<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, 1997
[ ] 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
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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
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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, 1997
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<S> <C>
Common Stock, $.001 par value 6,895,411
</TABLE>
-1-
<PAGE> 2
INDEX
OPTIMUMCARE CORPORATION
PART I FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
Page
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<C> <S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 1997 and 3
December 31, 1995
Statements of Income for the Three Months and Six Months 4
Ended June 30, 1997 and 1996
Statements of Cash Flows for the Three Months and Six 5
Months Ended June 30, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
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
<TABLE>
<CAPTION>
(UNAUDITED) JUNE 30 DECEMBER 31
1997 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 581,653 $1,113,809
ACCOUNTS RECEIVABLE, NET 3,297,391 2,389,019
PREPAID EXPENSES 38,779 15,175
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TOTAL CURRENT ASSETS 3,917,823 3,518,003
NOTES RECEIVABLE FROM OFFICER 155,000 155,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$70,292 AT JUNE 30, 1997 AND $52,135 AT DECEMBER 31, 1996 100,651 73,496
DEPOSITS AND OTHER ASSETS 34,879 29,922
INTANGIBLES LESS ACCUMULATED AMORTIZATION OF $47,336
AT JUNE 30, 1997 AND $27,050 AT DECEMBER 31, 1996 155,542 175,828
TRADENAME, LESS ACCUMULATED AMORTIZATION OF $1,326 AT JUNE 30, 1997
AND $1,224 AT DECEMBER 31, 1996 749 851
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TOTAL ASSETS $4,364,644 $3,953,100
========== ==========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 268,839 $ 227,289
ACCRUED LIABILITIES 598,300 371,808
LINE OF CREDIT 245,812 645,812
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TOTAL CURRENT LIABILITIES 1,112,951 1,244,909
MINORITY INTEREST (49,583) (27,207)
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED 20,000,000 SHARES,
6,895,411 SHARES ISSUED AND OUTSTANDING AT JUNE 30, 1997
AND 6,786,218 SHARES ISSUED AND OUTSTANDING AT DECEMBER 31, 1996 6,895 6,786
PAID-IN-CAPITAL 3,367,233 3,272,407
ACCUMULATED DEFICIT (72,852) (543,795)
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TOTAL STOCKHOLDERS' EQUITY $3,301,276 $2,735,398
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,364,644 $3,953,100
========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 4
OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUES $ 3,050,876 $ 2,765,795 $ 5,881,456 $ 4,986,240
INTEREST INCOME 1,531 466 3,063 2,028
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$ 3,052,407 $ 2,766,261 $ 5,884,519 $ 4,988,268
----------- ----------- ----------- -----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $ 2,207,314 $ 2,135,674 $ 4,270,360 $ 4,071,599
PROVISION FOR DOUBTFUL ACCOUNTS 0 0 0 0
GENERAL AND ADMINISTRATIVE 392,287 322,376 803,865 588,207
INTEREST 10,738 6,859 27,365 12,576
MINORITY INTEREST (11,883) 0 (22,376) 0
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2,598,456 2,464,909 5,079,214 4,672,382
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 453,951 301,352 805,305 315,886
INCOME TAXES 185,854 46,631 334,361 51,631
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NET INCOME $ 268,097 $ 254,721 $ 470,944 $ 264,255
=========== =========== =========== ===========
NET INCOME
PER COMMON SHARE $ 0.04 $ 0.04 $ 0.07 $ 0.04
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30 JUNE 30
1997 1996
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 470,944 $ 264,255
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 38,545 11,099
Minority Interest (22,376) (6,174)
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (908,372) (542,528)
(Increase) in prepaid expenses (23,604) (8,787)
(Increase) in deposits and other assets (4,957) 0
Increase in accounts payable 41,550 74,557
Increase in accrued liabilities 321,426 170,079
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CASH AND CASH EQUIVALENTS
(USED) BY OPERATING ACTIVITIES (86,844) (37,499)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (45,312) (3,868)
Proceeds from sale of furniture & equipment 0 163
Deferred acquisition costs 0 (132,187)
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CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (45,312) (135,892)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 0 41,438
Note payable from bank (400,000) 74,334
CASH AND CASH EQUIVALENTS (USED)/PROVIDED BY
FINANCING ACTIVITIES (400,000) 115,772
(DECREASE) IN CASH AND CASH EQUIVALENTS (532,156) (57,619)
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 $ 581,653 $ 113,313
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 6
OPTIMUMCARE CORPORATION
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three month period ended
June 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 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, 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 June 30, 1997, the Company has unused Federal and State net operating loss
carryforwards of approximately $95,000 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 June 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 7,178,342 and 6,603,654 for the three months ended June 30, 1997 and
June 30, 1996, and 7,138,361 and 6,580,337 for the six months ended June 30,
1997 and June 30, 1996 respectively. The weighted average number of common
shares outstanding has been retroactively restated for the three and six month
period ended June 30, 1996 to reflect the 20% stock dividend issued in October
1996. Common share equivalents arising from stock options were not restated as
anti-dilution rights were not granted to the option holders.
6
<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
Operations 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 June 30, 1997 and December 31, 1996, the Company's working capital was
$2,804,872 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 used in operations were ($86,844) and ($37,499) for the periods ended
June 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 hospital from approximately 45 days at June 30, 1996 to approximately
120 days at June 30, 1997. The Company believes that the receivable from this
hospital is fully collectible and warrants no reserve for uncollectibility at
June 30, 1997. The increase in accrued liabilities 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 ($45,312) and ($135,892) for the
periods ended June 30, 1997 and 1996, respectively. Funds used for the period
ending June 30, 1997 were expended for office furniture and equipment. Funds
used for the period ending June 30, 1996 were expended for acquisition costs
incurred in connection with the acquisition of a 70% interest in the contracts
of Professional Care Source, Inc., through the formation of a limited liability
company on April 24, 1996.
The cash flows used in financing activities were ($400,000) and $115,772 for the
periods ended June 30, 1997 and 1996, respectively. The decrease 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
7
<PAGE> 8
on 75% of certain qualified accounts receivable. The line of credit expires May
1, 1998. As of July 21, 1997 approximately $1,254,188 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.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
The Company operated fourteen (14) programs during the three months ended June
30, 1997 and fifteen (15) programs during the three months ended June 30, 1996.
Net revenues were $3,050,876 and $2,765,795 for the three months ended June 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
April of 1996.
Cost of services provided were $2,207,314 and $2,135,674 for the three months
ended June 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 June
30, 1997 have increased over the three months ending June 30, 1996 due to
increased executive wages based on profit oriented incentive bonus programs and
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.
Net income was $268,097 and $202,847 for the three months ending June 30, 1997
and 1996, respectively. The increase was primarily attributable to revenue
growth, generated by increased patient volume causing gross profit to rise
favorably, and disproportionately to the increase in the costs of services
provided.
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. 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.
8
<PAGE> 9
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.
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 SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30,
1996
Net revenues increased 18% for the six months ended June 30, 1997 over the
comparable six months ended June 30, 1996.
The Company had fourteen (14) operational Programs during the six month period
ended June 30, 1997 and fifteen (15) operational programs during the six month
period ended June 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 one partial hospitalization program
which the Company began managing in April of 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
and 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.
9
<PAGE> 10
PART II
OTHER INFORMATION
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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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Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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Not applicable.
10
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SIGNATURE
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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 July 30, 1997 By: EDWARD A. JOHNSON
Edward A. Johnson
President & Principal
Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 581,653
<SECURITIES> 0
<RECEIVABLES> 3,297,391
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,917,823
<PP&E> 100,651
<DEPRECIATION> 70,292
<TOTAL-ASSETS> 4,364,644
<CURRENT-LIABILITIES> 1,112,951
<BONDS> 0
0
0
<COMMON> 6,895
<OTHER-SE> 3,367,233
<TOTAL-LIABILITY-AND-EQUITY> 4,364,644
<SALES> 3,050,876
<TOTAL-REVENUES> 3,052,407
<CGS> 2,207,314
<TOTAL-COSTS> 2,598,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,738
<INCOME-PRETAX> 453,951
<INCOME-TAX> 185,854
<INCOME-CONTINUING> 268,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 268,071
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
