<PAGE> 1
FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED
SEPTEMBER 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period from
____________ to ____________
Commission file number: 000-28976
ACADIA NATIONAL HEALTH SYSTEMS, INC.
(Name of small business issuer in its charter)
COLORAD 72-1234136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
460 Main Street
Lewiston, Maine 04240
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (207) 777-3423
<PAGE> 2
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to section 12(g) of the Securities Exchange Act:
COMMON STOCK,
NO PAR VALUE PER SHARE NASD
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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 issuer's revenues for its most recent fiscal year: $748,958
The aggregate market value of the 3,733,987 shares of Common Stock held by
non-affiliates was $2.12 as of September 26, 1997. For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate. The market value of the shares was calculated based
on the closing sales of such shares on The OTC: Bulletin Board Market
on such date.
As of September 26, 1997, 3,733,987 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
See Part III, Item 13, Exhibits and Reports on Form 8-K
Transitional Small Business Disclosure Format: Yes No X
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
EXECUTIVE SUMMARY
Acadia National Health Systems, Inc. became a fully reporting company in
January of 1997 under section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Later in May 1997, Acadia received clearance on its
registration statement filed with the Securities and Exchange Commission
("S.E.C.") as well as clearance from the National Association of Securities
Dealers ("NASD") National Market System Over-The-Counter Bulletin Board
("OTC:BB") trading under the ticker symbol "ACAD". The company was formed to
become a major national Medical Management Services Organization (MSO) over
the next five years. MSOs offer billing, consulting, software, business
systems, related services and financing to physicians and other health care
providers. In a growing managed care environment, these firms offer business
resources to an industry that is traditionally clinically oriented.
MSOs offer doctors and other medical providers an alternative that puts them
at the forefront of health care reform while positioning them to have choices
regarding their autonomy and profits. MSOs have enjoyed average annual sales
increases of more than 50 percent over the last seven years and have been well
received in the stock market with very high price earnings ratios.
In September 1996, Acadia purchased the assets of Physician Resources, Inc., a
billing service founded 25 years ago. Physician Resources, Inc. focused on
small practices in tertiary markets ignored by the major MSO players; Acadia
through franchising and marketing will continue to expand this area. It will
combine the experiences of its leadership team with expanded executive
talent. Acadia's management also has extensive experience in national and
international franchising.
In December 1996, Acadia completed conversion to the HEALTHPAC software
technology. The software includes automated scheduling, managed care
monitoring, electronic billing, electronic remittance, distributed and
central data processing, multiple location data entry and paper copy printing,
unlimited client accounts, patient census and electronic data interfaces with
other systems. Later, full service computerized patient charting systems will
be added. These attributes will provide the technological base that will
permit the company to become a clearinghouse for franchised medical billing
activities.
Acadia will become a major national MSO within five years and will accomplish
this goal by developing and expanding its marketing along five primary fronts:
<PAGE> 4
BILLING SERVICE
Billing is and will continue to be the cornerstone of Acadia's business, with
more than 88% of the revenue coming from this source. Billing is often the
first service a provider seeks and becomes the entry toward offering other
services.
SOFTWARE
HEALTHPAC software will be marketed extensively through various software
trade shows/exhibitions, publications and electronic marketing literature. It
will be the engine for Acadia's operation. With over 90 installations
throughout the United States, many become potential advocates of the software,
in addition to possibly being candidates for mergers or acquisitions to our
universe of health care services.
CONSULTING
Acadia plans to acquire a dedicated practice management company, led by
veterans with national exposure to critical medical consulting issues. This
experience will add significant marketing exposure and enhanced market
visibility to providers who may need some or all of the multifaceted health
care services provided by a MSO.
FRANCHISING
Franchising is a small but critical marketing tool that opens up new
entrepreneurial markets for a cost-efficient turnkey system. A Uniform
Franchise Offering Circular ("UFOC") is being prepared and accompanied by
sophisticated Area Developer Agreements ("ADA"'s), Internal Operations and
Training Manuals. Acadia will continue to expand its franchise platform by
securing ADA relationships, selling Master Franchises and entering into joint
venture agreements. These franchising relationships will assist Acadia's
expansion throughout the country by associating with select regional operators
who will bridge territorial barriers that typically exist in targeting distant
market segments.
Acadia will also position its franchising platform to expand on an
international level. Several members of the Acadia management team possess
international franchising experience and will assist the Company in
establishing relationships abroad that will lead to the sale of Master
Franchises in targeted countries. Acadia will be introduced to representatives
from international franchising associations and business development centers,
and will participate in international franchise trade shows. Franchise
Solutions and Information Systems, of Portsmouth, New Hampshire, will assist
Acadia in marketing and sales of franchises.
<PAGE> 5
MERGERS AND ACQUISITIONS
Planned mergers and acquisitions will add sales volume, in-house software
capability and an experienced practice management team to Acadia's historical
strength in medical billing. The Company will work with a secondary stock
offering advisor during early 1998 to propel to an accelerated growth rate
over the next five years. Funds from the offering will be used to merge with
or acquire other MSOs, expand leadership and the management team, implement
a national marketing and sales program and promote the licensed technology,
HEALTHPAC.
Potential merger partners will bring one or more top level executives in the
disciplines of general management, health care finance, billing operations,
practice management consulting, software development, business law or investor
relations. These executives will have extensive sales and marketing experience
in their respective credentials. These skills and experiences are complimentary
with a minimum of overlap. The new Acadia will have a core management team of
company founders, each with extensive company experience in their field.
OBJECTIVES (SHORT-TERM)
The combination of billing services, software, consulting, franchising,
mergers and acquisitions, orchestrated by national and regional dynamic sales
directors, exponentially add to the marketing penetration of our products.
With these driving vehicles, our position as an MSO, through mergers,
acquisitions and franchising, the company will successfully infiltrate and
become a leader in the industry. Mergers will give Acadia the critical mass
needed to defend this growth methodology.
Acadia will market billing, practice management consulting, systems and other
physician orientated business services to small medical practices in tertiary
markets as well as large medical group organizations in urban areas. Catering
to these markets will play to small practice strengths inherited from
Physician Resources and large group practice strengths transmitted from a
potential merger candidate.
The company will take advantage of several existing market conditions and
national trends to achieve accelerated growth:
- - Managed care, Medicare reform and other third party payer changes are
creating complexity, more rules and new liabilities for medical providers,
driving doctor offices and small billing firms out of the medical billing
business. The maximum importance is shifting from that needed to submit a
bill to that required to fully document the encounter outcomes, protocols,
resource utilization and best practices.
- - Many of the current major managed care professionals treat doctors as
employees, limiting both their incomes and traditional management role. MSOs
give doctors an opportunity to be profitable, active partner in reform rather
than its victims.
<PAGE> 6
- - Cutting edge technology changes including computer networking, the Internet,
dedicated Intranets, electronic banking, billing and collections, automated
scheduling, computerized patient charting systems, plus distributed data
processing leave the doctors office and small billing firms at best
inefficient and at worst without access to payment facilities. Discrete
systems are giving way to enterprise-wide and automated systems. Acadia
already has extensive experience with these new technologies and is currently
expanding its state-of-the-art systems.
- - Being a franchisee in a growth industry can be very attractive to bright,
hard working people. It gives them independence as downsizing in corporate
America continues. These radical changes in the health care industry are
creating many unemployed professionals eager and financially able to start
their own small franchise business. Senior members of our management team
have extensive experience in franchising in both national and international
markets and will apply their knowledge to the MSO field.
- - Acadia addresses the national trend toward health care organization
alliances. Its strengths in medical industry expertise, business leadership,
capitalization, computer systems and franchising will lead to strategic
partnerships, joint ventures and other rapid growth mechanisms. Small and
medium-sized billing and practice management companies will find that joining
Acadia is a good business strategy.
- - Developments throughout international markets continue to suggest that
Acadia will be able to penetrate those markets through implementation of its
franchising platform. Recent studies suggest that China is home to over one
hundred thirty million (130,000,000) people who can afford private medical
services. India, Mexico, South America and Europe also present attractive
markets to secure master franchising relationships.
Acadia will assimilate the operations of future acquisitions, streamlining and
standardizing of functions. Lead locations and executives will be established
for each service. New positions in marketing and sales will be recruited.
Field personnel, including sales, operations managers and systems maintenance,
will report to the head of their particular department. Thus, the Company
will have a top level manager in nearly every location yet each employee will
have a supervisor who really understands his/her discipline.
We will implement an aggressive marketing and sales program for services,
software, mergers and franchises. The field sales force will focus on selling
medical billing clients and identifying opportunities for other services or
relationships. These prospects will be referred to high-level, product line
specialists in: software, practice management, mergers or franchising. Each
product line will have a separate marketing program tailored to its particular
opportunities and needs. For example, the software division will continue to
market extensively through trade shows, while mergers, acquisitions and
franchising will concentrate on trade associations and personal relationships.
<PAGE> 7
The following positions are being recruited in 1998:
National Marketing and Sales Manager - will work with the Chief Executive
Officer to establish new mergers and acquisitions, franchises, strategic
alliances, joint ventures and clients. This person will recruit franchises
and assist in their training and motivation to fully empower them for their
role of selling services to medical providers. The individual selected will
be a career sales leader and manager with extensive prior national experience
in the medical industry, financial services, franchising or a combination of
all three. He or she will share a vision of Acadia becoming one of the top 20
Medical Management Services Organization in the country within five years.
Compliance Officer - will develop and monitor a comprehensive written plan
for meeting state and federal regulatory standards for Acadia and its clients.
The compliance function will be a profit center. It will include employee
training, procedures for detecting and reporting infractions and for
responding to violation reports. The person selected will be thoroughly
familiar with current regulations and will strive to maintain currency.
Chief Financial Officer - will be a CPA or CPA/MBA with experience in the
medical industry. The Chief Financial Officer will manage Acadia's balance
sheet, budgets and cash flows, work with underwriters, investors and lenders
to give Acadia the financial platform for rapidly expanding operations. This
person will participate in due diligence activities on joint ventures,
strategic alliances, acquisitions, franchising, and provider setup. They will
be a primary liaison with the legal staff in codifying all financial
arrangements. The individual selected will be an entrepreneurial personality
with extensive financial management experience, excellent analytical skills
and prior Chief Financial Officer experience in a rapidly expanding company.
OBJECTIVES (LONG-TERM)
The doctor billing service has undergone several technical transitions since
its inception. In the early days the service supported physicians who wished to
avoid an elaborate business function or complex computer systems. As technology
became simpler and easier to use, the Company found other value added services
to retain clients. This led to practice management consulting and in the last
few years, electronic billing. Many health service payers, led by Medicare and
Medicaid, have begun to require electronic billing to reduce processing costs.
Electronic billing brought the added benefit of improved reliability and
timeliness of third party payments. This improved medical practice asset
utilization and profitability. Since electronic billing requires complex data
modalities and sophisticated software procedures, it is more adaptable to a
high-volume billing service than to a single medical practitioner. This has been
a very successful service for Acadia and continues to grow briskly. The Company
is continually expanding its licensed state-of-the-art, full-featured software
system as a key building block of its national billing service.
<PAGE> 8
Acadia's long-term objectives fall into seven broad categories:
1. Billing Services
Significant internal growth is projected utilizing a new and dynamic marketing
and sales program, directed through the regional operations centers.
Billing service represent a drastic reduction in operating costs and capital
investment from in-house operations while creating a variable expense to the
provider. Billing personnel are better trained, more focused on the task and use
up-to-date technology. Larger billing staff affords flexibility to bill on time
during employee absences and vacation. Providers can replace expensive,
obsolete computer or manual systems for a less expensive monthly fee and be
assured that bills follow the correct form and regulation. Correct coding
reduces claim rejection rates from in-house processing while avoiding regulatory
violations. Electronic filing significantly expedites the collection of fees.
The billing service offers very high level practice management
advice plus general financial guidance for the providers.
Small practices that cannot afford a massive billing operation can now have
state-of-the-art patient service and billing procedures:
For the first time, providers will need to market their services to large
groups, MSOs and IPAs in order to have an adequate business base. MSOs such
as Acadia can provide a market conduit to reach these new large players.
Automated patient scheduling
- - Accurate CPT coding
- - Data, audit trails and staff to support successful payer audits without
disruption of the regular work flow and without penalties for noncompliance
- - Electronic filing and electronic funds transfer for faster processing
- - More frequent billing for improved cash flow
- - Monitoring action on denials and delinquencies to eliminate orphaned
claims
- - The ability to interface with all payers including Medicare, Medicaid,
group insurances, managed care (capitation) and private pay
<PAGE> 9
- - Historical databases with reports that will support negotiated capitation
rates in managed care environments, including services by
> contract (employer or provider)
> code
> complete utilization review and profit analysis
- - Optional internal control through medical office terminals for original
entry. These can be occupied by provider staff or by billing service
employees
- - Separate billing becomes a vital component of Group Practice Without Walls
(GPWW). Volume and comprehensive services give GPWW providers negotiating
power with managed care organizations
Specialization, increased capital intensity and technological change are leading
to increased outsourcing in all areas of human commerce. The health industry is
no exception. Today's communications technology makes it practical to deliver
medical services in multiple locations, process billing data geographically and
audit the data at a centralized location. Increased regulatory pressure will
replace the office clerk with a highly-trained billing specialist who processes
services strictly for a medical specialty.
2. Professional Practice Management
Consulting is a dynamic field in high demand to assist independent physicians
joining together into large management service organizations (MSO), independent
practice associations (IPA) and strategic alliances with physicians as large
group practices. The professional consulting division facilitates not only the
growth of these relationships, but acts as a conduit for promoting other service
products of Acadia, such as billing and information systems technology.
Employment of a practice management consultant will allow professional medical
staff to concentrate on clinical issues. Acadia will offer an experienced,
objective outside review of office procedures, practices and staffing. A
practice manager can perform special projects, such as a fee schedule review and
adjustment, that are not within the capacity of in-house staff. The practice
manager can also advise principals on business and financial issues encountered
in benefits, investment and retirement planning, consolidation, mergers and
contract negotiating.
Hospitals are expanding their operations to include primary care medical
practices to provide added patient referral flow. Additionally, hospitals offer
financing and the security of a steady income to doctors. Frequently, hospital
billing systems and staff lack the capacity (or capability) to deal with doctor
billing and sophisticated practice management issues. Acadia can offer
supplemental services to hospitals that will permit them to own practices
without disrupting themselves or upsetting their providers. External billing
and practice management can be a win-win situation for all parties.
<PAGE> 10
After decades of health care inflation well in excess of general levels, the
public now demands a more efficient and affordable health care delivery system.
This led to the growth of managed care and reducing physician autonomy.
Managed care is expected to dominate the market by the end of the century.
Physicians need avenues to regain their autonomy while satisfying the demands of
public pressure and managed care. Close partnership with efficient business
organizations offers the provider medical control and profit incentives. It
also gives the physician accurate and predictable business and financial
results.
Health care providers, particularly doctors, frequently experience business
operations difficulties. The discipline of practice management has evolved to
fill this need. Medical practice managers may be accountants, lawyers, business
consultants or they may be doctors who have chosen to specialize in the
business aspect of medicine. Practice managers work with providers to
develop procedures and techniques to improve responsiveness to patients' needs
and increase productivity and profitability. They often manage special
projects, such as fee schedule negotiations or new clinician screening.
3. Software and Information Systems Technology
Acadia, through a Master Software Licensing Agreement, has incorporated
HEALTHPAC Computer Systems, Inc. as its internal software technology
engine and will convert each merger and acquisition to this standard
information system for all operating divisions and facilities. A vital
component of Acadia's growth, HEALTHPAC provides a solid foundation for
communication with medical bill payors and regulators. Information companies
must expect that unit service prices will come down steadily as technology
improves. Continuous improvement in software for billing, practice
management and internal communications will keep Acadia ahead of the price
curve.
Our HEALTHPAC license will remain as a separate product line also being
used for revenue generation and prelude for future corporate relationships.
In addition to its value to Company operations, re-marketing of HEALTHPAC
software is a profit center. The software will be sold under license to
Acadia franchisees and independent operations. With the intense pressure on
medical providers to process and supply data electronically, HEALTHPAC offers
answers to these and many other technology issues for small and large
providers and other MSOs. This service product has tremendous potential for
sales income by the year 2002.
4. Mergers and Acquisitions
The Company is developing strategic relationships with other influential,
quality product practice management companies throughout the East coast.
Some will be candidates for strategic alliances or mergers and acquisitions.
Many smaller billing services and some practice management consultants
are ill-equipped to deal with the changes occurring in the health care market
and the regulatory environment. Some will reach a point of personal and/or
financial distress before they seek help. These are also candidates for direct
acquisition.
<PAGE> 11
5. Franchising
Franchisees will sell practice management, billing, accounting and office system
services to doctors, foster homes and other small to medium sized health care
providers. They will seek joint venture and strategic partner alliances.
Acadia's headquarters will provide centralized and decentralized data support,
training, counseling and cash control services for franchisees. Much of the
franchising support, processing and cash management techniques will be drawn
from management's vast experience in the national and international franchising
arena.
Acadia will generate domestic leads through personal contacts, law firms
specializing in franchising, proprietary databases of recognized area
developers, trade shows, media and local business journal advertisement,
nationwide business consultant offices, census list manuals, Physician's Online,
Dun and Bradstreet, EDGAR, Internet databases and more.
Franchises will market billing, practice management, systems and other
physician oriented business services to small medical practices in tertiary
markets. Most practices will be less than five physicians and will be found
in cities and towns with a population of less than 75,000. Catering to this
market will play to small practice strengths inherited from Acadia's roots
and simultaneously minimize direct competition.
Franchising of a packaged version of HEALTHPAC software, standardized
billing instructions, coding and editing protocols combined with a medical
billing compliance program offers Acadia another large opportunity for
revenue.
6.International Expansion
Developments throughout international markets continue to suggest that Acadia
will be able to penetrate those markets through implementation of its
franchising platform. These relationships are sought after by high net worth
individuals, partnerships and incorporated associations located in other
countries who are consistently seeking business opportunities from the United
States. A Master Franchisee's purchase of a U.S. franchise lends market
positioning and maturation advantages and the ability to compete successfully
within their own countries' boundaries.
Typical relationships require Master Franchisees to pay up-front fees and then
continue to share royalty payments with Acadia throughout the duration of the
agreement. Acadia will be the first domestic MSO to offer these types of
franchising relationships.
Members of the Acadia management team possess international franchising
experience and will assist the Company in establishing the relationships abroad
that will lead to the sale of Master Franchises in targeted countries. Acadia
will be introduced to representatives from international franchising
associations (i.e. France, Ireland, Sweden, Spain, Germany, Italy, Morocco,
Puerto Rico, the Caribbean, Columbia, Bolivia, Argentina, Peru, Japan, Thailand,
Taiwan, China, India and the Middle East), business development centers,
marketing experts, consulate departments and international business expositions.
Acadia will also participate in international franchise trade shows.
<PAGE> 12
Franchise Solutions and Information Systems, of Portsmouth, New Hampshire,
will assist Acadia in the marketing and sales of its franchise packages.
7. Operations Financing
Acadia National Health Systems, Inc. pioneered financing of waivered foster
home care operations in 1994. The waivered foster home program includes small,
thinly capitalized boarding homes that incur substantial costs in providing
care, but do not normally receive payment for several weeks. The program has
been very successful in the last three years and enjoys an excellent growth
rate. Revenue from this service is anticipated to grow significantly by the
year 2002.
SERVICE DELIVERY METHODS
Acadia and its franchisees will provide business and financial services to
smaller health care providers and organizations in suburban and rural areas.
Acadia intends to develop its core business units through internal growth,
mergers and acquisitions. Marketing and area development will concentrate
around each location with expansion parameters.
Any organization that delivers goods or services over a wide geographic area
must contend with centralization of functions and identify duties to be
distributed into the field. Since Acadia's core activity will be billing,
these issues are first discussed in billing terms.
Some elements require regimentation and tight controls to satisfy fiduciary and
regulatory responsibilities. Others must be conservative to foster initiative,
creativity and growth. Development of staff, business systems and selection of
software to promote this loose/tight approach is a major factor for rapidly
growing financial services companies in the information age.
Sales always occur at the client site or a regional office. Sales will be the
primary responsibility of the Acadia sales associates. Each will have the
latitude to cultivate a variety of relationships with health providers in the
designated area and the incentives toward building volume.
The growth of third party payment organizations, both public and commercial,
along with their demands for timeliness, quality and technical capability make
centralized processing, transactions and quality control essential. As
communication costs have fallen, the drawback of processing thousands
of miles away has disappeared when compared with the advantages of a large,
efficient, tightly managed "back room" organization.
<PAGE> 13
METHODS OF OPERATION (BILLING)
Each medical office has a standard protocol that lists all procedures. The
listings reference an industry standard CPT code. Coding errors are among
the most common causes of claim rejections or charges of misbilling. After
performing a procedure, the provider will complete the appropriate steps that
enable Acadia to correctly gather required patient data. This information will
be keyed into a computer network, along with general information and third
party payment data on each new patient. Compliance management will screen
procedures for appropriateness before billing.
Compliance will screen to verify:
1. Both the provider and the patient were appropriate for the procedure.
(Example: An orthopedic surgeon could not bill for a cesarean section on a
male.)
2. The procedure was appropriate at the stage of care and was not included in
some broader procedure billed simultaneously.
Charges not passing the compliance screen will be referred to the compliance
staff for additional review, contact with the clinician and possible revisions.
Information will then be stored by payer and invoices generated. Some payers
will receive paper invoices by mail and others electronic invoices by
telecommunications. Those receiving electronic invoices pay on average
14 days earlier than those who receive paper invoices.
When payment is received, funds will be deposited in a savings escrow account
owned by the provider. Each practice will receive a weekly or monthly payment
and reconciliation report. Acadia will perform bookkeeping for some practices
and provide a full monthly accounting of all activities.
All billing and collection information will be compiled and reported to the
practice in summary form. This information will be available as a special report
supporting data for fee for services and capitation negotiations with third
party payers.
<PAGE> 14
SOFTWARE AND SYSTEMS TECHNOLOGY
Acadia has signed Master Licensing Agreement with a national medical billing
software and leading edge technology company, HEALTHPAC. The Company's
software operates on a NT network that allows centralized or decentralized
processing. Additional considerations are:
1. Windows NT operating system software will have more robust structure,
easier maintenance and better capability to interface with multiple
systems and disciplines, including:
> compliance management software
> front-end systems to third party payers
> scheduling
> electronic data interfaces
> clinical systems
> managed care reporting
> packaged office suite modules
> electronic remittances
> electronic billing
2. Enhanced native mode communications capabilities for multiple servers
and data entry, report output points and several different modes of data
transfer<F1>7
3. Improved data analysis and reporting capability
> management performance reporting
> demographic and cost analysis in support of rate negotiations
for managed care
> custom reports for situations not preconceived
4. Windows type "user friendliness" for
> ease of training
> improved performance and focus on content rather than process
> reduced operator fatigue
HARDWARE
Since Acadia will use Windows NT operating system, most hardware will be IBM
compatible equipment locally available throughout the country. To reduce
maintenance, repair and connectivity issues, the Company may form a strategic
alliance with a national computer dealer.
- -------------------------------------------------------------------------------
[FN] 17 Communications technology is being installed piecemeal across the
country and Acadia must be equipped to cope with all modes including: voice
grade dial up, ISDN, T-1 data line or coaxial (cable TV) cable.
<PAGE> 15
REGULATION
General
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. In general, regulation of health care companies is
increasing.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other managed care organizations. Many states require
regulatory approval, including certificates of need, before establishing certain
types of health care facilities, offering certain services or making
expenditures in excess of statutory thresholds for health care equipment,
facilities or programs. To date, the Company's clients have been required to
obtain certificates of need for their activities. In connection with the
expansion of existing operations and the entry into new markets and managed care
arrangements, the Company and any affiliated practice groups as well as its
managed clients may become subject to compliance with additional regulation.
The Company and its clients are also subject to federal, state and local laws
dealing with issues such as occupational safety, employment, medical leave,
insurance regulations, civil rights and discrimination, and medical waste and
other environmental issues. At an increasing rate, federal, state and local
governments are expanding the regulatory requirements on businesses, including
medical practices. The imposition of these regulatory requirements may have the
effect of increasing operating costs and reducing the profitability of the
Company's operations.
Federal and state antitrust laws also prohibit agreements in restraint of trade,
the exercise of monopoly power and other practices that are considered to be
anti-competitive. The Company believes that it is in material compliance with
federal and state antitrust laws in connection with the operation of its clinics
and its managed clients.
The Company believes its operations are in material compliance with applicable
law and expects to modify its agreements and operations to conform in all
material respects to future regulatory changes. The ability of the Company to
operate profitably will depend in part upon the Company and its affiliated
physician groups and its clients obtaining and maintaining all necessary
licenses, certificates of need and other approvals and operating in compliance
with applicable health care regulations. The Company is unable to predict what
additional government regulations, if any, affecting its business may be enacted
in the future or how existing or future laws and regulations might be
interpreted. The failure of the Company or any of its affiliated physician
groups or managed clients to comply with applicable law could have a material
adverse effect on the Company.
<PAGE> 16
State Legislation
The laws of many states prohibit physicians from splitting fees with non-
physicians, prohibit non-physician entities from practicing medicine and
prohibit referrals to facilities in which physicians have a financial interest.
There can be no assurance, however, that future interpretations of, or changes
in, these laws will not require structural and organizational modifications of
the Company's existing relationships with its clients or modifications in the
existing relationships with its affiliated physician groups, and there can be
no assurance that the Company would be able to appropriately modify its
relationships. In addition, statutes in some states could restrict expansion
of the operations of the Company to those jurisdictions.
Medicare Fraud and Abuse and Anti-Referral Provisions
The provisions of the Social Security Act addressing illegal remuneration (the
"anti-kickback statute") prohibit providers and others from soliciting,
receiving, offering or paying, directly or indirectly, any form of remuneration
in return for the referral of Medicare or state health program patients or
patient care opportunities, or in return for the purchase, lease arrangements or
order of any item or service that is covered by Medicare or a state health
program. The applicability of these provisions to many business transactions in
the health care industry, including the Company's service agreements with
clients, physician groups, management agreements with health care providers and
joint ventures with other health care providers, has not been subject to any
significant judicial and regulatory interpretation.
The Company is not a separate provider of Medicare or state health program
reimbursed services. To the extent that the Company is deemed to be a separate
provider of medical services under its service agreements or management
agreements and to receive referrals from physicians, the financial
arrangements could be subject to scrutiny under the anti-kickback statute.
In July 1991, the federal government published regulations that provide
exceptions, or "safe harbors," for business transactions that will be deemed not
to violate the anti-kickback statute. In September 1993, additional safe harbors
were proposed for eight activities including referrals within group practices
consisting of active investors. While the arrangements between the Company, the
clients and third parties, including the arrangements between health care
providers and providers and provider groups, do not in all instances fall within
the protection offered by these safe harbors or the proposed safe harbors, the
Company believes its operations are in material compliance with applicable
Medicare fraud and abuse laws. If the arrangements were found to be illegal,
the Company, the physician groups and/or the individual physicians would be
subject to civil and criminal penalties, including exclusion from participation
in government reimbursement programs, which could materially adversely affect
the Company.
<PAGE> 17
Under legislation known as the "Stark Bill," referrals of certain services to
entities by physicians with an ownership interest in, or financial relationship
with, that entity have been prohibited. The covered services include physical
therapy services, occupational therapy services, radiology services, including
MRI, CT and ultrasound, radiation therapy services, durable medical equipment,
parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics
and prosthetic devices, home health services, outpatient prescription drugs and
inpatient and outpatient hospital services.
Impact of Health Care Regulatory Changes
The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of government
reimbursement programs to managed care arrangements, and balance
the federal budget by reducing spending for Medicare and state health
programs. These measures can affect a health care company's cost of doing
business and contractual relationships. For example, recent developments that
affect the Company's activities include: (i) federal legislation requiring a
health plan to continue coverage for individuals who are no longer eligible
for group health benefits and prohibiting the use of "pre-existing condition"
exclusions that limit the scope of coverage; (ii) a Health Care Financing
Administration policy prohibiting restrictions in Medicare risk HMO plans on
a physician's recommending to patients other health plans and treatment
options; and (iii) regulations imposing restrictions on physician incentive
provisions in physician provider agreements. There can be no assurance that
such legislation, programs and other regulatory changes will not have a material
adverse effect on Acadia.
INSURANCE
The Company maintains director and officer ("D&O") liability insurance on a
claims made basis for all of its current officers and directors. Insurance
coverage under such policies is contingent upon a policy being in effect when
a claim is made, regardless of when the events which caused the claim
occurred. The cost and availability of such coverage has varied widely in
recent years. While the Company believes its insurance policies are adequate
in amount and coverage for its current operations, there can be no assurance
that the coverage maintained by the Company is sufficient to cover all future
claims or will continue to be available in adequate amounts or at a
reasonable cost.
EMPLOYEES
As of September 26, 1997, the Company employed approximately 16 people.
None of the Company's employees is a member of a labor union, and the
Company considers its relations with its employees to be excellent.
<PAGE> 18
IMPORTANT FACTORS RELATED TO
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including statements regarding the Company's expectations, hopes, intentions
or strategies regarding the future. All forward-looking statements included
herein are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Among the
factors that could cause actual results to differ materially are the risk
factors which may be listed from time to time in the Company's reports on
Form 10-QSB, 10-KSB and registration statements filed under the Securities Act.
Forward-looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) continued expansion of the Company's operations
through joint ventures and acquisitions, (iii) success of existing and new
marketing initiatives undertaken by the Company, and (iv) success in controlling
the cost of services provided and general administrative expenses as a
percentage of revenues.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties. These forward-looking
statements were based on assumptions that the Company would continue to expand,
that capital will be available to fund the Company's growth at a reasonable
cost, that competitive conditions within the industry would not change
materially or adversely, that demand for the Company's services would remain
strong, that there would be no material adverse change in the Company's
operations or business, and that changes in laws and regulations or court
decisions will not adversely or significantly alter the operations of the
Company. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive, regulatory and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
information will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
<PAGE> 19
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases its headquarters facility in Lewiston, Maine,
which is owned by Main Street Realty Associates. The space for the
headquarters facility is leased to the Company
The following tabulates certain information with respect to the lease
currently executed between the
Company and Main Street Realty Associates.
<TABLE>
<CAPTION>
Current
Square Monthly Lease
Location Footage Rental Lessor Expiration
- -------------------- ------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Executive Offices 3,000 $1,700 Main Street 1/1/99
460 Main Street Realty Assoc.
Lewiston, Maine 04240
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its directors
and officers in their capacities as such) is party or to which property of the
Company is subject is pending and no such material proceeding is known by
management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the National Association of
Securities Dealers' ("NASD") National Market System Over-the-Counter ("OTC")
Bulletin Board under the trading symbol "ACAD" since the NASD cleared the
Company's Form 211 application, pursuant to Rule 15c2-11(a)(5) of the Exchange
Act and accompanying Information and Disclosure Statement in May of 1997. The
following table sets forth the range of high and low closing prices of the
Company's Common Stock, as reported by the OTC Bulletin Board Market, from
June 26, 1997 through September 26, 1997. The prices set forth below reflect
inter-dealer quotations, without retail markups, markdowns or commissions, and
do not necessarily represent actual transactions.
<PAGE> 20
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
1997 FISCAL YEAR: HIGH LOW
------- -------
<S> <C> <C>
Fourth Quarter (commencing June 28, 1997) $2.500 1.875
</TABLE>
The last reported sale price of the Common Stock on September 26,
1997 was $2.375 per share. The number of record holders of the Company's
Common Stock was 362 on September 26, 1997.
Holders of Common Stock are entitled to receive such dividends as
may be declared by the Company's Board of Directors. No dividends on the
Common Stock have been paid by the Company, nor does the Company
anticipate that dividends will be paid in the foreseeable future.
As reflected in the price quotations above, there have not been
significant price fluctuations in the Company's Common Stock. Factors that
may cause or can cause market prices to fluctuate include any purchase or sale
of a significant number of securities during a relatively short time period,
quarterly fluctuations in results of operations, announcements of new
facilities, issuance of additional securities, registration of securities and
entrance of such securities into the public float, market conditions specific
to the Company's industry and market conditions in general. In addition, in
recent years the stock market in general has experienced significant price and
volume fluctuations. These fluctuations, which may be unrelated to the
operating performance of specific companies, have had a substantial effect on
the market price for many small capitalization companies such as the Company.
Factors such as those cited above, as well as other factors that may be
unrelated to the operating performance of the Company, may adversely affect
the price of the Common Stock.
During the 1997 fiscal year, the Company filed one registration
statement under the Securities Exchange Act of 1934 (the "Exchange Act"),
becoming effective January 11, 1997, covering 3,733,987 shares of Common
Stock.
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OR
PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements and notes thereto.
RESULTS OF OPERATIONS:
======================
FISCAL YEAR ENDING SEPTEMBER 26, 1997
=====================================
Note:
Acadia National Health Systems purchased the assets of Physician Resources, Inc.
on September 27, 1996, and took over the operations of that company as of
September 28, the first day of the fiscal quarter and year. Physician Resources
had changed fiscal year ends to September 27, 1996 resulting in a nine month
financial reporting period. All activities for the fiscal year are compared
with the operations of Physician Resources for the nine month period ending
September 27, 1996. Comparative results have not been adjusted for the
difference between Physician Resources' nine months ending September 27, 1996
and Acadia's 12 month fiscal year ending September 26, 1997.
SALES
Sales for the year were $748,598 compared to $483,630 for the nine month
period in 1996. This was principally due to continued growth in the Waivered
Foster Care program and the addition of non-medical billing clients.
OPERATING EXPENSES
Increases in operating expenses during the period were principally due to
ongoing consulting services incurred in taking the Company public, in addition
to increases in depreciation, office supplies and salaries and wages for
additional members of Senior Management, also in preparation of becoming a
reporting Company.
OPERATING INCOME
An operating gain for the year was $1,866 compared to a gain of $25,902 for
the nine month period in 1996.
<PAGE> 22
The Company incurred non-recurring expenses in excess of $130,000 in consulting
and legal expenses for assistance in bring Acadia online as a reporting company.
Interest expense increased to $34,095 as a result of higher credit line
balances primarily used in its waivered foster care and non-medical
billing services.
INCOME TAXES
Physician Resources was an S Corporation and incurred no tax liability.
Acadia is a C Corporation with an accrual of $2,200 combined State and
Federal taxes.
NET INCOME
Acadia's gain of $1,866 was ($0.0005) per share on 3,733,987 outstanding
common shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company's non-trade accounts receivable increased $533,968 due to the
rapid growth of the Waivered Foster Home and non-medical billing programs.
These are clean secured receivables with the majority due from the State of
Maine. During this same period, the Company added $85,465 in
property, plant and equipment, principally computer systems and related
equipment. Acadia spent over $130,000 during its fiscal year, in Corporate
organization costs associated with Acadia becoming a reporting company.
Anticipated public reporting expenses and planned acquisitions will
place additional demands on liquidity during the remainder of the next year.
Management, on July 25, 1997 expanded its line of credit with its new principal
lender, Northeast Bank FSB by an additional $250,000.
The loan is secured by accounts receivables and equipment and will be used to
fund working capital, increased organizational infrastructure and a new billing
service product. The loan will bridge to a secondary offering anticipated in
the first quarter of FY 1998.
OTHER INFORMATION
===================
Acadia has spent the first fiscal year of operation preparing our organization
for rapid sales growth and expansion. We have completely revised our operating
policies, installed a new financial management system and recruited experienced,
operational and management personnel. Additionally, we finalized our Form
10SB Registration Statement with the Securities and Exchange Commission and
commenced public reporting and trading on the OTC Bulletin Board under our
symbol OTCBB: ACAD. We converted our former medical management billing
software to HEALTHPAC, a state-of-the-art medical management system.
During the last quarter of our fiscal year, we have negotiated three signed
Letters of Intent with other Medical Management Service Organizations and
technology companies with which we intend to merge alliances. Discussions
continue with other similar businesses for future acquisitions and mergers.
Also, the Company is actively working with an underwriter, who specializes in
health care companies, to arrange our first public capitalization.
<PAGE> 23
Another major accomplishment this year was our development and adoption of a
medical reporting compliance program. Acadia takes very seriously the need for
correct verification, reporting and billing of medical services to all payors.
Education of our employees and providers is constant and critical to remain
abreast in this very complex and rapidly changing medical billing and regulated
arena.
UNIFORM FRANCHISE OFFERING CIRCULAR (UFOC)
The Company has briefly delayed a UFOC for filing with the Federal Trade
Commission until our initial acquisition of alliances and underwriting are
complete. Acadia still anticipates developing and selling franchises as soon as
we complete our filing process with the Federal Trade Commission which is
anticipated by the third quarter. Franchisees will be offered the opportunity
to market Acadia's billing systems technology, other brand name products and
related support services to tertiary markets throughout the country.
MAJOR ACQUISITION
The Company continues to initiate discussions with various companies towards
major acquisitions that will greatly strengthen Acadia and its product lines.
SALES TRENDS
Trends in Acadia's existing business lines, medical billing services and billing
for waivered foster home care, are positive, with expected growth throughout
FY1998. Added billing clients, software sales, franchising, practice management
consulting, related support services and major acquisitions are expected to
result in major revenue and earning increases in FY 1998 and beyond.
ACCOMPLISHMENTS AND OBJECTIVES
On January 11, 1997, Acadia's SEC application Form 10SB was effectuated. On
May 20, 1997, the Company received NASD acceptance pursuant to RULE
15c2-11(a)(5) and the accompanying Information and Disclosure Statement, and
began to trade on the OTC Bulletin Board market during the third quarter of FY
1997. This has allowed the Company to approach capital markets and initiate
the advancement of equity needed to fuel growth and finalize its first series
of acquisitions.
Acadia completed implementation of significantly expanded HEALTHPAC
software technology in the second quarter of FY 1997. This system includes
the capability of: automated patient appointment scheduling, electronic
charting features, electronic billing, direct funds transfer. The technology
is capable of distributed data processing with multiple location data entry
and discrete paper copy printing, unlimited client accounts and patient
census, all running on the NT platform. These attributes will provide the
technological base that will reinforce the company's longer-term objective as
a major player in tertiary markets and a clearinghouse for franchised medical
billing activities.
<PAGE> 24
The Company will grow through strategic acquisitions, joint ventures and
internal expansion. Our market capitalization will foster our national
marketing and sales programs. Promotion of our medical billing software
technology and medical practice management consulting services will add
additional growth to our front line business of medical billing. Many smaller
billing services and some practice management consultants are ill equipped to
deal with the changes occurring in the health care market and the regulatory
environment and these are candidates for affiliation. Acadia intends to
grow its business through mergers and acquisitions of companies who's business
philosophy is based on producing a high quality product, who's management
is dedicated to long term ethical growth and who's organization and structure
are complimentary to Acadia's vision of a superior company with a premium
product.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included beginning at F-2. See page F-1
for the Index to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Baker Newman & Noyes, Limited Liability Company, whose address is 100 Middle
Street, Portland, Maine 04112, who was previously engaged as the principal
accountant to audit the registrant's financial statements, was dismissed on
August 4, 1997, by a majority vote of the board of directors of the Registrant
in favor of retaining an independent accounting firm that new chief executive
officer, Paul W. Chute, has had a sixteen (16) year working relationship. The
following information is set forth pursuant to Reg. Sec. 229.304 of Regulation
S-K of the Securities Act of 1933 (the "Act"):
(i) Baker Newman & Noyes' report on the balance sheet of the Registrant
for only the year end (September 27, 1996) contained no adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope, or accounting principles;
(ii) The decision to change accountants was recommended and approved by
the board of directors of the Registrant;
(iii) From the date the Registrant commenced operations (September 27,
1996) through any subsequent interim period preceding the dismissal there
have been no disagreements with the former accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure.
<PAGE> 25
(iv) The Registrant has requested Baker Newman & Noyes, Limited Liability
Company, to furnish it a letter addressed to the Commission stating
whether it agrees with the above statements. A copy of that letter will be
filed as Exhibit 16.1 to this Form 10-KSB after its receipt.
On August 4, 1997, Berry, Dunn, McNeil & Parker, Certified Public
Accountants, whose address is 100 Middle Street, Portland, Maine 04104-
1100 has been engaged as the principal accountant to audit the Registrant's
financial statements.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS;
Acadia National Health Systems, Inc. strives to provide a pleasant working
environment and a strong team spirit. Acadia has embraced the philosophy
of "Distributive Ownership" that will be carried further through corporate
office incentives and business unit ownership (franchising).
Board of Directors - will continue to be drawn from leaders in the financial
services, insurance and medical industries.
Acadia will be governed by experienced veterans from health care, finance,
law and operations. Corporate policy will be from an amalgamation of ideas
from experts with experience. Operational decision will be delegated to a
senior management team directed by a national Chief Executive Officer
with counsel and implementation from experienced administrative leaders.
Paul W. Chute, President and Chief Executive Officer - brings over 22 years
senior executive experience from Western Maine Health Care Corporation
and its family of organizations and an additional four years from public
accounting firms. Mr. Chute's executive experience includes the design,
development and implementation of nine active corporations where he was
responsible for the finance and operation of over 600 employees and $38
million in sales. He also directed and participated in key strategic planning
activities for the development of rural health care systems, hospital
cooperatives and community organizations. Mr. Chute played a significant
role in major health care issues by promoting specific legislation through
the State of Maine Legislature. He has also testified in various legislative
committees and sub-committees at the state and national congressional level.
Mr. Chute has extensive experience in developing joint business and
partnering agreements with other standalone health care organizations,
creation of new jointly owned companies and cooperative arrangements
where major for-profit companies participated in health care programs
developed and directed by him.
<PAGE> 26
Mr. Chute's experiences bring together a wealth of financial experiences and
knowledge and extensive background in operations and systems development.
Mr. Chute has a Masters Degree in Business, is certified as a Diplomate from
the American College of Healthcare Executives and carries and advanced
certification as Fellow from the Healthcare Financial Management Association.
Jacquelyn J. Magno, Vice President and Secretary - has been with the
Company for 24 years. She became general manager in 1985. She has been
responsible for sales, operations, provider setup and liaison. Magno keeps
the company abreast of the latest changes in third party policy. She will
continue to expand and develop the waivered foster home billing program,
enabling Acadia to market and promote "waivered billing" services nationally.
Mark T. Thatcher, Vice President, Corporate Counsel - Mr. Thatcher has
a substantial background in securities law, mergers, acquisitions, corporate
finance and franchising. He holds specific expertise in the design and
implementation of marketing and business plans, with strong skills
in the evaluation and selection of capital formation and venture capital
opportunities. Mr. Thatcher manages the day-to-day operations of a
corporate securities law firm providing advisory services to clients in
industries such as high tech computer automation, restaurant franchising,
securities trading, oil and gas exploration, sports management/marketing,
travel/hospitality, management implementation support, financial analysis
and planning. Mr. Thatcher has researched, developed and provided
marketing development plans which served as the corporate guidelines for
clients at domestic and international levels of business operations. He has
served as corporate liaison between clients and the Securities and Exchange
Commission, Federal Trade Commission and the Internal Revenue Service.
He has analyzed and authorized complete business plans for clients in various
industries and designed customized marketing programs for the promotion of
client products and services in domestic and international markets resulting in
numerous positive contacts and sales of franchisees for certain clients.
Mr. Thatcher advises clients in the specific areas of advanced securities
planning, corporate acquisitions and mergers, advanced foreign estate
planning, international tax planning, Securities Exchange Act of 1933 and
1934, Blue Sky Law and Rule 144 Sales and Transaction compliance.
He has participated in eight public offerings registered with the Securities
and Exchange Commission and over 20 private offerings also registered
with the Commission.
Mr. Thatcher holds a Jurist Doctorate from the University of Denver and a
Masters Degree in Business from University of Denver.
<PAGE> 27
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following material contains information concerning the directors,
including their recent employment, positions with the Company, other
directorships and age as of the date of this Form 10-KSB.
<TABLE>
<CAPTION>
CAPACITIES IN DIRECTOR OR
NAME AGE WHICH SERVED OFFICER SINCE
- ---------------- ------ -------------------- ------------------
<S> <C> <C> <C>
Paul W. Chute 48 Chairman of the Board, 1997
President and Treasurer
Jacquelyn J. Magno 50 Vice President and 1996
Secretary
Mark T. Thatcher, Esq. 32 Director 1997
</TABLE>
- ---------------------------
Each director holds office until the next annual meeting of shareholders or
until a successor has been duly elected and qualified. There are currently
vacancies on the board of directors. The Board is seeking qualified nominees
to fill the vacancies and anticipates that the nominees will be presented
to shareholders at the Company's next annual meeting. Officers are appointed
by and serve at the discretion of the Board of Directors. All of the Company's
officers devote full-time to the Company's business and affairs.
COMMITTEES OF THE BOARD
The Board of Directors will delegate certain of its authority to a
Compensation Committee and an Audit Committee. There are currently
vacancies on both of these committees. The Board expects to fill such
vacancies after it has filled the vacancies on the Board of Directors.
The primary function of the Compensation Committee will be to review
and make recommendations to the Board with respect to the compensation,
including bonuses, of the Company's officers and to administer the Company's
proposed Option Plan.
The function of the Audit Committee is to review and approve the scope of
audit procedures employed by the Company's independent auditors, to review
and approve the audit reports rendered by both the Company's independent
auditors and to approve the audit fee charged by the independent auditors.
The Audit Committee will report to the Board of Directors with respect to
such matters and recommends the selection of independent auditors.
<PAGE> 28
BOARD AND COMMITTEE ATTENDANCE
In the 1997 fiscal year, the Board of Directors held four meetings. All
directors attended more than 75% of the aggregate of board and committee
meetings held during the 1997 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
__________________________________________________________________________________________________
Annual Compensat. Awards Payouts
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Rest. All
Name and Annual Stock LTIP Other
Principal Comp. Award(s) Opt. P/outs Comp.
Position Year Salary Bonus($) ($) ($) SARs(#) ($) ($)
__________________________________________________________________________________________________
CEO &
Treasurer 1997 56,000.00
Chute, (Annualized)
Paul W.
CEO (former)
Hackett,
Thomas N.
(Deceased) 1997 65,000.00
(Annualized)
V.P.
Magno,
Jacquelyn
1997 50,000.00
(Annualized)
1996 50,000.00
1995 49,044.82 13,250.00
(Consulting)
<PAGE> 29
Treasurer
Lebel,
Marise 1997 26,000.00
(Annualized)
1996 26,000.00
199 27,484.53
</TABLE>
No employee of the Company receives any additional compensation for
his services as a director. Non-management directors receive no salary for
their services as such, but are entitled to receive reasonable travel or other
out-of- pocket expenses incurred by non-management directors in attending
meetings of the Board of Directors and a fee of $100.00 per meeting attended.
The Company has no retirement, pension or profit sharing program for
the benefit of its directors, officers or other employees. The Board of
Directors may recommend one or more such programs for adoption in the future.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of
the Company's Common Stock and any subsequent changes in that ownership to the
Commission and the Company. Specific due dates for these reports have been
established and the Company is required to disclose any failure to file, or
late filing, of such reports. Based solely on the Company's review of
Forms 3, 4 and 5 and amendments thereto furnished to the Company and written
representations with respect to filing of such Forms, the Company is aware that
all Forms have been filed timely to date.
<PAGE> 30
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 26, 1997 by (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) each director, and (iii) all executive officers and directors as a
group. Each person has sole voting and sole investment or dispositive power
with respect to the shares shown except as noted.
Shares of Acadia
Common Stock to be
Beneficially Owned Percent
Name and as of the 09-26-97 of
Address Record Date Class
PRI, Inc. 300,000 8.03%
460 Main Street
Lewiston, ME 04240
Paul W. Chute 828,090 22.18%
301 Peacock Hill Road
New Gloucester, ME 04260
Jacquelyn Magno 873,010 23.38%
460 Main Street
Lewiston, Maine 04240
Mark T. Thatcher 760,000 20.36%
190 Tuckerman Avenue
Middletown, RI 02842
All Directors and 2,461,100 65.91%
Executive Officers
As a Group
Management of Acadia has advised that they may acquire additional shares
of Acadia Common Stock from time to time in the open market at prices
prevailing at the time of such purchases.
<PAGE> 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the transactions described below, the Company did not secure
an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. However, in each
instance described below, the directors reviewed and unanimously approved the
fairness and reasonableness of the terms of the transactions. The Company
believes that the transactions described below were fair and reasonable to the
Company on the basis that such transactions were on terms at least as favorable
as could have been obtained from unaffiliated third parties. The transactions
between officers and directors of the Company, on the one hand, and the Company,
on the other, have inherent conflicts of interest.
(a) On Tuesday, July 29, 1997, Paul W. Chute, Chief Executive Officer
and Chairman of the Board of Directors, and Jacquelyn J. Magno, Vice President
and Secretary of the Board of Directors, collectively purchased a controlling
interest in the Registrant from Peacock Hill Farm Limited Liability Company and
the Estate of Thomas N. Hackett, as a result of the death of Thomas N. Hackett
on May 25, 1997. The change in control is documented as follows:
July 29, 1997
Names of Persons Who Acquired Control:
Paul W. Chute
RFD #1, Box 2740
Buckfield, ME 04220
Jacquelyn J. Magno
124 Fairway Drive
Auburn, ME 04210
Amount of Consideration Used by Such Persons:
$ Amount Source
Paul W. Chute $203,945.32 Personal Funds
Jacquelyn J. Magno $196,054.68 Personal Funds
<PAGE> 32
Basis of the Control:
Peacock Hill Farm
Limited Liability
Company
(Elaine H. Hackett,
Direct Ownership
and Sole Voting
Authority)
Previously Owned Sold to Sold to
Paul W. Chute Jacquelyn J. Magno
2,509,000 Shares
(67.2%) of Class 1,235,687 Shares (33.1%) 1,090,313 Shares (29.2%)
Estate of
Thomas N. Hackett
(Elaine H. Hackett,
Personal
Representative)
Previously Owned Sold to Sold to
Paul W. Chute Jacquelyn J. Magno
156,000 Shares
(4.2%) of Class 82,875 Shares (2.2%) 73,125 Shares (2.0%)
______________________________________________________________________________
______________________________________________________________________________
The change in control took place on Tuesday, July 29, 1997 at Skelton,
Taintor & Abbott, P.A., 95 Main Street, Auburn, Maine, 04210.
The mailing address of the Estate of Thomas N. Hackett is C/O Bryan M.
Dench, Esq., Skelton, Taintor & Abbott, P.A., 95 Main Street, Auburn,
Maine 04212-3200 ("The Estate").
The mailing address of Peacock Hill Farm Limited Liability Company is C/O
Bryan M. Dench, Esq., Skelton, Taintor & Abbott, P.A., 95 Main Street,
Auburn, Maine 04212-3200 ("The LLC").
The mailing address of Paul W. Chute is C/O Acadia National Health Systems,
Inc., 460 Main Street, Lewiston, Maine 04240 ("Chute").
The mailing address of Jacquelyn J. Magno is C/O Acadia National Health
Systems, Inc., 460 Main Street, Lewiston, Maine 04240 ("Magno").
<PAGE> 33
Elaine H. Hackett, Personal Representative of the Estate of Thomas N. Hackett
and Sole Managing Member of Peacock Hill Farm Limited Liability Company
("Seller") sold to Paul W. Chute, Chairman of the Board of Directors and
Chief Executive Officer of the Registrant and Jacquelyn J. Magno, Vice
President and Secretary of the Board of Directors of the Registrant
(collectively "Purchaser") certain control stock interests held by Seller in
Acadia National Health Systems, Inc. as follows:
One hundred fifty-six thousand (156,000) shares of
Acadia common stock, no par value;
Two million three hundred twenty-six thousand (2,326,000) shares of
Acadia common stock, no par value.
The allocation of the aggregate purchase price will be payable as
follows:
$ Amount Received $ Amount Paid
ESTATE OF
THOMAS N. HACKETT $ 281,685.13 -------------
PEACOCK HILL FARM
LIMITED LIABILITY
COMPANY $ 118,314.87 -------------
PAUL W. CHUTE -------------- $ 203,945.32
JACQUELYN J. MAGNO -------------- $ 196,054.68
Total $ 400,000.00 $ 400,000.00
=========== ===========
The purchase and sale of the stock interests took place at the offices of
Skelton, Taintor and Abbott, P.A. 95 Main Street, P.O. Box 3200, Auburn,
Maine 04212-3200, at 2:00 p.m. on July 29, 1997.
Instructions:
2. The Registrant has released the Estate of Thomas N. Hackett and
Peacock Hill Farm Limited Liability Company from liability in connection
with Thomas N. Hackett's (decedent of Estate) personal guaranty of lines of
credit and a term loan existing between the Registrant and Peoples Heritage
Bank whose address is 217 Main Street, Lewiston, Maine 04240. The newly
approved Lender of the Registrant, Northeast Bank, FSB, whose address is 232
Center Street, Auburn, Maine 04210, extended lines of credit to the Registrant.
These new lines allowed for the release of the lines of credit and term loan
extended by Peoples Heritage Bank that were personally guaranteed by
Mr. Hackett.
<PAGE> 34
Indemnification Agreement. Mark T. Thatcher, Esq. ("Thatcher"), independent
counsel to the Registrant, whose business address is Mark T. Thatcher, P.C., 360
Thames Street, Newport, RI 02840, and Christopher O. Werner ("Werner"), advisor
to the Registrant, whose business address is 360 Thames Street, Newport,
RI 02840, personally indemnified and held harmless the Estate and LLC from
liability that could arise in connection with Acadia's status as a fully
reporting company under the Securities Exchange Act of 1934 (the "Exchange
Act"). The Registrant caused Mr. Thatcher and Mr. Werner to execute and deliver
agreements to the Personal Representative of the Estate regarding such
restrictions in form and substance satisfactory to the Representative.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as
exhibits to previous filings with the Commission and are incorporated herein
by this reference:
EXHIBIT NO. DOCUMENT
* 2 Assets Purchase Agreement between Acadia
National Health Systems, Inc. and Physician
Resources, Inc., dated September 27, 1996;
* 3.1 Articles of Incorporation of the Company, as amended;
* 3.2 Bylaws of the Company;
* 4.1 Instruments Defining Rights of Security Holders/
Minutes of Annual/Special Meetings of the Company;
* 4.2 Loan Agreements Secured by Demand Notes/Promissory
Notes, Defining Rights of Holders of Long Term Debt;
* 10.1 Software License Master Agreement;
* 10.2 Lease of Premises, Acadia Corporate Headquarters,
460 Main Street, Lewiston, Maine 04240 (Assignment);
<PAGE> 35
EXHIBIT NO. DOCUMENT
* 10.3 Employment Agreements, dated September 27, 1996
between Acadia and THOMAS N. HACKETT, C.E.O.,
JACQUELYN J. MAGNO, Vice-President;
* 10.4 Internal Revenue Code Section 125 Cafeteria Plan
dated June 1, 1996;
* 10.5 Line of Credit Memorandum dated September 8, 1995
with PEOPLE'S HERITAGE BANK in the amount of
$250,000.00;
* 10.6 Line of Credit Memorandum dated July 29, 1996 with
PEOPLE'S HERITAGE BANK in the amount of
$100,000.00;
### 10.7 Common Stock Purchase Agreement for 156,000 shares of
common stock of Acadia National Health Systems, Inc.
### 10.8 Assignment Separate from Certificate and Irrevocable
Stock Power for 156,000 shares of common stock of
Acadia National Health Systems, Inc.
### 10.9 Opinion of Counsel with respect to transfer of
156,000 shares of common stock of Acadia National
Health Systems, Inc.
### 10.10 Common Stock Purchase Agreement for 2,326,000
shares of common stock of Acadia National Health
Systems, Inc.
### 10.11 Assignment Separate from Certificate and Irrevocable
Stock Power for 2,326,000 shares of common stock of
Acadia National Health Systems, Inc.
### 10.12 Opinion of Counsel with respect to transfer of
2,326,000 shares of common stock of Acadia National
Health Systems, Inc.
## 16.1 Baker Newman & Noyes' Letter dated August 18, 1997
in response to Item 4(a)(i), Item 4(a)(ii) and
Item 4(a)(iii) of this Form 8-KA.
<PAGE> 36
EXHIBIT NO. DOCUMENT
### 20.1 Board of Director's Resolution authorizing new lines
of credit and a term loan in connection with canceling
personal guaranty and Debts of Thomas N. Hackett,
founder of the Registrant.
### 20.2 Opinion of Borrower's Counsel
### 20.3 Indemnification Agreement (Estate of Thomas N.
Hackett)
### 20.4 Indemnification Agreement (Peacock Hill Farm Limited
Liability Company)
x 23.1 Consent of Counsel
x 23.2 Consent of Berry, Dunn, McNeil & Parker, independent
certified public accountants for the Company.
x 27 Financial Data Schedule
# 99.1 Text of Press Release dated July 31, 1997
- ------------------------
x Filed herewith.
* Incorporated by reference from the issuer's Registration Statement on
Form 10SB12G (S.E.C. File No. 000-1026491) as declared effective on
January 11, 1997.
# Incorporated by reference from the Issuer's Form 8-KA for event date
of July 31, 1997.
## Incorporated by reference from the Issuer's Form 8-KA for event date
of August 8 and August 20, 1997.
### Incorporated by reference from the Issuer's Form 8-K for event date
of August 13, 1997.
<PAGE> 37
(b) REPORTS ON FORM 8-K
The Company filed the following reports on Form 8-K during the last
quarter of the 1997 fiscal year.
8-KA, July 31, 1997, Item 5, Other Events
8-KA, August 20, 1997, Item 4, Changes in Registrant's Certifying Accountant,
Item 5, Other Events, Exhibit 16.1, Baker Newman & Noyes' letter dated August
18, 197 in response to Item 4(a)(i), Item 4(a)(ii) and Item 4(a)(iii) of this
Form 8-KA., and Exhibit 99.1 text of press release.
8-K, August 8, 1997, Item 4, Changes in Registrant's Certifying Accountant,
Item 5, Other Events and Exhibit 99.1, Text of press release dated July 31,
1997.
8-K, August 13, 1997, Item 1, Changes in Control of Registrant and Item
5, Other Events.
<PAGE> 38
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACADIA NATIONAL HEALTH SYSTEMS, INC.
By: /s/ Paul W. Chute
Paul W. Chute,
Chairman of the Board and President
Date: December 23, 1997
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------- ---------------------------
<S> <C> <C>
/s/ Paul W. Chute Chairman of the Board, December 23, 1997
President (Principal
Executive Officer) and
Treasurer
/s/ Jacquelyn J. Magno Vice President and
Secretary December 23, 1997
/s/ Mark T. Thatcher, Esq. Director December 23, 1997
</TABLE>
<PAGE> 39
ACADIA NATIONAL HEALTH SYSTEMS, INC.
FINANCIAL STATEMENTS
September 26, 1997 and September 27, 1996
With Independent Auditors' Report
TABLE OF CONTENTS
Independent Auditors' Report......................................F - 2
Financial Statements
Balance Sheet - September 26, 1997............................F - 3
Statements of Operations -
Years Ended September 26, 1997 and 1996.......................F - 5
Statement of Changes in Stockholders' Equity -
Years Ended September 30, 1997 and 1996.......................F - 6
Statements of Cash Flows -
Years Ended September 30, 1997 and 1996.......................F - 7
Notes to Consolidated Financial Statements........................F - 8
<PAGE> F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Acadia National Health Systems, Inc.
We have audited the accompanying balance sheet of Acadia National Health
Systems, Inc., as of September 26, 1997, and the related statements of income,
changes in stockholders' equity and cash flows for the year then ended. We
have also audited the statement of changes in stockholders' equity for the
nine months ended September 27, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The balance sheet
of Acadia National Health Systems, Inc., as of September 27, 1996, was
audited by other auditors whose report dated October 25, 1996, expressed an
unqualified opinion thereon. The income statement and statement of cash flows
of Acadia National Health Systems, Inc., (formerly Physicians Resources, Inc.)
for the nine months ended September 27, 1996, were audited by other auditors
whose report dated March 11, 1997, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements as of September 26, 1997, and for the
year then ended present fairly, in all material respects, the financial
position of Acadia National Health Systems, Inc., as of September 26, 1997,
and the results of its operations and its cash flows for the year ended
September 26, 1997, in conformity with generally accepted accounting
principles.
Portland, Maine
October 31, 1997
<PAGE> F-3
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Balance Sheets
September 26, 1997 and September 27, 1996
ASSETS
1997 1996
Current assets
Cash $ 5,711 $120,988
Accounts receivable and advances 767,389 220,283
Prepaid expenses and other assets 48,622 74,806
Deposits - 12,000
Deferred income taxes l,400 2,000
Total current assets 823,122 430,077
Property and equipment
Leasehold improvements 14,540 14,540
Equipment 144,634 59,169
Furniture and fixtures 17,588 17,588
176,762 91,297
Less accumulated depreciation 78,924 52,574
Net property and equipment 97,838 38,723
Other assets
Deferred income taxes 5,600 5,500
Deferred costs, net of amortization 31,633 26,550
Note receivable 75,000 -
Total other assets 112,233 32,050
$l,033,193 $500,850
The accompanying notes are an integral part of these financial statements.
<PAGE> F-4
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
Current liabilities
Notes payable $ 552,863 $ 88,917
Current portion of long-term debt 20,000 10,805
Accounts payable 18,665 15,430
Accrued expenses 21,950 31,644
Income taxes payable l,700 -
Total current liabilities 615,178 146,796
Long-term debt, excluding current portion 76,667 88,367
Note payable - stockholder 20,850 14,047
Total liabilities 712,695 249,210
Commitments
Stockholders' equity
Common stock of no par value;
authorized 50,000,000 shares; issued:
1997 - 3,758,987 shares; 1996 - 3,733,987
shares; outstanding:
3,733,987 shares in 1997 and 1996 276,640 251,640
Additional paid-in capital 43,264 -
Retained earnings l,866 -
321,770 251,640
Less cost of 25,000 shares treasury stock l,272 -
Total stockholders' equity 320,498 251,640
$l,033,193 $500,850
<PAGE> F-5
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Income
For the Year Ended September 26, 1997 and
the Nine Months Ended September 27, 1996
1997 1996
Revenues
Billings $730,546 $483,630
Other revenue 18,052 -
Total revenues 748,598 483,630
Expenses
Salaries and benefits 373,527 238,018
Consultants 110,486 59,375
Administrative 45,965 48,965
Contributions 325 -
Depreciation and amortization 31,797 13,181
Equipment 9,861 7,540
Insurance 3,327 2,294
Legal and accounting 30,937 500
Travel 14,709 8,417
Postage 30,579 22,871
Rent 20,400 15,300
Software 13,481 -
Taxes l,439 935
Telephone 17,863 9,042
Total expenses 704,696 426,438
Other expenses
Interest 34,095 18,695
Officer's life insurance 5,741 5,249
Loss on sale of fixed assets - 7,346
Total other expenses 39,836 31,290
Income before income taxes 4,066 25,902
Income taxes 2,200 -
Net income $ l,866 $ 25,902
Net income per common share $ .0005 $ .0069
The accompanying notes are an integral part of these financial statements.
<PAGE> F-6
Statements of Changes in Stockholders' Equity
For the Year Ended September 26, 1997
and the Nine Months Ended September 27, 1996
<TABLE>
<CAPTION>
Common Stock
Physician Acadia National Treasury
Resources, Inc. Health Systems Additional Retained Stock
Shares Amount Shares Amount Paid in Capital Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 28, 1995 100 $ l,000 - $ - $ l,151 $ 37,075 - $ - $ 38,226
Net income - - - - - 25,902 - - 25,902
Shareholder distributions - - - - - (45,212) - - (45,212)
Additional capital contribution - - - - 824 - - - 824
Acquisition of affiliate (100) (l,000) 300,000 20,740 (l,975) (17,765) - - l,000
Conversion of debt to equity - - 3,258,987 160,900 - - - - 160,900
Issuance of common stock - - 175,000 70,000 - - - - 70,000
Balance, September 27, 1996 - - 3,733,987 251,640 - - - - 251,640
Treasury stock acquired - - - - - - (25,000) (l,272) (l,272)
Issuance of common stock - - 25,000 25,000 - - - - 25,000
Additional capital contribution - - - - 43,264 - - - 43,264
Net income - - - - - l,866 - - l,866
Balance, September 26, 1997 - $ - 3,758,987 $276,640 $43,264 $ 1,866 (25,000) $(l,272) $320,498
</TABLE>
<PAGE> F-7
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Cash Flows
For the Year Ended September 26, 1997 and
the Nine Months Ended September 27, 1996
1997 1996
Cash flows from operating activities
Net income $ l,866 $ 25,902
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 31,797 13,181
Loss on disposition of fixed assets - 7,347
Deferred income taxes 500 -
Decrease (increase) in
Accounts receivable and advances (547,106) 46,903
Prepaid expenses and other assets 26,184 3,610
Increase (decrease) in
Accounts payable 3,235 13,508
Accrued expenses (9,694) (28,247)
Income taxes payable l,700 -
Client escrow - (46,364)
Net cash provided (used) by operating activities (491,518) 35,840
Cash flows from investing activities
Deposits 12,000 (12,000)
Acquisition of equipment (87,493) (17,475)
Note receivable (75,000) -
Net cash used by investing activities (150,493) (29,475)
Cash flows from financing activities
Organizational costs (6,150) (8,700)
Deferred financing cost (2,352) -
Increase in note payable to stockholder 6,803 5,401
Net short-term borrowings 463,946 (22,000)
Principal payments on long-term debt (103,912) (828)
Proceeds from issuance of long-term debt 101,407 100,000
Purchase of treasury stock (l,272) -
Additional paid-in capital 43,264 824
Sale of common stock 25,000 -
Stockholder distributions - (45,212)
Net cash provided by financing activities 526,734 29,485
Net increase (decrease) in cash (115,277) 35,850
Cash, beginning of year 120,988 85,138
Cash, end of year $ 5,711 $120,988
The accompanying notes are an integral part of these financial statements.
<PAGE> F-8
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 26, 1997
Nature of Business
Acadia National Health Systems, Inc., (the Company) was formed on August 2,
1996, to provide practice management, invoicing and accounts receivable
collection services for doctors' offices, foster homes, and hospital-based
practices. The Company has adopted a 52/53 week year ending on the last Friday
in September.
The Company's operations commenced on September 27, 1996, after the
acquisition of an affiliate whose statement of income and cash flows for the
nine months ended September 27, 1996, are included herein (See Note 2).
1. Summary of Significant Accounting Policies
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.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid investments
with an original maturity of three months or less.
Earnings Per Share
Earnings per share are based upon the average number of common shares
outstanding during the year.
Property and Equipment
Property and equipment are stated at cost and are being depreciated over the
estimated useful lives of the assets using straight-line and accelerated
methods.
Deferred Costs
Deferred development and organizational costs are being amortized using the
straight-line method over five years.
<PAGE> F-9
Summary of Significant Accounting Policies (Concluded)
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period the change is enacted.
2. Acquisition of Affiliate
On September 27, 1996, the Company acquired all of the assets of
Physician Resources, Inc., in exchange for 300,000 shares of stock. The
Company also assumed the liabilities of Physician Resources, Inc. This
transaction was accounted for as a purchase, but because the parties to the
transaction were entities under common control, the acquired net assets were
recorded at amounts equal to Physician Resources, Inc.'s, carrying values.
Summarized financial information of the assets acquired and liabilities
assumed in this transaction is as follows:
Current assets $ 348,077
Other assets 82,773
Current liabilities (146,796)
Other liabilities (268,414)
$ 15,640
Immediately following the acquisition, $166,000 of debt owed to the
majority stockholder was converted to common stock. Additionally, common
stock valued at $70,000 was issued with respect to consulting costs incurred.
<PAGE> F-10
3. Accounts Receivable and Advances
Accounts receivable and advances consist of the following:
1997 1996
Accounts receivable $125,779 $ 98,045
Advances 641,610 122,238
$767,389 $220,283
The Company has arrangements with certain customers whereby the Company
advances the customers amounts based on their outstanding accounts receivable.
The Company then assumes the responsibility for billing and collecting such
receivables.
4. Indebtedness
Long-Term Debt:
Long-term debt consists of the following:
1997 1996
Note payable to bank at 9.75%, due in
monthly installments of $l,667, plus accrued
interest, with a final payment in July 2002;
collateralized by substantially all assets of
the Company $96,667 $99,172
Less current portion 20,000 10,805
Long-term debt, excluding current portion $76,667 $88,367
Maturities of long-term debt for the next five years are as follows:
1998 $20,000
1999 20,000
2000 20,000
2001 20,000
2002 16,667
<PAGE> F-11
Indebtedness (Concluded)
Lines of Credit:
The Company, as co-borrower with Community Living Options (CLO), a customer
of the Company, has a $250,000 revolving line of credit which is collateralized
by all assets of the Company, exclusive of real estate. Interest is at the
National Prime rate plus l% (9.5% at September 26, 1997). Borrowings under
this line of credit are limited to 80% of eligible accounts receivable of CLO
(trade accounts receivable due to CLO under its Job Smart program). Advances
under the line totaled $200,438 at September 26, 1997.
The Company also has a $400,000 revolving line of credit which is
collateralized by all assets of the Company, exclusive of real estate.
Interest is at the National Prime rate plus l% (9.5% at September 26, 1997).
Borrowings under this line of credit are limited to 80% of eligible accounts
receivable less the principal amount outstanding on the $100,000 term note
from same lender. Advances under the line totaled $352,425 at September 26,
1997.
Note Payable - Stockholder:
The Company has a note payable due on demand to a stockholder. The
stockholder has agreed that no demand will be made during 1998. The note is
unsecured and requires monthly interest payments at a rate of 10%.
5. Lease
The Company currently leases office space under an operating lease
agreement calling for monthly rental payments of $l,700. The lease expired on
December 31, 1996, and has been renewed on a monthly basis thereafter. Lease
payments totaled $20,400 in 1997.
6. Note Receivable
The Company holds a $75,000 conditional note receivable from a vendor
at 10% interest, due in monthly installments of $2,420, including interest
beginning November l, 1998. The note is secured by accounts receivable,
equipment and inventory of the vendor. This note will be applied as part of
the purchase price upon the successful completion of the purchase of the
vendor by the Company. See Note 8.
<PAGE> F-12
Income Taxes
Income tax expense, all but $500 of which is deferred, consists of:
Federal $l,750
State 450
$2,200
The current deferred tax asset of $l,400 results from accrued vacation
pay which is not currently deductible for income tax purposes.
The noncurrent deferred tax asset of $5,600 results from assets whose tax
basis differs from the financial statement carrying amount.
Physician Resources, Inc., and its shareholders elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Accordingly, all
income, losses and other tax attributes were reported to the stockholders and
included on their personal income tax returns. Therefore, no provision or
liability for income tax for the nine months ending September 27, 1996, have
been included in these financial statements.
8. Supplemental Cash Flow Information
Cash paid for interest amounted to $34,095 in 1997.
9. Commitments
The Company has signed letters of intent dated September 15, 1997 and
September 17, 1997, with three corporations to acquire 100% of their issued
and outstanding shares in exchange for certain considerations totaling
approximately $8,675,000 ($3,950,000 in cash and promissory notes, 2,066,667
in shares of the stock of the Company valued at $2.25 per share, as well as
application of the conditional loan described in Note 5). The Company intends
to utilize a portion of the proceeds of a proposed secondary offering of its
common stock (approximately $5,000,000) to satisfy its liability under this
agreement. The terms of these purchase agreements expire as of December 31,
1997, and are contingent upon meeting revenue projections, acceptance of due
diligence packages, and other conditions.
10. Reclassifications
Certain amounts from 1996 have been reclassified to permit comparison
with 1997.
<PAGE>
CONSENT OF COUNSEL
I hereby consent to the use of my name as legal counsel in the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended September 26, 1997 filed by Acadia National Health
Systems, Inc. on Form 10-KSB.
MARK T. THATCHER, P.C.
/S/ Mark T. Thatcher
By:_____________________________
MARK T. THATCHER, President
Newport, RI
December 23, 1997
We hereby consent to the use of our name as auditing firm in the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended September 26, 1997 filed by Acadia National Health
Systems, Inc. on Form 10-KSB.
Berry, Dunn, McNeil & Parker
December 23, 1997
Portland, Maine
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CAPTION>
ARTICLE 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-27-1997
<PERIOD-START> Sep-28-1996
<PERIOD-END> Sep-26-1997
<CASH> 5,711
<SECURITIES> 0
<RECEIVABLES> 767,389
<ALLOWANCES> 0
<INVENTORY> 2,942
<CURRENT-ASSETS> 823,122
<PP&E> 176,762
<DEPRECIATION> 78,924
<TOTAL-ASSETS> 1,033,193
<CURRENT-LIABILITIES> 615,178
<BONDS> 97,517
<COMMON> 276,640
0
0
<OTHER-SE> 43,858
<TOTAL-LIABILITY-AND-EQUITY> 1,033,193
<SALES> 730,546
<TOTAL-REVENUES> 748,598
<CGS> 0
<TOTAL-COSTS> 704,696
<OTHER-EXPENSES> 5,741
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,095
<INCOME-PRETAX> 4,066
<INCOME-TAX> 2,200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<PAGE>
<CHANGES> 0
<NET-INCOME> 1,866
<EPS-PRIMARY> 0005
<EPS-DILUTED> 0005
</TABLE>
