<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)
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 March 31, 1998, 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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<PAGE> 2
CARE FIRST INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1998
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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<PAGE> 3
CARE FIRST INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1998
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 March
31, 1998:
<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:
<TABLE>
<CAPTION>
Description Address Operation
-----------------------------------------------------------------------
<S> <C> <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
</TABLE>
(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. As of March 31,
1998, $14,122 remains held in the Trustee Held Funds.
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<PAGE> 4
CARE FIRST INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 224,193 $ 501,765
Securities Available-for-sale 1,035,622 858,806
Accounts Receivable, net 1,040,889 800,577
Restricted Trust Funds 604,654 615,563
Prepaid Expenses 20,046 15,409
Deferred Tax Asset 17,000 17,000
------------ ------------
Total Current Assets $ 2,942,404 $ 2,809,120
RESTRICTED FUNDS, NET OF CURRENT PORTION 1,027,558 1,013,672
PROPERTY AND EQUIPMENT, NET 9,931,498 10,059,137
INTANGIBLE ASSETS, NET 904,122 957,247
DEFERRED TAX ASSET 69,000 69,000
------------ ------------
$ 14,874,582 $ 14,908,176
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 155,340 $ 150,340
Accounts Payable 343,222 322,808
Accrued Payroll, Vacation and Payroll Taxes 395,205 388,845
Accrued Interest 448,059 449,554
Accrued Real Estate Taxes 534,298 659,040
Accrued Expense 62,726 12,272
Resident Trust Funds Payable 51,992 47,303
------------ ------------
Total Current Liabilities $ 1,990,842 $ 2,030,162
LONG-TERM DEBT, NET OF CURRENT PORTION 12,701,233 12,778,904
DEFERRED COMPENSATION 90,360 86,059
DEFERRED REVENUE 148,527 148,527
------------ ------------
Total Liabilities $ 14,930,962 $ 15,043,652
------------ ------------
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 (74,145) (153,241)
------------ ------------
Total Stockholders' Deficit $ (56,380) $ (135,476)
------------ ------------
$ 14,874,582 $ 14,908,176
============ ============
</TABLE>
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<PAGE> 5
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
------------------------------ -------------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Resident Services $ 2,503,766 $ 2,691,726 $ 4,872,131 $ 5,225,637
Home Health Services - - - -
----------- ----------- ----------- -----------
Total Revenue $ 2,503,766 $ 2,691,726 $ 4,872,131 $ 5,225,637
----------- ----------- ----------- -----------
OPERATING EXPENSES
Resident Services $ 2,080,357 $ 2,076,425 $ 3,923,256 $ 4,302,284
Home Health Services (1,322) - 19,618 -
----------- ----------- ----------- -----------
Total Operating Expenses $ 2,079,035 $ 2,076,425 $ 3,942,874 $ 4,302,284
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 424,731 $ 615,301 $ 929,257 $ 923,353
DEPRECIATION AND AMORTIZATION 122,897 98,410 245,494 196,822
INTEREST 318,729 337,381 637,992 676,978
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS $ (16,895) $ 179,510 $ 45,771 $ 49,553
OTHER INCOME 43,878 34,329 86,055 64,719
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ 26,983 $ 213,839 $ 131,826 $ 114,272
PROVISION FOR INCOME TAXES 10,793 85,536 52,730 45,709
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 16,190 $ 128,303 $ 79,096 $ 68,563
Retained Deficit - Beginning (90,335) (339,778) (153,241) (280,038)
=========== =========== =========== ===========
RETAINED DEFICIT - ENDING $ (74,145) $ (211,475) $ (74,145) $ (211,475)
=========== =========== =========== ===========
</TABLE>
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<PAGE> 6
CARE FIRST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
March 31
------------------------------
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Resident Services $ 4,631,819 $ 5,541,621
Cash Paid to Suppliers and Employees (3,995,686) (4,414,647)
Interest Paid (639,487) (676,978)
Interest Received 47,848 64,719
Miscellaneous Cash Received 38,208 -
Income Taxes Paid (52,730) (40,709)
----------- -----------
Cash Flows from Operating Activities $ 29,970 $ 474,006
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (64,730) $ (62,332)
Purchases of Investments (679,064) (338,000)
Redemptions of Investments 502,248 -
Principal Payments Received on Notes Receivable - Stockholders 9,652 9,146
Deposits to Restricted Debt Trust Funds (744,590) (829,083)
Disbursements from Restricted Debt Trust Funds 715,419 1,080,782
Increase in Accrued Interest Receivable 26,193 -
----------- -----------
Cash Flows from Investing Activities $ (234,872) $ (139,487)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (72,671) $ (65,000)
----------- -----------
Cash Flows from Financing Activities $ (72,671) $ (65,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (277,572) $ 269,519
CASH AND CASH EQUIVALENTS, BEGINNING 501,765 505,128
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING $ 224,193 $ 774,647
=========== ===========
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
Net Income $ 79,096 $ 68,563
Depreciation and Amortization 245,494 196,822
Changes in Operating Assets and Liabilities:
Accounts Receivable, net (240,312) 315,984
Other Current Assets (14,288) 153,400
Accounts Payable 20,414 (293,867)
Accrued Expenses (60,433) 33,104
----------- -----------
Cash Flows from Operating Activities $ 29,970 $ 474,006
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Transfers from Trustee Held Funds for Property and Equipment
Acquisition and Financing Costs $ - $ 193,117
Payment of Bond Principal and Interest 744,333 743,301
----------- -----------
Total $ 744,333 $ 936,418
=========== ===========
</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 March 31, 1998 and September 30, 1997 and for the three
months ended March 31, 1998 and 1997 and the six months ended March 31, 1998 and
1997.
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 March 31, 1998 to the three months ended
March 31, 1997 and the six months ended March 31, 1998 to the six months ended
March 31, 1997.
For the unaudited second quarter of 1998, the three months ended March 31, 1998,
the Corporation's net income was $16,190 in comparison with net income of
$128,303 for the same period in 1997, and for the six months ended March 31,
1998, the net income was $79,096 in comparison with a net income of $68,563 for
the same period in 1997, or an increase of $10,533. The net income can be
attributed to a reduction in both workers' compensation premiums and property
taxes for the six months of 1998. The decrease in net income for the three
months ended March 31, 1998, is due to census decrease.
Resident services revenue decreased by $187,960 or 7%, from $2,691,726 for the
three months ended March 31, 1997, to $2,503,766 for the three months ended
March 31, 1998, and decreased $353,506 or 6.8%, from $5,225,637 for the six
months ended March 31, 1997, to $4,872,131 for the six months ended March 31,
1998. The decrease in revenue is due to a census decrease in 1998. For the six
months ended March 31, 1998, total occupancy averaged 73.1%, compared to 78.8%
for the six months ended March 31, 1997. 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, increased
$2,610 or .1% from $2,076,425 for the three months ended March 31, 1997 to
$2,079,035 for the three months ended March 31, 1998, and decreased $359,410 or
8.4% from $4,302,284 for the six months ended March 31, 1997 to $3,942,874 for
the six months ended March 31, 1998. The net decrease for the six months is a
blend of a census reduction of 5.7% from the prior year, and reduced workers'
compensation premiums and property taxes.
Depreciation, amortization and interest expense increased $5,835 or 1% from
$435,791 for the three months ended March 31, 1997 to $441,626 for the three
months ended March 31, 1998, and increased $9,686 or 1.1% from $873,800 for the
six months ended March 31, 1997 to $883,486 for the six months ended March 31,
1998. The increase is from additional fixed asset depreciation.
The Corporation's estimated income taxes payable for the three months ended
March 31, 1997 were $85,536 based on pretax income of $213,839 and for the three
months ended March 31, 1998, estimated income taxes payable were $10,793 based
on pretax income of $26,983. For the six months ended March 31, 1997 were
$45,709 based on pretax income of $68,563 and for the six months ended March 31,
1998, estimated income taxes payable were $52,730, based on pretax income of
$79,096, 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 March 31, 1998, the Corporation had $224,193 in cash and cash equivalents,
and working capital of $951,562 based upon current assets of $2,942,404 and
current liabilities of $1,990,842 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 six months ended
March 31, 1998, cash decreased $277,572. Net cash provided by operating
activities was $39,622 for the six months ended March 31, 1998.
Accounts payable has increased $20,414 from September 30, 1997 to March 31,
1998. As of March 31, 1998, total outstanding debt of the Corporation equaled
$12,856,573 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, plus 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 increased a net $2,977 from $1,629,235 at September 30, 1997 to
$1,632,212 at March 31, 1998 as a result of deposits made for bond principal and
interest of $698,020, net of interest earnings. 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.
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" during the fiscal year ending September 30,
1999 (Statement 130). Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, adoption during the
fiscal year ending September 30, 1999 will have no impact on the Company's net
income or stockholders' deficit. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which currently is
reported in stockholders' deficit, to be included in other comprehensive income
and the disclosure of total comprehensive income.
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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
-9-
<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: May 8, 1998 By Jack E. Nugent
----------------------------------------
Jack E. Nugent, President
Dated: May 8, 1998 By Tamara J. Austin
----------------------------------------
Tamara J. Austin, Director of Finance
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 224,193
<SECURITIES> 1,035,622
<RECEIVABLES> 1,110,889
<ALLOWANCES> 70,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,942,404
<PP&E> 12,714,779
<DEPRECIATION> 2,783,281
<TOTAL-ASSETS> 14,874,582
<CURRENT-LIABILITIES> 1,990,842
<BONDS> 12,700,000
0
0
<COMMON> 105
<OTHER-SE> (56,380)
<TOTAL-LIABILITY-AND-EQUITY> 14,874,582
<SALES> 4,872,131
<TOTAL-REVENUES> 4,872,131
<CGS> 0
<TOTAL-COSTS> 3,942,874
<OTHER-EXPENSES> 245,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 637,992
<INCOME-PRETAX> 131,826
<INCOME-TAX> 52,730
<INCOME-CONTINUING> 79,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,096
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
