SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
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)
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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.
Item 5: Other Events
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.
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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.
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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.
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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.
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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
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Exhibits.
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Not Applicable
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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: _____________________________
ate: September 27, 1999 Thomas T. Fleming
-- Chairman of the Board
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