<PAGE>
FORM 10QSB FOR MID-ATLANTIC HOME HEALTH NETWORK, INC. FILED ON AUGUST 16, 1999
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 June 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 June 30, 1999.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for June 30, 1999 and December 31, 1998...............1
Condensed Statements of Income for the Six Months ended
June 30, 1999 and 1998.........................................................2
Condensed Statements of Cash Flows for the Six Months ended
June 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-Jun-99 31-Dec-98
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 419,989 $ 816,294
Accounts receivable, net 4,689,029 2,998,489
Due from affiliates 452,373 228,805
Prepaid expenses and other current assets 260,960 157,449
Deferred tax asset 37,000 37,000
---------------- ----------------
Total current assets 5,859,351 4,238,037
---------------- ----------------
Property and Equipment, net 248,222 253,221
---------------- ----------------
Other Assets
Deposits
Goodwill 651,016 671,360
Other assets 54,118 3,058
---------------- ----------------
Total other assets 705,134 674,418
---------------- ----------------
Total assets $ 6,812,707 $ 5,165,676
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 258,415 $ 152,724
Accrued salaries and benefits 412,608 255,220
Other current liabilities 138,571 119,162
Current portion of long-term debt 13,194 15,988
Notes Payable 3,849,502 2,606,175
---------------- ----------------
Deferred revenue
---------------- ----------------
Total current liabilities 4,672,290 3,149,269
---------------- ----------------
Long-term debt 302,232 306,739
---------------- ----------------
Total liabilities $ 4,974,522 $ 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 901,319 772,802
Stock subscription receivable (189,250) (189,250)
---------------- ----------------
Total stockholders' equity 1,838,185 1,709,668
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 6,812,707 $ 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-Jun-99 30-Jun-98
<S> <C> <C>
REVENUES $ 8,492,997 $ 7,090,168
EXPENSES
Salaries 6,528,949 5,419,290
General and administrative 1,520,482 1,580,821
Depreciation & amortization 31,865 60,747
Interest 200,179 154,266
---------------- ----------------
Total expenses 8,281,475 7,215,124
---------------- ----------------
Income before income taxes 211,522 (124,956)
PROVISION FOR INCOME TAXES (82,404)
---------------- ----------------
Net income $ 129,118 $ (124,956)
================ ================
EARNINGS PER COMMON SHARE $ 0.010 $ (0.010)
</TABLE>
2
<PAGE>
<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 129,118 $ (124,956)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,865 60,747
Changes in assets and liabilities:
Accounts receivable (1,690,540) (806,991)
Due from affiliates (223,568) 26,796
Prepaid expenses (103,511) (132,330)
Other assets (58,045) (8,167)
Deferred tax asset - -
Accounts payable 105,691 93,805
Accrued salaries 157,388 19,705
Other current liabilities 19,409 77,760
---------------- ----------------
Net cash provided by operating activities (1,632,193) (793,631)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment 462 (12,422)
---------------- ----------------
Net cash provided by investing activities 462 (12,422)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (7,301) 69,196
Dividends paid on preferred stock (600) (600)
Changes in notes payable 1,243,327 664,021
---------------- ----------------
Net cash provided by financing activities 1,235,426 732,617
Net increase (decrease) in cash (396,305) (73,436)
CASH AND CASH EQUIVALENTS
Cash balance, December 31, 816,294 578,699
---------------- ----------------
Cash balance, June 30, $ 419,989 $ 505,263
================ ================
</TABLE>
3
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 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
June 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 AUGUST 16, 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 six months of this fiscal year totalled $5,774,000
versus $5,053,000 a year ago. The increase is a 14.3% gain in net revenues.
Operating expenses increased $638,100 or 13.1%. Consequently, this staffing
company increased its operating income from $170,000 a year ago to $252,000 in
1999 --- a 32% growth in income. The increased profitability is due to the
continued strong demand for nurse staffing in hospitals, nursing homes, and
correctional facilities and the ability of the company to exact greater
productivity from overhead operations.
Income for National Nurses Service was 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 six months for this Medicare certified
home health agency totaled $503,000 versus $259,000 a year ago. The increase of
$244,000 is a 94% increase and is due to greater demand in the Warrenton and
Fredericksburg, Virginia areas.
Operating Expenses:
- -------------------
The operating expenses for HCHH increased for the first six months to
$502,000 as compared to $456,000 a year ago. The increase in expenses is only
$46,000 or 10.1%.
This Medicare home health agency operated at break-even this fiscal
year (January - June) as compared to a loss of $197,000 a year ago. The agency
has now fully adjusted to the new Medicare reimbursement regulations effective
January 1, 1998.
The company received JCAHO accreditation for three years during the
quarter.
8
<PAGE>
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 half of the
year. For the first six months, revenues totalled $2,182,000 versus $1,197,000 a
year ago. The increase of $985,000 is an increase of 82%.
Operating Expenses:
- -------------------
Operating expenses for the first six months of 1999 totalled $2,157,000
versus $1,282,000. While expenses increased $875,000, or 68%, the level of
expenses resulted in greater productivity given the 82% increase in revenue.
Income Loss:
- ------------
For the first half of 1999, HCNS had an operating gain of $25,000
versus a loss of $83,000 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 the
quarter.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
For the first six months, MAHN had consolidated revenues of $8,493,000
versus $7,095,000 in 1998. The increase in revenues of $1,398,000 is 19.7%. The
increased revenues is due to solid growth in staffing, home health and private
duty nursing services.
While revenues increased 19.7%, operating expenses increased 14.7%,
leaving income before taxes of $212,000 versus a loss of $125,000 a year ago.
There was a reduction of general and administrative expenses from
$1,585,000 in 1998 to $1,520,000 in 1999, or a 4% reduction. The greater
productivity of general and administrative functions coupled with a revenue
growth of 19.7% has placed MAHN on more solid footing.
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 $297,000 for the first
six months of 1999.
9
<PAGE>
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: August 16, 1999 By: /s/ Dennis Light
----------------------------------
Dennis Light, President
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 419,989
<SECURITIES> 0
<RECEIVABLES> 5,250,308
<ALLOWANCES> 561,279
<INVENTORY> 0
<CURRENT-ASSETS> 5,859,351
<PP&E> 707,639
<DEPRECIATION> 459,417
<TOTAL-ASSETS> 6,812,707
<CURRENT-LIABILITIES> 4,672,290
<BONDS> 0
0
10,000
<COMMON> 12,631
<OTHER-SE> 1,815,554
<TOTAL-LIABILITY-AND-EQUITY> 6,812,707
<SALES> 0
<TOTAL-REVENUES> 8,492,997
<CGS> 0
<TOTAL-COSTS> 8,281,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,179
<INCOME-PRETAX> 211,522
<INCOME-TAX> 82,404
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,118
<EPS-BASIC> .010
<EPS-DILUTED> .010
</TABLE>
