10-Q 1 a76659e10-q.txt FOMR 10-Q QUATER ENDED SEPTEMBER 30, 2001 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 September 30, 2001 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 ------------------------------ ------------------- (949) 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 October 30 , 2001. Class Number of Shares Outstanding ----- ---------------------------- Common Stock, $.001 par value 5,908,675 1 INDEX OPTIMUMCARE CORPORATION PART I FINANCIAL INFORMATION

2 October 30, 2001 Independent Accountants' Review Report To the Board of Directors of OptimumCare Corporation: We have reviewed the accompanying condensed consolidated balance sheet of OptimumCare Corporation and its subsidiary as of September 30, 2001, and the related condensed consolidated statements of income for the three months and nine months ended September 30, 2001 and 2000 and cash flows for the nine months ended September 30, 2001 and 2000, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of OptimumCare Corporation. A review of interim financial information consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 2000 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 2, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Lesley, Thomas, Schwarz & Postma, Inc. ------------------------------------------- A Professional Accountancy Corporation Newport Beach, California 3 OPTIMUMCARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements. 4 OPTIMUMCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See notes to condensed consolidated financial statements. 5 OPTIMUMCARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements. 6 OPTIMUMCARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2001 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements include the accounts of the Company and its majority owned subsidiary, OptimumCare Source LLC. All significant intercompany transactions, if any, have been eliminated. The unaudited financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America 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, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000. NOTE B - - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:

7 NOTE C - SUBSEQUENT EVENT During September, 2001, the Company was informed that its contracts for managing the inpatient and partial hospitalization psychiatric units at St. Francis Medical Center would not be renewed. The contracts expired September 30, 2001. The Company is scheduled to manage the units through October 31, 2001. 8 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 September 30, 2001 and December 31, 2000, the Company's working capital was $3,474,933 and $2,919,436, respectively. The increase in working capital for the period is primarily due to the Company's net income. 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 ($718,770) and $1,881,111 for the periods ended September 30, 2001 and 2000, respectively. Cash flows used during the nine months ended September 30, 2001 were primarily due to an increase in accounts receivable during the period. Accounts receivable for three programs accounted for the majority of this increase. The aging for receivables from these programs increased by 130 days from December 31, 2000 to September 30, 2001. Payments from two programs licensed through one Hospital have been delayed due to a lag in this Hospital receiving proceeds from financing. This Hospital underwent a capital expansion program in early 2001. The aging of the remaining program has increased due to an increase in its census for which payments have not yet been received from their intermediary. Management believes that the delay in payment from these programs is temporary and not indicative of an ultimate collection problems. Accordingly, no allowance for doubtful accounts has been recorded at September 30, 2001. Cash flows from investing activities were ($25,005) and $88,513 for the periods ended September 30, 2001 and 2000, respectively. Cash used during the nine months ended September 30, 2001 was primarily for the purchase of computer software, used to build an on-demand therapy website. The Company anticipates the site to be operational by the end of 2001. The Company has recruited therapists to service the site however, an alternative software host company needs to be sought since the original host is no longer in operation. Positive cash flow for the nine months ended September 30, 2000 was primarily due to payments the Company received on a note receivable from an officer. No cash flows with respect to financing activities occurred during the nine month period ending September 30, 2001. Cash flows of $15,938 were obtained from the exercise of one employee stock option, during the period ended September 30, 2000. The Company has a line of credit which expires June 15, 2002. The maximum indebtedness under the agreement is $1,500,000. Amounts allowable for draw were based on 75% of certain qualified accounts receivable. At October 30, 2001 approximately $1,247,888 is available for future draws on the line of credit agreement. The 9 Company's principal sources of liquidity for the fiscal year 2001 are cash on hand, accounts receivable, a line of credit with a bank and continuing revenues from programs. 10 MATERIAL CHANGES IN RESULTS OF OPERATIONS Three Months Ended September 30, 2001 compared to Three Months Ended September 30, 2000 The Company operated eight (8) programs during the three months ended September 30, 2001 and nine (9) programs during the three months ended September 30, 2000. Net revenues were $1,888,994 and $1,959,184 for the three months ended September 30, 2001 and 2000, respectively. The decrease in net revenues among periods is primarily due to the decrease in the number of programs among periods primarily offset by the increase in management fees at other existing programs. Cost of services provided were $1,313,048 and $1,318,471 for the three months ended September 30, 2001 and 2000, respectively. The decrease in cost of services provided among periods is due to the decrease in the number of programs, primarily offset by the increase in cost at other existing programs arising from increased patient volume. Uncollectible accounts at September 30, 2000 represent the write-off of the receivables generated from one receivable during the three months ending September 30, 2000. No similar situation existed during the three month period ending September 30, 2001. Selling, general and administrative expenses were $303,685 and $330,056 for the three months ended September 30, 2001 and 2000, respectively. The decrease in selling, general and administrative expenses was due to the elimination of the Corporate Clinical Director position. The Chairman of the Board and the President have currently assumed this role. This decrease was partially offset by an increase in corporate insurance rates. The Company's income taxes have decreased for the three months ending September 30, 2001 over the three months ended September 30, 2000 due to more detailed internal process of estimating its income taxes on an interim basis. Net income was $196,131 and $164,913 for the three months ending September 30, 2001 and 2000. Higher net income occurred from a larger operating profit due to lower operating expenses. The Company expects revenues to decrease in the fourth quarter of 2001, due to the loss of the St. Francis Medical Center contracts, discussed in Note C to the condensed consolidated financial statements. Expenses related to operating these programs will also decrease. However, it is not expected that the overall profits of the Company will be severely impaired by this event. The Company is continuing to make efforts to expand the number of its operational programs. The Company anticipates that its on-demand therapy website will be operational by the end of 2001. Although fees from the website will cause revenues to increase, costs associated with the production of the revenues, particularly advertising, will also increase. It is uncertain at this time, to what extent the Company's costs will be impacted by expansion. Due to the Company's dependence on a relatively small customer base presently consisting of four hospitals and one community mental health center, the loss of certain of its customers could have a significant adverse effect on the Company's operations. 11 COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED SEPTEMBER 30, 2000 The Company had nine (9) operational Programs during the nine month period ended September 30, 2001 and ten (10) operational programs during the nine month period ended September 30, 2000. Net revenues decreased approximately 3% for the nine months ended September 30, 2001 over the comparable nine months ended September 30, 2000. The decrease among periods is primarily due to the closure of one program during the first quarter of 2001, partially offset by the increase in management fees at other existing programs. Cost of services provided decreased approximately 5% for the nine months ended September 30, 2001 over the comparable nine months ended September 30, 2000. The decrease among periods is primarily due to the program closure mentioned above, partially offset by the increase in cost at other existing programs arising from increased patient volume. The provision for doubtful accounts at September 30, 2000 represented the write-off of one receivable during 2000. No such similar situation existed during the nine month period ending September 30, 2001. General and administrative expenses increased approximately 5% for the nine months ended September 30, 2001 over the comparable nine months ended September 30, 2000. This was primarily due to an increase in corporate insurance rates. Income taxes increased approximately 19% for the nine months ended September 30, 2001 over the comparable nine months ended September 30, 2000. The increase among periods is primarily due to an increase in operating profit. Net income increased approximately 64% for the nine months ended September 30, 2001 over the comparable nine months ended September 30, 2000. The increase among periods is primarily due to a larger operating profit arising from lower operating expenses. 12 STATEMENT BY MANAGEMENT CONCERNING REVIEW OF INTERIM FINANCIAL INFORMATION BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The September 30, 2001 condensed consolidated financial statements included in this filing on Form 10-Q have been reviewed by Lesley, Thomas, Schwarz & Postma, Inc., independent certified public accountants, in accordance with established professional standards and procedures for such review. The report of Lesley, Thomas, Schwarz & Postma, Inc. commenting upon their review accompanies the condensed consolidated financial statements included in Item 1 of Part 1. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Immaterial. 13 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS Not applicable. ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 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 Not applicable. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 10.134 Loan Agreement between the Company and U.S. Bank dated June 4, 2001 which supercedes the agreement dated July 14, 2000. Exhibit 15: Accountants' Acknowledgment 14 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: October 30, 2001 By:/s/ Edward A. Johnson --------------------------------- Edward A. Johnson Chairman of the Board & Principal Financial Officer 15

OPTIMUMCARE CORP /DE/ 10-Q