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 DECEMBER 31, 2003 | |
| OR | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-12115
CONTINUCARE CORPORATION
| Florida (State or other jurisdiction of incorporation or organization) |
59-2716023 (I.R.S. Employer Identification No.) |
80 Southwest Eighth Street
Suite 2350
Miami, Florida 33130
(Address of principal executive offices)
(Zip Code)
(305) 350-7515
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
At February 9, 2004, the Registrant had 42,430,001 shares of $0.0001 par value common stock outstanding.
CONTINUCARE CORPORATION
INDEX
| PART I FINANCIAL INFORMATION | ||||||
| ITEM 1. | FINANCIAL STATEMENTS | |||||
| Condensed Consolidated Balance Sheets – December 31, 2003 (Unaudited) and June 30, 2003. | 3 | |||||
| Condensed Consolidated Statements of Operations (Unaudited) – Three Months Ended December 31, 2003 and 2002. | 4 | |||||
| Condensed Consolidated Statements of Operations (Unaudited) – Six Months Ended December 31, 2003 and 2002. | 5 | |||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended December 31, 2003 and 2002. | 6 | |||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) – December 31, 2003. | 7 | |||||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 15 | ||||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 26 | ||||
| ITEM 4. | CONTROLS AND PROCEDURES | 26 | ||||
| PART II OTHER INFORMATION | ||||||
| ITEM 1. | LEGAL PROCEEDINGS | 26 | ||||
| ITEM 2. | CHANGES IN SECURITIES AND USE OF PROCEEDS | 26 | ||||
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 26 | ||||
| ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 26 | ||||
| ITEM 5. | OTHER INFORMATION | 26 | ||||
| ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K | 26 | ||||
| SIGNATURE | PAGE | 28 | ||||
2
PART I — FINANCIAL INFORMATION
ITEM 1. — FINANCIAL STATEMENTS
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, 2003 | June 30, 2003 | |||||||||||
| (Unaudited) | ||||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 181,365 | $ | 160,743 | ||||||||
Certificates of deposit, current |
100,819 | 101,258 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of
$4,890,000 and $4,823,000, respectively |
467,748 | 323,443 | ||||||||||
Other receivables |
203,347 | 410,765 | ||||||||||
Due from Medicare, net |
410,870 | 258,930 | ||||||||||
Due from HMOs, net of a liability for incurred but not reported
medical claims expense of $11,892,000 and $13,014,000, respectively |
1,984,987 | 1,414,469 | ||||||||||
Prepaid expenses and other current assets |
425,888 | 565,935 | ||||||||||
Total current assets |
3,775,024 | 3,235,543 | ||||||||||
Certificates of deposit |
– | 30,000 | ||||||||||
Assets related to home health operations held for sale |
9,000 | 540,398 | ||||||||||
Equipment, furniture and leasehold improvements, net |
449,164 | 430,382 | ||||||||||
Goodwill, net of accumulated amortization of approximately $3,581,000 |
14,342,510 | 14,342,510 | ||||||||||
Managed care contracts, net of accumulated amortization of
$1,893,000 and $1,717,000, respectively |
1,617,025 | 1,793,431 | ||||||||||
Deferred financing costs, net of accumulated amortization of
$3,849,000 and $3,562,000, respectively |
231,563 | 518,382 | ||||||||||
Other assets, net |
107,387 | 109,330 | ||||||||||
Total assets |
$ | 20,531,673 | $ | 20,999,976 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 615,405 | $ | 683,488 | ||||||||
Accrued expenses |
2,933,336 | 2,283,048 | ||||||||||
Liabilities related to terminated IPA, net |
37,254 | 110,345 | ||||||||||
Credit facility |
2,205,911 | 2,315,000 | ||||||||||
Current portion of convertible subordinated notes payable |
1,341,536 | 233,716 | ||||||||||
Current portion of long-term debt |
402,941 | 2,640,943 | ||||||||||
Current portion of related party notes payable |
63,854 | 63,854 | ||||||||||
Accrued interest payable |
26,334 | 51,754 | ||||||||||
Current portion of capital lease obligations |
65,238 | 70,913 | ||||||||||
Total current liabilities |
7,691,809 | 8,453,061 | ||||||||||
Deferred gain on extinguishment of debt |
3,500,000 | 3,850,000 | ||||||||||
Capital lease obligations, less current portion |
93,421 | 125,606 | ||||||||||
Convertible subordinated notes payable, less current portion |
2,877,983 | 4,122,751 | ||||||||||
Long term debt, less current portion |
1,147,234 | 1,341,947 | ||||||||||
Related party notes payable, less current portion |
965,406 | 997,333 | ||||||||||
Total liabilities |
16,275,853 | 18,890,698 | ||||||||||
Commitments and contingencies |
||||||||||||
Shareholders’ equity: |
||||||||||||
Common stock; $0.0001 par value; 100,000,000 shares authorized,
45,375,194 shares issued and 42,379,001 shares outstanding at
December 31, 2003 and June 30, 2003 |
4,239 | 4,239 | ||||||||||
Additional paid-in capital |
60,279,880 | 60,279,880 | ||||||||||
Accumulated deficit |
(50,603,598 | ) | (52,750,140 | ) | ||||||||
Treasury stock (2,996,193 shares) |
(5,424,701 | ) | (5,424,701 | ) | ||||||||
Total shareholders’ equity |
4,255,820 | 2,109,278 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 20,531,673 | $ | 20,999,976 | ||||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended December 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
Medical services revenue, net |
$ | 24,173,674 | $ | 23,988,134 | ||||||||
Management fee revenue |
194,562 | – | ||||||||||
Subtotal |
24,368,236 | 23,988,134 | ||||||||||
Expenses |
||||||||||||
Medical services: |
||||||||||||
Medical claims |
18,141,504 | 18,401,034 | ||||||||||
Other direct costs |
2,890,296 | 2,685,495 | ||||||||||
Total medical services |
21,031,800 | 21,086,529 | ||||||||||
Administrative payroll and employee benefits |
993,101 | 975,856 | ||||||||||
Professional fees |
246,277 | 59,085 | ||||||||||
General and administrative |
1,588,967 | 1,267,112 | ||||||||||
Gain on extinguishment of debt |
(350,000 | ) | – | |||||||||
Depreciation and amortization |
136,560 | 145,766 | ||||||||||
Subtotal |
23,646,705 | 23,534,348 | ||||||||||
Income from operations |
721,531 | 453,786 | ||||||||||
Other income (expense)
|
||||||||||||
Interest
income |
1,421 | 1,952 | ||||||||||
Interest expense |
(243,712 | ) | (221,096 | ) | ||||||||
Income from continuing operations |
479,240 | 234,642 | ||||||||||
Loss from discontinued operations: |
||||||||||||
Home health operations (including loss on disposal of $457,000) |
(834,048 | ) | (509,231 | ) | ||||||||
Terminated IPA |
– | (97,898 | ) | |||||||||
Subtotal |
(834,048 | ) | (607,129 | ) | ||||||||
Net loss |
$ | (354,808 | ) | $ | (372,487 | ) | ||||||
Basic and diluted net income (loss) per common share: |
||||||||||||
Income from continuing operations |
$ | .01 | $ | – | ||||||||
Loss from discontinued operations |
(.02 | ) | (.01 | ) | ||||||||
Net (loss) |
$ | (.01 | ) | $ | (.01 | ) | ||||||
Basic weighted average number of common shares outstanding |
42,379,001 | 40,500,905 | ||||||||||
Diluted weighted average number of common shares outstanding |
48,191,924 | 40,500,905 | ||||||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Six Months Ended December 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
Medical services revenue, net |
$ | 49,107,176 | $ | 47,463,982 | ||||||||
Management fee revenue |
324,459 | – | ||||||||||
Subtotal |
49,431,635 | 47,463,982 | ||||||||||
Expenses |
||||||||||||
Medical services: |
||||||||||||
Medical claims |
36,948,229 | 36,404,278 | ||||||||||
Other direct costs |
5,751,879 | 5,372,822 | ||||||||||
Total medical services |
42,700,108 | 41,777,100 | ||||||||||
Administrative payroll and employee benefits |
1,886,316 | 1,931,484 | ||||||||||
Professional fees |
441,122 | 308,059 | ||||||||||
General and administrative |
2,870,480 | 2,364,887 | ||||||||||
Gain on extinguishment of debt |
(350,000 | ) | – | |||||||||
Depreciation and amortization |
269,133 | 303,174 | ||||||||||
Subtotal |
47,817,159 | 46,684,704 | ||||||||||
Income from operations |
1,614,476 | 779,278 | ||||||||||
Other income (expense)
|
||||||||||||
Interest
income |
2,076 | 3,727 | ||||||||||
Interest expense |
(488,601 | ) | (609,942 | ) | ||||||||
Medicare settlement related to terminated operations |
2,218,278 | – | ||||||||||
Income from continuing operations |
3,346,229 | 173,063 | ||||||||||
Income (loss) from discontinued operations: |
||||||||||||
Home health operations (including loss on disposal of $457,000) |
(1,272,778 | ) | (987,800 | ) | ||||||||
Terminated IPA |
73,091 | (249,386 | ) | |||||||||
Subtotal |
(1,199,687 | ) | (1,237,186 | ) | ||||||||
Net income (loss) |
$ | 2,146,542 | $ | (1,064,123 | ) | |||||||
Basic net income (loss) per common share: |
||||||||||||
Income from continuing operations |
$ | .08 | $ | – | ||||||||
Loss from discontinued operations |
(.03 | ) | (.03 | ) | ||||||||
Net income (loss) |
$ | .05 | $ | (.03 | ) | |||||||
Diluted net income (loss) per common share: |
||||||||||||
Income from continuing operations |
$ | .07 | $ | – | ||||||||
Loss from discontinued operations |
(.03 | ) | (.03 | ) | ||||||||
Net income (loss) |
$ | .04 | $ | (.03 | ) | |||||||
Basic weighted average number of common shares outstanding |
42,379,001 | 40,102,536 | ||||||||||
Diluted weighted average number of common shares outstanding |
47,755,168 | 40,102,536 | ||||||||||
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
CONTINUCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Six Months Ended December 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income (loss) |
$ | 2,146,542 | $ | (1,064,123 | ) | |||||||
Loss from discontinued operations |
1,199,687 | 1,237,186 | ||||||||||
Income from continuing operations |
3,346,229 | 173,063 | ||||||||||
Adjustments to reconcile net income (loss) to cash provided by operating
activities: |
||||||||||||
Depreciation and amortization, including amortization
of deferred loan costs |
555,952 | 735,837 | ||||||||||
Gain on extinguishment of debt |
(350,000 | ) | – | |||||||||
Provision for bad debts |
71,859 | 50,112 | ||||||||||
Director compensation paid through the issuance of restricted common
stock |
– | 123,000 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Increase in accounts receivable |
(216,164 | ) | (104,076 | ) | ||||||||
Decrease in prepaid expenses and other current assets |
140,047 | 187,605 | ||||||||||
Decrease in other receivables |
207,418 | 396,890 | ||||||||||
Increase in other assets |
(1,445 | ) | (1,972 | ) | ||||||||
(Increase) decrease in due from HMO’s, net |
(570,518 | ) | 16,130 | |||||||||
(Increase) decrease in due to/from Medicare, net |
(2,370,219 | ) | 301,290 | |||||||||
Increase in accounts payable and accrued expenses |
582,205 | 176,367 | ||||||||||
Decrease in accrued interest payable |
(25,420 | ) | (2,601 | ) | ||||||||
Net cash provided by continuing operations |
1,369,944 | 2,051,645 | ||||||||||
Net cash used in discontinued operations |
(785,884 | ) | (962,603 | ) | ||||||||
Net cash provided by operating activities |
584,060 | 1,089,042 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Proceeds from maturities of restricted cash, net |
30,439 | 100,374 | ||||||||||