<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDICAL ASSET MANAGEMENT, INC.
A Delaware Corporation PSIC CODE: 8742 EIN: 33--0359976
4447 E. Broadway, Suite 102
Mesa, Arizona 85206
Telephone: 602-830-7414
-------------------
Agent for Service of Process
CT Corp.
3225 N. Central Ave.
Phoenix, AZ 85067
-----------------
Copies of all Communications to:
Lance N. Kerr, Esq.
8833 Sunset Blvd. Suite 200
West Hollywood, CA 90069
310-289-4947
Approximate date of proposed sale to the public: --- .:
<PAGE>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount
Being Registered Registered Price per Share Aggregate Price of Fee
Common Stock 2,000,000 $ 5.00.00 $ 10,000,000.00 $3,448.28
Shares
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file an amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
PROSPECTUS
MEDICAL ASSET MANAGEMENT, INC.
2,000,000 SHARES OF COMMON STOCK
OFFERED BY THE SELLING SHAREHOLDERS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The offering of securities hereunder is made on behalf of the selling
shareholders. No proceeds of the sale of the securities will be received by
the Company. No underwriter has been engaged with respect to the sale.
PROSPECTUS SUMMARY
ITEM 3. SUMMARY INFORMATION AND RISK FACTORS.
This offering relates to 2,000,000 restricted shares registered on
behalf of certain shareholders of the Registrant. The Company will receive no
proceeds from the sale of said shares. No underwriter has been engaged with
respect to the sale of said shares. No price has been determined for the sale
of said shares.
<PAGE>
Risk factors are to be supplied.
ITEM 4. USE OF PROCEEDS.
There is no proceeds to the Company as a result of the offering.
ITEM 5. DETERMINATION OF OFFERING PRICE.
To be supplied.
ITEM 6. DILUTION
There is no dilution by reason of the sale of the shares registered
hereunder as the sale consists of shares already issued and outstanding.
ITEM 7. SELLING SECURITY HOLDERS.
A list of selling shareholders will be provided by way of a
post-effective amendment.
ITEM 8. PLAN OF DISTRIBUTION.
No underwriter has been engaged for this offering. The selling
stockholders will sell their shares in the manner they determine.
ITEM 9. LEGAL PROCEEDINGS.
There are no significant legal proceedings pending against the Company.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS
OF 12/31/95.(1)
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial of Beneficial Owner
Owner
Common Shares John Regan 5,145,094 54%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
3
<PAGE>
Dennis Calvert 1,184,096 12%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
--------- ---
Total(1) 6,329,190 66%
(b) SECURITY OWNERSHIP OF MANAGEMENT AS OF 12/31/95.(1)
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial of Beneficial Owner
Owner
This total does not include any options to convert to common stock as no
options are outstanding.
John Regan 5,145,094 54%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
President, Director
Dennis Calvert 1,184,096 12%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
Senior Vice President
Secretary, Director
Michael Zaic -0- 0%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
Vice-President
Director
Total 6,329,190 66%
4
<PAGE>
- ------
(1) This total includes all executive officers and directors
as a group. It does not include any options to convert to
common stock as no options are outstanding as of June 30, 1996.
Prior to its merger with Eagle High Enterprises, Inc. in
June of 1994 the Company was engaged in business beginning
with the acquisition of the Carson Medical Plaza Clinic in
1991. The officers and directors of Medical Asset Management,
Inc. (the predecessor) prior to the merger with Eagle High
Enterprises, Inc. were John Regan, Dennis Calvert and Michael
Zaic.
In June of 1994 the shareholders of Medical Asset
Management, Inc. exchanged all of their common shares for
6,960,000 common shares of Eagle High Enterprises, Inc. in a
reverse merger. The preferred shareholders of Medical Asset
Management, Inc. exchanged all of their preferred shares for
preferred shares of Eagle High Enterprises. After the reverse
merger the original corporation changed its name to Medical
Asset Corporation and Eagle High Enterprises, Inc. changed its
name to Medical Asset Management, Inc.
After the exchange of stock the holdings of securities of
the officers and directors of the present Company were:
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial Owner
Common Shares John Regan 5,145,094 54%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
Dennis Calvert 1,184,096 12%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
Michael Zaic 0 0%
4447 E. Broadway
Suite 102
Mesa, AZ 85206
--------- ---
Total (1) 6,329,190 66%
5
<PAGE>
(1) total of all officers and directors as a group.
The following are the Directors and Officers of the Company.
John Regan, age 46, is the President and a director of the Company. Mr.
Regan was the President and a director of the predecessor corporation
(Medical Asset Management, Inc.) since 1989. Mr. Regan was elected a director
following the change of control of Eagle High Enterprises, Inc. and change of
name in June of 1994. During the last five years Mr. Regan had been involved
in the business of providing management services to medical clinics through
the Company and its predecessor of the same name.
Dennis Calvert, age 32, is the Secretary and a director of the Company.
Mr. Calvert was the Treasurer and a director of the predecessor Medical Asset
Management, Inc. corporation since 1990. Mr. Calvert was elected a director
following the change of control of Eagle High Enterprises, Inc. and change of
name in June of 1994. During the last three years Mr. Calvert had been
involved in the business of providing management services to medical clinics
through the Company and Medical Asset its predecessor of the same name.
Michael Zaic, age 38, is the Vice President and a director of the
Company. Mr. Zaic was the Secretary and a director of the predecessor
corporation of the same name since 1994. Mr. Zaic was elected a director
following the change of control of Eagle High Enterprises, Inc. and change of
name in June of 1994. During the last five years Mr. Zaic had been involved
in the business of providing management services to medical clinics through
the Company. Prior to being associated with the Company Mr. Zaic was a
manager with Merritt, Hawkins & Associates, a physician recruitment firm.
None of the directors or officers are officers or directors of other
reporting companies. There are no family relationships between the officers
and directors. None of the officers and directors have been involved in any
significant legal proceedings in the last 5 years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.
See Item 10.
ITEM 12. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 50,000,000 common
shares and 10,000,000 preferred shares. The holders of common
shares (i) have equal ratable rights to dividends
6
<PAGE>
from funds legally available thereof, when, as and if declared by the Board
of Directors of the Company; (ii) are entitled to share ratably in all the
assets of the Company available for distribution to holders of common shares
upon liquidation, dissolution or winding up of the affairs of the Company;
and (iii) do not have pre-emptive or redemption provisions applicable
thereto. All common shares are fully paid and non-assessable with no personal
liability to the ownership thereof. The holders of common shares of the
Company do not have cumulative voting rights, which means that the holders of
more than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors of the Company if they so choose
and, in such event, the holders of the remaining shares will not be able to
elect any of the Company's directors. As of March 20, 1995 affiliates,
officers and directors of the Company owned about 66% of the then outstanding
common shares of the Company.
The Company has designated one class of Preferred Stock entitled Class A
consisting of 5,000,000 shares. Three Million Class A Preferred Shares are
issued and outstanding as of March 31, 1996. The characteristics of the Class
A Preferred Shares are: (1) the shares carry no voting rights; (2) the shares
may be converted into common shares on the basis of one share of Class A
Preferred for one share of common subject to the limitation that no more than
twenty five percent (25%) may be converted into common in any one calendar
year and at no time may the holders of the Class A Preferred Stock hold
directly or indirectly more than 4.9% of the common shares outstanding; (3)
the shares carry no dividend rights except in liquidation; and (4) the shares
have no redemption rights. In any liquidation the Class A Preferred Shares
share ratably in any liquidating dividends with the holders of common shares.
To the extent that the Company was liquidated the existence of issued and
outstanding Class A Preferred Shares would decrease the amount of liquidating
dividends that the common shareholders would be entitled to receive.
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL.
The Financial Statements of the Company and related notes which are
included in this prospectus have been examined by independent certified
accoutants, and have been so included in reliance upon the opinion of such
firm given upon their authority as experts in auditing and accounting. The
firm of Harlan & Botettger, 12626 High Bluff Dr. Suite 200, San Diego, CA
92130 has been retained to prepare and certify the financial statements.
The Law Office of Lance N. Kerr, 8833 Sunset Blvd., Suite 200, West
Hollywood, CA 90069 will review and provide its opinion on legal matters
relating to this registrations statement.
ITEM 14. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES.
Insofar as indemnification of liabilities arising under the Securities
Act of 1933 may be
7
<PAGE>
permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that
in the opinion of the Securities and Exchange Commission such
indemnifications is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS.
See Description of Business.
ITEM 16. DESCRIPTION OF BUSINESS.
The Company was incorporated in Delaware on January 23, 1986 as Eagle
High Enterprises, Inc. While under the control of others a blind pool
offering was made and certain business arrangements were undertaken. In June
of 1994 the Company entered into a stock exchange agreement with the
shareholders of Medical Asset Management, Inc., a Delaware corporation
incorporated on May 12, 1989. Pursuant to that agreement a reverse merger
took place that included a change of control in which the shareholders of
Medical Asset Management, Inc. became the controlling shareholders of Eagle
High Enterprises, Inc. Thereafter the name of Eagle High Enterprises, Inc.
was changed to Medical Asset Management, Inc. The assets and liabilities of
the original Medical Asset Management, Inc. were merged into the Company. The
"Company" refers to the corporation incorporated on January 23, 1986 and the
"predecessor" refers to Medical Asset Management, Inc. incorporated on May
12, 1989, which corporation no longer exists. The predecessor was engaged in
business from 1991 until it was merged into the Company on May 2, 1995.
Following the change of control and merger of the predecessor and the Company
the business of the predecessor was conducted by the Company. For accounting
purposes the former Medical Asset Management, Inc. is considered to be the
acquiror and the former Eagle High Enterprises, Inc. is considered to be the
acquiree. The change in control and reverse merger was treated as a pooling
of interests for accounting purposes.
Due to changes in health care delivery systems the management of a
medical practice has become a complex and time consuming enterprise. The
Company provides management expertise, liquidity for the value of the medical
practice and a transition strategy for a mature medical practice. Liquidity
is provided in the sense that a portion of the assets are represented by
stock in a public company rather than medical assets that would have a
limited market.
The Company assists physicians by providing professional business
management services to assist in increasing the value of the medical practice
subject to the physician's control of the delivery of medical services. In
addition the Company provides a method for a practicing physician to approach
retirement keeping the value of his practice as a going concern to the
greatest extent possible. The Company through its management services assists
physicians with maximizing financial values of medical practices and clinics.
The
8
<PAGE>
level of direct management involvement depends on the particular needs of the
contracting physician.
Under long term management contracts the Company is responsible for the
administration and management of the non medical aspects of the physician's
practice, including billings and collections. The Company pays the physician
a contractually stipulated percentage of net billings as an independent
contractor. The Company pays the operational expenses of the practice itself.
The Company has the right to receive a management fee that ranges between 10%
to 30% of net billings. During the first year of the agreement, at the
election of the physician, the transaction can be reversed with only the loss
of the management and accounting fees paid by the physician to the Company
during this time. During the next three years the physician may terminate the
management agreement with the Company with partial loss of benefits. After
four years termination will result in further restrictions, such as a
covenant not to compete with the location of the practice.
The Company is totally dependent on the operation of the managed medical
clinics with respect to earning and collecting its management fees. The
majority of the income received from the practices relates to the collection
of receivables for medical services on an ongoing basis. The payors of these
receivables range from private insurance, government programs and claims
dependent on litigation such as worker's compensation and liens for treatment
for auto accidents. The Company does not anticipate any unusual collection
problems with any of its accounts that would have a materially adverse impact
on the operation of the medical practices or collection of the medical
receivables.
Neither the Company or its predecessor has undergone any bankruptcy,
receivership or similar proceeding. The only material reorganization was in
connection with the change of control of the Company in June of 1994 as
described above.
There are numerous competitors in the medical management field.
Competition is expected to increase. The Company is aware of other public
companies which engage in physician practice management. Other health care
companies may enter the field in the future. Many of these companies have
greater capital, management resources and experience than the Company. The
Company believes it is competitive with other management companies of
comparable size. The Company believes it is at a disadvantage in competing
with management companies of larger size as those companies possess greater
financial resources with which to assist their clients. The Company allocates
certain of its resources to finding and securing new clients for which
management services may be provided.
The Company provides its management services to physicians by means of
long term management contracts (typically twenty-five years) which may
include purchase of accounts receivable and assets relating to the medical
practice. The Company does not
9
<PAGE>
furnish any medical services. Medical services are furnished entirely by the
physicians under management. The Company supervises the billing and
collection of the medical receivables generated by the managed clinics.
Persons involved in billing and collection of accounts become employees of
the Company and are under the direct supervision of the Company. The
agreement provides that the physician is paid a negotiated percentage of
collections for his services. The medical income is collected by the Company
and from that amount it pays the physician his share of the income as a
consulting fee. The administrative expenses, costs of billing and collection
become a part of the overhead expense
The Company charges a minimum management fee of which 5% must be paid in
cash. The accounts for the practice are reviewed quarterly and if necessary
the consulting fee to the physician is reduced by an amount to provide the
payment of the minimum management fee to the Company. If there is
insufficient cash to pay the management fee the difference between what has
been paid and what is due is charged to management fees receivable. The
Company has title to all medical receivables generated by the managed medical
practice to permit control of cash flow and payment of obligations as agreed
under the management contract. The Company has no control over the type or
quality of such medical services. The practice of medicine is regulated on
many levels. State, federal and local agencies all supervise the providing of
medical services. These regulators affect the operations of the Company and
its physicians under contract.
The Company relies on a small number of physicians or group of
physicians to provide services. As the number of managed practices grows the
Company will be less dependent on any particular practice or clinic. The
Company intends to provide management services to medical practices located
in the United States. As of June 30, 1996 the Company provided management
services in Alaska, San Jose, CA Los Angeles, CA, Denver, CO, Stockton, CA,
Seattle, CA, Memphis TN, Pittsburgh, PA, Tucson, AZ and Ft. Meyers,
FL. Management services are also provided in Ohio and West Virginia through
HPM, the Company's wholly owned subsidiary. In the future consideration may
be given to providing services to overseas clients. The Company is dependent
on its long term management contracts for the majority of its income. These
contracts normally have a twenty-five year term. The Company is unaware of
any federal of state requirement requiring licensing of the business of the
Company. The managed physicians must at all times comply with applicable laws
relating to the providing of medical services.
Reductions in the federal budget may adversely affect the business of
the Company in the future. The extent to which this may occur is difficult to
predict.
The Company does not engage in research and development. The Company
does not need to comply with environmental laws as it is only engaged in
providing management services. In the future the Company may be required to
comply with environmental laws in connection with the acquisition of real
estate related to managed medical practices.
10
<PAGE>
In December of 1995 the Company acquired Healthcare Professional
Management, Inc. (HPM) of Pittsburgh, PA. HPM became a wholly owned
subsidiary of the Company by way of acquiring all of the stock of HPM from
its shareholders. HPM provides management, billing and collections services
to physicians located in Pittsburgh, PA, West Virginia and Ohio. The
acquisition of that subsidiary was accounted for a pooling of interests
basis.
The Company presently employs about 75 full and part time employees. It
manages approximately thirty medical practices that have about fifty
physicians associated with them.
ITEM 17. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.
Results of Operations
Over the past three years, the Company has experienced
the following changes in the key indicators of its general
financial condition:
Increase (Decrease) From: 1994 to 1995 1993 to 1994
Revenue 245% 29%
Net Income 132% 39%
Net Income Per Share 125% 33%
Total Assets 34% 44%
Total Liabilities (15%) 45%
Shareholder Equity 117% 41%
There has been an improvement in all categories of the financial
condition of the Company during the last three years as the Company has
continued to implement its business plan of medical practice asset
acquisitions. In December of 1995 the Company acquired Healthcare
Professional Management, Inc. (HPM) of Pittsburgh, PA. This Company became a
wholly owned subsidiary of the Company by way of acquiring all of the stock
of HPM from its shareholders. HPM provides management, billing and
collections services to physicians located in Pittsburgh, PA, West Virginia
and Ohio. The acquisition of that subsidiary was accounted for a pooling of
interests basis.
11
<PAGE>
Company growth during this period was financed
through the sale of approximately $ 762,000.00 of
convertible subordinated debentures, and $979,214.00
raised through private placements of equity, and the
conversion of certain debt to equity. Growing
revenues and bank credit also contributed financial
fuel in these periods.
An analysis of the changes to specific indicators of the
financial condition of the Company follows:
Assets:
Cash Cash increased by 161% from 1994 to 1995
primarily as a result of the fund
raising activity and revenue growth
referenced above. This compares to a
reduction of cash by 49% between 1993
and 1994. In 1995, the Company continued
to invest in revenue growth as
evidenced by the increased investment in
accounts receivable and fixed assets. As
the current trend of rapid expansion
continues, the Company expects to use
cash, together with equity shares, to
acquire revenue generating business.
Accounts Receivable The overall growth in accounts
receivable from 1994 to 1995 was 8.8%,
compared to 73% in the previous two-year
comparison. The relatively slow growth
in receivables is attributable to three
major factors: First, the Company's
ability to accelerate collections
through the consolidation of billing and
collection functions in certain markets;
second, a concerted effort by the
billing and collection departments to
eliminate over billing and subsequent
write offs; and three, a trend in
certain markets toward "capitation" in
which services are paid for in advance
thus eliminating accounts receivable.
Going forward, the Company will take
steps to reduce accounts receivable to a
90 day turnover from the December 31,
1995 level of 145 days.
12
<PAGE>
Management Fee The 295% increase in Company
Receivable compensation receivable from its managed
practices shown between 1994 to 1995
compares to a 26% increase between 1993
and 1994. This reflects the overall
growth of the Company through
acquisitions and the enhancement of
current revenue-generating assets.
Eighty-five percent (85%) of the
increase is attributable to new business
fees; the balance of fifteen percent
(15%) is attributable to increases in
existing management situations. As new
management agreements are signed
the Company can generate higher levels of
compensation that generally will be
collected in the same twelve month
period in which such fees are earned. As
long as the Company continues to expand,
management fees will grow.
Other Assets The combined other assets of the Company
consist primarily of goodwill, franchise
fees and property plant and equipment.
Goodwill is a function of the issuance
of common stock, at an independently
negotiated price, in exchange for the
value of the assets of a going concern
medical practice and the right to manage
that practice and collect fees over a 25
year period. This common stock is issued
over the first four years of the term of
a management agreement subject to
certain performance requirements on the
part of the practice. The Company
expects to continue to use its common
stock to acquire medical assets, and thus
goodwill is likely to increase over time
and will be amortized over time. The
franchise fee is related to a series of
Occu-Med franchises that are being
amortized over a twenty-five year period.
No additional franchise acquisition is
planned at this time.
Liabilities:
Accounts Payable The 10% increase from 1994 to 1995 was
slower than the 1993 to 1994 increase of
35%. Greater cash availability allowed
faster payment of suppliers, and there
was intentional centralization of
certain accounting functions. As the
Company continues to grow this category
will increase.
13
<PAGE>
Accrued Payroll Tax The overall reduction is a result of the
repayment of back taxes owed. On a going
forward basis this item will increase as a
result of the growth in the Company payroll
resulting from additional employees.
Income Taxes Reporting earnings on an accrual basis
Payable results in a large tax liability that
will be due and payable as the cash
collected as a result of the accrued
income is received. Higher taxes are a
function of higher earnings.
Related Party Debt The increase of 10% from 1994 to 1995
reflects amounts due as a result of
interest accrual on amounts owing to
John Regan and Dennis Calvert, officers
and directors of the Company, resulting
from past advances or expense payment
deferrals.
Convertible During 1995 the Company issued
Subordinated $782,000.00 of 12% Series B Convertible
Debenture Redeemable Secured Subordinated
Debentures. The terms of the debentures
and rights of conversion are noted in
the audited financial statements which
are a part of this report. With accrued
interest, the total due on the
debentures at December 31, 1995 is
$808,095.00. The Company is not planning
any further debt offerings in the
future.
Notes Payable A decrease of 68% from 1994 to 1995 is a
result of repayment of certain liabilities
along with the retirement of approximately
$1,940,000.00 as a result of reevaluation of
the underlying collateral agreements surrounding
the obligation. The reevaluation occurred due
to renegotiations of certain management
agreements. The balance is due on asset purchase
agreements. These obligations will be repaid
through a temporary credit facility, the raising
of capital through an equity offering or cash
flow from operations.
Income Statement:
Management Fees The increase of 245% from 1994 to 1995
compares to 29% in the 1993-1994
comparison. the growth is a result of
the continued expansion through
acquisition of revenue generating assets
and the success of the Company's
business plan.
14
<PAGE>
Operating Expenses The increase from 1994 to 1995 of 24%
compares to an increase of 25% between
1993 and 1994. The growth in expenses
reflects the overall revenue growth of
the Company and increasing demands of
management travel and professional
services. There will always be a close
relationship between expenses and
revenues until such time as management
relationships mature and consolidate,
when the overall expense increases will
slow in relation to revenue growth.
Within the specific expense categories
the increases from 1994 to 1995 were as
follows:
Salaries up 71%
Consulting Fees up 767%
Operating Expenses up 288%
Salaries increase at a lower rate than overall expense as a
result of the ability of the corporate staff to handle
additional volume of management arrangements.
Consulting fees represent the compensation paid to the
physicians for the services rendered to the practices
managed by the Company. On a going forward basis this
expense should represent approximately 29% to 35% of the
operating revenue. As the management arrangements mature,
the relative impact of this cost should decrease.
Operating expenses continued to increase at a rate
management believes to be consistent with revenue growth.
As the Company is able to regionalize its management
operations to achieve economies of scale, this expense
category could decrease as a percentage of revenue.
Management of Growth
In December 1995 the Company acquired, Healthcare Professional
Management (HPM), located in Pittsburgh, Pennsylvania. The Company acquired
HPM through a tax free stock exchange. HPM is involved in all phases of
practice management and health care consulting, and is expected to take a
prominent role in the general operation of the Company. Revenues from HPM's
current clients are in the $1,000,000.00 to $1,500,000.00 range annually with
an expected net to the Company in the range of $50,000.00 to $75,000.00 per
year. The acquisition of HPM allowed the Company to consolidate operations
and create a presence in the Eastern United States. In this regard, the
benefits of the HPM acquisition exceed its revenue contribution.
In December of 1995 the Company executed a management agreement with a
15
<PAGE>
Denver based medical practice. OB-GYN Associates (OBGYN). The materiality
of this transaction is in the size of OBGYN. On an annual basis OBGYN's
revenues are approximately $5.2 million. As of December 31, 1995 OBGYN
represented approximately 20% of the Company's annualized revenue.
The Company's ongoing transition from a small regional operating company
to a national medical practice management company, with a growing number of
practices owned and managed in diverse parts of the country places a growing
strain on the Company's management and financial resources. The Company's
decision to acquire other management companies raises challenges to
effectively integrate these separate management companies into a single
management delivery system. Differing historical management styles and
systems must be integrated, while at the same time the Company continues to
seek out and acquire medical practices throughout the country. There is no
assurance that the Company will be able to successfully manage and finance
its transition to a large national public company. Its failure to do so would
have a materially adverse impact on the Company's business and results of
operations.
Reliance on Key Personnel: Need for Expanded Management
The Company is currently dependent on a small group of highly skilled
and hard-working managers to plan, implement and control the Company's
current and expected growth. Were the Company to lose the services of John
Regan, its President, or of Dennis Calvert, its Senior Vice President, the
Company would be seriously delayed and adversely affected in the
implementation of its business plan. The Company is also engaged in a
nationwide search for additional experienced financial and business managers
to share the management load and to make possible the planned expansion of
the Company. There is no assurance as to the timing or availability of the
needed talent.
Competition and Dynamic Industry
The business of the Company is generally referred to as Physician
Practice Management. A number of other companies are already active in this
field, most of which are larger than the Company. Other firms appear to be in
the process of becoming involved, or have announced plans to do so.
Competition in the acquisition and consolidation of the medical services
delivery system in the United Sates is, and is expected to remain, intense.
Competitors range from new, start-up entries in the field to major
well-financed competitors who are either hospital-based regional or national
companies, or practice and clinic acquisition-based regional and national
companies. Many of these companies have greater depth of financial and
management capability than does the Company. Most of the larger competitors
focus on the acquisition of larger group practices. Management has
16
<PAGE>
determined that the Company's acquisition format is best suited to a niche in
the market place consisting of a multi-specialty grouping based upon primary
care physicians, but with emphasis on the management of smaller practices
not already associated with larger groups. Management believes this
particular area of the industry is still relatively free of competition;
however, no assurance can be given that such circumstances will continue. If
larger companies presently engaged in the field determine to move into the
Company's area of the market, it would be difficult for the Company to
compete as effectively as it does now with the more substantial financial and
management resources of these firms.
At present, the Company's most significant competition comes from
hospitals seeking to acquire or contract with practices which otherwise would
be viable candidates for management by the Company. In addition, management
has found that in some markets physicians seek to organize themselves into
groups resembling HMO's, thereby providing themselves with an alternative to
affiliation with the Company or one of its competitors. Most of the smaller
competitors focus on one particular specialty, such as oncology. These groups
could elect to expand into more direct competition with the Company.
While the Company has been successful in pursuing its business plan over
the last several years, as measured by the growth in revenues and assets
shown in the financial statements, there is no assurance that larger
competitors will not adversely impact the Company's continued growth, or that
changes in the ongoing paradigm of what the American health care delivery
system should look like will not adversely impact the Company and its
operations.
Under the management agreements executed to date three have been
terminated due to mutual agreement of the parties. It is possible that other
existing agreements may be terminated in the future. As the contracts are for
twenty five year terms the Company establishes a goodwill asset account where
the excess of purchase price over the book value of tangible assets is
credited. The amounts credited to goodwill are amortized over a twenty five
year period as that is the length of the term of the contract that gives rise
to the goodwill account.
Liquidity
At the end of the First Quarter of 1996 $ 86,814 was used by operations.
The major changes occurred in the acquisition of accounts receivable of
$867,518.00 during the first quarter accompanied by an increase in management
fees receivable of $180,622.00. Reductions of accrued liabilities of $303,657
and loans payable of $209,783 were recorded in the first quarter of
1996. Property, plant and equipment during the same period increased $336,500
through cash and stock payments during the first quarter. The Company issued
stock to purchase assets and for stock during the first quarter in the amount
of $457,931.00. The Company plans to continue to acquire assets
17
<PAGE>
by the issuance of stock and and cash.
The cash on hand of the Company, combined with the expected additions to cash
from operations during 1996 is forecast to be sufficient to repay the current
portion of the Company's indebtedness and to finance the planned expansion of
the Company during the same time period. A private offering of common stock
which closed May 31, 1996 raised $8,000,000 in gross proceeds. The expenses
of the private placement were $835,000.00 leaving net proceeds of $7,165,000.00.
From the net proceeds the Company paid about $1,500,000.00 to
retire short term debt consisting of receivable loans and or fixed asset
purchase obligations. About $6565,000 was used to reduce current liabilities
and provide operational capital. As of June 30, 1996 the Company had
remaining approximately $5,000,000.00 in cash.
The Company is exploring a public offering of its common stock in the third
or fourth quarter. Market conditions may or may not allow the raising of this
additional equity in 1996 at reasonable pricing and levels of funding. Were
the Company to be excluded from the market for additional equity funding
during 1996, some cutbacks in the current business plan might be needed. The
Company is currently negotiating with Northern Trust Bank of Phoenix, Arizona
for a revolving line of credit of $2,500,000.00. The Company currently has
no other bank lines of credit.
ITEM 18. DESCRIPTION OF PROPERTY.
The principal assets of the Company consist of accounts receivable that
have been generated by the medical clinics managed by the Company. The
Company owns no real estate. The Company may acquire real estate in the
future in connection with managed medical practices. The Company's
headquarters are in leased facilities in Mesa, Arizona. The Company maintains
offices in leased facilities in Seattle, Washington and Pittsburgh,
Pennsylvania to assist with operations of medical practices located in those
states. At the present time these leased facilities are adequate for the
needs of the Company.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The officers and directors of the Company have from time to time
deferred their compensation or reimbursement of expenses. This has given rise
to the item shown as loans to shareholders in the financial statements. Other
than this matter there are no reportable transactions. At the end of 1995
there was outstanding shareholder loans of $5,912.00 to Dennis Calvert and
$177,449.00 to John Regan.
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
18
<PAGE>
The Company's stock is not listed on any exchange and is traded over the
counter. The range of the bid prices of the common stock is as follows:
Quarter High Bid Low Bid
second /96 8.50 3.37
first /96 5.50 1.92
fourth /95 4.75 1.75
third /95 5.375 4.75
second /95 6.25 5.00
first /95 6.43 5.37
fourth /94 6.25 5.87
The above prices reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual
transactions. The above price information was received from
IDD Information Services/Tradeline.
There was no market activity prior to June of 1994.
There is no market for the Preferred Stock of the issuer and none is
likely to develop.
As of December 31, 1995 there were approximately 100 shareholders of
record. Additional shares are held in "street name" and the Company estimates
that the actual number of shareholders exceeds 200. There are less than 5
shareholders of record of Class A Preferred stock.
The Company has paid no dividends in the past on any class of stock.
There are no restrictions that limit the payment of future dividends on
common stock. No dividends are payable on the Class A Preferred Stock except
in the event of liquidation.
ITEM 21. EXECUTIVE COMPENSATION.
Name Year Salary Bonus Other
Position Compensation*
John Regan 1995 96,000 0 0
President
1994 96,000 0 0
1993 73,000 0 0
19
<PAGE>
Dennis Calvert 1995 72,000 0 0
Vice President
1994 72,000 0 0
1993 48,000 0 0
Michael Zaic 1995 36,000 0 0
Vice President
1994 36,000 0 0
- --------
* At the end of 1995 Michael Zaic had an option to purchase 150,000 shares of
stock of the Company. The option was canceled and at June 30, 1996 there
were no options outstanding. Other compensation includes all other
compensation.
The above officers have employment agreements with the Company for three
years beginning January 1, 1995. These agreements provide for the employee to
devote 100% of his time to the business of the Company. In addition to salary
the Company agrees to reimburse each employee for all authorized actual
travel, promotion and entertainment expenses incurred in connection with
performance of duties. The Employee is entitled to any Employer-paid
benefits. At the present time the Company is not offering any Employer-paid
benefits. Employees are entitled to sick leave and paid holidays as per the
Company policy. If an Employee is terminated through no cause or fault of his
own he will receive the balance of the then base salary due until through the
ending date of the employment agreement.
The base salary for each officer is:
John Regan, President, Chief Executive Officer
12 months ending December, 1995 $ 150,000.00
12 months ending December, 1996 200,000.00
12 months ending December, 1997 250,000.00
Dennis Calvert, Senior Vice-President, Secretary
12 months ending December, 1995 $ 112,500.00
12 months ending December, 1996 150,000.00
12 months ending December, 1997 187,500.00
Michael Zaic, Vice-President
12 months ending December, 1995 $ 56,250.00
12 months ending December, 1996 75,000.00
12 months ending December, 1997 93,750.00
Additional terms of employment are set forth in the respective employment
agreements which are attached to this Form as Exhibits.
20
<PAGE>
The above officers also serve as directors of the Company. They receive no
additional compensation for acting as directors.
ITEM 22. FINANCIAL STATEMENTS.
Financial Statements for the fiscal year ended December 31, 1996 are
attached.
ITEM. 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with Accountants.
21
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.,
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
F-1
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.,
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page
----
Independent Auditor's Report ........................................... 3
Balance Sheets ......................................................... 4
Statements of Operations ............................................... 7
Statements of Changes in Stockholders' Equity .......................... 8
Statements of Cash Flows ............................................... 9
Notes to Financial Statements .......................................... 10
F-2
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Stockholders of
Medical Asset Management, Inc.
Mesa, Arizona
We have audited the consolidated balance sheets of Medical Asset Management,
Inc. as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Assets Management,
Inc. as of December 31, 1995 and 1994, and the results of it's operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ HARLAN & BOETTGER
May 1, 1996
F-3
<PAGE>
MEDICAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1995 1994
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 131,873 $ 50,382
Accounts Receivable,
less $715,962 and $633,705
(Note C) of allowance for
doubtful accounts 5,213,803 4,797,809
Management Fee Receivable
(Note D) 913,828 231,570
Other Receivable 99,841 3,942
----------- ---------
TOTAL CURRENT ASSETS 6,359,345 5,083,703
PROPERTY AND EQUIPMENT, NET
(Note E) 528,409 435,418
INTANGIBLE ASSETS, NET (Note F) 2,895,231 1,761,084
OTHER ASSETS 15,842 8,133
----------- ---------
$ 9,798,827 $7,288,338
----------- ----------
----------- ----------
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
MEDICAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
December 31,
--------------------------
1995 1994
---------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 308,555 $ 281,398
Accrued payroll taxes 105,553 146,509
Accrued expenses 10,266 -
Income taxes payable 966,888 426,888
Related party debt (Note G) 183,361 166,049
Current portion of noteS payable
(Note H) 1,047,676 1,090,000
Current portion of obligations
under capital leases 18,950 22,113
--------- ---------
TOTAL CURRENT LIABILITIES 2,641,249 2,132,957
--------- ---------
LONG TERM DEBT:
Notes Payable, less Current
Portion (Note H) 341,430 2,414,646
Obligations Under Capital
Leases, less Current Portion 69,887 7,132
Convertible Subordinated Debt
(Note I) 808,095 -
--------- ---------
TOTAL LONG-TERM DEBT 1,219,412 2,421,778
--------- ---------
TOTAL LIABILITIES 3,860,661 4,554,735
--------- ---------
STOCKHOLDERS' EQUITY
Preferred Stock - $.001 par
value - 10,000,000 shares
authorized;
Class A - 3,000,000 shares
issued and outstanding at
December 31, 1995, and 1994. 3,000 3,000
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
MEDICAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
December 31,
--------------------------
1995 1994
------ ------
Common Stock - $.001 par value-
50,000,000 shares authorized, 10,701,514
issued and outstanding at December 31,
1995- 9,521,210 issued and outstanding at
December 31, 1994 10,701 9,520
PAID IN CAPITAL 4,140,881 1,820,612
RETAINED EARNINGS 1,783,584 900,471
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,938,166 2,733,603
---------- ----------
$9,798,827 $7,288,338
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
MEDICAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
-----------------------------------
1995 1994
---------- ----------
REVENUES:
Management fees $13,076,078 $3,783,608
------------ -----------
OPERATING EXPENSES:
Salaries - wages 2,647,528 1,548,263
Consulting fees 3,959,907 456,768
General and administrative 4,522,304 1,165,704
Amortization 86,400 86,436
Depreciation 148,049 65,814
------------ -----------
TOTAL OPERATING EXPENSES 11,364,188 3,322,985
------------ -----------
INCOME FROM OPERATIONS 1,711,890 460,623
OTHER INCOME (EXPENSE)
Miscellaneous income 2,880 169,630
Interest income - 3,000
Interest expense (291,657) (25,240)
------------ -----------
TOTAL OTHER INCOME (EXPENSE) (288,777) 147,390
------------ -----------
INCOME BEFORE TAXES ON INCOME 1,423,113 608,013
TAXES ON INCOME 540,000 227,800
------------ -----------
NET INCOME $ 883,113 $ 380,213
------------ -----------
------------ -----------
Earnings per share of Common Stock,
Common Stock Equivalents and Fully
Diluted $ .09 $ .04
------------ -----------
------------ -----------
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
MEDICAL ASSET MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------ -------------------- Paid In Retained
Shares Amount Shares Amount Capital Earnings Total
-------- -------- -------- -------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 9,133,332 $ 9,133 3,000,000 $ 3,000 $1,397,067 $ 520,258 $1,871,494
---------- ---------- ---------- ---------- ---------- ---------- ----------
Sold shares of common stock 21,400 21 53,479 53,500
Issued shares of common stock
for acquisition of assets 366,478 366 370,066 370,432
Net Income 380,213 380,213
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1994 9,521,210 $ 9,520 3,000,000 $ 3,000 $1,820,612 $ 900,471 $2,733,603
---------- ---------- ---------- ---------- ---------- ---------- ----------
Sold shares of common stock 189,000 189 386,661 386,850
Issued shares of common stock
for acquisition of assets 510,135 511 1,220,036 1,220,547
Issued shares of common stock
for fixed assets 142,675 143 105,546 105,689
Issued shares of common
stock for debt 338,494 338 592,026 592,364
Capital contributed 16,000 16,000
Net income 883,113 883,113
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 10,701,514 $ 10,701 3,000,000 $ 3,000 $4,140,881 $1,783,584 $5,938,166
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
MEDICAL ASSET MANAGEMENT INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
-------------------------
1995 1994
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 883,113 $ 380,213
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 234,449 152,250
Changes in operating assets and liabilities:
Accounts receivable (421,994) (1,877,307)
Management receivable (682,258) (48,599)
Other receivables (95,899) 40,500
Other assets (7,709) -
Accounts payable 27,157 71,338
Accrued liabilities 509,310 120,340
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 446,169 (1,161,265)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (241,041) (7,969)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (241,041) (7,969)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from debt issuances 982,211 1,567,980
Reduction of debt (1,497,940) (478,061)
Payments under capital lease obligations (10,758) (15,000)
Proceeds from capital contribution 16,000 -
Proceeds from issuances of common stock 386,850 53,500
---------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (123,637) 1,128,419
---------- -----------
NET INCREASE (DECREASE) IN CASH 81,491 (40,815)
CASH, BEGINNING OF YEAR 50,382 91,197
---------- -----------
CASH, END OF YEAR $ 131,873 $ 50,382
---------- -----------
---------- -----------
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Medical Asset
Management, Inc. (a Delaware corporation incorporated on January 23, 1986),
its wholly owned subsidiaries, Medical Asset Corporation, Inc., and
Healthcare Professional Management, Inc. (together "the Company"). All
significant intercompany transactions and amounts have been eliminated in
the consolidating process.
The Company and its subsidiary are engaged in the business of meeting the
several urgent needs of practicing physicians and exploiting emerging
opportunities in the practice of medicine through business management
services. Its management services involve the acquisition of assets of
medical practices, which it enhances by increasing patient collections and
lowering costs through its management and marketing expertise and volume
purchasing power.
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, which
range from five to ten years. Assets under capital leases are depreciated
by the straight-line method over the shorter of the lease term or the
useful lives of the assets. Maintenance, repairs and minor renewals are
charged to operations as incurred. Major replacements or betterments are
capitalized. When properties are retired or otherwise disposed, the related
cost and accumulated depreciation are eliminated from the respective
accounts and any gain or loss on disposition is reflected as income or
expense.
F-10
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
ACQUIRED MANAGEMENT CONTRACTS
Amounts paid for the acquisition of management contracts in association
with newly-acquired medical clinics in excess of the fair value of the net
assets of such medical clinics have been charged to acquired management
contracts. The contracts are related to revenues the Company anticipates
realizing in future years. Based upon the Company's experience management
has decided to amortize its management contracts over a period of up to 25
years which is the term of the contracts, under the straight-line method.
Accumulated amortization at December 31, 1995 and 1994 was $177,533 and
$139,333, respectively. The Company's policy is to evaluate the periods of
amortization to determine whether later events and circumstances warrant
revised estimates of useful lives. The Company also evaluates whether the
carrying value of the contracts has become impaired by comparing the
carrying value of the management contract to the value of projected
undiscounted cash flows from acquired assets. Impairment is recognized if
the carrying value of the management contracts is less than the projected
undiscounted cash flow from acquired assets.
FRANCHISE FEES
Franchise fees are agreements with certain related parties. Franchise fees
are amortized using the straight-line method over 25 years.
REVENUE RECOGNITION
The Company recognizes revenue as services are provided by the Company over
the terms of the management contracts entered into.
NET INCOME PER SHARE
The net income per share is computed based upon the weighted-average number
of shares of common stock equivalents outstanding during the period. Common
stock issued at prices significantly below the offering price is treated as
outstanding for the entirety of all periods presented. Common stock
equivalents, such as convertible debentures are considered in the earnings
per share calculation.
INCOME TAXES
Income taxes, are provided for using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." A deferred tax asset or liability is
recorded for all temporary differences between financial and tax reporting.
Deferred tax expense (benefit) results from the net change during the year
of deferred tax assets and liabilities.
F-11
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. ACQUISITIONS:
In June 1994, the Company acquired 100% of the outstanding common stock of
Medical Asset Management, Inc. (MAM) in exchange for 6,960,000 shares of
common stock of the Company along with the right to issue 3,000,000 shares
of the Company's Class A Preferred Stock in exchange for the 1,176,581
shares of MAM's Class A Preferred Stock and the 133,000 shares of MAM's
Class B Preferred Stock. The Company has recorded the transaction under the
Pooling of Interest Method for Business Combinations.
The following represents the results of operations of Medical Asset
Management, Inc., that are included in the current combined net income of
the Company.
1995 1994
------ ------
Revenues $ 11,985,714 $2,658,630
Extraordinary Items - -
Net Income $ 900,383 $ 339,404
Other Changes in Stockholder's Equity - -
Subsequent to this acquisition and pursuant to the approval of a majority
of the Company's common stockholders, the Company changed its name from
Eagle High Enterprises, Inc. to Medical Asset Management, Inc.
In December, 1995 the Company acquired 100% of the outstanding common
stock of Healthcare Professional Management, Inc. for 433,332 shares of
common stock. The Company has recorded the transaction under the Pooling of
Interest Method for Business Combinations.
The following represents the results of operations of Healthcare
Professional Management, Inc. that are included in the current combined net
income of the Company.
1995 1994
------ ------
Revenues $1,090,364 $1,124,978
Extraordinary Items - -
Net Income (Loss) (17,270) 40,809
Other Changes in Stockholders' Equity - -
C. ACCOUNTS RECEIVABLE:
Accounts receivable represents amounts due from patients. A portion of the
receivables represent worker's compensation receivables. The Company is not
a party to third-party reimbursement agreements; however, the Company does
have a legal assignment of third-party payments from the physicians and
medical clinics which the Company manages. As a result, all patient
receivables, including those from third-parties, are included on the
Company's balance sheet as accounts receivable. The Company has established
an allowance for doubtful accounts based upon anticipated actual
collections as determined by management in an amount between 10% and 20% of
the gross accounts receivable balance. Management feels that this amount is
reasonable.
F-12
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. MANAGEMENT FEE RECEIVABLE:
Management fee receivable represents the amounts due the Company under
management agreements signed with various physicians. Management of the
Company has determined that the entire amount outstanding at December 31,
1995 is collectible.
E. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
1995 1994
----------- -----------
Furniture and equipment $1,002,339 $ 761,298
Less accumulated depreciation (473,930) (325,880)
----------- -----------
Property and equipment, net $ 528,409 $ 435,418
----------- -----------
----------- -----------
Depreciation expenses for the years ended December 31, 1995 and 1994 was
$148,049 and $65,814, respectively.
F. INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1995 and 1994:
1995 1994
----------- -----------
Acquired management contracts $2,170,564 $ 950,017
Franchised fees 1,210,000 1,210,000
----------- -----------
3,380,564 2,160,017
Less accumulated depreciation 485,333 398,933
----------- -----------
$2,895,231 $1,761,084
----------- -----------
----------- -----------
G. RELATED PARTY DEBT:
Related party debt consists of 8% demand notes payable to two officers of
the Company as follows:
1995 1994
-------- --------
John Regan $177,449 $160,575
Dennis Calvert 5,912 5,474
-------- --------
$183,361 $166,049
-------- --------
-------- --------
F-13
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
H. NOTES PAYABLE:
Notes payable are summarized as follows:
1995 1994
---------- ----------
Notes payable to various individuals
in conjunction with asset acquisition,
collateralized with accounts receivable,
interest payable at 10%, matures at
various dates in 1996 and 1997, all
unpaid principal and accrued interest
are due at due date $1,152,243 $1,014,410
Note payable, interest payable at 8%,
principal and any accrued interest
due on demand 236,863 -
Note payable to an individual,
collateralized by accounts receivable,
interest payable at 10%, principal and
interest payable at $45,000 monthly
through December 1996. - 1,940,236
Notes payable, interest payable at 12%,
principal and any accrued interest due on
demand. Notes may be converted into
338,494 shares of the Company's
common stock - 550,000
---------- ----------
Less current portion 1,047,676 1,090,000
---------- ----------
$ 341,430 $2,414,646
---------- ----------
---------- ----------
Aggregate maturities of notes payable as of December 31, 1995 is as
follows:
December 31
-----------
1996 $1,047,676
1997 341,430
-----------
$1,389,106
----------
----------
I. CONVERTIBLE SUBORDINATED DEBT:
During 1995 the Company issued $762,000 of 12% Series B Convertible
Redeemable Secured Subordinated Debentures. Interest payable semi-
annually, principal and any unpaid interest due April 28, 2000. Upon
maturity the holder shall have the right of option, but not the
obligation, to convert all or part of the debt into fully paid shares
of the Company's common stock at the conversion price of $5.00 per share.
Principal and accrued interest at December 31, 1995 was $808,095.
F-14
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. INCOME TAXES:
Income before taxes consist of the following:
1995 1994
---------- --------
$1,423,113 $608,013
Income tax expense consists of the following:
1995 1994
---------- --------
Current $ 540,000 $227,800
- -
Deferred ---------- --------
$ 540,000 $227,800
---------- --------
A reconciliation of the provision for income taxes to the amount
computed by applying the statutory federal income tax rate to income before
taxes is as follows:
1995 1995
Amounts computed at statutory federal ---------- --------
tax rate $ 498,000 $212,800
State income taxes 42,000 15,000
---------- --------
Provision for income taxes $540,000 $227,000
---------- --------
K. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office facilities under operating leases which expire
at various dates through the year 2005. The accompanying statement of
operations includes expenses from operating leases of $ 908,961 for 1995.
Future minimum lease payments, due under noncancelable operating leases as of
December 31, 1995 are as follows:
1996 $ 931,600
1997 601,056
1998 601,056
1999 414,566
2000 383,352
2001 148,632
2002 148,632
2003 56,460
2004 56,460
2005 56,460
----------
$3,398,274
----------
----------
F-15
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. COMMITMENTS AND CONTINGENCIES (CONTINUED):
CAPITAL LEASES
The Company finances various equipment purchases under capital lease
agreements. The leases require monthly payments over a sixty month period.
The following is an analysis of the book value of the leased assets
included in property and equipment.
1995 1994
------- -------
Cost $85,617 $ -
Accumulated depreciation (7,603) -
------- -------
$78,014 $ -
------- -------
------- -------
The future minimum lease payments under capitalized leases and the present
value of the net minimum lease payments as of December 31, 1995 are as
follows:
1996 $ 29,224
1997 22,092
1998 22,092
1999 22,092
2000 24,314
--------
Total payments 119,814
Less amount representing
interest (30,977)
88,837
Less current portion of
capital leases (18,950)
--------
$ 69,887
---------
---------
The Company has been named in some legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management, the
outcome of such proceedings and litigation will not materially affect the
Company's financial position. During the year ended December 31, 1995 and
1994 there were no settlements charged to operations. Based upon the
opinion of legal counsel the Company has charged to operations, and
included in accounts payable $61,000 for the year ended December 31, 1995
to cover any possible loss due to the outcome of the legal proceedings and
litigation.
F-16
<PAGE>
MEDICAL ASSET MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental disclosures of cash flow information for the years ended
December 31, 1995, 1994 are summarized as follows:
1995 1994
--------- ---------
Cash paid for interest and
income taxes:
Interest $ 291,657 $ 25,240
Noncash investing and
financing activities:
Assets acquired by capital lease $ 85,517 $ -
Assets acquired with stock issuance 1,326,236 370,432
Stock issued for debt 592,364 -
M. CAPITAL STOCK:
In June 1994, the Company's shareholders approved proposals to cancel
2,000,000 shares of common stock and effect a 1-for-3.5 reverse stock split
of the Company's common stock. The effects of the reverse split was to
convert three and one half (3.5) shares of common stock into one (1) share
of common stock.
N. ASSET ACQUISITIONS:
During the years ended December 31, 1994 and 1995 the Company entered into
Asset Purchase and Clinic Management Agreements with various physicians.
These agreements provided for the Company to acquire all the assets and
properties which the physician's own in connection with the conduct of the
physicians medical practice. The assets included (i) all of the physicians
accounts receivable (whether or not deemed collectible) as reflected on the
physicians books and records, on the effective date of the agreement and at
all times during the terms of the agreement. All accounts receivable
acquired are reflected on the Company's balance sheet with a corresponding
allowance account for those accounts considered possibly uncollectible,
(ii) all administrative (i.e., non-medical) aspects of every kind and
character pertaining to the running of the Clinic and (iii) all other
assets as described in the agreement. In the exchange for the assets
acquired the Company agrees to pay to the physicians cash and stock as set
forth in each separate agreement. The Company has recorded on its
financial statements the assets acquired based upon their fair market value
at the date of the agreement.
F-17
<PAGE>
MEDICAL ASSETS MANAGEMENT, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
N. ASSET ACQUISITION (CONTINUED):
In conjunction with these acquisitions the Company also entered into
management contracts with each of the physicians involved. The Company has
legal title to patient accounts receivable, and therefore records them on
its balance sheet as account receivable. The Company is liable for certain
operating expenses of the practices, and therefore records them as an
expense on its statement of operations. Under these agreements the Company
is to receive a minimum of ten percent (10%) up to a maximum of thirty
percent (30%) of net billings of the practices as a management fee. The
Company records the management fees earned as revenues on its statement of
operations and records as management fee receivable the amount due from the
physicians separately from accounts receivable, which represents amounts
due from patients. The Company is also obligated to pay a stipulated
percentage of net billings to the physicians, and records them as
consulting fee expense on its statement of operations with corresponding
liability in accounts payable.
During the year ended December 31, 1995 the Company had one material asset
acquisition. Payments for these assets consisted of cash and shares of the
Company's common stock. During the year ended December 31, 1995 the
Company paid $1,606,202 cash and issued 146,000 shares of its common stock.
In addition, an additional 584,000 shares of common stock is to be issued
at 146,000 shares each December through 1999 as payment for the acquisition
contingent upon certain earnings criteria. The issuance of these
contingent shares of common stock shall result in an additional element of
cost of the acquired asset. The additional cost will be recorded at the
time the additional shares are issued.
O. MANAGEMENT CONTRACTS
The Company pays the physicians a contracted stipulated percentage of net
billings based upon a management contract entered into between the Company
and the physician. During the first year of the agreement, at the election
of the physician, the transaction can be reversed with only the loss of the
management and accounting fees due the Company from the physician during
this time. During the next three years the physician may terminate the
management agreement with the Company with partial loss of benefits. After
four years termination will result in further restrictions, such as a
covenant not to compete. All fees earned by the Company prior to
termination are retained by the company.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Articles of Incorporation the directors and officers of the
Company are indemnified from expenses, amounts paid on judgments, counsel
fees and amounts paid in settlement against them for any claim asserted
against them by reason of their having been an officer or director of the
Company except in matters in which the director or officer is adjudged liable
for his own negligence or misconduct in the performance of his duty.
Under Delaware law the officers and directors are entitled to be
indemnified by the Company for any claim arising out of their performing the
duties of their position except for matters in which the officers and
directors may be found to have been guilty of gross negligence.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates the expenses of the registration and offering of
the securities hereunder will cost about $ 50,000.00. Said expenses will be
paid by the Company.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In June of 1994 Eagle High Enterprises, Inc. sold 6,960,000 of its
common shares for all issued and outstanding shares of Medical Asset
Management, Inc. in a reverse merger transaction. Thereafter the name of
Eagle High Enterprises, Inc. was changed to Medical Asset Management, Inc.
and the name Medical Asset Management, Inc. was changed to Medical Asset
Corporation. This exchange of stock was pursuant to an
II-1
<PAGE>
agreement between the fifteen shareholders of Medical Asset Management, Inc.
and Eagle High Enterprises, Inc. in connection with a reverse merger and
change of control of the Company in June of 1994. Prior to the exchange John
Regan owned 1,077,730 common shares of the predecessor corporation (69%) and
Dennis Calvert owned 256,100 common shares (16%). These represented 85% of
voting stock of the predecessor and 62% of the voting shares of Eagle High
Enterprises, Inc. following the reverse merger. The 6,960,000 shares were
issued, pro-rata to the shareholders of the predecessor Medical Asset
Management, Inc. Prior to the reverse merger these shareholders owned 100% of
voting stock of the predecessor. After the reverse merger these shareholders
owned 80% of the voting stock of Eagle High. These shares were issued to the
shareholders of the predecessor to the Company in reliance on the exemption
of Section 4(2) of the Securities Act of 1933.
In addition the Company sold for cash at the rate of $ 2.50 per share
21,400 shares of restricted common shares in private transactions to
accredited investors. The Company issued 366,478 restricted common shares to
approximately 12 physicians for assets with a net book value of $ 370,432.00.
The Company issued 354,286 restricted shares pursuant to Regulation S to
overseas investors in cancellation of promissory notes of $ 550,000.00. With
respect to other private sales the Company claims exemption under Section
4(2) of the Securities Act of 1933. No underwriter was used in connection
with any of these transactions.
During the first nine months of 1995 the Company sold $ 800,000.00 of
Convertible Redeemable Secured Subordinated Debentures, Series B, Due April
28, 2000 through Global Securities Corporation of Vancouver, B.C. Said
Debentures are convertible into common shares of the Company under certain
terms and conditions. The sale of said Debentures is limited to non-residents
of the United States. The Company has been advised that the sale of such
securities is not required to be registered under Regulation S.
During the third and fourth quarters of 1995 the Company sold common
shares to 8 accredited investors (as defined in Regulation D) pursuant to
Regulation 504(b).
On May 31, 1996 the Company sold 2,000,000 shares of restricted
common stock to a group of 30 accredited investors for $ 8,000,000.00. The
gross proceeds less selling expenses will be used to reduce indebtedness and
increase working capital. Cruttenden Roth Incorporated of Irvine, California
was the selling agent. The total number of issued and outstanding shares of
common stock prior to the private placement as of May 30, 1996 was
11,343,132. These shares were issued in reliance upon the exemption provided
under Section 4(2) of the Securities Act of 1933.
II-2
<PAGE>
ITEM 27. EXHIBITS.
The Registrant incorporates by reference the Exhibits filed with its
Form 10--SB as amended. The index thereof will be provided.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information
set forth in the registration statement; (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof,
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether
II-3
<PAGE>
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURE
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe it has met all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Mesa,
Arizona on July 31, 1996.
MEDICAL ASSET MANAGEMENT, INC.
By /s/ John Regan
- -------------------------------------
President and a Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person on the date stated.
By /s/ Dennis Calvert
- -------------------------------------
Senior Vice President and a Director.
ITEM 1. INDEX TO EXHIBITS.
Exhibit 27A SB-2 Financial Data Schedule
Exhibit 27B 10-KSB Finanical Data Schedule
Section One - Corporate Organization, Merger and Executive Compensation*
Section Two - Material Contracts*
Section Three - Documents relating to SB-2 Registration Statement**
- --------
* These exhibits were filed in connection with a Form 10-SB filing under
the Exchange Act and are incorporated by reference.
** These exhibits will be filed by amendment.
II-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CORPORATIONS FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 131,873
<SECURITIES> 0
<RECEIVABLES> 5,213,803
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,359,345
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,798,827
<CURRENT-LIABILITIES> 2,641,249
<BONDS> 0
0
3,000
<COMMON> 10,701
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,798,827
<SALES> 13,076,078
<TOTAL-REVENUES> 13,076,078
<CGS> 0
<TOTAL-COSTS> 11,364,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (291,657)
<INCOME-PRETAX> 1,423,113
<INCOME-TAX> 540,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 883,113
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
