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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
Commission file number 0-19031
National Quality Care, Inc.
(EXACT NAME OF REGISTRANT)
Delaware 84-1215959
(State of Incorporation) (IRS Employer ID No.)
5901 W. Olympic Boulevard, Suite 109
Los Angeles, CA 90036
(Address of Principal Executive Offices) (Zip Code)
(213) 692-0948
(Telephone Number)
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 (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
The number of shares of common stock outstanding
as of November 7, 1997 is 9,555,710.
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National Quality Care, Inc.
Table of Contents
Page
Part I. Financial Information 3
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 4
Consolidated Statements of Operations
for the Three Months Ended September 30, 1997
and 1996 5
Consolidated Statements of Operations
for the Nine Months Ended September 30, 1997
and 1996 6
Consolidated Statements of Stockholders'
Equity for the Nine Months Ended September 30, 1997 7
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 8
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
3
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NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS (NOTE 5)
September 30, December 31,
1997 1996
------------- ------------
Current assets
Cash and cash equivalents $ 77,206 $ 121,812
Accounts receivable, net of allowances for
doubtful accounts of $75,000 309,333 334,927
Note receivable-related parties (Note 3) 865,202 865,202
Supplies inventory 33,262 13,122
Other current assets 167,982 47,208
---------- ----------
Total current assets 1,452,985 1,382,271
Property and equipment, net (Note 4) 2,533,825 2,257,735
Deposits and other long-term assets 56,321 59,197
---------- ----------
Total assets $4,043,131 $3,699,203
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites
Accounts payable 589,697 448,521
Accrued expenses 160,153 303,597
Current portion of long-term debt (Note 5) 62,208 380,414
---------- ----------
Total current liabilities 812,058 1,132,532
Long-term debt, net of current portion (Note 5) 1,899,735 1,804,805
---------- ----------
Total liabilities 2,711,793 2,937,337
Commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock, $.01 par value: 5,000,000 shares
authorized, no shares issued and outstanding
Common stock, $.01 par value: 50,000,000 shares
authorized, 9,555,710 and 7,815,471 shares
issued and outstanding 95,556 78,154
Additional paid-in capital 2,007,894 1,508,009
Notes receivable from stockholder (Note 2) (124,151) (118,044)
Accumulated deficit (647,961) (706,253)
---------- ----------
Total stockholders' equity 1,331,338 761,866
---------- ----------
Total liabilities and stockholder's equity $4,043,131 $3,699,203
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
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NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
1997 1996
--------- ---------
Revenue
Medical service revenue $798,940 $768,578
Rental revenue 67,925 67,925
--------- ---------
Total revenue 866,865 836,503
--------- ---------
Operating expenses
Cost of medical servcies 564,631 557,082
Selling, general, and administrative expenses 287,329 167,853
Rental expense 7,438 7,045
--------- ---------
Total operating expenses 859,398 731,980
--------- ---------
Income from operations 7,467 104,523
Other income (expense)
Interest expense (53,979) (65,948)
Interest income 13,803 1,118
Other income (expense) (30,026) 8,894
--------- ---------
Total other income (expense) (70,202) (55,936)
--------- ---------
Income (loss) before provision for income taxes (62,735) 48,587
Provision for income taxes -- 2,400
--------- ---------
Net income (loss) $ (62,735) $ 46,187
--------- ---------
--------- ---------
Net income (loss) per share $ (0.01) $ 0.01
--------- ---------
--------- ---------
Weighted average common shares outstanding 9,343,625 7,473,347
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements.
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NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
1997 1996
---------- ----------
Revenue
Medical service revenue $2,434,314 $2,288,190
Rental income 203,775 100,352
---------- ----------
Total revenue 2,638,089 2,388,542
---------- ----------
Operating expenses
Cost of medical servcies 1,602,802 1,449,519
Selling, general, and administrative expenses 759,728 484,291
Rental expense 40,636 21,065
---------- ----------
Total operating expenses 2,403,166 1,954,875
---------- ----------
Income from operations 234,923 433,667
Other income (expense)
Interest expense (160,598) (92,801)
Interest income 53,939 1,451
Other income (expense) (62,338) 8,894
Merger costs -- (275,000)
---------- ----------
Total other income (expense) (168,997) (357,456)
---------- ----------
Income before provision for income taxes 65,926 76,211
Provision for income taxes 7,634 2,400
---------- ----------
Net income $ 58,292 $ 73,811
---------- ----------
---------- ----------
Net income per share $ 0.01 $ 0.02
---------- ----------
---------- ----------
Weighted average common shares outstanding 8,634,657 4,237,750
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
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NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Receivable Accumulated Total
Shares Amount Paid-In From Deficit
Capital Stockholder
------------------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 7,815,471 $78,154 $1,508,009 $(118,044) $(706,253) $ 761,866
Options exercised
For services rendered 1,462,239 14,622 278,625 293,247
For cash 78,000 780 13,260 14,040
Conversion of debt to equity 200,000 2,000 208,000 210,000
Increase in receivable from
stockholder (interest) (6,107) (6,107)
Net income 58,292 58,292
--------- ------- ---------- --------- --------- ----------
Balance, September 30, 1997 9,555,710 $95,556 $2,007,894 $(124,151) $(647,961) $1,331,338
--------- ------- ---------- --------- --------- ----------
--------- ------- ---------- --------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 58,292 $ 73,811
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 75,919 65,860
Issuance of stock options for services rendered 293,247 436,852
(principally related to the acquisition of Sargent)
(Increase) decrease in
Accounts receivable 25,594 (135,520)
Supplies inventory (20,140) (21,203)
Other current assets (120,774) (28,801)
Increase (decrease) in
Accounts payable 141,176 249,683
Accrued expenses (133,444) (131,019)
--------- -----------
Net cash provided by operating activities 319,870 509,663
--------- -----------
Cash flows from investing activities
Proceeds from sale of assets used in discontinued
operations -- 71,219
Purchase of Sargent, Inc., net of cash acquired -- 50,266
Payments on notes receivable from related parties 104,291
Increase in deposits (1,300) --
Increase in receivable from stockholder (interest) (6,107) --
Advance to stockholder -- (118,044)
Purchase of building and equipment (347,833) (2,226,170)
--------- -----------
Net cash used in investing activities (355,240) (2,118,438)
Cash flows from financing activities
Repayments of capital lease obligations (16,823) --
Repayment of debt (204,504) (265,711)
Proceeds from issuance of long-term debt 198,051 2,337,775
Payments made to Medipace Medical Group, Inc.
in consideration for retaining certain liabilities
of the dialysis division (467,647)
Proceeds from exercise of stock options 14,040 --
Proceeds from sale of common stock -- 40,766
--------- -----------
Net cash provided by financing activities (9,236) 1,645,183
--------- ---------
Net increase (decrease) in cash during period (44,606) 36,408
--------- -----------
Cash and equivalents, beginning of period 121,812 --
--------- -----------
Cash and equivalents, end of period $ 77,206 $ 36,408
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATIONAL QUALITY CARE
September 30, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instruction to Form 10-QSB. They do not include
all information and footnotes necessary for a fair presentation of financial
position and results of operations and cash flows in conformity with generally
accepted accounting principles. These consolidated financial statements should
be read in conjunction with the financial statements and related notes contained
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1996. In the opinion of Management, all adjustments considered necessary for a
fair presentation have been included in the interim period. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997.
NOTE 2. NOTE RECEIVABLE FROM STOCKHOLDER
Notes receivable from stockholder which were unsecured demand notes with
no stated maturity date were converted on September 17, 1997 to an unsecured
note with a maturity date of March 1, 2000 and bearing an interest rate of 8%
PER ANNUM. At September 30, 1997, this note receivable is presented as an
offset to stockholder's equity due to the relationship of the parties
involved and the uncertainty of the repayment of the note.
NOTE 3. SALE OF ASSETS IN EXCHANGE FOR NOTES RECEIVABLE FROM RELATED PARTIES
The obligors on two (2) promissory notes payable to the Company, in the
aggregate principal amount of $865,000 (subject to certain adjustments),
assigned 630,201 of the shares of the Company common stock to a third party, who
executed a promissory note payable to the Company in the principal amount of
$1,000,000, bearing interest at the rate of 10% PER ANNUM, and due and payable
on or before February 23, 1998. The promissory notes executed by the initial
obligors were canceled. The obligation owing to the Company on the $1,000,000
promissory note is secured by the 630,201 shares of common stock, which are held
in escrow. Through November 7, 1997 the Company received $75,000 representing a
partial payment on the promissory note.
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NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1997 consist of the following:
Land $ 855,897
Building 1,338,710
Medical equipment 492,527
Leasehold improvement 107,601
Office furniture and equipment 37,990
----------
2,832,725
Less accumulated depreciation
and amortization 298,900
----------
Total $2,533,825
----------
----------
NOTE 5. NOTES PAYABLE
Notes payable and long term debt at September 30, 1997 consist of the
following:
Notes payable to bank collateralized by land, building
and equipment, and assignment of $2,000,000 in life
insurance of, and guaranteed by, two majority stockholders.
The notes are payable in monthly installments of $20,293
including interest at prime plus 2% PER ANNUM. Principal
is due May 2006. $1,776,782
Capital lease obligations 185,161
----------
1,961,943
Less current portion 62,208
----------
Long-term portion $1,899,735
----------
----------
NOTE 6. COMMITMENTS AND CONTINGENCIES
OTHER AGREEMENTS
During 1996, the Company purchased a building for $200,000 in cash and
notes payable of $2,050,000. The Company has assigned the Master Lease and
rents to an unrelated third party who facilitated the purchase (the
"Facilitator") and who is responsible for paying the expenses and debt service
of the property, and retains certain rights to sell the property. The term of
the agreement is 30 years. As compensation, the Facilitator receives $1,000 per
year payable in arrears. Any rental income exceeding the payment of the expense
is to be held by the Facilitator as a reserve deposit. If the rental income is
less than the expenses, the Company is required to reimburse the Facilitator for
the difference. The Company recognizes the rental income and expenses in the
Company's statement of operations. At September 30, 1997, the net reserve
deposit held by the Facilitator is $18,543 which has been included in Other
current assets.
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The lease agreement for the building provides for minimum rental income of
$22,642 per month through 1999 subject to annual increases based on the consumer
price index.
NEW DIALYSIS FACILITY
Construction of the new dialysis unit, previously discussed, was completed
in August 1997 and the facility was placed into operation in September 1997.
In March 1997, the Company entered into a firm purchase agreement for
dialysis products with a vendor. The term of the agreement is three years and
is subject to cancellation after the first year by either party or in the event
of default under the agreement. During each year of the agreement, the Company
agrees to purchase virtually all of its dialysis equipment and dialysis supplies
from the vendor. In exchange the vendor agrees to provide discount pricing.
LITIGATION
On July 3, 1997, Midway Hospital Medical Center, Inc. filed an unlawful
detainer action against the Company and Medipace Medical Group, Inc.
("Medipace"), an affiliate of certain of the Company's officers, directors and
principal stockholders, in the Superior Court for the County of Los Angeles,
California (Case No. BC174096). The unlawful detainer action relates to the
premises for the Company's existing dialysis unit in Los Angeles, California.
The Company has been and continues to be current in its rent and does not
believe that it is in any way in default on this lease. The default alleged by
the landlord relates to business issues between the landlord and Medipace. As a
result, the Company has filed a separate action against the landlord for breach
of contract, constructive eviction, breach of covenant of quiet enjoyment and
declaratory relief. The Company intends to vigorously defend itself in the
unlawful detainer action and to vigorously prosecute its action against the
landlord, and anticipates not being required to vacate its current dialysis unit
premises. However, no assurance to that effect can be given. Management
believes that the Company has adequate capacity at the new dialysis unit to
transfer all of the Company's existing patients and to accommodate a significant
increase in new patients. Therefore, the Company does not anticipate an
interruption or reduction in revenue or services as a result of or in the event
of an unsuccessful defense of this litigation.
The Company believes that it is not in default of any obligations to either
Medipace or Midway. The Company also believes that should Midway try to evict
it from its office space, Midway will be unsuccessful. Therefore, the Company's
basis is that: (i) Midway consented to the Sublease, (ii) the Sublease
provides that if the Master Lease terminates before the expiration of the
Sublease, the Company will attorn to Midway at Midway's option, without right of
the Company, to terminate the Sublease or to surrender possession of the
premises, (iii) Midway has billed the Company directly and separately for the
rent on its office space, (iv) the Company has paid the rent on its office
space directly to Midway, and (v) the Company is current on the rent on its
office space.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW OF PRESENTATION. On May 11, 1996, the Company entered into an
Agreement for Exchange of Stock (the "Share Exchange Agreement") with Los
Angeles Community Dialysis, Inc., a California corporation ("LOS ANGELES
COMMUNITY DIALYSIS, INC."), Victor Gura, M.D., Avraham H. Uncyk, M.D. and Ronald
P. Lang, M.D., pursuant to which the Company issued an aggregate of 4,234,128
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock") in exchange for 100% of the issued and outstanding shares of common
stock of LOS ANGELES COMMUNITY DIALYSIS, INC. In connection with the closing of
the Share Exchange Agreement, LOS ANGELES COMMUNITY DIALYSIS, INC. became the
principal operating subsidiary of the Company. On May 28, 1996, the Company
changed its name to "National Quality Care, Inc."
Since approximately May 1996, the focus of the Company's principal business
operation has been to provide high-quality integrated dialysis services for
patients suffering from End Stage Renal Disease ("ESRD").
The financial statements of the Company included in this Report have been
presented, for accounting purposes, as a recapitalization of LOS ANGELES
COMMUNITY DIALYSIS, INC., with LOS ANGELES COMMUNITY DIALYSIS, INC. as the
acquirer of the Company. For purposes of clarity in this section, the term
"Company" reflects the financial condition and results of operations of LOS
ANGELES COMMUNITY DIALYSIS, INC. and the combined operations of the parent
holding company and LOS ANGELES COMMUNITY DIALYSIS, INC. following the
completion of the Share Exchange Agreement.
This report, including the disclosures below, contains certain
forward-looking statements that involve substantial risks and/or
uncertainties. When used herein, the terms "anticipates," "expects,"
"estimates," "believes" and similar expressions, as they relate to the
Company or its management, are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements may
differ materially from those expressed or implied by such forward-looking
statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER
30, 1997 AND SEPTEMBER 30, 1996. Total revenue for the three months ended
September 30, 1997 increased approximately 4% to $866,865 from $836,503 for the
three months ended September 30, 1996. For the first nine months of 1997, total
revenue increased approximately 10% to $2,638,089 from $2,388,542 for the first
nine months of 1996. Medical service revenue for the three months ended
September 30, 1997 increased approximately 4% to $798,940 from $768,578 for the
three months ended September 30, 1996. For the first nine months of 1997
Medical service revenue increased approximately 6% to $2,434,314 from $2,288,190
for the first nine months of 1996. This increase primarily resulted from an
increase in volume of inpatient and home dialysis care. In addition, the
Company received rental income of $203,775 during the nine months ended
September 30, 1997 from certain real property owned by the Company in Los
Angeles, California and utilized by a non-affiliate as a hospital facility.
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Total operating expenses during the three months ended September 30, 1997
increased 17% to $859,398 from $731,980 during the three months ended September
30, 1996. For the first nine months of 1997, total operating expenses increased
23% to $2,403,166 from $1,954,875 for the first nine months of 1996. Total
operating expenses include (i) Cost of medical services, (ii) Selling, general
and administrative expenses, and (iii) Rental expense, as follows:
Cost of medical services during the three months ended September 30, 1997
increased 1% to $564,631 from $557,082 during the three months ended September
30, 1996. For the first nine months of 1997, Cost of medical services increased
11% to $1,602,802 from $1,449,519 for the first nine months of 1996. This
increase primarily resulted from the increase in medical supplies utilized in
the Company's business operations due to the corresponding increase in volume of
inpatient and home dialysis care. Cost of medical services primarily consists
of two (2) categories: (i) Medical services and supplies, and (ii) Outside
services. Medical services and supplies for the three months ended September
30, 1997 increased approximately 4% to $256,168 from $245,522 for the three
months ended September 30, 1996. For the first nine months of 1997, Medical
services and supplies increased 21% to $697,984 from $576,676 for the first nine
months of 1996. The increase was primarily due to rising usage of medical
supplies prescribed, which in turn resulted in higher revenues. Outside
services for the three months ended September 30, 1997 increased approximately
11% to $67,382 from $60,917 for the three months ended September 30, 1996. For
the first nine months of 1997, Outside services increased 25% to $265,233 from
$212,650 for the first nine months of 1996.
Selling, general and administrative expenses during the three months ended
September 30, 1997 increased to $287,329 from $167,853 during the three months
ended September 30, 1996. For the first nine months of 1997, Selling, general
and administrative expenses increased to $759,728 from $484,291 for the first
nine months of 1996. This increase primarily related to ongoing legal and
accounting and consulting fees related to the development of the Company's
business plan and acquisition strategy.
Other expenses decreased during the nine months ended September 30, 1997 to
$168,997 from $357,456 during the nine months ended September 30, 1996. This
decrease in expenses between the respective periods resulted primarily from:
(i) non-recurring merger costs of $275,000 in 1996; (ii) certain
non-recurring expenses of $42,750 in 1997 related to the Company's prior
business operations; (iii) increased interest income to $53,939
from $1,451 partially offset by increased interest expenses to $160,598 from
$92,801, primarily arising from interest expenses relating to the mortgage on
the hospital facility.
As a result of the foregoing, the Company experienced a net loss of $62,735
during the three months ended September 30, 1997, as compared to net income of
$46,187 during the three months ended September 30, 1996. For the first nine
months of 1997, the Company experienced net income of $58,292 as compared to
$73,811 for the first nine months of 1996. The Company experienced income from
operations during the three months ended September 30, 1997 of $7,467 compared
to income from operations of $104,523 during the three months ended September
30, 1996. For
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the first nine months of 1997, income from operations decreased to $234,923
from $433,667 for the first nine months of 1996. Management believes that
this decrease in income from operations primarily resulted from medical
services, supplies, and professional services costs as described above. The
Company believes there can be no assurances that comparable amounts of
professional services costs may not arise in connection with the development
of the Company's proposed business plan, particularly as may relate to any
financing, acquisitions or development which may occur. However, the
Company's proposed business plan contemplates the growth of revenues in
connection with the Company's expansion strategy. There can be no assurance
that the Company's acquisition strategy will create operating synergies with
any acquisition or development target or result in
profitable operations. See "Liquidity and Capital Resources."
As of December 31, 1996, the Company had net operating loss carryforwards
totaling approximately $670,000 and $335,000 for federal and state income tax
purposes, respectively. Utilization of the Company's net operating loss may be
subject to limitations under certain circumstances.
LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1997, the ratio of
current assets to current liabilities was 1.79 to 1.00. Inventory consists of
medical supplies and medications.
The Company has historically financed its operations through the use of
working capital and loans to the Company.
Cash and cash equivalents were $77,206 as of September 30, 1997, as
compared to $121,812 as of December 31, 1996.
As of September 30, 1997, the Company had long-term borrowings in the
aggregate amount of $1,961,943, the current portion of which was $62,208. As of
December 31, 1996, the Company had long-term borrowings of $1,804,805.
As of September 30, 1997, the Company had no short-term borrowings compared
to $380,414 as of December 31, 1996. The decrease was primarily attributable to
the payoff of the Orion Corporate Funding, Inc. ("Orion") working capital loan
due on June 30, 1997. The amount owed to Orion was secured by the accounts
receivable of the Company, and the subject of a limited guaranty by Dr. Gura.
The Company converted the $200,000 note into Common Stock.
The Company has a note receivable including accrued interest in the
amount of $124,151 from Medipace Medical Group, Inc., an affiliate of each of
the Company's three (3) directors and largest stockholders, which is the
subject of the demand promissory note dated September 17, 1997 bearing
interest at the rate of 8% PER ANNUM.
The obligors on two (2) promissory notes payable to the Company, in the
aggregate principal amount of $865,000 (subject to certain adjustments),
assigned 630,201 of the shares of Common Stock to a third party, who executed a
promissory note payable to the Company in the principal amount of $1,000,000,
bearing interest at
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the rate of 10% PER ANNUM, and due and payable on or before February 23,
1998. The promissory notes executed by the initial obligors were canceled.
The obligation owing to the Company on the $1,000,000 promissory note is
secured by the 630,201 shares of Common Stock, which are held in escrow.
Through November 7, 1997 the Company received $75,000 representing partial
payment on the promissory note.
The Company's cash flow needs for the three months ended September 30, 1997
were provided from operations.
Management believes that, as of September 30, 1997, and for the foreseeable
future, the Company will be able to finance costs of current levels of
operations including the payment of the obligations on the hospital facility
from cash flow generated from operations.
The Company's current business plan includes a strategy to expand as a
provider of dialysis services through the development of new dialysis facilities
and the acquisition of additional facilities and other strategically related
health care services in selected markets. The market for such acquisition
prospects is highly competitive and management expects that certain potential
acquirers will have significantly greater capital than the Company. The Company
currently experiences profitable operations and positive cash flow. However,
the Company does not currently generate sufficient cash flow to finance any such
expansion plans rapidly. In order to finance more rapid expansion plans, the
Company will require financing from external sources. The Company does not have
any commitment for such financing and there can be no assurances that the
Company will be able to obtain any such financing on terms favorable to the
Company or at all. In the event the Company cannot obtain such additional
financing, the Company may be unable to achieve its proposed expansion strategy.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share," which is
effective for financial statements issued for periods ending after December 31,
1997. SFAS No. 128 requires public companies to present basic earnings per
share and, if applicable, diluted earnings per share, instead of primary and
fully diluted earnings per share. The Company has not yet determined the effect
of adopting SFAS No. 128.
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," which is required to be adopted for
financial statements issued for periods beginning after December 15, 1997.
This statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as
revenue, expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive but excluded from net income (such
as extraordinary and non-recurring gains and losses). SFAS No. 130 requires
that items of comprehensive income be classified separately in the financial
statements. The statement also requires that the accumulated balance of
comprehensive income items be reported separately from retained earnings and
paid-in capital in the equity section of the balance sheet. SFAS
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No. 130 is not expected to have a material effect on the Company's financial
position or results of operations.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
required to be adopted for financial statements issued for periods beginning
after December 15, 1997. SFAS No. 131 is not required to be applied to interim
financial statements in the initial year of application. This statement
requires that financial and descriptive information about operating segments be
reported. Generally, financial information will be required to be reported on
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS No. 131 will not have any
effect on the Company's financial position or results of operations.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K
The Company filed reports on Form 8-K on July 24, 1997 and August 28, 1997
during the Quarterly Period ended September 30, 1997.
(b) Exhibit
27. Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized on the dates
indicated.
Dated: November 7, 1997 NATIONAL QUALITY CARE, INC.
By: /s/ Ron Berkowitz
--------------------------
Ron Berkowitz
Chief Financial Officer
18
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 77206
<SECURITIES> 0
<RECEIVABLES> 384333
<ALLOWANCES> 75000
<INVENTORY> 33262
<CURRENT-ASSETS> 1452985
<PP&E> 2832725
<DEPRECIATION> 298900
<TOTAL-ASSETS> 4043131
<CURRENT-LIABILITIES> 812058
<BONDS> 1899735
0
0
<COMMON> 95556
<OTHER-SE> 1235782
<TOTAL-LIABILITY-AND-EQUITY> 4043131
<SALES> 0
<TOTAL-REVENUES> 2638089
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24411565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160598
<INCOME-PRETAX> 65926
<INCOME-TAX> 7634
<INCOME-CONTINUING> 58292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58292
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
