<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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 33-84692C
---------
CARE FIRST INC.
---------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0877001
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3720 23rd Ave So
Minneapolis, MN 55407
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(612) 724-5495
--------------------------------------------------
(Registrant's telephone number, including area code)
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
-- ---
At February 10, 1997, 10,500 shares of Common Stock were outstanding.
--------------------------------------------------
This Form 10-Q consists of 12 pages. Exhibits begin on page 11.
-1-
<PAGE>
CARE FIRST INC.
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1996
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Condensed Financial Statements and Notes . . . . . . . . .3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . .7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . .9
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . .9
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . .9
Item 4. Submission of Matters to a Vote of Security Holders. . . .9
Item 5. Other information. . . . . . . . . . . . . . . . . . . . .9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . .9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
-2-
<PAGE>
CARE FIRST INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto included in the
Company's annual report for the fiscal year ended September 30, 1996.
NOTE B - COMMON STOCK
Authorized and outstanding common stock shares are as follows at
September 30, 1996:
<TABLE>
<CAPTION>
Class A Class B Unclassified Total
--------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Stock Authorized 500 10,000 4,500 15,000
Shares of Stock Outstanding 500 10,000 0 10,500
Par Value per Share $0.01 $0.01 $0.01 N/A
Voting Rights Yes No No N/A
</TABLE>
NOTE C - OPERATIONS
The Corporation owns and operates the following:
Description Address Operation
-----------------------------------------------------------
Nile Health Care 3720 23rd Ave South (1) 256-Bed Nursing
Center Minneapolis MN Care Facility
Cedar Pines Health 2739 Cedar Avenue South (1)
Care Facility Minneapolis MN
Care First Home 3720 23rd Ave South Home Health Services
Health Services Minneapolis MN
(1) On December 5, 1995, Care First Inc. moved beds from Cedar Pines Health Care
Facility to occupy the completed building project of Nile Health Care Center.
The property and plant of Cedar Pines Health Care Facility was sold to a third
party; the equipment was transferred to the Nile. The home health agency
previously served the surrounding area. Operations from this division ceased in
July of 1995.
NOTE D - SERIES 1994 BONDS
In December 1994, the City of Minneapolis issued $4,725,000 of Health Care
Facilities Refunding Revenue Bonds and $8,500,000 of Taxable Health Care
Facilities Revenue Bonds to refund the Series 1983 Tax Exempt Bonds and to
finance construction and equipping of a 131-bed Addition to the Corporation's
125-bed Existing Facility. The proceeds from the Series 1994 Tax Exempt Bonds
were deposited with the trustee in the Bond Fund until the refunding occurred.
The proceeds from the Taxable Health Care Facilities Revenue Bonds remain in
Trustee Held Funds until certified draw requests are processed for construction
costs, including building construction, equipment installation, capitalized
interest and other Project costs.
-3-
<PAGE>
CARE FIRST INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 500,725 $ 505,128
Accounts Receivable 1,139,223 1,294,103
Current Assets Whose Use is Limited 155,471 609,868
Note Receivable - Stockholders 3,291 7,833
Prepaid Expenses 14,912 11,088
Deferred Tax Asset 39,827 88,000
-------------- -------------
Total Current Assets $ 1,853,449 $ 2,516,020
-------------- -------------
ASSETS WHOSE USE IS LIMITED 1,266,321 1,304,230
PROPERTY AND EQUIPMENT at Cost Less Accumulated
Depreciation of $2,316,547 at December 31, 1996 and $2,219,257
at September 30, 1996 10,144,682 10,231,700
OTHER ASSETS
Unamortized Financing Costs $ 1,018,976 $ 1,044,416
Deferred Tax Asset $ 65,000 70,000
Other Assets 121,725 19,080
-------------- -------------
Total Other Assets $ 1,205,701 $ 1,133,496
-------------- -------------
Total Assets $ 14,470,153 $ 15,185,446
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current Maturites of Long-Term Debt $ 140,000 $ 135,000
Accounts Payable - Trade 211,686 395,472
Accounts Payable - Other 62,741 100,908
Accrued Salaries and Benefits 542,800 462,981
Other Accrued Expenses 572,342 1,022,717
-------------- -------------
Total Current Liabilities $ 1,529,569 $ 2,117,078
-------------- -------------
LONG-TERM DEBT (Net of Current
Maturities Shown Above) $ 12,845,000 $ 12,915,000
OTHER LIABILITIES 417,597 415,641
-------------- -------------
Total Liabilities $ 14,792,166 $ 15,447,719
-------------- -------------
STOCKHOLDERS' DEFICIT
Common Stock $ 17,765 $ 17,765
Retained Deficit (339,778) (280,038)
-------------- -------------
Total Stockholders' Deficit $ (322,013) $ (262,273)
-------------- -------------
Total Liabilities and Stockholders' Deficit $ 14,470,153 $ 15,185,446
-------------- -------------
-------------- -------------
</TABLE>
-4-
<PAGE>
CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT)
For the Three Months Ended
December 31
-------------------------------
1996 1995
(Unaudited) (Unaudited)
REVENUES
Resident Services $ 2,533,911 $ 1,992,641
----------- ------------
Total Revenue $ 2,533,911 $ 1,992,641
----------- ------------
OPERATING EXPENSES
Resident Services $ 2,225,859 $ 1,881,486
Home Health Services - 396
------------ ------------
Total Operating Expenses $ 2,225,859 $ 1,881,882
------------ ------------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST
$ 308,052 $ 110,759
DEPRECIATION AND AMORTIZATION 98,412 72,623
INTEREST 339,597 150,768
------------ ------------
INCOME (LOSS) FROM OPERATIONS $ (129,957) $ (112,632)
OTHER INCOME 30,390 33,191
INCOME (LOSS) BEFORE INCOME TAXES
------------ ------------
$ (99,567) $ (79,441)
PROVISION FOR INCOME TAXES (39,827) (31,777)
------------ ------------
NET INCOME (LOSS) $ (59,740) $ (47,664)
Retained Deficit - Beginning (280,038) (253,897)
------------ ------------
RETAINED DEFICIT - ENDING $ (339,778) $ (301,561)
------------ ------------
------------ ------------
-5-
<PAGE>
CARE FIRST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
December 31
----------------------------
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Resident Services $ 2,705,452 $ 1,923,761
Cash Paid to Suppliers and Employees (2,727,236) (1,966,151)
Interest Paid (339,597) (8,443)
Interest Received 13,729 4,904
Income Tax Payments - (1,400)
------------ ------------
Net Cash Provided by Operating Activities $ (347,652) $ (47,329)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (10,272) $ (6,938)
Decrease in Note Receivable - Stockholders 4,542 4,304
Acquisition of Investments (103,767) -
Disbursements from Bond Fund 957,806 -
Deposits to Bond Fund (440,060) (88,006)
------------ ------------
Net Cash Provided (Used) by Investing Activities $ 408,249 $ (90,640)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (65,000) $ (5,042)
------------ ------------
Net Cash (Used) by Financing Activities $ (65,000) $ (5,042)
------------ ------------
NET INCREASE (DECREASE) IN CASH
$ (4,403) $ (143,011)
Cash - Beginning 505,128 704,833
CASH - ENDING $ 500,725 $ 561,822
------------ ------------
------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income (Loss) $ (59,740) $ (47,665)
Depreciation and Amortization 98,412 72,623
(Increase) Decrease in Current Assets:
Accounts Receivable - Residents 154,880 (68,880)
Other Current Assets 49,349 (36,220)
Increase (Decrease) in Current Liabilities:
Accounts Payable (221,953) (55,695)
Other Current Liabilities (368,600) 88,508
Net Cash Provided by Operating Activities $ (347,652) $ (47,329)
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Transfers from Project Fund for
Property and Equipment Acquisition $ - $ 1,272,486
------------ ------------
------------ ------------
</TABLE>
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Following is the analysis of the results of operations and financial
condition of the Corporation as of December 31, 1996 and September 30, 1996
and for the three months ended December 31, 1996 and 1995.
DEPENDENCE ON MINNESOTA MEDICAID PROGRAM
Substantially all revenues of the Corporation are derived from daily resident
rates established by the Department of Human Services (DHS) for its nursing
facility pursuant to the Rate-setting System. Changes in the Rate-setting
System are anticipated but the effects of such changes on the Corporation cannot
be predicted. For instance, in 1995, the State of Minnesota, by statute,
authorized the DHS to establish a contractual alternative payment system, called
the "Nursing Home Contract Project". (See Other Information)
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 TO THE THREE MONTHS
ENDED DECEMBER 31, 1995.
For the unaudited three months ended December 31, 1996, the Corporation's net
loss was $59,740 in comparison with a net loss of $47,664 for the same period in
1995, or a decrease of $12,076. The loss can be attributed to the lower than
forecasted census at Nile Health Care Center for the first twelve months of
operations. At December 31, 1996, the 256-bed facility was operating at 85.5%
occupancy.
Resident services revenue increased by $541,270 or 27%, from $1,992,641 for the
three months ended December 31, 1995, to $2,533,911 for the three months ended
December 31, 1996. The increase in revenue is due to increased rates and a
larger physical plant at Nile Health Care Facility, compared to a blend of the
Nile Health Facility rate and the lower Cedar Pines Facility rate for the
comparative period in 1995. As of July 1995, the Corporation suspended the
operations of the Home Health Services until it is determined that Home Health
Services will be profitable.
Operating expenses, which include salaries and benefits, supplies, utilities,
food, purchased services, and general and administrative expenses, increased
$343,977 or 18% from $1,881,882 for the three months ended December 31, 1995 to
$2,225,859 for the three months ended December 31, 1996. The net increase is a
blend of the increase in physical plant of Nile Health Care Center from 125 beds
to 256 beds and the reduced census at the Cedar Pines Facility from the three
months ended December 31, 1996.
Depreciation, amortization and interest expense, increased $214,618 or 96 % from
$223,391 for the three months ended December 31, 1995 to $438,009 for the three
months ended December 31, 1996. The increase is a result of the net effect of
the Series 1983 bonds, which bore interest ranging from 10.25% to 11.75% being
refunded with the Series 1994 bonds which bear interest from 5% to 7.75%, the
1994 Taxable Bonds interest expense not being capitalized as of December 1, 1995
(Project completion) and the Project costs being depreciated since the new
facility is open.
The Corporation's estimated income taxes recoverable for the three months ended
December 31, 1995 was $31,777 based on a pretax loss of $79,441and for the three
months ended December 31, 1996, estimated income taxes recoverable were $39,827
based on a pretax loss of $99,567, based on an effective income tax rate of 40%.
-7-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Corporation does not maintain any line of credit or other external sources
of liquidity.
At December 31, 1996, the Corporation had $500,725 in cash, and working
capital of $323,880 based upon current assets of $1,853,449 and current
liabilities of $1,529,569 and at September 30, 1996, the Corporation had
$505,128 in cash, and working capital of $398,942 based upon current assets
of $2,516,020 and current liabilities of $2,117,078. During the three months
ended December 31, 1996, cash decreased $4,403. Net cash used by operating
activities was $347,652 for the three months ended December 31, 1996.
Accounts Payable has decreased $221,953 from September 30, 1996 to December 31,
1996, mainly as a result of the cleaning up and payment of old invoices.
As of December 31, 1996, total outstanding Long-Term Debt of the Corporation
equaled $12,985,000 consisting of the Series 1994 Taxable Health Care Facilities
Revenue Bonds and the Series 1994 Health Care Facility Refunding Revenue Bonds,
both of which are secured equally and ratably on parity by a mortgage lien on,
security interest in and an assignment of leases and rents of the Addition.
Unamortized Financing Costs consist of financing costs associated with the
issuance of the City of Minneapolis, Minnesota Taxable Health Care Facilities
Revenue Bonds and the City of Minneapolis, Minnesota Health Care Facilities
Refunding Revenue Bonds.
Assets Whose Use is Limited decreased a net $492,306 from $1,914,098 at
September 30, 1996 to $1,421,792 at December 31, 1996 as a result of payments
of bond principal and interest of $440,060 net with interest earnings and
deposits to the Bond Funds. The net proceeds of the 1994 Taxable Health Care
Facilities Bonds are being held by the trustee in accounts whose use is limited
until they are expended for their designated purposes.
To enhance liquidity and cashflow, proceeds from the Bonds were available to
pay interest on the Bonds for approximately 2.5 months following the completion
of the Addition. The Corporation has not entered into any material agreements
or commitments with respect to acquisitions or development except the
construction and architect contracts. Purchase orders for equipment financed
with proceeds of the Bonds were entered into near the completion of the
Addition. The Department of Health, the City of Minneapolis, and the Fire
Marshall approved the Addition for occupancy November 30, 1995.
The proceeds from the offering of the Bonds, together with existing capital
resources and cash flow from its existing operations, have been sufficient to
make the indebtedness repayments, capital additions and improvements, and to
meet other working capital needs for the next twelve months.
IMPACT OF INFLATION
The health care industry is labor intensive. Wages and other expenses increase
more rapidly during periods of inflation and when shortages in the labor market
occur. In addition, suppliers pass along rising costs in the form of higher
prices. Increases in daily rates under the Rate-setting System generally lag
behind actual cost increases, so the Corporation may have difficulty covering
them in a timely fashion, despite an inflation factor in the rate-setting
process. This is due to the lag between the "reporting period" (when costs are
incurred) and the "rate year" when costs are actually reflected in daily rates
paid to the Corporation for services provided.
-8-
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) Statement No. 106, "Employers
Accounting for Post Retirement Benefits Other Than Pensions", became effective
for the Corporation in 1995. Statement No. 106 had an insignificant impact on
the Corporation's financial position or results of operations as the Corporation
currently does not provide post retirement benefits.
FASB Statement No. 112 "Employers' Accounting for Post-Employment Benefits" also
will not significantly impact the Corporation as it currently does not provide
post retirement benefits.
FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" amends ARB No. 43, supercedes SFAS No. 12, and establishes
accounting standards for both marketable equity and debt securities. SFAS NO.
115, which became effective in 1995 did not have a material effect on the
Corporation.
In March 1995, the FASB issued Statement No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 is
effective for the Corporation with the fiscal year beginning October 1, 1996.
The effects of SFAS No. 121 on this Corporation have been insignificant.
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
"NURSING HOME CONTRACT PROJECT"
On December 15, 1995, the Corporation received notification that
they were approved to participate in the State of Minnesota
contractual alternative payment system, called the "Nursing Home
Contract Project". The purpose of the Project is to explore a
contract-based reimbursement. The Nile will be paid their
reimbursement rates in effect July 1, 1995 with a 2.98% annual
inflationary adjustment. This project impacts Medicaid and
private pay reimbursement rates effective July 1, 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-9-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARE FIRST INC.
Dated: February 11, 1997 By /s/ Jack E. Nugent
---------------------------------
Jack E. Nugent, President
Dated: February 11, 1997 By /s/ Tamara J. Austin
---------------------------------
Tamara J. Austin, Director of Finance
-10-
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule Page 12
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 500,725
<SECURITIES> 0
<RECEIVABLES> 1,139,223
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,853,449
<PP&E> 12,461,229
<DEPRECIATION> 2,316,547
<TOTAL-ASSETS> 14,470,153
<CURRENT-LIABILITIES> 1,529,569
<BONDS> 12,845,000
0
0
<COMMON> 17,765
<OTHER-SE> (339,778)
<TOTAL-LIABILITY-AND-EQUITY> 14,470,153
<SALES> 0
<TOTAL-REVENUES> 2,553,911
<CGS> 0
<TOTAL-COSTS> 2,225,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339,597
<INCOME-PRETAX> (129,957)
<INCOME-TAX> (59,740)
<INCOME-CONTINUING> (59,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,740)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
