<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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17401
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
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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.
Class Number of Shares Outstanding
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at September 30, 1997
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Common Stock, $.001 par value 6,895,411
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INDEX
OPTIMUMCARE CORPORATION
PART I FINANCIAL INFORMATION
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Page
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Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 1997 and 3
December 31, 1996
Statements of Income for the Three Months and Nine Months 4
Ended September 30, 1997 and 1996
Statements of Cash Flows for the Three Months and Nine 5
Months Ended September 30, 1997 and 1996
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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OPTIMUMCARE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) SEPTEMBER 30 DECEMBER 31
1997 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 719,753 $ 1,113,809
ACCOUNTS RECEIVABLE, NET 3,312,789 2,389,019
PREPAID EXPENSES 38,997 15,175
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TOTAL CURRENT ASSETS 4,071,539 3,518,003
NOTES RECEIVABLE FROM OFFICER 155,000 155,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $80,439 AT SEPTEMBER 30, 1997
AND $52,135 AT DECEMBER 31, 1996 92,004 73,496
DEPOSITS AND OTHER ASSETS 42,771 29,922
INTANGIBLES LESS ACCUMULATED AMORTIZATION OF $57,479
AT SEPTEMBER 30, 1997 AND $27,050 AT DECEMBER 31, 1996 145,399 175,828
TRADENAME, LESS ACCUMULATED AMORTIZATION
OF $1,377 AT SEPTEMBER 30, 1997 AND $1,224 AT
DECEMBER 31, 1996 698 851
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TOTAL ASSETS $ 4,507,411 $ 3,953,100
=========== ===========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 294,328 $ 227,289
ACCRUED LIABILITIES 593,818 371,808
LINE OF CREDIT 145,812 645,812
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TOTAL CURRENT LIABILITIES 1,033,958 1,244,909
MINORITY INTEREST (61,720) (27,207)
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 6,895,411 SHARES
ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1997
AND 6,786,218 SHARES ISSUED AND
OUTSTANDING AT DECEMBER 31, 1996 6,895 6,786
PAID-IN-CAPITAL 3,347,233 3,272,407
ACCUMULATED DEFICIT 181,045 (543,795)
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TOTAL STOCKHOLDERS' EQUITY $ 3,535,173 $ 2,735,398
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,507,411 $ 3,953,100
=========== ===========
</TABLE>
See notes to financial statements
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OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 3,076,658 $ 2,950,861 $ 8,958,114 $ 7,937,101
INTEREST INCOME 1,926 1,626 4,989 3,654
----------- ----------- ----------- -----------
$ 3,078,584 $ 2,952,487 $ 8,963,103 $ 7,940,755
----------- ----------- ----------- -----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $ 2,302,422 $ 2,179,571 $ 6,572,782 $ 6,251,170
PROVISION FOR DOUBTFUL ACCOUNTS 0 0 0 0
GENERAL AND ADMINISTRATIVE 396,625 321,147 1,200,490 909,354
INTEREST 3,205 6,775 30,570 19,351
MINORITY INTEREST (12,137) 0 (34,513) 0
----------- ----------- ----------- -----------
2,690,115 2,507,493 7,769,329 7,179,875
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 388,469 444,994 1,193,774 760,880
INCOME TAXES 134,573 44,551 468,934 96,182
----------- ----------- ----------- -----------
NET INCOME $ 253,896 $ 400,443 $ 724,840 $ 664,698
=========== =========== =========== ===========
NET INCOME
PER COMMON SHARE $ 0.04 $ 0.06 $ 0.10 $ 0.10
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
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<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDING
SEPTEMBER 30 SEPTEMBER 30
1997 1996
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 724,840 $ 664,698
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 58,886 9,263
Minority Interest (34,513) (17,773)
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (923,770) (630,900)
(Increase) in prepaid expenses (23,822) (28,827)
(Increase) in deposits and other assets (12,849) 0
Increase in accounts payable 67,039 74,462
Increase in accrued liabilities 296,945 232,458
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CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 152,756 303,381
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (46,812) (3,868)
Proceeds from sale of furniture & equipment 0 162
Deferred acquisition costs 0 (134,013)
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CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (46,812) (137,719)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 0 292,176
Note payable from bank (500,000) 77,334
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CASH AND CASH EQUIVALENTS (USED)/PROVIDED BY
FINANCING ACTIVITIES (500,000) 369,510
(DECREASE) IN CASH AND CASH EQUIVALENTS (394,056) 535,173
Cash and cash equivalents at beginning of period 1,113,809 170,932
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 719,753 $ 706,105
=========== ===========
</TABLE>
See notes to financial statements.
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OPTIMUMCARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three and nine month
periods ended September 30, 1997 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 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, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997. 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,
1996.
NOTE B -- INCOME TAXES
The provision for income taxes represent current Federal and State income taxes.
At September 30, 1997, the Company has unused Federal and State net operating
loss carryforwards of approximately $127,000 which begin to expire in 2003. The
provision for Federal and State income taxes is computed on annualized taxable
income at current rates after giving effect to the Federal net operating loss
carryforward. At September 30, 1996 the Company had unused Federal and State net
operating loss carryforwards of approximately $1,179,000 and $16,000
respectively.
NOTE C -- NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding giving effect to common stock equivalents arising from stock
options) of 7,208,517 and 6,187,781 for the three months ended September 30,
1997 and September 30, 1996, and 7,173,422 and 6,449,485 for the nine months
ended September 30, 1997 and September 30, 1996 respectively. The weighted
average number of common shares outstanding has been retroactively restated for
the three and nine month period ended September 30, 1996 to reflect the 20%
stock dividend issued in October 1996. Common shares equivalents arising from
stock options were not restated as anti-dilution rights were not granted to the
option holders.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Management's Discussion and Analysis of Financial Condition and Results of
Operation contains statements which are forward-looking in time and involve
risks and uncertainties, including the risks associated with plans, the effects
of changing economic and competitive conditions, government regulation which may
affect facilities, licensing, healthcare reform which may affect payment amounts
and timing, availability of sufficient working capital, program development
efforts and timing and market acceptance of new programs which may affect future
sales growth and/or costs of operations.
MATERIAL CHANGES IN FINANCIAL CONDITION
At September 30, 1997 and December 31, 1996, the Company's working capital was
$3,307,581 and $2,273,094 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 provided by operations were $152,756 and $303,481 for the nine month
periods ended September 30, 1997 and 1996, respectively. The decrease was
primarily attributable to an increase in one programs accounts receivable. This
decrease was partially offset by an increase in net income and an increase in
accrued liabilities. The receivable increase is due to an increase in the age of
receivables outstanding from one program at one hospital from approximately 50
days at December 31, 1996 to approximately 100 days at September 30, 1997. The
Company believes that the receivable from this hospital is fully collectible and
warrants no reserve for uncollectibility at September 30, 1997. The increase in
accrued liabilities from December 31, 1996 to September 30, 1997 is due to
Federal and State income taxes estimated but not required to be paid until year
end, due to the Company's reliance on the prior year's tax liability method of
paying estimated taxes.
Cash flows used in investing activities were ($46,812) and ($137,719) for the
periods ended September 30, 1997 and 1996, respectively. Funds used for the
period ending September 30, 1997 were expended for office furniture and
equipment.
The decrease in indebtedness among the periods ended September 30, 1997 and 1996
was due to pay downs on the company's line of credit agreement with a bank
during 1997. The line of credit was renegotiated during May, 1997 for a maximum
indebtedness of $1,500,000. Amounts allowable for draw are based on 75% of
certain qualified accounts receivable. The line of credit expires May 1, 1998.
As of October 22, 1997 approximately $1,354,188 is available for future draws
under the line of credit agreement. The Company's principal sources of liquidity
for the fiscal year 1997 are cash on hand, accounts receivable, the line of
credit with a bank and continuing revenues from programs.
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<PAGE> 8
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
The Company operated thirteen (13) programs during the three months ended
September 30, 1997 and fifteen (15) programs during the three months ended
September 30, 1996. Net revenues were $3,076,658 and $2,950,861 for the three
months ended September 30, 1997 and 1996, respectively. The increase in revenues
in 1997 over 1996 is due to a higher census at operating programs among periods.
This is particularly true for one partial hospitalization program which the
Company began managing in January of 1996.
Cost of services provided were $2,302,422 and $2,179,571 for the three months
ended September 30, 1997 and 1996 respectively. The increase in the cost of
services provided among periods is primarily due to the increase in treating
patient volume among periods.
Selling, general and administrative expenses for the three months ending
September 30, 1997 have increased over the three months ending September 30,
1996 due to the position change of one employee from an Inpatient Program
Administrator, directly responsible for an individual program, to the Executive
Vice President/Chief Operating Officer of the Company and an increase in
insurance expenses associated with the Company's growing revenues and wages.
Net income was $253,896 and $400,443 for the three months ending September 30,
1997 and 1996, respectively. The decrease was primarily attributable to the
increase in income tax expense due to the Company's utilization of previous net
operating loss carryforwards in the prior year.
The Company does not know of any events which are likely to materially change
the costs of operating its programs individually; however, plans to expand the
number of operating programs do exist.
During February 1997 the Company formed a strategic alliance with Galaxy Health
Care of Miami, Florida to develop community mental health centers in the
southwest, southeast and northeast regions of the country over a three year
period. To date, agreements have been signed to operate programs in California,
Nevada, Tennessee and Oregon. The California programs are expected to involve a
relicensure of existing sites currently licensed with one hospital. One
relicensure occurred during August, 1997. Plans for opening additional programs
in Arizona, Florida and Washington also exist. Locations have been recently
secured for the programs in Nevada and Oregon. The Company expects that programs
should be operational within 90 days of securing the program site. However, the
nature and extent of state licensing requirements can vary, which may alter
management time line estimates.
In addition, the Company has continued to provide a larger scope of services to
its customers for a greater management fee. Census increase due to the maturity
of existing programs and changes in fee services of programs have caused
revenues to increase significantly, and gross profit to rise favorably and
disproportionately due to the increase in costs for such programs. However,
should patient census and the resulting revenue decrease (especially below the
minimum break even level) costs could be disproportionately high which would
adversely impact the results of operations and the Company's available
resources. Due to the Company's dependence on a relatively small customer base
presently consisting only four (4) hospitals and two community mental health
centers, the loss of any of its customers could have a significant adverse
effect on the Company's operations.
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<PAGE> 9
As previously stated, the Company's revenue is expected to increase during the
remainder of 1997 due to the expansion in the number of operational programs.
Marketing plans for expanding the volume of the business by obtaining new
contracts for programs and expanding the scope of mental health services offered
continue to exist. It is uncertain at this time, to what extent the Company's
fixed costs will be impacted by this expansion.
The Company exhausted the majority of its net operating loss carryforwards
during 1996. Consequently in 1997, the Company is required to provide for all
federal and state income tax expense at the applicable statutory rates.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net revenues increased 13% for the nine months ended September 30, 1997 over the
comparable nine months ended September 30, 1996.
The Company had fourteen (14) operational Programs during the nine month period
ended September 30, 1997 and fifteen (15) operational programs during the nine
month period ended September 30, 1996. The increase in net revenues among
comparative periods is due to the increase census at operating programs which
existed at both periods. This is particularly true for two partial
hospitalization programs which the Company began managing in 1996.
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.
The increase in general and administrative expenses is primarily attributable to
increased executive wages based on profit orientated incentive bonus programs,
the position change of one employee from an Inpatient Program Administrator,
directly responsible for an individual program, to the Executive Vice
President/Chief Operating Officer of OptimumCare Corporation and an increase in
insurance expenses associated with the Company's growing revenues and wages.
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<PAGE> 10
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
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
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<PAGE> 11
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 November 4, 1997 By: EDWARD A. JOHNSON
Edward A. Johnson
President & Principal
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 719,753
<SECURITIES> 0
<RECEIVABLES> 3,312,789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,071,539
<PP&E> 92,004
<DEPRECIATION> 80,439
<TOTAL-ASSETS> 4,507,411
<CURRENT-LIABILITIES> 1,033,958
<BONDS> 0
0
0
<COMMON> 6,895
<OTHER-SE> 3,347,233
<TOTAL-LIABILITY-AND-EQUITY> 4,507,411
<SALES> 3,076,658
<TOTAL-REVENUES> 3,078,584
<CGS> 2,302,422
<TOTAL-COSTS> 2,690,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 388,469
<INCOME-TAX> 134,573
<INCOME-CONTINUING> 253,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 253,896
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
