UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the period ended December 31, 2000
Commission file number 0-24165
NEVADA 93-1108124
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(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
7504 DIPLOMAT DRIVE, SUITE 101, MANASSAS, VA 20109
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered Common Stock NASDAQ Bulletin Board ------------------- ----------------------------------------- |
Securities registered pursuant to Section 12(g) of the Act:
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B is not contained in this form, and no disclosure will becontained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- KSB or any amendment to the Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $28,243,016
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. There was no market value for the common stock within the last 60 days.
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
Mid-Atlantic Home Health Network, Inc. was originally incorporated under the laws of the State of Utah on December 28, 1979 as U-Can Resources, Inc.
On January 31, 1980, the Company commenced a public offering to residents of the State of Utah of 7,500,000 shares of its common stock for a total of $75,000. The public offering was made pursuant to the provisions of the exemption from registration contained in Section 3(a)(11) of the Securities Act of 1933, as amended. The Company filed with the Utah Securities Commission of the State of Utah a Registration Statement under the Utah Uniform Securities Act with respect to the shares of common stock which were offered. An Offering Circular was used in connection with the offering, which was an exhibit to the Registration Statement. The offering was completely sold.
The Company changed its corporate domicile from Utah to Nevada by
merging with a Nevada corporation, which was effective as of February 24, 1993
in Utah and March 26, 1993 in Nevada. The provisions of the Merger Agreement
required a change of corporate name to Trinity Gas Corporation and a twenty-five
(25) for one (1) reverse split of the Company's common stock.
On July 8, 1993, the Company changed its name to Petro-Sers Corporation in order to not be confused with another corporation with a similar name.
The Company did not conduct any business activities until December 9,1994 when it executed an Exchange Agreement with Oak Springs Nursing HomeLimited Partnership for the acquisition of all of the outstanding stock of Hunt Country Home Health, Inc., a Virginia corporation. As a result of this corporate reorganization, Hunt Country Home Health, Inc. became a wholly owned subsidiary of the Company.
The Company changed its name to Mid-Atlantic Home Health Network, Inc. It authorized two (2) classes of stock. The present authorized capitalization is 200,000,000 shares of Class A common stock and 10,000 shares of Class B common stock. The common stock of the Company was exchanged on a share-for-share basis for a share of the Class A common stock, par value one mill ($0.001) per share. The Class A common stock, voting as a class, elects one-third of the Board of Directors and the Class B common stock, voting as a class, elects two-thirds of the Board. The consideration for the acquisition of all of the outstanding stock of Hunt Country Home Health, Inc. was 20,474,628 shares of Class A common stock and 10,000 shares of Class B common stock. This transaction was exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, pursuant to the exemption contained in Section 4(2) of that Act.
Mid-Atlantic is a regionally based home health and nurse staffing company established to provide quality services and home medical products in a cost-competitive manner to the Mid- Atlantic region. Since its acquisition of Hunt Country Nursing Services and National Nurses Service in June of 1995 (See Business of the Company), the majority of Mid-Atlantic's business has involved the provision of nursing staff services to hospitals, nursing homes and other facilities such as clinics, correctional facilities and schools, as well as private duty nursing services.
The Company has not been subject to bankruptcy, receivership or any similar proceedings.
The Company currently employs approximately 2,600 employees, of which 1,400 are full-time employees. The Company's principal executive office is located at 7504 Diplomat Drive, Suite 101, Manassas, Virginia 20109. The Company has administrative offices at the following locations:
528 Waterloo Road, Suite A-2 1807 Libbie Avenue, Suite 206 Warrenton, Virginia 20186 Richmond, Virginia 23226 607B Jefferson Davis Highway 2971 Valley Avenue Fredericksburg, Virginia 22401 Winchester, Virginia 22601 8630 Fenton Street, Suite 200 10760B Ambassador Drive Silver Spring, MD 20910 Manassas, Virginia 20109 10800 Midlothian Turnpike Teakwood Office Park Suites 152 & 154 1413 Teakwood Dr., Suite D Richmond, Virginia 23225 Tappahannock, Virgina 22560 2731-C Prosperity Avenue, Suite C 4410 Ivy Commons Fairfax, Virginia 22031 Charlottesville, Virginia 22903 101 Juliad Court 6161 Kempsville Ctr., Suite 205 Fredericksburg, Virginia 33406 Norfolk, VA 23502 |
(b) BUSINESS OF THE ISSUER:
(1) PRINCIPAL PRODUCTS AND SERVICES AND THEIR MARKETS
THE HOME HEALTH CARE BUSINESS OF THE COMPANY
Mid-Atlantic is a regionally based home health company established to provide nurse staffing services and home health and medical products in a cost-competitive manner to the Mid- Atlantic region. Mid-Atlantic delivers care to persons in a variety of settings, including private homes, hospitals and nursing homes. Since its acquisition of Hunt Country Nursing Services and National Nurses Service (see discussion below), the majority of Mid-Atlantic's business has involved providing nursing staff for clinics, long-term care facilities, hospitals and clinics, correctional facilities and schools. Services are provided to persons of all ages and with all levels of health or health related needs, varying from high technology interventions to companionship and services. Mid-Atlantic carefully seeks and hires competent staff who participate in continuing education programs. All of Mid-Atlantic's health care providers are licensed and bonded. This assures the Company's dedication to quality, consistent delivery state-of-the-art services with a caring approach.
Mid-Atlantic provides medical equipment and supplies and around-the-clock skilled nursing. Registered nurses, Licensed Practical Nurses and Vocational Nurses, as well as Physical, Occupational, Speech and Respiratory Therapists work under the direction of physicians in the setting of personal homes.
Mid-Atlantic provides its services through four entities. These entities are wholly-owned subsidiaries.
HUNT COUNTRY HOME HEALTH
In the Spring of 1995, the Company acquired Hunt Country Home Health, Inc. from the Oak Springs Nursing Home Limited Partnership, the Company's majority shareholder.
Hunt Country Home Health performs approximately 835 home health visits per month. With this case load, a wide spectrum of services requiring basic skills to high tech skills are performed. Generally, the services provided fall into the following program priorities:
o Essential physical care which may require frequent visits including weekends, in the absence of which the patient might otherwise require hospitalization or nursing home care.
o Patients in need of intravenous therapy, hyperalimentation, blood transfusions or other intensive skilled nursing modalities.
o Patients with open wounds which require dressing changes or irrigations, in addition to frequent skilled assessment for significant infections.
o Patients in need of rehabilitation services which can be provided in the home and which can maximize the level of functioning.
o In-home patients whose condition has deteriorated and who would otherwise require hospitalization.
o Homebound patients in need of blood testing. The home care nurse draws the blood, evaluates the patient and carries out related teaching, which allows the physician to monitor the patient's condition while he remains in the home.
The Company's home health program provides skilled nursing, physical therapy, occupational therapy, clinical social work, speech pathology and home health aide services. These services form the basic framework of the traditional home health services and disciplines which include skilled nursing for the assessment, teaching and provision of care, physical therapy for ambulation and muscle strengthening, occupation therapy for assisting persons to restore functions in order to perform Activities of Daily Living ("ADL"), home health aid for personal care and assistance in ADL's, speech therapy for restoration of communication, and social services for assessment of, and assistance with, emotional social problems interfering with the plan of care. These services are provided to any appropriate referral. Visit duration is usually two hours or less, two to three times per week.
Most visits are made to patients experiencing heart disease, cancer, diabetes, AIDS, fractures and strokes or who have wounds that are in need of care.
Hunt Country Home Health has a home office located in Manassas, Virginia and additional offices located in Fredericksburg and Warrenton. In 2000, over 835 home visits provided skilled nursing care, physical therapy, occupational therapy, speech therapy, home health aide and medical social work. Visit duration was usually two hours or less, two to three times per week.
CENTER FOR AMBULATORY AND HOME INFUSION SERVICES
In November of 1999, the durable medical equipment assets of Center for Ambulatory & Home Infusion Services were transferred to Hunt Country Nursing Services under the name of Advantage Medical Equipment and Supply. This company is a "trading as" name to provide predominantly adult durable medical equipment.
NATIONAL NURSES SERVICE, INC.
On June 30, 1995, the Company acquired ATLIS Health Services, Inc., which then was doing business under the name National Nurses Service. Mid-Atlantic maintained the corporate entity, but changed its name to National Nurses Service, Inc. ("NNS").
NNS has four offices in the Maryland-Washington, D.C. metropolitan area, Fairfax, Richmond, and the Tidewater area of Virginia. NNS is a leading provider of supplemental staffing, including nursing, rehabilitative therapy and certified nursing assistant services to hospitals, nursing homes, medical clinics, correctional facilities, schools, and other governmental facilities. It is certified by the Medicare and Medicaid programs in Virginia as a provider of skilled and para-professional home health care services. NNS currently has an active roster of more than 1,500 clinical employees from which to fill its assignments.
HUNT COUNTRY NURSING SERVICES, INC.
In connection with its acquisition of NNS, on June 30, 1995, Mid-Atlantic acquired Hunt Country Nursing Services, Inc. ("HCNS") from its majority shareholder, Oak Springs Nursing Home Limited Partnership. HCNS is a private duty nursing company that provides professional nurses and nursing assistants to patients in the home for 4 to 24 hours per day, 7 days per week. HCNS is located in Northern and Central Virginia and generates approximately $8.6 million in revenues per year. With NNS, HCNS comprises the majority of services provided by the Company and a majority of the Company's revenue is derived from the operations of NNS and HCNS.
(2) COMPETITIVE BUSINESS CONDITIONS
The Company is part of a highly competitive market for nurse staffing and private duty nursing services. In addition, the Company is faced with a market with a shortage of nursing personnel. As a result, the Company faces competition not in gaining and retaining clients, but gaining and retaining nursing personnel.
(3) GOVERNMENTAL APPROVAL, REGULATION AND ENVIRONMENTAL COMPLIANCE
The Company relies heavily on payments made by governmental entities for the services provided by its certified home health entities. Medicare is the largest single payer of home care services. Effective October 1, 2000, the two certified Medicare Agencies owned and operated by the Company were required to switch to the Prospective Pay System (PPS) for their services to Medicare beneficiaries. The PPS replaces the cost reimbursement system. The PPS pays Home Health Agencies (HHA) a predetermined base payment. Payment is provided for 60-day "episodes of care" for each beneficiary regardless of the number of days of care within the episode. The exceptions to this rule are as follows:
1) The beneficiary voluntarily elects to transfer to another HHA
2) The beneficiary is discharged because treatment goals are met
3) A significant change occurs in the beneficiaries' condition,
which was not anticipated at the start of care.
The PPS establishes a list of Home Health Resource Groups (HHRG) which patients are assigned. Each HHRG has a corresponding reimbursement dollar amount. The system defines that dollar amount by using the location of the client (rural or urban), labor, wage, clinical and functional case mix criteria.
The combination of a fixed reimbursement by category and the use of clinical assessment information to establish that reimbursement amount creates a fundamental shift in how our home health agencies must be managed. Our home health managers must focus on controlling costs while ensuring that the quality of the care delivered does not suffer.
A Home Health Prospective Payment Analysis (HHPPA) conducted by our cost report consultants (Davis, Pinel and Associates, Pennsauken, New Jersey) in June 2000, suggested that the Company could be profitable under PPS. It is important to note that although this analysis provided vital information it did contain some limitations in regards to scope, cost and medical review. Management does anticipate profits from our home health divisions. The home health divisions represent approximately 10% of the Company's revenues.
(4) RISKS ASSOCIATED WITH OPERATIONS
The risks associated herewith include the following: no assurance of profitability from its operations; a potential future need for funds; significant government regulations; reliance on current management; increase in competition; a lack of a current market for the securities; and the uncertainties associated with changes in the health care system. All decisions with respect to the management of the Company are made exclusively by the Company.
Although the Company does not anticipate the accumulation of debts, in the event of a dissolution and termination of the Company, the proceeds realized from the liquidation of assets, if any, will be distributed to the shareholders only after the satisfaction of claims of all creditors. Accordingly, the ability of a shareholder to recover all or any portion of his investment under such circumstances will depend on the amount of funds realized and the claims to be satisfied.
(5) EMPLOYEES AND FACILITIES
As of April 16, 2001, the Company had approximately 2600 employees of which 1,400 are full-time equivalent employees. None of the Company employees are subject to a collective bargaining agreement and the Company believes its relations with its employees are good.
(c) REPORTS TO SECURITY HOLDERS
Prior to filing its Form 10-SB, the Company had not been required to deliver annual reports. To the extent that the Company is required to deliver annual reports to security holders through its status as a reporting company, the Company shall deliver annual reports. Also, to the extent the Company is required to deliver annual reports by the rules or regulations of any exchange upon which the Company's shares are traded, the Company shall deliver annual reports. If the Company is not required to deliver annual reports, the Company will not go the expense of producing and delivering such reports. If the Company is required to deliver annual reports, they will contain audited financial statements as required.
Prior to the filing of its Form 10-SB, the Company had not filed reports with the Securities and Exchange Commission. Now that the Company has become a reporting company, it is required to file Forms 10K-SB, 10Q-SB, 8-K and appropriate proxy materials as they come due. If the Company issues additional shares, the Company may file additional registration statements for those shares. The public may read and copy any materials the Company files with the Securities and Exchange Commission at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by call the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address of the Commission's site is (http://www.sec.gov).
ITEM 2. DESCRIPTION OF PROPERTY
The Company is not engaged in the business of investing in real estate or real estate mortgages, however it does own its office at 7504 and 7506 Diplomat Drive in Manassas, Virginia and at 10760 Ambassador Drive, Manassas, Virginia.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to, and none of the Company's property is subject to, any pending or threatened legal, governmental, administrative or judicial proceeding except as described below:
On or about December 2, 1998 the Company filed a complaint in the Circuit Court of Hanover County, State of Virginia against Home Care Connections and Bonnie James. In that action the Company alleged that while defendant James was employed by the Company, the defendants acted together and wrongly transferred patients from services provided by the Company to services provided by defendant Home Care Connections. The Company seeks monetary damages of $900,000. The action is pending.
The Company was a defendant in a lawsuit for breach of contract that is
styled ATLIS SYSTEMS INC V. MID-ATLANTIC HOME HEALTH NETWORK, INC., No. 200383
filed in June of 1999 in the Circuit Court for Montgomery County, State of
Maryland. The plaintiff corporation purports to be the successor-in-interest to
Atlis Federal, Inc. On June 30, 1995, the Company acquired all of the stock of
Atlis Health Services, Inc., a wholly-owned subsidiary of Atlis Federal. As part
of the consideration of the acquisition, the Company agreed to deliver 500,000
shares of the Company's Common Stock to Atlis Federal and, on the third anniversary of closing of the acquisition (June 30, 1998), to pay Atlis Federal the difference, if any, between the fair value of such stock $800,000. The Stock Purchase Agreement between the parties establishes a multi-part formula for determining the fair value of the stock as of that date. The parties disagree not only about the proper interpretation of the contract language but also whether, as a result of Altis Federal's alleged breach of various disclosures provisions of the agreement, the Company is obligated to make any payment at all. The Complaint seeks damages in the amount of $787,000 (representing plaintiff's view of the Company's liability to pay an adjusted purchase price under the contract formula) plus an unspecified amount of attorneys fees and costs under an indemnification provision of the agreement. The Company has asserted claim in recoupment to plaintiff's claims that would, if successful, reduce the amount of any adverse judgment significantly. This action is pending.
On October 27, 2000, the Company settled this pending lawsuit by paying Atlis Health Services, Inc. $900,000 in cash and buying back Atlis Health Services, Inc.'s 500,000 shares of stock in the Company for $450,000 over three years. The first installment is October 27, 2001.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of the shareholders in the past calendar year 2000.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information:
The Company's Class A Common Stock is traded on the Over The Counter Bulletin Board system under the symbol "MAHN". The following table sets forth the range of high and low bid prices for the Company's Common Stock for each quarterly period indicated as reported by the NASDAQ's Historical Research Department. Quotations reflect inter-dealer prices without retail markup, markdown or commissions and may not represent actual trades.
Quarter Ended High Bid Low Bid ------------- -------- ------- December 31, 2000 $ 0.375 $ 0.06 September 30, 2000 $ 0.43 $ 0.06 June 30, 2000 $ 0.875 $ 0.50 March 31, 2000 $ 0.37 $ 0.125 December 31, 1999 $ 0.25 $ 0.125 September 30, 1999 $ 0.18 $ 0.125 June 30, 1999 $ 0.25 $ 0.03125 March 31, 1999 $ 0.03 $ 0.03125 December 31, 1998 $ 0.03 $ 0.03125 September 30, 1998 $ 0.03 $ 0.03125 June 30, 1998 $ 0.06 $ 0.03125 March 31, 1998 $ 0.06 $ 0.0625 |
There is no market for the Company's Class B Common Stock.
HOLDERS:
As of December 31, 2000, there were approximately 458 holders of record of the Company's Class A Common Stock. All of the Company's 10,000 shares of its authorized Class B Common Stock are issued and outstanding and owned by one (1) shareholder, Oak Springs Nursing Home Limited Partnership.
DIVIDENDS:
The Company has never paid cash dividends on its stock and does not intend to do so in the foreseeable future. The Company currently intends to retain its earnings for the operation and expansion of its business. The Company's continued need to retain earnings for operations and expansion are likely to limit the Company's ability to pay dividends in the future.
OPTIONS AND WARRANTS.
There are no outstanding options or warrants to purchase additional stock. The Company had an incentive stock option plan that included substantially all officers and key employees. The Series C options which expired in 1998 originally had an exercise price of $1 per share. The Company subsequently reduced the option price to $.50 per share. Certain of these options were exercised and the amount due was financed by the Company through notes bearing interest at 8%. The unpaid balance of outstanding notes receivable for stock purchases is shown as a reduction of stockholders' equity in the Company's financial statements.
RECENT SALES OF UNREGISTERED SECURITIES
On or about March 31, 2000, the Company issued 15,000 shares of itscapital stock to Dennis Light as a yearly bonus for his services in 1999. Such shares were valued at $0.25 per share. Such shares were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
On or about July 31, 2000, the Company issued 4,000 shares of its capital stock to Carol Roy, National Nurses Services' Home Health Administrator as part of her annual review.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Statements contained herein that are not historical facts are forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. The Company cautions investors that any forward- looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Such risks and uncertainties include, without limitation: well established competitors who have substantially greater financial resources and longer operating histories, regulatory delays or denials, ability to compete as a start-up company in a highly competitive market, and access to sources of capital.
Mid-Atlantic Home Health Network, Inc. (MAHN) is a holding company of four corporate entities: National Nurses Service, Inc.; Hunt Country Home Health, Inc.; Hunt Country Nursing Services, Inc., and The Center for Ambulatory and Home Infusion Services. An analysis of consolidated operations as well as each of these entities is depicted below.
MID-ATLANTIC HOME HEALTH NETWORK, INC. (MAHN)
CONSOLIDATED FINANCIAL POSITION
The Company's consolidated total assets were $9,384,000 at December 31, 2000 versus $6,451,000 at December 31, 1999. The 45% increase in total assets was due principally to increases in accounts receivable as a result of the Company's 29% increase in revenue.
Liquidity, as represented by working capital (current assets less current liabilities), decreased from approximately $1,338,000 to $715,000 at December 31, 2000. The Company feels that its current and anticipated liquidity will be sufficient to fund future operations.
The Company finances a portion of its account receivable with a lender under terms of an agreement that advances up to 80% of qualified accounts receivable. At December 31, 2000 advances secured by accounts receivable totaled approximately $4,760,000.
Due to the nature of the Company's operations, property and equipmentare not a significant factor in planning future operational needs. At bothDecember 31, 1999 and 1998 the company's net investment in property and equipment was less than 5% of total assets.
CONSOLIDATED RESULTS OF OPERATIONS
Revenues for the year ended December 31, 2000 were approximately $28,243,000 a 49% increase over December 31, 1999 revenues of approximately $9,216,000.
Costs related to patient care rose to approximately $21,699,000 an increase of 50% over the previous year total of $14,404,000. These increases were offset by controls over general and administrative expenses. General and administrative expenses totaled approximately $4,907,000 for the year ended December 31, 2000 an increase of 40% over the prior period.
Income before one time charges increased to $1,294,000 in 2000 versus $609,000 in 1999. One time expenses were:
a. Recognized one time charge for legal fees $(292,000.00) Pertaining to settlement of ATLIS case
b. Recognized full year of amortization ( 38,000.00) (31,450) on additional goodwill and imputed interest (6,166) on note - both related to ATLIS settlement
c. Increase bad debt reserve for Woodbridge ( 70,000.00) Nursing Home account - bankruptcy
Income after one-time expenses increased to $844,000 in 2000 versus $609,000 in 1999. After tax income increased to $512,000 in 2000 versus $426,000 in 1999. After tax income before one-time charges would have been $795,000 in 2000 versus $426,000 in 1999. Also our average tax rate increased to 39% in 2000 from 30% in 1999.
Earnings per common share remained at .04 for 2000.
HEALTH CARE TRENDS
The following is a table of the Company's approximate operating revenues for the years 1995 through 2000.
Percentage change
From the prior
Revenue year
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1995 9,983,000
1996 14,269,000 42.9%
1997 13,740,000 -3.7%
1998 14,698,000 6.9%
1999 18,984,000 29.2%
2000 28,200,000 48.5%
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The Company has, as described elsewhere in this annual report on Form 10-KSB, positioned itself to benefit from changing trends in the market for health care services.
Management anticipates continued and increased demand for the Company's staffing, private duty nursing services, durable medical equipment and supplies, and home health services. MAHN does not face difficulties in the marketing of its services. Its challenges are in the recruitment of sufficient nursing personnel to meet the demands for its nursing care services.
MAHN continued to expand its services in 2000 by opening up office locations in Fairfax, Charlottesville and the Tidewater area Virginia.
The additional outlets for nurse staffing and private duty nursing have provided greater ease in recruitment. At the same time, continued centralization of general and administrative functions have resulted in greater productivity. This combination of increasing the numbers of distribution points in the Mid-Atlantic while centralizing overhead functions will continue in the Year 2001.
MAHN, the holding company, does not generate any income but reports the corporate-wide administrative expenses for the four entities. For 2000 MAHN had revenue of $25,000. Operating expenses totaled $740,000.
NATIONAL NURSES SERVICE, INC. (NNS)
Operating revenues for the fiscal year 2000 totaled $18,452,000 versus$12,478,000 in 1999 for our nurse staffing company. The revenue increase of $5,974,000 represents a 48 percent increase. NNS continues to experience greater demand for its nursing personnel from hospitals, clinics, nursing homes, schools, and correctional facilities. As the age wave continues to impact the population, and the shortage of nursing personnel persists, we anticipate continued strong demand for nurse staffing. A new nurse staffing outlet was added in August,2000, in the Tidewater area of Virginia.
Total operating expenses for fiscal year 2000 was $17,093,000 versus $11,812,000 in the prior year. This represents an increase of $5,281,000 or 45%. Operating expenses expressed as a percentage of operating revenues remained reasonably stable at 93% in 2000 versus 94 in 1999.
The operating income before taxes of NNS improved for fiscal year 2000. In 2000, NNS had $1,359,000 in operating income versus $667,000 in 1999---a 104 percent increase. The increased profitability is primarily due to increased revenues with slight improvements in its overhead costs as a percentage of sales.
HUNT COUNTRY NURSING SERVICES, INC. (HCNS)
Hunt Country Nursing Services, Inc., our private duty nursing company, Continued to show revenue growth in fiscal year 2000. Operating revenues totaled $8,646,000 versus $5,297,000 a year ago; the increase is $3,349,000 or 63 percent.
An additional office was opened in March 2000 in Charlottesville, Virginia.
Operating expenses for HCNS increased to $8,441,000 in 2000 versus $5,173,000 in 1999. This represents an increase of 63 percent.
HCNS generated a profit of $204,000 for fiscal year 2000 as compared to a loss of $124,000 in 1999.
This company continues to expect revenue and income growth, and further expansion through the Mid-Atlantic.
HUNT COUNTRY HOME HEALTH, INC. (HCHH)
The operating revenues for fiscal year 2000 for this Medicare Certified home health agency totaled $1,117,000, compared to $1,184,000 for the prior year.
Operating expenses decreased from $1,164,000 in 1999 versus $1,080,000 in 2000.
In fiscal year 2000, HCHH experienced income of $37,000 versus $20,000 in 1999. This company is maintaining steady operations under the prospective pay system which went into effect October, 2000.
THE CENTER FOR AMBULATORY AND HOME INFUSION SERVICES (CAHIS)
The durable medical equipment operations was transferred to Hunt Country Nursing Services in 1999.
The operating revenues for 2000 was $4,000.
Total operating expense for 2000 was $44,000.
CAHIS ended 2000 with a $40,000 loss.
ITEM 7. FINANCIAL STATEMENTS
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2000 AND 1999
CONTENTS
PAGES
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INDEPENDENT AUDITORS' REPORT 17
FINANCIAL STATEMENTS
Consolidated balance sheets 18-19
Consolidated statements of income 20
Consolidated statements of stockholders' equity 21
Consolidated statements of cash flows 22
Notes to consolidated financial statements 23- 30
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Mid-Atlantic Home Health Network, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Mid-Atlantic Home Health Network, Inc. and Subsidiaries (the Company), as of December 31, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mid-Atlantic Home Health Network, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Eggleston Smith P.C. ------------------------ Eggleston Smith P.C. |
Newport News, Virginia
February1,2002
FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2000 AND 1999
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 549,812 $ 548,889
Accounts receivable, net of allowances of
$103,187 in 2000 and $106,239 in 1999 6,640,427 4,278,363
Due from affiliates 97,931 273,343
Prepaid expenses and other current assets 31,964 187,760
Deferred tax asset 26,000 72,000
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Total current assets 7,346,134 5,360,355
----------- -----------
PROPERTY AND EQUIPMENT, NET 573,840 278,779
----------- -----------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$303,728 in 2000 and $269,156 in 1999 1,332,909 781,239
Other assets 135,954 30,786
----------- -----------
Total other assets 1,468,863 812,025
----------- -----------
Total assets $9,388,837 $6,451,159
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See accompanying notes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
-----------------------------------------------------------------------------------------
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 148,405 $ 16,393
Current maturities of capital leases 53,635 -
Notes payable 4,759,680 2,993,081
Accounts payable 458,104 325,605
Accrued salaries and related employee benefits 425,882 397,881
Other current liabilities 461,905 164,270
Income taxes payable 343,456 125,090
------------ ------------
Total current liabilities 6,651,067 4,022,320
------------ ------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES
Notes payable 536,568 294,123
Capital leases 194,168 -
------------ ------------
Total long-term debt 730,736 294,123
------------ ------------
Total liabilities 7,381,803 4,316,443
------------ ------------
STOCKHOLDERS; EQUITY
Common stock, Class A, $.001 par
value, 200,000,000 shares authorized
12,105,142 shares issued and
outstanding in 2000 and 12,631,202 in 1999 12,106 12,631
Common stock, Class B, $.001 par value,
10,000 shares authorized, issued and
outstanding 10 10
Additional paid-in capital 451,002 1,113,475
Retained earnings 1,708,166 1,197,850
------------ ------------
2,171,284 2,323,966
Stock subscriptions receivable (164,250) (189,250)
------------ ------------
Total stockholders' equity 2,007,034 2,134,716
------------ ------------
Total liabilities and stockholders' equity $ 9,388,837 $ 6,451,159
============ ============
|
See accompanying notes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
REVENUES $28,243,016 $18,984,218
------------ ------------
EXPENSES
Patient care costs 21,699,600 14,403,802
General and administrative 4,907,394 3,494,086
Amortization 87,405 52,997
Interest expense, net 704,238 424,316
------------ ------------
Total expenses 27,398,637 18,375,201
------------ ------------
Income before income taxes 844,379 609,017
PROVISION FOR INCOME TAXES 332,863 182,769
------------ ------------
Net income $ 511,516 $ 426,248
============ ============
EARNINGS PER COMMON SHARE $ .04 $ .03
============ ============
|
See accompanying notes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000 AND 1999
------------------------------------------------------------------------------------------------------------------------------------
Additional Stock
Common Stock Paid-In Retained Subscriptions
Class A Class B Capital Earnings Receivable Total
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 1998 $ 12,631 $ 10 $ 1,113,475 $ 772,802 $ (189,250) $ 1,709,668
Dividend paid - - - (1,200) - (1,200)
Net income - - - 426,248 - 426,248
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 12,631 10 1,113,475 1,197,850 (189,250) 2,134,716
Reacquisition of shares
originally issued in
purchase of
National Nurses Service (500) - (643,500) - - (644,000)
Cancelled subscriptions (25) - (24,975) - 25,000 -
Issuance of stock to employees
as compensation - - 6,002 - - 6,002
Dividend paid - - - (1,200) - (1,200)
Net income - - - 511,516 - 511,516
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 $ 12,106 $ 10 $ 451,002 $ 1,708,166 $ (164,250) $ 2,007,034
============ ============ ============ ============ ============ ============
|
See accompanying notes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
-------------------------------------------------------------------------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 511,516 $ 426,248
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 25,046 21,365
Amortization 77,330 47,805
Deferred taxes 46,000 (35,000)
Changes in assets and liabilities:
Accounts receivable (2,362,064) (1,279,874)
Due from affiliates 175,412 (200,298)
Prepaid expenses and other current assets 155,796 (30,311)
Accounts payable 132,499 172,881
Accrued salaries and related employee benefits 28,001 142,661
Income taxes payable 218,366 125,090
Other current liabilities 297,635 45,108
Other assets (105,168) (29,652)
------------ ------------
Net cash used in operating activities (799,631) (593,977)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of goodwill (256,000) -
Purchases of property and equipment (44,209) (46,923)
------------ ------------
Net cash used in investing activities (300,209) (46,923)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable, net 1,766,599 386,906
Current borrowings 18,000 -
Repayment of long-term debt (16,543) (12,211)
Principal payments on capital leases (28,095) -
Reacquisition of stock (644,000) -
Stock issued as employee compensation 6,002 -
Dividend paid on preferred stock (1,200) (1,200)
------------ ------------
Net cash provided by financing activities 1,100,763 373,495
------------ ------------
Net increase (decrease) in cash
and cash equivalents 923 (267,405)
CASH AND CASH EQUIVALENTS
Beginning 548,889 816,294
------------ ------------
Ending $ 549,812 $ 548,889
============ ============
|
See accompanying notes.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. The consolidated financial statements include the accounts of Mid-Atlantic Home Health Network, Inc. (MAHN) and its subsidiaries (collectively referred to herein as the Company). The subsidiaries include Hunt Country Nursing Services, Inc. (Hunt Country Nursing), Hunt Country Home Health, Inc. (Home Health), National Nurses Services, Inc. and the Center for Ambulatory and Home Infusion Services, Inc. (CAHIS).
The Company acquired the Center for Ambulatory and Home Infusion Service as of November 1, 1999, in a non-cash transaction from an affiliate. The results of operations for CAHIS are included in the consolidated financial statements from that date.
Approximately 80% of MAHN's outstanding shares are owned by Oak Springs Nursing Home Limited Partnership (Oak Springs).
The Company is engaged in the business of providing integrated home health services with an emphasis in providing nursing staff services to hospitals, nursing homes and other facilities. The Company operates in Virginia, Maryland, the District of Columbia and Pennsylvania.
BASIS OF CONSOLIDATION. All significant intercompany accounts and transactions have been eliminated.
NET REVENUES. Net revenues are reported at the estimated net realizable amounts from patients, third party payers, and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third party payers. Revenue received under third-party agreements is subject to audit. Any adjustments as a result of these audits are reflected in current operations. Approximately 5% and 9% of the Company's net revenues for the years ended December 31, 2000 and 1999, respectively, were from participation in Medicare and state Medicaid programs. In addition, approximately 15% and 59% of the Company's net revenues for the years ended December 31, 2000 and 1999, respectively, was from contracts with state and local governmental correctional facilities, including the Commonwealth of Virginia and the District of Columbia.
At December 31, 2000 and 1999, 3% and 8%, respectively, of net accounts receivable were due from Medicare and Medicaid. The ability of payers to meet their obligations depends upon their financial stability, future legislation and regulatory actions.
The Company does not believe there are any significant credit risks associated with receivables from Medicare and Medicaid.
PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost. The cost and the related accumulated depreciation are removed from the accounts in the year the related asset is sold or retired. Depreciation is computed using the straight-line method over the estimated economic lives of the assets, commencing at the time the assets are placed into service.
(Continued)
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED)
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand and in the bank as well as any investment purchased with an original maturity of three months or less. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Cash equivalents are carried at cost which approximates fair value.
GOODWILL AND OTHER ASSETS. Goodwill arises from acquisitions and represents the excess of purchase price over identifiable acquired net assets, and is amortized on a straight-line basis over 20 years. Other assets principally consist of the estimated value of the assembled workforce and capitalized fees related to other long-term agreements and transactions. Other assets are amortized on a straight-line basis over a period of 3 to 5 years.
INCOME TAXES. The income tax provision includes federal and state income taxes both currently payable and deferred because of differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws.
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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
STOCKHOLDERS' EQUITY. The Company has three classes of stock. Two hundred million shares of Class A common stock have been authorized. The Class A shareholders have the right to elect one third of the directors of the Company. Ten thousand shares of Class B common stock, with the right to elect two thirds of the directors, have also been authorized. Five million shares of Class C convertible preferred stock have been authorized. The preferred stock would be paid a dividend of 12%. No shares of Class C convertible preferred stock are outstanding.
EARNINGS PER SHARE. Earnings per common share are computed by dividing the weighted average number of shares outstanding into net income. Diluted earnings per share are not presented because the outstanding stock options are not dilutive.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable arise from the provision of staffing services to hospitals, nursing homes and other facilities in the Virginia, Maryland, District of Columbia and Pennsylvania areas. The principal payers for these services are the patients, insurance companies, various state and local government agencies, other institutional providers of healthcare, the Medicare program, and certain Medicaid programs.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 3. PROPERTY AND EQUIPMENT
As of December 31, 2000 and 1999, property and equipment consisted of the following:
2000 1999
-------------- --------------
Building and building improvements $ 321,355 $ 320,818
Equipment acquired under capital leases 275,898 -
Furniture and equipment 512,480 348,842
-------------- --------------
1,109,733 669,660
Less accumulated depreciation 535,893 390,881
-------------- --------------
$ 573,840 $ 278,779
============== ==============
|
NOTE 4. NOTES PAYABLE
National Nurses Service, Home Health and Hunt Country Nursing borrow funds under terms of agreements with a lender and secured by accounts receivable. These agreements provide for advances on accounts receivable of approximately 83% of the collateralized balances. The Company is required to refund any borrowings for financial accounts receivable balances not collected within 180 days. Interest is accrued at 10.25%. The funding agreements expire June 30, 2004. Repayment of these advances requires collection directly by lender and credited against amounts outstanding. Interest is paid separately.
2000 1999
-------------- --------------
Amount of advances on accounts receivable $ 5,869,123 $ 3,711,303
Less: Lender reserves 1,109,443 718,222
-------------- --------------
Note payable $ 4,759,680 $ 2,993,081
============== ==============
|
NOTE 5. LONG-TERM DEBT
Long-term debt as of December 31, 2000 and 1999, consisted of the following:
2000 1999
------------- --------------
Note payable, C.W. Cobb, collateralized by first deed of
trust on building and guaranteed by the general partners
of Oak Springs. Payable in monthly installments of $761,
including interest at 11%. Due April, 2021. $ 64,946 $ 65,689
Note payable, C.W. Cobb, collateralized by second deed
of trust on building and guaranteed by the general
partners of Oak Springs. Payable in monthly installments
of $221, including interest at 13%. Due April, 2021. 18,011 18,304
Note payable, York Federal Savings and Loan. Payable in
monthly installments of $1,116, including interest at 8.5%.
A balloon payment of $86,809 is due September, 2008. 70,472 76,658
(Continued)
25
|
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 5. LONG-TERM DEBT (CONCLUDED)
2000 1999
-------------- ---------------
Note payable, Crestar Mortgage Corp., collateralized
by building and guaranteed by the managing general
partner of Oak Springs. Payable in monthly installments
of $772, including interest at 8%. Due December, 2024. $ 77,862 $ 79,800
Note payable, Central Fidelity Bank guaranteed by the
general partners of Oak Springs, payable in monthly
installments of $1,668, including interest at 11.21%.
Due December 5, 2007. 62,682 70,065
Note payable, ATLIS Systems, Inc., collateralized by stock,
payable in annual installments of $150,000, including
interest at an imputed rate of 10%. Due October 27, 2003.
The note does not bear interest. The face amount of $450,000
has been discounted to $373,000. The discount will be charged
to interest expense over the term of the note. 373,000 -
Note payable, stockholder, uncollateralized, no stated
repayment terms 18,000 -
-------------- ---------------
684,973 310,516
Less current maturities 148,405 16,393
-------------- ---------------
$ 536,568 $ 294,123
============== ===============
|
Annual maturities of long-term debt outstanding at December 31, 2000, are as follows:
2000 $ 148,405
2001 143,396
2002 157,651
2003 23,326
2004 25,561
Thereafter 186,634
--------------
$ 684,973
==============
|
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 6. CAPITAL LEASES
The Company leases equipment under capital leases from GE Capital. Assets obtained under capital leases total $275,898 and depreciation expense related to those assets was $28,091 during 2000. The following is a schedule of future minimum payments under these leases:
Year Ending
December 31, 2000 $ 79,848
December 31, 2001 79,848
December 31, 2002 79,848
December 31, 2003 63,185
December 31, 2004 13,014
------------
Total minimum lease payments 315,743
Less: Amount representing taxes 13,633
------------
Net minimum lease payments 302,110
Less: Amount representing interest 54,307
------------
Present value of net minimum lease payments 247,803
Current portion 53,635
------------
Long-term portion $ 194,168
============
|
NOTE 7. STOCK OPTION PLAN AND STOCK SUBSCRIPTIONS
The Company had an incentive stock option plan that included substantially all officers and key employees. The Series C options which expired in 1998 originally had an exercise price of $1 per share. The Company subsequently reduced the option price to $.50 per share. Certain of these options were exercised and the amount due was financed by the Company through notes bearing interest at 8%. The unpaid balance of outstanding notes receivable for stock purchases is shown as a reduction of stockholders' equity.
During 2000 and 1999, the Company did not receive any payments on outstanding notes receivable for the purchase of shares. Because the market value of the outstanding shares is below the option price, the Company has suspended the required payments (including interest) on these notes.
NOTE 8. LEASE COMMITMENTS
The Company leases certain office facilities and other equipment under non- cancelable leases for terms ranging from one to five years. Future minimum lease payments under these operating leases are as follows:
2001 $ 248,765
2002 199,616
2003 92,884
2004 42,735
2005 7,758
----------
Total future minimum lease payments $ 591,758
==========
|
During 2000 and 1999, rent expense for all operating leases totaled $294,730 and $203,025, respectively.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 9. INCOME TAXES
The Company files a consolidated federal income tax return, which includes the Center for Ambulatory and Home Infusion Service, Hunt Country Nursing, Home Health and National Nursing Service. The Company and its subsidiaries file separate returns for state purposes.
The provision for income taxes for the years ended December 31, 2000 and 1999, was comprised of the following:
2000 1999
------------- -------------
Current provision $ 306,863 $ 217,769
Deferred expense (benefit) 26,000 (35,000)
------------- -------------
Total provision $ 332,863 $ 182,769
============= =============
|
The provision for income taxes differed from the amount of income tax determined by applying the applicable federal statutory tax rate to pre-tax income as a result of the following:
2000 1999
------------- --------------
Statutory federal tax rate 34% 34%
State taxes, net of federal benefit 3 3
Goodwill amortization (6) (4)
Other 8 (3)
------------- --------------
Effective tax rate 39% 30%
============= ==============
|
The deferred tax asset relates to the allowance for doubtful accounts reflected on the balance sheet, and to claims incurred but not reported that are recorded in current earnings. Realization of the deferred tax asset is contingent on the occurrence of a write-off of the accounts receivable for tax purposes and payment of premiums to the insurer or payments of actual claims. No valuation allowance was established since the Company believes it is more likely than not that this asset will be realized.
NOTE 10. RELATED PARTY TRANSACTIONS
Periodically, Oak Springs and its affiliates provide the Company with funds needed for various transactions. Oak Springs also enters into debt on behalf of the Company. Amounts due from and due to affiliates as of December 31, 2000 and 1999, are as follows:
(Continued)
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 10. RELATED PARTY TRANSACTIONS (CONCLUDED)
2000 1999
------------- -------------
Due from affiliates:
Oak Springs Nursing Home LP $ 7,895 $ 126,500
Oak Springs Nursing Home 142,152 77,371
Health Care Ventures, Inc. 112,863 108,093
Home Health Services of Allegheny County, Inc. - 187
Health Ventures Group - 4,086
All Stat Home Health, Inc. 2,282 195
Care Connections of Pennsylvania, Inc. 2,177 328
------------- -------------
267,369 316,760
------------- -------------
Due to affiliates:
Western Pennsylvania Home
Health Network, Inc. 37 37
Health Ventures Group 23,843 24,283
Care Connections of
Pennsylvania, Inc. 1,145 -
All Stat Home Health, Inc. 153 -
Oak Springs Nursing Home LP 105,980 -
Oak Springs Nursing Home 38,280 19,097
------------- -------------
169,438 43,417
------------- -------------
Net due from affiliates $ 97,931 $ 273,343
============= =============
|
Oak Springs maintains a workers compensation policy, which covers the Company. The Company paid Oak Springs $160,190 and $160,190 during the years ended December 31, 2000 and 1999, respectively, related to this policy.
NOTE 11. LITIGATION SETTLEMENT
In October, 2000, the Company settled litigation with the former owners of National Nurses Service, Inc. The settlement adjusted the original purchase price of $920,000 to $1,549,000.
The settlement required the former owners of NNS to surrender it's 500,000 shares of MAHN stock received in exchange for consideration in the form of cash, and notes with a discounted value of $373,000. As a result, stockholders equity has been reduced by $644,000, and goodwill has been increased by $629,000.
The note issued requires three annual payments of $150,000, and has a value of $373,000. The note is secured by the 500,000 shares surrendered and contains provision for increasing the amount under the note to $900,000, and reclaiming of the shares surrendered in the event of default on the note. The Company has only recorded the discounted value of the note and the surrender of the shares. Management is of the opinion that the potential penalties associated with the default make it a remote possibility that the Company would fail to meet the required payments under the note.
MID-ATLANTIC HOME HEALTH NETWORK, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 12. SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid during 2000 and 1999 was $692,535 and $423,952, respectively. Income taxes paid during 1999 were $68,625.
The Company purchased all of the outstanding stock of CAHIS from an affiliated Company on November 1, 1999, in exchange for settlement of certain intercompany indebtedness. The total purchase price of $98,804 exceeded the fair market value of assets acquired, less liabilities assumed, by $155,760. The excess consideration is recorded as goodwill.
The Company acquired assets of $275,898 under capital leases during 2000.
The Company issued a non-interest bearing note with a face value of $450,000 (discounted to $373,000) in connection with the settlement of a dispute concerning the purchase price of a subsidiary in 2000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements with the Company's independent accountants over any item involving the Company's financial statements. The Company's independent accountants are Eggleston Smith, P.C. located at 603 Pilot House Drive, Suite 400, Newport News, Virginia 23606.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS
As of April 16, 2001, the directors and executive officers of the
Company, their ages, positions in the Company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
(3)*
(1) (2) Period Served As
Name Age Position Director
---- --- -------- ----------------
Philip V. Warman 57 Chairman of the Board, Dec. 9, 1994 to present
and CEO and Director
Tom Waugh 33 Secretary & Treasurer, Dec., 1999 to present
Director
Joanne B. Warman 50 Vice President Dec., 1999 to present
Ronald L. Messenheimer 49 President of NNS July 1, 1995 to present
Gary Paz 42 Vice President of NNS Dec. 1999 to present
|
The Company's directors are elected at the annual meeting of stockholders and hold office until their successors are elected and qualified. The Company's officers are appointed annually by the Board of Directors and serve at the pleasure of the Board.
(b) BUSINESS EXPERIENCE:
Philip V. Warman is the Chairman of the Board and has over 27 years experience in health venture development and health care financial management. He also serves as the Company's Treasurer and is a director. He has a degree in Business Administration from Wake Forest University. Mr. Warman served in various positions at Prince William Hospital culminating as Senior Vice President. During his 18 years at Prince William Hospital, he acquired Annaburg Manor Nursing Home, initiated home health, DME, private duty, physician billing, a collection agency, a child care enter and an alcoholic treatment center.
Since 1981, Mr. Warman has been Managing General Partner of Oak Springs Nursing Home Limited Partnership, the Company's majority and controlling shareholder.
Tom Waugh is the Secretary and Treasurer and a director of the Company. Mr. Waugh received his undergraduate degree from Colorado State and earned a Masters of International Management from the American Graduate School of International Management at Thunderbird. Mr. Waugh has worked for Bear Sterns in the international securities division and is currently the Managing director of Cavallo Capital Corp., a New York based hedge fund that manages $120 million. In the capacity, Mr. Waugh is responsible for the operational activities of the managed accounts, including personnel, execution of trades, creating trade models and analyzing prospective deals.
Joanne Browning Warman is the Vice President of the Company. She has over 29 years of nursing experience in the health care industry. She has a Bachelors of Science degree in nursing from the University of Virginia. In December of 1983, Mrs. Warman opened Hunt Country Home Health ("HCHH"), a medicare-certified home health agency servicing Warrenton and the surrounding areas. She remained the Administrator of HCHH until November of 1984, at which time she became a part-time employee of HCHH. Mrs. Warman continues to advise the Company on its clinical management operations.
Ronald L. Messenheimer is the President of National Nurses Service. Mr. Messenheimer earned a Bachelor of Science degree in Business and Management with a major in Accounting from the University of Maryland in 1974. From 1991 to the present he has led the growth of ATLIS Health Services from 1991 to 1995. During his tenure as president, NNS entered the home health market by obtaining Medicaid certification in 1991 and Medicare certification in 1992. Mr.Messenheimer negotiated the purchase of a small Medicare-certified home health agency in June of 1993 established a specialized AIDS treatment program.
He created a rehabilitation service company in early 1994. Mr. Messenheimer has direct responsibility for essentially all payroll, billing, human resources and administrative functions, as well as day-to-day operating responsibility of NNS. NNS currently has 75 full time employees and an additional 1,200 active employees of which approximately 600 work each week. Prior to 1991, Mr. Messenheimer was President of ATLIS Federal Services and served in various capacities with UNC, Inc.
Mr. Paz is the Vice President of NNS. During the past 5 years, Mr. Paz has been responsible for the daily operations and overall performance of NNS's Richmond, Virginia office. In the regard, Mr. Paz duties include recruitment of nursing staff, maintaining nurse and client files, billing for services and tracking accounts receivable and budgeting for the Richmond office. Mr. Paz also handles the Company's marketing program and tracks quality assurance on the Company's accounts. Prior to working with NNS, Mr. Paz was an Assistant Vice President of Wheat First Securities.
(c) DIRECTORS OF OTHER REPORTING COMPANIES:
None of the officers or directors of the Company are directors of any other reporting company.
(d) FAMILY RELATIONSHIPS:
Phillip V. Warman, the Chairman of the Board and a director of the Company, and Jo Anne Warman, the Company's Vice President, are husband and wife.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS:
Except as noted below, none of the officers, directors, promoters or control persons of the Company have been involved in the past five (5) years in any of the following:
(1) Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2) Any conviction in a criminal proceedings or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, or any Court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4) Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities laws or commodities law, and the judgment has not been reversed, suspended, or vacated.
Phillip Warman, an officer and director of the Company, served as a director of Bayou State Home Health doing business as Care Connection Home Health in the state of Louisiana. This Medicare certified home health agency filed for bankruptcy in August of 1998. In addition, Oak Springs Nursing Home Limited Partnership was an owner of Care Connections of Louisiana and Mr. Warman is the managing general partner of Oak Springs Nursing Home Limited Partnership. He also served as a director of Home Health Services of Allegheny County, a non-profit home health agency in Pittsburgh, Pennsylvania, an entity which filed for bankruptcy in December of 1998.
Ron Messenheimer, an officer of the Company, was the Vice President of Atlis Systems, Inc. and the chairman and CEO of Atlis Federal Services, Inc., entities which filed bankruptcy in May of 1996.
The officers and directors who are identified above are significant employees of the Company.
(g) SECTION 16a BENEFICIAL OWNERSHIP COMPLIANCE
The officers, directors and beneficial owners of more than 10% of the Company's common stock have filed their initial statements of ownership on Form 3 and annual statements on Form 5, or will do so within a reasonable time following the filing of this Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid or accrued during the years ended December 31, 2000, 1999, 1998 and 1997 to the Company's officers and directors.
Summary Compensation Table
Long Term Compensation
--------------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ------------------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Under- Other
Name and Compen- Stock Lying LTIP Compen-
Principal Sation Awards Options/ Payouts sation
Position Year Salary ($) Bonus($) ($) ($) SARs (#) ($) ($)
------------- ------ ----------- --------- --------- ---------- ----------- ---------- ------------
Philip V. Warman 2000 $54,000 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $ 2,769 (1)
Chairman & CEO 1999 $54,000 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $21,306 (1)
and Treasurer 1998 $24,000 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $23,075 (2)
1997 $0.00 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $23,075 (3)
Dennis S. Light 2000 $52,897 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $16,000 (6)
President 1999 $79,138 $ 3,750 $ 0.00 $ 0.00 None $ 0.00 $24,000 (5)
*gone effective 8/31/00 1998 $76,313 $ 1,250 $ 0.00 $ 0.00 None $ 0.00 $27,500 (6)
1997 $75,400 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $27,500 (7)
Tom Waugh No compensation received
Secretary/Treasurer
Ronald L. Messenheimer 2000 $92,900 $ 2,500 $ 0.00 $ 0.00 None $ 0.00 $ 0.00
President, NNS 1999 $95,073 $ 2,000 $ 0.00 $ 0.00 None $ 0.00 $ 0.00
1998 $61,640 $ 350 $ 0.00 $ 0.00 None $ 0.00 $ 0.00
1997 $41,500 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $ 0.00
Gary Paz 2000 $60,000 $ 1,000 $ 0.00 $ 0.00 None $ 0.00 $52,450
Vice President, NNS 1999 $60,000 $ 750 $ 0.00 $ 0.00 None $ 0.00 $41,024
1998 $60,000 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $38,258
1997 $60,000 $ 0.00 $ 0.00 $ 0.00 None $ 0.00 $ 3,445
|
(1) This "other compensation" is representative of partnership draws at Hunt Country Nursing Services.
(2) This "other compensation" is representative of partnership draws at Hunt Country Nursing Services.
(3) This "other compensation" is representative of partnership draws at Hunt Country Nursing Services.
(4) This figure represents the 15,000 shares issued to Mr. Light in March of 2000, valued at $0.25 per share.
(5) This "other compensation" is representative of payments made by National Nurses Service to Creative Health Ventures, a corporation owned 100% by Dennis Light.
(6) This "other compensation" is representative of payments made by National Nurses Service to Creative Health Ventures, a corporation owned 100% by Dennis Light.
(7) This "other compensation" is representative of payments made by National Nurses Service to Creative Health Ventures, a corporation owned 100% by Dennis Light.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) 5% SHAREHOLDERS:
The following information sets forth certain information as of December 31, 1999 about each person who is known to the Company to be the beneficial owner of more than five percent (5%) of the Company's Common Stock:
(1) Name and Address (3) (4)
Title of Beneficial Amount and Nature of Percent of of Class Owner Beneficial Ownership Class -------- ------------------------- -------------------- ----------- Common Oak Springs Nursing Home Stock Limited Partnership 10,063,778(8) 79.6% Class A c/o Philip V. Warman |
7504 Diplomat Drive, Suite 101 Manassas, Virginia 20109
Nevada Agency and Trust Co. 697,498 5.5%
50 West Liberty Street,
Suite 880
Reno, Nevada 89501
(8) Philip V. Warman, an officer and director of the Company, is a General Partners of Oak Springs Nursing Home Limited Partnership.
(b) SECURITY OWNERSHIP OF MANAGEMENT:
(1) Name and Address (3) (4)
Title of Beneficial Amount and Nature of Percent of
of Class Owner Beneficial Ownership Class
-------- ------------------------- -------------------- -----------
Common Philip V. Warman 10,092,934(9) 79.6%
Stock 7504 Diplomat Drive
Class A Manassas, Virginia 20109
Ronald L. Messenheimer 9,500 Less than 1%
7504 Diplomat Drive
Manassas, Virginia 20109
All Directors and 10,318,434 81.6%
Officers as a Group
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(c) CHANGES IN CONTROL:
There is no arrangement which may result in a change in control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mid-Atlantic has entered into many of its lines of business since the corporation's named was changed in December of 1994 by acquiring entities or businesses from entities related to the Company's management. As evident from the discussion in the preceding sections, various members of management maintain their relationships with other entities from which the Company acquired its businesses and with which the Company interacts as part of the Company's ongoing business.
The Company acquired Hunt Country Home Health from Oak Springs Nursing Home Limited Partnership ("OSNHLP") in the Spring of 1995 for 10,224,628 shares of the Company's Class A Common Stock and 10,000 shares of the Company's Class B Common Stock. OSNHLP thereby became the Company's majority stockholder, now owning approximately 80% of the Company's Class A Common Stock and 100% of the Company's Class B Common Stock. The Company's Chairman of the Board, Philip Warman, and the Estate of J.L. Mathews, M.D., are the general partners of OSNHLP. Because this acquisition involved an entity related to the Company, the Company has booked the acquisition of Hunt Country Home Health on a "processor cost" basis. Also. OSNHLP has guaranteed a number of the Company's debt obligations, as discussed in Note 4 of the Consolidated Financial Report..
In March of 1995, the Company established a subsidiary corporation named Western Pennsylvania Home Health Network, Inc. WPHHN operated as a wholly owned subsidiary until June 30, 1998 when it was sold for book value to Care Connections of Pennsylvania, a corporation controlled by Phillip Warman, the Company's Chairman and a general partner of the Corporation's majority shareholder. On November 1, 1999, the Company acquired the Center for Ambulatory and Home Infusion Services (CAHIS) from Care Connections or Pennsylvania in a non-cash transaction in exchange for settlement of inter-company indebtedness. The total purchase price of $98,804 exceeded the fair market value of the assets acquired less the liabilities assumed by $155,670. The excess consideration, recorded as goodwill, represents the goodwill associated with CAHIS's position in the durable medical equipment market.
On June 30, 1995, the Company acquired ATLIS Health Services, Inc., which then was doing business under the name National Nurses Service. The Company changed the subsidiary's name to National Nurses Service, Inc. ("NNS").
All of the stock in NNS was acquired by the Company from Atlis Systems, Inc. in exchange for 500,000 shares of the Company's Class A Common Stock. As a result, Atlis Systems, Inc. owns approximately 4% of the issued and outstanding shares of the Company's Class A Common Stock.
On October 27, 2000 the Company settled the lawsuit for breach of contract that is styled ATLIS SYSTEMS INC. V. MID-ATLANTIC HOME HEALTH NETWORK, INC. by paying Atlis Systems, Inc. $900,000 in cash and buying back the 500,000 shares of stock owned by Atlis Systems, Inc.
When the Company acquired NNS, it also acquired Hunt Country Nursing Services, Inc. The Company acquired HCNS from Oak Springs Nursing Home Limited Partnership, the Company's majority shareholder. The Company paid OSNHLP book value for all the issued and outstanding shares of HCNS, an amount equal to approximately $1,000.
National Nurses Services, Inc. has a consult contract with Creative Health Ventures, Inc. under the terms of which NNS pays CHV $2,000 per month. CHV is owned by Dennis Light, MAHN's president until August 31, 2000. The contract with CHV ended August 31, 2000.
The Company's business efforts are coordinated with those of other entities related to, or controlled by, Oak Springs Nursing Home Limited Partnership.
Oak Springs maintains a workers compensation policy which covers the Company. The Company paid Oak Springs $160,190 and $160,190 during the years ended December 31, 2000 and 1999, respectively, related to this policy.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The company did not file any reports on Form 8-K during the last year.
ASSIGNED
NUMBER DESCRIPTION
-------- -----------
(2) Plan of acquisition, reorganization, arrangement, liquid, or
succession:
(3)(i) Articles of Incorporation
(3)(ii) By-laws of the Company: Previously included with the Company's Form
10-SB filed on April 30, 1998.
(4) Instruments defining the rights of holders including indentures: None
(9) Voting Trust Agreement: None
(10) Material Contracts:
(11) Statement regarding computation of per share earnings: Computations can
be determined from the financial statements.
(16) Letter on change in certifying accountant: None
(21) Subsidiaries of the registrant: Previously included with the Company's
Form 10-SB filed on April 30, 1998.
(24) Power of Attorney: None
(27) Financial Data Schedule: Included
(99) Additional Exhibits: None
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: April 16, 2001
MID-ATLANTIC HOME HEALTH
NETWORK, INC.
By /S/ Philip V. Warman
--------------------------
PHILIP V. WARMAN
CHAIRMAN OF THE BOARD
AND CEO
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