<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, 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 November 13, 2000 there were 6,119,563 shares outstanding of the
registrant's common stock, $0.002 par value.
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INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 ...........................................3
Consolidated Statements of Operations
Three and Nine months ended September 30, 2000 and 1999...............................4
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999.......................................5
Consolidated Statement of Stockholders' Equity
Nine months ended September 30, 2000 ...............................................6
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>
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 14,832,585 $ 13,393,646
Accounts receivable, less allowance for doubtful accounts
of $576,000 and $624,000, respectively .......................... 2,046,462 2,080,143
Prepaid expenses and other current assets ........................ 1,663,173 1,525,576
Refundable federal and state income taxes ........................ 42,128 49,508
Deferred income taxes ............................................ 263,331 263,331
------------ ------------
Total current assets ....................................... 18,847,679 17,312,204
------------ ------------
Property and equipment, net .......................................... 5,782,698 5,905,091
------------ ------------
Other assets:
Intangible assets, net of amortization of
$343,000 and $315,000, respectively .............................. 701,421 729,143
------------ ------------
Total assets ............................................... $ 25,331,798 $ 23,946,438
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 508,989 $ 673,539
Accrued expenses ................................................. 628,152 643,890
Capital lease obligations ........................................ 266,167 73,123
Deferred revenue ................................................. 10,360 3,546
------------ ------------
Total current liabilities .................................. 1,413,668 1,385,098
Capital lease obligations, net of current maturities ................. 595,001 15,689
Deferred income taxes ................................................ 263,331 263,331
------------ ------------
Total liabilities .......................................... 2,272,000 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 .............................................. (2,770,778) (3,482,837)
Treasury stock at cost, 333,303 shares ........................... (949,151) (949,151)
------------ ------------
Total stockholders' equity ................................. 23,059,798 22,282,320
------------ ------------
Total liabilities and stockholders' equity ................. $ 25,331,798 $ 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 SEPTEMBER 30, 2000 AND 1999
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue ........................................... $ 4,633,211 $ 4,038,775 $ 14,595,463 $ 12,356,465
Costs and expenses:
Salaries and benefits ............................... 1,918,864 1,854,651 6,143,728 5,737,125
Selling, general and
administrative ................................... 2,159,881 1,386,735 6,018,311 4,982,276
Depreciation and
amortization ..................................... 545,498 592,314 1,629,687 1,800,934
Provision for uncollectible
accounts ......................................... 248,151 270,920 851,870 858,987
------------ ------------ ------------ ------------
Total costs and
expenses ....................................... 4,872,394 4,104,620 14,643,596 13,379,322
------------ ------------ ------------ ------------
Operating loss ................................... (239,183) (65,845) (48,133) (1,022,857)
Other (income) expense:
Interest income and other,
net .............................................. (327,662) (171,861) (778,934) (525,029)
Interest expense .................................... 13,328 11,592 18,742 32,029
------------ ------------ ------------ ------------
Total other income ............................... (314,334) (160,269) (760,192) (493,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes ..................... 75,151 94,424 712,059 (529,857)
Provision (benefit) for income taxes .................. 0 0 0 0
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ 75,151 $ 94,424 $ 712,059 $ (529,857)
============ ============ ============ ============
Net income (loss) per share (basic) ................... $ 01 $ .02 $ .11 $ (.09)
============ ============ ============ ============
Net income (loss) per share (diluted) ................. $ .01 $ .02 $ .11 $ (.09)
============ ============ ============ ============
Weighted average number of common shares and common
share equivalents (in thousands) (basic) .............. 6,120 6,141 6,111 6,131
============ ============ ============ ============
Weighted average number of common shares and common
share equivalents (in thousands) (diluted) ............ 6,367 6,142 6,343 6,131
============ ============ ============ ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
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MEDICAL ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................. $ 712,059 $ (529,857)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Gain from disposal of equipment ................................................ (158,459) (28,268)
Provision for uncollectible accounts ........................................... 851,870 858,987
Depreciation and amortization .................................................. 1,629,687 1,800,934
Changes in assets and liabilities net of effects from acquisitions:
Accounts receivable ............................................................ (818,189) (878,038)
Prepaid expenses and other current assets ...................................... (130,217) (268,694)
Accounts payable and accrued expenses .......................................... (171,289) 274,830
Deferred revenue ............................................................... 6,814 (89,881)
------------ ------------
Net cash provided by operating activities ................................... 1,922,276 1,140,013
------------ ------------
Cash flows from investing activities:
Capital expenditures ............................................................. (755,076) (1,989,515)
Proceeds from disposal of equipment .............................................. 277,687 24,169
------------ ------------
Net cash used in investing activities ........................................ (477,389) (1,965,346)
------------ ------------
Cash flows from financing activities:
Repayment of capital lease obligations ........................................... (71,367) (177,599)
Proceeds from issuance of common stock ........................................... 65,419 36,246
------------ ------------
Net cash used in financing activities ........................................ (5,948) (141,353)
------------ ------------
Net decrease in cash and cash equivalents .................................... 1,438,939 (966,686)
Cash and cash equivalents at beginning of period ................................. 13,393,646 14,377,781
------------ ------------
Cash and cash equivalents at end of period ....................................... $ 14,832,585 $ 13,411,095
============ ============
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations incurred ............................................. $ 843,723 $ 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, 2000
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK 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 ........................ 712,059 712,059
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 ..... 6,119,563 $ 12,871 $26,766,856 $(2,770,778) $ (949,151) $23,059,798
=========== =========== =========== =========== =========== ===========
</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 NINE MONTHS PERIOD ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of September 30, 2000, and the
consolidated statements of operations for the three and nine months ended
September 30, 2000 and 1999 and the consolidated statements of cash flows for
the nine months ended September 30, 2000 and 1999, and the consolidated
statement of stockholders' equity for the nine months ended September 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 September 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. 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>
SEPTEMBER 30, DECEMBER 31,
2000 LIFE 1999 LIFE
------------- ---- ------------ ----
<S> <C> <C> <C> <C>
Medical equipment..................................................... $ 10,913,657 5 years $ 10,529,256 5 years
Furniture and fixtures................................................ 2,402,132 3 years 2,301,362 3 years
Vehicles.............................................................. 1,939,128 4 years 1,997,208 4 years
Leasehold improvements................................................ 59,603 3 years 53,361 3 years
Equipment under capital leases........................................ 2,245,982 5 years 1,563,419 5 years
------------ ------------
17,560,502 16,444,606
Less accumulated depreciation and amortization........................ (11,777,804) (10,539,515)
------------ ------------
Net property and equipment............................................ $ 5,782,698 $ 5,905,091
============ ============
</TABLE>
Depreciation expense related to property and equipment was approximately
$536,000 and $584,000 for the three months ended September 30, 2000 and 1999,
respectively. Accumulated amortization related to equipment under capital leases
was approximately $1,390,000 and $1,388,000 at September 30, 2000 and December
31, 1999, respectively.
3. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic:
Weighted average number of common shares outstanding (basic) ...... 6,119,563 6,140,739 6,111,392 6,131,175
Net income (loss) ................................................. $ 75,151 $ 94,424 $ 712,059 $ (529,857)
Net income (loss) per share (basic) ............................... $ .01 $ .02 $ .11 $ (.09)
=========== =========== =========== ===========
Diluted:
Weighted average number of common shares outstanding (basic) ...... 6,119,563 6,140,739 6,111,392 6,131,175
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 ........ 247,869 775 231,637 (a)
Weighted average number of common shares outstanding (diluted) .... 6,367,432 6,141,514 6,343,029 6,131,175
Net income (loss) ................................................. $ 75,151 $ 94,424 $ 712,059 $ (529,857)
Net income (loss) per share (diluted) ............................. $ .01 $ .02 $ .11 $ (.09)
=========== =========== =========== ===========
</TABLE>
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(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, 1999 as their inclusion would be
antidilutive for the respective period. The shares not included totaled 24,633
for the nine months ended September 30, 1999.
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 312,427 and 447,767 as of September 30, 2000 and 1999,
respectively.
4. SALE OF MEDICAL BUSINESS
On September 15, 2000, the Company executed a definitive agreement with ICN
Pharmaceuticals California, Inc. ("ICN") whereby ICN would purchase the medical
business assets of Medical Alliance for cash of $14.4 million. Upon approval of
such transaction by Medical Alliance's shareholders and the closing of the sale
of assets there will be no continuing operations. The closing of the transaction
is subject to certain conditions precedent, including approval by Medical
Alliance's shareholders on December 7, 2000. There can be no assurance that the
acquisition will be completed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUES. Net revenues were $4,633,000 for the three months ended September
30, 2000 compared to $4,039,000 for the three months ended September 30, 1999,
an increase of $594,000 or 14.7%. The increase was related to equipment/device
sales of $636,000 for the three months ended September 30, 2000. The Company had
no sales related to equipment/devices during the three months ended September
30, 1999.
Aesthetic elective net revenue was $1,927,000 for the three months ended
September 30, 2000 compared to $1,753,000 for the three months ended September
30, 1999, an increase of $174,000 or 9.9%. The increase in aesthetic elective
revenues is due to the utilization of the hair reduction lasers which generated
a net revenue of $211,000 for the three months ended September 30, 2000. The
Company generated no revenues related to hair reduction for the three months
ended September 30, 1999. Aesthetic elective procedures were 12,489 for the
three months ended September 30, 2000 compared to 11,030 for the three months
ended September 30, 1999, an increase of 1,459 or 13.2%.
Medical surgical net revenue was $2,060,000 for the three months ended September
30, 2000 compared to $2,280,000 for the three months ended September 30, 1999, a
decrease of $219,000 or 9.6%. Medical surgical procedures were 7,377 for the
three months ended September 30, 2000 compared to 7,762 for the three months
ended September 30, 1999, a decrease of 385 or 5.0%. The net revenue per case
for medical surgical decreased from $294 to $279, a decrease of $15 or 5.2%.
This is mainly due to a shift to lower revenue per case procedures.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $1,919,000 for
the three months ended September 30, 2000 compared to $1,855,000 for the three
months ended September 30, 1999, an increase of $64,000 or 3.5%. Salaries and
benefits expense as a percentage of net revenues was 41.4% for the three months
ended September 30, 2000 compared to 45.9% for the three months ended September
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 $2,160,000 for the three months ended September 30,
2000 compared to $1,387,000 for the three months ended September 30, 1999, an
increase of $773,000 or 55.7%. The Company incurred $136,000 in nonrecurring
charges related to the possible sale of the medical business during the three
months ended September 30, 2000. Without the nonrecurring charge, selling,
general, and administrative expense would have been $2,024,000 for the three
months ended September 30, 2000 compared to $1,387,000 for the three months
ended September 30, 1999, an increase of $637,000 or 45.9%. The following items
were attributable to the increase in selling, general, and administrative
expense:
Cost related to equipment/device sales were $326,000 for the three months ended
September 30, 2000 compared to no costs related to equipment/device sales for
the three months ended September 30, 1999.
Vehicle expense was $263,000 for the three months ended September 30, 2000
compared to $171,000 for the three months ended
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September 30, 1999, an increase of $92,000 or 53.8%. The primary reason for the
increase is due to an increase in fuel costs and vehicle maintenance.
Repair and maintenance expense related to medical equipment was $406,000 for the
three months ended September 30, 2000 compared to $219,000 for the three months
ended September 30, 1999, an increase of $187,000 or 85.4%.
Selling, general and administrative expense as a percentage of net revenue
increased to 46.6% for the three months ended September 30, 2000 from 34.3% for
the three months ended September 30, 1999. Without the nonrecurring charge of
$136,000 for the three months ended September 30, 2000, selling, general, and
administrative expense as a percentage of net revenue would have been 43.7% for
the three months ended September 30, 2000 compared to 34.3% for the three months
ended September 30, 1999. This increase is mainly due to the costs related to
equipment/device sales and an increase in vehicle and repair/maintenance
expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $545,000 for
the three months ended September 30, 2000 compared to $592,000 for the three
months ended September 30, 1999, a decrease of $47,000 or 7.9%. This decrease
was due mainly to various items of equipment being fully depreciated before or
during the three months ended September 30, 2000.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts was
$248,000 for the three months ended September 30, 2000 compared to $271,000 for
the three months ended September 30, 1999, a decrease of $23,000 or 8.4%.
Provisions for uncollectible accounts as a percentage of net patient service
revenue was 6.2% for the three months ended September 30, 2000 compared to 6.6%
for the three months ended September 30, 1999. This improvement is due to the
continued success from the Company's operational processes including scheduling,
preregistration, and preverification.
OPERATING LOSS. Operating loss was $239,000 for the three months ended September
30, 2000 compared to an operating loss of $66,000 for the three months ended
September 30, 1999, an increase of $173,000. The Company incurred a nonrecurring
charge of $136,000 related to the possible sale of the medical business for the
three months ended September 30, 2000. Without the nonrecurring charge,
operating loss would have been $103,000 for the three months ended September 30,
2000 compared to an operating loss of $66,000 for the three months ended
September 30, 1999, an increase of $37,000.
INTEREST INCOME & OTHER, NET. Interest income and other, net was $328,000 for
the three months ended September 30, 2000 compared to $172,000 for the three
months ended September 30, 1999, an increase of $156,000 or 90.7%. Interest
income was $225,000 for the three months ended September 30, 2000 compared to
$165,000 for the three months ended September 30, 1999, an increase of $60,000
or 36.4%. The increase is attributable to an increase on the rate of return
related to the Company's commercial paper investments. The Company also had an
additional $96,000 in gains realized on the disposition of assets for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999.
INCOME BEFORE INCOME TAXES. Income before income taxes was $75,000 for the three
months ended September 30, 2000 compared to $94,000 for the three months ended
September 30, 1999, a decrease of $19,000. The Company incurred a nonrecurring
charge of $136,000 related to the possible sale of the medical business for the
three months ended September 30, 2000. Without the nonrecurring charge, income
before income taxes would have been $211,000 for the three months ended
September 30, 2000 compared to $94,000 for the three months ended September 30,
1999, an increase of $117,000.
PROVISION FOR INCOME TAXES. For the three months ended September 30, 2000 and
1999, the Company recorded no income tax provisions due to the utilization of
the Company's $2.3 million net operating loss carryforward.
NET INCOME. As a result of the items discussed above, the Company's income was
$75,000 for the three months ended September 30, 2000 compared to $94,000 for
the three months ended September 30,1999, a decrease of $19,000. The Company
incurred a nonrecurring charge of $136,000 related to the possible sale of the
medical business for the three months ended September 30, 2000. Without the
nonrecurring charge, net income would have been $211,000 for the three months
ended September 30, 2000 compared to $94,000 for the three months ended
September 30, 1999, an increase of $117,000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET REVENUES. Net revenues were $14,595,000 for the nine months ended September
30, 2000 compared to $12,356,000 for the nine months ended September 30, 1999,
an increase of $2,239,000 or 18.1%. The Company had $1,763,000 in net revenues
related to equipment/device sales for the nine months ended September 30, 2000.
The Company had no revenue related to equipment/device sales for the nine months
ended September 30, 1999.
Net medical surgical revenue was $6,383,000 for the nine months ended September
30, 2000 compared to $6,512,000 for the nine months ended September 30 1999, a
decrease of $129,000 or 2.0%. Medical surgical procedures were 22,016 for the
nine months ended September 30, 2000 compared to 22,358 for the nine months
ended September 30, 1999, a decrease of 342 or 1.5%.
Net aesthetic revenue was $6,415,000 for the nine months ended September 30,
2000 compared to $5,816,000 for the nine months ended September 30, 1999, an
increase of $600,000 or 10.3%. The increase in aesthetic elective revenues is
primarily due to the utilization of
9
<PAGE> 10
the hair reduction lasers which generated a net revenue of $505,000 for the nine
months ended September 30, 2000. The Company generated no revenues related to
hair reduction for the nine months ended September 30, 1999. Aesthetic elective
procedures were 40,158 for the nine months ended September 30, 2000 compared to
36,649 for the nine months ended September 30, 1999, an increase of 3,509 or
9.6%.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense was $6,144,000 for
the nine months ended September 30, 2000 compared to $5,737,000 for the nine
months ended September 30, 1999, an increase of $407,000 or 7.1%. Salaries and
benefits expense as a percentage of net revenue was 42.1% for the nine months
ended September 30, 2000 compared to 46.4% for the nine months ended September
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 $6,018,000 for the nine months ended September 30,
2000 compared to $4,982,000 for the nine months ended September 30, 1999, an
increase of $1,036,000 or 20.8%. For the nine months ended September 30, 2000
the Company incurred a nonrecurring charge of $265,000 related to the possible
sale of the medical business. For the nine months ended September 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 $5,753,000 for the nine months ended September 30, 2000 compared
to $4,132,000 for the nine months ended September 30, 1999, an increase of
$1,621,000 or 39.2%. The following items were attributable to the increase in
selling, general, and administrative expenses:
Cost of sales related to equipment/device sales were $873,000 for the nine
months ended September 30, 2000 compared to no costs related to equipment/device
sales for the nine months ended September 30, 1999.
Vehicle expense was $691,000 for the nine months ended September 30, 2000
compared to $513,000 for the nine months ended September 30, 1999, an increase
of $178,000 or 34.7%. This increase is due to an increase in fuel costs and
vehicle maintenance.
Leasing expense was $309,000 for the nine months ended September 30, 2000
compared to $201,000 for the nine months ended September 30, 1999, an increase
of $108,000 of 53.7%. This increase is due to a revenue sharing arrangement with
a hair reduction laser provider. This arrangement was not in effect for the nine
months ended September 30, 1999.
Repair and maintenance expense related to medical equipment was $868,000 for the
nine months ended September 30, 2000 compared to $679,000 for the nine months
ended September 30, 1999, an increase of $189,000 or 27.8%.
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
increased to 41.2% for the nine months ended September 30, 2000 from 40.3% for
the nine months ended September 30, 1999. Without the nonrecurring charges of
$265,000 for the nine months ended September 30, 2000 and $850,000 for the nine
months ended September 30, 1999, selling, general, and administrative expense as
a percentage of net revenue would have been 39.4% for the nine months ended
September 30, 2000 compared to 33.4% for the nine months ended September 30,
1999. This increase is mainly due to costs related to equipment/device sales and
an increase in leasing, vehicle and repair/maintenance expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $1,630,000 for
the nine months ended September 30, 2000 compared to $1,801,000 for the nine
months ended September 30, 1999, a decrease of $171,000 or 9.5%. This decrease
was due mainly to various items of equipment being fully depreciated before or
during the nine months ended September 30, 2000.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. Provision for uncollectible accounts was
$852,000 for the nine months ended September 30, 2000 compared to $859,000 for
the nine months ended September 30, 1999, a decrease of $7,000 or 0.8%.
Provisions for uncollectible accounts as a percentage of net patient services
revenue was 6.7% for the nine months ended September 30, 2000 compared to 7.0%
for the nine months ended September 30, 1999. This improvement is due to the
continued success from the Company's operational processes including scheduling,
preregistration, and preverification.
OPERATING LOSS. Operating loss was $48,000 for the nine months ended September
30, 2000 compared to a loss of $1,023,000 for the nine months ended September
30, 1999, a decrease of $975,000. For the nine months ended September 30, 2000
the Company incurred a nonrecurring charge of $265,000 related to the possible
sale of the medical business. For the nine months ended September 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 charges, operating income would have been $217,000 for
the nine months ended September 30, 2000 compared to an operating loss of
$173,000 for the nine months ended September 30, 2000, an increase of $390,000.
INTEREST INCOME AND OTHER, NET. Interest income and other, net was $779,000 for
the nine months ended September 30, 2000 compared to $525,000 for the nine
months ended September 30, 1999, an increase of $254,000 or 48.4%. Interest
income was $619,000 for the nine months ended September 30, 2000 compared to
$503,000 for the nine months ended September 30, 1999, an increase of $116,000
or 23.1%. This increase is due to the Company achieving a higher rate of return
on its commercial paper investments. Other nonoperating
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<PAGE> 11
income was $160,000 for the nine months ended September 30, 2000 compared to
$22,000 for the nine months ended September 30, 1999, an increase of $138,000.
This increase is due to gains realized on the disposition of certain assets.
INCOME (LOSS) BEFORE INCOME TAXES. Income before income taxes was $712,000 for
the nine months ended September 30, 2000 compared to a loss of $530,000 for the
nine months ended September 30, 1999, an increase of $1,242,000. For the nine
months ended September 30, 2000 the Company incurred a nonrecurring charge of
$265,000 related to the possible sale of the medical business. For the nine
months ended September 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 $977,000 for the nine months ended September
30, 2000 compared to $320,000 for the nine months ended September 30, 1999, an
increase of $657,000.
PROVISION (BENEFIT) FOR INCOME TAXES. For the nine months ended September 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 $712,000 for the nine months ended September 30, 2000 compared to a
loss of $530,000 for the nine months ended September 30, 1999, an increase of
$1,242,000. For the nine months ended September 30, 2000 the Company incurred a
nonrecurring charge of $265,000 related to the possible sale of the medical
business. For the nine months ended September 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 charges, net income would have been $977,000 for the nine months
ended September 30, 2000 compared to $320,000 for the nine months ended
September 30, 1999, an increase of $657,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 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 $1,922,000 and $1,140,000 for the
nine months ended September 30, 2000 and 1999, respectively, primarily from
generated EBITDA (earnings before interest, taxes, depreciation and
amortization). For its investing activities, the Company consumed $477,000 and
$1,965,000 for the nine months ended September 30, 2000 and 1999, respectively,
primarily for the purchase of medical equipment. Capital expenditures were
$755,000 and $1,990,000 for the nine months ended September 30, 2000 and 1999,
respectively. Net cash used in financing activities was $6,000 and $141,000 for
the nine months ended September 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
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. FORM 8-K
The Company filed a Form 8-k on October 12, 2000 reporting an Item 5 Other
Event.
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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)
10.1 - Asset Purchase Agreement by and between Medical Alliance and
ICN Pharmaceuticals California, Inc. dated September 15, 2000.
(2)
27.1 - Financial Data Schedule. (3)
(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) Previously filed as an exhibit to the Company's Definitive Proxy
Statement for the Company's 2000 Annual Shareholder Meeting.
(3) Filed herewith.
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<PAGE> 14
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 14, 2000
Signature Title
--------- -----
/s/ Paul R. Herchman
------------------------------
Paul R. Herchman Chief Executive Officer
/s/ Mark A. Novy
------------------------------
Mark A. Novy Vice President of Finance
14
<PAGE> 15
EXHIBIT INDEX
<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)
10.1 - Asset Purchase Agreement by and between Medical Alliance and
ICN Pharmaceuticals California, Inc. dated September 15, 2000.
(2)
27.1 - Financial Data Schedule. (3)
</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) Previously filed as an exhibit to the Company's Definitive
Proxy Statement for the Company's 2000 Annual Shareholder
Meeting.
(3) Filed herewith.
