SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 1, 2002
JNS MARKETING, INC.
----------------------
(Exact name of registrant as specified in its charter)
COLORADO 0-13215 84-090146
-------- ------- ---------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4150 Long Beach Boulevard, Long Beach, CA 90807
-----------------------------------------------
(Registrant's Address)
Registrant's telephone number, including area code: (562) 997-4420
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS & EXHIBITS
SEE THE INDEX TO FINANCIAL STATEMENTS
EXHIBITS:
None.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants.......................F-1
Balance Sheet for LatinoCare Management Corporation,
a California corporation, at December 31, 2000 and
September 30, 2001.............................................F-2
Statement of Operations and Deficit for LatinoCare
Management Corporation, a California corporation, for
the years ended December 31, 2000 and 1999 and the
nine months ended September 30, 2001 and 2000..................F-3
Statement of Changes in Shareholders' Equity (Deficit)
for LatinoCare Management Corporation, a California
corporation, for the years ended December 31, 2000 and 1999
and the Nine months ended September 30, 2001...................F-4
Statement of Cash Flows for LatinoCare Management
Corporation, a California corporation, for the years ended
December 31, 2000 and 1999 and the nine months
ended September 30, 2001 and 2000..............................F-5
Notes to Financial Statements........................... ......F-6-19
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-1
LATINOCARE MANAGEMENT CORPORATION
BALANCE SHEET
DECEMBER 31, 2000 AND SEPTEMBER 30, 2001 (UNAUDITED)
ASSETS
December 31, September 30,
2000 2001
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 65,532 $ 91,058
Due from related party - trade receivables 197,126 0
Accounts receivable 13,199 2,624
Advances to vendors 0 25,510
Prepaid expenses and other current assets 12,434 1,890
--------- ---------
Total current assets 288,291 121,082
--------- ---------
Property and equipment:
Net of accumulated depreciation 212,683 203,718
--------- ---------
Total property and equipment 212,683 203,718
--------- ---------
Other assets:
Advances applied to an acquisition 0 150,000
Deposit and other assets 15,478 15,478
--------- ---------
Total other assets 15,478 165,478
--------- ---------
$ 516,452 $ 490,278
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 105,865 $ 136,228
Accrued expenses 67,651 143,349
Accrued interest payable 200,469 19,769
Income tax payable 800 1,600
Due to related party 0 635,257
Note payable - related party 812,460 1,750,000
--------- ---------
Total current liabilities 1,187,245 2,686,203
--------- ---------
Shareholders' equity (deficit):
Common stock, no par value; 100,000 shares
authorized; 1,250 and 1,000 shares issued
and outstanding for periods ended
above, respectively 1,001,000 1,000
Additional paid-in capital 0 299,108
Accumulated deficit (1,671,793) (2,496,033)
--------- ---------
Total shareholders' deficit (670,793) (2,195,925)
--------- ---------
$ 516,452 $ 490,278
========= =========
See accompanying notes and Independent Auditors' report
which are integral parts of this statement
F-2
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF OPERATIONS AND DEFICIT
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
Years Ended Nine Months Ended
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Revenue:
Management fees- related party $ 1,400,342 $ 2,666,719 $ 1,831,830 $1,258,521
Management fees- others 33,027 216,126 278,485 72,232
--------- --------- --------- --------
1,433,369 2,882,845 2,110,315 1,330,753
--------- --------- --------- ---------
Costs and expenses:
Salaries and benefits 916,965 1,384,227 949,376 1,301,247
Professional and consulting fees 299,321 321,184 207,770 304,390
General and administrative 464,660 984,312 663,378 450,828
Loss on assets abandoned 0 28,865 0 0
Depreciation 53,871 102,810 44,634 50,898
--------- --------- --------- ---------
1,734,817 2,821,398 1,865,158 2,107,363
--------- --------- --------- ---------
Operating income (loss) (301,448) 61,447 245,157 (776,610)
Other income (expense):
Interest expense (50,235) (52,457) (39,253) (46,830)
--------- --------- --------- ---------
Other income (loss) before income taxes (351,683) 8,990 205,904 (823,440)
Provision for income taxes 800 800 800 800
--------- --------- --------- ---------
Net income (loss) $ (352,483) $ 8,190 $ 205,104 $(824,240)
========= ========== ========= =========
See accompanying notes and Independent Auditors' report
which are integral parts of this statement
F-3
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 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
Additional paid-in
capital from
private investors 0 0 8,925 0 8,925
Redemption of shares
Issued (389) (1,750,000) 0 0 (1,750,000)
Net income (loss) 0 0 0 (824,240) (824,240)
----- --------- ------- --------- --------
Balance at September
30, 2001
(Unaudited) 1,000 $ 1,000 $ 299,108 $(2,496,033) $(2,195,925)
===== ========= ======= ========= ==========
See accompanying notes and Independent Auditors' report
which are integral parts of this statement
F-4
LATINOCARE MANAGEMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31, 1999 AND 2000 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
Years Ended Nine Months Ended
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $(352,483) $ 8,190 $ 205,104 $(824,240)
Adjustment to reconcile net income (loss)
from operations to cash provided (used)
in operating activities:
Depreciation 53,871 88,377 44,634 50,898
Loss on abandonment of assets 0 43,298 0 0
(Increase) decrease in:
Due from related party 275,694 (215,182) (96,464) 76,781
Accounts receivable 22,425 27,341 (5,124) 10,575
Advances to related parties (88,020) 88,020 (91,780) 0
Advances to JNS 0 0 0 (150,000)
Prepayments to PPM 0 (10,000) 0 10,000
Deposits and other assets 10,973 (12,285) (8,951) (24,966)
Increase (decrease) in:
Due to related party 13,499 (41,075) (54,633) 755,602
Accounts payable 68,911 21,923 61,584 30,363
Accrued expense 26,342 28,627 (16,288) 75,698
Accrued interest 53,294 54,506 40,880 (180,700)
Income tax 0 800 800 800
------- ------- ------- --------
Net cash provided (used) from
operating activities 84,506 82,540 79,762 (169,189)
------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (130,269) (123,077) (117,230) (41,933)
------- ------- ------- --------
Net cash used from investing
activities (130,269 (123,077) (117,230) (41,933)
------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of debt into equity 0 0 0 227,723
Private placement offering 0 0 0 8,925
------- ------- ------- --------
Net cash provided from financing
activities 0 0 0 236,648
------- ------- ------- --------
Net increase (decrease) in cash (45,763) (40,537) (37,468) 25,526
Cash, beginning of the year 151,832 106,069 106,069 65,532
------- ------- ------- --------
Cash, end of the year $ 106,069 $ 65,532 $ 68,601 $ 91,058
======= ======= ======= ========
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
======= ======= ======= ========
Conversion of equity to debt $ 0 $ 0 $ 0 $1,750,000
======= ======= ======= =========
Accrued interest on the equity
to debt conversion $ 0 $ 0 $ 0 $ 19,769
======= ======= ======= ========
See accompanying notes and Independent Auditors' report
which are integral parts of this statement
F-5
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 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 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.
See Independent Auditors' report
F-6
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 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 nine months ended September 30, 2001, the Company had a net loss
of $824,240. The Company also has had negative working capital and
stockholders deficit at September 30, 2001.
Management plan is to raise enough equity for the on-going twelve
(12) months through private placements (see Note 13 - Subsequent
Events) and individual investors to complete the purchase of an
inactive public company (a public shell); 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 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.
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.
See Independent Auditors' report
F-7
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(2) Summary of Significant Accounting Policies (cont'd):
b. Revenue Recognition (cont'd):
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 September 30, 2001 (unaudited) include money market
funds of approximately $18,256 and $85,949, 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. 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.
See Independent Auditors' report
F-8
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(2) Summary of Significant Accounting Policies (cont'd):
f. Property, Equipment and Related Depreciation (cont'd):
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
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.
See Independent Auditors' report
F-9
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(3) Property and Equipment:
Property and equipment consists of the following:
December 31, September 30,
2000 2001
---- ----
(Unaudited)
Furniture, fixtures $ 122,534 $ 98,037
and office equipment
Leasehold improvement 80,669 77,157
Computers and software 207,228 204,058
------- -------
410,431 379,252
Less accumulated depreciation 197,748 175,534
------- -------
$ 212,683 $ 203,718
======= =======
Depreciation expense for the years ended December 31, 1999 and
2000 and nine months ended September 30, 2000 and 2001 (unaudited)
was:
Years Nine Months
ended ended,
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Depreciation $ 53,871 $ 102,810 $ 44,634 $ 50,898
======= ======== ======= =======
(4) Other Assets - Advances applied to an acquisition:
On July 23, 2001, the Company signed an agreement to purchase JNS
Marketing, Inc. (See subsequent events Note 13). The total purchase
price for the shares to be paid by the Company is $300,000 (see Note
13 - Subsequent Event). As of September 30, 2001, $150,000 was paid to
the seller (recorded as Advances applied to an acquisition) and is
deemed non-refundable consideration to seller for granting the Share
Purchase Agreement.
See Independent Auditors' report
F-10
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(5) Notes Payable - Related Party:
Notes payable are all current and comprised of the following
amounts as of:
December 31, September 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
Cedars Sinai, due July 23, 2002
with interest at 6.0% per annum 0 1,750,000
------- ---------
Total $ 812,460 $ 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.
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 11 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
See Independent Auditors' report
F-11
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(5) Notes Payable - Related Party (cont'd):
$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.
(6) Additional Paid-in Capital:
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. The offering
ended on October 29, 2001 (See Note 13 - Subsequent Events) with net
proceeds of $8,925. Detail as follows:
Gross proceeds $ 231,700
Professional fees relating to above proceeds 222,775
-------
Net proceeds $ 8,925
=======
Net proceeds from this offering was recorded as Additional paid-in
capital.
See Independent Auditors' report
F-12
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(7) 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.
(8) Advertising:
Advertising expense consists of the following:
Years ended Nine Months Ended,
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Advertising $ 50,743 $ 25,773 $ 10,657 $ 1,957
======= ======= ======= =======
(9) 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, 1999 and 2000 and nine months ended September 30,
2000 and 2001 (unaudited).
See Independent Auditors' report
F-13
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(10) 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 Nine Months Ended,
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Equipment lease $ 27,078 $ 48,145 $ 34,527 $ 42,054
Office rent 128,150 120,028 81,982 157,039
------- ------- ------- -------
$ 155,228 $ 168,173 $ 116,509 $ 199,093
======= ======= ======= =======
(11) 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 for both the IPA and
the MSO and retains a forty nine (49%) percent ownership in the
LatinoCare Management Corporation. The above CEO/president is
also a stockholder of the IPA holding 100% interest in the IPA.
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.
See Independent Auditors' report
F-14
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(11) Related Party Transactions (cont'd):
a. LatinoCare Network Medical Group, Inc. (cont'd):
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 Nine Months Ended,
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Management fee $ 1,111,753 $ 1,961,978 $ 1,480,643 $ 1,102,134
Settlement fee 161,304 334,976 231,515 156,387
Marketing & business
development 127,285 369,765 119,672 0
--------- --------- --------- ---------
Total $ 1,400,342 $ 2,666,719 $ 1,831,830 $ 1,258,521
========= ========= ========= =========
Related party receivables and advances payable:
December 31, September 30,
2000 2001
---- ----
(Unaudited)
Receivable from
related party $ 229,550 $ 152,769
Payable to related
party (32,424) (788,026)
------- -------
Receivable/payable-
Related party $ 197,126 $(635,257)
======= =======
See Independent Auditors' report
F-15
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(11) Related Party Transactions (cont'd):
a. LatinoCare Network Medical Group, Inc. (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 September 30, 2001, the Company has an outstanding net
payable to the IPA of approximately $635,257 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 September
30, 2001. See Note 13 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 up to July 2001 and retains a fifty one (51%) 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 Nine Months Ended,
December 31, September 30,
1999 2000 2000 2001
---- ---- ---- ----
(Unaudited)
Management fees $ 144,000 $ 123,500 $ 108,000 $ 78,000
======= ======= ======= =======
See Independent Auditors' report
F-16
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
AND NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(11) Related Party Transactions (cont'd):
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.
(12) 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 ninety-nine percent (99%) of
the total shares outstanding at September 30, 2001 (unaudited). By
virtue of such stock ownership, the current management and directors
as a group will generally exercise control over the affairs of the
Company.
See Independent Auditors' report
F-17
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000 AND
NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(13) Subsequent Events:
a. Management agreement with IPA:
The Company has recently changed the management agreement from a
sliding scale agreement to a "cost plus" agreement. In the cost-plus
model, the Company will charge the IPA, and all future acquired IPAs
or IPAs managed by the Company, the entire cost of managing the
business plus a fixed amount as profit margin. The cost component will
vary among IPAs depending on negotiated terms of management.
b. Stock option plan:
Upon approval by the Board of Directors, the Company will offer a
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. As of January 10, 2002,
the plan is still subject to board of directors' approval.
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 with a total gross receipts of $231,700 (See Note
6 - Additional Paid-in Capital). The price per share for this offering
was $2.50 per share. Net proceeds of $8,925 was recorded as additional
paid-in capital.
The Company anticipates that upon completion of its
Reorganization (see item d and e below), the Company will issue shares
of its common stock among the Private Placement Investors on a
pro-rata basis in order to give them an effective purchase price for
their common stock of $1.25 per share instead of $2.50 per share. 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.
See Independent Auditors' report
F-18
LATINOCARE MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000 AND
NINE MONTHS ENDED, SEPTEMBER 30, 2000 AND 2001 (UNAUDITED)
(13) Subsequent Events (cont'd):
c. Private Placement Offering (cont'd):
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
new 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.
d. Acquisition:
On July 23, 2001, the Company signed an agreement to purchase
3,270,000 of the issued and outstanding common stock of JNS Marketing,
Inc. a public reporting Colorado corporation trading on the OTC
Bulletin Board, in exchange for $300,000 of which $150,000 was paid as
of September 30, 2001 (see Note 4 Other Assets - Advances applied to
an acquisition). On October 22, 2001, the Company fully paid the
balance and on November 24, 2001 completed the Share Purchase
Agreement. Prior to its business combination, JNS Marketing had no
tangible assets and no significant liabilities.
e. Reorganization:
The Company plans to enter into an Agreement and Plan
Reorganization. JNS Marketing is to be renamed as Latinocare
Management Corporation and to reincorporate in the State of Nevada.
The California corporation will become a wholly owned subsidiary and
will become the controlling shareholders of the Company. The
reorganization will result in a share exchange between the controlling
Company and the subsidiary.
Upon completion of the Reorganization, the 3,270,000 shares of
the common stock that will be acquired by the Company will be retired
and cancelled. Subsequent to this acquisition, the reorganized
company, Latinocare Management Corporation, will have a total of
approximately 14,529,100 common stock issued and outstanding. It was
approved by the Board of Directors that the reorganized company will
issue approximately 95% of its shares to the acquiring company.
Approximately ninety three percent (93%) or 13,471,645 shares of the
total issued and outstanding of 14,529,100 shares went to the
acquiring Company's President and Director. The remaining 7% of the
reorganized company's outstanding common stock is in the public float
or will be owned by the other prior private shareholders of the
Company or by other unaffiliated parties.
See Independent Auditors' report
F-19
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: February 1, 2002 LATINOCARE MANAGEMENT CORP.
BY: /s/ Jose J. Gonzalez
--------------------------
Jose J. Gonzalez, President
END OF FILING