UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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
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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 April 15, 1999 the issuer had issued and outstanding
15,949,128 shares, $.001 par value, of Common Stock
CARE SYSTEMS, INC.
FORM 10-QSB
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 5
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Consolidated Balance Sheet
Three months ended
March 31, 1999 and
Fiscal Year Ended
December 31, 1998 9-10
Consolidated Statement of Operations
Three months ended
March 31, 1999 and 1998 11
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") 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 having recently moved its executive offices from
940 West Valley Road, Suite 2102, Wayne, PA 19087. Its telephone number at its
new location is (215) 471-2600. In 1996, the Company transferred its state of
incorporation from Nevada to Delaware.
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
RESULTS OF OPERATIONS:
Revenue - Revenue in the three-month period ending March 31, 1999, was
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$6,919,018, representing an increase of approximately 48% 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 49.9% to
--------------------- -
$6,067,821. The increase was 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;
2
(d) Dual diagnosis program at the Kirkbride Center expanded during
1998 and
Management Services Revenue -Management services revenue
--------------------------------
declined 33.6% to $307,126 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 (as acquired April 1998) as well as the
loss of several billing clients in first quarter 1999. Other revenue increased
to $544,071 from $149,450 in 1998. 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 the period from 1999 over 1998.
Operating Expenses: The operating expenses of $6,303,522 for the quarter ended
- -------------------
March 31, 1999 increased 35% over the first quarter of 1998. Operating expenses
increased at a rate much lower than the 48% increase in revenue. Operating
expenses as a percentage of revenue declined to 91.1% from 100.2% 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 $1.2 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. 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.
Purchased Services- Purchased services include costs acquired from
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outside entities such as dietary, laboratory, and pharmacy. These costs
increased by approximately $200,000 or 57%. This large increase is also due to
more services being offered at the Kirkbride Center. Many of these costs
increase as patient volume increases. With the increase in volume these
expenses increased.
3
Administrative Expenses - Administrative expenses decreased by
------------------------
approximately $10,000. The company was able to control the administrative
expenses substantially reducing expenses from 19.5% of revenues in 1998 to 12.9%
of revenues in 1999. This reflects the company improving operating efficiency.
Bad Debt Expense - Bad debt expense increased by approximately
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$277,000 or 71%. This was due to an increase in the allowance for doubtful
accounts for 1998 activity.
Interest Expense - Interest expense increased by approximately
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$480,000. 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 $136,000. This is due to reduction in the
amortization on the mortgage costs in 1999.
Net Loss declined to $620,708 from $1,267,053 a year ago, a reduction
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of 51%.
Earnings Before Interest Taxes Depreciation and Amortization {EBITDA}
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improved by $624,760 from ($9,264) in 1998 to $615,496 in 1999.
CALCULATION OF EBITDA
Corecare Systems, Inc.
For the Quarter ended March 31
1999 1998
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Revenue $6,919,018 $4,660,201
Operating Expenses
Salaries & Employee Ben. $4,170,676 $3,006,893
Purchased Services $ 566,199 $ 361,851
Selling & Admin. Exp. $ 897,226 $ 908,477
Provision for Bad Debts $ 669,421 $ 392,244
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Sub-Total $6,303,522 $4,669,465
EBITDA $ 615,496 $ (9,264)
4
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.
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SEC
Exhibit Reference
No. No.
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27 Financial Data Schedule
(b) Reports on Form 8-K.
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No new reports on Form 8-K were filed in the quarter ended
March 31, 1999.
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: May 17, 1999
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CORECARE SYSTEMS, INC.
BY: /S/ ROSE S. DIOTTAVIO
-----------------------------------
ROSE S. DIOTTAVIO, PRESIDENT
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 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.
8
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
Current assets: 03/31/99 12/31/98
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Cash & cash equivalents 161,382 115,242
Accounts receivable 6,332,572 5,588,188
Prepaid expenses 737,651 224,215
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Total current assets 7,231,605 5,927,645
Contract rights 265,300 1,288,919
Less accumulated amortization (47,013) (1,023,619))
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218,287 265,300
Property and equipment, at cost 15,525,373 15,607,366
Less accumulated depreciation (1,399,125) (1,455,579)
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14,126,248 14,151,787
Cost in excess of net assets of acquired businesses 1,751,731 2,024,905
Less accumulated amortization (9,549) (496,924)
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1,742,182 1,527,981
Deferred finance costs & fees 2,201,408 2,202,807
Less accumulated amortization (1,926,749) (1,759,635)
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274,659 443,172
Long-term investments:
Real estate held for development 1,881,489 1,881,489
Property and equipment, net of accumulated (794,565) (781,489)
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depreciation held for sale 1,086,924 1,100,000
Other Assets:
Deposits 127,313 316,375
Other 590,814 981,436
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Total Other Assets 718,127 1,297,811
Total Assets 25,398,032 24,713,696
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9
CORECARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
03/31/99 12/31/98
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Current liabilities:
Accounts payable 3,526,394 3,748,884
Payrolls and related taxes 3,338,224 3,048,183
Accrued expenses 1,493,429 840,354
Due to third party 1,501,079 1,000,000
HCFP Funding 3,626,220 4,308,703
Notes Pay. incl. current portion LTD 15,994,171 15,199,388
Current portion on capital lease obligations 76,521 38,565
Loans payable-officers 902,489 910,692
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Total current liabilities 30,458,527 29,094,769
Long-term liabilities:
Long-term debt, net of current portion 2,180,904 2,192,374
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2,180,904 2,192,374
Total liabilities 32,639,431 31,287,143
Shareholders' equity
Preferred Stock, par value $.001 - -
1,000,000 shares authorized, - -
issued and outstanding 30,604 shares 17 17
Common Stock, par Value $.001 - -
50,000,000 shares authorized, 15,949 15,949
issued and outstanding 10,270,176 shares - -
Additional paid in capital 11,327,095 11,374,340
Retained earnings (18,584,460) (17,963,752)
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Total stockholders' equity (7,241,399) (6,573,446)
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Total liabilities and stockholders' equity 25,398,032 24,713,697
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- -
10
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDING MARCH 31
1999 1998
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Revenue:
Net patient service revenue 6,067,821 4,047,883
Management service revenue 307,126 462,868
Other 544,071 149,450
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6,919,018 4,660,201
Operating Expenses:
Salaries and employee benefits 4,170,676 3,006,893
Purchased services 566,199 361,851
Administrative expenses 897,226 908,477
Bad debt expense 669,421 392,244
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Total operating expenses 6,303,522 4,669,465
Income(loss) from operations 615,496 (9,263)
Other expenses:
Interest expense 847,338 363,252
Impaired asset write down - 369,380
Depreciation and Amortization 388,866 525,157
-
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Total other expenses/(income) 1,236,204 1,257,789
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Net income(loss) (620,708) (1,267,052)
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shares outstanding 15,949,128 13,118,944
loss per share (0.04) (0.10)
11