Form 10QSB for MID-ATLANTIC HOME HEALTH NETWORK, INC. filed on Nov. 16, 1998
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission File Number D-24165
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Nevada 93-1108124
7504 Diplomat Drive, Suite 101
Manassas, Virginia
20109-2631
703/335-1957
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 12,631,202 shares of $.001 par
value common stock as of September 30, 1998.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for September 30, 1998 and December 31, 1997. . . . . 1
Condensed Statements of Income for the Nine Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . . . . 4
Management's Discussion and Analysis or Plan of Operation. . . . . . . . . . . 7
<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED AUDITED
30-Sep-98 31-Dec-97
<S> <C> <C>
Current Assets
Cash and cash equivalents 689,804 578,699
Accounts receivable, net 50,319 468,543
Due from affiliates 232,674 153,998
Prepaid expenses and other current assets 218,420 70,911
Deferred tax asset 34,000 34,000
Total current assets 1,225,217 1,306,151
Property and Equipment, net 254,555 260,103
Other Assets
Deposits 475,316 410,617
Goodwill 681,532 712,048
Other assets 5,869 32,347
Total other assets 1,162,717 1,155,012
Total assets 2,642,489 2,721,266
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 154,419 205,913
Accrued salaries and benefits 325,581 323,266
Other current liabilities 136,402 124,702
Current portion of long-term debt 91,744 93,405
Deferred revenue 29,700
Total current liabilities 708,146 776,986
Long-term debt 234,332 241,248
Total liabilities 942,478 1,018,234
STOCKHOLDERS' EQUITY
Common Stock, Class A, $.001 par value,
200,000,000 shares authorized 12,621,202
shares issued and outstanding at 12/31/97 12,621 12,621
Common Stock, Class B, $.001 par value,
10,000 shares authorized, issued and
outstanding 10 10
Preferred stock, $1 par value, 5,000,000
shares authorized, 10,000 shares issued
and outstanding 10,000 10,000
Additional paid-in capital 1,103,485 1,103,485
Retained earnings 763,145 766,166
Stock subscription receivable (189,250) (189,250)
Total stockholders' equity 1,700,011 1,703,032
Total Liabilities and Stockholders' Equity 2,642,489 2,721,266
</TABLE>
<TABLE>
UNAUDITED
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT AND EQUITY CHANGES
30-Sep-98 31-Dec-97
<S> <C> <C>
REVENUES 10,824,855 10,103,623
EXPENSES
Salaries 8,265,859 7,687,404
General and administrative 2,247,311 1,972,725
Depreciation & amortization 76,696 110,464
Interest 237,109 194,628
Total expenses 10,826,975 9,965,221
Income before income taxes (2,120) 138,402
PROVISION FOR INCOME TAXES (12,155)
Net income (2,120) 126,247
EARNINGS PER COMMON SHARE 0.01
</TABLE>
<TABLE>
UNAUDITED
MID-ATLANTIC HOME HEALTH NETWORK, INC.
STATEMENT OF CASH FLOWS
For the nine month periods ended September 30, 1997 and September 30, 1998
1997 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 126,247 $ (2,120)
Adjustment to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 59,397 47,407
Changes in assets and liabilities:
Accounts receivable 277,997 468,543
Due from affiliates 38,504 (78,676)
Prepaid expenses (42,998) (157,774)
Other assets (284,525) (174,298)
Accounts payable 58,358 34,264
Accrued salaries 17,294 2,315
Deferred revenue 14,250 (29,700)
Other accrued liabilities (10,950) 21,965
Net Cash Provided by Operating Activities 253,574 131,926
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (16,345) (11,344)
Net Cash used by Investing Activities (16,345) (11,344)
Cash Flows from Financing Activities:
Repayment of long term debt (9,227) (8,577)
Dividends paid (900) (900)
Cancellation of Stock Purchase accounts 3,741 -
Net Cash used by Financing Activities (6,386) (9,477)
Net Increase (Decrease) in Cash 230,843 111,105
Cash Balance, December 31 235,134 578,699
Cash Balance, September 30 $ 465,977 $ 689,804
</TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
Note 1. Organization and Significant Accounting Policies
Organization. The consolidated financial statements include the
accounts of Mid-Atlantic Home Health Network, Inc. (MAHN) and its
subsidiaries (collectively referred to herein as the Company).
The subsidiaries include Western Pennsylvania Home Health Network,
Inc. (Western Pennsylvania), Hunt Country Nursing Services, Inc.
(Hunt Country Nursing), Hunt Country Home Health, Inc. (Home
Health), and Atlis Federal Services d/b/a National Nurses
Services, Inc. Approximately 80% of MAHN's outstanding shares are
owned by Oak Springs Nursing Home Limited Partnership (Oak
Springs). The Company is engaged in the services with an emphasis
in providing nursing staff services to hospitals, nursing homes
and other facilities. The Company operates in Virginia, Maryland,
the District of Columbia and Pennsylvania.
Basis of consolidation. All significant intercompany accounts
and transactions have been eliminated.
Net revenues. Net revenues are reported at the estimated net
realizable amounts from patients, third party payors, and others
for services rendered, including estimated retroactive
adjustments under reimbursement agreements with third party
payors. Revenue received under third-party agreements is
subject to audit. Any adjustments as a result of these audits
are reflected in current operations. Approximately 12% and 12%
of the Company's net revenues for the years ended December 31,
1997 and 1996, respectively, were from participation in Medicare
and state Medicaid programs. In addition, approximately 35% and
43% of the Company's net revenues for the year ended December
31, 1997 and 1996, were from contracts with state and local
governmental correctional facilities, including the Commonwealth
of Virginia and the District of Columbia.
At December 31, 1997 and 1996, 20% and 2%, respectively, of net
accounts receivable were due from Medicare and Medicaid. The
ability of payors to meet their obligations depends upon their
financial stability, future legislation and regulatory actions.
The Company does not believe there are any significant credit
risks associated with receivables from Medicare and Medicaid.
(Continued)
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
Property and equipment. Property and equipment are recorded at
cost. The cost and the related accumulated depreciation are
removed from the accounts in the year the related asset is sold
or retired. Depreciation is computed using the straight line
method over the estimated economic lives of the assets,
commencing at the time the assets are placed into service.
Note 1. Organization and Significant Accounting Policies (Continued)
Cash and cash equivalents. Cash and cash equivalents include
cash on hand and in the bank as well as any investment purchased
with an original maturity of three months or less. The Company
maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not
experienced any losses in such accounts. Cash equivalents are
carried at cost which approximates fair value.
Under the Company's cash management system, checks issued but
not yet presented to banks frequently result in overdraft
balances for accounting purposes. The overdraft balances have
been netted with positive balances and are classified as "cash
and cash equivalents" in the consolidated balance sheet.
Goodwill and other assets. Goodwill arises from acquisitions
and represents the excess of purchase price over identifiable
acquired net assets, and is amortized on a straight-line basis
over 20 years. Other assets principally consist of the
estimated value of the assembled workforce and capitalized fees
related to other long-term agreements and transactions. Other
assets are amortized on a straight-line basis over a period of 3
to 5 years.
Income taxes. The income tax provision includes federal and
state income taxes both currently payable and deferred because
of differences between financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are
measured using the enacted tax rates and laws that will be in
effect when necessary to reduce deferred tax assets to the
amounts expected to be realized.
(Continued)
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
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.
Stockholders' equity. The Company has three classes of stock.
Two hundred million shares of Class A common stock have been
authorized. The Class A shareholders have the right to elect
one third of the directors of the Company. Ten thousand shares
of Class B common stock, with the right to elect two thirds of
the directors, have also been authorized. Additionally, five
million shares of Class C convertible preferred stock have been
authorized. The preferred stock is paid a dividend of 12%.
Earnings per share. Earnings per common share are computed by
dividing the weighted average number of shares outstanding into
net income. Diluted earnings per share are not presented
because the outstanding stock options are not dilative.
Note 2. Year 2000
Mid-Atlantic Home Health Network, Inc. does not anticipate any problem
in dealing with computer entries in the year 2000 or thereafter, with
any computers currently used at any of their facilities. The company
keeps current with all updates and revisions with all software the
company currently uses. It is anticipated that the software updates
reflect required revisions to accommodate transactions in the year 2000
and thereafter. Though it is not anticipated that the company will have
a problem at the turn of the century, the company intends to coordinate
the resolution of any year 2000 problems with the vendors of the
software the company utilizes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
Note 3. Contingent Liability
As part of the acquisition of National Nurses Service, Inc. on June 30,
1995, the Company issued 500,000 shares of common stock. The stock
purchase agreement calls for an adjustment of the purchase price on June
30, 1998, if the market value of the stock is less than $800,000 ($1.60
per share), during the ten-day period immediately preceding June 30,
1998. The purchase price adjustment, to be paid in cash, is the
difference between the market value and $800,000. The stock had limited
trading activity with a sales price of $.0625. Based on those prices
the purchase price adjustment would be in the range of $490,000.
The holder of the 500,000 shares, Atlis Federal Services, Inc., is now
out of bankruptcy. The Company has started negotiations with the
creditors committee to settle the potential purchase price adjustment.
In the opinion of management, the amount of the purchase price
adjustment, if any, will not have a material effect on the Company's
financial position.
The Company is also considering listing its securities on a national
securities exchange to increase the level of trading activity.
Mid-Atlantic Home Health Network
I N C O R P O R A T E D
Filed on November 16, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mid-Atlantic Home Health Network, Inc. (MAHN) is a holding company of
three corporate entities: National Nurses Service, Inc., Hunt Country
Home Health, Inc., and Hunt Country Nursing Services, Inc. An analysis
of each of these entities is depicted below, as well as a summary of
all results for the period January 1, 1998 through September 30, 1998.
NATIONAL NURSES SERVICE, INC. (NNS)
GROSS PROFIT MARGIN:
Sales for the first nine months of this fiscal year total $7,895,139
versus $6,491,821 in 1997. This is an increase of 21.6 percent in
sales. The Richmond, Virginia staffing revenues increased from
$2,189,214 for the first nine months of 1997 to $3,222,367 or an
increase of $1,033,153 which is a hefty 47.2 percent increase. The
increase is largely attributed to increased hospital staffing in
Richmond $676,200 (1997) to $1,130,962 (1998) and increased correctional
facility staffing $1,187,834 (1997) to $1,801,057 (1998). The increased
revenues are due to added contracts with hospitals and mental health
facilities in the central portion of Virginia.
Total staffing revenues for the Silver Spring/Baltimore, Maryland office
have increased slightly from $4,018,649 in 1997 to $4,262,357 in 1998.
While correctional staffing has declined in this office from $2,522,924
(1997) to $1,713,886 (1998), the hospital staffing has increased from
$427,654 (1997) to $832,980 (1998). Overall this office reflects a gain
in revenues of 6.1 percent for the first nine months of this fiscal year
over the past year.
There is one other growth area in revenues. Home health revenues from
the Medicare certified agency in Richmond has increased from $111,505 in
1997 to $199,696 in 1998 for the first nine months. The increase is
partially due to the closure of several home health agencies whose
referral sources continue to use our Medicare agency for services.
The gross profit margin for the staffing business increased in both
Silver Spring/Baltimore and in Richmond. In Silver Spring/Baltimore
the gross profit margin for staffing was $789,220 in 1997 versus
$889,717 in 1998, or an increase of 12.7 percent for the first nine
months of this fiscal year. In the Richmond office, the gross profit
margin increased from $554,265 in 1997 to $866,595, or a percentage
increase of 56.3 percent. The increased gross profit margin is due
to the added contracts generating higher volumes at reasonable price
mark-ups.
Total direct administrative overhead expenses for the staffing offices
in Silver Spring/Baltimore and Richmond increased from $539,238 to
$644,151 or a 19.4 percent increase. The 19.4 percent increase in
direct administrative overhead expenses compares favorably to the 30.7
percent increase in the gross margin of the staffing business only.
The profit before taxes was $215,536 in 1997 versus $429,426 in 1998 for
the first nine months, or a 99 percent increase.
The increased demand for staffing services coupled with an increase in
profit margin resulted in this increased profitability.
HUNT COUNTRY NURSING SERVICES, INC.
GROSS PROFIT MARGIN:
Hunt Country Nursing Services, Inc. (HCNS) provides private duty nursing
care services in Virginia. For the first nine months of 1998, revenues
declined from $2,052,113 in 1997 to $1,866,011 in 1998, or a decline of
9 percent. Of note, revenues in Northern Virginia took a dramatic
decline from $1,706,163 to $1,124,531 while revenues in Richmond and
Tappahannock increased from $345,950 to $741,480. In Northern Virginia,
there has been significant employee and managerial turn over. The
disruption in operations resulted in a decline in revenue, while
significant efforts were directed to our Richmond market. In Richmond,
the closure of a home health and private duty company resulted in the
transfer of some patients to our company, as well as the transfer of
selected nursing personnel.
The difficulties in Northern Virginia for the first nine months was not
only in a drop in revenues, but also a decline in the gross profit
margin percentage. The gross profit in 1997 was $560,610 versus
$351,922; the percentage of gross profit on sales declined from 32.8
percent to 31.2 percent.
The gross profit margin for Richmond/Tappahannock increased from
$129,775 to $247,705, while the gross profit margin as a percentage
on sales declined from 37.5 percent to 33.4 percent.
OPERATING INCOME:
The operating income before taxes was a loss of $39,331 versus a gain of
$15,821 in 1997 for the first nine months of the year. There have been
management changes for this entity, and it is anticipated that this
company will return to profitability with renewed sales and recruitment
efforts in Richmond and Northern Virginia.
HUNT COUNTRY HOME HEALTH, INC.
REVENUES:
The revenues for our Medicare certified home health agency, Hunt Country
Home Health, Inc. (HCHH) dropped from $929,789 for the first nine months
of 1997 to $584,937 in 1998. Because of a prior year audit adjustment
of $65,067, net revenues were further reduced to $519,870. The decline
in revenues is tied to new Medicare regulations which reduced
reimbursement for Medicare home health, reduced the types of patients
served by our company, and a reduction in referrals. Net revenues
dropped by 37 percent before taking into account the prior year's audit
adjustment.
OPERATING EXPENSES:
The operating expenses for HCHH dropped 22.7 percent which was not
adequate in light of the 37 percent decline in net revenues (before
audit adjustment).
The loss, year-to-date is $197,653. Without the prior year's audit
adjustment, the loss is $132,586. While this is cause for alarm,
especially considering the numbers of Medicare home health agencies
that have closed nationally in 1998, the loss for the last quarter
(July- September) was $9,012. It appears from 3rd quarter results that
our adjustments to the regulations seem to be making progress. We are
hopeful that we can sustain our momentum so that this agency can operate
profitably.
WESTERN PENNSYLVANIA HOME HEALTH NETWORK, INC. (WPHHN)
This entity was sold to Care Connections of Pennsylvania on July 1 1998.
The company, prior to this time had three primary personal care
contracts. It did not re-bid two of its contracts which expired on
June 30, 1998, as the contractors now required Medicare certification.
Its remaining contract had one more year for completion and it is of
minor financial significance.
The exact amount of the sale is being determined. The principal owners
of Care Connections of Pennsylvania are the principal owners of Oak
Springs Nursing Home Limited Partnership, the majority stockholder of
MAHN.
For the six months ending June 30, 1998, WPHHN had a net loss of $5,591
on revenues of $456,248.
MAHN CONSOLIDATED INCOME STATEMENT
Operating revenues for all operations for the first nine months of this
fiscal year total $10,824,855 versus $10,103,623 a year ago, an increase
of 7.1 percent. However, operating expenses increased to $10,826,975
versus $9,965,221 a year ago, or an increase of 8.6 percent.
After nine months of this fiscal year, the company has a loss of $2,120
versus a gain before taxes of $138,402 a year ago. On a per share
basis, the loss is $.0002.
While National Nurses Service, Inc. has posted significant increases in
profitability, these increases have been more than offset by the poor
performance of our private duty and Medicare certified home health
entities. The home health losses occurred primarily in the first six
months of the fiscal year and have stabilized in the third quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Dated: November 16, 1998 By:
Dennis Light
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 689804
<SECURITIES> 0
<RECEIVABLES> 282993
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1225217
<PP&E> 254555
<DEPRECIATION> 0
<TOTAL-ASSETS> 2642489
<CURRENT-LIABILITIES> 708146
<BONDS> 0
0
10000
<COMMON> 12631
<OTHER-SE> 1677380
<TOTAL-LIABILITY-AND-EQUITY> 2642489
<SALES> 10824855
<TOTAL-REVENUES> 10824855
<CGS> 0
<TOTAL-COSTS> 10589866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237109
<INCOME-PRETAX> (2120)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2120)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
