<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
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15693
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QUEST HEALTH CARE FUND VII, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 58-1697905
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1355 Peachtree St., Suite 1900, Atlanta, GA 30309
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (404) 607-1950
------------------------------
Formerly: Southmark/CRCA Health Care Fund VII, L.P.
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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
<PAGE> 2
QUEST HEALTH CARE FUND VII, 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 $ 1,134,598 $ 1,469,459
Accounts receivable, net of allowance
for doubtful accounts of $267,526 and
$262,636 at March 31, 1995 and
December 31, 1994, respectively 1,879,216 2,623,217
Prepaid expenses 450,117 772,199
----------- -----------
Total current assets 3,463,931 4,864,875
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Land 686,535 800,577
Buildings and improvements 7,524,761 10,651,257
Equipment and furnishings 1,707,167 1,978,261
----------- -----------
9,918,463 13,430,095
Less accumulated depreciation and amortization 5,725,900 6,449,142
----------- -----------
Net property and equipment 4,192,563 6,980,953
----------- -----------
OTHER ASSETS
Restricted escrow and other deposits - 392,864
----------- -----------
TOTAL ASSETS $ 7,656,494 $12,238,692
=========== ===========
</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 FUND VII, L.P.
BALANCE SHEETS
LIABILITIES AND PARTNERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
------------- ------------
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 38,213 $ 103,468
Trade accounts payable 937,410 988,831
Accrued compensation 628,350 631,748
Accrued insurance 161,801 399,807
Accrued interest - 41,587
Estimated third party settlements 367,479 287,013
Estimated sales tax settlement (Note 4) 352,602 352,602
Other 123,323 299,643
Payable to Quest and affiliates 56,204 29,176
----------- -----------
Total current liabilities 2,665,382 3,133,875
LONG-TERM DEBT, less current maturities 61,855 1,843,803
----------- -----------
Total liabilities 2,727,237 4,977,678
----------- -----------
PARTNERS' EQUITY
Limited Partners 5,067,388 7,403,755
General Partner (138,131) (142,741)
----------- -----------
Total partners' equity 4,929,257 7,261,014
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 7,656,494 $12,238,692
=========== ===========
</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 FUND VII, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
----------------------------
1995 1994
--------- ---------
<S> <C> <C>
REVENUES:
Operating revenue $5,807,793 $5,718,891
Interest income 20,717 9,247
Gain from sale 200,446 -
---------- ----------
Total revenues 6,028,956 5,728,138
---------- ----------
EXPENSES:
Wages & salaries 2,539,278 2,592,906
Payroll tax & employee benefits 583,762 547,588
Supplies 547,929 523,142
Other Operating expenses 607,436 703,583
Ancillary services 489,551 439,192
Health benefits 100,190 50,945
Management fees 304,573 310,868
Management fees-affiliate 52,452 47,989
Property taxes 35,572 39,434
Interest 24,978 46,677
Depreciation and amortization 100,516 175,377
Partnership administration 181,696 166,903
---------- ----------
Total expenses 5,567,933 5,644,604
---------- ----------
NET INCOME (LOSS) $ 461,023 $ 83,534
========== ==========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 1.63 $ .30
========== ==========
Weighted average limited partnership
units outstanding 279,278 279,278
========== ==========
</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 FUND VII, L.P.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Equity
--------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993 $(71,279) $14,478,482 $14,407,203
Net income 835 82,699 83,534
-------- ----------- -----------
Balance at March 31, 1994 $(70,444) $14,561,181 $14,490,737
======== =========== ===========
Balance at December 31, 1994 $(142,741) $ 7,403,755 $ 7,261,014
Net income 4,610 456,413 461,023
Distributions - (2,792,780) (2,792,780)
--------- ----------- -----------
Balance at March 31, 1995 $(138,131) $ 5,067,388 $ 4,929,257
========= =========== ===========
</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 FUND VII, 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 $ 6,089,163 $ 5,595,109
Cash paid to suppliers and
employees (5,199,847) (5,208,882)
Interest received 20,717 9,247
Interest paid (66,565) (4,285)
Property taxes paid (48,980) (27,598)
----------- -----------
Net cash provided by operating activities 794,488 363,591
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of facility 1,700,000 -
Payment for purchases of property
and equipment (22,347) (23,165)
Funding of restricted accounts (4,495) (56,814)
----------- -----------
Net cash used in investing activities 1,673,158 (79,979)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (9,727) (9,654)
Distributions to partners (2,792,780) -
----------- -----------
Net cash used in financing activities (2,802,507) (9,654)
----------- -----------
Increase in cash and cash
equivalents (334,861) 273,958
Cash and cash equivalents at beginning of
period 1,469,459 1,157,911
----------- -----------
Cash and cash equivalents at end of period $ 1,134,598 $ 1,431,869
=========== ===========
</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 FUND VII, 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) $ 461,023 $ 83,534
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 100,516 175,377
Gain on sale of facility (200,446) -
Changes in assets and liabilities
Accounts receivable 281,370 (123,782)
Other current assets 177,102 26,748
Accounts payable and accrued
liabilities (52,105) 191,509
Payable to Quest and affiliates 27,028 10,205
---------- ----------
Net cash provided by operating activities $ 794,488 $ 363,591
========== ==========
</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 FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 1
During interim periods, Quest Health Care Fund VII, 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 $946,870 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 $100,190 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 $52,452.
Note 4
The Partnership settled its litigation against Healthcare Services Group, Inc.
which was more fully discussed in the Partnership's 1994 Annual Report of Form
10-K. 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 $470,135. Of this amount, approximately $119,113 of liability
will be assumed by the purchaser of the facilities under contract for sale (See
note 6). The Company is discussing a settlement of this matter and has
recorded a provision of approximately $352,602 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.
8
<PAGE> 9
QUEST HEALTH CARE FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
Note 5
In February 1995, the Partnership sold its Partnership interest in one facility
to an unaffiliated third party and recognized a gain of $200,000. The
Partnership was relieved of the mortgage obligations secured by the facility of
$1,830,000, received cash of $1,700,000 and was relieved of any obligations
relating to Medicaid or Medicare settlements, audit adjustments and prior
reimbursement recapture by Medicare.
In addition, the Partnership entered into a contract to sell its interests in
four facilities with a different unaffiliated third party. The contract
provides 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 for the sale of the Partnership
interests in the four facilities. The contract also provides for cash
consideration adjustments 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. Closing of this
sale occurred as of April 30, 1995. Initial calculations indicate cash due the
Partnership of $3,370,000. 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 are 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 February sale
of the Partnership's interest in one facility. The Partnership may also seek
to liquidate the Partnerships interests in its three remaining facilities.
In February 1995, the limited partners of the Partnership received hostile
tender offer materials offering to purchase the units of certain limited
partners of the Partnership. The unfriendly bidder amended its tender offer
materials three times requiring the Partnership to respond to the offer at a
cost to the Partnership. The expense of the printed materials and legal advice
necessary to represent the Partnership's belief regarding this offer currently
exceeds $125,000. The activities of the unfriendly bidder may continue to
represent a probable ongoing expense of the Partnership and forced the
Partnership to use its funds for unproductive purposes. The tender offer
expired on April 28, 1995. The expenses are reflected in the Partnership's
financial statements through March 31, 1995.
Note 6
The following proforma condensed financial information does not purport to
present what actual financial position and results of operations would have ben
if the transactions previously described had occurred on such dates or to
project results for any future period. It is management of the Partnership's
belief that all adjustments necessary to reflect the effects of the sale and
contract for sale described in Note 5 have been made.
9
<PAGE> 10
NOTE 6 CONTINUED
PRO FORMA CONDENSED BALANCE SHEET
As of March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Historical Adjustments Pro Forma
------------- -------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents $ 1,134 $ 2,951 (A) $ 4,085
Accounts receivable, net 1,879 (1,365)(A) 514
Prepaid expenses 450 (303)(A) 147
Property and equipment 4,193 (2,970)(A) 1,223
----------- ----------- -----------
$ 7,656 $ (1,687) $ 5,969
=========== =========== ===========
LIABILITIES AND PARTNERS' EQUITY
Debt payable $ 100 $ (65)(A) $ 35
Trade accounts payable 937 (562)(A) 375
Accrued expenses 1,690 (1,063)(A) 627
Partners' equity 4,929 3 (A) 4,932
----------- ----------- -----------
$ 7,656 $ (1,687) $ 5,969
=========== =========== ===========
</TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (B)
For the Quarter Ended March 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
-------------- --------------- -------------
<S> <C> <C> <C>
Revenues: $ 5,829 $ (4,145)(A) $ 1,684
----------- ------------ ----------
Expenses:
Wages and salaries $ 2,539 $ (1,811)(A) $ 728
Operating expenses 2,326 (1,606)(A) 720
Management fees 305 (220)(A) 85
Management fees-affiliate 52 (36)(A) 16
Property taxes and interest 63 (47)(A) 16
Depreciation and amortization 101 (80)(A) 21
Partnership administration 182 - 182
----------- ------------ ----------
5,568 (3,800) 1,768
----------- ------------ ----------
Net income (loss) (B) $ 261 $ (345) $ (84)
=========== ============ ==========
</TABLE>
(A) The pro forma adjustments remove the balance sheet amounts,
revenues and expenses directly related to the nursing home
sold and the four nursing homes under contract for sale to an
unaffiliated third party.
(B) The historical statement of operations for the period ended
March 31, 1995 includes a gain of $200, in thousands, from the
sale of one facility. This amount is not included in the
above pro forma condensed statement of operations due to the
non recurring nature.
10
<PAGE> 11
Note 7
Subsequent to the end of the first quarter of 1995, the hostile tender offer
referenced under Note 5 expired on April 28, 1995, Notice of termination was
filed by the offeror on May 1, 1995.
The four facilities under contract for sale referenced in Note 5 closed as of
April 30, 1995. The Partnership calculated initial cash due the Partnership of
$3,370,000. The final post closing adjustments will be calculated after the
Partnership's auditors have performed certain special procedures to enable the
Partnership's management to make a final determination of elements of working
capital.
PART I
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Results of Operations:
In February 1995, the Partnership sold its interest in one facility for a gain
of approximately $200,000. The Partnership was relieved of mortgage
obligations secured by the facility exceeding $1,830,000, and received cash of
$1,700,000. As a result of the sale of the facility and cash on hand; the
Partnership distributed $2,792,780 to the limited partners in March of 1995.
Also in February, the Partnership contracted to sell its interests in four
facilities to another unaffiliated third party. The purchase was consummated
subsequent to the current period and will be reflected in future financial
statements. Subsequent to the current period, the Partnership will have three
facilities remaining.
Revenues:
Revenues for the first quarter of 1995 increased $88,902. On a pro forma
basis, removing the effect of the sold facility and the properties under
contract for sale, revenues increased $120,276 over the comparable period in
1994. This increase is the result of improved occupancy and 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, 1995 and
December 31, 1994 are:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Medicaid 55% 50%
Private Pay 14% 14%
VA, Medicare and Other 31% 36%
------ -------
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 62% 65%
Private Pay 13% 13%
VA, Medicare and Other 25% 22%
------ -------
100% 100%
====== =======
</TABLE>
11
<PAGE> 12
Expenses:
Expenses for the first quarter of 1995 decreased $76,671. On a pro forma
basis, eliminating the effect of the sold facility and the facilities under
contract for sale, expenses at the facilities increased $161,812. These
increases are attributable to increased ancillary expenses at Valley
Convalescent, increased health benefit costs at all facilities and normal
inflationary expenses.
The Partnership's facilities have shown improvement despite market competition
and government reimbursement changes. Valley Convalescent located in
California has improved census and Medicare utilization. Higher revenue was
achieved despite the fact that the State of California did not increase
reimbursement at all in 1995. Valley Living, in Idaho, has improved census and
controlled expenses and currently generates positive cash flow. Mountain View
continues to suffer the consequence of the new facility in town. The facility
has operated at basically break even while management of the Partnership
attempts to re-market the home.
In February 1995, the Partnership sold its interest in one facility to an
unaffiliated third party and recognized a gain of $200,000. In addition, the
Partnership entered into a contract to sell its Partnership interests in four
facilities with a different unaffiliated third party. The contract provides
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 for the sale of the four Partnerships interests.
The contract also provides for cash consideration adjustments 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. Closing of this sale occurred as of April 30, 1995. Initial
calculations indicate cash due the Partnership of $3,370,000. 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 are
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 February sale of the Partnership's
interests in one facility. The Partnership may also seek to liquidate its
interests in the Partnership's three remaining facilities.
Neither the general partner nor its affiliates will receive any remuneration or
distributions of sales proceeds.
Liquidity and Capital Resources:
At March 31, 1995, the Partnership held cash and cash equivalents of
$1,134,861. This is a decrease of $334,861 since December 31, 1994 and
reflects the collection of sales proceeds from one facility and distributions
to the limited partners of $2,792,780 during the quarter. There are no major
capital improvements planned at the remaining facilities.
In February the Partnership sold its interest in one facility and contracted to
sell four others. Those four were sold effective April 30, 1995, subsequent to
the current quarter.
Another significant event in 1994 affecting the value of the Partnership was
the State of Idaho seeking a $470,135 deficiency lien against the Partnership's
Idaho properties for periods from 1976 through 1988, under a theory of
successor liability. The Partnership acquired its interests in these
properties in June 1987. Although the Partnership believes it has a number of
meritorious defenses to the claims of the State of Idaho, an expense has was
accrued in the fourth quarter of 1994 in the amount of $352,602. Any
settlement with the state for an amount less than this accrual will result in a
gain to the Partnership. Conversely, any settlement in excess of this accrual
will result in an additional loss to the Partnership. The purchaser of the
facilities under contract for sale will assume $119,113 of this liability
before adjustment.
In February 1995, the limited partners of the Partnership received hostile
tender offer materials offering to purchase the units of certain limited
partners of the Partnership. The unfriendly bidder amended its tender offer
materials three times requiring the Partnership to respond to the offer at a
cost to the Partnership. The expense of the printed materials and legal advice
necessary to represent the Partnership's belief regarding this offer currently
exceeds $125,000. The activities of the unfriendly bidder may continue to
12
<PAGE> 13
represent a probable ongoing expense of the Partnership and forced the
Partnership to use its funds for unproductive purposes. The tender offer
expired on April 28, 1995. The expenses are reflected in the Partnership's
financial statements through March 31, 1995.
The Partnership's Balance Sheets reflect the estimated net realizable value of
property and equipment. 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 at that time.
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, 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 and
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 value was recognized during
1994 in the amount of $6,748,648 and is reflected in the Financial Statements.
If these assets had been sold as of March 31, 1995, for the estimated net
realizable value set out in the Financial Statements, the proceeds from the
sales would be less than management's prior expectations of $30-35 per unit for
the sale of these properties, as set out in the Partnership's materials
responding to the hostile tender offer, described earlier. Should the
properties have been sold for an amount equal to estimated net realizable value
as of March 31, 1995, proceeds would approximate $17.65 per unit in addition to
the $10 per unit already distributed to the limited partners. However, such
amounts do not reflect cash flow from operations subsequent to March 31, 1995;
the cost of winding down the Partnership; funding cash flow, if necessary, of
any remaining properties pending their final disposal; calculation of the post
closing adjustments related to the four properties under contract for sale;
gain or loss from the disposition of the litigation described in Note 4 to the
Financial Statements; expense associated with material litigation or state or
federal actions effecting the licensing or reimbursement of the Partnership's
facilities, if any; differences between the carrying value at March 31, 1995 of
the properties and the price received at the disposal of the properties not
sold; changes in partnership administration expense; costs associated with any
further activities of the hostile tender described above; and the difference in
recorded assets and liabilities and ultimate settlement (e.g. sales tax, cost
report and other contingencies). However, management of the Partnership
believes that, based on the recent circumstances described herein pertaining to
Valley Convalescent, there is a possibility that should the Partnership sell
Valley Convalescent in the near future, the sales price would exceed the net
realizable value for the facility described in the Financial Statements.
Ultimately, the final distribution to the limited partners upon termination of
the Partnership could be greater or less than that which is presented in the
Financial Statements. Further, distributions will be affected by any reserves
to be established and by the Partnership's ability to reduce or control
expenses until the Partnership is terminated.
13
<PAGE> 14
Medicare is a federal entitlement program and Medicaid (the source of the
majority of the Partnership's revenues) represents an entitlement program
administered differently by each state which is partially funded by the Federal
government. In August 1993, Congress enacted 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 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. 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. In 1995 the
latest idea appears to be "block grants" to the states. What this means to
nursing facilities 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 resources 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.
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.
The Partnership filed the following report on Form 8-K during the
first quarter of 1995.
Date Items Reported
---- --------------
February 16, 1995 2,7
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
FUND VII, L.P.
(Registrant)
By: QUEST RESCUE PARTNERS - 7, L.P.
General Partner
By: QUEST RESCUE PARTNERS - 7 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 VII, 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> 1,134,598
<SECURITIES> 0
<RECEIVABLES> 2,146,742
<ALLOWANCES> 267,526
<INVENTORY> 0
<CURRENT-ASSETS> 3,463,931
<PP&E> 9,918,463
<DEPRECIATION> 5,725,900
<TOTAL-ASSETS> 7,656,494
<CURRENT-LIABILITIES> 2,665,382
<BONDS> 61,855
<COMMON> 0
0
0
<OTHER-SE> 4,929,257
<TOTAL-LIABILITY-AND-EQUITY> 7,656,494
<SALES> 0
<TOTAL-REVENUES> 6,028,956
<CGS> 0
<TOTAL-COSTS> 5,522,996<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,959
<INTEREST-EXPENSE> 24,978
<INCOME-PRETAX> 461,023
<INCOME-TAX> 0
<INCOME-CONTINUING> 461,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461,023
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.63
<FN>
<F1>Excludes Prov. Doubtful Accts & Interest
</FN>
</TABLE>
