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FORM 10QSB FOR MID-ATLANTIC HOME HEALTH NETWORK, INC. FILED ON AUGUST 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 June 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: 12,591,142 shares of $.001 par
value common stock as of June 30, 2000.
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for June 30, 2000 and June 30, 1999...............1
Condensed Statements of Income for the Six Months ended
June 30, 2000 and 1999.....................................................2
Condensed Statements of Cash Flows for the Six Months ended
June 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..........................................................9
Changes in Securities and Use of Proceeds - No Change......................-
Defaults upon Senior Securities - N/A......................................-
Other Information..........................................................9
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<TABLE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
UNAUDITED AUDITED
30-Jun-00 31-Dec-99
------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 887,104 $ 548,889
Accounts receivable, net of allowances 7,632,809 4,278,363
Due from affiliates 237,002 273,343
Prepaid expenses and other current assets 400,610 187,760
Deferred tax asset 72,000 72,000
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Total current assets 9,229,525 5,360,355
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Property and Equipment, net 318,932 278,779
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Other Assets
Goodwill 763,229 781,239
Other assets 61,303 30,786
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Total other assets 824,532 812,025
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Total assets $ 10,372,989 $ 6,451,159
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 8,080 $ 16,393
Notes payable 6,035,162 2,993,081
Accounts payable 431,320 325,605
Accrued salaries and related employee benefits 490,390 397,881
Other current liabilities 283,998 164,270
Income taxes payable 344,490 125,090
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Total current liabilities 7,593,440 4,022,320
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Long-term debt 295,026 294,123
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Total liabilities $ 7,888,466 $ 4,316,443
============= =============
STOCKHOLDERS' EQUITY
Common stock, Class A, $.001 par value,
200,000,000 shares authorized, 12,591,142 and 12,621,202
shares issued and outstanding at 6/30/00 and 12/31/99 $ 12,591 $ 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 1,058,515 1,103,485
Retained earnings 1,542,657 1,197,850
Stock subscription receivable (139,250) (189,250)
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Total stockholders' equity 2,484,523 2,134,716
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Total liabilities and stockholders' equity $ 10,372,989 $ 6,451,159
============= =============
</TABLE>
1
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT
U N A U D I T E D
30-Jun-00 30-Jun-99
------------- -------------
REVENUES $ 13,142,254 $ 8,492,997
EXPENSES
Salaries 9,845,642 6,528,949
General and administrative 2,414,819 1,520,482
Depreciation & amortization 35,103 31,865
Interest 281,885 200,179
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Total expenses 12,577,449 8,281,475
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Income before income taxes 564,805 211,522
PROVISION FOR INCOME TAXES (219,399) (82,404)
------------- -------------
Net income $ 345,406 $ 129,118
============= =============
EARNINGS PER COMMON SHARE $ 0.027 $ 0.010
2
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 345,406 $ 129,118
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 35,103 31,865
Changes in assets and liabilities:
Accounts receivable (3,354,446) (1,690,540)
Due from affiliates 36,341 (223,568)
Prepaid expenses and other current assets (212,850) (103,511)
Other assets - (58,045)
Deferred tax asset 105,715 -
Accounts payable 3,042,081 105,691
Accrued salaries 119,728 157,388
Income taxes payable 219,400 -
Other current liabilities - 19,409
------------ ------------
Net cash provided by operating activities 336,478 (1,632,193)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (57,245) 462
Acquisition of other assets (30,517)
------------ ------------
Net cash provided by investing activities (87,762) 462
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (7,410) (7,301)
Dividends paid on preferred stock (600) (600)
Changes in notes payable 92,509 1,243,327
Redemption of stock 5,000 -
------------ ------------
Net cash provided by financing activities 89,499 1,235,426
Net increase (decrease) in cash 338,215 (396,305)
CASH AND CASH EQUIVALENTS
Cash balance, December 31, 548,889 816,294
------------ ------------
Cash balance, June 30, $ 887,104 $ 419,989
============ ============
3
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 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 year 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.
4
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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.
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%.
5
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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
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 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.
There's been a ruling in favor of the Plaintiff. However, Mid-Atlantic
is going to appeal that decision.
6
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MID-ATLANTIC HOME HEALTH NETWORK, INC.
Filed on August 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 six months of 2000, MAHN had consolidated revenue of
$13,132,000 versus $8,493,000 for the first six months of 1999. The increase of
$4,639,000 represents a gain of 54 percent.
Operating expenses for the first six months of 2000 totaled $12,577,000
versus $8,281,000 a year ago. Operating expenses increased $4,296,000 or 51
percent.
For the first half of Year 2000, our operating income before income
taxes totaled $565,000 versus $212,000 a year ago. This change represents a gain
of $353,000. After taxes, MAHN had net income of $345,000 versus $129,000 a year
ago.
As depicted below, there has been substantial revenue growth and profit
growth by MAHN entities. However, MAHN continues to experience difficulties
recruiting sufficient nursing personnel to meet the demand placed on the
Company.
NATIONAL NURSES SERVICE, INC. (NNS)
-----------------------------------
Gross Profit Margin:
--------------------
Sales for the first six months of this fiscal year totaled $8,403,000
versus $5,774,000 a year ago. The increase of $2,629,000 represents a 45.5
percent increase for our medical staffing operations.
The gross profit margin for NNS' medical staffing office in Silver
Spring, Maryland totaled $851,000 or 20.4 percent for the first six months of
this fiscal year. This compares to a gross profit margin of $603,000 or 20.5
percent a year ago. A new office located in Fairfax, Virginia had a gross profit
margin of $123,000 or 23.4 percent from its first six months of operations. (It
should be noted that a portion of its revenues were formally generated out of
the Silver Spring, Maryland office.)
Richmond's medical staffing office had a gross profit margin of
$844,000 or 26.5 percent versus $618,000 or 25.5 percent a year ago.
7
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Operating Expenses and Income:
------------------------------
Total operating expenses for the combined operations of NNS totaled
$7,788,000 for the first six months of this fiscal year. Income totaled
$615,000. This compares favorably against the 1999 six month data: operating
expenses were $5,523,000 and income before tax was $251,000. Income before tax
increased $364,000 which is due to increasing demand for our nurse staffing
services.
HUNT COUNTRY NURSING SERVICES, INC. (HCNS)
------------------------------------------
Revenues:
---------
HCNS, our private duty nursing company, with offices in Fairfax,
Manassas, Winchester, Warrenton, Fredericksburg, Charlottesville, Richmond and
Tappahannock, Virginia had significant revenue growth in the first six months of
this fiscal year. For the first six months, revenues totaled $4,076,000 versus
$2,182,000 a year ago. On a percentage basis, the increase of $1,894,000
represents a 86.8 percent increase.
Operating Expenses:
-------------------
Operating expenses increased to $4,005,000 for the first six months of
this year versus $2,157,000 in 1999. The increase represents a 85.6 percent
increase:
Income (Loss):
--------------
For the first half of Year 2000, HCNS has income before taxes of
$71,000 versus $25,000 a year ago.
HUNT COUNTRY HOME HEALTH, INC.
------------------------------
Revenues:
---------
The revenues for the first half of Year 2000 totaled $645,000 versus
$503,000 a year ago.
Operating Expenses:
Operating expenses increased from $502,000 in 1999 to $643,000 for the
first six months of 2000.
Income (Loss):
--------------
For the first six months of 2000, HCHH had a gain of $2,000 versus a
gain of $271 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 net
income before taxes of $10,000 for the first quarter and there have been no
further transactions in the second quarter.
8
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PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to the contingent liability (see Note 2.)
On July 19, 2000 the Circuit Court of Maryland entered a judgment
against MAHN for $850,000. It is the intent of MAHN to appeal this case
to the Appellate Court. MAHN will post an $850,000 letter of credit as
collateral against the judgment awaiting an Appellate Court date and
Appellate Court decision. These financial statements do not include any
accrual for obligation which may occur in final settlement of this
case.
ITEM 5 - OTHER INFORMATION
The President of MAHN, Dennis Light, has announced plans to resign
effective August 31, 2000 to pursue a consulting career.
9
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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: August 14, 2000 By: /S/ Dennis Light
-----------------------------------
Dennis Light, President
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