<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB\A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
COMMISSION FILE NO. 0-27236
MEDICAL ASSET MANAGEMENT, INC.
A DELAWARE CORPORATION EIN: 33 - 0359976
4447 E. BROADWAY, SUITE 102
MESA, ARIZONA 85206
TELEPHONE: 602-830-7414
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 periods 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 15, 1996, 13,473,374 shares of the registrant's common stock were
issued and outstanding.
<PAGE>
Medical Asset Management, Inc.
Form 10 - QSB\A
June 30, 1996
Table of Contents
Page No.
Part 1. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets 3
Consolidated Statement of Income 4
Consolidated Statements of Cash Flow 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part 2. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30,
1996 RESTATED
-------------
ASSETS
CURRENT ASSETS
Cash $ 5,841,022
Accounts receivable 7,652,911
Management fee receivable 1,187,350
Prepaid expenses 99,841
Notes receivable 266,123
Other assets 48,486
-----------
15,095,733
-----------
PROPERTY, PLANT AND EQUIPMENT, NET 1,390,281
FRANCHISE FEES, NET 877,800
ACQUIRED MANAGEMENT AGREEMENTS, NET 10,436,578
-----------
12,704,659
-----------
TOTAL ASSETS $27,800,392
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligations $ 19,000
Notes payable, shareholders 121,910
Payroll taxes payable 30,000
Accrued liabilities 342,674
Accrued income taxes payable 1,455,104
Current portion - long term debt 1,501,026
-----------
3,469,714
-----------
LONG TERM DEBT:
Long term debt, less current portion 341,400
Obligations under capital lease, less
current portion 65,100
Convertible subordinated debt 796,524
-----------
1,203,024
-----------
SHAREHOLDERS' EQUITY
Preferred stock -$.001 par value;
10,000,000 shares authorized;
Class A-3,000,000 shares issued,
3,000,000 outstanding 3,000
Common stock -$.001 par value;
50,000,000 shares authorized;
13,856,237 outstanding 13,733
Common stock to be issued,
1,803,892 7,739,777
Additional paid-in capital 14,149,657
Unearned Remuneration (1,137,730)
Retained Earnings 2,359,217
-----------
23,127,654
-----------
TOTAL LIABILITIES AND EQUITY $27,800,392
-----------
-----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 RESTATED 1995 RESTATED 1996 RESTATED 1995 RESTATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET REVENUE $4,212,307 $2,118,033 $7,745,780 $3,637,494
---------- ---------- ---------- ----------
Salaries 1,109,953 353,641 2,090,975 833,093
Clinic and general and administrative 2,218,014 1,402,419 3,960,261 1,991,995
Depreciation and amortization 132,160 47,607 219,357 91,477
Interest 59,184 135,744
---------- ---------- ---------- ----------
3,519,311 1,803,667 6,406,337 2,916,565
---------- ---------- ---------- ----------
NET INCOME BEFORE INCOME TAXES 692,996 314,366 1,339,443 720,929
PROVISION FOR INCOME TAXES 307,333 144,378 599,216 329,929
---------- ---------- ---------- ----------
NET INCOME $385,663 $169,988 $740,227 $391,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED-AVERAGE NUMBER OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS 12,259,877 10,018,102 12,557,877 10,073,879
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
INCOME PER PRIMARY COMMON SHARE $0.03 $0.02 $0.06 $0.04
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1996 RESTATED 1995 RESTATED
---------- -------
Net income $740,227 $391,000
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 219,357 91,477
Cash provided net of effects of
medical transactions, by changes in:
Accounts receivable (2,439,111) (396,985)
Management fee receivable (273,550) (141,609)
Other assets (298,650) (248,447)
Accrued liabilities 486,688 206,024
---------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,565,039) (98,540)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (234,247) (40,962)
Net payments in medical practice transactions (576,806)
---------- -------
NET CASH USED IN INVESTING ACTIVITIES (811,053) (40,962)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of indebtedness 436,950 131,000
Sale of common stock 7,648,264 49,882
---------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 8,085,214 180,882
NET INCREASE (DECREASE) IN CASH 5,709,122 41,380
CASH, AT THE BEGINNING OF THE YEAR 131,900 50,400
---------- -------
CASH, AT END OF PERIOD $5,841,022 $91,780
---------- -------
---------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
<PAGE>
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
Note 1 -- Basis of Presentation and Restatement
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the unaudited consolidated financial statements in
this report reflect normal recurring adjustments considered necessary for a fair
presentation of the financial position and results of operations for the interim
period presented. To conform to the presentation for the three months ended
September 30, 1996, the contractual allocation of revenues to medical-owner(s)
of clinics and practices managed by the Company has been reclassified as a
reduction of net revenues in the six months ended June 30, 1996 and the three
and six months ended June 30, 1995. Previously, these contractual allocations
were reported as consulting fees. This reclassification had no effect on net
income for any period presented.
During the third quarter of 1996, it was determined that the Company had
incorrectly accounted for contingent stock committed to be issued in future
years under management agreements acquired in 1994 as purchase price adjustments
rather than compensation expense as required by generally accepted accounting
principles. The Company continues to account for nonforfeitable stock committed
to be issued for management agreements acquired in 1995 and 1996 as a component
of their purchase price. This intangible asset is amortized over 25 years or
the life of the agreement, whichever is shorter. Both nonforfeitable and
contingent common stock committed to be issued in future periods is shown as a
separate component in shareholders equity in accordance with generally accepted
accounting principles. These amounts were previously reported as unissued
shares. The unearned remuneration associated with contingent shares is also
shown as a reduction of equity. The following schedule summarizes the effect of
restating the Company's 1995 and 1996 financial statements:
<PAGE>
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
NET INCOME NET INCOME SHAREHOLDER'S
PER SHARE EQUITY
---------- ---------- -------------
FISCAL 1996
Quarter ended March 31:
As previously reported $ 478,598 0.05 $ 6,892,695
Adjustment (124,034) 0.02 5,501,330
As presented herein 354,564 0.03 12,394,025
Quarter ended June 30:
As previously reported 525,297 0.03 14,693,595
Adjustment (139,634) -0- 8,434,059
As presented herein 385,063 0.03 23,127,654
FISCAL 1995
Quarter ended March 31:
As previously reported $ 291,945 $0.03 $ 3,012,765
Adjustment (70,933) 0.01 628,510
As presented herein 221,012 0.02 3,641,275
Quarter ended June 30:
As previously reported 252,798 0.02 3,312,590
Adjustment (82,821) 0.01 1,251,213
As presented herein 169,988 0.01 4,563,803
Quarter ended September 30:
As previously reported 157,749 0.01 4,582,043
Adjustment (88,749) -0- 1,868,257
As presented herein 69,000 0.01 6,450,300
The presentation of the Company's financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses as well as disclosures on contingent assets and
liabilities. Because of inherent uncertainties in the process, actual future
results could differ from those expected, and thus accrued, at the reporting
date. These unaudited financial statements, footnote disclosures and other
information should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-KSB, as may be amended.
<PAGE>
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
Note 2 -- Medical Service Revenue
Medical service revenue for services to patients by clinics and practices
affiliated with the Company is recorded when services are rendered based
upon established or negotiated charges reduced by contractual adjustments and
allowances for doubtful accounts. Differences between estimated contractual
adjustments and final settlements are reported in the period when final
settlements are determined. Medical service revenue of the affiliated clinics
and practices is also reduced by the contractual amounts retained by the
medical groups to arrive at the Company's revenue shown on its income statement.
The following presents the amounts included in the determination of the
Company's net revenue (in thousands):
Three Months Six months
Ended June 30 Ended June 30
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
Medical service revenue $6,477 $3,178 $11,927 $5,727
Amounts retained by
medical groups 2,265 1,060 4,182 2,090
------ ------ ------ ------
Net Revenue $4,212 $2,118 $7,745 $3,637
------ ------ ------ ------
------ ------ ------ ------
Number of management
service agreements at end
of period 27 12 27 12
Note 3 -- Medical Practice Transactions
During the first six months of 1996, the Company acquired certain non-medical
assets of and entered into long-term management service agreements with nine
medical practices. The transactions have been accounted for as asset
purchases. The following presents the aggregate consideration required to
complete those transactions (in thousands):
<PAGE>
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
Three Months Six months
Ended June 30 Ended June 30
1996 1995 1996 1995
---------------- ---------------
Cash and transaction costs $ 459 -0- $ 577 $ -0-
Issuance of notes 479 68 976 159
Common stock 2,331 625 4,712 1,250
(Include shares to be issued)
The Company is currently committed to issue shares of Common Stock pursuant to
completed acquisition transactions as follows: 81,710 shares in 1996; 450,973
shares in 1997; 450,973 shares in 1998; 450,973 shares in 1999; and 369,263
shares in 2000. Although such shares are not issued or outstanding for legal
purposes, such shares are nonforfeitable and considered as outstanding for per
share calculations.
The accompanying unaudited consolidated financial statements include the results
of operations from the Company's management service agreements from their
respective effective dates. The following unaudited proforma information
presents the results of operations for the six months ended June 30, 1995,
assuming all 1995 and 1996 transactions were consummated on January 1, 1995 and
for the six months ended June 30, 1996 assuming all 1996 transactions were
consummated January 1, 1996. Such proforma information is based on the
historical financial information of the medical practices and does not include
operational or other changes which might have been effected pursuant to the
Company's management of the nonmedical aspects of such practices. The proforma
information presented below is for illustrative information only and is not
necessarily indicative of results which would have been achieved or results
which may be achieved in the future (in thousands, except share amounts):
Six months Ended June 30
1996 1995
------------------------
Revenue $10,300 $ 6,790
Net income 1,185 795
Net income per share 0.09 0.08
<PAGE>
Medical Asset Management, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
Note 4 -- Capitalization
As part of entering into long-term management agreements with medical
practices described in Note 3, the Company has nonforfeitable commitments to
issue shares of Common Stock at specified future dates for no further
consideration. Both contingent and nonforfeitable common stock to be issued
is shown as a separate component in shareholders' equity and the amounts,
upon issuance of the shares, will be reclassified to par value and additional
paid in capital.
On May 31, 1996, the Company completed a private placement of 2,000,000 shares
of common stock that yielded the Company $7,165,000. There was no significant
gain on the conversion.
Note 5 -- Net Income Per Share
The computation of net income per share is based on the weighted average number
of shares of Common Stock and Common Stock share equivalents outstanding during
the periods in accordance with the requirements of the Securities and Exchange
Commission (SEC). Fully diluted net income per share has not been presented
because it does not differ materially from the primary per share computations.
The following table summarizes the determination of shares used in per share
calculations (in thousands):
Three Months Six months
Ended June 30 Ended June 30
1996 1995 1996 1995
------ ------ ------ ------
Outstanding at end of period
Common Stock 11,898 9,957 11,898 9,957
Common Stock to be issued 902 153 1,650 307
------ ------ ------ ------
12,800 10,110 13,548 10,264
Effect of weighting (541) (92) (990) (190)
------ ------ ------ ------
Shares used in per share
calculations 12,259 10,018 12,558 10,074
------ ------ ------ ------
<PAGE>
Medical Asset Management, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Introduction
Medical Asset Management, Inc. (the "Company") enters into management agreements
with, and purchases the nonmedical assets of medical clinics and practices.
Under the terms of these management agreements, the Company provides
comprehensive management services to its affiliated practices, including
operational and administrative services, and furnishes management personnel,
facilities, supplies and equipment. The Company's revenue consists of management
fees and includes the reimbursement of all medical practice non-medical
operating costs.
The Company's objective is to create a national network of regionally integrated
medical clinics and practices that preserve the individual contracting
physician's practice, thereby establishing the individual practice or clinic as
a stable going concern, thus assisting older physicians to transition their
medical practices to younger associates.
Results of Operations
Since June of 1994 when the Company completed its recapitalization as a public
company, it has grown from managing three affiliated physicians in one state to
54 affiliated physicians and 27 practices in six states as of June 30, 1996.
For the first six months of 1995, four of the Company's affiliated practices
each contributed more than 10% of the Company's revenue. For the first six
months of 1996, only one of the Company's affiliated practices contributed more
than 10% of the Company's revenue and that clinic contributed 25% of total
revenue in that period. For the first six months of 1995, the payor mix of
medical practice revenue, expressed as a percentage, was 35% for Medicare and
Medicaid, 30% for managed care and 35% for private insurance and other payors.
For the first six months of 1996, the payor mix of medical practice revenue was
35% for Medicare and Medicaid, 40% for managed care and 25% for private
insurance and other payers. As a result of the Company's rapid growth, the
Company's limited period of affiliation with the physician practices and the
different payor and patient mixes of the practices, the Company does not believe
that the period-to-period comparisons and percentage relationships within
periods are fully meaningful at this time.
The following table sets forth the percentages of revenue represented by certain
items reflected in the Company's Statement of Income. The information that
follows should be read in conjunction with the Company's unaudited consolidated
financial statements and notes thereto included elsewhere herein.
<PAGE>
Medical Asset Management, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Six months
Ended June 30 Ended June 30
1996 1995 1996 1995
----- ----- ----- -----
Revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries 26.3% 16.7% 27.0% 22.9%
Clinic and general and administrative 52.6% 66.3% 51.1% 54.8%
Depreciation and amortization 3.2% 2.2% 2.8% 2.5%
Interest 1.4% 1.8%
----- ----- ----- -----
Income before income taxes 16.5% 14.8% 17.3% 19.8%
Income taxes 7.3% 6.8% 7.7% 9.0%
----- ----- ----- -----
Net income 9.2% 8.0% 9.6% 10.8%
----- ----- ----- -----
----- ----- ----- -----
Comparison of the Second Quarter and Six months Ended June 30, 1996 and the
Second Quarter and Six months Ended June 30, 1995
The company entered into management agreements with three practices in the first
six months of 1995 and nine practices in the first six months of 1996, the
results of which are included in the Company's operating results from the dates
of affiliation. Changes in the results of operations from the second quarter and
first six months of 1995 to the second quarter and first six months of 1996 were
caused primarily by affiliations with these additional practices.
Revenue
Revenue for the second quarter ended June 30, 1996 increased $2.1 million or 99%
over the comparable prior year period. Revenue for the first six months ended
June 30, 1996 increased $4.1 million or 113% over the comparable prior year
period. Substantially all of these increases were attributable to the addition
of new practices.
<PAGE>
Medical Asset Management, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Clinic and general and administrative expenses
Clinic and general and administrative expenses, which on a combined basis
include both clinic and corporate operating expenses for the second quarter
ended June 30, 1996, increased by $815,600 or 58% over the comparable prior year
period. The same expenses for the six months ended June 30, 1996 increased by
$2.0 million or 99% over the comparable prior year period. Substantially all of
these increases were attributable to the addition of new practices.
Salaries
Salaries consist of the cost of corporate management and operations and
development personnel. For the second quarter ended June 30, 1996, salaries
increased by $756,300 or 214% over the comparable prior year period. Salaries
for the six months ended June 30, 1996 increased by $1,257,900 or 151% over the
comparable prior year period. These increases were caused by additional staff
required to support the Company's rapid growth.
Depreciation and Amortization
Depreciation and amortization expenses for the second quarter ended June 30,
1996 increased $84,600 or 178% over the comparable prior year period, and year-
to-date increased $127,900 or 140% over the comparable prior year period. These
increases were primarily the result of the amortization of additional intangible
assets acquired in 1996.
Interest
Interest expense for the three and six months ended June 30, 1996 increased
$59,184 and $135,700, respectively, which represents an increase of 100% over
the comparable prior year periods. The increase was primarily attributable to
interest paid on the Company's Convertible Subordinated Debentures issued in
1995.
<PAGE>
Medical Asset Management, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company requires capital primarily to obtain management agreements with, and
to purchase the nonmedical assets of additional medical practices pursuant to
its business plan. From its incorporation through June 30, 1996, the Company
has entered into management agreements with 27 medical practices. To fund this
rapid growth and development, the Company has satisfied its transaction and
working capital needs through private placements of common stock and debt. To
fund its operations, the Company relies primarily on management fees received
from its affiliated physician practices. Cash used in operations was $1.6
million for the first six months of 1996, a use of $1.5 million over the
comparable period of 1995, resulting primarily from a $2.0 million increase in
the Company's accounts receivables.
A private placement of common stock which closed on May 31, 1996 raised
$8,000,000 in gross proceeds, which, net of offering expenses, yielded the
Company $7,165,000. From the net proceeds the Company paid approximately
$1,500,000 to retire short term debt consisting of notes due to practices and
clinics for the acquisition of receivables and other assets in prior
transactions.
As of June 30, 1996, the Company had working capital of approximately $10.8
million and cash of approximately $5.8 million. The Company currently expects
that its principal use of funds in the near future will be in connection with
anticipated transactions with affiliated physician groups and the related
purchase of property, plant and equipment. The Company believes that its
existing cash resources, the use of the Company's common stock as partial
consideration for new acquisitions, together with the net proceeds from the
contemplated offering of additional common stock by the Company for cash, will
be sufficient to meet the Company's anticipated acquisition, expansion and
working capital needs for the foreseeable future. The Company may raise capital
through the issuance of long-term or short-term indebtedness or the issuance of
additional equity securities in private or public transactions, at such times
and terms as management deems appropriate and the market allows. To the extent
that the Company is unable to raise needed levels of funding through sales of
shares, the Company's business plan may need to be curtailed within available
resources.
<PAGE>
Medical Asset Management, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Part 2 -- Other Information
Item 1 -- Legal Proceedings
There has been no material change in legal proceedings from that reported on the
Form 10-KSB for the year ended December 31, 1995.
Item 2 -- Changes in Securities
There have been no changes in the rights, preferences or privileges of any
security of the Company during the second quarter of 1996.
Item 3 -- Defaults Upon Senior Securities
There have been no defaults on any senior security during the second quarter of
1996.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of security holders during the second
quarter of 1996.
Item 5 -- Other Information
The Company is advised that the Securities and Exchange Commission is conducting
an investigation of persons the Company may have done business with in the past.
The status of the investigation is unknown.
Item 6 -- Exhibits and Reports on Form 8-K
During the second quarter of 1996 the Company filed no reports on Form 8-K.
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, this registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDICAL ASSET MANAGEMENT, INC.
Dated:
-----------------------------
By: \s\ John Regan
--------------------------------
John Regan, President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,841
<SECURITIES> 0
<RECEIVABLES> 7,683
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,096
<PP&E> 1,390
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,800
<CURRENT-LIABILITIES> 4,266
<BONDS> 0
0
3,000
<COMMON> 20,752
<OTHER-SE> 2,359
<TOTAL-LIABILITY-AND-EQUITY> 27,800
<SALES> 0
<TOTAL-REVENUES> 4,212
<CGS> 0
<TOTAL-COSTS> 3,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 693
<INCOME-TAX> 307
<INCOME-CONTINUING> 386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
