<PAGE>
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, 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 /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 October 31, 2000
----- ----------------------------------
Common Stock par value $.001 21,218,036
Preferred Stock Series A, par value $.001 500,000
<PAGE>
Metropolitan Health Networks, Inc.
Index
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
September 30, 2000 2
Condensed Consolidated Statements of
Operations for the Three and Nine Months
Ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 4
Notes to Condensed Consolidated
Financial Statements-Accounting Policies 5-7
Item 2. Management's Discussion and Analysis of
Financial Conditions 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
Holders 10
Recent Developments 10-11
Forward Looking Statements and
Associated Risks 11
SIGNATURES 12
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
================================================================================
<TABLE>
<CAPTION>
ASSETS (Unaudited)
=====================================================================================================
<S> <C>
CURRENT ASSETS
Accounts receivable, net of allowance for doubtful accounts $ 6,960,693
Other current assets 1,299,828
-----------------------------------------------------------------------------------------------------
Total current assets 8,260,521
PROPERTY AND EQUIPMENT, net 1,180,537
GOODWILL, net 2,196,558
OTHER ASSETS 56,214
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TOTAL ASSETS $ 11,693,830
=====================================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
=====================================================================================================
CURRENT LIABILITIES
Accounts payable $ 972,566
Advances from HMO 2,323,729
Accrued expenses 4,440,825
Medical costs payable 393,902
Line of credit facilities 919,810
Unearned revenue 500,000
Current maturities of capital lease obligations 347,277
Current maturities of long-term debt 1,426,502
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Total current liabilities 11,324,611
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CAPITAL LEASE OBLIGATIONS 362,599
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LONG-TERM DEBT 221,784
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CONTINGENCIES (NOTE 7)
DEFICIENCY IN ASSETS
Common stock, par value $.001 per share; 40,000,000 shares authorized; 20,547,288
issued and outstanding 20,547
Preferred stock, par value $.001 per share; stated value $100 per share;
10,000,000 shares authorized; 5,000 issued and outstanding 500,000
Additional paid in capital 17,911,940
Accumulated deficit (18,647,651)
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Total deficiency in assets (215,164)
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TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 11,693,830
=====================================================================================================
</TABLE>
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
==========================================================================================================
<S> <C> <C> <C> <C>
REVENUES $ 86,545,646 $ 15,100,928 $ 27,331,935 $ 4,976,534
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EXPENSES
Medical expenses 79,603,260 10,295,839 24,629,696 2,948,861
Salaries and benefits 2,810,641 5,213,442 906,847 1,670,308
Depreciation & amortization 527,091 1,418,003 170,773 459,163
General and administrative 1,963,683 3,955,614 747,844 736,464
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Total expenses 84,904,675 20,882,898 26,455,160 5,814,796
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INCOME (LOSS) BEFORE OTHER INCOME 1,640,971 (5,781,970) 876,775 (838,262)
(EXPENSE)
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OTHER INCOME (EXPENSE):
Gain (loss) on Primedica 3,548,288 (2,206,448) 3,548,288 --
Loss on disposal of assets (352,845) --
Interest expense (552,588) (428,348) (287,403) (161,958)
Other income 8,785 170,087 3,485 --
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Total other income (expense) 3,004,485 (2,817,554) 3,264,370 (161,958)
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NET INCOME (LOSS) $ 4,645,456 ($ 8,599,524) $ 4,141,145 ($ 1,000,220)
==========================================================================================================
Weighted Average Number of Common Shares
Outstanding 15,402,442 11,511,848 18,326,052 9,694,688
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Net earnings (loss) per share - basic $ 0.30 ($ 0.74) $ 0.23 ($ 0.10)
==========================================================================================================
Net earnings (loss) per share - diluted $ 0.27 ($ 0.74) $ 0.20 ($ 0.10)
==========================================================================================================
</TABLE>
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
======================================================================================================
September 30, 2000 September 30, 1999
(Unaudited) (Unaudited)
======================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,645,456 ($ 8,599,524)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 527,091 1,249,263
(Gain) loss on Primedica (3,548,288) 2,206,448
Realized loss on sale of securities -- 131,452
Change in unrealized loss on trading securities -- (85,314)
Loss on sale of fixed assets -- 14,339
Loss on disposal of assets -- 362,003
Provision for bad debt -- 457,881
Amortization of discount on note payable -- 168,740
Proceeds from the exercise of options 57,500 --
Stock options issued in lieu of cash or services 81,716 729,602
Stock issued in lieu of cash or services 1,402,884 917,843
Stock issued for convertible debt 2,138,734 --
Changes in assets and liabilities:
Accounts receivable, net (3,959,032) 358,743
Trading securities -- 204
Other current assets (1,042,129) 282,192
Other assets (32,906) 205,421
Accounts payable and accrued expenses 10,977 (78,447)
Due to related parties (95,705) 300,144
Unearned Revenue 375,000 --
Medical costs payable 294,995 (501,223)
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Total adjustments (3,789,163) 6,719,291
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Net cash provided by (used in) operating activities 856,293 (1,880,233)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred acquisition costs -- 171,890
Repayment of notes receivable -- 170,000
Cash paid for acquired companies -- 360,542
Capital expenditures (153,274) (911,215)
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Net cash used in investing activities (153,274) (208,783)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) on line of credit (600,858) 1,048,535
Net borrowings (repayments) on notes payable (1,463,307) 254,963
Net borrowings (repayments) on capital leases (117,733) (628,242)
Advances from HMO 727,729 1,089,000
Net proceeds from issuance of preferred stock -- 90,000
Net proceeds from issuance of common stock 751,150 202,744
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Net cash provided by (used in) financing activities (703,019) 2,057,000
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NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS -- (32,016)
CASH AND EQUIVALENTS - BEGINNING -- 32,016
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CASH AND EQUIVALENTS - ENDING -- --
======================================================================================================
</TABLE>
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED 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 September 30, 2000 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2000.
The audited financial statements at December 31, 1999 which
are included in the Company's Transitional Six-Month 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 sustained substantial operating losses through
December 31, 1999 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.
<PAGE>
================================================================================
NOTE 3. LIQUIDITY AND CAPITAL RESOURCES (Continued)
================================================================================
The Company's ability to continue as a going concern is
dependent upon achieving continued profitable operations and
positive cash flows from operations or obtaining additional
debt or equity financing. These conditions raise substantial
doubt about the Company's ability to continue as a going
concern. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
In view of these matters, realization of a major 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.
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NOTE 4. NOTE RECEIVABLE
--------------------------------------------------------------------------------
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. On May 12, 2000, part of
these advances were converted into a promissory note in the
amount of $512,000. The promissory note was payable upon
demand, bears interest at 18% per annum, and is collateralized
by substantially all of the assets of Alpha. At September 30,
2000, the promissory notes plus additional advanced funds
aggregating approximately $968,000 due from Alpha, are
included in other current assets in the accompanying balance
sheet.
Subsequent to September 30, 2000, the Company exercised its
right to acquire Alpha for 50,000 shares of the Company's
common stock plus the assumption of Alpha's liabilities
including the amounts due to the Company.
--------------------------------------------------------------------------------
NOTE 5. UNEARNED REVENUE
--------------------------------------------------------------------------------
On August 22, 2000, the Company entered into a Pharmacy
Services Agreement (Pharmacy Agreement) with E-MedSoft
Pharmacy Services, Inc. (E-Med) under which Metropolitan
agreed to engage E-Med as its exclusive provider of pharmacy
services, for an initial term of three years. In connection
with this agreement, E-Med paid the Company $500,000, subject
to return if the Company elects to cancel the Pharmacy
Agreement under certain terms. This amount is reflected in the
balance sheet as unearned revenue at September 30, 2000.
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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
September 30, 2000 compensation costs related to stock options
amounted to approximately $81,700. No compensation expense was
recorded for the three months ended September 30, 2000.
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NOTE 7. CONTINGENCIES
--------------------------------------------------------------------------------
Payroll Taxes
At September 30, 2000, the Company had recorded accrued
payroll taxes of approximately $1,600,000, which is included
in accrued expenses in the accompanying balance sheet. The
Company is scheduled to meet with the IRS in connection with
its negotiations for an extended payment plan to repay this
amount. In connection with past due payroll taxes the Company
has accrued interest of approximately $165,000 it believes to
be due. No penalties have been accrued as the Company believes
it will be successful in obtaining a waiver of payment of said
penalties. At September 30, 2000, management believes maximum
penalties that can be imposed are approximately $600,000.
<PAGE>
Primedica Settlement
During the year ended September 30, 1999, the Company
defaulted on the Promissory Note relating to a 1998
acquisition of two physician practices (the Practices) from
Primedica Healthcare, Inc. (Primedica) and a judgment was
entered against the Company for $4,745,364. Accordingly, as of
September 30, 1999 the Promissory Note was increased to
$4,745,364, and a loss of $2,206,448 was 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.
On August 4, 2000, the Company entered into a new agreement
with Primedica requiring weekly payments of $25,000
aggregating $2,000,000 or $2,500,000, depending on the timing
of payments but specifying that if one of two payment
schedules are not met, the Company shall be obligated to pay
the full $4,745,364.
Pursuant to a final agreement in August 2000, the Company and
Primedica agreed to a full settlement aggregating $1,250,000,
predicated upon final payment of $350,000. Subsequent to
September 30, 2000, the Company paid Primedica $350,000 under
the final agreement and in connection therewith satisfied, in
full, all Primedica judgements against the Company. As a
result of this satisfaction of judgement, the Company recorded
"other income" of approximately $3,500,000 in the three months
ended September 30, 2000.
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NOTE 8. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
On October 6, 2000 the Company received $500,000 in funding
from E-MedSoft.com in connection with a 10 year exclusive
preferred provider agreement. This amount has been recorded as
unearned revenue and may be required to be repaid, together
with interest at prime plus 2%, should the Company default or
elect to cancel the Agreement.
<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").
Responding to changes in the health care industry, in mid-1999 the Company
modified its business strategy and determined to become a provider of health
care services and implemented its 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.
The start of the new millennium marked a new beginning for Metcare. The Company
pursued its MSO strategy focusing on providing quality care in a cost efficient
manner, and management moved decisively to form new strategic alliances for the
future as a major healthcare provider in the State of Florida. As an MSO, the
Company provides management of patient lives in contracted physician offices and
is actively implementing Internet-based technologies to its operating model to
improve its effectiveness and profitability and that of its Network. Metcare is
constantly expanding its markets with the increase and addition of full risk
contracts in the State of Florida with the ultimate goal of becoming the largest
healthcare provider in the State.
The Company's revenue for the nine months ended September 30, 2000 was
$86,545,646 compared to $15,100,928 for the same nine months in 1999, an
increase of 473%. Net income for the first nine months of 2000 increased to
$4,645,456 from a loss of $8,599,524 for the same 1999 period, an increase of
$13,244,980. During the third quarter, the Company recognized a non-recurring
gain on the settlement of its outstanding debt with Primedica in the amount of
$3,548,288. For the third consecutive quarter, the Company recognized a profit
from continuing operations, totaling $876,775 for the most recent quarter
compared to a loss of $838,262 for the quarter ended September 30, 1999.
These improved results are further reflected in the increase in earnings before
interest, taxes, depreciation and amortization (EBITDA), excluding the
non-recurring gain, of $2,168,062 for the nine months ended September 30, 2000,
which compares to a negative EBITDA of $4,363,967 for the nine-month period
ended September 30, 1999. For the quarter ended September 30, 2000, the Company
had a positive EBITDA, excluding the one time gain, of $1,047,548 compared to a
negative of $379,099 for the comparative quarter ended September 30, 1999. The
turn around is a result of a number of factors including the following:
o The Company continued its strategic focus to implement and improve of
its operating model as an MSO.
o The MSO lowered its medical expenses through improved coordination of
patient care in cooperation with our Primary Care Physicians. In the
Daytona Market, for instance, the referral rate decreased from 96.6%
in the first quarter of 2000 to 64% for the current quarter. In Palm
Beach and Dade counties, the referral rates were consistent with prior
quarters. Hospital bed days also showed improvement against the
national average in Daytona and Palm Beach counties, with Dade County
being slightly ahead of the national average
o The Company continued to streamline its operations through the
introduction of claims adjudication information technologies.
Results of Operations
The Company had revenues of $27,331,935 for the quarter ended September 30, 2000
compared to $4,976,534 for the quarter ended September 30, 1999, an increase of
$2,355,401 or 449%. For the nine months ended September 30, 2000 revenues were
$86,545,646 compared to $15,100,928 for the same period in fiscal 1999, an
increase of $71,444,718 or 473%. The Company produced net income of $4,645,456
for the current quarter ended September 30, 2000, compared to a loss of
$8,599,524 for the quarter ended September 30, 1999. The current period included
a one-time gain of $3,548,288. For the nine months ended September 30, 2000,
Metcare achieved income from continuing operations of $1,640,971 as compared to
a loss of $5,781,970 for the same period in 1999, a turnaround of $7,422,941.
Revenue
Total revenues for the quarter and nine months ended September 30, 2000 were
$27,331,935 and $86,545,646 respectively, compared to $4,976,534 and $15,100,928
for the same periods in 1999, increases in excess of 400%. MSO revenues for the
quarter and nine months ended September 30, 2000 were $27,011,384 and
$84,813,698 respectively, compared to $3,951,456 and $5,415,826 for 1999,
increases of $23,059,028 and $79,397,872, respectively. MSO revenue increased to
<PAGE>
99% of total revenue for the first three quarters of 2000, up from 36% for the
same period in 1999. The current period's increase continues to reflect
Metcare's shift to a well-founded model operating as an MSO.
Medical Expenses
Medical expenses, expenses directly related to MSO revenue, were $24,629,696 and
$79,603,260 for the quarter and nine months ended September 30, 2000,
respectively. For the current quarter, medical expenses showed a continued
improvement and were 90% of revenue compared to 92% of revenue for the nine
months ended September 30, 2000. Medical expenses include all costs associated
with providing services of the MSO operation including medical payments to
physician providers, hospitals and ancillary services on a capitated and fee for
service basis.
Salaries and Benefits
Salaries and benefits expense for the quarters ended September 30, 2000 and 1999
were $906,847 and $1,670,308 respectively, reflecting a decrease of $763,461 or
46%. This reduction resulted from the closing of the diagnostic operations and
consolidation of physician practices, and as well from the less labor-intensive
nature of the MSO business. Salaries and benefits for the nine months ended
September 30, 2000 and September 30, 1999 were $2,810,641 and $5,213,442,
respectively, a decrease of $2,402,801 or 46%.
Depreciation and Amortization
Depreciation and amortization for the quarter ended September 30, 2000 decreased
by $288,390 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 September 30, 2000 and September 30, 1999, depreciation
and amortization was $527,091 and $1,418,003, respectively, a decrease of
$890,912 or 63%.
General and Administrative
General and administrative expenses for the quarters ended September 30, 2000
and September 30, 1999 were $747,844 and $736,464 respectively, an increase of
$11,380. For the nine months ended September 30, 2000 and 1999, general and
administrative was $1,963,683 and $3,955,614 respectively, a decrease of
$1,991,931 or 50%. The overall year to date decreases are attributable to the
lower costs associated with its MSO business, the closing of its diagnostic
operations and continued attention to reducing costs and improving operational
efficiency.
Liquidity and Capital Resources
The Company has experienced liquidity and cash flow problems, the result of the
Company's prior years' operating losses and costs associated restructuring,
closing of operations, severance and separation agreements. Current operations
and the Company's future development and growth may be hampered if the Company
is not able to raise additional capital. The Company has raised significant
funds during the current year and believes it can raise additional funds as
needed. However, there can be no assurance that the Company will be able to
raise sufficient capital. Management believes that based upon it current and
future contracts there will be significant improvement in the Company's cash
flow beginning in the first quarter of 2001.
As of September 30, 2000, the Company settled its total outstanding liability of
$4,524,462 with Primedica Health Care, Inc. with a negotiated final payment of
$350,000. As a result, a gain of $3,548,288 has been recognized in the quarter
ended September 30, 2000.
The primary source of the Company's liquidity is derived from its payments from
its full-risk contracts with HMOs. In addition, the Company has other revenues
and accounts receivable, which are financed under a line of credit. Such
borrowings are available on a formula basis taking into account the amount and
age of the eligible receivables. Borrowings amount to approximately $862,000 as
of November 9, 2000. The Company is negotiating with its current lender to
restructure its line of credit. The Company has no additional availability under
the current line.
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.
<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 called for continued weekly
payments of $25,000 for 32 weeks with a balloon payment of $500,000, totaling
$2,000,000 by March 2001. The recorded liability at June 30, 2000 was
approximately $4,075,000. This liability was settled in full in September 2000
through a negotiation and subsequent final payment of $350,000. A gain of
$3,548,288 has been recognized in the quarter ended September 30, 2000 in
connection with this settlement.
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 new contract with Humana.
Current enrollment includes approximately 22,000 Medicare and 5,000 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's 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 sometime late in the first quarter
of 2001. 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 has entered into an arrangement with e-MedSoft.com to provide
pharmacy services as part of the Company's MSO model. The Company believes that
it will implement this arrangement in late 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 the Company's patients.
<PAGE>
Internet Practice Management, Billing & Collections
The Company has entered into a contract with e-MedSoft.com to develop, implement
and provide for Metcare's electronic healthcare needs including software,
portal, Internet and network products and services. These solutions will allow
the Company's contracted physicians to manage their medical services more
efficiently in such areas as patient scheduling, claims processing, provider
directory management, ordering diagnostic imaging and laboratory tests, and will
facilitate interaction in a secure Internet environment. Implementation of these
technologies will begin in late 2000.
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. As of the date of
this filing, the Company has started the implementation of the telemedicine
units in its Daytona Beach market.
Preferred Provider Agreement
The Company has entered into a Preferred Provider Agreement with e-MedSoft.com
to increase productivity through advanced technology as an integral part of our
healthcare business. The Company is presently reviewing its present applications
on a company-wide basis to provide better patient and management information at
the most efficient cost.
Independent Provider Association
The Company has signed a letter of intent with Vitacare Solutions, Inc., an
Independent Provider Association with over 825 physicians located in Central
Florida. Vitacare contracts risk and preferred provider agreements with various
healthcare insurance companies, with a network of primary care and specialty
physicians servicing over 750,000 patients. The Companies will share similar
operating models and embrace a common goal to be a healthcare provider that
manages patient lives in physician offices.
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, 10-K, 10-Q 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.
<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: November 14, 2000 /s/ Fred Sternberg
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Fred Sternberg
Chairman, President and
Chief Executive Officer
Date: November 14, 2000 /s/ David S. Gartner
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David S. Gartner
Chief Financial Officer
