UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended March 31, 1999
-----------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
---
For the transition period from ________ to ________
COMMISSIONS FILE NUMBER: 000-24807
CORECARE SYSTEMS, INC.
------------------------
(Name of small business issuer as specified in its charter)
Delaware 23-2840367
------------------- -------------
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Kirkbride Center, 111 North 49th St., Phila., PA 19139
----------------------------------------------------------
(Address of principal executive offices)
(215) 471-2600
---------------------
(Issuer's Telephone Number)
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 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 No X
---
As of April 15, 1999 the issuer had issued and outstanding
15,949,128 shares, $.001 par value, of Common Stock
CORECARE SYSTEMS, INC.
FORM 10-QSB/A
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
PAGE
Item 1: Financial Statements 2
Item 2: Management's Discussion
and Analysis of Financial Condition
and Results of Operations 2-7
Item 3: Quantitative and Qualitative
Disclosures About Market Risk 8
PART II - OTHER INFORMATION
PAGE
Item 1: Legal Proceedings 8
Item 2: Changes in Securities and Use of Proceeds 8
Item 3: Default and Senior Securities 8
Item 4: Submission of Matters to a Vote of Security Holders 8
Item 5: Other Information 8
Item 6: Exhibits and Reports on Form 8-K 8
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Consolidated Balance Sheet
Three months ended
March 31, 1999 and
Fiscal Year Ended
December 31, 1998 11-14
Consolidated Statement of Operations
Three months ended
March 31, 1999 and 1998 15-16
Consolidated Statement of Cash Flows
For Quarter and Year to Date ending
March 31, 1999 17
1
ITEM 1. FINANCIAL STATEMENTS
The financial statements can be found at the end of this report beginning
on pages 7 through 11.
ITEM 2. Management's Discussion and Analysis
ITEM 1. FINANCIAL STATEMENTS
CoreCare Systems, Inc. (the "Company") (OTC Bulletin Board: CRCS)is a
regional behavioral health care network operating in Eastern Pennsylvania, which
performs behavioral therapy services and associated clinical research in central
nervous system drugs. The Company's headquarters are located at c/o Kirkbride
Center, 111 North 49th Street, Philadelphia, PA 19139. Its telephone number at
its new location is (215) 471-2600. The executive suite can be reached at (215)
471-2358.
Management's discussion and analysis is based upon the unaudited
consolidated financial statements of the Company for the three month periods
ended March 31, 1999 and 1998, and include the accounts of the Company and its
subsidiaries after elimination of any inter-company balances and transactions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(a) RESTATEMENT FOR 1999 A review of the first quarter 1999 statements also
revealed the necessity to restate its first quarter results. This is necessary
to reflect the 1999 impact of the above 1998 corrections and to correct certain
errors. The total effect of these adjustments is to increase the first quarter
1999 loss to $1,660,250. This is an increase of approximately $1,039,500. At
this time, the amounts listed below are approximate amounts. The exact amounts
will be determined by the final audit. The items that compri se this adjustment
include:
* Inadequate calculation of contractual allowances in the amount of $348,000,
for patients with pending Medical Assistance applications.
* Medicare accounts receivable adjustments of $317,000 associated with
co-payment and deductible booking errors.
* Physician services billings in the amount of $212,000, which have not been
processed. This Start-up Corporation is attempting to establish provider
numbers with the appropriate payors so that these fees may be billed and
collected in the future, however the amounts have been fully reserved as a
precaution.
2
* Inadequate recognition of accrued expenses of $384,500, associated with
various items including lease commissions, expected workers' compensation
premium adjustments, as well as provision for certain state franchise taxes
associated with the Company's capital structure and revenue base.
* Inadequate reserves to provide for retroactive payor changes and patient
day denials of $270,000.
* An over allowance for amounts due to the Medicare program of ($192,000) and
($300,000) correction due to accounts receivable adjustments and errors.
The effect of this adjustment is to increase the first quarter income.
These were 1998 items that previously had been accounted for in the 1999
income statement.
As a result, the accompanying consolidated financial statements as of and for
the quarter ended March 31, 1999 present the restated results.
A summary of the effects of the restatement follows:
QUARTER ENDED QUARTER ENDED
MARCH 31, 1998 MARCH 31, 1999
PREVIOUSLY REPORTED RESTATED
--------------------- ----------------
NET REVENUES $ 6,919,018 $ 6,264,018
INCOME (LOSS) FROM OPERATIONS $ 615,496 $ (423,997)
NET INCOME (LOSS) $ (620,708) $ (1,660,251)
(b) RESTATEMENT FOR 1998
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended December 31, 1998, it was determined that the reported 1998
results were overstated. Upon examination, it was determined that certain
revenue was improperly recorded, certain expenses were under-accrued for and
certain debt interest was not properly accounted for.
3
The Company restated its 1998 loss for the 12 months ended 12/31/98 to
$8,939,044. This is an increase of $4,348,423 versus the previously reported
loss of $4,590,621. The details of the components of this loss are discussed
below.:
The 1998 revenue for the twelve months ended 12/31/98 was overstated by
$1,875,000. This adjustment was due to the over accruing of net patient revenue
and the related accounts receivable. This was primarily caused by:
* Inadequate calculation of contractual allowances for Medicare patients of
$700,000 and for potential Medicaid patients of $275,000.
* Accounts receivable adjustments of $300,000 associated with computer system
errors related to net patient revenue.
* Inadequate reserves to provide for retroactive payor changes and patient
day denials of $600,000.
The 1998 expenses for the twelve months ended 12/31/98 were understated by
$2,475,000 due to the inadequate provision of accrued unpaid expenses and
incorrect recording of journal entries. The items in this category consist of:
* Lack of a provision for the cost of tail coverage for the claims made
malpractice insurance coverage. This amount is $128,000.
* Interest expense and property taxes on a discontinued operation were not
accrued in the amount of $820,000.
* A provision was not made for certain state and local taxes that are not
related to the Corporation's net income but rather to the capital structure
or to the net revenue of the Corporation. These amounted to $69,000.
* Interest expense and commission due on certain of the Company's notes was
not adequately provided for. These amounted to $414,000.
* A provision was not made for commissions of $84,000 to be paid on a
terminated lease.
* Certain expense items received after the end of the year for services
rendered during the year were not provided for. These amounted to $460,000.
The items included legal fees, provision for retrospective adjustment of
certain insurance expense and a general provision for unrecorded
liabilities.
4
* Certain prepaid expenses and deposits that should have been written off
were not. These amounted to $300,000.
* Pharmacy expenses in the amount of $200,000 were not recognized.
As a result, the accompanying consolidated financial statements as of and for
the year ended December 31, 1998 present the restated results.
A summary of the effects of the restatement follows:
1998 PREVIOUSLY 1998 RESTATED
REPORTED
--------------- -------------
NET REVENUES $ 21,617,054 $ 19,948,895
INCOME (LOSS) FROM OPERATIONS $ (2,734,793) $ (6,025,624)
NET INCOME (LOSS) $ (4,590,621) $ (8,939,044)
RESULTS OF OPERATIONS:
Revenue - Revenue in the three-month period ending March 31, 1999, was
$6,264,018, representing an increase of approximately 45% over total
revenue in the comparable 1998 period. The material increase in total
revenue in the first three months of 1999, compared with the prior year
period, is attributable to a number of factors, including the following:
Net Patient Revenue -Net patient revenue increased primarily due to
the following developments:
(a) Drug and alcohol unit (licensed for 63 beds) was opened for three
months of operation at Kirkbride Center during 1999 and was not operational
during the first quarter 1998;
(b) Patient days at the Kirkbride Center and Westmeade at Warwick
increased by 80% in 1999 from 1998;
(c) New programs at the Kirkbride Center including the geriatric
partial hospitalization;
(d) Dual diagnosis program at the Kirkbride Center expanded during
1998 and
5
Management Services Revenue -Management services revenue
--------------------------------
declined due to the expiration of a hospital management contract on June 30,
1998.
Other Revenue - CoreCare Management also experienced revenue
--------------
fluctuations between periods due to the of absence of Preferred Medical Services
Revenue in the 1st Quarter of 1998 (as acquired April 1998) as well as the loss
of several billing clients in first quarter 1999. The increase includes first
time revenue productions from the Company's subsidiary Quantum Clinical Service
Group in 1999 from clinical research drug trials on behalf of pharmaceutical
companies. Quantum has signed clinical research contracts in effect in the first
quarter, which are projected to continue in 1999. Additionally, rental income
from tenant revenue doubled over the period from 1999 over 1998.
Operating Expenses: The operating expenses of $6,688,015 for the
-------------------
quarter ended March 31, 1999 increased 39% over the first quarter of 1998.
Operating expenses increased at a rate lower than the 44% increase in revenue.
The company was able to achieve the benefits of operating leverage and improved
operating efficiency.
Salaries and Employees Benefits- Salaries and Employee Benefits
----------------------------------
increased approximately $1.2 million or 68% during the first quarter 1999 as
compared to the first quarter 1998. This large increase is mainly due to the
more services being offered at the Kirkbride Center and the addition of
Preferred Medical Services Costs, which were not present in the same period for
1998. During 1999 the number of acute patients was greater than 1998, the drug
and alcohol unit was operational, and the outpatient programs have increased.
These additional services required an increase in staffing costs along with
start-up costs associated with the clinical drug research and restructuring
costs associated with the company's r e-engineering activities.
6
Bad Debt Expense - Bad debt expense increased by $234,809.
------------------
This was due to an increase in the allowance for doubtful accounts for 1998
activity.
Interest Expense - Interest expense increased by $218,609. This
-----------------
was due to higher outstanding debt at March 31, 1999 versus 1998. In 1999 all
interest was expensed during the quarter while in 1998 interest was capitalized
on portions of the facility that were under construction and not yet placed
inservice, consistent with generally accepted accounting principals.
Depreciation and Amortization expense - Depreciation and amortization
--------------------------------------
expense decreased by about $136,291. This is due to reduction in the
amortization on the mortgage costs in 1999.
Net Loss declined to $(1,660,251) from $(2,036,907) a year ago.
7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS ON 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
(a) Exhibits.
--------
SEC
Exhibit Reference
No. No.
- ------- ---------
27 Financial Data Schedule
(b) Reports on Form 8-K.
----------------------
No new reports on Form 8-K were filed in the quarter
ended March 31, 1999.
8
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: January 14, 2000
----------------
CORECARE SYSTEMS, INC.
BY: /S/ THOMAS T. FLEMING
--------------------------------------------------------
THOMAS T. FLEMING, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
9
Notes to Financial Statements
1. Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
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 a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. The unaudited financial statements should be read in conjunction with the
financial statements and footnote thereto included in the Company's report on
Form 10-SB for the year ended December 31, 1998.
2. The Business:
Corecare Systems, Inc. through its nine operating subsidiaries, provides
management services to behavioral health service providers; provides, owns, and
operates outpatient and inpatient behavioral health services; provides clinical
trial services to the pharmaceutical industry; and develops billing software for
the health industry.
3. Summary of significant accounting policies:
Principles of consolidation:
The March 31, 1999 and December 31, 1998 financial statements of the Company
include accounts of Corecare Systems, Inc. and its wholly owned subsidiaries.
10
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 DECEMBER 31, 1998
------------------------- -----------------------
AS PREVIOUSLY RESTATED AS PREVIOUSLY RESTATED
REPORTED REPORTED REPORTED REPORTED
Current assets:
Cash & cash equivalents 161,382 167,126 115,242 115,242
Accounts receivable 6,332,572 4,213,626 5,588,188 4,411,418
Prepaid expenses 737,651 616,841 224,215 175,659
----------- ------------ ----------- ----------
Total current assets 7,231,605 4,997,593 5,927,645 4,702,319
Contract rights 265,300 1,288,919 1,288,919 1,288,919
Less acc. amortization (47,013) 1,117,645 (1,023,619) 1,023,619
----------- ------------ ----------- ----------
218,287 171,274 265,300 265,300
Property & equipment,net 14,126,248 14,142,968 14,151,787 14,151,787
Goodwill, net 1,742,182 1,685,300 1,527,981 1,705,231
Deferred finance costs,net 274,659 274,659 443,172 443,172
Long-term investments:
Real estate held for sale
1,086,924 1,086,924 1,100,000 1,100,000
Other Assets:
Deposits 127,313 28,447 316,375 10,467
Other 590,814 426,861 981,436 816,651
----------- ------------ ----------- ----------
Total Other Assets 718,127 455,308 1,297,811 2,975,927
Total Assets 25,398,032 22,814,026 24,713,696 23,194,927
=========== ============ =========== ==========
11
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
AS PREVIOUSLY RESTATED AS PREVIOUSLY RESTATED
REPORTED REPORTED REPORTED REPORTED
Current liabilities:
Accounts payable 3,526,394 3,302,446 3,748,884 3,748,884
Payrolls & related taxes 3,338,224 3,338,222 3,048,183 3,048,143
Accrued expenses 1,493,429 2,894,926 840,354 1,851,026
Due to Medicare 1,501,079 2,001,079 1,000,000 1,692,389
HCFP Funding 3,626,220 4,492,720 4,308,703 4,308,703
Notes Pay. incl.
current portion LTD 15,994,171 16,103,455 15,199,388 16,191,983
Current portion on capital
lease obligations 76,521 73,478 38,565 38,565
Advances, officers 902,489 1,332,692 910,692 1,332,692
------------ ------------ ------------ ------------
Total current liabilities 30,458,527 33,539,018 29,094,769 32,212,423
Long-term liabilities:
Long-term debt,
net of current portion 2,180,904 2,192,374 2,192,374 2,192,374
------------ ------------ ------------ ------------
2,180,904 2,192,374 2,192,374 2,192,374
Total liabilities 32,639,431 35,731,392 31,287,143 34,404,797
Shareholders' equity
Preferred Stock, 17 17 17 17
Common Stock, 15,949 15,949 15,949 15,949
Additional paid in capital 11,327,095 11,039,095 11,374,340 11,086,340
Retained earnings (18,584,460) (23,972,427) (17,963,752) (22,312,176)
------------ ------------ ------------ ------------
Total stockholders' equity (7,241,399) (12,917,366) ( 6,573,446) (11,209,870)
------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity 25,398,032 22,814,026 24,713,697 23,194,927
============ =========== ============ ============
12
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
1999 1998
----------- ----------
RESTATED RESTATED
REPORTED REPORTED
Current assets:
Cash & cash equivalents 167,126 115,242
Accounts receivable 4,213,626 4,411,418
Prepaid expenses 616,841 175,659
----------- ----------
Total current assets 4,997,593 4,702,319
Contract rights 1,288,919 1,288,919
Less acc. amortization 1,117,645 1,023,619
---------- ----------
171,274 265,300
Property & equipment,net 14,142,968 14,151,787
Goodwill, net 1,685,300 1,705,231
Deferred finance costs,net 274,659 443,172
Long-term investments:
Real estate held for sale 1,086,924 1,100,000
Other Assets:
Deposits 28,447 10,467
Other 426,861 816,651
---------- ----------
Total Other Assets 455,308 2,975,927
Total Assets 22,814,026 23,194,927
========== ==========
13
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
RESTATED RESTATED
REPORTED REPORTED
Current liabilities:
Accounts payable 3,302,446 3,748,884
Payrolls & related taxes 3,338,222 3,048,143
Accrued expenses 2,894,926 1,851,026
Due to Medicare 2,001,079 1,692,389
HCFP Funding 4,492,720 4,308,703
Notes Pay. incl.
current portion LTD 16,103,455 16,191,983
Current portion on capital
lease obligations 73,478 38,565
Advances, officers 1,332,692 1,332,692
------------ ------------
Total current liabilities 33,539,018 32,212,423
Long-term liabilities:
Long-term debt,
net of current portion 2,192,374 2,192,374
------------ ------------
2,192,374 2,192,374
Total liabilities 35,731,392 34,404,797
Shareholders' equity
Preferred Stock, 17 17
Common Stock, 15,949 15,949
Additional paid in capital 11,039,095 11,086,340
Retained earnings (23,972,427) (22,312,176)
------------ ------------
Total stockholders' equity (12,917,366) (11,209,870)
------------ ------------
Total liabilities and
stockholders' equity 22,814,026 23,194,927
============ ===========
14
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDING MARCH 31
MARCH 31, 1999 DECEMBER 31, 1998
------------------------ --------------------------
AS PREVIOUSLY RESTATED AS PREVIOUSLY RESTATED
REPORTED REPORTED REPORTED REPORTED
Revenue:
Net Revenue 6,919,018 6,264,018 4,660,201 4,380,574
Operating Expenses:
Salaries and benefits 4,170,676 4,226,926 3,006,893 3,001,541
Purchased services 566,199 815,449 361,851 -
Administrative expenses 897,226 976,219 908,477 1,386,012
Bad debt expense 669,421 669,421 392,244 434,612
----------- ----------- ----------- -----------
Total operating expenses 6,303,522 6,688,015 4,669,465 4,822,165
Income(loss) from operations 615,496 (423,997) (9,263) (513,591)
Other expenses:
Interest expense 847,338 847,338 363,252 628,779
Impaired asset write down - - 369,380 369,380
Depreciation and Amortiz. 388,866 388,866 525,157 525,157
----------- ----------- ----------- -----------
Total other expenses 1,236,204 1,236,204 1,257,789 1,523,316
----------- ----------- ----------- -----------
Net income(loss) (620,708) (1,660,251) (1,267,052) (2,036,907)
=========== =========== =========== ===========
Shares outstanding 15,949,128 15,949,128 13,118,944 13,118,944
Loss per share-primary (0.04) (0.11) (0.10) (0.14)
Loss per share-fully diluted
15
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDING MARCH 31
1999 1998
RESTATED RESTATED
REPORTED REPORTED
Revenue:
Net Revenue 6,264,018 4,380,574
Operating Expenses:
Salaries and benefits 4,226,926 3,001,541
Purchased services 815,449 -
Administrative expenses 976,219 1,386,012
Bad debt expense 669,421 434,612
---------- -----------
Total operating expenses 6,688,015 4,822,165
Income(loss) from operations (423,997) (513,591)
Other expenses:
Interest expense 847,338 628,779
Impaired asset write down - 369,380
Depreciation and Amortization 388,866 525,157
---------- -----------
Total other expenses/(income) 1,236,204 1,523,316
---------- -----------
Net income(loss) (1,660,251) (2,036,907)
========== ===========
Shares outstanding 15,949,128 13,118,944
Loss per share-primary (0.11) (0.14)
Loss per share-fully diluted (0.11) (0.14)
16
CORECARE SYSTEMS, INC.
----------------------
CONSOLIDATED CASH FLOWS
-----------------------
FOR THE QUARTER ENDED MARCH 31, 1999
------------------------------------
QUARTER ENDED YEAR-TO-DATE
---------------- ----------------
MARCH 31, 1999 MARCH 31, 1999
---------------- ----------------
Cash flows from operating activities:
Net Loss $ (1,660,251) $ (1,660,251)
---------------- ----------------
Non-cash adjustments to reconcile net loss to
Net cash provided by operating activities:
Depreciation and amortization 388,866 388,866
---------------- ----------------
Change before C/A & C/L changes (1,271,385) (1,271,385)
Allowance for doubtful accounts 622,079 622,079
---------------- ----------------
(Increase) decrease in operating assets:
Accounts receivable (424,287) (424,287)
Other current assets (441,182) (441,182)
Deposits (17,980) (17,980)
Other assets 389,789 389,789
Restricted cash 1 1
Increase (decrease) in operating liabilities:
Accounts payable (446,436) (446,436)
Accrued expenses 1,043,900 1,043,900
Payroll and related taxes 290,039 290,039
Due to third party 308,690 308,690
---------------- ----------------
Net cash proceeds from operating activities 53,228 53,228
Cash flows from investing activities:
Increase in capitalized financing costs - -
Purchase of property and equipment (84,501) (84,501)
Disposal of assets - -
Purchase of contract rights - -
---------------- ----------------
Net cash used in investing activities (84,501) (84,501)
Cash flows from financing activities:
Proceeds from common stock issuance - -
Repayment of amounts due officers - -
Proceeds (Repayment) of notes 95,489 95,489
Repayment of lease obligations 34,913 34,913
Change in additional paid in capital (47,245) (47,245)
Proceeds from short and long term debt - -
---------------- ----------------
Net cash provided by financing activities 83,157 83,157
Net increase (decrease) in cash 51,884 51,884
Cash, beginning of period 115,242 115,242
Cash, end of period $ 167,126 $ 167,126
================ ================
17