<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 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 33-84692C
CARE FIRST INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0877001
- --------------------------------------------- ------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
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 May 9, 1997, 10,500 shares of Common Stock were outstanding.
---------------------------------
This Form 10-Q consists of 12 pages. Exhibits begin on page 11.
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CARE FIRST INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
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
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CARE FIRST INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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 March 31,
1997:
CLASS A CLASS B UNCLASSIFIED TOTAL
----------------------------------------
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
NOTE C - OPERATIONS
The Corporation owns and operates the following:
DESCRIPTION ADDRESS OPERATION
------------------------------------------------------------
Nile Health Care 3720 23rd Ave South 256-Bed Nursing
Center Minneapolis MN Care Facility
Care First Home 3720 23rd Ave South (1)Home Health Services
Health Services Minneapolis MN
(1) 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.
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CARE FIRST INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 774,647 $ 505,128
Accounts Receivable 978,119 1,294,103
Current Assets Whose Use is Limited 547,678 609,868
Note Receivable - Stockholders (1,313) 7,833
Prepaid Expenses 12,878 11,088
Deferred Tax Asset - 88,000
-------------- -------------
Total Current Assets $ 2,312,009 $ 2,516,020
-------------- -------------
ASSETS WHOSE USE IS LIMITED $ 1,103,411 $ 1,304,230
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PROPERTY AND EQUIPMENT at Cost Less Accumulated
Depreciation of $2,411,154 at March 31, 1997 and $2,219,257
at September 30, 1996 $ 10,097,210 $ 10,231,700
-------------- --------------
OTHER ASSETS
Unamortized Financing Costs $ 993,536 $ 1,044,416
Deferred Tax Asset 65,000 70,000
Other Assets 173,695 19,080
-------------- --------------
Total Other Assets $ 1,232,231 $ 1,133,496
-------------- --------------
Total Assets $ 14,744,861 $ 15,185,446
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $ 140,000 $ 135,000
Accounts Payable - Trade 101,605 395,472
Accounts Payable - Other 53,026 100,908
Accrued Salaries and Benefits 446,889 462,981
Other Accrued Expenses 1,123,706 1,022,717
-------------- -------------
Total Current Liabilities $ 1,865,226 $ 2,117,078
LONG-TERM DEBT (Net of Current
Maturities Shown Above) 12,845,000 12,915,000
OTHER LIABILITIES 285,341 415,641
-------------- --------------
Total Liabilities $ 14,995,567 $ 15,447,719
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STOCKHOLDERS' DEFICIT
Common Stock $ 17,764 $ 17,765
Retained Deficit (268,470) (280,038)
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Total Stockholders' Deficit $ (250,706) $ (262,273)
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Total Liabilities and Stockholders' Deficit $ 14,744,861 $ 15,185,446
-------------- ------------
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</TABLE>
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CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31 March 31
---------------------------- ----------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Resident Services $ 2,691,726 $ 2,430,642 $ 5,225,637 $ 4,423,283
Home Health Services - (25,665) - (25,665)
------------- ------------ ------------- -------------
Total Revenue $ 2,691,726 $ 2,404,977 $ 5,225,637 $ 4,397,618
------------- ------------ ------------- -------------
OPERATING EXPENSES
Resident Services $ 2,076,425 $ 1,961,404 $ 4,302,284 $ 3,842,890
Home Health Services - 1,990 - 2,386
------------- ------------ ------------- -------------
Total Operating Expenses $ 2,076,425 $ 1,963,394 $ 4,302,284 $ 3,845,276
------------- ------------ ------------- -------------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 615,301 $ 441,583 $ 923,353 $ 552,342
DEPRECIATION AND AMORTIZATION 98,410 68,657 196,822 141,280
INTEREST 337,381 367,679 676,978 518,447
------------- ------------ ------------- -------------
INCOME (LOSS) FROM OPERATIONS $ 179,510 $ 5,247 $ 49,553 $ (107,385)
OTHER INCOME 34,329 (4,209) 64,719 28,982
------------- ------------ ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES $ 213,839 $ 1,038 $ 114,272 $ (78,403)
PROVISION FOR INCOME TAXES 85,536 416 45,709 (31,361)
------------- ------------ ------------- -------------
NET INCOME (LOSS) $ 128,303 $ 622 $ 68,563 $ (47,042)
Retained Deficit - Beginning 0 (240,019) (280,038) (192,354)
------------- ------------ ------------- -------------
RETAINED DEFICIT - ENDING $ 128,303 $ (239,397) $ (211,475) $ (239,396)
------------- ------------ ------------- -------------
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</TABLE>
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CARE FIRST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
March 31
--------------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Resident Services $ 5,541,621 $ 4,018,991
Cash Paid to Suppliers and Employees (4,414,647) (3,929,339)
Interest Paid (676,978) (17,856)
Interest Received 64,719 36,422
Income Taxes Paid (40,709) (2,800)
------------- --------------
Net Cash Provided by Operating Activities $ 474,006 $ 105,418
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (62,332) $ (78,280)
Decrease in Note Receivable - Stockholders 9,146 8,666
Acquisition of Investments (338,000) -
Disbursements from Bond Fund 1,080,782 -
Deposits to Bond Fund (829,083) (243,563)
------------- --------------
Net Cash Provided (Used) by Investing Activities $ (139,487) $ (313,177)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (65,000) $ (10,213)
------------- --------------
Net Cash (Used) by Financing Activities $ (65,000) $ (10,213)
------------- --------------
NET INCREASE (DECREASE) IN CASH $ 269,519 $ (217,972)
Cash - Beginning 505,128 704,833
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CASH - ENDING $ 774,647 $ 486,861
------------- --------------
------------- --------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income (Loss) $ 68,563 $ (47,043)
Depreciation and Amortization 196,822 141,280
(Increase) Decrease in Current Assets:
Accounts Receivable - Residents 315,984 (378,626)
Other Current Assets 153,400 (67,662)
Increase (Decrease) in Current Liabilities:
Accounts Payable (293,867) (41,647)
Other Current Liabilities 33,104 499,116
------------- --------------
Net Cash Provided by Operating Activities $ 474,006 $ 105,418
------------- --------------
------------- --------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Deposits to Trustee Held Funds $ - $ 95,002
------------- --------------
------------- --------------
Transfers from Trustee Held Funds for Property and Equipment
Acquisition and Financing Costs $ 193,117 $ 1,674,763
Payment of Bond Principal and Interest 743,301 741,664
------------- --------------
Total $ 936,418 $ 2,416,427
------------- --------------
------------- --------------
Transfer of Construction in Progress to Property
and Equipment $ - $ 4,831,934
------------- ---------------
------------- ---------------
</TABLE>
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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 March 31, 1997 and September 30, 1996 and for the six
months ended March 31, 1997 and 1996.
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 SIX MONTHS ENDED MARCH 31, 1997 TO THE SIX MONTHS ENDED
MARCH 31, 1996.
For the unaudited six months ended March 31, 1997, the Corporation's net income
was $68,563 in comparison with a net loss of $47,042 for the same period in
1996, or an increase of $115,605. The income can be attributed to adjusting
staffing levels and budgeting expenses.
Resident services revenue increased by $802,354 or 18%, from $4,423,283 for the
six months ended March 31, 1996, to $5,225,637 for the six months ended March
31, 1997. 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 1996. 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
$457,008 or 12% from $3,845,276 for the six months ended March 31, 1996 to
$4,302,284 for the six months ended March 31, 1997. The net increase is a blend
of the increase in physical plant of Nile Health Care Center from 125 beds to
256 beds and inflationary costs.
Depreciation, amortization and interest expense, increased $214,073 or 32% from
$659,727 for the six months ended March 31, 1996 to $873,800 for the six months
ended March 31, 1997. The increase is a result of the interest rate increases
with the Series 1994 bonds which bear interest from 5% to 7.75%, and the
increased depreciation from additional fixed assets.
The Corporation's estimated income taxes recoverable for the six months ended
March 31, 1996 were $31,361 based on a pretax loss of $78,403 and for the six
months ended March 31, 1997, estimated income taxes payable were $45,709 based
on pretax income of $68,563, based on an effective income tax rate of 40%.
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LIQUIDITY AND CAPITAL RESOURCES
The Corporation does not maintain any line of credit or other external sources
of liquidity.
At March 31, 1997, the Corporation had $774,647 in cash, and working capital of
$446,783 based upon current assets of $2,312,009 and current liabilities of
$1,865,226 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 six months ended March 31, 1997, cash
increased $269,519. Net cash provided by operating activities was $472,917 for
the six months ended March 31, 1997.
Accounts Payable has decreased $293,867 from September 30, 1996 to March 31,
1997, mainly as a result of keeping more current on payment of invoices.
As of March 31, 1997, total outstanding Long-Term Debt of the Corporation
equaled $12,845,000 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 $263,009 from $1,914,098 at
September 30, 1996 to $1,651,089 at March 31, 1997 as a result of payments of
bond principal and interest 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.
The Corporation has not entered into any material agreements or commitments with
respect to acquisitions or development. 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.
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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
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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: March 13, 1997 By /s/ Jack E. Nugent
-------------------------------------
Jack E. Nugent, President
Dated: March 13, 1997 By /s/ Tamara J. Austin
--------------------------------------
Tamara J. Austin, Director of Finance
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 774,647
<SECURITIES> 0
<RECEIVABLES> 978,119
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,312,009
<PP&E> 12,508,364
<DEPRECIATION> 2,411,154
<TOTAL-ASSETS> 14,744,861
<CURRENT-LIABILITIES> 1,865,226
<BONDS> 12,845,000
0
0
<COMMON> 17,764
<OTHER-SE> (268,470)
<TOTAL-LIABILITY-AND-EQUITY> 14,744,861
<SALES> 0
<TOTAL-REVENUES> 5,225,637
<CGS> 0
<TOTAL-COSTS> 4,302,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 676,978
<INCOME-PRETAX> 114,272
<INCOME-TAX> 45,709
<INCOME-CONTINUING> 68,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,563
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
