UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Mark One /X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________to___________
Commission file number 33-89514
RAMSAY MANAGED CARE, INC.
(Name of Small Business Issuer in its charter)
Delaware 72-1249464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Entergy Corporation Building 70113
639 Loyola Avenue, Suite 1725 (Zip Code)
New Orleans, Louisiana
(Address of principal executive offices)
Insurer's telephone number, including area code (504) 585-0515
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- --------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
State issuer's revenues for its most recent fiscal year. $21,602,000
State the aggregate market value of the voting stock held by non-
affiliates, compute by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within 60
days to the date of filing.
Aggregate market value as of September 13, 1996.....$ 3,598,484
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of September 13, 1996.... 6,397,304
Transitional Small Business Disclosure Format (check one): Yes___ No X
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein, and the Part of the Form 10-KSB into which the document is
incorporated:
Definitive Proxy Statement to be filed with respect to the Annual Meeting
of Stockholders to be held on November 21, 1996.
Part III.
Part I
Item I. Description of Business.
General
Ramsay Managed Care, Inc. (hereinafter referred to as the "Company" or
"RMCI") began operations in October 1993 through the acquisition of Florida
Psychiatric Management, Inc. The Company became a publicly held company on April
24, 1995 through the distribution (the "Distribution"), on a pro-rata basis in
the form of a dividend, by Ramsay Health Care, Inc. ("RHCI"), of all of the
shares of common stock, $0.01 par value per share (the "Common Stock"), of the
Company held by RHCI on April 24, 1995 to the holders of record of (i) RHCI's
common stock, $0.01 par value, (ii) RHCI's Class A Convertible Preferred Stock,
par value $1.00 per share and (iii) RHCI's Class B Convertible Preferred Stock,
Series C, par value $1.00 per share, on April 21, 1995.
Prior to the Distribution , RMCI comprised the managed care activities
operated by RHCI consisting of managed behavioral health care services operating
as FPM Behavioral Health, Inc. ("FPM") based in Orlando, Florida and health
maintenance organization ("HMO") services operating as Apex Healthcare, Inc.
("Apex"), based in Birmingham, Alabama.
The Managed Care Industry
Health care costs in the United States have risen from $27 billion in
1960, comprising five percent of gross domestic product, to more than $1
trillion in 1994, comprising more than 14 percent of gross domestic product. In
response to the rapid increases in health care costs, employers, insurers,
government entities and health care providers have sought cost-effective
alternatives to conventional indemnity insurance for the delivery of and payment
for quality health care services. The integration of the delivery of, and
payment for, health care services distinguishes managed care companies from
conventional health insurance plans.
The Company's Behavioral Health Care Services
FPM manages and provides the delivery of mental health care and
substance abuse treatment through networks of Company-employed and independent
mental health care providers on behalf of its "managed care customers,"
primarily self-insured employers, health maintenance organizations (HMO's),
insurance companies and governmental agencies. FPM is an integrated managed
mental health care services company, in that it provides a full range of related
mental health services and treatment programs designed to improve and manage the
treatment delivered by health care professionals employed by FPM and by other
unaffiliated parties. FPM's services and treatment programs range from benefit
design, utilization review, case management, quality assurance and claims
processing services to fully capitated (at risk) mental health care treatment.
At June 30, 1996, FPM provided managed mental health care services in 13 states
to over 775,000 individuals through its regional offices located in Orlando,
Florida, Phoenix, Arizona, Honolulu, Hawaii and Morgantown, West Virginia.
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FPM programs utilize a treatment methodology structured to improve the
quality and cost effectiveness of mental health care by diagnosing patients as
early in the therapeutic process as possible and promptly providing the most
appropriate level of treatment in the least restrictive setting. An integral
component of its treatment methodology is FPM's 24-hour on-site inpatient
certification service which, when utilized in conjunction with the Company's
provider network, reduces unnecessary admissions to inpatient facilities and
often results in the increased utilization of more cost effective outpatient
services.
FPM presently provides managed health care and substance abuse
treatment through a network of approximately 48 Company-employed physicians,
psychologists and clinicians, approximately 2,800 independent physicians,
psychologists and clinicians, 13 Company-operated multidisciplinary mental
health outpatient facilities ("clinics"), and approximately 148 contracted
hospitals and other facilities. The Company's full and part-time staff of
physicians, psychologists, clinicians and ancillary care providers are generally
employed under both salary and hourly wage arrangements. Generally, subsidiaries
of the Company have contracts with independent physicians and other outside
providers who are paid on a discounted fee-for-service basis.
The Company believes that its physician-based provider network has been
able to both achieve cost savings for managed care customers and enhance the
quality of mental health and substance abuse treatment for patients.
FPM also provides an Administrative Services Only Program (the "ASO
Program") through which beneficiaries telephone a toll-free 24-hour telephone
line that is monitored by employed clinicians. The clinicians assess a
beneficiary's particular needs and verify eligibility for benefits coverage. In
the event a beneficiary requires inpatient care, the clinician will authorize
the coverage of the admission and refer the beneficiary to an inpatient
facility. If outpatient services are recommended, the clinician will refer a
beneficiary either to a Company-employed or independent contract provider. FPM's
customers typically are responsible for payment of inpatient facility and
outpatient provider charges under the ASO Program.
The Company's HMO Services
An HMO provides prepaid health care services to its members through
primary care and specialty physicians employed by the HMO at facilities operated
by the HMO, and/or through a network of independent primary care and specialty
physicians and other health care providers who contract with the HMO to furnish
such services. Primary care physicians include internists, family practitioners
and pediatricians. Generally, access to specialty physicians and other health
care providers must be approved by the member's primary care physician. These
other health care providers include, among others, hospitals, nursing homes,
home health agencies, pharmacies, mental health and substance abuse centers,
diagnostic centers, optometrists, outpatient surgery centers, dentists, urgent
care centers, and durable medical equipment suppliers. Because access to these
other health care providers must be approved by the primary care physician, the
HMO product is a restrictive form of managed care.
The Company's HMO services operated through the Company's wholly owned
subsidiary Apex Healthcare, Inc. ("Apex"), which currently has licenses to
operate HMO's in Louisiana, Mississippi and Alabama. During the year ended June
30, 1996, the Company adopted a formal plan for the sale of the operation
comprising its HMO business. The disposition of the Company's HMO operation is
2
expected to be completed during fiscal 1997. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 7. Financial Statements."
Competition
The health care industry in general and managed mental health care
services industry in particular are highly fragmented and extremely competitive.
Contracts for the provision of managed mental health care services are generally
bid and renewed annually. Furthermore, competition in the managed mental health
care services industry has intensified in recent years.
Apex competes directly with independent local and national entities
that offer managed care services, as well as with large insurance companies,
HMO's and other provider groups that have established or acquired managed care
capabilities.
FPM competes with local and National Behavioral Companies, large
insurance companies, HMO's and not-for-profit health plan corporations,
preferred provider organizations and other provider networks as well as third
party administrators, all of which also offer services to manage mental health
care costs.
Many of these operations and entities have substantially greater
financial resources than RMCI and offer a wider range of services than
RMCI.
The competitive position of RMCI also has been, and in all likelihood
will continue to be, affected by the increased initiatives undertaken during the
past several years by federal and state governments and other major purchasers
of health care, including insurance companies and employers, to revise payment
methodologies and monitor health care expenditures in order to contain health
care costs.
Revenue Profile
With respect to each of its managed care programs, RMCI typically
charges each managed care customer a monthly capitation fee for each beneficiary
enrolled in the customer's health benefit program managed by the Company.
Depending upon both the type of program for which a customer contracts
and the benefits covered under such customer's benefit program, the capitation
fee arrangement is designed so that, with respect to both inpatient and
outpatient care, FPM accepts full risk (all services capitated), as is generally
the case, partial risk (selected services capitated) or limited risk (full risk
up to a maximum amount), in each case for costs that exceed the fees
attributable to such program. Certain FPM contracts, such as those for the
provision of the ASO Program may include fee adjustments linked to a comparison
of the level of utilization and/or cost of providing health care services on
behalf of the customer, given the customers historical level of utilization
and/or cost of providing such services prior to its contracting with the FPM.
In setting its fees, RMCI relies upon a number of factors, including:
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. the nature and scope of services to be provided;
. the benefits offered to the managed care customer;
. the prior utilization history and demographic make-up of the
beneficiary population to be served;
. the rates charged by providers and inpatient facilities in the
service area and the mode of the provision of such services; and
. the Company's prior experience with similar programs.
RMCI believes that its management information systems and provider
networks enable it to develop the policies, procedures and internal controls
necessary to assess and manage the risks associated with capitated arrangements.
There can be no assurance, however, that the Company's assumptions as to
utilization rates and costs, whether relating to inpatient facilities, use of
permitted nonaffiliated providers or otherwise, will accurately and adequately
reflect actual utilization rates and costs. If rates and costs exceed those
projected with respect to a particular program, the expenses to RMCI of
providing such program could be increased and could exceed the corresponding
capitation fee, which, in either case, could have a material adverse effect on
the Company's financial condition and results of operation.
HMO services began earning revenue in June 1995, and represented
approximately 6.0% of RMCI revenues for the year ended June 1996. Because of the
Company's decision to dispose of its HMO operation during fiscal 1997, the
revenue and expenses related to HMO operation has been reclassified as a
discontinued operation. In connection with its decision to discontinue its HMO
operation, the Company, in the fourth fiscal quarter, recorded a loss on a
discontinued operation of $4.9 million.
The following table sets forth, for the periods indicated, the
percentage of the Company's total revenues for continuing operations derived
from the FPM's managed mental health care (at risk) programs, ASO Programs, and
clinical services:
Year Ended June 30
Sources 1996 1995 1994
- ------- ---- ---- ----
Managed care (at risk) 83.0% 84.0% 76.8%
Managed care (ASO) 6.2% 8.3% 17.8%
Net clinical and other 10.8% 7.7% 5.4%
---- ---- ----
100.0% 100.0% 100.0%
===== ===== =====
Customers
FPM's customers are generally self-insured employers, health
maintenance organizations, insurance companies and government agencies. At June
30, 1996, FPM provided services to over 775,000 individuals who are either
employees, enrollees, members or subsidiaries of its' customers, in 13 states.
Historically, however, a limited number of managed care customers has accounted
for substantially all of FPM's revenues. The following table sets forth, for the
period indicated, the percentage of the Company's total revenues accounted for
by (i) each customer of the Company from which the Company derived more than 10%
of its total revenues or (ii) the three largest customers of the Company in the
year indicated.
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Year Ended June 30
Customer 1996 1995 1994(d)
- -------- ----- ----- --------
Walt Disney World Co. 17.0% 21.7% 38.0%
The School Board of
Orange County, Florida (a) (a) 13.1%
Health Options, Inc. (b) 11.0% 10.4% 13.0%
AlohaCare, Inc. (c) 11.0% 9.2% ---
The Health Plan of The
Upper Ohio Valley (e) 12.0% (a) ---
- -----------------------
(a) Percentage of revenue was below 10%.
(b) Contract with Health Options, Inc. commenced August 1, 1993
(c) Contract with AlohaCare, Inc. commenced August 1, 1994.
(d) Inclusive of predecessor corporation, Florida Psychiatric Management,
Inc., for period not owned by the Company.
(e) Contract with The Health Plan of The Upper Ohio Valley, commenced
January 1, 1995.
RMCI's revenues also are directly dependent upon the ability of each of
its customers to pay RMCI on a timely basis. To the extent that any customer
experiences financial difficulty or is otherwise unable to meet its obligations
as they become due, RMCI's financial condition and results of operations could
be materially adversely affected. To date, the Company's customers have
generally paid the Company on a timely basis.
Sales and Marketing
The senior management team of RMCI and the regional executives of each
of its operating subsidiaries are responsible for marketing and sales.
Typically, the Company markets its services to the potential customer's senior
operating and marketing staff, medical director or health care managers.
Marketing of FPM's services is provided at both a regional and national
level. FPM's regional offices employ marketing personnel to interface with
existing and potential customers in the immediate area, and surrounding
networks. FPM's offices in Florida employ a national marketing team which both
coordinates the regional marketing efforts and directs national marketing
strategies.
FPM focuses its marketing and sales efforts primarily on insurance
carriers, nonprofit health care corporations, HMOs, government employee groups
and self-insured employers. FPM has also targeted employee benefit consulting
firms that represent employers and groups of employers in the selection and
purchase of managed mental health care benefit programs.
Management Information Systems
The Company's managed care operations use integrated information
systems developed and/or customized specifically to meet the Company's needs and
to allow for aggregation of data and comparison across markets. These
information systems support marketing, sales, underwriting, contract
administration, billing, financial and other administrative functions, as well
as customer service, appointment scheduling, authorization and referral
management, concurrent review, physician capitation,
5
claims administration, provider management. An important element of the
Company's information systems is the decision support database which is used by
marketing and corporate personnel for such items as provider profiling, quality
assessment, member satisfaction measurement, employer reporting, and utilization
review among others.
The Company's information systems are continually being upgraded to
incorporate new products and to take advantage of the latest advances in
technology.
Government Regulation
As a managed health care services company and a health care provider,
RMCI is currently subject to extensive and frequently changing government
regulations. These regulations are primarily concerned with licensure, conduct
of operations, financial solvency, standards of medical care provided, the
dispensing of drugs, the confidentiality of medical records of patients, and the
direct employment of psychiatrists, psychologists, and other licensed
professionals by business corporations. The various types of regulatory activity
affect RMCI's business either by controlling its operations, restricting
licensure of the business entity or by controlling the reimbursement for
services provided. Generally, regulatory agencies have broad discretionary
powers when granting, renewing or revoking licenses or granting approvals. In
addition, the time necessary to obtain licenses varies from state to state. In
certain cases, more than one regulatory agency in each jurisdiction may assert
that it has authority over the activities of the Company. State licensing laws
and other regulations are subject to amendment and to interpretation by
regulatory agencies with broad discretionary powers. Any such licensure and/or
regulation could require RMCI to modify its operations materially in order to
comply with applicable regulatory requirements and may have a material adverse
effect on the Company's business, financial condition or results of operations.
To the extent that RMCI operates or is deemed to operate in one or more
states as a prepaid limited health service organization, insurance company, HMO,
prepaid health plan, or other similar entity, it will be required to comply with
certain statutes and regulations that, among other things, may require it to
maintain minimum levels of deposits, capital, surplus, reserves or net worth,
and also may limit the ability of the Company and its subsidiaries to pay
dividends, make certain investments, and repay certain indebtedness. The
imposition of any such requirements will significantly increase the Company's
costs of doing business. Failure by RMCI to obtain or maintain required licenses
typically also constitutes an event of default under RMCI's contracts with its
customers. The loss of business from one or more of RMCI's major customers as a
result of such an event of default or otherwise could have a material adverse
effect on RMCI's business, financial condition or results of operations.
Several of the states in which FPM conducts its business have enacted
legislation requiring organizations engaged in utilization review to register
and to meet certain operating standards. Utilization review regulations
typically impose requirements with respect to qualifications of personnel,
appeal procedures, confidentiality and other matters relating to utilization
review services. FPM is registered in Arizona, Florida, Louisiana, Missouri,
North Carolina, Oklahoma, South Carolina, and Texas for such services. FPM has
been able to comply with the applicable legislation without significant expense
to date. FPM may be required to comply with similar statutes if other states in
which it conducts its business impose such requirements.
6
Many states in which FPM does business have adopted statutes to
regulate third-party health claims administrators, which may include aspects of
the Company's business. These statutes typically impose requirements with
respect to the financial solvency and operation of the administrator. FPM has
obtained a certificate of authority as an administrator in Ohio and Texas. The
Company may be required to comply with similar statutes in other states in which
it conducts business.
Florida enacted a prepaid limited health service organization statute
in 1993. This statute provides for the regulation of limited service prepaid
health plans in a manner similar to the regulation of an HMO. FPM has obtained a
written determination from the staff of the Florida Department of Insurance that
it is not subject to regulation under this statute, but there can be no
assurance that the Florida Department of Insurance will not take a contrary
position in the future. The West Virginia Department of Insurance has issued
administrative rules regulating the financial solvency and operation of entities
that contract with HMOs to provide health services to HMO members on a prepaid
basis using a network of independent providers. FPM's HMO customer in West
Virginia has requested the West Virginia Department of Insurance to grant an
exemption for FPM from the working capital and segregated fund requirements of
these rules. However, there is no assurance this request will be granted and
there can be no assurance that such rules will not have a material adverse
effect upon the Company's business, financial condition or results of
operations.
Several of the states in which FPM operates regulate preferred provider
organizations ("PPO's"). Generally, FPM is exempt from PPO regulations but, as
required by North Carolina law, FPM has obtained a certificate of registration
as a PPO in North Carolina. FPM may be required to comply with similar statutes
in other states.
Certain of the Company's services are subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA
governs certain aspects of the relationship between employer-sponsored health
benefit plans and certain providers of services to such plans through a series
of complex statutes and regulations that are subject to periodic interpretation
by the Internal Revenue Service and the United States Department of Labor. In
general, these regulations impose, among other things, an obligation on FPM to
act as a fiduciary with respect to some of the health benefit plans it provides
services to. However, there is little direct authority governing the application
of ERISA to many of the activities and arrangements of managed mental health
care and substance abuse treatment companies such as those operated by FPM.
RMCI is also affected directly by regulations imposed upon health care
providers and indirectly by regulations imposed upon the Company's customers.
Regulations imposed upon health care providers include provisions relating to
the conduct of and ethics in the practice of psychiatry, psychology, social work
and related mental health care professions, and, in certain cases, the common
law duty to warn others of danger or to prevent patient self-injury. In
addition, there are federal and state laws that require providers of mental
health or substance abuse treatment services to maintain the confidentiality of
treatment records and information with respect to such patients. These laws
generally specify the conditions under which patient-specific information may be
disclosed, and may be enforced through the imposition of criminal fines and
other penalties. Regulations imposed upon RMCI's customers include, among other
things, benefits mandated by statute, exclusions from coverage prohibited by
statute, procedures governing the payment and processing of claims, record
keeping and reporting requirements, requirements for and payment rates
applicable to coverage of Medicare and Medicaid beneficiaries,
7
provider contracting and enrollee rights, and confidentiality requirements. Any
such direct and indirect regulation could have a material adverse effect on
RMCI's business, financial condition or results of operation.
In certain states, the employment of psychiatrists, psychologists and
certain other mental health care professionals by business corporations, such as
FPM, is a permissible practice. However, other states have legislation or
regulations or have interpreted existing medical practice licensing laws to
restrict business corporations from providing mental health services or from the
direct employment of psychiatrists and, in a few states, psychologists and other
mental health care professionals. For example, various state boards of medical
examiners have regulations which prohibit psychiatrists, and in a few cases,
psychologists, from being employed by business corporations and only permit
employment by professional corporations. These statutes vary from state to
state, are often vague and have seldom been recently interpreted by the courts
or regulatory agencies. Although FPM exercises care in an effort to structure
its arrangements with health care providers to comply with the relevant state
statutes, and although management believes that the Company is in compliance
with these laws, there can be no assurance that (i) governmental officials
charged with responsibility for enforcing these laws will not assert that the
Company or certain transactions in which it is involved are in violation of such
laws, (ii) such state laws will ultimately be interpreted by the courts in a
manner inconsistent with the practices of the Company or (iii) evolving
interpretations of such state laws or the adoption of other state laws or
regulations will not make it necessary for the Company to restructure certain of
its arrangements.
Federal and some state laws impose restrictions on physicians', and, in
a few states, on psychologists' and other mental health care professionals',
referrals for certain designated health services to entities with which they
have financial relationships. The Company believes its operations are structured
to comply with these restrictions to the extent applicable. However, there are
efforts to expand the scope of those referral restrictions at both the federal
and state level. Certain states are considering adopting similar restrictions or
expanding the scope of existing restrictions. There can be no assurance that the
federal government or other states in which the Company operates will not enact
similar or more restrictive legislation or restrictions that could under certain
circumstances impact the Company's operations.
FPM provides clinical services in its behavioral health programs to
some patients who are beneficiaries of the federal Medicare and Medicaid
programs. The compensation received by FPM for such services is established by
fee schedules and other similar cost containment measures. There can be no
assurance that future legislation will not adversely effect FPM's compensation
for services provided by FPM to Medicare and Medicaid beneficiaries. At present,
the revenues received by FPM under the Medicare and Medicaid programs are not
material.
The Social Security Act imposes criminal and civil penalties upon
persons who make or receive kickbacks, bribes or rebates in connection with the
Medicare or Medicaid programs. These antifraud and abuse rules prohibit
providers and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration in return for either making a referral for Medicare
or Medicaid covered services or items or ordering any covered services or items.
Upon conviction, violations of these rules may be punished by fine of up to
$25,000 or imprisonment for up to five years, or both. In addition, the Medicare
and Medicaid Patient and Program Protection Act of 1987 imposes civil sanctions
for violation of these prohibitions, punishable by exclusion from the Medicare
and Medicaid program; such exclusion,
8
if applied to FPM's operations, could result in significant loss of
reimbursement. In order to provide guidance with respect to the anti-fraud and
abuse rules, the Office of the Inspector General of the Department of Health and
Human Services has issued regulations outlining certain "safe harbor" practices,
which although potentially capable of including prohibited referrals, would not
be prohibited if all applicable requirements are met. A relationship which fails
to satisfy a safe harbor is not necessarily illegal, but could be scrutinized
under a case-by-case analysis. Since the anti-fraud and abuse laws have been
broadly interpreted, they limit the manner in which the Company can acquire
professional practices and market its services to, and contract for services
with, psychiatrists, psychologists, and other mental health care professionals.
Management considers and seeks to comply with these regulations in planning its
activities, and believes that its activities, even if not within a safe harbor,
do not violate the anti-fraud and abuse statute. However, no assurance can be
given regarding compliance in any particular factual situation, as there is no
procedure for advisory opinions from government officials.
In connection with the Company's entry into HMO businesses in the
southeastern United States, RMCI, through its subsidiary Apex, has obtained
licenses from the Louisiana Department of Insurance, the Mississippi Department
of Insurance and the Alabama Department of Insurance to operate HMOs in
Louisiana, Mississippi and Alabama respectively. The operation of HMO's in the
foregoing states subjects RMCI and its subsidiaries to extensive state and
federal regulation of both their operations and structure. In addition,
applicable state and local laws regulate the scope of benefits provided to the
Company's HMO members, the Company's quality assurance and utilization review
procedures, enrollment requirements and member grievance procedures, the form
and provisions of provider contracts and the Company's marketing and advertising
efforts. Furthermore, the Company's operation of HMOs requires it to file
periodic reports with, and subject itself to review by, federal and state
governmental authorities. Any changes in or additions to the current statutes
and regulations governing its HMO businesses could adversely affect RMCI's
business, financial condition or results of operations.
The Company believes that it is currently in compliance in all material
respects with applicable current statutes and regulations governing its
business. The Company monitors its compliance with applicable statutes and
regulations and works with regulators concerning various compliance issues that
arise from time to time. Notwithstanding the foregoing, the regulatory approach
to the managed health care services industry is evolving and there can be no
assurance that a regulatory agency will not take the position, under existing or
future statutes or regulations, or as a result of a change in the manner in
which existing statutes or regulations are or may be interpreted or applied,
that the conduct of all or a portion of the Company's operation within a given
jurisdiction is or will be subject to further licensure and/or regulation.
Expansion of the Company's businesses to cover additional geographic areas or to
different types of customers could also subject it to additional licensure
and/or regulatory requirements.
Acquisitions
Florida Psychiatric Management, Inc. The Company acquired all of the
capital stock of Florida Psychiatric Management, Inc. on October 29, 1993. This
acquisition marked the entry of RMCI into the direct provision of managed mental
health care services. Florida Psychiatric Management, Inc. is headquartered in
Orlando, Florida. Florida Psychiatric Management, Inc. was founded, and the
Company is continuing its operation, based on the concept that clinically
oriented managed care can control costs and curb reimbursement abuses while
assuring that each patient receives the most appropriate level of treatment in a
quality manner. The consideration for the acquisition was a combination of
9
$4,000,000 in cash, $2,500,000 of debentures and a contingent earn-out payment
based on the attainment of certain earnings and revenue levels over the ensuing
two years. At June 30, 1995 all parties agreed to an additional payment of
$450,000, which was paid on October 31, 1995 and cancellation of the earn-out
provision. In connection with this acquisition, the Company recorded cost in
excess of net asset value of purchased businesses and other intangible assets of
approximately $4,900,000 and $3,100,000, respectively.
Florida Psychiatric Associates, Inc. As of June 1, 1994, RMCI acquired
all of the capital stock of Florida Psychiatric Associates, Inc. ("FPA"), a
physician practice group located in Orlando, Florida for $50,000 in cash. In
connection with the acquisition, RMCI entered into employment agreements with
each of the seller-physicians for two to four year periods. Prior to its
acquisition by RMCI, FPA was the largest network contract provider for RMCI in
the State of Florida.
FPMBH of Arizona, Inc. The assets of FPMBH of Arizona, Inc. ("FPMBH";
f/k/a Human Dynamics Institute), a former managed mental health care services
division of Phoenix South Community Mental Health Services, Inc., were acquired
by a wholly owned subsidiary of RMCI on June 30, 1994. FPMBH now serves as the
Company's regional office in Arizona and provides managed mental health care
services through its contract provider networks in Arizona, Nevada, New Mexico,
Oregon, Idaho, Texas, Utah and Washington. FPMBH's managed care customers are
primarily health maintenance organizations and insurance companies. The
consideration for the acquisition was a combination of $1,000,000 in cash, a
$1,000,000 promissory note, 86,425 shares of RMCI Common Stock and a contingent
earn-out payment based upon the attainment of certain revenue levels over the
ensuing two years. The earn-out payment of $425,789 is payable on or before
October 31, 1996. In connection with this acquisition, the Company recorded cost
in excess of net asset value of purchased businesses totaling approximately
$3,000,000. In June 1996, the Company recognized a goodwill impairment charge of
$1,929,000 related to the goodwill associated with this acquisition. See "Item
6. Management's Discussion and Analysis of Financial Condition and Results of
Operations." and "Item 7. Financial Statements."
Employees
As at June 30, 1996, the Company had 165 full time equivalent
employees. The Company believes that its relationship with its employees is
good.
Item 2. Description of Properties
The Company's headquarters in New Orleans are leased from RHCI on
commercially reasonable terms under a lease expiring in April, 1999. In August
1996, the Company announced plans to relocate its headquarters to Coral Gables,
Florida. This relocation is expected to be completed during fiscal 1997. The
Company's offices in Orlando, Florida and several Company-operated clinics are
leased from partnerships of which Martin Lazoritz, an Executive Vice President,
and other employees of the Company are partners under leases expiring from
September 1996 to August 2003. In addition, the
10
Company leases other office space and clinics in various cities in the United
States which expire from September 1996 to April 1999. The Company does not
anticipate that it will experience any difficulty in renewing these leases upon
their expiration or obtaining different space on comparable terms if these
leases are not renewed. The Company believes that these facilities are well
maintained and are of adequate size for present needs. However, expansion of the
Company's operations will require obtaining additional space which the Company
believes will be available on commercially reasonable terms.
Item 3. Legal Proceedings.
From time to time, the Company is party to certain claims, suits and
complaints, whether arising from the acts or omissions of its employees,
providers or others which arise in the ordinary course of business. As both the
number of people serviced by the Company's programs and the number of providers
under contract with the Company increase, the probability of the Company being
subject to legal liability predicated on claims alleging malpractice or related
legal theories also increases. Currently, there are no such claims, suits or
complaints pending which, in the opinion of management, would have a material
adverse effect on the Company's business, financial condition, results of
operation or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Part II
Item 5. Market For the Registrant's Common Equity and Related Stockholder
Matters.
The following table sets forth the range of high and low closing sales
prices per share of the Common Stock since April 24 , 1995, the date of the
Distribution on a pro-rata basis in the form of a dividend by RHCI of all of the
shares of Common Stock of the Company held by RHCI on April 24, 1995 to the
holders of record on April 21, 1995 of (i) RHCI's common stock, $0.01 par value,
(ii) RHCI's Class A Convertible Preferred Stock, par value $1.00 per share and
(iii) RHCI's Class B Convertible Preferred Stock, Series C, par value $1.00 per
share, as reported on the OTC Bulletin Board:
Common Stock Prices
-------------------
High Low
---- ---
Year ended June 30, 1995
Quarter ended June 30, 1995
(From April 24, 1995) $ 4.678 $ 2.020
Year ended June 30, 1996
Quarter ended September 30, 1995 $ 4.125 $ 2.25
Quarter ended December 31, 1995 3.00 1.625
Quarter ended March 31, 1995 3.3125 2.00
Quarter ended June 30, 1996 2.50 1.6875
11
The price quotations listed above reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
On September 13, 1996, the closing sales price of the Company's Common
Stock was $0.5625 per share and there were approximately 620 record holders of
the Common Stock.
No dividends have been declared on the Common Stock since the Company
was organized.
The Company's HMO operation is required to maintain a minimum level of
statutory equity by each state in which it operates an HMO. At June 30, 1996,
the Company was required to maintain statutory equity of $1,800,000. In
addition, under the Credit Facility (defined below), FPM is required to maintain
a minimum stockholder's equity of $850,000 plus 75% of its net income subsequent
to June 30, 1996. At June 30, 1996, FPM's minimum stockholders' equity was less
than the requirement. The Bank (defined below) waived this requirement for the
year ended June 30, 1996.
12
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth selected consolidated financial
information for the period shown and is qualified by reference to, and
should be read in conjunction with, the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Annual Report on Form 10-KSB.
Year ended June 30
Summary of Operating Data: 1996 1995
Revenues:
Managed care revenue $ 19,430,000 $ 14,898,000
Clinical fee for service and other revenue 2,172,000 1,247,000
------------ -----------
Total revenues 21,602,000 16,145,000
Operating expenses:
Contracted provider services 8,088,000 5,149,000
Salaries, wages and benefits 8,743,000 6,882,000
Management fees charged by related companies 406,000 284,000
General and administrative expenses 5,846,000 3,215,000
Goodwill write-down 1,929,000 -
Depreciation and amortization 1,323,000 1,244,000
Interest 685,000 334,000
Listing and stock distribution expenses - 724,000
------------ -----------
Total operating expenses 27,020,000 17,832,000
------------ -----------
Loss from continuing operations (5,418,000) (1,687,000)
Income tax benefit - (192,000)
------------ -----------
Loss from continuing operations (5,418,000) (1,495,000)
Discontinued operation:
Loss from operations of discontinued HMO operation (3,149,000) (76,000)
Loss on disposal of HMO operation (4,927,000) -
------------ -----------
Net loss $(13,494,000) $(1,571,000)
============ ===========
Loss per common share from continuing operations ($0.85) ($0.39)
Loss per common share from discontinued operation ($1.27) ($0.02)
------------ -----------
Loss per common share ($2.12) ($0.41)
------------ -----------
Weighted average number of shares outstanding (a) 6,378,000 3,789,000
============ ===========
Balance Sheet Data As at June 30, 1996 (b)
Cash and cash equivalents $ 228,000
Working Capital (deficit) (9,070,000)
Total assets 14,099,000
Long term obligations 9,639,000
Stockholders' equity (deficit) (7,847,000)
(a) The per shares of RMCI Common Stock used in the net loss per share
computation is based on the number of weighted average shares
outstanding for the respective periods.
(b) Includes $2,027,000 of net assets used in discontinued operation.
13
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, claims processing to fully capitated (at risk) mental
health care treatment.
At June 30, 1996, the Company operates in 13 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.
During the year, the Company applied for and received a license to
operate a health maintenance organization in the state of Alabama. During the
year, the Company also conducted HMO operations in the states of Louisiana and
Mississippi. In June 1996, the Company adopted a formal plan for the sale of
its' HMO operation during fiscal 1997 and recorded a loss on a discontinued
operation of $4.9 million.
In connection with the "safe harbor" provision of the Private
Securities Litigation Reform Act of 1995, the Company notes that this Annual
Report on Form 10-KSB 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 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 from 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 will
be achieved.
RESULTS OF OPERATIONS
The Company began earning HMO revenue in June 1995. For the year ended
June 30, 1996, these revenues accounted for approximately 6.0% of the Company's
revenues. During the year ended June 30, 1996, the Company adopted plans to
discontinue the operations comprising its HMO business. These operations were
recorded as a discontinued operation at June 30 1996. Accordingly, the following
discussion of operations pertains entirely to the Company's behavioral health
services and related corporate activities during the year ended June 30, 1996.
The following table sets forth, for the periods indicated, certain
items of the Company's consolidated statements of income as a percentage of the
Company's net revenues.
14
Percentage of Total Revenues
Year Ended June 30
1996 1995
Total revenues................................................... 100.0 % 100.0%
----- -----
Operating expenses:
Contracted provider services................................... 37.4% 31.9%
Salaries, wages and benefits................................... 40.5% 42.6%
Management fees charged by related companies................... 1.9% 1.8%
General and administrative expenses............................ 27.1% 19.9%
Goodwill write-down............................................ 8.9% 0%
Depreciation and amortization.................................. 6.1% 7.7%
Interest expense............................................... 3.2% 2.1%
Listing and stock distribution costs........................... 0% 4.5%
------ ------
125.1% 110.5%
------ ------
Loss from continuing operations before income taxes............ (25.1%) (10.5%)
Discontinued operations:
Loss from operations of discontinued HMO operation............. (14.6%) 0%
Loss on disposal of HMO operation.............................. (22.8%) 0%
Net loss before income taxes................................... (62.5%) (10.5%)
Year Ended June 30, 1996
Compared to Year Ended June 30, 1995
Net revenues from continuing operations for fiscal 1996, were $21.6
million compared to $16.1 million in fiscal 1995. The revenue increase is mainly
due to a full year of operations of The Health Plan of The Upper Ohio Valley
contract in West Virginia and a number of new managed care contracts entered
into during the year, including John Alden in Ohio and Prucare in North
Carolina.
Contracted provider services increased to $8.1 million in fiscal 1996
compared to $5.1 million in fiscal 1995 as a result of the increased number of
members whose care is managed by the Company. The percentage of net revenues
represented increased from 31.9% in fiscal 1995 to 37.4% in fiscal 1996.
Salaries, wages and benefits expense increased from $6.9 million in
fiscal 1995 to $8.7 million in the year ended June 30, 1996, primarily as a
result of the growth in revenues and continued expansion of the operations of
the Company in various regions, including Florida, Arizona, Hawaii and West
Virginia.
General and administrative operating expenses, including management
fees charged by a related company, increased from $3.5 million in fiscal 1995 to
$6.3 million in fiscal 1996 as a result of the expansion of the operations of
the Company into existing markets and targeted new markets.
Depreciation and amortization expense increased from $1.2 million to
$1.3 million mainly as a result of the amortization of goodwill associated with
the acquisition of Florida Psychiatric Management, Inc. and FPMBH of Arizona,
Inc.
Interest expense increased from $334,000 in fiscal 1995 to $685,000 in
fiscal 1996 primarily as a result of financing charges related to the
acquisition of businesses previously described.
The Company incurred a loss before taxes from continuing operations of
$5.42 million for the reasons discussed above and as a result of a goodwill
impairment charge of $1,929,000 related to the goodwill associated with the HDI
acquisition. At the time of the acquisition, HDI had contracts with five major
vendors and the possibility of obtaining an
15
additional major contract. During 1996, HDI lost four of its existing contracts
and was not awarded the new major contract. Consequently, the Company wrote-off
the goodwill attributed to these contracts. The amount of the impairment was
determined based on the relative cash flows generated by each of the contracts
lost.
In June 1996, the Company adopted a plan to sell its HMO operation,
accordingly, the Company's HMO operation has been accounted for as a
discontinued operation. The Company has recorded a loss on this discontinued
operation of $4.9 million (including provision of $1.83 million for operating
losses during phaseout period).
LIQUIDITY AND CAPITAL RESOURCES
In connection with 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 RMCI 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 RMCI to RHCI
representing certain advances made by RHCI to or on behalf of RMCI (the
"Subordinated Promissory Note") which are governed by the terms thereof). As of
June 30, 1996, RMCI owed RHCI approximately $1.8 million in relation to these
items, and in addition, accrued interest on the Subordinated Promissory Note of
$360.000. See the discussion below under "Indebtedness" concerning RHCI's
agreement not to require repayment of net cash advances and such accrued
interest on the Subordinated Promissory Note until after July 1997.
During fiscal 1996, the Company used net cash of $2.1 million in its
continuing operations. These funds were primarily provided by advances from
affiliates. The Company anticipates that its sources of liquidity during 1997
primarily will be its cash flow from continuing operations, funds anticipated to
be received from the disposition of Apex, and the proceeds from a $3 million
private placement of preferred stock discussed 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 health care 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 $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 by 36 months of level principal payments of $2,777.70
plus interest. At June 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)
16
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%.
As part of the acquisition of FPM in October 1993, the Company issued
7% three year debentures, totalling $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 25% 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. The 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 RMCI's
subsidiaries and the assets of RMCI's subsidiaries.
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.
Indebtedness. In connection with RMCI'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 RMCI's acquisition of the assets of HDI, through a
wholly owned subsidiary FPMBH of Arizona, Inc., RMCI 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 spin-off of RMCI from RHCI, RMCI
issued to RHCI a 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 evidence by the Subordinated Promissory Note
were recorded as intercompany indebtedness between RMCI and RHCI. Interest
accrues on the Subordinated Promissory Note at an annual fixed rate of 8%,
payable in quarterly payments in arrears commencing June 30, 1995. The
Subordinated Promissory Note is payable as to interest only through September
30, 1996, and commencing on September 30, 1996 principal and interest will be
payable in equal quarterly installments in arrears for a four-year period with
the final payment due on September 30, 2000.
17
The Subordinated Promissory Note is unsecured and is subordinated and
junior in right of payment to all indebtedness of RMCI 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 RMCI 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 RMCI commenced negotiations to restructure
the payment terms associated with the net cash advances from RHCI totaling
$1,851,000 as at June 30, 1996, the interest due on the Subordinated Promissory
Note for the year ended June 30, 1997 and the $360,000 of interest accrued on
the Subordinated Promissory Note from October 1995 to June 30, 1996. RHCI has
agreed not to require repayment of the interest on the $6,000,000 Subordinated
Promissory Note or the net cash advances until after July 1997.
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 RMCI, Paul Ramsay Hospitals Pty.
Limited ("Ramsay Hospitals") agreed to loan RMCI up to $3,000,000 for working
capital and general corporate purposes. On June 28, 1996, RMCI 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, RMCI 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 describe below, the First Hospitals Note and
the Second Hospitals Note were repaid and cancelled.
On September 10, 1996, RMCI 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, RMCI 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, a corporate affiliate of Paul Ramsay formalized its
agreement to provide an additional loan facility, if required, of up to
$2,000,000 to RMCI for working capital and general corporate purposes.
See also "Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters" above.
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, the Company has made no arrangements to obtain any additional
18
debt financing, and there can be no assurance that RMCI will be able to obtain
any required additional funds.
Item 7. Financial Statements.
Financial statements of the Company and its consolidated subsidiaries
are set forth herein.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information required by this Item with respect to directors and
executive officers will be contained in the Company's definitive Proxy Statement
("the Proxy Statement") for its 1996 Annual Meeting of Stockholders to be held
on November 21, 1996 and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days subsequent to June 30, 1996.
Item 10. Executive Compensation
The information required with respect to this Item will be contained
in the Proxy Statement, and such information is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required with respect to this Item will be contained
in the Proxy Statement, and such information is incorporated herein by
reference.
Item 12. Certain Relationships and Related Transactions.
The information required with respect to this Item will be contained
in the Proxy Statement, and such information is incorporated herein by
reference.
Part IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
19
Information with respect to this Item regarding Exhibits
required to be filed pursuant to Item 601 of Regulation SB is
contained in the attached Index to Exhibits, which Exhibits are
incorporated herein by reference. Exhibits 10.2, 10.3, 10.8, 10.9,
10.10, 10.11 and 10.36 are the management contracts and compensatory
plans and arrangements required to be filed as part of this Annual
Report on Form 10-KSB.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company for the
quarter ended June 30, 1996.
20
Power of Attorney
The registrant, and each person whose signature appears below, hereby
appoints Warwick D. Syphers and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto fully authorized.
Dated: September 30, 1996
RAMSAY MANAGED CARE, INC.
By: /s/ Luis E. Lamela
--------------------------------
Luis E. Lamela
Vice-Chairman
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated .
Date Signature/Title
- ---- ---------------
Dated: September 30, 1996
By: /s/ Paul J. Ramsay
---------------------------
Paul J. Ramsay
Chairman of the Board
and Director
Dated: September 30, 1996
By: /s/ Luis E. Lamela
---------------------------
Luis E. Lamela
Vice-Chairman
21
Date Signature/Title
- ---- ---------------
Dated: September 30, 1996
By: /s/ Warwick D. Syphers
------------------------------
Warwick D. Syphers
Executive Vice President, and
Principal Financial and
Accounting Officer
Dated:
By:
------------------------------
Aaron Beam, Jr.
Director
Dated: September 30, 1996
By: /s/ Peter J. Evans
------------------------------
Peter J. Evans
Director
Dated: September 30, 1996
By: /s/ Thomas M. Haythe
------------------------------
Thomas M. Haythe
Director
Dated:
By:
------------------------------
Moises E. Hernandez
Director
Dated: September 30, 1996
By: /s/ Michael S. Siddle
------------------------------
Michael S. Siddle
Director
22
Consolidated Financial Statements
Ramsay Managed Care, Inc.
and Subsidiaries
For the year ended June 30, 1996
with Report of Independent Auditors
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Financial Statements
For the period ended June 30, 1996
Contents
Report of Independent Auditors............................. 1
Consolidated Balance Sheet................................. 2
Consolidated Statements of Operations...................... 4
Consolidated Statements of Stockholders' Equity (Deficit).. 5
Consolidated Statements of Cash Flows...................... 6
Notes to Consolidated Financial Statements................. 8
Report of Independent Auditors
The Board of Directors and Stockholders
Ramsay Managed Care, Inc.
We have audited the accompanying consolidated balance sheet of Ramsay Managed
Care, Inc. and subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the two years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ramsay
Managed Care, Inc. and subsidiaries at June 30, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Orlando, Florida
August 28, 1996
1
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Balance Sheet
June 30, 1996
Assets
Current assets:
Cash and cash equivalents $ 228,000
Accounts receivable, less allowance
for doubtful accounts of $334,000 846,000
Prepaid expenses 382,000
Other current assets 37,000
Current assets of discontinued operation 1,744,000
-------------
Total current assets 3,237,000
Other assets:
Goodwill and other intangible assets 8,152,000
Other noncurrent assets 60,000
Other assets of discontinued operation 1,862,000
-------------
Total other assets 10,074,000
Property and equipment:
Building and improvements 128,000
Equipment, furniture and fixtures 1,830,000
-------------
1,958,000
Less accumulated depreciation 1,170,000
-------------
788,000
Total assets $14,099,000
=============
2
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable $ 1,397,000
Accrued salaries and wages 641,000
Hospital and medical claims payable 1,667,000
Other current liabilities 959,000
Line of credit and note payable 1,900,000
Current portion of long-term debt 2,334,000
Current liabilities of discontinued operation 1,579,000
Reserve for operating loss from discontinued operation 1,830,000
-------------
Total current liabilities 12,307,000
Due to affiliate 1,851,000
Advances from affiliate 1,600,000
Deferred income taxes 986,000
Long-term debt, less current portion 5,202,000
Stockholders' deficit:
Common stock, $.01 par value:
Authorized shares-20,000,000;
Issued shares-6,397,304 64,000
Additional paid-in capital 7,095,000
Accumulated deficit (15,006,000)
-------------
Total stockholders' deficit (7,847,000)
-------------
Total liabilities and stockholders' deficit $ 14,099,000
=============
See accompanying notes.
3
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended June 30
1996 1995
----------------------------
Revenues:
Managed care revenue $ 19,430,000 $14,898,000
Clinical fee for service and other revenue 2,172,000 1,247,000
----------------------------
Total revenues 21,602,000 16,145,000
Operating expenses:
Contracted provider services 8,088,000 5,149,000
Salaries, wages and benefits 8,743,000 6,882,000
Management fees charged by related companies 406,000 284,000
General and administrative expenses 5,846,000 3,215,000
Goodwill write-down 1,929,000 -
Depreciation and amortization 1,323,000 1,244,000
Interest 685,000 334,000
Listing and stock distribution expenses - 724,000
----------------------------
Total operating expenses 27,020,000 17,832,000
----------------------------
Loss from continuing operations before income taxes (5,418,000) (1,687,000
Income tax benefit - (192,000)
----------------------------
Loss from continuing operations (5,418,000) (1,495,000)
Discontinued operation:
Loss from operations of discontinued HMO operation (3,149,000) (76,000)
Loss on disposal of HMO operation,
including provision of $1,830,000
for operating losses during phaseout period (4,927,000) -
----------------------------
Loss from discontinued operation (8,076,000) (76,000)
----------------------------
Net loss $(13,494,000) $(1,571,000)
============================
Loss per common share from continuing operations $ (.85) $ (0.39)
Loss per common share from discontinued operation (1.27) (0.02)
----------------------------
Loss per common share $ (2.12) $ (0.41)
============================
Weighted average number of shares outstanding 6,378,000 3,789,000
See accompanying notes.
4
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Class A Additional Total
Convertible Paid-In Note Retained Earnings Stockholders'
Preferred Stock Common Stock Capital Receivable (Deficit) Equity (Deficit)
Balance at July 1, 1994 $ 1,000 $21,000 $1,104,000 $ - $ 68,000 $ 1,194,000
Dividend paid on 71,092
shares of Class A
convertible preferred stock - - - - (9,000) (9,000)
Conversion of 71,092
shares of Class A
convertible preferred stock (1,000) 4,000 (3,000) - - -
Issuance of 1,500,000 shares of
common stock to Paul Ramsay
Hospitals Pty.
Limited, net of
expenses of $281,000 - 15,000 2,704,000 - - 2,719,000
Issuance of 160,000
shares of common stock
to three officers of the
Company, net of
expenses of $19,000 - 2,000 299,000 (148,000) - 153,000
Issuance of 1,250,000 shares of
common stock to Paul Ramsay
Hospitals Pty. Limited, net
of expenses of $225,000 - 12,000 2,263,000 - - 2,275,000
Issuance of 960,913 shares of
common stock in relation to
fully subscribed Rights Issue,
net of expenses of $886,000 - 10,000 1,026,000 (213,000) - 823,000
Net loss - - - - (1,571,000) (1,571,000)
---------------------------------------------------------------------------------------------------
Balance at June 30, 1995 - 64,000 7,393,000 (361,000) (1,512,000) 5,584,000
Issuance of 20,563 shares of
common stock to RMCI employee
stock purchase plan - - 32,000 - - 32,000
Exercise of options - - 12,000 - - 12,000
Payment of note receivable - - - 19,000 - 19,000
Allowance for uncollectible
note receivable - - (342,000) 342,000 - -
Net loss - - - - (13,494,000) (13,494,000)
-------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ - $64,000 $7,095,000 $ - $(15,006,000) $ (7,847,000)
=================================================================================================
5
See accompanying notes.
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30
1996 1995
---------------------------
Cash flows from continuing operating activities
Net loss from continuing operations $(5,418,000) $(1,495,000)
Adjustments to reconcile net loss from
continuing operations to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,323,000 $ 1,244,000
Loss on disposal of property and equipment 23,000 24,000
Goodwill write-down 1,929,000 -
Write-down of deferred costs 364,000 -
Other - 19,000
Cash flows from (increase) decrease in
operating assets:
Accounts receivable, net 79,000 (554,000)
Prepaid expenses (315,000) (37,000)
Other current assets 679,000 (461,000)
Cash flows from increase (decrease)
in operating liabilities:
Accounts payable (921,000) 1,992,000
Accrued salaries, wages and other liabilities (136,000) (95,000)
Hospital and medical claims payable 777,000 536,000
Due to related party (1,441,000) 1,441,000
Other current liabilities 959,000 -
---------------------------
Total adjustments 3,320,000 4,109,000
---------------------------
Net cash (used in) provided by
continuing operating activities (2,098,000) 2,614,000
Cash flows from discontinued operation
Net loss from discontinued operation (8,076,000) (76,000)
Adjustments to reconcile net loss from
discontinued operation to net cash
used in discontinued operation:
Loss on disposition of discontinued operation 4,927,000 -
Depreciation and amortization 724,000 -
(Increase) in current assets of
discontinued operation (836,000) (907,000)
Increase in other assets of
discontinued operation (2,765,000) (2,930,000)
Increase in current liabilities of
discontinued operation 1,361,000 218,000
---------------------------
Total adjustments 3,411,000 (3,619,000)
---------------------------
Net cash used in discontinued operation (4,665,000) (3,695,000)
6
Ramsay Managed Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended June 30
1996 1995
--------------------------
Cash flows from investing activities
Expenditures for property and equipment (250,000) (610,000)
Sale of interest in partnerships - 325,000
Acquisitions of businesses, net of cash acquired (426,000) (450,000)
Goodwill, preopening and development costs (300,000) (466,000)
Other noncurrent assets 220,000 -
--------------------------
Net cash used in investing activities (756,000) (1,201,000)
Cash flows from financing activities
Advances from affiliate 3,451,000 119,000
Payment on debt (985,000) (2,728,000)
Issuance of common stock, net 63,000 5,970,000
Loan costs related to refinancing - (243,000)
Issuance of debt 1,723,000 1,845,000
Other - 51,000
---------------------------
Net cash provided by financing activities 4,252,000 5,014,000
---------------------------
Net (decrease) increase in cash and
cash equivalents (3,267,000) 2,732,000
Cash and cash equivalents at
beginning of period 3,495,000 763,000
---------------------------
Cash and cash equivalents at end of period $ 228,000 $ 3,495,000
===========================
Supplemental disclosures
Cash paid during the year for:
Interest $ 400,000 $ 222,000
===========================
Income taxes $ 41,000 $ 129,000
===========================
See accompanying notes.
7
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996
1. Summary of Significant Accounting Policies
Basis of Presentation
Ramsay Managed Care, Inc. (RMCI) was incorporated on July 21, 1993; however,
substantial operations did not commence until October 29, 1993 when RMCI
acquired the stock of Florida Psychiatric Management, Inc. (see Note 3). Prior
to April 24, 1995, RMCI was a wholly-owned subsidiary of Ramsay Health Care,
Inc. (RHCI). On April 24, 1995, RHCI distributed its stockholdings in the
Company to its stockholders as a dividend. A major stockholder and chairman of
the Company is also a major stockholder in RHCI. The Company has significant
interaction with RHCI (see Notes 5 and 11).
The consolidated financial statements include the accounts of RMCI and its
majority-owned subsidiaries (collectively, the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Industry
The Company's business consists of (i) behavioral health care services, through
which it manages and provides the delivery of mental health and substance abuse
services given by both independent and affiliated providers on behalf of its
clients-insurance carriers, health maintenance organizations and self-insured
employers and (ii) HMO services through which it manages and provides prepaid
health services to its members. The Company's first HMO began operations in June
1995. In June 1996, the Company adopted a formal plan to sell its HMO
operations.
Concentrations of Credit Risk
The Company provides services to self-insured patients without requiring
collateral. Exposure to losses on receivables is principally dependent on each
patient's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
Use of Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
8
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents
Cash equivalents include short-term, highly liquid interest-bearing investments
with a maturity of 90 days or less at the date of acquisition and consist
primarily of money market deposits.
Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate fair value as
of June 30, 1996.
Minimum Liquidity Requirements
The Company is required under the regulations of the states in which it operates
an HMO to maintain minimum liquidity requirements. Such amounts are included in
the accompanying balance sheet as other assets of discontinued operation.
Revenues
Revenues consist primarily of managed care and clinical fee for service revenue.
Managed care revenue represents capitated amounts received for behavioral health
services provided to patients covered by certain managed care contracts as well
as amounts received for case management, utilization review and quality
assurance oversight on the delivery of behavioral health services given by
independent providers on behalf of clients. Managed care revenue is recognized
during the period in which enrolled lives are covered for capitated payments
received. Clinical fee for service revenue represents professional fees for
outpatient services which are provided on a fee for service basis. Clinical fee
for service revenue is recognized as services are provided.
For the year ended June 30, 1996, approximately 49% of revenue was earned from
four managed care customers. Walt Disney World Co. comprised approximately
$3,624,000 or 17% of revenue. The Health Plan of The Upper Ohio Valley comprised
approximately $2,647,000 or 12% of revenue. Health Options, Inc. and AlohaCare,
Inc. comprised approximately $2,366,000 and $2,451,000 or revenue, respectively,
or approximately 11% each.
9
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Revenues (continued)
For the year ended June 30, 1995, approximately 41% of revenue was earned from
three managed care customers. Walt Disney World Co. comprised approximately
$3,513,000 or 22% of revenue. Health Options, Inc. and AlohaCare, Inc. comprised
approximately $1,690,000 and $1,491,000 or approximately 10% and 9% of revenue,
respectively.
Contracted Provider Services
The Company contracts with various health care providers for the provision of
health care services. The Company provides for claims incurred but not yet
reported based on past experience, together with current factors. Estimates are
adjusted as changes in these factors occur and such adjustments are reported in
the year of determination. Although considerable variability is inherent in such
estimates, management believes that these reserves are adequate.
Goodwill and Other Intangible Assets
Goodwill consists of cost in excess of the net asset value of purchased
businesses. Other intangible assets represent the value assigned to acquired
clinical protocols, established provider networks and existing contracts related
to acquired companies (see Note 3). These costs are generally amortized over 10
to 25 years.
The Company periodically evaluates the recoverability of the carrying amounts of
intangible assets by determining if any impairment indicators are present. These
indicators include estimating the undiscounted cash flows of the entity acquired
over the remaining amortization period (see Note 14).
Preopening costs, principally salaries and other costs incurred prior to opening
a new clinic, HMO or other operation are deferred until the entity begins
operations whereupon the costs are amortized on a straight-line basis over two
years.
Organizational costs, principally specific external costs related to the
formation and licensure of the Company's HMOs, are deferred and amortized on a
straight-line basis over a period of five years from the start of operations.
10
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Upon sale or retirement of property
or equipment, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in operations.
Depreciation is computed on the straight-line method for financial reporting
purposes and on an accelerated method for income tax purposes. The general range
of estimated useful lives is five to forty years for buildings and three to
twenty years for equipment.
Income Taxes
The Company accounts for income taxes in accordance with Financial Accounting
Standards Board (FASB) Statement No. 109, Accounting for Income Taxes. Under
this method, deferred income taxes at the end of each period are determined
based on the differences between the financial statement and tax basis of assets
and liabilities using the enacted tax rates for the years in which the taxes are
expected to be paid or recovered.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company plans to adopt Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, and will continue to account for stock
option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and, accordingly, recognizes no compensation expense for the stock
option grants.
Loss Per Common Share
Loss per common share is calculated by dividing net loss by the weighted average
number of common shares outstanding during the period. Stock options and
warrants are considered common stock equivalents and are, in 1996 and 1995 anti
dilutive for purposes of calculating primary and fully diluted loss per share.
Fully diluted net loss per common share is not materially different from primary
net loss per common share.
11
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform with the 1996 presentation.
2. Sources of Liquidity
During 1996, the Company incurred a loss from continuing operations of
$5,418,000, a net loss of $13,494,000 and a cash flow deficit from continuing
operations of $2,090,000. At June 30, 1996, current liabilities exceeded current
assets by $9,070,000 and there is a deficiency in stockholders' equity of
$7,847,000.
Management's plan to address this situation and continue operations, includes
the following:
. Sale of its HMO operations
. A commitment by an affiliate of the Company's major shareholder to
acquire $1.4 million of 5% convertible preferred stock and to convert
the $1.6 million of advances from affiliate at June 30, 1996 to 5%
convertible preferred stock.
. A commitment by an affiliate of the Company's major shareholder to
loan the Company up to $2,000,000.
Management's opinion is that these actions will be adequate to enable the
Company to continue to operate as a going concern.
3. Acquisitions
On October 29, 1993, RMCI acquired, in a transaction accounted for as a
purchase, the stock of Florida Psychiatric Management, Inc. (FPM), a regional
provider of managed behavioral health care services based in Orlando, Florida,
for $7,141,000 consisting of cash of $4,641,000 (including $641,000 in
acquisition costs), the issuance of an aggregate of $2,500,000 of three-year 7%
debentures, and contingent consideration based on the attainment of certain
earnings and revenue levels over the ensuing two years. At June 30, 1995, all
parties agreed to an additional payment of $450,000, which was paid on October
31, 1995, and cancellation of the earn-out provisions. In connection with this
acquisition, RMCI recorded goodwill and other intangible assets of approximately
$8,000,000.
12
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Acquisitions (continued)
On June 30, 1994, RMCI, through a wholly-owned subsidiary (Ramsay HDI, Inc.),
acquired, in a transaction accounted for as a purchase, the assets of Human
Dynamics Institute (HDI), a Phoenix, Arizona-based managed behavioral health
care business for $3,001,000 consisting of cash of $1,000,000, a three-year
$1,000,000 note bearing interest at 8.25%, the assumption of certain
liabilities, the issuance of 86,425 shares of common stock and contingent
consideration based upon the attainment of certain revenue levels over the
ensuing two years. In connection with this acquisition, RMCI recorded goodwill
totaling approximately $3,000,000. Subsequently, Ramsay HDI, Inc. changed its
name to FPMBH of Arizona, Inc.
The earn-out payment of $426,000, which is payable on or before October 31,
1996, increased the amount of goodwill related to the acquisition of HDI.
In June 1994, RMCI, through a wholly-owned subsidiary acquired, in a transaction
accounted for as a purchase, the stock of Florida Psychiatric Associates, P.A.
(FPA), a provider of mental health and substance abuse services in an outpatient
environment in the central Florida area, for a cash payment of $50,000. In
connection with this acquisition, RMCI recorded goodwill totaling approximately
$393,000.
4. Line of Credit and Note Payable
The Company's line of credit and note payable consist of the following:
1996
------------
Secured line of credit promissory note bank, principal payable
on demand, interest at prime rate plus .75% or LIBOR plus 300
basis points (interest rate of 8.0625% at June 30, 1996). $1,500,000
Secured promissory note issued to Apex Acquisition Corporation,
payable on demand, interest at prime rate plus .5% (interest
rate of 8.75% at June 30, 1996), secured by the stocks and
assets of RMCI's subsidiary, Apex Healthcare, Inc. The note was
paid on August 9, 1996. 400,000
------------
$1,900,000
============
13
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Line of Credit and Note Payable (continued)
On April 26, 1996, the Company amended its $4,200,000 revolving credit
agreement, originally entered into on April 28, 1995. The revolving credit
agreement was replaced by a $1,500,000 secured Revolving Master Line of Credit
and a $100,000 Term Loan (see Note 5). The secured Revolving Master Line of
Credit is to be used solely for working capital and other general corporate
purposes.
In addition, the Company received a secured overline line of credit note from
First Union National Bank of Florida, Inc. for $500,000. At June 30, 1996, the
Company has not borrowed any funds against the overline line of credit note. At
June 30, 1996 the overline of credit was terminated.
The line of credit promissory note and the overline line of credit are secured
by the stock and assets of RMCI's subsidiaries, FPM Behavioral Health, Inc., and
its subsidiaries (FPMBH) and Apex Healthcare, Inc. The Credit Facility contains
covenants, 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 RMCI. 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 was less than the
requirement. The bank waived this requirement for the year ended June 30, 1996.
14
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt
The Company's long-term debt consists of the following:
1996
-------------
8% 6-year unsecured promissory note issued to RHCI payable
quarterly, due September 30, 2000. $6,000,000
Variable rate (interest rate of 8.0625% at June 30, 1996),
3-year secured term loan to bank, payable quarterly, due
January 31, 1998. 1,111,000
8.25% 3-year secured promissory note issued in connection with
the acquisition of HDI, payable monthly, due June 30, 1997. 333,000
3-year secured term loan to bank, payable monthly through
April 5, 1999, interest at prime rate plus 1% (interest rate
of 9.25% at June 30, 1996). 92,000
------------
7,536,000
Less amounts due within one year 2,334,000
------------
$5,202,000
============
The aggregate scheduled maturities of long-term debt during the five years
subsequent to June 30, 1996 are as follows: 1997--$2,334,000; 1998--$2,001,000;
1999--$1,437,000; 2000--$1,412,000; and 2001--$352,000.
The 8% 6-year unsecured promissory note issued to RHCI, which is the Company's
former parent corporation, is subordinate and junior to all indebtedness of the
Company. Principal will be payable in equal quarterly installments beginning
September 30, 1996, with the final payment due on September 30, 2000. Interest
is payable after July 1, 1997.
The 8.25% secured promissory note due June 30, 1997 is secured by the stock of
the Company's wholly-owned subsidiary, FPMBH of Arizona, Inc., which was the
acquiring entity of the assets of HDI. The note is payable in monthly
installments which began July 31, 1994.
15
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
The term loans to the bank are secured by the stock and assets of RMCI's
subsidiaries, FPMBH and Apex Healthcare, Inc. The term loans require among other
things, that FPMBH maintain various financial ratios and restricts a portion of
FPMBH's equity for distribution to the Company.
Under the provisions of the term loan, FPMBH was required to maintain a minimum
stockholders' equity of $850,000 plus 75% of its net income subsequent to June
30, 1996. At June 30, 1996, FPM's minimum stockholders' equity was less than the
requirements. The bank waived this requirement for the year ended June 30, 1996.
As a result of its financial condition, the Company is unable to determine a
fair market value for its long-term fixed rate debt.
6. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at June 30, 1996 are as
follows:
Deferred tax assets:
Hospital and medical claims payable $ 42,000
Loss on discontinued operations 1,853,000
Net operating loss carryforwards 1,797,000
Accrued employee benefits 257,000
Allowance for doubtful accounts 129,000
Related party expense deductible in future periods 135,000
Alternative minimum tax credit 59,000
Other 7,000
Valuation allowance (4,267,000)
-------------
Total deferred tax assets 12,000
Deferred tax liabilities:
Goodwill and other intangible assets 867,000
Change in tax accounting method 51,000
Tax over book depreciation and amortization 80,000
-------------
Total deferred tax liabilities 998,000
-------------
Net deferred tax liabilities $ 986,000
=============
16
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The income tax benefit consists of the following:
June 30
1996 1995
-----------------------
Income taxes currently payable:
Federal $ - $ -
State - 47,000
Deferred income taxes:
Federal - (179,000)
State - (60,000)
-----------------------
$ - $ (192,000)
=======================
The income tax benefit included in the consolidated statements of operations
differs from the amounts computed by applying the statutory rate to income
before taxes, as follows:
June 30
1996 1995
------------------------------
Loss before taxes $(13,494,000) $(1,763,000)
Federal statutory income tax rate 34% 34%
------------------------------
(4,588,000) (599,000)
Nondeductible amortization of goodwill 124,000 124,000
Nondeductible write-down of goodwill 656,000 -
Nondeductible stock distribution costs - 246,000
State income taxes, net of federal tax (400,000) (9,000)
benefit
Other, net (59,000) 46,000
Change in valuation allowance 4,267,000 -
------------------------------
$ - $ (192,000)
==============================
17
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The Company has recorded a valuation allowance with respect to the future tax
benefits and the net operating loss reflected as deferred tax assets due to the
uncertainty of their ultimate realization. At June 30, 1996, net operating loss
carryforwards of approximately $4,741,000 for federal income tax purposes, which
expire from 2005 to 2010, and approximately $6,393,000 for state income tax
purposes, which expire from 2005 to 2010, are available to reduce future income
taxes subject to certain separate return loss year rules.
7. Stockholders' Equity (Deficit)
Effective April 5, 1995, the Company's Board of Directors approved a 1-for-2
reverse stock split of its common stock. Per share data and number of shares
included in the accompanying consolidated financial statements have been
adjusted to reflect the effect of the reverse stock split.
On June 23, 1994, the Company issued 71,092 shares of Class A convertible
preferred stock with a liquidation value of $10 per share, or $710,920, to RHCI.
Among other things, each share of preferred stock was convertible into shares of
common stock on a 5-for-1 basis and had total voting rights equivalent to
355,460 shares of common stock. On October 1, 1994, the Class A convertible
preferred stock was converted into 355,460 shares of common stock.
On October 25, 1994, the Company issued 1,500,000 shares of common stock to Paul
Ramsay Hospitals Pty. Limited (an affiliate of the Company's major stockholder
and Chairman) for $2.00 per share, or $3,000,000 with an option to acquire
1,250,000 additional shares of common stock at $2.00 per share on or before May
31, 1995 or $2.20 per share on or before August 31, 1995. On May 31, 1995, this
option was exercised and an additional 1,250,000 shares of common stock was
issued for $2,500,000.
Also on October 25, 1994, the Company sold 160,000 shares of common stock to
three officers of the Company for a total of $320,000. Of this amount, $148,500
was in the form of a promissory note from one of the officers, payable quarterly
starting December 31, 1995 with the final repayment due September 30, 1999.
Interest is payable quarterly in arrears at a rate equivalent to one year LIBOR
(6.125% at June 30, 1996). At June 30, 1996, the Company has fully reserved for
this note.
18
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (Deficit) (continued)
On April 24, 1995, RHCI distributed its total holdings in the Company (2,413,577
shares of common stock) to its stockholders in the form of a dividend.
Also on April 24, 1995, the Company commenced a rights offering (the Rights
Offering) pursuant to which the Company distributed, at no cost, transferable
rights to purchase up to 960,913 shares of common stock. Each Right entitled the
holder to purchase one share of the Company's common stock at $2.00 per share.
All Rights were exercised.
In connection with the April 24, 1995 rights offering, an officer of the Company
exercised rights through the issuance of two promissory notes. One note for
$75,000 is payable in eight quarterly installments commencing September 6, 1995
with the final payment due June 8, 1997. The other note for approximately
$138,000 is payable in three equal annual installments commencing June 8, 1998,
with the final installment due June 8, 2000. Interest on both notes is payable
quarterly in arrears at a rate equivalent to one year LIBOR. At June 30, 1996,
the Company has fully reserved these notes.
The Company has adopted a 1994 Stock Option Plan (1994 Option Plan) which
permits the issuance of options to officers and other key employees. The 1994
Option Plan reserves 1,000,000 shares of common stock for grant.
In October 1994, the Company:
. Granted options under the 1994 Option Plan, to certain directors, key
officers and other employees to purchase an aggregate of 475,250 shares
of common stock, at an option price per share of $2.00. These options
vest over a three to four-year period. At June 30, 1996, options to
acquire 146,750 of common stock were exercisable.
. Granted options under the 1994 Option Plan, to the chairman of the board
and former vice chairman/president and chief executive officer of the
Company for each to purchase 25,000 (50,000 in total) shares of common
stock at an option price per share of $2.00. These options are
exercisable in September 2004 or at an earlier date if, at the time of
exercise, the closing price of the Company's common stock has equaled or
exceeded $20 on at least twenty trading days, which need not be
consecutive. The options granted to the former vice chairman/president
and chief executive officer expired, unexercised in August, 1996.
19
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (Deficit) (continued)
Also in October 1994, the Company granted warrants to purchase 125,000 shares of
common stock to Ramsay Hospitals and warrants to purchase 52,000 shares of
common stock to certain other persons at a price of $2.00 per share. The
warrants issued to Ramsay Hospitals vest immediately. The other warrants vest
one-third on each anniversary date over three years.
In November 1994, the Company, under the 1994 Option Plan, granted options to
certain key employees to purchase an aggregate of 60,000 shares of common stock,
at an option price of $2.00 per share. The options vest over a four-year period
and 20,000 options are exercisable at June 30, 1996.
In 1996 the Company granted options to purchase 75,000 shares of common stock at
$2.44 per share and 250,000 shares of common stock at $2.31 per share. During
1995, the Company granted options to purchase 97,500 shares of common stock at
$2.00 per share. The options vest ratably over a four-year period beginning on
the anniversary date of the award.
The Company also issued, during 1996 and 1995, warrants to purchase 50,000 and
13,000 shares of common stock at $2.44 and $2.00 per share, respectively. The
1996 warrants vest one-sixth on the second anniversary and the remainder on the
third anniversary. The 1995 warrants vest one-third at date of issuance and one-
third on each of the next two anniversary dates, respectively.
Summary information on stock options and warrants is shown in the following
table:
Options Warrants Exercisable Price Range
------------------------------------------------------
Balance at July 1,1994 -- -- -- --
Granted 682,750 190,000 -- $ 2.0
Become exercisable - - 129,000 2.00
------------------------------------------------------
Balance at June 30, 1995 682,750 190,000 129,000 2.00
Granted 325,000 50,000 - 2.31-2.44
Become exercisable - - 219,250 2.00
Exercised - - (6,000) 2.00
Canceled (33,700) - (9,700) 2.00
------------------------------------------------------
Balance at June 30, 1996 974,050 240,000 332,550 $2.00-$2.44
======================================================
20
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (Deficit) (continued)
The Company has adopted a 1994 Employee Stock Purchase Plan (1994 ESPP) that
allows employees to acquire up to 100,000 shares of common stock at a 15%
discount to the lower of the market price of the Company's stock at the
beginning or end of a six-month period. The Plan went into effect July 1, 1995.
During 1996, the Company issued approximately 20,500 shares of common stock
related to the ESPP.
At June 30, 1996, shares of common stock reserved for future issuance are as
follows:
1994 Option Plan 994,000
1994 ESPP 79,500
Warrants 240,000
-------------
1,313,500
=============
In August, 1996, the Company adopted the 1996 Long Term Incentive Plan under
which 500,000 shares of common stock are available for option grants to
officers, directors and key employees.
8. Statutory Compliance
The Company's HMOs are required to maintain a minimum level of statutory equity
by each state in which they operate an HMO. At June 30, 1996, the Company was
required to maintain statutory equity of $1,800,000. In addition, the HMO
regulations of various states also limit distribution of earnings or equity
transfers to defined amounts.
21
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Pension Plan
Prior to April 24, 1995, the Company participated in a 401(k) tax deferred
savings plan sponsored by RHCI. Subsequent to that date, the Company formed its
own 401(k) tax deferred savings plan and its employees no longer participate in
the RHCI plan. The Company plan covers substantially all employees over age 21
meeting a one-year minimum service requirement. The Company plan was adopted for
the purpose of supplementing employees' retirement, death and disability
benefits. The Company may, at its option, contribute to the plan through an
Employer Matching Account, but is under no obligation to do so. An employee
becomes vested in his Employer Matching Account over a four-year period. The
funds contributed by the Company's employees to the RHCI plan will be
transferred to the Company's plan once IRS approval is received. No contribution
to the plan was made by the Company during 1996 or 1995.
10. Operating Leases
The Company leases certain equipment and office space under noncancelable
operating leases that expire in various years through 2003. Future minimum
payments under noncancelable operating leases with initial terms of one year or
more consists of the following at June 30, 1996:
Year ending June 30
1997 $1,072,000
1998 937,000
1999 558,000
2000 440,000
2001 318,000
Thereafter 221,000
------------
Total minimum lease payments $3,546,000
============
The Company has operating lease agreements with a related party for building,
office and parking space for which minimum future lease payments total
$1,357,000. These payments are included in the total future minimum lease
payments of $3,546,000. Total lease and rental expense for operating leases
included in operations for the year ended June 30, 1996 amounted to $1,246,000
(1995-$675,000). This amount includes $355,000 in 1996 ($414,000 in 1995) of
rent expense related to leases with related parties.
22
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Related Party Transactions
RHCI provides management, accounting, information systems, tax, insurance and
personnel functions to the Company. The Company is charged management fees for
these services. The amount due to RHCI for these services and other amounts paid
by RHCI on behalf of the Company are included in due to affiliate at June 30,
1996.
The amounts due to affiliate include advances from RHCI to fund working capital
and other general corporate purposes. Intercompany advances from RHCI were non-
interest bearing through October 25, 1994. On October 25, 1994, advances from
RHCI aggregating $6,000,000 were converted into an 8% subordinated note payable
to RHCI. This note did not begin to accrue interest until March 1995. An
analysis of the Company's open account amount due to RHCI is as follows:
Balance at July 1, 1995 $1,441,000
Additions during the year ended June 30, 1996 410,000
------------
Balance at June 30, 1996 $1,851,000
============
The average outstanding balance was $1,669,000 for the year ended June 30, 1996
and $2,922,000 for the year ended June 30, 1995.
RHCI has agreed not to require repayment of the $1,851,000 of advances it has
made to the Company, or interest on the $6,000,000 subordinated note until after
July 1, 1997. RMCI and RHCI are currently negotiating to restructure the
repayment of the intercompany advances and interest due on the note.
On June 28, 1996 RMCI received $1.6 million in advances from an affiliate of the
major shareholder. An additional $1.4 million was committed to be advanced
during the year ended June 30, 1997. On August 7 and August 8, 1996, RMCI
borrowed an aggregate of $800,000. The amounts advanced currently bear interest
at 12% and are payable on demand. The affiliate has committed to convert this
amount to 5% convertible preferred stock, consequently, at June 30, 1996 the
$1.6 million advance has been classified as a long-term liability.
23
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Discontinued Operation
In June 1996, the Company adopted a formal plan for the sale of its HMO
operations by January 1997. The Company's HMO operations are accounted for as a
discontinued operation, and accordingly its operations are segregated in the
accompanying statement of operations. Net revenues and operating costs and
expenses for 1995 have been reclassified for amounts associated with the
discontinued operation.
Revenues and related losses associated with the discontinued operation for the
last two fiscal years were as follows:
1996 1995
-------------------------------
Revenues $1,347,000 $69,000
===============================
Loss from operations $3,149,000 $76,000
-------------------------------
Loss on disposal 3,097,000 --
Estimated unrecovered costs through
expected disposal date 1,830,000 --
-------------------------------
Loss on disposal 4,927,000 --
-------------------------------
Loss from discontinued operations $8,076,000 $76,000
===============================
No income tax benefit was recognized for losses on discontinued operation for
book purposes due to the uncertainty of their ultimate realization.
The components of net assets of discontinued operation included in the
Consolidated Balance Sheet at June 30, 1996 are as follows:
Cash and cash equivalents $ 1,618,000
Accounts receivable, net 38,000
Prepaid expenses 78,000
Other current assets 10,000
Restricted assets 1,565,000
Property and equipment, net 297,000
Accounts payable (234,000)
Accrued salaries and wages (86,000)
Hospital and medical claims payable (143,000)
Other current liabilities (1,116,000)
--------------
$ 2,027,000
==============
24
Ramsay Managed Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Fourth Quarter Adjustments
In the fourth quarter of fiscal 1996, the Company made certain strategic
decisions affecting the future operations of the Company. Among other things,
the Company determined that it would not expand in certain markets in the United
States. As a result, approximately $426,000 of development costs that had been
deferred were charged to operations in the fourth quarter.
Also during the fourth quarter, the Company reversed income tax credits totaling
$1.1 million taken in the first three quarters of 1996 (see Note 6), wrote-down
$1.9 million of goodwill (see Note 14), and recorded a loss on discontinued
operations of $5.4 million (see Note 12).
14. Goodwill Write-down
In June 1996, the Company recognized a goodwill impairment charge of $1,929,000
related to the HDI acquisition (see Note 3). At the time of the acquisition HDI
had contracts with five major vendors and the possibility of obtaining an
additional major contract. During 1996, HDI lost four of its existing contracts
and was not awarded the new major contract.
25
INDEX TO EXHIBITS
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
2.1 Agreement dated as of October 12, 1993 among Florida
Psychiatric Management, Inc., the stockholders of Florida
Psychiatric Management, Inc., Ramsay Health Care, Inc.
("RHCI") and the Company (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on Form
S-1 (Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
2.2 Agreement dated June 7, 1994 among Florida Psychiatric
Associates, Inc.("FPA"), the stockholders of FPA and Florida
Psychiatric Associates - South Florida, Inc. (incorporated
by reference to Exhibit 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
2.3 Agreement dated as of June 30, 1994 among Phoenix South,
Ramsay HDI, Inc.and FPM Behavioral Health, Inc.
(incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-1 (Registration No.
3378034) filed with the Commission on April 24, 1995)........ --
3.1 Amended and Restated Certificate of Incorporation filed on
June 24, 1994................................................
3.2 Certificate of Designations filed on June 24, 1994...........
3.3 Certificate of Amendment to Amended and Restated Certificate
of Incorporation filed on September 20, 1994.................
3.4 Certificate of Designations filed on September 9, 1996.......
3.5 Amended and Restated By-laws (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement on Form
S-1 (Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
3.6 Form of Rights Agreement between the Company and First Union
National Bank of North Carolina (incorporated by reference
to Exhibit 3.4 to the Company's Registration Statement on
Form S-1 (Registration No. 33-78034) filed with the
Commission on April 24, 1995)................................ --
4.1 Form of Stock Certificate of Common Stock (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24,1995)............................. --
E-1
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
4.2 Form of Subscription Certificate (incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement on
Form S-1 (Registration No. 33-78034) filed with the
Commission on April 24, 1995)................................ --
4.3 Warrant Certificate dated September 10, 1996 evidencing
warrants to purchase 300,000 shares of common stock..........
4.4 Warrant Certificate dated September 10, 1996 evidencing
warrants to purchase 100,000 shares of common stock..........
10.1 Second Amended and Restated Distribution Agreement between
the Company and RHCI (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
10.2 Ramsay Managed Care, Inc. 1994 Stock Option Plan
(incorporated by reference to Exhibit 4(v) to the Company's
Registration Statement on Form S-8 (Registration No.
33-95018) filed with the Commission on July 26, 1995)........ --
10.3 Ramsay Managed Care, Inc. 1994 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4(i) to the Company's
Registration Statement on Form S-8 (Registration No.
33-95018) filed with the Commission on July 26, 1995)........ --
10.4 Employee Benefit Agreement dated as of February 1, 1995
between the Company and RHCI (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form
S-1 (Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
10.5 Tax Sharing Agreement dated as of October 25, 1994 between
the Company and RHCI (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
10.6 Corporate Services Agreement dated as of January 2, 1995
between the Company and RHCI (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form
S-1 (Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
E-2
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
10.7 Form of Withholding Tax Agreement between RHCI, Ramsay HSA,
Ramsay Holdings and Ramsay Health Care Pty. Limited
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Registration No.
33-78034) filed with the Commission on April 24, 1995)....... --
10.8 Employment Agreement dated as of October 29, 1993 between
Martin Lazoritz and the Company, as amended (incorporated by
reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.9 Employment Agreement dated as of July 19, 1994 between
Parveez A. Oliaii and the Company, as amended (incorporated
by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.10 Employment Agreement dated as of October 29, 1993 between I.
Paul Mandelkern and the Company, as amended (incorporated by
reference to Exhibit 10.10 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.11 Employment Agreement dated as of October 17, 1994 between
Kenneth Burkhart and Apex Healthcare, Inc., as amended
(incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No.
33-78034) filed with the Commission on April 24, 1995)....... --
10.12 Form of Indemnification Agreement with directors and
officers (incorporated by reference to Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-78034) filed with the Commission on April 24, 1995)... --
10.13 $6,000,000 Subordinated Promissory Note of the Company, as
amended (incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-78034) filed with the Commission on April 24, 1995)... --
10.14 Form of Management Agreement between the Company and Ramsay
Health Care Pty. Limited (incorporated by reference to
Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 33-78034) filed with the
Commission on April 24, 1995)................................ --
E-3
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
10.15 Stock Purchase Agreement dated as of October 25, 1994, as
amended as of February 1, 1995, between Ramsay Hospitals and
the Company (incorporated by reference to Exhibit 10.15 to
the Company's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on
April 24, 1995).............................................. --
10.16 Warrant Acquisition Agreement dated as of October 25, 1994
between Ramsay Hospitals and the Company (incorporated by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.17 Registration Rights Agreement dated as of October 25, 1994
between Ramsay Hospitals and the Company (incorporated by
reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.18 Stock Purchase Agreement dated as of October 25, 1994
between Martin Lazoritz and the Company (incorporated by
reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.19 Stock Purchase Agreement dated as of October 25, 1994,
between Parveez A. Oliaii and the Company (incorporated by
reference to Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.20 Stock Purchase Agreement dated as of October 25, 1994
between Kenneth Burkhart and the Company (incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.21 Standard Form Private Practitioner Provider Contract
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No.
33-78034) filed with the Commission on April 24, 1995)....... --
10.22 Standard Form Hospital Provider Contract (incorporated by
reference to Exhibit 10.22 to the Company's Registration
Statement on Form S-1 (Registration No.33-78034) filed with
the Commission on April 24, 1995)............................ --
E-4
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
10.23 Agreement dated October 1992 between Disney Worldwide
Services, Inc. and Florida Psychiatric Management, Inc.
(incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (Registration No.
33-78034) filed with the Commission on April 24, 1995)....... --
10.24 Loan and Security Agreement between FPM Behavioral Health,
Inc. and First Union National Bank of Florida (incorporated
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-1 (Registration No. 33-78034) filed with
the Commission on April 24, 1995)............................ --
10.25 First Amendment to Loan and Security Agreement dated April
24, 1996 between FPM Behavioral Health, Inc. and First Union
National Bank of Florida.....................................
10.26 Amended, Restated and Renewal Term Promissory Note dated
April 24, 1996 of the Company................................
10.27 Amended, Restated and Renewal Line of Credit Promissory Note
dated April 24, 1996 of the Company..........................
10.28 Overline Line of Credit Note dated April 24, 1996 of the
Company......................................................
10.29 First Amendment of Guaranty and Joinder of Guarantors dated
April 24, 1996...............................................
10.30 First Amendment to Stock Pledge and Security Agreements
dated April 24, 1996 by FPM Behavioral Health, Inc...........
10.31 First Amendment to Stock Pledge and Security Agreement dated
April 24, 1996 by the Company................................
10.32 Stock Purchase Agreement dated September 10, 1996 between
Paul Ramsay Hospitals Pty. Limited and the Company...........
10.33 $1,600,000 Promissory Note dated June 28, 1996 of the Company
10.34 $1,400,000 Grid Note dated August 7, 1996 of the Company.....
10.35 Exchange Agreement dated September 10, 1996 among Paul
Ramsay Hospitals Pty. Limited, Paul J. Ramsay and the Company
10.36 Ramsay Managed Care, Inc. 1996 Long Term Incentive Plan......
E-5
Exhibit Sequential
Number Document Description Page No.
- ------- -------------------- --------
11 Computation of Per Share Earnings............................
21 List of Subsidiaries.........................................
23 Consent of Ernst & Young LLP.................................
24 Powers of Attorney (See "Power of Attorney" in Form 10 KSB).. --
27 Financial Data Schedule......................................
E-6