<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
( X ) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) for the fiscal year ended December
31, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required)
For the transition period from to Commission file
number 0-17401
Commission File Number: 0-17401
OPTIMUMCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 33-0218003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, California 92677
(Address of principal (Zip Code)
executive offices)
</TABLE>
Registrant's telephone number, including area code: (714) 495-1100
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Title of Each Class Which Registered
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for, such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
<PAGE> 2
COMMON STOCK, -$.001-PAR-VALUE
(TITLE OF CLASS)
The aggregate market value of the voting stock held by non-affiliates of the
Company on March 11, 1996 (4,094,786 shares of Common Stock) was $4,627,105
based on the bid price of the Company's voting stock on March 11, 1996.*
The number of shares outstanding of each of the Company's classes of Common
Stock, as of March 11, 1996 was:
<TABLE>
<S> <C>
Common Stock, - 4,938,509 shares
$.001 par value
</TABLE>
Documents Incorporated by Reference
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will be contained to the best of
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|_|
* This value is not intended to make any representation as to value or
worth of the Company's shares of Common Stock. The number of shares
held by non-affiliates of the Company has been calculated by
subtracting shares held by controlling persons of the Company from the
number of issued and outstanding shares of the Company.
<PAGE> 3
PART I
ITEM 1 - BUSINESS
(a) General Development of Business
OptimumCare Corporation (the "Company") was incorporated in California
on November 25, 1986 and was reincorporated in Delaware on June 29,
1987. In mid-1987, the Company commenced the development and marketing
of health care facility-based programs ("Programs") to be managed by
the Company for the treatment of depression and certain other mental
health disorders ("PsychPrograms"), as well as programs for alcohol and
drug abuse ("Treatment Programs"). After the Company obtains a contract
for the establishment of one or more Programs at a host health care
facility, the Company recruits and trains the staff needed to operate
its programs. Typically, the host health care facility provides a
specified number of beds for the Program, as well as all other support
services required for the operation of the Program, including nursing,
dietary, housekeeping, billing and other administrative functions. The
Company recruits and trains the staff to operate the Program. The
Company's staffing of a Program will usually include a medical
director, a program director, a psychologist, a chief therapist and one
or more counselors or social workers.
Contracts are individually negotiated with the host health care
facility and usually approximate 20 to 60 beds. Generally, the Company
and the host health care facility negotiate a per patient management
fee which depends on the scope of services provided by the Company
number of beds, rates charged and reimbursements received by the
facility, and in some instances, a fixed monthly administrative fee and
reimbursement of certain direct program costs. The health care facility
charges the patient on a daily basis in accordance with a fee schedule
of prescribed rates, except where the insurer provides for payment
which is limited to a maximum number of days per patient. The health
care facility pays the Company a fixed management fee per patient which
approximates $160 per patient day or in some cases, a reimbursement of
direct costs plus a per patient per day incentive fee and a percentage
of overhead fee, and a fixed management fee per visit which
approximates $85 per visit or in some cases, a percentage of collected
revenues for outpatient contracts. Certain contracts contain provisions
which deny portions or all of the management fee should patient days be
ultimately appealed and denied by the patient payor.
As of March 11, 1996, the Company has thirteen (13) Programs that are
hosted by six (6) hospitals: Five PsychPrograms through Huntington
InterCommunity Hospital, D/B/A Humana Hospital Huntington Beach,
Huntington Beach, California, two PsychPrograms at St. Francis Medical
Center, Lynwood, California, one PsychProgram at Brotman Medical
Center, Culver City, California, one PsychProgram at Samaritan Health
System D/B/A Samaritan Medical Center, San Clemente, California, two
PsychPrograms through Sherman Oaks Hospital and HealthCenter, Sherman
Oaks, California, and two PsychPrograms at Mission Community Hospital,
San Fernando, California.
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(b) Financial Information About Industry Segments
The Company competes in one industry segment which is the development,
marketing and operation of Programs.
(c) Narrative Description of the Business
(i) and (ii) Products
OptimumCare's PsychPrograms ("PsychProgram")
The PsychProgram is a medically-supervised psychiatric care program for
certain types of mental health disorders that is offered on both an
inpatient and outpatient basis. The PsychProgram is directed at
assisting the patient to return to a normal life. The PsychProgram is
designed to treat patients with neuroses and personality disorders;
however, the Company's marketing focus is to attract patients who
exhibit symptoms of depression. Patients suffering from depressive
mental illness manifest, among other things, loss of interest in the
world generally, loss of activity and capacity to love, sadness,
hopelessness, fatigue, boredom, restlessness, loss of belief in
personal future, anxiety and feelings of ill-at-ease. At the outset, a
patient receives a physical examination and diagnostic testing to
eliminate any physical illnesses which may evidence some symptoms of
mental disorders.
Each PsychProgram also includes individual and group therapy and a full
daily regimen of activities including sessions for relaxation,
assertiveness training, exercise and men's and women's sexual
awareness. The Company estimates that the average stay for a patient in
a PsychProgram will be 7-10 days.
OptimumCare's Partial Hospitalization Program ("Partial
Hospitalization")
Partial Hospitalization is a new behavioral medicine outpatient product
that provides daytime treatment programs that employ an integrated and
individualized schedule of recognized psychiatric treatment modalities.
Partial Hospitalization is a treatment approach developed as an
alternative to inpatient treatment. It includes the major psychiatric
evaluation and treatment modalities (both psychosocial and biological),
which are usually found in a comprehensive psychiatric inpatient
program. It is designed for voluntary patients with serious mental
disorders who require intensive and multi-disciplinary treatment which
cannot be provided in an outpatient setting. By offering a
medically-supervised alternative to inpatient treatment, it provides a
more flexible, less costly and less restrictive form of treatment.
Partial Hospitalization can be utilized by individuals who are mentally
or emotionally impaired, but who are able to be maintained in the
community at least part of each day, and present little risk of
imminent danger to themselves or others. The Company believes that the
benefits of partial hospitalization include: lessening the disruption
of social, family, and community ties; allowing the patient to test new
skills in a more natural environment than a hospital setting; providing
a treatment milieu that fosters independence and self reliance;
allowing daily feedback from the home environment thereby closely
involving members of the patient's family or supportive environment in
the treatment program; providing flexibility in the number of treatment
days per week thus allowing a patient to pursue other activities such
as a shortening of the
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<PAGE> 5
inpatient stay or preventing the need for full hospitalization.
Expansion of Products
The Company is seeking to expand the scope of psychological services it
offers by acquiring entities which offer complimentary mental health
services.
Negotiations are currently underway to purchase Psychological
Healthcare, Inc. and Care Source, Inc. Psychological Healthcare
operates outpatient mental health clinics. Care Source provides
management and other administrative behavioral healthcare services to
skilled nursing and other similar bed and board facilities. Although
there is no definitive agreement as of December 31, 1995, the Company
believes that the transaction will close in the second quarter of 1996.
The Company believes that it can more effectively market its services
to managed care payors by increasing the scope of services it provides.
Staffing
The PsychProgram and Partial Hospitalization Programs are staffed by
the Company with a medical director, a program manager, and in some
cases, a psychologist, a chief therapist, and at least one counselor or
social worker. The key staff members are the medical director and the
program manager. The medical director is a licensed psychiatrist who is
a staff member of the host health care facility and is engaged as an
independent contractor charged with the responsibility for overseeing
the administration of the Program from a medical/regulatory compliance
viewpoint. In addition to the medical director who is responsible for
administering the clinical aspects of the contract, the Company often
engages co-medical directors in each community in which a Program is
located. These co-medical directors are licensed psychiatrists or
psychologists. They provide administrative assistance to a Program and
represent it at various professional activities in the local community.
The co-medical directors are compensated at a fixed monthly rate,
depending on the amount of time they commit to supporting the Company's
Programs. The Company's employees and contractors at each program are
subject to approval and pre-employment screening by the host health
care facility. The Company has not experienced any difficulty in
locating qualified medical directors from the hospital staff to
affiliate with the Company's Programs. The program manager is a full
time employee of the Company and usually has completed either a
bachelor's or master's degree program in psychology or social work, but
is principally a marketing representative of the Company. Program
managers are officed at their respective Program's facility.
Contract Operations
The Company provides a host health care facility with staff
recruitment, a two-week pre-opening in-service nurse and hospital
employee training program, program management, continuing education,
community education, ongoing public relations and program quality
assurance.
The Company provides these training programs to the host health care
facility at no charge. Nursing, dietary, X-ray, laboratory,
housekeeping, admissions and billing are the responsibility of the host
health care facility.
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Existing contracts range from a period of one to five years and may be
renewed for subsequent terms, of usually one year periods. In some
cases, if the Company does not maintain a stipulated minimum average
daily census for specified periods the health care facility may
terminate the contract on reasonable notice to the Company.
Payment for Services
Patients are screened by the host healthcare facility prior to
admission. Screening procedures include verification of the existence
and extent of insurance coverage.
It is the host health care facility's responsibility to bill and
collect the fees charged to the patient for all program services. The
Company in turn bills the host health facility for the total patient
days of service provided at the specified contract rate. Generally, the
Company bills the host health care facility fifteen (15) days after the
close of the month in which the services were rendered. Except in the
cases where the contracts provide for specific hold backs for
ultimately denied days, the majority of the contracts do not
specifically provide that the Company shall bear any risk of
non-payment by the host healthcare facility. However, industry practice
dictates that the Company acknowledge that a certain percentage of the
fees will be uncollected by the host health care facility. Thus,
accommodations are expected to be made on a case-by-case basis with
each host health care facility (except where there is an express
contractual provision which governs this issue) to offset some portion
of Program patients' bad debts experienced by the host health care
facility.
Many of the hospitals the Company contracts with have a large number of
Medicare and Medicaid patients. However, the Company has negotiated
with these hospitals whereby they are paid either a flat per diem rate
or a per diem rate with a hold back for days ultimately denied. Thus,
the Company is not directly dependent on Medicare or Medicaid for
payment under its contracts. It is unknown, whether in the future other
contracts or programs will be dependent on a disproportionate amount of
Medicare/Medicaid patients.
Pending legislative proposals revising Medicare/Medicaid reimbursement,
if enacted, could have a negative affect on the revenues of the
hospitals with which the Company contracts. Generally, the Company's
agreements with hospitals require the Company and the hospital to
renegotiate rates in the event of a significant legislative change
which affects the compensation received by the hospital. It is
uncertain at this time to what extent the Company's revenues may be
impacted by the proposed legislation.
In addition, government efforts to eliminate the exemption from
Medicare's prospective payment system for long-term care hospitals
currently exist. These proposals would affect the cash flow of the
facilities the Company intends to contract with through its 70% owned
subsidiary, OptimumCare Source, LLC. This could also result in
renegotiation of the rates the OptimumCare Source, LLC receives for its
services and the timing of payments. The Company does not anticipate
that OptimumCare Source, LLC will generate revenues from the facilities
with which it contracts which are significant to the Company on a
consolidated basis until after approximately six full months of
operations.
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The Company anticipates that additional legislation may be adopted
focusing on controlling health care costs and improving access to
medical services for persons who are uninsured. Such legislation may
also affect the amount which health care providers can charge for
services. The Company believes that it is well positioned to respond to
these changes and that it is likely that the Company will experience a
lesser impact than other companies in the health care industry based on
the fact that the Company has already focused its efforts on shortening
patient stays and has historically provided a greater percentage of its
services to Medicaid patients than have many of its competitors.
Marketing
The Company's marketing efforts are primarily directed toward
increasing the number of management contracts by either the takeover of
existing programs operated by others or the establishment of new
Partial Hospitalization or PsychPrograms in geographically desirable
areas. The Company believes that their ability to secure new contracts
is based on its reputation as a quality provider coupled with its
history of low length of patient stays resulting in less uncompensated
care.
Sales calls are primarily directed at health care facilities which may
be experiencing a low or declining patient census and facilities in
geographically desirable areas. After a contract is obtained, the
Company prepares a detailed marketing development strategy aimed at
attracting patients to the Programs.
The program director for each PsychProgram at the host health care
facility develops a media press kit for each Program. The program
director coordinates all local advertising consistent with the
Company's overall marketing plan. Each program director implements a
local market development strategy to increase the public awareness of
the Program, including the establishment of a media appearance and
community speakers bureau which are referred to the broadcast media for
further exposure. The co-medical directors direct local continuing
professional education and community service programs on an as-needed
basis. The host hospital's administrative and medical staffs are also
encouraged to participate in community relations activities.
Direct marketing to psychiatrists, psychologists and other licensed
professionals by the Company is emphasized because these individuals
motivate potential patients to seek inpatient treatment for their
mental health. The Company's marketing approach to physicians and
clinicians emphasizes involvement through one-on-one communication with
the professionals who will provide patient referrals. These
professionals are invited to the Company-sponsored community relations
activities, speaker programs and continuing education seminars.
(iii) Raw Materials
Inapplicable.
(iv) Patents and Trademarks
The Company holds a federal service mark, Registration #1628745, for
its tradename "OptimumCare". The Company has marketed its programs
under the names "OptimumCare PsychProgram" and "OptimumCare Treatment
Program".
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(v) Seasonality
The Company has noted a trend that its business appears to be
susceptible to some seasonal variation. Census tends to substantially
decrease near various holidays, particularly during the fourth quarter.
(vi) Working Capital Items
The Company expects to experience an initial one-time maximum delay of
up to 90 days in receipt of revenues after each Program is opened due
to the normal processing time for the billing/payment cycle of the host
health care facilities.
(vii) Dependence on a Few Customers
The Company presently has thirteen (13) Programs operating through six
(6) hospitals. If any of these Programs were terminated, or if any of
the accounts receivable from these contracts were to become
uncollectible, such event could have a material adverse effect on the
Company.
(viii) Backlog
Inapplicable.
(ix) Government Contracts
The Company is not currently a party to any government contract.
(x) Competition
The Company competes with other health care management companies for
contracts with acute care hospitals. Also, the Company's Programs will
compete for patients with the programs of other hospitals and other
health care facilities. The success of the Company's Programs is also
dependent on its ability to establish relationships with sources of
patient referrals.
The Company's principal competitors include Charter Medical
Corporation, Community Psychiatric Centers, Comprehensive Care
Corporation, Mental Health Management and Horizon Health Services, all
of which have greater financial and other resources and more experience
than the Company. In addition, some health maintenance organizations
("HMOs") offer competing programs; however, the HMO-owned hospitals
typically do not provide inpatient psychiatric services, nor coverage
for these services. Most HMOs also do not provide programs for partial
hospitalization or substance abuse, but often provide coverage for
these programs, usually at a reduced rate.
Other health care facilities offer comparable programs which compete
with the Company's Programs in each service area. The Company believes,
however, that in general its marketing efforts are primarily effective
within a ten (10) mile radius around the host hospital and that
patients outside such radius are not directly affected by such
advertising unless their personal physician has admitting privileges
and recommends the Company's program at that host hospital.
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The Company believes that the principal competitive factors in
obtaining contracts with health care facilities are experience,
reputation for quality programs, the availability of program support
services and price. The primary competitive factors in attracting
referral sources and patients are marketing, reputation, record of
success, quality of care and location and scope of services offered by
a host health care facility. The Company implements active promotional
programs and believes it is competitive in attracting referral sources
and patients based on these factors.
(xi) Research and Development
Inapplicable.
(xii) Government Regulation and or Environmental Protection
The health care industry is extensively regulated by federal, state and
local governments. Regulations which affect the Company relate to
controlling the growth of health care facilities, requiring licensure
of the host health care facility, requiring certification of the
Program at the host facility and controlling reimbursement for health
care services. Licensure of facilities and certification of Programs
are state requirements, while certification for Medicare is a federal
requirement. Compliance with the licensure and certification
requirements is monitored by annual on-site inspections by
representatives of the licensing agencies. Loss of licensure or
Medicare certification by a host facility could result in termination
of such contract.
Certificate of need ("CON") laws in some states require approval for
capital expenditures in excess of certain threshold amounts, expansion
of bed capacity or facilities, acquisition of medical equipment or
institution of new services. If a CON must be obtained, it may take up
to 12 months to do so, and in some instances longer, depending upon the
state involved and whether the application is contested by a competitor
or the state agency. CON's usually are issued for a specified maximum
expenditure and require implementation of the proposed improvement
within a specified period of time. Certain states, including
California, Texas, Utah, Colorado and Arizona, have enacted legislation
repealing CON requirements for the construction of new health care
facilities, the expansion of existing facilities and the institution of
new services. Some states have enacted or have under legislative
consideration "sunset" provisions which require the review,
modification or deletion of these statutes when no longer needed. The
Company is unable to predict whether such legislative proposals will be
enacted but believes that the elimination of CON requirements
positively impacts its business.
The Joint Commission on the Accreditation of Healthcare Organizations
("JCAHO"), at a facility's request, will participate in the periodic
surveys which are conducted by state and local health agencies to
ensure continuous compliance with all licensing requirements by health
care facilities. JCAHO accreditation satisfies certain of the
certification requirements for participation in the Medicare and
Medicaid programs. A facility found substantially to comply with JCAHO
standards receives accreditation. A patient's choice of a treatment
facility may be affected by JCAHO accreditation considerations because
most third-party payers limit coverage to services provided by an
accredited facility. All of the hospitals currently under contract with
the Company have received JCAHO accreditation.
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The laws of various states in which the Company may choose to operate,
including California, generally prevent corporations from engaging in
the practice of medicine. These laws (e.g., Section 2052 of the
California Business and Professions Code), as well as applicable case
law, were enacted to protect the public from the rendering of
unnecessary medical or other services for treatment of the ill.
Although the Company has not obtained a legal opinion, it believes that
the establishment and operation of Programs will not cause it to be
engaged in the "practice of medicine" as that term is used in such laws
and regulations. These laws and regulations are subject to
interpretation and, accordingly, the issue is not free from doubt.
Since the Company has not sought or obtained any rulings, there can be
no assurance that state authorities or courts will not determine that
the Company is engaged in the unauthorized practice of medicine. If
such a determination is made and is not overturned, the Company would
have to terminate its operations in that state.
The Company's medical directors are engaged to provide administrative
services, including but not limited to planning the clinical program,
supervising the clinical staff, establishing standards of professional
care, advising the Company and staff on questions of policy. The
co-medical directors conduct public relations activities and assist the
Company in marketing. Although the Company has not obtained a legal
opinion, it believes that the proposed agreements between the Company
and its medical and co-medical directors do not violate any fee-sharing
prohibitions. The federal prohibition, as it relates to the Medicare
program, is found at 42 U.S.C. 1320a-7b. Such prohibitions are found in
Section 650 of the California Business and Professional Code and
Section 445 of the California Health and Safety Code, as well as
comparable statutes in other states. However, future judicial,
legislative or administrative interpretations of these arrangements
could prohibit the Company from hiring professionals which could have a
materially adverse effect on the Company.
Given the recent political mandate for health care reform, it appears
likely that health care cost containment will occur. The Company is
practiced in administrating "managed care type" programs and is
familiar with the pressures of improving productivity and reducing
costs.
(xiii) Employees
As of February 29, 1996, the Company employed 121 persons full-time and
fifty-two (52) persons part-time. Those figures do not include
physicians and psychiatrists who are medical directors of the Company's
Programs and not employees.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Inapplicable.
ITEM 2 - PROPERTIES
The Company maintains its corporate offices in an approximately
2,200-square-foot suite of executive offices in Laguna Niguel,
California, under a lease agreement providing for a monthly base rent
of $2,880 which expires June 30, 1996. The Company began leasing an
additional satellite corporate office in Playa Del Rey, California
November 1, 1995 under a lease agreement providing for a monthly base
rent of $1,900 which expires October 31, 1996. The Company believes
that this office space is adequate for its reasonably foreseeable
needs. It is expected that the terms will be extended thereafter on
similar terms.
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The Company has also leased space under five separate lease agreements
for the operation of its outpatient partial hospitalization programs.
One agreement is on a month to month basis. The remaining agreements
expire September 30, 1996, June 3, 1997, June 23, 1997 and June 30,
1997 respectively. The lease which expires June 30, 1997 contains five
(5) one (1) year options to extend the lease. Aggregate monthly
payments total $10,432,60 and are fully reimbursed through subleases
with the Company's host hospitals.
ITEM 3 - LEGAL PROCEEDINGS
Inapplicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On December 5, 1995, the Company held its annual Meeting of
Stockholders. At the meeting, Edward A. Johnson, Gary L. Dreher, Jon
Jenett and Michael S. Callison were each elected as Directors of the
Company with 4,601,001 shares voting for the Director nominees and
17,900 shares withholding authority to vote. The meeting was continued
to December 22, 1995 for consideration of the adoption of the 1994
Stock Option Plan. The adoption of the plan requires a majority vote of
the outstanding shares. The Plan was adopted with 2,503,337 shares
voting for the Plan, 247,604 shares voting against the Plan and 54,974
shares abstaining from voting.
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SECURITY HOLDER MATTERS
(a) Market Information
The Company's common stock is currently quoted on the over the counter
"OTC" electronic bulletin board under the symbol OPMC.
<TABLE>
<CAPTION>
High Bid Low Bid
1995:
<S> <C> <C>
Fourth Quarter 1 1/4 1 5/16
Third Quarter 1 1/4 29/32
Second Quarter 1 7/32 21/32
First Quarter 7/8 3/4
1994:
Fourth Quarter 7/8 3/4
Third Quarter 1 23/32
Second Quarter 31/32 3/4
First Quarter 7/8 5/8
</TABLE>
The listed prices represent inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
(b) Holders
The approximate number of holders of record each class of the Company's
common equity securities as of the close of business on March 11, 1996
is set forth below:
<TABLE>
<CAPTION>
Approximate
Title of Class Number of Record Holders
<S> <C>
Common Stock, $.001 par value 300
</TABLE>
(c) Dividends
The Company has never paid or declared dividends on its Common Stock.
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ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial data should read in conjunction with
the Financial Statements and Notes thereto of the Company included
elsewhere herein, and such data should be read with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The data at December 31, 1995 and December 31, 1994 and
for each of the fiscal years in the three year period ended December
31, 1995 are derived from the Company's Financial Statements for such
years audited by Ernst & Young LLP which Financial Statements are
included elsewhere herein.
A 20% stock dividend was declared by the Board of Directors on
August 14, 1996 for stockholders of record on October 1, 1996.
The stock dividend was issued on October 18, 1996 and per
share amounts for all periods presented have been restated to
reflect the stock dividend.
STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
============================================================================================================
1995 1994 1993 1992 1991
============================================================================================================
<S> <C> <C> <C> <C> <C>
NET REVENUES $6,027,122 $5,596,283 $3,825,613 $2,314,376 $2,222,220
- ------------------------------------------------------------------------------------------------------------
NET INCOME 2,070 465,045 365,189 127,045 183,037
- ------------------------------------------------------------------------------------------------------------
NET INCOME PER
SHARE OF COMMON
STOCK .00 .07 .06 .02 .03
- ------------------------------------------------------------------------------------------------------------
WEIGHTED NUMBER
OF SHARES
OUTSTANDING 6,414,709 6,218,113 5,939,264 5,886,611 5,866,211
============================================================================================================
</TABLE>
BALANCE SHEET INFORMATION
AS OF DECEMBER 31
<TABLE>
<CAPTION>
===============================================================================================================
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS $2,059,537 $1,814,153 $1,299,215 $917,779 $659,369
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
1,739,112 1,699,801 1,237,885 904,072 639,857
- ---------------------------------------------------------------------------------------------------------------
CURRENT
LIABILITIES 381,531 333,209 269,343 249,701 118,336
- ---------------------------------------------------------------------------------------------------------------
NET WORKING
CAPITAL 1,357,581 1,366,592 968,542 654,371 521,521
- ---------------------------------------------------------------------------------------------------------------
LONG-TERM
OBLIGATIONS 166,000 0 0 0 0
===============================================================================================================
</TABLE>
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(a) Liquidity and Capital Resources
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994.
At fiscal year end 1995 and 1994, the Company's working capital was
$1,357,581 and $1,366,592 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
cancellation of any one contract or the inability to collect any of the
accounts receivable could materially and adversely affect the Company's
liquidity.
Cash flows from operations were $159,554 and ($191,639) for the years
ended December 31, 1995 and 1994, respectively. The increase was
primarily attributable to increase in program accounts receivable due
to an increase in program volume.
Cash flows used in investing activities were ($215,196) and ($63,362)
for the years ended December 31, 1995 and 1994, respectively. The
decrease in cash was primarily attributable to deferred acquisition
costs incurred in connection with the proposed acquisitions of two
companies performing complimentary mental health services.
The cash flows from financing activities was $189,917 and ($13,973) for
the years ended December 31, 1995 and 1994, respectively. The increase
was primarily due to draws on the Company's line of credit agreement
with a bank. The credit agreement expires May 1, 1996, but is
convertible into a one year term loan with an initial due date of May
1, 1997 but with a five (5) year repayment schedule. As of March 11,
1996, approximately $260,000 is available for future draws on of 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 with a bank and continuing revenues from programs.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993.
At fiscal year end 1994 and 1993, the Company's working capital was
$1,366,592 and $968,542 respectively. The increase in working capital
at December 31, 1994 over December 31, 1993 was primarily due to the
increase in Program accounts receivable due to the increase in Program
volume. 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 would materially and adversely affect the Company's
liquidity. During 1994, the Company wrote off approximately $142,000 in
billings to an entity who leased facilities from a hospital which filed
bankruptcy in June, 1994.
12
<PAGE> 15
The Company's cash flow at fiscal year end 1994 declined due to the
significant increase in receivables. However, through March 7, 1995,
the Company collected approximately $1,000,000 against total
receivables which existed at fiscal year end 1994, thereby improving
the Company cash position considerably.
(b) Results of Operations
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company operated seventeen (17) programs during the year ended
December 31, 1995 and sixteen (16) programs during the year ended
December 31, 1994. The Company currently has thirteen (13) operating
programs. Net Revenues were $6,027,122 and $5,596,283 for the years
ended December 31, 1995 and 1994 respectively. The increase in revenues
in 1995 over 1994 is due to the greater number of total operating
programs among years and a greater number of inpatient psychiatric
programs operating for a greater portion of 1995 versus 1994. The
Company typically earns a larger management fee on managing inpatient
versus partial hospitalization programs. In addition, the volume of
patient days treated through inpatient programs is greater than those
treated through partial hospitalization programs.
Cost of services provided were $5,022,040 and $4,238,555 for the years
ended December 31, 1995 and 1994 respectively. The increase in the cost
of services provided among years is primarily due to the increase in
program volume among years and an expanded scope of services provided
in connection with certain contracts such as nursing, transportation
and lease costs.
Selling, general and administrative expenses have increased over the
prior year due to increased corporate marketing wages and activities,
and various professional fees incurred with the Company's contract and
business acquisition efforts.
The provision for uncollectible accounts decreased from the prior year
due to the termination of two contracts with one entity which leased
facilities from a hospital which filed bankruptcy in June, 1994.
Net income was $2,070 and $465,045 for the years ended December 31,
1995 and 1994, respectively. The decrease was primarily attributable to
increased cost of services provided and increased sales and marketing
efforts.
The Company does not know of any events which are likely to materially
change the costs of operating its Programs; however, if the mix of
individual operating programs remains stable, and revenues increase
significantly, gross profit should rise favorably and
disproportionately to the increase in cost for such Programs. During
1995 and 1994, the mix of programs changed significantly. 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 in 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 businesses currently exist. However, 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 six (6)
hospitals, the loss of any of its customers could have a significant
adverse effect on the Company's operations. Hence, there is a special
emphasis paragraph in the report of the Company's independent audit of
the financial statements for the
13
<PAGE> 16
fiscal year ended December 31, 1995. In addition, the Company wrote off
approximately $36,000 in billings to one entity in 1995, and $142,000
in billings to one hospital in 1994.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993.
The Company operated sixteen (16) Programs during the year ended
December 31, 1994 and fourteen (14) Programs during the year ended
December 31, 1993. The increase in revenues in 1994 over 1993 is due to
the greater number of operating Programs among years, and increased
volume at the individual Programs. This increase was compounded due to
the fact that a majority of the new Programs which were opened in 1993
were opened during the latter half of the year.
The increase in the cost of services provided among years is directly
due to the increase in revenues.
Selling, general and administrative expenses increased over the prior
year due to increased wages and benefits resulting from the addition of
a Vice President of Corporate Marketing and Development in 1994, as
well as an executive bonus program based on the Company's profits.
The provision for uncollectible accounts increased over the prior year
due to the termination of two contracts with one entity which leased
facilities from a hospital which filed bankruptcy in June, 1994.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OPTIMUMCARE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
See pages F1 through F11 of this Form 10-K and Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Inapplicable.
14
<PAGE> 17
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) and (b) Identification of Directors and Executive Officers
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward A. Johnson 50 President, Principal Financial
Officer, Secretary and Chairman of the Board
Gary L. Dreher 49 Director
Michael S. Callison 57 Director, Vice President of
Corporate Development
Jon E. Jenett 43 Director
</TABLE>
Each director serves for a term of one year or until his successor has
been elected and qualified. Each executive officer serves at the
pleasure of the Board of Directors. Directors do not receive any
director's fees or other compensation for their services, as such, but
receive reimbursement for their expenses in attending meetings of the
Board of Directors.
(c) Identification of Certain Significant Employees
Inapplicable.
(d) Family Relationships
Inapplicable.
(e) Business Experience
Mr. Johnson has been President, Chief Executive Officer and Chairman of
the Board of the Company since co-founding the Company in November
1986. During May, 1990, Mr. Johnson assumed the role of Principal
Financial Officer following the resignation of the former Chief
Financial Officer. From August 1985 through July 1986, he was Executive
Vice President of Behavioral Medicine Corporation, a joint venture
between The Voluntary Hospital Association of America and Comprehensive
Care Corporation.
Mr. Johnson's duties principally included the development of
psychiatric and substance abuse programs for hospitals throughout the
United States. From 1969 until August 1985, Mr. Johnson was employed in
various positions with Comprehensive Care Corporation, a significant
provider of management programs for psychiatric disorders and substance
abuse. Mr. Johnson's most recent position at Comprehensive Care
Corporation was the Executive Vice President of Operations. His
principal duties were to develop and implement marketing systems for
that company's programs. Mr. Johnson received a M.S. degree in
Psychology from Colorado State College in 1966 and is licensed in
California as a Marriage and Family Counselor.
Mr. Dreher was elected to the Board of Directors during September,
1993. He received his B.S. degree in Microbiology and Lab Technology
from California State University in 1971. For the past four years, he
has served as Vice President of International Sales for Apotex
Scientific, an
15
<PAGE> 18
international distributor network for Esoteric Diagnostic Tests. From
1984 to 1991, he was Vice President of Sales at Ventrex Laboratories, a
manufacturer of Diagnostic Tests for medical and biotechnology markets.
Mr. Callison was elected to the Board of Directors during September,
1993. He received his B.A. degree in Economics from the University of
Puget Sound, Tacoma, Washington in 1966. In 1994, Mr. Callison was
promoted to Vice President of Marketing and Development. From 1990 to
1993, he was a sales and marketing consultant to the Company, assisting
in business development and responsible for securing various key
management contracts for the Company. From 1984 to 1990, Mr. Callison
was a Senior Account Executive for the Hill-Rom Company, responsible
for marketing hospital patient room furniture.
Mr. Jenett was elected to the Board of Directors during December, 1995.
He received his B.A. degree in Economics from Harvard College in 1974
and his M.B.A. from Stanford Business School in 1978. For the past five
years, he has served as the Chief Financial Officer of Mission
Electronics Corporation, a wholesale broker of electronic components.
From 1981-1990, he was a partner of Investment Group of Santa Barbara,
an investment fund specializing in small public an private companies.
(f) Involvement in Certain Legal Proceedings
Inapplicable.
16
<PAGE> 19
ITEM 11 - EXECUTIVE COMPENSATION
(a) Cash Compensation
The following table sets forth the elements of compensation paid,
earned or awarded for the sole executive of the Company. All aspects of
executive compensation is determined by the Board of Directors.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
===================================================================================================================================
ANNUAL COMPENSATION AWARDS PAYOUTS
- -----------------------------------------------------------------------------------------------------------------------------------
NAME & OTHER ALL OTHER
PRINCIPAL ANNUAL RESTRICTED OPTIONS PAYOUTS COMPEN-
POSITION YEAR SALARY($) BONUS($) COMPEN- STOCK /SARs ($) SATION ($)
SATION($) AWARDS($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $144,000 $ 40,259 $11,602 (1)(2)
EDWARD A. JOHNSON, 1994 144,000 61,703 11,196 (1)(2)
PRESIDENT 1993 154,021 32,811 8,626 (1)(2)
MULU G. MICHAEL, 1995 $103,433 $ 30,833
VICE PRESIDENT OF 1994 67,500 14,072
CLINICAL 1993 26,500 1,692
OPERATIONS
1995 $ 74,218 $ 38,430 $ 1,800 (1)
LESTER H. HARMAN 1994 60,000 37,295 1,800 (1)
REGIONAL 1993 45,000 11,550 1,350 (1)
MARKETING
MANAGER
===================================================================================================================================
</TABLE>
# NUMBER OF UNITS
$ DOLLAR AMOUNTS
(1) CAR ALLOWANCE
(2) LIFE INSURANCE PREMIUMS
17
<PAGE> 20
(b) Compensation Pursuant to Plans
Stock Option Plans
The Company's 1987 Stock Option Plan (the "Plan"), adopted by the Board
of Directors on July 28, 1987, and approved by the stockholders on
August 28, 1987, provides for the grant to officers, directors,
employees and consultants of nonqualified stock options and stock
options to employees that qualify as incentive stock options under
Section 422A of the Internal Revenue Code of 1986. The Plan terminates
on July 28, 1997. The purpose of the Plan is to enable the Company to
attract and retain qualified persons as employees, officers and
directors and others whose services are required by the Company, and to
motivate such persons by providing them with an equity participation in
the Company. A maximum of 455,000 shares of the Company's Common Stock
were reserved for issuance pursuant to the Plan. Options to purchase
19,000 shares were exercised during fiscal year ended December 31,
1995. There are currently 317,500 shares subject to options outstanding
under the Plan. The Plan is administered by the Board of Directors,
which has, subject to specified limitations, the full authority to
grant options and establish the terms and conditions under which they
may be exercised.
The exercise price of incentive stock options granted under the Plan is
required to be not less than the fair market value of the common stock
on the date of grant (110% in the case of a greater than 10%
stockholder). The exercise price of nonqualified stock options can be
no less than 85% of the fair market value on the date of grant,
although the Company does not intend to grant any such stock options at
less than fair market value. In the discretion of the Board, the
exercise price may be payable in cash, by delivery of a promissory note
or in Common Stock of the Company.
The options are subject to forfeiture upon termination of employment or
other relationship with the Company except by reason of death or
disability and are nonassignable. Options may be granted for terms up
to 10 years (five years in the case of incentive stock options granted
to greater than 10% stockholders). No optionee may be granted incentive
stock options such that the fair market value of the options which
first become exercisable in any one calendar year exceeds $100,000.
Options granted under the Plan to officers, employees or consultants
may be exercised only while the optionee is employed or retained by the
Company or within six (6) months after termination of the employment or
consulting relationship by reason of death or permanent disability, and
three months after termination for any other reason.
On December 31, 1991, the Board of Directors granted additional options
under the Plan to Edward A. Johnson to purchase 27,500 shares and
Michael S. Callison to purchase 25,000 shares. The option exercise
price is $ .21 per share. The options have a five year term and vest
immediately. On August 23, 1993, the Board of Directors granted
additional options under the Plan to Michael S. Callison to purchase
25,000 shares and Gary L. Dreher to purchase 25,000 shares. The option
exercise price is $ .30 per share. The options have a five year term
and vest immediately.
On December 20, 1994, the Board of Directors re-adopted the Company's
1994 stock option plan. The plan was approved by the stockholders on
December 22, 1995 and provides for the grant to officers, directors,
employees and consultants of nonqualified stock options and stock
options to employees that qualify as incentive stock options under
Section 422A of the Internal Revenue Code of 1986. The Plan terminates
on March 22, 2004. The purpose of the Plan is to enable the Company to
attract and retain qualified persons as employees, officers and
directors and others whose services are required by the Company, and to
motivate such persons by providing them with an equity participation in
the Company. A maximum of 500,000 shares of the Company's Common Stock
were reserved for issuance pursuant to the Plan. Options to purchase an
18
<PAGE> 21
aggregate of 250,000 shares were granted during fiscal year ended
December 31, 1995 including options under the Plan to Jon E. Jenett to
purchase 25,000 shares. The option exercise price is $.93 per share.
The options have a five year term and vest immediately. No options were
exercised during fiscal year ended December 31, 1995. There are
currently 475,000 shares subject to option outstanding under the Plan.
The Plan is administered by the Board of Directors, which has, subject
to specified limitations, the full authority to grant options and
establish the terms and conditions under which they may be exercised.
The exercise price of incentive stock options granted under the Plan is
required to be not less than the fair market value of the common stock
on the date of grant (110% in the case of a greater than 10%
stockholder). The exercise price of nonqualified stock options can be
no less than 85% of the fair market value on the date of grant,
although the Company does not intend to grant any such stock options at
less than fair market value. In the discretion of the Board, the
exercise price may be payable in cash, by delivery of a promissory note
or in Common Stock of the Company.
The options are subject to forfeiture upon termination of employment or
other relationship with the Company except by reason of death or
disability and are nonassignable. Options may be granted for terms up
to 10 years (five years in the case of incentive stock options granted
incentive stock options such that the fair market value of the options
which first become exercisable in any one calendar year exceeds
$100,000. Options granted under the Plan to officers, employees or
consultants may be exercised only while the optionee is employed or
retained by the Company or within six (6) months after termination of
the employment or consulting relationship by reason of death or
permanent disability, and three months after termination for any
reason.
19
<PAGE> 22
Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning
Options/SARs granted during 1995 to the named executives:
<TABLE>
<CAPTION>
===================================================================================================================================
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERM
- -----------------------------------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARs
GRANTED TO EXERCISE OF GRANT DATE
OPTIONS/SARs EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED IN FISCAL ($/SHARE) DATE 5% ($) 10% ($) VALUE ($)*
YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JON E. JENETT 25,000 .10% $.93 8/8/2000 6,750 14,500 6,792
===================================================================================================================================
</TABLE>
* Present values were calculated using the Black-Scholes options pricing
model which should not be viewed in any way as a forecast of the future
performance of the Company's stock. The estimated present value of each
stock option is $.35 based on the following inputs:
<TABLE>
<S> <C>
Stock Price (Fair Market Value) at Grant (8/8/95) $ .9375
Exercise Price .93
Expected Option Term 5 years
Risk-Free Interest Rate 6.25%
Stock Price Volatility 14%
Dividend Yield 0%
</TABLE>
The model assumes: (a) an Expected Option Term of 5 years which
reflects the actual life of the option; (b) a Risk-Free Interest Rate
that represents the interest rate on a U.S. Treasury Note with a
maturity date corresponding to that of the Expected Option Term; and
(c) Stock Price Volatility is calculated using quarterly stock prices
over the period from January 1, 1995 to December 31, 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values The following table summarizes options and SARs
exercised during 1995 and presents the value of unexercised options and
SARS held by the named executives at fiscal year end:
<TABLE>
<CAPTION>
=======================================================================================================================
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED MONEY OPTIONS/SARs
SHARES ACQUIRED ON OPTIONS/SARS AT AT FISCAL YEAR-END
NAME EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR-END (#)* ($)**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDWARD A. JOHNSON 0 0 300,000 254,625
- -----------------------------------------------------------------------------------------------------------------------
MICHAEL S. CALLISON 0 0 100,000 68,375
- -----------------------------------------------------------------------------------------------------------------------
GARY L. DREHER 0 0 75,000 45,475
- -----------------------------------------------------------------------------------------------------------------------
JON E. JENETT 0 0 25,000 5,000
=======================================================================================================================
</TABLE>
* All options are exercisable at fiscal year-end
** The difference between fair market value at 3/11/96 and the
exercise price.
20
<PAGE> 23
(c) Other Compensation
In Addition to all other options held by him, Mr. Johnson received on
December 31, 1991, five years options to purchase 222,500 shares of the
Company's Common Stock. The option exercise price is $.21 per share.
The options have a five year term and vest immediately. The shares
issuable upon exercise of these options are subject to certain
restrictions. The Company has also obtained life insurance on the life
of Mr. Johnson in the amount of $2,000,000, $1,000,000 for the benefit
of the Company and $1,000,000 for the benefit of his estate.
(d) Compensation of Directors
Directors do not receive compensation for their services although they
are entitled to reimbursement for expenses incurred in attending board
meetings. Michael S. Callison received $84,000 of wages as Vice
President of Marketing and Development in 1995. Mr. Dreher received
$20,000 in marketing fees during 1995 for the marketing of the
Company's programs to the hospitals during 1995.
(e) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The entire Board of Directors is responsible for determining the Chief
Executive Officer's compensation. The Board's philosophy has been to
offer a stable base salary plus a monthly bonus based on a percentage
of corporate monthly profits before income taxes.
The committee's approach to base compensation is to offer competitive
salaries in comparison with market practices. However, base salaries
have become a relatively smaller element in the total executive officer
compensation package as the Company has introduced incentive
compensation programs which it believes reinforce strategic performance
objectives.
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return
(assuming reinvestment of dividends) to Company's stockholders during
the five year period ended December 31, 1995 as well as the U.S. NASDAQ
stock market index and the S&P Hospital Management Index.
The Company does not currently meet the standards required for trading
on the NASDAQ exchange, however the Company believes that the
securities traded on this exchange most closely resemble its market
capitalization.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) Security Ownership
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 11, 1996, (i) by
each person who is known by the Company to own beneficially more than
5% of the outstanding shares of Common Stock; (ii) by each of the
Company's directors; and (iii) by all directors and officers of the
Company as a group. Unless otherwise indicated below, the person or
persons named have sole voting and dispositive power.
21
<PAGE> 24
<TABLE>
<CAPTION>
===============================================================================
AMOUNT & NATURE OF
NAME (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------------------------------------------------
<S> <C> <C>
EDWARD A. JOHNSON 617,426 (2) 11.6%
- -------------------------------------------------------------------------------
MICHAEL S. CALLISON 430,000 (3) 8.5%
- -------------------------------------------------------------------------------
GARY L. DREHER 138,800 (4) 2.8%
- -------------------------------------------------------------------------------
JON E. JENETT 50,000 (5) 1.0%
- -------------------------------------------------------------------------------
DR. LINDSEY ROSENWALD 282,500 5.7%
- -------------------------------------------------------------------------------
ALL OFFICERS AND
DIRECTORS AS A GROUP (4
PERSONS) 1,236,226 (6) 22.0%
===============================================================================
</TABLE>
(1) The addresses of these persons are as follows: Mr. Johnson - 24
South Stonington Road, South Laguna, CA 92677; Mr. Callison - 21972
Summerwind Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia
Hill Drive, Yorba Linda, CA 92686; Mr. Jenett - 8 South Vista De La
Luna, South Laguna, CA 92677; Dr. Lindsey Rosenwald - 375 Park Avenue,
Suite 1501, New York, New York 10152.
(2) Includes presently exercisable options to purchase 400,000 shares
of Common Stock.
(3) Includes presently exercisable options to purchase 125,000 shares
of Common Stock.
(4) Includes presently exercisable options to purchase 100,000 shares
of Common Stock.
(5) Includes presently exercisable options to purchase 50,000 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 675,000 shares
of Common Stock.
(c) Changes in Control
Inapplicable.
22
<PAGE> 25
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
On June 24, 1994, the Company loaned Mr. Johnson and Mr. Dreher $26,400
and $13,200 respectively to purchase corporate common stock in the open
market. The notes accrued interest at the rate of 7.25% and were
payable in monthly installments due July 1, 1995. On September 19,
1994, Mr. Dreher repaid the $13,200 note in full with interest. On July
1, 1995, Mr. Johnson repaid the note in full plus interest.
On December 20, 1994, Mr. Johnson, Mr. Callison and Mr. Dreher were
each granted options to purchase 50,000 shares of the Company's Common
Stock at $.6375 per share. The options vest immediately and expire five
years from the date of grant.
On December 30, 1994, the Company converted a series of short term
advances to Mr. Johnson totaling $47,000 and a promissory note for
$50,000 into a $97,000 promissory note due from Mr. Johnson. The note
accrues interest at 4.03% and is payable in monthly installments
beginning August 1, 1995.
On May 12, 1995, the Company loaned Mr. Callison $22,800. The note
accrued interest at the rate of 9% and was repaid in full on May 26,
1995.
On August 8, 1995, the Company granted to Mr. Jenett options to
purchase 25,000 shares of the Company's common stock at $.93 per share.
The options vest immediately and expire five years from the date of
grant.
On December 29, 1995, the Company converted a series of short-term
advances to Mr. Johnson and a $97,000 note dated December 30, 1994 into
a $155,000 promissory note due from Mr. Johnson. The note accrues
interest at 4.03% and is due December 30, 1996.
On January 16, 1996, the Company granted to Mr. Johnson options to
purchase 100,000 shares of the Company's common stock and granted Mr.
Callison, Mr. Dreher and Mr. Jenett options to each purchase 25,000
shares of the Company's common stock at $.901 per share. The options
vest immediately and expire five years from the date of grant.
During 1995, Mr. Dreher received $20,000 in marketing fees for the
marketing of the Company's programs to Hospitals during 1995.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions With Promoters
Inapplicable.
23
<PAGE> 26
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) List of Financial Statements Filed as a Part of this Report
(Filed Under Item 8 above)
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors --
Balance Sheets as of December 31, --
1995 and December 31, 1994
Statements of Income for the years --
ended December 31, 1995, 1994 and 1993
Statements of Stockholders' Equity for the --
years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the __
year ended December 31, 1995, 1994 and 1993
Notes to Financial Statements. --
</TABLE>
(a) (2) List of Financial Statement Schedules filed as a Part of this
Report
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(a) (3) List of Exhibits Filed as a Part of This Report
3.1 Certificate of Incorporation incorporated by reference from
Form S-18 Registration Statement (Registration No.
0033-16313-LA) filed July 28, 1988, Exhibit 3.1.
3.2 Bylaws incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 3.2.
3.3 Certificate of Amendment of Certificate of Incorporation filed
February 29, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No.33-16313-LA) filed
July 28, 1988, Exhibit 3.5.
24
<PAGE> 27
3.4 Restated Certificate of Incorporation, filed October 3, 1989.
10.1 Lease between the Company and Laguna Niguel Office Center
dated June 23, 1988 which supersedes lease dated December 15,
1986, incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 10.1.
10.2 Agreement between the Company and Costa Mesa Medical Center
Hospital dated April 1, 1987, incorporated by reference from
Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.2. (Terminated)
10.3 Agreement between the Company and County of Trinity dated May
5, 1987, incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 10.3. (Terminated)
10.4 Stock Purchase Agreement dated May 27, 1987, incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.4.
(Terminated)
10.5 Agreement between the Company and Corona Community Hospital
dated July 8, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.5. (Terminated)
10.6 Amended and Restated 1987 Stock Option Plan incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.6.
10.7 Agreement between Calexico Hospital and the Company dated July
27, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.7. (Terminated)
10.8 Employment between the Company and Edward A. Johnson dated
July 28, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.8.
(Terminated)
10.9 Employment between the Company and John Anthony Whalen dated
July 28, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.9.
(Terminated)
25
<PAGE> 28
10.10 Agreement between Pacific Coast Hospital and the Company dated
July 29, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.10. (Terminated)
10.11 Agreement between Freedom Recovery Center, Inc. and the
Company dated July 31, 1987, incorporated by reference from
Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.11. (Terminated)
10.12 Agreement between Temple Community Hospital and the Company
dated September 10, 1987, incorporated by reference from Form
S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.12.
(Terminated)
10.13 Agreement between Burbank Community Hospital and the Company
dated November 23, 1987, incorporated by reference from Form
S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.13.
(Terminated)
10.14 Stock Purchase Warrant between Equity Dynamics, Inc. and the
Company dated January 20, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.14.
(Expired)
10.15 Stock Purchase Warrant between Ventana Growth Fund and the
Company dated January 20, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.15.
(Expired)
10.16 Form of Demand Promissory Note and Stock Purchase Warrant
between the Company and various purchasers, incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.16.
(Expired)
10.17 Form of Unsecured Promissory Note to Ventana and Equity
Dynamics (issued in the aggregate of $99,700), incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.17.
(Paid)
10.18 Form of Modification Agreement to Incentive Stock Option
Agreement, dated January 20, 1988, incorporated by reference
from Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.18.
26
<PAGE> 29
10.19 Form of Stock Purchase Warrant issued to Edward A. Johnson
dated April 29, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.19.
(Expired)
10.20 Agreement between Midwood Community Hospital and the Company
executed March 11, 1988, incorporated by reference from Form
S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.20.
(Terminated)
10.21 Commercial Promissory Note between the Company and American
Valley Bank, dated May 2, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.21.
(Paid)
10.22 Agreement between Middletown Regional Hospital and the Company
dated July 5, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.22.
(Terminated)
10.23 Agreement between Bellflower Doctors Hospital and the Company
dated March 10, 1989. (Terminated)
10.24 Lease amendment between the Company and Laguna Niguel Office
Center dated September 27, 1989 which supersedes lease dated
June 23, 1988.
(Terminated)
10.25 Amendment to Agreement between Midwood Community Hospital and
the Company executed November 1, 1989.
(Terminated)
10.26 Agreement between Middletown Regional Hospital and the Company
dated January 1, 1990, incorporated by reference from Form
10-K for the year ended December 31, 1990.
(Terminated)
10.27 Amendment to agreement between Bellflower Doctors Hospital and
the Company dated February 19, 1990.
(Terminated)
10.28 Agreement between Washington Medical Center and the Company
dated July 25, 1990.
(Terminated)
10.29 Agreement between Medical Rehabilitation Incorporated and the
Company dated September 1, 1990.
(Terminated)
27
<PAGE> 30
10.30 Lease amendment between the Company and Laguna Niguel Office
Center dated September 24, 1990 which supersedes lease dated
June 23, 1988 incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1990, Exhibit 10.30.
10.31 Commercial Promissory Note between the Company and Monarch
Bank dated March 28, 1991.
(Paid)
10.32 Agreement between Phoenix Baptist Hospital and Medical Center,
Inc. and the Company dated May 1, 1991.
(Terminated)
10.33 Promissory Demand Note between the Company and Ventana Growth
Fund L.P. dated August 30, 1991.
(Paid)
10.34 Agreement between Huntington Intercommunity Hospital and the
Company dated November 1, 1991 incorporated by reference from
Annual Report on Form 10-K for the year ended December 31,
1991, Exhibit 10.34.
10.35 Agreement between Medical Rehabilitation Incorporated and the
Company dated June 1, 1992.
(Terminated)
10.36 Agreement between General-Psych Partners and the Company dated
June 14, 1992.
(Terminated)
10.37 Amendment to Agreement dated June 14, 1992 between
General-Psych Partners and the Company dated October 1, 1992.
(Terminated)
10.38 Agreement between Huntington Intercommunity Hospital and the
Company dated October 1, 1992 incorporated by reference from
Annual Report on Form 10-K for the year ended December 31,
1996, Exhibit 10.38.
10.39 Agreement between Brotman Medical Center and the Company dated
October 20, 1992 incorporated by reference from Annual Report
on Form 10-K for the year ended December 31, 1992, Exhibit
10.39.
10.40 Agreement between General-Psych Partners and the Company dated
November 1, 1992.
(Terminated)
10.41 Promissory Note between the Company and Edward A. Johnson
dated December 10, 1992.
(Expired)
28
<PAGE> 31
10.42 Agreement between GlenComm, Limited, a California Limited
Partnership by Glendora Acquisition Partners, Inc., a
California Corporation, General Partner, d/b/a Glendora
Community Hospital and the Company dated April 20, 1993.
(Terminated)
10.43 Lease amendment between the Company and Laguna Niguel Office
Center dated May 12, 1993 which supersedes lease dated June
23, 1988 incorporated by reference form Annual Report on Form
10-K for the year ended December 31, 1993, Exhibit 10.43.
10.44 Stipulation for entry of judgement between the Company and
General-Psych Partners; Manohara Healthcare Investments, Inc.;
Good Samaritan Hospital; Alliance Investments for Healthcare
Inc. and Tri-Star Healthcare Corporation dated June 7, 1993.
(Paid)
10.45 Lease agreement between Mt. Carmel Resources and the Company
dated June 16, 1993.
(Expired)
10.46 Sublease agreement between Glendora Community Hospital and the
Company dated July 15, 1993.
(Terminated)
10.47 Agreement between Samaritan Health System, an Arizona
non-profit corporation d/b/a Samaritan Medical Center, San
Clemente dated October 8, 1993.
10.48 Lease agreement between Columbia Healthcare Corporation and
the Company dated October 18, 1993 incorporated by reference
from Annual Report on Form 10-K for the year ended December
31, 1993, Exhibit 10.48.
10.49 Consulting agreement between the Company and Harbor View
Health Partners, LP, d/b/a Harbor View Medical Center dated
December 1, 1993.
(Terminated)
10.50 Unanimous written consent dated December 10, 1993 of the Board
of Directors amending the Promissory Note between the Company
and Edward A. Johnson dated December 10, 1992.
10.51 Agreement between Long Beach Doctors Hospital and the Company
dated January 10, 1994.
(Terminated)
10.52 Lease agreement between Whittier Narrows Business Park and the
Company dated January 10, 1994 incorporated by reference from
Annual Report on Form 10-K for the year ended December 31,
1994, Exhibit 10.52.
10.53 Sublease agreements between the Company and Medical
Rehabilitation Incorporated dated January 27, 1994.
(Terminated)
29
<PAGE> 32
10.54 Amendment to agreement dated January 1, 1994 between Long
Beach Doctors Hospital and the Company dated February 23,
1994.
(Terminated)
10.55 1994 Stock Option Plan incorporated by reference from Annual
Report on Form 10-K for the year ended December 31, 1994,
Exhibit 10.55.
10.56 Lease Agreement between Frank T. Howard and the Company dated
May 4, 1994 incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1994, Exhibit 10.56.
10.57 Promissory note between Edward A. Johnson and the Company
dated June 24, 1994.
(Paid)
10.58 Promissory note between Gary L. Dreher and the Company dated
June 24, 1994.
(Paid)
10.59 Sublease Agreements between Long Beach Doctor's Hospital and
the Company dated June 24, 1994.
(Terminated)
10.60 Lease amendment between the Company and Laguna Niguel Office
Center dated July 7, 1994 which supersedes lease dated June
23, 1988 incorporated by reference from Annual Report on Form
10-K for the year ended December 31, 1994, Exhibit 10.60.
10.61 Agreement between Pacifica Hospital of the Valley and the
Company dated September 15, 1994.
(Terminated)
10.62 Agreement between Queen of the Angels - Hollywood Presbyterian
Medical Center, Inc. and the Company dated December 6, 1994
incorporated by reference from Annual Report on Form 10-K for
the year ended December 31, 1994, Exhibit 10.62.
10.63 Agreement between Pacifica Hospital of the Valley and the
Company dated December 6, 1994.
(Terminated)
10.64 Unanimous written consent dated December 30, 1994 of the Board
of Directors amending the Promissory Note between the Company
and Edward A. Johnson dated December 10, 1993 incorporated by
reference from Annual Report on Form 10-K for the year ended
December 31, 1994, Exhibit 10.64.
10.65 Sublease Agreement between Pacifica Hospital of the Valley and
the Company dated January 24, 1995.
(Terminated)
10.66 Agreement between Sherman Oaks Hospital and Health Center
dated March 30, 1995.
30
<PAGE> 33
10.67 Loan Agreement between the Company and National Bank of
Southern California dated March 31, 1995.
10.68 Lease Agreement between the Company and Laguna Niguel Office
Center dated June 5, 1995 which supersedes lease dated June
23, 1988.
10.69 Sublease Agreements between the Company and Huntington Beach
and Medical Center dated July 1, 1995.
10.70 Lease Agreement between the Company and 757 Pacific
Partnership dated July 3, 1995.
10.71 Sublease Agreement between the Company and Huntington Beach
Hospital and Medical Center dated July 24, 1995.
10.72 Lease Agreement between the Company and Columbia Healthcare
Corporation dated September 14, 1995 which supersedes lease
dated October 18, 1993.
10.73 Agreement between San Fernando Community Hospital, Inc. dba
Mission Community Hospital and the Company dated October 6,
1995.
10.74 Lease Agreement between the Company and Solomon, Saltsman &
Jameson dated October 10, 1995.
10.75 Unanimous written consent dated December 29, 1995 of the Board
of Directors amending the promissory note between the Company
and Edward A. Johnson dated December 30, 1994.
11.0 Statement re: Computation of per share earnings.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Inapplicable.
31
<PAGE> 34
SIGNATURES
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 duly authorized.
OPTIMUMCARE CORPORATION
By: /s/ EDWARD A. JOHNSON
------------------------------
Edward A. Johnson, President
Date: January 21, 1997
32
<PAGE> 35
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
OPTIMUMCARE CORPORATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions At End
Description of Period & Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts $ 0 $ 36,030 $ (36,030) $ 0
YEAR ENDED
DECEMBER 31, 1994
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts 0 141,620 (141,620) 0
YEAR ENDED
DECEMBER 31, 1993
Reserves and allowances
from asset accounts:
Allowance for
uncollectible
accounts 2,822 27,460 (30,282)(1) 0
</TABLE>
(1) Uncollectible accounts written off, net of recoveries
33
<PAGE> 36
OptimumCare Corporation
Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ 1
Financial Statements
Balance Sheets............................................................ 2
Statements of Income...................................................... 3
Statements of Stockholders' Equity........................................ 4
Statements of Cash Flows.................................................. 5
Notes to Financial Statements............................................. 6
</TABLE>
<PAGE> 37
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
The Stockholders and Board of Directors
OptimumCare Corporation
We have audited the accompanying balance sheets of OptimumCare Corporation as of
December 31, 1995 and 1994, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the financial statements and schedule listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 8 to the financial statements, the Company is dependent
upon a small number of contracts, the loss of any of which could have a
significant adverse effect on the Company's operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OptimumCare Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/S/Ernst & Young LLP
Orange County, California
March 18, 1996,
except for Note 8 and Note 10, as to which the date is
January 16, 1997
1
<PAGE> 38
OptimumCare Corporation
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 170,932 $ 36,657
Accounts receivable, net 1,536,693 1,642,040
Prepaid expenses 31,487 21,104
----------------------------
Total current assets 1,739,112 1,699,801
Note receivable from officer 155,000 97,000
Furniture and equipment, less accumulated depreciation
of $34,382 in 1995 and $25,463 in 1994 25,617 16,093
Deferred acquisition costs 138,753 --
Intangibles, less accumulated amortization of $1,020 in
1995 and $816 in 1994 1,055 1,259
----------------------------
Total assets $ 2,059,537 $ 1,814,153
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 192,743 $ 152,535
Accrued expenses 188,788 180,674
----------------------------
Total current liabilities 381,531 333,209
Note payable to bank 166,000 --
Commitments
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 20,000,000
4,923,509 shares issued and outstanding in 1995;
4,904,509 shares issued and 4,896,009 shares
outstanding in 1994 4,924 4,905
Paid-in-capital 2,927,593 2,919,348
Accumulated deficit (1,420,511) (1,422,581)
Less cost of 8,500 shares in treasury in 1994 -- (5,075)
Note receivable from officer -- (15,653)
----------------------------
Total stockholders' equity 1,512,006 1,480,944
----------------------------
Total liabilities and stockholders' equity $ 2,059,537 $ 1,814,153
============================
</TABLE>
See accompanying notes.
2
<PAGE> 39
OptimumCare Corporation
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Net revenues $6,027,122 $5,596,283 $3,825,613
Interest income 8,741 8,487 1,158
----------------------------------------
6,035,863 5,604,770 3,826,771
Operating expenses:
Costs of services provided 5,022,040 4,238,355 2,877,383
Provision for uncollectible accounts 36,030 141,620 27,460
Selling, general and administrative 964,701 741,919 552,571
Interest 10,222 4,065 2,077
----------------------------------------
6,032,993 5,125,959 3,459,491
----------------------------------------
Income before income taxes 2,870 478,811 367,280
Income taxes 800 13,766 2,091
----------------------------------------
Net income $ 2,070 $ 465,045 $ 365,189
========================================
Net income per share $ .00 $ .07 $ .06
========================================
</TABLE>
See accompanying notes.
3
<PAGE> 40
OptimumCare Corporation
Statements of Stockholders' Equity
Years ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
NOTE
RECEIVABLE
COMMON STOCK PAID-IN ACCUMULATED TREASURY FROM
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT OFFICER TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 4,888,509 $4,889 $2,916,004 $(2,252,815) -- $ -- $ -- $ 668,078
Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680
Purchase of treasury stock -- -- -- -- 20,000 (11,646) -- (11,646)
Reissue of treasury stock -- -- -- -- (11,500) 6,571 -- 6,571
Net income -- -- -- 365,189 -- -- -- 365,189
---------------------------------------------------------------------------------------------
Balance at December 31, 1993 4,896,509 4,897 2,917,676 (1,887,626) 8,500 (5,075) -- 1,029,872
Note receivable from officer -- -- -- -- -- -- (15,653) (15,653)
Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680
Net income -- -- -- 465,045 -- -- -- 465,045
---------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,904,509 4,905 2,919,348 (1,422,581) 8,500 (5,075) (15,653) 1,480,944
Payment of note receivable
from officer -- -- -- -- -- -- 15,653 15,653
Exercise of stock options 19,000 19 8,245 -- -- -- -- 8,264
Reissue of treasury stock -- -- -- -- (8,500) 5,075 -- 5,075
Net income -- -- -- 2,070 -- -- -- 2,070
---------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,923,509 $4,924 $2,927,593 $(1,420,511) -- $ -- $ -- $ 1,512,006
=============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 41
OptimumCare Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-----------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 2,070 $ 465,045 $ 365,189
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,123 6,826 5,678
Provision for uncollectible accounts 36,030 141,620 27,460
Loss on sale of equipment -- 514 --
Common stock issued as bonuses 5,075 -- 6,571
Changes in operating assets and liabilities:
(Increase) in accounts receivable 69,317 (1,022,363) (190,305)
(Increase) decrease in prepaid expenses (10,383) 152,853 (154,588)
Increase (decrease) in accounts payable 40,208 (2,728) (40,775)
Increase in accrued liabilities 8,114 66,594 60,417
-----------------------------------------------
Net cash provided by (used in) operating activities 159,554 (191,639) 79,647
INVESTING ACTIVITIES
Purchases of equipment (18,443) (13,362) (3,301)
Deferred acquisition costs (138,753) -- --
Note receivable from officer (58,000) (47,000) (20,000)
-----------------------------------------------
Net cash used in investing activities (215,196) (60,362) (23,301)
FINANCING ACTIVITIES
Note payable to bank 166,000 -- --
Note receivable from officer 15,653 (15,653) --
Exercise of stock options 8,264 1,680 1,680
Purchase of treasury stock -- -- (11,646)
-----------------------------------------------
Net cash provided by (used in) financing
activities 189,917 (13,973) (9,966)
-----------------------------------------------
Net increase (decrease) increase in cash 134,275 (265,974) 46,380
Cash and cash equivalents at beginning of year 36,657 302,631 256,251
-----------------------------------------------
Cash and cash equivalents at end of year $ 170,932 $ 36,657 $ 302,631
===============================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 8,720 $ 4,065 $ 2,077
Cash paid for income taxes $ 31,201 $ 22,065 $ 2,091
</TABLE>
See accompanying notes.
5
<PAGE> 42
OptimumCare Corporation
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
OptimumCare Corporation (the Company) develops, markets and manages
hospital-based programs for the treatment of psychiatric disorders on both an
inpatient and outpatient basis. The Company's programs are currently being
marketed in the United States, principally California, to independent acute
general hospitals and other health care facilities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed by the
straight-line method based upon the estimated useful lives of the related
assets.
INTANGIBLE ASSETS
The Company's trade name became registered during December 1990. It is recorded
at cost and is being amortized over its estimated useful life of 10 years using
the straight-line method. Accumulated amortization is $1,020 and $816 as of
December 31, 1995 and 1994, respectively.
REVENUE RECOGNITION
Revenues are recognized in the period services are provided and are recorded net
of contractual adjustments representing the difference between standard rates
and estimated net realizable amounts under reimbursement agreements with
customers.
INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, Accounting for Income Taxes. As permitted under the new
rules, prior year's financial statements have not been restated. The cumulative
effort of adopting Statement No. 109 as of January 1, 1993 was not material.
6
<PAGE> 43
OptimumCare Corporation
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 6,414,709, 6,218,113 and 5,939,264 in 1995, 1994 and 1993,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about the future that affect the amounts reported in the financial statements.
These estimates include assessing the collectibility of accounts receivable, the
usage and recoverability of long-lived assets. The actual results could differ
from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"), which requires pro forma disclosures of net income and earnings
per share using a fair value based method of accounting for all employee stock
options or similar equity instrument plans. OptimumCare Corporation will
implement the disclosure provisions of SFAS 123 effective December 31, 1996.
OptimumCare Corporation is required to adopt statement of Financial Accounting
Standards No. 121, Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of ("SFAS 121") in 1996. SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets, certain
identifiable intangibles and goodwill. Management has not yet determined whether
the adoption of SFAS 121 will have a material impact on OptimumCare Corporations
financial position or the results of its operations.
2. PROVISION FOR UNCOLLECTIBLE ACCOUNTS
In June 1994, two contracts with one entity which leased facilities from one
hospital were canceled due to the filing of bankruptcy by the hospital. All
unpaid amounts due from the contracts have been written off in full at December
31, 1994, which totaled $141,620.
7
<PAGE> 44
OptimumCare Corporation
Notes to Financial Statements (continued)
3. NOTE RECEIVABLE FROM OFFICER
On December 29, 1995, the Company converted a series of short-term advances and
a $97,000 note dated December 30, 1994 into a promissory note from an officer
totaling $155,000. The note accrues interest at the rate of 4.03% and is due
December 30, 1996.
On June 24, 1994, the Company loaned two officers $26,400 and $13,200,
respectively, to purchase corporate common stock in the open market. The notes
accrued interest at the rate of 7.25% and were payable in monthly installments
due July 1, 1995. On September 19, 1994 one officer repaid the $13,200 note in
full. The other note was repaid in full on July 1, 1995.
On May 12, 1995 the Company loaned an officer $22,800. The note accrued interest
at the rate of 9% and was repaid in full on May 26, 1995.
4. NOTE PAYABLE TO BANK
On April 12, 1995, the Company entered into a $500,000 line of credit agreement
with a bank that expires May 1, 1996. At the expiration date, the then principal
balance of the loan shall be convertible into a one year term loan with an
initial due date of May 1, 1997, but with a five (5) year repayment schedule.
The term loan is renewable for an additional term of one year. The loan bears
interest at the rate of 11% per year and is secured by all the assets of the
Company. At December 31, 1995, $334,000 was available for future draws on the
line of credit agreement. During 1996, $72,872 of additional funds were borrowed
under this agreement.
5. LEASE COMMITMENT
The Company leases two office facilities under lease agreements that expire June
30, 1996 and October 31, 1996, respectively. The Company also leased space under
five separate lease agreements for the operation of four of its outpatient
partial hospitalization psychiatric programs, of which one agreement is on a
month-to-month basis and the remaining agreements expire, September 30, 1996,
June 3, 1997, June 23, 1997 and June 30, 1997, respectively. Aggregate future
minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1996 $189,271
1997 59,896
--------
$249,167
========
</TABLE>
8
<PAGE> 45
OptimumCare Corporation
Notes to Financial Statements (continued)
5. LEASE COMMITMENT (CONTINUED)
The lease which expires June 30, 1997 contains five one-year options to extend
the lease. Subleases with two of the Company's host hospitals exist for the
entire amount of aggregate future minimum lease payments above. Sublease rental
income was $154,621, $48,995 and $14,876 for the years ended December 31, 1995,
1994 and 1993, respectively. Rent expense was $191,251, $119,520, and $49,436
for the years ended December 31, 1995, 1994 and 1993, respectively.
6. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In July 1987, the Company adopted a stock option plan (the Plan) including
incentive stock options and nonqualified stock options. A maximum of 455,000
shares of the Company's common stock has been reserved for issuance under the
plan. Under the Plan, incentive stock options may be granted at an exercise
price which is not less than 100% of the fair market value on the date of grant
(110% for greater than 10% stockholders). In addition, nonqualified stock
options may be granted at an exercise price which is no less than 85% of the
fair market value on the date of grant. Options may be granted for terms up to
10 years (five years for greater than 10% stockholders).
In 1991, the Company granted options to purchase 239,600 shares of its common
stock at $.21 per share that were vested upon grant. Of these options 222,500
were granted to an officer of the Company.
In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the
Plan) including incentive stock options and nonqualified stock options. In
December 1995, the Company readopted and approved the 1994 Stock Option Plan
(the Plan) A maximum of 500,000 shares of the Company's common stock has been
reserved for issuance under the plan. Under the Plan, incentive stock options
may be granted at an exercise price which is not less than 100% of the fair
market value on the date of grant (110% for greater than 10% stockholders). In
addition, nonqualified stock options may be granted at an exercise price which
is no less than 85% of the fair market value on the date of grant. Options may
be granted for terms up to 10 years (five years for greater than 10%
stockholders).
In December 1994, the Company granted non-qualified options to purchase 225,000
shares of its common stock at $.6375 per share that are vested upon grant. No
options have been exercised under these grants.
9
<PAGE> 46
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
In 1995, the Company granted options to purchase 200,000 shares of its common
stock at $.65 per share that are vested upon grant. No options have been
exercised under these grants.
During various dates in 1995, the Company granted to certain officers,
directors, employees and consultants, non-qualified options to purchase 250,000
shares of its common stock at prices ranging from $.6375 to $.93 per share that
are vested upon grant. No options have been exercised under these grants.
A summary of incentive stock option activity under the 1987 plan during 1993,
1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1987
Shares under option PLAN
-------------
<S> <C>
Outstanding at December 31, 1992 305,000
Granted 235,000
Exercised (8,000)
Canceled (187,500)
-------------
Outstanding at December 31, 1993 344,500
Granted 50,000
Exercised (8,000)
Canceled (25,000)
-------------
Outstanding at December 31, 1994 361,500
Granted --
Exercised (19,000)
Canceled (25,000)
-------------
Outstanding at December 31, 1995 317,500
=============
Exercise price of outstanding options
at December 31, 1993 $.21 to $.375
at December 31, 1994 $.21 to $.67
at December 31, 1995 $.21 to $.67
Options exercisable
at December 31, 1993 294,500
at December 31, 1994 311,500
at December 31, 1995 317,500
</TABLE>
10
<PAGE> 47
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
A total of 1,394,600 and 1,194,600 shares of common stock were reserved for
future issuance upon the exercise of stock options at December 31, 1995 and
1994, respectively. A total of 162,500 options were available for future grant
at December 31, 1995.
7. INCOME TAXES
A reconciliation of the provision for income taxes using the federal statutory
rate to the book provision for income taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Statutory federal provision for income taxes $ 1,000 $ 167,583 $ 124,875
Increase (decrease) in taxes resulting from:
Current use of net operating loss
carryforwards (1,000) (167,583) (124,875)
Federal alternative minimum tax -- 6,000 --
State tax, net of federal benefit 800 7,776 2,091
---------------------------------------------
$ 800 $ 13,766 $ 2,091
=============================================
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ 6,000 $ --
State 800 7,766 2,091
------------------------------------
Total current 800 13,766 2,091
------------------------------------
Deferred:
Federal -- -- --
State -- -- --
------------------------------------
Total deferred -- -- --
------------------------------------
$ 800 $13,766 $2,091
====================================
</TABLE>
11
<PAGE> 48
OptimumCare Corporation
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
At December 31, 1995, the Company has unused net operating loss carryforwards of
approximately $1,179,000 for federal income tax purposes which expire beginning
in the year 2003. The Company has unused net operating loss carryforwards of
approximately $16,000 for state income tax purposes which expire beginning in
the year 2003. A valuation allowance has been recorded to entirely offset the
tax benefits of this attribute.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the net
deferred tax asset at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 413,000 $ 401,000 $ 648,000
Alternative minimum tax credit carryforwards 4,000 4,000 --
Reserves and accruals not currently deductible
for tax purposes 17,000 43,000 9,000
Depreciation not currently deductible for tax
purposes -- 1,000 1,000
---------------------------------------------
Total deferred tax assets 434,000 449,000 658,000
Less valuation allowance (434,000) (449,000) (658,000)
---------------------------------------------
Net deferred tax asset $ -- $ -- $ --
=============================================
</TABLE>
8. MAJOR CUSTOMERS
Four of the Company's hospitals accounted for $4,726,068 and five of the
Company's hospitals accounted for $4,670,236 of net revenue in 1995 and 1994,
respectively. In addition, these hospitals accounted for approximately
$1,080,633 and $1,467,940 of accounts receivable at December 31, 1995 and 1994,
respectively. As the Company is dependent upon a small number of hospitals, the
loss of any contract could have a significant adverse effect on the Company's
operations. Further, certain contracts are terminable on 90 days notice and if
certain patient census is not maintained. Management intends to use its best
efforts to retain existing contracts and expand the scope of services on these
contracts, obtain new contracts, and maintain patient census at the same or
higher levels than has historically been experienced.
12
<PAGE> 49
OptimumCare Corporation
Notes to Financial Statements (continued)
8. MAJOR CUSTOMERS (CONTINUED)
The following table summarizes the amount of revenue for each customer
representing greater than 10% of total revenues for the:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
DOLLAR PERCENT DOLLAR PERCENT
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Hospital 1 $ 975,652 16.2% $ 950,282 16.9%
Hospital 2 791,995 13.1% 744,093 13.3%
Hospital 3 1,220,898 20.3% 1,118,737 20.0%
Hospital 4 816,280 13.5% -- --
Other Hospitals 2,222,297 36.9% 2,783,171 49.8%
---------------------------------------------------------------
$6,027,122 100.0% $5,596,283 100.0%
===============================================================
</TABLE>
9. DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist of the direct cost of fees paid to outside
consultants and other professionals incurred in assisting with the proposed
acquisitions of Psychological Healthcare, Inc. and Care Source Inc. The specific
terms of the proposed purchases have not yet been finalized. In the event the
acquisitions are not consummated these items will be expensed. The Company plans
to amortize all acquisition costs over the useful life of the Psychological
Healthcare and Care Source products and services.
Psychological Healthcare operates outpatient mental health clinics. Care Source
provides management and other administrative behavioral healthcare services to
skilled nursing and other similar board and care facilities.
10. SUBSEQUENT EVENTS
On August 14, 1996, a 20% stock dividend was declared by the Board of Directors
for shareholders of record on October 1, 1996. The stock dividend was issued on
October 18, 1996. Earnings per share amounts for all periods presented in the
financial statements have been restated to give retroactive effect to the stock
dividend. In such calculation common stock equivalents arising from stock
options have not been restated as no anti-dilution rights have been granted to
the option holders.
13
<PAGE> 1
OptimumCare Corporation
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
==================================================================================================================================
YEAR ENDED DECEMBER 31
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 5,892,824 5,871,660 5,865,920
- -----------------------------------------------------------------------------------------------------------------------------------
NET EFFECT OF DILUTIVE STOCK OPTIONS -
BASED ON TREASURY STOCK METHOD
USING AVERAGE MARKET PRICE 521,885 346,453 73,344
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 6,414,709 6,218,113 5,939,264
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $2,070 $465,045 $365,189
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNT $0.00 $0.07 $0.06
- -----------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 5,892,824 5,871,660 5,865,920
- -----------------------------------------------------------------------------------------------------------------------------------
NET EFFECT OF DILUTIVE STOCK OPTIONS -
BASED ON THE TREASURY STOCK METHOD
USING YEAR-END MARKET PRICE, IF HIGHER
THAN AVERAGE MARKET PRICE 597,186 346,453 250,813
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 6,490,010 6,218,113 6,166,896
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,070 $ 465,045 $ 365,189
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE AMOUNT $ 0.00 $ 0.07 $ 0.06
===================================================================================================================================
</TABLE>
Subsequent to fiscal 1995, a 20% stock dividend was declared by the Board of
Directors on August 14, 1996 for shareholders of record on October 1, 1996. The
stock dividend was issued on October 18, 1996 and all stock related data
reflects.
35
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-8833 and 33-78340) pertaining to the 1987 and 1994 Stock
Option Plans of OptimumCare Corporation of our report dated March 18, 1996,
with respect to the financial statements and schedule of OptimumCare
Corporation included in the Annual Report, as amended, (Form 10K/A) for the
year ended December 31, 1995.
Ernst & Young LLP
Orange County, California
January 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000820474
<NAME> OPTIMUMCARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 170,932
<SECURITIES> 0
<RECEIVABLES> 1,536,693
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,739,112
<PP&E> 59,999
<DEPRECIATION> 34,382
<TOTAL-ASSETS> 2,059,537
<CURRENT-LIABILITIES> 381,531
<BONDS> 166,000
0
0
<COMMON> 4,924
<OTHER-SE> 1,507,082
<TOTAL-LIABILITY-AND-EQUITY> 2,059,537
<SALES> 6,027,122
<TOTAL-REVENUES> 6,035,863
<CGS> 5,022,040
<TOTAL-COSTS> 6,032,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 36,030
<INTEREST-EXPENSE> 10,222
<INCOME-PRETAX> 2,870
<INCOME-TAX> 800
<INCOME-CONTINUING> 2,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,070
<EPS-PRIMARY> .00
<EPS-DILUTED> 0
</TABLE>
