SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
COMMISSION FILE NUMBER 0-26168
CAREADVANTAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1849794
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
485-C Route 1 South, Iselin, New Jersey 08830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 602-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for 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 X No
--- ---
83,240,552
Number of shares of Common Stock outstanding as of October 31, 2000
Transitional Small Business Disclosure Format
Yes___ No_X_
<PAGE>
CareAdvantage, Inc. and Subsidiaries
Form 10-QSB
For the nine months ended September 30, 2000
I N D E X
Part I - Financial Information
Item 1. Financial Statements
o Condensed Consolidated Balance Sheets -
September 30, 2000 (Unaudited) and December 31, 1999 (Audited)
................................................................ 2
o Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine-months ended September 30, 2000 and September 30,
1999
............................................................... 3
o Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended September 30, 2000 and September 30, 1999
............................................................... 4
o Notes to Condensed Consolidated Financial Statements........... 5
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 6
Item 3. Quantitative and Qualitative Disclosures about Market Risk .. 10
Part II - Other Information
Item 1. Legal Proceedings............................................ 10
Item 2. Changes in Securities........................................ 10
Item 3. Defaults Upon Senior Securities.............................. 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Item 5. Other Information ........................................... 10
Item 6. Exhibits and Reports on Form 8-K............................. 10
Signature............................................................... 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CAREADVANTAGE, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
---- ----
(Unaudited) (Audited)
--------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,782,000 $ 1,615,000
Restricted Cash 256,000 -
Accounts receivable for services:
Stockholder 1,265,000 1,135,000
Other 466,000 173,000
Other current assets 244,000 220,000
------- -------
Total current assets 4,013,000 3,143,000
Property and equipment, at cost less accumulated depreciation 515,000 845,000
Intangible assets 1,028,000 1,283,000
Other assets 110,000 102,000
------- -------
Total Assets $ 5,666,000 $ 5,373,000
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 340,000 $ 313,000
Due to stockholder 693,000 393,000
Due to customer 839,000 902,000
Accrued salaries and employee benefits 795,000 841,000
Accrued expenses and other current liabilities 274,000 332,000
Deferred revenue, current - 98,000
---------- ----------
Total current liabilities 2,941,000 2,879,000
Due to stockholder, less current portion - 300,000
----------- ---------
Total Liabilities 2,941,000 3,179,000
----------- ---------
Stockholders' equity:
Preferred stock-par value $.10 per share;
authorized 10,000,000 shares; none issued
Common stock-par value $.001 per share;
authorized 103,600,000 shares; issued
and outstanding 83,292,152 and 82,189,883 83,000 82,000
Additional capital 22,136,000 22,062,000
Accumulated deficit (19,494,000) (19,950,000)
------------ -----------
Total Stockholders' Equity 2,725,000 2,194,000
--------- -----------
Total Liabilities and Stockholders' Equity $ 5,666,000 $ 5,373,000
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
CAREADVANTAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $4,479,000 $4,184,000 $13,367,000 $12,013,000
Costs of services 2,187,000 2,339,000 6,642,000 6,585,000
---------- ---------- --------- ---------
Gross margin 2,292,000 1,845,000 6,725,000 5,428,000
--------- --------- --------- ---------
Operating expenses:
Selling, general and administration 1,945,000 1,643,000 5,754,000 5,435,000
Depreciation and amortization 194,000 213,000 553,000 629,000
--------- --------- --------- ----------
Total operating expenses 2,139,000 1,856,000 6,307,000 6,064,000
--------- --------- --------- ---------
Operating income/(loss) 153,000 (11,000) 418,000 (636,000)
Net interest income/(expense) 15,000 14,000 38,000 32,000
---------- --------- --------- ---------
Net income/(loss) $ 168,000 $ 3,000 $ 456,000 $ (604,000)
======= ========= ========== =========
Net income/(loss) per share -
Basic $.00 $.00 $.01 ($.01)
==== ==== ==== ====
Diluted $.00 $.00 $.00 ($.01)
==== ==== ==== ====
Weighted average number
of common shares outstanding -
Basic 83,255,000 93,700,000 83,011,000 82,190,000
========== ========== ========== ==========
Diluted 88,205,000 93,700,000 91,210,000 82,190,000
========== ========== ========== ==========
</TABLE>
3
<PAGE>
CAREADVANTAGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
2000 1999
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 456,000 $ (604,000)
Adjustments to reconcile net profit/(loss)
to net cash (used by)/provided from
operating activities:
Depreciation and amortization 679,000 961,000
Compensation due to option issuance 38,000 43,000
Deferred revenue (98,000) (130,000)
Change in assets and liabilities:
Due to/from customers/stockholders (423,000) 183,000
Other assets (32,000) (48,000)
Accounts payable 27,000 (19,000)
Accrued expenses and other liabilities (103,000) (472,000)
Due to Customer (63,000) -
-------- --------
Net cash provided from/(used by)
operating activities 481,000 (86,000)
------- --------
Cash flows from investing activities:
Capital expenditures (94,000) (468,000)
-------- --------
Net cash (used by) investing
activities (94,000) (468,000)
-------- --------
Cash flows from financing activities:
Proceeds from Exercise of Stock Options 36,000 0
Principal payments to stockholder 0 (695,000)
Principal payments under long-term debt 0 (319,000)
- --------
Net cash provided from/(used by) financing
Activities 36,000 (1,014,000)
------- ---------
Net (decrease)/increase in cash 423,000 (1,568,000)
Cash - beginning of fiscal year 1,615,000 3,354,000
--------- ---------
Cash - end of period $2,038,000 $1,786,000
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
CAREADVANTAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A--Basis of preparation:
Fiscal Year Change:
On June 8, 1999, CareAdvantage, Inc. ("CAI" or the "Company") changed its fiscal
year from one ending October 31 to a calendar year ending December 31.
The consolidated financial statements have been prepared by the Company and have
not been audited by the Company's independent auditors. The accompanying
financial statements include all adjustments (which include only normal
recurring adjustments) which in the opinion of management are necessary to
present fairly the financial position, results of operations and cash flows at
September 30, 2000 and for all periods presented.
Certain information and note disclosures required to be included in the
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included with the Company's December 31, 1999 Annual Report on Form 10-KSB. The
results of operations for the period ended September 30, 2000 are not
necessarily indicative of operating results to be expected for the full year.
Note B--Per share data:
Net income per share has been computed based on the weighted average number of
shares outstanding during the periods. Common stock equivalents have not been
included in 1999 as they are not dilutive.
Note C--Contingencies:
Potential uninsured exposure to litigation:
a) ROBERT T. CARUSO V. JOHN J. PETILLO, VINCENT M. ACHILLARE, LAWRENCE A.
WHIPPLE, AND HORIZON BLUE CROSS BLUE SHIELD OF NEW JERSEY, INC. ET AL.,
which was filed in Superior Court of New Jersey on August 12, 1998. Messrs.
Petillo, Achillare and Whipple were officers of the Company and may have
claims for indemnification for expenses and for any judgments against them
in this case. Mr. Caruso was a consultant to the Company. The complaint
alleges breach of contract, fraud, conspiracy, promissory estoppel and
negligent misrepresentation in connection with, among other things, the
termination of Mr. Caruso's consulting arrangement with the Company. The
Plaintiff seeks treble damages for unspecified amount and claims actual
damages in the approximate amount of $1.8-2.0 million. The Company received
notice from two of its insurance carriers denying coverage on this matter,
but the Company plans to vigorously contest these coverage decisions. The
Company received a written claim for indemnification from defendants
Petillo and Achillare and, subject to their having acted in good faith, the
Company has agreed to indemnify them and defendant Whipple and to pay their
reasonable defense costs. The parties to this litigation are currently
taking discovery. Until discovery has been completed, the Company has
insufficient information regarding its potential exposure in this matter.
Note D - Supplemental Cash Flow Information:
Below is supplemental cash flow information related to the nine months ended
September 30, 2000 and September 30, 1999:
September 30,
-------------
2000 1999
---- ----
Income taxes paid 41,000 115,000
Interest paid 0 53,000
Note E - Exercise of Stock Option
During the nine months ended September 30, 2000, certain employees exercised
options that resulted in the issuance of 1,102,269 shares of common stock.
5
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statements:
Statements in this Form 10-QSB may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
("PSLRA"), including statements concerning management's plans, intentions and
expectations with respect to future financial performance and future events,
particularly relating to revenues from performance-based services and
re-negotiations of existing and new contracts with customers. Many of these
statements involve known and unknown risks, uncertainties and contingencies,
many of which are beyond management's control, which could cause actual results
and outcomes to differ materially from those expressed in this 10-QSB. Although
management believes that its plans, intentions and expectations reflected in
these forward-looking statements are reasonable, it can give no assurance that
its plans, intentions or expectations will be achieved. For a more complete
discussion of these risk factors, please see "Cautionary Statements" in Item 6
of the Company's Form 10-KSB for the fiscal year ended December 31, 1999.
GENERAL OVERVIEW:
The Company is a holding company which, through its subsidiaries, CareAdvantage
Health Systems, Inc. ("CAHS") and Contemporary HealthCare Management, Inc.
("CHCM"), is in the business of providing health care cost containment services
designed to enable health care insurers and other health service organizations
to reduce the costs of medical services provided to their subscribers. The
services provided include utilization review in medical/surgical cases where
pre-authorization is required for hospitalization and for certain in-patient and
outpatient procedures, case management and disease management. The Company's
services have been principally provided to several of Blue Cross/Blue Shield
("BCBS") health services organizations in the Northeastern United States.
The Company had a service agreement with Horizon Blue Cross Blue Shield of New
Jersey ("Horizon BCBSNJ") that expired on June 30, 2000. Although the precise
terms of a contract renewal have not yet been agreed upon, the Company has been
informed by Horizon BCBSNJ that Horizon BCBSNJ will continue to contract with
the Company for care management services for the indemnity portion of the
business at least until January 1, 2001. The Company and Horizon BCBSNJ are
presently negotiating an extension of their agreement to December 31, 2002.
RESULTS OF OPERATIONS:
The following discussion compares the Company's results of operations for the
nine and three months ended September 30, 2000, with those for the nine and
three months ended September 30, 1999. The Company's consolidated financial
statements and notes thereto included elsewhere in this report contain detailed
information that should be referred to in conjunction with the following
discussion.
Three Months Ended September 30, 2000, Compared to Three Months Ended September
30, 1999
Revenues:
The Company's total operating revenues for the three-month periods ended
September 30, 2000 and September 30, 1999 were approximately $4,479,000 and
$4,184,000, respectively. This represents an increase of approximately $295,000
for the three-month period ended September 30, 2000 from the corresponding
period of the prior year. The increase for the three months ended September 30,
2000 is largely due to increased revenue of approximately $380,000 due to new
contracts offset by a decrease of approximately $85,000 in revenue due to
decreased membership from the Company's major customers.
Cost of services:
The Company's total direct cost of services for the three-month periods ended
September 30, 2000 and September 30, 1999 was approximately $2,187,000 and
$2,339,000, respectively. This represents a decrease of approximately $152,000
for the three-month period ended September 30, 2000 over the corresponding
period of the prior year.
6
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This decrease in the cost of services for the three-month period ended September
30, 2000 was primarily due to decreases in overhead costs, particularly
professional and personnel costs of approximately $105,000, attained as part of
the Company's cost cutting measures, as well as decreases in depreciation and
amortization expense.
Operating expenses:
Selling, general, and administrative:
The Company's total selling, general, and administrative costs for the
three-month periods ended September 30, 2000 and September 30, 1999 were
approximately $1,945,000 and $1,643,000, respectively. This represents an
increase of approximately $302,000 for the three-month period ended September
30, 2000 over the corresponding period of the prior year. This increase for the
three-month period ended September 30, 2000 is largely due to an increase of
approximately $215,000 in consulting costs incurred in connection with the
Company's information systems as well as increases in other sales related
expenses.
Depreciation and amortization:
The Company's total depreciation and amortization costs for the three-month
periods ended September 30, 2000 and September 30, 1999 were approximately
$233,000 and $307,000, respectively. Approximately $39,000 and $94,000 were
included in cost of services for such periods.
Interest income:
The Company's total net interest income for the three-month periods ended
September 30, 2000 and September 30, 1999 was approximately the same, at $15,000
and $14,000, respectively.
Nine Months Ended September 30, 2000, Compared to Nine Months Ended September
30, 1999
Revenues:
The Company's total operating revenues for the nine-month periods ended
September 30, 2000 and September 30, 1999 were approximately $13,367,000 and
$12,013,000, respectively. This represents an increase of approximately
$1,354,000 for the nine-month period ended September 30, 2000 from the
corresponding period of the prior year. The increase for the nine months ended
September 30, 2000 is largely due to increased revenue of approximately $189,000
from the realization of performance revenues, increased revenue of approximately
$895,000 due to increased membership on a major account, and increased revenue
of approximately $380,000 due to new contracts, offset by decreased revenue of
approximately $110,000 due to decreased membership from the Company's other
customers.
Cost of services:
The Company's total direct cost of services for the nine-month periods ended
September 30, 2000 and September 30, 1999 was approximately $6,642,000 and
$6,585,000, respectively. This represents an increase of approximately $57,000
for the nine-month period ended September 30, 2000 over the corresponding period
of the prior year. This increase in the cost of services for the nine-month
period ended September 30, 2000 was primarily due to increases in personnel
costs, offset by a decreases in depreciation and amortization costs and other
reductions in costs related to the provision of services.
Operating expenses:
Selling, general, and administrative:
The Company's total selling, general, and administrative costs for the
nine-month periods ended September 30, 2000 and September 30, 1999 were
approximately $5,754,000 and $5,435,000, respectively. This represents an
increase of approximately $319,000 for the nine-month period ended September 30,
2000 over the corresponding period of the prior year. This increase for the
nine-month period ended September 30, 2000 is largely due to increases in
personnel costs of approximately $193,000, including severance costs of
approximately $150,000, and increased overhead expenses of approximately
$112,000 and professional costs.
7
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Depreciation and amortization:
The Company's total depreciation and amortization costs for the nine-month
periods ended September 30, 2000 and September 30, 1999 were approximately
$679,000 and $1,004,000, respectively. Approximately $126,000 and $375,000 were
included in cost of services for such periods.
Interest income:
The Company's total net interest income for the nine-month periods ended
September 30, 2000 and September 30, 1999 was approximately the same, at $38,000
and $32,000, respectively.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES:
General overview:
At September 30, 2000, the Company had working capital of approximately
$1,071,000, stockholders equity of approximately $2,725,000 and an accumulated
deficit since its inception of approximately $19,494,000. By continuing to
provide high quality care cost containment services to its existing customer
base of five BCBS plans, management believes it can continue to market its
products to other BCBS plans. This strategy is particularly significant given
the current health care environment where large third-party payers are merging
in an effort to protect their respective franchises and expand their market
reach. The various BCBS plans throughout the country are no exception to this
phenomenon and the Company believes it can leverage its core competencies to
participate in this consolidating environment.
Management is of the opinion that it must continue to refine its current service
lines in order to continue to add value to existing and potential customers.
Additionally, the Company intends to broaden its services offered with unique
and complementary cost-containment strategies. Management will evaluate each
service with regard to anticipated changes in the health care industry, the cost
to enter any such line of service as well as the availability of competent
resources. To further expand its line of services, the Company intends to pursue
alternatives to its internal products and service development efforts by
entering into strategic alliances and joint ventures as well as through
acquisitions.
Financial condition:
At September 30, 2000, the Company had cash of approximately $2,038,000 and
working capital of approximately $1,071,000. At December 31, 1999, the Company
had cash of approximately $1,615,000 and working capital of approximately
$264,000.
Net cash provided from/(used by) operating activities amounted to approximately
$481,000 and $(86,000) for the nine-month periods ended September 30, 2000 and
September 30, 1999, respectively. The cash provided from 2000 operating
activities is largely due to non-cash charges of approximately $717,000 and
$456,000 in net profit, offset by a increase in customer receivables of
approximately $423,000, a decrease in accrued expenses and other liabilities of
approximately $103,000 and a decrease in deferred revenue of approximately
$98,000.
Net cash used in investing activities amounted to approximately $94,000 and
$468,000 for the nine-month periods ended September 30, 2000 and September 30,
1999, respectively. The decrease in cash used of approximately $374,000 is
largely due to decreased capital outlays for computer-related equipment incurred
during the nine-month period ended September 30, 2000.
Net cash provided/(used) in financing activities amounted to approximately
$36,000 and ($1,014,000) for the nine-month periods ended September 30, 2000 and
September 30, 1999, respectively. The decrease in cash used of approximately
$1,050,000 is largely due to suspended loan payments to a stockholder/customer
of approximately $695,000 and decreased principal payments related to the Master
Lease Agreement with IBM of approximately $319,000, offset by proceeds from
issuance of common stock of approximately $36,000.
8
<PAGE>
CAREADVANTAGE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
While there can be no assurances, management believes that its cash on hand and
projected future cash flows from operations (see discussion below under Capital
Resources) will provide adequate capital resources to support the Company's
anticipated cash needs for the next twelve months.
Capital Resources:
Pursuant to a promissory note dated April 1, 1997 in the original principal
amount of $1,862,823, assigned to Horizon BCBSNJ, the Company owes $693,000 to
Horizon BCBSNJ as of September 30, 2000. In addition, the Company is obligated
to pay $839,000 to Horizon Healthcare of New Jersey, Inc. ("Horizon") pursuant
to in connection with the settlement in August 2000 of a lawsuit between Horizon
and Allied Specialty Care Services, Inc. ("Allied"), in which the Company was
impleaded by Allied as a third-party defendant. A copy of the settlement
agreement is filed as Exhibit 10.1 to this 10-QSB. The Company is currently
participating in discussions with Horizon BCBSNJ to convert these outstanding
balances from debt to equity.
The Company had a credit facility with a bank that provided for a $1,500,000
working capital revolver to be used for general working capital needs, which was
effective through June 30, 2000. The Company did not renew such credit facility.
In September of 1998, the bank issued an irrevocable letter of credit in the
amount of $250,000, for the account of the Company in favor of a vendor as
security for the Company's obligation under a non-cancelable operating lease.
This letter of credit was issued under the Company's credit facility. As of
September 30, 2000 the $250,000 irrevocable letter of credit is secured by a
certificate of deposit in the amount of $250,000.
9
<PAGE>
CAREADVANTAGE, INC.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
As of September 30, 2000, the Company's investments are not significantly
impacted by change in market interest rates. The Company does not believe that
changes in interest rates will have a material impact on future earnings or cash
flows during the next twelve months.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
For a description of legal proceedings, see Note C to the Financial Statements.
With the exception of the legal proceedings described in Note C to the Financial
Statements, there are no material pending legal proceedings other than ordinary
routine litigation incidental to the business of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the
last quarter of calendar year ended September 30, 2000.
Item 5. Other Information
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(10.1) Settlement Agreement dated August 9, 2000 among the Company, Horizon
Healthcare of New Jersey, Inc. and Allied Specialty Care Services, Inc.
(10.2) Employment Agreement between the Company and R. Christopher Minor,
dated April 17, 2000.
(27) Financial Data Schedule
10
<PAGE>
CAREADVANTAGE, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CareAdvantage, Inc.
November 10, 2000 /s/ David G. Noone
--------------------------
David G. Noone
Chief Executive Officer
November 10, 2000 /s/ R. Christopher Minor
----------------------------
R. Christopher Minor
Chief Financial Officer
