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 March 31, 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) 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 - 4,687,987 shares as of
March 31, 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 Six months ended
March 31 March 31 March 31 March 31
________ ________ ________ ________
1999 1998 1999 1998
________ ________ ________ ________
Sales 606,537 $ 232,188 $ 1,129,644 $ 419,246
Operating Expenses 607,307 $ 218,626 $ 1,119,237 $ 406,981
----------- ----------- ----------- -----------
Net Operating Income (770) $ 13,562 $ 10,407 $ 12,266
Other Income/(Expense), Net 0 $ - $ - $ -
----------- ----------- ----------- -----------
Net Income (Loss) Bef. Tax (770) $ 13,562 $ 10,407 $ 12,266
(Provision for)
Income Taxes 0 $ (2,688) $ - $ -
----------- ----------- ----------- -----------
Net Income (770) $ 10,874 $ 10,407 $ 12,266
=========== =========== =========== ===========
Net Income Per
Common Share $ (0.00017) $ 0.00291 $ 0.00245 $ 0.00328
Weighted Average Number
of Common Shares
Outstanding 4,474,468 3,733,987 4,239,654 3,733,987
See Accompanying
Notes to Financial Statements
<PAGE> 2
ACADIA NATIONAL HEALTH SYSTEMS, INC.
BALANCE SHEETS
March 31, 1999 September 30, 1998
(Unaudited) (Note)
Current Assets:
Cash-Operating $ 0 $ 2,529
Accounts Receivable 967,364 735,333
Unbilled Work at Estimated
Realizable Value 390,058 265,774
Prepaid & Other Assets 103,435 89,519
----------- -----------
Total Current Assets $ 1,460,857 $ 1,093,155
Prop., Plant & Equip.:
Cost $ 534,854 465,154
Less Accum. Depr. (133,494) (94,863)
----------- -----------
$ 401,360 $ 369,291
Other Assets:
Deferred Taxes 5,960 5,960
Intangible Assets, Net 127,041 115,077
Notes Receivable & Advances 263,275 63,487
----------- -----------
372,521 184,524
Total Assets $ 2,234,738 $ 1,646,970
=========== ===========
Current Liabilities:
Accounts Payable $ 256,059 $ 72,633
Line of Credit 512,273 542,738
Accrued Expense 55,060 52,109
Current Portion of
Long Term Notes 124,200 113,400
----------- -----------
Total Current Liabilities $ 947,592 $ 780,880
Long Term Liabilities:
Long Term Debt 344,091 361,442
Deferred Taxes $ 12,500 $ 12,500
----------- -----------
Total Liabilities $ 1,304,183 $ 1,154,822
___________ ___________
<PAGE> 3
Stockholders' Equity:
Common Stock $ 822,640 $ 394,640
Paid In Capital 41,993 41,992
Retained Earnings 65,922 55,516
----------- -----------
Total Equity $ 930,555 $ 492,148
----------- -----------
Total Liabilities &
Equity $ 2,234,738 $ 1,646,970
=========== ===========
Note: The balance sheet at September 30, 1998 has been derived from the
audited financial statements of that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See Accompanying Notes to Financial Statements.
<PAGE> 4
ACADIA NATIONAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR TO DATE
MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
Six Months Ending Six Months Ending
March 31 March 31
1999 1998
----------------- -----------------
Net Income (Loss) $ 10,407 $ 12,265
Depreciation & Amortization 50,422 17,160
Changes in Assets & Liabilities:
Accounts Receivable $ (356,315) $ (36,630)
Other Current Assets (13,916) (38,354)
Other Non-current Assets 0 22,600
Accounts Payable 183,426 28,318
Other Current Liabilities (16,714) 146,904
----------------- -----------------
Net Cash (Used for) Provided
By Operating Activities $ (142,690) $ 152,263
Investment Activities (70,700) (2,436)
Financing Activities 210,861 (135,968)
----------------- -----------------
Net Increase (Decrease) in $ (2,529) $ 13,859
Cash or Cash Equivalents
Cash & Cash Equivalents:
Beginning of Period 2,529 5,711
End of Period $ 0 $ 19,570
================= =================
See Accompanying
Notes to Financial
Statements
<PAGE> 5
ACADIA NATIONAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 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
4,239,654 shares for the six months ended March 31, 1999 and 3,733,987 shares
for the six months ending March 31, 1998.
Note 3. Long Term Debt - Short Term Financing
The total of lines of credit drawn upon (outstanding) from Northeast
Bank, FSB ("Bank") as of March 31, 1999 was $512,273 on a $650,000 demand line
limit, compared to $426,895 at March 31, 1998.
On July 24, 1998, Bank provided the Company an $100,000 term loan, and on June
24, 1998 an additional $30,000, of which 93,707 is still outstanding March 31,
1999.
<PAGE> 6
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 March 31, 1999 is $181,078. 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
$13,931 at March 31, 1999.
A total of $170,243 of equipment was acquired at various times during the
year under capital leases. Capital lease obligations at March 31, 1999 total
$138,724.
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
Board of Directors, had total voting authority on March 31, 1999 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.
03/31/99 03/31/98
Accounts Receivable (Trade) $ 635,525 172,858
Advances 721,897 631,161
Total Accounts Receivable $ 1,357,422 $ 804,019
=========== ===========
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 6. Note Receivable
The Company holds $84,743 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.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATION
ACADIA NATIONAL HEALTH SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
March 31, 1999
RESULTS OF OPERATIONS:
======================
SIX MONTHS ENDING MARCH 31, 1999
=====================================
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.
<PAGE> 8
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 March
31, 1999.
SALES
Sales for the period were $1,129,644 compared to $419,246 for the
corresponding period in 1998. This significant increase is the result of new
client business that 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 $550,000. 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. The Company recently signed a new contract with this client,
extending it to March 31, 2000. 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 increa
sed costs incurred in servicing the expanded client base, as well as the
addition of a senior management team. There were also increases in
depreciation, occupancy and administrative costs related to the acquisition of
Northeast Medical Billing
OPERATING INCOME
The operating gain year to date was $10,407 compared to a gain of $12,266 for
the same period in 1998.
INCOME TAXES
Acadia is a C Corporation with prepaid taxes of $5,155 for State and Federal
taxes at March 31, 1999.
<PAGE> 9
NET INCOME
Acadia's gain of $10,407 was $0.00245 per share on 4,239,654 outstanding
common shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company's non-trade accounts receivable increased to $1,357,422 due to the
rapid growth of the waivered foster home program. These are clean secured
receivables with the majority due from the State of Maine. The Company added
$70,700 in property, plant and equipment in this six month period, 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 principal lender, Northeast
Bank FSB maintains routine analysis of the lines of credit and the Company's
capital needs.
OTHER INFORMATION
Acadia continues to develop systems and operations 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
maintained our public reporting and trading on the OTC Bulletin Board under
our symbol OTCBB: ACAD. Discussions continue with other similar businesses
for future acquisitions and mergers. Also, the Company continues to work
with underwriters and capital formation specialists to arrange additional
capital financing. The Company has raised $480,000 of a $500,000 private
placement offering at 50 cents per share, with the balance expected to be
raised in the third 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.
The Company is preparing to move to its new location at 415 Rodman Road,
Auburn, Maine. This move, while only a short distance away from our current
headquarters, gives us the opportunity to expand our operations and our
services.
MAJOR ACQUISITION
The Company has initiated discussions with various companies towards major
acquisitions that will greatly strengthen Acadia and its product lines, though
there is no assurance that these acquisitions will materialize as anticipated.
<PAGE> 10
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, practice management
consulting, related support services and acquisitions are expected to result
in revenue increases in FY 1999 and beyond.
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
assurance that the Company will identify all of its data handling problems in
<PAGE> 11
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.
BUSINESS AND PROPERTIES OF ACADIA NATIONAL HEALTH SYSTEMS, INC.
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, billing, 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, physician practices, long term care facilities
and home health providers. We will also continue to focus on small 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.
We are poised 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.
ACQUISITIONS
The Company has withdrawn its letter intent to purchase Vision Healthsource of
Madras, India and Vienna, Virginia. It was noted during the due diligence
process that the Company could better accomplish its business objectives by
utilizing Vision Healthsource as a contract agent. On April 1 the Company
acquired, for an undisclosed amount of cash and stock, Health Business Group,
a healthcare consulting company headquartered in Northampton, Massachusetts.
HBG provides on-going practice management services to a broad spectrum of
physicians including radiology, cardiology, pulmonology, internal medicine,
family practice, and more. In addition, HBG has provided consulting services
to hospitals and managed care companies throughout New England.
<PAGE> 12
SERVICE
Billing is the cornerstone of Acadia's business, with more than 85% of the
revenue coming from this source. Billing 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,
automated patient billing, 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.
TECHNOLOGY
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 Lewiston,
Maine location will become the major hub of our Wide Area Network (WAN).
A form of redundancy has been implemented utilizing a secure ADSL connection
into our WAN to the Internet. ADSL offers 100% redundancy back up for all
remote sites. This connection provides our customers a low cost
telecommunication media with the effective speed desired.
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. A secure firewall has been established for our ADSL
Internet Line to further ensure data protection.
Acadia has developed proprietary electronic imaging using the most advanced
techniques for storing, retrieving and transferring documents across LAN and
WAN communication methods. This process allows all sites to access documents
for billing functions and related procedures.
<PAGE> 13
YEAR 2000 PROJECT
The company is establishing that all computer driven systems and software in
use are able to recognize, calculate and display data related data correctly
past the year 1999. Preliminary assessments have indicated that our primary
software is compliant with the others to be discontinued in the third quarter
of 1999. The focus of the Y2K project centers on hardware specific to
Lewiston, Maine.
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 billing 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
1. Aggressively enhance the companies internal program with the proper
backbone
2. Establish a formal audit program to measure and maintain the gains of
the program
3. Analyze the leanings and develop into a marketable program to the
industry
<PAGE> 14
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
May 14, 1999 /s/ Mark T. Thatcher
Date
MARK T. THATCHER,
Filing Agent
May 14, 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> 6-MOS
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Mar-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,357,422
<ALLOWANCES> 0
<INVENTORY> 23,450
<CURRENT-ASSETS> 1,460,857
<PP&E> 534,854
<DEPRECIATION> 133,494
<TOTAL-ASSETS> 2,234,738
<CURRENT-LIABILITIES> 947,592
<BONDS> 344,091
<COMMON> 822,640
0
0
<OTHER-SE> 107,915
<TOTAL-LIABILITY-AND-EQUITY> 2,234,738
<SALES> 1,129,644
<TOTAL-REVENUES> 1,129,644
<CGS> 0
<TOTAL-COSTS> 1,119,237
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,933
<INCOME-PRETAX> 10,407
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,407
<EPS-PRIMARY> (.002)
<EPS-DILUTED> (.002)
</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.
