U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
x QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------- TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to ______
COMMISSION FILE NO. 0-27236
MEDICAL ASSET MANAGEMENT, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0359976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
25241 Paseo de Alicia, Suite 230
Laguna Hills, CA 92653
Telephone: (714) 829-8333
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes / / No /x/
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 15,799,129 shares of Common
Stock were outstanding as of September 25, 1997 (15,616,389 shares of Common
Stock were outstanding as of June 30, 1997).
Transitional Small Business Disclosure Format (check one): Yes / / No /x/
<PAGE>
MEDICAL ASSET MANAGEMENT, INC.
INDEX
Page
No.
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations for the
three and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three and six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Recent Sales of Unregistered Securities 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
1
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Medical Asset Management, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, December 31,
1997 1996
-----------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,060,000 $3,400,000
Restricted cash 2,500,000 1,264,000
Accounts receivable, less $3,852,000
at June 30, 1997 and $3,586,000
at December 31, 1996 5,434,000 4,480,000
Physicians receivables, less $175,000
at June 30,1997 and $150,000 at
December 31, 1996 3,447,000 2,660,000
Other current assets 268,000 269,000
-----------------------------
Total current assets 12,709,000 12,073,000
Property and equipment:
Land 195,000 -
Buildings 1,510,000 680,000
Furniture and equipment 2,101,000 1,668,000
-----------------------------
3,806,000 2,348,000
Less accumulated depreciation 621,000 507,000
-----------------------------
Total property and equipment, net 3,185,000 1,841,000
Intangible assets and other:
Acquired management contracts 14,933,000 12,202,000
Excess of cost of acquired assets over
fair value 5,431,000 5,431,000
Computer software license agreement 1,249,000 1,238,000
Other assets 20,000 20,000
-----------------------------
21,633,000 18,891,000
Less accumulated amortization 1,180,000 885,000
-----------------------------
Total intangible assets and other, net 20,453,000 18,006,000
-----------------------------
Total assets $36,347,000 $31,920,000
=============================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Medical Asset Management, Inc. and Subsidiary
Consolidated Balance Sheets
(continued)
June 30, December 31,
1997 1996
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C>
Current liabilities:
Line of credit and notes payable $2,942,000 $1,707,000
Current portion of long-term liabilities 2,292,000 1,393,000
Accrued litigation settlements 1,153,000 1,573,000
Accounts payable 1,073,000 705,000
Accrued payroll 370,000 268,000
Accrued professional fees 580,000 945,000
Accrued expenses 436,000 379,000
-----------------------------
Total current liabilities 8,846,000 6,970,000
Notes payable and capital lease obligations 3,981,000 2,301,000
Convertible subordinated debt 125,000 126,000
Deferred tax liability 3,274,000 3,274,000
-----------------------------
Total liabilities 16,226,000 12,671,000
Stockholders' equity
Convertible preferred stock - $.001 par
value - 10,000,000 shares authorized;
Class A - 2,250,000 shares issued
and outstanding at June 30, 1997
and December 31, 1996 2,000 2,000
Common Stock - $.001 par value -
50,000,000 shares authorized,
15,616,000 shares issued and
outstanding at June 30, 1997 and
14,945,000 shares issued and outstanding
at December 31, 1996 16,000 15,000
Additional paid-in capital 20,638,000 18,382,000
Common Stock to be issued, 1,958,000
shares at June 30, 1997 and 1,988,000
shares at December 31, 1996 8,986,000 9,574,000
Unearned remuneration (1,494,000) (1,494,000)
Deficit (8,027,000) (7,231,000)
-----------------------------
Total stockholders' equity 20,121,000 19,249,000
-----------------------------
Total liabilities and stockholders' equity $36,347,000 $31,920,000
=============================
SEE ACCOMPANYING NOTES.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Medical Asset Management, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1997 1996 1997 1996
(RESTATED) (RESTATED)
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 3,897,000 $ 2,283,000 $ 7,425,000 $ 3,736,000
Operating expenses:
Clinic salaries, wages,
and benefits 1,183,000 859,000 2,332,000 1,406,000
Clinic laboratory
and fees 593,000 380,000 1,031,000 621,000
Clinic rent 449,000 313,000 895,000 512,000
Other clinic costs 438,000 306,000 988,000 501,000
Consulting fees 35,000 15,000 173,000 25,000
Depreciation and
amortization 205,000 218,000 409,000 356,000
------------ ------------ ------------ ------------
Total operating expenses 2,903,000 2,091,000 5,828,000 3,421,000
------------ ------------ ------------ ------------
994,000 192,000 1,597,000 315,000
General and administrative
expenses 1,296,000 854,000 2,305,000 1,397,000
------------ ------------ ------------ ------------
(302,000) (662,000) (708,000) (1,082,000)
Other income (expense):
Net loss on litigation
settlements and clinic
terminations -- -- -- (749,000)
Interest income 41,000 25,000 80,000 41,000
Interest expense (114,000) (55,000) (175,000) (90,000)
Other (net) (12,000) (15,000) 7,000 (26,000)
------------ ------------ ------------ ------------
Total other income
(expense) (85,000) (45,000) (88,000) (824,000)
------------ ------------ ------------ ------------
Loss before income taxes (387,000) (707,000) (796,000) (1,906,000)
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (387,000) $ (707,000) $ (796,000) $ (1,906,000)
============ ============ ============ ============
Net loss per share $ (0.03) $ (0.06) $ (0.05) $ (0.17)
============ ============ ============ ============
Weighted average number of
common shares outstanding 15,365,000 12,010,000 15,205,000 11,527,000
SEE ACCOMPANYING NOTES.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Medical Asset Management, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1997 1996 1997 1996
(RESTATED) (RESTATED)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(387,000) $(707,000) $(796,000) $(1,906,000)
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 205,000 218,000 409,000 356,000
Bad debt and contractual
allowances 125,000 -- 225,000 --
Write-off of franchise fees -- -- 749,000
Common stock issued for services -- -- 375,000
Changes in operating assets and
liabilities, net of effects
of acquisitions
Accounts and physician
receivables (1,052,000) (880,000) (1,430,000) (1,315,000)
Other current assets (24,000) -- 8,000 --
Accounts payable 172,000 (62,000) 77,000 193,000
Accrued payroll and expenses (354,000) -- (627,000) 8,000
----------- ----------- ----------- -----------
Net cash used in operating
activities (1,315,000) (1,431,000) (2,134,000) (1,540,000)
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in restricted cash (37,000) -- (1,236,000) --
Net cash used to fund acquisitions (94,000) (810,000) (327,000) (1,089,000)
----------- ----------- ----------- -----------
Net cash used in investing
activities (131,000) (810,000) (1,563,000) (1,089,000)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from debt issuances 699,000 -- 1,898,000 325,000
Repayment of debt (407,000) (125,000) (541,000) (250,000)
Net proceeds from issuances of
common stock -- 8,035,000 -- 8,260,000
----------- ----------- ----------- -----------
Net cash provided by financing
activities 292,000 7,910,000 1,357,000 8,335,000
Net increase (decrease) in cash (1,154,000) 5,669,000 (2,340,000) 5,706,000
Cash, beginning of period 2,214,000 169,000 3,400,000 132,000
----------- ----------- ----------- -----------
Cash, end of period $ 1,060,000 $ 5,838,000 $ 1,060,000 $ 5,838,000
=========== =========== =========== ===========
Supplemental disclosure of
cash flow information:
Interest paid $ 77,000 $ 55,000 $ 118,000 $ 90,000
=========== =========== =========== ===========
Assets acquired with stock
issuance, assumption of debt
and other liabilities $ 961,000 $ 3,769,000 $ 4,418,000 $ 6,291,000
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES
</TABLE>
5
<PAGE>
Medical Asset Management, Inc. and Subsidiary
Notes to Consolidated Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and in accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited consolidated interim financial
statements contained in this report reflect all adjustments, consisting of only
normal recurring accruals which are necessary for a fair presentation of the
financial position and the results of operations for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year.
These unaudited consolidated financial statements, footnote disclosures and
other information should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996. The 1996 quarterly financial
statements were restated. See Note 3.
6
<PAGE>
2. Acquisitions
The Company entered into acquisitions and long-term management service
agreements with eight and twelve medical groups during the six months ended June
30, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash and transaction costs $153,000 $689,000
Notes payable 1,854,000 1,531,000
Common stock issued and to be issued 1,667,000 4,468,000
Liabilities assumed 292,000 26,000
-------------- -------------
Total costs $3,966,000 $6,714,000
============== =============
</TABLE>
The following unaudited pro forma information presents the results of operations
of the Company for the six months ended June 30, 1997 as if the 1997
transactions had been consummated on January 1, 1997, and for the six months
ended June 30, 1996 as if the 1997 and 1996 transactions were consummated on
January 1, 1996.
The unaudited pro forma 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:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue $8,481,000 $7,022,000
Net loss (708,000) (1,660,000)
Net loss per share $(0.05) $(0.14)
============== ==============
</TABLE>
7
<PAGE>
3. Restatement
During 1996, management restated the 1995 consolidated financial statements for
certain corrections of accounting principles and misapplications of facts that
existed at the time the 1995 financial statements were prepared. The corrections
also required restatement of and adjustments to previously reported 1996
quarterly financial information as follows (unaudited):
<TABLE>
<CAPTION>
NET INCOME NET INCOME STOCKHOLDERS'
(LOSS) (LOSS) PER EQUITY
SHARE
------------ ----------------------------
<S> <C> <C> <C>
Three months ended June 30,
1996
As previously reported $386,000 $0.03 $19,102,000
Adjustment (1,093,000) (0.09) 1,653,000
------------ ---------- -----------
As restated $(707,000) $(0.06) $20,755,000
============ =========================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW.
GENERAL. The Company is a physician practice management company that
develops contractual affiliations with physician practices that provide for
management by the Company and clinical autonomy for the physicians. The Company
also offers a full array of management services as a management service
organization under long term service contracts, to both affiliated physicians
and other independent healthcare entities, directly and through its subsidiary,
Healthcare Professional Management, Inc. ("HPM"). HPM also provides management
services on a consulting basis to over 200 physicians in Pennsylvania, West
Virginia and Ohio.
For the year ended December 31, 1996, the medical groups affiliated with
the Company derived approximately 35% of their medical service revenue from
service provided under Medicare and Medicaid programs and approximately 30% from
contractual fee-for-service arrangements with numerous payors and managed care
programs, respectively, none of which individually aggregated more than 10% of
medical service revenue. The remaining 35% of medical service revenue was
derived from various fee-for-service payors. Changes in the medical group's
payor mix can affect the Company's revenue. Management believes that the payor
mix during the first and second quarters of 1997 remained approximately the same
as for the year ended December 31, 1996.
RESTATEMENT. During 1996 management restated the prior periods'
financial statements for certain corrections of accounting principles and
misapplication of facts that existed at the time the financial statements were
prepared. The aggregate amount of the restatement resulted in a reduction in
earnings from the previously reported net income for the three months ended June
30, 1996 of $386,000 to a net loss of $707,000.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenues represented
by certain items reflected in the Company's Statement of Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Operating Expenses:
Clinic Expenses 69.2% 82.0% 73.0% 82.0%
Depreciation and
amortization 5.3% 9.6% 5.5% 9.6%
---- ---- ---- ----
Income from operations 25.5% 8.4% 21.5% 8.4%
General and administrative 33.2% 37.4% 31.0% 37.4%
Other income (expense) (2.2)% (2.0)% (1.2)% (22.0)%
------ ------ ------ -------
Net loss (9.9)% (31.0%) (10.7)% (51.0%)
</TABLE>
COMPARATIVE QUARTERLY RESULTS
At June 30, 1997, the Company managed 32 practices having a total of 102
physicians in nine states pursuant to its standard equity arrangements as
compared to 25 practices having a total of 32 physicians in eight states at June
30, 1996. During the three and six months ended June 30, 1997, the Company
entered into such arrangements with three and five additional practices,
respectively, as compared to six and 11 for the three and six months ended June
30, 1996, respectively. During the three months ended June 30, 1997, the Company
terminated no such arrangements as compared to five for the three months ended
June 30, 1996. There were no additional terminations during the six month
periods ended June 30, 1997 and June 30, 1996. Changes in the results of
operations for the three and six months ended June 30, 1997, compared to the
three and six months ended June 30, 1996, were caused primarily by affiliations
with these additional practices, the continued building of a corporate
infrastructure, write-off of franchise fees and the settlement of certain
litigation, with their corresponding professional fees.
NET REVENUE increased approximately $1,614,000, or 71%, to $3,897,000
for the three months ended June 30, 1997 as compared to $2,283,000 for the three
months ended June 30, 1996. Net Revenue increased approximately $3,689,000, or
99%, to $7,425,000 for
10
<PAGE>
the six months ended June 30, 1997 as compared to $3,736,000 for the six months
ended June 30, 1996. Medical service revenue prior to any provision for doubtful
accounts, contractual adjustments or adjustments for amounts retained by medical
groups increased $2,963,000, or 54%, to $8,423,000 for the quarter ended June
30, 1997 as compared to $5,460,000 for the quarter ended June 30, 1996. For the
same periods, revenue from HPM decreased $21,000, or 6%, from $370,000 to
$349,000. Medical service revenue prior to any provision for doubtful accounts,
contractual adjustments or adjustments for amounts retained by medical groups
increased $7,427,000, or 82%, to $16,459,000 for the six months ended June 30,
1997 as compared to $9,032,000 for the six months ended June 30, 1996. For the
same periods, revenue from HPM decreased $54,000, or 8%, from $702,000 to
$648,000. The Company's growth in revenue is primarily attributable to the
addition of new management services agreements.
OPERATING EXPENSES consist of (i) clinic salaries, wages and benefits,
clinic laboratory and fees, clinic rent, other clinic costs and consulting fees
and (ii) depreciation and amortization. Clinic expenses increased by $825,000,
or 44%, to $2,698,000 for the quarter ended June 30, 1997 from $1,873,000 for
the comparable period in 1996. Clinic expenses increased by $2,351,000, or 77%,
to $5,416,000 for the six months ended June 30, 1997 from $3,065,000 for the
comparable period in 1996. The increases in clinic expenses for each of the
respective periods reflects the addition of new physician affiliations.
Depreciation and amortization expenses for the quarter ended June 30,
1997 decreased by $13,000, or 6%, to $205,000 as compared to $218,000 for the
quarter ended June 30, 1996. Depreciation and amortization expenses for the six
months ended June 30, 1997 increased by $53,000, or 15%, to $409,000 as compared
to $356,000 for the six months ended June 30, 1996. This increase was primarily
the result of the amortization and depreciation of newly acquired management
services agreements and fixed assets.
INCOME FROM OPERATIONS increased $802,000, or 418%, to $994,000 for the
quarter ended June 30, 1997 from $192,000 for the comparable period in 1996.
Income from Operations increased $1,282,000, or 407%, to $1,597,000 for the six
months ended June 30, 1997 from $315,000 for the comparable period in 1996.
Substantially all of the increase in each of the respective periods was
attributable to the addition of new affiliated physician practices.
GENERAL AND ADMINISTRATIVE EXPENSES consist of salaries paid to
corporate staff, administrative, legal and accounting and development costs.
General and administrative costs increased by $442,000, or 52%, to $1,296,000
for the quarter ended June 30, 1997 from $854,000 for the quarter ended June 30,
1996. General and administrative costs increased by $908,000, or 65%, to
$2,305,000 for the first six months of 1997 from $1,397,000 for the six months
ended June 30, 1996. These increases were primarily the result of a build-up in
the Company's financial and operational staff, additional professional and
additional administrative costs incurred in the first three and six months of
1997 as compared to the corresponding periods in 1996.
11
<PAGE>
OTHER INCOME (EXPENSE) increased by $40,000 to an expense of $85,000 for
the quarter ended June 30, 1997 from an expense of $45,000 for the comparable
period in 1996. The increase is principally the result of a $59,000 increase in
interest expense to $114,000 for the quarter ended June 30, 1997, from $55,000
for the quarter ended June 30, 1996, primarily due to increased borrowings under
the Company's credit facility. Other Income (Expense) declined by $736,000 to an
expense of $88,000 for the six months ended June 30, 1997 from $824,000 for the
comparable period in 1996. The decline consists principally of the absence of a
net loss on litigation settlements, clinic terminations and disposal in the six
months ended June 30, 1997 as compared to $749,000 in such amounts for the six
months ended June 30, 1996.
Interest expense increased by $85,000, to $175,000 for the six months
ended June 30, 1997 from $90,000 for the first six months of 1996, primarily as
a result of increase borrowings under the Company's credit facility.
Interest income increased to $41,000 for the quarter ended June 30, 1997
from $25,000 for the quarter ended June 30, 1996. Interest income increased to
$80,000 for the six months ended June 30, 1997 from $41,000 for the six months
ended June 30, 1996. These increases in interest income resulted from the
investment of a portion of funds received from a private placement that was
completed in May 1996.
INCOME TAXES were zero for the three and six months ended June 30, 1997
and 1996. The Company had net operating losses for federal and state income tax
purposes at June 30, 1997 of approximately $8,300,000 which can be carried
forward and used to offset the Company's future taxable income through the year
2009.
NET LOSS decreased $320,000, or 45% to a loss of $387,000 for the
quarter ended June 30, 1997 from a net loss of $707,000 for the quarter ended
June 30, 1996. The reduction in the net loss was primarily the result of the
increase in income from clinic operations of $802,000, offset by a $442,000
increase in general and administrative expenses, for the quarter ended June 30,
1996 as compared to the same period in 1997. Net Loss decreased $1,110,000 or
58% for the six months ended June 30, 1997 from a net loss of $1,906,000 for the
six months ended June 30, 1996. The reduction in the net loss was primarily the
result of the reduction of $736,000 in other expenses in the six months ended
June 30, 1997 as compared to other expenses in the first quarter of 1996.
NET LOSS PER SHARE decreased to ($.03) in the three months ended June
30, 1997 as compared to ($.06) per share for the corresponding period in 1996.
Net Loss per Share decreased to ($.05) in the quarter ended June 30, 1997 as
compared to ($.17) per share for the corresponding period in 1996. These
decreases resulted from the decrease in net loss and a 29% and 33% increase in
the weighted average number of shares of Common Stock outstanding, for the
respective periods.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SUMMARY. The Company has continued to experience losses from operations
and negative cash flows from operating activities for the six months ended June
30, 1997 and the year ended December 31, 1996. Significant contributing factors
to the loss for the six months ended June 30, 1997, were the rapid growth of the
Company, the resulting increase in general and administrative expenses and the
losses incurred on litigation settlements and terminations. The increase in cash
used in operations in the first six months of 1997 was primarily the result of
the Company's decision to defer the timely collection of management fees to
support the growth of practices under management agreements. The Company's
decision to reinvest funds in medical practices that are already owned, and fund
acquisitions of additional medical practices along with cash required to meet
debt obligations and fund operations has significantly reduced the amount of
cash available to the Company. As a result, the Company will be required to seek
additional financing from banks, institutional investors and other sources and
to reduce or contain costs in order to fund operations and meet obligations and
future commitments.
WORKING CAPITAL. At June 30, 1997, the Company's net working capital was
$3,863,000, as compared to $5,103,000 at December 31, 1996. The principal
components of the Company's working capital are cash and accounts receivable.
Unrestricted cash decreased by $2,340,000 from $3,400,000 at December 31, 1996
to $1,060,000 primarily as a result of cash used in operations. Accounts
receivable principally represent receivables from patients and third parties for
medical services provided by physician groups. Accounts receivable are a
function of net physician practice revenue rather than net revenue of the
Company. Accounts receivable increased $954,000, or 21%, to $5,434,000 at June
30, 1997 from $4,480,000 at December 31, 1996, reflecting the increase in
practice billings that the Company manages. Physician receivables, less $150,000
of allowance for doubtful accounts, were $2,660,000 at December 31, 1996, as
compared to $3,447,000 at June 30, 1997, reflecting the Company's decision to
continue to reinvest funds in medical practices managed. Total current
liabilities at June 30, 1997 increased to $8,846,000 from $6,970,000 on December
31, 1996 primarily as a result of higher borrowings under the Company's credit
line and notes payable. The ratio of current assets to current liabilities was
1.44 to 1.00 at June 30, 1997 as compared to 1.73 to 1.00 at December 31, 1996.
CASH FLOWS. Net cash used in investing activities for the six months
ended June 30, 1997 was $1,563,000, a $474,000 increase over $1,089,000 used in
investing activities for the comparable period in 1996. The increase was
primarily the result of an increase in restricted cash required by the Company's
credit facility from $1,264,000 to $2,500,000 offset by a decrease of $762,000
in amounts used to fund acquisitions.
Net cash provided by financing activities during the six months ended
June 30, 1997 was $1,357,000, a $6,978,000 decline from the $8,335,000 net cash
provided by financing activities during the first six months of 1996. The
decline reflects the private placement of Common Stock on May 31, 1996, which
yielded proceeds, net of offering expenses, of $7.2 million.
13
<PAGE>
Net cash used in operations for the six months ended June 30, 1997 was
$2,134,000, a $594,000 increase over funds used in operations for the six months
ended June 30, 1996. While the net loss for the six months ended June 30, 1997
declined to $796,000 from the net loss of $1,906,000 for the six months ended
June 30, 1996, the increase in net cash used in operations was primarily the
result of a $619,000 decrease in accrued expenses.
DEBT FACILITIES. The Company's outstanding debt obligations consist of a
line of credit, notes payable, long-term debt, and convertible subordinated
debt.
At June 30, 1997, the Company's long-term debt in aggregate principal
amount of $6,273,000 (including current portion of $2,292,000) consisted of:
(i) Mortgage payable of $1,115,000 to a bank, collateralized by a
building with a net book value of $1,665,000 with interest at 10%
(ii) Unsecured note payable to a finance company in the amount of
$394,000 with interest at 7.9%
(iii) Note payable to a computer vendor of $738,000 with interest at
10%
(iv) Capital lease obligations in the aggregate amount of
$1,156,000 with varying interest rates not exceeding 26.5%
(v) Notes payable to various individuals in conjunction with asset
acquisitions, of $2,767,000 at 10% with varying maturity dates
(vi) Other debt in the amount of $103,000
At June 30, 1997, the Company had $2,500,000 available under a line of
credit with a bank, of which $2,500,000 was then outstanding. Upon maturity on
May 30, 1997, this note was extended to May 29, 1998 at 6.72%. Amounts are
available under this line only to the extent the Company has certificates of
deposits to secure the balance. On September 3,1997, all amounts outstanding
under this line were repaid.
SUBSEQUENT DEVELOPMENTS
On October 15, 1997, the Company entered into a $1,250,000 accounts
receivable factoring line of credit under which approximately $572,000 was
outstanding and fully repaid on November 24, 1997, at which time the line of
credit was terminated. The Company borrowings were limited to a formula equal to
40% of accounts receivable outstanding for less than 90 days at the time of the
borrowing. A factoring commission of 1% for each 30 day period in addition to
interest at the published prime rate plus 2% could be charged on outstanding
borrowings. A reserve of 5% of the total outstanding invoices was also required.
This facility was guaranteed by certain officers of the Company.
The Company entered into a new accounts receivable credit facility
effective as of November 12, 1997, under which 80% of the net collectible value
of the Company's accounts receivable could be advanced up to $2,500,000. The
Company initially borrowed approximately $1,600,000 on November 24, 1997, the
proceeds of which were used to repay the outstanding borrowings under the
existing factoring accounts receivable
14
<PAGE>
line described above and to fund working capital needs. Various additional
borrows and repayments have occurred through December 12, 1997 at which time
$1,950,000 was outstanding.
Management recognizes that the Company must generate additional
financial resources and reduce operating expenses. To address future cash
requirements in the fourth quarter of 1997 management developed a business plan
that includes:
- Securing additional financing to cover anticipated cash
requirements, such as the new accounts receivable credit
facility.
- Reducing advances to physicians.
- Reducing compensation expense included in general and
administrative expense by headcount and salary reductions.
- Reducing executive compensation by 30% effective November 1, 1997
and deferral of 1998 senior management compensation, if
necessary.
- Completing refinancings of Company-owned medical buildings and
equipment.
- Curtailing acquisition activity until cash resources are
available and reducing associated travel and entertainment
expenditures.
There can be no assurance that the additional financing, other sources
of funds, or other cost reductions as described above will be achieved. If these
financings, other sources of funds or other reductions are not achieved within
acceptable ranges, the Company's liquidity would be materially adversely
affected.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings
per Share," which is Required to be adopted by the Company for the year ended
December 31, 1997.The provisions of SFAS No. 128 will be adopted in the 1997
consolidated financial statements. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating earnings per
share, the dilutive effect of convertible preferred stock will be excluded for
"basic earnings per share" and only included in "diluted" earnings per share.
Further, contingently issuable shares will be included in basic earnings per
share only if all the necessary conditions have been satisfied by the end of the
period and it is only a matter of time before they are issued. The impact of
SFAS No. 128 on the calculation of earnings per share for the year ending
December 31, 1997 has not been determined.
* * *
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this report, may constitute
forward-looking statements. Although the Company believes
15
<PAGE>
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct.
16
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is presently engaged in various proceedings occurring in the
course of its business of entering its affiliations with physician practices and
medical related entities. However, except as described in the Company's Form
10-KSB, management believes that the ultimate outcome of these proceedings is
not expected to be material to operations or the Company's financial position.
The Company is a defendant in an arbitration proceeding captioned Century
City Plaza Radiology Medical Group; Neil L. Horn, M.D.; Neil L. Horn, M.D.,
Inc., Ralph Borrows, M.D.; Brona H. Burrows (collectively "Century City") v.
Medical Asset Management, Inc. filed on June 26, 1997 with the American
Arbitration Association in Los Angeles, California. In its arbitration demand
against the Company, Century City alleged breach of contract, breach of
fiduciary duty, request for indemnification, and constructive fraud with respect
to an asset purchase and clinic management agreement entered into by Old MAM in
1993. Century City has requested compensatory damages in the amount of $517,000,
loss of profits in the amount of $400,000, unspecified attorneys fees, and
punitive damages. On August 1, 1997 the Company filed a response denying
liability and counterclaim asserting claims for material misrepresentation and
other causes of action. The Company has requested damages to indemnify it for
physician compensation, operating expenses, and management fees as well as
punitive damages, interest, attorneys fees and costs. The proceeding is in a
discovery phase with hearings expected to be scheduled by year end 1997.
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
There have been no changes in the rights, preferences or privileges of any
security of the Company during the quarter ended June 30, 1997. During the
quarter ended June 30, 1997, the Company issued an aggregate of 189,000 shares
of Common Stock pursuant to asset purchase agreements with physicians, of which
162,000 shares were issued pursuant to commitments entered into prior to March
31, 1997. During the quarter ended June 30, 1997, the Company agreed to issue,
pursuant to new equity affiliation agreements with physicians, a total of 80,000
additional shares of Common Stock during the period 1998 to 2001. In addition,
the Company issued 141,000 shares of Common Stock in settlement of litigation
and 28,000 shares of Common Stock in payment of a note. The Company issued these
shares in transactions in reliance upon the exemption provided under Section
4(2) of the Securities Act of 1933.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
SEQUENTIAL
EXHIBIT NO. DESCRIPTION LOCATION NO.
- ---------- ----------- ------------
27 Financial Data Schedule Filed herewith
(b) During the quarter ended June 30, 1997, the Company
filed no reports on Form 8-K.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDICAL ASSET MANAGEMENT, INC.
By: /s/ Clarke Underwood
________________________________
Clarke Underwood
Vice President and Chief Financial
Officer and Director (Chief
Accounting Officer)
Date: December 16, 1997
19
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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