<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: SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17401
OPTIMUMCARE CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant specified in its charter)
Delaware 33-0218003
- ----------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Ste 219
Laguna Niguel, CA 92677
- ---------------------------------- ------------------
(714) 495-1100
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(Registrants telephone number, including area code)
Not Applicable
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(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding
Class at September 30, 1996
----------------------------- ----------------------------
Common Stock, $.001 par value 5,613,509
-1-
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INDEX
OPTIMUMCARE CORPORATION
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 1996 and 3
December 31, 1995
Statements of Income for the Three Months and Nine Months 4
Ended September 30, 1996 and 1995
Statements of Cash Flows for the Three Months and Nine 5
Months Ended September 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
SIGNATURE 11
-2-
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OPTIMUMCARE CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
1996 1995
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 706,105 $ 170,932
ACCOUNTS RECEIVABLE, NET 2,167,593 1,536,693
PREPAID EXPENSES 60,314 31,487
---------- -----------
TOTAL CURRENT ASSETS 2,934,012 1,739,112
NOTES RECEIVABLE FROM OFFICER 155,000 155,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $43,493 AT SEPTEMBER 30, 1996
AND $34,382 AT DECEMBER 31, 1995 20,211 25,617
DEFERRED ACQUISITION COSTS, LESS ACCUMULATED
AMORTIZATION OF $16,584 AT SEPTEMBER 30, 1996
AND $0 AT DECEMBER 31, 1995 272,766 138,753
TRADENAME, LESS ACCUMULATED AMORTIZATION
OF $1,173 AT SEPTEMBER 30, 1996 AND $1,020 AT
DECEMBER 31, 1995 902 1,055
---------- -----------
TOTAL ASSETS $3,382,891 $ 2,059,537
========== ===========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 267,205 $ 192,743
ACCRUED LIABILITIES 421,246 188,788
---------- -----------
TOTAL CURRENT LIABILITIES 688,451 381,531
NOTE PAYABLE TO BANK 243,334 166,000
MINORITY INTEREST (17,773) 0
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 5,613,509 SHARES
ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996
AND 4,923,509 SHARES ISSUED AND
OUTSTANDING AT DECEMBER 31, 1995 5,614 4,924
PAID-IN-CAPITAL 3,219,079 2,927,593
ACCUMULATED DEFICIT (755,814) (1,420,511)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY $2,468,879 $ 1,512,006
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,382,891 $ 2,059,537
========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 4
OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $2,950,861 $1,516,130 $7,937,101 $4,513,760
INTEREST INCOME 1,626 3,332 3,654 6,972
---------- ---------- ---------- ----------
$2,952,487 $1,519,462 $7,940,755 $4,520,732
---------- ---------- ---------- ----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $2,179,571 $1,172,967 $6,251,170 $3,386,703
PROVISION FOR DOUBTFUL ACCOUNTS 0 33,000 0 120,000
GENERAL AND ADMINISTRATIVE 321,147 209,537 909,354 672,501
INTEREST 6,775 3,427 19,351 4,621
---------- ---------- ---------- ----------
2,507,493 1,418,931 7,179,875 4,183,825
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 444,994 100,531 760,880 336,907
INCOME TAXES 44,551 11,352 96,182 33,957
---------- ---------- ---------- ----------
NET INCOME $ 400,443 $ 89,179 $ 664,698 $ 302,950
========== ========== ========== ==========
NET INCOME
PER COMMON SHARE $ 0.07 $ 0.02 $ 0.12 $ 0.06
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
NINE MONTHS ENDING
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 664,698 $ 302,950
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and Amortization 9,263 6,399
Minority Interest (17,773) 0
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (630,900) (176,583)
Decrease in notes receivable from officers 0 (22,800)
(Increase) in prepaid expenses (28,827) (77,039)
Increase/(Decrease) in accounts payable 74,462 (1,616)
Increase/(Decrease) in accrued liabilities 232,458 (141)
--------- ---------
CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 303,381 31,170
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (3,868) (7,901)
Proceeds from sale of furniture and equipment 162 0
Deferred acquisition costs (134,013) 0
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CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (137,718) (7,901)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 292,176 8,265
Note payable from bank 77,334 166,000
Payment of note receivable from officer 0 15,653
--------- ---------
CASH AND CASH EQUIVALENTS PROVIDED BY
FINANCING ACTIVITIES 369,510 189,918
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 535,173 213,187
Cash and cash equivalents at beginning of period 170,932 36,657
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 706,105 $ 249,844
========= =========
</TABLE>
See notes to financial statements.
<PAGE> 6
OPTIMUMCARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three and nine month
periods ended September 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 nine month periods ended September 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 September 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 5,410,410 and 5,477,649 at September 30, 1996 and September 30,
1995 respectively.
NOTE D -- DEFERRED ACQUISITION COSTS
On April 19, 1996, the Company completed the acquisition of a 70% interest in
certain contracts of Professional Care Source, Inc. through the formation of
OptimumCare Source, LLC (the "LLC"). The Company acquired a 70% ownership
interest in the LLC and Professional Care Source, Inc. holds a 30% ownership
interest in the LLC. The Company considers the LLC to be a 70% owned
subsidiary of the Company. The Company paid $11,000 in cash to each of the
three principals of Professional Care Source, Inc. and made an initial
contribution of $50,000 to the LLC for working capital. An additional working
capital contribution of $25,000 was made during September, 1996.
The Company is required to purchase all of Professional Care Source, 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 Care Source's ownership percentage in the LLC multiplied by five
(5) times the LLC's net profit after taxes as reflected on its most recent Form
1065 after agreed upon taxes.
<PAGE> 7
Three principals of Professional Care Source, 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. The options to purchase
OptimumCare common stock were granted to the three employees of the LLC at an
exercise price equal to the fair market value of the stock price at the date of
grant. OptimumCare Source LLC, headquartered in Southern California, provides
mental health services at long term care facilities.
The Company has recorded the legal and consulting fees incurred as a result of
the acquisition of a 70% interest in contracts form Professional Care Source,
Inc. through the formation of the LLC as deferred acquisition expenses. The
legal and consulting fees together with the $11,000 in cash paid to each of the
three Principals of Professional Care Source, Inc. were incurred as a part of
the acquisition of the Registrant's 70% interest in the LLC. They have been
capitalized as organization costs on the basis that such costs benefit the
operation of future years in accordance with APB Opinion No. 17. The deferred
acquisition costs associated with the purchase are amortized under the straight
line method of over five years.
The Company intends to acquire certain assets of Giem, Guerra & Myers, Inc.
(previously referred to as Psychological HealthCare, Inc. in the Company's 1995
10-K). The Company and Giem, Guerra & Myers, Inc. are working together to
determine the most appropriate structure for the acquisition. It is
anticipated that the transaction will be consummated during the fourth quarter
of 1996 or the first quarter of 1997.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Material Changes in Financial Condition
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At September 30, 1996 and December 31, 1995, the Company's working capital was
$2,245,561 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 $303,381 and $31,170 for the periods ended
September 30, 1996 and 1995, respectively. The increase was attributable to
increased earnings, accounts payable and accrued liabilities, which were
partially offset by increased accounts receivable. The increase in earnings
and accounts receivable are primarily due to the different mix of programs
which existed at September 30, 1996 and December 31, 1995 respectively. The
Company began managing two new programs between September and December 1995 and
began managing an additional three programs between January and April 1996.
One program operated by the Company was closed in December 1995 and five
additional programs operated by the Company, all of which were smaller partial
hospitalization programs, were closed between June and September 1996. The
increase in earnings and accounts receivable is a result of an increase in
rates earned by the Company as well as an increase in patient census volume
that has occurred as these programs have started to mature. The Company's
percentage of accounts receivable agings among periods are comparable. The
increase in accounts payable and accrued liabilities is due to an increase in
the expenses associated with an expanded volume of business.
Cash flows used in investing activities were ($137,718) and ($7,901) for the
periods ended September 30, 1996 and 1995, respectively. The decrease in cash
was primarily attributable to deferred acquisition costs incurred in connection
with an acquisition and proposed acquisition of contracts, assets and
businesses performing complimentary mental health services.
The cash flows from financing activities were $369,510 and $189,918 for the
periods ended September 30, 1996 and 1995, respectively. The increase was due
to the exercise of stock options by eight individuals.
The Company has recently been able to rely more on the cash generated from
operations rather than draw on its line of credit agreement with the bank. The
$750,000 credit agreement expires March 1, 1997, but is convertible into a one
year term loan with a five (5) year repayment schedule. As of October 15,
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 available line of credit
and continuing revenues from programs.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 compared to Three Months
Ended September 30, 1995
- --------------------------------------------------------------
The Company operated fifteen (15) programs during the three months ended
September 30, 1996 and 1995. Net revenues were $2,950,861 and $1,516,130 for
the three months ended September 30, 1996 and 1995, respectively. The increase
in revenues in 1996 over 1995 is due to the
<PAGE> 9
different mix of operating programs among periods. The Company is currently
earning a larger fee for managing the programs which exist at September 30,
1996 versus those which existed at September 30, 1995. In addition, the volume
of patient days treated through programs at September 30, 1996 is greater than
those treated through programs which existed at September 30, 1995.
Cost of services provided were $2,179,571 and $1,172,967 for the three months
ended September 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. The Company has achieved certain economics of scale in providing these
expanded 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
September 30, 1996 have increased over the three months ending September 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 $400,443 and $89,179 for the three months ending September 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 September 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 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.
The Company's revenue is expected to decline for the fourth quarter of 1996 due
to the loss of two small partial hospitalization contracts and a temporary drop
in census which the Company's inpatient programs typically experience towards
the holiday season of each 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 five (5) 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.
Comparison of the Nine Months Ended September 30, 1996 to Nine Months
Ended September 30, 1995
- ---------------------------------------------------------------------
Net revenues increased 76% for the nine months ended September 30, 1996 over
the comparable nine months ended September 30, 1995.
<PAGE> 10
The Company had fifteen (15) operational programs during the nine month period
ended September 30, 1996 and sixteen (16) operational programs during the nine
month period ended September 30, 1995. The increase in net revenues among
comparative periods is due to the different mix of operating programs among
comparative periods. The Company is currently earning a larger fee for
managing the programs which existed during the nine months ending September 30,
1996 versus those which existed for the nine months ending September 30, 1995.
In addition, the volume of patient days treated through programs during the
nine month period ending September 30, 1996 are greater than those treated
through programs during the nine month period ending September 30, 1995.
While there was an increase in revenue among comparative periods, there has
also been a corresponding increase in the cost of services provided. These
increases primarily stem from treating the increase in patient volume among
periods and an expanded scope of services provided in connection with certain
contracts such as nursing, transportation and lease costs.
The increase in general and administrative expenses is primarily attributable
to increased corporate marketing wages and activities, and the various
professional fees incurred in connection with the Company's contract, asset and
business acquisition efforts.
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
-----------------
Not applicable.
ITEM 2 CHANGES IN SECURITIES
---------------------
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
ITEM 5 OTHER INFORMATION
-----------------
The Company declared a stock dividend of two-tenths (.2) share for each
one share held by stockholders of record on October 1, 1996, the record
date of the dividend. In lieu of fractional shares that would be
issued, a stockholder will receive the next highest number of full
shares to which the stockholder would be entitled as a result of the
stock dividend. The payment date for the stock dividend will be
October 18, 1996.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 27 -- Financial Data Schedule
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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: October 21, 1996 By: /s/ EDWARD A. JOHNSON
----------------------------
Edward A. Johnson
President and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820474
<NAME> OPTIMUMCARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 706,105
<SECURITIES> 0
<RECEIVABLES> 2,167,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,934,012
<PP&E> 20,211
<DEPRECIATION> 43,493
<TOTAL-ASSETS> 3,382,891
<CURRENT-LIABILITIES> 688,451
<BONDS> 243,334
0
0
<COMMON> 5,614
<OTHER-SE> 3,219,079
<TOTAL-LIABILITY-AND-EQUITY> 2,468,879
<SALES> 2,950,861
<TOTAL-REVENUES> 2,952,487
<CGS> 2,179,571
<TOTAL-COSTS> 2,507,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 444,994
<INCOME-TAX> 44,551
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,443
<EPS-PRIMARY> $.07
<EPS-DILUTED> 0
</TABLE>
