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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
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CARE FIRST INC.
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(Exact name of registrant as specified in its charter)
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<S> <C>
Minnesota 41-0877001
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
3720 23rd Ave So
Minneapolis, MN 55407
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(Address of principal executive offices) (Zip Code)
(612) 724-5495
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(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 December 31, 1997, 10,500 shares of Common Stock were outstanding.
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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 DECEMBER 31, 1997
INDEX
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PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
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)
December 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, 1997.
NOTE B - COMMON STOCK
Authorized and outstanding common stock shares are as follows at
December 31, 1997:
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<CAPTION>
Class A Class B Unclassified Total
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<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
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NOTE C - OPERATIONS
The Corporation owns and operates the following:
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<CAPTION>
Description Address Operation
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<S> <C> <C>
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
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(1) Care First Home Health Services, a home health agency and division of the
Corporation, legally changed its name to Springs of Water Home Care in May,
1997, when it commenced operations to provide home health services to elderly
persons in the surrounding community. Springs of Water Home Care is
Medicare-certified and licensed by the State of Minnesota.
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
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DECEMBER 31, SEPTEMBER 30,
1997 1997
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 214,283 $ 501,765
Securities Available-for-sale 1,095,500 858,806
Accounts Receivable, net 767,758 800,577
Restricted Trust Funds 212,049 615,563
Note Receivable - Stockholders, net 0 0
Prepaid Expenses - 15,409
Deferred Tax Asset 17,000 17,000
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Total Current Assets $ 2,306,590 $ 2,809,120
RESTRICTED FUNDS, NET OF CURRENT PORTION 1,027,218 1,013,672
PROPERTY AND EQUIPMENT, NET 9,977,197 10,059,137
INTANGIBLE ASSETS, NET 930,684 957,247
DEFERRED TAX ASSET 69,000 69,000
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$ 14,310,689 $ 14,908,176
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 155,340 $ 150,340
Accounts Payable 270,364 322,808
Accrued Payroll, Vacation and Payroll Taxes 345,612 388,845
Accrued Interest 111,987 449,554
Accrued Real Estate Taxes 484,516 659,040
Accrued Expense 21,497 12,272
Resident Trust Funds Payable 54,638 47,303
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Total Current Liabilities $ 1,443,954 $ 2,030,162
LONG-TERM DEBT, NET OF CURRENT PORTION 12,702,568 12,778,904
DEFERRED COMPENSATION 88,210 86,059
DEFERRED REVENUE 148,527 148,527
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Total Liabilities $ 14,383,259 $ 15,043,652
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STOCKHOLDERS' DEFICIT:
Class A Voting Common Stock, $.01 par value, 500
shares authorized, issued and outstanding $ 5 $ 5
Class B Non-voting Common Stock, $.01 par value,
10,000 shares authorized, issued and outstanding 100 100
Additional Paid-in Capital 17,660 17,660
Accumulated Deficit (90,335) (153,241)
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Total Stockholders' Deficit $ (72,570) $ (135,476)
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$ 14,310,689 $ 14,908,176
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</TABLE>
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CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT)
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<CAPTION>
For the Three Months Ended
December 31
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1997 1996
(Unaudited) (Unaudited)
REVENUES
<S> <C> <C>
Resident Services $ 2,368,365 $ 2,533,911
Home Health Services 0 0
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Total Revenue $ 2,368,365 $ 2,533,911
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OPERATING EXPENSES
Resident Services $ 1,842,899 $ 2,225,859
Home Health Services 20,940 0
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Total Operating Expenses $ 1,863,839 $ 2,225,859
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INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 504,526 $ 308,052
DEPRECIATION AND AMORTIZATION 122,597 98,412
INTEREST 319,263 339,597
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INCOME (LOSS) FROM OPERATIONS $ 62,666 $ (129,957)
OTHER INCOME 42,177 30,390
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INCOME (LOSS) BEFORE INCOME TAXES $ 104,843 $ (99,567)
PROVISION FOR INCOME TAXES 41,937 (39,827)
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NET INCOME (LOSS) $ 62,906 $ (59,740)
Retained Deficit - Beginning (153,241) (280,038)
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RETAINED DEFICIT - ENDING $ (90,335) $ (339,778)
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CARE FIRST INC.
STATEMENTS OF CASH FLOWS
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For the Three Months Ended
December 31
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1997 1996
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Cash Received from Resident Services $ 2,401,184 $ 2,688,791
Cash Paid to Suppliers and Employees (2,099,920) (2,727,236)
Interest Paid (656,830) (339,597)
Interest Received 23,394 13,729
Miscellaneous Cash Received 18,783 16,661
Income Taxes Paid (41,937) 0
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Cash Flows from Operating Activities $ (355,326) $ (347,652)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (40,657) $ (10,272)
Purchases of Investments (236,694) (103,767)
Principal Payments Received on Notes Receivable - Stockholders 0 4,542
Deposits to Restricted Debt Trust Funds (368,526) (440,060)
Disbursements from Restricted Debt Trust Funds 764,489 957,806
Increase in Accrued Interest Receivable 20,568 0
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Cash Flows from Investing Activities $ 139,180 $ 408,249
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (71,336) $ (65,000)
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Cash Flows from Financing Activities $ (71,336) $ (65,000)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (287,482) $ (4,403)
CASH AND CASH EQUIVALENTS, BEGINNING 501,765 505,128
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CASH AND CASH EQUIVALENTS, ENDING $ 214,283 $ 500,725
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RECONCILIATION OF NET INCOME (LOSS) TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
Net Income (Loss) $ 62,906 $ (59,740)
Depreciation and Amortization 122,597 98,412
Changes in Operating Assets and Liabilities:
Accounts Receivable, net 32,819 154,880
Other Current Assets 15,409 49,349
Accounts Payable (52,444) (221,953)
Accrued Expenses (536,613) (368,600)
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Cash Flows from Operating Activities $ (355,326) $ (347,652)
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</TABLE>
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<PAGE> 7
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, 1997 and September 30, 1997 and for the
three months ended December 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 three months ended December 31, 1997 to the three months ended
December 31, 1996.
For the unaudited three months ended December 31, 1997, the Corporation's net
income was $62,906 in comparison with a net loss of $59,740 for the same period
in 1996, or an increase of $122,646. The income can be attributed to a concerted
effort in reducing staff hours while still meeting regulation requirements, and
also a reduction in both workers' compensation premiums and property taxes.
Resident services revenue decreased by $165,546 or 6.5%, from $2,533,911 for the
three months ended December 31, 1996, to $2,368,365 for the three months ended
December 31, 1997. The decrease in revenue is due to a census decrease in 1997.
At December 31, 1997, total occupancy was 72.1%, compared to 85.5% at December
31, 1996. Management is continually developing more extensive marketing
strategies in an effort to fill the beds.
Operating expenses, which include salaries and benefits, supplies, utilities,
food, purchased services, and general and administrative expenses, decreased
$362,020 or 16.3% from $2,225,859 for the three months ended December 31, 1996
to $1,863,839 for the three months ended December 31, 1997. The net decrease is
a blend of a census reduction of 13.4% from the prior year, a reduction in staff
hours, and reduced workers' compensation premiums and property taxes.
Depreciation, amortization and interest expense, increased $3,851 or .9% from
$438,009 for the three months ended December 31, 1996 to $441,860 for the three
months ended December 31, 1997.
The Corporation's estimated income taxes recoverable for the three months ended
December 31, 1996 was $39,827 based on a pretax loss of $99,567 and for the
three months ended December 31, 1997, estimated income taxes payable were
$41,937, based on pretax income of $104,843, based on an effective income tax
rate of 40%.
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<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Corporation does not maintain any line of credit or other external sources
of liquidity.
At December 31, 1997, the Corporation had $214,283 in cash and cash equivalents,
and working capital of $862,636 based upon current assets of $2,306,590 and
current liabilities of $1,443,954 and at September 30, 1997, the Corporation had
$501,765 in cash, and working capital of $778,958 based upon current assets of
$2,809,120 and current liabilities of $2,030,162. During the three months ended
December 31, 1997, cash decreased $287,482. Net cash used by operating
activities was $354,623 for the three months ended December 31, 1997,
principally as a result of cash used to pay interest payments and real estate
taxes.
Accounts payable has decreased $52,444 from September 30, 1997 to December 31,
1997. As of December 31, 1997, total outstanding debt of the Corporation equaled
$12,857,908 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, and a three
year capital lease for a copy machine.
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.
Restricted funds decreased a net $389,265 from $1,629,235 at September 30, 1997
to $1,239,970 at December 31, 1997 as a result of payments of bond principal and
interest of $372,691 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 December 31, 1997,
negotiations are in progress but no contract has been signed.
The Corporation believes that cash flows from its existing operations, together
with existing capital resources, will be sufficient to make the indebtedness
repayments, to purchase 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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<PAGE> 9
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
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
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<PAGE> 10
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 10, 1998 By Jack E. Nugent
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Jack E. Nugent, President
Dated: February 10, 1998 By Tamara J. Austin
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Tamara J. Austin, Director of Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 214,283
<SECURITIES> 1,095,500
<RECEIVABLES> 837,758
<ALLOWANCES> 70,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,306,590
<PP&E> 12,664,143
<DEPRECIATION> 2,686,947
<TOTAL-ASSETS> 14,310,689
<CURRENT-LIABILITIES> 1,443,954
<BONDS> 12,702,568
0
0
<COMMON> 105
<OTHER-SE> (72,675)
<TOTAL-LIABILITY-AND-EQUITY> 14,310,689
<SALES> 2,410,542
<TOTAL-REVENUES> 2,410,542
<CGS> 0
<TOTAL-COSTS> 1,863,839
<OTHER-EXPENSES> 122,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319,263
<INCOME-PRETAX> 104,843
<INCOME-TAX> 41,937
<INCOME-CONTINUING> 62,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,906
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
