FORM 10QSB FOR MID-ATLANTIC HOME HEALTH NETWORK, INC. FILED ON MAY 22, 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 March 31, 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: 12,651,202 shares of $.001 par
value common stock as of March 31, 2000.
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
PART I - FINANCIAL INFORMATION
PAGE
Condensed Balance Sheets for March 31, 2000 and March 31, 1999................ 1
Condensed Statements of Income for the Three Months ended
March 31, 2000 and 1999....................................................... 2
Condensed Statements of Cash Flows for the Three Months ended
March 31, 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 - No Change................................................. -
Changes in Securities and Use of Proceeds - No Change......................... -
Defaults upon Senior Securities - N/A......................................... -
Submission of Matters to a Vote of Security Holders...........................10
Other Informations - N/A...................................................... -
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
UNAUDITED AUDITED
31-Mar-00 31-Dec-99
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,162,407 $ 548,889
Accounts receivable, net of allowances 5,987,794 4,278,363
Due from affiliates 252,145 273,343
Prepaid expenses and other current assets 265,850 187,760
Deferred tax asset 72,000 72,000
-------------- --------------
Total current assets 7,740,196 5,360,355
-------------- --------------
Property and Equipment, net 288,997 278,779
-------------- --------------
Other Assets
Goodwill 773,442 781,239
Other assets 65,790 30,786
-------------- --------------
Total other assets 839,232 812,025
-------------- --------------
Total assets $ 8,868,425 $ 6,451,159
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 9,280 $ 16,393
Notes payable 4,742,982 2,993,081
Accounts payable 476,365 325,605
Accrued salaries and related employee benefits 474,533 397,881
Other current liabilities 223,097 164,270
Income taxes payable 239,345 125,090
-------------- --------------
Total current liabilities 6,165,602 4,022,320
-------------- --------------
Long-term debt 298,473 294,123
-------------- --------------
Total liabilities $ 6,464,075 $ 4,316,443
============== ==============
STOCKHOLDERS' EQUITY
Common stock, Class A, $.001 par value,
200,000,000 shares authorized, 12,641,202 and 12,621,202
shares issued and outstanding at 3/31/00 and 12/31/99 $ 12,641 $ 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 1,108,465 1,103,485
Retained earnings 1,462,484 1,197,850
Stock subscription receivable (189,250) (189,250)
-------------- --------------
Total stockholders' equity 2,404,350 2,134,716
-------------- --------------
Total liabilities and stockholders' equity $ 8,868,425 $ 6,451,159
============== ==============
</TABLE>
1
<PAGE>
U N A U D I T E D
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
31-Mar-00 31-Mar-99
<S> <C> <C>
REVENUES $ 6,303,545 $ 4,131,120
EXPENSES
Salaries 4,711,084 3,124,999
General and administrative 1,069,555 738,181
Depreciation & amortization 17,413 15,377
Interest 126,304 96,316
-------------- --------------
Total expenses 5,924,356 3,974,873
-------------- --------------
Income before income taxes 379,189 156,247
PROVISION FOR INCOME TAXES (114,254) (1,164)
-------------- --------------
Net income $ 264,935 $ 155,083
============== ==============
EARNINGS PER COMMON SHARE $ 0.021 $ 0.012
</TABLE>
2
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 268,685 $ 155,083
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,413 15,376
Changes in assets and liabilities:
Accounts receivable (1,709,431) (307,690)
Due from affiliates 21,198 (98,352)
Prepaid expenses and other current assets (242,892) (73,193)
Other assets (35,004) (16,021)
Deferred tax asset - 3,000
Accounts payable 150,760 113,745
Accrued salaries 76,652 155,751
Income taxes payable 114,255 -
Other current liabilities 58,827 56,274
-------------- --------------
Net cash provided by operating activities (1,279,537) 3,973
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (15,934) (13,374)
-------------- --------------
Net cash provided by investing activities (15,934) (13,374)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long term debt (2,763) (3,163)
Dividends paid on preferred stock (300) (300)
Changes in notes payable 1,749,900 -
Proceeds from capital stock transactions 1,250 -
-------------- --------------
Net cash provided by financing activities 1,748,087 (3,463)
Net increase (decrease) in cash 452,616 (12,864)
CASH AND CASH EQUIVALENTS
Cash balance, December 31, 548,889 816,294
-------------- --------------
Cash balance, March 31, $ 1,001,505 $ 803,430
============== ==============
</TABLE>
3
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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.
The Company does not believe there are any significant credit risks
associated with receivables from Medicare and Medicaid.
4
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 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.
6
<PAGE>
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Filed on May 22, 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 quarter of 2000, MAHN had consolidated revenue of
$6,304,000 versus $4,131,000 in the first quarter of 1999. The increase of
$2,173,000 represents a 52 percent increase.
Operating Expenses for the first quarter totaled $5,924,000 versus
$3,975,000 a year ago. Operating expenses increased $1,949,000 or a 49 percent
increase in operating expenses.
For the first quarter of Year 2000, our net income before income taxes
totaled $379,000 as compared to $156,000 for the first quarter of 1999. Income
before taxes increased 142 percent in this quarter to quarter comparison.
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 quarter of this fiscal year totaled $4,093,000
versus $2,972,000 a year ago. The increase of $1,121,000 represents a 37.7
percent increase for our medical staffing operations.
The gross profit margin for NNS's medical staffing office in Silver
Spring, Maryland totaled $400,000 versus a gross profit margin of $298,000 a
year ago. Richmond's medical staffing office had a gross profit margin of
$442,000 versus $319,000 a year ago. A new office located in Fairfax, Virginia
had a gross profit margin of $59,000 for its first quarter of operations. (It
should be noted, however, that a portion of its revenues were formally generated
out of the Silver Spring, Maryland office.)
7
<PAGE>
Operating Expenses:
- -------------------
Total operating expenses for the combined operations of NNS totaled
$3,888,000. Direct expenses totaled $3,091,000 or 75.5 percent of revenues.
General and administrative expenses totaled $586,000 or 14.3 percent of
revenues. Depreciation and interest totaled $80,000 or 1.9 percent.
Net Income:
- -----------
The net income before taxes for NNS totaled $331,000 for the first
quarter. This income level compares favorably to $218,000 for 1999. The increase
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, Richmond, and Tappahannock,
Virginia had significant revenue growth in the first quarter. For the first
quarter, revenues totaled $1,882,500 versus $928,000 a year ago. The increase of
$954,500 represents a 103 percent increase.
Operating Expenses:
- -------------------
Operating expenses increased from $940,000 for the first quarter in
1999 to $1,820,000 in Year 2000. The increase of $880,000 represents a 94
percent increase.
Income [Loss]:
- --------------
For the first quarter, the operating income before taxes was $63,000
versus a loss of $12,000 a year ago.
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
-------------------------------------
Revenues:
- ---------
The revenues for the first quarter of Year 2000 totaled $319,500 versus
$213,600 a year ago. The increase of $105,900 is a 49.5 percent increase.
Operating Expenses:
- -------------------
Operating expenses increased from $226,000 for the first quarter of
1999 to $311,500 in 2000. The increase of $85,500 represents a 38 percent
increase.
8
<PAGE>
Income [Loss]:
- --------------
For the first quarter, HCHH generated net income before taxes of $8,000
versus a loss of $12,700 a year ago.
THE CENTER FOR AMBULATORY AND HOME INFUSION SERVICES, INC.
----------------------------------------------------------
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 quarter.
9
<PAGE>
SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
The annual meeting of stockholders of Mid-Atlantic Home Health Network,
Inc., was held at the Hampton Inn, Manassas, Virginia at 1:00 p.m. local time on
Friday, May 5, 2000.
Philip V. Warman, the Chairman of the Board, called the meeting to
order. Alexander H. Walker, Jr. was appointed as Secretary of the meeting to
record the minutes.
The Chairman announced that a list of stockholders as of the record
date is available for inspection by any stockholders.
The Chairman appointed Alexander H. Walker III as the Teller of the
Election. The Teller reported that there were 11,499,898 shares of the Class "A"
common stock present and represented by proxy and all of the outstanding Class
"B" stock being 10,000 shares were present.
Dennis S. Light, Philip V. Warman, and Tom Waugh were duly nominated
and elected as the Board of Directors to serve for a term of one year or until
their successors have been duly elected and qualified. These persons received
10,999,598 votes for, 500,300 votes against, 0 abstentions from shares of Class
"A" stock and 10,000 votes from shares of Class "B" stock. The firm of Eggleston
& Smith P.C., Independent Certified Accountants, was elected by the stockholders
with 10,984,798 votes for, 500,000 votes against, 15,100 abstentions from shares
of Class "A" common stock and 10,000 votes from shares of Class "B" stock.
The Chairman stated that he would entertain any other business to be
brought before the meeting. No such business was presented. The meeting was
adjourned 1:17 p.m. local time.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
Dated: May 22, 2000 By: /s/ Dennis Light
-----------------------------------
Dennis Light, President
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,001,505
<SECURITIES> 0
<RECEIVABLES> 5,498,490
<ALLOWANCES> 742,920
<INVENTORY> 0
<CURRENT-ASSETS> 7,740,196
<PP&E> 765,237
<DEPRECIATION> 476,240
<TOTAL-ASSETS> 8,868,426
<CURRENT-LIABILITIES> 6,165,601
<BONDS> 0
0
10,000
<COMMON> 12,651
<OTHER-SE> 2,381,701
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 6,303,545
<CGS> 0
<TOTAL-COSTS> 5,924,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,304
<INCOME-PRETAX> 373,571
<INCOME-TAX> 114,254
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,935
<EPS-BASIC> 0.021
<EPS-DILUTED> 0.021
</TABLE>
