<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 June 30, 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 Suite E-210 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
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>
June 30, December 31,
-------- ------------
1997 1996
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,018,013 $1,371,093
Accounts receivable, net of allowance
for doubtful accounts of $18,647 and
$49,980 at June 30, 1997 and
December 31, 1996, respectively 879,820 965,025
Prepaid expenses 40,816 175,330
---------- ----------
Total current assets 1,938,649 2,511,448
---------- ----------
PROPERTY AND EQUIPMENT, at cost
Land 240,617 240,617
Buildings and improvements 1,887,742 1,872,215
Equipment and furnishings 896,568 892,278
---------- ----------
3,024,927 3,005,110
Less accumulated depreciation and amortization 2,290,240 2,266,582
---------- ----------
Net property and equipment 734,687 738,528
---------- ----------
TOTAL ASSETS $2,673,336 $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>
June 30, December 31,
---------- ------------
1997 1996
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,862 $ 7,275
Trade accounts payable 293,762 226,468
Accrued compensation 422,466 257,364
Accrued insurance 19,938 168,954
Estimated third party settlements 88,322 281,590
Other 98,360 89,008
Payable to Quest and affiliates 4,326 7,747
---------- ------------
Total current liabilities 929,036 1,038,406
PARTNERS' EQUITY:
Limited Partners 1,918,001 2,380,598
General Partner (173,701) (169,028)
---------- ------------
Total partners' equity 1,744,300 2,211,570
---------- ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $2,673,336 $ 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>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Operating revenue $1,876,548 $1,947,456 $3,941,403 $3,897,239
Other income 26,658 -0- 26,658 -0-
Interest income 2,519 13,096 6,811 26,768
---------- ---------- ---------- ----------
Total revenues 1,905,725 1,960,552 3,974,872 3,924,007
---------- ---------- ---------- ----------
EXPENSES:
Wages & salaries 1,029,380 945,738 2,108,108 1,893,164
Payroll tax & employee benefits 186,423 215,633 382,647 433,610
Supplies 238,818 230,830 517,891 474,102
Other operating expenses 200,739 92,535 383,276 229,252
Ancillary services 202,998 164,924 449,375 376,689
Health benefits 57,050 61,660 114,140 120,370
Management fees 104,633 97,488 206,726 193,916
Management fees-affiliate 20,927 19,498 40,776 38,783
Property taxes 15,514 12,267 30,900 28,637
Interest 87 372 239 765
Depreciation and amortization 11,927 11,249 23,657 22,379
Partnership administration 92,304 80,128 184,407 142,049
---------- ---------- ---------- ----------
Total expenses 2,160,800 1,932,322 4,442,142 3,953,716
---------- ---------- ---------- ----------
Net income (loss) $ (255,075) $ 28,230) $ (467,270) $ (29,709)
========== ========== ========== ==========
Net income (loss) per Limited
Partnership Unit $ ( .96) $ .11 $ (1.76) $ (.11)
========== ========== ========== ==========
Weighted average Limited Partnership
Units outstanding 262,183 262,183 262,183 262,183
========== ========== ========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
4
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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 (297) (29,412) (29,709)
--------- ----------- -----------
Balance at June 30, 1996 $(165,360) $ 2,743,672 $ 2,578,312
========= =========== ===========
Balance at December 31, 1996 $(169,028) $ 2,380,598 $ 2,211,570
Net loss (4,673) (462,597) (467,270)
--------- ----------- -----------
Balance at June 30, 1997 $(173,701 $ 1,918,001 $ 1,744,300
========= =========== ===========
</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>
Six Months Ended
June 30,
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from residents and
government agencies $4,026,608 $3,947,069
Cash paid to suppliers and
employees (4,337,540) (3,834,797)
Interest received 6,811 26,768
Interest paid (239) (765)
Property taxes paid (23,490) (26,878)
---------- ----------
Net cash provided by (used in)
operating activities (327,850) 111,397
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions/retirements to property
and equipment (19,817) (20,970)
---------- ----------
Net cash used in investing activities (19,817) (20,970)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (5,413) (4,924)
---------- ----------
Net cash (used in) financing
activities (5,413) (4,924)
---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (353,080) 85,503
Cash and cash equivalents at beginning of
period 1,371,093 1,546,363
---------- ----------
Cash and cash equivalents at end of period $1,018,013 $1,631,866
========== ==========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
6
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QUEST HEALTH CARE INCOME FUND I, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $(467,270) $ (29,709)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities
Depreciation and amortization 23,657 22,379
Cash provided (used) by changes in assets and liabilities:
Accounts receivable 85,205 49,830
Prepaid expenses 134,514 207,299
Accounts payable and accrued
liabilities (100,535) (156,403)
Payable to Quest and affiliates (3,421) 18,001
--------- ---------
Net cash provided by (used in)
operating activities $(327,850) $ 111,397
========= =========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants. See notes to financial
statements.
7
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QUEST HEALTH CARE INCOME FUND I, L.P.
NOTES TO FINANCIAL STATEMENTS
June 30, 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
June 30, 1997, the Partnership maintained cash balances at these banks
aggregating $887,606 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 six month periods ended June 30, 1997 and 1996 were
$40,776 and $38,783, 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. $114,140 and $120,370 were recorded under this arrangement for the
six month periods ended June 30, 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. During the second quarter of 1997, the Partnership
settled the case by paying $650, to the State of Idaho. The balance of the
reserve is no longer necessary and its removal was recorded as Other Income,
thereby increasing the equity of the Partnership. 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 FACILITY SALES
Subsequent to the second quarter, the Partnership completed an agreement with an
unaffiliated third party to sell all the assets of its remaining subsidiary
partnerships. The contract calls for all cash consideration to be paid at the
date of closing. The Partnership will distribute the proceeds of sale, should
the sale be completed, as part of its final liquidation.
NOTE 6 NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued its Statements No. 128,
"Earnings Per Share", No. 130, "Reporting Comprehensive Income" and No. 131,
"Disclosures about Segments of an Enterprise and Related Information". Adoption
of these Statements is not expected to materially impact the financial
statements.
NOTE 7 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.
9
<PAGE> 10
PART 1
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Revenue:
For the six month period ended June 30, 1997, partnership revenues increased
$50,865 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 improved occupancy. In addition, the settlement of the Idaho sales tax
claims required the reversal of the reserve for liability to appear as Other
Income.
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 June 30, 1997 and December
31, 1996 are:
1997 1996
---- ----
Medicaid 38% 32%
Private Pay 20% 21%
VA, Medicare and Other 42% 47%
---- ----
100% 100%
==== ====
Payments by both the state and federal governments are normally received within
60-90 days. The sources of patient revenues for the six month period ended June
30, 1997 and 1996 are:
1997 1996
---- ----
Medicaid 55% 56%
Private Pay 16% 15%
VA, Medicare and Other 29% 29%
---- ----
100% 100%
==== ====
Expenses:
For the six month period ended June 30, 1997, expenses increased $488,426 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, vacation accruals for the facility employees and
increased usage of temporary employees as a result of increased employee
turnover. Increases in other operating expenses and ancillary services are
related to Medicare utilization increases at Burley and South Salem care
centers. 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. The final judgement was entered and the facility partnership is
pursuing collection of costs from the plaintiff.
Liquidity and Capital Resources:
At June 30, 1997, the Partnership held cash and cash equivalents of $1,018,013,
which represents a decrease of $ 353,080 since December 31, 1996. The cash
decrease is due primarily to the use of cash for operating activities and
employee litigation.
During the second quarter of 1997, the Partnership completed an agreement 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. The closing which was expected to
10
<PAGE> 11
occur in June was delayed and is now expected to occur on or about August 31,
1997. The proceeds from the sale, should the sale be completed, will be
distributed to the Limited Partners as rapidly as possible.
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 is proceeding to collect costs from the
plaintiff, although the ability of the plaintiff to pay costs is limited.
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
third 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 second 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: August 26, 1997 By:/s/ Stuart C. Berry
--------------- -------------------------------
CEO
By:/s/ Stuart C. Berry
-------------------------------
CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,018,013
<SECURITIES> 0
<RECEIVABLES> 898,467
<ALLOWANCES> 18,647
<INVENTORY> 0
<CURRENT-ASSETS> 1,938,649
<PP&E> 3,024,927
<DEPRECIATION> 2,290,240
<TOTAL-ASSETS> 2,673,336
<CURRENT-LIABILITIES> 929,036
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,744,300
<TOTAL-LIABILITY-AND-EQUITY> 2,673,336
<SALES> 0
<TOTAL-REVENUES> 3,974,872
<CGS> 0
<TOTAL-COSTS> 4,442,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> (467,270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (467,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (467,270)
<EPS-PRIMARY> (1.76)
<EPS-DILUTED> (1.76)
</TABLE>
