<PAGE>
FORM 10QSB FOR MID-ATLANTIC HOME HEALTH NETWORK, INC. FILED ON MAY 17, 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 March 31, 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 March 31, 1999.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for March 31, 1999 and December 31, 1998..............1
Condensed Statements of Income for the Three Months ended
March 31, 1999 and 1998........................................................2
Condensed Statements of Cash Flows for the Three Months ended
March 31, 1999 and 1998........................................................3
Notes to Condensed Financial Statements........................................4
Management's Discussion and Analysis or Plan of Operation......................7
<PAGE>
<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
UNAUDITED AUDITED
31-Mar-99 31-Dec-98
----------------- ----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 803,430 $ 816,294
Accounts receivable, net 700,004 392,314
Due from affiliates 327,157 228,805
Prepaid expenses and other current assets 230,642 157,449
Deferred tax asset 34,000 37,000
----------------- ----------------
Total current assets 2,095,233 1,631,862
----------------- ----------------
Property and Equipment, net 251,219 253,221
----------------- ----------------
Other Assets
Deposits
Goodwill 661,188 671,360
Other assets 29,251 3,058
----------------- ----------------
Total other assets 690,439 674,418
----------------- ----------------
Total assets $ 3,036,891 $ 2,559,501
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 266,469 $ 152,724
Accrued salaries and benefits 410,971 255,220
Other current liabilities 175,436 119,162
Current portion of long-term debt 15,070 15,988
----------------- ----------------
Deferred revenue
----------------- ----------------
Total current liabilities 867,946 543,094
----------------- ----------------
Long-term debt 304,494 306,739
----------------- ----------------
Total liabilities $ 1,172,440 $ 849,833
================= ================
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 927,585 772,802
Stock subscription receivable (189,250) (189,250)
----------------- ----------------
Total stockholders' equity 1,864,451 1,709,668
----------------- ----------------
Total Liabilities and Stockholders' Equity $ 3,036,891 $ 2,559,501
================= ================
</TABLE>
-1-
<PAGE>
<TABLE>
U N A U D I T E D
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT
<CAPTION>
31-Mar-99 31-Mar-98
----------------- ----------------
<S> <C> <C>
REVENUES $ 4,131,120 $ 3,239,985
EXPENSES
Salaries 3,124,999 2,559,696
General and administrative 738,181 749,039
Depreciation & amortization 15,377 31,597
Interest 96,316 70,565
----------------- ----------------
Total expenses 3,974,873 3,410,897
----------------- ----------------
Income before income taxes 156,247 (170,912)
PROVISION FOR INCOME TAXES (1,164)
----------------- ----------------
Net income $ 155,083 $ (170,912)
================= ================
EARNINGS PER COMMON SHARE $ 0.012 $ (0.014)
</TABLE>
-2-
<PAGE>
<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
<CAPTION>
1998 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (170,912) $ 155,083
ADJUSTMENT TO RECONCILE NET INCOME
TO CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 31,597 15,376
CHANGES IN ASSETS AND LIABILITIES
ACCOUNTS RECEIVABLE 15,767 (307,690)
DUE FROM AFFILIATES 93,783 (98,352)
PREPAID EXPENSES (228,390) (73,193)
OTHER ASSETS (32,968)
DEFERRED TAX ASSET 3,000
ACCOUNTS PAYABLE 72,725 113,745
ACCRUED SALARIES 9,421 155,751
OTHER CURRENT LIABILITIES 59,933 56,274
DEFERRED REVENUE 14,850
----------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (101,226) (12,974)
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT (1,564) 3,573
----------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (1,564) 3,573
CASH FLOWS FROM FINANCING ACTIVITIES
REPAYMENT OF LONG TERM DEBT (2,508) (3,163)
DIVIDENDS PAID (300) (300)
CHANGES IN NOTES PAYABLE
----------------- ----------------
NET CASH USED BY FINANCING ACTIVITIES (2,808) (3,463)
NET INCREASE (DECREASE) IN CASH (105,598) (12,864)
CASH BALANCE, DECEMBER 31, 578,699 816,294
----------------- ----------------
CASH BALANCE, MARCH 31 $ 473,101 $ 803,430
================= ================
</TABLE>
-3-
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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. Any adjustments as a result of these audits
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
March 31, 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
March 31, 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.
-6-
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Filed on May 17, 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)
-----------------------------------
GROSS PROFIT MARGIN:
Sales for the first quarter of this fiscal year total $2,972,449 versus
$2,338,835 in 1998. The increase of $633,614 represents an increase of 27.0%.
The Silver Spring, Maryland staffing office had a gross profit margin
of $298,131 in the first quarter of 1999 as compared to $257,712 in 1998. The
increase, in part, is due to the significant increase in hospital staffing
revenues: $284,614 versus $127,352.
Our Richmond, Virginia staffing office increased revenues to $1,250,034
from $873,196 in 1998. This increase in revenues equals $376,838 or an increase
of 43.2%. The profit margin for this office increased to $319,008 versus
$231,201, or an increase of $87,807 (38.0%). The increase was significantly due
to enhanced hospital staffing revenues: $415,095 versus $208,137, and
correctional facility revenues: $719,339 versus $555,676.
OPERATING EXPENSES:
The operating expenses for the first three months totalled $2,754,525
in 1999 versus $2,286,756 or an increase of $467,769 (20.4%).
NET INCOME:
The net income, before taxes, for National Nurses Service was $217,924
versus $52,079 in 1998. The increase is due to the greater demand for our
staffing services and greater productivity from our overhead operations.
In addition, our home health programs in Tappahannock and Richmond in
1999 made a contribution to general overhead of $43,395 versus a loss of $21,444
in 1998.
-7-
<PAGE>
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
-------------------------------------
REVENUES:
The revenues for the first quarter in 1999 totalled $213,666 versus
$142,555. The increase of $71,111 represents a 49.9% increase.
OPERATING EXPENSES:
The operating expenses for HCHH increased for the first quarter to
$226,393 from $202,970 a year ago. This increase of $23,423 represents an
increase of 11.5%.
The year-to-date loss for the first quarter is $12,727 versus a loss of
$60,415 a year ago. This agency is close to operating at a break-even after
facing serious difficulties adjusting to new Medicare reimbursement regulations
on January 1, 1998.
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 quarter.
For the first quarter, revenues totalled $928,008 versus $577,840 a
year ago. This represents an increase of $350,168 or 60.6%.
OPERATING EXPENSES:
Operating expenses increased from $626,412 for the first quarter last
year to $939,958 this year, or an increase of 50.1%. The increase in operating
expenses trailed revenue growth.
INCOME LOSS:
For the first quarter, the operating loss before taxes was $11,950
versus a loss a year ago of $50,745.
This company is experiencing rapid growth in the volume of its
services. Improvements in its gross margins will result in enhanced
profitability.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
---------------------------------------------
For the first quarter of 1999, MAHN had a consolidation revenue of
$4,131,120 versus $3,239,985 in 1998.
Operating expenses for the first quarter totalled $3,974,873 versus
$3,410,897 in 1998.
In 1999, the operating gain was $156,247 versus $(170,912) in 1998.
-8-
<PAGE>
The improvement in financial performance is due to the significant
growth in profitability of National Nurses Service and the reduced operating
losses of its other entities.
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: May 17, 1999 By: /s/ Dennis Light
-----------------------------------
Dennis Light, President
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 803,430
<SECURITIES> 0
<RECEIVABLES> 700,004
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,095,233
<PP&E> 251,219
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,036,891
<CURRENT-LIABILITIES> 867,946
<BONDS> 0
0
10,000
<COMMON> 12,631
<OTHER-SE> 1,841,820
<TOTAL-LIABILITY-AND-EQUITY> 3,036,891
<SALES> 4,131,120
<TOTAL-REVENUES> 4,131,120
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,974,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,316
<INCOME-PRETAX> 156,247
<INCOME-TAX> 1,164
<INCOME-CONTINUING> 155,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155,083
<EPS-PRIMARY> .012
<EPS-DILUTED> .012
</TABLE>
