<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1998
Commission file Number 000-28976
Acadia National Health Systems, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 10509781
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
95 Park Street, Lewiston, Maine U.S.A.04240
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(207) 777-3423
(800) 274-9185
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $0 Par Value - 4,337,987 shares as of
December 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
ACADIA NATIONAL HEALTH SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)
December 31, 1998 December 31, 1997
_________________ _________________
Current Assets:
Cash-Operating $ 8,071 $ 9,955
Accounts Receivable 779,943 651,166
Unbilled Work at Estimated
Realizable Value 275,811 65,415
Prepaid & Other Assets 81,927 49,487
----------------- -----------------
Total Current Assets $ 1,145,752 $ 776,023
Prop., Plant & Equip.:
Cost 497,775 178,474
Less Accum. Depr. (115,623) (86,104)
----------------- -----------------
$ 382,512 $ 92,370
Other Assets:
Deferred Taxes 5,960 7,000
Intangible Assets 127,041 35,502
Less Accum. Amort. (19,816) (5,037)
Notes Receivable & Advances 182,803 90,289
----------------- -----------------
295,988 127,754
Total Assets $ 1,824,252 $ 996,147
================= =================
Current Liabilities:
Accounts Payable $ 62,559 $ 6,328
Line of Credit 476,193 490,014
Accrued Expense 69,887 65,109
Current Portion of
Long Term Notes 118,400 20,000
----------------- -----------------
Total Current Liabilities $ 727,039 $ 581,451
Long Term Liabilities:
Long Term Debt 343,888 92,517
----------------- -----------------
Total Liabilities $ 1,070,927 $ 673,968
<PAGE>
December 31, 1998 December 31, 1997
_________________ _________________
Stockholders' Equity:
Common Stock $ 644,640 $ 276,640
Paid In Capital & Treas. 41,993 42,281
Retained Earnings 66,692 3,258
----------------- -----------------
Total Equity $ 753,325 $ 322,179
----------------- -----------------
Total Liabilities &
Equity $ 1,824,252 $ 996,147
================= =================
See Accompanying
Notes to Financial
Statements
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
STATEMENT OF INCOME
FOR THE THREE MONTHS
ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
Three months ended Three months ended
December 31 December 31
__________________ __________________
1998 1997
__________________ __________________
Sales $ 523,107 $ 186,883
Operating Expenses $ 511,930 $ 171,683
------------------ ------------------
Net Operating Income 11,177 15,200
Other Income/(Expense), Net 0 (13,808)
------------------ ------------------
Net Income Before Taxes 11,177 1,392
(Provision for)
Benefit From Income Taxes 0 0
------------------ ------------------
Net Income $ 11,177 $ 1,392
================== ==================
Net Income Per
Common Share $ 0.0030 $ 0.0004
Weighted Average Number
of Common Shares
Outstanding 4,004,654 3,733,987
See Accompanying
Notes to Financial Statements
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
AND DECEMBER 31, 1997
(Unaudited)
Quarter Ending Quarter Ending
December 31, 1998 December 31, 1997
----------------- -----------------
Net Income (Loss) $ 11,177 $ 1,392
Depreciation & Amortization $ 28,251 $ 7,180
Changes in Assets & Liabilities:
Accounts Receivable $ (54,644) $ 50,807
Other Current Assets 7,590 535
Other Non-current Assets (119,316) 1,168
Accounts Payable (10,074) (12,335)
Other Current Liabilities (56,267) (21,390)
----------------- -----------------
Net Cash (Used for) Provided
By Operating Activities $ (193,283) $ 27,357
Investment Activities (33,621) (18,401)
Financing Activities 232,446 (4,712)
----------------- -----------------
Net Increase (Decrease) in $ 5,542 $ 4,244
Cash or Cash Equivalents
Cash & Cash Equivalents:
Beginning of Period 2,529 5,711
End of Period $ 8,071 $ 9,955
================= =================
See Accompanying
Notes to Financial
Statements
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with Generally Accepted Accounting Principles for interim financial
information and with the instructions to Form 10QSB and Rule 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included.
The accompanying unaudited financial statements should be read in
conjunction with the audited balance sheet of Acadia National Health Systems,
Inc. ("the Company") included in the 1998 Annual Report filed on Form 10-KSB.
The unaudited financial statements have been prepared in the ordinary
course of business for the purpose of providing information with respect to
the interim period.
Note 2. Net Income Per Common Share
Computation of net income per common share was based on the weighted
average number of shares outstanding during such periods. These amounted to
4,004,654 shares for the three months ending December 31, 1998 and 3,733,987
shares for the three months ending December 31, 1997.
Note 3. Long Term Debt - Short Term Financing
The total of lines of credit drawn upon (outstanding) from Northeast
Bank, FSB ("Bank") as of December 31, 1998 was $476,193 on a $650,000 demand
line limit, compared to $490,014 at December 31, 1997.
On July 24, 1997, Bank provided the Company an $100,000 term loan, and
on June 24, 1998 an additional $30,000, of which 99,942 is still outstanding
at December 31, 1998.
On September 1, 1998, Bank provided the Company a $200,000 term loan with
interest at 9.25%, due in monthly installments of $4,177, including interest,
through September 2003. The note balance at December 31, 1998 is $192,031.
The note, which was primarily used to fund the acquisition of Northeast
Medical Billing, is collateralized by equipment and fixtures of the Company.
The company also has a note payable collateralized by a vehicle which
totals
<PAGE>
$14,577 at December 31, 1998.
A total of $155,243 of equipment was acquired at various times during the
year under capital leases. Capital lease obligations at December 31, 1998
total $135,898.
All other loans and repayment of lines of credit payable to Bank and
future borrowings under any such credit facilities have been collateralized by
the accounts receivable and equipment of the Company.
Note 4. Majority Stockholders
Mr. Paul W. Chute, Mrs. Jacquelyn J. Magno and Mr. Mark T. Thatcher, all
members of the Board of Directors, had total voting authority, on December 31,
1998 and owned approximately 60% of the Common Stock of the Company.
Note 5. Account Receivable Financing
The Company has arrangements with certain customers whereby the Company
advances the customers amounts based on their security and collateralized by
their accounts receivable. The Company then assumes the responsibility for
billing and collecting such receivables.
12/31/98 13/27/97
Accounts Receivable (Trade) $422,858 $ 38,922
Advances 632,896 612,244
Total Accounts Receivable $1,055,754 $651,166
========== =========
Note 6. Note Receivable
The Company holds $90,208 in conditional notes receivable from a vendor
of which $75,000 earns 10% interest, due in monthly installments of $2,420,
including interest beginning November 1, l998. The $75,000 note is secured by
accounts receivable, equipment and inventory of the vendor.
<PAGE>
ITEM 2.
ACADIA NATIONAL HEALTH SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
December 31, 1998
RESULTS OF OPERATIONS:
=====================================
THREE MONTHS ENDING DECEMBER 31, 1998
=====================================
The Company's financial statements and notes thereto for the current period
and the audited financial statements and notes thereto for the fiscal year
ending September 30, l998, should be read in conjunction with this
Management's Discussion.
FORWARD-LOOKING INFORMATION
THIS FORM 10QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
ACADIA NATIONAL HEALTH SYSTEMS, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A.
SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF ACADIA NATIONAL HEALTH
SYSTEMS, INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON
WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY
SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE
HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT
99.1 TO THIS FORM 10QSB AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING
STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED
EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
RISK FACTORS
In addition to the other information contained in this report,
individuals should carefully consider the following risk factors:
1. The Company believes that its assumptions are based upon reasonable
data derived from and known about its business and operations. No assurances
are made that actual results of operations or the results of the Company's
future activities will not differ materially from its assumptions;
2. Additional risks factors such as the uncertainty of the Company's
marketing activities, and the results of bringing additional acquisitions and
affiliations into a smooth operation with Company are unknown;
3. Additional concerns regarding the year 2000 compliance standards as
they effect the Company's operating technology as well as the technologies of
the industry which effect payment and processing of Company's billings;
4. Additional uncertainties regarding the ability for operating cash to
meet the current and projected cash flow needs of the organization;
5. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they attempt to speak only of activities known
or anticipated as of this date.
YEAR 2000 COMPLIANCE
The Company continues to review its technology systems to attempt to discover
what effects year 2000 issues may have on its operations. Many of the earlier
systems, found not to be compliant, have been replaced while others are being
modified to comply. The Company is working with its known suppliers of
technology or services controlled by technology that might be effected by the
year 2000 events and are seeking written assurances from those determined to
have a potential effect upon Company's operations. However, there can be no
assurance that the Company will identify all of its data handling problems in
its business systems or those of its suppliers or clients in advance of any
effect upon Company's operations. The Company, therefore, bears some
unlimited and unknown risks to the year 2000 issue and could also be adversely
effected if other entities (State of Maine Department of Medicaid or
Medicare)do not adequately or timely resolve their payment mechanisms as it
relates to the Company's ongoing billing operations for its clients.
<PAGE>
Note:
On September 1, 1998, Acadia National Health Systems purchased selected assets
of Northeast Medical Business Group, Inc., a medical billing and management
services corporation located in Keene, New Hampshire. The following
management discussion and analysis of financial conditions and results of
operations includes the operations of Northeast from October 1, 1998 to
December 31, 1998.
SALES
Sales for the period were $523,107 compared to $186,883 for the corresponding
period in 1997. This significant increase is the result of new client business
which commenced mid March 1998 resulting in additional annualized revenues of
$425,000 as well as the acquisition of Northeast Medical Billing in September
1998 with annualized revenues of $650,000. The Company also signed a major
contract in July 1998 with a large local behavioral medicine group for a one
year term. Revenue on this contract in the 1998 fiscal year totaled $61,000
with additional revenue of $100,000 expected before the contract expires in
mid 1999. Two additional client contracts have been signed effective 1/1/99
with annualized gross revenues of $106,000 expected for fiscal year 1999.
OPERATING EXPENSES
Increases in operating expenses during the period were principally due to
increased costs incurred in servicing the expanded client base, in addition to
increases in depreciation, occupancy and administrative costs related to the
acquisition of Northeast Medical Billing.
<PAGE>
OPERATING INCOME
The operating gain for the quarter was $11,177 compared to a gain of $1,392
for the three month period in 1997.
INCOME TAXES
Acadia is a C Corporation with accruals of $390 for State and Federal taxes
at December 31, 1998.
NET INCOME
Acadia's gain of $11,177 was ($0.00279) per share on 4,004,654 outstanding
common shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company's non-trade accounts receivable increased to $632,896 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 $33,621 in property, plant
and equipment, principally computer systems and related equipment. Anticipated
public reporting expenses and planned acquisitions will place additional
demands on liquidity during the remainder of the next year. Management, with
its new principal lender, Northeast Bank FSB, maintain routine analysis of the
lines of credit and the Company's capital needs.
MAJOR ACQUISITION
The Company has initiated 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 FY 1999. Added billing clients, software sales, practice
management consulting, related support services and major acquisitions are
expected to result in significant revenue and earning increases in FY 1999
and beyond.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings or material proceedings known
to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
ITEM 5. Other Information
OTHER INFORMATION
=================
Acadia has spent the last few months of operation preparing the 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 timely
maintained our Section 12, Exchange Act of 1934 public reporting requirements
and trade on the OTC Bulletin Board under our symbol OTCBB: "ACAD".
Discussions continue with other similar businesses for future acquisitions
and mergers. Also, the Company is actively working with underwriters and
capital formation specialists, concentrating in health care companies, to
arrange a secondary offering capitalization. Additionally the Company has
raised $275,000 of a $500,000 private placement offering, with the balance
expected to be raised in the second quarter of fiscal year 1999.
Another major accomplishment this year was the 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.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
Exhibit 99.1 Safe Harbor Compliance Statement
b. Reports on Form 8-K
A report on Form 8-K was filed by the Company during
the quarter on the following dates:
Press Release dated November 12, 1998;
Press Release dated November 24, 1998;
Press Release dated December 18, 1998.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Registrant
February 17, l999 /s/ Mark T. Thatcher
MARK T. THATCHER,
Filing Agent
February 17, 1999 /s/ Paul W. Chute
PAUL W. CHUTE
Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<CAPTION>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-START> Oct-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 8,071
<SECURITIES> 0
<RECEIVABLES> 1,055,754
<ALLOWANCES> 0
<INVENTORY> 14,149
<CURRENT-ASSETS> 1,145,752
<PP&E> 497,775
<DEPRECIATION> 115,263
<TOTAL-ASSETS> 1,824,252
<CURRENT-LIABILITIES> 727,039
<BONDS> 343,888
<COMMON> 644,640
0
0
<OTHER-SE> 108,685
<TOTAL-LIABILITY-AND-EQUITY> 1,824,252
<SALES> 523,107
<TOTAL-REVENUES> 523,107
<CGS> 0
<TOTAL-COSTS> 511,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,222
<INCOME-PRETAX> 11,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,177
<EPS-PRIMARY> (.003)
<EPS-DILUTED> (.003)
</TABLE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Sections 77z 2 and 78u 5 (Supp. 1996), Congress encouraged
public companies to make "forward looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward looking statements. Acadia National Health Systems, Inc. ("Acadia"
or the "Company") intends to qualify both its written and oral forward looking
statements for protection under the Reform Act and any other similar safe
harbor provisions.
"Forward looking statements" are defined by the Reform Act. Generally, forward
looking statements include expressed expectations of future events and the
assumptions on which the expressed expectations are based. All forward
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward looking statements of Acadia. The
Company undertakes no obligation to update or revise this Safe Harbor
Compliance Statement for Forward Looking Statements (the "Safe Harbor
Statement") to reflect future developments. In addition, Acadia undertakes no
obligation to update or revise forward looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
Acadia provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward looking
statements include the disclosures contained in the Quarterly Report on Form
10-QSB to which this statement is appended as an exhibit and also include the
following:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness and, as a result, significant debt
service obligations. The Company's ability to make payments on its debt
obligations will depend on its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. If the Company is
unable to service its indebtedness, it will be required to adopt alternative
strategies, which may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms.
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures,
acquisitions or other general corporate purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for its operations; (iii)
the Company's existing indebtedness contains, and future financings are
expected to contain, financial and other restrictive covenants, including
without limitation those restricting the incurrence of additional
indebtedness, the creation of liens, the payment of dividends, sales of
assets, capital expenditures, and prepayment of indebtedness and those
requiring maintenance of minimum net worth, minimum EBITDA and minimum
interest coverage and limiting leverage; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest which
expose the Company to the risk of increases in interest rates; and (v) the
Company may be more leveraged than certain of its competitors, which may place
the Company at a relative competitive disadvantage and make the Company more
vulnerable to changes in its industry and changing economic conditions. As a
result of the Company's level of indebtedness, its financial capacity to
respond to market conditions, extraordinary capital needs and other factors
may be limited.
LIQUIDITY
The Company expects to consummate the sale of equity in connection with a
planned secondary offering prior to September 30, 1999 and to use a portion of
the net proceeds from the sale to pay off indebtedness. There can be no
assurance that the sale will close by such date or at all.
LITIGATION AND GOVERNMENT INVESTIGATIONS
Numerous federal and state civil and criminal laws govern medical billing
activities. In general, these laws provide for various fines, penalties,
multiple damages, assessments and sanctions for violations, including possible
exclusion from Medicare, Medicaid and certain other federal and state
healthcare programs.
The Company and its clients from time to time anticipate that they will
receive in the future, official inquiries (including subpoenas, search
warrants, as well as informal requests) concerning particular billing
practices related to the Company and its many clients.
EVOLVING INDUSTRY STANDARDS; RAPID TECHNOLOGICAL CHANGES
Acadia's success in its business will depend in part upon its continued
ability to enhance its existing products and services, to introduce new
products and services quickly and cost effectively to meet evolving customer
needs, to achieve market acceptance for new product and service offerings and
to respond to emerging industry standards and other technological changes.
There can be no assurance that Acadia will be able to respond effectively to
technological changes or new industry standards. Moreover, there can be no
assurance that competitors of Acadia will not develop competitive products, or
that any such competitive products will not have an adverse effect upon
Acadia's operating results.
The Company intends further to refine, enhance and develop certain of the
Company's existing software and billing systems and to change all of the
Company's billing and accounts receivable management services operations over
to the Company's most proven software systems and technology to reduce the
number of systems and technologies that must be maintained and supported.
Moreover, management intends to continue to implement "best practices" and
other established process improvements in its operations going forward. There
can be no assurance that the Company will be successful in refining, enhancing
and developing its software and billing systems going forward, that the costs
associated with refining, enhancing and developing such software and systems
will not increase significantly in future periods, that the Company will be
able successfully to migrate the Company's billing and accounts receivable
management services operations to the Company's most proven software systems
and technology or that the Company's existing software and technology will not
become obsolete as a result of ongoing technological developments in the
marketplace.
YEAR 2000
It is possible that the Company's currently installed computer systems,
software products or other business systems, or those of the Company's
customers, vendors or resellers, working either alone or in conjunction with
other software or systems, will not accept input of, store, manipulate and
output dates for the year 2000 or thereafter without error or interruption
(commonly known as the "Year 2000" problem). The Company has conducted a
review of its business systems, including its computer systems, and is
querying its customers, vendors and resellers as to their progress in
identifying and addressing problems that their computer systems may face in
correctly interrelating and processing date information as the year 2000
approaches and is reached. Through its review, the Company has identified a
number of older legacy systems that will be abandoned in favor of a limited
number of more efficient processing systems, rather than make all the systems
Year 2000 compatible. Customers, vendors and resellers have been identified
and requests for information distributed regarding the Year 2000 readiness of
such parties.
The estimated cost of the Company's Year 2000 efforts is $25,000 to $30,000
over 1998 and 1999, the majority of which represents redirection of internal
resources. However, there can be no assurance that the Company will identify
all such Year 2000 problems in its computer systems or those of its customers,
vendors or resellers in advance of their occurrence or that the Company will
be able to successfully remedy any problems that are discovered. The expenses
of the Company's efforts to identify and address such problems, or the
expenses or liabilities to which the Company may become subject as a result
of such problems, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenue. In addition, failure of the Company to identify and remedy
Year 2000 problems could put the Company at a competitive disadvantage
relative to companies that have corrected such problems.
COMPETITION; INDUSTRY AND MARKET CHANGES
The business of providing billing and management services to physicians and
hospitals is highly competitive. Acadia competes with certain national and
regional physician and hospital reimbursement organizations and billing
businesses (including local independent operating companies), certain
national information and data processing organizations and certain physician
groups and hospitals that provide their own business management services.
Potential industry and market changes that could adversely affect the billing
aspects of Acadia's business include (i) a significant increase in managed
care providers relative to conventional fee for service providers, potentially
resulting in substantial changes in the medical reimbursement process, or the
Company's failure to respond to such changes and (ii) new alliances between
healthcare providers and third party payors in which healthcare providers are
employed by such third party payors. The business of providing application
software, information technology and consulting services is also highly
competitive and Acadia faces competition from certain national and regional
companies in connection with its technology operations. Certain of Acadia's
competitors have longer operating histories and greater financial, technical
and marketing resources than Acadia. There can be no assurance that
competition from current or future competitors will not have a material
adverse effect upon Acadia.
The Company's business is affected by, among other things, trends in the U.S.
healthcare industry. As healthcare expenditures have grown as a percentage of
the U.S. Gross National Product, public and private healthcare cost
containment measures have applied pressure to the margins of healthcare
providers.
Historically, some healthcare payors have paid the prices established by
providers while other healthcare payors, notably government agencies and
managed care companies, have paid less than established prices (in many cases
less than the average cost of providing the services). As a consequence,
prices charged to healthcare payors willing to pay established prices have
increased in order to recover the cost of services purchased by government
agencies and others but not paid for by them (i.e., "cost shifting"). The
increasing complexity in the reimbursement system and assumption of greater
payment responsibility by individuals have caused healthcare providers to
experience increase accounts receivable and bad debt levels and higher
business office costs. Healthcare providers historically have addressed these
pressures on profitability by increasing their prices, by relying on
demographic changes to support increases in the volume and intensity of
medical procedures and by cost shifting. Notwithstanding the providers'
responses to these pressures, management believes that the revenue growth
rate experienced by certain of the Company's clients continues to be adversely
affected by increased managed care and other industry factors affecting
healthcare providers in the United States. At the same time, the process of
submitting healthcare claims for reimbursement to third party payors in
accordance with applicable industry and regulatory standards continues to
grow in complexity and to become more costly. Management believes that
these trends have adversely affected and could continue to adversely affect
the revenues and profit margins of the Company's operations.
GOVERNMENTAL INVESTIGATORY RESOURCES AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on the
billing practices of healthcare providers and related entities, and
particularly on possibly fraudulent billing practices. This heightened
scrutiny has resulted in a number of high profile civil and criminal
investigations, lawsuits and settlements.
In 1996, Congress enacted the Health Insurance Portability and Accounting Act
of 1996, Pub. L. No. 104 191, 1996 U.S.C.C.A.N. (110 Sat. 1936) (codified in
scattered sections of the United States Code, including 18, 26, 29 and 42
U.S.C.), which includes an expansion of provisions relating to fraud and
abuse, creates additional criminal offenses relating to healthcare benefit
programs, provides for forfeitures and asset freezing orders in connection
with such healthcare offenses and contains provisions for instituting greater
coordination of federal, state and local enforcement agency resources and
actions.
In recent years, the focus of healthcare legislation has been on budgetary and
related funding mechanism issues. Both the Congress and the Clinton
Administration have made proposals to reduce the rate of increase in projected
Medicare and Medicaid expenditures and to change funding mechanisms and other
aspects of both programs. In late 1995, Congress passed legislation that would
substantially reduce projected expenditure increases and would make
significant changes in the Medicare and Medicaid programs. Acadia cannot
predict the effect of pending legislation, if adopted, on its operations.
A number of states in which Acadia has operations either have adopted or are
considering the adoption of healthcare reform proposals at the state level.
Acadia cannot predict the effect of proposed state healthcare reform laws on
its operations. Additionally, certain reforms are occurring in the healthcare
market, including certain employer initiatives such as creating purchasing
cooperatives and contracting for healthcare services for employees through
managed care companies (including health maintenance organizations), and
certain provider initiatives such as risk sharing among healthcare providers
and managed care companies through capitated contracts and integration among
hospitals and physicians into comprehensive delivery systems. Consolidation of
management and billing services through integrated delivery systems may result
in a decrease in demand for Acadia billing services for particular physician
practices.
EXISTING GOVERNMENT REGULATION
Existing government regulation can adversely affect Acadia's business through,
among other things, its potential to reduce the amount of reimbursement
received by Acadia's clients for healthcare services. Acadia's medical
billing activities are also governed by numerous federal and state civil and
criminal laws. In general, these laws provide for various fines, penalties,
multiple damages, assessments and sanctions for violations, including possible
exclusion from Medicare, Medicaid and certain other federal and state
healthcare programs. Submission of claims for services or procedures that are
not provided as claimed, or which otherwise violate the regulations, may lead
to civil monetary penalties, criminal fines, imprisonment and/or exclusion
from participation in Medicare, Medicaid and other federally funded healthcare
programs. Specifically, the Federal False Claims Act allows a private person
to bring suit alleging false or fraudulent Medicare or Medicaid claims or
other violations of the statute and for such person to share in any amounts
paid to the government in damages and civil penalties. Successful plaintiffs
can receive up to 25 30% of the total recovery from the defendant. Such qui tam
actions or "whistle blower" lawsuits have increased significantly in recent
years and have increased the risk that a company engaged in the healthcare
industry, such as Acadia and many of its customers, may become the subject of
a federal or state investigation, may ultimately be required to defend a false
claims action, may be subjected to government investigation and possible
criminal fines, may be sued by private payors and may be excluded from
Medicare, Medicaid and/or other federally funded healthcare programs as a
result of such an action. Some state laws also provide for false claims
actions, including actions initiated by a qui tam plaintiff. Any such
proceeding or investigation could have a material adverse effect upon the
Company.
There can be no assurance that current or future government regulations or
healthcare reform measures will not have a material adverse effect upon
Acadia's business.
VOLATILITY OF STOCK PRICE
Acadia believes factors such as the Company's liquidity and financial
resources, healthcare reform measures and quarter to quarter and year to year
variations in financial results could cause the market price of Acadia Common
Stock to fluctuate substantially. Any adverse announcement with respect to
such matters or any shortfall in revenue or earnings from levels expected by
Management could have an immediate and material adverse effect on the trading
price of Acadia Common Stock in any given period. As a result, the market for
Acadia Common Stock may experience material adverse price and volume
fluctuations and an investment in the Company's Common Stock is not suitable
for any investor who is unwilling to assume the risk associated with any such
price and volume fluctuations.
