<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
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 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA, SUITE 750
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
Indicate by a 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 __.
-
The number of shares of the Registrant's Common Stock outstanding as
of February 19, 1998, follows:
Common Stock, par value $0.01 per share - 10,871,850 shares
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements.................................................... 1
Consolidated balance sheets - December 31, 1997 and June 30, 1997 (unaudited)... 1
Consolidated statements of operations - three and six months ended
December 31, 1997 and 1996 (unaudited)..................................... 3
Consolidated statements of cash flows - six months ended December 31, 1997
and 1996 (unaudited)....................................................... 4
Notes to consolidated financial statements - December 31, 1997 (unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 7
PART II. OTHER INFORMATION
Item 5. Other Information....................................................... 14
Item 6. Exhibits and Current Reports on Form 8-K................................ 14
SIGNATURES...................................................................... 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................... $ 2,570,000 $ 1,723,000
Patient accounts receivable, less allowances for doubtful
accounts of $4,041,000 and $4,386,000 at December 31, 1997 and
June 30, 1997 respectively...................................... 27,035,000 25,802,000
Amounts due from third-party contractual agencies................. 5,386,000 5,653,000
Other receivables................................................. 2,794,000 3,139,000
Other current assets.............................................. 2,566,000 1,699,000
------------ ------------
Total current assets............................................. 40,351,000 38,016,000
Other assets
Cash held in trust................................................ 830,000 827,000
Cost in excess of net asset value of purchased businesses......... 22,298,000 19,281,000
Other intangible assets........................................... 4,319,000 4,680,000
Unamortized preopening and loan costs............................. 3,553,000 1,837,000
Deferred income taxes............................................. 9,411,000 9,411,000
Other noncurrent assets........................................... 1,158,000 1,155,000
------------ ------------
Total other assets............................................... 41,569,000 37,191,000
Property and equipment
Land.............................................................. 5,025,000 5,025,000
Buildings and improvements........................................ 72,311,000 71,190,000
Equipment, furniture and fixtures................................. 23,883,000 22,294,000
------------ ------------
101,219,000 98,509,000
Less accumulated depreciation..................................... 34,776,000 32,527,000
------------ ------------
66,443,000 65,982,000
------------ ------------
$148,363,000 $141,189,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................ $ 5,209,000 $ 7,284,000
Accrued salaries and wages.............................................. 6,577,000 6,282,000
Hospital and medical claims payable..................................... 2,230,000 1,975,000
Other accrued liabilities............................................... 4,480,000 5,218,000
Amounts due to third-party contractual agencies......................... 7,138,000 7,075,000
Current portion of long-term debt....................................... 1,150,000 222,000
------------ ------------
Total current liabilities.............................................. 26,784,000 28,056,000
Noncurrent liabilities
Other accrued liabilities............................................... 5,614,000 6,617,000
Long-term debt, less current portion.................................... 50,125,000 35,632,000
--- 11,622,000
Minority interests...................................................... 102,000 80,000
------------ ------------
Total noncurrent liabilities........................................... 55,841,000 53,951,000
Commitments and contingencies
Class B convertible redeemable preferred stock,
Series 1997, $1 par value - authorized 100,000 shares; issued 100,000
shares (liquidation value of $2,500,000), net of issuance costs of
$100,000............................................................... 2,400,000 ---
Class B redeemable preferred stock, Series 1997-A,
$1 par value - authorized 4,000 shares; issued 4,000 shares
(liquidation value of $4,000,000) including accrued dividends of
$91,000............................................................... 4,091,000 ---
Stockholders' equity
Class B convertible preferred stock, Series C, $1
par value - authorized 152,321 shares; issued 142,486 shares
(liquidation value of $7,244,000) including accrued dividends......... 233,000 504,000
Class B convertible preferred stock, Series 1996,
$1 par value - authorized 100,000 shares; issued 100,000 shares
(liquidation value of $3,000,000) including accrued dividends......... 3,038,000 3,121,000
Common stock, $.01 par value - authorized
30,000,000 shares; issued 11,442,361 shares at December 31, 1997
and 11,150,640 shares at June 30, 1997................................ 115,000 112,000
Additional paid-in capital.............................................. 109,168,000 106,332,000
Retained earnings (deficit)............................................. (49,408,000) (46,988,000)
Treasury stock -- 581,550 common shares at
December 31, 1997 and June 30, 1997, at cost........................... (3,899,000) (3,899,000)
------------- -------------
Total stockholders' equity........................................... 59,247,000 59,182,000
------------ ------------
$148,363,000 $141,189,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Provider - based operations...................... $32,767,000 $34,970,000 $64,327,000 $66,405,000
Managed care operations.......................... 7,076,000 --- 13,208,000 ---
Investment income and other...................... 134,000 102,000 197,000 202,000
----------- ----------- ----------- -----------
TOTAL REVENUES................................... 39,977,000 35,072,000 77,732,000 66,607,000
Expenses:
Salaries, wages and benefits.................... 20,257,000 16,647,000 39,604,000 33,263,000
Managed care provider expenses.................. 3,009,000 --- 5,396,000 ---
Other operating expenses........................ 11,747,000 11,332,000 23,313,000 22,356,000
Provision for doubtful accounts................. 1,094,000 1,260,000 2,193,000 2,149,000
Depreciation and amortization................... 1,643,000 1,280,000 3,281,000 2,593,000
Interest and other financing charges............ 1,471,000 1,489,000 2,791,000 3,034,000
----------- ----------- ----------- -----------
TOTAL EXPENSES................................... 39,221,000 32,008,000 76,578,000 63,395,000
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
ITEM............................................ 756,000 3,064,000 1,154,000 3,212,000
Income taxes..................................... --- 1,221,000 --- 1,221,000
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM................. 756,000 1,843,000 1,154,000 1,991,000
Extraordinary item:
Loss from early extinguishment of debt.......... --- --- (3,574,000) ---
----------- ----------- ------------- -----------
NET INCOME (LOSS)................................ $ 756,000 $ 1,843,000 $ (2,420,000) $ 1,991,000
=========== =========== ============= ===========
Income (loss) per common and dilutive common
equivalent share:
Basic:
Before extraordinary item....................... $ 0.04 $ 0.21 $ 0.07 $ 0.22
Extraordinary item.............................. --- --- (0.33) ---
----------- ----------- ----------- -----------
$ 0.04 $ 0.21 $ (0.26) $ 0.22
=========== =========== =========== ===========
Diluted:
Before extraordinary item....................... $ 0.04 $ 0.19 $ 0.06 $ 0.20
Extraordinary item.............................. --- --- (0.29) ---
----------- ----------- ----------- -----------
$ 0.04 $ 0.19 $ (0.23) $ 0.20
=========== =========== =========== ===========
Weighted average number of shares outstanding:
Basic........................................... 10,827,000 8,389,000 10,701,000 8,282,000
Diluted......................................... 13,390,000 9,832,000 12,417,000 9,773,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31
------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................................ $ (2,420,000) $ 1,991,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization, including loan costs............. 3,424,000 2,739,000
Loss from early extinguishment of debt.......................... 3,574,000 ---
Provision for deferred income taxes............................. --- 951,000
Provision for doubtful accounts................................. 2,193,000 2,149,000
Management and director fees paid in common stock............... --- 922,000
Cash flows from (increase) decrease in operating assets:
Patient accounts receivable.................................... (3,426,000) (3,578,000)
Amounts due from third-party contractual agencies.............. 267,000 3,541,000
Other current assets........................................... (831,000) (620,000)
Receivable from affiliated company............................. --- (608,000)
Other noncurrent assets........................................ (3,000) (303,000)
Cash flows from increase (decrease) in operating liabilities:
Accounts payable............................................... (2,075,000) (250,000)
Accrued salaries, wages and other liabilities.................. (1,074,000) 353,000
Hospital and medical claims payable............................ 255,000 ---
Amounts due to third-party contractual agencies................ 63,000 1,181,000
------------ -----------
Total adjustments............................................. 2,367,000 6,477,000
------------ -----------
Net cash provided by (used in) operating activities......... (53,000) 8,468,000
------------ -----------
Cash flows from investing activities
Expenditures for property and equipment, net................... (2,760,000) (1,743,000)
Preopening and other costs..................................... (35,000) (349,000)
Acquisition of business........................................ (300,000) ---
Cash held in trust............................................. (3,000) 288,000
------------ -----------
Net cash used in investing activities......................... (3,098,000) (1,804,000)
------------ -----------
Cash flows from financing activities
Loan costs..................................................... (3,079,000) (115,000)
Proceeds from issuance of debt................................. 54,900,000 ---
Proceeds from exercise of options and stock purchases.......... 130,000 ---
Distributions to minority interests............................ --- (900,000)
Payments on debt............................................... (50,851,000) (4,103,000)
Payments related to early extinguishment of debt............... (2,229,000) ---
Cost of issuance of Series 1997 preferred stock................ (100,000) ---
Proceeds from preferred stock issues........................... 5,284,000 ---
Payment of preferred stock dividends........................... (57,000) (91,000)
----------- -----------
Net cash provided by (used in) financing activities........... 3,998,000 (5,209,000)
------------ -----------
Net increase in cash and cash equivalents....................... 847,000 1,455,000
Cash and cash equivalents at beginning of period................ 1,723,000 7,605,000
------------ -----------
Cash and cash equivalents at end of period...................... $ 2,570,000 $ 9,060,000
============ ===========
Supplemental Disclosures of Cash flow Information
Cash paid during the period for:
Interest....................................................... $ 969,000 $ 1,254,000
Income taxes................................................... 458,000 13,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1997
NOTE 1
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the interim information are, unless
otherwise discussed in this report, of a normal recurring nature and have been
included. The Company's business is seasonal in nature and subject to general
economic conditions and other factors. Accordingly, operating results for the
quarter and six months ended December 31, 1997 are not necessarily indicative of
the results that may be expected for the year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
NOTE 2
On September 30, 1997, the Company refinanced its existing senior and
subordinated secured notes, its variable rate demand revenue bonds and its
demand note to a corporate affiliate of Paul J. Ramsay, the Company's Chairman
of the Board and a significant shareholder of the Company, with proceeds from a
credit facility consisting of term and revolving credit debt of $38,500,000 (the
"Senior Credit Facility") and the sale of $2,500,000 of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock") to a financial institution. In
addition, on September 30, 1997, the Company issued a $17,500,000 subordinated
bridge facility, of which $15,000,000 was purchased by the financial institution
and $2,500,000 was purchased by a corporate affiliate of Mr. Ramsay (the "Bridge
Facility").
Under the terms of the Senior Credit Facility, the Company was provided (i)
a $12,500,000 term loan, (ii) a $10,000,000 term loan and (iii) a revolving
credit facility (the "Revolver") for an amount up to the lesser of $16,000,000
or the borrowing base of the Company's receivables (defined as 70% of the
Company's patient accounts receivable, receivables due from managed care
customers and receivables due from customers whose behavioral health operations
are managed by the Company). The borrowing base of the Company's receivables may
be further reduced by the financial institution based on a material
deterioration in the collectibility or value of the Company's receivables or
with respect to contingent or known material liabilities.
In addition, on September 30, 1997, the Company entered into an agreement
with a corporate affiliate of Mr. Ramsay pursuant to which the corporate
affiliate purchased 4,000 shares of non-convertible, non-voting Class B
Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock"), $1.00 par
value, at $1,000 per share. The shares are entitled to cumulative dividends at
a rate of 9% per annum ($360,000 per year) and to a liquidation preference of
$1,000 per share under certain
5
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
circumstances. The Series 1997-A Preferred Stock shall be redeemed at a price
of $1,000 per share and dividends on the Series C Preferred Stock, Series 1996
Preferred Stock and Series 1997-A Preferred Stock (all of which are held by
corporate affiliates of Mr. Ramsay) shall be paid provided (i) the Company's
EBITDA (as defined in the Company's credit documentation) for its fiscal year
ending June 30, 1998 is equal to or greater than $16,500,000, (ii) the Company
has availability under the Revolver in excess of $4,000,000, (iii) the financial
institution syndicates a portion of the Revolver and (iv) the Bridge Facility is
refinanced or paid.
The Bridge Facility, which is unsecured and is due and payable in September
2005, bears interest at rates ranging from 11% to 12.5% through September 1998,
at which time the interest rate increases to 13%. In the event the Bridge
Facility is not refinanced prior to March 30, 1998, the Company will incur a
contingent payment obligation (the "CPO") to the financial institution which
holds $15,000,000 of the Bridge Facility (the "Series A Bridge Notes"). The CPO
is payable (i) upon the earlier to occur of certain events (each, an "Event"),
including a change of control involving the Company, a public offering by the
Company of Common Stock, the repayment after March 30, 1998 of the Series A
Bridge Notes and September 30, 2002, and (ii) in cash or Common Stock, at the
option of the Company. Under the terms of the CPO, on the date prior to an
Event, the fully-diluted aggregate market value of the Company's Common Stock
shall be calculated and, provided the Event occurs after March 30, 1998 but
prior to October 1, 1998, the CPO shall equal 9% of the increase in the fully-
diluted aggregate market value of the Company's Common Stock (as defined) over
$39.3 million. Provided the Event occurs after September 30, 1998, the CPO
shall equal 14% of the aggregate market value of the Company's Common Stock,
calculated on a fully-diluted basis (as defined).
In connection with the refinancing of the Company's debt on September 30,
1997, the Company also sold to the financial institution, which effected the
refinancing, $2,500,000 of Series 1997 Preferred Stock. The Series 1997
Preferred Stock is non-voting, is senior to the Series C Preferred Stock, the
Series 1996 Preferred Stock and the Series 1997-A Preferred Stock in liquidation
and as to dividends, is initially convertible, at the option of the holder, into
394,945 shares of Common Stock, is optionally redeemable by the Company at a
premium beginning in September 2000, and is mandatorily redeemable at the
earlier to occur of a change in control of the Company or September 2007.
Dividends on the Series 1997 Preferred Stock are payable quarterly at 9%, or
$56,250 per quarter, unless the Company is unable to meet a fixed charge ratio
provided in the Senior Credit Facility, at which time dividends accrue at 11%.
The Company has pledged substantially all of its real property, receivables
and other assets as collateral for the Senior Credit Facility.
NOTE 3
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of two of its inpatient facilities. The leases have a primary
term of 15 years (with three successive renewal options of 5 years each) and
currently require an aggregate annual minimum rental of approximately
$1,650,000, payable monthly. Effective April 1 of each year, the lease payments
are subject to any upward adjustment (not to exceed 3% annually) in the consumer
price index over the preceding twelve months. Effective April 1995, the Company
agreed to lease an 80-bed facility near Salt Lake City, Utah for four years,
with an option to renew for an additional three years. The lease requires
annual base rental payments of $456,000, payable monthly, and percentage rental
payments equal to 2% of the net revenues of the facility, payable quarterly.
The Company leases office space for various other purposes over terms ranging
from one to five years. Annual rent expense related to
6
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
noncancellable operating leases totals approximately $4,000,000.
NOTE 4
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109. SFAS No. 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. At
December 31, 1997, net operating loss carryovers of approximately $26,800,000
(of which approximately $14,300,000 expires from 2001 to 2002, $5,700,000
expires in 2010 and $6,800,000 expires from 2011 to 2012) and alternative
minimum tax credit carryovers of approximately $1,140,000 are available to
reduce future federal income taxes, subject to certain annual limitations.
NOTE 5
On October 1, 1996, the Company and Ramsay Managed Care, Inc. ("RMCI")
entered into a merger agreement providing for the acquisition of RMCI by a
wholly owned subsidiary of the Company. The transaction was approved by the
shareholders of both companies on April 18, 1997 and became effective on June
10, 1997, at which time the results of operations of RMCI were included in the
Company's statement of operations. The merger was structured as a tax-free
exchange recorded using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets purchased and the liabilities assumed
based upon their fair value at the date of acquisition.
In exchange for all of the outstanding shares of RMCI common and preferred
stock, the Company issued 2,135,826 shares of Common Stock (valued based on the
closing price of the Company's Common Stock on June 10, 1997 of $3.00 per share)
and 100,000 shares of Series 1996 Preferred Stock, which are convertible into
1,000,000 shares of Common Stock. In addition, amounts owed by RMCI to the
Company, totalling approximately $7,000,000 on June 10, 1997, were included as a
portion of the consideration for the acquisition of RMCI. The Company also
assumed all liabilities of RMCI as of June 10, 1997, including a $2,750,000
obligation (and related unpaid accrued interest and commitment fees of
approximately $300,000) owed by RMCI to a corporate affiliate of Mr. Ramsay.
This obligation was refinanced in September 1997 (see Note 2 above).
On October 9, 1997, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") dated as of July 1, 1997, between a wholly owned subsidiary
of the Company and Summa Healthcare Group, Inc. ("Summa"), the Company acquired
Summa for $300,000 in cash, 250,000 shares of the Company's Common Stock and
fully exercisable warrants to purchase 500,000 shares of the Company's Common
Stock, with an exercise price of $3.25 per share (the fair market value of the
Company's Common Stock on the date of the Merger Agreement) and an expiration
date of July 2007. The principal assets of Summa, whose principal stockholder
is Luis E. Lamela, the Vice Chairman, a director and, as of January 1, 1998, the
Chief Executive Officer of the Company, consist of projects in the specialty
managed care and health services industry. These projects were undertaken by
the Company on October 9, 1997, the effective date of the merger.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's strategic plan is focused on repositioning the Company for
growth in the at-risk youth services industry and strengthening the Company's
financial position. The Company has engaged an investment banking firm to
assist in the execution of this growth strategy. The firm will advise the
Company in connection with acquisitions and other strategic initiatives
necessary to expand the Company's existing youth services business. In addition,
the investment banking firm will render advisory services in association with
the divestiture of some of the Company's non-youth services businesses, with
proceeds to be used to repay outstanding indebtedness and for general corporate
purposes.
7
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
In connection with the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that this Quarterly Report on
Form 10-Q contains forward-looking statements about the Company. The Company is
hereby setting forth cautionary statements identifying important factors that
may cause the Company's actual results to differ materially from those set forth
in any forward-looking statements or information made by or on behalf of or
concerning the Company. Some of the most significant factors include (i) the
inability of the Company to effect its foregoing strategic plan, (ii)
accelerating changes occurring in the healthcare industry, including competition
from consolidating and integrated healthcare provider systems and managers of
healthcare, the imposition of more stringent admission criteria by payors,
increased payor pressures to limit lengths of stay, limitations on reimbursement
rates and limitations on annual and lifetime patient health benefits, (iii)
federal and state governmental budgetary constraints which could have the effect
of limiting the amount of funds available to support governmental healthcare
programs, including Medicare and Medicaid, (iv) statutory, regulatory and
administrative changes or interpretations of existing statutory and regulatory
provisions affecting the conduct of the Company's business and affecting current
and prior reimbursement for the Company's services and (v) the loss of major
managed care customers or the loss of a significant number of members from the
Company's provider network. There can be no assurance that any anticipated
future results would be achieved. As a result of the factors identified above
and other factors, the Company's actual results or financial or other condition
could vary significantly from the performance or financial or other condition
set forth in any forward-looking statements or information.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1997 COMPARED TO
QUARTER ENDED DECEMBER 31, 1996
Revenues from provider-based operations in the quarter ended December 31,
1997 were $32.8 million, compared to $35.0 million in the comparable quarter of
the prior fiscal year. Revenues from youth services in residential treatment
settings increased from $5.5 million (16% of provider-based revenues) in the
prior year quarter to $7.6 million (23% of provider-based revenues) in the
current year quarter. However, revenues from the Company's facility-based
operations (including acute psychiatric inpatient and outpatient services and
subacute services) declined from $25.5 million in the prior year quarter to
$23.7 million in the current year quarter. Provider-based revenues related to
contract management services, which represent approximately 3% of provider-based
revenues, remained stable between periods, increasing only $0.1 million. In
addition, provider-based revenues in the prior year quarter include the impact
of a favorable cash judgement awarded the Company by the courts of the State of
Missouri. In this matter, the courts ruled that the Company's facility in
Nevada, Missouri had received insufficient reimbursement from the Missouri
Department of Social Services for the provision of behavioral health care to
Medicaid patients from 1990 to 1996. This judgment, net of related costs,
increased net revenues in the quarter ended December 31, 1996 by $2.4 million.
8
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RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Revenues associated with the Company's managed care operations, which
commenced in June 1997 upon the acquisition of RMCI, totalled $7.1 million in
the quarter ended December 31, 1997 and approximated management's expectations.
Salaries, wages and benefits in the quarter ended December 31, 1997 were
$20.3 million, compared to $16.6 million in the comparable quarter of the prior
fiscal year. Salaries, wages and benefits related to provider-based operations
increased $0.7 million, or 4%, between quarters primarily as a result of an
increase in census at the Company's subacute units, which increased salaries,
wages and benefits in these units by $1.1 million between quarters. Salaries,
wages and benefits related to the Company's other provider-based operations
decreased $0.4 million between quarters because the Company's youth services
business, which increased between quarters, is less labor intensive than the
Company's acute psychiatric inpatient and outpatient business, which decreased
between quarters. In addition, salaries, wages and benefits related to the
Company's managed care operations totalled $2.5 million in the current year
quarter and salaries, wages and benefits at the Company's corporate headquarters
increased $0.4 million between quarters.
Managed care provider expenses relate to the provider costs, including
medical professionals, inpatient facilities and outpatient centers, associated
with managing and providing the delivery of behavioral healthcare services on
behalf of the Company's managed care customers. The Company provides for claims
incurred but not yet reported based on its past experience, together with
current factors. The overall ratio of managed care provider expenses to the
related revenues was consistent with management's expectations in the quarter
ended December 31, 1997.
Other operating expenses in the quarter ended December 31, 1997 were $11.7
million, compared to $11.3 million in the comparable quarter of the prior fiscal
year. Other operating expenses related to the Company's provider-based
operations remained stable between quarters, whereas operating expenses at the
Company's corporate headquarters decreased $0.4 million between quarters. Other
operating expenses related to the Company's managed care operations totalled
$0.9 million in the current year quarter.
The provision for doubtful accounts relates to provider-based operations
and, in the quarter ended December 31, 1997, was $1.1 million, or 3.3% of
revenues from provider-based operations, which compares reasonably to the
provision for doubtful accounts of $1.3 million, or 3.6% of revenues from
provider-based operations, in the comparable quarter of the prior fiscal year.
Depreciation and amortization increased from $1.3 million in the comparable
prior year quarter to $1.6 million in the quarter ended December 31, 1997
primarily due to the current period amortization of intangible assets recorded
in connection with the RMCI merger in June 1997 and the Summa merger in October
1997.
Interest and other financing charges remained stable between quarters at
$1.5 million as the increase in the Company's average outstanding borrowings
between quarters (as a result of its refinancing on September 30, 1997) of
approximately $5.0 million was offset by a decrease of one percentage point in
the overall interest and financing cost yield on its borrowings between
quarters.
The Company did not record a provision for income taxes in the current year
quarter based on an adjustment to the deferred tax valuation allowance recorded
against its deferred tax assets.
9
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1996
Revenues from provider-based operations in the six months ended December
31, 1997 were $64.3 million, compared to $66.4 million in the comparable period
of the prior fiscal year. Revenues from youth services in residential treatment
settings increased from $10.7 million (16% of provider-based revenues) in the
prior year period to $14.5 million (23% of provider-based revenues) in the
current year period. However, revenues from the Company's facility-based
operations (including acute psychiatric inpatient and outpatient services and
subacute services) declined from $50.4 million in the prior year period to $46.8
million in the current year period. Provider-based revenues related to contract
management services, which represent approximately 4% of provider-based
revenues, remained relatively stable between periods, increasing only $0.1
million. In addition, provider-based revenues in the prior year period include
the impact of the aforementioned favorable cash judgement awarded the Company by
the courts of the State of Missouri, which increased net revenues in the prior
year six-month period by $2.4 million.
Revenues associated with the Company's managed care operations totalled
$13.2 million in the six months ended December 31, 1997 and approximated
management's expectations.
Salaries, wages and benefits in the six months ended December 31, 1997 were
$39.6 million, compared to $33.2 million in the comparable period of the prior
fiscal year. Salaries, wages and benefits related to provider-based operations
increased $1.1 million, or 3%, between periods primarily as a result of an
increase in census at the Company's subacute units, which increased salaries,
wages and benefits in these units by $2.3 million between periods. Salaries,
wages and benefits related to the Company's other provider-based operations
decreased $1.2 million between periods because the Company's youth services
business, which increased between periods, is less labor intensive than the
Company's acute psychiatric inpatient and outpatient business, which decreased
between periods. In addition, salaries, wages and benefits related to the
Company's managed care operations totalled $4.6 million in the current year
period and salaries, wages and benefits at the Company's corporate headquarters
increased $0.7 million between periods.
Managed care provider expenses for the six months ended December 31, 1997
were $5.4 million, or 41% of revenues from managed care operations. The overall
ratio of managed care provider expenses to the related revenues was consistent
with management's expectations in the six months ended December 31, 1997.
Other operating expenses in the six months ended December 31, 1997 were
$23.3 million, compared to $22.4 million in the comparable period of the prior
fiscal year. Other operating expenses related to the Company's provider-based
operations decreased $0.6 million, or 3%, between periods and other operating
expenses at the Company's corporate headquarters decreased $0.3 million between
periods. Other operating expenses related to the Company's managed care
operations totalled $1.9 million in the current year six-month period.
The provision for doubtful accounts relates to provider-based operations
and, in the six months ended December 31, 1997, was $2.2 million, or 3.4% of
revenues from provider-based operations, which compares reasonably to the
provision for doubtful accounts of $2.1 million, or 3.2% of revenues from
provider-based operations, in the comparable period of the prior fiscal year.
10
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Depreciation and amortization increased from $2.6 million in the comparable
prior year six-month period to $3.3 million in the six months ended December 31,
1997 primarily due to the current period amortization of intangible assets
recorded in connection with the RMCI merger in June 1997 and the Summa merger in
October 1997.
Interest and other financing charges decreased from $3.0 million in the
prior year six-month period to $2.8 million in the current year period. This
decrease is the result of (i) a slight decrease in the Company's average
outstanding borrowings between each six-month period and (ii) a decrease of
approximately one-half of one percentage point in the overall interest and
financing cost yield on its borrowings between each six-month period.
The Company did not record a provision for income taxes in the six months
ended December 31, 1997 based on an adjustment to the deferred tax valuation
allowance recorded against its deferred tax assets.
The Company's credit facilities refinanced on September 30, 1997 included
senior and subordinated debt held by a group of life insurance companies (the
"Life Company Debt") which had terms extending through March 2000. In
connection with the refinancing of its former credit facilities, the Company
incurred and paid a $2.2 million prepayment penalty associated with the Life
Company Debt, incurred legal fees of $0.1 million and wrote-off unamortized loan
costs related to this debt of $1.3 million. In accordance with Statement of
Financial Accounting Standards No. 4, this amount is reported as an
extraordinary item in the Company's statement of operations.
FINANCIAL CONDITION
The Company records amounts due to or from third-party contractual agencies
(Medicare, Medicaid and Blue Cross) based on its best estimate, using the
principles of cost reimbursement, of amounts to be ultimately received or paid
under current and prior years' cost reports filed (or to be filed) with the
appropriate intermediaries. Ultimate settlements and other lump sum adjustments
due from and paid to these intermediaries occur at various times during the
fiscal year. At December 31, 1997, amounts due from Medicare, Medicaid and Blue
Cross totalled $3.1 million, $1.0 million and $1.3 million, respectively. Also,
at December 31, 1997, amounts due to Medicare, Medicaid and Blue Cross totalled
$5.7 million, $0.9 million and $0.5 million, respectively. Changes in these
amounts since June 30, 1997 are the result of fiscal intermediary lump sum
adjustments, prior year cost report settlements and current year estimated
settlements recorded during the six months ended December 31, 1997.
In connection with the merger of RMCI in June 1997, the Company recorded
cost in excess of net asset value of purchased businesses of approximately $18.8
million and identifiable intangible assets of approximately $4.7 million, which
included the value of RMCI's established clinical protocols and existing managed
care contracts. The identifiable intangible assets are expected to be recovered
over periods ranging from four to fifteen years and cost in excess of net asset
value of purchased businesses is expected to be recovered over a 25-year period.
In connection with the acquisition of Summa on October 9, 1997, the Company
recorded cost in excess of net asset value of purchased businesses of
approximately $3.4 million, which included (i) cash consideration of $300,000,
(ii) the issuance of Common Stock, which had a market value on October 9, 1997
of $1.2 million and (iii) the issuance of warrants, which had an estimated fair
value on October 9, 1997 of approximately $1.9 million (using a Black-Scholes
pricing model). The issuance of Common Stock and warrants increased the
Company's additional paid-in capital by $3.1
11
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
million on the date of the acquisition. The cost in excess of net asset value
of purchased businesses is expected to be recovered over a 10-year period, based
on the incremental cash flow expected to be derived from the acquisition.
The Company has net deferred tax assets totaling approximately $14.4
million, which are reduced by a valuation allowance of approximately $5.0
million, at December 31, 1997. Management has considered the effects of
implementing tax-planning strategies, consisting of the sales of certain
appreciated property, as the primary basis for recognizing deferred tax assets
at December 31, 1997. The ultimate realization of deferred tax assets may be
affected by changes in the underlying values of the properties considered in the
Company's tax planning strategies, which values are dependent upon the operating
results and cash flows of the individual properties. The Company evaluates the
realizability of its deferred tax assets on a quarterly basis by reviewing its
tax planning strategies and the adequacy of its valuation allowance.
As mentioned previously, on September 30, 1997, the Company refinanced its
then existing credit facilities through borrowings totalling $50.0 million.
Consequently, the amounts which were due within one year at June 30, 1997 under
the Company's former credit facilities, totaling $11.6 million, were excluded
from current liabilities at June 30, 1997 since the refinancing resulted in this
amount being outstanding for an uninterrupted period extending beyond one year
from June 30, 1997. In connection with this refinancing, the Company (i) issued
the Series 1997 Preferred Stock and the Series 1997-A Preferred Stock which,
based on the redemption features of these issues, are not reflected as
stockholders' equity in the accompanying balance sheet, (ii) wrote off
unamortized loan costs and letter of credit fees related to its former credit
facilities of approximately $1.3 million, (iii) incurred loan costs of
approximately $3.6 million and (iv) created a cash collateral account which was
used to redeem, by December 1, 1997, $12.3 million of principal (and related
accrued interest) due on the Company's previously outstanding variable rate
demand revenue bonds.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of the Senior Credit Facility, the Company was provided (i)
a $12.5 million term loan, payable in 18 quarterly installments ranging from
approximately $0.4 million to $0.9 million, beginning July 1, 1998, (ii) a $10
million term loan, payable in 20 quarterly installments of $62,500, beginning
January 1, 1998 and eight quarterly installments of approximately $1.0 million,
beginning January 1, 2003, (iii) the Revolver, due and payable on September 30,
2002, for an amount up to the lesser of $16 million or the borrowing base of the
Company's receivables, as defined in the Senior Credit Facility and (iv) a $17.5
million unsecured Bridge Facility, of which $15.0 million was purchased by the
financial institution and $2.5 million was purchased by a corporate affiliate of
Mr. Ramsay. At December 31, 1997, drawings under the Revolver totalled $11.25
million.
Provided the Bridge Facility is not refinanced prior to March 30, 1998, the
financial institution which holds the Series A Bridge Note is entitled to a CPO,
which is payable in cash or Common Stock, at the option of the Company, as
described in Note 2 above. The Company does not believe that the CPO will have
a material adverse effect on its liquidity, given its ability to satisfy the CPO
through the issuance of additional shares of Common Stock.
Also, on September 30, 1997, a corporate affiliate of Mr. Ramsay purchased
additional preferred shares in the Company upon closing and, under certain
limited circumstances related to an estimated liability, agreed to purchase
Common Stock at a price of $5.17 per share (the 30-day average stock price prior
to the closing). As a result, on September 30, 1997, the Company entered into
an agreement with a corporate affiliate of Mr. Ramsay pursuant to which the
corporate affiliate
12
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
purchased 4,000 shares of Series 1997-A Preferred Stock at $1,000 per share.
The purchase price, which totaled $4.0 million, was paid by (i) offset against
approximately $0.6 million in dividends accrued through September 30, 1997 on
the Series C Preferred Stock and the Series 1996 Preferred Stock, (ii) offset
against approximately $0.4 million in unpaid accrued interest and commitment
fees on the former demand note owed to a corporate affiliate of Mr. Ramsay,
(iii) $0.25 million in principal due on the former demand note which was not
refinanced with proceeds of the Bridge Facility and (iv) approximately $2.8
million in cash. Provided certain operating and financing targets are achieved
by September 30, 1998, the Series 1997-A Preferred Stock is mandatorily
redeemable and the Revolver will increase to $20 million.
Proceeds of the refinancing were used as follows: (a) principal repayments
of $27.5 million of 11.6% senior secured notes and $1.4 million of 15.6%
subordinated secured notes held by a group of insurance companies, (b) repayment
of $3.4 million of bank debt created on September 2, 1997 upon the redemption of
one of the Company's variable rate demand revenue bonds, (c) repayment of
approximately $0.9 million of accrued interest on the above obligations, (d)
creation of a cash collateral account which was used to redeem $12.3 million of
principal due on outstanding variable rate revenue bonds and to pay accrued
interest thereon on their redemption dates of November 3, 1997 and December 1,
1997, (e) repayment of $2.5 million of the $2.75 million loan to a corporate
affiliate of Mr. Ramsay, (f) payment of a $2.2 million prepayment penalty to the
group of insurance companies holding the senior and subordinated secured notes
and (g) transaction costs totaling approximately $2.8 million.
The Senior Credit Facility and the Bridge Facility require that the Company
meet certain covenants, including (i) the maintenance of certain fixed charge,
interest coverage and leverage ratios, (ii) the maintenance of a minimum level
of EBITDA and tangible net worth (as defined in these agreements) and (iii) a
limitation on capital expenditures. The Company is also required to meet an
adjusted minimum fixed charge ratio, which includes preferred dividends payable
in the calculation thereof, in order to pay dividends on the Series 1997
Preferred Stock. The Company's credit facilities also prohibit the payments of
cash dividends to the common shareholders of the Company.
During the six months ended December 31, 1997, net cash provided by the
operating activities of the Company decreased approximately $8.5 million from
the comparable period of the prior year. This decrease is primarily the result
of (i) a net decrease in the change between periods in cost report settlements
received from or paid to third-party contractual agencies of $4.4 million, (ii)
a $0.8 million reduction in net income before extraordinary item between periods
and (iii) a net decrease in the change between periods in accounts payable,
accrued salaries and wages and other liabilities of $3.3 million.
The Company's current primary cash requirements relate to its normal
operating expenses, debt service, lease payments on the Company's leased
facilities, and routine capital improvements at its facilities. Also, the State
of Louisiana has taken the position that certain disproportionate share payments
were improperly paid to two of the Company's Louisiana facilities. See Part II.
Other Information, "Item 5. Other Information" below.
The Company believes that its cash resources, including the availability of
additional funds under the Revolver and internally-generated funds from future
operations, will be sufficient to meet its current cash requirements and future
identifiable needs.
13
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During fiscal year 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totaling approximately $5.0 million.
The repayment requests related to a) alleged overpayments made to the Company's
former Three Rivers Hospital, which was closed on June 30, 1995, because the
State of Louisiana believed Three Rivers' actual annual inpatient volume was
less than its projection of annual inpatient volume made at the beginning of its
1994 cost reporting year and b) alleged improper teaching hospital payments made
to Three Rivers Hospital and Bayou Oaks Hospital because the State believed
these facilities were not qualifying teaching hospitals at the time these
payments were made. The Company believes that certain of the calculations which
support the State's calculation have not been considered. Further, the Company
believes that, based on its understanding of the rules and regulations in place
at the time the teaching hospital payments were made, payments received as a
result of the teaching classification were appropriate.
The Company believes that this matter may be settled for an amount
significantly less than the State's initial requests. Any settlement of this
matter will be contingent upon the execution of settlement documentation, the
terms of which have not been agreed upon. Further, there can be no assurance
that the Company and the State will agree on a settlement amount or the terms
and conditions of settlement documentation. The Company intends to vigorously
contest any position by the State of Louisiana which the Company considers
adverse and believes that adequate provision has been made in its financial
statements for the estimated amount that might be recovered from the Company as
a result of this matter. Additionally, the Company believes that the resolution
of this matter will not have a material adverse effect on its liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required to be filed as part of this Quarterly Report on
Form 10-Q are as follows:
Exhibit 11 Computation of Net Income (Loss) per Share
Exhibit 27 Financial Data Schedule
(b) Current Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1997.
14
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereupon duly authorized.
RAMSAY HEALTH CARE, INC.
Registrant
/s/ Carol C. Lang
----------------------------
Carol C. Lang
Chief Financial Officer
Date: February 19, 1998
15
<PAGE>
EXHIBIT 11
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
-------------------------- --------------------------
1997 1996 1997 1996
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
BASIC:
SHARES OUTSTANDING:
Weighted average common shares outstanding 10,826,724 8,389,427 10,701,143 8,281,579
=========== ========== =========== ==========
NET INCOME (LOSS):
Net income (loss) as reported $ 756,000 $1,843,000 $ 1,154,000 $1,991,000
Dividends, Class B convertible preferred stock, Series C (91,000) (91,000) (181,000) (181,000)
Dividends, Class B convertible preferred stock, Series 1996 (38,000) n/a (75,000) n/a
Dividends, Class B convertible preferred stock, Series 1997 (56,000) n/a (57,000) n/a
Dividends, Class B convertible preferred stock, Series 1997-A (90,000) n/a (91,000) n/a
----------- ---------- ----------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS-BEFORE EXTRAORDINARY ITEM 481,000 1,752,000 750,000 1,810,000
Extraordinary item 0 0 (3,574,000) 0
----------- ---------- ----------- ----------
NET INCOME (LOSS), EPS CALCULATION $ 481,000 $1,752,000 $(2,824,000) $1,810,000
=========== ========== =========== ==========
NET INCOME (LOSS) PER SHARE:
Before extraordinary item $ 0.04 $ 0.21 $ 0.07 $ 0.22
Extraordinary item 0.00 0.00 (0.33) 0.00
----------- ---------- ----------- ----------
Net income (loss) per share $ 0.04 $ 0.21 $ (0.26) $ 0.22
=========== ========== =========== ==========
DILUTED:
SHARES OUTSTANDING:
Weighted average common shares outstanding 10,839,072 8,389,427 10,722,242 8,281,579
Class B convertible preferred stock, Series C 0 1,424,860 0 1,424,860
Class B convertible preferred stock, Series 1996 1,000,000 n/a 0 n/a
Class B convertible preferred stock, Series 1997 0 n/a 0 n/a
Dilutive effect of stock options and warrants 1,550,645 17,486 1,694,364 66,298
----------- ---------- ----------- ----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES 13,389,717 9,831,773 12,416,606 9,772,737
=========== ========== =========== ==========
NET INCOME (LOSS):
Net income (loss), basic calculation $ 481,000 $1,752,000 $ 750,000 $1,810,000
Dividends, Class B convertible preferred stock, Series C 0 91,000 0 181,000
Dividends, Class B convertible preferred stock, Series 1996 38,000 n/a 0 n/a
Dividends, Class B convertible preferred stock, Series 1997 0 n/a 0 n/a
Dividends, Class B convertible preferred stock, Series 1997-A 0 n/a 0 n/a
----------- ---------- ----------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS-BEFORE EXTRAORDINARY ITEM 519,000 1,843,000 750,000 1,991,000
Extraordinary item 0 0 (3,574,000) 0
----------- ---------- ----------- ----------
NET INCOME (LOSS), EPS CALCULATION $ 519,000 $1,843,000 $(2,824,000) $1,991,000
=========== ========== =========== ==========
NET INCOME (LOSS) PER SHARE:
Before extraordinary item $ 0.04 $ 0.19 $ 0.06 $ 0.20
Extraordinary item 0.00 0.00 (0.29) 0.00
----------- ---------- ----------- ----------
Net income (loss) per share $ 0.04 $ 0.19 $ (0.23) $ 0.20
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000773136
<NAME> RAMSAY HEALTH CARE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,570,000
<SECURITIES> 0
<RECEIVABLES> 31,076,000
<ALLOWANCES> 4,041,000
<INVENTORY> 0
<CURRENT-ASSETS> 40,351,000
<PP&E> 101,219,000
<DEPRECIATION> 34,776,000
<TOTAL-ASSETS> 148,363,000
<CURRENT-LIABILITIES> 26,784,000
<BONDS> 50,125,000
6,491,000
3,271,000
<COMMON> 115,000
<OTHER-SE> 55,861,000
<TOTAL-LIABILITY-AND-EQUITY> 148,363,000
<SALES> 0
<TOTAL-REVENUES> 39,977,000
<CGS> 0
<TOTAL-COSTS> 35,013,000
<OTHER-EXPENSES> 1,643,000
<LOSS-PROVISION> 1,094,000
<INTEREST-EXPENSE> 1,471,000
<INCOME-PRETAX> 756,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 756,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
