UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 0-28456
METROPOLITAN HEALTH NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0635748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 Town Center Circle, Boca Raton, Florida 33486
(Address of principal executive office) (Zip Code)
(561) 416-9484
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of February, 17, 1998
----- ----------------------------------
Common Stock, par value $0.001 5,465,867
METROPOLITAN HEALTH NETWORKS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet-
December 31, 1997 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
December 31, 1997 and 1996 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
December 31, 1997 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 31, 1997 6-7
Notes to Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
SIGNATURES 10
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31,
1997
----
ASSETS
CURRENT ASSETS:
Cash 220,387
Marketable Securities 145,329
Accounts receivable, net 5,316,406
Other current assets 105,679
------------
Total current assets 5,787,801
PROPERTY AND EQUIPMENT, net 4,228,074
INTANGILBLE ASSETS, net 3,227,090
DEFERRED ACQUISITION COSTS 222,667
OTHER ASSETS 465,528
------------
TOTAL $ 13,931,160
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,726,577
Line of credit facility 1,060,272
Current maturities of capital lease obligations 632,151
Current maturities of long-term debt 630,942
------------
Total current liabilities 4,049,942
LONG TERM DEBT 319,472
CAPITAL LEASE OBLIGATIONS 2,461,915
------------
Total liabilities 6,831,329
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.001 per share:
40,000,000 shares authorized;
5,465,867 shares issued and outstanding 5,466
Preferred Stock, par value $ .001 per share,
Stated value $100 per share
10,000,000 shares authorized
5,000 issued and outstanding 500,000
Additional paid-in capital 9,845,440
Retained earnings (deficit) (3,251,075)
-------------
Total stockholders' equity 7,099,831
------------
TOTAL $ 13,931,160
============
See notes to condensed consolidated financial statements--unaudited.
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
December 31,
1997 1996
---- ----
REVENUES:
Net patient revenues $ 2,810,632 $ 2,732,296
------------ ------------
EXPENSES:
Salaries and benefits 1,641,798 1,641,146
Depreciation and amortization 354,461 180,340
General and administrative 1,613,589 1,206,770
------------- ------------
Total Expenses 3,609,848 3,028,256
------------- ------------
INCOME (LOSS) FROM OPERATIONS (799,216) (295,960)
------------- -------------
OTHER INCOME (EXPENSE):
Gain on sale of assets ---- ---
Interest expense (145,479) (157,182)
Other income (4,904) 6,958
------------- ------------
Total Other Income (Expense) (150,383) (150,224)
------------- -------------
NET INCOME (LOSS) $ (949,599) $ (446,184)
============ ============
NET LOSS PER COMMON SHARE $ 0.17 $ 0.11
====== ======
See notes to condensed consolidated financial statements--unaudited.
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Six
Months Ended
December 31,1997
----------------
REVENUES:
Net patient revenues $ 5,476,445
------------
EXPENSES:
Salaries and benefits 3,168,846
Depreciation and amortization 651,619
General and administrative 2,863,667
------------
Total Expenses 6,684,132
------------
INCOME (LOSS) FROM OPERATIONS (1,207,687)
------------
OTHER INCOME (EXPENSE):
Gain on sale of assets ----
Interest expense (277,999)
Other income 26,999
------------
Total Other Income (Expense) (251,000)
NET INCOME (LOSS) $ (1,458,687)
=============
NET LOSS PER COMMON SHARE $ 0.27
======
See notes to condensed consolidated financial statements--unaudited.
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six
Months Ended
December 31, 1997
-----------------
Increase (Decrease) in Cash and equivalents from:
OPERATING ACTIVITIES:
Net Loss $ (1,458,687)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 1,127,324
Provision for bad debts 1,118,559
Stock issued in lieu of cash 37,500
Changes in assets and liabilities:
Accounts receivable, net (1,855,471)
Trading securities 204,474
Other current assets 42,546
Other assets (215,291)
Accounts payable and accrued expenses 678,589
-------------
Net cash used in operating activities (320,457)
-------------
INVESTING ACTIVITIES:
Capital expenditures (651,868)
Deferred acquisition costs (86,161)
Cash consideration paid for Company acquired (342,015)
Cash balance of Company acquired 45,962
-------------
Net cash used in investing activities (1,034,082)
-------------
FINANCING ACTIVITIES:
Net borrowings on lines-of-credit 431,771
Repayment of notes to redeemed partners (365,353)
Repayments of capital lease obligations (599,563)
Issuance of preferred stock 440,184
------------
Net cash provided by financing activities (92,961)
-------------
NET DECREASE IN CASH (1,447,500)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,667,887
------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 220,387
============
Supplemental Disclosures:
Interest paid $ 277,999
============
Income taxes paid $ ---
============
See notes to condensed consolidated financial statements--unaudited.
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(Unaudited)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Effective July 1, 1997 and October 1, 1997 respectively, Metropolitan Health
Networks, Inc. acquired 100% of Martin Harrison MD, PA (D/B/A General Medical
Associates) and 100% of David Glickman MD, PA. A summary of both acquisitions is
as follows:
Consideration:
Fair value of stock issued $1,257,000
Issuance of notes payable 400,000
Assumption of liabilities 57,000
----------
Total consideration $1,714,000
==========
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
1. The accompanying condensed consolidated balance sheet of Metropolitan Health
Networks, Inc. ("Metropolitan" or the "Company") as of December 31, 1997, the
related condensed consolidated statements of operations for the three months
ended December 31, 1997 and 1996, and the six months ended December 31, 1997 and
the condensed consolidated statements of cash flows for the six months ended
December 31, 1997 reflect all normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of such statements. The
results of operations for the six months ended December 31, 1997 are not
necessarily indicative of the results which may be expected for the entire year.
These statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended June 30, 1997 included
in the Company's form 10-KSB filed with the Securities and Exchange Commission.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION-- The condensed consolidated financial statements
include Metropolitan Health Networks, Inc. and its subsidiaries. All material
intercompany accounts and transactions have been eliminated.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 - For comparative
purposes, the results of operations for this period were prepared on a pro forma
basis as if the subsidiaries owned by the Company, included in the results of
operations for the period ended December 31, 1997, had been acquired as of July
1, 1996.
SALE OF PREFERRED STOCK --- In July, the Company sold 5,000 shares of 10%
Convertible Preferred Stock in a private placement resulting in net proceeds to
the Company of $ 442,500. The stock is convertible at 85% of the ten (10) day
moving average or $ 6.00 per share, whichever is less and is callable after two
(2) years. The agreement has demand registration rights on the anniversary of
the closing date of the agreement, and has piggy back rights on any registration
the Company completes, and if the Company does not meet a minimum of $ 30
million in run rate revenue within seven (7) months from the date of the
agreement, the investor shall have demand registration rights.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the condensed consolidated financial
statements and notes thereto.
Results of Operations
Three months ended December31, 1997 compared to three months ended December 31,
1996
Net patient revenues for the three months ended December 31, 1997 increased
approximately 2.9% to $2.81 million, as compared to $2.73 million for the
corresponding quarter of 1996. This increase was due to an acquisition of a
small primary care facility. Revenues for the Company's other facilities
remained constant.
Total operating expenses for the three months ended December 31, 1997 increased
19.2% to $3.61 million, as compared to $3.03 million for the corresponding
quarter of 1996. This increase was primarily attributable to the anticipated
merger with a large multi-specialty group practice within the same geographical
region. When completed certain subsidiaries maintained excess staff in
anticipation of increased revenues generated by the synergies anticipated by
this acquisition.
The Company has now initiated an overhead reduction plan, with phase I underway
and due for completion within the next 15 days. The resulting expense reductions
will net the Company approximately $1.5 million in savings without any loss to
services. This will include the sale and / or closing of certain unprofitable
facilities.
Liquidity and Capital Resources
As a result of the companies losses from operations of approximately $950,000
together with the cost associaterd with restarting of the two medical centers
and opening the third primary care facility,, the company may experience
liquidity and cash flow problems if they are not able to raise capital in the
immediate future.
A primary source of the Company's liquidity is derived from its accounts
receivable, therefore it has selected, designed and implemented an information
system which links the Company's facilities to maximize billing, and reduce the
number of days of sales in accounts receivable. Additionally, the Company has
closed on a line of credit for $1.5 million of which the Company has drawn down
approximately $800,000 to date. This line of credit is secured by accounts
receivable of one of the Company's subsidiary and is guaranteed by the Company.
The Company is seeking to sell additional preferred stock similar to the sale
reflected in the first quarter of fiscal 1998, as well as has entered into
negotiations to re-finance it current existing debt including long-term leases
to reduce interest cost and provide additional borrowing capacity.
<PAGE>
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, the matters
discussed in this report are forward-looking statements made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company=s expectation and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company=s operations,
markets, expansion strategies, available financing, and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company=s control. Actual results could differ materially from the
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this report
will, in fact, occur.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METROPOLITAN HEALTH NETWORKS, INC.
Registrant
Date: February 19, 1998 /s/ Noel J. Guillama
--------------------
Noel J. Guillama
Chairman, President and
Chief Executive Officer
Date: February 19, 1998 /s/ Donald B. Cohen
-------------------
Donald B. Cohen
Executive Vice President,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF METROPOLITAN HEALTH NETWORKS, INC. FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 220,387
<SECURITIES> 145,329
<RECEIVABLES> 12,421,970
<ALLOWANCES> 7,105,564
<INVENTORY> 0
<CURRENT-ASSETS> 5,787,801
<PP&E> 5,347,073
<DEPRECIATION> 1,118,999
<TOTAL-ASSETS> 13,931,160
<CURRENT-LIABILITIES> 4,049,942
<BONDS> 0
0
500,000
<COMMON> 5,466
<OTHER-SE> 6,594,365
<TOTAL-LIABILITY-AND-EQUITY> 13,931,160
<SALES> 2,810,632
<TOTAL-REVENUES> 2,810,632
<CGS> 0
<TOTAL-COSTS> 3,609,848
<OTHER-EXPENSES> 4,904
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (949,599)
<INCOME-TAX> 0
<INCOME-CONTINUING> (949,599)
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<EXTRAORDINARY> 0
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<NET-INCOME> (949,599)
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