UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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: 001-32361
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.)
250 Australian Avenue, Suite 400
West Palm Beach, FL 33401
(Address of principal executive offices) (Zip Code)
(561) 805-8500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
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 by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
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 at April 28, 2006
---------------------------------------- -----------------------------
Common Stock, $.001 par value per share 49,876,526 shares
Metropolitan Health Networks, Inc.
Index
Part I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
as of March 31, 2006 and December 31, 2005 4
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 2006 and 2005 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 2006 and 2005 6
Notes to Condensed Consolidated
Financial Statements 7-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Default Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits 27-28
SIGNATURES 29
2
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
3
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
================================================================================
March 31, 2006 December 31, 2005
ASSETS (Unaudited) (Audited)
------ ------------ ------------
CURRENT ASSETS
Cash and equivalents $ 17,973,101 $ 15,572,862
Short-term investments 2,380,026 --
Accounts receivable, net of allowance 4,513,350 4,183,974
Inventory 220,929 201,430
Prepaid expenses 688,095 473,286
Deferred income taxes 3,500,000 3,500,000
Other current assets 387,314 547,976
------------ ------------
TOTAL CURRENT ASSETS
29,662,815 24,479,528
PROPERTY AND EQUIPMENT, net 1,130,146 899,998
INVESTMENTS 627,819 627,819
GOODWILL, net 1,992,133 1,992,133
DEFERRED INCOME TAXES 4,082,800 4,493,000
OTHER ASSETS 810,725 622,628
------------ ------------
TOTAL ASSETS $ 38,306,438 $ 33,115,106
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 843,081 $ 969,184
Advance premiums 2,245,579 --
Estimated medical expenses payable 1,893,515 694,410
Accrued payroll and payroll taxes 1,899,646 1,459,098
Accrued expenses 843,654 293,552
------------ ------------
TOTAL CURRENT LIABILITIES 7,725,475 3,416,244
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share; stated value $100 per share;
10,000,000 shares authorized; 5,000 issued and outstanding 500,000 500,000
Common stock, par value $.001 per share; 80,000,000 shares authorized;
49,876,526 and 49,851,526 issued and outstanding, respectively 49,876 49,851
Additional paid-in capital 40,393,268 40,182,889
Accumulated deficit (10,362,181) (11,033,878)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 30,580,963 29,698,862
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,306,438 $ 33,115,106
============ ============
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
4
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
For the three months ended March 31,
2006 2005
(Unaudited) (Unaudited)
------------ ------------
REVENUES, net $ 55,433,533 $ 45,519,566
------------ ------------
OPERATING EXPENSES
Direct medical costs 46,962,844 38,533,117
Other medical costs 2,585,666 2,636,975
------------ ------------
Total medical expenses 49,548,510 41,170,092
Administrative payroll, payroll taxes and benefits 2,447,799 1,266,261
Marketing and advertising 973,930 371
General and administrative 1,589,917 1,376,573
------------ ------------
TOTAL EXPENSES 54,560,156 43,813,297
------------ ------------
OPERATING INCOME 873,377 1,706,269
------------ ------------
OTHER INCOME
Interest income, net 189,438 65,075
Other 19,082 70,258
------------ ------------
TOTAL OTHER INCOME 208,520 135,333
------------ ------------
INCOME BEFORE INCOME TAXES 1,081,897 1,841,602
INCOME TAXES (410,200) (697,000)
------------ ------------
NET INCOME $ 671,697 $ 1,144,602
============ ============
EARNINGS PER COMMON SHARE:
NET EARNINGS PER SHARE:
Basic $ 0.01 $ 0.02
============ ============
Diluted $ 0.01 $ 0.02
============ ============
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
5
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
For the three months ended March 31,
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 671,697 $ 1,144,602
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 100,147 84,836
Deferred income taxes 410,200 697,000
Stock-based compensation expense 201,654 --
Loss on disposal of assets 103 --
Amortization of securities issued for professional services -- 72,626
Changes in operating assets and liabilities:
Accounts receivable, net (329,376) (184,465)
Inventory (19,499) 51,074
Prepaid expenses (214,809) (309,045)
Other current assets 160,663 95,171
Other assets (189,139) 2,905
Accounts payable (126,102) (248,965)
Advance premiums 2,245,579 --
Estimated medical expenses payable 1,199,105 --
Accrued payroll and payroll taxes 440,548 163,540
Accrued expenses 550,101 427,826
------------ ------------
Total adjustments 4,429,175 852,503
------------ ------------
Net cash provided by operating activities 5,100,872 1,997,105
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (2,380,026) (1,500,000)
Investments -- (641,417)
Capital expenditures
(329,357) (45,302)
------------ ------------
Net cash (used in) investing activities (2,709,383) (2,186,719)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on notes payable -- (898,750)
Repurchase of warrants -- (85,000)
Proceeds from exercise of stock options and warrants 8,750 175,440
------------ ------------
Net cash provided by/(used in) financing activities 8,750 (808,310)
------------ ------------
NET INCREASE(DECREASE) IN CASH AND EQUIVALENTS 2,400,239 (997,924)
CASH AND EQUIVALENTS - BEGINNING 15,572,862 11,344,113
------------ ------------
CASH AND EQUIVALENTS - ENDING $ 17,973,101 $ 10,346,189
============ ============
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
6
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America 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 months ended March 31,
2006 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2006.
The audited financial statements at December 31, 2005, which were included
in the Company's Form 10-K filed on March 16, 2006, should be read in
conjunction with these condensed consolidated financial statements.
Unless otherwise indicated or the context requires, all references in this
Form 10-Q to the "Company" refers to Metropolitan Health Networks, Inc. and
its consolidated subsidiaries.
SEGMENT REPORTING
The Company applies Financial Accounting Standards Boards ("FASB") Statement
No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The Company has considered its operations and has determined
that, in 2005, it operated, and continues to operate in 2006, in two
segments for purposes of presenting financial information and evaluating
performance, a Provider Service Network (managed care and direct medical
services) (the "PSN"), operated through its wholly owned subsidiary, Metcare
of Florida, Inc., and a Medicare Advantage HMO (the "HMO"), operated through
its wholly owned subsidiary Metcare Health Plans, Inc.
As such, the accompanying financial statements present information in a
format that is consistent with the financial information used by management
for internal use. See "Note 6. Business Segment Information" for additional
information regarding the Company's business segments.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. From time to time, the
Company maintains cash balances with financial institutions in excess of
federally insured limits.
SHORT-TERM INVESTMENTS
All investments with original maturities of greater than 90 days are
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company determines the appropriate classification at the
time of purchase. As of March 31, 2006, the Company's short-term investments
consisted of certificates of deposit classified as available-for-sale. All
income generated from these short-term investments during the quarter ended
March 31, 2006 was recorded as interest income.
LONG-TERM INVESTMENTS
Long-term investments, which consist of an equity interest in a
non-assessable reciprocal insurance organization through which the Company
has renewed its malpractice insurance, are carried at cost. If an impairment
occurs that is not considered temporary, the investment will be written down
to net realizable value.
7
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
which requires income taxes to be accounted for under the asset and
liability method. Under this method, deferred income tax assets and
liabilities are determined based upon differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in earnings in the
period that includes the enactment date.
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. After consideration of all the evidence, both positive and
negative (including, among others, projections of future taxable income,
current year net operating loss carryforward utilization and the Company's
profitability in recent years), the Company determined that future
realization of its deferred tax assets was more likely than not. In the
event it is determined that it is more likely than not that the Company
would not be able to realize all or part of its net deferred tax assets in
the future, an adjustment to record a deferred tax asset valuation allowance
would be charged to income in the period such determination would be made.
Changes in deferred tax assets are reflected in the "Income Taxes" expense
line of the Company's Condensed Consolidated Statements of Operations.
Due to the availability of deferred tax assets during the quarter ended
March 31, 2006, the Company has not recorded any amounts payable for U.S.
federal income taxes and does not expect any cash outlay to be required in
connection with the income tax provisions.
REVENUE RECOGNITION
The Company's PSN is a party to two managed care contracts with Humana, Inc.
(the "Humana Agreements") and provides medical care to its patients through
wholly-owned and contracted independent medical practices and providers
(collectively, the "Affiliated Providers"). Accordingly, the PSN receives a
monthly fee for each patient that chooses one of the Affiliated Provides as
his or her primary care physician in exchange for the PSN's assumption of
responsibility for the provision of all necessary medical services to such
patient, even those medical services not directly provided by one of the
Affiliated Providers. Fees received by the PSN under these Humana Agreements
are reported as revenues. The cost of both Affiliated Provider and
non-Affiliated Provider services under these Humana Agreements are not
included as a deduction to net revenues of the Company, but are reported as
an operating expense. Changes in revenues resulting from the periodic
changes in risk adjustment scores are recognized when the amounts become
determinable and the collectibility is reasonably assured. In connection
with the Humana Agreements, the Company is exposed to losses to the extent
of the PSN's share of deficits, if any, on its Affiliated Providers. The
PSN's share of deficits is 100% for Medicare Part A in the Central Florida
market, 50% for Medicare Part A in the South Florida market and 100% for
Medicare Part B in both the Central Florida and South Florida market.
Revenues generated under the Humana Agreements accounted for approximately
91% and 99% of the Company's total revenues for the three months ended March
31, 2006 and 2005, respectively.
Humana may immediately terminate either of the Humana Agreements and/or any
individual physician credentialed under the Humana Agreements, upon written
notice, (i) if the PSN and/or any of its Affiliated Provider's continued
participation may adversely affect the health, safety or welfare of any
Humana member or bring Humana into disrepute; (ii) in the event of one of
the PSN's physician's death or incompetence; (iii) if any of the PSN's
physicians fail to meet Humana's credentialing criteria; (iv) in accordance
with Humana's policies and procedures as specified in Humana's manual, (v)
if the PSN engages in or acquiesces to any act of bankruptcy, receivership
or reorganization; or (vi) if Humana loses its authority to do business in
total or as to any limited segment or business (but only to that segment).
The PSN and Humana may also each terminate each of the Humana Agreements
upon 90 days' prior written notice (with a 60 day opportunity to cure, if
possible) in the event of the other's material breach of the applicable
Humana Agreement.
Failure to maintain the Humana Agreements on favorable terms, for any
reason, would adversely affect the Company's results of operations and
financial condition.
8
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company also recognizes non-Humana fee-for-service revenues, net of
contractual allowances, as medical services are provided to patients by the
Company's wholly-owned medical practices. These services are typically
billed to patients, Medicare, Medicaid, health maintenance organizations and
insurance companies. The Company provides an allowance for uncollectible
amounts and for contractual adjustments relating to the difference between
standard charges and agreed upon rates paid by certain third party payers.
Effective July 1, 2005 the Company had the requisite Florida and federal
licenses, approvals and contract to begin marketing, enrolling and providing
services to Medicare beneficiaries through its own Medicare Advantage HMO.
The contract with the Centers for Medicare and Medicaid Services ("CMS")
renews on an annual basis. The HMO receives a monthly premium for each
enrollee in its plan and is responsible for the provision of all covered
medical services for that enrollee. Premium revenues are recognized as
income in the period members are entitled to receive services, and are net
of retroactive membership adjustments. Retroactive membership adjustments
result from enrollment changes not yet processed, or not yet reported by
CMS. Changes in revenues from CMS resulting from the periodic changes in
risk adjustment scores for the HMO's membership are recognized when the
amounts become determinable and the collectibility is reasonably assured.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs are expensed as incurred. Marketing and
advertising expense was approximately $974,000 and $400 for the three months
ended March 31, 2006 and 2005, respectively.
RECLASSIFICATION
Certain amounts reported in the comparative financial statements have been
reclassified to conform to the presentation for the period ended March 31,
2006.
USE OF ESTIMATES
Revenue, Expense and Receivables
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the accompanying financial statements. The most significant area
requiring estimates relates to the PSN's arrangements with Humana. Such
estimates are based on knowledge of current events and anticipated future
events, and accordingly, actual results may ultimately differ materially
from those estimates.
With regard to revenues, expenses and receivables arising from the Humana
Agreements, the Company estimates the amounts it believes will ultimately be
realizable based in part upon estimates of claims incurred but not reported
("IBNR") and estimates of retroactive adjustments or unsettled costs to be
applied by Humana. The IBNR estimates are made by Humana utilizing actuarial
methods and are continually evaluated by management of the Company based
upon its specific claims experience. It is reasonably possible that some or
all of these estimates could change in the near term by an amount that could
be material to the financial statements.
From time to time, Humana charges the PSN for certain medical expenses,
which the Company believes are erroneous or are not supported by the Humana
Agreements. Management's estimate of recovery on these contestations is
based upon its judgment and its consideration of several factors including
the nature of the contestations, historical recovery rates and other
qualitative factors.
During 2005, the Company incurred approximately $4.0 million of medical
costs related to the implantation of certain Implantable Automatic
Defibrillators ("AICD's"). CMS directed that the costs of certain of these
procedures that met 2005 eligibility requirements be paid by CMS, rather
than billed to Medicare Advantage plans. The Company is working with Humana
and the related providers to secure reimbursement for these amounts, and
estimated a recovery of approximately $2.2 million at December 31, 2005.
Approximately $137,000 of this amount was collected in the quarter ended
March 31, 2006, resulting in accounts receivable in the accompanying
consolidated balance sheets of $2.0 million and $2.2 million at March 31,
2006 and December 31, 2005, respectively. It is reasonably possible that
this estimate could change in the near term by an amount that could be
material to the financial statements.
9
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Included in revenues for the quarter ended March 31, 2006 were estimated
medical risk adjustment ("MRA") funding increases. The purpose of risk
adjustment is to use health status indicators to improve the accuracy of
payments and establish incentives for plans to enroll and treat less healthy
Medicare beneficiaries. From 2000 to 2003, risk adjusted payment accounted
for only 10% of Medicare health plans payment, with the remaining 90% based
on demographic factors. In 2004 and 2005, the portion of risk-adjusted
payment was increased to 30% and 50%, respectively. The portion of
risk-adjusted payment has increased to 75% in 2006, with the 100% phase-in
of risk-adjusted payment to be completed in 2007. Based on its applicable
risk scoring, the Company accrued MRA increases totaling approximately $1.2
million at March 31, 2006. These amounts, which are included in accounts
receivable in the accompanying consolidated balance sheets at March 31,
2006, are expected to be received in the second half of the year, consistent
with the timing of prior year payments. It is reasonably possible that this
estimate could change in the near term by an amount that could be material
to the financial statements.
Non-Humana fee for service accounts receivable, aggregating to approximately
$973,000 and $797,000 at March 31, 2006 and December 31, 2005, respectively,
relate principally to medical services provided on a non-capitated basis,
and are reduced by amounts estimated to be uncollectible (approximately
$661,000 and $555,000 at March 31, 2006 and December 31, 2005,
respectively). Management's estimate of uncollectible amounts is based upon
its analysis of historical collections and other qualitative factors,
however it is possible the company's estimate of uncollectible amounts could
change in the near term. In addition, accounts receivable at March 31, 2006
and December 31, 2005 includes approximately $9,000 and $159,000,
respectively, due to the HMO from CMS and HMO enrollees.
With regards to the HMO, the cost of medical benefits is recognized in the
period in which services are provided and includes an IBNR estimate based on
management's best estimate of medical benefits payable. It is reasonably
possible that some or all of these estimates could change in the near term
by an amount that could be material to the financial statements.
Accounting for Prescription Drug Benefits under Medicare Part D
On January 1, 2006, the Company's HMO and PSN, through the Humana
Agreements, began covering prescription drug benefits in accordance with the
requirements of Medicare Part D, to its HMO's and PSN's Medicare Advantage
members. The benefits covered under Medicare Part D are in addition to the
benefits covered by the HMO and the PSN under Medicare Parts A and B.
In general, pursuant to Medicare Part D, pharmacy benefits may vary in terms
of coverage levels and out-of-pocket costs for beneficiary premiums,
deductibles and co-insurance. However, all Part D plans must offer either
"standard coverage" or its actuarial equivalent (with out-of-pocket
threshold and deductible amounts that do not exceed those of standard
coverage). These "defined standard" benefits represent the minimum level of
benefits mandated by Congress. In addition to defined standard plans offered
by the HMO, the PSN, through the Humana Agreements, offers prescription drug
plans containing benefits in excess of the standard coverage limits.
The payment the Company's HMO receives monthly from the Centers for Medicare
and Medicaid Services, or CMS, generally represents its bid amount for
providing insurance coverage. It recognizes premium revenue for providing
this insurance coverage ratably over the term of its annual contract.
However, its CMS payment is subject to 1) risk corridor adjustments and 2)
subsidies in order for the HMO and CMS to share the risk associated with
financing the ultimate costs of the Part D benefit.
The amount of revenue payable to a plan by CMS is subject to adjustment,
positive or negative, based upon the application of risk corridors that
compare a plan's revenues targeted in their bids ("target amount') to actual
prescription drug costs. Variances exceeding certain thresholds may result
in CMS making additional payments to the HMO or require the HMO to refund to
CMS a portion of the payments it received. Actual prescription drug costs
subject to risk sharing with CMS are limited to the costs that are, or would
have been, incurred under the CMS "defined standard" benefit plan
("allowable risk corridor costs"). The Company estimates and recognizes an
adjustment to premium revenues related to the risk corridor payment
adjustment based upon pharmacy claims experience to date as if the annual
contract were to end at the end of each reporting period. Accordingly, this
estimate provides no consideration to future pharmacy claims experience. It
is reasonably possible that this estimate could change in the near term by
an amount that could be material.
10
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Certain subsidies represent reimbursements from CMS for claims the HMO paid
for which it assumes no risk, including reinsurance payments and low-income
cost subsidies. Claims paid above the out-of-pocket or catastrophic
threshold for which the HMO is not at risk are all reimbursed by CMS through
the reinsurance subsidy plans. Low-income cost subsidies represent
reimbursements from CMS for all or a portion of the deductible, the
coinsurance and the co-payment amounts for low-income beneficiaries. The
Company accounts for these subsidies as current liabilities in its balance
sheet and as an operating activity in its statement of cash flows. The
Company does not recognize premium revenue or claims expense for these
subsidies.
The HMO recognizes pharmacy benefit costs as incurred. It has subcontracted
the pharmacy claims administration to a third party pharmacy benefit
manager.
With regards to PSN, the Company receives Medicare Part D revenue pursuant
to the applicable percent of premium provided for in the Humana Agreements.
Humana does not provide the Company with a separate accounting for Part D
premium and expense. As with its HMO, the Company recognizes pharmacy
benefit costs as such costs are incurred by the PSN. With regards to the
estimated amount of any risk corridor adjustments, the Company has relied
upon estimates provided by Humana to the Company and has recorded an
downward adjustment to premium revenue based on these estimates. It is
reasonably possible that this estimate could change in the near term by an
amount that could be material.
Deferred Tax Asset
The Company has recorded a deferred tax asset of approximately $7.6 million
at March 31, 2006. Realization of the deferred tax asset is dependent on
generating sufficient taxable income in the future. The amount of the
deferred tax asset considered realizable could change in the near term if
estimates of future taxable income are modified and those changes could be
material.
ACCOUNTS RECEIVABLE
Accounts receivable at March 31, 2006 and December 31, 2005 were as follows:
March 31, 2006 December 31, 2005
Humana accounts receivable, net $4,193,000 $3,782,000
Non-Humana accounts receivable, net
320,000 402,000
---------- ----------
Accounts receivable, net $4,513,000 $4,184,000
========== ==========
EARNINGS PER SHARE
The Company applies Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") which requires presentation of both basic
net income per share and diluted net income per share. Basic earnings 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 and
warrants, convertible debt and preferred stock convertible into shares of
common stock.
11
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months
ended March 31,
2006 2005
------------ ------------
Net Income $ 672,000 $ 1,145,000
Less: Preferred stock dividend (13,000) (13,000)
------------ ------------
Income available to common shareholders $ 659,000 $ 1,132,000
============ ============
Denominator:
Weighted average common shares outstanding 49,860,000 48,120,000
============ ============
Basic earnings per common share $ 0.01 $ 0.02
============ ============
Income available to common shareholders $ 659,000 $ 1,132,000
============ ============
Denominator:
Weighted average common shares outstanding 49,860,000 48,120,000
Common share equivalents of outstanding stock:
Options and warrants 1,344,000 4,133,000
------------ ------------
Weighted average common shares outstanding 51,204,000 52,253,000
============ ============
Diluted earnings per common share $ 0.01 $ 0.02
============ ============
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 151, "Inventory Costs"
("SFAS No. 151"), which is effective for fiscal periods beginning after June
15, 2005. This statement clarifies the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material. These
items are required to be recognized as current period charges regardless of
whether they meet the criterion of "so abnormal." The adoption of SFAS No.
151 did not have a material impact on the Company's financial statements.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchange of Non-Monetary Assets" ("SFAS No. 153"), which
is effective for fiscal periods beginning after June 15, 2005. In the past,
the net book value of the assets relinquished in a non-monetary transaction
was used to measure the value of the assets exchanged. Under SFAS No. 153,
assets exchanged in a non-monetary transaction will be at fair value instead
of the net book value of the asset relinquished, as long as the transaction
has commercial substance and the fair value of the assets exchanged is
determinable within reasonable limits. The adoption of SFAS No. 153 did not
have a material effect on the Company's financial statements.
SFAS No. 154, Accounting Changes and Error Corrections, was issued in May
2005 and replaces APB Opinion No. 20 (Accounting Changes) and SFAS No. 3
(Reporting Accounting Changes in Interim Financial Statements). SFAS No. 154
requires retrospective application for voluntary changes in accounting
principle in most instances and is required to be applied to all accounting
changes made in fiscal years beginning after December 15, 2005. The Company
adopted SFAS No. 154 on January 1, 2006 and it did not have a material
impact on the Company's consolidated financial condition or results of
operations.
================================================================================
NOTE 2. DEBT
--------------------------------------------------------------------------------
On May 6, 2005 the Company executed an unsecured commercial line of credit
agreement with a bank, which provided for borrowings and issuance of letters
of credit of up to $1.0 million. The credit line expired on March 31, 2006
and was automatically renewed with a new expiration date of March 31, 2007.
The outstanding balance, if any, bears interest at the bank's prime rate.
The credit facility requires the Company to comply with certain financial
covenants, including a minimum liquidity requirement of $2.0 million. The
availability under the line of credit secures a $1.0 million letter of
credit that the Company has caused to be issued in favor of Humana. As of
March 31, 2006, the Company has not utilized this commercial line of credit.
12
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOTE 3. STOCK BASED COMPENSATION
--------------------------------------------------------------------------------
The Company has three stock option plans that are administered by the
Compensation Committee of the Board of Directors. The 2001 Stock Option Plan
and the Supplemental Stock Option Plan have 1,110,110 and 1,635,400
outstanding options granted under the plans, respectively, as of March 31,
2006. The Company does not intend to issue additional options from either
plan in the future. The Omnibus Equity Compensation Plan (the "Omnibus
Plan") provides for the grant of non-qualified or incentive stock options
and other stock based awards to directors, executives and key employees of
the Company, as well as to any other persons approved by the Compensation
Committee. A total of 6,000,000 shares of Metropolitan's common stock are
authorized for issuance pursuant the Omnibus Plan. As of March 31, 2006,
options to purchase 2,775,133 shares of the Company's common stock had been
granted pursuant to the Omnibus Plan. Under the Omnibus Plan, options are
granted at the fair market value of the stock at the date of grant and
expire no later than 10 years after the date of grant. Options granted under
this Omnibus Plan generally vest for periods up to four years.
Prior to January 1, 2006, the Company followed Accounting Principles Board
Opinion No. 25, ("APB No. 25"), "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for its employee stock options.
Under APB No. 25, when the exercise price of the Company's employee stock
options equaled or exceeded the market price of the underlying stock on the
date of grant, no compensation expense was recognized. Stock options issued
to independent contractors or consultants were accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 123, ("SFAS
No. 123"), "Accounting for Stock-Based Compensation." For the three months
ended March 31, 2005, no stock-based employee compensation expense was
recognized in the accompanying condensed consolidated statement of income.
Effective January 1, 2006, the Company adopted SFAS No. 123(R) ("SFAS No.
123(R)"), "Share-Based Payment," which is a revision of SFAS No. 123, using
the modified prospective transition method and therefore has not restated
prior periods' results. Under the transition method, stock-based
compensation expense for the first quarter of fiscal 2006 included
compensation expense for all stock-based compensation awards granted prior
to, but not yet vested as of, January 1, 2006, based on the grant date fair
value estimated in accordance with the original provision of SFAS No. 123.
Stock-based compensation expense for all share-based payment awards granted
after January 1, 2006 is based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123(R).
The Company calculates the fair value of employee stock options using a
Black-Scholes option pricing model at the time the stock options are granted
and that amount is amortized on a straight-line basis over the vesting
period of the stock options, which is generally up to four years. No options
were granted during the three-month period ended March 31, 2006.
As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company's
income before income taxes and net income for the quarter ended March 31,
2006 were approximately $202,000 and $126,000 lower, respectively, than if
it had continued to account for share-based compensation under APB No. 25.
The total income tax benefit recognized in the income statement for
share-based compensation was $76,000 for the quarter ended March 31, 2006.
Basic and diluted earnings per share for the quarter ended March 31, 2006
would have remained unchanged at $.01, if the Company had not adopted SFAS
No. 123(R).
SFAS No. 123(R) requires the tax benefits resulting from tax deductions in
excess of the compensation cost recognized for options (excess tax benefits)
to be classified as financing cash flows. For the quarter ended March 31,
2006, the Company had net operating loss carryforwards and did not recognize
any tax benefits resulting from the exercise of stock options because the
related tax deductions would not have resulted in a reduction of income
taxes payable. During the quarter ended March 31, 2006, the Company issued
25,000 shares of common stock resulting from the exercise of stock options.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123 for the quarter ended March 31, 2005. For purposes of this pro
forma disclosure, the fair value of these options were estimated at the date
of grant using a Black-Scholes option pricing model based on the following
assumptions for the quarter ended March 31, 2005: risk-free interest rate
from 3.09% to 3.65%; dividend yield of 0%; volatility factor of the expected
market price of the Company's common stock of 50%; and expected option lives
ranging from two to four and one-half years, depending on the vesting
provisions of each option. The expected life of the options is based on the
historical exercise behavior of the Company's employees. The expected
volatility factor is based on the historical volatility of the market price
of the Company's common stock. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The Company's pro forma information follows:
13
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three months ended
March 31, 2005
-------------
Net income, as reported $ 1,145,000
Less: Total stock-based employee compensation
expense determined under SFAS No. 123
for all awards, net of related tax (259,000)
-------------
Pro forma net income $ 886,000
=============
Earnings per share:
Basic, as reported $ 0.02
=============
Basic, pro forma $ 0.02
=============
Diluted, as reported $ 0.02
=============
Diluted, pro forma $ 0.02
=============
Stock option activity as of March 31, 2006 and changes during the quarter
ended March 31, 2006 were as follows:
Aggregate
Number of Weighted Average Intinsic
Options Exercise Price Value
----------------------------------------------------------------
Balance, December 31, 2005 6,385,810 $ 1.63
Granted - $ -
Exercised and returned (25,000) $ 0.35
Forfeited and expired (840,167) $ 2.69
------------------
Balance, March 31, 2006 5,520,643 $ 1.47 $ 4,655,908
==================
Exercisable, March 31, 2006 3,384,728 $ 1.21 $ 4,008,089
==================
The weighted-average grant-date fair value of options granted during the
quarter ended March 31, 2005 was $2.81. The aggregate intrinsic value in the
table above represents the total pretax intrinsic value (the difference
between the Company's closing stock price on the last trading day of the
first quarter of fiscal 2006 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by the option
holders had all option holders exercised their options on March 31, 2006.
This amount will change based on the fair market value of the Company's
stock. Total intrinsic value of options exercised for the quarter ended
March 31, 2006 was $45,500. Total fair value of options vested and expensed
for the quarter ended March 31, 2006 was $30,242, net of tax.
As of March 31, 2006, there was $1,089,432 of total unrecognized
compensation cost related to non-vested stock options, which is expected to
be recognized over a weighted-average period of 1.51 years.
14
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table summarizes information about stock options outstanding
and exercisable at March 31, 2006:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted Average Weighted Weighted Average
Number of Average Remaining Number of Average Remaining
Exercise Price Options Exercise Price Contractual Life Options Exercise Price Contractual Life
----------------------------------------------------------------------- ----------------------------------------------------
$0.30 - $1.00 2,310,510 $0.54 2.48 2,260,510 $ 0.53 2.40
$1.14 - $1.92 2,365,833 $1.81 8.15 791,718 $ 1.78 7.23
$2.05 - $2.83 644,300 $ 2.30 7.89 132,500 $ 2.53 1.77
$4.00 - $6.50 200,000 $ 5.63 0.93 200,000 $ 5.63 0.93
----------- ----------
5,520,643 $ 1.47 5.48 3,384,728 $ 1.21 3.42
=========== ==========
Nonvested stock awards as of March 31, 2006 and changes during the quarter
ended March 31, 2006 were as follows:
Weighted Average
Number of Grant-Date
Shares Fair Value
-------------- -----------------
Nonvested, December 31, 2005
2,337,782 $ 1.93
Granted - $ -
Vested (87,500) $ 1.60
Forfeited and expired (114,367) $ 2.81
---------
Nonvested, March 31, 2006 2,135,915 $ 1.90
=========
================================================================================
NOTE 4. STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
The Company issued 25,000 shares of common stock in connection with the
exercise of stock options during the first three months of 2006.
================================================================================
NOTE 5. COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
LITIGATION
The Company is party to certain claims arising in the ordinary course of
business. Management believes that the outcome of these matters will not
have a material adverse effect on the financial position or the results of
operations of the Company.
15
METROPOLITAN HEALTH NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
NOTE 6. BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------
In 2006, the Company is operating in two segments for purposes of presenting
financial information and evaluating performance, the Provider Service
Network (the "PSN") (managed care and direct medical services) and the HMO.
The Company's Medicare Advantage HMO commenced operations effective July 1,
2005.
THREE MONTHS ENDED MARCH 31, 2006 PSN HMO Total
--------------------------------- ------------ -------------- ------------
Revenues from external customers $ 50,744,000 $ 4,690,000 $ 55,434,000
Segment gain (loss) before allocated overhead 4,621,000 (1,928,000) 2,693,000
Allocated corporate overhead 944,000 667,000 1,611,000
Segment gain (loss) after allocated overhead and
before income taxes 3,677,000 (2,595,000) 1,082,000
Segment assets 19,527,000 13,732,000 33,259,000
THREE MONTHS ENDED MARCH 31, 2005 PSN HMO Total
--------------------------------- ------------ -------------- ------------
Revenues from external customers $ 45,520,000 $ - $ 45,520,000
Segment gain (loss) before allocated overhead
3,788,000 (699,000) 3,089,000
Allocated corporate overhead
1,021,000 226,000 1,247,000
Segment gain (loss) after allocated overhead
and before income taxes 2,767,000 (925,000) 1,842,000
Segment assets
23,114,000 2,248,000 25,362,000
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005, AS WELL AS THE
FINANCIAL STATEMENTS AND NOTES THERETO.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Sections of this Quarterly Report contain statements that are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Company intends that such forward-looking statements be
subject to the safe harbors created thereby. Statements in this Report
containing the words "estimate," "project," "anticipate," "expect," "intend,"
"believe," "will," "could," "should," "may," and similar expressions may be
deemed to create forward-looking statements. Accordingly, such statements,
including without limitation, those relating to the Company's future business,
prospects, revenues, working capital, liquidity, capital needs, interest costs
and income, wherever they may appear in this document or in other statements
attributable to the Company, involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Specifically, this Quarterly Report contains
forward-looking statements, including the following:
o the PSN's ability to renew the Humana Agreements and maintain the
Humana Agreements on favorable terms;
o the Company's ability to adequately predict and control medical
expenses and to make reasonable estimates and maintain adequate
accruals for incurred but not reported, or IBNR, claims;
o the HMO's ability to renew, maintain or to successfully rebid for
its agreement with CMS;
The forward-looking statements reflect the Company's current view about future
events and are subject to risks, uncertainties and assumptions. The Company
wishes to caution readers that certain important factors may have affected and
could in the future affect its actual results and could cause actual results to
differ significantly from those expressed in any forward-looking statement. The
following important factors could prevent the Company from achieving its goals
and cause the assumptions underlying the forward-looking statements and the
actual results to differ materially from those expressed in or implied by those
forward-looking statements:
o reductions in government funding of Medicare programs;
o disruptions in the HMO's or Humana's healthcare provider networks;
o failure to receive claims processing, billing services, data
collection and other information on a timely basis from Humana;
o future legislation and changes in governmental regulations;
o increased operating costs;
o the impact of Medicare Risk Adjustments on payments the Company
receives for its managed care operations;
o loss of significant contracts;
o general economic and business conditions;
o increased competition;
o the relative health of the Company's patients;
o changes in estimates and judgments associated with our critical
accounting policies;
o federal and state investigations;
17
o our ability to successfully recruit and retain key management
personnel and qualified medical professionals; and
o impairment charges that could be required in future periods.
Additional information concerning these and other risks and uncertainties is
contained in the Company's filings with the Securities and Exchange Commission
(the "Commission"), including the section entitled "Risk Factors" in its Annual
Report on Form 10-K for the year ended December 31, 2005.
Forward-looking statements should not be relied upon as a prediction of actual
results. Subject to any continuing obligations under applicable law or any
relevant listing rules, the Company expressly disclaims any obligation to
disseminate, after the date of this Quarterly Report on Form 10-Q, any updates
or revisions to any such forward-looking statements to reflect any change in
expectations or events, conditions or circumstances on which any such statements
are based.
BACKGROUND
Through its provider service network ("PSN") and its health maintenance
organization ("HMO"), Metropolitan currently provides healthcare benefits to
Medicare beneficiaries in Florida. As of March 2006, the PSN and HMO provided
healthcare benefits to approximately 26,000 and 2,200 Medicare Advantage
beneficiaries, respectively (collectively, the "Participating Members").
As of March 31, 2006, substantially all of the Company's revenues were directly
or indirectly derived from reimbursements generated by Medicare Advantage health
plans. As a result, the Company's revenue and profitability are dependent on
government funding levels for Medicare Advantage programs.
Provider Service Network
Pursuant to two contracts with Humana, Inc. (the "Humana Agreements"), the
second largest participant in the Medicare Advantage program ("Humana"), the PSN
provides, on a non-exclusive basis, healthcare services to Medicare
beneficiaries in Flagler and Volusia Counties ("Central Florida") and Palm
Beach, Broward and Miami-Dade Counties ("South Florida") who have elected to
receive benefits from Humana's Medicare Advantage Plan. As of March 31, 2006,
the Humana Agreements covered approximately 19,500 Humana Plan Members (as
defined below) in Central Florida and 6,500 Humana Plan Members in South
Florida.
The PSN is comprised both of medical practices owned by the Company as well as
independently owned medical practices and providers with whom it has contracted
("IPs"). The Company currently owns and operates eight primary care physician
practices and a medical oncology physician practice. The Company also contracts
with twenty-nine primary care IPs. Through its Humana Agreements, the PSN has
established referral relationships with a large number of specialist physicians,
ancillary service providers and hospitals throughout South Florida and Central
Florida.
Humana directly contracts with the Centers for Medicare and Medicaid Services
("CMS") and is paid a fixed monthly premium payment for each member ("Humana
Plan Member") enrolled in Humana's Medicare Advantage Plan. The monthly amount
varies by patient, county, age and severity of health status. Pursuant to the
Humana Agreements, the PSN provides or arranges for the provision of covered
medical services to each Humana Plan Member who selects one of the Company's
affiliated providers as his or her primary care physician (a "Humana
Participating Member"). In return for the provision of these medical services,
the PSN receives from Humana a monthly fee, also known as a "capitated fee", for
each Humana Participating Member. The fee rates are established by the contracts
between the PSN and Humana and comprise a vast majority of the monthly premiums
received by Humana from CMS with respect to Humana Participating Members.
The PSN assumes the full financial responsibility for the provision of all
Medicare-covered medical care to Humana Participating Members, including those
medical services that the PSN does not itself provide. To the extent the costs
of providing such medical care are less than the related premiums receivable
from Humana, the PSN generates an operating profit. Conversely, if the medical
costs exceed the fees receivable from Humana, the PSN experiences an operating
loss.
18
The vast majority of the PSN's revenues come from the Humana Agreements. The
Company does receive additional revenue for providing primary care services to
non-Humana Plan Members on a fee-for-service basis in the medical practices it
owns and operates.
For the three months ended March 31, 2006, approximately 91% of Metropolitan's
revenue came from the Humana Agreements. The Humana Agreements have one-year
terms and renew automatically each December 31 for additional one-year terms
unless terminated for cause or upon 180 days' prior notice. Failure to maintain
the Humana Agreements on favorable terms would adversely affect Metropolitan's
results of operations and financial condition.
Health Maintenance Organization
Effective July 1, 2005, METCARE Health Plans, Inc., the Company's wholly owned
subsidiary ("HMO"), became licensed as a Medicare Advantage HMO and entered into
a contract with CMS (the "CMS Contract") to begin offering Medicare Advantage
plans to Medicare beneficiaries in six Florida counties which include the cities
of Fort Pierce, Port St. Lucie, Fort Myers, Port Charlotte and Sarasota. The HMO
has been marketing its "AdvantageCare" branded plan since July 2005. The HMO is
seeking to expand its HMO and as of March 2006, the total number of enrollees in
its plan was approximately 2,200.
In addition to growth within existing service areas, the HMO has been exploring
the expansion of its HMO business into new geographic areas. However,
Metropolitan does not intend to provide HMO services in the geographic markets
with respect to which the PSN has a contract with Humana. Metropolitan views its
HMO business as an extension of its existing core competencies.
The HMO's revenues are generated by premiums consisting of monthly payments per
member that are established by the CMS Contract. The HMO recorded its first
revenues in the third quarter of fiscal 2005.
The Humana Agreements and the CMS Contract are risk agreements under which the
PSN and HMO, respectively, receive monthly payments per Participating Member at
a rate established by the agreements, also called a capitated fee. In accordance
with the agreements, the total monthly payment is a function of the number of
Participating Members, regardless of the actual utilization rate of covered
services.
To the extent that the Participating Members require more care than is
anticipated, aggregate capitation rates may be insufficient to cover the costs
associated with the treatment of such members. If medical expenses exceed the
Company's estimates, except in very limited circumstances, it will be unable to
increase the premiums it receives under these contracts during the then-current
terms.
Relatively small changes in the Company's ratio of medical expense to revenue
can create significant changes in its financial results. Accordingly, the
failure to adequately predict and control medical expenses and to make
reasonable estimates and maintain adequate accruals for incurred but not
reported, or IBNR, claims, may have a material adverse effect on the Company's
financial condition, results of operations and/or cash flows.
The Company anticipates that, for at least the next twelve months, the HMO's
ongoing development efforts, reserve requirements and operating costs will be
funded by the Company's current cash resources and projected cash flows from
operations, and expects to lose approximately $3.0 million to $5.0 million in
2006 for this continued development. The HMO has filed expansion applications
for several additional Florida counties. While no assurance is given that
approval will be granted to operate in any or all of these counties, the Company
has been investing resources in network development efforts for this expansion.
Enrollments in these new markets could begin as early as January 2007, with
marketing and sales efforts commencing in late 2006. No assurance can be given
that the Company will be successful in operating this segment of its business
despite its allocation of a substantial amount of resources for this purpose. If
the HMO does not develop as previously anticipated or planned, the HMO could
continue to incur losses and the Company may have to devote additional
managerial and/or capital resources to the HMO, which could limit the Company's
ability to manage and/or grow the PSN.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 1 of the "Notes to
Condensed Consolidated Financial Statements" included in this Form 10-Q. We
believe our most critical accounting policies include the policies set forth
below.
19
Use of Estimates, Revenue, Expense and Receivables
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the accompanying
financial statements. The most significant area requiring estimates relates to
the PSN's arrangements with Humana. Such estimates are based on knowledge of
current events and anticipated future events, and accordingly, actual results
may ultimately differ materially from those estimates.
With regard to revenues, expenses and receivables arising from the Humana
Agreements, the Company estimates the amounts it believes will ultimately be
realizable based in part upon estimates of claims incurred but not reported
("IBNR") and estimates of retroactive adjustments or unsettled costs to be
applied by Humana. The IBNR estimates are made by Humana utilizing actuarial
methods and are continually evaluated by management of the Company based upon
its specific claims experience. It is reasonably possible that some or all of
these estimates could change in the near term by an amount that could be
material to the financial statements.
From time to time, Humana charges the PSN for certain medical expenses, which
the Company believes are erroneous or are not supported by the Humana
Agreements. Management's estimate of recovery on these contestations is based
upon its judgment and its consideration of several factors including the nature
of the contestations, historical recovery rates and other qualitative factors.
During 2005, the Company incurred approximately $4.0 million of medical costs
related to the implantation of certain Implantable Automatic Defibrillators
("AICD's"). CMS has directed that the costs of certain of these procedures that
meet 2005 eligibility requirements be paid by CMS, rather than billed to
Medicare Advantage plans. The Company is working with Humana and the related
providers to secure reimbursement for these amounts, and has estimated a
recovery of approximately $2.2 million at December 31, 2005. Approximately
$137,000 of this amount was collected in the quarter ended March 31, 2006,
resulting in accounts receivable in the accompanying consolidated balance sheets
of $2.0 million and $2.2 million at March 31, 2006 and December 31, 2005,
respectively. It is reasonably possible that this estimate could change in the
near term by an amount that could be material to the financial statements.
Included in revenues for the quarter ended March 31, 2006 were estimated medical
risk adjustment ("MRA") funding increases. The purpose of risk adjustment is to
use health status indicators to improve the accuracy of payments and establish
incentives for plans to enroll and treat less healthy Medicare beneficiaries.
From 2000 to 2003, risk adjusted payment accounted for only 10% of Medicare
health plans payment, with the remaining 90% based on demographic factors. In
2004 and 2005, the portion of risk-adjusted payment was increased to 30% and
50%, respectively. The portion of risk-adjusted payment has increased to 75% in
2006, with the 100% phase-in of risk-adjusted payment to be completed in 2007.
Based on its applicable risk scoring, the Company accrued MRA increases totaling
approximately $1.2 million at March 31, 2006. These amounts, which are included
in accounts receivable in the accompanying consolidated balance sheets at March
31, 2006, are expected to be received in the second half of the year, consistent
with the timing of prior year payments. It is reasonably possible that this
estimate could change in the near term by an amount that could be material to
the financial statements.
Accounting for Prescription Drug Benefits under Medicare Part D
On January 1, 2006, the Company's HMO and PSN, through the Humana Agreements,
began covering prescription drug benefits in accordance with the requirements of
Medicare Part D, to its HMO's and PSN's Medicare Advantage members. The benefits
covered under Medicare Part D are in addition to the benefits covered by the HMO
and the PSN under Medicare Parts A and B.
In general, pursuant to Medicare Part D, pharmacy benefits may vary in terms of
coverage levels and out-of-pocket costs for beneficiary premiums, deductibles
and co-insurance. However, all Part D plans must offer either "standard
coverage" or its actuarial equivalent (with out-of-pocket threshold and
deductible amounts that do not exceed those of standard coverage). These
"defined standard" benefits represent the minimum level of benefits mandated by
Congress. In addition to defined standard plans offered by the HMO, the PSN,
through the Humana Agreements, offers prescription drug plans containing
benefits in excess of the standard coverage limits.
The payment the Company's HMO receives monthly from the Centers for Medicare and
Medicaid Services, or CMS, generally represents its bid amount for providing
insurance coverage. It recognizes premium revenue for providing this insurance
coverage ratably over the term of its annual contract. However, its CMS payment
is subject to 1) risk corridor adjustments and 2) subsidies in order for the HMO
and CMS to share the risk associated with financing the ultimate costs of the
Part D benefit.
20
The amount of revenue payable to a plan by CMS is subject to adjustment,
positive or negative, based upon the application of risk corridors that compare
a plan's revenues targeted in their bids ("target amount') to actual
prescription drug costs. Variances exceeding certain thresholds may result in
CMS making additional payments to the HMO or require the HMO to refund to CMS a
portion of the payments it received. Actual prescription drug costs subject to
risk sharing with CMS are limited to the costs that are, or would have been,
incurred under the CMS "defined standard" benefit plan ("allowable risk corridor
costs"). The Company estimates and recognizes an adjustment to premium revenues
related to the risk corridor payment adjustment based upon pharmacy claims
experience to date as if the annual contract were to end at the end of each
reporting period. Accordingly, this estimate provides no consideration to future
pharmacy claims experience. It is reasonably possible that this estimate could
change in the near term by an amount that could be material.
Certain subsidies represent reimbursements from CMS for claims the HMO paid for
which it assumes no risk, including reinsurance payments and low-income cost
subsidies. Claims paid above the out-of-pocket or catastrophic threshold for
which the HMO is not at risk are all reimbursed by CMS through the reinsurance
subsidy plans. Low-income cost subsidies represent reimbursements from CMS for
all or a portion of the deductible, the coinsurance and the co-payment amounts
for low-income beneficiaries. The Company accounts for these subsidies as
current liabilities in its balance sheet and as an operating activity in its
statement of cash flows. The Company does not recognize premium revenue or
claims expense for these subsidies.
The HMO recognizes pharmacy benefit costs as incurred. It has subcontracted the
pharmacy claims administration to a third party pharmacy benefit manager.
With regards to PSN, the Company receives Medicare Part D revenue pursuant to
the applicable percent of premium provided for in the Humana Agreements. Humana
does not provide the Company with a separate accounting for Part D premium and
expense. As with its HMO, the Company recognizes pharmacy benefit costs as such
costs are incurred by the PSN. With regards to the estimated amount of any risk
corridor adjustments, the Company has relied upon estimates provided by Humana
to the Company and has recorded an downward adjustment to premium revenue based
on these estimates. It is reasonably possible that this estimate could change in
the near term by an amount that could be material.
Use of Estimates, Deferred Tax Asset
The Company has recorded a deferred tax asset of approximately $7.6 million at
March 31, 2006. Realization of the deferred tax asset is dependent on generating
sufficient taxable income in the future. The amount of the deferred tax asset
considered realizable could change in the near term if estimates of future
taxable income are modified and those changes could be material (see "Notes to
Consolidated Financial Statements," Note 1 - "Use of Estimates, Deferred Tax
Asset" and Note 1 - "Income Taxes").
In the future, if Metropolitan determines that it cannot, on a more likely than
not basis, realize all or part of its deferred tax assets in the future, an
adjustment to establish (or record an increase in) the deferred tax asset
valuation allowance would be charged to income in the period in which such
determination is made.
Stock-Based Compensation Expense
Effective January 1, 2006, the Company adopted SFAS 123(R) using the modified
prospective transition method. SFAS 123(R) requires the Company to recognize
compensation costs related to share-based payment transactions with employees in
its financial statements. SFAS 123(R) requires the Company to calculate this
cost based on the grant date fair value of the equity instrument. Consistent
with its prior disclosures under SFAS 123, the Company elected to calculate the
fair value of its employee stock options using the Black-Scholes option pricing
model. Based on the Black-Scholes model and its assumptions, the Company
recognized stock-based employee compensation expense of approximately $202,000
for the quarter ended March 31, 2006 (See "Notes to Condensed Consolidated
Financial Statements," Note 3.").
SFAS 123(R) does not require the use of any particular option valuation model.
Because the Company's stock options have characteristics significantly different
from traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, it is possible that existing models
may not necessarily provide a reliable measure of the fair value of the
Company's employee stock options. It selected the Black-Scholes model based on
prior experience with it, its wide use by issuers comparable to the Company, and
the Company's review of alternate option valuation models. Based on these
factors, the Company believes that the Black-Scholes model and the assumptions
it made in applying it provide a reasonable estimate of the fair value of its
employee stock options.
21
The effect of applying the fair value method of accounting for stock options on
reported net income for any period might not be representative of the effects
for future periods because outstanding options typically vest over a period of
several years and additional awards may be made in future periods.
RESULTS OF OPERATIONS
The Company recognized revenues of $55.4 million for the quarter ended March 31,
2006 compared to $45.5 million in the comparable prior year quarter, an increase
of $9.9 million, or 21.8%. Net income for the quarter ended March 31, 2006 was
$672,000 compared to $1.1 million for the quarter ended March 31, 2005.
As discussed above, the Company recognized stock-based employee compensation
expense of $202,000 for the quarter ended March 31, 2006 compared to none in the
prior year quarter.
Basic earnings per share were $0.01 and $0.02 for the quarters ended March 31,
2006 and 2005, respectively. The weighted average shares outstanding increased
from 48,120,000 at March 31, 2005 to 49,860,000 in the current year.
The current year operations include both the PSN segment and the operations of
the Company's start-up Medicare Advantage HMO segment, which began enrolling
members effective July 1, 2005. The PSN, prior to allocation of corporate
overhead and income taxes, reported income of $4.6 million for the quarter ended
March 31, 2006, compared to $3.8 million in the prior year period. The HMO
incurred a net loss before allocated overhead and income tax benefits of $1.9
million for the quarter ended March 31, 2006, compared to $700,000 in the prior
year period.
Membership
Total Medicare Advantage lives, the number of Medicare beneficiaries cared for
either the PSN or HMO, increased approximately 1,800 members from March 2005 to
a membership of approximately 28,250 in March 2006. Total March 2006 membership
for the PSN and HMO was 26,032 and 2,218, respectively. The HMO's marketing
efforts in March 2006 generated approximately 375 additional members effective
April 1, 2006. Member months, the combined total membership for each month of
the measurement period, were 83,932 and 79,629 for the 2006 and 2005 quarters,
respectively. Included in these numbers were approximately 5,932 member months
in the Company's HMO.
During 2005 the Company discontinued its contractual relationship with a number
of its South Florida physician practices due to non-compliance with the
Company's policies and procedures. These centers accounted for approximately
2,400 member months in the 2005 first quarter, with corresponding revenue and
medical expenses of $1.5 million and $1.6 million, respectively.
Comparison of the Quarters ended March 31, 2006 and March 31, 2005
REVENUES
Revenues for the quarter ended March 31, 2006 increased $9.9 million, or 21.8%,
over the prior year quarter, from $45.5 million to $55.4 million. PSN revenues
from Humana increased 12.0%, from $45.0 million to $50.4 million. Approximately
$6.4 million in incremental quarterly revenues were generated by 2006 premium
increases, inclusive of Part D premium, that averaged approximately 15.2% in the
Central Florida market and 12.1% in South Florida. These increases were
partially offset by the abovementioned decreases due to discontinued medical
practices.
Revenues for the Company's HMO, which began enrolling members in July 2005,
amounted to $4.7 million for the 2006 quarter. Included in this amount was
approximately $594,000 of revenue attributable to Medicare Part D premiums.
22
OPERATING EXPENSES
Total Medical Expenses
Medical expenses represent the total costs of providing patient care and are
comprised of two components. Direct medical costs represent costs incurred in
the PSN and HMO operations that are paid or payable to third parties including
physicians, hospitals and ancillary service providers on a capitated or fee for
service basis. Other medical costs represents the costs associated with the
operations of the Company's wholly owned physician practices and oncology center
including salaries and benefits, supplies, malpractice insurance and office
related expenses. Medical expenses totaled $49.5 million and $41.2 million for
the quarters ended March 31, 2006 and 2005, respectively. The Company's medical
expense ratio ("MER"), the ratio of total medical expense to revenue, decreased
to 89.4% in the first quarter of 2006 from 90.4% in the first quarter of 2005,
with the Company's PSN reporting a 2006 first quarter MER of 89.2%.
Due to its small membership in the first quarter, the HMO's operations are
relatively volatile from a medical utilization standpoint. The first quarter
2006 results were adversely affected by several high-cost hospital admissions,
resulting in a MER of 91.0% for the segment. Management expects that volatility
will decline as membership grows and that the HMO's MER will decrease in future
periods.
All of the Company's Medicare Advantage members are enrolled in plans that
include the new prescription drug benefit, or Medicare Part D ("Part D"). With
regard to the HMO operations, Part D generated a gross margin of approximately
12%. Management expects that while the Part D margin will fluctuate as members
pass through various coverage tiers, annual results will not differ
significantly from the first quarter's results.
With regard to the PSN business, the accounting for Part D by Humana is
integrated with Medicare Parts A and B results. The Company is unable to isolate
the discrete Part D margin, however it is management's expectation that Part D
will not materially affect its overall MER in 2006 in this business.
Administrative Payroll, Payroll Taxes and Benefits
Administrative payroll, taxes and benefits include salaries and related costs
for the Company's executive and administrative staff. For the 2006 quarter,
administrative payroll, taxes and benefits were $2.4 million, compared to the
prior year quarter total of $1.3 million. The Company's HMO segment accounted
for $856,000 of the incremental current quarter's expense, with an additional
$150,000 due to 401(k) and bonus accruals and $202,000 attributable to the
expensing of stock options.
Marketing and Advertising
Marketing and advertising expense for the 2006 quarter was $974,000, compared to
only $371 in the prior year quarter. This primarily represents the costs and
sales commissions incurred to market and sell the Company's HMO AdvantageCare
product.
General and Administrative
General and administrative expenses for the first quarter of 2006 amounted to
$1.6 million, an increase of $213,000 over the prior year's quarter. The
Company's HMO segment accounted for the incremental expense, primarily in the
areas of outsourced claims processing and member services, insurance, printing
and postage.
OTHER INCOME AND EXPENSE
Other income and expenses for the 2006 quarter increased $73,000 over the 2005
quarter. Over the year the Company's cash and short-term investment balances
increased, as did interest rates, accounting for a $121,000 increase in interest
and investment income.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and equivalents and short-term investments at March 31, 2006 totaled
approximately $20.4 million as compared to approximately $15.6 million at
December 31, 2005. The Company had a working capital surplus of approximately
$21.9 million as of March 31, 2006, compared to a surplus of approximately $21.1
million as of December 31, 2005.
23
It should be noted that the Company received a fourth monthly premium payment
from CMS in the amount of approximately $2.2 million, representing premium due
for the month of April 2006. This amount is included as advance premiums on the
Company's balance sheet.
The company's total stockholder equity increased approximately $882,000, from
approximately $29.7 million at December 31, 2005 to approximately $30.6 million
at March 31, 2006.
At March 31, 2006, the Company had no outstanding debt.
During the quarter, the Company's cash and equivalents increased $2.4 million
over the balance at December 31, 2005. Net cash provided by operating activities
for the quarter provided approximately $5.1 million in cash and equivalents, of
which net income accounted for approximately $672,000. Other large sources of
cash from operating activities were:
o an increase in advance premiums of $2.2 million;
o an increase in estimated medical expenses payable of $1.2 million;
o an increase in accrued expenses of $550,000;
o an increase in accrued payroll of $441,000;
o a decrease in deferred income taxes of $410,000;
o stock-based compensation of $202,000;
o a decrease in other current assets of $161,000; and
o depreciation and amortization of $100,000.
These sources of cash were partially offset by the following uses of cash:
o a increase in accounts receivable of $329,000;
o an increase in prepaid expenses of $215,000;
o an increase in other assets of $189,000; and
o a decrease in accounts payable of $126,000.
Approximately $2.3 million of the $4.5 million balance in accounts receivable at
March 31, 2006 was collected in April 2006.
During 2005, the Company incurred approximately $4.0 million of medical costs
related to the implantation of certain Implantable Automatic Defibrillators
("AICD's"). CMS has directed that the costs of certain of these procedures that
meet 2005 eligibility requirements be paid by CMS, rather than billed to
Medicare Advantage plans. The Company is working with Humana and the related
providers to secure reimbursement for these amounts, and has estimated a
recovery of approximately $2.2 million at December 31, 2005, which was included
in accounts receivable. Approximately $137,000 of this amount was collected in
the quarter ended March 31, 2006.
Net cash used in investing activities for the quarter ended March 31, 2006 was
approximately $2.7 million. The Company purchased $2.4 million of short-term
investments and incurred $329,000 in capital expenditures during the quarter.
The Company's financing activities for the quarter ended March 31, 2006 provided
approximately $9,000 of cash in connection with the issuance of common stock
upon the exercise of outstanding options.
On May 6, 2005 the Company executed an unsecured commercial line of credit
agreement with a bank, which provided for borrowings and issuance of letters of
credit of up to $1.0 million. The credit line expired on March 31, 2006 and was
automatically renewed with a new expiration date of March 31, 2007. The
outstanding balance, if any, bears interest at the bank's prime rate. The credit
facility requires the Company to comply with certain financial covenants,
including a minimum liquidity requirement of $2.0 million. The availability
under the line of credit secures a $1.0 million letter of credit that the
Company has caused to be issued in favor of Humana. As of March 31, 2006, the
Company has not utilized this commercial line of credit.
24
The Company anticipates that the ongoing development efforts, reserve
requirements and operating costs for its developing HMO business can continue to
be funded by the Company's current resources and projected cash flows from
operations, and expects to lose approximately $3.0 million to $5.0 million in
2006 for this continued development. The Company's HMO currently operates in six
counties and has filed expansion applications for several additional Florida
counties. While no assurance is given that approval will be granted to operate
in any or all of these counties, the Company has been investing resources in
network development efforts for this expansion. Enrollments in these new markets
could begin as early as January 2007, with marketing and sales efforts
commencing in late 2006.
In 2004, Metropolitan adopted an investment policy with respect to the
investment of its cash and equivalents. The investment policy goal is to obtain
the highest yield possible while investing only in highly rated instruments or
investments with nominal risk of loss of principal. The investment policy sets
forth a list of "Permitted Investments" and provides that the Chief Financial
Officer or the Chief Executive Officer must approve any exceptions to the
policy.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any Off-Balance Sheet Arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk generally represents the risk of loss that may result from the
potential change in value of a financial instrument as a result of fluctuations
in interest rates and market prices. At March 31, 2006, the Company had only
certificates of deposit and cash equivalents invested in high grade, short-term
securities, which are not typically subject to material market risk. The Company
has established policies and internal processes related to the management of
market risks, which it uses in the normal course of its business operations.
Interest Rate Risk
The Company believes a change in interest rates would not have a material impact
on its financial condition, future results of operations or cash flows.
Intangible Asset Risk
The Company has a substantial amount of intangible assets. It is required to
perform goodwill impairment tests whenever events or circumstances indicate that
the carrying value may not be recoverable from estimated future cash flows. As a
result of its periodic evaluations, the Company may determine that the
intangible asset values need to be written down to their fair values, which
could result in material charges that could be adverse to its operating results
and financial position. Although at March 31, 2006 the Company believes its
intangible assets were recoverable, changes in the economy, the business in
which it operates and its own relative performance could change the assumptions
used to evaluate intangible asset recoverability. The Company continues to
monitor those assumptions and their effect on the estimated recoverability of
its intangible assets.
Equity Price Risk
The Company does not own any equity investments, other than in its subsidiaries.
As a result, it does not currently have any direct equity price risk.
Commodity Price Risk
The Company does not enter into contracts for the purchase or sale of
commodities. As a result, it does not currently have any direct commodity price
risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, which includes its Chief Executive Officer and our
Chief Financial Officer, conducted an evaluation of the effectiveness of its
disclosure controls and procedures (as defined in Rule 13a-15(e)
25
and 15d-15(e) promulgated under the Exchange Act as of the end of the period
covered by this report. Based upon that evaluation, its Chief Executive Officer
and Chief Financial Officer concluded that its disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to its management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
There have been no significant changes made in the Company's internal controls
over financial reporting that occurred during its last fiscal quarter that have
materially affected or are reasonably likely to materially affect its internal
control over financial reporting.
26
PART II OTHER INFORMATION
ITEM 1. SUMMARY OF LEGAL PROCEEDINGS
The Company is a party to various legal proceedings which are either
immaterial in amount to the Company and its subsidiaries or involve
ordinary routine litigation incidental to the business of the Company
and its subsidiaries. There are no material pending legal proceedings,
other than routine litigation incidental to the business of the Company
and its subsidiaries, to which the Company or any of its subsidiaries
is a party of or which any property of the Company or its subsidiaries
is the subject.
ITEM 1A. RISK FACTORS
There have been no material changes in our risk factors from those
disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS
3.1 Articles of Incorporation, as amended (1)
3.2 Amended and Restated Bylaws (2)
10.1 Physician Practice Management Participation Agreement, dated August
2, 2001, between Metropolitan of Florida, Inc. and Humana, Inc. (3)
10.2 Letter of Agreement, dated February 2003, between Metropolitan of
Florida, Inc. and Humana, Inc. (4)
10.3 Physician Practice Management Participation Agreement, dated
December 1,1998, between Metcare of Florida, Inc. and Humana, Inc.
(9)
10.4 Supplemental Stock Option Plan (5)
10.5 Omnibus Equity Compensation Plan (6)
10.6 Amended and Restated Employment Agreement between Metropolitan and
Michael M. Earley dated January 3, 2005 (8)
10.7 Amended and Restated Employment Agreement between Metropolitan and
David S. Gartner dated January 3, 2005 (8)
10.8 Amended and Restated Employment Agreement between Metropolitan and
Roberto L. Palenzuela dated January 3, 2005 (8)
10.9 Amended and Restated Employment Agreement between Metropolitan and
Debra A. Finnel dated January 3, 2005 (8)
10.10 Employment Agreement between Metcare of Florida, Inc. and Jose A.
Guethon, M.D. (9)
10.11 Form of Option Award Agreement for Option Grants to Directors
pursuant to the Omnibus Compensation Plan (9)
10.12 Form of Option Award Agreement for Option Grants to Key Employees
pursuant to the Omnibus Compensation Plan (9)
10.13 Form of Option Award Agreement for Option Grants to Employees
pursuant to the Omnibus Compensation Plan (9)
27
10.14 Agreement between Metcare of Florida, Inc. and the Centers for
Medicare and Medicaid Services*
10.15 Code of Business Conduct and Ethics (9)
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002*
32.1 Certification of the Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002**
32.2 Certification of the Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002**
-------------------------------------------
* filed herewith
**furnished herewith
(1) Incorporated by reference to Metropolitan's Registration Statement on Form
8-A12B filed with the Commission on November 19, 2004 (No. 001-32361).
(2) Incorporated by reference to Metropolitan's Current Report on Form 8-K
filed with the Commission on September 30, 2004.
(3) Incorporated by reference to Metropolitan's Amendment to
RegistrationStatement on Form SB-2/A filed with the Commission on August
2,. 2001 (No. 333-61566). Portions of this document were omitted and were
filed separately with the SEC on or about August 2, 2001 pursuant to a
request for confidential treatment.
(4) Incorporated by reference to Metropolitan's Amendment to Annual Report for
the fiscal year ended December 31, 2003 on Form 10-K/A filed with the
Commission on July 28, 2004. Portions of this document have been omitted
and were filed separately with the SEC on July 28, 2004 pursuant to a
request for confidential treatment.
(5) Incorporated by reference to Metropolitan's Amendment to Annual Report for
the fiscal year ended December 31, 2003 on Form 10-K/A filed with the
Commission on July 28, 2004.
(6) Incorporated by reference to Metropolitan's Registration Statement on Form
S-8 filed with the Commission on February 24, 2005 (No. 333-122976).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2003, as filed with the Commission on
March 22, 2004.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2004, as filed with the Commission on
March 22, 2005.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 16, 2006, as filed with the Commission on
March 22, 2005.
28
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: May 15, 2006 /s/ Michael M. Earley
---------------------
Michael M. Earley
Chairman and
Chief Executive Officer
Date: May 15, 2006 /s/ David S. Gartner
--------------------
David S. Gartner
Chief Financial Officer
29