<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 June 30, 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 (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 June 30, 1997, 10,500 shares of Common Stock were outstanding.
--------------------------------------
This Form 10-Q consists of 11 pages. Exhibits begin on page 11.
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CARE FIRST INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 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)
June 30, 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 June 30,
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
Springs of Water 3720 23rd Ave South (1) Home Health Services
Home Care Minneapolis MN
(1) Care First Home Health Services legally changed its name to Springs of
Water Home Care in May, 1997. As of June 30, 1997, no services have yet
been rendered.
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 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>
JUNE 30, SEPTEMBER 30,
1997 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 1,097,804 $ 505,128
Accounts Receivable 673,484 1,294,103
Current Assets Whose Use is Limited 98,528 609,868
Note Receivable - Stockholders (4,314) 7,833
Prepaid Expenses 21,352 11,088
Deferred Tax Asset - 88,000
------------ ------------
Total Current Assets $ 1,886,853 $ 2,516,020
------------ ------------
ASSETS WHOSE USE IS LIMITED $ 1,104,677 $ 1,304,230
------------ ------------
PROPERTY AND EQUIPMENT at Cost Less Accumulated 0.00
Depreciation of $2,509,368 at June 30, 1997
and $2,219,257 at September 30, 1996 $ 10,039,888 $ 10,231,700
------------ ------------
OTHER ASSETS
Unamortized Financing Costs $ 968,096 $ 1,044,416
Deferred Tax Asset - 70,000
Other Assets 172,573 19,080
------------ ------------
Total Other Assets $ 1,140,669 $ 1,133,496
------------ ------------
Total Assets $ 14,172,087 $ 15,185,446
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current Maturites of Long-Term Debt $ 145,000 $ 135,000
Accounts Payable - Trade 151,092 395,472
Accounts Payable - Other 49,688 100,908
Accrued Salaries and Benefits 463,095 462,981
Other Accrued Expenses 548,955 1,022,717
------------ ------------
Total Current Liabilities $ 1,357,831 $ 2,117,078
LONG-TERM DEBT (Net of Current
Maturities Shown Above) 12,770,000 12,915,000
OTHER LIABILITIES 302,676 415,641
------------ ------------
Total Liabilities $ 14,430,507 $ 15,447,719
------------ ------------
STOCKHOLDERS' DEFICIT
Common Stock $ 17,764 $ 17,765
Retained Deficit (276,184) (280,038)
------------ ------------
Total Stockholders' Deficit $ (258,420) $ (262,273)
------------ ------------
Total Liabilities and Stockholders'
Deficit $ 14,172,087 $ 15,185,446
------------ ------------
------------ ------------
</TABLE>
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CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30 June 30
-------------------------------- --------------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Resident Services $ 2,351,527 $ 2,373,988 $ 7,577,164 $ 6,797,271
Home Health Services - - - (25,665)
------------ ------------ ------------ ------------
Total Revenue $ 2,351,527 $ 2,373,988 $ 7,577,164 $ 6,771,606
------------ ------------ ------------ ------------
OPERATING EXPENSES
Resident Services $ 1,994,545 $ 2,082,835 $ 6,296,829 $ 5,925,725
Home Health Services 12,505 1,581 12,505 3,967
------------ ------------ ------------ ------------
Total Operating Expenses $ 2,007,050 $ 2,084,416 $ 6,309,334 $ 5,929,692
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 344,476 $ 289,572 $ 1,267,829 $ 841,914
DEPRECIATION AND AMORTIZATION 99,336 96,851 296,158 238,131
INTEREST 349,312 358,724 1,026,290 877,171
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS $ (104,172) $ (166,003) $ (54,619) $ (273,388)
OTHER INCOME 50,748 61,043 115,467 90,025
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES $ (53,423) $ (104,960) $ 60,849 $ (183,363)
PROVISION FOR INCOME TAXES (21,369) (41,984) (0) (73,345)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (32,054) $ (62,976) $ 60,849 $ (110,018)
Retained Deficit - Beginning (211,475) (239,396) (280,038) (192,354)
------------ ------------ ------------ ------------
RETAINED DEFICIT - ENDING $ (243,529) $ (302,372) $ (219,189) $ (302,372)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
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CARE FIRST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30
--------------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Resident Services $ 8,197,783 $ 6,342,700
Cash Paid to Suppliers and Employees (6,495,372) (5,695,653)
Interest Paid (1,026,290) (17,856)
Interest Received 115,467 36,422
Income Taxes Paid 70,000 (2,800)
------------ ------------
Net Cash Provided by Operating Activities $ 861,589 $ 662,813
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (104,346) $ (137,418)
Decrease in Note Receivable - Stockholders 12,147 13,087
Acquisition of Investments (317,587) (202,580)
Disbursements from Bond Fund 1,389,626 -
Deposits to Bond Fund (1,113,753) (610,840)
------------ ------------
Net Cash Provided (Used) by Investing Activities $ (133,912) $ (937,751)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (135,000) $ (31,136)
------------ ------------
Net Cash (Used) by Financing Activities $ (135,000) $ (31,136)
------------ ------------
NET INCREASE (DECREASE) IN CASH $ 592,676 $ (306,074)
Cash - Beginning 505,128 704,833
------------ ------------
CASH - ENDING $ 1,097,804 $ 398,759
------------ ------------
------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net Income (Loss) $ 60,849 $ (110,018)
Depreciation and Amortization 296,158 238,131
(Increase) Decrease in Current Assets:
Accounts Receivable - Residents 620,619 (428,905)
Other Current Assets 659,076 698,099
Increase (Decrease) in Current Liabilities:
Accounts Payable (244,380) (58,617)
Other Current Liabilities (530,734) 324,123
------------ ------------
Net Cash Provided by Operating Activities $ 861,589 $ 662,813
------------ ------------
------------ ------------
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 1,489,734 741,664
------------ ------------
Total $ 1,682,851 $ 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
June 30, 1997 and September 30, 1996 and for the three months ended June 30,
1997 and 1996 and the nine months ended June 30, 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 THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996 AND THE NINE MONTHS ENDED JUNE 30, 1997 TO THE NINE MONTHS ENDED
JUNE 30, 1996.
For the unaudited third quarter of 1997, the three months ended June 30, 1997,
the Corporation's net loss was $32,054 in comparison with a net loss of $62,976
for the same period in 1996, and for the nine months ended June 30, 1997, the
net income was $36,509 in comparison with a loss of $110,018 for the same period
in 1996. The year to date income can be attributed to adjusting staffing levels
and budgeting expenses, while the loss in the third quarter may be attributed to
falling census levels from 18,781 days in the first quarter to 17,854 in the
second quarter to 17,503 in the third quarter.
Resident services revenue decreased by $22,461 or 1%, from $2,373,988 for the
three months ended June 30, 1996, to $2,351,527 for the three months ended June
30, 1997 and increased by $779,893 or 11% from $6,797,271 for the nine months
ended June 30, 1996 to $7,577,164 for the nine months ended June 30, 1997. The
decrease in revenue for the third quarter may be due to decreased levels of
therapy utilization of $27,269 for third quarter 1996 to 1997. The increase in
revenue for the nine months ended June 30, 1997 may be due to a blend of
increased rates and a higher census with the Nile Health Care Center addition.
The Nile Health Care Center's daily room rate is approximately $10 per day or 8%
higher than the former Cedar Pines Facility. Additionally, the revenue for the
period October 1996 to December 1996 is at the increased Nile Health Care Center
daily rate, compared to a blend of the Nile Health Facility rate and the lower
Cedar Pines rate from the comparative period in 1995. The Corporation had
previously suspended the operations of the Home Health Services; however,
operations are planned to be resumed in August, 1997.
Operating expenses, which include salaries and benefits, supplies, utilities,
food, purchased services, and general and administrative expenses, decreased
$77,366 or 4% from $2,084,416 for the three months ended June 30, 1996 to
$2,007,050 for the three months ended June 30, 1997 and increased $379,642 or 6%
from $5,929,692 for the nine months ended June 30, 1996 to $6,309,334 for the
nine months ended June 30, 1997. Resident services operating expenses decreased
$88,290 or 4% from $2,082,835 for the three months ended June 30, 1996 to
$1,994,545 for the three months ended June 30, 1997 and increased $371,104 or 6%
from $5,925,725 for the nine months ended June 30, 1996 to $6,296,829 for the
nine months ended June 30, 1997. The net increase is a blend of the increase in
physical plant of Nile Health Care Center from 125 beds to 256 beds for the
first quarter of 1997 and inflationary costs.
Depreciation, amortization and interest expense decreased $6,927 or 2% from
$455,575 for the three months ended June 30, 1996 to $448,648 for the three
months ended June 30, 1997 and increased $207,146 or 19% from $1,115,302 for the
nine months ended June 30, 1996 to $1,322,448 for the nine months ended June 30,
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.
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<PAGE>
The Corporation's estimated income tax recoverable for the three months ended
June 30, 1996 was $41,984 based on a pretax (loss) of $104,960 and for the three
months ended June 30, 1997, estimated income tax recoverable was $21,369 based
on a pretax (loss) of $53,423. For the nine months ended June 30, 1996,
estimated income tax recoverable was $73,345 based on a pretax (loss) of
$183,363 and for the nine months ended June 30, 1997, estimated income tax
expense was $24,340 based on a pretax income of $60,849. Both periods resulted
in an effective income tax rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation does not maintain any line of credit or other external sources
of liquidity.
At June 30, 1997, the Corporation had $1,097,804 in cash, and working capital of
$504,682 based upon current assets of $1,886,853 and current liabilities of
$1,382,171 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 nine months ended June 30, 1997, cash
increased $592,676. Net cash provided by operating activities was $861,589 for
the nine months ended
June 30, 1997.
Accounts Payable has decreased $244,380 from September 30, 1996 to June 30,
1997, mainly as a result of keeping more current on payment of invoices.
As of June 30, 1997, total outstanding Long-Term Debt of the Corporation
equaled $12,770,000 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 $710,893 from $1,914,098 at
September 30, 1996 to $1,203,205 at June 30, 1997 as a result of payments of
bond principal and interest 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.
The Corporation has not entered into any material agreements or commitments with
respect to acquisitions or development.
On June 19, 1997, the Local 113 Union was voted in to represent the non-
professional staff of Nile Health Care Center. As of June 30, 1997, no
negotiations have been started.
The Corporation believes the proceeds from the offering of the Bonds, together
with existing capital resources and cash flow from its existing operations, will
be sufficient to make the indebtedness repayments, to make capital additions and
improvements, and to meet other working capital needs for the next twelve
months.
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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.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 was 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 is 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: August 1, 1997 By /s/ Jack E. Nugent
-------------------------------------
Jack E. Nugent, President
Dated: August 1, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,097,804
<SECURITIES> 0
<RECEIVABLES> 673,484
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,886,853
<PP&E> 12,549,256
<DEPRECIATION> 2,509,368
<TOTAL-ASSETS> 14,172,087
<CURRENT-LIABILITIES> 1,382,171
<BONDS> 12,770,000
0
0
<COMMON> 17,764
<OTHER-SE> (300,524)
<TOTAL-LIABILITY-AND-EQUITY> 14,172,087
<SALES> 0
<TOTAL-REVENUES> 7,577,164
<CGS> 0
<TOTAL-COSTS> 6,309,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,026,290
<INCOME-PRETAX> 60,849
<INCOME-TAX> 24,340
<INCOME-CONTINUING> 36,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,509
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
