<PAGE> 1
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17401
OPTIMUMCARE CORPORATION
(Exact name of registrant specified in its charter)
Delaware 33-0218003
- -------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Ste 219
Laguna Niguel, CA 92677
- -------------------------------- --------------------
(714) 495-1100
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Number of Shares Outstanding
at September 30, 1996
Common Stock, $.001 par value 5,613,509
-1-
<PAGE> 2
INDEX
OPTIMUMCARE CORPORATION
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 1996 and 3
December 31, 1995
Statements of Income for the Three Months and Nine Months 4
Ended September 30, 1996 and 1995
Statements of Cash Flows for the Three Months and Nine 5
Months Ended September 30, 1996 and 1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION 10
SIGNATURE 11
</TABLE>
-2-
<PAGE> 3
OPTIMUMCARE CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 706,105 $ 170,932
ACCOUNTS RECEIVABLE, NET 2,167,593 1,536,693
PREPAID EXPENSES 60,134 31,487
------------ -----------
TOTAL CURRENT ASSETS 2,934,012 1,739,112
NOTES RECEIVABLE FROM OFFICER 155,000 155,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $43,493 AT SEPTEMBER 30, 1996
AND $34,382 AT DECEMBER 31, 1995 20,211 25,617
DEFERRED ACQUISITION COSTS 86,472 138,753
INTANGIBLES LESS ACCUMULATED AMORTIZATION OF $16,584 AT
SEPTEMBER 30, 1996 AND $0 AT DECEMBER 31, 1995 186,294 0
TRADENAME, LESS ACCUMULATED AMORTIZATION
OF $1,173 AT SEPTEMBER 30, 1996 AND $1,020 AT
DECEMBER 31, 1995 902 1,055
------------ -----------
TOTAL ASSETS $ 3,382,891 $ 2,059,537
============ ===========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 267,205 $ 192,743
ACCRUED LIABILITIES 421,246 188,788
------------ -----------
TOTAL CURRENT LIABILITIES 688,451 381,531
NOTE PAYABLE TO BANK 243,334 166,000
MINORITY INTEREST (17,773) 0
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 5,613,509 SHARES
ISSUED AND OUTSTANDING AT SEPTEMBER 30, 1996
AND 4,923,509 SHARES ISSUED AND
OUTSTANDING AT DECEMBER 31, 1995 5,164 4,924
PAID-IN-CAPITAL 3,857,899 2,927,593
COMMON STOCK ISSUABLE (NOTE E) 1,123 0
ACCUMULATED DEFICIT (1,395,757) (1,420,511)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY $ 2,468,879 $ 1,512,006
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,382,891 $ 2,059,537
============ ===========
</TABLE>
See notes to financial statements.
<PAGE> 4
OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
INTEREST INCOME $2,950,861 $1,516,130 $7,937,101 $4,513,760
1,626 3,332 3,654 6,972
---------- ---------- ---------- ----------
$2,952,487 $1,519,462 $7,940,755 $4,520,732
---------- ---------- ---------- ----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $2,179,571 $1,172,967 $6,251,170 $3,386,703
PROVISION FOR DOUBTFUL ACCOUNTS 0 33,000 0 120,000
GENERAL AND ADMINISTRATIVE 321,147 209,537 909,354 672,501
INTEREST 6,775 3,427 19,351 4,621
---------- ---------- ---------- ----------
2,507,493 1,418,931 7,179,875 4,183,825
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 444,994 100,531 760,880 336,907
INCOME TAXES 44,551 11,352 96,182 33,957
---------- ---------- ---------- ----------
NET INCOME $ 400,443 $ 89,179 $ 664,698 $ 302,950
========== ========== ========== ==========
NET INCOME
PER COMMON SHARE $ 0.06 $ 0.01 $ 0.10 $ 0.05
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDING
SEPTEMBER 30 SEPTEMBER 30
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 664,698 $ 302,950
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 9,263 6,399
Minority Interest (17,773) 0
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (630,900) (176,583)
Decrease in notes receivable from officers 0 (22,800)
(Increase) in prepaid expenses (28,827) (77,039)
Increase/(Decrease) in accounts payable 74,462 (1,616)
Increase/(Decrease) in accrued liabilities 232,458 (141)
--------- ---------
CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 303,381 31,170
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (3,868) (7,901)
Proceeds from sale of furniture & equipment 162 0
Deferred acquisition costs 52,281 0
Intangibles (186,294) 0
--------- ---------
CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (137,718) (7,901)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 292,176 8,265
Note payable from bank 77,334 166,000
Payment of note receivable from officer 0 15,653
--------- ---------
CASH AND CASH EQUIVALENTS PROVIDED BY
FINANCING ACTIVITIES 369,510 189,918
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS 535,173 213,187
Cash and cash equivalents at beginning of period 170,932 36,657
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 706,105 $249,844
========= =========
</TABLE>
See notes to financial statements.
<PAGE> 6
OPTIMUMCARE CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three and nine month
periods ended September 30, 1996 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the financial statements and footnotes
thereto included in the Company's Form 10-K for the year ended December 31,
1995.
NOTE B -- INCOME TAXES
The provision for income taxes represent current Federal and State income taxes.
At September 30, 1996, the company has unused Federal and State net operating
loss carryforwards of approximately $1,179,000 and 16,000 respectively which
begin to expire in 2003. The provision for Federal income taxes is computed on
annualized alternative minimum taxable income at the alternative minimum tax
rate. The provision for State income taxes is computed on annualized taxable
income at current rates.
NOTE C -- NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding giving effect to outstanding shares and common stock
equivalents arising to the extent they are dilutive, from stock options
aggregating 6,187,781 and 6,446,734 for the three months ended September 30,
1996 and September 30, 1995, and 6,449,485 and 6,357,390 for the nine months
ended September 30, 1996 and September 30, 1995 respectively.
The weighted average number of common shares outstanding has been retroactively
restated for a 20% stock dividend issued in October 1996 (Note E). Common share
equivalents arising from stock options have not been restated as anti-dilution
rights have not been granted to the option holders.
NOTE D -- DEFERRED ACQUISITION COSTS
On April 19, 1996, the Company completed the acquisition of a 70% interest in
certain contracts of Professional Care Source, Inc. through the formation of
OptimumCare Source, LLC (the "LLC"). The Company acquired a 70% ownership
interest in the LLC and Professional Care Source, Inc. holds a 30% ownership
interest in the LLC. The Company considers the LLC to be a 70% owned subsidiary
of the Company. The Company paid $11,000 in cash to each of the three principals
of Professional Care Source, Inc. and made an initial contribution of $50,000 to
the LLC for working capital. An additional working capital contribution of
$25,000 was made during September, 1996.
<PAGE> 7
The Company is required to purchase all of Professional Care Source, Inc.'s
interest in the LLC by April 29, 2001, but may elect to purchase the interest at
any time after April 29, 2000 at a specified price, which approximates
Professional Care Source's ownership percentage in the LLC multiplied by five
(5) times the LLC's net profit after taxes as reflected on its most recent Form
1065 after agreed upon taxes.
Three principals of Professional Care Source, Inc. were each given one year
employment contracts with the LLC. In connection with the employment agreement,
the Company granted non-qualified stock options to purchase 33,000 shares of
common stock at $.92 per share, which vest over five years, to each of the
principals of Professional Care Source, Inc. The options to purchase OptimumCare
common stock were granted to the three employees of the LLC at an exercise price
equal to the fair market value of the stock price at the date of grant.
OptimumCare Source LLC, headquartered in Southern California, provides mental
health services at long term care facilities.
The Company has recorded the legal and consulting fees incurred as a result of
the acquisition of a 70% interest in contracts form Professional Care Source,
Inc. through the formation of the LLC as deferred acquisition expenses. The
legal and consulting fees together with the $11,000 in cash paid to each of the
three Principals of Professional Care Source, Inc. were incurred as a part of
the acquisition of the Registrant's 70% interest in the LLC. They have been
capitalized as direct acquisition costs in connection with the purchase. These
costs associated with the purchase are amortized under the straight line method
of over five years.
The Company intends to acquire certain assets of Giem, Guerra & Myers, Inc.
(previously referred to as Psychological HealthCare, Inc. in the Company's 1995
10-K). The Company and Giem, Guerra & Myers, Inc. are working together to
determine the most appropriate structure for the acquisition. It is anticipated
that the transaction will be consummated during the fourth quarter of 1996 or
the first quarter of 1997.
NOTE E -- SUBSEQUENT EVENT
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. Earnings per share amounts for the three months and nine
months ended September 30, 1996 and September 30, 1995 have been retroactively
restated in the unaudited financial statements to reflect the stock dividend.
Similarly, the effect of the stock dividend has been given retroactive effect in
the accompanying balance sheet at September 30, 1996.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Material Changes in Financial Condition
At September 30, 1996 and December 31, 1995, the Company's working capital was
$2,245,561 and $1,357,581 respectively. The nature of the Company's business
requires significant working capital to fund operations of its programs as well
as to fund corporate expenditures until receivables can be collected. Moreover,
because each of the existing contracts represents a significant portion of the
Company's business, the inability to collect any of the accounts receivable
could materially and adversely affect the Company's liquidity.
Cash flows from operations were $303,381 and $31,170 for the periods ended
September 30, 1996 and 1995, respectively. The increase was attributable to
increased earnings, accounts payable and accrued liabilities, which were
partially offset by increased accounts receivable. The increase in earnings and
accounts receivable are primarily due to the different mix of programs which
existed at September 30, 1996 and December 31, 1995 respectively. The Company
began managing two new programs between September and December 1995 and began
managing an additional three programs between January and April 1996. One
program operated by the Company was closed in December 1995 and five additional
programs operated by the Company, all of which were smaller partial
hospitalization programs, were closed between June and September 1996. The
increase in earnings and accounts receivable is a result of an increase in rates
earned by the Company as well as an increase in patient census volume that has
occurred as these programs have started to mature. The Company's percentage of
accounts receivable agings among periods are comparable. The increase in
accounts payable and accrued liabilities is due to an increase in the expenses
associated with an expanded volume of business.
Cash flows used in investing activities were ($137,718) and ($7,901) for the
periods ended September 30, 1996 and 1995, respectively. The decrease in cash
was primarily attributable to deferred acquisition costs incurred in connection
with an acquisition and proposed acquisition of contracts, assets and businesses
performing complimentary mental health services.
The cash flows from financing activities were $369,510 and $189,918 for the
periods ended September 30, 1996 and 1995, respectively. The increase was due to
the exercise of stock options by eight individuals.
The Company has recently been able to rely more on the cash generated from
operations rather than draw on its line of credit agreement with the bank. The
$750,000 credit agreement expires March 1, 1997, but is convertible into a one
year term loan with a five (5) year repayment schedule. As of October 15, 1996,
approximately $500,000 is available for future draws on the line of credit
agreement. The Company's principal sources of liquidity for the fiscal year 1996
are cash on hand, accounts receivable, the available line of credit and
continuing revenues from programs.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 compared to Three Months Ended September
30, 1995
The Company operated fifteen (15) programs during the three months ended
September 30, 1996 and 1995. Net revenues were $2,950,861 and $1,516,130 for the
three months ended September 30, 1996 and 1995, respectively. The increase in
revenues in 1996 over 1995 is due to the different mix of operating programs
among periods. The Company is currently earning a larger
<PAGE> 9
fee for managing the programs which exist at September 30, 1996 versus those
which existed at September 30, 1995. In addition, the volume of patient days
treated through programs at September 30, 1996 is greater than those treated
through programs which existed at September 30, 1995.
Cost of services provided were $2,179,571 and $1,172,967 for the three months
ended September 30, 1996 and 1995 respectively. The increase in the cost of
services provided among periods is primarily due to the increase in treating
patient volume among periods and an expanded scope of services provided in
connection with certain contracts such as nursing, transportation and lease
costs. The Company has achieved certain economics of scale in providing these
expanded services and has begun to develop certain previously externally
purchased services such as marketing, in house, to contain these costs.
<PAGE> 10
Selling, general and administrative expenses for the three months ending
September 30, 1996 have increased over the three months ending September 30,
1995 due to increased corporate marketing wages and activities, and various
professional fees incurred with the Company's contract, asset and business
acquisition efforts.
Net income was $400,443 and $89,179 for the three months ending September 30,
1996 and 1995, respectively. The increase was primarily attributable to the
different mix of programs which currently exist that provide for a larger
management fee for the expanded scope of services the Company currently
provides.
The Company does not know of any events which are likely to materially change
the costs of operating its Programs; however the gross profit on Programs which
have matured, are typically greater than those in the early stages of
development. Historically, Programs begin to reach their maturity within 90 to
120 days of initial operation. During the three months ending September 30, 1996
and 1995, the mix of programs changed significantly. As the newly obtained
programs continue to mature and the mix of individual operating programs begins
to stabilize, revenues should increase and gross profit should rise favorably
and disproportionately to the increase in cost for such Programs. Conversely, if
the patient census and the resulting revenue decreases (especially below the
minimum break even level) costs will be disproportionately high in relation
thereto which would adversely impact the results of operations.
The Company's revenue is expected to decline for the fourth quarter of 1996 due
to the loss of two small partial hospitalization contracts and a temporary drop
in census which the Company's inpatient programs typically experience towards
the holiday season of each year. Marketing plans for expanding the volume of the
business by obtaining new contracts for programs and expanding the scope of
mental health services offered by the acquisition of complementary contracts,
assets and businesses currently exist and are being implemented. It is uncertain
at this time to what extent the Company's fixed costs will be impacted by this
expansion. Due to the Company's dependence on a relatively small customer base
presently consisting of only five (5) hospitals and one community mental health
center, the loss of any of its customers could have a significant adverse effect
on the Company's operations.
Comparison of the Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995
Net revenues increased 76% for the nine months ended September 30, 1996 over the
comparable nine months ended September 30, 1995.
The Company had fifteen (15) operational programs during the nine month period
ended September 30, 1996 and sixteen (16) operational programs during the nine
month period ended September 30, 1995. The increase in net revenues among
comparative periods is due to the different mix of operating programs among
comparative periods. The Company is currently earning a larger fee for managing
the programs which existed during the nine months ending September 30, 1996
versus those which existed for the nine months ending September 30, 1995. In
addition, the volume of patient days treated through programs during the nine
month period ending September 30, 1996 are greater than those treated through
programs during the nine month period ending September 30, 1995.
<PAGE> 11
While there was an increase in revenue among comparative periods, there has also
been a corresponding increase in the cost of services provided. These increases
primarily stem from treating the increase in patient volume among periods and an
expanded scope of services provided in connection with certain contracts such as
nursing, transportation and lease costs.
The increase in general and administrative expenses is primarily attributable to
increased corporate marketing wages and activities, and the various professional
fees incurred in connection with the Company's contract, asset and business
acquisition efforts.
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
The Company declared a stock dividend of two-tenths
(.2) share for each one share held by stockholders of
record on October 1, 1996, the record date of the
dividend. In lieu of fractional shares that would be
issued, a stockholder will receive the next highest
number of full shares to which the stockholder would
be entitled as a result of the stock dividend. The
payment date for the stock dividend will be October
18, 1996.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Not applicable.
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
OPTIMUMCARE CORPORATION
A Delaware Corporation
Dated February 3, 1997 By: EDWARD A. JOHNSON
---------------------------
Edward A. Johnson
President & Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000820474
<NAME> OPTIMUM CARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 706,105
<SECURITIES> 0
<RECEIVABLES> 2,167,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,934,012
<PP&E> 20,211
<DEPRECIATION> 43,493
<TOTAL-ASSETS> 3,382,891
<CURRENT-LIABILITIES> 688,451
<BONDS> 243,334
0
0
<COMMON> 5,014
<OTHER-SE> 3,857,899
<TOTAL-LIABILITY-AND-EQUITY> 3,382,891
<SALES> 2,950,861
<TOTAL-REVENUES> 2,952,487
<CGS> 2,179,571
<TOTAL-COSTS> 2,507,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,775
<INCOME-PRETAX> 444,994
<INCOME-TAX> 44,551
<INCOME-CONTINUING> 400,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,443
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
