<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|X| ACT OF 1934
For the quarterly period ended March 31, 1997
----------------------------
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
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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.)
1117 Perimeter Center West E-120 Atlanta, GA 30338
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 671-1014
----------------------------
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 12 PAGES
<PAGE> 2
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,
--------- ------------
1997 1996
--------- ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,346,356 $ 1,371,093
Accounts receivable, net of allowance
for doubtful accounts of $17,897 and
$49,980 at March 31, 1997 and
December 31, 1996, respectively 1,033,925 965,025
Prepaid expenses 92,855 175,330
---------- ----------
Total current assets 2,473,136 2,511,448
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Land 240,617 240,617
Buildings and improvements 1,885,335 1,872,215
Equipment and furnishings 893,664 892,278
---------- ----------
3,019,616 3,005,110
Less accumulated depreciation and amortization 2,278,312 2,266,582
---------- ----------
Net property and equipment 741,304 738,528
---------- ----------
TOTAL ASSETS $ 3,214,440 $ 3,249,976
========== ==========
</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,
--------- ------------
1997 1996
--------- ------------
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 4,601 $ 7,275
Trade accounts payable 319,293 226,468
Accrued compensation 383,075 257,364
Accrued insurance 82,213 168,954
Estimated third party settlements 282,948 281,590
Other 129,983 89,008
Payable to Quest and affiliates 12,951 7,747
---------- ----------
Total current liabilities 1,215,064 1,038,406
PARTNERS' EQUITY:
Limited Partners 2,170,526 2,380,598
General Partner (171,150) (169,028)
---------- ----------
Total partners' equity 1,999,376 2,211,570
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 3,214,440 $ 3,249,976
========== ==========
</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,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Operating revenue $2,064,856 $1,949,784
Interest income 4,292 13,670
--------- ---------
Total revenues 2,069,148 1,963,454
--------- ---------
EXPENSES:
Wages & salaries 1,078,728 947,425
Payroll tax & employee benefits 196,224 217,978
Supplies 279,073 243,272
Other operating expenses 182,537 136,714
Ancillary services 246,377 211,764
Health benefits 57,090 58,710
Management fees 102,093 96,427
Management fees-affiliate 19,849 19,285
Property taxes 15,386 16,370
Interest 152 393
Depreciation and amortization 11,730 11,131
Partnership administration 92,103 54,936
---------- ----------
Total expenses 2,281,342 2,014,405
---------- ----------
Net income (loss) $ (212,194) $ (50,951)
========== ==========
Net income (loss) per Limited
Partnership Unit $ (.80) $ (.19)
========== ==========
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, 1995 $(165,063) $2,773,084 $2,608,021
Net loss (510) (50,441) (50,951)
--------- ---------- ----------
Balance at March 31, 1996 $(165,573) $2,722,643 $2,557,070
========= ========== ==========
Balance at December 31, 1996 $(169,028) $2,380,598 $2,211,570
Net loss (2,122) (210,072) (212,194)
--------- ---------- ----------
Balance at March 31, 1997 $(171,150) $2,170,526 $1,999,376
========= ========== ==========
</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,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from residents and
government agencies $1,995,956 $1,952,839
Cash paid to suppliers and
employees (1,999,676) (2,000,263)
Interest received 4,292 13,670
Interest paid (152) (393)
Property taxes paid (7,977) (7,976)
---------- ----------
Net cash used in
operating activities (7,557) (42,123)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions/retirements to property
and equipment (14,506) (12,396)
---------- ----------
Net cash used in
investing activities (14,506) (12,396)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (2,674) (2,433)
---------- ----------
Net cash used in financing
activities (2,674) (2,433)
---------- ----------
DECREASE IN CASH
AND CASH EQUIVALENTS (24,737) (56,952)
Cash and cash equivalents at beginning of
period 1,371,093 1,546,363
---------- ----------
Cash and cash equivalents at end of period $1,346,356 $1,489,411
========== ==========
</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,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $(212,194) $ (50,951)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 11,730 11,131
Changes net of effect of sold facilities:
Accounts receivable (68,900) 3,055
Prepaid expenses 82,475 117,978
Accounts payable and accrued
liabilities 174,128 (115,672)
Payable to Quest and affiliates 5,204 (7,664)
---------- ----------
Net cash used in
operating activities $ (7,557) $ (42,123)
========== ==========
</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, 1997
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 CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, demand deposits and money market funds.
The Partnership maintains cash accounts with a variety of unrelated banks, all
of which are covered by the Federal Deposit Insurance Corporation (FDIC). At
March 31, 1997, the Partnership maintained cash balances at these banks
aggregating $1,215,764 in excess of the $100,000 FDIC insured maximum.
NOTE 3 TRANSACTIONS WITH AFFILIATES
The Partnership Agreement provides for payment of property management fees based
on 6% of gross property operating revenue. Quest Administrative Services, L.P.,
(QASLP), an affiliate of Quest, receives 1% of gross operating revenue relating
to services provided directly to the facilities. Total payments to QASLP under
this contract for the periods ended March 31, 1997 and 1996 were $19,849 and
$19,285, respectively.
Quest, in an effort to continue certain health benefits for Partnership
employees, created an employee benefit trust (the "Trust") in compliance with
the guidelines promulgated by VEBA and ERISA. Amounts contributed to the Trust
by the Partnership and Partnership employees 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 pre-
certification organization to review all claims made by the Partnership's
employees. Approximately $57,090 and $58,710 were recorded under this
arrangement for the periods ended March 31, 1997 and 1996, respectively.
8
<PAGE> 9
QUEST HEALTH CARE INCOME FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 LITIGATION
In December 1994, the Partnership received a Notice and Demand for Payment from
the Idaho State Tax Commission resulting from sales tax audits for approximately
$90,000. The Partnership recorded a provision of approximately $67,000 in the
Partnership's 1994 Financial Statements. As a result of selling facility
interests in 1995, the liability and reserve were reduced to $36,410 and
$27,308, respectively. As of year end 1996, the reserve has not changed and the
State was reassessing their position relative to these claims. The Partnership
is involved in certain other routine litigation incidental to business including
a claim for wrongful termination filed by a former employee of one of the
Partnership's facilities. Management does not expect settlements, if any, to
have a material adverse effect on the Partnership's financial position.
During April 1997, the wrongful termination complaint filed against one of the
facility partnerships was decided against the plaintiff through Summary
Judgement. The facility partnership awaits the entry of the court order and will
proceed to collect costs, as yet to be determined, from the plaintiff.
NOTE 5 GOING CONCERN
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 previous sale
of the Partnership's interests in seven nursing homes and possible future sales
of any or all 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 the facility
and Partnership expenses and establishing adequate reserves from the sales of
facilities should enable the Partnership to meet its obligations and upon the
final sale of its assets, liquidate in an orderly fashion.
9
<PAGE> 10
PART 1
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Revenue:
For the three month period ended March 31, 1997, partnership revenues increased
$105,694 compared to the same period in 1996. The source of these revenue
increases were the Burley and South Salem care centers where both facilities
have significantly improved their Medicare utilization.
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, 1997 and December
31, 1996 are:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Medicaid 34% 32%
Private Pay 18% 21%
VA, Medicare and Other 48% 47%
--- ---
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, 1997 and
1996 are:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Medicaid 52% 55%
Private Pay 16% 14%
VA, Medicare and Other 32% 31%
--- ---
100% 100%
=== ===
</TABLE>
Expenses:
For the three month period ended March 31, 1997, expenses increased $266,937
when compared to the same period in 1996. Fifty percent of this increase is
related to wage increases at the facilities made necessary by competition for
employees from other businesses as well as vacation accruals for the facility
employees. Increases in other operating expenses and ancillary services are
related to Medicare utilization increases at Burley and South Salem care
centers. These expenses will be recovered through Medicare billings subsequent
to the end of the first quarter. In addition, other operating expenses increased
substantially as a result of legal fees incurred to defend the Burley facility
partnership against an employee claim of wrongful termination. As referenced
below, the partnership prevailed and as soon as the final judgement is entered,
the facility partnership will pursue collection of costs from the plaintiff.
Liquidity and Capital Resources:
At March 31, 1997, the Partnership held cash and cash equivalents of $1,346,356,
which represents a decrease of $24,737 since December 31, 1996. The cash
decrease is due primarily to the use of cash for operating activities.
10
<PAGE> 11
During the first quarter of 1997, the Partnership agreed, in principal, to sell
the assets of the four remaining facility partnerships. The partnership
administration expenses have increased as a result of legal expenditures
necessitated by the negotiations and by proceeding with land surveys and work
necessary to prepare the land for conveyance. A closing is expected in the month
of June and, therefore, the Partnership intends to proceed with its plan of
liquidation in a timely and orderly fashion.
During April 1997, the wrongful termination complaint filed against one of the
facility partnerships was decided against the plaintiff through Summary
Judgement. The facility partnership awaits the entry of the court order and will
proceed to collect costs, as yet to be determined, from the plaintiff.
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. As stated above,
the Partnership anticipates selling its four remaining facilities, during the
second quarter of 1997 and, if closed, plans to liquidate in an orderly fashion
shortly thereafter.
PART II. OTHER INFORMATION
ITEMS 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.
None during the first quarter of 1997
11
<PAGE> 12
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 20, 1997 By:/s/ Stuart C. Berry
--------------- -------------------
CEO/CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,346,356
<SECURITIES> 0
<RECEIVABLES> 1,051,822
<ALLOWANCES> 17,897
<INVENTORY> 0
<CURRENT-ASSETS> 2,473,136
<PP&E> 3,019,616
<DEPRECIATION> 2,278,312
<TOTAL-ASSETS> 3,214,440
<CURRENT-LIABILITIES> 1,215,064
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,999,376
<TOTAL-LIABILITY-AND-EQUITY> 3,214,440
<SALES> 0
<TOTAL-REVENUES> 2,069,148
<CGS> 0
<TOTAL-COSTS> 2,280,690
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> (212,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> (212,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212,194)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
