<PAGE>
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, 1999
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, 1999.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for September 30, 1999 and December 31, 1998 ......1
Condensed Statements of Income for the Nine Months ended
September 30, 1999 and 1998..................................................2
Condensed Statements of Cash Flows for the Nine Months ended
September 30, 1999 and 1998..................................................3
Notes to Condensed Financial Statements......................................4
Management's Discussion and Analysis or Plan of Operation....................8
<PAGE>
<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
UNAUDITED AUDITED
30-Sep-99 31-Dec-98
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 491,733 $ 816,294
Accounts receivable, net 4,425,257 2,998,489
Due from affiliates 452,117 228,805
Prepaid expenses and other current assets 245,980 157,449
Deferred tax asset 37,000 37,000
---------------- ----------------
Total current assets 5,652,087 4,238,037
---------------- ----------------
Property and Equipment, net 243,374 253,221
---------------- ----------------
Other Assets
Goodwill 643,302 671,360
Other assets 58,083 3,058
---------------- ----------------
Total other assets 701,385 674,418
================ ================
Total assets $ 6,596,846 $ 5,165,676
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 256,408 $ 152,724
Accrued salaries and benefits 468,571 255,220
Other current liabilities 168,274 119,162
Current portion of long-term debt 12,236 15,988
Notes payable 3,441,561 2,606,175
Deferred revenue
---------------- ----------------
Total current liabilities 4,347,050 3,149,269
---------------- ----------------
Long-term debt 300,440 306,739
================ ================
Total liabilities $ 4,647,490 $ 3,456,008
================ ================
STOCKHOLDERS' EQUITY
Common stock, Class A, $.001 par value,
200,000,000 shares authorized 12,621,202
shares issued and outstanding at 12/31/98 $ 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 1,012,490 772,802
Stock subscription receivable (189,250) (189,250)
---------------- ----------------
Total stockholders' equity 1,949,356 1,709,668
================ ================
Total liabilities and stockholders' equity $ 6,596,846 $ 5,165,676
================ ================
</TABLE>
1
<PAGE>
<TABLE>
U N A U D I T E D
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT
<CAPTION>
30-Sep-99 30-Sep-98
<S> <C> <C>
REVENUES $ 13,314,583 $ 10,824,855
EXPENSES
Salaries 10,201,481 8,265,859
General and administrative 2,383,422 2,247,311
Depreciation & amortization 48,699 76,696
Interest 313,848 237,109
---------------- ----------------
Total expenses 12,947,450 10,826,975
---------------- ----------------
Income before income taxes 367,133 (2,120)
PROVISION FOR INCOME TAXES (126,544)
---------------- ----------------
Net income $ 240,589 $ (2,120)
================ ================
EARNINGS PER COMMON SHARE $ 0.019 $ (0.000)
</TABLE>
2
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<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 240,589 $ (2,120)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 43,526 47,407
Changes in assets and liabilities:
Accounts receivable (1,426,768) 468,543
Due from affiliates (223,312) (78,676)
Prepaid expenses and other current assets (88,531) (157,774)
Other assets (61,110) (174,298)
Deferred tax asset - -
Accounts payable 103,685 34,264
Accrued salaries 213,351 2,315
Deferred revenue - (29,700)
Other current liabilities 49,112 21,965
---------------- ----------------
Net cash provided by operating activities (1,149,458) 131,926
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment 462 (11,344)
---------------- ----------------
Net cash provided by investing activities 462 (11,344)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (10,051) (8,577)
Dividends paid on preferred stock (900) (900)
Changes in notes payable 835,386 -
---------------- ----------------
Net cash provided by financing activities 824,435 (9,477)
Net increase (decrease) in cash (324,561) 111,105
CASH AND CASH EQUIVALENTS
Cash balance, December 31, 816,294 578,699
---------------- ----------------
Cash balance, September 30, $ 491,733 $ 689,804
================ ================
</TABLE>
3
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
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 Hunt Country Nursing Services, Inc. (Hunt Country
Nursing), Hunt Country Home Health, Inc. (Home Health), and National
Nurses Service, 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, and the
District of Columbia.
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/review.
Any adjustments as a result of these audits/reviews are reflected
in current operations. Approximately 11% and 12% of the Company's
net revenues for the years ended December 31, 1999 and 1998,
respectively, were from participation in Medicare and state
Medicaid programs. In addition, approximately 33% and 35% of the
Company's net revenues for the year ended December 31, 1999 and
1998, was from contracts with state and local governmental
correctional facilities, including the Commonwealth of Virginia
and the District of Columbia. At December 31, 1999 and 1998, 8%
and 20%, 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.
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.
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.
4
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
5
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
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.
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 $487,500.
The Company is negotiating with the owners of the claim to settle the
potential purchase price adjustment.
The Company has also listed its securities on a national securities
exchange to increase the level of trading activity.
The acquisition of National Nurses Service, Inc. was accounted for as a
purchase and the Company recorded approximately $800,000 in good will.
The payment of any purchase price adjustment would not change the
underlying assets acquired. Accordingly, payments would reduce the
originally recorded value of stock issued and reduce the amount of
paid-in capital.
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.
NOTE 4. COST REPORT ADJUSTMENT:
In June, 1999, the Medicare Cost Reports for the home health agencies
were filed for the 1998 year. These reports indicated that the Richmond
and Tappahannock agencies exceeded certain Medicare cost limits by
$85,000. Therefore, $85,000 was deducted in in the second quarter of
1999 (see Note 1 - Net Revenues) for losses that relate to 1998.
6
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 5. MEDICARE CONTRACTUAL ALLOWANCES:
It was determined in the second quarter that Medicare contractual
allowances (deductions from gross revenues) were underestimated for the
first quarter by $40,000. Consequently, the adjustment was recorded in
the second quarter thereby overstating contractual allowances for the
second quarter, but assuring year-to-date accuracy.
7
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
FILED ON NOVEMBER 15, 1999
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.; Hunt Country Nursing Services, Inc. An analysis of each of these
entities is depicted below.
NATIONAL NURSES SERVICE, INC. (NNS)
NET INCOME:
- -----------
Sales for the first nine months of this fiscal year totalled $8,810,000
versus $7,895,000 a year ago. The increase is a 11.6 percent gain in net
revenues. Operating expenses increased 10.8 percent. Consequently, this staffing
company increased its operating income from $277,000 a year ago to $348,000 in
1999---a 25.6 percent growth in income. The increased profitability is due to
the continued strong demand for nurse staffing in hospitals, nursing homes,
schools, and correctional facilities and the ability of the company to exact
greater productivity from overhead operations.
1999 income for National Nurses Service was negatively impacted by a
prior year adjustment of $85,000 for Medicare Cost Reports filed for 1998 for
its Tappahannock and Richmond Medicare home health agencies.
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
REVENUES:
- ---------
The net revenues for the first nine months for this Medicare certified
home health agency totalled $836,000 versus $520,000 a year ago. The increase of
$316,000 is a 60.8 percent increase and is due to greater demand in the
Warrenton and Fredericksburg, Virginia areas.
OPERATING EXPENSES:
- -------------------
The operating expenses for Hunt Country Home Health increased for the
first nine months to $812,000 as compared to $718,000 a year ago. The increase
in expense is only $94,000 or 13.1%.
8
<PAGE>
This Medicare home health agency operated at a profit of $24,000 for
the first nine months of this fiscal year as compared to a loss of $198,000 a
year ago. The agency has fully adjusted to the new Medicare reimbursement
regulations effective January 1, 1998.
During this year, the agency received JCAHO accreditation for three
years.
HUNT COUNTRY NURSING SERVICES, INC. (HCNS)
REVENUES:
- ---------
HUNT COUNTRY NURSING SERVICES, INC., our private duty nursing company,
with offices in Warrenton, Winchester, Richmond, Tappahannock and
Fredericksburg, Virginia had significant revenue growth in the first nine months
of the year. For the first nine months, revenues totalled $3,621,000 versus
$1,867,000 a year ago. The increase of $1,754,000 is an increase of 93.9%.
OPERATING EXPENSES:
- -------------------
Operating expenses for the first nine months of 1999 totalled
$3,534,000 versus $1,976,000. While expenses increased $1,558,000, or 78%, the
level of expenses resulted in greater productivity given the 94% increase in
revenue.
INCOME:
- -------
For the first nine months of 1999, HCNS had an operating gain of
$87,000 versus a loss of $109,000 a year ago.
The company is experiencing rapid growth in the demand for its
services. Continued improvements in its gross margins will result in enhanced
profitability.
The company received JCAHO accreditation for three years during this
year.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
For the first nine months, MAHN had consolidated revenues of
$13,315,000 versus $10,825,000 in 1998. The increase in revenues of $2,490,000
is 23%. The increased revenues is due to solid growth in staffing, home health
and private duty nursing services.
While revenues increased 23%, operating expenses increased 19%, leaving
income before taxes of $367,000 versus a loss of $2,000 a year ago.
There was a slight increase in general and administrative expenses from
$2,247,000 in 1998 to $2,383,000 in 1999, or a 6% increase. The greater
productivity of general and administrative functions coupled with a revenue
growth of 23% has placed MAHN on more solid footing.
9
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We anticipate continued and increased demand for our staffing, home
health, and private duty nursing services. MAHN does not face difficulties in
marketing its services. Its challenges are in the recruitment of sufficient
nursing personnel to meet the demands for its nursing care services.
It should also be noted that there was a prior year adjustment of
$85,000 for Medicare Cost Reports filed for 1998 in the second quarter. Without
this adjustment net income before taxes would have been $452,000 for the first
nine months of 1999.
10
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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 15, 1999 By: /s/ Dennis Light
----------------------------
Dennis Light, President
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 491,733
<SECURITIES> 0
<RECEIVABLES> 5,111,851
<ALLOWANCES> 686,594
<INVENTORY> 0
<CURRENT-ASSETS> 5,651,087
<PP&E> 707,639
<DEPRECIATION> 464,265
<TOTAL-ASSETS> 6,595,846
<CURRENT-LIABILITIES> 4,347,050
<BONDS> 0
0
10,000
<COMMON> 12,631
<OTHER-SE> 1,926,725
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 13,314,583
<CGS> 0
<TOTAL-COSTS> 12,947,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313,848
<INCOME-PRETAX> 367,133
<INCOME-TAX> 126,544
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,589
<EPS-BASIC> 0.019
<EPS-DILUTED> 0.019
</TABLE>
