<PAGE> 1
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, 1998
Commission file number 0-19031
National Quality Care, Inc.
(EXACT NAME OF REGISTRANT)
Delaware 84-1215959
(State of Incorporation) (IRS Employer ID No.)
1835 South La Cienega Boulevard, Suite 235
Los Angeles, CA 90035
(Address of Principal Executive Offices) (Zip Code)
(310) 280-2758
(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 October 20, 1998 is 9,814,878.
<PAGE> 2
National Quality Care, Inc.
Table of Contents
Page
Part I. Financial Information 3
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations
for the Three Months Ended September 30, 1998
and 1997 5
Consolidated Statements of Operations
for the Nine Months Ended September 30, 1998
and 1997 6
Consolidated Statements of Stockholders'
Equity for the Nine Months Ended September 30, 1998 7
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 8
Notes to Consolidated 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 16
Signatures 17
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
3
<PAGE> 4
<TABLE>
NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------
ASSETS (NOTE 5)
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 13,362 $ 39,220
Accounts receivable, net of allowances for
doubtful accounts of $75,000 640,494 340,497
Note receivable-related parties 641,790 --
Supplies inventory 64,564 46,723
Other current assets 74,414 30,537
------------- -------------
Total current assets 1,434,624 456,977
Property and equipment, net (note 2) 2,495,599 2,561,510
Note receivable - related parties -- 641,790
Deposits and other long-term assets 49,572 54,231
------------- -------------
Total assets $ 3,979,795 $ 3,714,508
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable 905,514 595,380
Accrued expenses 191,519 192,718
Note payable (note 3) 45,000 --
Current portion of long-term debt (note 4) 86,498 63,483
------------- -------------
Total current liabilities 1,228,531 851,581
Long-term debt, net of current portion (note 4) 1,881,652 1,870,194
------------- -------------
Total liabilities 3,110,183 2,721,775
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, 9,814,878 and 9,555,710 shares
issued and outstanding 98,148 95,556
Additional paid-in capital 2,163,406 2,086,394
Notes receivable from stockholder (123,773) (116,622)
Accumulated deficit (1,268,169) (1,072,595)
------------- -------------
Total stockholders' equity 869,612 992,733
------------- -------------
Commitments and contingencies (note 5)
Total liabilities and stockholder's equity $ 3,979,795 $ 3,714,508
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
<TABLE>
NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Income
Medical service income $ 985,791 $ 798,940
Rental income 67,925 67,925
------------- -------------
Total income 1,053,716 866,865
------------- -------------
Operating expenses
Cost of medical services 721,488 564,631
Selling, general, and administrative 284,403 268,606
Depreciation and amortization 15,422 18,723
Rent and other 11,156 7,438
------------- -------------
Total operating expenses 1,032,469 859,398
------------- -------------
Income from operations 21,247 7,467
Other income (expense)
Interest expense (55,347) (53,979)
Interest income 2,463 13,803
Other income (expense) 10,089 (30,026)
------------- -------------
Total other expense (42,795) (70,202)
------------- -------------
Loss before provision for income taxes (21,548) (62,735)
Provision for income taxes -- --
------------- -------------
Net loss $ (21,548) $ (62,735)
============= =============
Basic and diluted loss per share $ 0.00 $ (0.01)
============= =============
Weighted average shares outstanding 9,814,878 9,343,625
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
<TABLE>
NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Income
Medical service income $ 2,676,977 $ 2,434,314
Rental income 203,775 203,775
------------- -------------
Total income 2,880,752 2,638,089
------------- -------------
Operating expenses
Cost of medical services 1,932,123 1,602,802
Selling, general, and administrative 910,112 719,593
Depreciation and amortization 54,602 46,169
Rent and other 44,172 40,636
------------- -------------
Total operating expenses 2,941,009 2,409,200
------------- -------------
Income (loss) from operations (60,257) 228,889
Other income (expense)
Interest expense (158,385) (160,598)
Interest income 7,151 53,939
Other income (expense) 17,517 (62,338)
------------- -------------
Total other expense (133,717) (168,997)
------------- -------------
Income (loss) before provision for income taxes (193,974) 59,892
Provision for income taxes 1,600 1,600
------------- -------------
Net income (loss) $ (195,574) $ 58,292
============= =============
Basic and diluted income (loss) per share $ (0.02) $ 0.01
============= =============
Weighted average shares outstanding 9,727,881 8,634,657
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
<TABLE>
NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<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, 1997 9,555,710 $ 95,556 $ 2,086,394 $ (116,622) $(1,072,595) 992,733
Options exercised
For services rendered 196,668 1,967 62,512 64,479
For cash 62,500 625 14,500 15,125
Increase in receivable from
stockholder (interest) (7,151) (7,151)
Net loss (195,574) (195,574)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 9,814,878 $ 98,148 $ 2,163,406 $ (123,773) $(1,268,169) $ 869,612
============ ============ ============ ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
<TABLE>
NATIONAL QUALITY CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (195,574) $ 58,292
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 88,071 75,919
Issuance of common stock and stock
options for services 64,479 293,247
(Increase) decrease in
Accounts receivable (299,997) 25,594
Supplies inventory (17,841) (20,140)
Other current assets (43,876) (120,774)
Increase (decrease) in
Accounts payable 310,134 141,176
Accrued expenses (1,199) (133,444)
------------- -------------
Net cash (used) provided by operating activities (95,804) 319,870
------------- -------------
Cash flows from investing activities
Increase in deposits (40) (1,300)
Increase in receivable from stockholder (interest) (7,151) (6,107)
Purchase of building and equipment (17,460) (347,833)
------------- -------------
Net cash used in investing activities (24,651) (355,240)
Cash flows from financing activities
Repayments of capital lease obligations (24,807) (16,823)
Repayment of debt (40,721) (204,504)
Proceeds from debt 145,000 198,051
Proceeds from exercise of stock options 15,125 14,040
------------- -------------
Net cash provided by financing activities 94,597 (9,236)
------------- -------------
Net decrease in cash during period (25,858) (44,606)
------------- -------------
Cash and equivalents, beginning of period 39,220 121,812
------------- -------------
Cash and equivalents, end of period $ 13,362 $ 77,206
============= =============
Supplemental disclosures of cash information:
Call paid during the nine-month period:
Interest $ 158,385 $ 160,598
Income taxes 1,600 1,600
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATIONAL QUALITY CARE
September 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions 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 consolidated financial statements and related
notes contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997. 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, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
(2) PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1998 consist of the following:
Land $ 855,897
Building 1,338,710
Medical equipment 503,795
Leasehold improvements 158,372
Office furniture and equipment 58,228
-------------
2,915,002
Less accumulated depreciation and
amortization 419,403
-------------
Total $ 2,495,599
=============
(3) NOTE PAYABLE
During the quarter ended September 30, 1998, the Company secured a note
payable as follows:
Revolving line of credit is secured by accounts receivable and
personal guarantees by the Company's stockholders. The note is
payable in interest only payments at 1.50% over the bank's
index rate (10.0% at September 30, 1998). Principal is due on
April 30, 1999. 45,000
<PAGE> 10
(4) LONG-TERM DEBT
Long-term debt at September 30, 1998 consists of the following:
Notes payable in monthly installments of $20,293,
including interest at prime plus 2% (10.25% at
September 30, 1998) per annum, through May 2006,
collateralized by land, building and equipment
and assignment of $2,000,000 in life insurance
of, and guaranteed by, two majority stockholders $ 1,726,204
Note payable, due in monthly installments of $858,
including interest at 10% with the unpaid balance
due August 2000, secured by equipment 17,896
During the quarter ended June 30, 1998, the Company
secured an Installment loan of $100,000, which is
secured by accounts receivable and personal
guarantees by the Company's stockholders The note
is payable in monthly principal payments of $1,667
plus interest at 1.50% over the bank's index rate
(10.00% at September 30, 1998). Final installment
is due on April 30, 2003 93,332
Capital lease obligations, due in aggregate monthly
installments of $3,488, including interest at 12%,
due December 2001, collateralized by equipment $ 130,718
-------------
$ 1,968,150
Less current portion 86,498
-------------
Long-term portion $ 1,881,652
=============
(5) COMMITMENTS AND CONTINGENCIES
ASSET PURCHASE AGREEMENT
In December 1997, the Company entered into an asset purchase agreement, whereby
the Company agreed to purchase substantially all the assets other than land and
building of an organization engaged in a similar line of business. The agreement
has been terminated by mutual agreement of the parties at this time. However, it
may be reinstated in the future.
(6) EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (EPS) (SFAS No. 128). SFAS
No. 128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
restated to conform to SFAS No. 128 requirements.
10
<PAGE> 11
Weighted average shares outstanding for both basic and diluted income (loss) per
share for the three months ended September 30, 1998 and September 30, 1997 were
9,815,000 and 9,344,000, respectively. For the first nine months of 1998 and
1997 the shares were 9,728,000 and 8,635,000, respectively. The Company has not
included the effect of assumed conversions and exercises of stock options and
warrants for September 30, 1998 and September 30, 1997 since the effect of such
an inclusion would be antidilutive due to the Company's net loss in 1998, and
would remain unchanged for 1997.
Had the Company included the dilutive effect of assumed conversions and
exercises of stock options and warrants on the weighted average shares
outstanding, approximately 225,000 and 54,000 shares would have been included
for the three months ended September 30, 1998 and 1997, respectively. For the
first nine months of 1998 and 1997, the shares added would have been 708,000 and
368,000, respectively. Excluded from these totals were warrants to purchase
500,000 shares of common stock at $1.75 that were granted on May 12, 1996. These
options and warrants were not included in the computation because their exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
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. Other 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. SFAS No. 130 requires
that items of other comprehensive income be classified separately in the
financial statements. SFAS No. 130 also requires that the accumulated balance of
other comprehensive income items be reported separately from retained earnings
and paid-in capital in the equity section of the balance sheet. The adoption of
SFAS No. 130 did not require additional reporting from that stated on the
Company's financial position or results of operations.
In September 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued and is effective for all fiscal quarters of
fiscal years beginning after September 15, 1999. SFAS No. 133 established
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. The Company is currently evaluating the impact SFAS
No. 133 will have on its financial statements, if any.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
OVERVIEW OF PRESENTATION. 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 Company conducts its business through its wholly-owned operating
subsidiary, Los Angeles Community Dialysis, Inc. 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.
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, 1998 AND SEPTEMBER 30, 1997. Total income for the three months ended
September 30, 1998 increased approximately 22% to $1,053,716 from $866,865 for
the three months ended September 30, 1997. For the first nine months of 1998,
total income increased approximately 9% to $2,880,752 from $2,638,089 for the
first nine months of 1997. Medical service revenue for the three months ended
September 30, 1998 increased approximately 23% to $985,791 from $798,940 for the
three months ended September 30, 1997. For the first nine months of 1998 medical
service revenue increased approximately 10% to $2,676,977 from $2,434,314 for
the first nine months of 1997. This increase primarily resulted from an increase
in volume of hemodialysis.
Total operating expenses during the three months ended September 30, 1998
increased 20% to $1,032,469 from $859,398 during the three months ended
September 30, 1997. For the first nine months of 1998, total operating expenses
increased 22% to $2,941,009 from $2,409,200 for the first nine months of 1997.
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, 1998
increased 31% to $721,488 from $564,631 during the three months ended September
30, 1997 primarily due to the increase in the volume of business. For the first
nine months of 1998, cost of medical services increased 21% to $1,932,123 from
$1,602,802 for the first nine months of 1997. 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, 1998
increased approximately 32% to $630,455 from $479,039 for the three months ended
September 30, 1997. For the first nine months of 1998, Medical services and
supplies increased 21% to $1,646,544 from $1,363,597 for the first nine months
of 1997. In addition there was an increase due to medical equipment operating
leases required for the new dialysis center of $45,310; new outpatient and
inpatient operations start up and operating costs of $65,000; and rising usage
of medical supplies prescribed, which in turn resulted in higher revenues.
12
<PAGE> 13
Outside services for the three months ended September 30, 1998 remained
substantially unchanged at $72,145 as compared with $71,239 for the three months
ended September 30, 1997.
Selling, general and administrative expenses during the three months ended
September 30, 1998 increased to $284,403 from $268,606 during the three months
ended September 30, 1997. For the first nine months of 1998, Selling, general
and administrative expenses increased 26% to $910,112 from $719,593 for the
first nine months of 1997. This increase is primarily related to two items: (i)
Rent expenses of $177,262 for the first nine months of 1998 as compared with
$105,890 in 1997 (this expense is primarily related to the new dialysis center,
which opened in the second half of 1997); and (ii) Approximately $45,000 in
higher accounting fees, representing the major portion of these expenses for
fiscal year 1998.
Depreciation and amortization expenses during the nine months ended
September 30, 1998 increased to $54,602 from $46,169 during the nine months
ended September 30, 1997. This increase in expenses is a result of capitalized
medical equipment leases acquired in the latter part of the second quarter of
1997.
Other expenses decreased from $70,202 to $42,795 for the three months ended
September 30, 1998 and September 30, 1997. Other expenses decreased during the
nine months ended September 30, 1998 to $133,717 from $168,997 during the nine
months ended September 30, 1997. The primary reasons for these changes were
certain non-recurring expenses of $42,750 in 1997 related to the Company's prior
business operations.
As a result of the foregoing, the Company experienced a net loss of $21,548
during the three months ended September 30, 1998, as compared to net income of
$62,735 during the three months ended September 30, 1997. For the first nine
months of 1998, the Company experienced net loss of $195,574 as compared to net
income of $58,292 for the first nine months of 1997. The Company experienced
income from operations during the three months ended September 30, 1998 of
$21,247 compared to income from operations of $7,467 during the three months
ended September 30, 1997. For the first nine months of 1998, the Company
experienced a loss from operations of $60,257 compared to income from operations
of $228,889 for the first nine months of 1997. Management believes the loss from
operations during the nine months ended September 30, 1998 resulted from
expenses relating to support of the new dialysis center that was built in 1997
and funded primarily from cash flow from operations. In addition, the Company
experienced a reduction in reimbursement by the hospitals on its inpatient
dialysis business arising from an industry wide pricing change. However, this
segment of the Company's business remains profitable.
The increase in income from operations during the three months ended
September 30, 1998 resulted from an increase in inpatient services and chronic
dialysis activities. During the three months ended September 30, 1998 the lower
reimbursements were offset by a higher volume of inpatient treatments as
compared with the same period last year.
13
<PAGE> 14
As of December 31, 1997, the Company had net operating loss carryforwards
totaling approximately $4,200,000 and $1,700,000 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, 1998, the ratio of
current assets to current liabilities was 1.17 to 1.00 compared to .54 at
December 31, 1997. The change was due to reclassification to current assets of
the net note receivable of $642,000, which matures in February 1999. 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. The Company's cash flow needs for the
nine months ended September 30, 1998 were primarily provided from operations and
existing cash. The Company had working capital of approximately $206,000 at
September 30, 1998. The working capital deficit at December 31, 1998 was
approximately $395,000. The Company obtained total debt financing of $150,000 in
the second quarter of 1998, and an additional $15,000 in cash through the
exercise of stock options.
The Company has incurred certain one-time expenses related to the start up
of new operations during the nine months ended September 30, 1998. In addition,
cost cuts have been put into effect, which will impact the remainder of the
fiscal year. As a result, management believes that, as of September 30, 1998,
and for the foreseeable future, the Company will be able to finance costs of
current operating levels from cash flow generated from operations.
Cash and cash equivalents were $13,362 as of September 30, 1998, as
compared to $39,220 as of December 31, 1997. As of September 30, 1998, the
Company had long-term borrowings in the aggregate amount of $1,968,150, the
current portion of which was $86,498. As of December 31, 1997, the Company had
aggregate long-term borrowings of $1,933,677.
The Company has a note receivable including accrued interest in the amount
of $121,310 from Medipace Medical Group, Inc., an affiliate of two of the
Company's four (4) directors and largest stockholders, bearing interest at the
rate of 8% PER ANNUM.
14
<PAGE> 15
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 negative cash flow from operations primarily as a result
of the new dialysis unit's impact on the cash flow since its opening in
September 1998. However, the operating loss has decreased significantly from the
first to the second and third quarters as a result of the increase in business
in the new dialysis unit. Therefore, management believes this situation is
temporary and expects to continue expansion of the Company and to achieve
profitable operations in the future, however, there can be no assurances to that
effect. In order to finance 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.
Year 2000
The Company has developed plans to address issues related to the impact on
its computer systems of the year 2000. The Company has established a task force
with representatives from its operating units and financial management.
Financial and operational systems have been assessed and plans have been
developed to address systems modification requirements.
The accounting systems will require only minor changes, which have already
been identified and assessed. The major suppliers of the Company's operations
hardware and software equipment have provided information that the systems and
embedded technology are Year 2000 compliant. The financial impact of making the
required systems changes is not expected to be material to the Company's
consolidated financial position, liquidity and results of operations. The
Company is currently in the process of assessing the systems of its other
vendors. The Company intends to develop alternative plans for the vendors that
will not appear to be Year 2000 compliant in the second quarter of 1999. A
significant portion of income is from government payors. Presently the Company
cannot assess whether these governmental agencies will be prepared for the Year
2000. This may result in a material impact to the Company. The Company will
assess the capabilities of its non-governmental customers in the first quarter
of 1999 with continued follow up thereafter.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The Company filed no report on a Form 8-K during the Quarterly Period ended
September 30, 1998.
(b) Exhibit
27. Financial Data Schedule
16
<PAGE> 17
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: October 20, 1998 NATIONAL QUALITY CARE, INC.
By: /s/ Ron Berkowitz
-----------------------
Ron Berkowitz
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,862
<SECURITIES> 0
<RECEIVABLES> 715,494
<ALLOWANCES> 0
<INVENTORY> 64,564
<CURRENT-ASSETS> 1,434,624
<PP&E> 2,915,002
<DEPRECIATION> 419,403
<TOTAL-ASSETS> 3,979,795
<CURRENT-LIABILITIES> 1,228,531
<BONDS> 1,881,652
0
0
<COMMON> 98,148
<OTHER-SE> 771,464
<TOTAL-LIABILITY-AND-EQUITY> 3,979,795
<SALES> 0
<TOTAL-REVENUES> 2,880,752
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,916,341
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158,385
<INCOME-PRETAX> (193,974)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (195,574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (195,574)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
