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, 2000
[ ] 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> <C>
Common Stock par value $.001 17,964,020
Preferred Stock Series A, par value $.001 500,000
</TABLE>
<PAGE>
Metropolitan Health Networks, Inc.
Index
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
March 31, 2000 2
Condensed Consolidated Statements of
Operations for the Three and Nine Months
Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 2000 and 1999 4
Notes to Condensed Consolidated
Financial Statements-Accounting Policies 5-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 9-10
PART II. OTHER INFORMATION
Summary of Legal Proceedings 11
Changes in Securities and Use of Proceeds 11
Default Upon Senior Securities 11
Submission of Matters to a Vote of Security
Holders 11
Recent Developments 11-12
Forward Looking Statements and
Associated Risks 12
SIGNATURES 13
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
--------------------------------------------------------------------------------- ------------------------ ------------------------
<S> <C>
CURRENT ASSETS
Accounts receivable, net $ 2,733,057
Other current assets 758,962
--------------------------------------------------------------------------------- ------------------------ ------------------------
Total current assets 3,492,019
PROPERTY AND EQUIPMENT, net 1,238,417
INTANGIBLE ASSETS, net 2,429,041
OTHER ASSETS 231,008
--------------------------------------------------------------------------------- ------------------------ ------------------------
TOTAL ASSETS $ 7,390,485
--------------------------------------------------------------------------------- ------------------------ ------------------------
LIABILITIES AND DEFICIENCY IN ASSETS
--------------------------------------------------------------------------------- ------------------------ ------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,458,155
Due to related parties 875,000
Other liabilities 1,443,145
Line of credit facilities 1,308,076
Current maturities of capital lease obligations 267,836
Current maturities of long-term debt 6,564,481
--------------------------------------------------------------------------------- ------------------------ ------------------------
Total current liabilities 14,916,693
--------------------------------------------------------------------------------- ------------------------ ------------------------
CAPITAL LEASE OBLIGATIONS 95,934
--------------------------------------------------------------------------------- ------------------------ ------------------------
LONG-TERM DEBT 397,878
--------------------------------------------------------------------------------- ------------------------ ------------------------
CONTINGENCIES (NOTE 7) -
DEFICIENCY IN ASSETS
Common stock, par value $.001 per share; 40,000,000 shares authorized;
13,864,422 issued and outstanding 13,864
Preferred stock, par value $.001 per share; stated value $100 per share;
10,000,000 authorized, 5,000 issued and outstanding 500,000
Additional paid in capital 14,497,164
Accumulated deficit ( 23,031,048)
--------------------------------------------------------------------------------- ------------------------ ------------------------
Total deficiency in assets ( 8,020,020)
--------------------------------------------------------------------------------- ------------------------ ------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 7,390,485
--------------------------------------------------------------------------------- ------------------------ ------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
-----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
-------------------------------------- ------------------------------------
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
REVENUES $ 39,630,227 $ 12,827,640 $ 29,876,556 $ 4,450,537
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
EXPENSES
Medical expenses 34,484,663 3,448,730 28,028,986 982,502
Salaries and benefits 4,218,216 5,339,212 920,676 1,836,004
Depreciation & amortization 1,103,336 1,465,649 185,009 553,715
General and administrative 1,948,997 5,399,329 520,287 1,688,702
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
Total selling, general and administrative expenses 41,755,212 15,652,920 29,654,958 5,060,923
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE) ( 2,124,985) ( 2,825,280) 221,598 ( 610,386)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
OTHER INCOME (EXPENSE):
Loss on disposal of assets ( 3,228,213) ( 9,158) - -
Interest expense ( 380,027) ( 514,828) ( 68,569) ( 98,015)
Other income (expense) 800 ( 192,338) 800 ( 112,692)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
Total other income (expense) ( 3,607,440) ( 716,324) ( 67,769) ( 210,707)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
NET INCOME (LOSS) ($ 5,732,425) ($ 3,541,604) $ 153,829 ($ 821,093)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
Weighted Average Number of Common Shares
Outstanding 11,362,114 6,728,618 12,621,246 7,186,899
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
Net earnings (loss) per share - basic ($ 0.50) ($ 0.53) $ 0.01 ($ 0.11)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
Net earnings (loss) per share - diluted ($ 0.50) ($ 0.53) $ 0.01 ($ 0.11)
-------------------------------------------------------- ------------------ ------------------- ------------------ ----------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
----------------------------------------------------------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $ 5,732,425) ( $ 3,541,604)
----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,103,336 1,465,649
Loss on disposal of assets 3,228,213 -
Provision for bad debts 54,418 738,785
Stock options issued in lieu of cash 161,305 -
Stock issued in lieu of cash 307,454 -
Changes in assets and liabilities:
Accounts receivable 671,770 749,013
Trading securities - ( 204)
Other current assets ( 604,613) ( 99,869)
Other assets ( 183,115) ( 109,766)
Accounts payable and accrued expenses ( 858,394) 1,966,768
Due to related parties 875,000 -
----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 4,755,374 4,710,376
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities ( 977,051) 1,168,772
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquired companies ( 100,000) -
Capital expenditures ( 160,777) ( 776,769)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ( 260,777) ( 776,769)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit 1,175,845 ( 639,032)
Net borrowings on notes payable 147,381 -
Net repayments on capital lease obligations ( 829,843) ( 438,410)
Dividends on preferred stock ( 6,986) -
Net proceeds from issuance of common stock 751,431 ( 177,920)
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,237,828 ( 1,255,362)
----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS - ( 863,359)
CASH AND EQUIVALENTS - BEGINNING - 916,464
----------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ - $ 53,105
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
--------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation have been included and such adjustments are of a
normal recurring nature. Operating results for the three and
nine months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year
ending June 30, 2000.
The audited financial statements at June 30, 1999 which are
included in the Company's Annual Report on Form 10-KSB should
be read in conjunction with these condensed financial
statements.
--------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Use of Estimates
----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Net Income (Loss) Per Share
---------------------------
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128) which
requires dual presentation of net income per share; Basic and
Diluted. Basic earnings (loss) per share is computed using the
weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed using the
weighted average number of common shares outstanding during
the period adjusted for incremental shares attributed to
outstanding options to purchase shares of common stock.
Outstanding stock equivalents were not considered in the
calculation for periods in which the Company sustained a loss
as their effect would have been anti-dilutive.
--------------------------------------------------------------------------------
NOTE 3. LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
The Company has sustained substantial operating losses and
negative cash flows from operations since inception. In
addition the Company has had difficulty in meeting its current
and long-term obligations. In the absence of achieving
consistent profitable operations and positive cash flows from
operations or obtaining additional debt or equity financing,
the Company may have difficulty meeting current and long-term
obligations.
In view of these matters, realization of a portion of the
assets in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financial
obligations. Management believes that actions presently being
taken provide the opportunity for the Company to continue as a
going concern.
Subsequent To December 31, 1999, the Company has raised
approximately $3,140,000 in equity and debt to fund its
operations.
5
<PAGE>
In addition, as of August 18, 2000 the Company is not in
compliance with Securities and Exchange Commission and NASD
reporting requirements with respect to annual, quarterly and
certain disclosure related filing requirements. In this
regard, should the Company remain deficient in its filing
requirements, it may lose its eligibility for quotation and be
subject to removal from the OTCBB. However, management
believes that with the filing of its March 10-QSB, the company
will have filed all required quarterly and annual reports.
--------------------------------------------------------------------------------
NOTE 4. ACQUISITIONS AND DISPOSALS
--------------------------------------------------------------------------------
Acquisitions
Purchase of Sreekumar
---------------------
Effective August 12, 1999, the Company acquired the medical
practice of Dr. P. Sreekumar. The purchase price consisted of
assumed liabilities of approximately $300,000, cash of
$200,000 and the issuance of a note payable in the amount of
$300,000. The acquisition was accounted for as a purchase, and
accordingly, the purchase price was allocated to the net
assets acquired based on their estimated fair market values.
The results of operations beginning August 13, 1999 are
included in the Company's statement of operations. As a result
of this acquisition approximately $700,000 was recorded as
goodwill.
Purchase of Federgreen
----------------------
Pursuant to an asset purchase agreement effective December 30,
1999, the Company acquired certain assets of the Medical
practice of Dr. Federgreen. The purchase price consisted of a
$120,000 note payable. The acquisition was accounted for as a
purchase and accordingly, the purchase price was allocated to
the net assets acquired based on their estimated fair market
values. The results of operations beginning December 31, 1999
are included in the Company's statement of operations. As a
result of this acquisition approximately $120,000 was recorded
as goodwill.
In addition to the purchase consideration, the Company is
potentially liable for additional consideration based on the
amount of adjusted pre-tax earnings for the first year of
operations, on a scalable basis up to $60,000 if earnings are
$225,000 or above.
Disposals
Sale of MIS
-----------
Effective December 18, 1999, MIS was sold to its former owner
in exchange for the settlement of all outstanding litigation,
the discharge of a note payable of approximately $185,000 and
other amounts due to the former owner and the assumption by
the former owner of certain liabilities of MIS. In connection
with this disposal, the Company recognized a loss of
approximately $968,000.
Sale of Datascan
----------------
Effective December 31, 1999, Datascan was sold to its former
owner in exchange for the settlement of all outstanding
litigation and termination of all Executive Employment
Agreements and all stock options held by the former owner. The
Buyer also assumed certain third party obligations of the
Company. In connection with this disposal, the Company
recognized a loss of approximately $2,107,000
6
<PAGE>
--------------------------------------------------------------------------------
NOTE 5. DEFICIENCY IN ASSETS
--------------------------------------------------------------------------------
On January 7, 2000, the Company reduced the exercise price on
240,000 warrants, issued in connection with the issuance of
series B preferred stock, from $7.00 to $0.70 in exchange for
the elimination of a cashless exercise provision.
On March 31, 2000, the Company extended the expiration of
867,000 warrants from February 28, 2000 to September 30, 2000.
During October 1999, 500 shares of series B preferred stock
were converted into 2,300,000 shares of the Company's common
stock. As a result at March 31, 2000, there were no shares of
series B preferred stock issued and outstanding.
--------------------------------------------------------------------------------
NOTE 6. STOCK OPTIONS
--------------------------------------------------------------------------------
The Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") in
1997. The Company has elected to continue using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" in accounting for employee stock options.
Accordingly, compensation expense has been recorded to the
extent the market value of the underlying stock exceeded the
exercise price at the date of grant. For the nine months ended
March 31, 2000 compensation costs related to stock options
amounted to approximately $161,000.
--------------------------------------------------------------------------------
NOTE 7. CONTINGENCIES
--------------------------------------------------------------------------------
In connection with the acquisition of two physician practices
(the Practices) on April 1, 1998 from Primedica Healthcare,
Inc. (Primedica) the Company entered into a 7.5% note payable
of $3,500,000, to be amortized over 20 years, with a balloon
payment due on April 1, 2003 (the Promissory Note). The
Company discounted this Promissory Note $1,068,877 based upon
the Company's incremental borrowing rate at April 1, 1998
(16%). During 1999, the Company defaulted on the Promissory
Note and a judgment was entered against the Company for
$4,745,364. Accordingly, as of June 30, 1999 the Promissory
Note has been increased to $4,745,364, and a loss of
$2,206,448 has been recorded. Subsequently, the Company and
Primedica reached a settlement whereby the Company agreed to
pay Primedica $1,513,235, subject to a provision stating that
if timely payments were not received by Primedica, the Company
would be liable for $4,745,364. On October 26, 1999 the
Company was notified by Primedica that it was in default of
this settlement agreement. As of August 4, 2000, the Company
entered into a new agreement requiring weekly payments of
$25,000 aggregating $2,000,000 by March 2001. Alternatively,
if the Company is unable to meet this payment schedule, it may
continue making payments through December 2001 aggregating
$2,500,000. In the event this payment schedule is not met, the
Company shall be obligated to pay the full $4,745,364.
At March 31, 2000, the Company had recorded accrued payroll
taxes of approximately $1,230,000, which is included in
accrued expenses in the accompanying balance sheet. The
Company is currently negotiating a payment plan to repay this
amount.
7
<PAGE>
--------------------------------------------------------------------------------
NOTE 8. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Deficiency in Assets
--------------------
Subsequent to March 31, 2000, the Company granted 440,000
options under consulting and employee compensation agreements
with exercise prices from $0.75 to $6.50 which expire from
June 2005 through July 2008.
Alpha Clinic Agreement
----------------------
During October 1999, the Company entered into a management
agreement with Alpha Clinical Laboratory (Alpha) to act as
Alpha's management company for a fee of 10% of Alpha's
collections. Concurrently, the Company entered into an
unconditional and irrevocable option to purchase or designate
a third party to purchase at any time prior to October 31,
2000 all of the outstanding common stock of Alpha. The
designated purchase price shall be three times the pre-tax
profit for the twelve-month period preceding the measurement
date, and shall be payable with the Company's common stock.
Subsequent to October 1999, the Company began advancing Alpha
funds to support its operations for a total of approximately
$813,000 as of August 18, 2000. On May 12, 2000 part of these
advances were converted into a promissory note in the amount
of $512,000. The promissory note is payable upon demand, bears
interest at 18% per annum, and is collateralized by
substantially all of the assets of Alpha.
8
<PAGE>
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, it 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.
The start of the new millennium marked a new beginning for Metcare. The Company
has transformed itself into a Managed Service Organization ("MSO") from a
Practice Management Company ("PPM"). Management resolved a number of problems in
late 1999 and began focusing on growing the Company and becoming profitable.
Presently, substantially all of the Company's revenues are generated from its
MSO operations.
For the first quarter of this year revenues were $29,876,556 compared to
$4,450,537 for the comparable quarter in 1999, an increase of 571%. For the
first time in the Company's history, income from continuing operations was
positive, totaling $221,598 for the quarter ended March 31, 2000 compared to a
loss for the three months ended March 31, 1999 of $610,386.
The turnaround is the result of a number of decisions and actions leading up to
the current quarter:
o The Company's new President and CEO, Fred Sternberg, along with the
management team of Debbie Finnel, COO and David S. Gartner, CFO,
implemented its strategy to become an MSO serving the needs of patients
in South and Central Florida.
o Metcare restructured its Board of Directors with proven and credible
members. The new board now consists of independent directors with
diverse backgrounds including members experienced in the medical
industry.
o The Company has closed all diagnostic service operations that were
losing money and draining the Company's cash flow. Furthermore, Metcare
set out to consolidate physician offices, reducing overhead while
maximizing management's ability to increase revenues.
o The Company has settled all material litigation which was not only
costly, but a distraction to management in its efforts to move forward
with MSO operations.
o Management moved decisively to enhance its MSO operations and form new
strategic alliances for the future.(See Recent Developments).
9
<PAGE>
Results of Operations
---------------------
The Company had revenues of $29,876,556 for the quarter ended March 31, 2000
compared to $4,450,537 for the quarter ended March 31, 2000, an increase of
$25,426,019. For the nine months ended March 31, 2000 revenues were $39,630,227
compared to $12,827,640 for the same period in fiscal 1999, an increase of
$26,802,587. The Company produced a profit from continuing operations of
$221,598 for the current quarter ended March 31, 2000, compared to a loss of
$610,386 for the quarter ended March 31, 1999, a turnaround of $831,984.
Earnings before interest, taxes, depreciation and amortization (EBITDA), for the
current quarter ended March 31, 2000 was a positive $407,407 compared to a
negative EBITDA for the prior year's third quarter of $169,363.
Revenue
-------
MSO revenue for the quarter ended March 31, 2000 was $28,939,790 compared to
$1,464,360 for the quarter ended March 31, 1999, an increase of $27,475,430. For
the nine months ended March 31, 2000 and 1999 total revenues were $39,630,227
and $12,827,640 respectively, an increase of $26,802,587. The current period's
increase reflects the shift in the Company's strategy to operating as an MSO and
to revenues from the new Daytona Beach HMO contract which was implemented in
January 2000.
Medical Expenses
----------------
Medical expenses for the quarter ended March 31, 2000 were $28,028,986, compared
to $982,502 for the quarter ended March 31, 1999. Medical expenses includes all
costs associated with providing services of the MSO operation including but not
limited to capitation payments made directly to the physicians in our Network.
Salaries and Benefits
---------------------
Payroll expenses for the quarter ended March 31, 2000 and 1999 were $920,676 and
$1,836,004 respectively, reflecting a decrease of $915,328. This reduction of
49.9% resulted from the closing of the diagnostic operations and consolidation
of physician practices. Salaries and benefits were $4,218,216 and $5,339,212 for
the nine months ended March 31, 2000 and March 31, 1999, respectively.
Depreciation and Amortization
-----------------------------
Depreciation and amortization for the quarter ended March 31, 2000 decreased by
$368,706 compared to the year ago period, directly related to the sale and
disposition of the diagnostic operations and certain physician practices. For
the nine months ended March 31, 2000 and March 31, 1999, depreciation and
amortization was $1,103,336 and $1,465,649, respectively.
General and Administrative
--------------------------
General and administrative expenses for the quarters ended March 31, 2000 and
March 31, 1999 were $520,287 and $1,688,702 respectively, reflecting a decrease
of $1,168,415. General and administrative expenses for the nine months ended
March 31, 2000 and March 31, 1999 were $1,948,997 and $5,399,329, respectively.
The decreases are attributable to managements proactive strategy of focusing on
its MSO operations, the closing its diagnostic operations and continued
attention to reducing costs and improving operational efficiency.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. SUMMARY OF LEGAL PROCEEDINGS
Primedica Healthcare, Inc.
--------------------------
The Company entered into litigation with regard to the Primedica acquisition
agreement. This litigation was subsequently settled 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 entered into a new agreement in which
Primedica acknowledged payments of $700,000 and continued the weekly payments of
$25,000 for 32 weeks with a balloon payment of $500,000 totaling of $2,000,000
by March 2001. As of the date of this filing, the Company is in compliance with
the agreement. In the event 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
ITEM 5. OTHER INFORMATION
Recent Developments
-------------------
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 total annualized revenues to be approximately
$120,000,000.
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 will implement the paperless software
system in its Daytona market (Volusia and Flagler counties) for 32,000 patients.
On-Line Pharmacy
----------------
The Company is currently reviewing several opportunities with substantial
pharmacy companies that will provide mail order pharmacy and pharmacy
management. The Company believes that it will finalize a relationship before the
end of August 2000. 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 while providing a better
service to our patients.
11
<PAGE>
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 efficiently in such areas as patient scheduling, claims
processing, provider directory management, ordering of diagnostic imaging and
laboratory tests, as well as for patient interaction in a secure Internet
environment.
Telemedicine
------------
The Company has entered into the telemedicine field with CYBeR CARE to utilize
its 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. Emergency room
visits and hospital stays are significant costs to the Company and management
believes that this system will help reduce these costs significantly by allowing
its physicians to better manage and interact with patients.
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
physicians and affiliates a more complete and efficient purchasing solution to
streamline their office management processes while providing significant cost
savings.
Acquisition of Warren R. and Susan Federgreen M.D.,P.A
------------------------------------------------------
This primary care practice has been merged into the Company's existing Network
facilities and provides additional patients' lives to the Company's Network.
Effective December 30, 1999, the Company acquired the practice for a purchase
price of $120,000 that consisted entirely of a note payable. The acquisition was
accounted for as a purchase and accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market values. In
addition to the purchase price, the physicians are entitled to a bonus based
upon adjusted pre-tax earnings on a scalable basis up to $60,000 if earnings are
$225,000 or above. The Company recognized goodwill of $120,000 on this
transaction.
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.
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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 , 2000 /s/ Fred Sternberg
-----------------------
Fred Sternberg
Chairman, President and
Chief Executive Officer
Date: August , 2000 /s/ David S. Gartner
--------------------
David S. Gartner
Chief Financial Officer
13
