UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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.)
415 Rodman Rd., Auburn , Maine U.S.A. 04240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(207) 777-3423
(800) 479-3066
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 - 5,011,987 shares as of
June 30, 1999.
<PAGE> 1
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ACADIA NATIONAL HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30 June 30 June 30
________ ________ ________ ________
1999 1998 1999 1998
________ ________ ________ ________
Sales 480,318 $ 309,228 $ 1,609,962 $ 733,635
Operating Expenses 693,459 $ 278,754 $ 1,805,040 $ 682,848
----------- ----------- ----------- -----------
Net Operating Income (213,141) $ 30,474 $ (195,078) $ 50,787
Other Income/(Expense), Net 0 $ 5,161 $ (7,656) $ -
----------- ----------- ----------- -----------
Net Income (Loss) Bef. Tax (213,141) $ 35,635 $ (202,734) $ 50,787
(Provision for)
Income Taxes 36,498 $ (7,213) $ 36,498 $ (10,100)
----------- ----------- ----------- -----------
Net Income (176,643) $ 28,422 $ (166,236) $ 40,687
=========== =========== =========== ===========
Net Income Per
Common Share $ (0.03642) $ 0.00760 $ (0.03732) $ 0.01089
Weighted Average Number
of Common Shares
Outstanding 4,849,554 3,737,987 4,453,876 3,735,320
See Accompanying
Notes to Financial Statements
<PAGE> 2
ACADIA NATIONAL HEALTH SYSTEMS, INC.
BALANCE SHEETS
June 30, 1999 September 30, 1998
(Unaudited) (Audited)
Current Assets:
Cash-Operating $ 31,150 $ 2,529
Accounts Receivable 833,466 768,751
Unbilled Work at Estimated
Realizable Value 442,389 232,356
Prepaid & Other Assets 176,101 89,519
----------- -----------
Total Current Assets $ 1,483,107 $ 1,093,155
Prop., Plant & Equip.:
Cost $ 769,439 464,154
Less Accum. Depr. (161,762) (94,863)
----------- -----------
$ 607,677 $ 369,291
Other Assets:
Deferred Taxes 45,000 5,960
Intangible Assets, Net 131,509 115,077
Notes Receivable & Advances 125,900 63,487
----------- -----------
302,409 184,524
Total Assets $ 2,393,193 $ 1,646,970
=========== ===========
Current Liabilities:
Accounts Payable $ 121,308 $ 72,633
Line of Credit 925,502 542,738
Accrued Expense 55,532 52,109
Current Portion of
Long Term Notes 124,200 113,400
----------- -----------
Total Current Liabilities $ 1,226,542 $ 780,880
Long Term Liabilities:
Long Term Debt
& Capital Leases 330,738 361,442
Deferred Taxes $ 27,000 $ 12,500
----------- -----------
Total Liabilities $ 1,584,281 $ 1,154,822
___________ ___________
Stockholders' Equity:
Common Stock $ 877,640 $ 394,640
Paid In Capital 41,993 41,992
Retained Earnings (110,721) 55,516
----------- -----------
Total Equity $ 808,912 $ 492,148
----------- -----------
Total Liabilities &
Equity $ 2,393,193 $ 1,646,970
=========== ===========
See Accompanying
Notes to Financial Statements.
<PAGE> 4
ACADIA NATIONAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
June 30, June 30,
1999 1998
----------------- -----------------
Net Income (Loss) $ (166,236) $ 40,687
Depreciation & Amortization 85,999 27,210
Changes in Assets & Liabilities:
Accounts Receivable $ (274,748) $ 233,038
Other Current Assets (86,582) (24,669)
Other Non-current Assets (117,885) 22,150
Accounts Payable 48,675 (6,308)
Other Current Liabilities 392,387 (271,227)
----------------- -----------------
Net Cash (Used for) Provided
By Operating Activities $ (118,390) $ 20,881
Investment Activities (305,285) (41,388)
Financing Activities 452,296 17,758
----------------- -----------------
Net Increase (Decrease) in $ 28,621 $ (2,749)
Cash or Cash Equivalents
Cash & Cash Equivalents:
Beginning of Period 2,529 5,712
End of Period $ 31,150 $ 2,963
================= =================
See Accompanying
Notes to Financial Statements
<PAGE> 5
ACADIA NATIONAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
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.
Revenue Recognition
The Company offers practice management, consulting, and billing services
to the medical community including physicians, other medical providers and
foster homes. Billing services for these varied medical providers constitutes
a significant portion of the company's business, and clients are charged for
their services based on (a) a percentage of collections, (b) hourly rates, or
(c) fixed monthly fee arrangements. Revenue recognition occurs when, and to
the extent, the services have been provided.
The accompanying unaudited financial statements should be read in
conjunction with the audited balance sheet of Acadia National Health Systems,
Inc. ("the Company"). 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
4,453,876 shares for the nine months ended June 30, 1999 and 3,735,320 shares
for the nine months ending June 30, 1998.
Note 3. Long Term Debt Short Term Financing
One June 15, 1999, the Company signed on a $1,250,000 Revolving Line of
Credit with Citizens Bank of New Hampshire ("Bank") for its operating line
and term loan needs. A portion of the proceeds were used to pay off existing
obligations, including long term debt, with Northeast Bank, FSB of Maine.
The total line of credit drawn upon from Bank as of June 30, 1999 was $748,154.
On that same date, Bank provided company with a $250,000 term loan with
interest at 9.02%, due in monthly installments of $5207, including interest,
through June, 2004. The note balance at June 30, 1999 is $250,000. The line
of credit is collateralized by a first lien security interest in all corporate
assets of the company.
The company also has a note payable collateralized by a vehicle which
totals $13,276 at June 30, 1999.
A total of $243,085 of equipment was acquired at various times under
capital leases. Capital lease obligations at June 30, 1999 total $191,662.
Note 4. 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.
06/30/99 06/30/98
Accounts Receivable (Trade) $ 602,142 $ 201,114
Advances 673,712 333,237
Total Accounts Receivable $1,275,854 $ 534,351
========== ===========
The significant increase in Accounts Receivable and corresponding increase in
Accounts Payable is due to a timing difference in advances to these certain
clients.
Note 5. Note Receivable
The Company holds $81,671 in promissory notes receivable from a vendor
of which $75,000 earns 10% interest, due in monthly installments of $2,420,
including interest beginning November 1, 1998. The $75,000 note is secured
by accounts receivable, equipment and inventory of the vendor.
BUSINESS
Corporate Summary
Acadia National Health Systems, Inc., a corporation originally organized in
1971 and re-organized in 1996, provides business management services to
physicians and hospitals, including data collection, data input, medical
coding, cash collections and accounts receivable management. These services
are designed to assist customers with the business management functions
associated with the delivery of healthcare services. We simplify the process
so that physicians and hospital staff can focus on providing quality patient
care. In addition, our services improve cash flows and reduce administrative
costs and burdens. We also provide information technology and consulting
services to healthcare markets.
We market our products and services primarily to integrated healthcare delivery
networks, hospitals, and physician practices. We will also continue to focus
on smaller practices in tertiary markets ignored by the major MSO players.
Our business and marketing plan combines the experiences of its leadership
team with expanded executive talent.
Our business objective is to become a major national Accounts Receivable
Management Services organization (ARMS) over the next five years. ARMS offer
accounts receivable management, consulting, software, business systems, and
related services 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.
Accounts receivable management is the cornerstone of Acadia's business, with
more than 85% of the revenue coming from this source. Accounts receivable
management is often the first service a provider seeks and becomes the entry
point for offering other services.
Our plan is to become a leading provider of business management solutions and
claims processing to physicians in the United States. Presently we serve
individual physician clients and physician groups throughout four states.
We offer clients both revenue and cost management services. Revenue
management services include medical coding, electronic and manual claims
submission, past due and delinquent accounts receivable collection, capitation
analysis and contract negotiation with payors, including managed care
organizations. Cost management provides comprehensive practice management
services including front office, administration, cash flow forecasting and
budgeting and general business services.
Acadia has implemented various forms of operating platforms to offer diversity
to our clients and our core business. The company is executing the strategic
initiatives to employ the "best demonstrated practice" through its application
of technology. The Auburn, Maine location will become the major hub of our
Wide Area Network (WAN). We maintain T1 and 56K data frame for our current
and future remote locations.
With remote office locations and a variety of users accessing the systems,
Acadia has implemented several forms of security to protect the network from
unauthorized use. Encryption is provided to the user and on the server level
including passwords.
PROPERTIES
Corporate headquarters and operations were relocated to a newly renovated
12,000 sq. ft. modern office building at 415 Rodman Road, Auburn, Maine. A
fixed, five year term lease at $5.50 sq. ft., triple net, five year renewal
term and amortization of $83,000 worth of leasehold improvements over the
same period at a fixed rate of 8%. Under the provision of the lease
agreement, Acadia has an option to acquire additional space under the same
terms and provisions.
The Company also occupies an 800 sq. ft. office suite located at 372 West
Street, Keene, New Hampshire. The facility is used to conduct accounts
receivable management activities with a one year lease to expire June 14,
2000.
Currently unoccupied is the former corporate and operations facility located
at 95 Park Street, Lewiston, Maine. Acadia, with its rapid growth had
outgrown the facility by March of 1999. The lease has an assignment and
sublet provision for the 5,600 sq. ft. area which is currently under contact
with a local real estate agent. The lease which commenced August 1, 1998
will expire July 31, 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF JUNE 30, 1999
General
Acadia completed the formation of its senior management team with widely
respected and experienced individuals from healthcare administration and
operations, sales and marketing, and large industry. We chose to recruit
recognized experts from diverse service and industrial backgrounds to
compliment our specialized operational staff. We acknowledge the short term
economic burden this senior management team places on our cash flow and
operating expense.
We feel their reputations and expertise qualifies our long term business plan
of building the infrastructure of our organization first, then using that
structure for marketing, sales, mergers and acquisitions as well as commercial
banking, investment banking and investor relations.
Our infrastructure and systems are almost complete. During our first two-year
phase of building, significant effort has gone into the design and
implementation of a growth and quality orientated structure. During this
period, we have been hampered by major external and resultant internal effects
of communication and hardware technology failures.
We clearly acknowledge that each and every one of these issues are part of
developing a successful business. Each of these issues has been addressed,
valued lessons learned, systems, people and structure implemented to minimize
future recurrences and most important, aggressive and successful
implementation of our long term business plan. We feel confident we now have
in place, our infrastructure capabilities of handing growth and producing a
superior quality product.
Consistent with our plan, marketing and sales efforts are starting to open a
number of contract and business relationship opportunities. We have numerous
introductory meetings and proposals pending.
We have been offered an investment banking relationship with a recognized and
respected firm who specializes in businesses of our size, service and
structure. Negotiations over terms are being reviewed.
Quarter Ended June 30, 1999 Compared to Quarter Ended June 30, 1998
Revenue: Revenues for the three-month period ending June 30, 1999 of $480,318
compared to June 30, 1998 of $309,228 produced a 55% increase in sales. These
revenues were adversely affected for the short term by a consolidation of
technology problems. All issues have been identified and are being resolved.
The nine month year-to-date sales of $1,609,962 versus the same period last
year of $733,635 provided a 119% increase in sales. These increases are from
new contracts and sales from acquisitions.
Sales: Acadia has initiated an aggressive marketing sales effort with a number
of contract proposals currently pending. The ramp up to revenue disclosure is
three to six months from contractual execution.
Expenses: Operating expenses for the three month period ending June 30, 1999
were $693,459 compared to June 30, 1998 for $278,754, a 148% increase. The
nine month year-to-date expenses of $1,805,040 versus $682,848 for a 164%
increase. Of the total expenditures for the three months ending June 30, 1999,
$63,000 for non-reoccurring, one-time expenses. During quarter ending
June 30, 1999, $58,000 was spent on the development and implementation of a
sales and marketing program.
Other Expenses: During the nine month year-to-date period ending June 30, 1999,
over $102,000 in consolidation expenses have been identified and eliminated.
In addition, another $125,000 in annualized corporate and operational expenses
have been identified and will be removed within the next three months without
inhibiting our sales and growth potential.
Contracts: Acadia has signed an agreement with Wallingford Capital of
Annapolis, Maryland and Atlanta, Georgia, a nationally respected merger and
acquisition consulting firm specializing in healthcare services, to actively
explore potential partners for our consideration. We continue to discuss a
corporate relationship with a number of companies without any guarantees for
successful mergers. Our work and focus on mergers and acquisitions continues
to be a major part of our growth strategy.
Balance Sheet Synopsis for the Quarter Ending June 30, 1999.
Current Assets: Routine increase in trade receivable and standard
prepaid assets.
Property Plant and Equipment: Leasehold improvements to a new operations
and corporate location of $141,000 and $164,000 in operations equipment and
technology.
Other Assets: Goodwill of $25,000 on the acquisition of Robert H.
O'Donnell's business interest giving Acadia a sales office presence in
Northampton, Massachusetts. Short term note receivables from a principal
client to be repaid over the next 12 months at market terms.
Current Liabilities: There have been routine increases in trade payables.
Acadia completed a major refinancing commercial banking relationship with
Citizens Bank of New Hampshire for its operating lines of credit and term loan
replacing similar credit with Northeast Bank, FSB of Maine. This refinancing
will allow long term access to debt and working capital.
Line of Credit: $1,250,000 variable rate of .75% over prime; currently at
8.5% as of June 30, 1999 of which $748,154 has been drawn down.
Long Term Debt: No additional net long-term debt was added.
Term Loan: $250,000 five year fixed rate note at 9.02 %.
Quarterly Results
The following table sets forth selected actual historical financial data
for the fiscal quarters of 1998 and 1999. This quarterly information is
unaudited but has been prepared on a basis consistent with the Company's
audited financial statements presented elsewhere herein and, in the Company's
opinion, includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Quarters Ended
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1999
- --------------------------------------------------------------------------------------------------------------------
Dec 31 Mar 31 Jun 30 Sept 30 Dec 31 Mar 31 Jun 30
Revenue $186,883 $232,188 $309,228 $406,673 $523,107 $606,537 $ 480,318*
Income from 15,200 13,562 35,635 15,974 11,177 (770) (205,485)
Operations
Net income 1,392 10,874 28,422 112,962 11,177 (770) (176,643)
* Reflects short term revenue decline due to technology interruption.
</TABLE>
Liquidity and Capital Resources
A Private Offering of 1,000,000 shares of restricted common stock under Rule
505, Regulation D was authorized by the Board of Directors to be issued.
The offering was fully subscribed with 966,000 common shares at $.50 per share
for $483,000. Senior management and board members were the largest
participants with Paul W. Chute, Chairman and Chief Executive Officer
purchasing 300,000 shares of restricted common stock.
Acquisitions for the nine month period ending June 30, 1999.
April 1, 1999 acquired limited assets of Robert H. O'Donnell's business
interest. Acadia acquired all current and developing consulting and sales
revenues.
On September 1, 1998, Acadia National Health Systems purchased selected assets
of Northeast Medical Business Group, Inc., a medical accounts receivable
management services corporation located in Keene, New Hampshire. The
management discussion and analysis of financial conditions and results of
operations includes the operations of Northeast from October 1, 1998 to March
31, 1999.
Y2K Compliance
The company is seeking to establish that all computer driven systems and
software in use by us will be able to recognize, calculate, and display data-
related dates correctly after the year 1999. We have established and
implemented a Y2K task force, business plan and Gantt chart. Preliminary
assessments which are expected to be completed by September 1, 1999, have
indicated that our major hardware and software programs are or will be Y2K
compliant. We will be converting accounts serviced by a non-compliant
software program by year end. Our internal information systems will
conduct our own testing as necessary to control costs.
Industry Compliance
On November 30, 1998, the Office of the Inspector General (OIG) Department of
Health and Human Services released its "Compliance Program Guidance for Third-
Party Medical Billing Companies". This comprehensive piece sets the standards
for accounts receivable management companies and healthcare professionals to
comply with Federal health program requirements. The impact of this program is
"while compliance with the guidelines is strictly voluntary, the existence of
an effective compliance program could mitigate any action".
Risk Minimization:
Aggressively enhance the companies internal program with the proper backbone
Establish a formal audit program to measure and maintain the gains of the
program Analyze the learnings and develop into a marketable program to the
industry
Forward-Looking Statement
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflects the Company's current views with respect to future events and
financial performance. 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 risk and uncertainties, and that actual results may differ materially
from those contemplated by such forward-looking statements. Readers are urged
to carefully review and consider the various disclosures made by the Company
in this report and in the Company's other reports filed with the Securities
and Exchange Commission. Attempt to advise interested parties of the risks
and factors that may affect the Company business is disclosed under the
section entitled Risk Factors. Important factors currently known to
management could cause actual results to differ materially from those in
forward-looking statements. The company undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes in the 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:
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;
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;
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;
Additional uncertainties regarding the ability for operating cash to meet the
current and projected cash flow needs of the organization.
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
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
<PAGE> 15
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
August 16, 1999 /s/ Mark T. Thatcher
Date
MARK T. THATCHER,
Filing Agent
August 16, 1999 /s/ Paul W. Chute
Date
PAUL W. CHUTE
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
Article 5 Fin. Data Schedule for 1st Qtr 10-Q
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Oct-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 31,150
<SECURITIES> 0
<RECEIVABLES> 1,275,855
<ALLOWANCES> 0
<INVENTORY> 54,265
<CURRENT-ASSETS> 1,483,107
<PP&E> 769,439
<DEPRECIATION> 161,762
<TOTAL-ASSETS> 2,393,193
<CURRENT-LIABILITIES> 1,226,542
<BONDS> 330,738
<COMMON> 877,640
0
0
<OTHER-SE> (68,729)
<TOTAL-LIABILITY-AND-EQUITY> 2,393,193
<SALES> 1,609,962
<TOTAL-REVENUES> 1,609,962
<CGS> 0
<TOTAL-COSTS> 1,805,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,642
<INCOME-PRETAX> (202,734)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (166,236)
<EPS-BASIC> (.037)
<EPS-DILUTED> (.037)
</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.
Responses are expected through the first quarter of 1999. The Company will
develop contingency plans during the first quarter of 1999 through the second
quarter of 1999 in response to assessments of the Year 2000 readiness of
customers, vendors and resellers. 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.
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.
The ownership and operation of hospitals is subject to comprehensive
regulation by federal and state governments which may adversely affect
hospital reimbursement. Such regulation could have an adverse effect on the
operations of hospitals in general, and consequently reduce the amount of the
Company's revenue related to potential hospital clients.
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.
GOVERNMENTAL BUDGETARY CONSTRAINTS AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on
the billing practices of healthcare providers and related entities. This
scrutiny has been directed at, among other things, fraudulent billing practices.
The Department of Health and Human Services in recent years has increased the
resources of its Office of Inspector General ("OIG") specifically to pursue
both false claims and fraud and abuse violations under the Medicare program.
This heightened examination has resulted in a number of high profile
investigations, lawsuits and settlements.
In November 1998, the OIG released compliance plan guidance for third
party billing companies, in which it identified certain areas which it viewed
as particularly problematic, including, but not limited to, billing for
undocumented items or services, unbundling, uncoding, inappropriate balance
billing, inadequate resolution of overpayments, lack of integrity in computer
systems, failure to maintain the confidentiality of information records, misuse
of provider identification numbers, duplicate billing and billing for discharge
in lieu of transfer, failure to properly use modifiers, illegal billing company
incentives, routine waiver of copayments and discounts and professional
courtesy. While not mandatory, OIG encourages companies such as Acadia and
healthcare providers to adopt compliance plans. The existence of an effective
compliance plan may reduce the severity of criminal sanctions for certain
healthcare related offenses and may be considered in the settlement of civil
investigations. The Company has an extensive compliance program that considers
every aspect of the OIG release.
In 1996, Congress enacted the Health Insurance Portability and Accounting
Act of 1996 ("HIPAA"), which expanded certain fraud and abuse provisions, such
as the application of Medicare and Medicaid fraud penalties to other federal
healthcare programs and the creation of additional criminal offenses relating
to healthcare benefit programs which are defined to include both public and
private payor programs. HIPAA also provides for forfeitures and asset freezing
orders in connection with such healthcare offenses. Civil monetary penalties
and program exclusion authority available to the OIG also have been expanded.
HIPAA contains provisions for instituting greater coordination of federal,
state and local enforcement agency resources and actions through the OIG. There
also have been several recent healthcare reform proposals that have included
an expansion of certain laws prohibiting payment for referrals of patients for
Medicare and Medicaid services to include referrals of any patients regardless
of payor source.
The United States Congress and the Clinton Administration continue to focus
on controlling growth in healthcare costs. Acadia anticipates that new
legislation may be introduced into Congress which may reduce projected increases
in Medicare and Medicaid expenditures and make other changes in the payment
and reimbursement received by healthcare providers from government healthcare
programs. Acadia anticipates that such proposed legislation could, if adopted,
change aspects of the present methods of paying providers under such programs
and provide incentives for Medicare and Medicaid beneficiaries to enroll in
health maintenance organizations and other managed care plans. Acadia cannot
predict the effect of any such 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 that may continue regardless of whether comprehensive federal or state
healthcare reform legislation is adopted and implemented. These medical reforms
include 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 by integrated delivery systems may result in a decrease in
demand for Acadia' billing and collection services for particular physician
practices, but this decrease may be offset by an increase in demand for
Acadia' consulting and comprehensive business management services (including
billing and collection services) for the new provider systems.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH
OTHER MANAGEMENT SERVICES COMPANIES.
The medical management services business is highly competitive. We compete
with national and regional physician and hospital reimbursement organizations
and collection businesses, national information and data processing
organizations, and physician groups and hospitals that provide their own
business management services. We are uncertain whether we can continue to
compete successfully with all of these competitors.
Potential industry and market changes that could adversely affect our
ability to compete for billing and medical management services' business
include:
- an increase in the number of managed care providers compared to
fee-for-service providers; and
- new alliances between healthcare providers and third-party payors in
which healthcare providers are employed by such third-party payors.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH
OTHER INFORMATION OUTSOURCING COMPANIES.
The business of providing medical services organization and consulting
services is also highly competitive. We compete with national and
regional companies in this regard. Certain of our competitors have longer
operating histories and greater financial, technical and marketing resources
than we do. We are uncertain whether we can continue to compete successfully
with these competitors.
OUR REVENUE AND OPERATIONS MAY BE ADVERSELY AFFECTED BY PRICING
PRESSURES WHICH ADVERSELY AFFECT OUR CLIENTS.
We believe that the revenue growth rate experienced by our healthcare
clients continues to be adversely affected by managed care pricing and declining
government reimbursement levels. At the same time, the process of submitting
healthcare claims for reimbursement to third-party payors in accordance with
applicable industry and regulatory standards grows in complexity and cost. We
believe that these trends have adversely affected and could continue to
adversely affect our customers' revenues and profitability and, therefore,
adversely affect us too.
CHANGES IN THE HEALTHCARE MARKETPLACE MAY DECREASE DEMAND FOR
OUR BILLING SERVICES.
In general, consolidation initiatives in the healthcare marketplace may
result in fewer potential clients for our services. Some of these types of
initiatives include:
- employer initiatives such as creating purchasing cooperatives, like
HMOs;
- 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.
We believe that the continued consolidation of management and billing
services through integrated delivery systems could result in a decrease in
demand for our billing and collection services for particular physician
practices.
FUTURE INVESTIGATIONS OF HEALTHCARE BILLING AND COLLECTION
PRACTICES MAY ADVERSELY AFFECT OUR BUSINESS.
Our medical billing and collection activities are governed by numerous
federal and state civil and criminal laws. Federal and state regulators
increasingly use these laws to investigate healthcare providers and companies,
like us, that provide billing and collection services. In connection with
these laws:
- we may be subjected to federal or state government investigation and
possible civil or criminal fines;
- we may ultimately be required to defend a false claims action;
- we may be sued by private payors; or
- we may be excluded from Medicare, Medicaid and/or other government
funded healthcare programs.
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.
