<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17401
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OPTIMUMCARE CORPORATION
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(Exact name of registrant specified in its charter)
Delaware 33-0218003
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Ste 219
Laguna Niguel, CA 92677
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(714) 495-1100
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(Registrants telephone number, including area code)
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by 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 periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
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at June 30, 1996
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<S> <C>
Common Stock, $.001 par value 4,986,036
</TABLE>
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INDEX
OPTIMUMCARE CORPORATION
PART I FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 1996 and 3
December 31, 1995
Statements of Income for the Three Months and Six Months 4
Ended June 30, 1996 and 1995
Statements of Cash Flows for the Three Months and Six 5
Months Ended June 30, 1996 and 1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION 10
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SIGNATURE 11
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</TABLE>
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OPTIMUMCARE CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 113,313 $ 170,932
ACCOUNTS RECEIVABLE, NET 2,079,221 1,536,693
PREPAID EXPENSES 61,274 31,487
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TOTAL CURRENT ASSETS 2,253,808 1,739,112
NOTES RECEIVABLE FROM OFFICER 155,000 155,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $40,380 AT JUNE 30, 1996
AND $34,382 AT DECEMBER 31, 1995 23,325 25,617
DEFERRED ACQUISITION COSTS, LESS ACCUMULATED
AMORTIZATION OF $5,000 AT JUNE 30, 1996 AND
$0 AT DECEMBER 31, 1995 265,940 138,753
TRADENAME, LESS ACCUMULATED AMORTIZATION
OF $1,122 AT JUNE 30, 1996 AND $1,020 AT
DECEMBER 31, 1995 953 1,055
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TOTAL ASSETS $ 2,699,027 $ 2,059,537
=========== ===========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 267,300 $ 192,743
ACCRUED LIABILITIES 358,868 188,788
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TOTAL CURRENT LIABILITIES 626,167 381,531
NOTE PAYABLE TO BANK 240,334 166,000
MINORITY INTEREST (6,174) 0
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 4,986,036 SHARES
ISSUED AND OUTSTANDING AT JUNE 30, 1996
AND 4,923,509 SHARES ISSUED AND OUTSTANDING
AT DECEMBER 31, 1995 4,989 4,924
PAID-IN-CAPITAL 2,989,966 2,927,593
ACCUMULATED DEFICIT (1,156,256) (1,420,511)
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TOTAL STOCKHOLDERS' EQUITY $ 1,838,699 $ 1,512,006
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,699,027 $ 2,059,537
=========== ===========
</TABLE>
See notes to financial statements.
3
<PAGE> 4
OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $2,765,795 $1,508,258 $4,986,240 $2,997,630
INTEREST INCOME 466 2,135 2,028 3,640
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$2,766,261 $1,510,393 $4,988,268 $3,001,270
---------- ---------- ---------- ----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $2,135,674 $1,095,918 $4,071,599 $2,213,736
PROVISION FOR DOUBTFUL ACCOUNTS 0 87,000 0 87,000
GENERAL AND ADMINISTRATIVE 322,376 241,715 588,207 462,964
INTEREST 6,859 582 12,576 1,194
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2,464,909 1,425,215 4,672,381 2,764,894
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 301,352 85,178 315,886 236,376
INCOME TAXES 46,631 4,805 51,631 22,605
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NET INCOME $ 254,721 $ 80,373 $ 264,255 $ 213,771
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.05 $ 0.02 $ 0.05 $ 0.04
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
4
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OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30 JUNE 30
1996 1995
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 264,255 $ 213,770
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 11,099 4,121
Minority Interest (6,174) 0
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (542,528) (144,386)
Decrease in notes receivable from officers 0 (22,800)
(Increase) in prepaid expenses (8,787) (3,382)
Increase in accounts payable 74,557 (615)
Increase in accrued liabilities 170,079 21,201
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CASH AND CASH EQUIVALENTS (USED)/
PROVIDED BY OPERATING ACTIVITIES (37,499) 67,909
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (3,868) (5,416)
Proceeds from sale of furniture & equipment 162 0
Deferred acquisition costs (132,187) 0
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CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (135,892) (5,416)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 41,438 0
Note payable from bank 74,334 0
Payment of note receivable from officer 0 15,653
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CASH AND CASH EQUIVALENTS PROVIDED BY
FINANCING ACTIVITIES 115,772 15,653
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (57,619) 78,146
Cash and cash equivalents at beginning of period 170,932 36,657
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 113,313 $ 114,803
========= =========
</TABLE>
See notes to financial statements.
5
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OPTIMUMCARE CORPORATION
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three month period
ended June 30, 1996 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 footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1995.
NOTE B -- INCOME TAXES
The provision for income taxes represent current Federal and State income
taxes. At June 30, 1996, the Company has unused Federal and State net
operating loss carryforwards of approximately $1,179,000 and 16,000
respectively which begin to expire in 2003. The provision for Federal income
taxes is computed on annualized alternative minimum taxable income at the
alternative minimum tax rate. The provision for State income taxes is computed
on annualized taxable income at current rates.
NOTE C -- NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding giving effect to outstanding shares and common stock
equivalents arising to the extent they are dilutive from stock options
aggregations of 5,606,776 and 5,344,368 at June 30, 1996 and June 30, 1995
respectively.
NOTE D -- DEFERRED ACQUISITION COSTS
On April 19, 1996, the Company entered into an agreement with Professional
CareSource, Inc. to form a limited liability company, Optimum Care Source, LLC
(LLC). In exchange for a 70% ownership interest in the LLC, the Company agreed
to contribute a maximum of $200,000 of working capital to the LLC. In
connection with the formation of the LLC, the Company has paid $11,000 in cash
and has advanced $50,000 in working capital through July 30, 1996. The Company
is required to purchase all of Professional CareSource, Inc.'s interest in the
LLC by April 29, 2001, but may elect to purchase the interest at any time after
April 29, 2000 at a specified price, which approximates Professional
Caresource's ownership percentage in the LLC
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multiplied by five (5) times the LLC's net profit after taxes as reflected on
its most recent Form 1065 after agreed upon taxes.
Three principals of Professional CareSource, Inc. were each given one year
employment contracts with the LLC. In connection with the employment
agreement, the Company granted non-qualified stock options to purchase 33,000
shares of common stock at $.92 per share, which vest over five years, to each
of the principals of Professional Care Source, Inc. Optimum Care Source, LLC,
headquartered in Southern California, provides mental health services at long
term care facilities.
The purchase method of accounting has been used to record the transaction. The
deferred acquisition costs associated with the purchase are amortized under the
straight line method of over five years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
MATERIAL CHANGES IN FINANCIAL CONDITION
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At June 30, 1996 and December 31, 1995, the Company's working capital was
$1,627,641 and $1,357,581 respectively. The nature of the Company's business
requires significant working capital to fund operations of its programs as well
as to fund corporate expenditures until receivables can be collected.
Moreover, because each of the existing contracts represents a significant
portion of the Company's business, the inability to collect any of the accounts
receivable could materially and adversely affect the Company's liquidity.
Cash flows from operations were ($37,499) and $67,909 for the periods ended
June 30, 1996 and 1995, respectively. The decrease was attributable to
increased accounts receivable from five programs which the Company began
managing from September 1995 through April 1996. The increase in accounts
receivables is a result of an increase in patient census volume as well as an
increase in the rates earned by the Company for programs which existed at June
30, 1996 versus June 30, 1995.
Cash flows used in investing activities were ($135,892) and $5,416 for the
periods ended June 30, 1996 and 1995, respectively. The decrease in cash was
primarily attributable to deferred acquisition costs incurred in connection
with the proposed acquisitions contract of assets and businesses performing
complimentary mental health services, one of which was consummated on April 24,
1996.
The cash flows from financing activities were $115,772 and $15,653 for the
periods ended June 30, 1996 and 1995, respectively. The increase was due to
draws on the Company's line of credit agreement with a bank and the exercise of
stock options by three employees. The credit
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agreement was increased to $750,000 and expires March 1, 1997, but is
convertible into a one year term loan with a five (5) year repayment schedule.
As of July 29, 1996, approximately $500,000 is available for future draws on
the line of credit agreement. The Company's principal sources of liquidity for
the fiscal year 1996 are cash on hand, accounts receivable, the line of credit
and continuing revenues from programs.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
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Three Months Ended June 30, 1996 compared to Three Months Ended June 30, 1995
- -----------------------------------------------------------------------------
The Company operated fifteen (15) programs during the three months ended June
30, 1996 and fourteen (14) programs during the three months ended June 30,
1995. Net revenues were $2,765,795 and $1,508,258 for the three months ended
June 30, 1996 and 1995, respectively. The increase in revenues in 1996 over
1995 is due to the different mix of operating programs among periods. The
Company is currently earning a larger fee for managing the programs which exist
at June 30, 1996 versus those which existed at June 30, 1995. In addition, the
volume of patient days treated through programs at June 30, 1996 is greater
than those treated through programs which existed at June 30, 1995.
Cost of services provided were $2,135,674 and $1,095,918 for the three months
ended June 30, 1996 and 1995 respectively. The increase in the cost of
services provided among periods is primarily due to the increase in treating
patient volume among periods and an expanded scope of services provided in
connection with certain contracts such as nursing, transportation and lease
costs. However, the Company has achieved certain economics of scale in
providing these services and has begun to develop certain previously externally
purchased services such as marketing, in house, to contain these costs.
Selling, general and administrative expenses for the three months ending June
30, 1996 have increased over the three months ending June 30, 1995 due to
increased corporate marketing wages and activities, and various professional
fees incurred with the Company's contract, asset and business acquisition
efforts.
Net income was $254,721 and $80,373 for the three months ending June 30, 1996
and 1995, respectively. The increase was primarily attributable to the
different mix of programs which currently exist that provide for a larger
management fee for the expanded scope of services the Company currently
provides.
The Company does not know of any events which are likely to materially change
the costs of operating its Programs; however the gross profit on Programs which
have matured, are typically greater than those in the early stages of
development. Historically, Programs begin to reach their maturity within 90 to
120 days of initial operation. During the three months ending June 30, 1996
and 1995, the mix of programs changed significantly. As the newly obtained
programs continue to mature and the mix of individual operating programs begins
to stabilize, revenues should increase and gross profit should rise favorably
and disproportionately to the increase in
8
<PAGE> 9
cost for such Programs. Conversely, if the patient census and the resulting
revenue decreases (especially below the minimum break even level) costs will be
disproportionately high in relation thereto which would adversely impact the
results of operations and the Company's available resources. In that event,
the Company may not have enough operating capital to continue operations.
The Company's revenue is expected to increase for the remainder of 1996 due to
higher census under existing contracts and a larger number of programs
operational for the entire year. Marketing plans for expanding the volume of
the business by obtaining new contracts for programs and expanding the scope of
mental health services offered by the acquisition of complementary contracts,
assets and businesses currently exist and are being implemented. It is
uncertain at this time to what extent the Company's fixed costs will be
impacted by this expansion. Due to the Company's dependence on a relatively
small customer base presently consisting of only seven (7) hospitals and one
community mental health center, the loss of any of its customers could have a
significant adverse effect on the Company's operations.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
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Comparison of the Three Months Ended June 30, 1995 to Three Months Ended June
- -----------------------------------------------------------------------------
30, 1994
- --------
Net revenues decreased 3% for the quarter ended June 30, 1995 over the
comparable quarter ended June 30, 1994.
The Company had fourteen (14) operational Programs during the quarter ended
June 30, 1995 and twelve (12) operational Programs during the quarter ended
June 30, 1994. The slight decrease in net revenues among comparative quarters
is due to the different mix of operating Programs among comparative quarters.
The provision for doubtful accounts at June 30, 1995 pertains to three Programs
licensed under one hospital. The provision for doubtful accounts at June 30,
1994 pertained to two contracts with one hospital which were terminated on June
30, 1994.
While there was a decrease in revenue among comparative quarters, there has
also been a slight increase in the cost of services provided. This increase
primarily stems from the fact that the Company has become responsible for
procuring certain services such as rent, transportation, wages and fees at many
of its Programs. These costs are fully reimbursed by the host hospitals, but
do not contribute to the Company's gross margin. The Company's involvement
exists due to its high level of expertise in these specialized areas. General
and administrative expenses have also increased due to increased corporate
marketing efforts and the wages, benefits and various professional fees
associated with the Company's expansion efforts.
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PART II
OTHER INFORMATION
-----------------
ITEM 1 LEGAL PROCEEDINGS
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Not applicable.
ITEM 2 CHANGES IN SECURITIES
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Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
ITEM 5 OTHER INFORMATION
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On July 22, 1996 the Company filed a Form S-8 Registration Statement
to register 430,000 shares issuable upon exercise of stock options
which are a part of the 1987 Stock Option Plan and 321,500 shares
issuable to employees of the Company upon exercise of non-qualified
stock options.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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Exhibit 27 -- Financial Data Schedule
10
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SIGNATURE
---------
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 thereunto authorized.
OPTIMUMCARE CORPORATION
A Delaware Corporation
Dated August 5, 1996 By: EDWARD A. JOHNSON
----------------------------
Edward A. Johnson
President & Principal
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820474
<NAME> OPTIMUMCARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 113,313
<SECURITIES> 0
<RECEIVABLES> 2,079,221
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,253,808
<PP&E> 23,325
<DEPRECIATION> 40,380
<TOTAL-ASSETS> 2,699,027
<CURRENT-LIABILITIES> 626,167
<BONDS> 0
0
0
<COMMON> 4,989
<OTHER-SE> 2,989,966
<TOTAL-LIABILITY-AND-EQUITY> 2,699,027
<SALES> 2,765,795
<TOTAL-REVENUES> 2,766,261
<CGS> 2,135,674
<TOTAL-COSTS> 2,464,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,859
<INCOME-PRETAX> 301,352
<INCOME-TAX> 46,631
<INCOME-CONTINUING> 254,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,721
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
