UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number: 000-28976
ACADIA GROUP, INC.
(Exact name of registrant as specified in its charter)
COLORADO 01-0509781
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
415 RODMAN ROAD, AUBURN, MAINE U.S.A. 04210
(Address of principal executive offices) (Zip Code)
(207) 777-3423
(800) 479-3066
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $0 Par Value - 12,646,658 shares as of June 30, 2000
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
1
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Stockholders
Acadia Group, Inc.
We have reviewed the accompanying interim consolidated financial information
of Acadia Group, Inc. and Subsidiaries as of June 30, 2000 and for the
three-month and nine-month periods then ended. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is to express an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
As discussed in Note 3, the Company has expressed considerations about their
ability to continue as a going concern.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Portland, Maine
August 9, 2000
2
ACADIA GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For Periods Ended June 30,
Three months ended Nine months ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
(Unaudited) (Note) (Unaudited) (Note)
Sales $ 341,530 $ 480,318 $ 1,116,815 $ 1,609,962
Salaries & Benefits 686,66 408,107 1,858,384 1,114,769
Marketing & Advertising 252,960 18,439 729,719 34,282
Depreciation & Amortization 159,054 36,829 303,451 87,249
Stock Bonus Compensation 116,040 0 269,977 0
Other Operating Expenses 290,838 202,716 1,019,171 490,843
Operating Loss $(1,164,024) $ (185,773) $(3,063,887) $ (117,181)
Other Expense, net 80,949 0 80,949 7,656
Loss before Interest & Tax $(1,244,973) $ (185,773) $(3,144,836) $ (124,837)
Interest Expense 78,446 27,368 155,180 77,897
Loss before Tax $(1,323,419) $ (213,141) $(3,300,016) $ (202,734)
Change in Accting Principle 16,279 0 16,279 0
Income Tax Exp./(Benefit) 596 (36,498) (371,909) (36,498)
Net Loss $(1,340,294) $ (176,643) $(2,944,386) $ (166,236)
Net Loss per
Common Share
Basic $ (.11569) $ (0.01867) $ (.25949) $ (.01790)
Diluted $ (.11569) $ (0.01867) $ (.25949) $ (.01790)
Weighted Average Number of
Common Shares Outstanding
Basic 11,585,125 9,461,974 11,346,594 9,288,641
Diluted 11,585,125 9,461,974 11,346,594 9,288,641
See Accompanying Notes to Financial Statements.
3
ACADIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, and September 30,
June 30, 2000 September 30, 1999
(Unaudited)
(Note)
Current Assets:
Cash and Cash Equivalents $ 118,527 $ 22,239
Short-Term Investments 551,498 0
Accounts Receivable, net of
allowances $115,921 and $135 948,274 1,080,881
Income Taxes Receivable 22,226 22,226
Note Receivable 67,199 23,676
Prepaid Expenses 444,736 116,356
Deferred Income Taxes 7,500 7,500
Inventory 25,000 0
Total Current Assets $ 2,184,960 $ 1,272,878
Property, Plant & Equipment:
Cost $ 1,911,658 $ 769,491
Less: Accumulated Depreciation (402,532) (186,509)
Net Property, Plant & Equipment $ 1,509,126 $ 582,982
Other Assets:
Covenant, Not-to-Compete, net of
amortization $56,880 and $16,416 $ 685,775 $ 180,579
Deferred Financing Costs, net of
amortization $17,497 and $1,166 0 16,331
Goodwill, net of
amortization $31,069 and $18,359 53,666 66,376
Organizational Costs, net of
amortization $32,700 and $16,421 0 16,279
Note Receivable, net of
allowance of $0 and $50,000 0 4,166
Deferred Income Taxes - Long-Term 598,415 226,000
Licenses and Intangible Assets, net of
amortization $1,262 and $0 2,505 695
Total Other Assets $ 1,340,361 $ 510,426
___________ ___________
Total Assets $ 5,034,447 $ 2,366,286
Current Liabilities:
Accounts Payable $ 498,225 $ 179,504
Current Portion of Debt 1,292,380 1,136,715
Current Portion of Leases 86,700 86,700
Accrued Expenses 38,176 65,140
Overdraft Payable 0 1,382
Other 543 0
Total Current Liabilities $ 1,916,024 $ 1,469,441
4
Long-Term Liabilities:
Deferred Income Taxes $ 15,500 $ 15,500
Long-Term Debt,
excluding Current Portion 0 331,943
Obligations under Capital Leases 94,895 84,937
Total Long-Term Liabilities $ 110,395 $ 432,380
Total Liabilities $ 2,026,419 $ 1,901,821
Shareholders' Equity/(Deficit):
Common Stock, $0.00 par value;
authorized 50,000,000 shares; issued
and outstanding 12,646,658 shares at
June 30, 2000; issued and outstanding
10,377,974 at September 30, 1999 $ 8,573,916 $ 1,050,114
Unearned Stock Bonus Compensation (1,993,861) 0
Series A Convertible Preferred Stock,
$100.00 par value; authorized 50,000,000
shares; issued and outstanding 0 shares 0 0
Additional Paid-in-Capital 0 41,992
Accumulated Deficit (3,572,027) (627,641)
Total Shareholders' Equity/(Deficit) $ 3,008,028 $ 464,465
Total Liabilities & Shareholders' Equity $ 5,034,447 $ 2,366,286
Note: The balance sheet at September 30, 1999 has been derived from the
audited financial statements of that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Financial Statements.
5
ACADIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Through June 30, 2000
Retained
Earnings
Common Stock Additional (Accumulated
Shares Amount Paid-in Capital Deficit) Total
Balance, September 30, 1999 10,377,974 $ 1,050,114 $ 41,992 $ (627,641) $ 464,465
MedLecture Merger 5,363,987 21,391 (30,910) (9,519)
Conversion of Debentures 857,151 600,000 600,000
Private Placement 1,059,073 4,659,963 (41,992) 4,617,971
Stock Issued as
Employee Compensation 350,000 2,253,125 2,253,125
Stock Issued as Directors' Comp. 2,460 10,714 10,714
Unearned Stock Bonus Compensation 0 (1,993,861) (1,993,861)
Net Loss __________ __________ ____________ (2,944,386) (2,944,386)
Balance, June 30, 2000 12,646,658 $ 6,580,055 $ 0 $(3,572,027) $3,008,028
See Accompanying Notes to Financial Statements.
6
ACADIA GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Periods Ended June 30,
Nine Months Ended Nine Months
Ended
2000 1999
(Unaudited)
(Note)
Cash Flows from Operating Activities:
Net Loss $(2,944,386) $ (166,236)
Depreciation & Amortization 319,730 87,249
Deferred Income Tax (372,415) (22,540)
Gain on Sale of Assets (11,800) (1,950)
Stock Issued as Employee Compensation 2,253,125 0
Stock Issued as Director Compensation 10,714 0
Unearned Stock Bonus Compensation (1,993,861) 0
(Increase)/Decrease in:
Accounts Receivable 132,607 (286,208)
Prepaids & Other Current Assets (396,903) (100,485)
Other Non-Current Assets 33,573 (25,000)
Increase/(Decrease) in:
Accounts Payable 608,721 12,842
Other Current Liabilities (27,803) (1,007)
Other Non-Current Liabilities 0 (20,814)
Total Adjustments $ 555,688 $ (357,913)
Net Cash Used by Operating Activities $(2,388,698) $ (524,149)
Cash Flows from Investing Activities:
Capital Expenditures, net $(1,142,167) $ (304,106)
Net Cash Used by Investing Activities $(1,142,167) $ (304,106)
Cash Flows from Financing Activities:
Short-Term Investments $ (551,498) $ 0
Bridge Financing from Management 300,000 0
Stock Issued for Debenture Conversion 600,000 0
Proceeds from Issuance of Common Stock 3,284,971 483,000
Proceeds/(Repayment) of Debt, net (16,278) 326,765
Proceeds/(Repayment) of Leases, net 9,958 56,945
Deferred Financing Costs 0 (9,834)
Net Cash Provided by Financing Activities $ 3,627,153 $ 856,876
____________ ____________
Net Increase/(Decrease) in
Cash & Cash Equivalents $ 96,298 $ 28,621
Cash & Cash Equivalents:
Beginning of Period $ 22,239 $ 2,529
End of Period $ 118,527 $ 31,150
See Accompanying Notes to Financial Statements.
7
Non-cash transactions related to
the stock issuance include:
Reduction in accounts payable $ 290,000
Reduction in debt,
related to severance agreements 743,000
Repayment of bridge loan from
Management 300,000
$ 1,333,000
8
ACADIA GROUP, INC. and SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements, footnote disclosures
and other information normally included in financial statements have been
prepared by Acadia Group, Inc., d/b/a Acadia Business Group, Inc. ("Acadia" or
"the Company") in accordance with generally accepted accounting principles for
interim financial information and Securities Exchange Commission instructions
to Form 10-QSB and Rule 310 of Regulation S-B. In the opinion of management,
the accompanying consolidated financial statements contain all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. While the Company believes
that the disclosures presented are adequate to make the information not
misleading, these consolidated financial statements should be read in
conjunction with the audited financial statements and related notes for the year
ended September 30, 1999 which are contained in the Company's Annual report on
Form 10-KSB. The results for the nine-month period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full fiscal year.
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 1999 balances have been changed to conform to fiscal year 2000
presentations. Certain fiscal year 2000 balances have been reclassified and
reallocated to reflect costs and expenses associated with the individual
operating units.
Earnings Per Share
Earnings per share are based upon the weighted average number of common shares
outstanding during the year as adjusted to reflect a pooling of assets
executed by the Company during November 1999. The common stock equivalents
outstanding and warrants are anti-dilutive. In accordance with the provisions
of SFAS 128, the number of diluted shares includes the average of shares
outstanding and the stock options to be used in the diluted earnings per
share
9
calculations. See Note 4. Convertible Debentures and Promissory Notes and
Note 12. Stock-Based Compensation Plans and Other Compensation.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are 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.
Covenant, Not-to-Compete
Covenants, not-to-compete are being amortized using the straight-line method
over the remaining term of the agreement.
Deferred Costs
Deferred financing costs have been fully amortized over the one-year term of
the loan.
Goodwill
Goodwill in the amount of $84,735 arose from the acquisition of Northeast
Medical Business Group, Inc. It is being amortized on a straight-line basis
over five years, based on the duration of the non-compete agreement. At each
balance sheet date, the Company evaluates the value of Goodwill based upon
expectations of non-discounted 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 June 30, 2000.
Advertising
The Company expenses advertising as incurred. Advertising expense was
$729,719 and $64,286 for the nine months ended June 30, 2000 and year ended
September 30, 1999, respectively.
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. The Company has provided valuation
allowances for deferred tax assets since realization of these future benefits
is not sufficiently assured.
Revenue Recognition
Revenue includes fee income received as a third party biller for processing
healthcare provider claims. Revenue is recognized when claims have been
submitted for payment to the insured's carrier and includes estimates for
adjustments.
10
The Company receives subscription-based revenue whereby a subscriber will
prepay for varying levels of continuing medical education during the following
twelve (12) months. The Company defers subscription revenue and amortizes
amounts received over the length of the subscription on a straight-line basis.
Change in Accounting Principle
Effective for fiscal year ending September 30, 2000, all start-up and
organizational costs are expensed as incurred. Carryover organizational costs
from fiscal year ended September 30, 1999 totaling $16,279 have been recorded
as a cumulative effect of a change in accounting principle for the period
ended June 30, 2000.
Note 2. Pooling-Of-Interests.
On November 19, 1999, Acadia (d/b/a Acadia Business Group, Inc.) (f/k/a
Acadia National Health Systems, Inc.) completed a merger with WorldLecture.com,
Inc. (d/b/a MedLecture.com), and Acadia Merger Holding Company, which changed
its name to Acadia National Health Systems, Inc. The merger was accounted for
as a pooling-of-interests. As a result of the merger, Acadia Group, Inc. was
formed as a parent company and established two wholly-owned subsidiaries;
WorldLecture.com, Inc., an Internet e-commerce company, and Acadia National
Health Systems, Inc., a medical billing and management services organization.
In exchange for one hundred percent of the outstanding shares of
MedLecture.com, Inc., Acadia issued 5,363,987 shares of common stock. The
transaction did not result in a significant change to the Company's financial
position and results of operations. Cumulative losses for MedLecture.com,
Inc. of $20,000 were recorded as a result of the pooling.
WorldLecture.com, Inc. is a newly formed Internet subsidiary in the
business of delivering continuing education on the Internet through the use of
video streaming to professional persons who are obligated to maintain
competency in their respective expertise to the satisfaction of governmental
or trade regulatory agencies. WorldLecture.com, Inc., launched its first web
site product in the medical education market at the National Conference of the
Alliance for Continuing Medical Education on January 19, 2000 in New Orleans
under the trade style of MedLecture.com.
Note 3. Going Concern Considerations
The Company may have operational and finance issues that may represent
obstacles as related to the Company's ability to continue as a going concern.
See Note 18. Legal Proceedings and Note 7. Bank Financing and Management's
Discussion and Analysis.
Note 4. Convertible Debentures and Promissory Notes
On November 1, 1999, Acadia issued $600,000 in convertible debentures as
an equity raise to subscription investors pursuant to Rule 504 of the
Securities Act of 1933, as amended (the "Act") which were contingent upon the
merger of MedLecture.com, Inc., a Maine Corporation, with and into
WorldLecture.com, Inc., a subsidiary of Acadia closing on or before April 1,
2000. The holder of the debenture had the privilege to convert the debentures
into common voting shares of Acadia at a purchase price of eighty percent
(80%) of the offering price for the shares of Acadia as of October 7, 1999
(i.e., 80% of $.875 = $.70 exercise price). Notwithstanding the foregoing, in
the event that the merger was not consummated and/or Acadia did not approve
11
the conversion and/or the conversion privilege was not exercised on the
effective date of the merger (i.e., November 19, 1999), the holders' privilege
to convert was deemed null and void ab initio. On November 19, 1999, the
merger was consummated; Acadia approved the conversion and all subscription
investors exercised their conversion privilege with the Company. In
connection with the conversion of such debentures, the Company issued 857,151
shares of common voting stock. All shares of stock issued upon conversion are
subject to Rule 144 restrictions.
On January 18, 2000, Acadia issued $450,000 and $50,000 convertible
debentures to officers of the Company and a member of the board of directors,
respectively. The debentures were issued as bridge financing to fund the
Company's operations until the Company's private placement broke escrow but no
later than December 31, 2000. The debentures were convertible into the
Company's common stock at a price of $3.09 per share. The debentures bear a
cost of 12 points which is payable in full with the principal from the
proceeds of the Corporation's Rule 506 Equity Raise of up to Ten Million
Dollars ($10,000,000.00). The debentures were paid in full on May 4, 2000.
See Note 16. Related Party Transactions.
On February 25, 2000 and March 17, 2000, Acadia issued $200,000 and
$100,000 promissory notes, respectively, to both the Chairman and Executive
Vice President of Mergers & Acquisitions. The notes were issued as bridge
financing to fund the Company's operations until the Company's Private
Placement broke escrow but no later than December 31, 2000. The notes' 14%
rate of interest were payable in full with the principal from the proceeds of
the Corporation's Rule 506 Equity Raise of up to Ten Million Dollars
($10,000,000.00). The promissory notes with accrued interest, totaling
$305,000 were subsequently converted to common stock as part of the private
placement on April 26, 2000. See Note 5. Issuance of Common Stock and Note
16. Related Party Transactions.
On May 4, 2000 and May 10, 2000, Acadia issued $40,000 and $45,000
promissory notes, to former employees and shareholders of the Company. The
notes were issued as lines of credit. The notes bear interest of 9.0% and are
scheduled to terminate on September 15, 2001. All balances and interest shall
accrue and be paid upon termination of the notes or on demand (but, not
earlier than October 1, 2000). The notes are secured by a stock pledge
agreement from the undersigned to Acadia. See Note 16. Related Party.
Note 5. Issuance of Common Stock
The firm engaged Advest, Inc., an investment banking firm, as placement
agent to offer a minimum of 1,052,632 shares of common stock of the Company to
a maximum of 2,105,263 shares at $4.75 per share to prospective investors who
are accredited under Regulation D of the Securities Act. The offering was a
best efforts offering by the placement agent.
On April 26, 2000 the Corporation accepted subscriptions for 1,059,073
shares of its common stock at $4.75 per share from certain investors. The
consideration paid for the shares by the subscribers included cash, and in
certain instances, the cancellation of debt and other obligations of the
Company. The transaction generated total gross proceeds of $3,585,000 and
enabled the Company to cancel debt and other obligations in the aggregate
amount of $1,450,000 owed to certain subscribers. The shares of common stock
issued in the private placement are not registered under the Securities Act
of
12
1933 and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
As part of the private placement, a vendor converted approximately
$290,000 trade payables into common stock. Other non-cash subscriptions
include; Advest, Inc., the investment banking firm facilitating the private
placement accepted shares of the Company's stock in lieu of certain fees
approximating $100,000, and two former employees of the Corporation agreed to
accept shares of common stock in lieu of future cash payments with an
approximate $743,000 discounted value as required by their severance and
non-compete agreements. See Note 13. Severance and Non-Compete Agreement.
Placement and legal fees totaling $451,000 were incurred in connection with
the private placement, which were netted against proceeds and include
$415,000 in fees to Advest, Inc.
Note 6. Net Income per Common Share
Computation of net income per common share is based on the weighted
average number of shares outstanding during such periods, after restating
shares outstanding in accordance with reporting for a pooling. See Note 2.
Pooling-of-Interests. These amounted to 11,346,594 shares for the nine months
ended June 30, 2000 and 11,585,125 shares for the three months ended June 30,
2000.
Note 7. Bank Financing
The line of credit through Citizens Bank of New Hampshire ("the Bank")
drawn upon (outstanding) as of June 30, 2000 was $1,092,673 on a $1,250,000
limit as compared to $750,281 on a $1,250,000 as of June 30, 1999. The
$1,250,000 revolving line of credit matured by its terms on April 30, 2000.
The line called for monthly interest payments on the outstanding loan balance
at prime plus 1%. The line of credit is collateralized by all corporate
assets and is also guaranteed by two shareholders of the Company.
A note payable to Citizens Bank is due in monthly installments of $5,207,
including interest, through June 2004 and is collateralized by all corporate
assets. The note balance as of June 30, 2000 was $208,509 as compared to the
note balance of $250,000 on June 30, 1999.
The Bank informed the Company subsequent to April 30, 2000 of its
intentions not to renew the line of credit with the Company and made demand
for both the line of credit and note. Per the terms of the contract(s), the
Company is in default on both the line of credit and term note and is
responsible for both legal fees incurred by the Bank to collect funds as well
as punitive interest charges and late fees.
Note 8. Leases
A total of $67,947 of equipment was acquired at various times from
September 30, 1999 to June 30, 2000 under capital leases. Capital lease
obligations at June 30, 2000 amount to a future value of $268,295.
Note 9. Majority Shareholders
The following table sets forth certain information regarding beneficial
ownership of common stock as of June 30, 2000: (i) all executive officers and
directors, and (ii) each person known by the Company to own beneficially more
than 5% of the outstanding common stock. Each person has sole voting and
sole
13
investment or dispositive power with respect to the shares shown except as
noted.
Name Position Shares % Owned
Emile L. Clavet Chairman of the Board 1,310,476(i) 10.4%
79 Shepley Street
Auburn, ME 04210
Kevin B. Dean Director, Executive VP 1,310,476(i) 10.4%
98 Davis Avenue Mergers & Acquisitions,
Auburn, ME 04210 and Treasurer
Douglas Farrago, M.D. Director, Member Officer 2,478,158 19.6%
94 Shepley Street Executive VP Medical
Auburn, ME 04210 Informatics
John W. Holt, Jr. Chief Executive Officer(ii) 190,000 1.5%
15 Birchwood Road and President
Cape Elizabeth, ME
04107
John F. Raden Chief Operating Officer 216,000 1.7%
RR 1 Box 230 and Vice President
Kingfield, ME 04947
Richard H. Hooper Executive VP, Internal 178,000 1.4%
212 Hooper Ledge Road Affairs
South Paris, ME 04281
Margaret M. Heath Corporate Secretary 175,000 1.4%
357 Harris Hill Road
Poland, ME 04274
Judith M. Brown Director 41,000 .3%
1853 Mar West
Tiburon, CA 94920
Warren Malkerson Director 21,582 .2%
3501 Gulleria
Minneapolis, MN 55435
Thomas J. Dean Chief Financial Officer 3,300 .0%
20 Leicester Street
Brighton, MA 02135
Albert F. Barber Director 160 .0%
199 Elm Street
New Canaan, CT 06840
Jeffrey A. Laughlin Director 82 .0%
980-990 Washington St.
Suite 328
Dedham, MA 02026
Heather D. Blease Director 82 .0%
3 Industrial Parkway
Brunswick, ME 04011
14
Thomas Caliandro Director 78 .0%
7700 Wisconsin Avenue
Bethesda, MD 20814
---------
5,924,394
(i) Includes 207,158 shares (i.e., 103,579 shares each to Messrs. Clavet and
K. Dean) of the Company's stock beneficially owned by Diamond Properties, Inc.
a Maine Corporation. Messrs. Clavet and K. Dean are officers and controlling
shareholders of Diamond Properties, Inc.
(ii) Effective August 2, 2000, John W. Holt, Jr. tendered his resignation as
Chief Executive Officer and President of Acadia Group, Inc. and its related
subsidiaries.
Note 10. Accounts Receivable and Advances
Within accounts receivable are trade accounts receivable and advances of
$240,419 and $707,855 respectively as of June 30, 2000 as compared to $602,142
and $673,712 as of June 30, 1999.
The Company has arrangements with certain customers whereby the Company
advances cash to the customers based on their outstanding accounts
receivable. The Company then assumes the responsibility for billing and
collecting such receivables, which have been pledged as collateral.
Note 11. 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 base compensation
to the plan, not to exceed the mandated IRS limit for the calendar year. At
its discretion, the Company may make matching contributions, subject to
certain limitations. The Company made no contribution for the nine-month
period ended June 30, 2000.
Note 12. Stock-Based Compensation Plans and Other Compensation
During fiscal year 1999, the Company adopted two stock-based compensation
plans that were adopted by the Board of Directors on March 5, 1999 and
approved by the shareholders on November 19, 1999. The plans were later
amended at the March 9, 2000 meeting of the Board of Directors. The plan
reserves of restricted common voting stock at no par value are 1,700,000
within the Restricted Stock Bonus Plan and 500,000 within the Simple
Restricted Stock Option Plan and are available to key employees of the Company
under the Act. The plans are administered by the Audit and Compensation
Committee of the Board of Directors.
Prior to the current fiscal year, 197,000 shares of restricted common
voting stock of the Stock Bonus Plan had been issued and were fully vested.
During the first quarter ended December 31, 1999 there were 350,000 shares
issued from the Company's plan pursuant to a November 19, 1999 Board of
Directors vote. The Company applies APB Opinion 25 and related
interpretations in accounting for the plan. The stock-based compensation is
15
accrued over a vesting period, beginning upon the date shares are granted.
The Board of Directors may curtail an employee's vesting period under certain
significant circumstances as outlined in the plan. Stock bonus compensation
charged against income for the quarter ended June 30, 2000 was $116,040 and
includes estimates made by management concerning an employee completing the
vesting period.
On May 2, 2000 the Company granted options to certain employees under the
Simple Restricted Stock Option Plan to purchase shares of the Company's common
stock at a price not less than the fair market value at the date of grant.
The granted options under the plan vested immediately as of the date of grant
and are exercisable in installments; however, no options are exercisable
within one year or later than ten years from the date of grant. Shares
totaling 95,000 have been granted. Zero shares have been exercised. The
Company has elected to follow the accounting provisions of Accounting
Principles Board Opinion No. 25 for stock-based compensation and Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). The Company does not record the activity as an expense to the Company
within the Statement of Operations. The fair value of granted options as of
June 30, 2000 is minimal as determined by Management based upon the lack of
earnings; the stock is thinly traded and is restricted under Rule 144 of the
Securities and Exchange Act of 1934.
On August 2, 2000, the Board of Directors approved an additional
1,000,000 shares for the Restricted Stock Bonus Plan. These shares will be
distributed (i) to certain employees in lieu of full compensation in an effort
to reduce current operating costs and retain key employees and (ii) to certain
vendors in exchange of services rendered in an effort to reduce current debt
levels.
Shares issued under either the Restricted Stock Bonus Plan and Stock
Option Plan vest with employees based upon a vesting schedule unique to each
individual's grant. The vesting periods may range from zero to five (5)
years, whereby the Company may decide the percentage that vest each year.
Those shares that have been issued and are not vested are vesting over a
four-year vesting schedule. The stock bonus expense accrual includes
estimates whereby not all shares will vest. The dollar amount of unearned
stock bonus compensation as of June 30, 2000 was $1,993,861.
Note 13. Severance and Non-Compete Agreement
The Company entered into an agreement with an officer and major
shareholder upon termination of the individual's employment with the Company
on May 4, 1999. The individual has agreed not to compete with the Company for
a term of five (5) years beginning May 4, 1999 and ending April 30, 2004. In
return, the Company was to provide weekly compensation and continuation of
certain benefits through April 30, 2004.
The Company entered into an agreement with an officer and major
shareholder upon termination of the individual's employment with the Company
on April 21, 2000. The agreement includes back pay, severance pay as well as
reimbursement for expenses paid by the employee for the Corporation. The
individual has agreed not to compete with the Company for a period of 39
months beginning May 1, 2000 and ending July 31, 2003. In return, the Company
was to provide weekly compensation and continuation of certain benefits
through July 31, 2003.
As part of the private placement, the two former employees of the
Corporation agreed to accept shares of common stock in lieu of future cash
16
payments as required by their severance and non-compete agreements. The
discounted value of obligations cancelled through their participation
approximated $770,000. See Note 5. Issuance of Common Stock.
Note 14. Reporting of Segments
The Company's reporting is structured around the three legal entities
that comprise the Corporation: Acadia Group, Inc. ("Group"), Acadia National
Health Systems, Inc. ("National") and WorldLecture.com, Inc. ("MedLecture").
ACADIA GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For Quarter Ended June 30, 2000
Total Group National MedLecture
Sales $ 341,530 $ $ 333,815 $ 7,715
Intercompany Sales 0 0 0 0
Total Sales $ 341,530 $ 0 $ 333,815 $ 7,715
Salaries & Benefits $ 686,662 $ 379,686 $ 228,641 $ 78,335
Marketing & Advertising 252,960 323 1,647 250,990
Depreciation & Amortization 159,054 3,819 47,076 108,159
Stock Bonus Compensation 116,040 116,040 0 0
Other Operating Expenses 290,838 (176,376) 300,456 166,758
Operating Income/(Loss) $(1,164,024) $ (323,492)$ (244,005) $ (596,527)
Other (Income)/Expense, net 80,949 49,265 31,684 0
Loss before Interest & Tax $(1,244,973) $ (372,757)$ (275,689) $ (596,527)
Interest (Income)/Expense 78,446 (10,930) 27,853 61,523
Income/(Loss) before Tax $(1,323,419) $ (361,827)$ (303,542) $ (658,050)
Change in Accting Principle 16,279 0 16,279 0
Income Tax/(Benefit) 596 596 0 0
Net Income/(Loss) $(1,340,294) $ (362,423)$ (319,821) $ (658,050)
17
ACADIA GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For Quarter Ended June 30, 1999
Total Group National MedLecture
Sales $ 480,318 $ 0 $ 480,318 $ 0
Intercompany Sales 0 0 0
Total Sales $ 480,318 $ 0 $ 480,318 $ 0
Salaries & Benefits $ 408,107 $ 184,194 $ 223,913 $ 0
Marketing & Advertising 18,439 12,264 6,175 0
Depreciation & Amortization 36,829 0 35,579 1,250
Stock Bonus Compensation 0 0 0 0
Other Operating Expenses 202,716 27,465 171,128 4,123
Operating Income/(Loss) $ (185,773) $ (223,923)$ 43,523 $ (5,373)
Other (Income)/Expense, net 0 0 0 0
Income/(Loss) bef.
Int. & Tax $ (185,773) $ (223,923)$ 43,523 $ (5,373)
Interest (Income)/Expense 27,368 174 27,154 40
Income/(Loss) bef. Taxes $ (213,141) $ (224,097)$ 16,369 $ (5,413)
Income Tax/(Benefit) (36,498) (36,498) 0 0
Net Income/(Loss) $ (176,643) $ (187,599)$ 16,369 $ (5,413)
ACADIA GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For Nine Months Ended June 30, 2000
Total Group National MedLecture
Sales $ 1,116,815 $ 0 $1,108,170 $ 8,645
Intercompany Sales 0 0 0 0
Total Sales $ 1,116,815 $ 0 $1,108,170 $ 8,645
Salaries & Benefits $ 1,858,384 $ 922,420 $ 802,599 $ 133,365
Marketing & Advertising 729,719 (956) 4,255 726,420
Depreciation & Amortization 303,451 5,379 138,327 159,745
Stock Bonus Compensation 269,977 269,977 0 0
Other Operating Expenses 1,019,171 (278,562) 845,932 451,801
Operating Income/(Loss) $(3,063,887) $(918,258) $ (682,943) $(1,462,686)
18
Other (Income)/Expense, net 80,949 49,265 31,684 0
Loss before Interest & Tax $(3,144,836) $(967,523) $ (714,627) $(1,462,686)
Interest (Income)/Expense 155,180 9,972 108,311 36,897
Income/(Loss) before Tax $(3,300,016) $(977,495) $ (822,938) $(1,499,583)
Change in Accting Principle 16,279 0 16,279 0
Income Tax/(Benefit) (371,909) (371,909) 0 0
Net Income/(Loss) $(2,944,386) $(605,586) $ (839,217) $(1,499,583)
ACADIA GROUP, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For Nine Months Ended June 30, 1999
Total Group National MedLecture
Sales $ 1,609,962 $ 0 $1,609,962 $ 0
Intercompany Sales 0 0 0 0
Total Sales $ 1,609,962 $ 0 $1,609,962 $ 0
Salaries & Benefits $ 1,114,769 $ 397,199 $ 717,570 $ 0
Marketing & Advertising 34,282 23,038 11,244 0
Depreciation & Amortization 87,249 0 85,999 1,250
Stock Bonus Compensation 0 0 0 0
Other Operating Expenses 490,843 58,257 428,463 4,123
Operating Income/(Loss) $ (117,181) $(478,494) $ 366,686 $ (5,373)
Other (Income)/Expense, net 7,656 0 7,656 0
Loss before Interest & Tax $ (124,837) $(478,494) $ 359,030 $ (5,373)
Interest (Income)/Expense 77,897 1,216 76,641 40
Income/(Loss) before Tax $ (202,734) $(479,710) $ 282,389 $ (5,413)
Change in Accting Principle 0 0 0 0
Income Tax/(Benefit) (36,498) (36,498) 0 0
Net Income/(Loss) $ (166,236) $(443,212) $ 282,389 $ (5,413)
In fiscal 2000, the Company has made investments to its infrastructure
and for the development of the Internet site for MedLecture.com. Amounts
invested approximate: Group $72,000 National $62,000 and MedLecture $899,000.
Prior year investment for MedLecture was immaterial.
19
Note 15. Common Stock
The shares of the Company are registered under the Securities and
Exchange Act of 1934 and are subject to restrictions as prescribed under Rule
144 of the Act (the "Act"). Under the Act, securities that are issued are
subject to limitations from being traded. As of June 30, 2000 there were
12,646,658 shares issued and outstanding of which 3,134,497 are freely
traded. Fifty million (50,000,000) shares are authorized.
Note 16. Related Party
The Internet site of MedLecture.com is hosted and maintained by an
Internet service provider ("ISP"), whose Vice Chairman and Chief Operating
Officer is also a member of the Board of Directors and Audit Committee of the
Company. Amounts paid and/or payable to the ISP for the nine months ended
June 30, 2000 approximate $621,950.
On May 4, 2000 and May 10, 2000, Acadia issued $40,000 and $45,000
promissory notes, to former employees and shareholders of the Company. See
Note 4. Convertible Debentures and Promissory Notes.
On November 1, 1999, Acadia issued $600,000 convertible debentures
pursuant to Rule 504. Approximately $375,000 of the debentures were issued to
persons that may be considered to be related parties including: senior
management, relatives of senior management or employees or board members.
See Note 4. Convertible Debentures and Promissory Notes.
On January 18, 2000, Acadia issued $450,000 and $50,000 convertible
debentures to officers of the Company and a member of the board of directors,
respectively. See Note 4. Convertible Debentures and Promissory Notes.
As part of the private placement (See Note 5. Issuance of Common Stock)
certain subscribers have relations with the Company or members of senior
management, which include but are not limited to:
Related Party Subscription Amount
Board Member $ 100,000
Former CEO & President 582,000
Vendor 298,000
Former Employee 160,000
Agent 100,000
Chairman of the Board 150,000
EVP, Mergers & Acquisitions 150,000
Relative of Chairman & EVP Mergers & Acquisitions 190,000
Relative of Chairman & EVP Mergers & Acquisitions 100,000
Relative of Chairman & EVP Mergers & Acquisitions 26,000
Relative of Board Member 50,000
Relative of Chairman & EVP Mergers & Acquisitions 375,000
$ 2,281,000
Note 17. Subsequent Events
See Note 18. Legal Proceedings
20
Note 18. Legal Proceedings
On June 29, 2000 Citizens Bank of New Hampshire (the "Bank") made demand
and is seeking to enforce its rights under the terms and conditions of its
Amended and Restated Loan Agreement dated December 30, 1999, for payment of
the line of credit and term note. The bank was granted an ex-parte on June
29, 2000, which was delivered to the Company's places of deposit, and amounts
were trusteed pursuant to the ex-parte. On July 12, 2000 the Company was
successful in having the ex-parte dissolved and amounts were returned to the
Company less approximately $115,000 which was assigned to Citizens Bank. The
Bank has asked the Court for a summary judgment and additionally has appealed
the dissolving of the ex-parte. Actions taken by the Bank have had a negative
effect on operations and some actions may be regarded as being in contempt of
court and the Judge's order to dissolve the ex-parte. The Company has not
taken legal action against the Bank for damages, which may have been incurred.
A former client has made a demand for arbitration as related to alleged
unfair business practices. The client was brought to the Company as part of
an acquisition in fiscal year 1998 of Northeast Medical Business Group, Inc.
The demand for arbitration notes the former client has "suffered economic
damages in an undetermined amount" and also identifies the former owner of
Northeast Medical Business Group, Inc. as a party to the arbitration.
Potential alleged damages to the former client may not be covered under the
Company's insurance coverage.
The Company has been notified from Fleet Bank, a prior landlord, of its
intentions to initiate legal proceedings if actions to terminate lease
obligations in exchange for $35,000 are not executed. The Company has made
the decision not to terminate the lease or pay the termination fee.
Arbitration with a former employee and former owner of Northeast Medical
Business Group, Inc. has ceased and is scheduled for jury trial. Amount of
damages claimed by the former employee is not known at this time.
The Company is in negotiations and legal proceedings as related to
amounts past due for the leasing of equipment. The leasing company contends
that the company is past due and currently owes $55,000 whereas the Company
contends that approximately $45,000 is due.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
ACADIA GROUP, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
June 30, 2000
RESULTS OF OPERATIONS: NINE MONTHS ENDED JUNE 30, 2000
FORWARD-LOOKING INFORMATION
THIS FORM 10-QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
ACADIA GROUP, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
21
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. 15 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 GROUP, 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-QSB 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.
MATERIAL CHANGES IN FINANCIAL CONDITION
The accompanying financial statement data has been prepared assuming the
Company will continue as a going concern. Given the Company's current
liquidity situation, as discussed under the caption "Liquidity and Capital
Resources" in the Management's Discussion and Analysis, with the Company's
lender successfully accelerating payment of amounts outstanding under the debt
agreements, there is a possibility that the Company will not be able to
continue to operate. The Company is considering various alternatives,
including the sale of certain assets and the restructuring of debt. The
accompanying financial statement data does not include any adjustment needed
to reflect changes in the carrying value of assets and liabilities should the
Company be unable to continue as a going concern.
RISK FACTORS
In addition to the other information contained in this report,
individuals should carefully consider the following risk factors:
1. The Company believes that its assumptions are based upon reasonable
data derived from and known about its business and operations. No assurances
are made that actual results of operations or the results of the Company's
future activities will not differ materially from its assumptions;
2. Additional risks factors such as the uncertainty of the Company's
marketing activities, and the results of bringing additional acquisitions and
affiliations into a smooth operation with the Company are unknown;
3. Additional uncertainties regarding the ability for operating cash to
meet the current and projected cash flow needs of the organization;
4. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they attempt to speak only of activities known
or anticipated as of this date.
ORGANIZATION
The Company was originally organized in 1972 and re-organized in 1996
under
22
the laws of the State of Colorado. In November 1999, the Company again
reorganized to form a venture capital corporation. As part of the
reorganization, the Company formed two wholly-owned subsidiaries, Acadia
National Health Systems, Inc. ("National") and WorldLecture.com, Inc.
("MedLecture.com") The Company transferred its healthcare billing and
management services to National and operates e-commerce initiatives under the
subsidiary, MedLecture.com. The parent company, Acadia Group, Inc. ("Acadia")
serves as a management and consulting resource to its subsidiaries. During
the last nine months Acadia has successfully recruited a management team with
extensive experience in mergers and acquisitions, finance, real estate,
business strategy and development, sales - marketing, health services,
funding, and legal.
The Company explores opportunities and is sought out by businesses for
possible transactions, including but not limited to, mergers, acquisitions,
joint ventures, and strategic alliances. The Company is seeking buyers or
strategic partners to purchase or grow and develop its subsidiaries.
WorldLecture.com is a newly formed Internet subsidiary of the Company engaged
in the business of delivering continuing education on the Internet through the
use of video streaming to professional persons who are obligated to maintain
competency in their respective field of expertise to the satisfaction of
governmental or trade regulatory agencies.
WorldLecture.com developed and executed a business model through
MedLecture.com to facilitate continuing medical education (CME) by physicians
through the Internet using video streaming technology. The model also
utilizes exclusive contracts with content providers and strategic alliances
with similar service providers and businesses in the healthcare industry.
Management has identified other professions, which also require continuing
education, and has initiated the replication of the MedLecture.com model to
develop future Internet sites.
National has spent the last six months of operations rebuilding
operations and sales which declined significantly due to a physical move
during May 1999, billing system conversion issues during June 1999 and legal
issues created through the acquisition of Northeast Medical Business Group,
Inc. (Fiscal Year 1998 acquisition). We have completely revised our operating
policies, and installed a new financial management package. The decline in
sales appears to have ceased as of April 2000 but may continue if the
financial position of the Company creates operational issues for the
Company.
The Chief Operating Officer has assumed daily responsibility for the operation
of National as a result of the resignation of the former Vice President of
National in July 2000. Under his direction, initiatives have begun to reduce
expenses, build upon current client relationships, and attract new business
through a strategic partner who recently recruited a new client to the Company
with contractual income to the Company in excess of $400,000.
From October 1999 to December 1999, Acadia National Health developed and
adopted a medical reporting compliance program. 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 constant and
critical to remain abreast in this very complex and rapidly changing medical
billing and regulated arena.
23
SALES & MARKETING
Sales for the quarter were $341,530 as compared to $480,318 for the
corresponding period in fiscal 1999, a decrease of 28.9%. Sales for the nine
months ended June 30, 2000 were $1,116,815 as compared to $1,609,962 for the
corresponding period in fiscal 1999, a decrease of 30.6%. The decreases in
both the quarter and year-to-date are due to the loss of significant clients
within National. The loss of these clients stems from operational issues
incurred by the Company during fiscal year 1999. The Chief Operating Officer
has developed a marketing plan to both retain and attract customers. Under
the direction of the COO who has assumed daily operational responsibilities,
initiatives have begun to reduce expenses, build upon current client
relationships, and attract new business through a strategic partner who
recently recruited a new client to the Company with contractual income to the
Company in excess of $400,000.
Sales for the Internet subsidiary MedLecture.com were approximately
$10,000 for the nine months ended June 30, 2000. As part of the prior
marketing plan, the Company successfully registered approximately 1,700 users
on the site for the five-month period ending June 30, 2000. Registered users
as of June 30, 2000 were attracted to the site through trade shows and direct
mail campaigns. Subsequent to June 30, 2000 the President of MedLecture.com
assumed full responsibility for the marketing plan as a result of the
resignation of the former Marketing Officer. The President of Medlecture.com
has focused on attracting physicians to register at the site as identified
through partner schools and strategic partners. When registering, a physician
receives two free continuing medical education credits (CME) and may
ultimately convert to a paying subscription user. The new strategy has
successfully increased the registered number of users at the site by more than
6,500 in less than two weeks, more than tripling the number of registered
users as of June 30, 2000.
Additionally, a strategic partner with which the Company had a signed
letter of intent earlier in the third quarter has begun to play a large role
in identifying and initiating large group sales. The partner has attracted
the interest of a least one large, national health care system to discuss the
purchase of CME for their providers nationwide.
OPERATING EXPENSES
Operating Expenses for the quarter were $1,505,554 as compared to
$666,091 for the corresponding period in fiscal 1999, an increase of 126.0%.
Operating Expenses for the nine months ended June 30, 2000 were $4,180,702 as
compared to $1,727,143 for the corresponding period in fiscal 1999, an
increase of 142.0%. Increases in operating expenses during the quarter and
year-to-date were principally due to increased costs incurred to market and
develop the MedLecture.com subsidiary; and the commencement of a Simple
Restricted Stock Bonus Plan. See Note 12. Stock-Based Compensation Plans and
Other Compensation. Significant steps have been taken to reduce operating
expenses including terminating employees, salary reductions, and the
termination of non-critical services.
OTHER INCOME/EXPENSES
Other Expenses for the quarter were $80,949 as compared to $0 for
the corresponding period in fiscal 1999. Other Expenses for the nine months
ended June 30, 2000 were $80,949 as compared to $7,656 for the corresponding
period in fiscal 1999. The increases in the quarter and year-to-date are due
to costs associated with the severance and non-compete agreements with two
former employees of the Company.
24
INTEREST EXPENSE
Interest Expense was recorded at $78,446 for the quarter as compared to
an expense of $27,368 for the corresponding period in fiscal 1999. Interest
Expense was recorded at $155,180 for the nine months ended June 30, 2000 as
compared to an expense of $77,897 for the corresponding period in fiscal
1999. The increases in both the quarter and year-to-date are primarily due to
the larger outstanding balance on the line of credit with Citizens Bank. See
Note 7. Bank Financing.
INCOME TAX
An income tax provision of $596 was recorded for the quarter, reflecting
state tax payments. This compares to a benefit of $36,498 for the
corresponding period in fiscal 1999, reflecting the loss reported in the
prior-year period. An income tax provision of $371,909 was recorded for the
nine months ended June 30, 2000, reflecting the deferred tax benefit valuation
for the period. The Company has recorded a valuation allowance on the tax
benefit, as realization of these future benefits is not sufficiently assured.
This compares to a benefit of $36,498 for the corresponding period in fiscal
1999, reflecting the loss reported the loss reported.
NET LOSS
A Net Loss of $1,340,294 was recorded for the quarter as compared to a
net loss of $176,643 for the corresponding period in fiscal 1999. A Net Loss
of $2,944,386 was recorded for the nine months ended June 30, 2000 as compared
to a net loss of $166,236 for the corresponding period in fiscal 1999. The
increase in net loss of 658.8% for the quarter and 1671.2% for year-to-date is
due to the following factors: lost revenue at National and increased costs at
the parent company ("Group") and the MedLecture subsidiary associated with the
development of the e-commerce side of the business which includes significant
product launch and marketing costs.
CURRENT ASSETS
The net increase of $912,082 in Current Assets over prior year-end is
primarily due to excess cash from the private placement placed in short-term
investments; prepaid expenses which include retainers to outside vendors in
conjunction with the development of the MedLecture.com subsidiary; and the
reduction in accounts receivable due to a lost client at National.
PROPERTY, PLANT & EQUIPMENT
The net increase of $926,144 in Property, Plant & Equipment over year-end
September 30, 1999 is primarily due to the increase in the fixed asset base
for the MedLecture.com subsidiary, inclusive of related depreciation.
OTHER ASSETS
The net increase of $829,935 in Other Assets over year-end September 30,
1999 is primarily due to the recording of non-compete agreements; and the
deferred tax asset calculated against the increased year-over-year net loss
according to the provisions in SFAS 109. See Note 1. Summary of Significant
Accounting Policies and Note 13. Severance and Non-Compete Agreement.
25
CURRENT LIABILITIES
The net increase of $446,583 in Current Liabilities over year-end
September 30, 1999 is primarily due to the maturity of the line of credit and
demand of the bank note, which were reclassified to current term and the
increase in accounts payable due to the normal course of business. See Note
7. Bank Financing.
LONG-TERM LIABILITIES
The net decrease of $321,985 in Long-Term Liabilities over year-end
September 30, 1999 is primarily due to the reclassification of the line of
credit and bank note to current term and the conversion of a former employee's
severance agreement to common stock. See Note 7. Bank Financing.
SHAREHOLDERS' EQUITY
The increase of $2,543,563 in Shareholders' Equity is primarily due to
the issuance of Common Stock during April 2000 as part of the Private
Placement and the conversion of Convertible Debentures during December 1999
netted against an increase in the accumulated deficit.
LIQUIDITY AND CAPITAL RESOURCES
The total line of credit through Citizens Bank drawn upon (outstanding)
as of June 30, 2000 was $1,092,673 on a $1,250,000 line of credit as compared
to $750,281 on a $1,250,000 demand line limit as of June 30, 1999. The
$1,250,000 revolving line of credit matured by its terms on April 30, 2000.
The line called for monthly interest payments on the outstanding loan balance
at prime plus 1%. The line of credit is collateralized by substantially all
corporate assets and is also guaranteed by two shareholders of the Company.
See PART II - OTHER INFORMATION, ITEM 1. Legal Proceedings
A note payable to the same lender of the revolving line of credit, is due
in monthly installments of $5,207, including interest, through June 2004 and
is collateralized by all corporate assets. The note balance as of June 30,
2000 was $208,509 as compared to the note balance of $425,221 on June 30,
1999.
On June 30, 2000, Citizens Bank made demand and is seeking to enforce its
rights under the terms and conditions of its Amended and Restated Loan
Agreement dated December 30, 1999, for payment of the line of credit and term
note. The acceleration of payment of these amounts outstanding presents
uncertainty with the Corporation's ability to continue operations. The
Corporation is considering various alternatives, including the sale of certain
assets and the restructuring of debt. No assurance can be given that the
Corporation will be able to arrange an alternative line of credit on
commercially reasonable terms, if at all. Under the terms of the agreement,
the bank has initiated its right to charge the Company interest at a penalty
rate and legal fees. Additionally, see Note 5. Future Issuance of Common
Stock and Note 7. Bank Financing. PART II - OTHER INFORMATION, and ITEM 1.
Legal Proceedings, PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 29, 2000, Citizens Bank, the Corporation's lender, filed an
ex-parte motion and suit against Acadia Group, Inc. and its subsidiaries in
Superior Court seeking to enforce its rights under the terms and conditions
of
26
its Amended and Restated Loan Agreement dated December 30, 1999, for payment
of the outstanding line of credit and term note, plus related interest, late
charges and legal fees. The Bank was granted an ex-parte on June 29, 2000,
which was successfully defended by the Company resulting in the ex-parte
motion being reversed in Cumberland County Superior Court on July 12, 2000.
Citizens Bank has since appealed the judgment. The acceleration of payment of
these amounts outstanding presents uncertainty with the Corporation's ability
to continue operations. The Corporation is considering various alternatives,
including the sale of certain assets and the restructuring of debt. No
assurance can be given that the Corporation will be able to arrange an
alternative line of credit on commercially reasonable terms, if at all. See
Note 7. Bank Financing.
The Corporation is also involved in litigation and proceedings regarding
capital equipment leases and operating leases and a claim from the prior owner
of its recent acquisition of Northeast Medical Business Group, Inc. The
Corporation considers such legal proceedings to be routine litigation
consistent with the nature of the business.
ITEM 2. Changes in Securities
On November 1, 1999, Acadia issued $600,000 convertible debentures pursuant to
Rule 504 of the Act which were contingent upon the merger of MedLecture.com,
Inc., a Maine Corporation, with and into WorldLecture.com, Inc., a subsidiary
of Acadia Group, Inc. closing on or before April 1, 2000. The holder of the
debenture had the privilege to convert the debentures into common voting
shares of the Corporation at a purchase price of eighty percent (80%) of the
offering price for the shares of the Corporation as of October 7, 1999 (i.e.,
80% of $.875 = $.70 exercise price). Notwithstanding the foregoing, in the
event that the merger was not consummated and/or Acadia did not approve of the
conversion and/or the conversion privilege was not exercised on the effective
date of the merger (i.e., November 19, 1999), the holder's privilege to
convert was deemed null and void ab initio. On November 19, 1999, the merger
was consummated, Acadia approved the conversion; and all subscription
investors exercised their conversion privilege with Company. In connection
with conversion of such debentures, the Company issued 857,151 shares of
common voting stock. All shares of stock issued upon conversion are subject
to Rule 144 restrictions. See Note 16. Related Party.
During the period ended December 31, 1999 the Company issued 5,363,987
shares of restricted common stock at no par value under an exchange of shares
merger dated November 19, 1999 between Acadia, Acadia Merger Holding Company,
Inc., in which changed its name to Acadia National Health Systems, Inc. and
WorldLecture.com, Inc. The shares were issued to shareholders of
MedLecture.com, Inc. and registered under the Securities Exchange Act of 1934
and are subject to restrictions as prescribed under Rule 144 of the Act.
On January 18, 2000, Acadia issued $450,000 and $50,000 convertible
debentures to officers of the Company and a member of the board of directors,
respectively. The debentures were issued as bridge financing to fund the
Company's operations until the Company's private placement broke escrow but no
later than December 1, 2000. The debentures may be converted into the
Company's common stock at a price of $3.09 per share. The debentures bear a
cost of 12 points which is payable in full with the principal from the
proceeds of the Corporation's Rule 506 Equity raise of up to Ten Million
Dollars ($10,000,000.00). The debentures were redeemed subsequent to March 31,
2000.
27
On February 25, 2000 and March 17, 2000, Acadia issued $200,000 and
$100,000 promissory notes, respectively to officers of the Corporation. The
notes were issued as bridge financing to fund the Company's operations until
the Company's private placement broke escrow but no later than December 31,
2000. The notes bore interest of 14% which was payable in full with the
principal from the proceeds of the Corporation's Rule 506 Equity Raise of up
to Ten Million Dollars ($10,000,000.00). The notes were converted into the
Company's common stock as part of the private placement.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
At an Annual and Special Meeting of Shareholders of Acadia on November
19, 1999, the shareholders approved the following matter: (i) a name change
from Acadia National Health Systems, Inc. to "Acadia Group, Inc." ("Name
Change"); (ii) the Plan of Merger (the "Merger"), pursuant to Section
7-111-101 through 7-111-108 of the Colorado Business Corporation Act ("CBCA")
and Section 901 & 906 of Title 13-A of the Maine Revised Statutes Annotated,
whereby MedLecture.com, Inc., a Maine corporation (hereinafter referred to as
"Disappearing Corporation" or ("MED"), merged into WorldLecture.com, Inc., a
wholly-owned subsidiary of Acadia (hereinafter referred to as "Surviving
Corporation" or "WORLD"); and whereby Acadia issued shares of its common
stock, on a pro rata basis, to the shareholders of MED, equal in the number to
the number of shares of common stock outstanding immediately prior to the
Merger, plus un-issued shares designated for use under employment agreements,
or other similar contractual agreements, whether oral or written, or designated
for issuance to the Company's employees, agents, or third parties; (iii) the
election of eight (8) members to the Company's Board of Directors for a
three-year term; (iv) a Simple Incentive Stock Bonus Plan for officers,
managers and key employees; (v) a Restricted Stock Option Plan for employees,
officers, consultants and directors; (vi) the Restated and Amended Articles of
Incorporation and Bylaws reflecting the Name Change and eradication of "Shark
Repellant" provisions set forth at Article VII; and (vii) the transfer of
assets of Acadia National Health Systems, Inc., which are used or useful in
the operation of its business management services business to a wholly-owned
subsidiary; to approve of the name change of the subsidiary to Acadia National
Health Systems, Inc.
Only shareholders of record at the close of business on October 15, 1999
(the "Record Date") were entitled to notice of and to vote at the meeting.
ITEM 5. Other Information
The Company engaged an investment-banking firm to facilitate the issuance
of equity securities for the use of the continued development of Acadia
National Health Systems, MedLecture.com, and other prospective opportunities
that the Company is currently evaluating.
The Company currently has one (1) letter of intent outstanding with a
company that may potentially provide a strategic advantage. The target
company is a nationally recognized actuarial consultant to the Healthcare
industry and has proven to be a valuable partner by introducing the Company
to potential clients of MedLecture.com. which may generate group sales.
28
The Company has agreed to begin a pilot program for a national publisher
of professional magazines, journals and textbooks. The Company will showcase
a lecture on MedLecture.com and link continuing medical education with the
potential partner's on-line reference material, which is considered a standard
by many in the healthcare industry.
ITEM 6. Exhibits and Reports on Form 8-K
(1) Exhibits
The following documents are filed herewith or have been included as exhibits
to previous filings with the Commission or are incorporated herein by this
reference:
Exhibit 1.1 Articles of Incorporation. Incorporated by reference to the
Form 8-K filed by Registrant on December 7, 1999
Exhibit 1.2 By-laws. Incorporated by reference to the Form 8-K filed by
Registrant on December 7, 1999
Exhibit 2.1 4.1 Form of Convertible Debenture dated November 1, 1999
10.1 Agreement of Merger dated November 19, 1999.
Incorporated by reference to the Form 8-K filed by Registrant
on December 7, 1999
Exhibit 2.2 10.2 Articles of Merger dated November 19, 1999. Incorporated
by reference to the Form 8-K filed by Registrant on December
7, 1999
Exhibit 99 Safe Harbor under the Private Securities Litigation Reform Act
of 1995
Financial Data Schedules (SEC-use only)
(2) Reports on Form 8-K
The Registrant filed electronically the Forms 8-K listed below. Such
filings are incorporated herein by reference:
a. Form 8-K filed as of August 8, 2000 which attached the following exhibits:
Exhibit 99.1 Text of press release dated August 2, 2000
b. Form 8-K filed as of July 10, 2000 which attached the following exhibits:
Exhibit 99.1 Text of press release dated July 10, 2000
c. Form 8-K filed as of April 28, 2000 which attached the following exhibits:
None.
d. Form 8-K/A filed as of March 7, 2000 which attached the following exhibits:
None.
e. Form 8-K filed as of December 7, 1999 which attached the following
exhibits:
29
Exhibit 1.1 Restated Articles of Incorporation of Acadia Group, Inc. as
of November 19,1999
Exhibit 1.2 Amended Bylaws of Acadia Group, Inc. as of November 19, 1999
Exhibit 2.1 Agreement of Merger dated November 19, 1999
Exhibit 2.2 Articles of Merger dated November 19, 1999
Exhibit 5.1 Opinion on Legality of Securities Being Issued to shareholders
of MedLecture.com
Exhibit 10.2 Opinion of Counsel with respect to issuance of 5,363,987
shares of common stock of Acadia National Health Systems, Inc.
to the shareholders of MedLecture.com
Exhibit 99.1 Text of press release dated November 19, 1999
Exhibit 99.2 Text of press release dated November 22, 1999
Exhibit 99.3 Private Securities Litigation Reform Act of 1995 Safe Harbor
Compliance Statement for Forward-Looking Statements.
f. Form 8-K filed as October 20, 1999 which attached the following exhibits:
Exhibit 99.1 Text of press release dated October 12, 1999
Exhibit 99.2 Text of press release dated October 4, 1999
ACADIA GROUP, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACADIA GROUP, INC.
Registrant
August 17, 2000 /s/ Nadeau & Simmons, P.C.
NADEAU & SIMMONS, P.C.
Filing Agent
August 15, 2000 /s/ Emile L. Clavet
Emile L. Clavet
Chairman of the Board
August 15, 2000 /s/ Thomas J. Dean
Thomas J. Dean
Chief Financial Officer