FORM 10 KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] for the transition period from
____________ to ____________
Commission file number: 000-28976
ACADIA NATIONAL HEALTH SYSTEMS, INC.
(Name of small business issuer in its charter)
COLORADO 72 1234136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
415 Rodman Road
Auburn, Maine 04211-1328
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code:
(207) 777-3423
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to section 12(g) of the Securities Exchange Act:
Title of each class Name of each exchange on which registered
COMMON STOCK,
NO PAR VALUE PER SHARE NASD
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10 KSB or any
amendment to this Form 10 KSB
[ ]
The aggregate market value of the 3,122,154 shares of Common Stock held by non
affiliates was $.75 per share as of September 30, 1999. For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate. The market value of the shares was calculated
based on the closing sales of such shares on The OTC: Bulletin Board Market
on such date.
As of September 30, 1999, 5,013,987 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
See Part III, Item 13, Exhibits and Reports on Form 8-K
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
THIS FORM 10 KSB 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 10 KSB, 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
EXECUTIVE SUMMARY
Acadia National Health Systems, Inc., a corporation originally organized
in1971 and re-organized in 1996 under the laws of the State of Colorado
("Acadia" or the "Company"), 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, allowing
physicians and hospital staff to focus on providing quality patient care.
These services also assist physicians and hospitals in improving cash flows
and reducing administrative costs and burdens. The Company also provides
information technology and consulting services to healthcare markets.
Acadia markets its products and services primarily to integrated healthcare
delivery networks, hospitals, physician practices, long term care facilities
and home health providers. The Company will also continue to focus on small
practices in tertiary markets ignored by the major MSO players. Acadia's
business and marketing plan combines the experiences of its leadership team
with expanded executive talent.
The company was formed to become a major national Medical Management Services
Organization (MSO) over the next five years. MSOs offer billing, consulting,
software, business systems, related services and financing to physicians and
other health care providers. In a growing managed care environment, these
firms offer business resources to an industry that is traditionally clinically
oriented.
MSOs offer doctors and other medical providers an alternative that puts them
at the forefront of health care reform while positioning them to have choices
regarding their autonomy and profits.
THE HEALTHCARE INDUSTRY
The healthcare industry is undergoing significant and rapid change. Hospitals
and other healthcare providers have come under increased scrutiny from
regulators and third party payers. As a result, providers of healthcare are
now looking to "outsource" to third parties certain costly or complicated
functions that are not directly related to core competencies or where they
are unable to achieve economies of scale. In particular, billing, and the
delivery of such service in a timely fashion, has become critical to improving
productivity, efficiency and cost containment, while maintaining a high level
of patient care. For instance, many providers are finding that their medical
billing departments are inadequate, and to remedy the inadequacies of these
functions, they are beginning to turn to third party service providers which
have expertise in managing medical billing and other affiliated departments.
The healthcare industry has recognized the need for improvement in the
processing of healthcare information, billing and regulatory compliance, and
to achieve this improvement, there has been a dramatic increase in the
development of solutions offered by third party vendors.
Advances in telecommunications, Internet technologies and voice recognition
capabilities are emerging, creating opportunities to apply these technological
advances to various functions within the medical billing department, including
medical transcription, abstracting, and coding. These technologies enable
cost effective digital movement of voice, images, and data allowing for
offsite processing of these various functions. The ability to process offsite
allows for faster turnaround times, increased availability of skilled
professionals, and lower costs.
MARKETING MIX
Acadia will become a major national MSO within five years and will accomplish
this goal by developing and expanding its marketing along primary fronts:
Billing Service
Billing is and will continue to be the cornerstone of Acadia's business, with
more than 88% of the revenue coming from this source. Billing is often the
first service a provider seeks and becomes the entry toward offering other
services.
Acadia plans to become a leading provider of business management solutions and
claims processing to physicians in the United States. The Company presently
serves individual physician clients and physician groups throughout four (4)
states. Acadia offers 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 (i.e., an analysis of the price per
member paid to healthcare providers by managed care health programs for a
predetermined set of healthcare services and procedures) and contract
negotiation with payors, including managed care organizations. Cost
management provides comprehensive practice management services including front
office administration, employee benefit plan design and administration, cash
flow forecasting and budgeting and general consulting services.
Acadia's current systems support approximately ten (10) different medical and
surgical specialties.
Consulting
Acadia plans to develop a dedicated practice management division, led by
veterans with national exposure to critical medical consulting issues. This
experience will add significant marketing exposure and enhanced market
visibility to providers who may need some or all of the multifaceted health
care services provided by a MSO.
Acadia has developed a broad service selection. Its core services include
accounts receivable management, fee for service billing, expense accounting,
practice consulting, analysis of practice statistics, and electronic data
interchange ("EDI") consulting regarding claims and remittance status. The
Company also has developed a variety of emerging services in response to the
changing business needs of physicians, including: activity based costing
systems; consulting services regarding alliances and mergers and acquisitions;
capitation management and analysis; compliance services; consulting regarding
EDI for eligibility, referrals and authorizations; outcomes reporting; and
medical guidelines management. Acadia has expanded its range of services to
include information management and consulting services for mergers and group
formations, and has created a distinct operating unit whose exclusive mission
is to manage specialty networks.
Company Objectives
The combination of billing services, software, and consulting exponentially
add to the marketing penetration of our products. With these driving vehicles,
Acadia will successfully infiltrate and become a leader in the industry.
Acadia will market billing, practice management consulting, systems and other
physician orientated business services to small medical practices in tertiary
markets as well as large medical group organizations in urban areas. Catering
to these markets will play to small practice strengths inherited from our
predecessor company, Physician Resources, Inc. and large group practice
strengths transmitted from the internal growth of our management team.
The company will take advantage of several existing market conditions and
national trends to achieve accelerated growth:
- -- Managed care, Medicare reform and other third party payer changes are
creating complexity, more rules and new liabilities for medical providers,
driving doctor offices and small billing firms out of the medical billing
business. The maximum importance is shifting from that needed to submit a
bill to that required to fully document the encounter outcomes, protocols,
resource utilization and best practices.
- -- Many of the current major managed care professionals treat doctors as
employees, limiting both their incomes and traditional management role. MSOs
give doctors an opportunity to be profitable, active partner in reform
rather than its victims.
- -- Cutting edge technology changes including computer networking, the
Internet, dedicated Intranets, electronic banking, billing and collections,
automated scheduling plus distributed data processing leave the doctors
office and small billing firms at best inefficient and at worst without
access to payment facilities. Discrete systems are giving way to
enterprise-wide and automated systems. Acadia already has extensive
experience with these new technologies and is currently expanding its
state-of-the-art systems.
- -- Acadia addresses the national trend toward health care organization
alliances. Its strengths in medical industry expertise, business leadership,
capitalization, computer systems and capital formation will lead to strategic
partnerships, joint ventures and other rapid growth mechanisms. Small and
medium-sized billing and practice management companies will find that
joining Acadia is a good business strategy.
- -- Developments throughout international markets continue to suggest that
Acadia will be able to utilize those markets. Recent studies suggest that
China is home to over one hundred thirty million (130,000,000) people who
can afford private medical services. India, Mexico, South America and Europe
also present attractive markets to secure strategic alliance relationships.
- -- Data, audit trails and staff to support successful payer audits without
disruption of the regular work flow and without penalties for noncompliance
- -- Electronic filing and electronic funds transfer for faster processing
- -- More frequent billing for improved cash flow
- -- Monitoring action on denials and delinquencies to eliminate orphaned
claims
- -- The ability to interface with all payers including Medicare, Medicaid,
group insurance, managed care (capitation) and private pay
- -- Historical databases with reports that will support negotiations
- -- Separate billing becomes a vital component of Group Practice Without
Walls (GPWW). Volume and comprehensive services give GPWW providers
negotiating power with managed care organizations
Specialization, increased capital intensity and technological change are
leading to increased outsourcing in all areas of human commerce. The health
industry is no exception. Today's communications technology makes it
practical to deliver medical services in multiple locations, process billing
data geographically and audit the data at a centralized location. Increased
regulatory pressure will replace the office clerk with a highly-trained
billing specialist who processes services strictly for a medical specialty.
But because of the need for continuous education and expanding compliance
management, many small providers will be forced to look at outsourcing this
critical function.
Professional Practice Management
Consulting is a dynamic field in high demand to assist independent physicians
joining together into large management service organizations (MSO),
independent practice associations (IPA) and strategic alliances with
physicians as large group practices. The professional consulting division
facilitates not only the growth of these relationships, but acts as a conduit
for promoting other service products of Acadia, such as billing and
information systems technology.
Employment of a practice management consultant will allow professional medical
staff to concentrate on clinical issues. Acadia will offer an experienced,
objective outside review of office procedures, practices and staffing. A
practice manager can perform special projects, such as a fee schedule review
and adjustment, that are not within the capacity of in-house staff. The
practice manager can also advise principals on business and financial issues
encountered in benefits, investment and retirement planning, consolidation,
mergers and contract negotiating.
Hospitals are expanding their operations to include primary care medical
practices to provide added patient referral flow. Additionally, hospitals
offer financing and the security of a steady income to doctors. Frequently,
hospital billing systems and staff lack the capacity (or capability) to deal
with doctor billing and sophisticated practice management issues. Acadia can
offer supplemental services to hospitals that will permit them to own
practices without disrupting themselves or upsetting their providers.
External billing and practice management can be a win-win situation for all
parties.
After decades of health care inflation well in excess of general levels, the
public now demands a more efficient and affordable health care delivery
system. This led to the growth of managed care and reducing physician
autonomy. Managed care though expected to dominate the market by the end of
the century, is experiencing public backlash for restraints of patient
directed care. Physicians need avenues to regain their autonomy while
satisfying the demands of public pressure and managed care. Close partnership
with efficient business organizations offers the provider medical control and
profit incentives. It also gives the physician accurate and predictable
business and financial results.
Software and Information Systems Technology
Acadia, through a Master Software Licensing Agreement, has incorporated
MEDISENSE, Computer Systems, Inc. as its internal software technology
engine and will convert each merger and acquisition to this standard
information system for all operating divisions and facilities. A vital
component of Acadia's growth, MEDISENSE, provides a solid foundation for
communication with medical bill payors and regulators. Information companies
must expect that unit service prices will come down steadily as technology
improves. Continuous improvement in software for billing, practice management
and internal communications will keep Acadia ahead of the price curve.
Operations Financing
Acadia National Health Systems, Inc. pioneered financing of waivered foster
home care operations in 1994. The waivered foster home program includes
small, thinly capitalized boarding homes that incur substantial costs in
providing care, but do not normally receive payment for several weeks. The
program has been very successful in the last three years and enjoys an
excellent growth rate. Revenue from this service is anticipated to grow
significantly by the year 2002.
COMPETITION
The MSO and medical billing business is highly competitive. The Company
competes with national and regional physician reimbursement organizations and
certain physician groups and hospitals which provide their own business
management and billing services. Competition among these organizations is
based upon the relationship with the client or prospective client, the
efficiency and effectiveness of converting medical services to cash, the
ability to provide pro-active practice management services and, to the extent
that service offerings are comparable, upon price.
With the substantial market opportunity, some or all of the following sources
are likely to enter the market: healthcare information management consultants;
healthcare information services providers, particularly developers and vendors
of management software; companies and other parties in contract management
businesses (for example, business or financial management services) desiring
to enter the healthcare field. The Company expects that distinguishing
competitive factors will include reputation for expertise in health
information management, expertise and experience in implementing leading
technologies, size and scope of reference accounts, prior experience in
billing, outsourcing, and pricing. Additionally, there are national companies
that operate in other areas of the health information management spectrum,
primarily, the business office and billing. As the Company expands its scope
into other areas of health information management, the Company expects to
compete with other, perhaps better established, better capitalized and larger
competitors.
The Company experiences competition with respect to its billing business from
a variety of sources, including both local and national businesses. The
medical billing services market is highly fragmented, with thousands of
medical billing companies nationally. The Company believes the principal
competitive factors include reputation, prior experience, technology,
management, marketing, compliance, pricing, timeliness and accuracy of
performance.
REGULATORY CONSIDERATIONS
Healthcare Industry
Acadia'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 increased accounts receivable and bad
debt levels and higher administrative 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
Company 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.
Under Medicare law, physicians and hospitals are permitted to assign
Medicare claims to a billing service in certain limited circumstances. The
Medicare statutes that restrict the assignment of Medicare claims are
supplemented by Medicare regulations and provisions in the Manuals.
The Medicare regulations and the Manuals provide that a billing service that
prepares and sends bills for the provider or physician and does not receive
and negotiate the checks made payable to the provider or physician does not
violate the restrictions on assignment of Medicare claims. Management believes
that its practices do not violate the restrictions on assignment of Medicare
claims because, among other things, it bills only in the name of the medical
provider, checks and payments for Medicare services are made payable to the
medical provider and the Company lacks any power, authority or ability to
negotiate checks made payable to the medical provider. 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 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.
If the government proceeds with an action initiated by a qui tam relator, the
party initiating the action is entitled to recover at least 15 percent but
not more than 25 percent of the proceeds of the action. If the government
elects not to proceed with an action initiated by a qui tam relator and the
relator wins or settles the case, the court may award the relator not less
than 25 percent nor more than 30 percent of the proceeds, plus reasonable
costs and attorneys' fees.
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 clients, may become the
subject of a federal or state investigation or 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. The government on its own may also institute a
Civil False Claims Act case, either in conjunction with a criminal prosecution
or as a stand alone civil case. Whether instituted by a qui tam plaintiff or
by the government, the government can recover triple its damages together with
civil penalties of $5,000 $10,000 per false claim.
Under applicable case law, a party successfully sued under the Federal False
Claims Act may be jointly and severally liable for damages and penalties. Some
state laws also provide for false claims actions, including actions initiated
by a qui tam plaintiff. There can be no assurance that Acadia will not be the
subject of false claims or qui tam proceedings relating to its billing
activities or that Acadia will not be the subject of further government
scrutiny or investigations relating to its billing and accounts receivable
management services operations. Any such proceeding or investigation could
have a material adverse effect upon the Company.
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 the 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 1996, Congress enacted the Health Insurance Portability and Accountability
Act of 1996, Pub. L. No. 104 191, 1996 U.S.C.C.A.N. (110 Stat. 1936) (codified
in scattered titles of the United States Code, including 18, 26, 29 and 42
U.S.C.) which includes an expansion of certain fraud and abuse provisions,
such as expanding the application of Medicare and Medicaid fraud penalties to
other federal healthcare programs, and creating additional criminal offenses
relating to healthcare benefit programs, which are defined to include both
public and private payer programs. The Health Insurance Act 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. The Health Insurance Act 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 which have included an expansion
of the anti kickback laws to include referrals of any patients regardless of
payer source.
To assist the medical billing industry in complying with healthcare laws and
regulations, particularly in the areas of fraud and abuse, the OIG in
November 1998 issued "Compliance Program Guidance for Third-Party Medical
Billing Companies." The Company is developing an internal compliance program
based on the OIG's guidelines. While the guidelines are voluntary and certain
OIG recommendations may not be applicable to all billing companies, the Company
is committed to developing a corporate compliance program because such a
compliance program represents not only a sound business practice but also a
framework for continuously improving the Company's medical billing process.
Accordingly, the Company has:
(1) established a Compliance Committee for oversight purposes;
(2) designated a Corporate Compliance Manager for day-to-day operations;
(3) begun developing written operational policies and procedures;
(4) disseminated an Employee Handbook that formalizes the Company's
Standards of Conduct with appropriate sanctions or violations;
(5) created an internal reporting mechanism for receiving complaints; and
(6) initiated a training program for its staff and clients based on the
results of internal reviews.
In the 1995 and 1996 sessions of the United States Congress, the focus of
healthcare legislation was on budgetary and related funding mechanism issues.
A number of reports, including the 1995 Annual Report of the Board of Trustees
of the Federal Hospital Insurance Program, projected that the Medicare trust
fund is likely to become insolvent by the year 2002 if the current growth rate
of approximately 10% per annum in Medicare expenditures continues. Similarly,
federal and state expenditures under the Medicaid program are projected to
increase significantly during the same seven year period. In response to these
projected expenditure increases, and as part of an effort to balance the
federal budget, 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 the Medicaid programs. The Clinton Administration has
proposed alternate measures to reduce, to a lesser extent, projected
increases in Medicare and Medicaid expenditures.
A number of states in which Acadia plans 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 which 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 resulting
a decrease in demand for Acadia billing services for particular physician
practices, but this decrease may be offset by an increase in demand for
Acadia's consulting and comprehensive business management services (including
billing services) for the new provider systems.
INSURANCE
The Company maintains director and officer ("D&O") liability insurance on a
claims made basis for all of its current officers and directors. Insurance
coverage under such policies is contingent upon a policy being in effect when
a claim is made, regardless of when the events which caused the claim
occurred. The cost and availability of such coverage has varied widely in
recent years. While the Company believes its insurance policies are adequate
in amount and coverage for its current operations, there can be no assurance
that the coverage maintained by the Company is sufficient to cover all future
claims or will continue to be available in adequate amounts or at a
reasonable cost.
EMPLOYEES
As of September 30, 1999, the Company employed approximately fifty-two (52)
people. None of the Company's employees is a member of a labor union, and
the Company considers its relations with its employees to be excellent.
IMPORTANT FACTORS RELATED TO FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
The statements contained in this report that are not purely historical are
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future. All forward looking statements included
herein are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward looking
statements. It is important to note that the Company's actual results could
differ materially from those in such forward looking statements. Among the
factors that could cause actual results to differ materially are the risk
factors which may be listed from time to time in the Company's reports on
Form 10 QSB, 10 KSB and registration statements filed under the Securities
Act.
Forward looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) continued expansion of the Company's
operations through joint ventures and acquisitions, (iii) success of existing
and new marketing initiatives undertaken by the Company, and (iv) success in
controlling the cost of services provided and general administrative expenses
as a percentage of revenues.
The forward looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These forward
looking statements were based on assumptions that the Company would continue
to expand, that capital will be available to fund the Company's growth at a
reasonable cost, that competitive conditions within the industry would not
change materially or adversely, that demand for the Company's services would
remain strong, that there would be no material adverse change in the Company's
operations or business, and that changes in laws and regulations or court
decisions will not adversely or significantly alter the operations of the
Company. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive, regulatory and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company.
Although the Company believes that the assumptions underlying the forward
looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward looking
information will prove to be accurate. In light of the significant
uncertainties inherent in the forward looking information included herein, the
inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives or plans of the Company
will be achieved.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases its headquarters facility at 415 Rodman Road in
Auburn, Maine, which is owned by Rodman Coach, LLC. The space for the
headquarters facility is leased to the Company. In addition, the company
leases property for its remote location at 372 West Street in Keene, New
Hampshire from Siri K. Pellegrino of Walpole, New Hampshire. The Company has
an unoccupied lease located at 95 Park Street in Lewiston, Maine with Fleet
Bank of Maine. The following tabulates certain information with respect to
the leases currently occupied, unoccupied and executed between the Company
and Landlords.
<TABLE>
<CAPTION>
Current
Square Monthly Lease
Location Footage Rental Lessor Expiration
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Executive Offices
415 Rodman Road 11,700 sq.ft. $5,363 Rodman Coach 5/01/04
Auburn, ME 04211
Remote Office
372 West Street 162 sq. ft. $ 875 Siri Pellegrino 6/13/00
Keene, NH 03431
Unoccupied Office 5,600 sq. ft. $3,500 Fleet Bank 7/31/03
95 Park Street
Lewiston, ME 04240
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its directors
and officers in their capacities as such) is party or to which property of
the Company is subject is pending and no such material proceeding is known by
management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the National Association of
Securities Dealers' ("NASD") National Market System Over-the-Counter ("OTC")
Bulletin Board under the trading symbol "ACAD" since the NASD cleared the
Company's Form 211 application, pursuant to Rule 15c2-11(a)(5) of the Exchange
Act and accompanying Information and Disclosure Statement in May of 1997. The
following table sets forth the range of high and low closing prices of the
Company's Common Stock, as reported by the OTC Bulletin Board Market, from
December 31, 1998 through September 30, 1999. The prices set forth below
reflect inter-dealer quotations, without retail markups, markdowns or
commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
The prices in the table below represent the high and low sales price for the
Common Stock as reported on the OTC Bulletin Board Market for the periods
presented. Such prices are based on inter dealer bid and asked prices without
markup, markdown, commissions or adjustments and may not represent actual
transactions.
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998 HIGH LOW
- ----------------------------- ---- ----
First Quarter.......................... $ 2.187 $1.875
Second Quarter......................... $ 2.000 $1.625
Third Quarter.......................... $ 1.875 $1.875
Fourth Quarter......................... $ 1.125 $0.500
YEAR ENDED SEPTEMBER 30, 1999 HIGH LOW
- ----------------------------- ---- ----
First Quarter......................... $0.656 $0.188
Second Quarter........................ $0.875 $0.250
Third Quarter......................... $0.937 $0.937
Fourth Quarter........................ $0.750 $0.750
</TABLE>
The last reported sale price of the Common Stock on September 30, 1999 was
$0.75 per share. The number of record holders of the Company's Common Stock
was 411 on September 30, 1999.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common
Stock have been paid by the Company, nor does the Company anticipate that
dividends will be paid in the foreseeable future, but intends instead to
retain any future earnings for reinvestment in its business.
As reflected in the price quotations above, there have been price fluctuations
in the Company's Common Stock. Factors that may cause or can cause market
prices to fluctuate include any purchase or sale of a significant number of
securities during a relatively short time period, quarterly fluctuations in
results of operations, announcements of new facilities, issuance of additional
securities, registration of securities and entrance of such securities into
the public float, market conditions specific to the Company's industry and
market conditions in general. In addition, in recent years the stock market
in general has experienced significant price and volume fluctuations. These
fluctuations, which may be unrelated to the operating performance of specific
companies, have had a substantial effect on the market price for many small
capitalization companies such as the Company.
Factors such as those cited above, as well as other factors that may be
unrelated to the operating performance of the Company, may adversely affect
the price of the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OR PLAN OF OPERATION
FISCAL YEAR ENDING September 30, 1999
NOTE:
The following discussion should be read in conjunction with the Financial
Statements and notes thereto.
GENERAL
Acadia National Health Systems, Inc., a corporation originally organized in
1971 and re-organized in 1996 under the laws of the State of Colorado
("Acadia" or the "Company"), historically has provided business management
services to physicians and hospitals, including data collection, data input,
medical coding, billing, and accounts receivable management. These services
are designed to assist customers by providing value added business management
functions associated with the delivery of healthcare services. The services
offered by the Company allow physicians and hospital staff to focus on
providing quality patient care, while improving cash flows and reducing
administrative costs and burdens.
Subsequent to the fiscal year end the Company merged with WorldLecture.com,
Inc., d/b/a MedLecture.com, Inc. As part of the merger, the company changed
its name to Acadia Group, Inc. and formed two wholly owned subsidiaries,
Acadia National Health Systems, Inc. and MedLecture.com, Inc. MedLecture.com,
Inc. is an e-commerce company that is pioneering a new method for physicians
to earn CME (Continuing Medical Education) credits through the development
of a website that features exclusive, video-streamed lectures from
prestigious medical schools throughout the United States. The merger of
Acadia National Health Systems, Inc. and MedLecture.com is considered to be a
natural evolution for both companies whereby physicians will be able to
receive a comprehensive package of financial, administrative and educational
resources.
As a result of the change in name, the Company trading symbol on OTC:BB
changed from ACAD to ANHS, effective December 17, 1999.
SALES
Sales for the year were $2,008,010 and $1,134,972 for the years ended September
30, 1999 and 1998. This 77% increase in sales volume over the period is
attributed to successful marketing and through clients acquired as part of
the acquisition of selected assets of Northeast Medical Business Group, Inc.
during September 1998. Current fiscal year revenues reflect (16) new clients
that were recruited through successful marketing or that were acquired as
part of the September 1998 acquisition with revenues of approximately $950,000.
OPERATING EXPENSES
Increases in operating expenses during the period were due to investments made
in systems to address risks associated with the year 2000, system enhancements
to improve operations, and in building a senior management team. Other
increases in expenses include provisions for losses related to joint ventures
and other alliances that were discontinued. The majority of these expenses
are viewed by management to be non-recurring.
OPERATING INCOME
The operating loss for the year of $904,330 is a result of operating expenses
as noted above.
INCOME TAXES
Acadia is a C Corporation which fully expects to utilize deferred income tax
assets that were accrued during the current year. The calculation of these
assets uses conservative tax rates.
NET INCOME
Acadia's net loss after taxes of $665,830 was $.1495 per share on 4,453,712
average outstanding common shares as compared to $53,650 ($0.0143 per share)
on 3,744,321 outstanding common shares in fiscal year 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's non-trade accounts receivable increased due to the growth of
Waivered Foster Home and non-medical billing programs. These are clean,
secured receivables with the majority due from the State of Maine. During this
same period, the Company added net $305,000 in property, plant and equipment,
principally computer systems and related software. Term debt was consolidated
during the year in order to reduce costs and acquire assets required to
support the growth in revenue. Other debt includes lines of credit. Assets
of the Company generally secure debt.
SALARIES AND WAGES
Increase reflects the Company's expanded client base creating the need for
additional staff, as well as the expansion of the Senior Management team.
DEPRECIATION
Increase reflects the Company's normal investment in property and equipment
to support growth in its business as well as investments in systems to
improve operations and address risks associated with the Year 2000.
AMORTIZATION
Amortization of intangible assets, are primarily associated with the Company's
acquisition and software products, year ended September 30, 1999 and goodwill
associated with the acquisition of Northeast Medical Business Group, Inc., on
September 8, 1998.
INTANGIBLE ASSETS
The Company amortizes goodwill over a period of five years as management
believes that these assets have a determinate life based on the
non-competition agreements related to the acquisition. Management continually
monitors events and circumstances both within the Company and within the
industry, which could warrant revisions to the Company's estimated useful
life of goodwill.
INTEREST EXPENSE
Net interest expense was $116,000 and $57,200 for the years ended in ended
September 30, 1999 and 1998. The increase in interest expense was due to
additional financing requirements related to increases in operations and
financing the acquisition of assets to support those increases.
OTHER INFORMATION
=================
The Company has successfully established itself as a high quality processor of
medical billing information. Acadia takes very seriously the need for correct
verification, reporting and billing of medical services to all payers.
Education of our employees and providers is of paramount importance to set the
Company apart for its competition and to remain abreast in this very complex
and rapidly changing medical billing and regulated arena.
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 FY2000. The Company expects continued success in growing its
client base through organic growth and acquisition.
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 years 1999, 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,
queried customers, vendors and resellers as to their current status in
identifying and addressing problems that their computer systems may face date
information processing risk as the year 2000 approaches and is reached.
Through its review, the Company identified a number of older legacy systems
that were abandoned in favor of more efficient processing systems.
The detail planning and inventory for the majority of the Company's legacy
systems were modified for Year 2000 compatibility has is completed.
Customers, vendors and resellers were identified and consulted with regarding
the Year 2000 readiness is complete. The Company has developed a contingency
plan in response to Year 2000 issues.
The costs to the Company's Year 2000 efforts represents redirection of
internal resources new software and hardware. There can be no assurance that
the Company has identified all such Year 2000 problems in its computer systems
or those of its customers, vendors or resellers. 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.
ITEM 8. FINANCIAL STATEMENTS
ACADIA NATIONAL HEALTH SYSTEMS, INC.
FINANCIAL STATEMENTS
September 30, 1999 and 1998
With Independent Auditor's Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Acadia National Health Systems, Inc.
We have audited the accompanying balance sheets of Acadia National Health
Systems, Inc., as of September 30, 1999 and 1998, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acadia National Health
Systems, Inc., as of September 30, 1999 and 1998, and the results of its
operations, changes in stockholders' equity, and cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Portland, Maine
November 22, 1999
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Balance Sheets
September 30, 1999 and 1998
ASSETS
1999 1998
Current assets
Cash $ 19,037 $ 2,529
Accounts receivable and advances 1,080,881 1,001,107
Income taxes receivable 22,226 -
Current portion of note receivable 23,676 19,885
Prepaid expenses and other assets 116,356 69,634
Deferred income taxes 7,500 5,960
Total current assets 1,269,676 1,099,115
Property and equipment
Computer software and licenses 92,711 79,847
Equipment 186,019 134,703
Leasehold improvements 147,803 -
Furniture and fixtures 47,128 38,431
Equipment under capital leases 295,830 211,173
769,491 464,154
Less accumulated depreciation 186,509 94,863
Net property and equipment 582,982 369,291
Other assets
Covenant not to compete, net of amortization
of $16,416 180,579 -
Deferred finance costs, net of amortization
of $1,166 and $671 16,331 8,935
Goodwill, net of amortization of $18,359
and $1,412 66,376 83,323
Organization costs, net of amortization
of $16,421 and $9,881 16,279 22,819
Note receivable, net of allowance
of $50,000 4,166 63,487
Deferred tax asset - long term 226,000 -
Total other assets 509,731 178,564
$ 2,362,389 $ 1,646,970
The accompanying notes are an integral part of these financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
Current liabilities
Notes payable $ 1,052,415 $ 542,738
Current portion of long-term debt 84,300 57,600
Current portion of obligations under
capital leases 86,700 55,800
Accounts payable 178,504 72,633
Accrued expenses 65,140 43,339
Overdraft payable 1,382 -
Income taxes payable - 8,770
Total current liabilities 1,468,441 780,880
Deferred income taxes 15,500 12,500
Long-term debt, excluding current portion 331,943 248,399
Note payable - stockholder - 20,850
Obligations under capital leases,
excluding current portion 84,937 92,193
Total liabilities 1,900,821 1,154,822
Commitments (Notes 8, 13 and 14)
Stockholders' equity
Common stock of no par value; authorized
50,000,000 shares; issued and outstanding
5,013,987 and 3,837,987 shares 1,029,890 394,640
Additional paid-in capital 41,992 41,992
Retained earnings (accumulated deficit) (610,314) 55,516
Total stockholders' equity 461,568 492,148
$ 2,362,389 $ 1,646,970
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Operations
Years Ended September 30, 1999 and 1998
1999
1998
Revenues $ 2,008,010 $ 1,134,972
Direct expenses 760,252 394,773
Gross profit 1,247,758 740,199
Selling, general and administrative expenses
Salaries and benefits 1,019,300 242,685
Professional fees 132,720 42,763
Administrative 200,183 82,624
Depreciation and amortization 136,890 43,773
Equipment 89,989 45,604
Postage 122,879 69,199
Occupancy 167,261 60,190
Travel 50,790 16,438
Provision for loss on notes and advances
receivable 111,159 -
Provision for bad debts 7,655 5,509
Total expenses 2,038,826 608,785
Other income (expense)
Interest expense (115,830) (57,199)
Interest income 19,961 9,450
Other income 15,263 10,697
Loss on disposition of assets (32,656) (13,991)
Total other expenses (113,262) (51,043)
Income (loss) before income taxes (904,330) 80,371
Income taxes (benefits) (238,500) 26,721
Net income (loss) $ (665,830) $ 53,650
Net income (loss)
per common share $ (.1495) $ .0143
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Changes in Stockholders' Equity
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Retained
Earnings
Common Stock Additional (Accumulated
Shares Amount Paid-in Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance, September 26, 1997 3,733,987 $ 276,640 $ 41,992 $ 1,866 $ 320,498
Issuance of common stock 4,000 6,000 - - 6,000
Common stock to be issued 100,000 112,000 - - 112,000
Net income - - - 53,650 53,650
Balance, September 30, 1998 3,837,987 394,640 41,992 55,516 492,148
Issuance of common stock 1,076,000 560,250 - - 560,250
Common stock to be issued 100,000 75,000 - - 75,000
Net loss - - - (665,830) (665,830)
Balance, September 30, 1999 5,013,987 $ 1,029,890 $ 41,992 $ (610,314) $ 461,568
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Cash Flows
Years Ended September 30, 1999 and 1998
1999 1998
Cash flows from operating activities
Net income (loss) $ (665,830) $ 53,650
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities
Stock issued as compensation 155,250 6,000
Depreciation and amortization 136,890 43,773
Loss on disposition of assets 32,656 13,991
Provision for loss on notes and
advances receivable 111,159 -
Deferred income taxes (224,540) 13,540
Decrease (increase) in
Accounts receivable and
advances (140,933 (95,887)
Prepaid expenses and other
assets (46,722) (12,836)
Income taxes receivable (22,226) -
Increase (decrease) in
Accounts payable 107,253 15,436
Accrued expenses 21,801 13,058
Income taxes payable (8,770) 7,070
Net cash provided (used) by
operating activities (544,012) 57,795
Cash flows from investing activities
Additions to property and equipment (221,681) (97,683)
Repayment of (investment in) notes
receivable 5,530 (8,372)
Investment in business acquisition (25,000) (18,168)
Net cash used by investing
activities (241,151) (124,223)
Cash flows from financing activities
Net short-term borrowings 289,283 (10,125)
Principal payments on long-term debt (68,252) (20,667)
Proceeds from issuance of long-term debt 200,000 101,287
Principal payments under capital lease
obligations (61,013) (7,249)
Deferred financing cost (17,497) -
Increase (decrease) in notes payable to
stockholder (20,850) -
Sale of common stock 480,000 -
Net cash provided by financing
activities 801,671 63,246
Net increase (decrease) in cash 16,508 (3,182)
Cash, beginning of year 2,529 5,711
Cash, end of year $ 19,037 $ 2,529
The accompanying notes are an integral part of these financial statements
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Statements of Cash Flows (Concluded)
Years Ended September 30, 1999 and 1998
Supplemental Cash Flow Information
Cash paid for interest and income taxes during 1999 and 1998 were as follows:
1999 1998
Interest $ 115,830 $ 57,199
Income taxes $ 5,430 $ 7,444
The Company had the following noncash transactions during 1999 and 1998:
Equipment was acquired under capital leases totaling $84,657 and $155,243 in
1999 and 1998 respectively.
During 1999, the Company refinanced long-term debt of $220,394 with advances
from a line of credit. A vehicle was financed directly with the auto dealer
for $14,791 in 1999.
A non-compete agreement was entered into in 1999 for $196,995, of which
$12,896 was paid with a vehicle.
The Company had noncash transactions related to the acquisition of Northeast
Medical Business Group in 1998. Debt assumed as part of the acquisition and
related closing costs, totaling $128,713, were refinanced as part of a bank
note payable. In addition, assets were acquired through the issue of common
stock with a market value of $112,000.
The accompanying notes are an integral part of these financial statements
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
Nature of Business
The Company provides practice management, invoicing and accounts receivable
collection services for doctors' offices, foster homes, and hospital-based
medical practices in the New England area. The Company's operations commenced
on September 27, 1996, after the acquisition of an affiliate.
1. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include investments in highly liquid investments
with an original maturity of three months or less.
Reclassifications
Certain 1998 balances have been changed to conform with 1999 presentation.
Earnings Per Share
Earnings per share are based upon the weighted average number of common shares
outstanding during the year. There are no common stock equivalents that dilute
the number of shares.
Property and Equipment
Property and equipment are stated at cost and are being depreciated using
straight-line and accelerated methods over the estimated useful lives of the
assets, which are generally five years for computer hardware and software and
range from seven to fifteen years for furniture, fixtures and equipment.
Leasehold improvements are amortized using the straight-line method over
fifteen years.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
1. Summary of Significant Accounting Policies (Concluded)
Covenant Not to Compete
The covenant not to compete is being amortized using the straight line method
over the five year term of the agreement.
Deferred Costs
Deferred organizational costs are being amortized using the straight-line
method over five years.
Deferred financing costs are being amortized over the five year term of the
loan.
Goodwill
Goodwill in the amount of $84,735 arose from the acquisition of Northeast
Medical Billing Group. It is being amortized on a straight-line basis over
five years, based on the duration of the non-competition agreement. At each
balance sheet date, the Company evaluates the realizability of Goodwill based
upon expectations of nondiscounted net cash flows of the related business
unit. Based upon its most recent analysis, the Company believes that no
material impairment of Goodwill exists at September 30, 1999.
Advertising
The Company expenses advertising as incurred. Advertising expense was $64,286
and $8,685 for the years ended September 30, 1999 and 1998.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period the change is enacted.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
2. Retirement Plan
During 1999 the Company adopted a defined contribution plan under Section
401(k) of the Internal Revenue Code. The 401(k) savings plan covers
substantially all employees who meet certain minimum service and age
requirements. Participants may contribute up to 15% of their annual
compensation to the plan, not to exceed $7,000. At its discretion, the Company
may make matching contributions, subject to certain limitations. The Company
made no contributions for the year ended September 30, 1999.
3. Acquisition
On September 8, 1998, the Company acquired selected assets of Northeast
Medical Business Group, Inc., a medical billing and management services
corporation located in New Hampshire. The Company acquired selected assets and
assumed certain bank, lease, and trade debt, in exchange for $18,000 in cash
and 100,000 shares of the Company's common stock, valued at $1.12 per share.
The purchase method was used to account for the acquisition, and the purchase
price was allocated as follows:
Accounts receivable $ 138,000
Deposits and prepaid expenses 8,000
Property and equipment 155,000
Goodwill 85,000
Current liabilities (47,000)
Loan payable (122,000)
Capital lease obligations (87,000)
Cash paid and stock to be issued $ 130,000
The accompanying financial statements include the operations of Northeast
Medical Business Group, Inc. for the year ended September 30, 1999 and for
the period from September 8, 1998 to September 30, 1998.
The unaudited consolidated results of operations on a pro forma basis as
though Northeast Medical Business Group had been acquired as of the beginning
of the Company's fiscal year 1998 are as follows:
Revenues and other income $ 1,631,818
Net income 119,842
Earnings per common share 0.03123
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
4. Accounts Receivable and Advances
Accounts receivable and advances consist of the following at September
30, 1999 and 1998:
1999 1998
Accounts receivable $ 613,439 $ 346,507
Advances 467,442 654,600
$ 1,080,881 $ 1,001,107
The Company has arrangements with certain customers whereby the Company
advances cash to the customer based on their outstanding accounts receivable.
The Company then assumes the responsibility for billing and collecting such
receivables, which have been pledged as collateral.
5. Note Receivable
The Company holds a $75,000 conditional note receivable from a vendor at
l0% interest, due in monthly installments of $2,420, including interest
beginning November l, 1998. The note matures on October 31, 2000 and all
amounts outstanding under the note are due in full at that time. The balance
of the note at September 30, 1999 and 1998 was $77,842 and $83,372. The note
is collateralized by accounts receivable, equipment and inventory of the
vendor.
6. Indebtedness
Long-Term Debt
Long-term debt at September 30, 1999 and 1998 consisted of the following:
1999 1998
Note payable to bank at 1.25% above prime,
(9.5% at the balance sheet date), due in
monthly installments of $2,822, including
interest, through July 2002;
collateralized by substantially all
assets of the Company $ - $ 105,999
9.25% note payable to bank, due in monthly
installments of $4,177, including interest,
through September 2003; collateralized by
equipment and fixtures - 200,000
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
<PAGE>
6. Indebtedness (Continued)
1999 1998
9.02% note payable to bank, due in monthly
installments of $5,207, including interest,
through June 2004; collateralized by all
corporate assets $ 243,006 $ -
Severance and non-compete agreement, due
in variable weekly installments through
April 30, 2004 160,626 -
5.9% installment loan, due in monthly
payments of $286, including interest,
through November 2003; collateralized by
a vehicle 12,611 -
416,243 305,999
Less current portion 84,300 57,600
Long-term debt, excluding current portion $ 331,943 $ 248,399
Maturities of long-term debt for the next
five years are as follows:
2000 $ 84,300
2001 95,600
2002 93,700
2003 86,100
2004 56,543
$ 416,243
Lines of Credit
The Company, as co-borrower with Community Living Options (CLO), a customer of
the Company, has a $ 250,000 revolving line of credit which is collateralized
by all assets of the Company, exclusive of real estate. Interest is at the
National Prime rate plus l% (9.25% at September 30, 1999). Advances under the
line totaled $9,261 and $170,038 at September 30, 1999 and 1998.
The Company also has a $1,250,000 revolving line of credit which is payable
on demand and expires on April 30, 2000. The line calls for monthly interest
payments on the outstanding loan balance at prime plus 1% (9.25% at September
30, 1999). The line of credit is collateralized by all corporate assets and is
also guaranteed by two shareholders of the Company. Advances under the line
totaled $1,043,154 at September 30, 1999.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
6. Indebtedness (Concluded)
Severance and Non-compete Agreement
The Company entered into an agreement with an officer and major stockholder
upon termination of the individual's employment with the Company. The
individual has agreed not to compete with the Company for a term of five years
beginning May 1, 1999 and ending April 30, 2004. In return, the Company will
provide weekly compensation and continuation of certain benefits through
April 30, 2004. The liability recorded represents the present value of the
remaining compensation discounted at 9.25%, the Company's borrowing rate at
September 30, 1999.
7. Leases
Through July 1998, the Company leased office space under an operating
lease agreement calling for monthly rental payments of $1,700. The lease
expired on December 31, 1996, and was renewed on a monthly basis through July
1998. The Company currently leases office space under operating lease
agreements that expire between 2000 and 2004. The leases call for monthly
rental payments totaling $11,539. Lease payments under these agreements
totaled $89,835 and $25,312 in 1999 and 1998, respectively.
The company leases certain computer and other office equipment under
capital leases that expire from 2000 through 2004. The company also leased
certain computer equipment under a noncancelable operating lease that expired
during the year.
Included under property and equipment at September 30, 1999 and 1998 were
the following amounts applicable to capital leases:
1999 1998
Equipment $ 241,165 $ 207,687
Furniture and fixtures 54,665 3,486
295,830 211,173
Less accumulated amortization 48,380 3,825
$ 247,450 $ 207,348
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
7. Leases (Concluded)
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of September 30,
1999 are as follows:
Capital Operating
Leases Leases
2000 $ 101,000 $ 146,500
2001 53,500 139,400
2002 28,600 131,600
2003 8,800 124,900
2004 2,400 49,200
194,300 591,600
Less amount representing interest 22,663
Present value of minimum capital lease payments 171,637
Less current portion 86,700
Obligations under capital leases, excluding
current portion $ 84,937
8. Employment Agreements
The Company has employment contracts with various employees with remaining
terms ranging from five months to three years at amounts approximating their
current levels of compensation. The Company's remaining aggregate commitment
at September 30, 1999 under such contracts is approximately $360,000.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
9. Income Taxes
Income tax expense (benefit) at September 30, 1999 and 1998 consist of:
Current Deferred Total
1999
Federal $ - $ (178,900) $ (178,900)
State - (59,600) (59,600)
$ - $ (238,500) $ (238,500)
1998
Federal $ 9,637 $ 10,140 $ 19,777
State 3,544 3,400 6,944
$ 13,181 $ 13,540 $ 26,721
The actual tax provision is different from that which might be expected due
to the effects of lower tax brackets.
The current deferred tax asset of $7,500 results from accrued vacation pay
which is not currently deductible for income tax purposes.
The noncurrent deferred tax liability of $15,500 results from assets whose
tax basis differs from the financial statement carrying amount.
The noncurrent deferred tax asset of $226,000 results from a net operating
loss carry forward of approximately $755,000 which can be carried forward
until 2014, and $111,000 of allowance for doubtful accounts. No valuation
allowance is deemed necessary for the deferred tax asset at September 30,
1999 or 1998.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
10. Related Party Transactions
The Company had unsecured notes payable due on demand to an officer and
stockholder. The principal balance of the notes, which totaled $20,850 at
September 30, 1998, was repaid during the current year. The notes required
monthly interest payments at an annual rate of 10%. Interest of $1,217 and
$2,085 was paid for the years ended September 30, 1999 and 1998.
During 1998 amounts totaling $11,524 were paid to a shareholder for legal and
consulting services.
The Company provides services to a client company whose president is also a
member of the Company's Board of Directors. Revenues from this client were
$172,400 and $132,244 during 1999 and 1998, and accounts receivable were
$2,254 and $2,849 for the years ended September 30, 1999 and 1998.
11. Fair Value of Financial Instruments
The Corporation's financial instruments consist of cash, short-term trade
receivables and payables, long-term notes receivable, lines of credit and
long-term debt. The carrying amounts of all instruments approximate their
fair value.
12. Accounting Pronouncement
Effective for fiscal year ended September 30, 2000, all start-up and
organizational costs will have to be expensed as incurred. Remaining
organizational costs of $16,279 will be recorded as a cumulative effect of a
change in accounting principle at that time.
13. Major Customer
The Company had revenue from one customer which accounted for approximately
11% and 10% of total revenues during 1999 and 1998.
14. Subsequent Events
On November 19, 1999, the Company completed a merger with MedLecture.com
an internet e-commerce company based in Auburn, Maine. The merger will be
accounted for as a pooling-of-interests.
<PAGE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Notes to Financial Statements
September 30, 1999 and 1998
14. Subsequent Events (Concluded)
In connection with the merger, the Company has changed its name to Acadia
Group, Inc. d/b/a Acadia Business Group, Inc. and formed two subsidiary
companies. The Company's original operations will fall under the subsidiary
named Acadia National Health Systems, Inc. MedLecture.com will be merged with
the second subsidiary and become WorldLecture.com, Inc.
In exchange for one hundred percent of the outstanding shares of Medlecture.com,
Inc., Acadia Group, Inc. will issue approximately five million shares
of its common stock. The transaction did not result in significant changes to
the Company's financial position and results of operations at September 30,
1999.
In November 1999, the Company authorized the issuance of up to $1 million of
14% convertible debentures, of which $600,000 have been issued. Each debenture
may be converted into shares of the Company's common stock based on a purchase
price of 80% of the offering price as of October 7, 1999. The conversion
option was elected for all debentures, resulting in 857,000 shares to be
issued.
15. Contingencies
Certain legal proceedings have been filed or are pending against the Company.
In the opinion of management, all matters are adequately covered by insurance
or, if not covered, are without merit or will not result in a material adverse
effect on the results of operations, cash flows, or financial position of the
Company.
16. Stock-based Compensation Plans and Other Compensation
During 1999, the Company adopted, subject to stockholder approval, a stock
option plan which permits the issuance of options to selected employees of
the Company. The plan reserves 500,000 shares of restricted common stock for
grant at an option price equal to the fair market value at the grant date.
Other than the restrictions that limit the transfer and sale of these shares,
participants are entitled to all the rights of a shareholder. Options under
the plan are exercisable in installments; however, no options are exercisable
within one year or later than ten years from the date of grant. There were no
options granted during 1999.
During 1999 the Company also adopted a stock bonus plan which permits the
issuance of restricted stock to key employees. The plan reserves 700,000
shares of restricted common stock and provides that the terms of each award
be determined by the committee of the Board of Directors charged with
administering the plan. During 1999, the Company awarded 195,000 shares of
common stock to employees at a weighted average grant date fair value of
$0.70 per share. Total compensation cost recognized during 1999 for stock
based employee compensation awards was $136,750. Additionally, 21,000 shares
were issued in lieu of compensation, at a cost of $18,506.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 4, 1997, Berry, Dunn, McNeil & Parker, Certified Public Accountants,
whose address is 100 Middle Street, Portland, Maine 04104 1100 has been
engaged as the principal accountant to audit the Registrant's financial
statements.
Additionally, there has been no occurrence requiring a response to this item.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
Acadia National Health Systems, Inc. strives to provide a pleasant working
environment and a strong team spirit. Acadia has embraced the philosophy of
"Distributive Ownership" that will be carried further through corporate
office incentives and business unit ownership.
Acadia will be governed by experienced veterans from health care, medical,
insurance, finance, law and operations. Corporate policy will be from an
amalgamation of ideas from experts with experience. Operational decision
will be delegated to a senior management team directed by a national Chief
Executive Officer with counsel and implementation from experienced
administrative leaders.
Paul W. Chute, President and Chief Executive Officer - brings over 22 years
senior executive experience from Western Maine Health Care Corporation and its
family of organizations and an additional four years from public accounting
firms. Mr. Chute's executive experience includes the design, development and
implementation of nine active corporations where he was responsible for the
finance and operation of over 600 employees and $38 million in sales. He
also directed and participated in key strategic planning activities for the
development of rural health care systems, hospital cooperatives and community
organizations. Mr. Chute played a significant role in major health care
issues by promoting specific legislation through the State of Maine
Legislature. He has also testified in various legislative committees and
sub-committees at the state and national congressional level.
Mr. Chute has extensive experience in developing joint business and partnering
agreements with other standalone health care organizations, creation of new
jointly owned companies and cooperative arrangements where major for-profit
companies participated in health care programs developed and directed by him.
Mr. Chute's experiences bring together a wealth of financial experiences and
knowledge and extensive background in operations and systems development.
Mr. Chute has a Masters Degree in Business, is certified as a Diplomate from
the American College of Healthcare Executives, carries an advanced
certification as Fellow from the Healthcare Financial Management Association
and is certified as a health care billing and management executive.
John L. Crispin, M.D., Member of the Board of Directors - Doctor Crispin,
currently a practicing physician is Chief, Department of Anesthesiology, at
Central Maine Medical Center. He has held the position of Department Chief
since 1995. Doctor Crispin, is licensured in the State of Maine and certified
as Diplomate, American Board of Anesthesiology. Doctor Crispin holds a B.A.
Cum Laude from Colby College, Waterville, Maine and a 1982 graduate of
Dartmouth Medical School. He has served his internship, residency,
fellowship, military and as Chief Resident duties throughout the northern
seaboard. Doctor Crispin was awarded the John Dukrey Award for Excellence in
Regional Anesthesia and the Robert D. Dripps Award for the outstanding
graduate resident in anesthesiology. He currently is a member of the Board
of Directors for United Way of Androscoggin County and Lewiston-Auburn
Physician's Association in addition to serving on the Executive, Operating
Room, Pharmacy and Therapeutic Committees at Central Maine Medical Center.
James D. Delamater, Member of the Board - Mr. Delamater is President and Chief
Executive Officer of Northeast Bank, FSB of Auburn, Maine, a position he has
held since 1981. Prior to that, he was the Commercial Loan and Business
Officer at Oxford Bank and Trust Company. Early in his career, he was a
licensed securities broker with a New York Stock Exchange firm. Mr. Delamater
serves on several corporate boards and is active in civic organizations. He
received his processional education at the Universities of Maine and South
Carolina.
Judith M. Brown, Member of the Board - Ms. Brown is the owner and President
of the Judith Brown Company, a San Francisco area firm that specializes in
consulting services to U.S. and international organizations. The company
focuses on organizational program development and innovative problem
solving.
Ms. Brown has an extensive background in market research and public policy
consulting. She holds a Ph.D. from Columbia University where she serves as
an international fellow.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following material contains information concerning the directors,
including their recent employment, positions with the Company, other
directorships and age as of the date of this Form 10 KSB.
CAPACITIES IN DIRECTOR OR
NAME AGE WHICH SERVED OFFICER SINCE
--- ------------- -------------
Paul W. Chute 50 Chairman of the Board, 1997
President and Treasurer
John L. Crispin, MD 43 Director 1998
James D. Delamater 48 Director 1999
Judith M. Brown 55 Director 1999
Each director holds office for a term of three (3) years or until a successor
has been duly elected and qualified. The Board is seeking qualified nominees
to fill the vacancies and anticipates that the nominees will be presented to
shareholders at the Company's next annual meeting. Officers are appointed by
and serve at the discretion of the Board of Directors. All of the Company's
officers devote full time to the Company's business and affairs.
COMMITTEES OF THE BOARD
The Board of Directors delegates certain of its authority to a Compensation
Committee and an Audit Committee. There are currently vacancies on both of
these committees. The Board expects to fill such vacancies after it has
filled the vacancies on the Board of Directors.
The primary function of the Compensation Committee will be to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Company's proposed
Restricted Stock Bonus and Option Plans.
The function of the Audit Committee is to review and approve the scope of
audit procedures employed by the Company's independent auditors, to review
and
approve the audit reports rendered by both the Company's independent auditors
and to approve the audit fee charged by the independent auditors. The Audit
Committee will report to the Board of Directors with respect to such matters
and recommends the selection of independent auditors.
BOARD AND COMMITTEE ATTENDANCE
In the 1999 fiscal year, the Board of Directors held four meetings. All
directors attended more than 75% of the aggregate of board and committee
meetings held during the 1999 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
__________________________________________________________________________________________________________________________________
Annual Compensat. Awards Payouts
__________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Rest. All
Name and Annual Stock LTIP Other
Principal Calend. Comp. Award(s) Opt. P/outs Comp.
Position Year Salary Bonus($) ($) ($) SARs(#) ($) ($)
__________________________________________________________________________________________________________________________________
CEO &
Treasurer 1999 94,500
Chute, (Annualized)
Paul W. 1998 51,750
1997 42,000
President 1999 107,000
65,000
Raden, (Annualized)
John F. 1998 6,585
Senior V.P., 1999 77,000
40,000
Marketing (Annualized)
Holt, Jr.,
John W.
V.P., HR 1999 50,000
37,000
Hooper, (Annualized)
Richard H. 1998 2,885
V.P., 1999 75,000
35,000
Operations (Annualized)
Tilton, 1998 5,385
Linda J.
No employee of the Company receives any additional compensation for his
services as a director.
Other than a fully non-qualified plan pursuant to rule 401 (K), the Company
has no retirement, pension or profit sharing program for the benefit of its
directors, officers or other employees. The Board of Directors may recommend
one or more such programs for adoption in the future.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Commission and the Company. Specific due dates for these reports have been
established and the Company is required to disclose any failure to file, or
late filing, of such reports. Based solely on the Company's review of Forms
3, 4 and 5 and amendments thereto furnished to the Company and written
representations with respect to filing of such Forms, the Company is aware
that all Forms have been filed timely to date.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 30, 1999 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director, and (iii) all executive officers and directors as a
group. Each person has sole voting and sole investment or dispositive power
with respect to the shares shown except as noted.
Shares of Acadia
Common Stock to be
Name and Beneficially Owned Percent of
Name and as of 09-30-99 Class
- ---------------------------- ------------------ ----------
Paul W. Chute 1,081,340 21.57%
76 North Withman School Road
Buckfield, ME 04220
Judith M. Brown 40,000 0.80%
1853 Mar West
Tiburon, CA 94920
John L. Crispin 68,000 1.40%
3 Pond Ridge Road
Lewiston, ME 04240
John F. Raden 66,000 1.32%
RR 1 Box 2309C
Kingfield, ME 04947
John W. Holt, Jr. 40,000 0.80%
15 Birchwood Road
Cape Elizabeth, ME 04107
Linda J. Tilton 36,000 0.72%
928 Duck Pond Road
Westbrook, ME 04092
Richard H. Hooper 127,000 2.53%
212 Hooper Ledge Road
South Paris, ME 04281
Martha L. Beaulieu 3,000 0.06%
445 Flagg Pond Road
Saco, ME 04072
Jacquelyn J. Magno 785,350 15.66%
124 Fairway Drive
Auburn, ME 04210
Mark T. Thatcher 220,000 4.39%
125 Gideon Lawton Lane
Portsmouth, RI 02903
Thomas B. Tupper 320,000 6.38%
11 River Bend Drive
Kennebunk, ME 04043
Margaret M. Heath 210,493 4.20%
357 Harris Hill Road
Poland, ME 04274
All Directors and 1,891,833 37.73%
Executive Officers
As a Group
Management of Acadia has advised that they may acquire additional shares of
Acadia Common Stock from time to time in the open market at prices prevailing
at the time of such purchases.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with affiliate and insider transactions, the Company will secure
an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. However, in
each instance, the directors will review and unanimously approve the fairness
and reasonableness of the terms of the transactions. The Company believes that
the approved transactions will be fair and reasonable to the Company on the
basis that such transactions will be on terms at least as favorable as could
have been obtained from unaffiliated third parties. The transactions between
officers and directors of the Company, on the one hand, and the
Company, on the other, have inherent conflicts of interest.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8 K
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits
to previous filings with the Commission and are incorporated herein by this
reference:
EXHIBIT NO. DOCUMENT
* 2.1 Assets Purchase Agreement between Acadia National
Health Systems, Inc. and Physician Resources, Inc.,
dated September 27, 1996;
#### 2.2 Contract for Sale of Assets of Northeast Medical
Business Group to Acadia National Health Systems, Inc.,
dated September 8, 1998;
* 3.1 Articles of Incorporation of the Company, as amended;
* 3.2 Bylaws of the Company, as amended;
* 4.1 Instruments Defining Rights of Security Holders/Minutes
of Annual/ Special Meetings of the Company;
* 4.2 Loan Agreements Secured by Demand Notes/Promissory
Notes, Defining Rights of Holders of Long Term Debt;
* 10.1 Software License Master Agreement;
EXHIBIT NO. DOCUMENT
x 11 Computation of Basic and Diluted Earnings Per Share
### 20.1 Board of Director's Resolution authorizing new
lines of credit and a term loan in connection with
canceling personal guaranty and Debts of
Thomas N. Hackett, founder of the Registrant.
### 20.2 Opinion of Borrower's Counsel
### 20.3 Indemnification Agreement (Estate of Thomas N. Hackett)
### 20.4 Indemnification Agreement (Peacock Hill Farm Limited
Liability Company)
#### 20.5 Board of Director's Resolutions authorizing a term
loan in connection with purchase of selected assets
of Northeast Medical Business Group, Inc. by Acadia
National Health Systems, Inc;
#### 20.6 Opinion of Borrower's Counsel;
x 23.1 Consent of Counsel
x 23.2 Consent of Berry, Dunn, McNeil & Parker, independent
certified public accountants for the Company.
x 27 Financial Data Schedule
x 99.1 Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking
Statements
#### 99.2 Text of press release dated September 9, 1998.
##### 99.3 Text of press release dated April 12, 1999
##### 99.4 Text of press release dated April 19, 1999
##### 99.5 Text of press releases dated October 4 and 12, 1999
- -----------------------------------
x Filed herewith.
* Incorporated by reference from the issuer's Registration Statement
on Form 10SB12G (S.E.C. File No. 000-1026491) as declared
effective on January 11, 1997.
# Incorporated by reference from the Issuer's Form 8-KA for event
date of July 31, 1997.
## Incorporated by reference from the Issuer's Form 8-KA for event
date of August 8 and August 20, 1997.
### Incorporated by reference from the Issuer's Form 8-K for event
date of August 13, 1997.
#### Incorporated by reference from the Issuer's Form 8-K for
event date of September 23, 1998.
##### Incorporated by reference from the Issuer's Form 8-K for
event date of April 22, 1999.
###### Incorporated by reference from the Issuer's Form 8-K for
event date of October 5 and 12, respectively.
(b) REPORTS ON FORM 8 K
The Company filed the following reports on Form 8-K during the 1999
fiscal year.
8-K, November 12, 1998, Item 5, Exhibit 99.1, Press Release
8-K, December 18, 1998, Item 5, Exhibit 99.1, Press Release
8-K, January 29, 1999, Item 5, Exhibit 99.1, Press Release
8-K, April 22, 1999, Item 5, S.E.C. Response Letter, Exhibit 99.1-2,
Press Release
8-K, October 20, 1999, Item 5, Exhibit 99.1-25, Press Releases
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACADIA GROUP, INC. D/B/A ACADIA BUSINESS GROUP, INC.
F/K/A ACADIA NATIONAL HEALTH SYSTEMS, INC.
By: /s/ John W. Holt, Jr.
John W. Holt, Jr., Chief Executive Officer
Date: December 30, 1999
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John W. Holt, Jr. Chief Executive Officer December 30, 1999
President
/s/ Emile L. Clavet Chairman of the Board December 30, 1999
/s/ John L.Crispin, MD Director December 30, 1999
/s/ James D. Delamater Director December 30, 1999
/s/ Judith M. Brown Director December 30, 1999
</TABLE>
ACADIA NATIONAL HEALTH SYSTEMS, INC.
COMPUTATION OF BASIC EARNINGS PER SHARE
Twelve Months Ended September 30, 1999 and 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
September 30, September 30,
Description 1999 1998
----------------- ----------------
<S> <C> <C>
Weighted average shares outstanding
during the period 4,453,712 3,744,321
Shares issuable upon assumed exercise
of stock options, less amounts assumed
repurchased under the treasury stock 0 0
method ----------------- ----------------
Total weighted average common stock
and common stock equivalents
outstanding during the period 4,453,712 3,744,321
================= ================
Net income from continuing operations $ (665,830) $ 53,650
Discontinued operation, net of tax 0 0
Extraordinary items, net of tax 0 0
----------------- ----------------
Net income $ (665,830) $ 53,650
================= ================
Net income per common share: $ (.1495) $ .0143
</TABLE>
CONSENT OF COUNSEL
I hereby consent to the use of my name as legal counsel in the Annual Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1999 filed by Acadia National Health Systems,
Inc. on Form 10-KSB.
NADEAU & SIMMONS, P.C.
MARK T. THATCHER, Of Counsel
/S/ Mark T. Thatcher
By:_____________________________
MARK T. THATCHER, Of Counsel
Providence, RI
December 30, 1999
We hereby consent to the use of our name as auditing firm in the Annual Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
fiscal year ended September 30, 1999 filed by Acadia National Health Systems,
Inc. on Form 10-KSB.
Berry, Dunn, McNeil & Parker
Portland, Maine
<TABLE> <S> <C>
<ARTICLE> 5 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1999
<PERIOD-END> SEP-30-1998 SEP-30-1999
<CASH> 2,529 19,037
<SECURITIES> 0 0
<RECEIVABLES> 1,070,741 1,197,237
<ALLOWANCES> 0 0
<INVENTORY> 2,468 0
<CURRENT-ASSETS> 1,099,115 1,269,676
<PP&E> 464,154 769,491
<DEPRECIATION> 94,863 186,509
<TOTAL-ASSETS> 1,646,970 2,362,389
<CURRENT-LIABILITIES> 780,880 1,468,441
<BONDS> 0 0
<COMMON> 394,640 1,029,890
0 0
0 0
<OTHER-SE> 97,508 (568,322)
<TOTAL-LIABILITY-AND-EQUITY> 1,646,970 2,362,389
<SALES> 1,134,972 2,008,010
<TOTAL-REVENUES> 1,155,119 2,043,234
<CGS> 394,773 760,252
<TOTAL-COSTS> 608,785 2,038,826
<OTHER-EXPENSES> 13,991 32,656
<LOSS-PROVISION> 0 111,159
<INTEREST-EXPENSE> 57,199 115,830
<INCOME-PRETAX> 80,371 (904,330)
<INCOME-TAX> 26,721 (238,500)
<INCOME-CONTINUING> 53,650 (665,830)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<PAGE>
<CHANGES> 0 0
<NET-INCOME> 53,650 (665,830)
<EPS-BASIC> .01 (.15)
<EPS-DILUTED> .01 (.15)
</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.
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 complete a private placement or public offering prior
to September 30, 2000, and to use a portion of the net proceeds from the sale
to pay off indebtedness, complete "roll-up" mergers and acquisitions, provide
working capital and to develop strategic relationships. There can be no
assurance that a sale of equity 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 fourth quarter of 1999. The Company will
develop contingency plans 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 $100,000 to $125,000 over 1998 and 1999, the
majority of which represents redirection of internal resources. However,
there can be no assurance that the Company will identify all such Year 2000
problems in its computer systems or those of its customers, vendors or
resellers in advance of their occurrence or that the Company will be able to
successfully remedy any problems that are discovered. The expenses of the
Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, could have a material adverse effect on the Company's business,
financial condition and results of operations. The revenue stream and
financial stability of existing customers may be adversely impacted by Year
2000 problems, which could cause fluctuations in the Company's revenue. In
addition, failure of the Company to identify and remedy Year 2000 problems
could put the Company at a competitive disadvantage relative to companies
that have corrected such problems.
COMPETITION; INDUSTRY AND MARKET CHANGES
The business of providing billing and management services to physicians and
hospitals is highly competitive. Acadia competes with certain national and
regional physician and hospital reimbursement organizations and billing
businesses (including local independent operating companies), certain
national information and data processing organizations and certain physician
groups and hospitals that provide their own business management services.
Potential industry and market changes that could adversely affect the billing
aspects of Acadia's business include (i) a significant increase in managed
care providers relative to conventional fee for service providers, potentially
resulting in substantial changes in the medical reimbursement process, or the
Company's failure to respond to such changes and (ii) new alliances between
healthcare providers and third party payors in which healthcare providers are
employed by such third party payors. The business of providing application
software, information technology and consulting services is also highly
competitive and Acadia faces competition from certain national and regional
companies in connection with its technology operations. Certain of Acadia's
competitors have longer operating histories and greater financial, technical
and marketing resources than Acadia. There can be no assurance that
competition from current or future competitors will not have a material
adverse effect upon Acadia.
The Company's business is affected by, among other things, trends in the U.S.
healthcare industry. As healthcare expenditures have grown as a percentage
of the U.S. Gross National Product, public and private healthcare cost
containment measures have applied pressure to the margins of healthcare
providers.
Historically, some healthcare payors have paid the prices established by
providers while other healthcare payors, notably government agencies and
managed care companies, have paid less than established prices (in many cases
less than the average cost of providing the services). As a consequence,
prices charged to healthcare payors willing to pay established prices have
increased in order to recover the cost of services purchased by government
agencies and others but not paid for by them (i.e., "cost shifting"). The
increasing complexity in the reimbursement system and assumption of greater
payment responsibility by individuals have caused healthcare providers to
experience increase accounts receivable and bad debt levels and higher
business office costs. Healthcare providers historically have addressed these
pressures on profitability by increasing their prices, by relying on
demographic changes to support increases in the volume and intensity of
medical procedures and by cost shifting. Notwithstanding the providers'
responses to these pressures, management believes that the revenue growth rate
experienced by certain of the Company's clients continues to be adversely
affected by increased managed care and other industry factors affecting
healthcare providers in the United States. At the same time, the process of
submitting healthcare claims for reimbursement to third party payors in
accordance with applicable industry and regulatory standards continues to
grow in complexity and to become more costly. Management believes that these
trends have adversely affected and could continue to adversely affect the
revenues and profit margins of the Company's operations.
GOVERNMENTAL INVESTIGATORY RESOURCES AND HEALTHCARE REFORM
The federal government in recent years has placed increased scrutiny on the
billing practices of healthcare providers and related entities, and
particularly on possibly fraudulent billing practices. This heightened
scrutiny has resulted in a number of high profile civil and criminal
investigations, lawsuits and settlements.
In 1996, Congress enacted the Health Insurance Portability and Accounting Act
of 1996, Pub. L. No. 104 191, 1996 U.S.C.C.A.N. (110 Sat. 1936) (codified in
scattered sections of the United States Code, including 18, 26, 29 and 42
U.S.C.), which includes an expansion of provisions relating to fraud and
abuse, creates additional criminal offenses relating to healthcare benefit
programs, provides for forfeitures and asset freezing orders in connection
with such healthcare offenses and contains provisions for instituting greater
coordination of federal, state and local enforcement agency resources and
actions.
In recent years, the focus of healthcare legislation has been on budgetary
and related funding mechanism issues. Both the Congress and the Clinton
Administration have made proposals to reduce the rate of increase in projected
Medicare and Medicaid expenditures and to change funding mechanisms and other
aspects of both programs. In late 1995, Congress passed legislation that would
substantially reduce projected expenditure increases and would make
significant changes in the Medicare and Medicaid programs. Acadia cannot
predict the effect of pending legislation, if adopted, on its operations.
A number of states in which Acadia has operations either have adopted or are
considering the adoption of healthcare reform proposals at the state level.
Acadia cannot predict the effect of proposed state healthcare reform laws on
its operations. Additionally, certain reforms are occurring in the healthcare
market, including certain employer initiatives such as creating purchasing
cooperatives and contracting for healthcare services for employees through
managed care companies (including health maintenance organizations), and
certain provider initiatives such as risk sharing among healthcare providers
and managed care companies through 33333capitated 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 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.
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.
