<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [FEE REQUIRED]

                For the quarterly period ended September 30, 2001

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                 For the Transition period from ______ to ______

                         Commission file number 0-13849


                           RAMSAY YOUTH SERVICES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          DELAWARE                                             63-0857352
 ------------------------------                            -------------------
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)


            COLUMBUS CENTER
     ONE ALHAMBRA PLAZA, SUITE 750
         CORAL GABLES, FLORIDA                                     33134
----------------------------------------                         ----------
(Address of principal executive offices)                         (Zip Code)


        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993


         Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].

         The number of shares of the Registrant's Common Stock outstanding as of
November 9, 2001, follows:


         Common Stock, par value $0.01 per share - 9,445,449 shares


<PAGE>


                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                     PAGE
                                                                                                     ----
<S>                                                                                                   <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)......................................................       1

Condensed Consolidated Balance Sheets - September 30, 2001 and
         December 31, 2000.....................................................................       1

Condensed Consolidated Statements of Operations - Quarter and Nine Months
         Ended September 30, 2001 and 2000.....................................................       3

Condensed Consolidated Statements of Cash Flows - Nine Months Ended
         September 30, 2001 and 2000...........................................................       4

Notes to Condensed Consolidated Financial Statements - September 30, 2001......................       5

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.............................................................      10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk............................      18


PART II. OTHER INFORMATION

Item 1.  Other Information.....................................................................      18

Item 2.  Exhibits and Current Reports on Form 8-K..............................................      19

SIGNATURES.....................................................................................      20



</TABLE>

<PAGE>



                          PART I. FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,       DECEMBER 31,
                                                                           2001               2000
                                                                       ------------       ------------
<S>                                                                    <C>                <C>
ASSETS

Current assets
   Cash and cash equivalents ....................................      $  1,361,000       $  1,539,000
   Accounts receivable, less allowances for doubtful accounts of
     $2,689,000 and $2,807,000 at September 30, 2001 and
     December 31, 2000, respectively ............................        26,609,000         22,970,000
   Other current assets .........................................         4,316,000          3,487,000
                                                                       ------------       ------------
     Total current assets .......................................        32,286,000         27,996,000

Other assets
   Cash held in trust ...........................................         1,011,000          1,041,000
   Cost in excess of net asset value of purchased businesses, net         2,261,000          2,548,000
   Unamortized loan costs, net ..................................         1,180,000          1,415,000
   Note receivable ..............................................         1,800,000                 --
   Net assets held for sale .....................................                --          2,129,000
                                                                       ------------       ------------
     Total other assets .........................................         6,252,000          7,133,000

Property and equipment
   Land .........................................................         4,671,000          4,666,000
   Buildings and improvements ...................................        37,556,000         36,351,000
   Equipment, furniture and fixtures ............................        12,324,000         11,698,000
                                                                       ------------       ------------
                                                                         54,551,000         52,715,000

   Less accumulated depreciation ................................       (19,960,000)       (18,246,000)
                                                                       ------------       ------------
                                                                         34,591,000         34,469,000
                                                                       ------------       ------------

                                                                       $ 73,129,000       $ 69,598,000
                                                                       ============       ============
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       1
<PAGE>


                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     SEPTEMBER 30,        DECEMBER 31,
                                                                                         2001                2000
                                                                                    -------------       -------------
<S>                                                                                 <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Accounts payable ..........................................................      $   5,447,000       $   7,606,000
   Accrued and other liabilities .............................................          7,945,000           5,627,000
   Amounts due to third-party contractual agencies ...........................          1,742,000           3,632,000
   Current portion of long-term debt .........................................          3,170,000           2,803,000
                                                                                    -------------       -------------
     Total current liabilities ...............................................         18,304,000          19,668,000

Noncurrent liabilities
   Other accrued liabilities .................................................          4,922,000           4,389,000
   Long-term debt, less current portion ......................................         26,784,000          24,708,000
                                                                                    -------------       -------------
     Total liabilities .......................................................         50,010,000          48,765,000
                                                                                    -------------       -------------

Commitments and contingencies

Stockholders' equity

   Common stock $.01 par value--authorized 30,000,000 shares; issued 9,445,449
     shares at September 30, 2001 and 9,121,180 shares at December 31, 2000 ..             94,000              91,000
   Additional paid-in capital ................................................        127,047,000         127,024,000
   Accumulated deficit .......................................................       (100,123,000)       (102,383,000)
   Treasury stock - 193,850 common shares at September 30, 2001
     and December 31, 2000, at cost ..........................................         (3,899,000)         (3,899,000)
                                                                                    -------------       -------------
           Total stockholders' equity ........................................         23,119,000          20,833,000
                                                                                    -------------       -------------

                                                                                    $  73,129,000       $  69,598,000
                                                                                    =============       =============
</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.



                                       2
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  QUARTER ENDED                   NINE MONTHS ENDED
                                                                    SEPTEMBER 30,                     SEPTEMBER 30,
                                                           ----------------------------      ----------------------------
                                                              2001             2000             2001             2000
                                                           -----------      -----------      -----------      -----------
<S>                                                        <C>              <C>              <C>              <C>
Revenues ............................................      $33,638,000      $27,865,000      $99,267,000      $76,579,000

Operating Expenses:
   Salaries, wages and benefits .....................       21,283,000       18,012,000       61,846,000       48,345,000
   Other operating expenses .........................        9,457,000        7,995,000       28,087,000       21,961,000
   Provision for doubtful accounts ..................          264,000          265,000        2,183,000        1,730,000
   Depreciation and amortization ....................          639,000          573,000        1,824,000        1,721,000
                                                           -----------      -----------      -----------      -----------
Total operating expenses ............................       31,643,000       26,845,000       93,940,000       73,757,000
                                                           -----------      -----------      -----------      -----------

Income from operations ..............................        1,995,000        1,020,000        5,327,000        2,822,000

Non-operating expenses:
   Interest and other financing charges, net ........          746,000          820,000        2,597,000        1,815,000
   Loss on sale of assets ...........................               --               --               --          456,000
                                                           -----------      -----------      -----------      -----------
     Total non-operating expenses, net ..............          746,000          820,000        2,597,000        2,271,000

Income before income taxes ..........................        1,249,000          200,000        2,730,000          551,000

Provision for income taxes ..........................          171,000           62,000          472,000          146,000
                                                           -----------      -----------      -----------      -----------

Net income ..........................................      $ 1,078,000      $   138,000      $ 2,258,000      $   405,000
                                                           ===========      ===========      ===========      ===========

Income attributable to common stockholders ..........      $ 1,078,000      $   138,000      $ 2,258,000      $   405,000
                                                           ===========      ===========      ===========      ===========
Income per common share:
   Basic ............................................      $      0.12      $       .02      $      0.25      $       .05
                                                           ===========      ===========      ===========      ===========
   Diluted ..........................................      $      0.10      $       .02      $      0.23      $       .05
                                                           ===========      ===========      ===========      ===========

Weighted average number of common shares outstanding:
   Basic ............................................        9,056,000        8,915,000        8,977,000        8,908,000
                                                           ===========      ===========      ===========      ===========
   Diluted ..........................................       11,059,000        8,915,000        9,977,000        9,034,000
                                                           ===========      ===========      ===========      ===========

</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       3
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                  -------------------------------
                                                                      2001               2000
                                                                  ------------       ------------
<S>                                                               <C>                <C>
Cash flows from operating activities:
   Net income ..............................................      $  2,258,000       $    405,000
   Adjustments to reconcile net income to net cash used in
     operating activities:
     Depreciation ..........................................         1,723,000          1,403,000
     Amortization, including loan costs ....................           526,000            558,000
     Provision for doubtful accounts .......................         2,183,000          1,730,000
     Loss on sale of assets ................................                --            456,000
     Change in operating assets and liabilities:
       Accounts receivable .................................        (5,819,000)        (8,523,000)
       Other current assets ................................          (829,000)           965,000
       Accounts payable ....................................        (2,146,000)        (1,318,000)
       Accrued and other liabilities .......................         2,851,000           (194,000)
       Amounts due to third-party contractual agencies .....        (1,890,000)          (738,000)
                                                                  ------------       ------------
         Total adjustments .................................        (3,401,000)        (5,661,000)
                                                                  ------------       ------------
           Net cash used in operating activities ...........        (1,143,000)        (5,256,000)
                                                                  ------------       ------------
Cash flows from investing activities:
   Net proceeds from the sale of assets ....................           472,000            100,000
   Increase in net assets held for sale ....................                --           (156,000)
   Expenditures for property and equipment .................        (1,826,000)        (1,890,000)
   Acquisitions ............................................                --         (8,232,000)
   Decrease in cash held in trust ..........................            30,000            891,000
                                                                  ------------       ------------
           Net cash used in investing activities ...........        (1,324,000)        (9,287,000)
                                                                  ------------       ------------
Cash flows from financing activities:
   Loan costs ..............................................           (41,000)          (697,000)
   Amounts paid to affiliate ...............................                --           (600,000)
   Proceeds from issuance of debt and warrants .............         4,705,000         19,933,000
   Payments on debt ........................................        (2,401,000)        (4,256,000)
   Net proceeds from exercise of options and stock purchases            26,000             44,000
   Registration costs ......................................                --            (18,000)
                                                                  ------------       ------------
           Net cash provided by financing activities .......         2,289,000         14,406,000
                                                                  ------------       ------------
Net decrease in cash and cash equivalents ..................          (178,000)          (137,000)
Cash and cash equivalents at beginning of period ...........         1,539,000            622,000
                                                                  ------------       ------------
Cash and cash equivalents at end of period .................      $  1,361,000       $    485,000
                                                                  ============       ============


Cash paid during the period for:
   Interest ................................................      $  2,249,000       $  1,319,000
                                                                  ============       ============
   Income taxes ............................................      $    417,000       $  1,197,000
                                                                  ============       ============

</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.


                                       4
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1.  BASIS OF PRESENTATION

         Ramsay Youth Services, Inc. (the "Company") is a provider and manager
of mental health, substance abuse and behavioral health programs and services in
residential and non-residential settings in Alabama, Florida, Hawaii, Missouri,
Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the
Commonwealth of Puerto Rico.

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the interim information are,
unless otherwise discussed in this report, of a normal recurring nature and have
been included. The Company's business is seasonal in nature and subject to
general economic conditions and other factors. Accordingly, operating results
for the quarter and nine months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year. The balance sheet
at December 31, 2000 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.

         On August 4, 2000, the Company acquired the operating assets of Charter
Behavioral Health System of Manatee Palms, L.P. ("Manatee Palms") from Charter
Behavioral Health Systems, LLC and the corresponding real estate from Crescent
Real Estate Funding VII, L.P. for a cash purchase price of $7,700,000. The
acquisition was accounted for under the purchase method of accounting. In
connection with the acquisition, the Company recorded cost in excess of net
asset value of purchased businesses of $1,892,000. This amount is being
amortized on a straight-line basis over a term of 20 years. The operations of
Manatee Palms have been included in the Company's consolidated statement of
operations effective August 4, 2000. The Company's Senior Credit Facility was
amended on August 4, 2000 to provide for the approval of this acquisition.

         On May 15, 2001, the Company sold its facility in Palm Bay, Florida for
$2,300,000. Proceeds from the sale included a $500,000 cash payment at closing
and a $1,800,000, 8% promissory note, due and payable on June 30, 2003. The note
is secured by the facility.

NOTE 2.  LONG-TERM DEBT

         The Company's long-term debt is as follows:

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30,    DECEMBER 31,
                                                                 2001             2000
                                                             -----------      -----------
<S>                                                          <C>              <C>
Variable rate Term Loan, due October 30, 2003 .........      $ 8,811,000      $10,597,000
Revolver, due October 30, 2003 ........................        9,882,000        5,586,000
Acquisition Loan, due October 30, 2003 ................        1,928,000        2,162,000
Subordinated Note (net of discount of $352,000), due
   January 24, 2007 ...................................        4,648,000        4,579,000
Subordinated Note (net of discount of $371,000), due
   January 24, 2007 ...................................        4,629,000        4,560,000
Other .................................................           56,000           27,000
                                                             -----------      -----------
                                                              29,954,000       27,511,000
Less current portion ..................................        3,170,000        2,803,000
                                                             -----------      -----------
                                                             $26,784,000      $24,708,000
                                                             ===========      ===========

</TABLE>

                                       5
<PAGE>


                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

         The Company's senior credit facility (the "Senior Credit Facility") was
amended on August 4, 2000 to provide for the acquisition of Manatee Palms. The
amended Senior Credit Facility consists of (i) a term loan (the "Term Loan")
payable in monthly installments ranging from $83,000 to $302,000 with a final
installment of $2,100,000 due on October 30, 2003, (ii) a revolving credit
facility (the "Revolver") for an amount up to the lesser of $12,000,000 or the
borrowing base of the Company's receivables (as defined in the agreement) and
(iii) an acquisition loan commitment of up to $6,000,000 (the "Acquisition
Loan").

         The Company's amended Senior Credit Facility also provided for a
$1,250,000 bridge loan advance under the Acquisition Loan. The bridge loan
advance is payable on the occurrence of certain events (as defined in the
agreement).

         In connection with the aforementioned bridge loan advance, a corporate
affiliate of Paul J. Ramsay, Chairman of the Board of the Company, entered into
a Junior Subordinated Note Purchase Agreement with the Senior Credit Facility
lender to participate in the Senior Credit Facility in an amount equal to the
bridge loan advance.

         The Company failed to maintain the required senior debt fixed charge
coverage and leverage ratios as of December 31, 2000. The Company's senior
lender agreed to waive these requirements as of December 31, 2000. Effective
March 31, 2001, the Company's Senior Credit Facility was amended (the "Seventh
Amendment"). Under the Seventh Amendment, certain coverage and leverage ratios
required to be met by the Company were revised. As of September 30, 2001, the
Company is in compliance with all senior debt covenants under the Seventh
Amendment.

         On April 14, 2001, the Company's subordinated debt agreement was
amended (the "Second Amendment"). Under the Second Amendment, certain coverage
and leverage ratios required to be met by the Company were revised retroactive
to March 31, 2001. As of September 30, 2001, the Company is in compliance with
all subordinated debt covenants.

NOTE 3.  EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY

         The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                      QUARTER ENDED SEPTEMBER 30,    NINE MONTHS ENDED SEPTEMBER 30,
                                                      ---------------------------    -------------------------------
                                                         2001            2000             2001               2000
                                                      -----------      ----------    ------------      -------------
                                                               (unaudited)                     (unaudited)

<S>                                                   <C>              <C>            <C>              <C>
Numerator:
   Numerator for basic earnings per share -
     income attributable to common
     stockholders ..............................      $ 1,078,000      $ 138,000      $ 2,258,000      $   405,000
                                                      ===========      =========      ===========      ===========

Denominator:
   Denominator for basic earnings per share -
     weighted-average shares ...................        9,056,000      8,915,000        8,977,000        8,908,000

   Effect of dilutive securities:
     Stock options and warrants ................        2,003,000             --        1,000,000          126,000
                                                      -----------      ---------      -----------      -----------
   Dilutive potential common shares ............        2,003,000             --        1,000,000          126,000
                                                      -----------      ---------      -----------      -----------
     Denominator for diluted earnings per
       share - adjusted weighted-average
       shares and assumed conversions ..........       11,059,000      8,915,000        9,977,000        9,034,000
                                                      ===========      =========      ===========      ===========

Basic earnings per share .......................      $       .12      $     .02      $       .25      $       .05
                                                      ===========      =========      ===========      ===========

Diluted earnings per share .....................      $       .10      $     .02      $       .23      $       .05
                                                      ===========      =========      ===========      ===========

</TABLE>



                                       6
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



         For both the quarter and the nine months ended September 30, 2001,
options and warrants totalling 591,781 and 786,281, respectively, were excluded
from the above computation because their effect would be antidilutive.

         For both the quarter and the nine months ended September 30, 2000,
options and warrants totaling 3,907,239 and 2,907,239, respectively, were
excluded from the above computation because their effect would be antidilutive.

         During the quarter ended September 30, 2001, one of the Company's
subordinated debt lenders converted 475,000 warrants to purchase the Company's
Common Stock into 294,597 shares of the Company's Common Stock. The lender used
180,403 shares of the Company's Common Stock to pay the exercise price of the
warrants.

NOTE 4.  SEGMENT INFORMATION

         The Company is a provider and manager of mental health substance abuse
and behavioral health programs and services in residential and non-residential
settings in ten states and the Commonwealth of Puerto Rico. During the quarter
ended June 30, 2001, the Company refined its segment definitions to more
appropriately reflect its business operations and management responsibilities.
The primary change from the segment information presented as of December 31,
2000 consists of a change in the names of the segments and the classification of
certain items within the segments. Accordingly, the corresponding information
for earlier periods has been reclassified to reflect its new reportable business
segments, owned operations and management contract operations.

OWNED OPERATIONS

         The Company offers its mental health and behavioral health programs and
services at its owned and leased facilities in residential and non-residential
settings.

         The residential setting provides a safe, secure and highly structured
environment for the evaluation and development of long-term intensive treatment
services. The programs focus on a cognitive behavioral model with family, group
and individual counseling, social and life skills development, and educational
and recreational programs. The primary focus of these services is to reshape
antisocial behaviors by stressing responsibility and achievement of performance
and treatment goals.

         The non-residential setting is designed to meet the special needs of
patients requiring a less structured environment than the residential setting,
but providing the necessary level of treatment, support and assistance to
transition back into society. The primary focus of this program is to provide
patients, with a clinically definable emotional, psychiatric or dependency
disorder, with therapeutic and intensive treatment services. Patients who are
assisted through this program have either transitioned out of a residential
treatment program, or do not require the intensive services of a residential
treatment program.

         Many of the Company's programs are complemented with specialized
educational services designed to modify behavior and assist individuals in
developing their academic, social, living and vocational skills necessary to
participate successfully in society.

MANAGEMENT CONTRACT OPERATIONS

         The Company's programs and services in its management contract
operations are similar in nature to the programs and services offered by the
Company at its owned operations; however, the programs and services are provided
at facilities owned by the contracting governmental agency. These programs and
services focus on solving the specialized needs of the respective agency by
providing effective treatment interventions, including counseling, social
interests, substance abuse education and treatment, mental health services,
cognitive and life skills development, accredited education and vocational
skills. The Company



                                       7
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


believes that a comprehensive approach, which develops the
social, educational, and vocational skills of the individual, creates
responsible, contributing, pro-social individuals. This comprehensive approach
is essential to achieving the program's objective of reducing recidivism and
integrating the youth into their communities as responsible and productive
individuals.

         The following table set forth, for each of the periods indicated,
certain information about segment results of operations and segment assets.
There are no inter-segment sales or transfers. Segment profit consists of
revenue less operating expenses, and does not include investment income and
other, interest and other financing charges, non-recurring items and income
taxes. Total assets are those assets used in the operations in each segment.
Corporate assets include cash and cash equivalents, property and equipment,
intangible assets and notes receivable. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.

<TABLE>
<CAPTION>
                                                       QUARTER ENDED SEPTEMBER 30,         NINE MONTHS ENDED SEPTEMBER 30,
                                                     -------------------------------       -------------------------------
                                                        2001               2000               2001               2000
                                                     ------------       ------------       ------------       ------------
<S>                                                  <C>                <C>                <C>                <C>
SEGMENT REVENUE
   Owned operations ...........................      $ 26,415,000       $ 21,949,000       $ 78,683,000       $ 62,508,000
   Management contracts .......................         7,223,000          5,916,000         20,584,000         14,071,000
                                                     ------------       ------------       ------------       ------------
Total consolidated revenues ...................      $ 33,638,000       $ 27,865,000       $ 99,267,000       $ 76,579,000
                                                     ============       ============       ============       ============

SEGMENT DEPRECIATION AND AMORTIZATION
  Owned operations ............................      $    569,000       $    438,000       $  1,626,000          1,313,000
   Management contracts .......................            28,000             15,000             78,000             44,000
                                                     ------------       ------------       ------------       ------------
                                                          597,000            453,000          1,704,000          1,357,000

Reconciling items
   Corporate depreciation and amortization ....            42,000            120,000            120,000            364,000
                                                     ------------       ------------       ------------       ------------
Total consolidated depreciation and
  amortization ................................      $    639,000       $    573,000       $  1,824,000       $  1,721,000
                                                     ============       ============       ============       ============

Segment profit
  Owned operations ............................      $  2,131,000       $  1,674,000       $  7,533,000       $  5,657,000
   Management contracts .......................         1,244,000            741,000          2,309,000          1,561,000
                                                     ------------       ------------       ------------       ------------
                                                        3,375,000          2,415,000          9,842,000          7,218,000

Reconciling items
   Corporate expenses .........................        (1,380,000)        (1,395,000)        (4,515,000)        (4,396,000)
   Loss on sale of assets .....................                --                 --                 --           (456,000)
   Interest and other financing charges .......          (746,000)          (820,000)        (2,597,000)        (1,815,000)
                                                     ------------       ------------       ------------       ------------
Total consolidated income before income taxes .      $  1,249,000       $    200,000       $  2,730,000       $    551,000
                                                     ============       ============       ============       ============

Segment capital expenses
  Owned operations ............................      $    522,000       $    787,000       $  1,488,000       $  1,593,000
   Management contracts .......................            42,000             75,000            174,000            274,000
                                                     ------------       ------------       ------------       ------------
                                                          564,000            862,000          1,662,000          1,867,000

Reconciling items
   Corporate assets ...........................            33,000              1,000            164,000             23,000
                                                     ------------       ------------       ------------       ------------
Total consolidated capital expenditures .......      $    597,000       $    863,000       $  1,826,000       $  1,890,000
                                                     ============       ============       ============       ============


</TABLE>

                                       8
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



                                           YEAR ENDED
                                  -----------------------------
                                  SEPTEMBER 30,    DECEMBER 31,
                                     2001              2000
                                  -------------    ------------

SEGMENT ASSETS
  Owned operations .........      $59,921,000      $60,193,000
   Management contracts ....        8,557,000        6,260,000
                                  -----------      -----------
Total segment assets .......       68,478,000       66,453,000

Reconciling items
   Corporate assets ........        4,651,000        3,145,000
                                  -----------      -----------
Total consolidated assets ..      $73,129,000      $69,598,000
                                  ===========      ===========

NOTE 5.  ACCOUNTS RECEIVABLE

         In October 2001, the Company collected approximately $1.9 million of
outstanding receivables from its contracts in Puerto Rico, of which
approximately $.8 million were over 120 days past due. The collection of these
receivables reduced the outstanding balance of receivables for services billed
through September 30, 2001 to approximately $3.3 million, of which approximately
$.9 million is over 120 days past due. The Company has reserves on the balances
due from the Commonwealth of Puerto Rico of $1.0 million as of September 30,
2001. The Company and its advisors are in active discussions with the Government
of Puerto Rico with respect to the payment of the outstanding receivables. The
Company believes that it has fully performed its obligations under the Puerto
Rico contracts and is entitled to receive payment of these receivables in full.
Although the Company has been advised by its legal counsel that the receivables
due on the Puerto Rico contracts are collectable, there can be no assurances
that future transactions or events will not result in the need for additional
reserves for these accounts receivable. If the Company were to record additional
reserves, it would adversely affect earnings in the period in which the reserves
are recorded.

NOTE 6.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, ACCOUNTING FOR BUSINESS COMBINATIONS, and Statement No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. These statements modify accounting for
business combinations after June 30, 2001 and will affect the Company's
treatment of goodwill and other intangible assets at the start of fiscal year
2002. The statements require that goodwill existing at the date of adoption be
reviewed for possible impairment and that impairment tests be periodically
repeated, with impaired assets written-down to fair value. Additionally,
existing goodwill and intangible assets must be assessed and classified
consistent with the statements' criteria. Intangible assets with estimated
useful lives will continue to be amortized over those periods. Amortization of
goodwill and intangible assets with indeterminate lives will cease. At this
time, the Company has not yet determined the complete impact of these
Statements. The Company recorded amortization of goodwill expense of $29,000 and
$86,000 for the quarter ended September 30, 2001 and 2000, respectively, and
$112,000 and $270,000 for the nine months ended September 30, 2001 and 2000,
respectively.

         In July 2001, the FASB issued Statement No. 143, ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS. This Statement requires that an asset retirement cost
should be capitalized as part of the cost of the related long-lived asset and
subsequently allocated to expense using a systematic and rational method. This
Statement is required to be adopted in fiscal years beginning after June 15,
2002. The Company has not yet completed its evaluation of the impact of the
adoption of this Statement.

         In October 2001, the FASB issued Statement No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS. This Statement supersedes Statement
No. 121 but retains many of its fundamental provisions. Additionally, this
Statement expands the scope of discontinued operations to include more disposal
transactions. The provisions of this Statement are effective for financial
statement issued for fiscal





                                       9
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


years beginning after December 15, 2001. The Company has not yet completed its
evaluation of the impact of the adoption of this Statement.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The Company receives revenues primarily from the delivery of mental
health, substance abuse and behavioral health programs and services in
residential and non-residential settings. The Company receives revenues based on
per diem rates, fixed fee contracts or flat or cost-based rate contracts. In
addition, the Company also receives revenues from management contracts with
other entities. Revenues under the Company's programs are recognized as services
are rendered. Revenues of the Company's programs and services are affected by
changes in the rates the Company charges, changes in reimbursement rates by
third-party payors, the volume of individuals treated and changes in the mix of
payors.

         Salaries, wages and benefits include facility and program payrolls and
related taxes, as well as employee benefits, including insurance and workers'
compensation coverage. Employee compensation and benefits also includes general
and administrative payroll and related benefit costs, including salaries and
supplemental compensation of officers.

         Other operating expenses include all expenses not otherwise presented
separately in the Company's statements of operations. Significant components of
these expenses at the operating level include items such as food, utilities,
supplies, rent and insurance. Significant components of these expenses at the
administrative level include legal, accounting, investor relations, marketing,
consulting and travel expense.

         The Company's quarterly results may fluctuate significantly as a result
of a variety of factors, including the timing of the opening of new programs.
When the Company opens a new program, the program may be unprofitable until the
program's population, and net revenues contributed by the program, approach
intended levels, primarily because the Company staffs its programs in
anticipation of achieving such levels. The Company's quarterly results may also
be impacted by seasonality, as revenues generated by the Company's treatment
services are generally seasonal in nature.

         IN CONNECTION WITH THE "SAFE-HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY NOTES THAT THIS QUARTERLY
REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS ABOUT THE COMPANY. THE
COMPANY IS HEREBY SETTING FORTH CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE SET FORTH IN ANY FORWARD-LOOKING STATEMENTS OR INFORMATION MADE BY OR ON
BEHALF OF OR CONCERNING THE COMPANY. SOME OF THE MOST SIGNIFICANT FACTORS
INCLUDE (I) ACCELERATING CHANGES OCCURRING IN THE AT-RISK YOUTH INDUSTRY,
INCLUDING COMPETITION FROM CONSOLIDATING AND INTEGRATED PROVIDER SYSTEMS AND
LIMITATIONS ON REIMBURSEMENT RATES, (II) FEDERAL AND STATE GOVERNMENTAL
BUDGETARY CONSTRAINTS WHICH COULD HAVE THE EFFECT OF LIMITING THE AMOUNT OF
FUNDS AVAILABLE TO SUPPORT GOVERNMENTAL PROGRAMS, (III) STATUTORY, REGULATORY
AND ADMINISTRATIVE CHANGES OR INTERPRETATIONS OF EXISTING STATUTORY AND
REGULATORY PROVISIONS AFFECTING THE CONDUCT OF THE COMPANY'S BUSINESS AND
AFFECTING CURRENT AND PRIOR REIMBURSEMENT FOR THE COMPANY'S SERVICES AND (IV)
THE COMPANY'S INABILITY TO SUCCESSFULLY IMPLEMENT ITS NEW STRATEGIC DIRECTION OF
PROVIDING TREATMENT AND EDUCATION PROGRAMS FOR AT-RISK AND TROUBLED YOUTH, AND
(V) UNCERTAINTIES REGARDING ISSUES IN THE PUERTO RICO MARKET SERVICED BY THE
COMPANY. THERE CAN BE NO ASSURANCE THAT ANY ANTICIPATED FUTURE RESULTS WILL BE
ACHIEVED. AS A RESULT OF THE FACTORS IDENTIFIED ABOVE AND INCLUDING ANY OTHER
FACTORS, THE COMPANY'S ACTUAL RESULTS OR FINANCIAL OR OTHER CONDITION COULD VARY
SIGNIFICANTLY FROM THE PERFORMANCE OR EXPECTATION SET FORTH IN ANY
FORWARD-LOOKING STATEMENTS OR INFORMATION.


                                       10
<PAGE>


                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
                              RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 2001 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2000

OWNED OPERATIONS SEGMENT

         The following tables state for the periods indicated the results of our
owned operations in dollar and percentage of revenue terms (dollars in
thousands):

<TABLE>
<CAPTION>
                                                   QUARTER ENDED SEPTEMBER 30,
                                          -----------------------------------------------
                                                  2001                       2000
                                          --------------------       --------------------
<S>                                       <C>            <C>         <C>            <C>
Revenues ...........................      $26,415        100.0%      $21,949        100.0%

Expenses:
   Salaries, wages and benefits ....       16,037         60.7%       13,371         60.9%
   Other operating expenses ........        7,130         27.0%        6,024         27.5%
   Provision for doubtful accounts .          548          2.0%          442          2.0%
   Depreciation and amortization ...          569          2.2%          438          2.0%
                                          -------      -------       -------      -------
     Total operating expenses ......       24,284         91.9%       20,275         92.4%
                                          -------      -------       -------      -------
Income from operations .............      $ 2,131          8.1%      $ 1,674          7.6%
                                          =======      =======       =======      =======
</TABLE>

REVENUES

         Revenues increased from $21.9 million in the quarter ended September
30, 2000 to $26.4 million in the quarter ended September 30, 2001. The increase
of $4.5 million in revenues from 2000 to 2001 is primarily a result of (i) an
increase in revenues of $1.1 million from the full quarter effect of the Manatee
Palms acquisition completed in August 2000 and (ii) an increase of $3.4 million
in the Company's other facilities primarily due to a total increase in census of
10.2% between periods (from 67,397 days during the quarter ended September 30,
2000 to 74,237 days during the quarter ended September 30, 2001).

SALARIES, WAGES AND BENEFITS

         Salaries, wages and benefits were $13.4 million, or 60.9% of revenues
for the quarter ended September 30, 2000, compared to $16.0 million, or 60.7% of
revenues for the quarter ended September 30, 2001. Salaries, wages and benefits
did not fluctuate significantly as a percentage of revenue when compared to the
same period in the prior year.

OTHER OPERATING EXPENSES

         Other operating expenses were $6.0 million or 27.5% of revenues for the
quarter ended September 30, 2000, compared to $7.1 million, or 27.0% of revenues
for the quarter ended September 30, 2001. The decrease as a percentage of
revenues is primarily due to a rate increase at one of the Company's facilities
and an increase in business in the Company's Florida market. This decrease was
partially offset by the outsourcing of certain services at the Company's
Michigan facility.

PROVISION FOR DOUBTFUL ACCOUNTS

         The provision for doubtful accounts was $0.4 million or 2.0% of
revenues for the quarter ended September 30, 2000, compared to $0.5 million, or
2.0% of revenues for the quarter ended September 30, 2001. Provision for
doubtful accounts during the quarter ended September 30, 2001 did not fluctuate
as a percentage of revenue when compared to the same period in the prior year.


                                       11
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES


DEPRECIATION AND AMORTIZATION

         Depreciation and amortization was $0.4 million or 2.0% of revenues for
the quarter ended September 30, 2000, compared to $0.6 million, or 2.2% of
revenues for the quarter ended September 30, 2001. Depreciation and amortization
during the quarter ended September 30, 2001 increased primarily as a result of
the acquisition of Manatee Palms facilities.

MANAGEMENT CONTRACT SEGMENT

         The following tables state for the periods indicated the results of our
management contract operations in dollar and percentage of revenue terms
(dollars in thousands):

<TABLE>
<CAPTION>
                                                      QUARTER ENDED SEPTEMBER 30,
                                          --------------------------------------------------
                                                   2001                         2000
                                          ---------------------        ---------------------
<S>                                       <C>             <C>          <C>             <C>
Revenues ...........................      $ 7,223         100.0%       $ 5,916         100.0%

Expenses:
   Salaries, wages and benefits ....        4,677          64.7%         4,064          68.7%
   Other operating expenses ........        1,558          21.6%         1,273          21.5%
   Provision for doubtful accounts .         (284)         (3.9%)         (177)         (3.0%)
   Depreciation and amortization ...           28           0.4%            15           0.3%
                                          -------       -------        -------       -------
     Total operating expenses ......        5,979          82.8%         5,175          87.5%
                                          -------       -------        -------       -------
Income from operations .............      $ 1,244          17.2%       $   741          12.5%
                                          =======       =======        =======       =======
</TABLE>

REVENUES

         Revenues increased from $5.9 million in the quarter ended September 30,
2000 to $7.2 million in the quarter ended September 30, 2001. The increase of
$1.3 million in revenues from 2000 to 2001 is primarily a result of an increase
in revenues of $0.5 million from the full year effect of an acquisition of a
management contract in Florida in August 2000 and the effect of new programs
awarded to the Company's existing Florida contracts. The increase was offset by
a $.7 million increase in contractual allowance reserves recorded by the
Company related to one of its Puerto Rico contracts during the quarter ended
September 30, 2001.

SALARIES, WAGES AND BENEFITS

         Salaries, wages and benefits increased from $4.1 million or 68.7% of
revenue in the quarter ended September 30, 2000 to $4.7 million or 64.7% of
revenue in the quarter ended September 30, 2001. During the quarter ended
September 30, 2000, the Company incurred significant training and other
personnel cost as a result of the start-up of several new contracts in Florida.
The decrease in salary, wages and benefits as a percentage of revenue when
comparing the quarter ended September 30, 2001 to 2000 is due to a decrease in
these costs and a corresponding increase in revenues from new programs awarded
to the Company's existing Florida contracts.

OTHER OPERATING EXPENSES

         Other operating expenses increased from $1.3 million or 21.5% of
revenue in the quarter ended September 30, 2000 to $1.6 million or 21.6% of
management contract revenue in the quarter ended September 30, 2001. Other
operating expenses during the quarter ended September 30, 2001 did not fluctuate
significantly as a percentage of revenue when compared to the same period in the
prior year.

PROVISION FOR DOUBTFUL ACCOUNTS

         As mentioned previously, in October 2001, the Company collected
approximately $1.9 million of outstanding receivables from its contracts in
Puerto Rico, of which $.8 million was for receivables which were over 120 days
past due on one of its Puerto Rico contracts. As a result of this collection,
the Company reduced its provision for doubtful accounts on this contract by
approximately $.2 million. Including the aforementioned increase in contractual
allowances of $.7 million, total reserves for Puerto Rico receivables increased
by $.5 million during the quarter ended 2001 to approximately $1.0 million.

         As a result of collections in its Puerto Rico contracts of past due
receivables during the quarter ended September 30, 2000, the Company reduced its
provision for doubtful accounts by approximately $.2 million.




                                       12
<PAGE>

                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES



DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased from 0.3% of revenue in the
quarter ended September 30, 2000 to 0.4% of revenue in the quarter ended
September 30, 2001. Depreciation and amortization did not fluctuate
significantly as a percentage of revenue.

CORPORATE AND OTHER

         The following tables state for the periods indicated total revenues and
corporate office expenses in dollar and percentage of revenue terms (dollars in
thousands):

<TABLE>
<CAPTION>
                                                           QUARTER ENDED SEPTEMBER 30,
                                                ------------------------------------------------
                                                        2001                        2000
                                                --------------------       ---------------------
<S>                                             <C>            <C>         <C>            <C>
Revenues:
   Owned operations.......................      $26,415                    $21,949
   Management contracts...................        7,223                      5,916
                                                -------                    -------
     Total revenues ......................      $33,638        100.0%      $27,865        100.0%

Expenses:
   Salaries, wages and benefits ..........          569          1.7%          577          2.1%
   Other operating expenses ..............          769          2.3%          698          2.5%
   Depreciation and amortization .........           42          0.1%          120          0.4%
   Interest and other financing charges ..          746          2.2%          820          2.9%
   Provision for income taxes ............          171          0.5%           62          0.2%

</TABLE>

SALARIES, WAGES AND BENEFITS

         Corporate office salaries, wages and benefits were $0.6 million or 2.1%
of total consolidated revenues for the quarter ended September 30, 2000,
compared to $0.6 million or 1.7% of total consolidated revenues for the same
period in 2001. The decrease as a percentage of total consolidated revenues is
primarily due to the increase in total consolidated revenues of $5.8 million
during the quarter.

OTHER OPERATING EXPENSES

         Corporate office other operating expenses were $0.7 million or 2.5% of
total consolidated revenues for the quarter ended September 30, 2000, compared
to $0.8 million or 2.3% of total consolidated revenues for the same period in
2001. The decrease as a percentage of total consolidated revenues is primarily
due to the increase in total consolidated revenues of $5.8 million during the
quarter.

DEPRECIATION AND AMORTIZATION

         Corporate office depreciation and amortization was $0.1 million or 0.4%
of total consolidated revenues for the quarter ended September 30, 2000,
compared to $0.04 million or 0.1% of total consolidated revenues for the same
period in 2001. The decrease is due to the Company's completion of the
amortization of certain projects during the fiscal year ended December 31, 2000.


                                       13
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES



INTEREST AND OTHER FINANCING CHARGES

         Interest and other financing charges decreased from $0.8 million or
2.9% of total consolidated revenues for the quarter ended September 30, 2000 to
$0.7 million or 2.2% of total consolidated revenues for the quarter ended
September 30, 2001. The decrease in interest and other financing charges is
primarily attributable to a decrease in the variable interest rate charged on
the Company's senior credit facility.


PROVISION FOR INCOME TAXES

         For both periods presented, the provision for income taxes was recorded
at an effective tax rate significantly less than the statutory tax rate due to
the Company's significant net operating loss carryovers.

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2000

OWNED OPERATIONS SEGMENT

         The following tables state for the periods indicated the results of our
owned operations in dollar and percentage of revenue terms (dollars in
thousands):

<TABLE>
<CAPTION>
                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                          -----------------------------------------------
                                                  2001                      2000
                                          --------------------       --------------------
<S>                                       <C>            <C>         <C>            <C>
Revenues ...........................      $78,683        100.0%      $62,508        100.0%

Expenses:
   Salaries, wages and benefits ....       46,288         58.8%       37,252         59.6%
   Other operating expenses ........       21,273         27.0%       16,775         26.8%
   Provision for doubtful accounts .        1,963          2.5%        1,511          2.4%
   Depreciation and amortization ...        1,626          2.1%        1,313          2.1%
                                          -------      -------       -------      -------
     Total operating expenses ......       71,150         90.4%       56,851         90.9%
                                          -------      -------       -------      -------
Income from operations .............      $ 7,533          9.6%      $ 5,657          9.1%
                                          =======      =======       =======      =======

</TABLE>

REVENUES

         Revenues increased from $62.5 million in the nine months ended
September 30, 2000 to $78.7 million in the nine months ended September 30, 2001.
The increase of $16.2 million in revenues from 2000 to 2001 is primarily a
result of (i) an increase in revenues of $6.7 million from the full year effect
of the Manatee Palms facilities in August 2000 and (ii) an increase of $9.5
million in the Company's other facilities primarily due to a total increase in
census of 9.5% between periods (from approximately 202,700 days during the nine
months ended September 30, 2000 to approximately 222,000 days during the nine
months ended September 30, 2001).

SALARIES, WAGES AND BENEFITS

         Salaries, wages and benefits were $37.3 million, or 59.6% of revenues
for the nine months ended September 30, 2000, compared to $46.3 million, or
58.8% of revenues for the nine months ended September 30, 2001. The decrease as
a percentage of revenues is primarily due to the outsourcing of certain services
at the Company's Michigan facility and the previously discussed 9.5% total
increase in census between periods.

OTHER OPERATING EXPENSES

         Other operating expenses were $16.8 million or 26.8% of revenues for
the nine months ended September 30, 2000, compared to $21.3 million, or 27.0% of
revenues for the nine months ended September 30, 2001. The increase as a
percentage of revenues is primarily due to the aforementioned outsourcing of
certain services at the Company's Michigan facility.



                                       14
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES



PROVISION FOR DOUBTFUL ACCOUNTS

         The provision for doubtful accounts was $1.5 million or 2.4% of
revenues for the nine months ended September 30, 2000, compared to $2.0 million,
or 2.5% of revenues for the nine months ended September 30, 2001. Provision for
doubtful accounts during the nine months ended September 30, 2001 did not
fluctuate significantly as a percentage of revenue when compared to the same
period in the prior year.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization was $1.3 million or 2.1% of revenues for
the nine months ended September 30, 2000, compared to $1.6 million, or 2.1% of
revenues for the nine months ended September 30, 2001. Depreciation and
amortization during the nine months ended September 30, 2001 did not fluctuate
as a percentage of revenue when compared to the same period in the prior year.

MANAGEMENT CONTRACT SEGMENT

         The following tables state for the periods indicated the results of our
management contract operations in dollar and percentage of revenue terms
(dollars in thousands):

<TABLE>
<CAPTION>
                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                          -----------------------------------------------
                                                  2001                       2000
                                          --------------------       --------------------
<S>                                       <C>            <C>         <C>            <C>
Revenues ...........................      $20,584        100.0%      $14,071        100.0%

Expenses:
   Salaries, wages and benefits ....       13,488         65.5%        9,207         65.4%
   Other operating expenses ........        4,489         21.8%        3,040         21.6%
   Provision for doubtful accounts .          220          1.1%          219          1.6%
   Depreciation and amortization ...           78          0.4%           44          0.3%
                                          -------      -------       -------      -------
     Total operating expenses ......       18,275         88.8%       12,510         88.9%
                                          -------      -------       -------      -------
Income from operations .............      $ 2,309         11.2%      $ 1,561         11.1%
                                          =======      =======       =======      =======
</TABLE>

REVENUES

         Revenues increased from $14.1 million in the nine months ended
September 30, 2000 to $20.6 million in the nine months ended September 30, 2001.
The increase of $6.5 million in revenues from 2000 to 2001 is primarily a result
of an increase in revenues of $2.3 million from the full year effect of an
acquisition of a management contract in Florida in August 2000 and the effect of
new programs awarded to the Company in Florida. The increase was offset by a
$.7 million increase in contractual allowance reserves recorded by the Company
related to one of its Puerto Rico contracts during the nine months ended
September 30, 2001.

SALARIES, WAGES AND BENEFITS

         Salaries, wages and benefits increased from $9.2 million or 65.4% of
revenue in the nine months ended September 30, 2000 to $13.5 million or 65.5% of
revenue in the nine months ended September 30, 2001. Salaries, wages and
benefits during the nine months ended September 30, 2001 did not fluctuate
significantly as a percentage of revenue when compared to the same period in the
prior year.

OTHER OPERATING EXPENSES

         Other operating expenses increased from $3.0 million or 21.6% of
revenue in the nine months ended September 30, 2000 to $4.5 million or 21.8% of
revenue in the nine months ended September 30, 2001. Other operating expenses
during the nine months ended September 30, 2001 did not fluctuate significantly
as a percentage of revenue when compared to the same period in the prior year.





                                       15
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES



PROVISION FOR DOUBTFUL ACCOUNTS

         The provision for doubtful accounts was $0.2 million or 1.6% of revenue
in the nine months ended September 30, 2000 and $0.2 million or 1.1% of revenue
in the nine months ended September 30, 2001. Fluctuations of the provision for
doubtful accounts recorded by the Company during the nine months ended
September 30, 2000 and 2001 are primarily a result of changes in the provision
due to the Company's evaluation of its Puerto Rico contract accounts receivable.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization increased from 0.3% of revenue in the
nine months ended September 30, 2000 to 0.4% of management contract revenue in
the nine months ended September 30, 2001. Depreciation and amortization did not
fluctuate significantly as a percentage of revenues.

CORPORATE AND OTHER

         The following tables state for the periods indicated total revenues and
corporate office expenses in dollar and percentage of revenue terms (dollars in
thousands):

<TABLE>
<CAPTION>
                                                          NINE MONTHS ENDED SEPTEMBER 30,
                                                ------------------------------------------------
                                                         2001                      2000
                                                ----------------------    ----------------------
<S>                                             <C>            <C>         <C>            <C>
Revenues:
   Owned operations.......................      $78,683                   $62,508
   Management contracts...................       20,584                    14,071
                                                -------                   -------
     Total revenues ......................      $99,267        100.0%      $76,579        100.0%

Expenses:
   Salaries, wages and benefits ..........        2,070          2.1%        1,886          2.5%
   Other operating expenses ..............        2,325          2.3%        2,146          2.8%
   Depreciation and amortization .........          120          0.1%          364          0.5%
   Interest and other financing charges ..        2,597          2.6%        1,815          2.4%
   Provision for income taxes ............          472          0.5%          146          0.2%
   Loss on sale of assets ................           --           --           456          0.6%

</TABLE>

SALARIES, WAGES AND BENEFITS

         Corporate office salaries, wages and benefits were $1.9 million or 2.5%
of total consolidated revenues for the nine months ended September 30, 2000,
compared to $2.0 million or 2.1% of total consolidated revenues for the same
period in 2001. The decrease as a percentage of total consolidated revenues is
primarily due to the increase in total consolidated revenues of $22.7 million
during the nine months ended September 30, 2001.

OTHER OPERATING EXPENSES

         Corporate office other operating expenses were $2.1 million or 2.8% of
total consolidated revenues for the nine months ended September 30, 2000,
compared to $2.3 million or 2.3% of total consolidated revenues for the same
period in 2001. The decrease as a percentage of total consolidated revenues is
primarily due to the increase in total consolidated revenues of $22.7 million
during the nine months ended September 30, 2001.

DEPRECIATION AND AMORTIZATION

         Corporate office depreciation and amortization was $0.4 million or 0.5%
of total consolidated revenues for the nine months ended September 30, 2000,
compared to $0.1 million or 0.1% of total




                                       16
<PAGE>
                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES


consolidated revenues for the same period in 2001. The decrease is due to the
Company's completion of the amortization of certain projects during the fiscal
year ended December 31, 2000.

INTEREST AND OTHER FINANCING CHARGES

         Interest and other financing charges increased from $1.8 million or
2.4% of total consolidated revenues for the nine months ended September 30, 2000
to $2.6 million or 2.6% of total consolidated revenues for the nine months ended
September 30, 2001. The increase in interest and other financing charges is
primarily attributable to an increase in the Company's average outstanding
borrowings between periods caused primarily by an increase in borrowings from
the Company's Senior Credit Facility to acquire the Manatee Palms facilities in
August 2000. Interest expense was also impacted by the previously mentioned
decrease in interest rate experienced during the year.

PROVISION FOR INCOME TAXES

         For both periods presented, the provision for income taxes was recorded
at an effective tax rate significantly less than the statutory tax rate due to
the Company's significant net operating loss carryovers.

                         LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 2001 and December 31, 2000, the Company had $14.0
million and $8.3 million, respectively, in working capital and $1.4 million and
$1.5 million, respectively, in cash and cash equivalents. The Company's
principal sources of liquidity as of September 30, 2001 and December 31, 2000
consisted primarily of the aforementioned cash and cash equivalents and accounts
receivable of $26.3 million and $23.0 million, respectively.

         Net cash used in operating activities decreased from $5.3 million
during the nine months ended September 30, 2000 to $1.1 million during the nine
months ended September 30, 2001. The decrease in cash used in operating
activities was impacted by a $1.9 million increase in net income and a $2.4
million favorable variance in accounts receivable as a result of an improvement
in the Company's receivable turnover.

         Cash used in investing activities was $1.3 million for the nine months
ended September 30, 2001. Investing activities during the nine months ended
September 30, 2001 consisted primarily of $1.8 million in capital expenditures,
offset by approximately $0.5 million in proceeds from the sale of certain
assets.

         Net cash provided by financing activities was $2.3 million for the nine
months ended September 30, 2001. Financing activities during the nine months
ended September 30, 2001 consisted primarily of proceeds from the Company's
revolving credit facility which were used to finance the Company's growth and
make required debt service payments under the Company's credit facilities.

         In October 2001, the Company collected approximately $1.9 million of
outstanding receivables from its contracts in Puerto Rico, of which
approximately $.8 million were over 120 days past due. The collection of these
receivables reduced the outstanding balance of receivables for services billed
through September 30, 2001 to approximately $3.3 million, of which approximately
$.9 million is over 120 days past due. The Company has reserves on the balances
due from the Commonwealth of Puerto Rico of $1.0 million as of September 30,
2001. The Company and its advisors are in active discussions with the Government
of Puerto Rico with respect to the payment of the outstanding receivables. The
Company believes that it has fully performed its obligations under the Puerto
Rico contracts and is entitled to receive payment of these receivables in full.
Although the Company has been advised by its legal counsel that the net
receivables due on the Puerto Rico contracts are collectable, there can be no
assurances that future transactions or events will not result in the need for
additional reserves for these accounts receivable. If the Company were to record
additional reserves, it would adversely affect earnings in the period in which
the reserves are recorded.

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                  RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES



         Management of the Company believes that it can meet its current cash
requirements and future identifiable needs with internally generated funds from
operations and availability in its Senior Credit Facility. If the Company is
unable to collect the Puerto Rico receivables, the Company may need to obtain
liquidity through other sources of debt or equity. Although the Company believes
that it has the ability to raise such additional liquidity, there can be no
assurances that the Company will be able to raise debt or equity capital through
other sources, or if obtained, that it will be on terms acceptable to the
Company. The incurring or assumption by the Company of additional indebtedness
could result in the issuance of additional equity and/or debt which could have a
dilutive effect on current shareholders and a significant effect on the
Company's operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         While the Company is exposed to changes in interest rates as a result
of its outstanding variable rate debt, the Company does not currently utilize
any derivative financial instruments related to its interest rate exposure. The
Company believes that its exposure to market risk will not result in a material
adverse effect on the Company's consolidated financial condition, results of
operations or liquidity.

                           PART II - OTHER INFORMATION

ITEM 1.  OTHER INFORMATION

         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. The Company has established reserves
at September 30, 2001 for the estimated amounts which might be recovered from
the Company as a result of all outstanding legal proceedings. In the opinion of
management, the ultimate resolution of these pending legal proceedings is not
expected to have a material adverse effect on the Company's financial position,
results of operations or liquidity.




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ITEM 2.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

              The Exhibits required to be filed as part of this Quarterly Report
              on Form 10-Q are as follows:

               Exhibit 11        Computation of Net Income Per Share............

               Exhibit 99.19     Press Release dated November 5, 2001...........

         (b)  Current Reports on Form 8-K

              The Company did not file any Current Reports on Form 8-K during
              the quarter ended September 30, 2001.





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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 YOUTH SERVICES, INC.
                                    Registrant



                                    /s/ Marcio C. Cabrera
                                    -----------------------------------
                                    Marcio C. Cabrera
                                    Executive V.P. and
                                    Chief Financial Officer



Date:  November 9, 2001



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