UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
Commission file Number 000-28976
Acadia National Health Systems, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 10509781
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
415 Rodman Rd., Auburn , Maine U.S.A. 04240
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(207) 777-3423
(800) 274-9185
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $0 Par Value - 4,687,987 shares as of
March 31, 1999.
1
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
ACADIA NATIONAL HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three months ended Six months ended
March 31 March 31 March 31 March 31
________ ________ ________ ________
1999 1998 1999 1998
________ ________ ________ ________
Sales 606,537 $ 232,188 $ 1,129,644 $ 419,246
Operating Expenses 607,307 $ 218,626 $ 1,119,237 $ 406,981
----------- ----------- ----------- -----------
Net Operating Income (770) $ 13,562 $ 10,407 $ 12,266
Other Income/(Expense), Net 0 $ - $ - $ -
----------- ----------- ----------- -----------
Net Income (Loss) Bef. Tax (770) $ 13,562 $ 10,407 $ 12,266
(Provision for)
Income Taxes 0 $ (2,688) $ - $ -
----------- ----------- ----------- -----------
Net Income (770) $ 10,874 $ 10,407 $ 12,266
=========== =========== =========== ===========
Net Income Per
Common Share $ (0.00017) $ 0.00291 $ 0.00245 $ 0.00328
Weighted Average Number
of Common Shares
Outstanding 4,474,468 3,733,987 4,239,654 3,733,987
See Accompanying
Notes to Financial Statements
2
ACADIA NATIONAL HEALTH SYSTEMS, INC.
BALANCE SHEETS
March 31, 1999 September 30, 1998
(Unaudited) (Note)
Current Assets:
Cash-Operating $ 0 $ 2,529
Accounts Receivable 967,364 735,333
Unbilled Work at Estimated
Realizable Value 390,058 265,774
Prepaid & Other Assets 103,435 89,519
----------- -----------
Total Current Assets $ 1,460,857 $ 1,093,155
Prop., Plant & Equip.:
Cost $ 534,854 465,154
Less Accum. Depr. (133,494) (94,863)
----------- -----------
$ 401,360 $ 369,291
Other Assets:
Deferred Taxes 5,960 5,960
Intangible Assets, Net 127,041 115,077
Notes Receivable & Advances 263,275 63,487
----------- -----------
372,521 184,524
Total Assets $ 2,234,738 $ 1,646,970
=========== ===========
Current Liabilities:
Accounts Payable $ 256,059 $ 72,633
Line of Credit 512,273 542,738
Accrued Expense 55,060 52,109
Current Portion of
Long Term Notes 124,200 113,400
----------- -----------
Total Current Liabilities $ 947,592 $ 780,880
Long Term Liabilities:
Long Term Debt 344,091 361,442
Deferred Taxes $ 12,500 $ 12,500
----------- -----------
Total Liabilities $ 1,304,183 $ 1,154,822
___________ ___________
3
Stockholders' Equity:
Common Stock $ 822,640 $ 394,640
Paid In Capital 41,993 41,992
Retained Earnings 65,922 55,516
----------- -----------
Total Equity $ 930,555 $ 492,148
----------- -----------
Total Liabilities &
Equity $ 2,234,738 $ 1,646,970
=========== ===========
Note: The balance sheet at September 30, 1998 has been derived from the
audited financial statements of that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See Accompanying Notes to Financial Statements.
4
ACADIA NATIONAL HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEAR TO DATE
MARCH 31, 1999 AND MARCH 31, 1998
(Unaudited)
Six Months Ending Six Months Ending
March 31 March 31
1999 1998
----------------- -----------------
Net Income (Loss) $ 10,407 $ 12,265
Depreciation & Amortization 50,422 17,160
Changes in Assets & Liabilities:
Accounts Receivable $ (356,315) $ (36,630)
Other Current Assets (13,916) (38,354)
Other Non-current Assets 0 22,600
Accounts Payable 183,426 28,318
Other Current Liabilities (16,714) 146,904
----------------- -----------------
Net Cash (Used for) Provided
By Operating Activities $ (142,690) $ 152,263
Investment Activities (70,700) (2,436)
Financing Activities 210,861 (135,968)
----------------- -----------------
Net Increase (Decrease) in $ (2,529) $ 13,859
Cash or Cash Equivalents
Cash & Cash Equivalents:
Beginning of Period 2,529 5,711
End of Period $ 0 $ 19,570
================= =================
See Accompanying
Notes to Financial
Statements
5
ACADIA NATIONAL HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note 1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with Generally Accepted Accounting Principles for interim financial
information and with the instructions to Form 10QSB and Rule 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair presentation have
been included.
Revenue Recognition
The Company offers practice management, consulting, and billing services
to the medical community including physicians, other medical providers and
foster homes. Billing services for these varied medical providers constitutes
a significant portion of the company's business, and clients are charged for
their services based on (a) a percentage of collections, (b) hourly rates, or
(c) fixed monthly fee arrangements. Revenue recognition occurs when, and to
the extent, the services have been provided.
The accompanying unaudited financial statements should be read in
conjunction with the audited balance sheet of Acadia National Health Systems,
Inc. ("the Company"). The unaudited financial statements have been prepared
in the ordinary course of business for the purpose of providing information
with respect to the interim period.
Note 2. Net Income Per Common Share
Computation of net income per common share was based on the weighted
average number of shares outstanding during such periods. These amounted to
4,239,654 shares for the six months ended March 31, 1999 and 3,733,987 shares
for the six months ending March 31, 1998.
Note 3. Long Term Debt - Short Term Financing
The total of lines of credit drawn upon (outstanding) from Northeast
Bank, FSB ("Bank") as of March 31, 1999 was $512,273 on a $650,000 demand line
limit, compared to $426,895 at March 31, 1998.
On July 24, 1998, Bank provided the Company an $100,000 term loan, and on June
24, 1998 an additional $30,000, of which 93,707 is still outstanding March 31,
1999.
6
On September 1, 1998, Bank provided the Company a $200,000 term loan with
interest at 9.25%, due in monthly installments of $4,177, including interest,
through September 2003. The note balance at March 31, 1999 is $181,078. The
note, which was primarily used to fund the acquisition of Northeast Medical
Billing, is collateralized by equipment and fixtures of the Company.
The company also has a note payable collateralized by a vehicle which totals
$13,931 at March 31, 1999.
A total of $170,243 of equipment was acquired at various times during the
year under capital leases. Capital lease obligations at March 31, 1999 total
$138,724.
All other loans and repayment of lines of credit payable to Bank and
future borrowings under any such credit facilities have been collateralized by
the accounts receivable and equipment of the Company.
Note 4. Majority Stockholders
Mr. Paul W. Chute, Mrs. Jacquelyn J. Magno and Mr. Mark T. Thatcher, all
Board of Directors, had total voting authority on March 31, 1999 and owned
approximately 60% of the Common Stock of the Company.
Note 5. Account Receivable Financing
The Company has arrangements with certain customers whereby the Company
advances the customers amounts based on their security and collateralized by
their accounts receivable. The Company then assumes the responsibility for
billing and collecting such receivables.
03/31/99 03/31/98
Accounts Receivable (Trade) $ 635,525 172,858
Advances 721,897 631,161
Total Accounts Receivable $ 1,357,422 $ 804,019
=========== ===========
The significant increase in Accounts Receivable and corresponding increase in
Accounts Payable is due to a timing difference in advances to these certain
clients.
Note 6. Note Receivable
The Company holds $84,743 in promissory notes receivable from a vendor of
which $75,000 earns 10% interest, due in monthly installments of $2,420,
including interest beginning November 1, 1998. The $75,000 note is secured by
accounts receivable, equipment and inventory of the vendor.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATION
ACADIA NATIONAL HEALTH SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
March 31, 1999
RESULTS OF OPERATIONS:
======================
SIX MONTHS ENDING MARCH 31, 1999
=====================================
FORWARD-LOOKING INFORMATION
THIS FORM 10QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
ACADIA NATIONAL HEALTH SYSTEMS, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FIFTEEN U.S.C.A.
SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF ACADIA NATIONAL HEALTH
SYSTEMS, INC. AND MEMBERS OF ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON
WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY
SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE
HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT
99.1 TO THIS FORM 10QSB AND ARE HEREBY INCORPORATED HEREIN BY REFERENCE. THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING
STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED
EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
8
Note:
On September 1, 1998, Acadia National Health Systems purchased selected assets
of Northeast Medical Business Group, Inc., a medical billing and management
services corporation located in Keene, New Hampshire. The following
management discussion and analysis of financial conditions and results of
operations includes the operations of Northeast from October 1, 1998 to March
31, 1999.
SALES
Sales for the period were $1,129,644 compared to $419,246 for the
corresponding period in 1998. This significant increase is the result of new
client business that commenced mid March 1998 resulting in additional
annualized revenues of $425,000 as well as the acquisition of Northeast
Medical Billing in September 1998 with annualized revenues of $550,000. The
Company also signed a major contract in July 1998 with a large local
behavioral medicine group for a one-year term. Revenue on this contract in
the 1998 fiscal year totaled $61,000 with additional revenue of $100,000
expected. The Company recently signed a new contract with this client,
extending it to March 31, 2000. Two additional client contracts have been
signed effective 1/1/99 with annualized gross revenues of $106,000 expected
for fiscal year 1999.
OPERATING EXPENSES
Increases in operating expenses during the period were principally due to increa
sed costs incurred in servicing the expanded client base, as well as the
addition of a senior management team. There were also increases in
depreciation, occupancy and administrative costs related to the acquisition of
Northeast Medical Billing
OPERATING INCOME
The operating gain year to date was $10,407 compared to a gain of $12,266 for
the same period in 1998.
INCOME TAXES
Acadia is a C Corporation with prepaid taxes of $5,155 for State and Federal
taxes at March 31, 1999.
9
NET INCOME
Acadia's gain of $10,407 was $0.00245 per share on 4,239,654 outstanding
common shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company's non-trade accounts receivable increased to $1,357,422 due to the
rapid growth of the waivered foster home program. These are clean secured
receivables with the majority due from the State of Maine. The Company added
$70,700 in property, plant and equipment in this six month period, principally
computer systems and related equipment. Anticipated public reporting expenses
and planned acquisitions will place additional demands on liquidity during the
remainder of the next year. Management, with its principal lender, Northeast
Bank FSB maintains routine analysis of the lines of credit and the Company's
capital needs.
OTHER INFORMATION
Acadia continues to develop systems and operations preparing our organization
for rapid sales growth and expansion. We have completely revised our
operating policies, installed a new financial management system and recruited
experienced, operational and management personnel. Additionally, we
maintained our public reporting and trading on the OTC Bulletin Board under
our symbol OTCBB: ACAD. Discussions continue with other similar businesses
for future acquisitions and mergers. Also, the Company continues to work
with underwriters and capital formation specialists to arrange additional
capital financing. The Company has raised $480,000 of a $500,000 private
placement offering at 50 cents per share, with the balance expected to be
raised in the third quarter of fiscal year 1999.
Another major accomplishment this year was the development and adoption of a
medical reporting compliance program. Acadia takes very seriously the need
for correct verification, reporting and billing of medical services to all
payors. Education of our employees and providers is constant and critical to
remain abreast in this very complex and rapidly changing medical billing and
regulated arena.
The Company is preparing to move to its new location at 415 Rodman Road,
Auburn, Maine. This move, while only a short distance away from our current
headquarters, gives us the opportunity to expand our operations and our
services.
MAJOR ACQUISITION
The Company has initiated discussions with various companies towards major
acquisitions that will greatly strengthen Acadia and its product lines, though
there is no assurance that these acquisitions will materialize as anticipated.
10
SALES TRENDS
Trends in Acadia's existing business lines, medical billing services and
billing for waivered foster home care, are positive, with expected
growth throughout FY 1999. Added billing clients, practice management
consulting, related support services and acquisitions are expected to result
in revenue increases in FY 1999 and beyond.
RISK FACTORS
In addition to the other information contained in this report,
individuals should carefully consider the following risk factors:
1. The Company believes that its assumptions are based upon reasonable
data derived from and known about its business and operations. No
assurances are made that actual results of operations or the results
of the Company's future activities will not differ materially from its
assumptions;
2. Additional risks factors such as the uncertainty of the Company's
marketing activities, and the results of bringing additional
acquisitions and affiliations into a smooth operation with Company
are unknown;
3. Additional concerns regarding the year 2000 compliance standards as
they effect the Company's operating technology as well as the
technologies of the industry which effect payment and processing of
Company's billings;
4. Additional uncertainties regarding the ability for operating cash to
meet the current and projected cash flow needs of the organization;
5. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they attempt to speak only of
activities known or anticipated as of this date.
YEAR 2000 COMPLIANCE
The Company continues to review its technology systems to attempt to discover
what effects year 2000 issues may have on its operations. Many of the earlier
systems, found not to be compliant, have been replaced while others are being
modified to comply. The Company is working with its known suppliers of
technology or services controlled by technology that might be effected by the
year 2000 events and are seeking written assurances from those determined to
have a potential effect upon Company's operations. However, there can be
assurance that the Company will identify all of its data handling problems in
11
its business systems or those of its suppliers or clients in advance of any
effect upon Company's operations. The Company, therefore, bears some
unlimited and unknown risks to the year 2000 issue and could also be adversely
effected if other entities (State of Maine Department of Medicaid or
Medicare)do not adequately or timely resolve their payment mechanisms as it
relates to the Company's ongoing billing operations for its clients.
BUSINESS AND PROPERTIES OF ACADIA NATIONAL HEALTH SYSTEMS, INC.
CORPORATE SUMMARY
Acadia National Health Systems, Inc., a corporation originally organized in
1971 and re-organized in 1996, provides business management services to
physicians and hospitals, including data collection, data input, medical
coding, billing, cash collections and accounts receivable management. These
services are designed to assist customers with the business management
functions associated with the delivery of healthcare services. We simplify
the process so that physicians and hospital staff can focus on providing
quality patient care. In addition, our services improve cash flows and reduce
administrative costs and burdens. We also provide information technology and
consulting services to healthcare markets.
We market our products and services primarily to integrated healthcare
delivery networks, hospitals, physician practices, long term care facilities
and home health providers. We will also continue to focus on small practices
in tertiary markets ignored by the major MSO players. Our business and
marketing plan combines the experiences of its leadership team with expanded
executive talent.
We are poised to become a major national Medical Management Services
Organization (MSO) over the next five years. MSOs offer billing, consulting,
software, business systems, related services and financing to physicians and
other health care providers. In a growing managed care environment, these
firms offer business resources to an industry that is traditionally clinically
oriented.
ACQUISITIONS
The Company has withdrawn its letter intent to purchase Vision Healthsource of
Madras, India and Vienna, Virginia. It was noted during the due diligence
process that the Company could better accomplish its business objectives by
utilizing Vision Healthsource as a contract agent. On April 1 the Company
acquired, for an undisclosed amount of cash and stock, Health Business Group,
a healthcare consulting company headquartered in Northampton, Massachusetts.
HBG provides on-going practice management services to a broad spectrum of
physicians including radiology, cardiology, pulmonology, internal medicine,
family practice, and more. In addition, HBG has provided consulting services
to hospitals and managed care companies throughout New England.
12
SERVICE
Billing is the cornerstone of Acadia's business, with more than 85% of the
revenue coming from this source. Billing is often the first service a
provider seeks and becomes the entry point for offering other services.
Our plan is to become a leading provider of business management solutions and
claims processing to physicians in the United States. Presently we serve
individual physician clients and physician groups throughout four states. We
offer clients both revenue and cost management services. Revenue management
services include medical coding, electronic and manual claims, submission,
automated patient billing, past due and delinquent accounts receivable
collection, capitation analysis and contract negotiation with payors,
including managed care organizations. Cost management provides comprehensive
practice management services including front office, administration, cash flow
forecasting and budgeting and general business services.
TECHNOLOGY
Acadia has implemented various forms of operating platforms to offer diversity
to our clients and our core business.
The company is executing the strategic initiatives to employ the "best
demonstrated practice" through its application of technology. The Lewiston,
Maine location will become the major hub of our Wide Area Network (WAN).
A form of redundancy has been implemented utilizing a secure ADSL connection
into our WAN to the Internet. ADSL offers 100% redundancy back up for all
remote sites. This connection provides our customers a low cost
telecommunication media with the effective speed desired.
With remote office locations and a variety of users accessing the systems,
Acadia has implemented several forms of security to protect the network from
unauthorized use. Encryption is provided to the user and on the server level
including passwords. A secure firewall has been established for our ADSL
Internet Line to further ensure data protection.
Acadia has developed proprietary electronic imaging using the most advanced
techniques for storing, retrieving and transferring documents across LAN and
WAN communication methods. This process allows all sites to access documents
for billing functions and related procedures.
13
YEAR 2000 PROJECT
The company is establishing that all computer driven systems and software in
use are able to recognize, calculate and display data related data correctly
past the year 1999. Preliminary assessments have indicated that our primary
software is compliant with the others to be discontinued in the third quarter
of 1999. The focus of the Y2K project centers on hardware specific to
Lewiston, Maine.
INDUSTRY COMPLIANCE
On November 30, 1998, the Office of the Inspector General (OIG) Department of
Health and Human Services released its "Compliance Program Guidance for
Third-Party Medical Billing Companies". This comprehensive piece sets the
standards for billing companies and Healthcare professionals to comply with
Federal health program requirements. The impact of this program is "while
compliance with the guidelines is strictly voluntary, the existence of an
effective compliance program could mitigate any action".
Risk Minimization
1. Aggressively enhance the companies internal program with the proper
backbone
2. Establish a formal audit program to measure and maintain the gains of
the program
3. Analyze the leanings and develop into a marketable program to the
industry
14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings or material proceedings known
to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this
quarter.
15
ACADIA NATIONAL HEALTH SYSTEMS, INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly cause this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ACADIA NATIONAL HEALTH SYSTEMS, INC.
Registrant
May 14, 1999 /s/ Mark T. Thatcher
Date
MARK T. THATCHER,
Filing Agent
May 14, 1999 /s/ Paul W. Chute
Date
PAUL W. CHUTE
Chief Executive Officer