<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
---------- ----------
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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $- Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing:\
As of March 27, 2000 the average bid price of common stock was $.25 and the
average asked price was $.75.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: As of March 27, 2000 the number
of shares of common stock outstanding was 12,621,142.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Filed on March 28, 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 Home
Health, Inc.; Hunt Country Nursing Services, Inc., and The Center for Ambulatory
and Home Infusion Services. An analysis of consolidated operations as well as
each of these entities is depicted below.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
CONSOLIDATED
------------
For the fiscal year 1999, MAHN had consolidated income, after taxes of
$426,000 versus $8,000 in the prior year. The dramatic change in the bottom line
is primarily due to these factors:
1) Revenues jumped from $14,698,000 in 1998 versus $18,984,000 in
1999. The increase of $4,286,000 is a 29.1 percent increase.
2) Greater productivity was achieved in the general and administrative
expense category. While general and administrative expenses
increased $82,135, the increase was 2.4 percent as compared to a
29.1 percent increase in volume of business. In effect, general and
administrative expense in 1998 represented 23 percent of revenues,
in 1999 it declined to 18 percent of revenues.
In addition, interest expenses increased $89,000 or 26 percent over
1998. The increase in this cost category was not equal to the
increase in the volume of business transacted.
Earnings per common share totalled .03 in 1999 versus .001 in 1998.
It should be noted that there was a prior year adjustment of
$85,000 for Medicare Cost Reports filed for 1998 in the second
quarter of 1999. Without this adjustment, net income before taxes
would have been $694,017 versus the reported $609,017 BEFORE TAX
number.
We anticipate continued and increased demand for our staffing,
private duty nursing services, durable medical equipment, and home
health services. MAHN does not face difficulties in the marketing
of its services. Its challenges are in the recruitment of
sufficient nursing personnel to meet the demands for its nursing
care services.
<PAGE>
MAHN expanded its services in 1999 by opening up office locations
in Winchester and Manassas, Virginia. It also acquired the durable
medical equipment operations of The Center for Ambulatory and Home
Infusion Services. In early 2000, it furthered this expansion by
opening up nurse staffing and private duty outlets in Vienna and
Charlottesville, Virginia. In addition, it established a pediatric
durable medical equipment service in Charlottesville.
The additional outlets for nurse staffing and private duty nursing
have provided greater ease in recruitment. At the same time,
continued centralization of general and administrative functions
have resulted in greater productivity. This combination of
increasing the numbers of distribution points in the Mid-Atlantic
while centralizing overhead functions will continue in the Year
2000.
NATIONAL NURSES SERVICE, INC. (NNS)
OPERATING REVENUES:
- -------------------
Operating revenues for the fiscal year 1999 totalled $12,478,000 versus
$10,809,000 in 1998 for our nurse staffing company. The revenue increase of
$1,669,000 represents a 15 percent increase. NNS continues to experience greater
demand for its nursing personnel from hospitals, clinics, nursing homes,
schools, and correctional facilities. As the age wave continues to impact the
population, and the shortage of nursing personnel persists, we anticipate
continued strong demand for nurse staffing. A new nurse staffing outlet was in
January, 2000, added in Vienna, Virginia to complement the outlet in Richmond,
Virginia and Silver Spring, Maryland.
OPERATING EXPENSES:
- -------------------
Total operating expenses for fiscal year 1999 was $11,812,000 versus
$10,279,000 in the prior year. This represents an increase of $1,533,000 or 14.9
percent. Operating expenses expressed as a percentage of operating revenues
remained reasonably stable at 94.7 percent in 1999 versus 95.1 in 1998.
The operating income before taxes of NNS improved for fiscal year 1999.
In 1999, NNS had $667,000 in operating income versus $529,000 in 1998---a 26
percent increase. The increased profitability is primarily due to increased
revenues with slight improvements in its overhead costs as a percentage of
sales.
<PAGE>
HUNT COUNTRY NURSING SERVICES, INC. (HCNS)
OPERATING REVENUES:
- -------------------
Hunt Country Nursing Services, Inc., our private duty nursing company,
had significant revenue growth in fiscal year 1999. Operating revenues totalled
$5,297,000 versus $2,628,000 a year ago; the increase of $2,669,000 is slightly
in excess of DOUBLE the prior year operating revenues (101.6% increase).
The increase in revenues is substantially due to increased recruitment
and marketing efforts as well as the opening of additional outlets, which is
helpful for recruitment purposes. At this time, private duty nursing offices are
located in Richmond, Fredericksburg, Warrenton, Winchester, Tappahannock,
Manassas, and Vienna, Virginia. An office in Charlottesville is scheduled to
open in March, 2000.
OPERATING EXPENSES:
- -------------------
Operating expenses for HCNS increased to $5,173,000 in 1999 versus
$2,767,000 in 1998. The 87 percent increase in expenses is favorable as compared
to the 101.6 percent increase in operating revenues. Profit margins improved for
this company as total salaries, as a percentage of revenues, declined from 79.3
percent in 1998 to 75.3 percent in 1999.
INCOME/LOSS:
- ------------
HCNS generated a profit of $124,000 for fiscal year 1999 as compared to
a loss of $138,000 in 1998.
This company continues to expect revenue and income growth, and further
expansion through the Mid-Atlantic.
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
OPERATING REVENUES:
- -------------------
The operating revenues for fiscal year 1999 for this Medicare Certified
home health agency totalled $1,184,000, which is a 59 percent increase over the
prior year. The increase of $441,000 is due to greater demand in our Warrenton
and Fredericksburg sites.
OPERATING EXPENSES:
- -------------------
Operating expenses increased from $950,000 in 1998 versus $1,164,000 in
1999.
<PAGE>
INCOME/LOSS:
- ------------
In fiscal year 1999, HCHH experienced income of $20,000 versus a loss
of $206,000 in 1998. This company made major improvements in its bottom line
through major adjustments to new Medicare regulations that impacted this company
in 1998. It is now planning to make adjustments to meet the requirements of the
Prospective Pay System scheduled to begin in October, 2000.
THE CENTER FOR AMBULATORY AND HOME INFUSION SERVICES (CAHIS)
MAHN acquired this entity from the main shareholder, Oak Springs
Nursing Home Limited Partnership (OSNHLP), November 1, 1999. The focus of the
acquisition is the durable medical equipment business which is complemented by
the vast amount of home health and private duty nursing services provided in the
State of Virginia.
This company earned $30,000 in 1999 prior to acquisition. It is
anticipated that MAHN will close the legal entity (The Center for Ambulatory and
Home Infusion Services) and provide durable medical equipment services from its
HCNS entity. Further, we anticipate expansion of durable medical equipment sales
in Virginia in 2000.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
C O N T E N T S
Pages
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheets 3 and 4
Consolidated statements of income 5
Consolidated statements of stockholders' equity 6
Consolidated statements of cash flows 7
Notes to consolidated financial statements 8 - 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Mid-Atlantic Home Health Network, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Mid-Atlantic Home Health Network, Inc. and Subsidiaries (the Company), as of
December 31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Mid-Atlantic Home Health Network, Inc. and Subsidiaries as of December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 11, the Company may be liable for additional
amounts related to a potential purchase price adjustment of a previously
acquired subsidiary. The ultimate amount, if any, of the adjustment cannot be
determined; however, management is of the opinion that it will not have a
material effect on the Company's financial position.
/s/ Eggleston Smith P.C.
March 24, 2000
1
<PAGE>
FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 1999 AND 1998
2
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 548,889 $ 816,294
Accounts receivable, net of allowances of
$106,240 in 1999 and $43,371 in 1998 4,278,363 2,998,489
Due from affiliates 273,343 228,805
Prepaid expenses and other current assets 187,760 157,449
Deferred tax asset 72,000 37,000
--------------- ---------------
Total current assets 5,360,355 4,238,037
--------------- ---------------
PROPERTY AND EQUIPMENT, net 278,779 253,221
--------------- ---------------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$269,156 in 1999 and $222,351 in 1998 781,239 671,360
Other assets 30,786 3,058
--------------- ---------------
Total other assets 812,025 674,418
--------------- ---------------
Total assets $ 6,451,159 $ 5,165,676
=============== ===============
See Notes to Consolidated Financial Statements.
3
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 16,393 $ 15,988
Notes payable 2,993,081 2,606,175
Accounts payable 325,605 152,724
Accrued salaries and related employee benefits 397,881 255,220
Other current liabilities 164,270 119,162
Income taxes payable 125,090 -
--------------- ---------------
Total current liabilities 4,022,320 3,149,269
LONG-TERM DEBT, net of current maturities 294,123 306,739
--------------- ---------------
Total liabilities 4,316,443 3,456,008
--------------- ---------------
STOCKHOLDERS; EQUITY
Common stock, Class A, $.001 par value,
200,000,000 shares authorized
12,621,202 shares issued and
outstanding 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 1,197,850 772,802
--------------- ---------------
2,323,966 1,898,918
Stock subscriptions receivable (189,250) (189,250)
--------------- ---------------
Total stockholders' equity 2,134,716 1,709,668
--------------- ---------------
Total liabilities and stockholders'
equity $ 6,451,159 $ 5,165,676
=============== ===============
4
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
December 31, 1999 and 1998
1999 1998
--------------- ---------------
REVENUES $ 18,984,218 $ 14,698,133
--------------- ---------------
EXPENSES
Patient care costs 14,403,802 10,873,185
General and administrative 3,494,086 3,411,951
Amortization 52,997 70,338
Interest expense, net 424,316 334,823
--------------- ---------------
Total expenses 18,375,201 14,690,297
--------------- ---------------
Income before income taxes 609,017 7,836
PROVISION FOR INCOME TAXES 182,769 -
--------------- ---------------
Net income $ 426,248 $ 7,836
=============== ===============
EARNINGS PER COMMON SHARE $ .03 $ -
=============== ===============
See Notes to Consolidated Financial Statements.
5
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional Stock
Common Stock Preferred Paid-In Retained Subscriptions
Class A Class B Stock Capital Earnings Receivable Total
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 12,621 10 10,000 $ 1,103,485 $ 766,166 $ (189,250) $ 1,703,032
Dividend on preferred stock - - - - (1,200) - (1,200)
Net income - - - - 7,836 - 7,836
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1998 12,621 10 10,000 1,103,485 772,802 (189,250) 1,709,668
Dividend on preferred stock - - - - (1,200) - (1,200)
Net income - - - - 426,248 - 426,248
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance, December 31, 1999 12,621 10 10,000 $ 1,103,485 $ 1,197,850 $ (189,250) $ 2,134,716
============= ============= ============= ============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 1999 and 1998
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 426,248 $ 7,836
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 21,365 17,307
Amortization 47,805 68,718
Deferred taxes (35,000) (3,000)
Changes in assets and liabilities:
Accounts receivable (1,279,874) (214,810)
Due from affiliates (200,298) (74,807)
Prepaid expenses and other current assets (30,311) (86,539)
Accounts payable 172,881 (53,190)
Accrued salaries and related employee
benefits 142,661 (68,045)
Income taxes payable 125,090 -
Other current liabilities 45,108 (35,241)
Other assets (29,652) 1,258
--------------- ---------------
Net cash used in operating activities (593,977) (440,513)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (46,923) (10,425)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in notes payable 386,906 701,658
Repayment of long-term debt (12,211) (11,925)
Dividend paid on preferred stock (1,200) (1,200)
--------------- ---------------
Net cash provided by financing
activities 373,495 688,533
--------------- ---------------
Net increase (decrease) in cash
and cash equivalents (267,405) 237,595
CASH AND CASH EQUIVALENTS
Beginning 816,294 578,699
--------------- ---------------
Ending $ 548,889 $ 816,294
=============== ===============
See Notes to Consolidated Financial Statements.
7
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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 Western Pennsylvania Home Health Network, Inc.
(Western Pennsylvania), Hunt Country Nursing Services, Inc. (Hunt
Country Nursing), Hunt Country Home Health, Inc. (Home Health), Altis
Federal Services d/b/a National Nurses Services, Inc. and the Center
for Ambulatory and Home Infusion Services, Inc. (CAHIS).
The Company acquired the Center for Ambulatory and Home Infusion
Service 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 9% and 11% 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 59%
and 33% of the Company's net revenues for the years ended December 31,
1999 and 1998, respectively, 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, 3% and 8%, 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.
(Continued)
8
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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 is 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.
(Continued)
9
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Concluded)
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. ACCOUNTS RECEIVABLE
Accounts receivable arise from the provision of staffing services to
hospitals, nursing homes and other facilities in the Virginia,
Maryland, District of Columbia and Pennsylvania areas. The principal
payers for these services are the patients, insurance companies,
various state and local government agencies, other institutional
providers of healthcare, the Medicare program, and certain Medicaid
programs.
The provision for doubtful accounts for the years ended December 31,
1999 and 1998, was $106,239 and $43,371, respectively.
NOTE 3. PROPERTY AND EQUIPMENT
As of December 31, 1999 and 1998, property and equipment consisted of
the following:
1999 1998
--------------- ---------------
Building and building improvements $ 320,818 $ 320,818
Furniture and equipment 348,842 382,116
--------------- ---------------
669,660 702,934
Less accumulated depreciation 390,881 449,713
--------------- ---------------
$ 278,779 $ 253,221
=============== ===============
10
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 4. NOTES PAYABLE
National Nurses Service, Home Health and Hunt Country Nursing borrow
funds under terms of agreements with a lender and secured by accounts
receivable. These agreements provide for advances on accounts
receivable of approximately 83% of the collateralized balances. The
Company is required to refund any borrowings for financial accounts
receivable balances not collected within 180 days.
1999 1998
--------------- ---------------
Amount of advances on accounts
receivable $ 3,711,303 $ 3,165,321
Less: Lender reserves 718,222 559,146
--------------- ---------------
Note payable $ 2,993,081 $ 2,606,175
=============== ===============
NOTE 5. LONG-TERM DEBT
Long-term debt as of December 31, 1999 and 1998, consisted of the
following:
1999 1998
------------ ------------
Note payable, C.W. Cobb, collateralized
by first deed of trust on building and
guaranteed by the general partners
of Oak Springs. Payable in monthly
installments of $761, including
interest at 11%. Due April, 2021. $ 65,689 $ 66,418
Note payable, C.W. Cobb, collateralized
by second deed of trust on building
and guaranteed by the general partners
of Oak Springs. Payable in monthly
installments of $221, including
interest at 13%. Due April, 2021. 18,304 18,561
Note payable, York Federal Savings and
Loan. Payable in monthly installments
of $1,116, including interest at 8.5%.
A balloon payment of $86,809 is due
September, 2008. 76,658 81,875
Note payable, Crestar Mortgage Corp.,
collateralized by building and guaranteed
by the managing general partner of Oak
Springs. Payable in monthly installments
of $772, including interest at 8%. Due
December, 2024. 79,800 81,526
(Continued)
11
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 5. LONG-TERM DEBT (Concluded)
1999 1998
------------ ------------
Note payable, Central Fidelity Bank
guaranteed by the general partners
of Oak Springs, payable in monthly
installments of $1,668, including
interest at 11.21%. Due December 5,
2007. $ 70,065 $ 74,347
------------ ------------
310,516 322,727
Less current maturities 16,393 15,988
------------ ------------
$ 294,123 $ 306,739
============ ============
Annual maturities of long-term debt outstanding at December 31, 1999,
are as follows:
1999 $ 16,393
2000 18,854
2001 20,659
2002 22,640
2003 24,812
Thereafter 207,158
------------
$ 310,516
============
NOTE 6. STOCK OPTION PLAN AND STOCK SUBSCRIPTIONS
The Company had an incentive stock option plan that included
substantially all officers and key employees. The Series C options
which expired in 1998 originally had an exercise price of $1 per share.
The Company subsequently reduced the option price to $.50 per share.
Certain of these options were exercised and the amount due was financed
by the Company through notes bearing interest at 8%. The unpaid balance
of outstanding notes receivable for stock purchases is shown as a
reduction of stockholders' equity.
During 1999 and 1998, the Company did not receive any payments on
outstanding notes receivable for the purchase of shares. Because the
market value of the outstanding shares is below the option price, the
Company has suspended the required payments (including interest) on
these notes.
12
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 7. LEASE COMMITMENTS
The Company leases certain office facilities and other equipment under
non- cancelable leases for terms ranging from one to five years. Future
minimum lease payments under these operating leases are as follows:
2000 $ 111,312
2001 83,558
2002 71,366
2003 17,610
2004 -
------------
Total future minimum lease payments $ 283,846
============
During 1999 and 1998, rent expense for all operating leases totaled
$203,025 and $131,976, respectively.
NOTE 8. INCOME TAXES
The Company files a consolidated federal income tax return which
includes the Center for Ambulatory and Home Infusion Service (1999
only), Hunt Country Nursing, Home Health and National Nursing Service.
The Company and its subsidiaries file separate returns for state
purposes.
The provision for income taxes for the years ended December 31, 1999
and 1998, was comprised of the following:
1999 1998
--------------- ---------------
Current provision $ 217,769 $ 3,000
Deferred benefit (35,000) (3,000)
--------------- ---------------
Total provision $ 182,769 $ -
=============== ===============
The provision for income taxes in 1999 differed from the amount of
income tax determined by applying the applicable federal statutory tax
rate to pre-tax income as a result of the following:
1999
----------
Statutory federal tax rate 34%
State taxes, net of federal benefit 3%
Goodwill amortization (4)%
Other (3)%
----------
Effective tax rate 30%
==========
Taxable income for 1998 does not include the losses from operations for
Western Pennsylvania because it filed as part of the consolidated
return group of its new owners. Accordingly, the Company's taxable
income for 1998 was increased by approximately $40,000. As a result,
taxable income for tax purposes was approximately $16,000 due
principally to changes in deferred tax items.
(Continued)
13
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 8. INCOME TAXES (Concluded)
The deferred tax asset relates to the allowance for doubtful accounts
reflected on the balance sheet and incurred but not reported claims
recorded through current earnings. Realization of the deferred tax
asset is contingent on the occurrence of a write-off of the accounts
receivable for tax purposes and payment of premiums to the insurer or
payments of actual claims. No valuation allowance was established since
the Company believes it is more likely than not that this asset will be
realized.
NOTE 9. RELATED PARTY TRANSACTIONS
Periodically, Oak Springs and its affiliates provide the Company with
funds needed for various transactions. Oak Springs also enters into
debt on behalf of the Company. Rather than Oak Springs immediately
transferring cash to the Company at the time the debt is entered into,
the Company records an amount due from affiliate. Amounts due from and
due to affiliates as of December 31, 1999 and 1998, are as follows:
1999 1998
--------------- ---------------
Due from affiliates:
Oak Springs Nursing Home LP $ 126,500 $ 38,312
Oak Springs Nursing Home 77,371 41,237
Center for Ambulatory/
Home Infusion Services - 19,334
Health Care Ventures, Inc. 108,093 106,809
Home Health Services of
Allegheny County, Inc. 187 -
Health Ventures Group 4,086 4,086
All Stat Home Health, Inc. 195 -
Care Connections of
Pennsylvania, Inc. 328 83,565
--------------- ---------------
316,760 293,343
--------------- ---------------
Due to affiliates:
Western Pennsylvania Home
Health Network, Inc. 37 32,133
Health Care Ventures, Inc. - 5
Health Ventures Group 24,283 24,283
Center for Ambulatory/
Home Infusion Services 445
Oak Springs Nursing Home 19,097 7,672
--------------- ---------------
43,417 64,538
--------------- ---------------
Net due from affiliates $ 273,343 $ 228,805
=============== ===============
Oak Springs maintains a workers compensation policy which covers the
Company. The Company paid Oak Springs $160,190 and $129,320 during the
years ended December 31, 1999 and 1998, respectively, related to this
policy.
14
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 10. SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid during 1999 and 1998 was $423,952 and $334,432,
respectively. Income taxes paid during 1999 were $68,625.
The Company purchased all of the outstanding stock of CAHIS from an
affiliated Company on November 1, 1999, in exchange for settlement of
certain intercompany indebtedness. The total purchase price of $98,804
exceeded the fair market value of assets acquired less liabilities
assumed by $155,760. The excess consideration is recorded as goodwill.
NOTE 11. 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 has had
limited trading activity and sales prices close to June 30, 1998, were
in the range of $.625. Based on those prices the purchase price
adjustment could be approximately $487,500.
The Company is negotiating with the owners of the claim to settle the
potential purchase price adjustment.
The acquisition of National Nurses Service, Inc. was accounted for as a
purchase and the Company recorded approximately $800,000 in goodwill.
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 will not have a material effect on the Company's financial
position.
15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Dated: March 28, 2000 By: /s/ Dennis Light
-----------------------------------------
Dennis Light, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature
/s/ Dennis Light March 28, 2000
- ---------------------------
Dennis Light, President
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 548,889
<SECURITIES> 0
<RECEIVABLES> 4,278,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,360,355
<PP&E> 278,779
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,451,159
<CURRENT-LIABILITIES> 4,022,320
<BONDS> 0
0
10,000
<COMMON> 12,631
<OTHER-SE> 2,301,335
<TOTAL-LIABILITY-AND-EQUITY> 6,451,159
<SALES> 18,984,218
<TOTAL-REVENUES> 18,984,218
<CGS> 0
<TOTAL-COSTS> 17,950,885
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 424,316
<INCOME-PRETAX> 609,017
<INCOME-TAX> 182,769
<INCOME-CONTINUING> 426,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 426,248
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
