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FORM 10QSB FOR MID-ATLANTIC HOME HEALTH NETWORK, INC. FILED ON NOVEMBER 14, 2000
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, 2000
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: 12,595,142 shares of $.001 par
value common stock as of September 30, 2000.
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for September 30, 2000 and December 31, 1999.........1
Condensed Statements of Income for the Nine Months ended
September 30, 2000 and 1999...................................................2
Condensed Statements of Cash Flows for the Nine Months ended
September 30, 2000, and 1999..................................................3
Notes to Condensed Financial Statements.......................................4
Management's Discussion and Analysis or Plan of Operation.....................7
PART II - OTHER INFORMATION
Legal Proceedings............................................................ 10
Changes in Securities and Use of Proceeds - No Change.........................
Defaults upon Senior Securities - N/A.........................................
Other Information - N/A.......................................................
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED AUDITED
30-Sep-00 31-Dec-99
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 548,889
Accounts receivable, net of allowances 7,548,579 4,278,363
Due from affiliates (26,513) 273,343
Prepaid expenses and other current assets 1,404,428 187,760
Deferred tax asset 72,000 72,000
-------------- --------------
Total current assets 8,998,494 5,360,355
-------------- --------------
Property and Equipment, net 555,046 278,779
-------------- --------------
Other Assets
Goodwill 753,015 781,239
Other assets 64,305 30,786
-------------- --------------
Total other assets 817,320 812,025
-------------- --------------
Total assets $ 10,370,860 $ 6,451,159
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 8,080 $ 16,393
Notes payable 5,220,477 2,993,081
Accounts payable 602,777 325,605
Accrued salaries and related employee benefits 584,147 397,881
Other current liabilities 255,723 164,270
Income taxes payable 458,560 125,090
-------------- --------------
Total current liabilities 7,129,764 4,022,320
-------------- --------------
Long-term debt 505,287 294,123
-------------- --------------
Total liabilities $ 7,635,051 $ 4,316,443
============== ==============
STOCKHOLDERS' EQUITY
Common stock, Class A, $.001 par value,
200,000,000 shares authorized, 12,595,142 and 12,621,202
shares issued and outstanding at 9/30/00 and 12/31/99 $ 12,595 $ 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 1,059,511 1,103,485
Retained earnings 1,792,943 1,197,850
Stock subscription receivable (139,250) (189,250)
-------------- --------------
Total stockholders' equity 2,735,809 2,134,716
-------------- --------------
Total liabilities and stockholders' equity $ 10,370,860 $ 6,451,159
============== ==============
</TABLE>
1
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U N A U D I T E D
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT
30-Sep-00 30-Sep-99
REVENUES $ 20,197,382 $ 13,314,583
EXPENSES
Salaries 15,256,658 10,201,481
General and administrative 3,451,303 2,383,422
Depreciation & amortization 63,472 48,699
Interest 475,819 313,848
-------------- --------------
Total expenses 19,247,252 12,947,450
-------------- --------------
Income before income taxes 950,130 367,133
PROVISION FOR INCOME TAXES (354,136) (126,544)
-------------- --------------
Net income $ 595,994 $ 240,589
============== ==============
EARNINGS PER COMMON SHARE $ 0.047 $ 0.019
2
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 595,994 $ 240,589
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 48,699 43,526
Changes in assets and liabilities:
Accounts receivable (3,270,216) (1,426,768)
Due from affiliates 299,855 (223,312)
Prepaid expenses and other current assets (1,216,668) (88,531)
Other assets (33,519) (61,110)
Deferred tax asset - -
Accounts payable 277,171 103,685
Accrued salaries 186,266 213,351
Income taxes payable 333,470 -
Other current liabilities 91,453 49,112
-------------- --------------
Net cash provided by operating activities (2,687,495) (1,149,458)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (296,742) 462
Acquisition of other assets
-------------- --------------
Net cash provided by investing activities (296,742) 462
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (22,270) (10,051)
Dividends paid on preferred stock (900) (900)
Changes in notes payable 2,227,396 835,386
Redemption of stock 6,000 -
Current borrowings 225,122
-------------- --------------
Net cash provided by financing activities 2,435,348 824,435
Net increase (decrease) in cash (548,889) (324,561)
CASH AND CASH EQUIVALENTS
Cash balance, December 31, 548,889 816,294
-------------- --------------
Cash balance, September 30, $ - $ 491,733
============== ==============
</TABLE>
3
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
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), Atlis
Federal Services d/b/a National Nurses Service, Inc. and the Center for
Ambulatory and Home Infusion Services, Inc. (CAHIS).
The Company acquired the Center for Ambulatory and Home Infusion
Services as of November 1, 1999, in a non-cash transaction from an
affiliate. The results of operations for CAHIS are included in the
consolidated financial statements from that date.
Western Pennsylvania was sold for book value on June 30, 1998, and the
1998 financial statements include the results of its operation until
the date of sale. Revenues during the six-month period were
approximately $167,000 and losses from operations were approximately
$39,000.
Approximately 80% of MAHN's outstanding shares are owned by Oak Springs
Nursing Home Limited Partnership (Oak Springs).
The Company is engaged in the business of providing integrated home
health 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 payers, and others for services
rendered, including estimated retroactive adjustments under
reimbursement agreements with third party payers. Revenue received
under third-party agreements is subject to audit. Any adjustments as a
result of these audits are reflected in current operations.
Approximately 27% and 9% of the Company's net revenues for the nine
months ended September 30, 2000 and 1999, respectively, were from
participation in Medicare and state Medicaid programs. In addition,
approximately 21% and 59% of the Company's net revenues for the nine
months ended September 30, 2000 and 1999, respectively, was from
contracts with state and local governmental correctional facilities,
including the Commonwealth of Virginia and the District of Columbia.
At September 30, 2000 and 1999, 26% and 3%, respectively, of net
accounts receivable were due from Medicare and Medicaid. The ability of
payers to meet their obligations depends upon their financial
stability, future legislation and regulatory actions.
4
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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.
5
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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 dilutive.
NOTE 2. CONTINGENT LIABILITY AND SUBSEQUENT EVENT
The Company acquired National Nurses Service, Inc. on June 30, 1995
from Atlis Systems, Inc. The company issued 500,000 of its common stock
in exchange for ownership of National Nurses Service, Inc. The Stock
Purchase agreement called for an adjustment of the purchase price if
the market value of the stock issued was less than a specific amount on
June 30, 1998. At that date, the market value of the stock was below
the specified amount. However, the parties to the agreement disagreed
on the terms of the settlement. Negotiations and litigation proceeded
form that date until October 20000 when a settlement was reached
between the two parties. The settlement requires that the Company pay
$1,350,0000 to Atlis, Inc. in settlement of the original purchase
agreement and for the surrender of the originally issued 500,000 shares
of company stock. A sum of $900,000 was paid upon execution of the
settlement agreement on October 30, 2000. The remaining balance is to
be paid in three equal installments of $150,000 on the anniversary of
the execution of the settlement agreement.
The original purchase was accounted for as a purchase and the company
recorded approximately $800,000 in Goodwill. The settlement will be
recorded as an adjustment of the original purchase price and surrender
of the originally issued common stock. The underlying value of assets
acquired will not change. Accordingly, the Common Stock, Paid-In
Capital and Goodwill will be adjusted during the fourth quarter upon
execution of the settlement agreement.
6
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
Filed on November 14, 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Mid-Atlantic Home Health Network, Inc. (MAHN) is a holding company of
four corporate entities: National Nurses Service, Inc., Hunt Country Nursing
Services, Inc., Hunt Country Home Health, and The Center for Ambulatory and Home
Infusion Services. The analysis of consolidated operations as well as each of
the entities is presented below.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
---------------------------------------------
Consolidated Results of Operations:
-----------------------------------
For the first nine months of 2000, MAHN had consolidated revenue of
$20,197,000 versus $13,315,000 for the first nine months of 1999. The increase
of $6,882,000 represents a gain of 52 percent.
Operating expenses for the first nine months of 2000 totaled
$19,247,000 versus $12,947,000 a year ago. Operating expenses increased
$6,300,000 or 49 percent.
Through the third quarter of Year 2000, our operating income before
income taxes totaled $950,000 versus $367,000 a year ago. This change represents
a gain of $583,000. After taxes, MAHN had net income of $596,000 versus $241,000
a year ago.
MAHN, the holding company does not generate any income but reports the
corporate-wide administrative expenses for the four entities. For the first nine
months of 2000 MAHN had revenue of $25,000. Operating expenses totaled $286,000
and the year-to-date loss totaled $261,000.
NATIONAL NURSES SERVICE, INC. (NNS)
-----------------------------------
NNS' primary business is to provide medical staffing services with
offices in Silver Spring, MD, Fairfax, VA and Richmond, VA. A new office opened
August 2000 in Norfolk, VA. NNS also has a Medicare certified home health agency
in Richmond, VA.
7
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NATIONAL NURSES SERVICE, INC. (NNS) (continued)
-----------------------------------------------
Revenues:
---------
Revenue for the first nine months of this fiscal year totaled
$12,944,000 versus $8,810,000 a year ago. The increase of $4,134,000 represents
a 47 percent increase for NNS.
Operating Expenses:
-------------------
NNS' operating expenses for the first nine months totaled $11,933,000
versus $8,462,000 a year ago. The increase is $3,471,000 or 41 percent.
Income(Loss):
-------------
NNS' income before tax for the first nine months of 2000 and 1999 was
$1,011,000 and $348,000, respectively.
HUNT COUNTRY NURSING SERVICES, INC. (HCNS)
------------------------------------------
Revenues:
---------
HCNS, our private duty nursing and durable medical supply company, with
offices in Fairfax, Manassas, Winchester, Warrenton, Fredericksburg,
Charlottesville, Richmond and Tappahannock, Virginia had significant revenue
growth in the first nine months of this fiscal year. For the first nine months,
revenues totaled $6,350,000 versus $3,621,000 a year ago. On a percentage basis,
the increase of $2,729,000 represents a 75 percent increase.
Operating Expenses:
-------------------
Operating expenses increased to $6,161,000 for the first nine months of
this year versus $3,534,000 in 1999. The increase is $2,627,000 or 74 percent.
Income (Loss):
--------------
For the first half of Year 2000, HCNS has income before taxes of
$189,000 versus $87,000 a year ago.
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
-------------------------------------
HCHH is our Medicare certified home health company with offices in Warrenton and
Fredericksburg, VA.
8
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HUNT COUNTRY HOME HEALTH, INC. (HCHH) (continued)
-------------------------------------------------
Revenues:
---------
The revenues for the first half of Year 2000 totaled $868,000 versus
$836,000 a year ago.
Operating Expenses:
-------------------
Operating expenses increased from $812,000 in 1999 to $867,000 for the
first nine months of 2000.
Income (Loss):
--------------
For the first nine months of 2000, HCHH had a gain of $1,000 versus a
gain of $24,000 a year ago.
THE CENTER FOR AMBULATORY AND HOME INFUSION SERVICES, INC. (CAHIS)
------------------------------------------------------------------
The durable medical equipment functions of this company are
administered by Hunt Country Nursing Services, Inc. and the results of
operations related to that activity are included in HCNS. CAHIS generated
revenue of $10,000 and net income before taxes of $10,000 for the first quarter
and there have been no further transactions.
9
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PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to the contingent liability (see Note 2.)
In October 2000, an agreement was reached between MAHN and Atlis Systems, Inc.
MAHN shall pay to Atlis the total sum of $1,350,000 in four installments. The
initial payment of $900,000 was due upon execution of the agreement. The
remaining sum of $450,000 is to be paid without interest in three equal, annual
payments of $150,000 commencing on the first anniversary of the date of the
agreement. As part of this agreement, the 500,000 shares of stock will be
returned to MAHN after all payments are received by Atlis. Until then, the stock
will remain in escrow with an independent escrow agent.
As set forth in the agreement all pending court actions have been
dismissed.
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 14, 2000 By: /s/ Philip V. Warman
-----------------------------------
Philip V. Warman, Chairman
11
