FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
For the transition period from _________________ to _____________
Commission file number 0-13215
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LATINOCARE MANAGEMENT CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 30-0050402
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(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 ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK OTC
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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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|
The aggregate market value of voting stock held by non-affiliates of
the registrant was $1,321,819 as of December 31, 2001 (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 14,529,100 shares outstanding of the registrant's Common
Stock as of March 31, 2002.
TABLE OF CONTENTS
10KSB
PART I...................................................... 1
ITEM 1...................................................... 1
ITEM 2...................................................... 10
ITEM 3...................................................... 10
ITEM 4...................................................... 10
PART II..................................................... 10
ITEM 5...................................................... 10
ITEM 6...................................................... 11
ITEM 7...................................................... 15
ITEM 8...................................................... 35
PART III.................................................... 35
ITEM 9...................................................... 35
ITEM 10..................................................... 36
ITEM 11..................................................... 38
ITEM 12..................................................... 38
ITEM 13..................................................... 39
PART I
ITEM 1. BUSINESS
General
Latinocare Management Corporation is a Nevada corporation (the
"Company") formerly known as JNS Marketing, Inc. ("JNS") originally incorporated
in Colorado in July 1983. In October 2001 the Company completed a Share Purchase
Agreement with Latinocare Management Corporation, a California corporation
("LMC"), pursuant to which LMC acquired 3,270,000 of the issued and outstanding
common stock of JNS in exchange for $300,000 and 260,000 newly issued shares of
common stock. Subsequently, LMC and JNS entered into an Agreement and Plan of
Reorganization (the "Reorganization") which resulted in a share exchange between
the shareholders of LMC and JNS. Pursuant to the Reorganization, LMC became a
wholly owned subsidiary of JNS and the shareholders of LMC became the
controlling shareholders of JNS. Prior to its business combination with LMC, JNS
had no tangible assets and insignificant liabilities. Subsequent to the
Reorganization the Company reincorporated in the State of Nevada and changed its
name to Latinocare Management Corporation.
LMC is a Management Services Organization ("MSO") engaged in the
business of managing LatinoCare Network Medical Group ("LNMG"), an Independent
Physician Association ("IPA") which primarily services the growing Latin
American community in the United States, and in particular in California. LMC is
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also capable and has the right to manage other IPAs and is currently forming a
new medical network in Arizona. LNMG is a licensed IPA able to accept risk for
physician services from third-party payors and self-insured employers. Pursuant
to the management services agreement between LMC and LNMG, dated November 30,
1995, LMC is LNMG's exclusive MSO until the expiration of the management
agreement on November 30, 2020. As consideration for managing LNMG's operations,
LMC receives a monthly management fee equal to 16% of the capitation fees earned
by LNMG. LMC also receives 25% of any hospital risk pool funds received by LNMG
after all financial obligations are met and 25% of any specialty risk pool funds
received by LNMG.
LNMG was owned and managed by Dr. Roberto Chiprut, a former director of
the Company, until his recent death. In light of Dr. Chiprut's recent death, LMC
has the contractual right to purchase Dr. Chiprut's shares of LNMG and to
designate a physician shareholder to hold the shares. LMC must designate a
physician shareholder to hold the shares because California law does not permit
a MSO to hold shares in an IPA. Further, under California law, LMC must purchase
the shares within 90 days after Dr. Chiprut's death.
Although the Latino community represents a significant portion of the
patient base for healthcare services in the United States, many medical
providers are not sensitive to the cultural, linguistic, or ethnic diversities
of this population. LMC was established to fill this void on the local, state,
and national levels. LMC's network of physicians provides the Latino community
with affordable, qualified healthcare professionals, accessible services, and a
full range of managed care health plans and programs. Additionally, LMC provides
the infrastructure to support its physician network and to maximize available
reimbursement dollars effectively.
The Company believes that the emerging managed care market is ready for
LMC's services. The executive team is comprised of nationally renowned experts
in their respective fields. The Company believes that its executive team has the
vision and expertise to lead LMC into a successful national campaign. Management
has built the preliminary infrastructure necessary to support a physician
network, established protocols and procedures for efficient operations,
established a physician network of over 2,500 doctors and approximately $10
million in capitation revenue to LNMG with a full range of specialties, and
secured profitable and limited healthcare provider contracts with major health
plans. Management continues to build the brand recognition associated with
quality of care and has begun to lay the foundation for penetration by LMC into
Florida, Texas, Arizona, Colorado, and New Mexico.
Additional financing will allow LMC to expand its operations through
the acquisition of or merger with other MSOs, the introduction of new product
lines, and the expansion of LNMG through the acquisition by LNMG of competing
IPAs. More importantly, with additional financing, management believes that LMC
will be able to move one step closer to becoming a physician organization
recognized nationally by both health organizations and the general public.
Overview of the Health Care Market
The United States healthcare industry ranks second in dollar volume,
eclipsed only by the manufacturing sector. Americans spend more money only on
food and housing than on medical care. Healthcare ranks third in general public
expenditures, following national defense and education. Healthcare is the
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largest service industry in the United States. The United States spends more
money on healthcare than all other industrialized nations spend on healthcare.
Many Americans believe that healthcare is a right, as opposed to a privilege.
Emergence of Managed Care. Current healthcare industry trends are aimed
at controlling costs while increasing access and quality. Managed care is the
most prominent vehicle of change in the United States and is considered by many
to be the most dramatic realignment of the nation's healthcare system in recent
years. Along with managed care comes great change to the practice of medicine.
Management believes that those companies who are prepared to manage this change
will realize tremendous growth opportunities and profit potential.
Managed care is an umbrella term that encompasses a variety of prepaid
and managed fee-for-service healthcare programs. Since profits are tied directly
to controlling the cost and use of healthcare services, the fundamental
financial incentives of healthcare delivery drastically change under managed
care. In short, managed care works by managing the health of a population at a
set price per member per month ("PMPM"). The difference between the cost of
provided health services and the total prepaid amount of the population is the
profit. This is a complete turnaround from the cost-based reimbursement system
associated with traditional indemnity insurance, which encourages greater
utilization. Under managed care, health plans are motivated to use more
preventive care since critical medical care is typically more expensive.
Enrollment in managed care programs has increased dramatically during
recent years. According to an industry report, in 1995, as many as 71% of those
who obtained health services through an employer were in some form of managed
care program as compared to 52% in 1993. Employers who provide health insurance
to their employees realize several benefits from managed care programs. These
programs stabilize expenses and give employers direct control over costs through
the negotiation of contract prices. Government-funded health programs such as
Medicare and MediCaid are also encouraging members to join managed care health
plans.
Health plans can reimburse providers through a variety of complex
contractual agreements that depend on the managed care environment in a
particular market. To prosper under managed care, it is absolutely necessary for
providers to understand how health plans reimburse in the local market. In
places where the healthcare industry is heavily penetrated by managed care,
capitation is the physician reimbursement model of choice for health plans.
Capitation allows the health plan to pay the provider of health services on a
PMPM basis, and pass on the risk of providing a defined set of services to the
capitated entity. Since the health plans themselves are paid a flat amount per
member, paying a provider organization a flat fee reduces the vulnerability of
the plan by passing the uncertain elements of medical expense to the provider
organization. Under capitation, physician organizations stand to earn profits if
they have a substantial population and a financial and operational
infrastructure to manage the professional risk; likewise, by capitating
providers, health plans can focus on what they do best, increasing enrollment
and developing networks.
One popular form of a physician organization is the IPA. An IPA is a
network of independent physicians that contracts with a health plan as one
group, while maintaining its medical infrastructure to assure quality and
accountability. The strength of the IPA model is that it allows the individual
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physician to maintain autonomy in the delivery of medicine, while realizing the
benefits of group contracting and quality standards.
For an IPA to be successful, it must obtain health plan contracts to
manage the healthcare needs of a given population and enroll patients who are
covered by those contracts. Once a given market is saturated with contracts, as
is the case in most of Southern California, the carriers will not typically
issue any additional contracts. Exceptions arise when an opportunity niche
within a saturated market can be reached. While the health plan contracts allow
the IPA to be reimbursed by the carrier for medical services rendered, patients
must also enroll with the IPA and be assigned to a primary care physician in the
network. Once the patient is enrolled and assigned to a primary care physician,
the IPA begins to receive capitation payments from the health plan. If the
patients are healthy, they may rarely use health services and the IPA continues
to be paid. Conversely, if the population is unhealthy, the IPA will not be able
to charge the health plan any more than the pre-negotiated capitation amount.
In highly penetrated markets, expansion often takes place through the
acquisition of or merger with existing IPAs and medical groups. Managing the
business and expanding enrollment through mergers and acquisitions, however,
requires significant amounts of capital that can be difficult for an IPA to
obtain in certain states due to governmental restrictions.
Corporate Structure of Managed Care Providers. The healthcare industry
is unique in that the providers of services, physicians, are rendering services
to beneficiaries, patients, who are not directly paying for the services they
receive. Under such a model, many avenues for fraud and abuse exist because of
the lack of distinction between the customer and the consumer. It is no surprise
that federal and state governments keep a very close eye on the medical
industry. One issue that is regulated on a state level concerns the ownership of
medical corporations. Some states have statutes or judicial precedent
restricting corporations from employing physicians. Although most states either
do not have or do not enforce such statutes and precedent, the states that do
frequently have provisions that exclude certain types of corporations, such as
nonprofit corporations, physician-controlled corporations, HMOs, or hospitals.
Some states aggressively regulate the corporate practice of medicine,
specifically California, Colorado, Ohio, Iowa, and Texas. In these states,
businesses must be very careful in the structuring of corporate practices as
well as the ownership of the corporations.
In states such as California, non-physicians cannot employ physicians
or own the professional component of a medical practice (this includes any
equity investors). With this restriction, it would be difficult for an IPA to
find enough capital to grow and continue developing networks solely through
physician investment. Another issue faced by developing IPAs is the high cost of
developing systems that allow an IPA to track and manage its contracts and
patients. Furthermore, health plans will not contract with providers who do not
have these mechanisms in place because the provider organization will go
bankrupt if it is not prepared to manage the risk. One excellent and innovative
solution to overcoming this barrier is the development of a Management Services
Organization ("MSO"). A MSO is able to manage the operations of IPAs. LMC is a
MSO formed to manage all operations of LatinoCare Network Medical Group, a
licensed IPA able to accept risk for physician services from third-party payors
and self-insured employers through an approved ERISA plan.
THE LATINO MARKET
The United States has the sixth largest Latino population in the world,
exceeded only by Mexico, Spain, Colombia, Argentina, and Peru. Since the 1990s,
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Latinos have been the fastest growing minority group in the United States. In
the early 1990s, the Latino population constituted approximately eight percent
of the total United States population. Today, that percentage continues to rise.
The Latino population is the fastest growing minority group in the United
States. California, in particular, has experienced exponential growth in this
segment, surpassing even the national growth rate of 50% between 1980 and 1990.
In 1997, the Latino population of Los Angeles County reached 4.4 million. By the
end of the year 2020, that number is expected to climb to 10 million. Despite
these statistics and high managed care penetration in areas with large Latino
communities, the Company believes that the health care needs of the Latino
population are not being met and that there continues to be a shortage of health
services suitable for this market.
When examining the mortality statistics of the Latino population it is
evident that the Hispanic community exhibits a very desirable health profile.
The Latino population has a lower rate of prevalent causes of death than the
white non-Latino population. Because the highest medical costs are incurred
during incidents of terminal illnesses, a lower rate of prevalent causes of
death implies an overall healthier population. When compared to the white
non-Latino population, the Latino population also tends to have a lower infant
mortality rate, smoke less, drink and use fewer drugs during pregnancy, and use
the hospital less often.
Latinos are also less likely to seek medical services than other
groups. These findings may seem counterintuitive, since one would expect a
population with low access to healthcare to be sicker. The Latino community,
however, is considered healthier because of its youth, work ethic, and overall
well-being. The low utilization of healthcare services is a result of service
barriers, and not the healthier position of the Latino community. The effect of
these barriers is expressed in the high rate of chronic preventable diseases
within the Latino population, which results in an increase risk of
complications. Thus, despite an overall healthier population, the Latino
community is at greater risk for certain diseases, such as severe diabetes.
Management believes that the specific issues that prevent Latinos from
obtaining proper healthcare include language barriers, the values and attitudes
of providers, and the assignment of various doctors to patients on multiple
visits. Cultural insensitivity, disrespect, and other barriers are thought to
characterize the typical treatment of Latinos by the healthcare industry.
Although many Hispanics have gained some facility in English, management
believes that the provision of health care to this community would be more
effective if patients were able to communicate in their native tongue when
discussing matters of health. In addition to language barriers, cultural
differences must be considered in order to provide effective health management
to the Latino population. For example, Latinos respond more positively to
smoking cessation programs that show that smoking is harmful to the health of
their families and children as opposed to programs that emphasize the personal
hazards of smoking.
Designed with the specific purpose of filling this market niche, LMC
believes that it provides the necessary healthcare components (education,
service, and delivery) tailored to the Latino population. Comprised of a core of
Latino leaders, management is well aware of the sensitivity that is needed to
care for the Latino population, and is taking an active role in the education of
providers and members. As the Latino population becomes more informed about
managed care, LMC plans to be prepared to take on the risk in accepting these
lives with a well developed package of services.
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Plans and Contracts
LMC secured its first health plan contract with Blue Shield in July
1995. Since securing its first health plan contract, LMC has obtained ten
additional contracts with large medical insurance companies, including but not
limited to Aetna, Cigna, HealthNet, Prudential, Universal Care, Care 1st Health
Plan, U.H.P. Healthcare, and Blue Cross. Management believes that marketing has
contributed to LMC's success. Since the Southern California market is saturated
with contracts for managed health services, the primary means for an IPA to gain
health plan contracts or membership lives is to merge with or purchase other
IPAs. LMC, however, has been approaching the health plans with a strategy to
capture the seemingly untapped Latino community. As a result, health plans have
been awarding LMC new contracts, a policy that is not common to the market. In
addition, most contracts awarded to LMC are not geographically restricted, which
is an exception to many HMO contract policies. LMC believes that as membership
increases, it will gain additional leverage for contracting and negotiating
renewals.
Hospital Affiliations/networks
LMC has established partnerships with a number of area hospitals, from
which it has been able to obtain nearly obligation-free financing for network
development. By providing LMC with financing, each hospital gains a "friendly"
physician network in its immediate area, which provides the hospital with a
patient base. LMC benefits both financially and strategically through its
partnerships and affiliations.
Cedars-Sinai Medical Center ("CSMC"), one of LMC's partners, has been
LMC's largest single investor, providing over $1.75 million of financing to LMC.
LMC has received less than $500,000 in financing from all other hospitals
combined. Although CSMC has been more involved in the management of LMC than
other partners, LMC's operations have not been effected. For example, CSMC
imposes no conditions relating to patient care, including referral requirements.
CSMC financial support, in the form of a convertible note in the amount
of $1,000,000, was issued November 30, 1996, and was converted into 20% of the
outstanding common stock of LMC. On June 12, 2001, CSMC converted additional
convertible notes totaling $750,000 into an additional 8% of the outstanding
common stock of LMC. On July 23, 2001, CSMC sold its LMC common stock to LMC in
consideration for a note in the amount of $1,750,000 plus simple interest at the
rate of 6% per annum, payable $500,000 on or before 120 days from the date of
the note, $500,000 on or before 240 days from the date of the note, and $750,000
plus accrued interest on or before 360 days from the date of the note. To date,
the Company has not made any payments on the note. Consequently, CSMC has the
right to convert the note into 28% of the outstanding common stock of the
Company, or a pro rata share if the promissory note is partially repaid. The
Company plans to negotiate with CSMC to amend the note, but there is no
assurance that an amendment will be made. CSMC has not yet demanded a conversion
of its note, and management believes that it may be receptive to a modification.
LMC currently has 26 completed networks and 26 hospital panels. A
completed network includes a cluster of primary care physicians (usually 10 to
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20), hospital-based providers, and coverage in 37 specialties. LMC's completed
networks include, but are not limited to:
o California Hospital Medical Center /Suburban Hospital
o Granada Hills Community Hospital /Cedars-Sinai Medical Center
o UCI Medical Center
o LA Metropolitan Hospital
o Queen of the Valley
o St. Francis Medical Center
o San Gabriel Valley Medical Center
o Midway Medical Center
o Los Angeles Community Hospital
LMC expects to complete an additional three hospital affiliations
within the next twelve months to complete coverage of San Bernardino, Long
Beach, and the balance of Los Angeles and the San Fernando Valley.
Patient Enrollment
As of December 2001, LMC's combined contract enrollment totaled
approximately 27,000 enrollees. With this size patient base, management believes
that LMC has great potential to gain a considerable increase in market share in
the near future. Except as described below, LMC has experienced continued and
considerable monthly growth during the past five years, and management projects
growth to continue in the coming years. The following is an enrollment summary:
During 2001, LMC experienced an overall decrease in enrollment. The
decrease was caused primarily by two factors. In October of 2001, Tower
Corporation, one of the medical insurance companies with which LMC had a health
plan contract, declared bankruptcy. As a result, LA Care, one of the
corporations through which Medi-Cal benefits are provided in Los Angeles,
reassigned Tower's approximately 4,000 enrollees to other contracted medical
insurance companies. LMC did not have health plan contracts with these other
medical insurance companies at the time of the reassignment. Subsequently, as
the result of an agreement with LA Care, LMC now has health plan contracts with
two of these medical insurance companies, Care 1st Health Plan and U.H.P.
Healthcare, and is slowly recovering its lost membership. Additionally, LA Care
has agreed to utilize its best efforts to assign enrollees who do not specify an
IPA to enroll with LNMG and other affected IPAs with the goal of doubling the
enrollment of LNMG and the other affected IPAs from the lost enrollment caused
by Tower's bankruptcy. As of December 2001, Care 1st Health Plan and U.H.P.
Health have assigned approximately 3,000 enrollees to LNMG.
The second factor is currently the subject of a lawsuit between LNMG
and PacifiCare. In 2000, LNMG acquired the contracts and related enrollment of a
medical group in San Diego which had a health plan contract with PacifiCare.
Prior to the acquisition LNMG received written assurances from PacificCare that
PacificCare would transfer its contract with LNMG. Shortly after the
acquisition, PacificCare terminated its contract with LNMG and the provider in
Chula Vista. The Chula Vista provider was forced to layoff several of its
physicians. As a result, enrollment in San Diego has deceased from approximately
5,300 enrollees in November 2000 to approximately 1,600 enrollees currently.
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Provider Networks
LMC's physician network has experienced considerable growth. Growing
from less than 600 providers at the end of 1996, LMC now boasts over 2,500
network providers. With this expansive coverage, LMC can offer its members
greater choice over a greater service area.
As required in its health plan contracts, LMC has ancillary networks of
culturally sensitive providers in the following specialties:
Physical Therapy Home Health
Occupational Therapy Durable Medical Equipment
Speech Therapy Infusion
Laboratory Behavioral Health
Imaging Services Chemotherapy
Internal Operations
Since its inception, LMC's management team has successfully organized
and assembled an extensive and competent workforce. Each department is staffed
with experts in their respective fields, and supervised by senior managers with
wide ranges of experience. Staffing includes both clinical and professional
components.
Top management has assembled the departments and corresponding
procedures to offer full-service MSO/IPA management, in order to allow LMC to
continue its current growth pattern. These departments now manage in excess of
$25 million in capitation revenue and are supported by a database with the
following details:
o Credentialing: over 2,500 physician and ancillary providers.
o Contracting: including 2,500 prospective providers in three
states.
o Employer Groups: more than 400 prospective Latino-owned or
Latino-employing businesses.
o Other Recruiting: health fair contact database of Latino
community members.
LMC's offices are furnished with state-of-the-art computer systems,
software to support managed care claims processing, eligibility, and
encounters/authorizations, and a sophisticated telephone system. LMC occupies an
entire building in Long Beach, California and presently has 39 full time
employees. The office total space is designed to accommodate up to 80 employees.
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Brand Identity
Management believes that LMC has successfully increased its awareness
and brand identity through the use of various media and image and identity
campaigns. Top management has been featured on most of the local network
television broadcasts, including KNBC (channel 4), KTLA (channel 5), KABC
(channel 7), KCAL (channel 9), and KTTV (channel 11). In addition, LMC has been
reviewed in feature articles in Modern Healthcare, The Los Angeles Times, L.A.
Business Journal, MedFax, Hispanic Business Magazine, and La Opinion. In the
reviews, LMC has been depicted as a progressive, high-quality organization. As a
result, LMC has become a recognized organization in the healthcare industry and
the Latino community.
Competition
The Company is subject to intense competition. The health care industry
is highly fragmented, with many companies performing the services performed by
the Company. Many of these competitors have limited operations, but several
industry participants are comparable in size to or larger than the Company, have
greater financial and managerial resources than the Company, and greater name
recognition than the Company, but not in the Latino community.
Government Regulation
The Company is subject to various federal, state and local laws
affecting medical services businesses. The Federal Trade Commission and
equivalent state agencies regulate advertising and representations made by
businesses in the sale of their products, which apply to the Company. The
Company is also subject to government laws and regulations governing health,
safety, working conditions, employee relations, wrongful termination, wages,
taxes and other matters applicable to businesses in general.
Employees
LMC currently has currently has approximately 39 full time employees.
The employees include two executive officers. The Company does not have any
employment agreements or collective bargaining agreements with any of its
employees, although it intends to enter into employment agreements with the
executive officers in the future.
Seasonality
The Company's business is not expected to be substantially affected by
seasonality.
Trademarks
The Company has not been issued any registered trademarks for its
"Latinocare Management" trade name. The Company plans to file trademark and
tradename applications with the United States Office of Patents and Trademarks
for its proposed tradenames and trademarks. No assurance can be given that the
Company will be successful in obtaining any trademarks, or that the trademarks,
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if obtained, will afford the Company any protection or competitive advantages.
ITEM 2. PROPERTIES
The Company currently leases approximately 16,050 square feet of office
space at 4150 Long Beach Boulevard, Long Beach, California 90807 for
approximately $13,000 per month. The Company leases the space pursuant to a ten
year lease which expires on April 30, 2010. After the first five years of the
lease, the lease has a one year option to cancel the lease or to extend the
lease for an additional two year period.
ITEM 3. LEGAL PROCEEDINGS
LNMG is currently the plaintiff in a lawsuit filed by it against
PacificCare in 2001 for breach of contract. See "Item 1. Business - Patient
Enrollment." The Company is not currently a party to any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 5, 2001, LMC and the Company entered into an Agreement and
Plan of Reorganization (the "Reorganization") which resulted in a share exchange
between the shareholders of LMC and the Company, effective November 30, 2001.
Pursuant to the Reorganization, LMC became a wholly owned subsidiary of the
Company and the shareholders of LMC became the controlling shareholders of the
Company. Upon completion of the Reorganization, (a) the 3,270,000 shares of the
common stock of the Company owned by LMC were retired and cancelled, and (b) the
Company had a total of approximately 14,529,100 shares of its common stock
outstanding. The Boards of Directors of both LMC and the Company unanimously
approved the Reorganization. The holder of 3,270,000 shares or approximately 79%
of the total issued and outstanding shares of the Company voted for the
Reorganization. The holders of a substantial majority of the outstanding common
stock of LMC voted for the Reorganization and the holders of a small minority of
the outstanding shares abstained. No shares of LMC or the Company voted against
the Reorganization. The members of the Board of Directors of the Company before
the closing of the Reorganization were replaced with members of the LMC Board of
Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASD OTC Bulletin Board Market
under the symbol "LCMC." The range of high and low bid quotations for each
fiscal quarter within the last two fiscal years was as follows:
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2001 HIGH LOW
- ---- ---- ---
First quarter.................................. $ .75 $.25
Second quarter............................... $0 $0
Third quarter................................... $1.25 $.375
Fourth quarter.................................. $2.50 $.75
2000 HIGH LOW
- ---- ---- ---
First quarter................................. $0 $0
Second quarter.................................. $ .01 $0
Third quarter................................. $* $*
Fourth quarter................................ $* $*
- -----------
*Stock was not approved for trading.
The above quotations reflect inter-dealer prices, without retail
markup, mark-down, or commission and may not necessarily represent actual
transactions.
As of December 31, 2001, there were approximately 72 record holders of
the Company's common stock, not including shares held in "street name" in
brokerage accounts which is unknown. As of December 31, 2001, there were
approximately 14,529,100 shares of common stock outstanding.
The Company has not declared or paid any cash dividends on its common
stock and does not anticipate paying dividends for the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Cautionary Statements
This Form 10-KSB 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:
o statements concerning the benefits that the Company expects
will result from its business activities and certain
transactions the Company has completed, such as the potential
for increased revenues, decreased expenses and avoided
expenses and expenditures; and
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o 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-KSB. 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-KSB. 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 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;
(f) rapid and significant changes in markets;
(g) litigation with or legal claims and allegations by
outside parties;
(h) insufficient revenues to cover operating costs.
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-KSB. 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 may 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-KSB or to reflect the occurrence of unanticipated events.
Results of Operations for Fiscal Year Ended December 31, 2001 Compared to Fiscal
Year Ended December 2000
Total revenue for the twelve month period ending December 31, 2001
decreased by $577,963 to $2,342,882 from $2,882,845 in the prior year. The
decrease in revenue for the twelve months ended December 31, 2001 as compared to
the twelve months ended December 31, 2000 is primarily due to a decrease in
-12-
member months caused by (1) the bankruptcy of Tower Corporation, which
represents the loss of 16,508 member months, and (2) the termination by
PacifiCare of a contract with LNMG, which represents the loss of 24,435 member
months. The impact of these two items accounts for a decrease of approximately
$420,000 in revenue. The impact of the Tower bankruptcy was partially offset by
two new HMO contracts completed during the last two months of 2001. These two
new contracts accounted for approximately 5,000 member months during 2001 and,
during 2002, are expected to exceed the member months lost due to the Tower
bankruptcy. The remaining decrease in revenue is primarily the result of the
Company's decision to end its participation in a state program which paid the
Company a commission for registering individuals in a program called Health
Families. LNMG continues to participate in the program as a provider, but the
Company no longer recruits individuals to sign up for the program.
Operating and administrative expenses increased by $10,098 during the
twelve months ended December 31, 2001 to $2,831,496 from $2,821,398 in the prior
year. Salaries and benefits increased by $404,683 for the twelve months ended
December 31, 2001 as compared to the twelve months ended December 31, 2000. This
increase is due primarily to the following: (1) the Company's Chief Executive
Officer, who had been compensated as a consultant for a portion of the twelve
months ended December 31, 2001, was added to the Company's payroll, (2) the
Company's business development department was expanded to promote employer and
provider contact to increase the Company's visibility and membership, (3) the
Company's health education and compliance departments were expanded to meet
increased HMO and governmental requirements, and (4) core departments, including
claims and provider services, were expanded to compensate for a loss of the
Company's computer systems during June 2001 and the introduction of a new
automated system which was implemented during the four months ended October
2001. Professional and consulting expenses decreased by $42,301 and general and
administrative expenses decreased by $271,058 for the twelve months ended
December 31, 2001 as compared to the twelve months ended December 31, 2000.
Approximately $172,000 of the decrease in general and administrative expenses
was attributable to the discontinuation of a state program in 2001 recruiting
membership. Expenses related to the disposal of fixed assets and depreciation
decreased by $81,226, and interest expense increased by $20,633 for the twelve
months ended December 31, 2001 as compared to the prior year due to the issuance
of an interest-bearing note to Cedars-Sinai Medical Center. The decrease in loss
on assets abandoned is the result of non-recurring assets disposed of in 2000.
The decrease in depreciation expense is primarily the result of assets becoming
fully depreciated in 2000 or in the beginning of 2001.
For the twelve months ended December 31, 2001, the Company's
consolidated net loss was $580,504 as compared to a consolidated net profit of
$8,190 for the twelve months ended December 31, 2000.
Liquidity and Capital Resources
The Company had consolidated net cash of $2,604 at December 31, 2001 as
compared to net cash of $65,532 as of December 31, 2000. The Company had a net
working capital deficit (i.e. the difference between current assets and current
liabilities) of $2,484,482 at December 31, 2001 as compared to a working capital
deficit of $898,954 at December 31, 2000. Cash flow used for operating
activities decreased from $82,540 during the twelve months ended December 31,
2000 to $42,357 during the twelve months ended December 31, 2001. Cash used for
-13-
investing activities increased from $123,077 during the twelve months ended
December 31, 2000 to $341,933 during the twelve months ended December 31, 2001.
Cash provided by financing activities increased from $0 during the twelve months
ended December 31, 2000 to $236,648 during the twelve months ended December 31,
2001. Since December 31, 2000, the Company's capital needs have primarily been
met from advances received from LNMG.
The Company will have additional capital requirements during 2002 if
the Company continues with its plan of acquisition and incubation of new IPAs
and projects, and to pay operating costs. There is no assurance that the Company
will have sufficient capital to finance its growth and business operations or
that such capital will be available on terms that are favorable to the Company
or at all. The Company is currently incurring operating deficits which are
expected to continue until LNMG increases its patient enrollment, which depends
in part on the Company raising additional working capital for marketing and
acquisitions. The change is expected to be the result of adjustment to expenses
and by increased revenues due to acquisitions, provided that the Company raises
additional capital.
The Company expects to have material capital requirements during 2002
as it relates to acquisitions of membership by LNMG, the IPA. Subject to the
availability of capital, LNMG 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 physician's practices but rather the
transfer of these physicians' membership from other IPAs to LNMG. The funds to
make these acquisitions are expected to be generated from a private placement of
common stock and warrants currently be made by the Company to raise
approximately $1,000,000 of capital. The private placement commenced in late
2001 and involves the offer of 800,000 units at a price of $1.25 per unit. Each
unit consists of one share of common stock and one warrant to purchase one share
of common stock for a purchase price of $2.00 per share for a period of one year
from the date of issuance, subject to extension until the shares underlying the
warrants are registered with the Securities and Exchange Commission. The
warrantholders have registration rights after issuance of the warrants. To date,
no capital has been raised in the private placement and there is no assurance
that the Company will raise additional capital.
On July 23, 2001, Cedars-Sinai Medical Center (CSMC) sold its LMC
common stock to LMC in consideration for a note in the amount of $1.75 million
plus simple interest at the rate of 6% per annum. The note is payable in three
installments on or before July 23, 2002. The first installment was due in
January 2002 and was not paid. As a result, CSMC has the right to convert the
note into 28% of the outstanding common stock of the Company, or a pro rata
share if the promissory note is partially repaid. The Company expects to
negotiate an extension with CSMC on the promissory note.
LNMG was owned by Roberto Chiprut, M.D. who was a major shareholder and
director of the Company and LMC until his recent death. Prior to his death, the
Company and Dr. Chiprut had reached agreement and executed a contract for the
Company to acquire his IPA and Company stock for $2.5 million contingent on the
Company making certain milestone payments. The Company is in discussions with
the heirs of Dr. Chiprut to make the purchase on essentially on the same terms
as previously agreed upon with Dr. Chiprut, subject to the availability of
capital. The Company currently does not have the funds to purchase Dr. Chiprut's
stock and there is no assurance that the Company will be able to obtain
sufficient capital to pay the purchase price for the stock.
-14-
ITEM 7. FINANCIAL STATEMENTS LATINOCARE MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Independent Auditors Report.................................................................................... 17
Consolidated balance sheet at December 31, 2001................................................................ 18
Consolidated statements of operations from the years ended December 31, 2001, and 2000......................... 19
Consolidated statements of stockholders' equity for the years ended December 31,
2001 and 2000 ................................................................................................ 20
Consolidated statements of cash flow for the years ended December 31, 2001 and 2000 ........................... 21
Notes to Financial Statements.................................................................................. 22
-15-
JNS MARKETING, INC.
(Renamed Latinocare Management Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONTENTS
PAGE
----
Report of Independent Public Accountants 17
Consolidated Balance Sheets 18
Consolidated Statement of Operations and Deficit 19
Consolidated Statement of Changes in Shareholders'
Equity (Deficit) 20
Consolidated Statement of Cash Flows 21
Notes to Consolidated Financial Statements 22-34
-16-
Report of Independent Accountants
To the Board of Directors
JNS Marketing, Inc.
Long Beach, California
We have audited the accompanying consolidated balance sheets of JNS Marketing,
Inc. and its subsidiary as of December 31, 2001 and the related consolidated
statements of operations, shareholders' accumulated deficit and cash flows for
each of the two years ended December 31, 2001 and 2000. These financial
statements are the responsibility of the Company';s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted the audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that the audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of JNS Marketing,
Inc. and subsidiary as of December 31, 2001 and the consolidated results of
operations and its cash flows for each of the two years ended December 31, 2001
and 2000 in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2, the Company
have no earnings to date and has a significant accumulated deficit. These
circumstances raise substantial doubt about its ability to continue as a going
concern. Management's plan in regard to this matter are also described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Oppenheim & Ostrick, CPA'S
Culver City, California
February 28, 2002
-17-
JNS MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001
December 31, 2001
-----------------
Current assets:
Cash and cash equivalents $ 2,604
Accounts receivable 2,922
Prepaid expenses and other current assets 49,291
-----------------
Total current assets 54,817
-----------------
Property and equipment:
Net of accumulated depreciation 218,600
-----------------
Total property and equipment 218,600
-----------------
Other assets:
Deposit 15,478
-----------------
Total other assets 15,478
-----------------
$ 288,895
=================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 196,387
Accrued expenses 107,522
Accrued interest payable 46,034
Income tax payable 1,600
Due to related party 437,756
Note payable - related party 1,750,000
-----------------
Total current liabilities 2,539,299
-----------------
Shareholders' equity (deficit):
Common stock, no par value; 50,000,000
shares authorized; 14,529,100 shares
issued and outstanding 997,652
Accumulated deficit (3,248,056)
-----------------
Total shareholders' deficit (2,250,404)
-----------------
$ 288,895
=================
See accompanying notes and Independent Auditors' report which are integral parts
of these consolidated financial statements.
-18-
JNS MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR YEARS ENDED DECEMBER 31, 2001 AND 2000
Years Ended
December 31,
2001 2000
---- ----
Revenue:
Management fees- related party $ 2,222,496 $ 2,666,719
Management fees- others 102,386 216,126
------------ ------------
2,324,882 2,882,845
------------ ------------
Costs and expenses:
Salaries and benefits 1,788,910 1,384,227
Professional and consulting fees 278,883 321,184
General and administrative 727,687 998,745
Loss on assets abandoned 8,144 28,865
Depreciation 27,872 88,377
------------ ------------
2,831,496 2,821,398
------------ ------------
Operating income (loss) (506,614) 61,447
------------ ------------
Other income (expense):
Interest expense (73,090) (52,457)
------------ ------------
Other income (loss) before income taxes (579,704) 8,990
Provision for income taxes 800 800
------------ ------------
Net income (loss) $ (580,504) $ 8,190
============ ============
Earnings (Loss) per common share
Basic $ (0.04) $ 0.00
============ ============
Diluted $ (0.04) $ 0.00
============ ============
Weighted average common shares outstanding
Basic 14,529,100 14,529,100
============ =============
Diluted 14,529,100 14,529,100
============ =============
See accompanying notes and Independent Auditors' report which are integral parts
of these consolidated financial statements.
-19-
JNS MARKETING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR YEAR ENDED DECEMBER 31, 2001
Retained Earnings Total
Shareholders' Common Stock Additional Accumulated
Equity Shares Amount Paid-in Deficit
- ----------------------- ------------ --------- ---------- ------------- -------------
Balance At December
31, 2000 3,781,455 $ 952,727 $ 0 $ (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) 0
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) 0
Transfer of acquiring
company's accumulated
deficit 0 0 0 (1,671,685) (1,671,685)
Consolidated net loss
for period ended
december 31, 2001 0 0 0 (580,504) (580,504)
------------- ---------- ------------ ------------ ------------
Balance At December
31, 2001 14,529,100 $ 997,652 $ 0 $ (3,248,056) $(2,250,404)
============= =========== ============ ============= ============
See accompanying notes and Independent Auditors' report which are integral parts
of these consolidated financial statements.
-20-
JNS MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 2001 AND 2000
Years Ended
December 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $ (580,504) $ 8,190
Adjustment to reconcile net income (loss) from
operations to cash provided (used) in operating
activities:
Depreciation 27,872 88,377
Loss on abandonment of assets 8,144 43,298
Stock issued for services rendered 10,000 (increase) decrease in:
Due from related party 634,882 (168,237)
Accounts receivable 10,277 27,341
Prepayments to PPM (46,896) (10,000)
Deposits and other assets 10,039 (12,285)
Increase (decrease) in:
Accounts payable 82,307 21,923
Accrued expense 39,871 28,627
Accrued interest (154,435) 54,506
Income tax 800 800
------------------- ----------------
Net cash provided (used) from operating activities 42,357 82,540
------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business (300,000) 0
Purchase of equipment (41,933) (123,077)
------------------- ----------------
Net cash used from investing activities (341,933) (123,077)
------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of debt into equity 227,723 0
Private placement offering 8,925 0
------------------- ----------------
Net cash provided from financing activities 236,648 0
------------------- ----------------
Net increase (decrease) in cash (62,928) (40,537)
Cash, beginning of the year 65,532 106,069
------------------- ----------------
Cash, end of the year $ 2,604 $65,532
=================== ================
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:
Conversion of debt to equity $ 1,040,183 $ 0
=================== ================
Accrued interest on debt to equity conversion $ 27,254 $ 0
=================== ================
Conversion of equity to debt $ 1,750,000 $ 0
=================== ================
Accrued interest on the equity to debt conversion $ 46,034 $ 0
=================== ================
See accompanying notes and Independent Auditors' report which are integral parts
of these consolidated financial statements.
-21-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(1) GENERAL BACKGROUND AND NATURE OF OPERATIONS:
A. GENERAL BACKGROUND :
JNS Marketing, Inc. (the "Company") 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 October 31, 2001.
Latinocare Management Corporation 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 who have
common shareholders who influence the activities of both entities.
Latinocare Management Corporation acquired JNS Marketing, Inc. in
November 2001 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 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 Latinocare Management Corporation's Board of
Directors. Pro-forma financial information was reported on Form 8K in February
2002.
The Company entered into an Agreement and Plan of Reorganization which
will result in a share exchange between shareholders of Latinocare Management
Corporation and the Company, whereby the Latinocare Management Corporation
became a wholly owned subsidiary of the Company.
The Company has a total of 14,529,100 shares of its outstanding common
stock issued. 511,455 shares or 4% of the issued and outstanding common stock
are owned by the original shareholders of the acquired company, 13,471,645
shares or 93% of the outstanding common stock have been issued to two members of
Latinocare Management Corporation's Board of Directors, and new shares issued
totaling 546,000 shares or 4% of the outstanding common stock issued consists of
(i) 260,000 shares of common stock issued to individuals as part of the
Latinocare Management Corporation's renegotiated cost of acquiring the Company,
(ii) 100,0000 shares of common stock issued for services rendered and (iii)
186,000 shares of common stock issued to unaffiliated private investors.
The Company is to be renamed as Latinocare Management Corporation and
to reincorporate in the State of Nevada.
-22-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
B. NATURE OF OPERATIONS:
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 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 Group, Inc. to
provide all management and administrative support, allowing the IPA to focus
efforts on physician network development. These services include, among others;
clerical and billing services, claims settlement and collection, accounting,
financial and cash flow management, marketing and general administrative
services (collectively, "Management Services"). The Company acts as the
exclusive agent to the IPA with regards to seeking, negotiating, renewing, and
executing managed care contracts.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's cash and available credit are not sufficient to support
operations for the next year. A net loss of $1,671,793 was incurred from
inception on February 1995 until December 31, 2000. For the twelve months ended
December 31, 2001, the Company had a net loss of $580,504. The Company also had
negative working capital and stockholders deficit at December 31, 2001.
Management plan is to raise enough equity for the on-going twelve (12)
months through private placements (see Note 12 - Subsequent Events) and
individual investors; pay off 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 consolidated financial
statements have been prepared on the basis that adequate equity financing will
be obtained.
-23-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
A. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its subsidiary. Intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
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
capitation revenues received BY THE IPA, WHICH IS A RELATED PARTY TRANSACTION.
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
collections.
Revenues are also generated from risk pool settlements. 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 pools relate to reserves
for hospital expenses. These reserves are held by the HMO 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 MSO (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.
-24-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
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.
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 improvements 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.
-25-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
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.
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. An impairment in
the carrying value of an asset is recognized when the fair value of the asset is
less than its carrying value.
-26-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
(3) PRIVATE PLACEMENT OFFERING AND PREPAID EXPENSES
Prepaid expenses and other current assets consists of :
Prepaid private placement costs $ 46,896
Other current assets 2,395
-----
$ 49,291
The Private Placement Memorandum issued on March 1, 2001 in connection
with the Company's offer of sale of its common stock ended in October 29, 2001
with a total gross receipts of $231,700. The price per share for this offering
was $2.50 per share. Costs directly attributable to this offering of securities
were charged against the gross proceeds. The net proceeds of $8,925 is recorded
as additional paid-in capital in the acquiring company's books and were
eliminated as a result of the acquisition.
On November 30, 2001, a new Private Placement Memorandum was issued for
qualified investors in connection with the Company's offer of sale of its common
stock.
The above prepaid private placement costs consists of printing, mailing
and consulting fees that have been incurred as of December 31, 2001. 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.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
December 31,
2001
------------
Furniture, fixtures $ 83,785
and office equipment
Leasehold improvement 77,157
COMPUTERS AND SOFTWARE 204,058
------------
365,000
LESS ACCUMULATED DEPRECIATION 146,400
------------
$ 218,600
============
-27-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Depreciation expense for the years ended December 31, 2001 and 2000
was:
December 31,
2001 2000
--------- --------
Depreciation $27,872 $88,377
========= ========
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:
December31,
2001
-------------
Cedars Sinai, shareholder, due
on demand with interest at
5.25% to 8% due annually $ 0
Cedars Sinai, shareholder, due
on demand with interest at
5.81% due annually 0
Cedars Sinai, shareholder, due
on demand with interest at 8%
due annually 0
Cedars Sinai, shareholder,
due on demand with interest
at 5.25% due annually 0
Cedars Sinai, due July 23, 2002
with interest at 6.0% per annum 1,750,000
---------
Total $1,750,000
=========
On June 12, 2001, Cedars Sinai (the Payee) exercised its option to
convert all of the indebtedness evidenced by the above notes, including accrued
interest, into shares of the Company's Common Stock which when combined with the
number of shares of Common Stock issued to Payee equals twenty-eight (28%) of
the issued and outstanding shares of the Common Stock, on a fully-diluted,
convertible basis. Accrued interests from the above notes were recorded as
additional paid-in capital upon conversion.
-28-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
On July 23, 2001, the total shares issued to Cedar Sinai amounting to
$1,750,000 of common stock was redeemed by the Company by issuing a convertible
note to Cedars Sinai for $1,750,000 bearing simple interest at the rate of 6%
per annum (see Related Party Transactions - Note 10 for the retirement of the
common stock).
The notes for Cedars Sinai, due on July 23, 2002, matures as follows:
$500,000 shall be paid on or before 120 days on or before the date of
the note;
$500,000 shall be paid on or before 240 days on or before the date of
the note; and
$750,000 and all accrued but unpaid interest shall be paid on or before
the expiration of 360 days from the date of the note.
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:
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 December 31, 2001, no payments have been made by the Company. The
Company plans to amend the terms of the above agreement with Cedar Sinai.
(6) PROVISION FOR INCOME TAXES:
The provision for taxes consists of the following for the period:
Federal State Total
------- ----- -----
Current $ 0 $800 $800
Deferred 0 0 0
--- ----- -----
$ 0 $800 $800
=== ===== =====
At year end December 31, 2001 and 2000, 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 current year and has available net operating
-29-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
loss (NOL) carry forwards of approximately $2,212,504 and $1,632,000,
respectively, 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.
(7) ADVERTISING:
Advertising expense consists of the following:
Years ended
December 31,
2001 2000
---- ----
Total $1,958 $25,773
===== ======
(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 years ended
December 31, 2001 and 2000.
(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
December 31, Office Space Equipment Total
------------- ------------ --------- -------
2000 111,163 42,840 154,003
2001 157,632 38,282 195,914
2002 157,632 38,856 196,488
2003 157,632 38,856 196,488
Thereafter 157,632 93,774 251,406
------- ------ -------
Total $741,691 $252,608 $994,299
-------- -------- --------
-30-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Total lease and rent expense consist of the following:
Years ended
December 31,
2001 2000
---- ----
Equipment lease $ 62,134 $ 48,145
Office rent 218,827 120,028
------- -------
$280,961 $168,173
======= =======
(10) RELATED PARTY TRANSACTIONS :
a. Latinocare Network Medical Group, Inc.:
The CEO/President of Latinocare Network Medical Group, Inc. (IPA) is a
member of the board of directors and a major stockholder for both the IPA and
the Company until his recent death in February 2002. In light of this
shareholder's death, the Company has the contractual right to acquire his shares
of stock from the IPA and the Company for $2.5 million contingent on the Company
making some milestone payments. The Company is in discussions with the heirs of
the shareholder to make the purchase essentially on the same terms as previously
agreed with the shareholder before his death.
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.
-31-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
The Company also renders services on business development and marketing
of products and services of the IPA.
The management fees, settlement fees, marketing and business
development from the IPA, paid and due to the Company were approximately:
Years ended
December 31,
2001 2000
---- ----
Management fee $1,576,295 $1,961,978
Settlement fee 182,904 334,976
Marketing & BUSINESS DEVELOPMENT 463,297 369,765
--------- ---------
Total $2,222,496 $2,666,719
========= =========
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 for the year ended:
December 31,
2001
----
Receivable from related party $ 356,776
Payable to related party (794,532)
---------
Due (to)/from - Related Party $(437,756)
=========
The above outstanding net payable to the IPA of approximately $437,756
was used as working capital.
B. GONZALES-D'AVILA ENTERPRISE DBA JJ&M MANAGEMENT:
The JJ&M's CEO/President is employed as a consultant/independent
contractor of the Company up to July 2001 and is a stockholder and a member of
the board of directors for JJ&M, the IPA and the Company.
Consultant fees and reimbursement of expenses paid to the CEO/President
are:
Years ended
December 31,
2001 2000
---- ----
Management fees $78,000 $123,500
====== =======
-32-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
C. 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.
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 since California no longer allows for treasury stock reporting.
Client made no repayment for the above loan as of December 31, 2001.
The Company plans to amend the terms of the agreement subsequent to this balance
sheet date.
(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) 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.
-33-
JNS MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
B. STOCK OPTION PLAN:
Effective as of January 31, 2002, the Board of Directors of the Company
unanimously adopted the 2002 Stock Option Plan subject to shareholder
ratification within twelve months of the adoption of the plan. The Company has
not issued any stock options under the plan.
C. PRIVATE PLACEMENT OFFERING:
The Private Placement Memorandum issued on March 1, 2001 in connection
with the Company's offer of sale of its common stock ended in October 29,2001
(see Note 3 - Private Placement Offering). The price per share for this offering
was $ 2.50 per share. Total new shares issued for this offering is 186,000
shares of the issued and outstanding common stock.
On November 30, 2001, a new Private Placement Memorandum was issued for
qualified investors in connection with the Company's offer of sale of its common
stock. This offering will terminate on May 31, 2002, unless the Company extends
the offering period up to an additional 180 days. The Company is offering
800,000 Units for a purchase price of $1.25 per Unit (maximum gross proceeds of
$1,000,000). Each Unit includes one share of the Company's common stock and one
Warrant to purchase on share of the Company's common stock for a purchase price
of $2.00 per share at any time until one year after the date that they are
issued. The Company has the option to increase a total amount of the offering by
up to an additional $150,000 (120,000 shares). There is no minimum amount of the
offering and the maximum offering is $1,150,000 (if the Company exercises its
option to increase the maximum amount of the offering). The purchase price for
the shares will be payable in full in cash upon subscriptions.
The net proceeds from the offering are expected to be approximately
$900,000 after the payment of offering costs including printing, mailing, legal,
and accounting costs, and potential selling commissions and finder's or referral
fees that may be incurred. The net proceeds from this offering are estimated to
be utilized to pay marketing and promotion costs to obtain new enrollees; to
finance acquisitions of IPAs; and for working capital purposes.
-34-
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In February 2002, the Company engaged Oppenheim & Ostrick to prepare
the Company's financial statements for transition of the Company's fiscal year
end to December 31 and for the fiscal year ending December 31, 2001. The Company
has terminated its engagement with Michael B. Johnson & Company. The Company had
no disagreements with Michael B. Johnson & Company on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. Oppenheim & Ostrick has audited LMC's financial statements since
1999.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF EXCHANGE ACT
The following table lists the executive officers and directors of the
Company as of March 31, 2002:
Name Position
---- --------
Jose J. Gonzalez President, Chief Executive Officer, Secretary,
and Chairman of the Board of Directors
Joseph C. Luevanos Chief Financial Officer, Chief Operating
Officer and Director
Juan J. Orellana Vice President - Business Development
JOSE J. GONZALEZ, age 55, has been the Chairman of the Board of
Directors, President, Chief Executive Officer, and Secretary of the Company
since October 2001. He has been the President and Chief Executive Officer of
Latinocare Management Corporation ("LMC"), a wholly owned subsidiary of the
Company, since its inception in February 1995. Mr. Gonzalez's connections to the
community and marketing and business experience have played an important role in
the development of LMC's customer base. Mr. Gonzalez has more than 30 years of
experience in the health care industry, including hospital administration, group
and Independent Physician's Association development, managing community clinics
in Los Angeles and Orange County, and managed care contracting. From December
1984 to July 1987, he was President and Chief Executive Officer of Universal
Medi-Co., which contracted with group practices to provide management and
support services. In November 1983, he started the White Memorial Medical Group,
a hospital based group practice. Mr. Gonzalez is currently a member of the
Public Policy Committee for the California Association of Physicians
Organizations, as well as a member of the Advisory Board of the California
Department of Managed Health Care, an appointment he received from Governor Gray
Davis. Mr. Gonzalez received a Bachelor of Arts Degree in Language and
Communications from California State University, Long Beach in 1970 and a
Masters Degree in Public Administration, Health Care Management from Pepperdine
University in 1973.
JOSEPH C. LUEVANOS, age 54, has been the Chief Financial Officer and
Chief Operating Officer of the Company since October 2001 and a director of the
Company since November 2001. Mr. Luevanos has been the Chief Financial Officer,
Chief Operating Officer, and a director of LMC since August 2001. From August
2000 to July 2001, Mr. Luevanos worked as an independent consultant. From August
1997 to July 2000, Mr. Luevanos was the Executive Vice President for Finance and
Chief Financial Officer of Bentley Health Care, Inc. At Bentley Health Care,
-35-
Inc. he provided executive oversight in the development and implementation of
accounting and information systems, financial models for reviewing and
evaluating external proposals, and strategic business plans. He also
participated in contract negotiations with major medical centers to develop
state of art cancer centers and with major investment banks to obtain funding
for the company. From December 1976 to August 1997, Mr. Luevanos worked for
Cedars-Sinai Medical Center ("CSMC"). From March 1982 to August 1997, he was the
Chief Financial Officer and Senior Vice President of CSMC, responsible for the
overall operations of the general accounting, third party reimbursement,
contracting, risk management, cash management, and investment portfolio
departments. He was also an Ex Officio Member of the Board of Directors and
Assistant Treasurer of CSMC Corporation, served as Chairman of the Board of
Directors of the Medical Center for-profit subsidiary of CSMC, and had executive
oversight of CSMC's investment portfolio with assets in excess of $250 million.
From January 1980 to February 1992, Mr. Luevanos was the Director of Finance of
CSMC, responsible for organizing and managing the process for several bond
financing transactions and the process for the preparation of the Medical Center
annual budget and the automated systems to track actual results in comparison to
the budget. From December 1976 to December 1979, Mr. Luevanos was the Controller
for CSCM, responsible for developing, organizing, and managing the financial
process for negotiation of construction financing through the State of
California loan program. Mr. Luevanos has been a member of the Board of
Directors of Proyecto Pastoral in Los Angeles, California since 1998 and a
member of the Board of Directors of Latino Care in Los Angeles, California since
1996. He was a member of the Board of Directors of Public Counsel in Los
Angeles, California from 1992 to 1997 and a member of the Loan Committee of the
Officer of Statewide Health Planning and Development for the State of California
from 1979 to 1984. Mr. Luevanos received a Bachelor in Business Administration
from Loyola University in Los Angeles, California in 1969. He became a Certified
Public Accountant in the State of California in 1973.
JUAN J. ORELLANA, age 29, has been the Vice President of Business
Development of the Company since January 2, 2002. Prior to joining the firm, he
conducted market development activities for Lucent Technologies' optical
networking group focusing on the Caribbean and Latin American markets. Mr.
Orellana also served in several marketing and international finance roles at
AT&T and AT&T Wireless Services. He holds a Bachelor in Business Administration
from the University of California at Berkeley and an MBA from the Kellogg School
of Management.
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors receive no cash compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
-36-
EXECUTIVE OFFICER COMPENSATION
The annual compensation for the executive officers of the Company has
not yet been determined, but is expected to be established by a resolution of
the Company's Board of Directors in the near future. The following table and
notes set forth the annual cash compensation paid to Jose Gonzalez, the
President, Chief Executive Officer, and Secretary of the Company, by LMC during
its fiscal years ended December 31, 2001, 2000, 1999, and 1998, respectively,
and the annual cash compensation paid to Joseph Luevanos, the Chief Financial
Officer and Chief Operating Officer of the Company, by LMC during its fiscal
year ended December 31, 2001. The following table sets forth cash compensation
paid for services rendered to the Company by the Company's executive officers
during its last fiscal year ended December 31, 2001. No other executive officer
received compensation in excess of $100,000 in any such year.
SUMMARY COMPENSATION TABLE
Long-term Compensation Awards
-----------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Restricted Securities
Fiscal Annual Stock Underlying Ltip All Other
Name and Principal Position Year Salary Bonus Comp Awards Options Payouts Compensation
--------------------------- ---- ------ ----- ---- ------ ------- ------------
Jose J. Gonzalez.............. 2001 $66,000 - 0 - - 0 - - 0 - - 0 - - 0 - $78,000(1)
President, Chief Executive
Officer, and Secretary
2000 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - $144,000(1)
1999 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - $144,000(1)
1998 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - $151,000(1)
Joseph Luevanos............... 2001 $168,000 - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Chief Financial Officer and
Chief Operating Officer
(1) Prior to July 2001, Mr. Jose J. Gonzalez received consulting fees from the Company.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers to date. The Company may enter into employment agreements
with them in the future.
STOCK OPTION PLAN
On January 31, 2002, the Board of Directors of the Company adopted the
2002 Stock Option Plan for Directors, Executive Officers, Employees and Key
Consultants of the Company (the "2002 Plan"). The 2002 Plan was ratified by the
shareholders of the Company at the Company's annual meeting of the shareholders
held on February 28, 2002. The 2002 Plan authorizes the grant of up to 1,500,000
options to purchase up to 1,500,000 shares of common stock. To date, no stock
options have been granted under the 2002 Plan.
-37-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the names and addresses of the executive
officers and directors of the Company and all persons known by the Company to
beneficially own 5% of more of the issued and outstanding common stock of the
Company.
Percentage of
Name & Address Number of Shares Outstanding Shares
Title of Class of shareholder Beneficially Owned(5) Beneficially Owned
- -------------- ------------------- --------------------- ------------------
Common Stock Jose J. Gonzalez (1) 6,904,218 47.5%
Common Stock The Estate of Dr. Roberto 6,567,427 45.2%
Chiprut (2)
- -----------
(1) Mr. Jose J. Gonzalez is the Chairman of the Board, Chief Executive
Officer, President, and Secretary of the Company.
(2) Dr. Roberto Chiprut is a former director of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 23, 2001, Cedars-Sinai Medical Center sold its LMC common stock
to LMC in consideration for a note in the amount of $1,750,000 plus simple
interest at the rate of 6% per annum, payable $500,000 on or before 120 days
from the date of the note, $500,000 on or before 240 days from the date of the
note, and $750,000 plus accrued interest on or before 360 days from the date of
the note. The Company has not made the first payment due on the note.
Consequently, Cedars-Sinai Medical Center has the right to convert the note into
28% of the outstanding common stock of the Company, or a pro rata share if the
promissory note is partially repaid. The Company plans to commence negotiations
with Cedars-Sinai Medical Center to amend note.
Pursuant to a management services agreement between LMC and LNMG, dated
November 30, 1995, LMC is LNMG's exclusive MSO until the expiration of the
management agreement on November 30, 2020. See "Item 1. BUSINESS - General."
Until his death in February 2002, the President and Chief Executive Officer of
LNMG, Dr. Roberto Chiprut, was a member of the Board of Directors and a major
stockholder of both LNMG and the Company. In November 2000, Dr. Chiprut and the
Company reached an agreement pursuant to which the Company agreed to repurchase
Dr. Roberto Chiprut's shares of the Company's common stock in exchange for a
payment of $1,000,000 and subsequent payments over a three-year period for a
-38-
total of $2,500,000 plus 6% interest on the unpaid balance. This agreement is
contingent upon receipt of future equity financing by the Company, which
financing is anticipated to occur after December 31, 2001.
Jose J. Gonzalez, the owner, President and Chief Executive Officer of
Gonzalez-D'Avila Enterprise dba JJ&M Management, was a consultant to the Company
until July 2001. Mr. Gonzalez is now a major stockholder and a member of the
Board of Directors of LNMG and the Company. Mr. Gonzalez is also the Chief
Executive Officer, President, and Secretary of the Company. During fiscal year
ended December 31, 2001, Mr. Gonzalez received $78,000 in consulting fees from
the Company in addition to his salary, resulting in total compensation of
$144,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
NO.
------- --------------
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen Certificate for Common Stock
4.2 Non-Qualified Employee Stock Option Plan (1)
10.1 Agreement and Plan of Merger between JNS Marketing, Inc., a
Colorado Corporation, and Latinocare Management Corporation, a
Nevada Corporation, for the reincorporation and name change
(1)
10.2 Agreement and Plan of Reorganization between JNS Marketing,
Inc. a Colorado Corporation, and Latinocare Management
Corporation, a California Corporation, for the business
combination (2)
10.3 Management Agreement between Latinocare Management
Corporation, a Colorado Corporation, and Latinocare Network
Medical Group, an Independent Physician Association
10.4 Promissory Note Payable to Cedars-Sinai Medical Center, dated
July 23, 2001.
- -----------
(1) Incorporated by reference from the exhibits included in the
Company's Proxy Statement filed with the Securities and
Exchange Commission for the Annual Meeting of the Shareholders
of the Company held on February 28, 2002.
(2) Incorporated by reference from the exhibits included with the
Company's prior Report on Form 8-K filed with the Securities
and Exchange Commission, dated November 1, 2001.
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the last quarter of the fiscal year ended December 31,
2001.
Report on Form 8-K dated October 10, 2001, relating to the extension of
the Closing Date of the Share Purchase Agreement between Walter
Galdnezi, JNS Marketing, Inc., and Latinocare Management, Inc. to
October 30, 2001
Report on Form 8-K dated November 1, 2001, relating to the business
combination between JNS Marketing, Inc. and Latinocare Management
Corporation, a California corporation.
-39-
Report on Form 8-K dated December 14, 2001, relating to the pro forma
financial statements for the business combination between JNS
Marketing, Inc. and Latinocare Management Corporation, a California
corporation.
Report on Form 8-K/A dated February 1, 2002, relating to the financial
statements of Latinocare Management Corporation, a California
corporation, for the business combination between JNS Marketing, Inc.
and Latinocare Management Corporation, a California corporation.
Report on Form 8-K dated February 11, 2002, relating to changes in the
Company's certifying accountant.
Report on Form 8-K dated March 12, 2002, relating to the death of Dr.
Roberto Chiprut, a director of the Company.
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: March 31, 2002 LATINOCARE MANAGEMENT CORPORATION
BY: \s\ Jose J. Gonzalez
-----------------------------------------------
Jose J. Gonzalez, Chairman of the Board,
Chief Executive Officer, and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
BY: \s\ Jose J. Gonzalez
--------------------------------------------------
Jose J. Gonzalez, Chairman, President, March 31, 2002
Chief Executive Officer, and Secretary
BY: \s\ Joseph Luevanos
--------------------------------------------------
Joseph Luevanos, Director, Chief Financial Officer, March 31, 2002
and Chief Operating Officer
-40-
EXHIBIT 3.1
EXHIBIT 3.2
EXHIBIT 10.3
EXHIBIT 10.4