SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: December 11, 2001
JNS Marketing, Inc.
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(Exact name of registrant as specified in its charter)
Colorado 0-13215 84-0940146
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4150 Long Beach Boulevard, CA 90807
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(Registrant's Address)
Registrant's telephone number, including area code: (562) 997-4420
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Item 1. Changes in Control of Registrant
On October 22, 2001, JNS Marketing, Inc. (the "Company"), Walter Galdenzi
("Galdenzi"), and Latinocare Management, Inc., a California corporation ("LMC"),
completed the closing of the Share Purchase Agreement between the Company,
Galdenzi, and LMC under which LMC purchased 3,270,000 shares of the Common Stock
of the Company, from Galdenzi. As a result of the closing, LMC owned
approximately 79% of the total issued and outstanding stock of the Company. On
November 30, 2001, LMC and the Company entered into and closed an Agreement and
Plan of Reorganization (the "Reorganization"), resulting in a share exchange
between the shareholders of LMC and the Company, whereby LMC has become a wholly
owned subsidiary of the Company, and the shareholders of LMC have become the
controlling shareholders of the Company. Upon completion of the Reorganization,
the 3,270,000 shares of the Common Stock of the Company owned by LMC was retired
and cancelled. Upon the closing of the Reorganization, the Company has a total
of 14,529,100 shares of its Common Stock outstanding, of which 6,904,218 are
owned by Jose J. Gonzalez, a Director, the President, Chief Executive Officer,
and Corporate Secretary, of the Company, 6,567,427 are owned by Roberto Chiprut,
M.D., a Director of the Company, and the balance are owned by the former
shareholders of LMC, by other private unaffiliated shareholders, or are in the
public float. In January 2002, the Company plans to reincorporate in the State
of Nevada and change its name to Latinocare Management Corporation.
THE COMPANY
Jose J. Gonzalez was appointed the President, Chief Executive Officer, and
Secretary of the Company on October 22, 2001 and Joseph Luevanos was appointed
the Chief Financial Officer and Chief Operating Officer of the Company on
October 22, 2001. (See Appointment of Directors for biographical information.)
LatinoCare Management Corporation (DBA Latino Health Care) (the Company) was
founded and incorporated in the State of California on February 23, 1995. In the
early 1990s, the Latino population constituted about eight percent of the total
United States population. Today, that percent continues to rise. The Latino
population is the fastest growing minority group in the country. California in
particular has experienced exponential growth in this segment, surpassing even
the national growth rate of fifty percent. Despite this growth, the health needs
of the Latino population are not being met. Although the Latino community
represents a significant portion of the patient base, medical providers are
generally not sensitive to the cultural, linguistic, or ethnic diversities of
this population.
Latino Health Care was established to fill this need on the local, state, and
eventually the national level. The network of physicians that compromises LMC
strives to provide the 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 the
physician network and to attempt to maximize any available reimbursement
dollars.
Management believes the managed care market is ready for this service, and
Latino Health Care has been position to provide it. Management has designed 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 with a full range of specialties, secured
healthcare provider contracts while striving to build brand recognition
associated with quality care.
The Company plans to seek additional financing to allow LMC to continue to move
ahead to the next levels of activity:
o the interstate acquisition and development of IPAs and MSOs;
o the review of potential merger opportunities; and
o the introduction of new product lines.
COMPETITION
The Company attempts to distinguish itself from many other health care providers
by focusing on specific niche markets (that is, Latino individuals and families)
where management hopes to compete on the basis of price and service.
There are many much larger HMOs, insurance companies, and managed plans which
offer keen competition and which may target the same audience as the Company.
Almost all these competitors are better financed and larger in corporate size
than the Company. Such competition could make it difficult for the Company to
succeed in growth and profitability.
COMPANY HISTORY
Latino Health Care was founded in 1995 by Robert Chiprut, M.D. and Mr. Jose J.
Gonzalez for the purpose of meeting the comprehensive healthcare needs of the
Latino population. The goal of the Company is to provide quality, affordable,
and accessible care to the Latino communities, regardless of payor.
LatinoCare Management Corporation, a Management Services Organization (MSO) for
IPAs, was incorporated on February 23, 1995, as a California corporation.
Plans and Contracts
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Latino Health Care secured its first health plan contract with Blue Shield in
July 1995. Since then nine additional contracts have been attained, including
but not limited to Aetna, Cigna, HealthNet, Prudential, Universal Care, LA Care,
and Blue Cross. 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. LHC,
however, has been approaching the health plans with a strategy to capture the
Latino community. As a result, health plans have been awarding Latino Health
Care new contracts, a policy that is not common to the market. In addition, most
contracts awarded to Latino Health Care are not geographically restricted, which
is an exception to most HMO contract policies. Latino Health Care believes that
as membership increases, it will gain additional leverage for contracting and
negotiating renewals.
Hospital Affiliations/Networks
- ------------------------------
Latino Health Care has established partnerships with a number of area hospitals,
and has been able to obtain financing for network development at a lessened
cost. Each hospital's incentive to finance in this way is the result of a
"friendly" physician network in its immediate area, which provides the hospital
with a patient base. Latino Health Care benefits both financially and
strategically through its partnerships and affiliations.
Cedars-Sinai Medical Center ("CSMC"), one of LMC's partners, has been the
largest single investor, providing over $1.75 million in financing, with all
other relationships combined providing under $500,000. Although Cedars-Sinai
has been more involved with Latino Health Care than other partners, this has not
affected LMC's operation. For example, Cedars-Sinai 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 principal and all accrued interest in full on or
before July 23, 2002. In the event LMC defaults on the note, CSMC will receive
28% of the outstanding common stock of LMC on the date of the default or a pro
rata share if the promissory note has been partially repaid.
Latino Health Care currently has 14 completed networks and 22 hospital
panels. A completed network includes a cluster of primary care physicians
(usually 10 to 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 8 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 November 2001, LMC's combined contract enrollment totaled
approximately 22,000 enrollees. With this size patient base, management believes
that LMC has potential to increase its market share in the near future. Except
as described below, LMC has experienced continued 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 LNMG and to 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.
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 verbal assurances from PacifiCare that
PacifiCare would renew its contract with the San Diego IPA. Shortly after the
acquisition, PacifiCare terminated its contract with the San Diego IPA and the
San Diego IPA 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.
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 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 generate 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.
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, 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.
HEALTH CARE MARKET OVERVIEW
Health care is experiencing great change, and the changes have tremendous
implications for the entire country. The vast amounts of money spent on health
care in this country reflect the high priority placed on it.
The U.S. health care industry ranks second in dollar volume, eclipsed only by
the manufacturing sector. Americans spend more only on food and housing than on
medical care. Health care ranks third in general public expenditures, following
national defense and education. Health care is the largest service industry in
the country. The United States spends the most on health car of all the
industrialized nations. Many Americans believe health care is a right, as
opposed to a privilege.
Risk
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Current healthcare industry trends are aimed at controlling costs while
increasing access and quality. Currently, the most prominent vehicle of change
in the U.S. is managed care. It is considered by many to be the most dramatic
realignment of the nation's health care system in recent years. Along with
managed care comes great change to the practice of medicine; 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 health care programs. Since profits are tied directly to
controlling the cost and use of health care services, the fundamental financial
incentives of health care 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 financially encourages greater
utilization. Under managed care, health plans are motivated to use more
preventive care since critical medical situations typically incur a much higher
expense.
Employers who provide health insurance to their employees realize the benefits
of managed care: it stabilizes expenses and gives them direct control of their
costs through the negotiation of contract prices. The industry reports
incredible managed care enrollment growth figures: in 1995, as many as 71% of
those who obtained health services through an employer were in some form of
managed care program compared to 52% in 1993. Government-funded health programs
such as Medicare and MediCal are also pushing for their members to join managed
care health plans. Responsible for providing health services to their enrollees,
health plans must develop relationships with the different providers of health
services to fulfill their obligation to fully manage the health of the enrolled
population.
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
health care 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 expenses to the provider organization. Under
capitation, physician organizations stand to earn large 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--increase enrollment and develop networks.
One popular form of a physician organization is the IPA. An IPA is a network of
physicians that contracts with the health plan as one group and maintains the
medical infrastructure to assure quality and accountability. The strength of the
IPA model is that it allows the individual 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
health care 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. However,
managing the business and expanding enrollment through mergers and acquisitions
requires significant amounts of capital that can be difficult for an IPA to
obtain in certain states due to governmental restrictions.
Industry Issues
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The health care 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 versus 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 a medical corporation. Some
states have statutes or court decisions that restrict corporations from
employing physicians. Although most states either do not have or do not enforce
the ruling, 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
corporation 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 like 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 from physician
investment. Another issued faced by developing IPAs is the high cost of
developing the systems that will 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 an MSO.
LATINO MARKET
The Latino population in the United States may be healthier than any other major
ethnic group. Although they use fewer medical services, the Latino population
health indicators show that they have the lowest death rates of any major
population. They are also one of the fastest growing and most upwardly mobile
segments of the population. These facts make this group especially desirable for
managed care enrollment. However, despite high-managed care penetration in areas
with large Latino communities, there continues to be a shortage of health
services suitable to this market.
Specific issues that prevent Latinos from obtaining proper health care include
language barriers and the values and attitudes of providers, and the assignment
of various doctors to patients on multiple visits. Cultural insensitivity,
disrespect, and other barriers tend to characterize the typical treatment of
Latinos by the health care industry. The subject of health is very sensitive
across almost all cultures, and research shows that Latinos are no exception.
While many Hispanics have gained some facility in English, it is in many cases
more effective if they can communicate in their native tongue when discussing
matters of health.
In addition to language issues, cultural differences must be considered to be
effective in the health management of a Latino population. For example,
describing the personal hazards of smoking is less effective for Latinos in
smoking cessation programs than showing that smoking is harmful to the health of
their families and children.
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 with a well developed
package of services.
When examining the mortality statistics of the Latino population management
believes the Hispanic community exhibits a 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.
Other common population health indicators that are not shown in the profile
include:
1. lower infant mortality;
2. less smoking;
3. less frequent drinking and drug use during pregnancy; and
4. lower hospital utilization.
While the health profile from a mortality point of view is better than that of
the average population, Latinos are also the least likely to seek medical
services. 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. These health demographics
play a major role in the delivery of health services in a managed care setting,
which is discussed in the previous page under managed care profile of 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, 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 2001, that number is expected to climb to 6.2 million and by 2020 to 10
million.
Item 2. Acquisition or Disposition of Assets
None.
Item 3. Bankruptcy or Receivership
None.
Item 4. Changes in Registrant's Certifying Accountant
None.
Item 5. Other Events
Item 6. Resignation and Appointment of Directors
In connection with the Reorganization, Walter and Susan Galdenzi resigned
as directors of the Company, and Jose J. Gonzalez, the remaining director,
appointed Joseph C. Luevanos and Dr. Roberto Chiprut as new directors to fill
the vacancies left by the resigning directors. The following table lists the
executive officers and directors of the Company as of the date of this report:
Name Position
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Jose J. Gonzalez President, Chief Executive Officer,
Secretary, and Director
Joseph C. Luevanos Chief Financial Officer and Chief
Operating Officer
Dr. Roberto Chiprut Director
Jose J. Gonzalez, age 55, has been a director, President, Chief
Executive Officer, and Secretary of the Company since the completion of the
Share Purchase Agreement. He has been the President and Chief Executive Officer
of LMC 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 the completion of the Share
Purchase Agreement 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 2000. 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, 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.
Roberto Chiprut, M.D., age 53, has been a director of the Company since
November 2001 and has been a director of LMC since its inception in February
1995. Dr. Chiprut has been a physician for thirty years. He is currently on
staff at Cedars-Sinai Medical Center in Los Angeles, California, Charter
Suburban Hospital in Los Angeles, California, St. Francis Medical Center in Los
Angeles, California, Beverly Hills Medical Center in Los Angeles, California
(Courtesy Staff), and American British Cowdray Hospital in Mexico City, Mexico.
Dr. Chiprut was a member for the Board of Directors of the American Cancer
Society in 1988. In 1987, he was the President of Charter Suburban Hospital. In
1984, he was the Chief of Medicine at Dominguez Valley Hospital. From 1983 to
1984, Dr. Chiprut was the Chief of Professional Activities Committee for Charter
Suburban Hospital. In 1983, he was a member of the Research and Education
Institute of Harbor/UCLA Medical Center. Dr. Chiprut was the Chief of
Gastroenterology of St. Francis Medical Center in 1981. Dr. Chiprut is a member
of the American College of Physicians, American Society of Internal Medicine,
American Society for the Study of Liver Disease, American Society of
Gastrointestinal Endoscopy, American Gastroenterological Association, Profession
Staff Association of Harbor/UCLA Medical Center, Los Angeles County Medical
Association, American College of Gastroenterology, and Southern California
Society of Gastroenterology. He has received several honors, including but not
limited to, Fellow, American College of Physicians in 1983, Fellow, American
College of Gastroenterology in 1985, and the Mayor of Los Angeles Certificate
for Outstanding Services in 1987 and 1989. Dr. Chiprut received a Bachelor of
Science degree, Magna Cum Laude, from Colegio Hebreo Sefardai in Mexico City,
Mexico in 1965. He received a medical degree, Magna Cum Laude, from National
University of Mexico in Mexico City in 1971.
Directors receive no salary 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, and may receive a cash fee for attending
meetings, as well. The current salaries for the two executive officers of LMC
are as follows:
Name of Officer Monthly Compensation Year
------------------- ------------------------ --------
Jose J. Gonzalez, Chief Executive Officer $12,000 2001
Joseph C. Luevanos, Chief Financial Officer $14,000 2001
The Company intends to establish a management incentive stock option
plan pursuant to which it will authorize the issuance of additional shares of
its common stock from time to time to provide incentive compensation for
employees, officers, directors and key consultants of the Company. The Company
has not yet formally adopted the Stock Option Plan or determined the number of
stock options and shares to be authorized under the Plan. The Company expects to
authorize 1,200,000 shares or more for future issuance under its 2002 Stock
Option Plan for Directors, Executive Officers, Employees and Key Consultants,
although the size of the Stock Option Plan may be different once it is adopted,
or may be increased after it is adopted.
The Company has not entered into any employment agreements with its
executive officers or other employees to date. The Company may enter into
employment agreements with them in the future.
Item 7. Financial Statements, Pro Forma Financials, & Exhibits
See the Index to Financial Statements
Exhibits:
None.
INDEX TO FINANCIAL STATEMENTS
F-1 Cover Page Pro Forma
Consolidated Financial Statements for Period ended June 30, 2001
F-2 Balance Sheet - Pro Forma Consolidated Financial
Statements
F-3 Statement of Operations - Pro Forma Consolidated Financial
Statements
F-4 Statement of Cash Flows - Pro Forma Consolidated Financial
Statements
F-5 Statement of Changes in Shareholders' Equity - Pro Forma
Consolidated Financial Statements
F-6 Cover Page - LatinoCare Management Corporation - Report of
Independent Public Accountants December 31, 1999 and 2000 and
Six Months Ended June 30, 2000 and 2001
F-7 Report of Independent Public Accountants
F-8 Balance Sheet
F-9 Statement of Operations and Deficit
F-10 Statement of Shareholders' Equity
F-11 Statement of Cash Flows
F-12 - 22 Notes to Financial Statements
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE CONSOLIDATION OF JNS MARKETING, INC. AND
LATINOCARE MANAGEMENT CORP.
F-1
JNS MARKETING, INC. / LATINOCARE MANAGEMENT CORPORATION
PROFORMA BALANCE SHEET FOR THE PERIOD ENDED JUNE 30,
ASSETS 2001
Current Assets
Cash $ 36,091
Due from related party - trade receivables 132,472
Accounts receivable 15,124
Prepaid Expenses 46,636
-------------
Total Current Assets 230,323
Fixed Assets
Property and equipment 359,791
Less Accumulated Depreciation (160,318)
-------------
Net Fixed Assets 199,473
Other Assets
Deposits 15,478
-------------
Total Other Assets 15,478
-------------
TOTAL ASSETS $ 445,274
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable - trade $ 190,617
Accrued Expenses 97,217
Income tax payable 1,600
Due to Stockholders 8,215
Due to related party 369,233
-------------
Total Current Liabilities 666,882
Stockholder's Equity
Common Stock, Par Value $0.001, 50,000,000 shares
authorized, 14,529,100 issued and outstanding
at June 30, 2001. 1,453
Additional Paid-In Capital 2,992,457
Retained Deficit (3,215,518)
-------------
Total Stockholder's Equity (221,608)
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 445,274
=============
F-2
JNS MARKETING, INC. / LATINOCARE MANAGEMENT CORPORATION
PROFORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
2001
REVENUES
Management fees - related party $ 908,269
Management fees - others 60,475
---------------
968,744
OPERATING COSTS
Salaries and benefits 825,068
Professional and consulting fees 245,557
General and administrative 420,519
Depreciation 35,682
---------------
TOTAL OPERATING COSTS 1,526,826
OPERATING INCOME (LOSS) (558,082)
OTHER INCOME (EXPENSE)
Interest Expense (26,901)
---------------
TOTAL OTHER INCOME (EXPENSE) (26,901)
OTHER INCOME (LOSS) BEFORE INCOME TAXES (584,983)
PROVISION FOR INCOME TAXES 800
NET INCOME (LOSS) $ (585,783)
===============
Net Loss per Share (0.07)
Weighted Average Common Shares 8,511,455
F-3
JNS MARKETING, INC. / LATINOCARE MANAGEMENT CORPORATION
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(585,783)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 35,682
(Increase) decrease in:
Due from related party 97,078
Accounts receivable (1,925)
Prepayments to PPM (35,000)
Deposits and other assets 798
Increase (decrease) in:
Due to related party 336,809
Due to stockholder 8,000
Accounts payable 79,752
Accrued expense 29,566
Accrued interest (200,469)
Income tax 800
NET CASH PROVIDED (USED) BY (234,692)
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase) Sale of property and equipment (22,472)
--------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (22,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Conversion of debt into equity 227,723
NET CASH FLOWS FROM FINANCING ACTIVITIES 227,723
NET INCREASE (DECREASE) IN CASH (29,441)
CASH AT BEGINNING OF PERIOD 65,532
CASH AT END OF PERIOD $ 36,091
==============
F-4
JNS MARKETING, INC. / LATINOCARE MANAGEMENT CORPORATION
PROFORMA UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
For the Period from December 31, 2000 to June 30, 2001
Common Stock $ Additional Accumulated
No./shares Amount Paid in Capital Deficit Total
--------------- -------------- -------------------- -------------- -----------
Balance at December 31, 2000 3,781,455 378 1,953,349 (2,629,735) (676,008)
Net loss for the period
ended June 30, 2001 - - (585,783) (585,783)
--------------- -------------- -------------- -------------- -----------
Stock exchanged for debt 1,040,183 1,040,183
Galdenzi stock to treasury (3,270,000) (327) (327)
Stock to issue to LMC 14,017,645 1,401 1,401
Balance at June 30, 2001 14,529,100 1,453 2,992,428 (3,215,518) 221,608
=============== ============== ============== ============== ===========
F-5
LATINOCARE MANAGEMENT CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 TO 2000
AND THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONTENTS
PAGE
Report of Independent Public Accountants F-7
Balance Sheet F-8
Statement of Operations and Deficit F-9
Statement of Shareholders' Equity F-10
Statement of Cash Flows F-11
Notes to Financial Statements F-12 - F-22
F-6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
LatinoCare Management Corporation
Long Beach, California
We have audited the balance sheets of LatinoCare Management Corporation as of
December 31, 1999 and December 31, 2000 and the related statements of
operations, shareholders' accumulated deficit and cash flows for each of the two
years in the periods ended December 31, 1999 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 financial position of LatinoCare Management
Corporation as of December 31, 1999 and 2000 and the results of their operations
and their cash flows for each of the two years in the periods ended December 31,
1999 and 2000 in conformity with generally accepted accounting principles.
The 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
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Culver City, California
September 28, 2001
F-7
LATINOCARE MANAGEMENT CORPORATION
BALANCE SHEET
DECEMBER 31, 2000 AND JUNE 30, 2001 (UNAUDITED)
DECEMBER
ASSETS
December 31, June 30,
2000 2001
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 65,532 $ 36,091
Due from related party - trade receivables 229,550 132,472
Accounts receivable 13,199 15,124
Prepaid expenses and other assets 12,434 46,636
--------- ---------
Total current assets 320,715 230,323
--------- ---------
Property and equipment:
Net of accumulated depreciation 212,683 199,473
--------- ---------
Total property and equipment 212,683 199,473
--------- ---------
Other assets:
Deposit 15,478 15,478
--------- ---------
Total other assets 15,478 15,478
--------- ---------
$ 548,876 $ 445,274
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 105,865 $ 185,617
Accrued expenses 67,651 97,217
Accrued interest payable 200,469 0
Income tax payable 800 1,600
Due to related party 32,424 369,233
Note payable - shareholder 812,460 0
--------- ---------
Total current liabilities 1,219,669 653,667
--------- ---------
Shareholders' equity (deficit):
Common stock, no par value; 100,000 shares
authorized; 1,250 and 1,389 shares issued
and outstanding, respectively 1,001,000 1,751,000
Additional paid-in capital 0 290,183
Accumulated deficit (1,671,793) (2,249,576)
--------- ---------
Total shareholders' deficit (670,793) (208,393)
--------- ---------
$ 548,876 $ 445,274
========= =========
See Independent Auditors' report
F-8
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF OPERATIONS AND DEFICIT
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 2001 (UNAUDITED)
Years Ended Six Months Ended
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Revenue:
Management fees- related party $ 1,400,342 $ 2,666,719 $ 1,207,496 $ 908,269
Management fees- others 33,027 216,126 198,206 60,475
--------- --------- --------- ---------
1,433,369 2,882,845 1,405,702 968,744
--------- --------- --------- ---------
Costs and expenses:
Salaries and benefits 916,965 1,384,227 639,419 825,068
Professional and consulting fees 299,321 321,184 130,170 237,557
General and administrative 464,660 984,312 481,515 420,519
Loss on assets abandoned 0 28,865 0 0
Depreciation 53,871 102,810 26,554 35,682
--------- --------- --------- ---------
1,734,817 2,821,398 1,277,658 1,518,826
--------- --------- --------- ---------
Operating income (loss) (301,448) 61,447 128,044 (550,082)
Other income (expense):
Interest expense (50,235) (52,457) (26,724) (26,901)
--------- --------- --------- ---------
Other income (loss) before income taxes (351,683) 8,990 101,320 (576,983)
--------- --------- ---------- ----------
Provision for income taxes 800 800 800 800
--------- --------- --------- ---------
Net income (loss) $ (352,483) $ 8,190 $ 100,520 $ (577,783)
========= ========== ========= =========
See Independent Auditors' report
F-9
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 2001 (UNAUDITED)
Retained Earnings Total
Common Stock Additional Accumulated Shareholders'
Shares Amount Paid-in Deficit Equity
----- --------- ------- ---------- ----------
Balance at January
1, 1999 1,250 $ 1,001,000 $ 0 $(1,327,500) $ (326,500)
Net income (loss) 0 0 0 (352,483) (352,483)
----- --------- ------- ---------- ----------
Balance at December
31, 1999 1,250 1,001,000 0 (1,679,983) (678,983)
Net income (loss) 0 0 0 8,190 8,190
----- --------- ------- --------- ----------
Balance at December
31, 2000 1,250 1,001,000 0 (1,671,793) (670,793)
Issuance of common
stock to convert
debt to equity 139 750,000 290,183 0 1,040,183
Net income (loss) 0 0 0 (577,783) (577,783)
----- --------- ------- --------- ---------
Balance at June 30,
2001 and the six
months then ended
(unaudited) 1,389 $ 1,751,000 $ 290,183 $(2,249,576) $ (208,393)
===== ========= ======= ========= =========
See Independent Auditors' report
F-10
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 2001 (UNAUDITED)
Years Ended Six Months Ended
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $(352,483) $ 8,190 $ 100,520 $(577,783)
Adjustment to reconcile net income (loss)
from operations to cash provided (used)
in operating activities:
Depreciation 53,871 102,810 26,554 35,682
Loss on abandonment of assets 0 28,865 0 0
(Increase) decrease in:
Due from related party 275,694 (215,182) (84,004) 97,078
Accounts receivable 22,425 27,341 0 (1,925)
Advances to related parties (88,020) 88,020 (136,173) 0
Prepayments to PPM 0 (10,000) 0 (35,000)
Deposits and other assets 10,973 (12,285) (6,650) 798
Increase (decrease) in:
Due to related party 13,499 (41,075) 6,601 336,809
Accounts payable 68,911 21,923 76,615 79,752
Accrued expense 26,342 28,627 (8,635) 29,566
Accrued interest 53,294 54,506 27,253 (200,469)
Income tax 0 800 800 800
------- ------- ------- ---------
Net cash provided (used) from
operating activities 84,506 82,540 2,881 (234,692)
------- ------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (130,269) (123,077) (100,692) (22,472)
------- ------- ------- ---------
Net cash used from investing
activities (130,269 (123,077) (100,692) (22,472)
------- ------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of debt into equity 0 0 0 227,723
------- ------- ------- ---------
Net cash provided from financing
activities 0 0 0 227,723
------- ------- ------- ---------
Net increase (decrease) in cash (45,763) (40,537) (97,811) (29,441)
Cash, beginning of the year 151,832 106,069 106,069 65,532
------- ------- ------- ---------
Cash, end of the year $ 106,069 $ 65,532 $ 8,258 $ 36,091
======= ======= ======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
interest $ 0 $ 0 $ 0 $ 0
======= ======= ======= =========
Cash paid during the period for
income taxes $ 0 $ 0 $ 0 $ 0
======= ======= ======= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Conversion of debt to equity $ 0 $ 0 $ 0 $ 1,040,183
======= ======= ======= =========
Accrued interest on debt to equity
Conversion $ 54,507 $ 54,507 $ 27,254 $ 27,254
======= ======= ======= =========
See Independent Auditors' report
F-11
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(1) General Background and Nature of Operations:
LatinoCare Management Corporation dba Latino Health Care (the
Company) was founded and incorporated in 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.
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").
LatinoCare Management Corporation acts as the exclusive agent to
the IPA with regards to seeking, negotiating, renewing, and
executing managed care contracts.
F-12
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(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 six months ended June 30, 2001, the Company had a net loss
of $577,783. The Company also has had negative working capital and
stockholders deficit at June 30, 2001.
Management plan is to raise enough equity for the on-going
twelve (12) months through private placements (see Note 11 -
Subsequent Events) and individual investors to complete the
purchase of an inactive public company (a public shell); pay off
the note issued subsequent to the balance sheet date to a related
party; pay off a related party shareholder's equity interest; and
to raise enough working capital to pay off liabilities and sustain
operations. These financial statements have been prepared on the
basis that adequate equity financing will be obtained.
The Company has prepared interim financial statements that
include all adjustments which, in the opinion of management, are
necessary to make the financial statements not misleading. The
Company believes that all adjustments of a normal recurring nature
that are necessary for a fair presentation of the results of the
interim periods presented in this report have been made.
a. 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.
b. 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.
F-13
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(2) Summary of Significant Accounting Policies (cont'd):
b. Revenue Recognition (cont'd):
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 pool are reserve for specialist medical expenses
whereas hospital risk pool 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%).
c. 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. Cash balances at December
31,2000 and June 30, 2001 (unaudited) include money market funds
of approximately $18,256 and $3,394, respectively.
d. 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.
e. 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.
F-14
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(2) Summary of Significant Accounting Policies (cont'd):
f. 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.
g. Advertising Expenses:
All advertising expenses are expensed as incurred.
h. 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.
i. Adoption of Recent Accounting Standards:
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 operat-
ing 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.
F-15
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(3) Property and equipment:
Property and equipment consists of the following:
December 31, June 30,
2000 2001
---- ----
(Unaudited)
Furniture, fixtures $ 122,534 $ 98,037
and office equipment
Leasehold improvement 80,669 77,157
Computers and software 207,228 184,597
------- -------
410,431 359,791
Less accumulated depreciation 197,748 160,318
------- -------
$ 212,683 $ 199,473
======= =======
Depreciation expense for the years ended December 31, 1999 and
2000 and six months ended June 30, 2000 and 2001 (unaudited) was:
Years Six Months
ended ended,
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Depreciation $ 53,871 $ 102,810 $ 26,554 $ 35,682
======= ======== ======= =======
(3) Notes payable - Related Party:
Notes payable are all current and comprised of the following
amounts as of:
December 31, June 30,
2000 2001
---- ----
(Unaudited)
Cedars Sinai, shareholder, due
on demand with interest at
5.25% to 8% due annually $ 100,000 $ 0
Cedars Sinai, shareholder, due
on demand with interest at
5.81% due annually 275,000 0
Cedars Sinai, shareholder, due
on demand with interest at 8%
due annually 375,000 0
Cedars Sinai, shareholder, due
on demand with interest at 5.25%
due annually 62,460 0
------- ------
Total $ 812,460 $ 0
======= ======
F-16
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(3) Notes Payable - Related Party (cont'd):
Interests on the above notes were recorded on an accrual basis.
No payments have been made on accrual interest.
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, as converted basis.
Accrued interests from the above notes were recorded as additional
paid-in capital upon conversion.
See subsequent event note (Note 11) for the retirement of
$1,750,000 of common stock of the above related party to be redeemed
starting in the year ending December 31, 2001.
(4) Provision for income taxes:
At year end December 31, 1999 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 loss (NOL) carryforwards of approximately
$ 1,279,000 and $ 1,632,000, respectively, available to offset future
taxable income. These NOL carryforwards 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.
(5) Advertising:
Advertising expense consists of the following:
Years ended Six Months Ended,
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Advertising $ 50,743 $ 25,773 $ 331 $ 1,096
======= ======= ======= =======
(6) 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.
F-17
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(6) Employee Savings Plan:
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 contribution to the plan for the years
ended December 31, 1999 and 2000 and six months ended June 30, 2000
and 2001 (unaudited).
(7) 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
======= ======= =======
Total lease and rent expense consist of the following:
Years ended Six Months Ended,
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Equipment lease $ 27,078 $ 48,145 $ 21,968 $ 22,030
Office rent 128,150 120,028 81,160 95,975
------- ------- ------- -------
$ 155,228 $ 168,173 $ 103,128 $ 118,005
======= ======= ======= =======
(8) Related Party Transactions
(a) Latino Network Medical Group, Inc.:
The CEO/President of LatinoCare Network Medical Group, Inc.
(IPA) is a member of the board of directors for both the IPA and
the MSO and retains a thirty-five (35%) percent ownership in the
LatinoCare Management Corporation. The above CEO/president is also
a stockholder of the IPA holding 100% interest in the IPA.
F-18
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(9) Related Party Transactions (cont'd):
The Company (MSO) 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 MSO for the term of the agreement. In return for management and
administrative services provided under the management service
agreement, the Company receives management fees of sixteen percent
(16%) of monthly capitation payments (based on predetermined rates)
received by the IPA.
The Company has been charging the IPA a management fee
according to sliding scale based on enrollment. The management fee
percentage was charged against the total capitation the IPA
receives from members. The following matrix reflects this
management fee arrangement:
Rate Enrollment
16% 0 - 20,000
15 20,000 - 30,000
14 30,000 - 40,000
12 40,000 - 50,000
In addition to management fees the Company is also entitled to
receive fifty percent (50%) of the IPA's share of hospital (with
hospital or HMO) and specialty risk pool settlements. Hospital and
risk pools are revenues estimated for hospital and specialist medical
expenses held in reserve until actual claims are adjudicated.
Surpluses are distributed accordingly after all financial obligations
are met.
The 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 Six Months Ended,
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Management fee $ 1,111,753 $ 1,961,978 $ 993,676 $ 771,876
Settlement fee 161,304 334,976 136,086 136,393
Marketing & business
Development 127,285 369,765 77,734 0
--------- --------- --------- -------
Total $ 1,400,342 $ 2,666,719 $ 1,207,496 $ 908,269
========= ========= ========= =======
F-19
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(9) Related Party Transactions (cont'd):
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.
As of June 30, 2001, the Company has an outstanding payable to
the IPA of approximately $369,000 which was used as working capital.
The Company, in the November 2000 Board of Directors' Minutes,
has reached an agreement to repurchase 490 common stock shares of the
CEO/President of the IPA or a 35% interest in the Company at June 30,
2001. The agreement calls for a payment of $ 1 Million and subsequent
payments over a three-year period for a total of $ 2.5 Million plus 6%
interest on the unpaid balance.
The above repurchase of the common stock is contingent upon the
future equity financing anticipated subsequent to June 30, 2001. See
Note 11 on Subsequent Events and Note 2 on going concern comments.
b. Gonzales-D'Avila Enterprise dba JJ&M Management:
The Company's above CEO/President is employed as a
consultant/independent contractor (JJ & M Management) of the
Company and retains a thirty-seven (37%) ownership in the
LatinoCare Management Corporation, in addition to being a member
of its board of directors. The above shareholder is also a board
member of the IPA.
Consultant fees and reimbursement of expenses paid to the
CEO/President are:
Years ended Six Months Ended,
December 31, June 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Management fees $ 144,000 $ 123,500 $ 72,000 $ 72,000
======= ======= ======= =======
c. Cedars Sinai Medical Center (See Note 4 - Notes Payable - Related
Party):
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.
F-20
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(9) Related Party Transactions (cont'd):
c. Cedars Sinai Medical Center (See Note 4 - Notes Payable - Related
Party) (cont'd):
The Company has existing promissory notes to Cedars Sinai
payable on demand with the balance (including interest) as of
December 31, 2000 and June 30, 2001 (unaudited) of $812,460 and
none, respectively. These notes was converted to eight percent
(8%) of the outstanding common stock of Company in June 2001.
(10) Significant Management Investment:
Current management and directors as a group beneficially own
approximately eighty percent ( 80% ) of the total shares outstanding
at December 31, 2000 and approximately seventy two percent (72%) of
the total shares outstanding at June 30, 2001 (unaudited).
(11) Subsequent Events:
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.
Upon approval by the Board of Directors, the Company will offer
stock option plan (2001 Stock Option Plan) to executives, key
employees and others providing valuable services to the Company. The
Options issued may be incentive stock options or nonqualified stock
options. A maximum of one million five hundred thousand (1,500,000)
shares of common stock of the Company may be issued under the 2001
Plan. As of September 28, 2001, the plan is still subject to board of
directors' approval.
On March 1, 2001, the Company issued a Private Placement
Memorandum for qualified investors in connection with the Company's
offer of sale of its common stock. There are no escrow, refund or
minimum funding provisions applicable to this offering. As of
September 28, 2001, total receipts from this offering amounted to
$232,000, all of which came in after June 30, 2001.
In July 2001, the Company's CEO/President is employed by the
Company and no longer serves as consultant/independent contractor.
F-21
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND SIX MONTHS ENDED, JUNE 30, 2000 AND 2001 (UNAUDITED)
(11) Subsequent Events (cont'd):
On July 23, 2001 (extended to October 15, 2001), the Company
signed an agreement to purchase 3,220,000 shares of common stock of
JNS Marketing, Inc., a public reporting shell company. The purchase
price for the shares to be paid by the Company to seller is $300,000
for which $150,000 was paid to the seller and is deemed
non-refundable consideration to seller for granting the Share
Purchase Agreement. The balance of the purchase price shall be paid
in cash at closing. Upon completion of this reverse merger, the
Company will be publicly traded as OTC Bulletin Board Stock.
On July 23, 2001, the Company signed a secured promissory note
to Cedars Sinai Medical Center in the amount of $1,750,000 (with
interest rate of 6% per annum) for the redemption of shares issued to
Cedar Sinai under the following terms: $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 note. Accordingly,
capital stock will be reduced for the redeemed value of the stock.
For accounting purposes, the stock redemption shall be treated as a
retirement of stock since California no longer allows for treasury
stock reporting.
F-22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 11, 2001 LATINOCARE MANAGEMENT CORP.
By: /s/ Jose J. Gonzalez
--------------------------
Jose J. Gonzalez, President