UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31,1999
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.
Class Outstanding as of June 30, 2000
----- ----------------------------------
Common Stock, par value $.001 17,964,020
Preferred Stock Series A, par value $.001 500,000
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet-
December 31, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
December 31, 1999 and 1998 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
December 1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 1999 and 1998 6-7
Notes to Condensed Consolidated
Financial Statements-Accounting Policies 8
Item 2. Management's Discussion and Analysis
of Financial Condition 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 11
Holders
Recent Developments 12-13
Forward Looking Statements and
Associated Risks 13
SIGNATURES 14
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31,1999
------------
<S> <C>
ASSETS
------
CURRENT ASSETS:
Accounts receivable, net $ 3,190,167
Other current assets 65,099
------------
Total current assets 3,255,266
PROPERTY AND EQUIPMENT, net 1,228,416
INTANGIBLE ASSETS, net 2,522,496
OTHER ASSETS 206,289
------------
TOTAL $ 7,212,467
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,567,885
Line of credit facility 1,520,668
Current maturities of capital lease obligations 121,162
Current maturities of long-term debt 8,557,876
------------
Total current liabilities 15,767,591
LONG TERM DEBT 397,446
CAPITAL LEASE OBLIGATIONS 231,802
COMMITMENTS AND CONTINGENCIES
------------
Total liabilities 16,396,839
STOCKHOLDERS' EQUITY:
Common stock, par value $.001 per share:
40,000,000 shares authorized
12,111,888 shares issued and outstanding 12,112
Preferred stock, par value of $.001 per share,
Stated value $100 per share; 10,000 shares
authorized, 5,000 issued and outstanding 500,000
Additional paid-in capital 13,488,391
Retained deficit (23,184,875)
------------
Total stockholder's equity (9,184,372)
------------
TOTAL $ 7,212,467
============
</TABLE>
3
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
----------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 4,777,137 $ 4,389,674
------------ ------------
EXPENSES:
Medical expenses 3,506,816 1,294,968
Salaries and benefits 1,627,232 1,588,971
Depreciation and amortization 459,164 462,773
General and administrative 692,246 1,780,550
------------ ------------
Total expenses 6,285,458 5,127,262
------------ ------------
LOSS FROM OPERATIONS (1,508,321) (737,588)
OTHER INCOME (EXPENSE):
Loss on disposal of assets (3,228,213) (9,157)
Interest expense (149,500) (198,078)
Other income (expense) -- (151,211)
------------ ------------
Total other income (expense) (3,377,713) (358,446)
------------ ------------
NET LOSS $ (4,886,034) $ (1,096,034)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,738,757 6,504,458
NET LOSS PER SHARE ($0.45) ($0.17)
</TABLE>
4
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
----------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 9,753,671 $ 8,377,103
------------ ------------
EXPENSES:
Medical expenses 6,455,677 2,506,228
Salaries and benefits 3,297,540 3,503,208
Depreciation and amortization 918,327 911,934
General and administrative 1,428,710 3,670,627
------------ ------------
Total expenses 12,100,254 10,591,997
------------ ------------
LOSS FROM OPERATIONS (2,346,583) (2,214,894)
OTHER INCOME (EXPENSE):
Loss on disposal of assets (3,228,213) (9,158)
Interest expense (311,458) (416,813)
Other income (expense) -- (79,647)
------------ ------------
Total other income (expense) (3,539,671) (505,618)
------------ ------------
NET LOSS $ (5,886,254) $ (2,720,512)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,738,757 6,501,185
NET LOSS PER SHARE $(0.55) $(0.42)
</TABLE>
5
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and equivalents from:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(5,886,254) $(2,720,512)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 918,327 911,934
Loss on disposal of assets 3,228,213
Provision for bad debts 54,418 630,184
Stock issued in lieu of cash 209,484 --
Changes in operating assets and liabilities:
Accounts receivable, net 214,660 1,079,356
Trading securities -- (204)
Other current assets 89,250 (272,261)
Other assets (158,396) (72,092)
Accounts payable and accrued expenses 251,519 1,331,322
Reserve for claims incurred but not reported -- 13,626
----------- -----------
Net cash provided by/(used in) operating activities (1,078,779) 901,353
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59,222) (360,542)
Cash paid for acquired companies (100,000)
----------- -----------
Net cash used in investing activities (159,222) (360,542)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on lines-of-credit 1,388,437 (980,685)
Borrowings on notes payable 1,281,000 --
Repayment of notes payable (583,801) --
Repayment of capital lease obligations (840,649) (285,855)
Net proceeds from issuance of common stock -- (158,719)
Dividends on preferred stock (6,986) --
----------- -----------
Net cash used in financing activities 1,238,001 (1,425,259)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS -- (884,448)
CASH AND CASH EQUIVALENTS - BEGINNING -- 916,464
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ -- $ 32,016
=========== ===========
</TABLE>
6
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
-----------------------------
1999 1998
----------- --------
<S> <C> <C>
Supplemental Disclosures:
Interest paid $ 221,000 $384,000
=========== ========
Income taxes paid $ -- $ --
=========== ========
Supplemental Disclosure of Non-cash Investing and Financing Activities:
=========== ========
Purchase price in excess of net assets acquired $ 820,000 $ --
=========== ========
Conversion of preferred shares into common shares $ 500,000 $ --
=========== ========
Fair value of current assets disposed $ 4,700,425 $ --
=========== ========
Fair value of liabilities disposed $ 1,472,212 $ --
=========== ========
Common stock issued for non-compete agreement $ -- $218,750
=========== ========
</TABLE>
7
<PAGE>
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. ("Metropolitan" or the "Company") as of December 31,1999, the
related condensed consolidated statements of operations for the three and six
months ended December 31, 1999 and 1998 and the condensed consolidated
statements of cash flows for the six months ended December 31,1999 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
six months ended December 31, 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.
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. 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 of Operations
---------------------
The Company had revenues of $4,777,138 for the quarter ended December 31, 1999
as compared to revenues of $4,389,674 for the quarter ended December 31, 1998,
an increase of 8.8%. For the six months ended December 31, 1999 revenues
amounted to $9,753,671 compared to $8,377,103 for the year earlier period, an
increase of 16.4%. The loss from continuing operations for the first two
quarters of fiscal 1999 was $2,346,582 a $22,869 improvement over fiscal 1998.
The Company's loss of $1,508,319 from continuing operations for the most recent
quarter increased over the similar period last year by $157,861 and was
primarily due to approximately $450,000 of legal and accounting fees incurred to
settle primarily all its outstanding material litigation. The Company's Net Loss
for the three months ended December 31, 1999 was approximately $4,900,000 and is
attributable in a large part to non-cash items related to the disposal of it
diagnostic operations of $3,228,213 and depreciation and amortization of
$459,163 totaling $3,687,376.
Earnings before interest, taxes, depreciation and amortization (EBITDA), after
adding back the Loss on Disposal of Assets, for the first two quarters of fiscal
2000 amounted to a negative $1,428,256 compared to a negative $1,382,608 in
fiscal 1999.
9
<PAGE>
Revenue
-------
MSO revenue for the quarter ended December 31, 1999 was $3,475,029 or 72.8% of
total revenue. In comparison, for the quarters ended September 30, 1999 and for
December 31, 1998 MSO revenues was 67.5% and 42.1% of total revenue,
respectively, The current period's increase reflects the shift in the Company's
strategy into an MSO.
Medical Expenses
----------------
Medical expenses for the quarters ended December 31, 1999 and 1998 were
$3,506,816 and $1,294,968, respectively and were $6,455,677 and $2,506,228 for
the respective six month periods. These increases are in direct correlation to
the increases in our MSO business over the same period.
Salaries and Benefits
---------------------
Payroll expenses for the quarter ended December 31, 1999 and 1998 were
$1,627,323 and $1,588,971, respectively. This increase of $38,261 or 2.4% was
primarily due to the payroll costs associated with the new HMO contract that
went into effect as of January 1, 2000. Salaries and benefits were $3,297,540
and $3,503,208 for the six months ended December 31, 1999 and December 31, 1998,
respectively.
Depreciation and Amortization
-----------------------------
The decrease in depreciation and amortization for the quarter ended December 31,
1999, compared to the year ago period, of $3,610 was due to disposal of certain
assets and adjustment in the useful lives of certain equipment. As a percentage
of revenue it was 9.6% for this quarter compared to 10.5% for the quarter ended
December 31, 1998.
General and Administrative
--------------------------
General and administrative expenses for the quarters ended December 31, 1999 and
December 31, 1998 were $692,246 and $1,780,550, respectively, a decrease of
$1,088,304. The decrease is primarily due to expenses associated with the
diagnostic operations which were experiencing significant decline in revenue.
Accordingly there was a decrease in variable expenses.
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 December 31, 1999 the Company raised approximately $2,640,000 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.
10
<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 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 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. 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. The Company provides primary
care services to approximately 4,000 patients including more than 900 Humana
members. The Company maintains two full-time physicians at the facility.
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
11
<PAGE>
ITEM 5. OTHER INFORMATION.
Recent Developments
-------------------
Subsequent to December 31, 1999, the Company has entered into various strategic
alliances and other transactions to facilitate its business plan.
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 approximately $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 will implement the paperless software
system in its Daytona Beach 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. 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 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 CyberCare 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.
Management believes this to be a major step in helping our physicians better
manage and interact with patients. A significant cost to the Company is caused
by emergency room visits and hospital stays which management believes that this
system will help reduce this cost significantly.
12
<PAGE>
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.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
METROPOLITAN HEALTH NETWORKS, INC.
Registrant
Date: August 21, 2000 /s/ Fred Sternberg
--------------------
Fred Sternberg
Chairman, President and
Chief Executive Officer
Date: August 21, 2000 /s/ David S. Gartner
--------------------
David S. Gartner
Chief Financial Officer
14
