<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 June 30, 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 (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, 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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CARE FIRST INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 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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CARE FIRST INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 June
30, 1998:
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, 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, and has been inactive
for the quarter ended June 30, 1998.
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 remained in Trustee Held Funds until certified draw requests were
processed for construction costs, including building construction, equipment
installation, capitalized interest and other Project costs. As of June 30, 1998,
the entire balance of the Trustee Held Funds has been expended.
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CARE FIRST INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 167,211 $ 501,765
Securities Available-for-sale 954,900 858,806
Accounts Receivable, net 1,234,162 800,577
Restricted Trust Funds 110,045 615,563
Prepaid Expenses 2,446 15,409
Deferred Tax Asset 17,000 17,000
------------ ------------
Total Current Assets $ 2,485,764 $ 2,809,120
RESTRICTED FUNDS, NET OF CURRENT PORTION 1,000,058 1,013,672
PROPERTY AND EQUIPMENT, NET 9,877,980 10,059,137
INTANGIBLE ASSETS, NET 877,560 957,247
DEFERRED TAX ASSET 69,000 69,000
------------ ------------
$ 14,310,362 $ 14,908,176
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 295,340 $ 150,340
Accounts Payable 287,396 322,808
Accrued Payroll, Vacation and Payroll Taxes 480,000 388,845
Accrued Interest 111,575 449,554
Accrued Real Estate Taxes 405,427 659,040
Accrued Expense 42,523 12,272
Resident Trust Funds Payable 48,845 47,303
------------ ------------
Total Current Liabilities $ 1,671,106 $ 2,030,162
LONG-TERM DEBT, NET OF CURRENT PORTION 12,484,898 12,778,904
DEFERRED COMPENSATION 92,513 86,059
DEFERRED REVENUE 148,527 148,527
------------ ------------
Total Liabilities $ 14,397,044 $ 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 (104,447) (153,241)
------------ ------------
Total Stockholders' Deficit $ (86,682) $ (135,476)
------------ ------------
$ 14,310,362 $ 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 Nine Months Ended
June 30, June 30,
----------------------------- -------------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
<S> <C> <C> <C> <C>
Resident Services $ 2,485,243 $ 2,351,527 $ 7,357,374 $ 7,577,164
----------- ----------- ----------- -----------
Total Revenue $ 2,485,243 $ 2,351,527 $ 7,357,374 $ 7,577,164
----------- ----------- ----------- -----------
OPERATING EXPENSES
Resident Services $ 2,146,768 $ 1,994,545 $ 6,070,024 $ 6,296,829
Home Health Services - 12,505 19,618 12,505
----------- ----------- ----------- -----------
Total Operating Expenses $ 2,146,768 $ 2,007,050 $ 6,089,642 $ 6,309,334
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 338,475 $ 344,477 $ 1,267,732 $ 1,267,830
DEPRECIATION AND AMORTIZATION 125,884 99,336 371,378 296,158
INTEREST 321,166 349,312 959,158 1,026,290
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS $ (108,575) $ (104,171) $ (62,804) $ (54,618)
OTHER INCOME 58,072 50,748 144,127 115,467
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ (50,503) $ (53,423) $ 81,323 $ 60,849
PROVISION FOR INCOME TAXES (20,201) (21,369) 32,529 0
----------- ----------- ------------- -----------
NET INCOME (LOSS) $ (30,302) $ (32,054) $ 48,794 $ 60,849
Retained Deficit - Beginning (74,145) (211,475) (153,241) (280,038)
=========== =========== ============= ===========
RETAINED DEFICIT - ENDING $ (104,447) $ (243,529) $ (104,447) $ (219,189)
=========== =========== ============= ===========
</TABLE>
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CARE FIRST INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
------------------------------------------
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Resident Services $ 6,923,789 $ 8,197,784
Cash Paid to Suppliers and Employees (6,250,879) (6,495,372)
Interest Paid (1,297,137) (1,026,290)
Interest Received 76,656 115,467
Miscellaneous Cash Received 67,471 -
Income Taxes (Paid) Received (32,529) 70,000
-----------
------------
Cash Flows from Operating Activities $ (512,629) $ 861,589
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (110,534) $ (104,346)
Purchases of Investments (4,570,454) (317,587)
Redemptions of Investments 4,474,360 -
Principal Payments Received on Notes Receivable - Stockholders 14,577 12,147
Deposits to Restricted Debt Trust Funds (1,007,215) (1,113,753)
Disbursements from Restricted Debt Trust Funds 1,519,896 1,389,626
Increase in Accrued Interest Receivable 6,451 -
------------ -----------
Cash Flows from Investing Activities $ 327,081 $ (133,913)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $ (149,006) $ (135,000)
------------ -----------
Cash Flows from Financing Activities $ (149,006) $ (135,000)
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (334,554) $ 592,676
CASH AND CASH EQUIVALENTS, BEGINNING 501,765 505,128
------------ -----------
CASH AND CASH EQUIVALENTS, ENDING $ 167,211 $ 1,097,804
============ ===========
RECONCILIATION OF NET INCOME TO NET CASH FLOWS
FROM OPERATING ACTIVITIES
Net Income $ 48,794 $ 60,849
Depreciation and Amortization 371,378 296,158
Changes in Operating Assets and Liabilities:
Accounts Receivable, net (433,585) 620,619
Other Current Assets (1,614) 659,077
Accounts Payable (35,412) (244,380)
Accrued Expenses (462,190) (530,734)
-----------
============ ===========
Cash Flows from Operating Activities $ (512,629) $ 861,589
============ ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Transfers from Trustee Held Funds for Property and Equipment
Acquisition and Financing Costs $ 14,925 $ 193,117
Payment of Bond Principal and Interest 1,491,478 1,489,734
------------ -----------
Total $ 1,506,403 $ 1,682,851
============ ===========
</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 June 30, 1998 and September 30, 1997 and for the three
months ended June 30, 1998 and 1997 and the nine months ended June 30, 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 June 30, 1998 to the three months ended
June 30, 1997 and the nine months ended June 30, 1998 to the nine months ended
June 30, 1997.
For the unaudited third quarter of 1998, the three months ended June 30, 1998,
the Corporation's net loss was $30,302 in comparison with a net loss of $32,054
for the same period in 1997, and for the nine months ended June 30, 1998, the
net income was $48,794 in comparison with net income of $60,849 for the same
period in 1997, or a decrease of $12,055. The decrease in net income can be
attributed to no provision for income taxes in 1997.
Resident services revenue increased by $133,716 or 5.7%, from $2,351,527 for the
three months ended June 30, 1997, to $2,485,243 for the three months ended June
30, 1998, due to increased ancillary revenue from therapies. Resident services
revenue decreased $219,790 or 2.9%, from $7,577,164 for the nine months ended
June 30, 1997, to $7,357,374 for the nine months ended June 30, 1998. The
decrease in revenue is due to a census decrease in 1998. For the nine months
ended June 30, 1998, total occupancy averaged 72.6%, compared to 77.5% for the
nine months ended June 30, 1997. Management is continually developing more
extensive marketing strategies in an effort to fill the licensed beds.
Operating expenses, which include salaries and benefits, supplies, utilities,
food, purchased services, and general and administrative expenses, increased
$139,718 or 7% from $2,007,050 for the three months ended June 30, 1997 to
$2,146,768 for the three months ended June 30, 1998, primarily due to salary
increases for RN, LPN and NAR needed to fill open nursing positions. Operating
expenses decreased $219,692 or 3.5% from $6,309,334 for the nine months ended
June 30, 1997 to $6,089,642 for the nine months ended June 30, 1998. The net
decrease for the nine months is a blend of a census reduction of 4.9% from the
prior year, and reduced workers' compensation premiums and property taxes.
Depreciation, amortization and interest expense decreased $1,598 or .4% from
$448,648 for the three months ended June 30, 1997 to $447,050 for the three
months ended June 30, 1998, and increased $8,088 or .6% from $1,322,448 for the
nine months ended June 30, 1997 to $1,330,536 for the nine months ended June 30,
1998. The increase from the nine months ended June 30, 1998 to the nine months
ended June 30, 1997 is from additional fixed asset depreciation.
The Corporation's estimated income tax benefit for the three months ended June
30, 1997 were ($21,369) based on a pretax loss of $53,423 and for the three
months ended June 30, 1998, estimated income tax benefit were ($20,201) based on
a pretax loss of $50,503. For the nine months ended June 30, 1997 estimated
income taxes payable were $24,340 based on pretax income of $60,849 and for the
nine months ended June 30, 1998, estimated income taxes payable were $32,529,
based on pretax income of $81,323, 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 June 30, 1998, the Corporation had $167,211 in cash and cash equivalents, and
working capital of $814,658 based upon current assets of $2,485,764 and current
liabilities of $1,671,106 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 nine months ended
June 30, 1998, cash decreased $334,554. The principal reason for this decrease
was due to the increase in accounts receivable of $433,585. In addition, on
April 1, 1998, an additional stockholder receivable was recorded in the amount
of $25,000, which is included as part of the accounts receivable balance at June
30, 1998. This amount, plus interest at 3%, has been repaid as of the date of
this report.
Accounts payable decreased $35,412 from September 30, 1997 to June 30, 1998.
Accrued real estate taxes decreased in 1998 due to appeals made and granted for
a reduction in taxes assessed by the state. Accrued interest decreased in 1998
due to the July 1, 1998 bond payment paid in June versus July. As of June 30,
1998, total outstanding debt of the Corporation equaled $12,780,238 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 decreased a net $519,132 from $1,629,235 at September 30, 1997
to $1,110,103 at June 30, 1998 as a result of deposits made for bond principal
and interest of $916,394, net of interest earnings and payments made for bond
principal and interest. The net proceeds of the 1994 Taxable Health Care
Facilities Bonds have been 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.
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<PAGE> 9
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 material 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.
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
On July 30, 1998, Care First Inc. announced that it has
entered into a definitive Purchase Agreement with Shelter Care
Foundation, a District of Columbia non-profit corporation, for
the purchase of its 256 bed nursing home facility, known as
the Nile Health Care Center, located at 3720 23rd Avenue
South, Minneapolis, Minnesota 55407. The nursing home facility
has been owned and operated by Care First Inc. since its
original construction in 1983, with a major expansion in 1994.
The purchase includes the nursing home facility for inpatient
elderly and disabled persons and home health agency, with
related parking and accessory facilities. The parties expect
the transaction to close in late 1998. In connection with the
closing, Care First Inc. contemplates defeasing the
outstanding revenue bonds on the facility in accordance with
the terms and conditions of these bonds.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
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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 11, 1998 By /s/ Jack E. Nugent
---------------------------------------
Jack E. Nugent, President
Dated: August 11, 1998 By /s/ Tamara J. Austin
---------------------------------------
Tamara J. Austin, Director of Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 167,211
<SECURITIES> 954,900
<RECEIVABLES> 1,307,834
<ALLOWANCES> 73,672
<INVENTORY> 0
<CURRENT-ASSETS> 2,485,764
<PP&E> 12,760,582
<DEPRECIATION> 2,882,603
<TOTAL-ASSETS> 14,310,362
<CURRENT-LIABILITIES> 1,671,106
<BONDS> 12,480,000
0
0
<COMMON> 105
<OTHER-SE> (86,787)
<TOTAL-LIABILITY-AND-EQUITY> 14,310,362
<SALES> 7,357,374
<TOTAL-REVENUES> 7,501,501
<CGS> 0
<TOTAL-COSTS> 6,089,642
<OTHER-EXPENSES> 371,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 959,158
<INCOME-PRETAX> 81,323
<INCOME-TAX> 32,529
<INCOME-CONTINUING> 48,794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,794
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
