<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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)
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 March 31, 1999, 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 MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C> <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
</TABLE>
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<PAGE> 3
CARE FIRST INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
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, 1998.
NOTE B - COMMON STOCK
Authorized and outstanding common stock shares are as follows at March
31, 1999:
<TABLE>
<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
</TABLE>
NOTE C - OPERATIONS
The Corporation owns and operates the following licensed nursing
facility:
<TABLE>
<CAPTION>
Description Address Operation
-----------------------------------------------------------------------
<S> <C> <C>
Nile Health Care 3720 23rd Ave South 256-Bed Nursing
Center Minneapolis MN Care Facility
</TABLE>
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
(collectively referred to as the "Bonds") and to finance construction and
equipping of a 131-bed Addition to the Corporation's 125-bed Existing Facility.
On April 30, 1999, the Corporation sold substantially all of its assets.
Effective with the sale, the bonds were defeased and the Corporation has been
released from all obligations under the Bonds.
NOTE E - FACILITY SALE
On April 30, 1999, the Company sold its 256-bed licensed nursing facility, its
home health agency, related parking and accessory facilities to Shelter Care
Foundation (Shelter). The sale agreement calls for Shelter to purchase all real
and personal property, all inventories and to assume all Company obligations for
vested employee vacation and personal leave time.
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<PAGE> 4
CARE FIRST INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999 September 30,
(Unaudited) 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,018 $ 265,652
Available-for-sale securities 372,666 675,502
Accounts receivable, net 1,215,563 1,287,425
Restricted trust funds 660,540 718,668
Note receivable - stockholders, net 37,967 25,015
Prepaid expenses 196,319 11,517
Other current assets 8,529 0
------------------- ------------------
Total Current Assets $ 2,528,602 $ 2,983,779
RESTRICTED TRUST FUNDS, NET OF CURRENT PORTION 1,000,003 1,000,059
PROPERTY AND EQUIPMENT, NET 9,616,362 9,786,488
INTANGIBLE ASSETS, NET 1,010,854 850,998
DEFERRED INCOME TAXES - 17,000
------------------- ------------------
$ 14,155,821 $ 14,638,324
=================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Checks written in excess of cash in bank $ - $ 132,396
Current portion of long-term debt 325,000 295,340
Accounts payable 300,139 259,358
Accrued payroll, vacation and payroll taxes 401,643 421,678
Accrued interest 439,534 446,534
Accrued real estate taxes and accrued expenses 412,775 476,127
Resident trust funds payable 48,838 47,867
------------------- ------------------
Total Current Liabilities $ 1,927,929 $ 2,079,300
LONG-TERM DEBT, NET OF CURRENT PORTION 12,241,677 12,483,562
DEFERRED COMPENSATION 99,397 94,664
------------------- ------------------
Total Liabilities $ 14,269,003 $ 14,657,526
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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 (130,947) (36,967)
------------------- ------------------
Total Stockholders' Deficit $ (113,182) $ (19,202)
------------------- ------------------
$ 14,155,821 $ 14,638,324
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
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CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31 March 31
------------------------------------------ --------------------------------------
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
REVENUES:
Resident Services $ 2,519,113 $ 2,503,766 $ 5,064,943 $ 4,872,131
------------------- ------------------- ------------------ ----------------
Total Revenue $ 2,519,113 $ 2,503,766 $ 5,064,943 $ 4,872,131
------------------- ------------------- ------------------ ----------------
OPERATING EXPENSES:
Resident Services $ 2,215,325 $ 2,080,357 $ 4,364,464 $ 3,923,256
Home Health Services - (1,322) 25,992 19,618
------------------- ------------------- ------------------ ----------------
Total Operating Expenses $ 2,215,325 $ 2,079,035 $ 4,390,456 $ 3,942,874
------------------- ------------------- ------------------ ----------------
INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 303,788 $ 424,731 $ 674,487 $ 929,257
DEPRECIATION AND AMORTIZATION 126,840 122,897 254,124 245,494
INTEREST 329,650 318,729 662,801 637,992
------------------- ------------------- ------------------ ----------------
INCOME (LOSS) FROM OPERATIONS $ (152,702) $ (16,895) $ (242,438) $ 45,771
OTHER INCOME 51,161 43,878 103,458 86,055
------------------- ------------------- ------------------ ----------------
INCOME (LOSS) BEFORE INCOME TAXES $ (101,541) $ 26,983 $ (138,980) $ 131,826
PROVISION FOR (BENEFIT OF) INCOME TAXES (30,000) 10,793 (45,000) 52,730
------------------- ------------------- ------------------ ----------------
NET INCOME (LOSS) $ (71,541) $ 16,190 $ (93,980) $ 79,096
Accumulated Deficit - Beginning (59,406) (90,335) (36,967) (153,241)
------------------- ------------------- ------------------ ----------------
ACCUMULATED DEFICIT - ENDING (130,947) (74,145) (130,947) (74,145)
=================== =================== ================== ================
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE> 6
CARE FIRST INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
March 31
--------------------------------------------------
1999 1998
(Unaudited) (Unaudited)
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (93,980) $ 79,096
Depreciation and Amortization 254,124 245,494
Changes in Operating Assets and Liabilities:
Accounts Receivable, net 71,862 (240,312)
Other Current Assets (189,283) (14,288)
Accounts Payable 40,781 20,414
Other Accrued Expenses (83,387) (60,433)
Deferred compensation 4,733 -
----------------- ------------------
Cash Flows from Operating Activities $ 4,850 $ 29,971
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (30,873) $ (64,730)
Purchases of available-for-sale securities (86,426) (679,064)
Redemption of available-for-sale securities 389,262 502,248
Increase in Accrued Interest Receivable (7,000) 26,193
Deposits to Restricted Trust Funds (867,016) (744,590)
Disbursements from Restricted Trust Funds 926,171 715,419
Other (212,981) 9,652
----------------- ------------------
Cash Flows from Investing Activities $ 111,137 $ (234,872)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks written in excess of cash $ (132,396) $ -
Principal Payments on Long-Term Debt (212,225) (72,671)
----------------- ------------------
Cash Flow from Financing Activities $ (344,621) $ (72,671)
----------------- ------------------
DECREASE IN CASH AND CASH EQUIVALENTS $ (228,634) $ (277,572)
CASH AND CASH EQUIVALENTS, BEGINNING 265,652 501,765
----------------- ------------------
CASH AND CASH EQUIVALENTS, ENDING $ 37,018 $ 224,193
================= ==================
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest $ 669,801 $ 744,333
Cash paid for income taxes $ - $ -
</TABLE>
See accompanying notes to condensed financial statements.
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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, 1999 and September 30, 1998 and for the year
to date and three months ended March 31, 1999 and 1998.
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, 1999 to the three months ended
March 31, 1998 and the six months ended March 31, 1999 to the six months ended
March 31, 1998.
For the unaudited second quarter of 1999, the three months ended March 31, 1999,
the Corporation's net loss was $71,541 in comparison with net income of $16,190
for the same period in 1998, and for the six months ended March 31, 1999, the
net loss was $93,980 in comparison with a net income of $79,096 for the same
period in 1998, or an decrease of $173,076. The net loss can be attributed to
additional costs related to the proposed sale of the facility during the first
six months of 1999. The decrease in net income for the three months ended March
31, 1999, was also related to the additional costs as part of the sale.
Resident services revenue increased by $15,347or 1%, from $2,503,766 for the
three months ended March 31, 1998, to $2,519,113 for the three months ended
March 31, 1999, and increased $192,812 or 4%, from $4,872,131 for the six months
ended March 31, 1998, to $5,064,943 for the six months ended March 31, 1999. The
increase in revenue is due to a census crease in 1999. For the six months ended
March 31, 1999, total occupancy ended at 79%, compared to an average of 73% for
the six months ended March 31, 1998. 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
$136,290 or .7% from $2,080,357 for the three months ended March 31, 1998 to
$2,215,325 for the three months ended March 31, 1999, and increased $447,582 or
11% from $3,942,874 for the six months ended March 31, 1998 to $4,390,456 for
the six months ended March 31, 1999. The net increase for the six months is
principally related to costs of the proposed sale.
Depreciation, amortization and interest expense increased $14,872 or .3% from
$441,626 for the three months ended March 31, 1998 to $456,498 for the three
months ended March 31, 1999, and increased $33,439 or .4% from $883,486 for the
six months ended March 31, 1998 to $916,925 for the six months ended March 31,
1999. The increase is from additional fixed asset depreciation.
The Corporation's estimated income tax provision for the three months ended
March 31, 1998 were $10,793 based on pretax income of $26,983 and for the three
months ended March 31, 1999, estimated income tax benefit was $30,000 based on
pretax loss of $101,541. For the six months ended March 31, 1998 were $52,730
based on pretax income of $79,096 and for the six months ended March 31, 1999,
estimated income taxes payable were $45,000, based on pretax loss of $138,980,
based on an effective income tax rate of 35%.
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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, 1999, the Corporation had $409,684 in cash and cash equivalents,
and working capital of $600,673 based upon current assets of $2,528,602 and
current liabilities of $1,927,929 and at September 30, 1998, the Corporation had
$941,154 in cash and cash equivalents, and working capital of $904,479 based
upon current assets of $2,983,779 and current liabilities of $2,079,300. During
the six months ended March 31, 1999, cash decreased $228,634. Net cash generated
by operating activities was $4,850 for the six months ended March 31, 1999,
principally as a result of receivable collections.
As of March 31, 1999, total outstanding debt of the Corporation equaled
$12,566,677 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 in the amount of $6,677.
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 $59,155 from $1,718,727 at September 30, 1998
to $1,660,543 at March 31, 1999 as a result of payments of bond principal and
interest netted with interest earnings and deposits to the Bond Funds.
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
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 15, 1999 By Jack E. Nugent
----------------------------------------
Jack E. Nugent, President
Dated: February 15, 1999 By Jack E. Nugent
----------------------------------------
Jack E. Nugent, Director of Finance
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 37,018
<SECURITIES> 372,666
<RECEIVABLES> 1,215,563
<ALLOWANCES> 85,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,528,602
<PP&E> 12,799,917
<DEPRECIATION> 3,183,555
<TOTAL-ASSETS> 14,155,821
<CURRENT-LIABILITIES> 1,927,929
<BONDS> 12,241,677
0
0
<COMMON> 105
<OTHER-SE> (113,287)
<TOTAL-LIABILITY-AND-EQUITY> 14,155,821
<SALES> 5,064,943
<TOTAL-REVENUES> 5,064,943
<CGS> 0
<TOTAL-COSTS> 4,390,456
<OTHER-EXPENSES> 254,124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 662,801
<INCOME-PRETAX> (138,980)
<INCOME-TAX> (45,000)
<INCOME-CONTINUING> (93,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93,980)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
