<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, 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 0-15693
QUEST HEALTH CARE FUND VII, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-1697905
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1117 Perimeter Center West E-210 Atlanta, GA 30338
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 671-1014
Formerly: Southmark/CRCA Health Care Fund VII, L.P.
- --------------------------------------------------------------------------------
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 FUND VII, L.P.
BALANCE SHEETS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
----------- ----------
1997 1996
----------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 749,474 $ 896,687
Accounts receivable, net of allowance
for doubtful accounts of $38,099 and
$33,495 at March 31, 1997 and
December 31, 1996, respectively 975,722 850,173
Prepaid expenses 90,689 129,411
----------- ----------
Total current assets 1,815,885 1,876,271
----------- ----------
PROPERTY AND EQUIPMENT, at cost
Land 234,662 234,662
Buildings and improvements 2,388,021 2,388,741
Equipment and furnishings 822,214 797,346
----------- ----------
3,444,897 3,420,749
Less accumulated depreciation and amortization (2,393,668) 2,374,312
----------- ----------
Net property and equipment 1,051,229 1,046,437
----------- ----------
TOTAL ASSETS $ 2,867,114 $2,922,708
=========== ==========
</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,
----------- ------------
1997 1996
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,655 $ 9,629
Trade accounts payable 301,989 286,815
Accrued compensation 263,261 121,404
Accrued insurance 47,528 92,885
Estimated third party settlements 102,349 177,779
Estimated sales tax settlement (Note 4) 279,691 279,691
Accrued expenses 72,189 51,128
Other 66,819 29,917
Payable to Quest and affiliates 20,874 3,885
----------- -----------
Total current liabilities 1,160,355 1,053,133
PARTNERS' EQUITY
Limited Partners 1,851,980 2,013,168
General Partner (145,221) (143,593)
----------- -----------
Total partners' equity 1,706,759 1,869,575
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 2,867,114 $ 2,922,708
=========== ===========
</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,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Operating revenue $ 1,621,019 $ 1,732,850
Interest income 1,703 11,443
----------- -----------
Total revenues 1,622,722 1,744,293
----------- -----------
EXPENSES:
Wages & salaries 790,238 808,095
Payroll tax & employee benefits 132,624 158,456
Supplies 196,604 236,323
Other operating expenses 146,473 132,862
Ancillary services 258,014 272,250
Health benefits 27,240 39,190
Management fees 80,832 88,755
Management fees-affiliate 16,321 17,757
Property taxes 15,333 15,895
Interest 214 737
Depreciation and amortization 19,356 20,821
Partnership administration 102,289 64,339
----------- -----------
Total expenses 1,785,538 1,855,480
----------- -----------
NET LOSS $ (162,816) $ (111,187)
=========== ===========
NET LOSS PER LIMITED
PARTNERSHIP UNIT $ (.58) $ (.39)
=========== ===========
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, 1995 $(137,406) $ 2,625,675 $ 2,488,269
Net income (1,112) (110,075) (111,187)
--------- ----------- -----------
Balance at March 31, 1996 $(138,518) $ 2,515,600 $ 2,377,082
========= =========== ===========
Balance at December 31, 1996 $(143,593) $ 2,013,168 $ 1,869,575
Net income (1,628) (161,188) (162,816)
Balance at March 31, 1997 $(145,221) $ 1,851,980 $ 1,706,759
========= =========== ===========
</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,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from residents and
government agencies $ 1,495,470 $ 1,604,196
Cash paid to suppliers and
employees (1,609,663) (1,691,354)
Interest received 1,703 11,443
Interest paid (214) (737)
Property taxes paid (6,387) (42,274)
----------- -----------
Net cash used in
operating activities (119,091) (118,726)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchases of property
and equipment (24,148) (9,193)
----------- -----------
Net cash used in
investing activities (24,148) (9,193)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (3,974) (3,329)
----------- -----------
Net cash used in financing activities (3,974) (3,329)
----------- -----------
DECREASE IN CASH AND CASH
EQUIVALENTS (147,213) (131,248)
Cash and cash equivalents at beginning of
period 896,687 1,325,321
----------- -----------
Cash and cash equivalents at end of period $ 749,474 $ 1,194,073
=========== ===========
</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,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $(162,816) $(111,187)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 19,356 20,821
Changes in assets and liabilities:
Accounts receivable (125,549) (128,654)
Other current assets 38,722 59,380
Accounts payable and accrued
liabilities 94,207 42,334
Payable to Quest and affiliates 16,989 (1,420)
--------- ---------
Net cash used in
operating activities $(119,091) $(118,726)
========= =========
</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, 1997
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 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 $509,586 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 property operating revenue
relating to services provided directly to the facilities. Total payments to
QASLP under these contracts for the periods ending March 31, 1997 and 1996 were
$16,321 and $17,757, respectively.
Quest, in an effort to continue certain health benefits for 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 $27,240 and $39,190 was recorded under this arrangement
for the periods ending March 31, 1997 and 1996, respectively.
8
<PAGE> 9
QUEST HEALTH CARE FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 LITIGATION
In 1994, a complaint associated with a sexual harassment and wrongful
termination was filed against the Partnership. In the fourth quarter of 1996, a
complaint for discrimination and wrongful termination was received by one of the
Partnership's facilities. The Partnership's liability, if any, is not
determinable at this time and no provision has been made in the accompanying
Financial Statements. It is the opinion of management that the ultimate
resolution will not have a material effect on the Partnership's financial
position. There has been no significant change in the status of this 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 the years
1976 through 1988 under a theory of successor liability for approximately
$470,000. The Partnership has recorded a provision in the 1994 Financial
Statements for $352,602, at December 31, 1994. As a result of selling certain
facility interests in 1995, this successor liability was reduced to
approximately $373,000 and the reserves were reduced to $279,691. As of year end
1996 the reserve remains at $279,691. The amount of this liability could change
in the near term and the difference between the final settlement and the
recorded liability of $279,691 will be reflected in the results from operations.
As of year end 1996, the state was reassessing its position relative to these
claims.
NOTE 5 FACILITY SALES
During the first quarter of 1997, the Partnership entered into a contract with
an unaffiliated third party to sell all of the assets of one of its 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 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 sale of the
Partnership's interests in five 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 I
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Revenues:
Revenues for the first quarter of 1997 decreased $121,571 when compared to the
first quarter in 1996. The majority of this decrease is a result of lower
occupancies at the facilities, in particular, Valley Living Center where market
competition with newer facilities in town has effected the facility. At Valley
Convalescent there have been fewer discharges from the hospital. As the Medicare
census rebuilds at the facility the ancillary revenue associated with these
types of patients will increase as well.
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 46% 48%
Private Pay 11% 10%
VA, Medicare and Other 43% 42%
------ ------
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 43% 47%
Private Pay 13% 11%
VA, Medicare and Other 44% 42%
------- ------
100% 100%
======= ======
</TABLE>
Expenses:
Expenses for the first quarter of 1997 decreased $69,942 when compared to the
first quarter of 1996. These decreases are attributable to payroll decreases and
decreased ancillary utilization as well as effective expense and personnel
controls as a result of lower occupancies. The increase in partnership
administration expenses during the first quarter is primarily legal expenses
necessitated by the negotiation of the contract on the Valley Convalescent
facility as well as costs incurred with preparing the other facilities for sale.
Liquidity and Capital Resources:
At March 31, 1997, the Partnership held cash and cash equivalents of $749,474.
This is a decrease of $147,213 since December 31, 1996. This is due primarily to
cash used in operating activities. There are no major capital improvements
planned at the remaining facilities.
During the first quarter of 1997, the Valley Convalescent facility experienced
some delay in collecting its Medicare receivables. This is primarily as a result
of the resignation of Aetna Insurance Company as the Medicare intermediary and
the conversion to Mutual of Omaha as the Medicare intermediary for that
facility. The delays seem to have been resolved subsequent to the end of the
first quarter and are not anticipated to create further problems. The Valley
Convalescent
10
<PAGE> 11
facility, located two hours east of San Diego in the desert, continues to
experience difficulty in attracting qualified, certified nursing assistants and
is continuing to experience wage competition from non-nursing home businesses.
This, in addition to accrued vacation at all partnership facilities, was the
primary reason for the increase in accrued compensation.
The Valley Living Center, located in Idaho Falls, Idaho, has done well at
controlling its expenses, however, the facility is in direct competition with
newly built assisted living properties in the same town and has experienced a
decrease in occupancy. This situation is not expected to change until such time
as the competing facilities achieve a stable occupancy. The Mountain View
facility, located in Kimberly, Idaho, has not made significant progress in
increasing its occupancy.
Litigation filed against two of the Partnership's majority owned facility
partnerships continues unabated. As of this writing, the litigation has not
effected the Partnership's plan of liquidation and the Partnership will use
whatever strategies are necessary to protect its interests and to complete its
liquidation. The sale of the Valley Convalescent facility is proceeding
according to contract and negotiations for the sale of the two remaining
facilities are drawing to a conclusion.
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. As stated above,
the Partnership will entertain offers to sell any or all of its three remaining
facilities and, if accepted and closed, plans to liquidate in an orderly
fashion.
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
FUND VII, L.P.
(Registrant)
By: QUEST RESCUE PARTNERS - 7, L.P.
General Partner
By: QUEST RESCUE PARTNERS - 7 Corp.
Date: May 20, 1997 By: /s/ Stuart C. Berry
---------------- -------------------
CEO/CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<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> 749,474
<SECURITIES> 0
<RECEIVABLES> 1,013,821
<ALLOWANCES> 38,099
<INVENTORY> 0
<CURRENT-ASSETS> 1,815,885
<PP&E> 3,444,897
<DEPRECIATION> 2,393,668
<TOTAL-ASSETS> 2,867,114
<CURRENT-LIABILITIES> 1,160,355
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,706,759
<TOTAL-LIABILITY-AND-EQUITY> 2,867,114
<SALES> 0
<TOTAL-REVENUES> 1,622,722
<CGS> 0
<TOTAL-COSTS> 1,750,720
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34,604
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> (162,816)
<INCOME-TAX> 0
<INCOME-CONTINUING> (162,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162,816)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
