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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 June 30, 2002

Commission File Number 0-17401

OPTIMUMCARE CORPORATION

(949) 495-1100

Not Applicable

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 July___, 2002.

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OPTIMUMCARE CORPORATION

PART I FINANCIAL INFORMATION

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July 22, 2002

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 subsidiaries as of June 30, 2002, and the related condensed consolidated statements of operations for the three months and six months ended June 30, 2002 and 2001 and cash flows for the six months ended June 30, 2002 and 2001, 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.

     We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein), and in our report dated February 12, 2002, 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, 2001 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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OPTIMUMCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements.

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OPTIMUMCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

See notes to condensed consolidated financial statements.

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OPTIMUMCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See notes to condensed consolidated financial statements.

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OPTIMUMCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2002

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited financial statements include the accounts of the Company and its majority owned subsidiaries. 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 six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001.

NOTE B — SHORT-TERM INVESTMENTS

Included in short-term investments are federal home loan bank bonds with an aggregate principal amount of $100,000 and $0 at June 30, 2002 and December 31, 2001 respectively. The bonds bear interest ranging from 2.375% to 5.755% and have maturity dates during June, 2003.

The Company believes that the carrying amount of these bonds approximate their fair value at June 30, 2002 because of the short maturity of these instruments.

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NOTE C — EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

NOTE D — - NEW BUSINESS

Effective June 16, 2002, the Company entered into a marketing and management agreement for a psychiatric inpatient and partial hospitalization program at La Palma Intercommunity Hospital in La Palma, California.

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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, 2002 and December 31, 2001, the Company’s working capital was $2,792,967 and $2,843,872, respectively. The decrease in working capital for the period is primarily due to the Company’s net loss. 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. The Company evaluates the collectibility of its receivables on a case by case basis. Accounts receivable at June 30, 2002 has decreased from those which existed at December 31, 2001. This is primarily due to the collection of receivables from two contracts with one hospital that were terminated April 30, 2002. At June 30, 2002, all accounts receivable are ninety days outstanding or less. Management believes that no collection problems with respect to these receivables exist. Accordingly, no allowance for doubtful accounts has been recorded at June 30, 2002.

Cash flows from operations were $397,919 and $(463,446) for the periods ended June 30, 2002 and 2001, respectively. Cash flows during the six months ended June 30, 2002 were primarily due to collections of accounts receivable and prepaid income taxes, partially offset by payments of amounts accrued at December 31, 2001.

Cash flows from investing activities were $103,805 and ($23,500) for the periods ended June 30, 2002 and 2001, respectively. Cash provided during the six months ended June 30, 2002 primarily arose from the payment of a note receivable from one officer which was partially offset by the purchase of short-term federal home loan bank bonds.

No cash flows with respect to financing activities occurred during the six month period ending June 30, 2002 and 2001. The Company has a line of credit which expires January 31, 2003. The maximum indebtedness is $1,500,000. Amounts allowable for draw are based on 80% of certain qualified accounts receivable. As of July 16, 2002, approximately $418,000 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 2002 are cash on hand, accounts receivable, a line of credit with a bank and continuing revenues from programs.

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Material Changes in Results of Operations

Three Months Ended June 30, 2002 compared to Three Months Ended June 30, 2001

The Company operated six (6) programs during the three months ended June 30, 2002 and eight (8) programs during the three months ended June 30, 2001. Of the six programs operated during the three months ended June 30, 2002, two programs were terminated April 30, 2002 and one program began June 16, 2002. Net revenues were $1,247,750 and $1,892,694 for the three months ended June 30, 2002 and 2001, respectively. The decrease in net revenues among periods is primarily due to the decrease in the number and duration of operating programs, offset by a $300,000 early termination fee received from one hospital during April, 2002.

Cost of services provided were $713,089 and $1,310,518 for the three months ended June 30, 2002 and 2001, respectively. The decrease in cost of services provided among periods is due to the decrease in the number of programs, the majority of which related to those programs closed during April, 2002.

Selling, general and administrative expenses were $399,023 and $350,759 for the three months ended June 30, 2002 and June 30, 2001, respectively. The increase in costs is primarily due to fees paid to business development consultants assisting the Company in its expansion and acquisition endeavors.

The Company’s income taxes for the three months ending June 30, 2002 have remained relatively stable with those estimated for the three months ended June 30, 2001.

Net income was $83,382 and $189,454 for the three months ending June 30, 2002 and 2001. Lower net income occurred from a decrease in operating programs offset by an early termination fee received from one hospital during April, 2002.

The Company is continuing to make efforts to expand the number of its operational programs. The Company currently has a proposal outstanding to expand the inpatient program at one location it currently serves and has contracted with a consulting firm managed by one of the Company’s directors to launch an aggressive marketing program. However new rules adopted by the Centers for Medicare and Medicaid Services (CMS) are now requiring that facilities obtain “provider based status” before a provider can bill Medicare for services rendered at the facility. The application of these rules are uncertain at this time, but the Company anticipates that changes will occur in the nature of its traditional contract structure which will cause revenues per contract to decline. One hospital which hosted two programs terminated its contracts with the Company effective April 30, 2002. The two contracts were scheduled to expire December 31, 2002. A month to month consulting agreement with the hospital for utilization review services currently exists. In addition, the Company has been in discussions with another hospital, which currently hosts one program to modify its arrangement with the Company causing both revenues and costs associated with managing this program to decline.

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Concurrent with its strategy for expanding its contract business, the Company is in the process of developing a home health division and acquiring strategic businesses with complimentary health care services. Revenues from the home health division are expected to be generated by the end of 2002. The Company recently signed a letter of intent to acquire a medical staffing company.

The Company has a dependence on a small customer base, presently consisting of four hospitals. However, the Company has a significant amount of variable expenses associated with the production of its revenues, although certain fixed costs do exist. To that end, the loss of customers has a significant adverse effect on the Company’s profit margin. The Company expects a small loss on its core business operations and the development of the home health agency for the remainder of 2002. However, the acquisition of the medical staffing company is anticipated to increase revenues and profits which should help to offset new expenses associated with developing programs, divisions and acquisitions, the aggregate costs of which are unknown at this time.

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Comparison of the Six Months Ended June 30, 2002 to Six Months Ended June 30, 2001

The Company had six (6) operational Programs during the six month period ended June 30, 2002 and nine (9) operational programs during the six month period ended June 30, 2001.

Net revenues decreased approximately 34% for the six months ended June 30, 2002 over the comparable six months ended June 30, 2001. The decrease among periods is due to the decrease in the number of programs.

Cost of services provided decreased approximately 28% for the six months ended June 30, 2002 over the comparable six months ended June 30, 2001. The decrease among periods is due to also due to the decrease in the number of programs stated above.

General and administrative expenses have slightly increased for the six months ended June 30, 2002 over the comparable six months ended June 30, 2001. This was primarily due to fees paid to business development consultants assisting the Company in its expansion and acquisition endeavors.

Income taxes have decreased substantially for the six months ended June 30, 2002 over the comparable six months ended June 30, 2001. The decrease among periods is primarily due to the net loss generated by the Company during the current period.

The Company incurred a net loss of $(42,769) for the six months ended June 30, 2002 compared to net income of $365,000 for the six months ended June 30, 2001. The decrease among periods is primarily due to the decrease in profits arising from a smaller number of operating programs.

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Statement by Management Concerning Review of Interim Financial Information by Independent Certified Public Accountants

The June 30, 2002 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.

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PART II

OTHER INFORMATION

	(A)		Exhibit 10.140: Management services agreement between the Company and LaPalma Intercommunity Hospital dated June 16, 2002.
			Exhibit 10.141: Lease amendment between the Company and Laguna Niguel Office Center dated April 17, 2002 which supercedes the lease dated June 23, 1988.
			Exhibit 15: Accountants’ Acknowledgment
	(B)		Not applicable

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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 23, 2002	By:	/s/ Edward A. Johnson
		Edward A. Johnson Chairman of the Board & Principal Financial Officer

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EXHIBIT INDEX