SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1954
Date of Report (Date of earliest event reported September 27, 1999
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CoreCare Systems, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-24807 23-2840367
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
111 N. 49th Street, Philadelphia, PA 19139
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(Address of principal executive offices)
Registrant's telephone number, including area code 215-471-2600
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N/A
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(Former name or former address, if changed since last report)
Item 1: Not Applicable
Item 2: Not Applicable
Item 3: Not Applicable
Item 4: The Company's Board of Directors has chosen not to renew the services
of the Company's 1998 auditors (Shiffman, Hughes, and Brown). The
Company 's Board of Directors has appointed BDO Seidman as the
auditors for the year ending 1999. There were no disagreements with
the previous auditors. Pursuant to Item 304(a) (1) (iv) of Regulations
S-B for the fiscal periods ending December 31, 1997 and December 31,
1998. The accountants did not audit nor review any subsequent interim
financial statements through the date of dismissal (September 27,
1999) and did not express an opinion on the subsequent interim
financial statements.
There were no disagreements nor reportable events, as described in
Items 304(a) (1) (iv) and (v) of Regulations S-B with the former
accountants for the fiscal periods ending December 31, 1997, and
December 31, 1998. The accountants did not audit nor review any
subsequent interim financial statements through the date of dismissal
(September 27, 1999) and did not express an opinion on the subsequent
interim financial statements.
The accountant's report contained no adverse opinion, nor disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit
scope, or accounting principles. The accountants expressed an
unqualified opinion on the financial statements for the fiscal periods
ending December 31, 1997, and December 31, 1998.
Item 5: Other Events
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A. The Company is filing this 8K because it is late in filing the
10Q for the second quarter of 1999. The Company is delaying
filing of the 10Q to allow it time to file amended reports for
1998 and 1999 for the reasons discussed below.
B. In March 1999, the Company restated its previously issued 1997
audited financial statements, issued its 1998 audited financial
statements, and revised its interim statements. As a result of
these restatements, the Company instituted an internal review
program of its fiscal systems, software, staffing, and related
billing & collection functions. Particular emphasis focused on
accounts receivable reserves, estimates for contractual
allowances, accrued expenses, and accounts payables. This review
resulted in the following actions to improve the financial
control and reporting systems.
1. Hiring of a new CFO. A brief resume follows in section E.
2. Restructuring of the Company's billing and collections
functions.
3. Selection of a new software system designed specifically for
hospitals, and integrated with the general ledger.
As a result of the above actions, the Company will restate its 1998
financial statements and the Company's first quarter 1999 interim
statements as described in Sections C and D.
C. The Company expects to restate its 1998 loss to approximately
$8,939,000. This is an increase of $4,350,000. The Company is
working with its previous audit firm to issue the revised
statements in an expedited period. The details of the components
of this loss are discussed below. At this time, the amounts
listed below are approximate amounts. The exact amounts will be
determined by the final audit.
The 1998 revenue 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 caused by:
1. Inadequate calculation of contractual allowances for
Medicare patients of $700,000 and for potential Medicaid
patients of $275,000.
2. Accounts receivable adjustments of $300,000 associated with
computer system errors related to net patient revenue.
3. Inadequate reserves to provide for retroactive payor changes
and patient day denials of $600,000.
The 1998 expenses 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:
1. Lack of a provision for the cost of tail coverage for the
claims made malpractice insurance coverage. This amount is
$128,000.
2. Interest expense and property taxes on a discontinued
operation were not accrued in the amount of $820,000.
3. 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.
4. Interest expense and commission due on certain of the
Company's notes was not adequately provided for. These
amounted to $414,000.
5. A provision was not made for commissions of $84,000 to be
paid on a terminated lease.
6. 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.
7. Certain prepaid expenses and deposits that should have been
written off were not. These amounted to $300,000.
8. Pharmacy expenses in the amount of $200,000 were not
recognized.
D. 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 comprise this
adjustment include:
1. Inadequate calculation of contractual allowances in the
amount of $348,000, for patients with pending Medical
Assistance applications.
2. Medicare accounts receivable adjustments of $317,000
associated with co-payment and deductible booking errors.
3. 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.
4. 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.
5. Inadequate reserves to provide for retroactive payor changes
and patient day denials of $270,000.
6. 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.
E. The company has hired a new CFO (Brad Barry, CPA). A brief
capsule of his professional experience follows.
Brad Barry, CPA joined Corecare Systems, Inc. in June 1999 as
Executive Vice President & CFO. Formerly, he was Senior Vice
President and CFO and a founder of Omnia, Inc. Prior to joining
Omnia, Mr. Barry held the positions of Vice President of Mergers
and Acquisitions and Chief Financial Officer for Vanguard
Healthcare Group, Inc. Mr. Barry has over 20 years of senior
health care financial management experience, having served both
as Chief Financial Officer and Chief Operating Officer for
various hospitals ranging in size for 100 to 300 beds. In
addition, he has extensive experience in health care data
processing, having been Vice President of Product Development for
a major healthcare software firm. He received a BS in Commerce
and Engineering Science from Drexel University, his MBA in
Accounting and Finance from Drexel University and his MHA from
Widener University. Currently Mr. Barry serves as Chairman of the
Board for a non-profit community mental health provider and as a
member of the finance committee for a non-profit long term care
organization.
F. On June 30, 1999 the Company filed its 1998 Medicare Cost Reports
showing $1,192,000 due to the Medicare Program. The Company has
negotiated a two-year repayment plan, effective August 19, 1999.
The monthly payment is $44,000.
G. On September 3, 1999, the Company completed the sale of a 1-acre
parcel of ground that it had previously subdivided from its
Market Street property. The proceeds totaled $500,000 and were
used for general working capital purposes.
H. At the end of August, the Company negotiated an extension of its
then due mortgage with WRH for $13,000,000 until December 31,
1999.
I. The unaudited second quarter of 1999 and six-month financial
results of the Company follow. All quarterly comparative figures
are to the first quarter 1999. Comparisons to the prior year will
be included in the second quarter 10Q once the company has filed
all amended prior quarterly filings. The Company had revenue in
the second quarter of $6,818,623. This is an increase of $554,605
over the first quarter's revenue of $6,264,018. EBITDA for the
quarter was $416,1888. This is an increase of $840,185 over the
first quarter's EBITDA of ($423,997). The company's net loss
declined to $767,803. This is an improvement of $892,448 over the
first quarter's loss of $1,660,250. For the six months, revenue
was $13,082,641. Operating and administrative expenses totaled
$13,120,430. The EBITDA was ($37,789) and the total income (loss)
was ($2,385,034).
J. Other significant events relate to the Company's expansion of its
licensed capacity. On June 30, 1999, the Company's licensed
capacity in its drug and alcohol program expanded from 67 beds to
83 beds. On July 1, 19999 the Company assumed responsibility for
behavioral services at Episcopal Hospital and the Philadelphia
Nursing Home though the Company's Temple University affiliation.
As Of July 1, 1999, the Company received a license to operate a
geriatric partial hospitalization program and an outpatient
clinic at the Philadelphia Nursing Home and an outpatient clinic
at the Philadelphia Protestant Home. These programs expand the
Company's geriatric system.
The Company will file amended reports consisting of (1) the 10Q for
the third quarter of 1998; (2) the 10KSB for the year ended 1998; and (3)
the 10Q for the first quarter of 1999. The Company will then file its 10Q
for the second quarter of 1999.
Item 6: Not Applicable
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits.
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Not Applicable
Item 8: Not Applicable
Item 9: Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CORECARE SYSTEMS, INC.
BY:
Date: September 27, 1999 By: /s/ Thomas T. Fleming
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Thomas T. Fleming
Chairman of the Board