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, 1998
-------------------
_____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
COMMISSION 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
<PAGE>
<TABLE>
<CAPTION>
CARE SYSTEMS, INC.
FORM 10-QSB/A
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
PAGE
<S> <C> <C>
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 8-9
Item 2: Changes in Securities and Use of Proceeds 9-11
Item 3: Default and Senior Securities 11
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 5: Other Information 11-12
Item 6: Exhibits and Reports on Form 8-K 12
INDEX TO FINANCIAL STATEMENTS
---------------------------------------------------
RESTATED Consolidated Balance Sheet
Nine months ended
September 30, 1998 and
Fiscal Year Ended
December 31, 1997 14
RESTATED Consolidated Statement of Operations
Nine months ended
September 30, 1998 and 1997 15
RESTATED Consolidated Statement of operations
Quarter ended
September 30, 1998 and 1997 16
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
The financial statements can be found at the end of this report beginning
on pages 14 through 17.
ITEM 2. Management's Discussion and Analysis
CoreCare Systems, Inc. (the "Company") is a regional behavioral health care
network operating in Eastern Pennsylvania. 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 nine month periods
ended September 30, 1998 and 1997, and include the accounts of the Company and
its subsidiaries after elimination of any inter-company balances and
transactions.
RESTATEMENT
In its Registration Statement on Form 10-SB, the Company reported a loss
from operations of $(460,259) for the year ended December 31, 1997, a loss
before income tax benefit of $(2,586,076) and net income after income tax
benefit of $1,197,656. Subsequent to the filing of the Company's Form 10-SB,
the Company determined that the reported 1997 results were overstated due to
over-accrual of revenues. The Company over-accrued amounts due from a
significant third party payor, resulting from a miscalculation of the allowable
per diem charges for in-patient services. Primarily as a result of the
restatement of these revenues, the Company's loss from operations is anticipated
to be restated from ($460,259) to approximately $(2,840,000). The Company's
operating loss in 1998 is anticipated to be approximately $(2,730,000).
Based on the prior calculation of the allowable per diem charges for
inpatient services, at the time the 1997 financial statements were issued and at
the time the 10-SB was filed, Management's estimates permitted the Company to
record a deferred tax benefit in 1997 in accordance with SFAS 109. Had the
recalculated per diem charge been used in Management's estimates, the deferred
tax benefit would not have been recognized. As a result, the Company's 1997
results will be restated to eliminate the $3,783,732 income tax benefit
previously reported. As a result of the elimination of this income tax benefit
and the reduction in revenues, the Company's previously reported net income of
$1,197,656 in 1997 will be restated to a net loss of $(4,960,000).
<PAGE>
1998 revenues increased over 100% over restated 1997 revenues, but the
Company anticipates reporting a loss from operations of approximately
($2,730,000) in 1998 and a net loss of approximately ($4,590,000). The
operating loss includes amortization of deferred financing charges of
approximately $2,400,000, an increase of approximately $1,700,000 from the
previous year. This amortization is primarily related to deferred financing
charges from the Company's various debt financing. The Company considers the
deferred financing charges to be non-recurring expenses. The operating loss
also includes an impaired asset write-down of approximately $369,000, also a
non-recurring expense. A summary of the previously reported and anticipated
restated 1997 results and anticipated 1998 results is as follows:
<TABLE>
<CAPTION>
1997 PREVIOUSLY 1997 RESTATED 1998
STATED (ESTIMATED) (ESTIMATED)
----------------- --------------- ------------
<S> <C> <C> <C>
Net Revenues $ 12,854,184 $ 10,465,000 $21,617,000
Income (Loss) from Operations $ (460,259) $ (2,840,000) $(2,730,000)
Net Income (Loss) $ 1,197,656 $ (4,966,000) $(4,590,000)
</TABLE>
A summary of the effects of the restatement are shown on pages 6 and 7.
RESULTS OF OPERATIONS:
Revenue - Revenue in the nine month period ending September 30, 1998,
-------
was $15,606,009, representing an increase of approximately 100% over total
income in the comparable 1997 period. The material increase in total income in
the first nine months of 1998, compared with the prior year period, is
attributable to a number of factors, including the following:
(a) Nine months operation of Kirkbride Center during 1998 as compared
to seven months during 1997;
<PAGE>
(b) Patient days at the Kirkbride Center and Westmeade at Warwick
tripled during 1998 from 1997;
(c) Outpatient revenues at the Kirkbride Center and Penn
Interpersonal Communications, Inc. doubled in 1998 over 1997;
(d) New programs at the Kirkbride Center consisting of geriatric
partial hospitalization and 43 drug and alcohol rehabilitation beds opened in
July,1998;
(e) Dual diagnosis program at the Kirkbride Center expanded during
1998; and
(f) One of the Company's subsidiaries, Managed Careware, Inc. d/b/a
CoreCare Management, Inc. ("CMI"), had three months of operations in 1997 versus
nine months in 1998.
Direct Costs - Direct costs include costs principally related to
-------------
patient care such as costs of nursing, physicians, technicians, pharmacy,
dietary, laboratory, housekeeping and supplies. The ratio of direct costs to
revenue was 46% in 1998 versus 61% in 1997. The improvement in gross profit was
due to the stabilization of operations compared to the less efficient
utilization of resources following the acquisition of the Kirkbride Center.
Operating, selling, general and administrative expenses - Operating
------------------------------------------------------------
expenses increased by approximately $5,050,000 from $5,256,924 in 1997 to
$10,307,214. The increase was due to increases of $1,727,627 in salaries,
$1,013,990 in selling and administrative expenses, $1,250,564 in amortization
expense, and $982,607 in bad debt expense. Salaries and employee benefits
expense increased as a result of the Company's decision to manage and operate
the Kirkbride Center in 1998 as compared to under a third party management
contract during a portion of the same period in 1997.
Amortization expense increased due to the capitalized finance costs
associated with the WRH Mortgage on the Kirkbride Center being amortized over
the one year term of the financing.
Operating expenses as a percentage of revenue improved slightly in 1998 at
66.1% versus 67.0% in 1997. When depreciation and amortization are excluded
from operating expenses the ratio of the remaining expenses to revenue is 52.7%
in 1998 compared to 57.3% in 1997.
Earnings Before Interest Taxes Depreciation and Amortization {EBITDA}
improved by $1,615,974 from ($1,412,788) in 1997 to $203,186 in 1998.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF EBITDA
Corecare Systems, Inc.
For the Years ended September 30
1998 1997
----------- ------------
<S> <C> <C>
Revenue $15,606,009 $ 7,848,828
Direct Costs $ 7,179,165 $ 4,762,235
Gross Profit $ 8,426,844 $ 3,086,653
Operating Expenses
Salaries & Employee Ben. $ 2,562,453 $ 834,830
Selling & Admin. Exp. $ 4,278,263 $ 3,264,273
Provision for Bad Debts $ 1,382,942 $ 400,338
- ------------------------ ----------- ------------
Sub-Total $ 8,223,658 $ 4,499,441
EBITDA $ 203,186 $(1,412,788)
</TABLE>
OTHER EXPENSES:
Interest expense declined by $254,989 from $1,582,596 in 1997 to $1,327,607
for the first nine months in 1998 primarily due to lower interest costs of the
WRH Mortgage compared to the bridge loan it replaced, and to a lesser extent
interest costs that were capitalized on vacant space at the Kirkbride Center
that had not been placed into service.
The Impaired Asset Write Down Expense of $369,380 is attributable to
the Lakewood property. The property is under a letter of intent for sale and its
net book value was reduced to reflect its value under the contemplated sale.
Net loss for the nine months ended September 30, 1998 was ($3,577,357)
compared to the loss of ($3,752,867) for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Due to the Company's rapid growth during 1998, the Company has
experienced liquidity constraints from time to time. This was offset by a
completion of a major financing with WRH Mortgage, Inc. during the first quarter
of 1998. These funds provided capital for improvements to the Kirkbride Center,
reduction of more expensive debt, and working capital. The Company is in the
process of attempting to consolidate its short-term debt and to refinance the
Kirkbride Center mortgage at a lower interest rate.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
An affiliate of UNION CHELSEA NATIONAL BANK holds a mortgage foreclosure
judgment against property comprising the site of CENTER AT LAKEWOOD, which is
owned by LAKEWOOD RETREAT, INC., a subsidiary of CRCS. Pursuant to a loan
modification agreement executed in April 1995, and furthers extension
agreements, Union Chelsea agreed to take no action to enforce this judgment
before September 16, 1996. CRCS has requested continued forbearance by the
lender while CRCS attempts to sell the property or refinance the mortgage. The
lender, while cooperating with CRCS to sell the property, has not agreed to any
further extensions. If the lender were to commence enforcement of its
foreclosure judgment, CRCS would be required to submit the Deed in satisfaction
of the indebtedness or seek bankruptcy court protection for the subsidiary that
holds title to the property. As of 12/31/1998, the book value of the property
was judged to be 1.1 million dollars.
In July, 1996, a lawsuit was filed in the Superior Court of New Jersey,
Somerset County by certain therapists formerly associated with CRCS
subsidiaries, AMERICAN INSTITUTE FOR BEHAVIORAL COUNSELING, INC. and PENN
INTERPERSONAL COMMUNICATIONS, INC. The complainant names these subsidiaries as
defendants as well as CRCS, Anthony and Marlene Todaro, Thomas Fleming and Rose
DiOttavio. The suit alleges that the Plaintiffs were damaged because the fees
charged, by CRCS' subsidiaries for providing office space and management
services, exceeded the reasonable value of the services provided. The suit also
claims that CRCS' subsidiaries have not remitted to the Plaintiffs an
unspecified amount of fees collected from patients by the subsidiaries which
allegedly were to have been remitted to the plaintiffs. The suit also alleges
that the defendants tortuously interfered with the plaintiffs' contractual
relationships with patients and managed care companies and defamed the
plaintiffs. The complaint does not specify the damages sought by the
plaintiffs. Management does not believe there is any validity to these claims.
CRCS does not believe that the ultimate resolution of this litigation will have
a material, adverse effect upon the business, finances or affairs of CRCS.
<PAGE>
In November, 1998, a former employee of CoreCare filed a complaint in
Federal District Court for the Eastern District of Pennsylvania alleging that
the Company discriminated against her in employment by failing to accommodate
her disability, and that the Company retaliated against her for filing a workers
compensation claim. The Company has denied all of these claims. The
plaintiff's complaint asks for compensatory and punitive damages in excess of
$100,000. We believe that the ultimate resolution of this claim will not have a
material, adverse effect on CoreCare's operations or financial condition.
CRCS is subject to professional malpractice and related claims from time to
time in the ordinary course of business. CRCS maintains insurance against such
claims. Insurers are defending all such claims, and, except as discussed above,
CRCS is confident that it's ultimate liability or settlement obligation in such
claims will be within policy limits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of securities of the Company took place as indicated
below. Unless otherwise described, all such sales were a result of transactions
that were exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act, and the shares of the Company's Common Stock issued
(or issuable in the case of warrants or options granted) were "restricted
securities" as that term is defined in Rule 144 and may be resold only in
compliance with registration provisions of the Securities Act or an exemption
thereunder.
SHARES ISSUED FOR SERVICES - 1998
- --------------------------------------
As of July 1, 1998, the Company issued a total of 711,444 shares of Common
Stock to four consultants and advisors of the Company for consulting and other
services rendered.
ACQUISITION OF ASSETS OF PREFERRED MEDICAL SERVICES, INC.
- ----------------------------------------------------------------
On April 15, 1998, the Company acquired certain assets and scheduled
liabilities of Preferred Medical Services, Inc. ("Preferred,") a billing and
practice management business. Pursuant to the terms of the Assets Acquisition
Agreement, the Company issued on May 4, 1998 a total of 250,000 shares of Common
Stock to stockholders of Preferred. The transaction was exempt from securities
registration, as the principals were experienced and knowledgeable in the
industry. In issuing the shares to the two shareholders of Preferred Medical,
the Company relied on the exemption from registration under Section 4(2) of the
<PAGE>
Securities Act. The Company relied on 4(2) because there were only two
offerees, both of whom were knowledgeable in the Company's industry, and, the
Company believes, in financial matters generally; the transaction was a
negotiated sale of a business in which the Company believed the two shareholders
were advised by counsel; and the shares issued were "restricted securities" and
had transfer restrictions placed on them which are customary for restricted
securities.
1998 - SHARES ISSUED TO EMPLOYEES UNDER COMPANY 1996 STOCK PLAN
- -------------------------------------------------------------------------
Out of the shares reserved for issuance pursuant to the Company's 1996
Stock Plan, as of July 1, 1998, the Company issued a total of 62,300 shares of
Common Stock to a total of 199 employees of the Company. These transactions were
exempt from registration under the Securities Act pursuant to Rule 701 under the
Securities Act. The shares of Common Stock issued are restricted securities as
that term is defined in Rule 144 and may be resold only in compliance with the
registration provisions of the Securities Act or an exemption thereunder.
FEBRUARY 1998 INVESTMENT
- --------------------------
In consideration of the payment of $.50 per share, on February 26, 1998,
the Company issued a total of 250,000 shares of Company Stock to two accredited
investors. In connection with the sale, the company further agreed that for a
period of one-year beginning May 18, 1998, the investors shall have the right to
require the Company to repurchase the shares for $1.00 per share. The
transactions with the investors were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act. The shares of
Common Stock issued to the investors are restricted securities as that term is
defined in Rule 144 and may be resold only in compliance with the registration
provisions of the Securities Act or an exemption thereunder.
NOTES AND WC/WD WARRANTS
- ---------------------------
Between November 1995 and February 1996, in separately negotiated
transactions, the Company borrowed a total of $359,750 from eight individual,
accredited investors, for a term of one year from the date of investment. The
debts were evidenced by Promissory Notes bearing interest initially at 7% per
annum and later by amendment at 10% per annum. In addition, the investors
received warrants to purchase an aggregate of 334,771 shares of the Company's
Common Stock at $1.125 per share. None of the investors were previously or are
currently affiliated with the Company. The issuance of these securities was
exempt from registration under Rule 506 of Regulation D. Subsequently, during
1997 and 1998, the Company, in consideration of the investors' agreements to
<PAGE>
waive alleged defaults under the notes and to forbear payment, issued warrants
to purchase an aggregate of 246,935 shares of the Company's Common Stock at
$1.125 per share, and an aggregate of 418,366 shares of the Company's Common
Stock. The transactions with the lenders were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act. The shares of
Common Stock issued to the lender, and the shares underlying the warrants if
exercised, are restricted securities as that term is defined in Rule 144 and may
be resold only in compliance with the registration provisions of the Securities
Act or an exemption thereunder.
ISSUANCE OF COMMON STOCK TO CONVERT DEBT
- ----------------------------------------------
Pursuant to an agreement dated December 31, 1995, the Company on May 14,
1997 issued 50,000 shares of restricted Common Stock to an investor in exchange
for all outstanding obligations owed to him by the Company's subsidiary
Westmeade Healthcare, Inc. On January 27, 1998, the Company issued 100,000
shares of restricted Common Stock to the investor as payment in full for
CoreCare Behavioral Health Care, P.C., a Pennsylvania professional corporation
owned by the investor.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
In October, 1998 the company announced a relationship with the Temple University
Behavioral Network to integrate the Kirkbride continuum of care with services
provided by the Temple University Behavioral Health Network (TUHS) to increase
the services to TUHS' patient population. The scope of the affiliation includes
medical education and cooperation in the area of conducting clinical trials on
new pharmaceutical products.
Also, in October Quantum Clinical Services Group, a wholly owned subsidiary of
Corecare Systems, Inc., began generating revenues from previously announced
contracts to conduct clinical trials at the Kirkbride Center on new drug
products sponsored by pharmaceutical companies. The company initiated two
additional clinical trial contracts in the fourth quarter.
<PAGE>
The company has applied for the necessary approvals to increase the number of
beds for its drug and alcohol rehabilitation program from 43 to 63. The company
expects to receive the approvals in January 1999. The drug and alcohol
rehabilitation program has been operating at or close to capacity shortly after
its inception.
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
September 30, 1998.
<PAGE>
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: April 15, 1999
------------------
CORECARE SYSTEMS, INC.
BY:_____________________________
ROSE S. DIOTTAVIO, PRESIDENT
<PAGE>
<TABLE>
<CAPTION>
CORECARE SYSTEMS, INC.
BALANCE SHEET
SEPTEMBER 30, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
AS PREVIOUSLY RESTATED AS PREVIOUSLY RESTATED
REPORTED REPORTED
<S> <C> <C> <C> <C>
CURRENT ASSETS
CASH 304,267 304,267
ACCOUNTS RECEIVABLE, NET 9,636,831 5,210,277 4,955,473 2,575,473
PREPAID AND OTHER ASSETS 1,674,388 119,388 1,767,367 212,367
-------------- ------------ -------------- ------------
TOTAL CURRENT ASSETS 11,311,219 5,329,665 7,027,107 3,092,107
-------------- ------------ -------------- ------------
CONTRACT RIGHTS 415,111 415,111 548,663 548,663
-------------- ------------ -------------- ------------
REAL ESTATE AND OTHER ASSETS HELD FOR SALE - 1,365,894 1,513,723 1,513,723
-------------- ------------ -------------- ------------
PROPERTY, PLANT, AND EQUIPMENT, NET 15,296,529 13,782,806 10,727,385 10,727,385
-------------- ------------ -------------- ------------
OTHER ASSETS:
GOODWILL, NET 1,603,513 1,603,513 1,801,155 1,801,155
DEFERRED FINANCE COSTS, NET 2,190,392 760,799 305,354 305,354
SECURITY DEPOSITS 109,334 109,334 108,468 108,468
RESTRICTED CASH 13,644 13,644 197,394 197,394
OTHER 3,096,505 867,773 2,475,964 247,232
-------------- ------------ -------------- ------------
7,013,388 3,355,063 4,888,335 2,659,603
-------------- ------------ -------------- ------------
TOTAL ASSETS 34,036,247 24,248,539 24,705,213 18,541,481
============== ============ ============== ============
LIABILITIES AND SHAREHOLDERS'S EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT 4,047,310 4,047,310 1,582,240 1,582,240
CURRENT PORTION OF: - -
LONG-TERM DEBT 15,178,279 15,139,714 10,203,425 10,203,425
LEASE TERMINATION FEE PAYABLE 48,810 72,492 38,565 38,565
OBLIGATIONS UNDER CAPITAL LEASE - - 71,763 71,763
ACCOUNTS PAYABLE 3,816,693 3,816,693 2,275,442 2,275,442
ADVANCES, OFFICERS-SHAREHOLDERS 913,172 913,172 1,013,428 1,013,428
ACCRUED EXPENSES 1,200,788 681,296 2,091,675 2,091,675
PAYROLL AND PAYROLL TAXES PAYABLE 1,813,004 2,332,496 1,688,105 1,688,105
DUE TO MEDICARE - 600,000
-------------- ------------ -------------- ------------
TOTAL CURRENT LIABILITIES 27,018,056 27,603,173 18,964,643 18,964,643
-------------- ------------ -------------- ------------
LONG TERM DEBT
NOTES PAYABLE 2,206,460 2,206,460 2,192,798 2,192,798
LEASE TERMINATION FEE PAYABLE 93,467 93,467
-------------- ------------ -------------- ------------
2,206,460 2,206,460 2,286,265 2,286,265
-------------- ------------ -------------- ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE
SERIES E CONVERTIBLE PREFERRED STOCK - 1,293,271 1,293,271 1,293,271
-------------- ------------ -------------- ------------
SHAREHOLDERS EQUITY (DEFICIENCY)
PREFERRED STOCK 36 26 26 26
COMMON STOCK 13,846 13,846 12,694 12,694
ADDITIONAL PAID IN CAPITAL 11,276,426 10,082,252 9,357,714 9,357,714
ACCUMULATED DEFICIT (6,478,577) (16,950,489) (7,209,400) (13,373,132)
-------------- ------------ -------------- ------------
4,811,731 (6,854,365) 2,161,034 (4,002,698)
-------------- ------------ -------------- ------------
34,036,247 24,248,539 24,705,213 18,541,481
============== ============ ============== ============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CORECARE SYSTEMS, INC.
BALANCE SHEET
09/30/98 12/31/97
RESTATED RESTATED
<S> <C> <C>
CURRENT ASSETS
CASH 304,267
ACCOUNTS RECEIVABLE, NET 5,210,277 2,575,473
PREPAID AND OTHER ASSETS 119,388 212,367
------------ ------------
TOTAL CURRENT ASSETS 5,329,665 3,092,107
------------ ------------
CONTRACT RIGHTS 415,111 548,663
------------ ------------
REAL ESTATE AND OTHER ASSETS HELD FOR SALE 1,365,894 1,513,723
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT, NET 13,782,806 10,727,385
------------ ------------
OTHER ASSETS:
GOODWILL, NET 1,603,513 1,801,155
DEFERRED FINANCE COSTS, NET 760,799 305,354
SECURITY DEPOSITS 109,334 108,468
RESTRICTED CASH 13,644 197,394
OTHER 867,773 247,232
------------ ------------
3,355,063 2,659,603
------------ ------------
TOTAL ASSETS 24,248,539 18,541,481
============ ============
LIABILITIES AND SHAREHOLDERS'S EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT 4,047,310 1,582,240
CURRENT PORTION OF: -
LONG-TERM DEBT 15,139,714 10,203,425
LEASE TERMINATION FEE PAYABLE 72,492 38,565
OBLIGATIONS UNDER CAPITAL LEASE - 71,763
ACCOUNTS PAYABLE 3,816,693 2,275,442
ADVANCES, OFFICERS-SHAREHOLDERS 913,172 1,013,428
ACCRUED EXPENSES 681,296 2,091,675
PAYROLL AND PAYROLL TAXES PAYABLE 2,332,496 1,688,105
DUE TO MEDICARE 600,000
------------ ------------
TOTAL CURRENT LIABILITIES 27,603,173 18,964,643
------------ ------------
LONG TERM DEBT
NOTES PAYABLE 2,206,460 2,192,798
LEASE TERMINATION FEE PAYABLE 93,467
------------ ------------
2,206,460 2,286,265
------------ ------------
COMMITMENTS AND CONTINGENCIES
COMPANY OBLIGATED MANDATORILY REDEEMABLE
SERIES E CONVERTIBLE PREFERRED STOCK 1,293,271 1,293,271
------------ ------------
SHAREHOLDERS EQUITY (DEFICIENCY)
PREFERRED STOCK 26 26
COMMON STOCK 13,846 12,694
ADDITIONAL PAID IN CAPITAL 10,082,252 9,357,714
ACCUMULATED DEFICIT (16,950,489) (13,373,132)
------------ ------------
(6,854,365) (4,002,698)
------------ ------------
24,248,539 18,541,481
============ ============
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDING SEPTEMBER 30, 1998
1998 1997
RESTATED RESTATED
<S> <C> <C>
REVENUE: 5,543,260 3,992,140
----------- -----------
Total Direct Costs 2,474,017 2,385,598
----------- -----------
Gross Profit 3,069,243 1,606,542
----------- -----------
Operating Expenses:
Salaries and employee benefits 823,835 149,853
Selling and administrative 1,346,715 1,226,109
Depreciation 130,515 87,194
Amortization 535,619 146,344
0 0
Bad debt expense 510,147 193,722
Total operating expenses 3,346,831 1,803,222
----------- -----------
INCOME(LOSS) FROM OPERATIONS (277,588) (196,680)
----------- -----------
Other expenses:
Interest expense 528,165 466,303
Impaired asset write down 0 0
Total other expenses/(income) 528,165 466,303
----------- -----------
NET INCOME(LOSS) BEFORE TAXES (805,753) (662,983)
INCOME TAXES 0 0
----------- -----------
NET INCOME (805,753) (662,983)
EARNINGS PER SHARE
Primary $ (0.053) $ (0.049)
Fully Diluted $ (0.053) $ (0.049)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CORECARE SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDING SEPTEMBER 30, 1998
1998 1997
RESTATED RESTATED
<S> <C> <C>
Revenue:
Net patient service revenue 13,750,072 6,137,771
Management service revenue 1,517,473 1,320,056
Fitness club revenue 338,464 391,061
15,606,009 7,848,888
------------ ------------
Direct Costs:
Patient services 6,338,630 3,564,782
Management services 625,322 190,702
Fitness club 215,213 228,041
Total Direct Costs 7,179,165 3,983,525
------------ ------------
Gross Profit 8,426,844 3,865,364
------------ ------------
Operating Expenses:
Salaries and employee benefits 2,562,453 2,037,378
Selling and administrative 4,278,263 2,797,878
Depreciation 335,388 315,388
Amortization 1,748,168 448,168
0 0
Bad debt expense 1,382,942 332,943
Total operating expenses 10,307,214 5,931,755
------------ ------------
INCOME(LOSS) FROM OPERATIONS (1,880,370) (2,066,392)
------------ ------------
Other expenses:
Interest expense 1,327,607 1,327,607
Impaired asset write down 369,380 0
Total other expenses/(income) 1,696,987 1,327,607
------------ ------------
NET INCOME(LOSS) BEFORE TAXES (3,577,357) (3,393,999)
Income Taxes - -
- ------------------------------- ------------ ------------
Net income (loss) (3,577,357) (3,393,999)
------------ ------------
EARNINGS PER SHARE
Primary $ (0.235) $ (0.250)
Fully Diluted $ (0.235) $ (0.250)
</TABLE>
17
<PAGE>
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 nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997.
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 September 30, 1998 and December 31, 1997 financial statements of the Company
include accounts of Corecare Systems, Inc. and its wholly owned subsidiaries.
<PAGE>
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