<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 June 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 August 31, 2000
----- ---------------------------------
Common Stock par value $.001 18,543,425
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
June 30, 2000 2
Condensed Consolidated Statements of
Operations for the Three and Six Months
Ended June 30, 2000 and 1999 3
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 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 8-10
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 11
Forward Looking Statements and
Associated Risks 11
SIGNATURES 12
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Accounts receivable, net $ 4,992,418
Other current assets 992,219
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 5,984,637
PROPERTY AND EQUIPMENT, net 1,222,931
GOODWILL, net 2,262,669
OTHER ASSETS 42,480
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 9,512,717
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND DEFICIENCY IN ASSETS
------------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 774,883
Advances from HMO 2,273,725
Due to related parties 3,350
Accrued expenses 4,532,964
Medical costs payable 445,398
Line of credit facilities 1,037,966
Current maturities of capital lease obligations 467,332
Current maturities of long-term debt 6,032,510
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 15,568,128
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATIONS 440,722
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 247,783
------------------------------------------------------------------------------------------------------------------------------------
CONTINGENCIES (NOTE 6)
DEFICIENCY IN ASSETS
Common stock, par value $.001 per share; 40,000,000 shares authorized; 17,906,498
issued and outstanding 17,906
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 15,526,976
Accumulated deficit ( 22,788,798)
------------------------------------------------------------------------------------------------------------------------------------
Total deficiency in assets ( 6,743,916)
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 9,512,717
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes - unaudited
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
-------------------------------------- ------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES $ 59,213,711 $ 10,124,394 $ 29,337,155 $ 5,673,857
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
EXPENSES
Medical expenses 54,973,564 7,346,978 26,944,578 3,898,248
Salaries and benefits 1,903,794 3,543,134 983,118 1,707,130
Depreciation & amortization 356,318 958,840 171,309 405,125
General and administrative 1,215,839 3,219,150 695,552 3,996,676
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Total expenses 58,449,515 15,068,102 28,794,557 10,007,179
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE) 764,196 ( 4,943,708) 542,598 ( 4,333,322)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
OTHER INCOME (EXPENSE):
Loss on Primedica - ( 2,206,448) - ( 2,206,448)
Loss on disposal of assets - ( 352,845) - ( 352,845)
Interest expense ( 265,185) ( 266,390) ( 196,616) ( 168,375)
Other income (expense) 5,300 170,087 4,500 282,778
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Total other income (expense) ( 259,885) ( 2,655,596) ( 192,116) ( 2,444,890)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
NET INCOME (LOSS) $ 504,311 ($ 7,599,304) $ 350,482 ($ 6,778,212)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Weighted Average Number of Common Shares
Outstanding 13,902,608 7,756,627 15,338,453 8,255,962
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Net earnings (loss) per share - basic $ 0.04 ($ 0.98) $ 0.02 ($ 0.82)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
Net earnings (loss) per share - diluted $ 0.03 ($ 0.98) $ 0.01 ($ 0.82)
----------------------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
See accompanying notes - unaudited
<PAGE>
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 June 30, 1999
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 504,311 ( $ 7,599,304)
----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 356,318 790,100
Loss on Primedica - 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 - 430,672
Amortization of discount on note payable - 168,740
Stock options issued in lieu of cash for services 81,716 729,602
Stock issued in lieu of cash for services 1,021,298 872,435
Changes in assets and liabilities:
Accounts receivable ( 1,990,757) 251,413
Trading securities - 204
Other current assets ( 734,520) 418,126
Other assets ( 19,172) 157,528
Accounts payable and accrued expenses ( 37,069) 713,277
Due to related parties ( 92,355) 300,144
Unearned revenue ( 125,000) -
Medical costs payable 346,491 ( 501,223)
----------------------------------------------------------------------------------------------------------------------------------
Total adjustments ( 1,193,050) 6,959,946
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities ( 688,739) ( 639,358)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred acquisition costs - 171,890
Repayment (issuance) of notes receivable - 170,000
Cash paid for acquired companies - 360,542
Capital expenditures ( 91,006) ( 908,712)
----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ( 91,006) ( 206,280)
----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) on lines of credit ( 482,702) ( 563,009)
Net borrowings on notes payable 504,277 337,973
Net borrowings (repayments) on capital leases 80,445 ( 299,061)
Advances from HMO 677,725 1,089,000
Net proceeds from issuance of preferred stock - 90,000
Net proceeds from issuance of common stock - 158,719
----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 779,745 813,622
----------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS - ( 32,016)
CASH AND EQUIVALENTS - BEGINNING - 32,016
----------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - ENDING $ - $ -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes - unaudited
<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
six months ended June 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 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.
<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.
--------------------------------------------------------------------------------
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 was 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. At June 30, 2000,
the Company has advanced funds aggregating approximately
$732,500 to Alpha, which are included in other current assets
in the accompanying balance sheet.
--------------------------------------------------------------------------------
NOTE 5. 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 six months and
three months ended June 30, 2000 compensation costs related to
stock options amounted to approximately $81,700 and $26,000,
respectively.
--------------------------------------------------------------------------------
NOTE 6. CONTINGENCIES
--------------------------------------------------------------------------------
Payroll Taxes
At June 30, 2000, the Company had recorded accrued payroll
taxes of approximately $1,600,000, which is included in
accounts payable and accrued expenses in the accompanying
balance sheet. The Company is currently negotiating a payment
plan to repay this amount.
Primedica Settlement
During the year ended June 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 June 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
<PAGE>
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. Subsequent to June 30,
2000 the Company paid Primedica $350,000 under a final
agreement and in connection therewith satisfied, in full, all
Primedica judgments against the Company and as a result of
this satisfaction of judgment, the Company recorded "other
income" of approximately $3,500,000.
--------------------------------------------------------------------------------
NOTE 7. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Options
Subsequent to June 30, 2000, the Company granted 400,000
options under professional compensation agreements with
exercise prices from $1.60 to $6.30, which expire from July
2005 through July 2008.
e-MedSoft.com
On October 6, 2000 the Company received $500,000 in funding,
in the form of a loan, from e-medsoft.com in connection with a
10-year exclusive preferred provider agreement. This amount is
to be recorded as unearned revenue and may be required to be
repaid, together with interest at prime plus 8%, should the
Company not meet certain requirements of 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.
Due to the significant changes in the direction of the business, the Board of
Directors elected to change its year-end to a calendar year from a June 30
fiscal year. The June 30, 2000 financial statements and analysis reflect this
change and present the information for the first six months then ended.
The Company's revenue for the six months ended June 30, 2000 was $59,213,711
compared to $10,124,394 for the same six months in 1999, an increase of 485%.
Net income for the first six months of 2000 increased to $504,311 from a loss of
$7,599,304 for the same 1999 period, an increase of $8,103,615. For the second
consecutive quarter the Company recognized a profit, totaling $350,482 for the
quarter ended June 30, 2000 compared to a loss for the three months ended June
30, 1999 of $6,778,212.
These dramatic results are further reflected in the increase in EBITDA of
$7,499,888 from a negative EBITDA of $6,374,074 for the six month period ended
June 30, 1999 to a positive $1,125,814 for the six months ended June 30, 2000.
The turn around is the result of a number of decisions made and actions taken
leading up to the current fiscal year:
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 has affiliated with several technology partners to bring new
Internet-based solutions and e-Commerce to its network. These
opportunities include adjudication & payment of claims; on-line
pharmacy services; billing, collections & accounts receivable
financing; and office management including scheduling & purchasing.
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 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.
<PAGE>
o The Company settled all material litigation which was not only costly,
but a distraction to management in its efforts to move forward with MSO
operations.
Results of Operations
The Company had revenues of $29,337,155 for the quarter ended June 30, 2000
compared to $5,673,857 for the quarter ended June 30, 1999, an increase of
$23,663,298 or 417%. For the six months ended June 30, 2000 revenues were
$59,213,711 compared to $10,124,394 for the same period in fiscal 1999, an
increase of $49,089,317 or 485%. The Company produced net income of $350,482 for
the current quarter ended June 30, 2000, compared to a loss of $6,778,212 for
the quarter ended June 30, 1999, a turnaround of $7,128,694. For the six months
ended June 30, 2000 and 1999, Metcare achieved net income of $504,311 and a net
loss of $7,599,304, respectively, a turnaround of $8,103,615.
Revenue
Total revenues for the quarter and six months ended June 30, 2000 were
$29,337,155 and $59,213,711 respectively, compared to $5,673,857 and $10,124,394
for the same periods in 1999, increases in excess of 400%. MSO revenues for the
quarter and six months ended June 30, 2000 were $28,862,524 and $57,802,314
respectively, compared to $3,951,456 and $5,415,826 for 1999, , increases of
$24,911,058 (630%) and $52,386,488 (967%) respectively. MSO revenue increased to
97.6% of total revenue for the first two quarters of 2000, up from 53.5% for the
same periods in 1999. The current period's increase continues to reflect the
shift in the Company's position as a healthcare provider with a well-founded
model operating as an MSO.
Medical Expenses
Medical expenses, an expense directly correlated to MSO revenue, were
$26,944,578 and $54,973,564 for the quarter and six months ended June 30, 2000
respectively, compared to $3,898,248 and $7,346,978 for the same periods in
1999. 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 June 30, 2000 and 1999 were
$983,118 and $1,707,130 respectively, reflecting a decrease of $724,012 or 42%.
This reduction resulted from the closing of the diagnostic operations and
consolidation of physician practices as well as the less labor-intensive nature
of the MSO business. Salaries and benefits for the six months ended June 30,
2000 and June 30, 1999 were $1,903,794 and $3,543,134, respectively.
Depreciation and Amortization
Depreciation and amortization for the quarter ended June 30, 2000 decreased by
$233,816 compared to the year ago period, directly related to the sale and
disposition of the diagnostic operations and certain physician practices. For
the six months ended June 30, 2000 and June 30, 1999, depreciation and
amortization was $356,318 and $958,840, respectively.
General and Administrative
General and administrative expenses for the quarters ended June 30, 2000 and
June 30, 1999 were $695,552 and $3,996,676 respectively, a decrease of
$3,301,124. For the six months ended June 30, 2000 and 1999, general and
administrative were $1,215,839 and $3,219,150 respectively. These decreases are
attributable to the lower costs associated with its MSO business, the closing
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 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. There can be no assurance that the Company
will be able to raise sufficient capital.
<PAGE>
Subsequent to June 30, 2000, the Company has raised additional debt and equity
in the amount of approximately $1,700,000.
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 approximately $3,500,000 will be recognized in
the quarter ended September 30, 2000 in connection with this settlement.
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 $925,000 as
of August 31, 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.
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
approximately $3,500,000 will be 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
<PAGE>
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 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'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 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.
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.
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.
<PAGE>
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.
<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 17, 2000 /s/ Fred Sternberg
------------------------
Fred Sternberg
Chairman, President and
Chief Executive Officer
Date: August 17, 2000 /s/ David S. Gartner
--------------------
David S. Gartner
Chief Financial Officer
