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 September 30,1999
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.)
500 Australian Avenue, West Palm Beach, Fl. 33401
(Address of principal executive office) (Zip Code)
(561) 805-8500
(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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of June 30, 2000
----- -------------------------------
<S> <C>
Common Stock, par value $.001 17,964,020
Preferred Stock Series A, par value $.001 500,000
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METROPOLITAN HEALTH NETWORKS, INC.
INDEX
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<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet-
September 30, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
September 30, 1999 and 1998 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
September, 1999 5-6
Notes to Condensed Consolidated
Financial Statements-Accounting Policies 7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-9
PART II. OTHER INFORMATION
Summary of Legal Proceedings 10
Changes in Securities and Use of Proceeds 10
Default Upon Senior Securities 10
Submission of Matters to a Vote of Security 10
Holders
Other Information
Recent Developments 11-12
Forward-Looking Statements and
Associated Risks 12
SIGNATURES 13
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2
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<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30,1999
-----------------
<S> <C>
ASSETS
------
CURRENT ASSETS:
Accounts receivable, net $ 3,324,706
Other current assets 232,283
------------
Total current assets 3,556,989
PROPERTY AND EQUIPMENT, net 4,043,697
INTANGIBLE ASSETS, net 4,540,903
------------
TOTAL $ 12,141,589
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,061,643
Line of credit facility 1,743,775
Current maturities of capital lease obligations 828,150
Current maturities of long-term debt 7,425,210
------------
Total current liabilities 14,058,778
LONG TERM DEBT 522,902
CAPITAL LEASE OBLIGATIONS 1,971,494
COMMITMENTS AND CONTINGENCIES
------------
Total liabilities 16,553,174
STOCKHOLDERS' EQUITY:
Common stock, par value $.001 per share:
40,000,000 shares authorized
9,694,688 shares issued and outstanding 9,696
Preferred stock, par value of $.001 per share, Stated value $100 per share;
10,000 shares authorized, 5,000 issued and outstanding 500,000
Preferred stock, par value of $.001 per share, Stated value $1,000 per share;
7,000 shares authorized, 500 issued and outstanding 500,000
Additional paid-in capital 2,870,576
Retained deficit (18,291,857)
------------
Total stockholder's equity (4,411,585)
------------
TOTAL $ 12,141,589
============
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3
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<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES $ 4,976,534 3,987,429
----------- -----------
EXPENSES:
Medical expenses 2,948,861 2,762,985
Salaries and benefits 1,670,308 1,914,237
Depreciation and amortization 459,163 449,161
General and administrative 736,464 341,699
----------- -----------
Total expenses 5,814,796 5,468,082
----------- -----------
LOSS FROM OPERATIONS (838,262) (1,480,653)
OTHER INCOME (EXPENSE):
Interest expense (161,958) (218,735)
Other income -- 74,910
----------- -----------
Total other income (expense) (161,958) (143,825)
----------- -----------
NET LOSS $(1,000,220) $(1,624,478)
=========== ===========
9,694,688 6,497,912
NET LOSS PER SHARE ( $0.10) ( $0.25 )
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4
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<TABLE>
<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and equivalents from:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,000,220) $(1,624,478)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 459,163 449,161
Provision for bad debts 27,209 163,619
Stock issued in lieu of cash 45,408 234,742
Changes in operating assets and liabilities:
Accounts receivable, net 107,330 950,621
Other current assets (135,934) 59,713
Other assets 47,893 (24,007)
Accounts payable and accrued expenses (791,724) 266,075
------------ -----------
Net cash provided by/(used in) operating activities (1,240,875) 475,446
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,503) (139,634)
Deferred acquisition costs -- (2,798)
------------ -----------
Net cash used in investing activities (2,503) (142,432)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on lines-of-credit 1,611,544 (657,878)
Borrowings on notes payable 277,871 --
Repayment of notes payable (360,881) --
Repayment of capital lease obligations (329,181) (435,893)
Net proceeds from issuance of common stock 44,025 --
------------ -----------
Net cash used in financing activities 1,243,378 (1,093,771)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS -- (760,757)
CASH AND CASH EQUIVALENTS - BEGINNING -- 916,464
------------ -----------
CASH AND CASH EQUIVALENTS - ENDING $ -- $ 155,707
============ ===========
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5
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<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS, CONTINUED
(Unaudited)
For the Three Months Ended
September 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Supplemental Disclosures:
Interest paid $ 71,000 $184,000
======== ========
Income taxes paid $ -- $ --
======== ========
Supplemental Disclosure of Non-cash Investing and Financing Activities:
======== ========
Purchase price in excess of net assets acquired $700,000 $ --
======== ========
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6
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METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
ITEM 1. ACCOUNTING POLICIES
The condensed consolidated financial statements include Metropolitan Health
Networks, Inc. and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
The accompanying condensed consolidated balance sheet of Metropolitan Health
Networks, Inc. ("Metcare" or the "Company") as of September 30, 1999, the
related condensed consolidated statements of operations for the three months
ended September 30, 1999 and 1998 and the condensed consolidated statements of
cash flows for the three months ended September 30, 1999 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, 1999 are not necessarily indicative of the results
that 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, 1999 included in the Company's form 10-KSB filed
with the Securities and Exchange Commission.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
--------
Metropolitan Health Networks, Inc. (the "Company" or "Metcare") was
incorporated in the State of Florida in January 1996 to develop a vertically and
horizontally integrated health care delivery network (the "Network"). The
Network initially was intended to provide primary and subspecialty physician
care and diagnostic and therapeutic services. Metcare pursued this business plan
into 1999 through the acquisition, expansion and integration of physician care
practices (the "Physician Practices") and diagnostic and rehabilitation centers
("Ancillary Services") in Dade, Broward and Palm Beach County, Florida.
Responding to changes in the health care industry, in mid-1999 the
Company modified its business strategy and determined to become a Management
Services Organization ("MSO") which, instead of owning and managing Physician
Practices and Ancillary Services, would manage the total care of patients
through "Full Risk" managed care contracts. As a result, the Company undertook
to divest of or unwind several of its acquisitions.
As a result of poor performance recognized over the Company's history,
several senior management and staff changes occurred in connection with the
redirection of the Company. Fred Sternberg, Metcare's CEO, was recruited in
January 2000, joining the Company's new CFO, David Gartner CPA and Debbie
Finnel, the Company's COO, both hired in 1999. Total employee count was reduced
by 98, or 58% during this time, the result of a restructuring implemented by the
Company's new management.
The Company failed to file the Form 10-Q's for the quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000 on a timely basis. As a
result the Company will be delisted from the bulletin board if it does not
become current by August 24, 2000. However, management believes it will file the
required reports within the time allotted to maintain its listing on the OTCBB.
Results for the Period
----------------------
The Company had revenues of $4,976,534 for the quarter ended September 30, 1999,
compared to $3,987,429 for the quarter ended September 30, 1998, an increase of
24.8%. The Company's loss from continuing operations for the quarter ended
September 1999 decreased to $838,262 from $1,480,000 in the prior year period.
This improvement is primarily due to increased MSO revenues for the quarter of
$989,105 and to the Company's efforts to reduce costs. While the Company's Net
Loss for the quarter exceeded $1,000,000, over $450,000 was attributable to
non-cash items such as depreciation and amortization, and $350,000 was
attributable to professional fees incurred as a result of the restructuring.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
first quarter of fiscal 2000 amounted to a negative $379,099 compared to a
negative $956,582 in fiscal 1999.
Revenue
-------
The increase of $989,105 for the quarter is attributable to increased MSO
revenues. For the quarter ended September 30, 1999 MSO revenue represented
$3,361,361 or 67.5% of total revenue compared to $1,597,000 or 40% of total
revenue for the quarter ended September 30, 1998. Revenues from physician
practices and ancillary services declined in the current quarter the direct
result of management's shift in strategy to become an MSO.
8
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Medical Expenses
----------------
For the September 30, 1999 quarter, medical expenses were $2,948,861 compared to
$2,762,985 for the quarter ended September 30, 1998. Medical expenses are costs
incurred for patient care under HMO contracts and Company medical centers, and
include costs for primary care physicians and specialists, hospitals, and
ancillary services. Medical expenses as a percentage of revenues in 1999 and
1998 were 59.3% and 69.3%, respectively. The 10% decrease reflects higher
margins being achieved through MSO operations versus operating physician
practices and diagnostic services.
Salaries and Benefits
---------------------
Salaries and benefits decreased by approximately 14.6% for the quarter ended
September 30, 1999 when compared to 1998's. These expenses represent 30.3% of
revenue compared to 48% in 1998. The decrease is primarily due to the reduction
of certain management salaries for the Company-owned MRI and Datascan
operations. (See Legal Proceedings: MRI and Datascan).
Depreciation & Amortization
---------------------------
Depreciation and amortization totaled $459,163 or 9.2% of revenues for the
quarter ended September 30, 1999, compared to $449,161, or 11.3% or revenues,
for the quarter ended September 30, 1998. The increase results principally from
new asset additions.
General and Administrative
--------------------------
General and administrative expenses amounted to $736,464 or 14.8% of revenues
for the quarter ended September 30, 1999 compared to $341,699 or 8.6% of
revenues for the quarter ended September 30, 1998. The increase of $394,765 was
primarily due to legal and accounting fees incurred in connection with the
restructuring and nonrecurring legal matters.
Liquidity and Capital Resources
-------------------------------
As a result of the Company's continuing losses from operations,
including the costs associated with restructuring, cost of severance and
separation agreements, the Company has experienced liquidity and cash flow
problems. Subsequent to September 30, 1999 the Company raised approximately
$1,400,000 to fund its operations. Additional funding remains necessary for the
Company to fully implement its business plan. Management is reviewing various
funding opportunities including additional or expanded credit facilities, debt
and equity infusions, and strategic alliances. No assurances can be given that
the Company will be successful in securing additional capital.
9
<PAGE>
PART II OTHER INFORMATION
ITEM 1. SUMMARY OF LEGAL PROCEEDINGS
MRI Scan Center, Inc. and Dr. Kagan
-----------------------------------
As of December 15, 1999 the Company entered into a Global Settlement
Agreement and First Amendment Addendum to the Global Settlement Agreement
(Agreements) dated January 17, 2000 with the above parties. The Agreements
provide for a negotiated settlement of any and all disputes and differences,
cancellation of any and all existing agreements, promissory notes, employment
agreements, lease and contracts, including but not limited to the Acquisition
Documents of August 20, 1996. As part of the agreement, all parties have
exchanged general releases in favor of each other, including but not limited to
all Officers, Directors, Employees, Agents and Consultants.
Primedica Healthcare, Inc.
--------------------------
The Company entered into litigation with regard to the Primedica
acquisition agreement. This litigation was settled in December 1999 whereby the
parties entered into a settlement agreement that reduced the total outstanding
debt to $1,512,235 from $4,745,364. The settlement agreement provided for
payments of $25,000 per week. A change in anticipated payments under our full
risk contract caused the Company to default on the agreement. As a result of
this change, the Company and Primedica then entered into a forbearance
agreement, which increased the amount of the debt to $2,000,000 while
maintaining the weekly payments of $25,000. As of August 4, 2000 the Company has
entered into a new agreement in which Primedica acknowledged the payments of
$700,000 and it continued the weekly payments of $25,000 for 32 weeks and a
balloon payment of $500,000 equaling a total of $2,000,000 in March 2001. If the
Company is not able to meet this obligation, the Company may continue payments
through December 2001 with a balloon payment, bringing the total to $2,500,000.
In the event of a default by the Company in the required payments to Primedica,
the Company shall be obligated to pay the full amount of $4,745,364.
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3: DEFAULT UPON SENIOR SECURITIES
NONE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
10
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ITEM 5: OTHER INFORMATION
Recent Developments
-------------------
Subsequent to September 30, 1999, the Company secured new HMO
contracts, acquired and sold certain Physician Practices and Ancillary Services,
and entered into various strategic alliances to facilitate its business plan.
Metcare has entered into a number of strategic alliances with
businesses aimed at bringing Internet-based technologies and solutions to
healthcare. The Company believes that implementing these advanced concepts,
products and services is bringing dramatic improvements and efficiencies to all
aspects of the patient care, provider and payer relationship, and is a key to
Metcare and its Network's success in the future. In addition, these new
technologies and businesses will generate significant cost savings and
incremental revenues for the Network and the Company.
New HMO Contracts
-----------------
o Daytona Beach Market (Volusia and Flagler Counties)
---------------------------------------------------
As of January 1, 2000, MetCare's MSO implemented a contract with Humana. Current
enrollment includes approximately 23,000 Medicare and over 7,000 commercial
patients in a market with approximately 106,000 verified and eligible Medicare
lives. As of the date of this filing, the Company has fully implemented this
contract and estimates its annualized revenues to be in excess of $100,000,000.
o Treasure Coast Market (St. Lucie, Martin and Okeechobee Counties)
-----------------------------------------------------------------
Metcare' MSO entered into a new contract with a major managed care organization
to offer an alternative HMO product to an estimated 82,000 underserved Medicare
patients. Implementation of the contract, which is subject to the usual State
and federal approvals, is expected to begin in late 2000. Once fully
implemented, this contract is estimated to provide an additional $100,000,000 in
annualized revenues.
Adjudication & Payment of Claims
--------------------------------
The Company entered into a strategic alliance with Triad2000/MD2000, to create a
paperless software system for healthcare practitioners. The software will manage
real-time referrals, appointment scheduling, claims review, pharmacy management
and utilization management. The Company expects to implement the paperless
software system in its Daytona Beach market (Volusia and Flagler counties) for
32,000 patients beginning in August 2000.
On-Line Pharmacy
----------------
The Company is currently reviewing several opportunities with substantial
pharmacy companies that will provide mail order pharmacy and pharmacy management
to its Network and patients. The Company believes that it will finalize a
relationship and begin implementation before the end of 2000. While providing
this service to our patients, management believes this relationship will provide
better management control of the spiraling costs relating to prescriptions that
in turn will result in significant cost savings to the Company.
Internet Practice Management, Billing & Collections
---------------------------------------------------
The Company is currently negotiating with several Internet software billing and
collection companies to provide physicians with online solutions to manage their
medical practices in areas such as patient scheduling, claims processing,
provider directory management, ordering of diagnostic imaging and laboratory
tests. These systems, as well, provide for patient interaction in a secure
Internet environment.
11
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Telemedicine
------------
The Company has entered into the telemedicine field with CYBeR-CARE, Inc. to
utilize CYBeR-CARE's telemedicine units. The system is a patented Internet-based
technology system that provides remote monitoring of individuals for healthcare
purposes such as blood pressure, pulse, heart rate and other vital signs.
Implementation of these systems began in July 2000. Management believes that
these systems will provide more efficient interaction with patients, while
reducing hospital and emergency room visits, resulting in significant savings to
the Company.
Purchasing E-Commerce Provider
------------------------------
The Company entered into an alliance to provide its physicians the online
capability to purchase medical supplies and equipment. MetCare now offers its
Network a more complete and efficient purchasing solution to streamline their
office management processes.
Acquisition of Dr. Sreekumar's Practice
---------------------------------------
Metcare entered into an Asset Purchase Agreement for Dr. Sreekumar's practice in
Royal Palm Beach, Palm Beach County as of August 31, 1999. Dr. Sreekumar was a
Humana provider and provides the Company with in excess of 800 Medicare
patients. The integration of his practice into the Company's MSO Network
expanded services into Palm Beach County area. The acquisition price was
$500,000 with a cash payment of $100,000 at closing and two subsequent payments
of $50,000 and a note in the amount of $300,000 due May 31, 2000 in cash or in
stock. The parties are currently negotiating the terms of the note's repayment.
Dr. Sreekumar's `s agreement also provided for bonus of 20% of the net profits
in excess of $500,000 in 1999 and 2000. The bonus levels were not obtained in
either year.
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 acquisitions,
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.
12
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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: August 17, 2000 /s/ Fred Sternberg
------------------
Fred Sternberg
Chairman, President and
Chief Executive Officer
Date: August 17, 2000 /s/ David S. Gartner,
---------------------
David S. Gartner
Chief Financial Officer
13
