health Services Inc. and the Company. Without the
nonrecurring charges, selling, general, and administrative expense would have
been $2,017,000 for the three months ended June 30, 2000 compared to $1,386,000
for the three months ended June 30, 1999, an increase of $631,000 or 45.5%. The
following items were attributable to the increase in selling, general, and
administrative expense:
Cost related to equipment/device sales were $332,000 for the three months
ended June 30, 2000 compared to no costs related to equipment/device sales for
the three months ended June 30, 1999.
Vehicle expense was $230,000 for the three months ended June 30, 2000
compared to $190,000 for the three months ended June 30, 1999, an increase of
$40,000 or 21.1%. The primary reason for the increase is due to an increase in
fuel costs and vehicle maintenance.
Promotion and advertising expense was $89,000 for the three months ended
June 30, 2000 compared to $44,000 for the three months ended June 30, 1999, an
increase of $45,000 or 102.2%. The Company incurred $24,000 in additional trade
show expenses for the three months ended June 30, 2000 compared to the three
months ended June 30, 1999. The Company also incurred $12,000 in advertising
expenses related to equipment/device sales for the three months ended June 30,
2000. The Company had no advertising expenses related to equipment/device sales
for the three months ended June 30, 1999.
Leasing expense was $131,000 for the three months ended June 30, 2000
compared to $29,000 for the three months ended June 30, 1999, an increase of
$102,000 or 351.7%. The Company incurred $83,000 in leasing expense for the
three months ended June 30, 2000 related to a revenue sharing arrangement with a
hair reduction laser provider. This arrangement was not in effect for the three
months ended June 30, 1999.
The remainder of the increase is related to various selling, general and
administrative expenses increasing due to the increase in net revenues.
Selling, general and administrative expense as a percentage of net revenue
decreased to 40.2% for the three months ended June 30, 2000 from 53.3% for the
three months ended June 30, 1999. Without the nonrecurring charges of $129,000
for the three months ended June 30, 2000 and $850,000 for the three months ended
June 30, 1999, selling, general, and administrative expense as a percentage of
net revenue would have been 39.3% for the three months ended June 30, 2000
compared to 33.1% for the three months ended June 30, 1999. This increase is
mainly due to the costs related to equipment/device sales and an increase in
leasing and vehicle expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $530,000
for the three months ended June 30, 2000 compared to $595,000 for the three
months ended June 30, 1999, a decrease of $65,000 or 10.9%. This decrease was
due mainly to various items of equipment being fully depreciated before or
during the three months ended June 30, 2000.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
was $297,000 for the three months ended June 30, 2000 compared to $310,000 for
the three months ended June 30, 1999, a decrease of $13,000 or 4.2%. Provisions
for uncollectible accounts as a percentage of net patient service revenue was
6.6% for the three months ended June 30, 2000 compared to 7.4% for the three
months ended June 30, 1999. This improvement is due to the continued success
from the Company's operational processes including scheduling, preregistration,
and preverification.
OPERATING INCOME (LOSS). Operating income was $93,000 for the three months
ended June 30, 2000 compared to an operating loss of $862,000 for the three
months ended June 30, 1999, an increase of $955,000. The Company incurred a
nonrecurring charge of $45,000 related to the possible sale of the medical
business for the three months ended June 30, 2000 compared to an $850,000
nonrecurring charge related to the termination of the proposed merger between
Diagnostic Health Services, Inc. and the Company during the three months ended
June 30, 1999. Without the nonrecurring charges, operating income would have
been $138,000 for the three months ended June 30, 2000 compared to an operating
loss of $12,000 for the three months ended June 30, 1999, an increase of
$150,000.
9
<PAGE> 10
INTEREST INCOME & OTHER, NET. Interest income and other, net was $264,000 for
the three months ended June 30, 2000 compared to $176,000 for the three months
ended June 30, 1999, an increase of $88,000 or 50%. The increase is mainly
attributable to an increase on the rate of return related to the Company's
commercial paper investments. The Company also had an additional $31,000 in
gains realized on the disposition of assets for the three months ended June 30,
2000 compared to the three months ended June 30, 1999.
INCOME (LOSS) BEFORE INCOME TAXES. Income before income taxes was $353,000
for the three months ended June 30, 2000 compared to a loss of $695,000 for the
three months ended June 30, 1999, an increase of $1,048,000. The Company
incurred a nonrecurring charge of $45,000 related to the possible sale of the
medical business for the three months ended June 30, 2000 compared to an
$850,000 nonrecurring charged related to the termination of the proposed merger
between Diagnostic Health Services, Inc. and the Company during the three months
ended June 30, 1999. Without the nonrecurring charge, income before income taxes
would have been $397,000 for the three months ended June 30,2000 compared to
$155,000 for the three months ended June 30, 1999, an increase of $243,000.
PROVISION (BENEFIT) FOR INCOME TAXES. For the three months ended June 30,
2000, the Company recorded no income tax provisions due to the utilization of
the Company's $2.3 million net operating loss carryforward. For the three months
ended June 30, 1999, the Company recorded a tax benefit of $28,000.
NET INCOME (LOSS). As a result of the items discussed above, the Company's
income was $353,000 for the three months ended June 30, 2000 compared to a loss
of $667,000 for the three months ended June 30,1999, an increase of $1,020,000.
The Company incurred a nonrecurring charge of $45,000 related to the possible
sale of the medical business for the three months ended June 30, 2000 compared
to an $850,000 nonrecurring charge related to the termination of the proposed
merger between Diagnostic Health Services, Inc. and the Company during the three
months ended June 30, 1999. Without the nonrecurring charges, net income would
have been $397,000 for the three months ended June 30, 2000 compared to $183,000
for the three months ended June 30, 1999, an increase of $215,000.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
NET REVENUES. Net revenues were $9,962,000 for the six months ended June 30,
2000 compared to $8,318,000 for the six months ended June 30, 1999, an increase
of $1,644,000 or 19.8%. The Company had $1,127,000 in net revenues related to
equipment/device sales for the six months ended June 30, 2000. The Company had
no revenue related to equipment/device sales for the six months ended June 30,
1999. Net medical surgical revenue was $4,323,000 for the six months ended June
30, 2000 compared to $4,233,000 for the six months ended June 30 1999, an
increase of $90,000 of 2.1%. Net aesthetic revenue was $4,489,000 for the six
months ended June 30, 2000 compared to $4,063,000 for the six months ended June
30, 1999, an increase of $426,000 or 10.5%. The increase in aesthetic elective
revenues is primarily due to the utilization of the hair reduction lasers which
generated a net revenue of $294,000 for the six months ended June 30, 2000. The
Company generated no revenues related to hair reduction for the six months ended
June 30, 1999.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $4,225,000
for the six months ended June 30, 2000 compared to $3,882,000 for the six months
ended June 30, 1999, an increase of $343,000 or 8.8%. Salaries and benefits
expense as a percentage of net revenue was 42.4% for the six months ended June
30, 2000 compared to 46.7% for the six months ended June 30, 1999. This decrease
is mainly due to the Company leveraging its existing infrastructure to generate
incremental revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense was $3,858,000 for the six months ended June 30, 2000
compared to $3,596,000 for the six months ended June 30, 1999, an increase of
$262,000 or 7.3%. For the six months ended June 30, 2000 the Company incurred a
nonrecurring charge of $129,000 related to the possible sale of the medical
business. For the six months ended June 30, 1999 the Company incurred a
nonrecurring charge of $850,000 related to the termination of the proposed
merger between Diagnostic Health Services, Inc. and the Company. Without these
nonrecurring charges, selling, general and administrative expense would have
been $3,730,000 for the six months ended June 30, 2000 compared to $2,746,000
for the six months ended June 30, 1999, an increase of $984,000 or 35.8%. The
following items were attributable to the increase in selling, general, and
administrative expenses:
Cost of sales related to equipment/device sales were $548,000 for the six
months ended June 30, 2000 compared to no costs related to equipment/device
sales for the six months ended June 30, 1999.
Vehicle expense was $429,000 for the six months ended June 30, 2000 compared
to $343,000 for the six months ended June 30, 1999, an increase of $86,000 or
25.1%. This increase is due to an increase in fuel costs and vehicle
maintenance.
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<PAGE> 11
Promotion and advertising expense was $165,000 for the six months ended June
30, 2000 compared to $116,000 for the six months ended June 30, 1999, an
increase of $49,000 or 42.2%. The Company incurred $29,000 in additional trade
show expenses for the six months ended June 30, 2000 compared to the six months
ended June 30, 1999. The Company also incurred $17,000 in advertising expenses
related to equipment/device sales for the six months ended June 30, 2000. The
Company had no advertising expenses related to equipment/device sales for the
six months ended June 30, 1999.
Leasing expense was $209,000 for the six months ended June 30, 2000 compared
to $125,000 for the six months ended June 30 1999, an increase of $84,000 of
67.2%. This increase is due to a revenue sharing arrangement with a hair
reduction laser provider. This arrangement was not in effect for the six months
ended June 30, 1999.
The remainder of the increase is related to various selling, general and
administrative expenses increasing due to the net revenue increase.
Selling, general, and administrative expense as a percentage of net revenue
decreased to 38.7% for the six months ended June 30, 2000 from 43.2% for the six
months ended June 30, 1999. Without the nonrecurring charges of $129,000 for the
six months ended June 30, 2000 and $850,000 for the six months ended June 30,
1999, selling, general, and administrative expense as a percentage of net
revenue would have been 37.4% for the six months ended June 30, 2000 compared to
33.0% for the six months ended June 30, 1999. This increase is mainly due to
costs related to equipment/device sales and an increase in leasing and vehicle
expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1,084,000
for the six months ended June 30, 2000 compared to $1,209,000 for the six months
ended June 30, 1999, a decrease of $125,000 or 10.3%. This decrease was due
mainly to various items of equipment fully depreciated before or during the six
months ended June 30, 2000.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts
was $604,000 for the six months ended June 30, 2000 compared to $588,000 for the
six months ended June 30, 1999, an increase of $16,000 or 2.7%. Provisions for
uncollectible accounts as a percentage of net patient services revenue was 6.9%
for the six months ended June 30, 2000 compared to 7.1% for the six months ended
June 30, 1999. This improvement is due to the continued success from the
Company's operational processes including scheduling, preregistration, and
preverification.
OPERATING INCOME (LOSS). Operating income was $191,000 for the six months
ended June 30, 2000, compared to a loss of $957,000 for the six months ended
June 30, 1999, an increase of $1,148,000. For the six months ended June 30,
2000 the Company incurred a nonrecurring charge of $129,000 related to the
possible sale of the medical business. For the six months ended June 30, 1999
the Company incurred a nonrecurring charge of $850,000 related to the
termination of the proposed merger between Diagnostic Health Services, Inc. and
the Company. Without the nonrecurring charge, operating income would have been
$320,000 for the six months ended June 30, 2000 compared to an operating loss of
$107,000 for the six months ended June 30, 2000, an increase of $427,000.
INTEREST INCOME AND OTHER, NET. Interest income and other, net was $451,000
for the six months ended June 30, 2000 compared to $353,000 for the six months
ended June 30, 1999, an increase of $98,000 or 27.8%. Interest income was
$395,000 for the six months ended June 30, 2000 compared to $338,000 for the six
months ended June 30, 1999, an increase of $57,000 or 16.9%. This increase is
due to the Company achieving a higher rate of return on its commercial paper
investments. Other nonoperating income was $57,000 for the six months ended June
30, 2000 compared to $16,000 for the six months ended June 30, 1999, an increase
of $41,000. This increase is due to gains realized on the disposition
of certain assets.
INCOME (LOSS) BEFORE INCOME TAXES. Income before income taxes was $637,000
for the six months ended June 30, 2000 compared to a loss of $624,000 for the
six months ended June 30, 1999, an increase of $1,261,000. For the six months
ended June 30, 2000 the Company incurred a nonrecurring charge of $129,000
related to the possible sale of the medical business. For the six months ended
June 30, 1999 the Company incurred a nonrecurring charge of $850,000 related to
the termination of the merger agreement between Diagnostic Health Services, Inc.
and the Company. Without the nonrecurring charge, income before income taxes
would have been $766,000 for the six months ended June 30, 2000 compared to
$226,000 for the six months ended June 30, 1999, an increase of $540,000.
PROVISION (BENEFIT) FOR INCOME TAXES. For the six months ended June 30, 2000
and 1999, the Company did not record a tax provision due to the utilization of
the Company's $2.3 million net operating loss carryforward.
NET INCOME (LOSS). As a result of the items discussed above, the Company's
net income was $637,000 for the six months ended June 30, 2000, compared to a
loss of $624,000 for the six months ended June 30, 1999, an increase of
$1,261,000. For the six
11
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months ended June 30, 2000 the Company incurred a nonrecurring charge of
$129,000 related to the possible sale of the medical business. For the six
months ended June 30, 1999 the Company incurred a nonrecurring charge of
$850,000 for the termination of the proposed merger between Diagnostic Health
Services, Inc. and the Company. Without the nonrecurring charge, net income
would have been $766,000 for the six months ended June 30, 2000 compared to
$226,000 for the six months ended June 30, 1999 an increase of $540,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company has an accumulated retained deficit of
$2.8 million, due to losses incurred during the twelve months ended December 31,
1997, 1998, and 1999.
Net cash provided by operating activities was $998,000 and $313,000 for the
six months ended June 30, 2000 and 1999, respectively, primarily from generated
EBITDA (earnings before interest, taxes, depreciation and amortization). For its
investing activities, the Company consumed $454,000 and $1,053,000 for the six
months ended June 30, 2000 and 1999, respectively, primarily for the purchase of
medical equipment. Capital expenditures were $598,000 and $1,071,000 for the
six months ended June 30, 2000 and 1999, respectively. Net cash provided by
(used in) financing activities was $27,000 and $(91,000) for the six months
ended June 30, 2000 and 1999, respectively, primarily for the repayment of
capital lease obligations and proceeds from the issuance of common stock due to
the exercise of stock options.
YEAR 2000 COMPLIANCE
The Company completed its evaluation of the Year 2000 ("Y2K") compliance
status in 1999. The Company tested its information technology, such as software
regarding Y2K compliance and received certification of Y2K compliance from its
third party vendors related to the billing and accounting systems. The Company
conducted further tests on its accounting system during the fourth quarter of
1999. Based upon the Company's 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 and has not experienced any material Y2K problems to
date.
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, who 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 material
and has not experienced any material Y2K problems to date.
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. To date, the Company has not
experienced any Y2K-related failure caused by third parties.
Based on the Company's process of evaluating its Y2K compliance status,
the Company expended an estimated $50,000 related to addressing Y2K issues.
Furthermore, there can be no assurance that all Y2K issues will be addressed
which could result in additional costs for the Company. To date, the Company has
not experienced any material Y2K problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
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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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
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)
27.1 - Financial Data Schedule. (2)
(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) Filed herewith.
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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: August 14, 2000
Signature Title
--------- -----
/s/ Paul Herchman
----------------------------
Paul Herchman Chief Executive Officer
/s/ Mark Novy
----------------------------
Mark Novy Vice President of Finance
Principal Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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)
27.1 - Financial Data Schedule. (2)
</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) Filed herewith.
