<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------------
Commission file number 0-18158
------------
QUEST HEALTH CARE INCOME FUND I, L.P.
--------------------------------------------------------------------------------
Formerly: Southmark/CRCA Health Care Income Fund I, L.P.
--------------------------------------------------------
Delaware 58-1697906
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1355 Peachtree St., Suite 1900, Atlanta, GA 30309
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (404) 607-1950
------------------------------
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 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
There are no exhibits.
TOTAL OF 15 PAGES
1
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QUEST HEALTH CARE INCOME FUND I, L.P.
BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,126,456 $ 270,593
Accounts receivable, net of allowance
for doubtful accounts of $ 56,682 and
$125,085 at March 31, 1995 and
December 31, 1994, respectively 1,316,669 1,667,857
Prepaid expenses 322,712 839,830
----------- -----------
Total current assets 3,765,837 2,778,280
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land 240,617 495,915
Buildings and improvements 1,872,215 7,037,234
Equipment and furnishings 857,647 2,153,529
----------- -----------
2,970,479 9,686,678
Less accumulated depreciation and amortization 2,184,672 5,219,535
----------- -----------
Net property and equipment 785,807 4,467,143
----------- -----------
TOTAL ASSETS $ 4,551,644 $ 7,245,423
=========== ===========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
2
<PAGE> 3
QUEST HEALTH CARE INCOME FUND I, L.P.
BALANCE SHEETS
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
------------- ------------
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Note Payable $ - $ 600,000
Current maturities of long-term debt 9,288 40,840
Trade accounts payable 419,520 857,666
Accrued compensation 198,173 636,853
Accrued insurance 129,964 655,540
Estimated third party settlements 28,594 206,525
Other 78,119 568,918
Payable to Quest and affiliates 51,019 62,735
----------- ------------
Total current liabilities 914,677 3,629,077
LONG-TERM DEBT, less current maturities 15,035 91,095
----------- ------------
Total liabilities 929,712 3,720,172
----------- ------------
PARTNERS' EQUITY:
Limited Partners 3,784,721 3,689,007
General Partner (162,789) (163,756)
----------- ------------
Total partners' equity 3,621,932 3,525,251
----------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 4,551,644 $ 7,245,423
=========== ============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
3
<PAGE> 4
QUEST HEALTH CARE INCOME FUND I, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1995 1994
----------- ------------
<S> <C> <C>
REVENUES:
Operating revenue $4,187,767 $5,047,157
Interest income 9,094 3,125
Gain on sale 103,988 -
---------- ----------
Total revenues 4,300,849 5,050,282
---------- ----------
EXPENSES:
Wages & salaries 2,146,176 2,650,257
Payroll tax & employee benefits 477,937 499,481
Supplies 393,044 467,024
Other operating expenses 416,173 508,869
Ancillary services 253,924 252,174
Health benefits 85,151 72,563
Management fees 204,504 236,697
Management fees-affiliate 39,280 48,937
Property taxes 33,234 42,081
Interest 15,270 23,066
Depreciation and amortization 18,498 150,141
Partnership administration 120,977 129,797
---------- ----------
Total expenses 4,204,168 5,081,087
---------- ----------
Net income (loss) $ 96,681 $ (30,805)
========== ==========
Net income (loss) per Limited
Partnership Unit $ .37 $ (.12)
========== ==========
Weighted average Limited Partnership
Units outstanding 262,183 262,183
========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
4
<PAGE> 5
QUEST HEALTH CARE INCOME FUND I, L.P.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
--------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993 $(105,947) $9,412,115 $9,306,168
Net loss (308) (30,497) (30,805)
--------- ---------- ----------
Balance at March 31, 1994 $(106,255) $9,381,618 $9,275,363
========= ========== ==========
Balance at December 31, 1994 $(163,756) $3,689,007 $3,525,251
Net income 967 95,714 96,681
--------- ---------- ----------
Balance at March 31, 1995 $(162,789) $3,784,721 $3,621,932
========= ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
5
<PAGE> 6
QUEST HEALTH CARE INCOME FUND I, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from residents and
government agencies $3,918,982 $4,691,378
Cash paid to suppliers and
employees (4,143,945) (4,772,925)
Interest received 9,094 3,125
Interest paid (15,270) (23,066)
Property taxes paid (39,696) (29,301)
---------- ----------
Net cash provided by (used in)
operating activities (270,835) (130,789)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facilities 2,734,651 -
Additions/retirements to property
and equipment (2,023) (25,509)
---------- ----------
Net cash provided by (used in)
investing activities 2,732,628 (25,509)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (605,930) (12,372)
---------- ----------
Net cash used in financing
activities (605,930) (12,372)
---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,855,863 (168,670)
Cash and cash equivalents at beginning of
period 270,593 540,727
---------- ----------
Cash and cash equivalents at end of period $2,126,456 $ 372,057
========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
6
<PAGE> 7
QUEST HEALTH CARE INCOME FUND I, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1995 1994
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 96,681 $ (30,805)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of facilities (103,988) -
Depreciation and amortization 18,498 150,141
Cash provided (used) by changes in
assets and liabilities:
Accounts receivable (268,785) (355,780)
Prepaid expenses 211,558 100,374
Accounts payable and accrued
liabilities (213,083) 1,948
Payable to Quest and affiliates (11,716) 3,333
---------- ----------
Net cash provided by (used in)
operating activities $ (270,835) $ (130,789)
========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
7
<PAGE> 8
QUEST HEALTH CARE INCOME FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 1
During interim periods, Quest Health Care Income Fund I, L.P. (the
"Partnership") follows the accounting policies set forth in its Annual Report
on Form 10-K filed with the Securities and Exchange Commission. Users of
financial information provided for interim periods should refer to the annual
financial information and footnotes contained in the Annual Report on Form 10-K
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying unaudited interim financial
statements, prepared in accordance with the instructions for Form 10-Q, contain
all material adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial condition, results of operations,
changes in partners' equity and cash flows of the Partnership for the
respective interim periods presented. The results of operations for such
interim periods are not necessarily indicative of results of operations for a
full year.
NOTE 2
The Partnership maintains cash accounts with a variety of unrelated banks, all
of which are insured by the Federal Deposit Insurance Corporation (FDIC). At
March 31, 1995, the Partnership maintained cash balances at these banks
aggregating $2,018,020 in excess of the $100,000 FDIC insured maximum.
NOTE 3
Quest, in an effort to continue certain health benefits for facility employees,
created an employee benefit trust (the "Trust") in compliance with the
guidelines promulgated pursuant to VEBA and ERISA. Amounts contributed under
the Trust plan by Partnership employees and the Partnership are strictly for
the benefit of employees of the participating employers, payment of excess loss
reinsurance, life insurance and accidental death and dismemberment and claims
and plan administration and employee medical claims. Quest has engaged a
claims precertification organization to review all claims made by the
Partnership's employees. Approximately $85,151 was accrued under this
arrangement in the first three months of 1995. The Trust is administered by an
affiliate of Quest; however, no profits accrue to the benefit of either the
affiliate or Quest.
Quest Administrative Services, L.P. (QASLP), an affiliate of Quest, provides
management services to the Partnership facilities. Total accruals to QASLP for
the first three months of 1995 were $39,280.
8
<PAGE> 9
QUEST HEALTH CARE INCOME FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 4
In February 1992, the Partnership obtained an $800,000 loan collateralized by
the Parkway North facility. The loan proceeds were used to fund capital
improvements during 1992 and 1993. In September 1993, the Partnership paid the
note down to a balance of $600,000. In February 1995, the loan was paid off
with proceeds from the sale of the facility (See Note 6).
NOTE 5
The Partnership settled its litigation against Healthcare Services Group, Inc.
which was more fully discussed in the Partnership's 1994 Annual Report on Form
10-K. In December 1994, the Partnership received a Notice and Demand for
Payment from the Idaho State Tax Commission for approximately $90,000 resulting
from sales tax audits of two facilities. Of this amount, approximately $54,000
of liability was assumed by the purchaser of these sold facilities, which
facilities were sold in February 1995 (See Note 6). The Company is discussing
a settlement of this matter and has recorded a provision of approximately
$67,000 in the Partnership's Financial Statements. Management is of the
opinion that the final resolution will not have a material adverse effect on
the Partnership's financial position.
NOTE 6
On February 28, 1995, the Partnership sold seven of its Partnership interests
to an unaffiliated third party. The contract calls for adjusting working
capital, as defined, to exclude interpartnership accounts and the current
portion of long term debt and to reflect a 25% discount on accounts receivable
at closing. The contract also provides for a cash consideration adjustment
based on changes in working capital including the change in the 25% discount
proportionate to changes in accounts receivable occurring between December 31,
1994 and the date of closing of February 28, 1995, which will be calculated
subsequent to the first quarter of 1995.
At closing, the Partnership received initial consideration of $2,734,651,
consisting of cash of $2,133,359 and debt retired from sales proceeds of
$601,292. Subsequent to the end of the first quarter of 1995, the Partnership
estimated that $417,254 additional cash is due to the Partnership from post
closing adjustments. In addition the purchaser assumed debt related to
equipment of approximatley $103,000. Total consideration should therefore be
$3,258,905. The Partnership will make a final determination when the
Partnership's accountants have completed certain special procedures to enable
the Partnership to make its final determination. Distributions of cash to the
limited partners is expected as soon as practicable, subject to establishing
adequate reserves for the continued operation of the Partnership. The balance
sheet of the Partnership reflects the effects of the sale of the Partnership's
interests in the seven facilities. The Partnership may seek to liquidate the
Partnership's interests in its remaining facilities.
9
<PAGE> 10
NOTE 7
Due to the impact of the partnership entering into a contract to sell its
interests in seven facilities in February, 1995, as described in Note 6,
historical financial position and results of operations may not be indicative
of future financial position and results of operations and net income (loss)
per limited partnership unit. The following unaudited pro forma condensed
statement of operations is presented as if the transactions previously
described in Note 6 occurred as of January 1, 1995. In the opinion of the
Partnership's management, all adjustments necessary to reflect the effects of
the sale have been made.
The pro forma condensed financial information does not purport to present what
actual results of operations would have been if the transactions previously
described had occurred on such dates or to project results for any future
period.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 1995
(Unaudited in thousands)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
-------------- -------------- -------------
<S> <C> <C> <C>
Revenues: $ 4,197 $ (2,346)(A) $ 1,851
------------- ----------- ------------
Expenses:
Wages and salaries $ 2,146 $ (1,225)(A) $ 921
Operating expenses 1,626 (894)(A) 732
Management fees 205 (116)(A) 89
Management fees affiliate 39 (22)(A) 17
Property taxes and interest 49 (31)(A) 18
Depreciation and amortization 18 (1)(A) 17
Partnership administration 121 - 121
------------- ----------- ------------
4,204 (2,289) 1,915
------------- ----------- ------------
Net income (loss) (B) $ (7) $ (57) $ (64)
============= =========== ============
</TABLE>
(A) The pro forma adjustments remove revenues and expenses directly
related to the interests in seven nursing homes sold to an
unaffiliated third party.
(B) The historical statement of operations for the period ended March 31,
1995 includes a gain from the sale of a facility of $103, in
thousands. This amount is not included in the above pro forma
condensed statement of operations due to the non reoccurring nature.
NOTE 8
The Partnership's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The sale of the
Partnership's interests in seven nursing homes and possible future sales of its
remaining facilities will have an effect on cash flow from operations in the
future.
Management of the Partnership believes that successful control of facility and
Partnership expenses and establishing adequate reserves from the sales of
facilities should enable the Partnership to meet its obligations and upon final
sale of its assets, liquidate in orderly fashion.
10
<PAGE> 11
PART 1
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Results of Operations:
In February 1995, the Partnership sold its Partnership interests in seven of
its properties to an unaffiliated third party. The proceeds from the sale will
be distributed to the limited partners of the Partnership as soon as
practicable. The proceeds from the sale are subject to adjustment reflecting
changes in elements of working capital between December 31, 1994 and February
28, 1995. After adequate reserves are established for the Parthership's
continued operation, distributions will be made to the limited partners.
Neither the general partner of the Partnership nor its affiliates will receive
any remuneration or distributions of sales proceeds.
Revenue:
In February 1995, the Partnership's interest in seven facilities were sold.
Therefore, the revenues and expenses for the three months ended March 31, 1995
are not directly comparable to the same period in 1994. On a pro forma basis,
the three remaining facilities, Burley, Hearthside and South Salem increased
revenues $331,727. Over $200,000 of this increase is related to Medicare
increases at Hearthside. In 1994, Hearthside was experiencing the effects of a
survey related ban on admissions, which was lifted in December 1993. The
remaining increase relates to increased ancillary utilization and changes in
patient mix. Revenue in 1994 included $3,328,339 related to the interests in
seven facilities sold by the Partnership in 1995 and $228,239 related to
Comanche View, closed in May, 1994.
All resident receivables are recorded at their original face amount and are due
and payable under "normal" market terms and conditions. In the event of
non-collection, the ultimate loss to the Partnership would be limited to the
recorded balance of the receivables as shown in the balance sheet.
The significant components of accounts receivable at March 31, 1995 and
December 31, 1994 are:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Medicaid 36% 52%
Private Pay 13% 11%
VA, Medicare and Other 51% 37%
------ -------
100% 100%
====== =======
</TABLE>
Payments by both the state and federal governments are normally received within
60-90 days. The sources of patient revenues for periods ended March 31, 1995
and 1994 are:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Medicaid 60% 63%
Private Pay 19% 21%
VA, Medicare and Other 21% 16%
------- -------
100% 100%
======= =======
</TABLE>
Expenses:
On a pro forma basis expenses for the three month period ended March 31, 1995
increased $205,801. The primary reasons for these increases were increased
ancillary utilization, salary increases and workers compensation rate
increases. Employee health benefit costs returned to expected levels in 1995
after unusually low claims during the 1993-94 health plan year. Partnership
administration expense was slightly less than the comparable period in 1994 due
to a decrease in professional fees.
Hearthside is located in the town of Coos Bay in a remote part of Oregon. Coos
Bay is dominated by the lumber industry which has been decimated by various
government regulations. In view of the depressed occupancy at Hearthside and
the limited potential for growth in the area, management of the partnership
reviewed the expected undiscounted cash flows over the remaining life of the
property and compared the same to the current carrying value. After reviewing
alternative uses, such as participating in Oregon's new, but unfunded, crisis
11
<PAGE> 12
intervention program, management determined that it was probable that the
carrying value of Hearthside would not be fully recovered through operations
over its remaining estimated useful life. The financial statements recognize a
write down of its estimated net realizable value of $150,000 in December 1994.
Occupancy and Medicare utilization have improved during 1995. It cannot
currently be determined by management of the Partnership if such improvement
will continue.
In addition, Comanche View, a facility two hours south of Odessa, located in
the far west Texas town of Fort Stockton, has confronted several serious
challenges. First, despite state controls over construction of nursing
facilities and a limited marketplace, a new 120 bed nursing facility was built
near the Comanche facility. In addition, two physicians closed their practices
and moved to Alpine 100 miles southwest leaving three physicians in town.
Alternative uses for the facility such as adult day care or a rural health
clinic are of low probability because of design constraints of the physical
plant. In light of these factors and the limited population of the area the
facility was closed in May 1994. The facility was written down to it net
realizable value of $100,000 at December 31, 1993. Included in the
year-to-date expenses for 1994 was $254,996 related to Comanche View.
On February 25, 1995, the Partnership sold its interests in seven facilities to
an unaffiliated third party. The contract calls for adjusting working capital,
as defined, to exclude interpartnership accounts and the current portion of
long term debt and to reflect a 25% discount on accounts receivable at closing.
The contract also provides for a cash consideration adjustment based on changes
in working capital including the change in the 25% discount proportionate to
changes in accounts receivable occurring between December 31, 1994 and the date
of closing of February 28, 1995, which will be calculated subsequent to the
first quarter of 1995. Expenses in 1994 included $3,071,175 related to the
seven facilities whose interests were sold by the Partnership.
At closing, the Partnership received initial consideration of $2,734,651,
consisting of cash of $2,133,359 and debt retired from sales proceeds of
$601,292. Subsequent to the end of the first quarter of 1995, the Partnership
estimates that $417,254 additional cash is due to the Partnership from post
closing adjustments. In addition, the Purchaser assumed debt related to
equipment of approximately $103,000. Total consideration should therefore be
$3,258,905. The Partnership will make a final determination when the
Partnership's accountants have completed certain special procedures to enable
the Partnership to make its final determination. Distributions of cash to the
limited partners is expected to commence as soon as practicable, subject to
establishing adequate reserves for the continued operation of the Partnership.
The balance sheet of the Partnership reflects the effects of the sale of the
Partnership's interests in the seven facilities. The Partnership may also
seek to liquidate the Partnership's interests in its remaining facilities.
Ancillary Revenue and Expense is a term that describes specialized services
provided by third party unaffiliated vendors. These services include speech,
occupational, physical and occasionally intravenous therapies. These revenues
and expenses are subject to certain cost limitations and do not materially
affect the profitability of a facility. However, the ability to provide these
services enables a facility to accept residents reimbursed under the federal
Medicare system instead of the state Medicaid system. Typically, the Medicare
system reimburses at a higher daily rate than Medicaid. These Medicare
residents are people, not necessarily elderly, who, under another set of
regulations, must be discharged from hospitals before they are well enough to
go home. The result is that nursing homes that once were a final stop in
life's journey have become more like auxiliary hospitals with a substantially
shortened length of stay. The pursuit of high reimbursement Medicare residents
limits the number of Medicaid beds available to the indigent elderly. These
people will be required to live with relatives or find low skilled "foster
care" or community based services.
Liquidity and Capital Resources:
At March 31, 1995, the Partnership held cash and cash equivalents of $2,126,456
which represents an increase of $1,875,408 since December 31, 1994. The cash
increase is due primarily to the sale of the Partnership's interests in seven
facilities. The cash position of the Partnership remains highly variable.
While the Partnership's remaining facilities have shown improvement, cash is
being conserved wherever possible to be used for capital improvements, payment
of property taxes, and any potential paybacks to Medicare and Medicaid that may
arise.
Medicare is a federal entitlement program and Medicaid (the source of the
majority of the Partnership's revenue) represents an entitlement program
administered differently by each state which is partially funded by the Federal
government. In August 1993, Congress enacted
12
<PAGE> 13
Title XIII of OBRA 93. This act, among other things, taxed social security
benefits received by the elderly and further limited payments under state
Medicaid programs for which federal matching would be permitted. In October
1993, the Health Care Financial Administration (HCFA) implemented a freeze on
Medicare reimbursement, for at least two years, on routine cost limits, certain
Part B ancillaries and prospective payment system rates. In addition, HCFA
eliminated the return on equity component of the reimbursement rate. Further,
by the end of 1993, several states, because of federal actions and/or budgetary
difficulties, had either taken action to curtail the growth in entitlement
programs and/or had indicated that future action was possible. In 1995, the
latest concept appears to be "block grants" to the states. What this means to
nursing facilities cannot currently be determined.
Despite the fact that health care reform proposals at the federal level are
dead, activities at the state level continue and are encouraged by HCFA. An
example of state level action is Oregon's plan, the location of the
Partnership's Hearthside and South Salem facilities, to convert its Medicaid
reimbursement system to a managed care program administered by third parties
such as Blue Cross/Blue Shield. The effect on reimbursement cannot currently
be determined by management of the Partnership.
The Partnership has no established credit lines with outside lending sources
and relies solely on cash flow and cash reserves to conduct Partnership
business. There are no material commitments for capital improvements at the
remaining facilities.
The Partnership's continued existence is dependent upon its ability to: (i)
generate sufficient cash flow to meet its obligations on a timely basis; and
(ii) obtain additional sources of funding as may be required. In February
1995, the Partnership sold its interests in seven of its properties to an
unaffiliated third party. The proceeds from the sale will be distributed to
the limited partners of the Partnership as soon as practicable. Distributions
will be made to each of the limited partners after establishing adequate
reserves. The proceeds from the sale are subject to adjustment reflecting
changes in elements of working capital between December 31, 1994 and the date
of the sales. Therefore, the distributions to the limited partners cannot be
estimated until these adjustments are determined.
Neither the general partner nor its affiliates will receive any remuneration or
distributions of sales proceeds. The Partnership may seek to liquidate the
remaining Partnership interests in the Partnership's remaining facilities.
The Partnership's March 31, 1995 Balance Sheet reflects the estimated net
realizable value. The significant writedown of property and equipment in 1994
is based on the Partnership's future plans for its interests in the nursing
facilities and the attendant accounting policies. At December 31, 1993, the
nursing facilities were considered operating assets since it was the
Partnership's plan to continue to operate the facilities as it had in the past.
Consistent with generally accepted accounting principals ("GAAP") and the
Partnership's accounting policy for operating assets, property and equipment
were carried in the 1993 balance sheet at the lower of cost or estimated
undiscounted future cash flows expected to be generated over the remaining
estimated useful life of the property and equipment. The remaining estimated
useful life of the property and equipment at December 31, 1993 was
approximately twenty three years.
It is not the objective of GAAP to reflect operating property and equipment at
estimated market value less costs of disposal, otherwise known as estimated net
realizable value. Instead, under GAAP most companies property and equipment is
carried at cost less accumulated depreciation taken over the years of prior
service.
During 1994, as described in the notes to the Financial Statements, the
Partnership determined that it would market for sale its interests in the
nursing facilities. Since the future life under these circumstances is the
length of time required to dispose of the assets as opposed to the much longer
term of the assets remaining useful operating life, GAAP and the Partnership's
accounting policy require that the property and equipment under these
circumstances be carried at the lower of cost (the then existing carrying
value) or estimated net realizable value. Accordingly, under these
circumstances, the time value of money (over approximately twenty two remaining
years), the risk of capital invested, local, national and industry conditions
including competition, state and federal reimbursement plans, patient mix,
among many other factors, are taken into consideration. Consequently, as a
result of a change in the Partnership's future direction, a loss on property
and equipment representing the difference in (1) the carrying value as
determined based on the lower of cost or estimated undiscounted future cash
flows over the remaining estimated useful life for operating assets, and (2)
the lower of cost or estimated net realizable
13
<PAGE> 14
value was recognized during 1994 in the amount of $5,213,002 and is reflected
in the Financial Statements as of December 31, 1994.
PART II. OTHER INFORMATION
ITEM 1-5
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits.
Exhibit 27 - Financial Data Schedule (for SEC use only)
(B) Reports on Form 8-K.
The Partnership filed the following report on Form 8-K during the
first quarter of 1995.
<TABLE>
<CAPTION>
Date Items Reported
---- --------------
<S> <C>
February 28, 1995 2,7
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUEST HEALTH CARE INCOME
FUND I, L.P.
(Registrant)
By: QUEST RESCUE PARTNERS I-1, L.P.
General Partner
By: QUEST RESCUE PARTNERS I-1 CORP,
Date: May 19, 1995 By:/s/ Stuart C. Berry
--------------- -----------------------------
Executive Vice President/CFO
By:/s/ Michael G. Hunter
-----------------------------
President
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUEST HEALTH CARE FUND I, L.P. FOR THE THREE MONTHS
ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-01-1995
<EXCHANGE-RATE> 1
<CASH> 2,126,456
<SECURITIES> 0
<RECEIVABLES> 1,373,351
<ALLOWANCES> 56,682
<INVENTORY> 0
<CURRENT-ASSETS> 3,765,837
<PP&E> 2,970,479
<DEPRECIATION> 2,184,672
<TOTAL-ASSETS> 4,551,644
<CURRENT-LIABILITIES> 914,677
<BONDS> 15,035
<COMMON> 0
0
0
<OTHER-SE> 3,621,932
<TOTAL-LIABILITY-AND-EQUITY> 4,551,644
<SALES> 0
<TOTAL-REVENUES> 4,300,849
<CGS> 0
<TOTAL-COSTS> 4,182,897<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,001
<INTEREST-EXPENSE> 15,270
<INCOME-PRETAX> 96,681
<INCOME-TAX> 0
<INCOME-CONTINUING> 96,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,681
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<FN>
<F1>Less Prov. B Debts & Interest
</FN>
</TABLE>
