<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1998
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Commission File Number 0-17401
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OPTIMUMCARE CORPORATION
(Exact name of registrant specified in its charter)
Delaware 33-0218003
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Ste 219
Laguna Niguel, CA 92677
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(714) 495-1100
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(Registrants telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common Stock, $.001 par value 6,902,611
</TABLE>
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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> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Statements of Income for the Three Months
Ended March 31, 1998 and 1997 4
Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION 10
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SIGNATURE 11
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</TABLE>
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<PAGE> 3
OPTIMUMCARE CORPORATION
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
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<S> <C> <C>
ASSETS - -
CURRENT ASSETS
CASH $803,300 $945,404
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE OF $0 AT
MARCH 31, 1998 AND $560,198 AT DECEMBER 31, 1997 2,260,271 2,186,906
PREPAID EXPENSES 70,714 49,246
PREPAID INCOME TAXES 319,693 0
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TOTAL CURRENT ASSETS 3,453,978 3,181,556
NOTES RECEIVABLE FROM OFFICER 274,000 274,000
FURNITURE AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $100,623 AT MARCH 31, 1998
AND $90,473 AT DECEMBER 31, 1997 77,633 86,685
INTANGIBLE ASSETS, LESS ACCUMULATED AMORTIZATION
OF $1,479 AT MARCH 31, 1998 AND $1,428 AT
DECEMBER 31, 1997 596 647
DEFERRED TAX ASSET 0 334,000
OTHER ASSETS 44,283 44,283
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TOTAL ASSETS $3,850,490 $3,921,171
========== ==========
CURRENT LIABILITIES
ACCOUNTS PAYABLE $255,080 $270,178
ACCRUED VACATION 74,818 65,639
ACCRUED EXPENSES 189,637 111,887
LINE OF CREDIT 0 200,000
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TOTAL CURRENT LIABILITIES 519,535 647,704
STOCKHOLDERS' EQUITY
COMMON STOCK, $.001 PAR VALUE; AUTHORIZED
20,000,000 SHARES, 6,902,611 SHARES ISSUED
AND OUTSTANDING AT MARCH 31, 1998 AND DECEMBER 31, 1997 6,903 6,903
PAID-IN-CAPITAL 3,356,009 3,356,009
ACCUMULATED DEFICIT (31,957) (89,445)
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TOTAL STOCKHOLDERS' EQUITY $3,330,955 $3,273,467
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,850,490 $3,921,171
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE> 4
OPTIMUMCARE CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 MARCH 31
1998 1997
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<S> <C> <C>
REVENUES $3,192,829 $2,830,580
INTEREST INCOME 6,070 1,532
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$3,198,899 $2,832,112
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OPERATING EXPENSES:
COSTS OF SERVICES PROVIDED $2,418,898 $2,063,046
PROVISION FOR DOUBTFUL ACCOUNTS 302,079 0
GENERAL AND ADMINISTRATIVE 373,028 411,578
INTEREST 2,586 16,627
MINORITY INTEREST 0 (10,493
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3,096,591 2,480,758
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INCOME BEFORE INCOME TAXES 102,308 351,354
INCOME TAXES 44,820 148,507
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NET INCOME $57,488 $202,847
========== ==========
BASIC EARNINGS PER SHARE $0.01 $0.03
========== ==========
DILUTED EARNINGS PER SHARE $0.01 $0.03
========== ==========
</TABLE>
See notes to financial statements.
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<PAGE> 5
OPTIMUMCARE CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31 MARCH 31
1998 1997
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $57,488 $202,847
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation & Amortization 10,201 18,535
Provision for Doubtful Accounts 302,079 0
Minority Interest 0 (10,493)
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (375,444) (698,872)
(Increase) in prepaid expenses (21,468) (2,718)
(Increase) in prepaid income taxes (319,693) 0
Decrease in deferred tax asset 334,000 0
(Decrease) in accounts payable (15,098) 39,604
Increase in accrued vacation 9,179 0
Increase in accrued liabilities 77,750 134,886
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CASH AND CASH EQUIVALENTS PROVIDED
(USED) BY OPERATING ACTIVITIES 58,994 (316,211)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture & equipment (1,098) (30,310)
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CASH AND CASH EQUIVALENTS (USED)
IN INVESTING ACTIVITIES (1,098) (30,310)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 0 9,375
Note payable from bank (200,000) 0
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CASH AND CASH EQUIVALENTS (USED)/PROVIDED BY
FINANCING ACTIVITIES (200,000) 9,375
(DECREASE) IN CASH AND CASH EQUIVALENTS (142,104) (337,146)
Cash and cash equivalents at beginning of period 945,404 1,113,809
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $803,300 $776,663
======== ========
</TABLE>
See notes to financial statements.
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<PAGE> 6
OPTIMUMCARE CORPORATION
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements for the three month period ended
March 31, 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 month period ended March 31, 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 has caused the Company to
believe that the collectibility of its receivables covered by the security
interest is remote. As a result, the Company has written off all amounts due
from Galaxy at March 31, 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 March 31, 1998 and the deferred asset account
at December 31, 1997 represent the tax aspects associated with the accounts
receivable from Galaxy.
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.
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<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Numerator $ 57,488 $ 202,847
Denominator:
Denominator for basic earnings per
share - weighted-average shares 6,902,611 6,602,051
Dilutive employee stock options 251,456 500,136
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Denominator for diluted earnings per
share 7,154,067 7,302,187
========== ==========
Basic earnings per share $.01 $.03
Diluted earnings per share $.01 $.03
</TABLE>
NOTE D -- SUBSEQUENT EVENT
Effective April 9, 1998 the Company consolidated two partial hospitalization
programs located in Baldwin Park, and El Monte, California which were licensed
with one hospital.
A similar consolidation is expected to occur on April 30, 1998 with two partial
hospitalization programs located in Glendale, and Sherman Oaks, California which
were licensed with one hospital.
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
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1995
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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 March 31, 1998 and December 31, 1997, the Company's working capital was
$2,934,443 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 $58,994 and ($316,221) for the periods ended
March 31, 1998 and 1997, respectively. Positive cash flow for the three months
ended March 31, 1998 is primarily due to the net income for the period.
Cash flows used in investing activities were ($1,098) and ($30,310) for the
periods ended March 31, 1998 and 1997, respectively. Funds used during both
periods were expended for office furniture and equipment.
The cash flows used in financing activities were ($200,000) for the period ended
March 31, 1998. Funds used during 1998 were pay downs on the Company's line of
credit agreement with a bank, which were drawn during 1997. The line of credit
expired May 1, 1998. The maximum indebtedness is $1,500,000. Amounts allowable
for draw are based on 75% of certain qualified accounts receivable. As of April
29, 1998, approximately $1,450,000 is available for future draws on the line of
credit agreement. It is expected that the line of credit will be renewed on
similar terms. 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. Funds provided of $9,375 during the period
ended March 31, 1997 were obtained from the exercise of one employee stock
option.
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<PAGE> 9
MATERIAL CHANGES IN RESULTS OF OPERATIONS
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Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
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The Company operated twelve (12) programs during the three months ended March
31, 1998 and thirteen (13) programs during the three months ended March 31,
1996. Net Revenues were $3,192,829 and $2,830,580 for the three months ended
March 31, 1998 and 1997, respectively. The increase in revenues for the three
months ended March 31, 1998 over March 31, 1997 is due to the census increase at
one partial hospitalization program and an increase in the Company's management
fee and contract responsibilities for one other partial hospitalization program
which the Company relicensed with a community mental health center in August,
1997.
Cost of services provided were $2,418,898 and $2,063,046 for the three months
ended March 31, 1998 and 1997 respectively. The increase in the cost of services
provided among periods is primarily due to the increase in certain treatment
costs at one partial hospitalization program. The Company became responsible for
assuming all direct costs of the program following a relicensure of the program
with a community mental health center in August, 1997. Other smaller increases
in the cost of services provided occurred due to the increase in treating
patient volume among periods and the increase in dietary costs for two programs
which the Company began to assume responsibility for during the last half of
1997.
The provision for doubtful accounts at March 31, 1998 represents the write-off
of the receivables generated from the Galaxy alliance during the three months
ending March 31, 1998 as previously discussed in Note B to the Financial
Statements. Management believes the collectibility of these receivables is
remote. No such similar situation existed during the three month period ending
March 31, 1997.
Selling, general and administrative expenses for the three months ending March
31, 1998 have decreased over the three months ending March 31, 1997 primarily
due to decreased executive wages based on profit orientated incentive bonus
programs.
Net income was $57,488 and $202,847 for the three months ending March 31, 1998
and 1997, respectively. The decrease was primarily attributable to write-off of
the Galaxy receivables discussed above.
The Company anticipates the costs of operating its programs to decrease as a
result of the consolidation of certain of its partial hospitalization program
discussed in Note D of the financial statements. While revenues are also
expected to decrease as a result of the consolidation, the Company expects to
achieve economics of scale by operating these programs at maximum capacity. The
Company has continued to provide a larger scope of services to its customers for
a greater management fee. Census increase due to the maturity of existing
programs and changes in fee services of programs should cause revenues to
increase, and gross profit to rise favorably and disproportionately due to the
increase in costs for such programs. However, should patient census and the
resulting revenue decrease (especially below the minimum break even level) costs
could be disproportionately high which would adversely impact the results of
operations and the Company's available resources. Due to the Company's
dependence on a relatively small customer base presently consisting only four
(4) hospitals and 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
PART II
OTHER INFORMATION
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ITEM 1 LEGAL PROCEEDINGS
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Not applicable.
ITEM 2 CHANGES IN SECURITIES
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Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
Not applicable.
ITEM 5 OTHER INFORMATION
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Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
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On January 29, 1998 the Company filed a report on Form 8-K
announcing the postponement of the opening of treatment
sites with Galaxy Health Care, Inc.
On March 19, 1998 the Company filed a report on Form 8-K
announcing the termination of the Galaxy Health Care
alliance and a charge to earnings relating to the
write-off of funds owed to the Company by Galaxy. The
report also announced the write-off of acquisition costs
related to the 1996 acquisition of OptimumCare Source, LLC
and the approval of a stock repurchase program whereby the
Company may purchase up to 500,000 shares of its own
common stock over the next twelve months.
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<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
OPTIMUMCARE CORPORATION
A Delaware Corporation
Dated: May 5, 1998 By: EDWARD A. JOHNSON
-----------------
Edward A. Johnson
President & Principal
Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 803,300
<SECURITIES> 0
<RECEIVABLES> 2,260,271
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,453,978
<PP&E> 77,633
<DEPRECIATION> 100,623
<TOTAL-ASSETS> 3,850,490
<CURRENT-LIABILITIES> 519,535
<BONDS> 0
0
0
<COMMON> 6,903
<OTHER-SE> 3,356,009
<TOTAL-LIABILITY-AND-EQUITY> 3,850,490
<SALES> 3,192,829
<TOTAL-REVENUES> 3,198,899
<CGS> 2,418,898
<TOTAL-COSTS> 3,096,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 302,079
<INTEREST-EXPENSE> 2,586
<INCOME-PRETAX> 102,308
<INCOME-TAX> 44,820
<INCOME-CONTINUING> 57,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,488
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
