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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, 1998
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)
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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)
3720 23rd Ave So
Minneapolis, MN 55407
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(Address of principal executive offices) (Zip Code)
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(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, 1998, 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, 1998
INDEX
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PART I - FINANCIAL INFORMATION PAGE
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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, 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, 1998.
NOTE B - COMMON STOCK
Authorized and outstanding common stock shares are as follows at
December 31, 1998:
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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 licensed nursing
facility:
Description Address Operation
-----------------------------------------------------------------------
Nile Health Care 3720 23rd Ave South 256-Bed Nursing
Center Minneapolis MN Care Facility
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.
NOTE E - PROPOSED FACILITY SALE
During 1998, the Company entered into a definitive purchase agreement with
Shelter Care Foundation (Shelter) for the sale of the Company's 256-bed licensed
nursing facility, its home health agency, related parking and accessory
facilities. The 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 as of the date of closing. The Company
expects the transaction to close in March 1999.
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CARE FIRST INC.
CONDENSED BALANCE SHEETS
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December 31,
1998 September 30,
(Unaudited) 1998
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 42,983 $ 265,652
Available-for-sale securities 375,823 675,502
Accounts receivable, net 1,417,693 1,287,425
Restricted trust funds 149,933 718,668
Note receivable - stockholders, net 25,015 25,015
Prepaid expenses 24,717 11,517
Other current assets 86,804 0
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Total Current Assets $ 2,122,968 $ 2,983,779
RESTRICTED TRUST FUNDS, NET OF CURRENT PORTION 1,000,000 1,000,059
PROPERTY AND EQUIPMENT, NET 9,691,520 9,786,488
INTANGIBLE ASSETS, NET 824,435 850,998
DEFERRED INCOME TAXES 17,000 17,000
============ ============
$ 13,655,923 $ 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 152,365 259,358
Accrued payroll, vacation and payroll taxes 387,170 421,678
Accrued interest 109,884 446,534
Accrued real estate taxes and accrued expenses 340,411 476,127
Resident trust funds payable 43,136 47,867
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Total Current Liabilities $ 1,357,966 $ 2,079,300
LONG-TERM DEBT, NET OF CURRENT PORTION 12,242,567 12,483,562
DEFERRED COMPENSATION 97,031 94,664
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Total Liabilities $ 13,697,564 $ 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 (59,406) (36,967)
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Total Stockholders' Deficit $ (41,641) $ (19,202)
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$ 13,655,923 $ 14,638,324
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</TABLE>
See accompanying notes to condensed financial statements.
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CARE FIRST INC.
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
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For the Three Months Ended
December 31
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1998 1997
(Unaudited) (Unaudited)
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REVENUES:
Resident Services $ 2,545,830 $ 2,368,365
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Total Revenue $ 2,545,830 $ 2,368,365
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OPERATING EXPENSES:
Resident Services $ 2,149,139 $ 1,842,899
Home Health Services 25,992 20,940
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Total Operating Expenses $ 2,175,131 $ 1,863,839
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INCOME FROM OPERATIONS BEFORE
DEPRECIATION, AMORTIZATION AND INTEREST $ 370,699 $ 504,526
DEPRECIATION AND AMORTIZATION 127,284 122,597
INTEREST 333,151 319,263
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INCOME (LOSS) FROM OPERATIONS $ (89,736) $ 62,666
OTHER INCOME 52,297 42,177
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INCOME (LOSS) BEFORE INCOME TAXES $ (37,439) $ 104,843
PROVISION FOR (BENEFIT OF) INCOME TAXES (15,000) 41,937
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NET INCOME (LOSS) $ (22,439) $ 62,906
Accumulated Deficit - Beginning (36,967) (153,241)
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ACCUMULATED DEFICIT - ENDING (59,406) (90,335)
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See accompanying notes to condensed financial statements.
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CARE FIRST INC.
STATEMENT OF CASH FLOWS
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<CAPTION>
For the Three Months Ended
December 31
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1998 1997
(Unaudited) (Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (22,439) $ 62,906
Depreciation and Amortization 127,284 122,597
Changes in Operating Assets and Liabilities:
Accounts Receivable, net (130,268) 32,819
Prepaid expenses (13,200) 0
Other Current Assets (86,804) 15,409
Checks Written in Excess of Cash in Bank (132,396) 0
Accounts Payable (106,993) (52,444)
Accrued Payroll, Vacation and Payroll Taxes (34,508) 0
Accrued Interest (336,650) 0
Accrued Real Estate Taxes and accrued expenses (135,716) (536,613)
Deferred compensation 2,367 -
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Cash Flows from Operating Activities $(869,323) $(355,326)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment $ (5,753) $ (40,657)
Purchases of available-for-sale securities 0 (236,694)
Redemption of available-for-sale securities 299,679 0
Deposits to Restricted Trust Funds (275,867) (368,526)
Disbursements from Restricted Trust Funds 839,930 764,489
Increase in Accrued Interest Receivable 0 20,568
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Cash Flows from Investing Activities $ 857,989 $ 139,180
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt $(211,335) $ (71,336)
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Cash Flow from Financing Activities $(211,335) $ (71,336)
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DECREASE IN CASH AND CASH EQUIVALENTS $(222,669) $(287,482)
CASH AND CASH EQUIVALENTS, BEGINNING 265,652 501,765
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CASH AND CASH EQUIVALENTS, ENDING $ 42,983 $ 214,283
========= =========
Supplemental cash flows information:
Cash paid for interest $ 669,801 $ 656,830
Cash paid for income taxes $ 17,002 $ 41,937
</TABLE>
See accompanying notes to condensed financial statements.
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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 December 31, 1998 and September 30, 1998 and for the
three months ended December 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 December 31, 1998 to the three months ended
December 31, 1997.
For the unaudited three months ended December 31, 1998, the Corporation's net
loss was $22,439 in comparison with a net income of $62,906 for the same period
in 1997, or a decrease of $85,345. The decrease can be attributed to an increase
in resident services expenses.
Resident services revenue increased by $177,465 or 7.5%, from $2,368,365 for the
three months ended December 31, 1997 to $2,545,830 for the three months ended
December 31, 1998. The increase in revenue is due to an increase in ancillary
revenues of $115,554 in 1998 compared to 1997 coupled with an increase in the
average per diem rates. At December 31, 1998, total occupancy was 71.4%,
compared to 72.1% at December 31, 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
$311,292 or 16.7% from $1,863,839 for the three months ended December 31, 1997
to $2,175,131 for the three months ended December 31, 1997. The net increase is
principally attributed to an increase in nursing expenses of $201,915 and
increases in ancillary expenses of $71,642 as a result of the revenue increase
noted above.
Depreciation, amortization and interest expense, increased $18,575 or 4.2% from
$441,860 for the three months ended December 31, 1997 to $460,435 for the three
months ended December 31, 1998.
The Corporation's estimated income taxes recoverable for the three months ended
December 31, 1998 was $15,000 based on a pretax loss of $37,439 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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LIQUIDITY AND CAPITAL RESOURCES
The Corporation does not maintain any line of credit or other external sources
of liquidity.
At December 31, 1998, the Corporation had $418,806 in cash and cash equivalents,
and working capital of $765,002 based upon current assets of $2,122,968 and
current liabilities of $1,357,966 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 three months ended December 31, 1998, cash decreased $522,348. Net cash used
by operating activities was $869,323 for the three months ended December 31,
1998, principally as a result of cash used to pay accounts payable, interest
payments, real estate taxes and an increase in accounts receivable, net.
Accounts payable has decreased $106,993 from September 30, 1998 to December 31,
1998. As of December 31, 1998, total outstanding debt of the Corporation equaled
$12,567,567 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 $7,567.
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 $568,794 from $1,718,727 at September 30, 1998
to $1,149,933 at December 31, 1998 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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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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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
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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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 42,983
<SECURITIES> 375,823
<RECEIVABLES> 1,512,708
<ALLOWANCES> 70,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,122,968
<PP&E> 12,774,798
<DEPRECIATION> 3,083,278
<TOTAL-ASSETS> 13,655,923
<CURRENT-LIABILITIES> 1,357,966
<BONDS> 12,242,567
0
0
<COMMON> 105
<OTHER-SE> (41,746)
<TOTAL-LIABILITY-AND-EQUITY> 13,655,923
<SALES> 2,545,830
<TOTAL-REVENUES> 2,545,830
<CGS> 0
<TOTAL-COSTS> 2,175,131
<OTHER-EXPENSES> 127,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,151
<INCOME-PRETAX> (37,439)
<INCOME-TAX> (15,000)
<INCOME-CONTINUING> (22,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,439)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
