<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ______________________ TO ________________________
COMMISSION FILE NUMBER 0-17401
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OPTIMUMCARE CORPORATION
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(Exact name of registrant specified in its charter)
Delaware 33-0218003
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Ste 219
Laguna Niguel, CA 92677
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(714) 495-1100
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(Registrants telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(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 June 30, 1998
----------------------------
Common Stock, $.001 par value 6,819,131
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<PAGE> 2
INDEX
OPTIMUMCARE CORPORATION
PART I FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 1998 and 3
December 31, 1997
Statements of Income for the Three Months and Six Months 4
Ended June 30, 1998 and 1997
Statements of Cash Flows for the Three Months and Six 5
Months Ended June 30, 1998 and 1997
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION 11
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SIGNATURE 12
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</TABLE>
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<PAGE> 3
OPTIMUMCARE CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 984,767 $ 945,404
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF $0 AT
JUNE 30, 1998 AND $560,198 AT DECEMBER 31, 1997 2,232,768 2,186,906
PREPAID EXPENSES 47,765 49,246
PREPAID INCOME TAXES 216,861 0
---------- ----------
TOTAL CURRENT ASSETS 3,482,161 3,181,556
NOTES RECEIVABLE FROM OFFICER 274,000 274,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $110,830 AT JUNE 30, 1998
AND $90,473 AT DECEMBER 31, 1997 71,738 86,685
INTANGIBLE ASSETS, LESS ACCUMULATED AMORTIZATION
OF $1,530 AT JUNE 30, 1998 AND $1,428 AT
DECEMBER 31, 1997 545 647
DEFERRED TAX ASSET 0 334,000
OTHER ASSETS 44,283 44,283
---------- ----------
TOTAL ASSETS $3,872,727 $3,921,171
========== ==========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 252,290 $ 270,178
ACCRUED VACATION 79,498 65,639
ACCRUED EXPENSES 110,223 111,887
LINE OF CREDIT 0 200,000
---------- ----------
TOTAL CURRENT LIABILITIES 442,011 647,704
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 6,902,611 SHARES ISSUED,
6,819,131 SHARES OUTSTANDING AT JUNE 30, 1998,
6,902,611 SHARES ISSUED AND OUTSTANDING AT
DECEMBER 31, 1997 6,903 6,903
PAID-IN-CAPITAL 3,356,009 3,356,009
ACCUMULATED EARNINGS/(DEFICIT) 144,559 (89,445)
LESS COST OF 83,480 SHARES IN TREASURY (76,755) 0
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $3,430,716 $3,273,467
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,872,727 $3,921,171
========== ==========
</TABLE>
See notes to financial statements.
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OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $2,935,099 $3,050,876 $6,127,928 $5,881,456
INTEREST INCOME 5,994 1,531 12,064 3,063
---------- ---------- ---------- ----------
$2,941,093 $3,052,407 $6,139,992 $5,884,519
---------- ---------- ---------- ----------
OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $2,213,908 $2,207,314 $4,632,806 $4,270,360
PROVISION FOR DOUBTFUL ACCOUNTS 0 0 302,079 0
GENERAL AND ADMINISTRATIVE 436,819 392,287 810,127 803,865
INTEREST 0 10,738 2,306 27,365
MINORITY INTEREST 0 (11,883) 0 (22,376)
---------- ---------- ---------- ----------
2,650,727 2,598,456 5,747,318 5,079,214
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 290,366 453,951 392,674 805,305
INCOME TAXES 113,850 185,854 158,670 334,361
---------- ---------- ---------- ----------
NET INCOME $ 176,516 $ 268,097 $ 234,004 $ 470,944
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $0.03 $0.04 $0.03 $0.07
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $0.03 $0.04 $0.03 $0.07
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
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<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDING
JUNE 30 JUNE 30
1998 1997
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 234,004 $ 470,944
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 20,459 38,545
Provision for Doubtful Accounts 302,079 0
Minority Interest 0 (22,376)
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (347,941) (908,372)
Decrease in prepaid expenses 1,481 (23,604)
(Increase) in deposits and other assets 0 (4,957)
(Increase) in prepaid income taxes (216,861) 0
Decrease in deferred tax asset 334,000 0
(Decrease) in accounts payable (17,888) 41,550
Increase in accrued vacation 13,859 0
(Decrease) in accrued liabilities (1,664) 321,426
--------- ----------
CASH AND CASH EQUIVALENTS PROVIDED
(USED) BY OPERATING ACTIVITIES 321,528 (86,844)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (5,410) (45,312)
--------- ----------
CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (5,410) (45,312)
CASH FLOW FROM FINANCING ACTIVITIES
Purchase of treasury stock (76,755) 0
Note payable from bank (200,000) (400,000)
--------- ----------
CASH AND CASH EQUIVALENTS (USED) BY
FINANCING ACTIVITIES (276,755) (400,000)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 39,363 (532,156)
Cash and cash equivalents at beginning of period 945,404 1,113,809
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 984,767 $ 581,653
========= ==========
</TABLE>
See notes to financial statements.
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<PAGE> 6
OPTIMUMCARE CORPORATION
- -----------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three month period ended
June 30, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1998. 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, 1997.
NOTE B -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
In February, 1997 the Company formed an alliance with Galaxy Health Care, Inc.
to develop community mental health centers. In August, 1997 the company
relicensed its Long Beach, California partial hospitalization program with
Galaxy. In December, 1997, an insurance reimbursement audit of Galaxy's Florida
treatment sites placed Galaxy under severe working capital constraints. The
Company has perfected a security interest in all funds due Galaxy arising from
the operation of the Long Beach program. The allowance for doubtful accounts at
December 31, 1997 reserved all amounts due from Galaxy at that point in time.
During 1998, the Company learned that the magnitude of debt owed by Galaxy from
this audit appeared to be extremely substantial. This caused the Company to
believe that the collectibility of its receivables covered by the security
interest was remote. As a result, the Company wrote off all amounts due from
Galaxy during the first quarter of 1998.
The Company has terminated its relationship with Galaxy and is seeking a new
host for its partial hospitalization treatment site in Long Beach, California.
The prepaid income tax account at June 30, 1998 and the deferred asset account
at December 31, 1997 represent the tax aspects associated with the accounts
receivable from Galaxy.
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<PAGE> 7
NOTE C -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform with Statement 128 requirements.
<TABLE>
<CAPTION>
=================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator $176,516 $268,097 $234,004 $470,944
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Denominator:
- -------------------------------------------------------------------------------------------------
Denominator for basic
earnings per share -
weighted-average shares 6,882,967 6,811,381 6,892,735 6,842,477
- -------------------------------------------------------------------------------------------------
Dilutive employee stock
options 163,215 299,755 207,336 399,946
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Denominator for diluted
earnings per share 7,046,182 7,111,136 7,100,071 7,173,422
- -------------------------------------------------------------------------------------------------
Basic earnings per share $.03 $.04 $.03 $.07
- -------------------------------------------------------------------------------------------------
Diluted earnings per
share $.03 $.04 $.03 $.07
=================================================================================================
</TABLE>
NOTE D -- TREASURY STOCK
On March 19, 1998 Board of Directors of the Company approved a plan whereby the
Company may purchase through open market transactions up to 500,000 shares of
its common stock over the next twelve months. The Company purchased 83,480
shares of its common stock from April 21, 1998 through June 30, 1998.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains statements which are forward-looking in time and involve
risks and uncertainties, including the risks associated with plans, the effects
of changing economic and competitive conditions, government regulation which may
affect facilities, licensing, healthcare reform which may affect payment amounts
and timing, availability of sufficient working capital, program development
efforts and timing and market acceptance of new programs which may affect future
sales growth and/or costs of operations.
MATERIAL CHANGES IN FINANCIAL CONDITION
At June 30, 1998 and December 31, 1997, the Company's working capital was
$3,040,150 and $2,533,852 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. Despite the
write-off of the Galaxy receivable previously discussed in Note B of the Notes
to the Financial Statements, the Company has been able to effectively manage
collections on other receivables and payments for services in a manner which has
not impaired its working capital.
Cash flows from operations were $321,528 and (86,844) for the periods ended June
30, 1998 and 1997, respectively. Positive cash flow for the six months ended
June 30, 1998 was primarily due to the net income for the period and the
positive tax aspects associated with the write-off of the Galaxy receivable
during 1998.
Cash flows used in investing activities were ($5,410) and ($45,312) for the
periods ended June 30, 1998 an 1997, respectively. Funds used during both
periods were expended for office furniture and equipment.
The cash flows used in financing activities were ($276,755) and ($400,000) for
the periods ended June 30, 1998 and 1997 respectively. Funds used during both
periods were primarily for pay downs on the Company's line of credit agreement
with the bank, which were drawn during 1997.
The line of credit expires May 1, 1999. The maximum indebtedness of the line is
$1,500,000. Amounts allowable for draw are based on 75% of certain qualified
accounts receivable. As of June 30, 1998, approximately $1,437,000 is available
for future draws on the line of credit agreement.
The remainder of funds used during 1998 were for the purchase of 83,480 shares
of treasury stock as discussed in Note D of the Notes to the Financial
Statements.
The Company's principal sources of liquidity for the fiscal year 1998 are cash
on hand, accounts receivable, the line of credit with a bank and continuing
revenues from programs.
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<PAGE> 9
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
The Company operated twelve (12) programs during the three months ended June 30,
1998 and fourteen (14) programs during the three months ended June 30, 1997. Net
Revenues were $2,935,099 and $3,050,876 for the three months ended June 30, 1998
and 1997, respectively. The decrease in revenues for the three months ended June
30, 1998 over June 30, 1997 is due to a number of factors. Lower revenues are
somewhat due to the decrease in the number of operational programs. In addition,
the Company currently operates one partial hospitalization program which is
temporarily unable to generate revenue, until a suitable host facility can be
found. However, high census and increased collections in patient revenues
occurred at other programs at host facilities during the second quarter of 1998.
Cost of services provided were $2,213,908 and $2,207,314 for the three months
ended June 30, 1998 and 1997 respectively. Costs have increased slightly due to
treating increased patient volume at certain programs. However, the Company has
attempted to somewhat mitigate this increase through consolidation of two of its
partial hospitalization programs during the second quarter of 1998.
Selling, general and administrative expenses for the three months ending June
30, 1998 have increased over the three months ending June 30, 1997 due to an
increase in legal fees associated with protecting the Company's tradename
against use by an East Coast Healthcare Provider.
Net income was $176,516 and $268,097 for the three months ending June 30, 1998
and 1997, respectively. The decrease in net income is attributable to lower
revenues combined with an increase in certain nonrecurring administrative costs.
The Company anticipates the costs of operating its current programs to remain
stable. Revenues are expected to increase as new programs are opened and all
programs are generating revenue. The Company is actively pursuing the formation
of its own Community Mental Health Centers to host certain of its partial
hospitalization programs. This is a natural progression which has stemmed from
the Company continually providing a larger scope of services to its customers
for a greater management fee. In addition, the Company currently has
applications pending with regulatory agencies for three partial hospitalization
programs.
An increase in revenues should cause gross profit to rise favorably and
disproportionately due to the increase in costs for such programs. However,
should patient census and the resulting revenue decrease (especially below the
minimum break even level), costs could be disproportionately high, which would
adversely impact the results of operations, and the company's available
resources. Due to the Company's dependence on a relatively small customer base
presently consisting of only four (4) 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.
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<PAGE> 10
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED
JUNE 30, 1997
Net revenues increased 4% for the six months ended June 30, 1998 over the
comparable six months ended June 30, 1997.
The Company had twelve (12) operational Programs during the six month period
ended June 30, 1998 and fourteen (14) operational programs during the six month
period ended June 30, 1997. The increase in net revenues among comparative
periods is due to the increase in management fees from one partial
hospitalization program due to increased census and collections in patient
revenues at one host facility.
While there was an increase in revenue among comparative periods, there has also
been a corresponding increase in the cost of services provided. The increase
arose from treating an increase in patient volume among periods, as well as an
increase in dietary costs for three programs which the Company began to assume
responsibility for during the last half of 1997.
The provision for doubtful accounts at June 30, 1998 represents the write-offs
of the receivables generated from the Galaxy alliance during the first quarter
of 1998 as discussed in Note B to the Financial Statements. Management believes
the collectibility of these receivables is remote. No such similar situation
existed during the six month period ending June 30, 1997.
General and administrative expenses remained fairly stable in the aggregate
among periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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<PAGE> 11
PART II
OTHER INFORMATION
-----------------
ITEM 1 LEGAL PROCEEDINGS
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Not applicable.
ITEM 2 CHANGES IN SECURITIES
- ------ ---------------------
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
Not applicable.
ITEM 5 OTHER INFORMATION
- ------ -----------------
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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Exhibit 27 - Financial Data Schedule.
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<PAGE> 12
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 July 27, 1998 By: /s/ EDWARD A. JOHNSON
-----------------------------
Edward A. Johnson
Chairman of the Board &
Principal Financial Officer
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<PAGE> 13
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 984,767
<SECURITIES> 0
<RECEIVABLES> 2,232,768
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,482,161
<PP&E> 71,738
<DEPRECIATION> 110,830
<TOTAL-ASSETS> 3,872,727
<CURRENT-LIABILITIES> 442,011
<BONDS> 0
0
0
<COMMON> 6,903
<OTHER-SE> 3,356,009
<TOTAL-LIABILITY-AND-EQUITY> 3,872,727
<SALES> 2,935,099
<TOTAL-REVENUES> 2,941,093
<CGS> 2,213,908
<TOTAL-COSTS> 2,650,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 290,366
<INCOME-TAX> 113,850
<INCOME-CONTINUING> 176,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,516
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
