<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from ____________________to__________________
Commission file No. 0-26666
RAMSAY MANAGED CARE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 72-1249464
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (305) 569-6993
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 at
February 14, 1996 follows:
Common Stock, par value $0.01 per share - 6,408,315 shares
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
------------------
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RAMSAY MANAGED CARE, INC.
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - December 31, 1996
and June 30, 1996 (unaudited)..................... 1
Consolidated statements of operations - three and
six months ended December 31, 1996 and 1995
(unaudited)....................................... 3
Consolidated statements of cash flows - six months
ended December 31, 1996 and 1995 (unaudited)...... 4
Notes to consolidated financial statements -
December 31, 1996 (unaudited)..................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders..................................... 17
Item 5. Other Information................................ 17
Item 6. Exhibits and Current Reports on Form 8-K......... 17
SIGNATURES............................................... 19
<PAGE>
PART I. FINANCIAL INFORMATION
Ramsay Managed Care, Inc.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
------------ -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ..................... $ 198,000 $ 228,000
Accounts receivable, less allowance
for doubtful accounts of $282,000
and $334,000 at December 31 and
June 30, 1996, respectively................. 1,168,000 846,000
Prepaid expenses............................... 217,000 382,000
Other current assets........................... 27,000 37,000
Current assets of discontinued operation....... 1,446,000 1,744,000
----------- -----------
Total current assets.............................. 3,056,000 3,237,000
Other assets:
Goodwill and other intangible assets........... 8,205,000 8,152,000
Other non-current assets....................... 75,000 60,000
Other assets of discontinued operation......... 2,177,000 1,862,000
----------- -----------
Total other assets................................ 10,457,000 10,074,000
Property and equipment:
Building and improvements...................... 130,000 128,000
Equipment, furniture and fixtures.............. 1,907,000 1,830,000
---------- -----------
2,037,000 1,958,000
Less accumulated depreciation.................. 1,303,000 1,170,000
----------- -----------
Total property and equipment...................... 734,000 788,000
----------- -----------
Total assets...................................... $14,247,000 $14,099,000
=========== ===========
</TABLE>
See accompanying notes.
1
<PAGE>
Ramsay Managed Care, Inc.
Consolidated Balance Sheets (continued)
(unaudited)
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
----------- -------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................... $ 985,000 $ 1,397,000
Accrued salaries and wages..................... 668,000 641,000
Hospital and medical claims payable............ 1,845,000 1,667,000
Other current liabilities...................... 506,000 959,000
Line of credit and note payable................ 1,500,000 1,900,000
Current portion of long-term debt.............. 2,873,000 2,334,000
Current liabilities of discontinued operation.. 1,759,000 1,579,000
Reserve for operating loss from
discontinued operation...................... 172,000 1,830,000
----------- ------------
Total current liabilities......................... 10,308,000 12,307,000
Due to affiliate.................................. 2,789,000 1,851,000
Advance from affiliate............................ 1,600,000 1,600,000
Deferred income taxes............................. 1,014,000 986,000
Long-term debt, less current portion.............. 4,207,000 5,202,000
Stockholders' equity:
Convertible preferred stock, $.01 par value
- authorized 1,000,000 shares; issued
100,000 shares at December 31, 1996 and
-0- shares at June 30, 1996.................... 3,000,000 --
Common stock, $.01 par value - authorized
20,000,000 shares; issued 6,408,315 shares
at December 31, 1996 and 6,397,304 shares
at June 30, 1996............................... 64,000 64,000
Additional paid-in capital........................ 7,102,000 7,095,000
Accumulated deficit............................... (15,837,000) (15,006,000)
----------- ------------
Total stockholders' deficit....................... (5,671,000) (7,847,000)
----------- ------------
Total liabilities and stockholders' equity........ $14,247,000 $ 14,099,000
=========== ============
</TABLE>
See accompanying notes.
2
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Ramsay Managed Care, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31 December 31 December 31
1996 1995(a) 1996 1995(a)
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Managed care revenue............................ $5,116,000 $ 4,829,000 $10,271,000 $ 9,118,000
Clinical fee for service and other revenue...... 683,000 451,000 1,350,000 880,000
---------- ----------- ----------- -----------
Total revenues................................... 5,799,000 5,280,000 11,621,000 9,998,000
Operating expenses:
Contracted provider services.................... 1,885,000 1,869,000 4,308,000 3,522,000
Salaries, wages and benefits.................... 2,466,000 2,332,000 4,655,000 4,516,000
Management fees charged by related
companies...................................... 88,000 62,000 176,000 132,000
General and administrative expenses............. 1,063,000 1,117,000 2,184,000 2,282,000
Depreciation and amortization................... 340,000 332,000 695,000 629,000
Interest and other financing charges............ 196,000 207,000 434,000 390,000
---------- ----------- ----------- -----------
Total operating expenses......................... 6,038,000 5,919,000 12,452,000 11,471,000
---------- ----------- ----------- -----------
Loss from continuing operations before income
taxes........................................... (239,000) (639,000) (831,000) (1,473,000)
Income taxes..................................... -- -- -- --
---------- ----------- ----------- -----------
Loss from continuing operations.................. (239,000) (639,000) (831,000) (1,473,000)
Discontinued operation:
Loss from operations of discontinued HMO
operation...................................... -- (375,000) -- (713,000)
---------- ----------- ----------- -----------
Net loss......................................... $ (239,000) $(1,014,000) $ (831,000) $(2,186,000)
========== =========== =========== ===========
Loss per common share from continuing
operations...................................... $ (0.04) $ (0.10) $ (0.13) $ (0.23)
Loss per common share from discontinued
operation....................................... 0.00 0.06 0.00 0.11
---------- ----------- ----------- -----------
Loss per common share............................ $ (0.04) $ (0.16) $ (0.13) $ (0.34)
========== =========== =========== ===========
Weighted average number of shares
outstanding..................................... 6,397,304 6,370,909 6,397,304 6,370,909
========== =========== =========== ===========
</TABLE>
(a) Certain amounts for the quarter and six months ended December 31, 1995 have
been reclassified to reflect the Company's discontinued HMO operation.
See accompanying notes.
3
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Ramsay Managed Care, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31 December 31
1996 1995(a)
--------------- --------------
<S> <C> <C>
Cash flows from continuing operating activities
Net loss from continuing operations.................... $ (831,000) $(1,473,000)
Adjustments to reconcile net loss from
continuing operations to net cash (used in)
provided by operating activities:
Depreciation and amortization........................ 695,000 629,000
Other................................................ 13,000 43,000
Cash flows from (increase) decrease in
operating assets:
Accounts receivable, net............................ (322,000) 55,000
Prepaid expenses.................................... 165,000 (364,000)
Other current assets................................ 10,000 503,000
Cash flows from (increase) decrease in
operating liabilities:
Accounts payable.................................... (412,000) (1,530,000)
Accrued salaries, wages and other liabilities....... 27,000 253,000
Hospital and Medical claims payable................. 178,000 525,000
Due to affiliate.................................... 938,000 227,000
Other current liabilities........................... (398,000) (114,000)
----------- -----------
Total adjustments...................................... 894,000 227,000
----------- -----------
Net cash (used in) provided by operating activities.... 63,000 (1,246,000)
----------- -----------
Cash flows from discontinued operations
Net loss from discontinued operation................... -- (713,000)
Adjustments to reconcile net loss from
discontinued operation to net cash used in
discontinued operation:
Depreciation and amortization........................ -- 57,000
(Increase) decrease in current assets of
discontinued operation.............................. 298,000 45,000
(Increase) decrease in other assets of
discontinued operation.............................. (315,000) (875,000)
Increase in current liabilities of
discontinued operation.............................. 180,000 299,000
(Decrease) in reserve for operating loss from
discontinued operation.............................. (1,658,000) --
----------- -----------
Total adjustments...................................... (1,495,000) (474,000)
----------- -----------
Net cash used in discontinued operation................ (1,495,000) (1,187,000)
----------- -----------
</TABLE>
See accompanying notes.
4
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Ramsay Managed Care, Inc.
Consolidated Statements of Cash Flows (continued)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31 December 31
1996 1995(a)
--------------- --------------
<S> <C> <C>
Cash flows from investing activities
Expenditures for property and equipment............. (79,000) (152,000)
Goodwill, preopening and development costs.......... (615,000) (167,000)
Other noncurrent assets............................. -- 57,000
---------- -----------
Net cash used in investing activities............... (694,000) (262,000)
---------- -----------
Cash flows from financing operations
Payments on debt.................................... (856,000) (299,000)
Repayment on note receivable to purchase
common stock....................................... -- 10,000
Borrowings from affiliate........................... 2,400,000 --
Issuance of common stock............................ 7,000 --
Issuance of preferred stock......................... 545,000 --
---------- -----------
Net cash (used in) provided by financing 2,096,000 (289,000)
activities......................................... ---------- -----------
Net decrease in cash and cash equivalents........... (30,000) (2,984,000)
Cash and cash equivalents at beginning of period.... 228,000 3,495,000
---------- -----------
Cash and cash equivalents at end of period.......... $ 198,000 $ 511,000
---------- -----------
Supplemental disclosures of cash flow
information
Cash paid (received) during the period for:
Interest........................................... $ 165,000 $ 258,000
========== ===========
Income taxes....................................... $ (172,000) $ (125,000)
========== ===========
</TABLE>
(a) Certain amounts for the six months ended December 31, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
See accompanying notes.
5
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Ramsay Managed Care, Inc.
Notes to Consolidated Financial Statements
(unaudited)
December 31, 1996
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-QSB and
Article 10 of Regulation S-B. 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 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, 1996 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-KSB for the year ended June 30, 1996.
The Company was incorporated in the State of Delaware in July 1993, and
commenced operations with the acquisition of Florida Psychiatric Management,
Inc. ("FPM") on October 31, 1993.
Certain amounts for the quarter and six months ended December 31, 1995
have been reclassified to reflect the Company's discontinued HMO operation.
NOTE 2.
As of October 30, 1996, the Company entered into a definitive agreement
to sell its HMO operation, Apex Healthcare, Inc. ("Apex") to an established
healthcare provider (see "Part II. Other Information, Item 5. - Other
Information" below).
The closing of the sale is subject to regulatory approvals, third party
consents and other customary closing conditions. Due to these conditions, the
Company will not adjust its estimated loss on sale of this discontinued
operation, which totalled $4,927,000 and was recorded for the year ended June
30, 1996, until the completion of the sale.
NOTE 3.
As previously announced, on October 1, 1996, the Company and Ramsay
Health Care, Inc. ("RHCI") entered into an Agreement and Plan of Merger
providing for the merger of the Company into a wholly owned subsidiary of
RHCI. Following the merger, all amounts owed to RHCI by the Company will
become an intercompany payable and receivable between the Company and RHCI,
respectively.
6
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Ramsay Managed Care, Inc.
The merger is subject to approval by the shareholders of each company,
the receipt of lender, governmental and other consents and the declaration of
effectiveness by the Securities and Exchange Commission of a registration
statement filed by RHCI. Subject to the satisfaction of these conditions, it
is expected that the merger will be consummated in March 1997.
NOTE 4.
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31 June 30
1996 1996
----------- -----------
<S> <C> <C>
8% 6-year unsecured promissory note issued
to Ramsay Health Care, Inc., payable
quarterly, through September 30, 2000............... $6,000,000 $6,000,000
Variable rate (interest rate of 8.0351% at December
31, 1996), 3-year secured term loan to First
Union National Bank of Florida, Inc.,
payable quarterly, due January 31, 1998............. 833,000 1,111,000
8.25% 3-year secured promissory note issued in
connection with the acquisition of HDI,
payable monthly, due June 30, 1997.................. 167,000 333,000
3-year secured term loan to First Union
National Bank of Florida, Inc., payable
monthly through April 5, 1999, interest at
prime plus 1% (interest of 9.25% at December
31, 1996)........................................... 80,000 92,000
---------- ----------
7,080,000 7,536,000
Less amounts due within one year....................... 2,873,000 2,334,000
---------- ----------
$4,207,000 $5,202,000
========== ==========
</TABLE>
The 8%, six-year, unsecured promissory note (the "Subordinated Promissory
Note") issued to RHCI, which is the Company's former parent corporation, was
issued on October 25, 1994 and primarily relates to RHCI's funding of certain
of the Company's acquisitions. The note is subordinated and junior to all
indebtedness of the Company. See note 3 above and "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Indebtedness" below.
On April 26, 1996, the Company amended its credit facility (the "Credit
Facility") with First Union National Bank of Florida (the "Bank"). A previous
Revolving Credit Facility for up to $4,200,000 was replaced by a $1,500,000
Revolving Master Line of Credit (the "Master Revolver") and a $100,000 Term
Loan.
The Master Revolver has been extended until the earlier of the closing of
the sale of Apex or February 28, 1997. The Term Loan is repayable in 36 level
monthly principal payments of $2,777.70, plus interest. At December 31, 1996,
$1,500,000 was outstanding under the Master Revolver. The Master Revolver
bears interest at the following rates, as applicable and selected by the
Company from time to time: (i) the Bank's LIBOR adjusted
7
<PAGE>
rate plus 3.0% or (ii) the Bank's prime rate plus 0.75%. The $100,000 Term
Loan bears interest at the Bank's prime rate plus 1.0%.
As part of the acquisition of FPM in October 1993, the Company issued 7%
three year debentures, totaling $2,500,000. These debentures were prepaid
with the proceeds of a $1,667,000 three year secured term loan from the Bank
on April 28, 1995. This three year term loan bears interest at (i) the Bank's
LIBOR adjusted rate plus 2.5% or (ii) the Bank's prime rate plus 0.50%, as
selected by the Company. Principal on this three year term loan is payable
quarterly with a final maturity of January 31, 1998. This three year secured
term loan, the additional Term Loan of $100,000 (referred to above) and the
Master Revolver are secured by a pledge of the stock of all of the Company's
subsidiaries and the assets of the Company's subsidiaries. It is the
intention of the Company to repay all amounts owing to the Bank from the
proceeds derived from the proposed sale of Apex (see Note 2 above and "Part
II. Other Information, Item 5. - Other Information" below).
The Credit Facility contains covenants customary for facilities of this
type, which include, without limitation, covenants which limit the ability of
FPM and its subsidiaries, subject to certain exceptions, to (i) assume or
incur liens, (ii) alter the nature of their business or effect mergers,
consolidations, or sales of assets, (iii) incur indebtedness or make
investments, (iv) acquire businesses, or (v) pay dividends to the Company. In
addition, the Credit Facility contains financial covenants related to senior
debt to cash flow, interest coverage, and minimum stockholders' equity. At
June 30, 1996, FPM's minimum stockholders' equity ratio was less than the
requirement. The Bank agreed to waive this requirement for the year ended
June 30, 1996.
In connection with the Company's acquisition of certain assets of Human
Dynamics Institute ("HDI") through a wholly owned subsidiary, FPMBH of
Arizona, Inc., the Company issued a promissory note in the principal amount of
$1,000,000 (the "HDI Note") to Phoenix South Community Mental Health Centers
("Phoenix South"). Interest accrues on the HDI Note at a fixed rate of 8.25%
per annum and payable monthly in arrears, together with equal installments of
principal, until the HDI Note matures on June 30, 1997. The HDI Note is
secured pursuant to a Stock Pledge Agreement dated June 30, 1994, pursuant to
which Phoenix South has a first priority lien on all of the common stock of
FPMBH of Arizona, Inc. Upon payment in full of the HDI Note, the Bank will
have a first priority lien on the common stock of FPMBH of Arizona, Inc. under
the Credit Facility.
NOTE 5.
The provision for income taxes included in the consolidated statements of
operations differs from the amounts computed by applying the normal statutory
rates to income before income taxes because such provision includes (a)
amounts reportable as income for federal income tax purposes which are not
income for financial reporting purposes, (b) amounts deducted for financial
reporting purposes that are not allowable deductions for Federal and state
income tax purposes and (c) amounts for state income taxes applicable to
profitable subsidiaries which do not utilize the operating losses generated by
unprofitable subsidiaries to offset taxable income. At December 31, 1996, net
operating loss carryforwards of approximately $5.0 million for Federal income
tax purposes, which expire from 2005 to
8
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2010, and approximately $6.6 million for state income tax purposes, which
expire from 2005 to 2010, are available to reduce future income taxes.
9
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Ramsay Managed Care, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company provides comprehensive managed health care services
ranging from benefit design, case management and claims processing to fully
capitated (at risk) mental health care treatment. The behavioral health
services consist of the management of mental health services and substance
abuse care on behalf of self-insured employers, health maintenance
organizations, insurance companies and government agencies in various
states. The Company not only manages such care but also provides where
appropriate the delivery of care through integrated systems involving
clinics and other providers.
At December 31, 1996, the Company operated in 10 states and has a
strategy to consolidate its behavioral health operations through
development and joint venture efforts in various regions of the country in
which it currently operates.
On November 5, 1996, the Company announced that it had entered into an
agreement for the sale of Apex (see "Part II. Other Information, Item 5 -
Other Information" below).
In connection with the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995, the Company notes that this
Quarterly Report on Form 10-QSB 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
or financial condition to differ materially from those set forth in any
forward-looking statement. Some of the most significant factors include
(i) the Company's inability to dispose of its HMO operation, (ii) the
effects of competition on the Company's business, including the loss of a
major customer or the loss of members of its provider network of
physicians, hospitals, and other healthcare providers, and (iii) statutory,
regulatory and administrative changes or interpretations of existing
statutory and regulatory provisions affecting the conduct of the Company's
businesses, or the failure to obtain exemptions from existing statutory or
regulatory provisions. Accordingly, there can be no assurance that any
anticipated future results or financial condition will be achieved.
10
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Ramsay Managed Care, Inc.
Results of Operations
The following table sets forth, for the periods indicated, certain
items of the Company's consolidated statements of operations as a
percentage of the Company's net revenues from continuing operations.
<TABLE>
<CAPTION>
Percentage of Net Revenue
Quarter Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues.............................. 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Contracted provider services............. 32.5% 35.4% 37.1% 35.2%
Salaries, wages and benefits............. 42.5% 44.2% 40.1% 45.2%
Other operating expenses................. 19.8% 22.3% 20.3% 24.1%
Depreciation and amortization............ 5.9% 6.3% 6.0% 6.3%
Interest and other financing changes..... 3.4% 3.9% 3.7% 3.9%
----- ------ ----- ------
Total operating expenses.................. 104.1% 112.1% 107.2% 114.7%
----- ------ ----- ------
Loss from continuing operations before (4.1)% (12.1)% (7.2)% (14.7)%
income taxes............................. ===== ====== ===== ======
</TABLE>
Quarter Ended December 31, 1996
Compared to Quarter Ended December 31, 1995
Net revenues in the quarter ended December 31, 1996, were $5.80
million compared to $5.28 million in the comparable quarter of the prior fiscal
year. The increase in net revenues is attributable to new or expanded managed
care contracts obtained, in particular in North Carolina effective October 1995
and Texas effective September 1996. Clinical fee for service and other revenue
increased as a result of new clinics opened during calendar years 1995 and 1996.
Contracted provider services expenses increased to $1.89 million in
the December 1996 quarter, compared to $1.87 million in the prior year
December quarter.
Other operating expenses, comprising salaries and wages and general
and administrative expenses, increased from $3.45 million to $3.53 million but
decreased as a percentage of net revenues, reflecting increased efficiencies of
the Company's managed behavioral health division, given its expanded business
base.
The Company recorded a loss from continuing operations before income
taxes of $239,000 compared to a loss from continuing operations before income
taxes of $639,000 incurred in the same quarter in the prior year. The Company's
results continue to be impacted by corporate costs generally associated with
being a public company, as well as continuing start up-costs in the clinical
operations of the Company.
11
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Ramsay Managed Care, Inc.
At June 30, 1996, the Company established a reserve for future losses
expected to be incurred by its discontinued HMO operation amounting to
$1,830,000. During the quarter ended December 31, 1996, losses incurred by the
discontinued HMO operation and charged against this reserve totalled $820,000.
In the prior year comparable quarter, the discontinued HMO operation recorded a
loss of $375,000.
Six Months Ended December 31, 1996
Compared to Six Months Ended December 31, 1995
Net revenues in the six months ended December 31, 1996, were $11.62
million, compared to $10.0 million in the comparable period of the prior fiscal
year. The increase in net revenues is attributable to new or expanded managed
care contracts obtained, in particular in North Carolina effective October 1995
and Texas effective September 1996. Clinical fee for service and other revenue
increased as a result of new clinics opened during calendar years 1995 and 1996.
Contracted provider services expenses increased to $4.31 million in
the six months ended December 31, 1996, compared to $3.52 million in the prior
year December period.
Other operating expenses, comprising salaries and wages and general
and administrative expenses, increased from $6.80 million to $6.84 million but
decreased as a percentage of net revenues, reflecting increased efficiencies of
the Company's managed behavioral health division, given its expanded business
base.
The Company recorded a loss from continuing operations before income
taxes in the six months ended December 31, 1996 of $831,000, compared to a loss
from continuing operations before income taxes of $1,473,000 incurred in the
same period in the prior year. The Company's results continue to be impacted by
corporate costs generally associated with being a public company, increased
interest and amortization expenses and continuing start up-costs in the clinical
operations of the Company.
At June 30, 1996, the Company established a reserve for future losses
expected to be incurred by its discontinued HMO operation amounting to
$1,830,000. During the six months ended December 31, 1996, losses incurred by
the discontinued HMO operation and charged against this reserve totalled
$1,658,000. In the prior year comparable period, the HMO operation recorded a
loss of $713,000.
Liquidity and Capital Resources
General. In connection with the distribution of the Company's common
stock on April 24, 1995 by RHCI to its shareholders (the "Distribution"), the
Company and RHCI entered into the Second Amended and Restated Distribution
Agreement (the "Distribution Agreement"). Pursuant to the Distribution
Agreement, each of RHCI and
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Ramsay Managed Care, Inc.
the Company has agreed to pay to the other the net amount of all outstanding
intercompany receivables and payables as of April 24, 1995 (other than those
evidenced by the $6 million unsecured subordinated promissory note issued by the
Company to RHCI representing certain advances made by RHCI to or on behalf of
the Company (the "Subordinated Promissory Note") which are governed by the terms
thereof). As of December 31, 1996, the Company owed RHCI approximately $2.2
million in relation to these items and accrued interest on the Subordinated
Promissory Note of $600,000. See the discussion below under "Indebtedness"
concerning RHCI's agreement not to require repayment of net cash advances and
accrued interest on the Subordinated Promissory Note until after January 1998.
During the six months ended December 31, 1996, net cash provided by
the Company's continuing operations totalled $63,000. The Company anticipates
that its sources of liquidity during fiscal 1997 primarily will be its cash flow
from continuing operations, funds anticipated to be received from the sale of
its HMO operation, the proceeds from a $3 million private placement of preferred
stock discussed under "Indebtedness" below and advances from an affiliate
discussed under "Indebtedness" below. See also "Part II. Other Information, Item
5 - Other Information" below.
The Company expects to use its sources of liquidity for working
capital and other general corporate purposes, including for the payment of costs
and expenses discussed above, and costs associated with the continued
development of its managed mental healthcare business.
There can be no assurance that the Company will expand its operations
by development, acquisition or internal expansion or that any development
effort, acquisition or expansion will be profitable.
As discussed below (see "Indebtedness"), the Company believes that it
may require additional funds for working capital and general corporate purposes.
Financing. On April 26, 1996, the Company amended its credit facility
(the "Credit Facility") with First Union National Bank of Florida (the "Bank").
A previous Revolving Credit Facility for up to $4,200,000 was replaced by a
$1,500,000 Revolving Master Line of Credit (the "Master Revolver") and a
$100,000 Term Loan.
The Master Revolver will expire on the earlier of the close of the
sale of Apex, or February 28, 1997. The $100,000 Term Loan is repayable in 36
level monthly principal payments of $2,777.70, plus interest. At December 31,
1996, $1,500,000 was outstanding under the Master Revolver. The Master Revolver
bears interest at the following rates, as applicable and selected by the Company
from time to time: (i) the Bank's LIBOR adjusted rate plus 3.0% or (ii) the
Bank's prime rate plus 0.75%. The $100,000 Term Loan bears interest at the
Bank's prime rate plus 1.0%.
13
<PAGE>
Ramsay Managed Care, Inc.
In October 1996, the Credit Facility was further amended pursuant to
which Apex guaranteed the obligations of the Company under the Credit Facility
and the Company pledged all of the shares of capital stock of Apex to the Bank
as collateral.
As part of the acquisition of FPM in October 1993, the Company issued
7% three year debentures, totaling $2,500,000 (see "Indebtedness" below). These
debentures were prepaid with the proceeds of a $1,667,000 three year secured
term loan from the Bank on April 28, 1995. This three year term loan bears
interest at (i) the Bank's LIBOR adjusted rate plus 2.5% or (ii) the Bank's
prime rate plus 0.50%, as selected by the Company. Principal on this three year
term loan is payable quarterly with a final maturity of January 31, 1998. This
three year secured term loan, the additional term loan of $100,000 (referred to
above) and the Master Revolver are secured by a pledge of the stock of all of
the Company's subsidiaries and the assets of the Company's subsidiaries. It is
the intention of the Company to repay all amounts owing to the Bank, including
the Master Revolver, the $100,000 Term Loan and the three-year term loan, from
the proceeds derived from the proposed sale of Apex, at which time the pledge on
the capital stock of Apex will be released by the Bank.
The Credit Facility contains covenants customary for facilities of
this type, which include, without limitation, covenants which limit the ability
of FPM and its subsidiaries, subject to certain exceptions, to (i) assume or
incur liens, (ii) alter the nature of their business or effect mergers,
consolidations, or sales of assets, (iii) incur indebtedness or make
investments, (iv) acquire businesses, or (v) pay dividends to the Company . In
addition, the Credit Facility contains financial covenants related to senior
debt to cash flow, interest coverage, and minimum stockholders' equity. At June
30, 1996, FPM's minimum stockholders' equity ratio was less than the
requirement. The Bank agreed to waive this requirement for the year ended June
30, 1996.
Indebtedness. In connection with the Company's acquisition of all the
outstanding shares of common stock of FPM in October 1993, FPM issued 7%
debentures due October 31, 1996 (the "Debentures") in the aggregate principal
amount of $2,500,000 to the selling stockholders of FPM, including Martin
Lazoritz, Robert W. Pollack and I. Paul Mandelkern, officers of the Company or
its subsidiaries. Subsequently, on April 28, 1995, these Debentures were prepaid
with the proceeds of the $1,667,000 three year secured term loan discussed
above.
In connection with the Company's acquisition of the assets of HDI
through a wholly owned subsidiary, FPMBH of Arizona, Inc., the Company issued a
promissory note in the principal amount of $1,000,000 (the "HDI Note") to
Phoenix South Community Mental Health Centers ("Phoenix South"). Interest
accrues on the HDI Note at a fixed rate of 8.25% per annum and is payable
monthly in arrears, together with equal installments of principal, until the HDI
Note matures on June 30, 1997. The HDI Note is secured pursuant to a Stock
Pledge Agreement dated June 30,
14
<PAGE>
Ramsay Managed Care, Inc.
1994, pursuant to which Phoenix South has a first priority lien on all of the
common stock of FPMBH of Arizona, Inc. Upon payment in full of the HDI Note, the
Bank will have a first priority lien on the common stock of FPMBH of Arizona,
Inc. under the Credit Facility.
In addition, in connection with the Distribution of the Company from
RHCI, the Company issued to RHCI the Subordinated Promissory Note in the
principal amount of $6,000,000, evidencing certain funds advanced to or on
behalf of the Company by RHCI, including in connection with the acquisition of
certain acquired businesses. Prior to its issuance, the amounts evidenced by the
Subordinated Promissory Note were recorded as intercompany indebtedness between
the Company and RHCI. Interest accrues on the Subordinated Promissory Note at an
annual fixed rate of 8%.
The Subordinated Promissory Note is unsecured and is subordinated and
junior in right of payment to all indebtedness of the Company and its
subsidiaries incurred in connection with the acquisition of HDI and future
acquisitions of other managed mental health care services businesses, and any
other Senior Indebtedness (as defined in the Subordinated Promissory Note),
including indebtedness arising under the Credit Facility and any other bank
indebtedness of the Company or its subsidiaries. At the present time, Senior
Indebtedness outstanding is comprised of the HDI Note, the three year secured
term note to the Bank and amounts due under the Credit Facility.
In September 1996, RHCI and the Company commenced negotiations to
restructure the payment terms associated with the net cash advances from RHCI,
totaling approximately $2.2 million as of December 31, 1996, and interest due on
the Subordinated Promissory Note. Of the $6,000,000 due on the Subordinated
Promissory Note, approximately $2,118,000 is due on or before December 31, 1997
and the remainder is payable in 11 quarterly installments of approximately
$353,000, beginning March 31, 1998. RHCI has agreed not to require repayment of
the interest on the Subordinated Promissory Note for the period October 1, 1995
through December 31, 1997 or on the net cash advances until after January 1,
1998, all on terms and conditions to be mutually agreed upon.
If the Merger between RHCI and the Company, as discussed in Note 3
above, is not consummated, the Company will attempt to satisfy its obligations
to RHCI by (a) paying certain of the amounts owed to RHCI with any remaining
proceeds from the sale of Apex and internally generated cash, (b) seeking a
renegotiation of the terms associated with the amounts owed to RHCI or (c)
exploring other financing options to be determined.
In June 1996, at the request of the Company, Paul Ramsay Hospitals
Pty. Limited ("Ramsay Hospitals"), a corporate affiliate of Paul J. Ramsay, the
Chairman of the Board of the Company, agreed to loan the Company up to
$3,000,000 for
15
<PAGE>
Ramsay Managed Care, Inc.
working capital and general corporate purposes. On June 28, 1996, the Company
borrowed $1,600,000, which was evidenced by a demand promissory note (the "First
Hospitals Note") payable to Ramsay Hospitals with an interest rate of 12% per
annum. In addition, on August 7 and August 8, 1996, the Company borrowed an
aggregate of $800,000, which was evidenced by a demand promissory note (the
"Second Hospitals Note") payable to Ramsay Hospitals in the principal amount of
the lesser of the amount borrowed or $1,400,000, with an interest rate of 12%
per annum. On September 10, 1996, as described below, the First Hospitals Note
and the Second Hospitals Note were repaid and canceled.
On September 10, 1996, the Company entered into a stock purchase
agreement with Ramsay Hospitals, pursuant to which Ramsay Hospitals purchased
100,000 shares of Series 1996 Convertible Preferred Stock at a purchase price of
$3,000,000. The purchase price was paid by (i) offset against the outstanding
principal amounts under the First Hospitals Note and the Second Hospitals Note
($1,600,000 and $800,000, respectively), (ii) offset against the aggregate
accrued unpaid interest on such notes through September 10, 1996 ($54,667) and
(iii) $545,333 in cash. In connection with the purchase of the 100,000 shares of
Series 1996 Convertible Preferred Stock by Ramsay Hospitals, the Company issued
warrants to Ramsay Hospitals to purchase 300,000 shares of common stock, at an
exercise price of $1.00 per share.
In September 1996, Ramsay Hospitals agreed to provide an additional
loan facility, if required, of up to $2,000,000 to the Company for working
capital and general corporate purposes. Borrowings under this facility will bear
interest at 15% per annum and the Company has agreed to pay Ramsay Hospitals a
$100,000 facility fee in consideration for making the facility available to the
Company. As of December 31, 1996, $1,600,000 has been borrowed by the Company
under this facility.
The Company may be required to raise additional funds for working
capital, general corporate purposes, development and growth beyond its immediate
plans and/or to remain competitive with its larger competitors. Any additional
equity financing may result in substantial dilution to the stockholders of the
Company. Except for the financing provided by the above mentioned affiliate
commitment and the Master Revolver (which at December 31, 1996 was fully drawn),
the Company has made no arrangements to obtain any additional debt financing,
and there can be no assurance that the Company will be able to obtain any
required additional funds.
16
<PAGE>
Ramsay Managed Care, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on November
21, 1996. At the meeting, the Board of Directors' selection of Ernst & Young LLP
as the Company's independent auditors for the fiscal year ending June 30, 1997
was ratified during the meeting by a vote of 8,717,619 in favor, 2,612 against
and 2,497 abstaining. The affirmative vote of a majority of the shares of
Company stock represented and voted at the meeting was required for
ratification.
During the Annual Meeting of Stockholders of the Company held on
November 21, 1996, nominees for directors of the Company were elected by a vote
which approximated, for each director, 8,700,000 in favor and 16,000 abstaining.
The seven directors of the Company elected during the meeting were as follows:
Aaron Beam, Jr., Peter J. Evans, Thomas M. Haythe, Moises E. Hernandez, M.D.,
Luis E. Lamela, Paul J. Ramsay and Michael S. Siddle.
Item 5. Other Information
The Company has agreed to sell all of the issued and outstanding
shares of common stock, $.01 par value (the "Apex Shares"), of Apex to RoTech
Medical Corporation ("RoTech"), a Delaware corporation, pursuant to a Stock
Purchase Agreement dated as of October 30, 1996. Apex is engaged in the business
of operating HMOs and related businesses in the states of Alabama, Louisiana and
Mississippi. The purchase price for the Apex Shares is $4,350,000. The closing
of the sale is subject to the receipt of regulatory approvals, third-party
consents and other customary closing conditions. The determination of the
consideration for the sale of Apex Shares was based on negotiations between the
Company and RoTech.
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-QSB are as follows:
Exhibit 11 Computation of Net Income (Loss) per Share
Exhibit 27 Financial Data Schedule
(b) Current Reports on Form 8-K
17
<PAGE>
Ramsay Managed Care, Inc.
During the quarter ended December 31, 1996, the Company filed
the following Current Report on Form 8-K with the Commission:
* Form 8-K dated October 2, 1996 relating to the proposed
merger between the Company and Ramsay Health Care, Inc.
18
<PAGE>
Ramsay Managed Care, Inc.
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 MANAGED CARE, INC.
Registrant
/s/Warwick D. Syphers
---------------------------
Warwick D. Syphers
Chief Financial Officer
Date: February 19, 1997
19
<PAGE>
Exhibit 11
RAMSAY MANAGED CARE, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Weighted Average Common
Shares Outstanding.................. 6,397,304 6,370,909 6,397,304 6,370,909
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES 6,397,304 6,370,909 6,397,304 6,370,909
========== ========== ========== ===========
Loss From Continuing Operations
Available to Common Shareholders.... $ (239,000) $ (639,000) $ (831,000) $(1,473,000)
========== ========== ========== ===========
NET INCOME (LOSS) PER SHARE
FROM CONTINUING OPERATIONS........... $ (0.04) $ (0.10) $ (0.13) $ (0.23)
========== ========== ========== ===========
FULLY DILUTED
Weighted Average Common
Shares Outstanding.................. 6,397,304 6,370,909 6,397,304 6,370,909
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES............ 6,397,304 6,370,909 6,397,304 6,370,909
========== ========== ========== ===========
Loss From Continuing Operations
Available to Common Shareholders.... $ (239,000) $ (639,000) $ (831,000) $(1,473,000)
========== ========== ========== ===========
NET INCOME (LOSS) PER SHARE
FROM CONTINUING OPERATIONS........... $ (0.04) $ (0.10) $ (0.13) $ (0.23)
========== ========== ========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 198,000
<SECURITIES> 0
<RECEIVABLES> 1,450,000
<ALLOWANCES> 282,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,056,000
<PP&E> 2,037,000
<DEPRECIATION> 1,303,000
<TOTAL-ASSETS> 14,247,000
<CURRENT-LIABILITIES> 10,308,000
<BONDS> 0
0
3,000,000
<COMMON> 64,000
<OTHER-SE> (8,735,000)
<TOTAL-LIABILITY-AND-EQUITY> 14,247,000
<SALES> 0
<TOTAL-REVENUES> 5,799,000
<CGS> 0
<TOTAL-COSTS> 4,351,000
<OTHER-EXPENSES> 1,491,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,000
<INCOME-PRETAX> (239,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (239,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,000)
<EPS-PRIMARY> $(0.04)
<EPS-DILUTED> $(0.04)
</TABLE>
