On December 31, 1998, CompManagement acquired all of the outstanding capital stock of M&N Risk Management and a related entity. The purchase price for this acquisition, after an adjustment based upon the closing net equity of M&N Risk Management and the related entity, was $5,526,736. The purchase price was financed by a $3,000,000 demand note with a financial institution and by a $2,526,736 promissory note payable to the seller. This acquisition was accounted for under the purchase method of accounting for business combinations. As required by the purchase method of accounting, the results of operations of M&N Risk Management are not included in the Company's results of operations discussed below.
G&A expenses increased to $16.6 million, or 74.6% of revenues, for 1997, as compared to $6.3 million, or 94.9% of revenues, for 1996. G&A expenses decreased in 1997 as a percentage of revenues primarily due to the leverage achieved on the significant increase in revenues.
The Company believes that cash generated from continuing operations will be sufficient to fund its anticipated cash needs for working capital and expenditures for continuing operations for the next 12 months, including working capital requirements caused by the Bank making demand for payment of the $3.0 million demand loan. As discussed above, the Company had a working capital deficit of $1.1 million from continuing operations as of December 31, 1998.
The Company's operations are highly dependent upon the efforts of certain key personnel, including Dr. Bernard F. Master, Robert J. Bossart, Jonathan R. Wagner, and Richard T. Kurth. The loss of the services of any of these individuals could have a material adverse effect on the operations of the Company. The Company has employment agreements with each of these individuals.
The pro forma information, as presented above, is not necessarily indicative of the results which would have been obtained had the transaction occurred at January 1, 1997, nor is it indicative of future results.
On December 29, 1998, the Company's Board of Directors formally approved a plan to discontinue operations of the HMO. Accordingly, the operating results of the HMO operations, including provisions for estimated lease costs, employee severance and benefits, and write-downs of property, plant and equipment during the phase-out period and a loss on disposal have been segregated from continuing operations and reported as a separate line item on the statement of operations. Income from operations of the discontinued HMO operations for the year 1998 included results through December 31, 1998.
The HMO's Medicaid revenue is derived from contracts with the ODHS. The HMO's current contracts with ODHS expire June 30, 1999 with automatic renewals until December 31, 1999. The contracts will not be renewed in 1999 by the HMO, due to the formal plan to discontinue the HMO's operations.
The assets and liabilities of the discontinued HMO operations as of the years ended December 31 were as follows:
The HMO went through a claims vendor conversion in 1997 and in 1998. Due to these conversions and the resulting interruption of claims payments the health care costs payable had to be adjusted during 1997 and 1998.
The Company and its subsidiaries file a consolidated federal income tax return.