SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____________________to__________________
Commission file No. 0-26666
RAMSAY MANAGED CARE, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 72-1249464
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE POYDRAS PLAZA
639 LOYOLA AVENUE, SUITE 1725
NEW ORLEANS, LOUISIANA 70113
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Issuer's telephone number, including area code: (504) 585-0515
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ___
---
The number of shares of the Registrant's Common Stock outstanding at November 2,
1996 follows:
Common Stock, par value $0.01 per share - 6,397,304 shares
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
----
------------------
RAMSAY MANAGED CARE, INC.
FORM 10-QSB
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets - September 30, 1996
and June 30, 1996 (unaudited)........................................... 1
Consolidated statements of operations - quarters ended September 30, 1996
and 1995 (unaudited).................................................... 3
Consolidated statements of cash flows - quarters ended September 30,
1996 and 1995 (unaudited)............................................... 4
Notes to consolidated financial statements -
September 30, 1996 (unaudited).......................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 10
Part II. OTHER INFORMATION
Item 5. Other Information.................................................. 16
Item 6. Exhibits and Current Reports on Form 8-K........................... 17
SIGNATURES................................................................. 18
PART I. FINANCIAL INFORMATION
RAMSAY MANAGED CARE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30 JUNE 30
1996 1996
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 156,000 $ 228,000
Accounts receivable, less allowance for doubtful
accounts of $291,000 and $334,000 at September
30 and June 30, 1996 respectively.............. 1,168,000 846,000
Prepaid expenses................................ 339,000 382,000
Other current assets............................ 28,000 37,000
Current assets of discontinued operation........ 1,065,000 1,744,000
----------- -----------
Total current assets............................. 2,756,000 3,237,000
Other assets:
Goodwill and other intangible assets............ 8,160,000 8,152,000
Other non-current assets........................ 60,000 60,000
Other assets of discontinued operation.......... 2,154,000 1,862 ,000
----------- -----------
Total other assets............................... 10,374,000 10,074,000
Property and equipment:
Building and improvements....................... 128,000 128,000
Equipment, furniture and fixtures............... 1,880,000 1,830,000
----------- -----------
2,008,000 1,958,000
Less accumulated depreciation................... 1,234,000 1,170,000
----------- -----------
Total property and equipment..................... 774,000 788,000
--------------------------
Total assets..................................... $13,904,000 $14,099,000
=========== ===========
See accompanying notes.
1
RAMSAY MANAGED CARE, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30 JUNE 30
1996 1996
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,224,000 $ 1,397,000
Accrued salaries and wages...................... 797,000 641,000
Hospital and medical claims payable............. 1,857,000 1,667,000
Other current liabilities....................... 520,000 959,000
Line of credit and note payable................. 1,500,000 1,900,000
Current portion of long-term debt............... 2,604,000 2,334,000
Current liabilities of discontinued operation... 1,604,000 1,579,000
Reserve for operating loss from
discontinued operation......................... 992,000 1,830,000
------------ ------------
Total current liabilities........................ 11,098,000 12,307,000
Due to affiliate................................. 2,524,000 1,851,000
Advance from affiliate........................... -- 1,600,000
Deferred income taxes............................ 1,014,000 986,000
Long-term debt, less current portion............. 4,707,000 5,202,000
Stockholders' equity:
Convertible preferred stock, $.01 par value
- authorized 1,000,000 shares; issued 100,000
shares at September 30, 1996 and -0- shares
at June 30, 1996............................... 3,000,000 --
Common stock, $.01 par value - authorized
20,000,000 shares; issued 6,397,304 shares at
September 30, 1996 and 6,397,304 shares at
June 30, 1996................................... 64,000 64,000
Additional paid-in capital....................... 7,095,000 7,095,000
Accumulated deficit.............................. (15,598,000) (15,006,000)
------------ ------------
Total stockholders' deficit...................... (5,439,000) (7,847,000)
------------ ------------
Total liabilities and stockholders' equity....... $ 13,904,000 $ 14,099,000
============ ============
See accompanying notes.
2
RAMSAY MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 (a)
------------- --------------
Revenues:
Managed care revenue................................ $5,181,000 $ 4,289,000
Clinical fee for service and other revenue.......... 641,000 429,000
---------- -----------
Total revenues....................................... 5,822,000 4,718,000
Operating expenses:
Contracted provider services........................ 2,423,000 1,653,000
Salaries, wages and benefits........................ 2,189,000 2,184,000
Management fees charged by related companies........ 88,000 70,000
General and administrative expenses................. 1,121,000 1,165,000
Depreciation and amortization....................... 355,000 297,000
Interest and other financing charges................ 238,000 183,000
---------- -----------
Total operating expenses............................. 6,414,000 5,552,000
---------- -----------
Loss from continuing operations before income taxes.. (592,000) (834,000)
Income tax expense................................... -- --
---------- -----------
Loss from continuing operations...................... (592,000) (834,000)
Discontinued operation:
Loss from operations of discontinued HMO operation.. -- (338,000)
---------- -----------
Net loss............................................. $ (592,000) $(1,172,000)
========== ===========
Loss per common share from continuing operations..... $ (0.09) $ (0.13)
Loss per common share from discontinued operation.... 0.00 (0.05)
---------- -----------
Loss per common share................................ $ (0.09) $ (0.18)
========== ===========
Weighted average number of shares outstanding........ 6,397,304 6,370,909
========== ===========
(a) Certain amounts for the quarter ended September 30, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
See accompanying notes.
3
RAMSAY MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 (a)
------------- -------------
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES
Net loss from continuing operations............................. $(592,000) $(834,000)
Adjustments to reconcile net loss from continuing operations
to net cash (used in) provided by operating activities:
Depreciation and amortization................................. 355,000 297,000
Other......................................................... 27,000 --
Cash flows from (increase) decrease in operating assets:
Accounts receivable, net................................... (322,000) 168,000
Prepaid expenses........................................... 43,000 (304,000)
Other current assets....................................... 9,000 503,000
Cash flow from increase (decrease) in operating liabilities:
Accounts payable........................................... (173,000) (758,000)
Accrued salaries, wages and other liabilities.............. 156,000 211,000
Hospital and medical claims payable........................ 190,000 (74,000)
Due to affiliate........................................... 673,000 76,000
Other current liabilities.................................. (439,000) (101,000)
--------- ---------
Total adjustments............................................... 519,000 18,000
--------- ---------
Net cash (used) provided by operating activities................ (73,000) (816,000)
--------- ---------
CASH FLOWS FROM DISCONTINUED OPERATION
Net loss from discontinued operation............................ -- (338,000)
Adjustments to reconcile net loss from discontinued operation
to net cash used in discontinued operation:
Depreciation and amortization................................. -- 33,000
(Increase) decrease in current assets of
discontinued operation...................................... 679,000 129,000
(Increase) decrease in other assets of
discontinued operation...................................... (292,000) (438,000)
Increase (decrease) in current liabilities of
discontinued operation...................................... 25,000 63,000
(Decrease) in reserve for operating loss from
discontinued operation...................................... (838,000) --
--------- ---------
Total adjustments............................................... (426,000) (213,000)
--------- ---------
Net cash used in discontinued operation......................... (426,000) (551,000)
--------- ---------
See accompanying notes.
4
RAMSAY MANAGED CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
QUARTER ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 (a)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditure for property and equipment................. (50,000) (109,000)
Goodwill, preopening and development costs............. (298,000) (144,000)
Other non-current assets............................... -- 77,000
----------- -----------
Net cash used in investing activities.................. (348,000) (176,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (payments to) affiliate.................. (1,600,000) --
Incurrance of (payment on) debt........................ (625,000) 102,000
Repayment on note receivable to purchase common stock.. -- 10,000
Issuance of preferred stock............................ 3,000,000 --
----------- -----------
Net cash (used) provided by financing activities....... 775,000 112,000
----------- -----------
Net (decrease) increase in cash and cash equivalents... (72,000) (1,431,000)
Cash and cash equivalents at beginning of period....... 228,000 3,495,000
----------- -----------
Cash and cash equivalents at end of period............. $ 156,000 $ 2,064,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest.............................................. $ 107,000 $ 179,000
=========== ===========
Income taxes.......................................... $ (95,000) $ (158,000)
=========== ===========
(a) Certain amounts for the quarter ended September 30, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
See accompanying notes.
5
RAMSAY MANAGED CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-B. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation of the interim
information are of a normal recurring nature and have been included. The
Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, operating results for the
quarter ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1996
The Company was incorporated in the State of Delaware in July 1993, and
commenced operations with the acquisition of Florida Psychiatric
Management, Inc. ("FPM") on October 31, 1993.
Certain amounts for the quarter ended September 30, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
NOTE 2.
As of October 30, 1996, the Company entered into a definitive agreement
to sell its HMO operation to an established healthcare provider (see "Item
5. - Other Information" below).
The closing of the sale is subject to regulatory approvals, third party
consents and other customary closing conditions.
Due to these conditions, the Company will not adjust the loss on sale of
discontinued operation ($4,927,000) that was recorded for the year ended
June 30, 1996 until the completion of the sale.
NOTE 3.
As previously announced, on October 1, 1996, the Company and Ramsay
Health Care, Inc. ("RHCI") entered into an Agreement and Plan of Merger
providing for the merger of the Company into a wholly owned subsidiary of
RHCI. Following the merger, all amounts owed to RHCI by the Company will
become an intercompany payable and receivable between the Company and RHCI,
respectively.
6
The merger is subject to approval by the shareholders of each company,
the receipt of lender, governmental and other consents and the declaration
of effectiveness by the Securities and Exchange Commission of a
registration statement filed by RHCI. Subject to the satisfaction of these
conditions, it is expected that the merger will be consummated in March
1997.
NOTE 4.
The Company's long-term debt consists of the following:
SEPTEMBER 30 JUNE 30
1996 1996
------------ -----------
8% 6-year unsecured promissory note issued
to Ramsay Health Care, Inc. payable
quarterly, due September 30, 2000................... $6,000,000 $6,000,000
Variable rate (interest rate of 8.1601% at September
30, 1996), 3-year secured term loan to First
Union National Bank of Florida, Inc.,
payable quarterly, due January 31, 1998............. 972,000 1,111,000
8.25% 3-year secured promissory note issued in
connection with the acquisition of HDI,
payable monthly, due June 30, 1997.................. 250,000 333,000
3-year secured term loan to First Union
National Bank of Florida, Inc., payable
monthly through April 5, 1999, interest at
prime plus 1% (interest of 9.25% at September
30, 1996)............................................ 89,000 92,000
---------- ----------
7,311,000 7,536,000
Less amounts due within one year...................... 2,604,000 2,334,000
---------- ----------
$4,707,000 $5,202,000
========== ==========
The 8%, six-year, unsecured promissory note (the "Subordinated Promissory
Note") issued to RHCI, which is the Company's former parent corporation,
represents certain amounts due to RHCI at October 25, 1994. The note is
subordinated and junior to all indebtedness of the Company. See note 3
above and "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Indebtedness" below.
On April 26, 1996, the Company amended its credit facility (the "Credit
Facility") with the First Union National Bank of Florida (the "Bank"). A
previous Revolving Credit Facility for up to $4,200,000 was replaced by a
$1,500,000 Revolving Master Line of Credit (the "Master Revolver") and a
$100,000 Term Loan.
The Master Revolver will expire on December 31, 1996 and the Term Loan is
repayable in 36 level monthly principal payments of $2,777.70, plus
interest. At September 30, 1996, $1,500,000 was outstanding under the
Master Revolver. The Master Revolver bears interest at the following
rates, as applicable and selected by the Company from time to time: (i) the
Bank's LIBOR adjusted rate plus 3.0% or (ii) the Bank's prime rate plus
0.75%. The $100,000 Term Loan bears interest at the Bank's prime rate plus
1.0%.
7
As part of the acquisition of FPM in October 1993, the Company issued 7%
three year debentures, totaling $2,500,000. These debentures were prepaid
with the proceeds of a $1,667,000 three year secured term loan from the
Bank on April 28, 1995. This three year term loan bears interest at (i) the
Bank's LIBOR adjusted rate plus 2.5% or (ii) the Bank's prime rate plus
0.50%, as selected by the Company. Principal on this three year term loan
is payable quarterly with a final maturity of January 31, 1998. This three
year secured term loan, the additional Term Loan of $100,000 (referred to
above) and the Master Revolver are secured by a pledge of the stock RMCI's
subsidiaries and the assets of RMCI's subsidiaries, and are required to be
repaid with a portion of the proceeds from the sale of the Company's HMO
operation (see Note 2 above and "Item 5. - Other Information" below).
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.
In connection with the Company's acquisition of certain assets of Human
Dynamics Institute ("HDI"), through a wholly owned subsidiary, FPMBH of
Arizona, Inc., the Company issued a promissory note in the principal amount
of $1,000,000 (the "HDI Note") to Phoenix South Community Mental Health
Centers ("Phoenix South"). Interest accrues on the HDI Note at a fixed
rate of 8.25% per annum and payable monthly in arrears, together with equal
installments of principal, until the HDI Note matures on June 30, 1997.
The HDI Note is secured pursuant to a Stock Pledge Agreement dated June 30,
1994, pursuant to which Phoenix South has a first priority lien on all of
the common stock of FPMBH of Arizona, Inc. Upon payment in full of the HDI
Note, the Bank will have a first priority lien on the common stock of FPMBH
of Arizona under the Credit Facility.
As at 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 four 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.
NOTE 5.
The provision for income taxes included in the consolidated
statements of operations differs from the amounts computed by applying the
normal statutory rates to income before income taxes because such provision
includes (a) amounts reportable as income for federal income tax purposes
which are not income for financial reporting purposes, (b) amounts deducted
for financial reporting purposes that are not allowable deductions for
Federal and state income tax purposes and (c) amounts for state income
8
taxes applicable to profitable subsidiaries which do not utilize the
operating losses generated by unprofitable subsidiaries to offset taxable
income. At September 30, 1996, the Company has estimated operating loss
carry forwards of approximately $4.9 million for Federal income tax
purposes, which expire from 2005 to 2010 and approximately $6.6 million for
state income tax purposes, which expire from 2005 to 2010, and are
available to reduce future income taxes.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company provides comprehensive managed health care services
through wholly owned subsidiary companies. The behavioral health services
are composed of the management of mental health services and substance
abuse care on behalf of self-insured employers, health maintenance
organizations, insurance companies and government agencies in different
states. The Company not only manages such care but also provides where
appropriate the delivery of care through integrated systems involving
clinics and other providers. These services range from benefit design,
case management and claims processing to fully capitated (at risk) mental
health care treatment.
At September 30, 1996, the Company operated in 10 states and has a
strategy to consolidate its behavioral health operations through
development and joint venture efforts in various regions of the country in
which it currently operates.
On November 5, 1996, the Company announced that it had entered into an
agreement for the sale of its discontinued HMO operation (see "Item 5 -
Other Information" below) .
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company notes that this
Quarterly Report on Form 10-QSB contains forward-looking statements about
the Company. The Company is hereby setting forth cautionary statements
identifying important factors that may cause the Company's actual results
or condition to differ materially from those set forth in any forward-
looking statement. Some of the most significant factors include (i) the
Company's inability to dispose of its HMO operation, (ii) the effects of
competition on the Company's business, including the loss of a major
customer or the loss of members of its provider network of physicians,
hospitals, and other healthcare providers, and (iii) statutory, regulatory
and administrative changes or interpretations of existing statutory and
regulatory provisions affecting the conduct of the Company's businesses, or
the failure to obtain exemptions from the existing statutory or regulatory
provisions. Accordingly, there can be no assurances that any anticipated
future results or condition will be achieved.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items of the Company's consolidated statements of operations as a
percentage of the Company's net revenues from continuing operations.
10
PERCENTAGE OF NET REVENUE
QUARTER ENDED
SEPTEMBER 30
1996 1995(a)
------------- --------------
Net revenues.................................. 100.0 % 100.0 %
------ ------
Operating expenses:
Contracted provider services.................. 41.6 % 35.0 %
Salaries, wages and benefits.................. 37.6 % 46.3 %
Management fees charged by related companies.. 1.5 % 1.5 %
Other operating expenses...................... 19.3 % 24.7 %
Depreciation and amortization................. 6.1 % 6.3 %
Interest and other financing charges.......... 4.1 % 3.9 %
------ ------
Total operating expenses...................... 110.2 % 117.7 %
------ ------
Loss from continuing opertaions before
income taxes................................ (10.2)% (17.7)%
====== ======
(a) Certain amounts for the quarter ended September 30, 1995 have been
reclassified to reflect the Company's discontinued HMO operation.
QUARTER ENDED SEPTEMBER 30, 1996
COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
Net revenues in the quarter ended September 30, 1996, were $5.80
million compared to $4.70 million in the comparable quarter of the prior
fiscal year. The increase in net revenues is attributable to new or
expanded managed care contracts obtained, in particular in North Carolina
effective October 1995 and Texas effective September 1996. Clinical and
other clinical service revenue increased as a result of new clinics opened
during calendar year 1995.
Contracted provider services expenses increased to $2.40 million in
the September quarter of 1996 compared to $1.65 million in the prior year
September quarter as a result of the increased number of members whose care
is managed by the Company.
Other operating expenses comprising salaries and wages, and general
and administrative expenses decreased from $3.45 million to $3.30 million
reflecting the increasing efficiencies and cost management in the
operations base of the Company's managed behavioral health division.
The Company recorded a loss before income taxes of $592,000 compared
to a loss of $834,000 incurred in the same quarter in the prior year. The
Company's results continue to be impacted by general corporate costs,
increased interest and amortization expenses, as well as continuing start
up-costs in the clinical operations of the Company.
11
LIQUIDITY AND CAPITAL RESOURCES
General. In connection with the Distribution of the Company's
common stock on April 24, 1995 by Ramsay Health Care, Inc. ("RHCI") to its
shareholders (the "Distribution"), the Company and RHCI entered into the
Second Amended and Restated Distribution Agreement (the "Distribution
Agreement"). Pursuant to the Distribution Agreement, each of RHCI and 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 September 30, 1996, RMCI owed RHCI approximately
$2.1 million in relation to these items, and in addition, accrued interest
on the Subordinated Promissory Note of $480,000. See the discussion below
under "Indebtedness" concerning RHCI's agreement not to require repayment
of net cash advances and accrued interest on the Subordinated Promissory
Note until after October 1997.
During the quarter ended September 30, 1996, the Company used net
cash of $73,000 in its continuing operations. The Company anticipates that
its sources of liquidity during fiscal 1997 primarily will be its cash flow
from continuing operations, funds anticipated to be received from the sale
of its HMO operation, the proceeds from a $3 million private placement of
preferred stock discussed under "Indebtedness" below and advances from an
affiliate discussed under "Indebtedness" below. See also "Item 5 -Other
Information" below.
The Company expects to use its sources of liquidity for working
capital and other general corporate purposes, including for the payment of
costs and expenses discussed above and costs associated with the
establishment and development of its managed mental healthcare business.
There can be no assurance that the Company will expand its
operations by development, acquisition or internal expansion or that any
development effort, acquisition or expansion will be profitable.
As discussed below (see "Indebtedness") the Company believes that it
may require additional funds for working capital and general corporate
purposes.
Financing. On April 26, 1996, the Company amended its credit
facility (the "Credit Facility") with the First Union National Bank of
Florida (the "Bank"). A previous Revolving Credit Facility for up
$4,200,000 was replaced by a $1,500,000 Revolving Master Line of Credit
(the "Master Revolver") and a $100,000 Term Loan.
The Master Revolver will expire on December 31, 1996 and the
$100,000 Term Loan is repayable in 36 level monthly principal payments of
$2,777.70, plus interest. At September 30, 1996, $1,500,000 was
outstanding under the Master Revolver. The Master Revolver bears interest
at the following rates, as applicable and selected by the Company from time
to time: (i) the Bank's LIBOR adjusted rate plus
12
3.0% or (ii) the Bank's prime rate plus 0.75%. The $100,000 Term Loan
bears interest at the Bank's prime rate plus 1.0%.
In October 1996, the Credit Facility was further amended pursuant to
which Apex Healthcare, Inc., a wholly owned subsidiary of the Company,
guaranteed the obligations of the Company under the Credit Facility and the
Company pledged all of the shares of capital stock of Apex to the Bank as
collateral.
As part of the acquisition of FPM in October 1993, the Company
issued 7% three year debentures, totaling $2,500,000 (see "Indebtedness"
below). These debentures were prepaid with the proceeds of a $1,667,000
three year secured term loan from the Bank on April 28, 1995. This three
year term loan bears interest at (i) the Bank's LIBOR adjusted rate plus
2.5% or (ii) the bank's prime rate plus 0.50%, as selected by the Company.
Principal on this three year term loan is payable quarterly with a final
maturity of January 31, 1998. This three year secured term loan, the
additional term loan of $100,000 (referred to above) and the Master
Revolver are secured by a pledge of the stock of RMCI's subsidiaries and
the assets of RMCI's subsidiaries, and are required to be repaid with a
portion of the proceeds from the sale of the Company's HMO operation.
The Credit Facility contains covenants customary for facilities of
this type, which include, without limitation, covenants which contain
limitations on the ability of FPM and its subsidiaries, subject to certain
exceptions, to (i) assume or incur liens, (ii) alter the nature of their
business or effect mergers, consolidations, or sales of assets, (iii) incur
indebtedness or make investments, (iv) acquire businesses, or (v) pay
dividends to the Company . In addition, the Credit Facility contains
financial covenants related to senior debt to cash flow, interest coverage,
and minimum stockholders' equity. At June 30, 1996, FPM's minimum
stockholders' equity ratio was less than the requirement. The Bank agreed
to waive this requirement for the year ended June 30, 1996.
Indebtedness. In connection with the Company's acquisition of all
the outstanding shares of common stock of FPM in October 1993, FPM issued
7% debentures due October 31, 1996 (the "Debentures") in the aggregate
principal amount of $2,500,000 to the selling stockholders of FPM,
including Martin Lazoritz, Robert W. Pollack and I. Paul Mandelkern,
officers of the Company or its subsidiaries. Subsequently, on April 28,
1995, these Debentures were prepaid with the proceeds of the $1,667,000
three year secured term loan discussed above.
In connection with the Company's acquisition of the assets of HDI,
through a wholly owned subsidiary FPMBH of Arizona, Inc., the Company
issued a promissory note in the principal amount of $1,000,000 (the "HDI
Note") to Phoenix South Community Mental Health Centers ("Phoenix South").
Interest accrues on the HDI Note at a fixed rate of 8.25% per annum and is
payable monthly in arrears, together with equal installments of principal,
until the HDI Note matures on June 30, 1997. The HDI Note is secured
pursuant to a Stock Pledge Agreement dated June 30, 1994, pursuant to which
Phoenix South has a first priority lien on all of the common stock of FPMBH
of Arizona, Inc. (f/k/a Ramsay HDI). Upon payment in full of the HDI Note,
the Bank
13
will have a first priority lien on the common stock of FPMBH of Arizona
under the Credit Facility.
In addition, in connection with the Distribution of RMCI from RHCI,
RMCI issued to RHCI the Subordinated Promissory Note in the principal
amount of $6,000,000, evidencing certain funds advanced to or on behalf of
RMCI by RHCI, including in connection with the acquisition of certain
acquired businesses. Prior to its issuance, the amounts 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%.
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 $2.1 million as at September 30, 1996, the interest due on
the Subordinated Promissory Note for the year ending June 30, 1997 and the
$480,000 of interest accrued on the Subordinated Promissory Note from
October 1995 to September 30, 1996. Of the $6,000,000 due on the
Subordinated Promissory Note, approximately $1,400,000 is due on or before
June 30, 1997 and the remainder is payable in 13 quarterly installments of
approximately $353,000, beginning September 30, 1997. RHCI has agreed not
to require repayment of the interest on the Subordinated Promissory Note
for the period October 1, 1995 through September 30, 1996 or the net cash
advances until after October 1, 1997, all on terms and conditions to be
mutually agreed upon.
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"), a corporate affiliate of Paul J. Ramsay, the
Chairman of the Board of the Company, 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 canceled.
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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 Mr. Ramsay formalized
its agreement to provide an additional loan facility, if required, of up to
$2,000,000 to the Company for working capital and general corporate
purposes. Borrowings under this facility will bear interest at 15% per
annum and the Company has agreed to pay Ramsay Hospitals a $100,000
facility fee in consideration for making the facility available to the
Company. At November 1, 1996, $600,000 was borrowed by the Company under
the facility.
The Company may be required to raise additional funds for working
capital, general corporate purposes, development and growth beyond its
immediate plans and/or to remain competitive with its larger competitors.
Any additional equity financing may result in substantial dilution to the
stockholders of the Company. Except for the financing provided by the above
mentioned affiliate commitment and the Master Revolver (which at September
30, 1996 was fully drawn), the Company has made no arrangements to obtain
any additional debt financing, and there can be no assurance that the
Company will be able to obtain any required additional funds.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company has agreed to sell all of the issued and outstanding
shares of common stock, $.01 par value (the "Apex Shares"), of Apex
Healthcare, Inc. ("Apex"), a Delaware corporation and wholly owned
subsidiary of the Company, to RoTech Medical Corporation ("RoTech"), a
Delaware corporation, pursuant to a Stock Purchase Agreement dated as of
October 30, 1996. Apex is engaged in the business of operating HMOs and
related businesses in the states of Alabama, Louisiana and Mississippi.
The purchase price for the Apex Shares is $4,350,000. The closing of the
sale is subject to the receipt of regulatory approvals, third-party
consents and other customary closing conditions. The determination of the
consideration for the sale of Apex Shares was based on negotiations between
the Company and RoTech.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required to be filed as part of this Quarterly Report
on Form 10-QSB are listed on the attached Index to Exhibits.
(b) Current Reports on Form 8-K
There were no Current Reports on Form 8-K filed with the
Commission during the quarter ended September 30, 1996. On
October 2, 1996, the Company filed a Current Report on Form 8-K
with the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereupon duly authorized.
RAMSAY MANAGED CARE, INC.
Registrant
/s/ Warwick D. Syphers
---------------------------
Warwick D. Syphers
Chief Financial Officer
Date: November 19, 1996
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RAMSAY MANAGED CARE, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Stock Purchase Agreement dated as of October 30, 1996 by and among
Apex Healthcare, Inc., Ramsay Managed Care, Inc. and RoTech Medical
Corporation. Pursuant to Reg. S-B, Item 601(b)(2), the Company agrees
to furnish a copy of the Disclosure Schedules to such Agreement to
the Commission upon request.
11 Computation of Net Income (Loss) per Share.
27 Financial Data Schedule.
19