SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 number 0-26666
RAMSAY MANAGED CARE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 72-1249464
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Columbus Center
One Alhambra Plaza, Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 305-569-4646
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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
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The number of shares of the Registrant's Common Stock outstanding at November 2,
1996 follows:
Common Stock, par value $0.01 per share - 6,397,304 shares
Transitional Small Business Disclosure Format (Check one): Yes No X
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company provides comprehensive managed health care services
through wholly owned subsidiary companies. The behavioral health services are
composed 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 different 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. These services
range from benefit design, case management and claims processing to fully
capitated (at risk) mental health care treatment.
At September 30, 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 its discontinued HMO operation (see "Item 5 - Other
Information" below).
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-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 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 the existing statutory or
regulatory provisions. Accordingly, there can be no assurances that any
anticipated future results or condition will be achieved.
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.
Percentage of Net Revenue
Quarter Ended
September 30
1996 1995(a)
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Net revenues................................... 100.0% 100.0%
Operating expenses:
Contracted provider services................... 41.6% 35.0%
Salaries, wages and benefits................... 37.6% 46.3%
Management fees charged by related companies... 1.5% 1.5%
Other operating expenses....................... 19.3% 24.7%
Depreciation and amortization.................. 6.1% 6.3%
Interest and other financing charges........... 4.1% 3.9%
Total operating expenses....................... 110.2% 117.7%
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Loss from continuing operations before income (10.2)% (17.7)%
taxes....................................... ====== ======
(a) Certain amounts for the quarter ended September 30, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
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QUARTER ENDED SEPTEMBER 30, 1996
COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Net revenues in the quarter ended September 30, 1996, were $5.80
million compared to $4.70 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 and
other clinical service revenue increased as a result of new clinics opened
during calendar year 1995.
Contracted provider services expenses increased to $2.40 million
in the September quarter of 1996 compared to $1.65 million in the prior
year September quarter as a result of the increased number of members whose
care is managed by the Company.
Other operating expenses comprising salaries and wages, and
general and administrative expenses decreased from $3.45 million to $3.30
million reflecting the increasing efficiencies and cost management in the
operations base of the Company's managed behavioral health division.
The Company recorded a loss before income taxes of $592,000
compared to a loss of $834,000 incurred in the same quarter in the prior
year. The Company's results continue to be impacted by general corporate
costs, increased interest and amortization expenses, as well as continuing
start-up costs in the clinical operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
General. In connection with the distribution of the Company's
common stock on April 24, 1995 by Ramsay Health Care, Inc. ("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 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
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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 September 30, 1996, RMCI owed RHCI approximately
$2.1 million in relation to these items, and in addition, accrued interest
on the Subordinated Promissory Note of $480,000. 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 October 1997.
During the quarter ended September 30, 1996, the Company used net
cash of $73,000 in its continuing operations. 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 "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
establishment and 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 the 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 December 31, 1996 and the
$100,000 Term Loan is repayable in 36 level monthly principal payments of
$2,777.70, plus interest. At September 30, 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%.
In October 1996, the Credit Facility was further amended pursuant
to which Apex Healthcare, Inc., a wholly owned subsidiary of the Company,
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
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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 the Company's subsidiaries
and the assets of the Company's subsidiaries, and are required to be repaid
with a portion of the proceeds from the sale of the Company's HMO
operation.
The Credit Facility contains covenants customary for facilities
of this type, which include, without limitation, covenants which contain
limitations on 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.
It is the intention and plan of the Company to repay all amounts
owing 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.
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, 1994, pursuant to which
Phoenix South has a first priority lien on all of the common stock of FPMBH
of Arizona, Inc. (f/k/a Ramsay HDI). Upon payment in full of the HDI Note,
the Bank will have a first priority lien on the common stock of FPMBH of
Arizona 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 RMCI 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
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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 $2.1 million as at September 30, 1996, the
interest due on the Subordinated Promissory Note for the year ending June
30, 1997 and the $480,000 of interest accrued on the Subordinated
Promissory Note from October 1995 to September 30, 1996. Of the $6,000,000
due on the Subordinated Promissory Note, approximately $1,400,000 is due on
or before June 30, 1997 and the remainder is payable in 13 quarterly
installments of approximately $353,000, beginning September 30, 1997. RHCI
has agreed not to require repayment of the interest on the Subordinated
Promissory Note for the period October 1, 1995 through September 30, 1997
or on the net cash advances until after October 1, 1997, 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.
As of June 30, 1996, the aggregate amount of principal on the
Company's indebtedness payable during the fiscal year of the Company ending
June 30, 1997 and during each of the next four fiscal years of the Company
will be approximately $2,334,000, $2,001,000, $1,437,000, $1,412,000, and
$352,000, respectively.
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 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.
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In September 1996, a corporate affiliate of Mr. Ramsay formalized
its agreement 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. At November 1, 1996, $600,000 was borrowed by the Company under
the 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 September
30, 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 18, 1997
RAMSAY MANAGED CARE, INC.
Registrant
By /s/ Warwick D. Syphers
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Warwick D. Syphers
Chief Financial Officer