U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
QUATERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: September 30, 2002
Commission file number 0-13215
-----------
LATINOCARE MANAGEMENT CORPORATION
-----------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 30-0050402
---------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
4150 Long Beach Boulevard, Long Beach, California 90807
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(562) 997-4420
-----------------------
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------- -----------------------
COMMON STOCK OTC
-----------
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 (_)
The aggregate market value of voting stock held by non-affiliates of
the registrant was $98,934 as of September 30, 2002 (computed by reference to
the last sale price of a share of the registrant's Common Stock on that date as
reported by NASDAQ).
There were 14,627,100 shares outstanding of the registrant's Common
Stock as of September 30, 2002.
Page 1
TABLE OF CONTENTS
PAGE
----
CONSOLIDATED BALANCE SHEET....................................................2
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT..............................3
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)...........4
CONSOLIDATED STATEMENT OF CASH FLOWS..........................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION..........................................20
OTHER INFORMATION............................................................25
SIGNATURES...................................................................26
Page 2
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001 (AUDITED)
ASSETS
September 30, December 31,
2002 2001
---- ----
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 12,858 $ 2,604
Accounts receivable 1,298 2,922
Prepaid expenses and other assets 176,559 49,291
------- ------
TOTAL CURRENT ASSETS 190,715 54,817
------- ------
Property and equipment
Net of accumulated depreciation 175,884 218,600
------- -------
TOTAL PROPERTY AND EQUIPMENT 175,884 218,600
------- -------
Other assets:
Deposit 15,478 15,478
------ ------
TOTAL OTHER ASSETS 15,478 15,478
------ ------
$ 382,077 $ 288,895
=======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 462,846 $ 196,387
Accrued expenses 109,458 107,522
Accrued interest payable 124,829 46,034
Income tax payable 1,600 1,600
Due to related party 114,789 437,756
Note payable - shareholder 1,750,000 1,750,000
--------- ---------
TOTAL CURRENT LIABILITIES 2,563,522 2,539,299
--------- ---------
Shareholders' equity (deficit)
Common stock, par value $.001;
50,000,000 shares authorized;
14,557,100 and 14,627,100 shares
issued and outstanding respectively 997,680 997,652
Preferred stock, par value $.001;
2,000,000 shares authorized, no shares
issued and outstanding 0 0
Additional paid-in-capital 34,972 0
Accumulated deficit (3,214,097) (3,248,056)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (2,181,445) (2,250,404)
----------- -----------
$ 382,077 $ 288,895
=======
Page 3
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2002 2001 2002 2001
------------ ------------ ----------- -----------
Revenue:
Management fees- related party $ 893,652 $ 355,858 $ 2,224,042 $ 1,276,963
Management fees- others 10,709 6,152 30,998 53,790
------------ ------------ ----------- -----------
903,827 362,010 2,255,040 1,330,753
------------ ------------ ----------- -----------
Costs and expenses:
Salaries and benefits 494,615 461,052 1,373,488 1,250,785
Professional and consulting fees 107,878 (46,594) 216,288 174,800
General and administrative 297,343 136,251 739,333 627,131
Depreciation 15,216 15,216 42,716 50,898
------------ ------------ ----------- -----------
915,052 565,925 2,371,824 2,103,614
------------ ------------ ----------- -----------
Operating income (loss) (11,225) (203,915) (116,784 (772,861)
Other income (expense):
Interest expense 224,654 (22,494) 150,743 (51,790)
------------ ------------ ----------- -----------
Other income (loss) before income taxes $ 213,430 $ (226,409) $ 33,959 $ (824,651)
Provision for income taxes 0 0 0 0
Net income (loss) 213,430 (226,409) 33,959 (824,651)
============ ============ =========== ===========
Earnings (loss) per common share
Basic 0.01 (0.02) 0.002 (0.06)
============ ============ =========== ===========
Diluted 0.01 (0.02) 0.002 (0.06)
============ ============ =========== ===========
Weighted average common shares outstanding
Basic 14,627,100 14,529,100 14,627,100 14,529,100
============ ============ =========== ===========
Diluted 14,627,100 14,529,100 14,627,100 14,529,100
============ ============ =========== ===========
Page 4
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
SEPTEMBER 30, 2002
Retained Earnings Total
Common Stock Additional Accumulated Shareholders'
Shares Amount Paid-in Deficit Equity
---------- ----------- ----------- -------------- -------------
Balance at December 31, 2001 3,781,455 $952,727 $ (960,942) $ (8,215)
Retirement of common stock 3,270,000
Reissuance of new common stocks to
existing shareholders of the acquiring
company 13,471,645
Issuance of new shares of stock:
Common stock issued as part of cost of
acquiring JNS Marketing 260,000 26,000 26,000
Common stock issued for services
rendered 100,000 10,000 10,000
Common stock issued to private
investors prior to acquisition 186,000 8,925 (8,925)
Transfer of acquiring company's
accumulated deficit 0 0 (1,671,685) (1,671,685)
Consolidated net loss for period ended
December 31, 2001 0 0 (580,504) (580,504)
---------- ----------- ----------- -------------- -------------
Balance at December 31, 2001 14,529,100 997,652 (3,248,056) (2,250,404)
Private placement offering 28,000 28 34,972 35,000
Common Stock issued to investors in
private placement 70,000
Consolidated net income for nine months
ended September 30, 2002 33,959 33,959
---------- ----------- ----------- -------------- -------------
Balance at September 30,2002 14,627,100 $997,680 $34,972 $(3,214,097) $ (2,181,445)
========== =========== =========== ============== =============
Page 5
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
Nine Months Ended
September 30,
2002 2001
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $ 33,959 $ (824,652)
Adjustments to reconcile net income (loss)
from operations to cash provided (used) in
operating activities:
Depreciation 9,672 3,876
(Increase) decrease in:
Accounts receivable 85,843 116,104
Prepayments to private placement offering
Increase (decrease) in:
Due to related party
Accounts payable (390,790) 779,054
Accrued expense 8,135 140,409
Accrued interest
Income tax 1,600
Loan from officer 72,000
Advance on PPM 46,896 (140,000)
-------------- -------------
Net cash used from operating activities (177,916) 897,167
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment 33,044 165,957
-------------- -------------
Net cash used from investing activities 33,044 165,957
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable - Cedar Sinai 0 937,540
Private placement offering 35,000 (984,890)
Accrued interest 78,795 (130,839)
-------------- -------------
Net cash provided from financing activities 113,795 (178,189)
-------------- -------------
Net increase (decrease) in cash 12,554 64,159
Cash, beginning of the year 304 26,899
-------------- -------------
Cash, end of the year $ 12,858 $ 91,058
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest 0 0
============== =============
Cash paid during the period for income taxes 0 0
============== =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
Accrued interest on debt to equity conversion 0 0
Accrued interest on the equity to debt conversion 78,825 47,194
============== =============
Conversion of debt to equity $ 0 $ 0
============== =============
Page 6
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
(1) General Background and Nature of Operations:
a. General background:
LatinoCare Management Corporation (the "Company") was incorporated in
the State of Nevada on January 22, 2002. The Company, a management
service organization, is in the business of providing management and
administrative services, and has developed a system of operations,
management and marketing for independent practice associations engaged
in providing health care services. The Company is authorized to issue
two classes of shares : Common Stock and Preferred Stock. The total
number of shares which the Company is authorized to issue is 50,000,000
common shares at $ .001 par value and 2,000,000preferred shares at $
.001 par value. The preferred stock may be issued in such series as are
designated by the Board of Directors. The Board of Directors may fix
the number of authorized shares of preferred stock for each series, and
the rights, preferences and privileges of each series of preferred
stock.
JNS Marketing, Inc. (JNS) was a reporting public shell company
incorporated in the State of Colorado in July 1983 with no tangible
assets, insignificant liabilities and no revenues as of November 30,
2001, the date on which it was acquired by LatinoCare Management
Corporation in a reverse merger.
LatinoCare Management Corporation - California (LMC) dba Latino Health
Care was founded and incorporated on February 23, 1995 as a California
for-profit stock corporation. Its sole purpose, when originally
organized, was to manage all operations of LatinoCare Network Medical
Group (IPA), a related party that has common shareholders who influence
the activities of both entities. LMC acquired JNS in November 2001 by
purchasing 3,270,000 or approximately 86% of the issued and outstanding
common stock of JNS Marketing, Inc. in exchange for $300,000. There was
a delay in the planned acquisition date due to renegotiation of the
acquisition cost which resulted in the issuance of an additional
260,000 new shares of common stock of the Company as part of the
purchase price. The 3,270,000 shares of common stock were subsequently
retired and cancelled. The members of the Board of Directors of the
Company before the purchase were replaced with the members of LMC's
Board of Directors. LMC and JNS entered into an Agreement and Plan of
Reorganization which resulted in a share exchange between the
shareholders of the two companies, whereby LMC became a wholly owned
subsidiary of the Company. JNS was renamed as LatinoCare Management
Corporation, reincorporated in the State of Nevada on January 2002, and
is referred to in this report as the "Company".
The Company has a total of 14,627,100 shares of its common stock issued
and outstanding. The Company has no shares of preferred stock
outstanding.
Page 7
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
b. Nature of operations:
The Company is in the business of providing management and
administrative services and marketing for independent practice
associations engaged in providing health care services. The Company has
targeted and successfully reached four primary groups: health plans,
hospitals, health service recipients and physicians with significant
focus on the Latino market.
LatinoCare Network Medical Group, Inc., an Independent Physician
Association (IPA), was incorporated on September 30, 1994, as a
licensed medical group able to accept physician services risk from
third-party payors and self-insured employers. The IPA was organized
for the purpose of meeting the comprehensive health care needs of the
Latino population and the lack to access to quality health care
services available to the Latino community. The IPA has a network of
private practicing physicians who provide quality health care services
that are accessible, friendly, affordable, and culturally sensitive. It
offers a wide range of comprehensive health care programs and services
to keep its members and families healthy and productive.
On November 1995, the Company has entered into a twenty-five (25) year
Management Services Agreement with LatinoCare Network Medical Grouping.
To provide all management and administrative support, allowing the IPA
to focus its efforts on medical governance and patient care management
of services as required by health plans and regulations.
The services provided by the Company include, among others, utilization
management, quality improvement, claims processing, case management and
financial services management. Marketing and business development are
also provided as added services to the core services included in the
Management Services Agreement (collectively, "Management Services").
The Company acts as the exclusive agent for the IPA with regard to
seeking, negotiating, renewing, and executing managed care contracts.
(2) Summary of Significant Accounting Policies:
The company has prepared interim financial statements that include all
adjustments, which, in the opinion of management, are necessary to make
the financial statements not misleading. The Company believes that all
adjustments of a normal recurring nature that are necessary for a fair
presentation of the results of the interim periods presented in this
report have been made.
Page 8
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
The Company's cash and available credit are not sufficient to support
current operational levels for the next year. A net loss of $3,248,056
was incurred from inception on February 1995 until December 31,2001. In
the first year of start-up, an operating deficit of $1,750,000 was
funded by debt capital provided by Cedars-Sinai Medical Center and was
converted to capital equity in 1997. An additional $750,000 deficit has
resulted from expenses for capital financing efforts beginning in the
fourth quarter of 2000, and subsequently, in 2001. In the third and
fourth quarters of 2001, the Company funded capital raising expenses
including the purchase and reverse merger with JNS Marketing, Inc. For
the nine months ended September 30, 2002, the Company had a net income
of only $33,959. The Company also had negative working capital and
stockholders' deficit at September 30, 2002.
Management's plan is to raise enough equity through private placements
(see Note 13 - Subsequent Events) and individual investors; finance the
acquisition of enrollment membership; expand network development;
acquire networks to increase cost efficiencies. The resulting revenue
increases will finance the pay off of the note issued to a related
party; pay off a related party; shareholder's equity interest; and to
raise enough working capital to pay off liabilities and sustain
operations. These financial statements have been prepared on the basis
that adequate equity financing will be obtained.
a. Principles of Consolidation:
Not applicable
b. 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.
c. Revenue Recognition:
Revenues from professional services, primarily from management fees,
are recognized on an accrual basis of accounting as services are
performed or the amounts earned (in compliance with SOP 00-2), based on
a percentage of capitalization revenues received by the IPA, which is a
related party transaction.
Page 9
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
The IPA has managed care contracts with various Health Maintenance
Organizations (HMO) to provide medical services to subscribing members.
Under these agreements, the IPA receives monthly capitation payments
based on the number of each HMO's subscribing members whether or not a
member requests services to be performed by the IPA. The Company
receives 16% of all IPA capitated revenue.
Revenues are also generated from risk pool settlements. Revenues from
risk pool settlements, management services rendered such as marketing,
business development and core operations. Revenues from Risk pool
settlements (cash received) are surpluses distributed by the IPA from
the HMO.
Currently, two separate types of risk pools exist - specialty risk
pools and hospital (institutional) risk pools. Specialty risk pools are
reserve for specialist medical expenses whereas hospital risk pool
relate to reserves for hospital expenses. The HMO holds these reserves
and surpluses are distributed, after year-end accounting of all claims,
to the related physicians at fifty percent (50%), IPA at twenty-five
percent (25%) and the Company at twenty-five percent (25%).
d. Cash and Cash Equivalents:
The Company considers all money market funds and highly liquid debt
instruments with maturities of three months or less when acquired to be
cash equivalents.
e. Accounts Receivable:
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
f. Prepaid Private Placement Costs:
Specific incremental costs directly attributable to proposed or actual
offering of securities are deferred and charged against the gross
proceeds of the offering. Management salaries and other general and
administrative expenses are not allocated as costs of the offering. In
the event that the offering does not take place, the prepaid private
placement costs will be expensed immediately.
Page 10
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
g. Property, Equipment and Related Depreciation:
Property and equipment are stated at cost. Maintenance, repairs and
minor renewals and betterment's are expensed; major improvements are
capitalized. Depreciation of property and equipment is provided for
using the straight-line method over the estimated useful lives of the
assets as follows:
Estimated
Useful Lives
---------------------
Leasehold improvement Life of lease
Computer, equipment and office furniture 5 - 10 years
Upon retirement, sale, or other disposition of property and Equipment,
the costs and accumulated depreciation are eliminated from the
accounts, and any resulting gain or loss is included in operations.
h. Advertising Expenses:
All advertising expenses are expensed as incurred.
i. Income Taxes:
The Company is taxed at C Corporation income tax rates. The Company
recognizes deferred income tax under the asset and liability method of
accounting. This method requires the recognition of deferred income
taxes based upon the tax consequences of "temporary differences by
applying enacted statutory tax rates applicable to future years to
differences between the financial statements carrying amounts and the
tax basis of existing assets and liabilities.
j. Adoption of Recent Accounting Standards:
Segment Reporting:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS" No. 131"),
"Disclosure About Segments of an Enterprise and Related Information."
SFAS No. 131 established standards for the way companies report
information about operating segments in annual financial statement. It
also established standards for related disclosures about products and
services, geographic areas and major customers.
Page 11
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
The disclosures prescribed in SFAS No. 131 became effective for the
year ended December 31, 1998. The Company has determined that it
operates as one business segment.
The Company is not affected by the adoption of new accounting standards
for Accounting for Derivative Instruments and Hedging Activities as
well as the Accounting for Comprehensive Income as these activities did
not occur in its operations.
Business Combination:
SFAS 142 and SFAS 141, Business Combinations, are designed to improve
reporting and disclosure with respect to goodwill and other acquired
tangible assets. SFAS 141 eliminated the pooling of interest method as
an accounting option for business combination while SFAS 142 modified
the purchase method of accounting by eliminating the amortization of
goodwill and substituting an impairment test. The FASB overcame several
operation impediments to non-amortization including: the reporting
level at which to conduct impairment reviews, consistency with SFAS 121
(Accounting for the impairment of long-lived assets) and finite-lived
goodwill. The emphasis will be on the fair value measurements of assets
and liabilities instead of amortization. Impairment in the carrying
value of an asset is recognized when the fair value of the asset is
less than its carrying value.
(3) Private Placement Offering and Prepaid expenses
Prepaid expenses and other current assets consists of:
Sept. 30 Sept. 30
2002 2001
(unaudited) (audited)
---------------- ----------------
Prepaid private placement costs 0 $ 46,896
Other current assets 2,395
---------------- ----------------
0 $ 49,291
On November 30, 2001, a Private Placement Memorandum was issued for
qualified investors in connection with the Company's offer of sale of
its common stock. This offering terminated on August 31, 2002.
The above prepaid private placement costs consist of printing, mailing
and consulting fees that have been incurred from the offering date to
August 30, 2002. These costs directly attributable to the offering of
securities are deferred and will be charged against the gross proceeds
of the offering of securities when the offering ends or is terminated.
Page 12
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
(4) Property and Equipment
Property and equipment consists of the following:
Sept. 30 Sept. 30
2002 2001
(unaudited) (audited)
----------- ------------
Furniture, fixtures and office equipment $ 83,786 $ 83,785
Leasehold improvement 77,157 77,157
Computers and software 171,013 204,058
----------- ------------
331,956 365,000
Less accumulated depreciation 156,072 146,400
----------- ------------
$ 175,884 $ 218,600
Depreciation expense for the three months ended September 30, 2002 and
2001 was:
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Depreciation $15,216 $15,216 $42,716 $50,898
========= ========= ========= =========
The Company periodically evaluates the net realizable value of
long-lived assets, including property and equipment, relying on a
number of factors including operating results, business plans, economic
projections and anticipated future cash flows.
(5) Notes Payable - Related Party:
Notes payable are all current and comprised of the following amounts as
of September 30, 2002 and December 31, 2001.
Cedars Sinai, due July 18, 2002
with interest at 6.0% per annum $ 1,750,000
===========
The notes for Cedars Sinai matures as follows:
$500,000 shall be paid on or before January 11,2002; $500,000 shall be
paid on or before March 20, 2002; and $750,000 and all accrued but
unpaid interest shall be paid on or before July 18, 2002.
This note shall be secured and that in the event of a breach by the
Company, Cedars-Sinai's sole recourse shall be the repossession of that
portion, if any, of its shareholdings (28% of the outstanding shares)
from the Company pursuant to the following provision:
Page 13
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
a. For the first seven hundred fifty thousand
dollars($750,000) repaid by the Company, recourse
shareholdings shall be reduced from twenty-eight percent (28%)
of the issued and outstanding shares to not less than twenty
percent (20%) of such issued and outstanding shares, or the
portion thereof;
b. For the next one million dollars repaid ($1,000,000) by the
Company, recourse shareholdings shall be reduced from twenty
percent (20%) of the issued and outstanding shares to zero
percent (0%) of such issued and outstanding shares, or the
portion thereof.
If this note is not paid when due, the Company shall pay all costs of
collections, including attorney's fees and costs and all expenses
incurred on account of collection, whether or not suit is filed.
As of September 30, 2002, no payments were made by the Company or any
collection actions from Cedar Sinai. All rights and remedies of Cedar
Sinai in connection with the existing defaults were hereby reserved,
the lender agrees to forbear from exercising its rights and remedies
until the earlier to occur of the following termination event of July
23, 2003. Cedar Sinai has not demanded a conversion of its note and
management believes that it may be receptive to a modification.
(6) Provision for Income Taxes:
The provision for taxes consists of the following for periods ended
September 30, 2002 and 2001 (unaudited) :
Federal State Total
--------------- --------------- ---------------
Current $ 0 $ 800 $ 800
Deferred 0 0 0
--------------- --------------- ---------------
$ 0 $ 800 $ 800
=============== =============== ===============
Other than the minimum tax due to the State of California, no income
tax accruals were recorded because the Company incurred a loss for the
previous and current years and has available net operating loss (NOL)
carry forwards at year ended December 31, 2001 of approximately
$2,212,504, available to offset future taxable income. These NOL carry
forwards expire beginning in 2010 and ending in 2014, fifteen years
from the year in which the losses were incurred.
Deferred tax assets and liabilities were not presented because the
amounts were insignificant.
Page 14
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
(7) Advertising:
Advertising expense consists of the following (Unadited):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- --------
Total $ 0 $ 0 $ 4,865 $ 896
========= ========= ========= ========
(8) Employee Savings Plan:
On August 1, 2000, the Company adopted a 401(K) Profit Sharing Plan and
Trust for the benefit of its employees and beneficiaries. Eligible
employees may contribute a portion of their pretax annual compensation
within specified limits. A discretionary matching contribution will be
provided by the employer , which may or may not be limited to its
current accumulated net profit. There are no employer contributions to
the plan for the three months ended September 30, 2002 and 2001.
(9) Commitments:
The Company has entered into various operating leases for equipment and
occupies its facility under a long-term lease agreement expiring in
March 31, 2010 with option to cancel after five (5) years or extend.
Future minimum lease payments under the non-cancelable leases for the
remaining years are as follows:
Period ending
September 30, Office space Equipment Total
--------------- --------------- --------------- ------------
2003 $ 250,620 $ 70,716 $ 321,336
2004 250,620 70,716 321,336
2005 250,620 70,716 321,336
2006 250,620 70,716 321,336
Thereafter 250,620 70,716 321,336
--------------- --------------- ------------
Total $ 1,253,100 $ 353,580 $ 1,606,680
=============== =============== ============
Total lease and rent expense consist of the following (unaudited):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Equipment lease $7,279 $20,024 $47,868 $42,054
Office rent 63,655 41,018 187,753 157,039
--------- --------- --------- ---------
$70,934 $61,042 $ 235,621 $ 199,093
========= ========= ========= =========
Page 15
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
(10) Related Party Transactions and Due to Related Parties:
Due from/(to) related party consists of:
Sept. 30 Sept. 30
2002 2001
(unaudited) (audited)
----------- ------------
Due to IPA (net) $(17,395) $(496,211)
Due from JJ&M Management (net) (38,475) 16,478
Due from Latino Family Care (net) (58,919) 41,977
----------- ------------
Due to related party (net) $(114,789) $(437,756)
=========== ============
a. LatinoCare Network Medical Group, Inc./IPA :
The Company and the IPA, are bound by a twenty-five year management
services agreement. Under this agreement, the IPA has effectively
transferred total contract and management control to the Company for
the term of the agreement. In return for management and administrative
services provided under the management service agreement, the Company
receives management fees of sixteen percent (16%) of monthly capitation
payments (based on predetermined rates) received by the IPA.
The Company has been charging the IPA a management fee according to
sliding scale based on enrollment. The management fee percentage was
charged against the total capitation the IPA receives from members. The
following matrix reflects this management fee arrangement:
Rate Enrollment
-------- ---------------
16% 0 - 20,000
15 20,000 - 30,000
14 30,000 - 40,000
12 40,000 - 50,000
In addition to management fees the Company is also entitled to receive
fifty percent (50%) of the IPA's share of hospital (with hospital or
HMO) and specialty risk pool settlements. Hospital and risk pools are
revenues estimated for hospital and specialist medical expenses held in
reserve until actual claims are adjudicated. Surpluses are distributed
accordingly after all financial obligations are met. The management
fees from capitation; settlement fees; management fees from marketing
and business development; and management fees for other services
(operational core expenses) for the management of the IPA, paid and due
to the Company were approximately:
Page 16
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
(Unaudited) (Unaudited)
--------- --------- --------- ---------
Management fee-
capitation $ 259,817 $ 330,259 $ 919,961 $ 1,102,134
Settlement fee 184,350 30,599 184,350 174,829
Business development
and marketing 161,622 0 161,622 0
Management fee -
core operations 289,111 0 289,111 0
--------- --------- --------- ------------
Total $ 894,900 $ 360,858 $ 894,900 $1,276,963
========= ========= ========= ============
The IPA accounts for more than ninety percent (90%) of the Company's
revenue. IPA has a concentration of customers of approximately eight
(8) customers, which are health maintenance organizations.
Related party receivables and advances payable as of:
Sept. 30 Sept. 30
2002 2001
(unaudited) (audited)
----------- ------------
Receivable from related party $ 0 $ 298,322
Payable to related party (17,395) (794,533)
----------- ------------
Due to IPA (net) $(17,395) $(496,211)
=========== ============
The above outstanding net payable to the IPA of approximately $17,395
was misclassified as advances and in the December 19, 2001 meeting the
IPA authorized reimbursement for marketing, development and core
expenses. The IPA Board authorized the payment of similar expenses on a
going-forward basis and were used to expand the IPA Network and grow
the Company. The Company used these funds for working capital.
b. Gonzalez-D'Avila Enterprises dba JJ&M Management:
The JJ&M's CEO/President is a stockholder and a member of the board of
directors for JJ&M, the IPA and the Company. The related party
transactions involve the misclassification of health insurance expenses
advanced by the Company for JJ&M.
Page 17
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
The misclassified outstanding receivable from JJ&M for reimbursement of
health insurance is $38,475 and $16,478 as of September 30,2002 and
December 31, 2001, respectively.
c. Latino Family Care
A shareholder of Latino Family Care is also a member of the board of
directors of the IPA. The related party transactions involve
reimbursement of health insurance misclassified as advances by the
Company for Latino Family Care.
The misclassified outstanding receivable from Latino Family Care for
reimbursement of health insurance is $58,919 and $41,977 as of
September 30, 2002 and December 31, 2001 respectively.
d. Cedars-Sinai Medical Center
Cedars-Sinai Medical Center, the Company's strategic partner, has been
the largest single investor to the Company providing over $2 million
including the accrued interest of approximately $290,000 that was
converted to equity in June 2001. Cedar Sinai's financial support
consisted of a convertible note payable of $1,000,000, issued November
30, 1996, and was converted into a twenty percent (20%) of the
Company's common stock in 1997. The $750,000 and $62,460 of notes
payable issued in 1996 and 1997 were converted into an additional eight
percent (8%) equity interest, including accrued interest, on June 12,
2001.
The Company has existing promissory notes to Cedars-Sinai payable on
demand with the balance (including interest) as of December 31, 2000 of
$812,460. These notes were converted to eight percent (8%) of the
outstanding common stock of Company in June 2001.
Page 18
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
On July 23, 2001, the Company issued a convertible note to Cedars Sinai
in the amount of $1,750,000 bearing simple interest at the rate of 6%
per annum payable in full on or before July 23, 2002, to redeem all
shares issued to Cedars-Sinai. If the note is not repaid by that time,
Cedar Sinai has the right to convert it into 28% of the outstanding
common stock of the Company, subject to a pro-rata adjustment if the
note is partially repaid (see Note 5 Notes Payable - Related Party). A
full or partial conversion of the note would cause dilution in the
ownership of the Company by its existing shareholders.
Accordingly, capital stock is reduced for the redeemed value of the
stock. For accounting purposes, the stock redemption is treated as a
retirement of stock.
Client made no repayment for the above loan as of September 30, 2002.
(11) Significant Management Investment:
The current management and directors as a group beneficially owns
approximately ninety three percent (93%) of the total shares issued and
outstanding. By virtue of such stock ownership, the current management
and directors as a group generally exercise control over the affairs of
the Company.
(12) Stock Option Plan:
On January 31, 2002, the Board of Directors of the Company unanimously
approved and the shareholders ratified the adoption of the 2002 Stock
Option Plan. The Stock Option Plan consists of 1,200,000 stock options
for directors, executive officers and key employees to purchase
1,200,000 shares of the Company's Common Stock. As of September 30,
2002, the plan has not been implemented.
(13) Subsequent Events:
a. Management agreement with IPA:
The Company has recently changed the management agreement from a
sliding scale agreement to a "cost plus" agreement. In the cost-plus
model, the Company will charge the IPA, and all future acquired IPAs or
IPAs managed by the Company, the entire cost of managing the business
plus a fixed amount as profit margin. The cost component will vary
among IPAs depending on negotiated terms of management.
Page 19
LATINOCARE MANAGEMENT CORPORATION
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001 (AUDITED) AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
b. Acquisition
The Company has expanded its business plan objectives and will seek to
provide management services to other IPAs. This change in the Company's
business plan will enable the Company to expand its revenue derivation
sources as well as enhancing its revenue and future growth potential.
c. Private Placement Offering:
The Company has incurred prepaid private placement costs as of
September 30, 2002 of $121,470. Since the offering was terminated in
August 31, 2002, these costs were charged for the quarter ending
September 30, 2002 as PPM expenses
Page 20
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
CAUTIONARY STATEMENTS
This Form 10-QSB contains financial projections, synergy estimates and other
"forward-looking statements" as that term is used in federal securities laws
about LatinoCare Management Corporation's financial condition, results of
operations and business. These statements include, among others:
- statements concerning the benefits that the Company expects from
its business activities and certain transactions, such as the
potential for revenues and the anticipated amount of expenditures;
and
- statements of the Company's expectations, beliefs, future plans
and strategies, anticipated developments and other matters that
are not historical facts. These statements may be made expressly
in this Form 10-QSB. You can find many of these statements by
looking for words such as "believes", "expects", "anticipates",
"estimates", or similar expressions used in this Form 10-QSB.
These forward-looking statements are subject to numerous
assumptions, risks and uncertainties that may cause the Company's
actual results to be materially different from any future results
expressed or implied by the Company in those statements. The most
important facts that could prevent the Company from achieving its
stated goals include, but are not limited to, the following:
(a) volatility and/or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) barriers to raising the additional capital or to obtaining the financing
needed to implement its full business plans;
(d) inadequate capital to continue business;
(e) changes in demand for the Company's products and services;
Page 21
(f) rapid and significant changes in technology and markets;
(g) Litigation with or legal claims and allegations by outside parties;
(h) insufficient revenue to cover operating costs;
(i) Disagreements with LatinoCare Network Medical Group, Inc., the IPA with
which the Company has its sole Management Services Agreement, and the risk
that the agreement could be terminated; and
(j) A loss of contracts and decline in the business of the IPA, which would
materially adversely affect the Company.
Because the statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. The Company cautions you not to place undue reliance on the
statements, which speak only as of the date of this Form 10-QSB. The cautionary
statements contained or referred to in this section should be considered in
connection with any subsequent written or oral forward-looking statements that
the Company or persons acting on its behalf might issue. The Company does not
undertake any obligation to review or confirm analysts' expectations or
estimates or to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Form 10-QSB or to
reflect the occurrence of unanticipated events.
The Company has continued to support the marketing and business development
activities of LatinoCare Network Medical Group ("LCNMG") to increase member
lives and add physicians to the provider network. Resources needed to provide
this support have continued to be made available after certain significant
events (i.e. Tower Bankruptcy) have negatively impacted LCNMG's membership. The
Company will continue to provide this support as it endeavors to raise capital
to acquire lives. In the event capital is not available, the Company has
examined its operations and that of LCNMG and implemented reductions during the
third quarter of fiscal 2002 that it believes will maintain the operations of
the Company, provided that the Management Services Agreement with the IPA is
preserved and the IPA remains intact. The Company has recently been notified by
certain members of the board of directors of LatinoCare Network Medical, Inc.
(the "IPA") that they desire to terminate the Management Services Agreement
between the Company and the IPA, based on allegations of mismanagement. The
Company believes that the allegations are without merit, and that a termination
of the Management Services Agreement is not proper nor justified. Moreover, the
Company believes that the attempted actions by those IPA directors are not
authorized, and may seek to have a new Board constituted for the IPA.
Page 22
The Management Services Agreement is virtually the sole source of revenue for
the Company. A termination of the Management Services Agreement would have a
severe adverse effect on the business, operating results and financial condition
of the Company. Although management of the Company intends to make every effort
to prevent a termination of the Management Services Agreement, there is no
assurance that the Company's Management Services Agreement will be preserved.
Furthermore, a decline in the IPA's business or loss of health network service
contracts by it, or the loss of patients in the network, would have a material
adverse impact on the Company, including but not limited to a reduction of
revenues earned by the Company. There is no assurance that the Management
Services Agreement will be preserved or that the IPA will not suffer a material
loss of business. Under such circumstance, the Company might not be able to
remain in business as a going concern.
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 2001
Total revenue for the nine months ended September 30, 2002 increased by $924,287
to $2,255,040 from $1,330,753 for the nine months ended September 30, 2001. The
increase is due to additional management fees received by the Company from LCNMG
related to marketing and business development and the management of the IPA.
Operating and administrative expenses increased by $ 268,210 during the nine
months ended September 30, 2002 to $2,371,824 from $2,103,614 for the nine
months ended September 30, 2001. Office rent expenses increased by $ 30,714 for
the nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001. Salaries increased by $ 113,379 for the nine months ended
September 30, 2002 as compared to the nine months ended September 30, 2001. PPM
expenses were booked this quarter and this was a $130,849 charge for the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company had consolidated net cash of $ 12,858 for the nine months ended
September 30, 2002 as compared to net cash of $ 91,058 for the nine months ended
of September 30, 2001. The Company had a net working capital deficit (i.e. the
difference between current assets and current liabilities) of $183,974 for the
nine months ended September 30, 2002 as compared to a working capital deficit of
$ 645,763 for the nine months ended September 30, 2001. Net cash flow provided
by operating activities were ($177,916) for the nine months ended September 30,
2002 as compared to $ 897,167 for the nine months ended September 30, 2001. Net
cash provided by investing activities were $ 42,716 during the nine months ended
September 30, 2002, as compared to $ 169,833 for the nine months ended September
30, 2001. Net Cash provided by financing activities was $ 113,795 during the
nine months ended September 30, 2002 as compared to ($178,189) during the nine
months ended September 30, 2001.
Page 23
The Company will have significant capital requirements during the fourth quarter
of 2002, and in 2003 if the Company continues with its plan of acquisition and
incubation of new IPAs and projects, and to pay operating costs. To address this
need for additional capital, LCMC has begun seeking out joint venture,
partnership or merger partners in the industry that would take a significant
ownership stake in the LCNMG IPA to assist in preserving and growing membership
in the IPA. As of September 30, 2002, the company established formal discussion
with three such groups, and a working agreement could be in place sometime in
the fourth quarter. There is no assurance that a working agreement between LCNMG
and one of these parties will be reached during this time frame, or that the
Company will have sufficient capital to finance its business operations and
growth, or that any of these parties will make capital available in terms that
are favorable to the Company or at all. The Company is currently incurring
operating deficits that are expected to continue until LCNMG increases its
member enrollment, which depends in part on the Company securing additional
working capital for marketing and acquisitions. The Company has already adjusted
its expenses in response to the decrease in membership by implementing costs
cutting strategies and headcount downsizing.
The Company expects to have material capital requirements during the fourth
quarter of 2002 and for calendar year 2003 as it relates to acquisitions of
membership by LCNMG, the IPA. Subject to the availability of capital, LCNMG and
the Company plan to acquire additional membership through the acquisition of
IPAs and from individual physicians. The latter method is not the acquisition of
physicians' practices but rather the transfer of these physicians' membership
from other IPAs to LCNMG
LatinoCare Network Medical Group, Inc. (LCNMG), was owned by Roberto Chiprut,
M.D. who was a major shareholder and Director of the company and LCMC until his
recent death in February, 2002. Under California professional corporate law the
shares of LNMG cannot be issued to or held by anyone other than a physician in
possession of an unrestricted license to practice medicine in California, or a
professional corporation with only one shareholder who is a physician. Due to
this ownership requirement, Dr. Chiprut's death forced LCNMG into a six (6)
month period in which ownership of the corporation had to be transferred or sold
to an eligible licensed person(s).
LCMC began discussions with the court appointed conservator for the Chiprut
Estate to purchase the shares on the same terms as previously agreed upon with
Dr. Chiprut. LCMC exercised an assignable option agreement it had signed with
LCNMG which granted LCMC (i) an assignable option to purchase all or any parts
of the assets of LCNMG, and (ii) the right to designate the purchaser of all or
part of the issued and outstanding stock in LCNMG. Upon the execution of this
agreement, the ownership shares in LCNMG held by Dr. Chiprut's Estate were
repurchased through a third party transaction secured by the new LCNMG assigned
shareholders. The new shareholders are the existing four members of the board of
directors of LCNMG and an additional physician, all of whom are licensed
physicians with unrestricted licenses to practice medicine in the State of
California. They include: Robert Karns, M.D., Adam Karns, M.D., Arturo Velazquez
Jr., M.D., Jorge Carreon, M.D., and Paul Wallace, M.D. The new shareholders in
LCNMG have also entered into an assignable option agreement with LCMC with the
same terms as those previously agreed upon by Dr. Chiprut.
Page 24
On July 22, 2002 LCMC entered into a strategic alliance with Millennium Benefits
Insurance Brokers, Inc (MBIB) for the distribution and fulfillment of an
"Affordable Medical Benefits" (AMB) health insurance plan for the working
uninsured. Millennium will make available to Latino Health Care, on an exclusive
private label basis, a version of their health insurance plan to be marketed to
Latinos. AMB beneficiaries would be served through an Exclusive Provider
Organization (EPO) managed by Latino Health Care. Under an EPO structure
beneficiaries are directed to their chosen primary care physician and selected
hospitals. This new product will therefore bring to Latino Health Care a share
of insurance premium revenue as well as add a new insured patient base to the
practices of the primary care physicians that contract with the LatinoCare IPA.
Millennium Consumer Benefits Association ("MCBA"/ a California not-for-profit
association (501(c)(3)) and Millennium Benefits Insurance Brokers, Inc. ("MBIB"/
a California C Corporation) comprise the management and distribution companies
for the Affordable Medical Benefits Health Insurance Plan (AMB). These companies
have been in business since late 1999. MBIB's mission is to offer low cost
health benefits to the working, uninsured population, a population that
currently lacks access to affordable healthcare. The Company currently markets
the "Affordable Medical Benefits" Health Insurance Plan, a low cost, low
deductible, primary care based solution for the working uninsured.
Page 25
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
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 AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 99.14
(b) Reports on Form 8-K.
Report on Form 8-K dated July 12,2002, relating to the
appointment of Mountain Share Transfer Inc. as the Company
transfer agent.
Report on Form 8-K, dated September 11, 2002, relating to the
pending change of independent certified public accountant for
the Company.
Report on Form 8-K, dated November 11, 2002, relating to the
appointment of Robert J. Pacheco as the Company certified
public accountant.
Page 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: February 4, 2003
By: /s/ Jose J. Gonzalez
-----------------------------------------------
Jose J. Gonzalez, Chairman of the Board,
Chief Executive Officer, Chief Financial Officer
President and Secretary