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 September 30, 1999
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- --- 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.
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(Name of small business issuer as specified in its charter)
Delaware 23-2840367
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(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Kirkbride Center, 111 North 49th St., Phila., PA 19139
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(Address of principal executive offices)
(215) 471-2600
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(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 October 1, 1999 the issuer had issued and outstanding
15,765,232 shares, $.001 par value, of Common Stock
CORECARE SYSTEMS, INC.
FORM 10-QSB/A
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
PAGE
Item 1: Financial Statements 2
Item 2: Management's Discussion
and Analysis of Financial Condition
and Results of Operations 2-4
Item 3: Quantitative and Qualitative
Disclosures About Market Risk 4
PART II - OTHER INFORMATION
PAGE
Item 1: Legal Proceedings 5
Item 2: Changes in Securities and Use of Proceeds 5
Item 3: Default and Senior Securities 5
Item 4: Submission of Matters to a Vote of Security Holders 5
Item 5: Other Information 5
Item 6: Exhibits and Reports on Form 8-K 6
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Consolidated Balance Sheet
As of September 30, 1999 and
Fiscal Year Ended
December 31, 1998 9-10
Consolidated Statement of Operations
Three months and Nine Months ended
September 30, 1999 and 1998 11
Consolidated Statement of Cash Flows
For the Quarter and Year to Date ending
September 30, 1999 12
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements can be found at the end of this report beginning
on pages 9 through 11.
CoreCare Systems, Inc. (the"Company")OTC Bulletin Board: CRCS)is a regional
behavioral healthcare 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 is (215) 471-2600. The executive office 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 nine month periods
ended September 30, 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
RESULTS OF OPERATIONS:
Revenue - Revenues for the three-months and nine months ending
September 30, 1999, were $6,922,879 and $20,005,520, respectively, representing
increases of approximately 35% and 39% over total revenue for the comparable
periods in 1998. The material increases in total revenue compared with the prior
year period, are attributable to a number of factors, including the
following:
Net Patient Revenue -Net patient revenues of $6,357,327 and
$17,974,725 for the three month and nine month periods, respectively, increased
50% and 52% versus the same periods in 1998. These increases were primarily
due to the following developments:
(a) Drug and alcohol unit (licensed for 83 beds) was opened for nine
months of operation at Kirkbride Center during 1999 and was not operational
during the first quarter 1998; The capacity of this unit was also expanded
at the start of the quarter by 25%.
2
(b) Substantial increases in patient days at the Kirkbride Center
and Westmeade at Warwick in 1999 versus 1998;
(c) New programs at the Kirkbride Center
including the geriatric partial hospitalization and intensive outpatient
programs at several geriatric facilities;
(d) Revenues of Quantum Clinical Services Group of $86,255 for the
quarter which did not exist in the same period in 1998.
Management Services Revenue -Management services revenue declined
in both the three months and nine months periods in 1999 compared to 1998 due
to the expiration of a hospital management contract on June 30, 1998 and
the discontinuation of certain unprofitable physician billing contracts.
Other revenues of $366,346 for the quarter and $1,217,906 for the nine
months included increasing revenue from the Company's subsidiary Quantum
Clinical Service Group in 1999 from clinical research drug trials on
behalf of pharmaceutical companies and clinical research organizations which
did not occur in the comparable periods in 1998.
Operating Expenses - Operating expenses of $6,394,587 for the quarter
and $19,485,037 nine months ended September 30, 1999 increased 11% and 18% over
the comparable periods in 1998. Operating expenses increased at a rate much
lower than the 35% and 39% increases in revenue for the quarter and nine month
periods. Operating expenses as a percentage of revenue declined to 92.4% from
112.6% for the same quarter a year ago. 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 $1,240,000 or 39% during the third quarter 1999 as
compared to the third quarter 1998. This increase is attributable to the
increase in services being offered at the Kirkbride Center. 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 re-engineering activities. Because of gains in productivity
and volume, the growth in patient revenue exceeded the growth in salary and
benefits by 26% for the quarter.
3
Bad Debt Expense - Bad debt expense of $415,597 declined as a
percentage of revenue to 6.0% for the quarter as compared with 11.0% in 1998.
Income from Operations of $528,292 in the third quarter represented an
improvement of $1,172,000 compared to the loss of ($644,132). Year to date
Income from Operations was $520,000 for 1999 compared to a year to date loss
from operations of ($2,127,000). This is an improvement of $2,627,000 for the
nine month period.
Interest Expense - Interest expense for the nine months of 1999
increased by $325,000 from 1998, due to higher outstanding debt at September
30, 1999 versus 1998.
Depreciation and Amortization expense - Depreciation and amortization
expense declined by 67% for the quarter and 50% year to date compared to 1998
due to reduction in the amortization expense associated with the mortgage
costs.
During the quarter, a one acre parcel of undeveloped ground from the
Kirkbride property was sold for $500,000. This resulted in a gain of $348,000.
The Company still has a four acre parcel of ground that it is actively trying to
sell.
Also during the quarter the company made the strategic decision to
sell the physician practice management business due to the need to focus the
company's resources and capital on its major asset, Kirkbride Center. Without
some investment of resources, management believes that CoreCare Management Inc.
could not effectively compete in a cost-competitive environment for new
contracts. The sale of the company occurred by line of service. The anesthesia
services line was sold on September 28, 1999, to the Physician Billing Network
for a percentage of collections on the outstanding anesthesia contracts and on
on-going revenues from specified contracts for 22 months. The company expects
such collections to offset related borrowing on those accounts receivable. The
radiation service line is in the final stages of negotiation as well. As a
result of this sale the company will incur a loss on the sale of assets of
$165,000.
The sale of this line of business is not expected to have a material effect
on the Company's operation. This business accounted for approximately 4% of the
Company's revenue and was an unprofitable line of business due to the overhead
required in relation to the sales volume.
These two transactions added a combined $182,000 of profit to the
quarter. There were no comparable transactions in 1998.
4
Net Loss for the quarter declined to $(368,829) from $(2,205,964) in
1998. Year to date Net Loss of $(2,796,883) declined 58.3% compared to 1998's
loss of ($6,703,702).
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
During the last quarter, the SEC de-listed the company, however the
company has complied with all of the SEC's outstanding issues and believes it
will be re-enlisted shortly.
5
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits.
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SEC
Exhibit Reference
No. No.
- ------- ---------
27 Financial Data Schedule
(b) Reports on Form 8-K.
----------------------
A report on form 8-K was filed during the quarter. A copy
of the report is attached as an exhibit. The report covered the following:
1. Appointment of a new audit firm - BDO Seidman, LLP. There were
no disagreements with the previous audit firm.
2. The revision of previously filed 10QSB reports covering the
third quarter 1998 and the first quarter 1999 to correct certain financial
information.
3. The revision of the previously filed 10KSB for the year ending
December 31, 1998 to correct certain financial information including the
restated 1998 audit.
4. The appointment of a new CFO - Mr. Brad Barry
5. Sale of the 1 acre parcel of land
6
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
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CORECARE SYSTEMS, INC.
BY: /S/ THOMAS T. FLEMING
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THOMAS T. FLEMING
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
7
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 September 30, 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 10K-SB/A for the year ended December 31, 1998.
2. The Business:
Corecare Systems, Inc. Through its eight 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 and provides physician billing services.
3. Summary of significant accounting policies:
Principles of consolidation:
The September 30, 1999 and December 31, 1998 financial statements of the Company
include accounts of Corecare Systems, Inc. and its wholly owned subsidiaries.
8
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
September 30, DECEMBER 31,
1999 1998
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Current assets:
Cash & cash equivalents 243,436 115,242
Accounts receivable 5,060,053 4,411,418
Prepaid expenses 258,546 175,659
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Total current assets 5,562,035 4,702,319
Contract rights 1,288,919 1,288,919
Less acc. amortization 1,164,658 1,023,619
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124,261 265,300
Property & equipment,net 13,806,886 14,151,787
Goodwill, net 1,475,584 1,705,231
Deferred finance costs,net 115,634 443,172
Long-term investments:
Real estate held for sale 1,060,770 1,100,000
Other Assets:
Deposits 33,214 10,467
Other 522,132 816,651
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Total Other Assets 555,346 827,118
Total Assets 22,700,516 23,194,927
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9
September 30, DECEMBER 31,
1999 1998
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Current liabilities:
Accounts payable 4,201,571 3,748,882
Payrolls & related taxes 3,147,234 3,048,183
Accrued expenses 3,360,096 1,851,026
Due to Medicare 2,389,158 1,692,389
Receivable Funding 2,497,158 4,308,703
Notes Pay. incl.
current portion LTD 17,500,026 16,191,983
Current portion on capital
lease obligations 166,945 38,565
Advances, officers 1,328,341 1,332,692
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Total current liabilities 34,590,529 32,212,423
Long-term liabilities:
Long-term debt,
net of current portion 2,190,801 2,192,374
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2,190,801 2,192,374
Total liabilities 36,781,330 34,404,797
Shareholders' equity
Preferred Stock, 17 17
Common Stock, 15,949 15,949
Additional paid in capital 11,012,279 11,086,340
Retained earnings (25,109,059) (22,312,176)
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Total stockholders' equity (14,080,814) (11,209,870)
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Total liabilities and
stockholders' equity 22,700,516 23,194,927
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10
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
PERIODS ENDING JUNE 30, 1999 AND JUNE 30, 1998
THREE MONTHS ENDED NINE MONTHS ENDED
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9/30/99 9/30/98 9/30/99 9/30/98
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REVENUE:
NET PATIENT SERVICE $ 6,357,327 4,246,533 $17,974,725 11,812,561
MANAGEMENT SERVICE 199,206 476,804 812,889 1,517,473
OTHER 366,346 387,358 1,217,906 1,081,550
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6,922,879 5,110,695 20,005,520 14,411,584
OPERATING EXPENSES:
SALARIES AND BENEFITS 4,390,706 3,151,049 12,895,622 9,621,696
PURCHASED SERVICES 675,711 - 2,265,522 -
ADMINISTRATIVE EXPENSES 912,573 2,041,510 2,861,211 5,389,605
BAD DEBT EXPENSE 415,597 562,268 1,462,682 1,526,861
------------ ----------- ------------ -----------
TOTAL OPERATING EXPENSES 6,394,587 5,754,827 19,485,037 16,538,162
INCOME FROM OPERATIONS 528,292 (644,132) 520,483 (2,126,578)
OTHER EXPENSES:
INTEREST EXPENSE 815,493 763,936 2,449,564 2,124,188
IMPAIRED ASSET WRITE DOWN - - 369,380
(GAIN)/LOSS ASSET SALES (181,834) - (181,834) -
DEPRECIATION & AMORTIZ. 263,462 797,896 1,049,636 2,083,556
------------ ----------- ------------ -----------
TOTAL OTHER EXPENSES 897,121 1,561,832 3,317,366 4,577,124
------------ ----------- ------------ -----------
NET INCOME(LOSS) (368,829) (2,205,964) (2,796,883) (6,703,702)
============ =========== ============ ===========
AVERAGE SHARES OUTSTANDING 15,765,232 15,703,173 15,744,422 15,022,062
LOSS PER SHARE-BASIC (0.02) (0.14) (0.18) (0.45)
LOSS PER SHARE-FULLY DILUTED (0.02) (0.14) (0.18) (0.45)
11
CORECARE SYSTEMS, Inc.
Consolidated Cash Flows
For the Quarter Ended September 30, 1999
Quarter Ended Year-to-date
September 30, 1999 September 30, 1999
Cash flows from operating activities:
Net Loss $ (368,829) $ (2,796,883)
Non-cash adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 263,462 1,049,636
Change before C/A & C/L changes (105,367) (1,747,247)
Allowance for doubtful accounts 180,614 910,358
(Increase) decrease in operating assets:
Accounts receivable (860,711) (1,558,992)
Other current assets 96,139 (82,887)
Deposits (6,215) (22,747)
Other assets (117,602) 294,517
Restricted cash - -
Increase (decrease) in operating liabilities:
Accounts payable 153,263 452,708
Accrued expenses 82,237 1,498,537
Payroll and related taxes 47,778 99,051
Due to third party (52,303) 696,769
Net cash proceeds from operating activities (582,167) 540,067
Cash flows from investing activities:
Increase in capitalized financing costs - -
Purchase of property and equipment (18,898) (207,752)
Disposal of assets 246,635 246,635
Purchase of contract rights - -
Net cash used in investing activities 227,737 38,883
Cash flows from financing activities:
Proceeds from common stock issuance - -
Repayment of amounts due officers - -
Proceeds (Repayment) of notes 180,473 (411,608)
Repayment of lease obligations - 34,913
Change in additional paid in capital (1,816) (74,061)
Proceeds from short and long term debt - -
Net cash provided by financing activities 178,657 (450,756)
Net increase (decrease) in cash (175,773) 128,194
Cash, beginning of period 419,209 115,242
Cash, end of period $ 243,436 $ 243,436
12