UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November, 13, 1998
----- ----------------------------------
Common Stock, par value $0.001 6,825,724
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet-
September 30, 1998 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
September, 1998 and 1997 5-6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
SIGNATURES 13
2
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METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,
1998
ASSETS
CURRENT ASSETS:
Cash 155,707
Marketable Securities 46,138
Accounts receivable, net 4,900,249
Other current assets 182,501
------------
Total current assets 5,284,595
PROPERTY AND EQUIPMENT, net 4,270,368
INTANGILBLE ASSETS, net 4,234,958
DEFERRED ACQUISITION COSTS 174,688
OTHER ASSETS 327,336
------------
TOTAL $ 14,291,945
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 3,378,412
Line of credit facility 1,018,047
Current maturities of capital lease obligations 585,084
Current maturities of long-term debt 686,979
------------
Total current liabilities 5,668,522
LONG TERM DEBT 2,452,381
CAPITAL LEASE OBLIGATIONS 2,328,337
------------
Total liabilities 10,449,240
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.001 per share:
40,000,000 shares authorized;
6,447,497 shares issued and outstanding 6,447
Preferred Stock, par value $ .001 per share,
Stated value $100 per share 10,000,000 shares
authorized 5,000 issued and outstanding 500,000
Preferred Stock, par value $.001 per share,
Stated value $1,000 per share 7,000 shares
Authorized 1,200 issued and outstanding 1,200,000
Additional paid-in capital 10,685,054
Retained earnings (deficit) (8,548,796)
------------
Total stockholders' equity 3,842,705
------------
TOTAL $ 14,291,945
============
See notes to condensed consolidated financial statements--unaudited.
3
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METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
1998 1997
REVENUES:
Net patient revenues $ 3,987,429 $ 2,932,261
------------ ------------
EXPENSES:
Salaries and benefits 1,914,237 1,527,049
Depreciation and amortization 449,161 316,723
General and administrative 3,104,684 1,496,960
--------- ---------
Total Expenses 5,468,082 3,340,732
--------- ---------
LOSS FROM OPERATIONS (1,480,653) (408,471)
---------- --------
OTHER INCOME (EXPENSE):
Gain on sale of asset ---- ------
Interest expense (218,735) (115,907)
Other income 74,910 15,290
------ ------
Total Other Income (Expense) (143,825) (100,617)
-------- --------
NET INCOME (LOSS) $ (1,624,478) $ (509,088)
============ ============
NET LOSS PER COMMON SHARE $ 0.25 $ 0.09
====== ======
See notes to condensed consolidated financial statements--unaudited.
4
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METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three
Months Ended
September 30,
1998 1997
Increase (Decrease) in Cash and equivalents from:
OPERATING ACTIVITIES:
Net Loss $ (1,624,478) $ (509,088)
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization 449,161 316,723
Provision for bad debts 163,619 266,448
Stock issued in lieu of cash 234,742 37,500
Changes in assets and liabilities:
Accounts receivable, net 950,621 (471,940)
Trading Securities ------ 112,658
Other current assets 59,713 (67,147)
Other assets (24,007) (147,550)
Accounts payable and accrued expenses 266,075 201,501
------- -------
Net cash provided by/(used in) operating activities 475,446 (260,895)
------- --------
INVESTING ACTIVITIES:
Capital expenditures (139,634) (233,972)
Deferred acquisition costs (2,798) 7,584
Cash consideration paid for company acquired ------ (300,000)
Cash balance of company acquired ------ 44,188
------- ------
Net cash used in investing activities (142,432) (482,200)
-------- --------
FINANCING ACTIVITIES:
Repayments on lines-of-credit (657,878) (43,425)
Repayment of notes to redeemed partners ------ (442,500)
Repayment of capital lease obligations (435,893) (413,684)
Issuance of preferred stock ------ 442,500
--------- -------
Net cash used in financing activities (1,093,771) (457,109)
---------- --------
NET DECREASE IN CASH 760,757 1,200,204
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 916,464 1,667,887
------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $ 155,707 $ 467,683
========== ==========
Supplemental Disclosures:
Interest paid $ 184,472 $ 130,410
============ ==========
Income taxes paid $ --- $ ---
============ ==========
See notes to condensed consolidated financial statements - unaudited.
5
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METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
NON-CASH INVESTING AND FINANCING ACTIVITIES:
None.
6
<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 September 30, 1998, the
related condensed consolidated statements of operations for the three months
ended September 30, 1998 and 1997 and the condensed consolidated statements of
cash flows for the three months ended September 30, 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 three
months ended September 30, 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, 1998 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 SEPTMEBER 30, 1997 - For
comparative purposes, the results of operations for this period were prepared on
an actual as well as a pro forma basis as if the subsidiaries owned by the
Company included in the results of operations for the period ended September 30,
1998 had been acquired as of July 1,1997.
3. SUMMARY OF LEGAL PROCEEDINGS
Dr. Kagan a former Director of the Company and currently Medical Director
of the Company's MRI Scan Center, filed suit in Broward County, Florida for the
payment of principal and interest on a $200,000 note with interest owed by the
Company. The note was part of the acquisition of the MRI Scan Center as
described above. Dr. Kagan had agreed to extend the due date for the final
payment of $200,000 on the note, from April 1, 1998 to September 30, 1998. In
exchange the Company agreed to pay the default rate of 18% on the balance of the
note, and the Company would not object to the release of the underwriter's
lock-up of 100,000 of the Company's common shares owned by Dr. Kagan to be sold
through June 30, 1998. It was further agreed, that if the $200,000 was not paid
by September 30, 1998 the Company would not object to the release of an
additional 100,000 shares. The Company had made payments on the note through
July of 1998, when Dr. Kagan filed suit in Broward County, Florida for the
payment of principal and interest. The Company has not filed its' response to
the suit at this time, however, the Company's response will be filed within the
time allocated by the courts.
On October 14, 1998, Metropolitan Health Networks, Inc., filed suit in
Palm Beach County, Florida against a former director of the Company, Dr. Robert
Kagan. The suit alleges in part, "breach of fiduciary duty" and "common-law
duty" and "intentional interference with advantageous business relationships".
The Company is seeking monetary damages in excess of $1,000,000 and injunctive
relief. The Company's claim alleges, in part, that Dr. Kagan's significant
decrease in performance and function subsequent to Metropolitan's purchase of
Nuclear Magnetic Imaging, Inc. and Nuclear Imaging Systems, I. Ltd., by devoting
significant time to his outside medical legal business, interrupting the normal
function of MRI Scan Center, has materially damaged the Company. Dr. Kagan has
been notified of the Company's intention to terminate his employment agreement
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based upon its belief he has violated certain provisions in the agreement. The
Company will notify Dr. Kagan of his default and provide him the time to cure,
as required under the agreement. Dr. Kagan has been placed on administrative
leave pending the resolution of the above matters. During this period, the
Company will escrow all payments for services due Dr. Kagan. The outcome of the
above noted suit is not readily determinable. The Company could incur
substantial cost in litigating these issues with Dr. Kagan. Though none is
currently anticipated, there may be a reduction in income or cash collections
and/or an increase in expense from the Company's MRI operations. The Company
believes it has taken proper precautions and has made appropriate plans, however
no assurance can be given that these actions are sufficient or that other
unforeseen events could occur.
On April 2, 1998, Metropolitan and Primedica entered into an Asset
Purchase Agreement and an Additional Issues Agreement. Prior to entering into
the Agreements, Primedica made certain representations concerning the value of
certain assets, and Metropolitan entered into the Agreement and executed a
Promissory Note based on these representations. Subsequent investigations and
information obtained after closing revealed that the value of these assets was
substantially less than represented by Primedica. On December 10, 1998,
Metropolitan filed a Complaint for rescission of the foregoing instruments, and
damages for false and negligent misrepresentation and omissions. On December 30,
1998, Primedica filed a counterclaim, alleging Metropolitan breached the Asset
Purchase Agreement by failing to pay when due one or more of the assumed
obligations. The case is currently in discovery.
8
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW - The Company had operating revenues of $3,987000 for the quarter ended
September 30, 1998, as compared to revenues of $2,932,000 for quarter ended
September 30, 1997, a $1,055,000 increase. The Company's Loss from Continuing
Operations for the quarters ended September 1998 and 1997 were $1,480,000 and
$408,000 respectively. The increase in the losses was due to a non reoccurring
loss relating to the sale of one physician practice ($195,000), the operational
loss at an acquired physician practice, Skylake ($200,000), the reduction in
scan revenue ($282,000) and expenses related to a physician practice closed
during the end of the quarter ($65,000). The number of scans performed in the
quarter was significantly down from the prior year, however, with additional
marketing, the number of scans performed in October of 1998 has increased 27%
over the average for the quarter ended September 30, 1998. The loss at the
Skylake facility is primarily due to the medical costs incurred from the full
risk contract. These medical costs represent approximately 65% of the total cost
of operations. The medical costs represent approximately 78% of revenue in the
current year. The Company has instituted additional review procedures which the
Company believes will reduce these costs to approximately 55% of revenue.
Additional to the above reductions, the Company has reduced other expenses by
approximately $300,000 annually, by streamlining the operations. The Company is
continuously reviewing its operating expenses in order to reduce costs. In the
fourth quarter of fiscal 1998, the Company identified four physician practices
that were not profitable and would remain unprofitable in the near future.
Therefore, the Company elected to close or sell these practices.
No acquisitions were made during the first quarter of fiscal 1999. Subsequent to
the first quarter of fiscal 1998, the Company acquired a full risk primary care
physician practice (Skylake). For comparative purposes in this discussion,
reference is made to pro forma amounts, which are detailed below. The pro forma
data is prepared as if the above reference physician practice was acquired at
the beginning of the first quarter of fiscal 1998; July 1, 1997. All appropriate
adjustments to reflect the acquisition, including amortization of goodwill and
compensation adjustments have been reflected.
1998 1997
Revenues $3,987,000 $4,219,000
Salaries and Benefits 1,914,000 1,707,000
Depreciation and Amortization 449,000 354,000
Medical Expenses 1,171,000 726,000
General and Administrative 1,959,000 1,967,000
Loss from Continuing Operations 1,506,000 535,000
OPERATING REVENUES. The Company's operations are dependent upon the formation
and expansion of its network. For the quarter ended September 30, 1998,
approximately $1,760,000 or 44% of the Company's revenue was derived from its
diagnostic companies, compared to the quarter ended September 30, 1997 in which
$2,132,000 or 73% of total revenue was generated from diagnostics. Physician
practices contributed $2,227,000 or 56% in revenues for the quarter ended
September 30, 1998 and $656,000 or 19% for the quarter ended September 30, 1997.
The decrease in revenues derived from diagnostics was due to a $282,000 decrease
in revenues derived from the MRI Scan Center. The acquisition of the two full
risk medical centers from Primedica Healthcare, Inc. in April 1998, represents
the Company's first entrance into full risk contracts. Though full risk
contracts represent a greater exposure to the Company, management believes that
it currently has or will supplement the personnel and procedures to manage these
types of contracts. On a pro forma basis, the Company's overall revenues
decreased approximately $232,000, which was primarily due to the decrease in
revenues generated by the MRI Scan Center.
9
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Datascan, the Company's mobile ultrasound unit, had total revenues of
$724,000 for the quarter ended September 30, 1998, and $814,000 for 1997. This
decrease is due in part to a reduction in reimbursement per procedure and the
loss of direct diagnostic contracts. The MRI Scan Center had revenues of
$1,036,000 for the quarter ended September 30, 1998, as compared to $1,318,000
for the quarter ended September 30, 1997. This decrease of $282,000 is primarily
due to decrease in number of scans performed. In October 1998, the number of
scans performed has increased 27% over the average for the quarter ended
September 30, 1998. During the first quarter of fiscal 1999, the Company
combined the operations of its diagnostic companies, Datascan of Florida, Inc.
and the MRI Scan Center under a new division, METcare Diagnostic Services. This
will enable the Company to offer all of its diagnostic services within one
operation. This restructuring will eliminate duplications and unify and
strengthen the combined marketing efforts and are anticipated to reduce combined
operating expenses by $100,000-$150,000. During the first quarter of fiscal
1999, the Company hired an additional radiologist to assist in the expansion of
the marketing efforts.
The largest component of Physician Practices was Skylake, which
generated $1,597,000 in revenues during the quarter ended September 30, 1998. As
noted above, this practice was acquired in April 1998; therefore there is no
corresponding revenue figure 1997. On a pro forma basis, revenues for the
quarter ended September 1997 were $1,295,000, an increase of $302,000. The
Company has initiated a cost reduction and marketing plan for the Skylake
operation that has begun to materialize and when fully implemented are expected
to reflect reductions in the costs by the end of the second quarter of fiscal
1999. The Company has consolidated the two practices along with the transfer of
patients, medical personnel and equipment into one facility at Skylake, Florida
("Skylake"). The facility retained approximately 90% of the patient enrollment,
and management expects an increase in profits with the decrease in overhead.
GMA's revenues for the quarter ended September 30, 1998 were $490,000
as compared to the quarter ended September 30, 1997 revenues of $406,000. This
was primarily due to a increase in referrals. The Company is in the process of
expanding its medical services at this location with minimal additional costs.
The Company's ability to increase revenues and achieve profitability is
dependent in part upon its ability to expand its network, maintain reasonable
third party reimbursements, obtain favorable managed care contracts, and expand
billing and collection services for outside healthcare providers. Though the
Company believes it has a superior operating methodology, it currently lacks the
financial resources to execute it. There is no assurance, if or when, the
Company will achieve profitability. The Company's prospects, therefore, must be
evaluated in light of the risks and expenses normally encountered by a new
entrant into the health care industry.
OPERATING EXPENSES. The Company had operating expenses of $5,687,000
for the quarter ended September 30, 1998, as compared to expenses of $3,457,000
for the quarter ended September 30, 1997, a $2,230,000 increase. Of the expenses
from continuing operations incurred during the quarter ended September 30, 1998,
approximately $1,807,000 was due to the addition of the Skylake center. The
operating expenses consisted primarily of expenses incurred for payroll, payroll
taxes and benefits, depreciation and amortization, full risk insurance
contracts, interest, rent and other general and administrative expenses.
During the first quarter of fiscal 1999, the Company decided to sell
one of its individual physician practices. This clinic was operating at a loss
and it was projected that the Company could not turn around this operation in a
reasonable period of time. The sale or closure of this facility resulted in a
one-time write off of approximately $193,000.
10
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Payroll related expenses totaling $1,914,000 represented 35% of the
total operating expenses for quarter ended September 30, 1998. For the quarter
ended September 30, 1997, payroll related expenses accounted for $1,527,000 or
44% of the total. Approximately $326,000 of this increase was due to the
addition of the Skylake center. On a pro forma basis, payroll related expenses
totaling approximately $1,707,000 represented 36% of the total operating
expenses for the quarter ended September 30, 1997. Payroll and related expenses
increased from the preceding fiscal year due primarily to the increase in
corporate, and other support staff that occurred after September 1997.
Depreciation and amortization totaled approximately $449,000 or 8% of
the total operating expenses for the quarter ended September 30, 1998 and
$316,000 or 9% for the quarter ended September 30, 1997. This increase is due to
the combination of the acquisition of assets, with the acquisition of the
Skylake facility, and changing the amortization period from 30 years to 10 years
for goodwill. Pro forma depreciation and amortization totaled approximately
$354,000 or 7% of the total operating expenses for the quarter ended September
30, 1997. The increase in depreciation and amortization due to the effect of
changing from 30 years to 10 years for amortization of goodwill is approximately
$50,000.
The Skylake facility added $1,171,000 of full risk insurance contract expenses
during the quarter ended September 30, 1998. On a pro forma basis, the Company
incurred full risk insurance contract expenses of approximately $726,000 or 15%
of operating expenses for the quarter ended September 30, 1997. This variance in
costs is a result of an increase in direct medical expenses. The Company has
initiated expense review procedures to review costs and to ensure that all
expenses are appropriate. The Company believes that it can lower its costs per
member per month with the installation of these new procedures and quality
control.
Interest expense increased $103,000 to $219,000 or 4% of the total
operating expenses for the quarter ended September 30, 1998 from $116,000 or 3%
of the total for the first quarter ended September 30, 1997. This increase is
due to the acquisition of the Skylake practice. On a pro forma basis interest
expense totaling $198,000 representing 4% of the total operating expenses for
the quarter ended September 30, 1997. Approximately $150,000 of the 1998 total
is due to interest on capital leases. Interest on the note issued to purchase
the Skylake practice accounts for approximately $65,000 of the interest expense
amounts on a pro forma basis.
Rent expense amounted to $260,000 or 5% of the total operating expenses
for fiscal 1998 and $204,000 or 6% for 1997. This increase is due to the
addition of the Skylake practice. On a pro forma basis rent expense amounted to
$270,000 or 6% of the total operating expenses for the quarter ended September
30, 1997. MRI has three fixed-site locations plus one warehouse. Total rent
related to these leases amounted to approximately $80,000. All other entities
are single site. The rent expense for the corporate offices is approximately
$30,000 for the quarter ended September 30, 1998. There is sufficient capacity
at these locations for future growth.
Bad debt expense totaled $167,000 or 3% of the total operating expenses
for the quarter ended September 30, 1998 as compared to $267,000 or 8% for 1997.
Bad debt expense on a pro forma basis amounting to $267,000 represented 6% of
the total operating expenses for the quarter ended September 30, 1997. A
significant portion of the medical group's revenue is generated from personal
injury type claims. Due to the nature of this type of billing, collections can
require up to two years and is not tied to any reimbursement schedule.
Consequently, exact reimbursements cannot be defined at the time of service.
11
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LIQUIDITY AND CAPITAL RESOURCES
As a result of the Company's continuing losses from operations from
inception, which has included the costs associated with restructuring, closing
of operations, cost of severance and separation agreements, the Company has
experienced liquidity and cash flow problems and the Company received a going
concern qualification from its independent auditors on its audited financial
statements for the fiscal year ended June 30, 1998. If the Company is not able
to raise additional capital in the immediate future, this will pose a
significant threat to current operations and further hamper the Company's future
development and growth. There can be no assurance that the Company will be able
to raise sufficient capital.
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 optimally
reduce the number of days of sales in accounts receivable. To date, the Company
has been able to reduce the cost of billings and collections, however, actual
reductions in accounts receivable days has not been achieved due to a decrease
in procedures performed and a reduction in reimbursements percentages. This has
caused a reduction in the Company's ability to borrow against its current lines
of credit. The reduction in its current borrowing limits have decreased
approximately $600,000 due to the decrease in revenues and a change in the
eligible accounts receivable needed as collateral. The Company is in
negotiations with one of its current lenders to combine and restructure its
accounts receivable secured line of credit, which will expand the collateral
base to better conform to the personal injury nature of a significant portion of
the Company's accounts receivable. Based on current negotiations, the Company
anticipates, although there are no assurances, to net from borrowings,
approximately $500,000 to $700,000 with the inclusion of substantially all the
Company's accounts receivable and after repayment of its existing borrowings by
the middle of the second quarter of fiscal 1999. Additionally, the Company
assumed a line of credit with the acquisition of the MRI Scan Center that was
guaranteed by the former owner and 10% shareholder of the Company. A request to
withdraw a guarantee has been made to the lender and as a result the Company has
been notified that the lender will not advance any additional funds. The Company
is in negotiations with this lender and anticipates that a new agreement can be
reached or the Company will be able to refinance these accounts receivable with
one of its current lenders.
The Company has sold $1,200,000 of its Series B Convertible Preferred Stock in
the last quarter of fiscal 1998. The Company also raised $500,000 in July 1997
with sale of its Series A Preferred Stock, which was primarily used to payoff
certain notes assumed with the acquisition of Magnetic Resonance Imaging
subsidiary. The Company will attempt to secure additional capital through the
sale of equity securities.
IMPACT OF THE "YEAR 2000" COMPUTER ISSUE
The Company has completed the assessment phase of its Year 2000 project and
determined that it will be required to evaluate, test and modify (when needed)
approximately 50 internally and externally developed software programs and
approximately 100 pieces of equipment. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose material operational problems for its computer systems.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company. The Company has initiated formal communications with
its significant suppliers and large customers to determine the extent to which
the Company's interface systems are vulnerable to those third parties' failure
to remedy their own Year 2000 Issues and have received responses from a
12
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significant number of third party payers with confirmation that they are Year
2000 compliant. This inquiry process is estimated to be completed by the
beginning of the fourth quarter of fiscal 1999. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.
The Company will utilize both internal and external resources to reprogram
or replace and test software and medical equipment for Year 2000 modifications.
The Company anticipates that the various components of the Year 2000 project
procedures will continue throughout calendar 1999. The Year 2000 project is
currently estimated to have a minimum total cost of $150,000 related to the
review and modification of the Company's computer and software systems not
including the scheduled replacement of equipment or updates in software
previously anticipated in the normal course of business.
The Company expects to complete its review of medical equipment by the end
of March 1999. The majority of the costs related to the Year 2000 project will
be expensed as incurred and are expected to be funded through operating cash
flows. The Company has incurred minimal cost related to the assessment of, and
preliminary efforts on its Year 2000 project. The costs of the project and
estimated completion dates for the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes and all medical equipment.
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,
ability of the Company to obtain competent medical personnel, the cost of
services provided versus payment received for capitated and full risk managed
care contracts, negative effects of prospective healthcare reforms, the
Company's ability to obtain medical malpractice coverage and the cost associated
with malpractice, the availability of appropriate acquisition candidates, the
Company's ability to close once a letter of intent or contract has been
executed, the Company's ability to raise capital to close on such transactions,
access to borrowed or equity capital on favorable terms, the fluctuation of the
Company's common stock price, and other factors discussed elsewhere in this
report and in other documents filed by the Company with the Securities and
Exchange Commission from time to time, including but not limited to the
Company's SB-2, S-3, S-8 and 8-K fillings. 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.
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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 18, 1999 /s/ Noel J. Guillama
------------------------------
Noel J. Guillama
Chairman, President and
Chief Executive Officer
Date: February 18, 1999 /s/ Donald B. Cohen
------------------------------
Donald B. Cohen
Executive Vice President,
Chief Financial Officer
