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 March 31, 1998
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 May 18, 1998
----- ----------------------------------
Common Stock, par value $0.001 6,057,633
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet-
March 31, 1998 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 1998 and 1997 4
Condensed Consolidated Statements of
Operations for the Nine Months Ended
March 31, 1998 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 1998 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 12
2
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
1998
ASSETS
CURRENT ASSETS:
Cash 455,264
Marketable Securities 70,329
Accounts receivable, net 5,206,655
Other current assets 192,495
------------
Total current assets 5,924,743
PROPERTY AND EQUIPMENT, net 4,102,813
INTANGILBLE ASSETS, net 3,180,309
DEFERRED ACQUISITION COSTS 224,953
OTHER ASSETS 436,853
------------
TOTAL $ 13,869,671
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,303,018
Line of credit facility 1,547,462
Current maturities of capital lease obligations 770,179
Current maturities of long-term debt 554,194
------------
Total current liabilities 5,174,853
LONG TERM DEBT 325,079
CAPITAL LEASE OBLIGATIONS 2,187,631
------------
Total liabilities 7,687,563
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.001 per share:
40,000,000 shares authorized;
5,507,364 shares issued and outstanding 5,508
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 9,830,888
Retained earnings (deficit) (4,154,288)
------------
Total stockholders' equity 6,182,108
------------
TOTAL $ 13,869,671
============
See notes to condensed consolidated financial statements--unaudited.
3
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
1998 1997
---------- -----------
(Note 2)
REVENUES:
Net patient revenues $ 2,762,831 $ 2,936,383
------------ ------------
EXPENSES:
Salaries and benefits 1,703,875 1,503,526
Depreciation and amortization 337,003 176,334
General and administrative 1,463,242 1,413,323
------------ ------------
Total Expenses 3,504,120 3,093,183
------------ ------------
INCOME (LOSS) FROM OPERATIONS (741,289) (156,800)
------------ ------------
OTHER INCOME (EXPENSE):
Gain on sale of assets ---- ---
Interest expense (136,988) (101,643)
Other income (67,147) 18,341
------------ ------------
Total Other Income (Expense) (204,135) (83,302)
------------ ------------
NET INCOME (LOSS) $ (945,424) $ (240,102)
============ ============
NET LOSS PER COMMON SHARE $ 0.17 $ 0.05
====== ======
See notes to condensed consolidated financial statements--unaudited.
4
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine
Months Ended
March 31,1998
-------------
REVENUES:
Net patient revenues $ 8,209,276
------------
EXPENSES:
Salaries and benefits 4,872,722
Depreciation and amortization 988,621
General and administrative 4,326,910
------------
Total Expenses 10,188,253
------------
INCOME (LOSS) FROM OPERATIONS (1,978,977)
------------
OTHER INCOME (EXPENSE):
Gain on sale of assets ----
Interest expense (414,986)
Other income (40,148)
------------
Total Other Income (Expense) (455,134)
------------
NET INCOME (LOSS) $ (2,434,111)
============
NET LOSS PER COMMON SHARE $ 0.45
======
See notes to condensed consolidated financial statements--unaudited.
5
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
March 31, 1998
--------------
Increase (Decrease) in Cash and equivalents from:
OPERATING ACTIVITIES:
Net Loss $ (2,434,111)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 1,229,747
Provision for bad debts 1,139,774
Stock issued in lieu of cash 37,500
Changes in assets and liabilities:
Accounts receivable, net (1,692,004)
Trading securities 279,474
Other current assets (44,270)
Other assets (186,617)
Accounts payable and accrued expenses 1,255,030
------------
Net cash used in operating activities (415,477)
------------
INVESTING ACTIVITIES:
Capital expenditures (597,163)
Deferred acquisition costs (88,447)
Cash consideration paid for Company acquired (342,015)
Cash balance of Company acquired 45,962
------------
Net cash used in investing activities (981,663)
------------
FINANCING ACTIVITIES:
Net borrowings on lines-of-credit 918,960
Repayment of notes to redeemed partners (359,746)
Repayments of capital lease obligations (812,566)
Issuance of preferred stock 437,868
------------
Net cash provided by financing activities 184,516
------------
NET DECREASE IN CASH (1,212,624)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,667,887
------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 455,264
============
Supplemental Disclosures:
Interest paid $ 405,154
============
Income taxes paid $ ---
============
See notes to condensed consolidated financial statements--unaudited.
6
<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
==========
7
<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 March 31, 1998, the
related condensed consolidated statements of operations for the three months
ended March 31, 1998 and 1997, and the nine months ended March 31, 1998 and the
condensed consolidated statements of cash flows for the nine months ended March
31, 1998 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 nine months ended March 31, 1998 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 MARCH 31, 1997 - For comparative
purposes, the results of operations for this period were prepared on a pro forma
basis which include adjustments for acquisitions acquired subsequent to March
31, 1997 as to reflect the acquisition as if the subsidiaries was owned by the
Company, included in the results of operations for the period ended March 31,
1998, had been acquired as of January 1, 1997. For comparative purposes
classifications may differ from amounts previously reported
SALE OF PREFERRED STOCK --- In July 1997, 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 into common stock 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. This
right has not been exercised to date.
3. SUBSEQUENT EVENTS
SALE OF PREFERRED STOCK - In April 1998, the Company sold 1,200 shares of 5%
Series B Convertible Preferred Stock in a private placement resulting in net
proceeds to the Company of $ 1,130,000. The stock is convertible into common
stock at $4.00 per share or at a 10% below the average of the two lowest closing
bid prices of the common stock during any 12 consecutive trading days ending one
trading day prior to such conversion date, which ever is lower. The transaction
was closed on April 27, 1998. The Company is obligated to file a registration
statement within 60 days of the closing date for the underlying common stock.
Subsequent to the financing and the unwinding of Trident Medical Concepts, Inc.,
the investor has contacted the Company and expressed a desire to re-negotiate
its investment in the Company
EXERCISE OF OPTIONS - In April 1998 under a non-cash option exercision
agreement, Bonnie Hilderbrand, Noel J. Guillama, President and CEO, and Donald
B. Cohen, Executive Vice President and CFO exercised options which resulted in
issuance of shares in the amount of 145,000, 159,666 and 30,000, respectively.
ACQUISITION OF TRIDENT MEDICAL CONCEPTS, INC. - On November 30, 1997,
Metropolitan Health Networks, Inc. (the "Registrant" or the "Company"), Metcare,
VI, Inc. ("Metcare"), a wholly-owned subsidiary of the Company (Subsidiary) and
Trident Medical Concepts, Inc. ("Trident") entered into a definitive merger
agreement which Merger Agreement was amended on January 13, 1998 and February
22, 1998 (collectively the "Merger Agreement") pursuant to which Trident was
merged into Metcare. Pursuant to the Merger Agreement, each share of common and
preferred stock of Trident issued and outstanding immediately preceding February
27, 1998, the Effective Date, were converted into the right to receive 1.15
shares of the Common Stock of the Company for an aggregate amount of 7,539,869
shares. The principals followed in determining the amount of shares issued to
the shareholders of Trident include the worth of the businesses considering
their historical, present and future business operations, and the market for the
Company's shares, including the depth and trading activity in the shares.
The Merger Agreement provided, among other things, that the Company shall have
the absolute right to cause the Merger to be unwound solely upon the occurrence
of the failure to obtain Trident's Lender's Consent to the Merger Agreement, as
amended, or to replace Lender by May 1, 1998. The Company was unable to obtain
the Lender's Consent or to replace the Lender in the time specified by the
merger agreement and therefore on May 8, 1998, elected to unwind the merger.
Noel J. Guillama simultaneously reassumed the position of Chairman of the Board
of Directors of the Company with the notice of the termination of the merger.
ASSET PURCHASE - On April 2, 1998, Metropolitan Health Networks, Inc. (the
"Registrant" or the "Company"), Metcare, VII, Inc. ("Metcare"), a wholly-owned
subsidiary of the Company (Subsidiary) Inc. and Primedica Healthcare, Inc.
(Primedica) entered into an asset purchase agreement pursuant to which Metcare
purchased substantially all of the assets and operations related to two
physician practices (the Practices) located in North Miami Beach, Florida owned
by Primedica. The aggregate purchased price was Three Million Five Hundred
Thousand Dollars ($3,500,000). The purchase price was allocated as follows:
i) Accounts Receivable $ 135,000
ii) Furniture and Fixtures 465,000
iii) Goodwill 2,900,000
Payment of the purchase price was made by delivery to the Primedica of an
unsecured promissory note of Three Million Five Hundred Thousand Dollars
($3,500,000). The note, together with interest computed at the rate of Seven and
one half percent (7.5%) per annum, requires fifty-nine (59) monthly principal
and interest payments of Twenty-eight thousand one hundred ninety-six dollars
($28,196) and a final payment due on April 2, 2003 of Three million sixty-nine
thousand seven hundred forty-eight dollars ($3,069,748).
The purchase provides both capitated and non-capitated medical services to
approximately 2,600 members of various managed care organizations. The capitated
services comprise approximately ninety percent (90%) of its revenues and one
managed care organization accounts for approximately eighty-five percent (85%)
of total revenues. The unaudited revenues for the Practices for the twelve
months ended December 31, 1997 equaled approximately $5,700,000 resulting in a
gross margin of approximately $230,000.
An additional agreement was signed, the Repurchase Election Agreement, whereby
Primedica may be required to repurchase the Practices at the end of five years
in exchange for extinguishing Metcare and Registrant's further obligations under
the Note, provided certain conditions are met, among the most significant of
which is the requirement that the Company be in compliance with the terms of the
Promissory Note. Additonally, Primedica may elect not to be liable to repurchase
the Practices if the net revenue derived from the purchased assets exceeds Six
million dollars ($6,000,000). The Company believes that this acquisition will
remain part of Metropolitan Health Networks, Inc., however the Company has been
advised that Trident Medical Concepts, Inc. may express a claim on the
acquisition
Item 2 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 March 31, 1998 compared to pro forma three months ended March
31, 1997:
Net revenue for the three months ending March 31, 1998, was $2,762,000, as
compared to $2,936,000 of revenue for the same period (pro forma) in 1997,
resulting in a difference of $174,000. Three operating entities materially
affected the revenue, the MRI Scan Center, Datascan of Florida, and the MetCare
Medical Centers.
MRI Scan Center had a reduction in operating revenue of $140,000. Revenue for
the quarter ending March 31, 1998 was $1,187,000, as compared with $1,327,000
for the same quarter 1997. Patient volume increased for the third quarter of
fiscal 1998 as compared with the third quarter 1997 (2,302 patients versus 2,
228 respectively). The revenue decline versus the patient volume increase, can
be directly attributed to the competitive marketplace and burgeoning HMO
industry in South Florida. These factors have driven the price per scan
downward, while the patient volume increase has come from the most competitive
of our areas, the Miami marketplace. Management believes the price per scan
pressure will continue, but an aggressive marketing program has proven (in the
Miami location) to be an effective tool in maintaining and even increasing
revenues.
Datascan of Florida had an increase in operating revenues of $132,000. $883,000
in revenues for the quarter ending March 31, 1998, as compared with $752,000 for
the same quarter 1997. Increased revenue can be attributed to an intensified
marketing effort, with the securing of three significant contracts.
The Company's primary care facilities, Metcare Medical Centers, experienced a
revenue reduction of $75,000, $90,000 for quarter ending March 31, 1998, as
compared to $165,000 for the same period 1997 (pro forma). The revenue decline
can be attributed to the temporary closing of one center and physician turnover
at another. In effect, these centers became start-ups and management intends to
close or sell two of the centers, since they require more resources and
dedication of management than that which is currently available. However, in the
two centers that will be retained, management believes that with some fine
tuning revenue should increase by year end.
Expenses for the quarter ending March 31, 1998, increased by $411,000 to
$3,504,000, as compared with $3,094,000 for the same quarter 1997. Factors that
contributed to this increase are directly linked to the Company's post I.P.O.
phase, that included building an infrastructure (i.e. Information System,
marketing efforts, additional insurance, etc.), additional middle to high level
personnel (including two new physicians), interest expense and professional fees
Operating losses for the quarter ending March 31, 1998, were $741,000 as
compared with losses of $157,000 for the same period 1997, a difference of
$584,000. During March 1998, management identified and instituted a cost
reduction program, that when fully realized, is expected to reduce costs
approximately $ 1.9 million, with a corresponding reduction of revenues by
approximately $600,000, however, no assurances can be made these expectations
will be met These reductions will not be fully realized until the end of the
fourth quarter of 1998, or early first quarter of 1999. Operations will be
consolidated to gain efficiencies. Other expenses for the quarter ending March
31, 1998, were $204,000 as compared to $83,000 for the same period 1997; a
difference of $121,000. Net losses for the quarter ending March 31, 1998, were
$945,000 as compared with $240,000 for the same period 1997 on a pro forma
basis; a difference of $705,000.
Liquidity and Capital Resources
As a result of the company's losses from operations of approximately $950,000
together with the costs associated with restructuring, the company may
experience liquidity and cash flow problems if they are not able to raise
additional 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 closed
on a line of credit for $1.5 million during the current quarter, of which
approximately $610,000 is outstanding at the end of the quarter. This line of
credit is secured by the accounts receivable of one of the Company's
subsidiaries and is guaranteed by the Company. Future draw downs are dependent
upon the amount of collateral available. Subsequent to March 31, 1998, the
Company sold 1,200 shares of its Series B Preferred Stock and realized
$1,130,000 from the sale. The Company is seeking to sell additional preferred
stock similar to the sale reflected in the first quarter of fiscal 1998.
Additionally, the Company has entered into preliminary negotiations to
re-finance its current existing debt including long-term leases to reduce
interest costs and provide additional borrowing capacity.
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.
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: May 20, 1998 /s/ Noel J. Guillama
--------------------
Noel J. Guillama
Chairman, President and
Chief Executive Officer
Date: May 20, 1998 /s/ Donald B. Cohen
-------------------
Donald B. Cohen
Executive Vice President,
Chief Financial Officer
12
<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
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 455,264
<SECURITIES> 70,329
<RECEIVABLES> 10,924,082
<ALLOWANCES> 5,617,428
<INVENTORY> 0
<CURRENT-ASSETS> 5,924,743
<PP&E> 5,421,848
<DEPRECIATION> 1,319,035
<TOTAL-ASSETS> 13,869,671
<CURRENT-LIABILITIES> 5,174,853
<BONDS> 0
0
500,000
<COMMON> 5,508
<OTHER-SE> 5,676,600
<TOTAL-LIABILITY-AND-EQUITY> 13,869,671
<SALES> 2,762,831
<TOTAL-REVENUES> 2,762,831
<CGS> 0
<TOTAL-COSTS> 3,504,120
<OTHER-EXPENSES> 67,147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,988
<INCOME-PRETAX> (945,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> (945,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (954,424)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
