OPTIMUMCARE CORP /DE/ - 10-K Annual Report

Citrus Valley Medical Center. Contract expired February 2001.

La Palma Intercommunity Hospital. One year contract effective June 16, 2002.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


(Mark One)

[X]		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2002 or

[ ]		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

OPTIMUMCARE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		33-0218003

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


30011 Ivy Glenn Drive, Suite 219 Laguna Niguel, California		92677

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 495-1100

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered


None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 Par Value

(Title of Class)

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 period 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). [ ] YES [X] NO

The aggregate market value of the voting stock held by non-affiliates of the Company on February 3, 2003 (4,293,803 shares of Common Stock) was $837,292 based on the average bid and asked price of the Company’s voting stock on February 3, 2003.*

The number of shares outstanding of each of the Company’s classes of Common Stock, as of February 3, 2003 was 5,908,675 shares of Common Stock, $.001 par value.

DOCUMENTS INCORPORATED BY REFERENCE

None.

* This value is not intended to make any representation as to value or worth of the Company’s shares of Common Stock. The number of shares held by the Company has been calculated by subtracting shares held by controlling persons of the Company from the number of issued and outstanding shares of the Company.

TABLE OF CONTENTS


PART I
	ITEM 1 — BUSINESS
	ITEM 2 — PROPERTIES
	ITEM 3 — LEGAL PROCEEDINGS
	ITEM 4 — SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
PART II
	ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
	ITEM 6 — SELECTED FINANCIAL DATA
	ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11 - EXECUTIVE COMPENSATION
	ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
	ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	Item 14 — CONTROLS AND PROCEDURES
PART IV
	ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.148
EXHIBIT 10.149
EXHIBIT 10.150
EXHIBIT 21.1
EXHIBIT 23.1

PART I

ITEM 1 - BUSINESS

(a) General Development of Business

OptimumCare Corporation (the “Company”) was incorporated in California on November 25, 1986 and was reincorporated in Delaware on June 29, 1987. In mid-1987, the Company commenced the development and marketing of health care facility-based programs (“Programs”) to be managed by the Company primarily for the treatment of depression and certain other mental health disorders (“PsychPrograms”), as well as programs for alcohol and drug abuse (“Treatment Programs”). After the Company obtains a contract for the establishment of one or more Programs at a host health care facility, the Company recruits and trains the staff needed to operate its programs. Typically, the host health care facility provides a specified number of beds for the Program, as well as all other support services required for the operation of the Program, including nursing, dietary, housekeeping, billing and other administrative functions. The Company recruits and trains the staff to operate the Program. The Company’s staffing of a Program will usually include a medical director, a program director, a psychologist, a chief therapist and one or more counselors or social workers.

Contracts are individually negotiated with each host health care facility and include approximately 20 beds for the Company’s inpatient contract, and 40 to 50 chairs for the Company’s partial hospitalization and outpatient contracts. Generally, the Company and the host health care facility negotiate a management fee based on the scope of services provided by the Company, number of beds, rates charged and reimbursements received by the facility. The Company receives a fixed monthly fee of approximately $62,000 per month for the Company’s inpatient contract, and $79,200 per month for partial hospitalization and outpatient contracts. The health care facility charges the patient on a daily basis in accordance with a fee schedule of prescribed rates, except where the insurer provides for payment which is limited to a maximum number of days per patient. In some cases, reimbursement of direct costs are also received. Certain contracts contain provisions which deny portions or all of the management fee should patient days be ultimately appealed and denied by the patient payor.

The Company also currently has a short-term consulting contract with a hospital which approximates $25,000 per month.

During the second half of 2002, the Company formed a wholly owned subsidiary, Associated Staffing Resources, Inc. (the “Staffing Subsidiary”). On July 29, 2002 the Staffing Subsidiary acquired certain assets of Associated Social Resources, Inc., a healthcare staffing company. The major assets of the business acquired were its long term contractual relationships with hospitals, its employees and its computer software which invoices the hospitals based on time worked by its employees. On November 7, 2002 the Staffing Subsidiary acquired certain assets of another healthcare staffing company, Social Work Services, Inc. The Staffing Subsidiary negotiates contracts with hospitals to provide staffing (primarily social workers and marriage and family counselors) at an hourly rate. The marriage and family counselors and social workers are

employees of the Staffing Subsidiary. Revenues from the operations of the Staffing Subsidiary approximate 23% of the Company’s consolidated 2002 revenues. Plans currently exist for additional acquisitions during 2003, which should increase the amount of potential revenues generated by the Staffing Subsidiary.

As of February 3, 2003, the Company had four contracts with three hospitals: one inpatient and one partial hospitalization contract with Huntington InterCommunity Hospital, D/B/A Humana Hospital Huntington Beach, Huntington Beach, California, one partial hospitalization Psych/Outpatient contract with Sherman Oaks Hospital and Health Center, Sherman Oaks, California, and management and marketing contract with La Palma InterCommunity Hospital, La Palma, California.

As of February 3, 2003, the Company’s wholly owned subsidiary, Associated Staffing Resources, Inc. had approximately 60 active hospitals under contract to provide temporary staffing services, located primarily in the Los Angeles, California area.

On March 12, 2003, the Company, through its subsidiary OptimumCare Staffing, Inc., completed the acquisition of the assets of Chicago Care Nurse Staffing, L.L.C., a healthcare staffing company in Orlando, Florida. The major assets of the business acquired are its long term contractual relationships with healthcare facilities and healthcare workers.

(b) Financial Information About Industry Segments

The Company’s core business is the development, marketing and operation of contract Programs. During the second half of 2002, the Company entered into the temporary medical staffing business. The following tables sets forth selected financial information about industry segments:

FOR THE YEAR ENDING DECEMBER 31, 2002


	Contract Programs		Staffing Services		Corporate			Total

Revenues	$	4,129,113	$	1,237,167	$	26,512		$	5,392,792
Net Income (Loss)	$	1,098,141	$	34,728		($1,565,143	)	$	(432,274	)
Total Assets	$	0	$	817,855	$	1,936,267		$	2,754,122

(i) and (ii) Products

OptimumCare’s Psych Programs (“Inpatient Program”)

The Inpatient Program is a medically-supervised psychiatric care program for short term intensive evaluation and treatment of patients with diagnoses ranging from acute depression to serious and chronic behavioral health problems, such as schizophrenia. Patients receive treatment 24 hours per day, which includes individual psychotherapy, medication regimen, group therapy, and discharge planning and placement, under the supervision of a psychiatrist in conjunction with a multi disciplinary team (registered nurses, licensed vocational nurses, social workers, activity therapists, medical physicians, and mental health workers). The Company

estimates that the average length of stay for a patient in an Inpatient Program is approximately 3-10 days.

OptimumCare’s Partial Hospitalization Programs (“Partial Hospitalization”)

Partial Hospitalization is a treatment approach that provides an alternative to inpatient treatment. It provides a daily program for a maximum of 20 hours per week, prescribed by psychiatrist. It is for voluntary patients with serious behavioral health disorders who require intensive and multi disciplinary treatment, which cannot be provided in a less intensive outpatient setting. As an alternative to inpatient treatment, it provides a more flexible, less costly and less restrictive form of treatment. Treatment consists of group therapy, activity therapy, medication monitoring, and individual therapy related to the specific needs of each client. The Program staff acts as a liaison in assisting the client in accessing resources within the community. The Company estimates that the average length of stay for a patient in a partial hospitalization program is approximately 3 weeks to 3 months.

OptimumCare’s Outpatient Services

Outpatient Services is a component of a partial hospitalization program intended for patients with long-term, chronic conditions. Treatment must, at a minimum, be designed to reduce or control the patient’s psychiatric symptoms so as to prevent relapse requiring a higher level of care. For patients with long-term, chronic conditions, control of symptoms and maintenance of a functional level to avoid further deterioration or hospitalization is an acceptable expectation of improvement.

Outpatient Services is a voluntary program. Patients attend up to a maximum of 10 hours a week, as prescribed by a psychiatrist, under the direct supervision of the multi disciplinary team. Treatment includes individual and group therapy with a range of activities geared toward the individual needs of each patient. Length of stay varies, depending on the needs of the individual.

Outpatient Services provides a third level in the continuum of care that enables patients to enter an OptimumCare program at an appropriate level, then advance as their treatment progresses to a point where they feel confident, productive and able to experience life fully with minimal intervention.

Associated Staffing Resources Inc.’s Temporary Staffing Services

Temporary Staffing Services is a venue for hospitals to procure the expertise of qualified healthcare professionals on a temporary basis without incurring the burden of seeking, training and employing such individuals.

Staffing

The PsychProgram and Partial Hospitalization Programs are staffed by the Company with a medical director, a program manager, and in some cases, a psychologist, a chief therapist, and at least one therapist or social worker. The key staff members are the medical director and the

program manager. The medical director is a licensed psychiatrist who is a staff member of the host health care facility and is engaged as an independent contractor charged with the responsibility for overseeing the administration of the Program from a medical/regulatory compliance viewpoint. In addition to the medical director who is responsible for administering the clinical aspects of the contract, the Company often engages co-medical directors in each community in which a Program is located. These co-medical directors are licensed psychiatrists or psychologists. They provide administrative assistance to a Program and represent it at various professional activities in the local community. The co-medical directors are compensated at a fixed monthly rate, depending on the amount of time they commit to supporting the Company’s Programs. The Company’s employees and contractors at each program are subject to approval and pre-employment screening by the host health care facility. The Company has not experienced any difficulty in locating qualified medical directors from the hospital staff to affiliate with the Company’s Programs. The program manager is a full time employee of the Company and usually has completed either a bachelor’s or master’s degree program in psychology or social work. Program managers are officed at their respective Program’s facility.

Associated Staffing Resources Inc.’s temporary staffing services are staffed with qualified healthcare professionals (primarily marriage and family counselors and social workers). The Staffing Subsidiary does recruit individuals by advertising in certain trade journals. However, most of the employees are referred to the company through other employees and professionals in the healthcare industry. Potential employees are carefully screened based on their prior experience. The Staffing Subsidiary accepts only highly trained candidates since employees need to be able to respond in various environments, in a very independent manner.

Contract Operations

The Company provides a host health care facility with staff recruitment, a two-week pre-opening in-service nurse and hospital employee training program, program management, continuing education, community education, ongoing public relations and program quality assurance.

The Company provides these training programs to the host health care facility at no charge. Typically, nursing, dietary, X-ray, laboratory, housekeeping, admissions and billing are the responsibility of the host health care facility.

The following is a list of current contracts:


	*TYPE OF*	*CONTRACT*
	*PROGRAM*	*EXPIRATION DATE*

CONTRACT #1	INPATIENT START DATE:	NOVEMBER 2003(1)
	11/91
CONTRACT #2	PARTIAL START DATE:	OCTOBER 2003(2)
	10/92
CONTRACT #3	PARTIAL START DATE:	JUNE 30, 2003
	9/95


CONTRACT #4	MANAGEMENT AND MARKETING CONSULTING START DATE:	JUNE 15, 2003 (2)
	6/02

(1) Automatically extended for successive one year periods, unless terminated with 120 days notice.

(2) Automatically extended for successive one year periods, unless terminated with 90 days notice.

Staffing Services Operations

The Staffing Subsidiary currently has approximately 60 active hospitals that contract for its services. Contracts specify the rate per hour charged for services commensurate with the level of training of the employee. Contracts are typically for one year and are not mutually exclusive between the hospital and the Staffing Subsidiary. The hospital supervisor engaged by the Staffing Subsidiary approves the hours worked by employees through time sheets, which serve as the source documents for billing the hospital and paying the employee wages. The Staffing Subsidiary has a small administrative staff and utilizes a computer software application to perform these billing and payroll tasks.

Payment for Services

Patients are screened by the host healthcare facility prior to admission. Screening procedures include verification of the existence and extent of insurance coverage.

It is the host health care facility’s responsibility to bill and collect the fees charged to the patient for all program services. The Company in turn bills the host health facility for services provided at the specified contract rate. Generally, the Company bills the host health care facility within five days after the close of the month in which the services were rendered. Except in the cases where the contracts provide for specific hold backs for ultimately denied days, the majority of the contracts do not specifically provide that the Company shall bear any risk of non-payment by the host healthcare facility. However, industry practice dictates that the Company acknowledge that a certain percentage of the fees will be uncollected by the host health care facility. Thus, accommodations are expected to be made on a case-by-case basis with each host health care facility (except where there is an express contractual provision which governs this issue) to offset some portion of Program patients’ bad debts experienced by the host health care facility.

Regulatory Matters

Many of the hospitals with which the Company contracts have a large number of Medicare and Medicaid patients. It is unknown whether in the future other contracts or programs will be dependent on a disproportionate amount of Medicare/Medicaid patients. However, the Company has negotiated with these hospitals whereby it is paid a flat monthly fee with a hold back for days

ultimately denied which exceed a specified threshold. Thus, the Company is not directly dependent on Medicare or Medicaid for payment under its current contracts.

The healthcare facilities rely upon payment from Medicare. The healthcare facilities are reimbursed their costs on an interim basis by Medicare fiscal intermediaries and the health care facilities submit annual cost reimbursement reports to the fiscal intermediaries for audit and payment reconciliation. The healthcare facilities seek reimbursement of the Company’s management fees from these fiscal intermediaries as part of their overall payments from Medicare.

Revision of legislation related to Medicare/Medicaid reimbursement, if enacted, could have a negative effect on the revenues of the hospitals with which the Company contracts. Generally, the Company’s agreements with hospitals require the Company and the hospital to renegotiate rates in the event of a significant legislative change which affects the compensation received by the hospital. It is uncertain at this time to what extent the Company’s revenues may be impacted by changes to Medicare/Medicaid policies.

Medicare is part of a federal health program which is administered by the U.S. Department of Health and Human Services which has established Health Care Financing Administration (“HCFA”) to promulgate rules and regulations governing Medicare and the benefits associated therewith.

All of the programs currently managed by the Company are treated as “provider based” programs by HCFA. This designation is important since partial hospitalization services are covered only when furnished by a “provider,” i.e., a hospital. To the extent the partial hospitalization programs are not located in a site which is deemed by HCFA to be “provider-based,” there would not be Medicare coverage for the services furnished at the site under Medicare’s partial hospitalization benefit. In August, 1996, HCFA published criteria for determining when programs operated in facilities separate from a hospital’s main premises may be deemed to be “provider-based” programs.

During November, 2001, additional changes were made to existing provider-based regulations which require all provider-based entities to receive designation as such by October 1, 2002. In general, entities will be considered provider-based if they are operated under the same license and common ownership and control, under the main provider’s direct day-to-day supervision, clinically and financially integrated with the main provider, held out to the public as part of the main provider, and located near the main provider and serve the same patient population. The Company believes that the programs it currently manages will continue to be treated as “provider- based.”

During August 2000, the Company implemented a prospective payment system for all outpatient hospital services. The amount paid by Medicare is a per diem fee adjusted by a geographic wage index, less a “coinsurance” of twenty percent (20%) of the charges which is ordinarily to be paid by the patient. The coinsurance must be charged to the patient by the provider unless the patient is indigent. If the patient is indigent, or if the patient does not pay the provider the billed coinsurance amounts after reasonable collection efforts, the Medicare program will in some

instances pay these amounts as allowable Medicare bad debts. Interim payments under the prospective payment system are currently being phased in over a three year period. A portion of the per diem fee is actually computed on a cost to charge formula. Aggregate reimbursements to most of the healthcare facilities with which the Company contracts have not materially changed from those previously received prior to the implementation of the prospective payment system.

To the extent that healthcare facilities which contract with the Company for management services suffer material losses in Medicare payments, there is a greater risk to the Company of non-payment, and a risk that the healthcare facilities will terminate or not renew their contracts with the Company. Thus, even though the Company does not submit claims to Medicare, it may be adversely affected by reductions in Medicare payments or other Medicare policies.

The Company anticipates that additional legislation may be adopted focusing on controlling health care costs and improving access to medical services for persons who are uninsured. Such legislation may also affect the amount that health care providers can charge for services. The Company believes that it is well positioned to respond to these changes and that it is likely that the Company will experience a lesser impact than other companies in the health care industry based on the fact that the Company has already focused its efforts on shortening patient stays and has historically provided a greater percentage of its services to Medicaid patients than have many of its competitors.

Some of the hospitals with which the Staffing Subsidiary contracts are government owned and require various levels of government approval. There is no indication that this issue presents a risk to the Staffing Subsidiary’s ability to seek or obtain these types of contracts.

Marketing

The Company’s marketing efforts are primarily directed toward increasing the number of management contracts by either the takeover of existing programs operated by others or the establishment of new Partial Hospitalization or PsychPrograms in geographically desirable areas. The Company believes that its ability to secure new contracts is based on its reputation as a quality provider coupled with its history of low length of patient stays resulting in less uncompensated care.

Sales calls are primarily directed at health care facilities which may be experiencing a low or declining patient census and facilities in geographically desirable areas. After a contract is obtained, the Company prepares a detailed marketing development strategy aimed at attracting patients to the Programs.

The program director for each PsychProgram at the host health care facility develops a local plan, in conjunction with the program community liaison. The strategy is to increase public awareness of the Program. All Programs share the goal that is consistent with the Company’s overall plan. The host hospital’s administrative and medical staffs are also encouraged to participate in community relations activities.

The Company emphasizes direct contact with psychiatrists, psychologists and other licensed professionals because these individuals motivate potential patients to seek inpatient treatment for their mental health. Licensed Community Care Residential Facilities are also targeted because the residents often require inpatient psychiatric treatment. The Company’s approach emphasizes the care giver at these residential facilities to become involved in one-on-one communication with the professionals who will provide patient referrals. These professionals and care givers are invited to the Company sponsored community relations activities, speaker programs and continuing education seminars.

The Staffing Subsidiary markets its services to hospitals through advertising in various trade journals and publications primarily in the Los Angeles, California area. However, most of the contracted hospitals are referred to the Company by other healthcare professionals.

(iii) Raw Materials

Inapplicable.

(iv) Patents and Trademarks

The Company holds a federal service mark, Registration #1628745, for its trade name “OptimumCare.” The Company has marketed its programs under the names “OptimumCare PsychProgram” and “OptimumCare Treatment Program.”

(v) Seasonality

The Company acknowledges that patient volume appears to be susceptible to some seasonal variation. Census tends to substantially decrease near certain holidays, particularly during the fourth quarter, where individuals are more reluctant to hospitalize family members. However, all of the Company’s contracts are based on fixed monthly management fees, which eliminate seasonal risk.

(vi) Working Capital Items

The Company expects to experience an initial delay of up to 90 days in receipt of revenues after each Program is opened due to the normal processing time for the billing/payment cycle of the host health care facilities.

(vii) Dependence on a Few Customers

The Company presently has four Contracts operating with three hospitals. 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 a contract customer has a significant adverse effect on the Company’s profit margin. However, the Staffing Subsidiary has a large number of small contracts with various hospitals and one customer that represents twenty-seven percent (27%) of total staffing revenues. This mitigates some of the risk associated with the Company’s dependence on a few contracts.

(viii) Backlog

Inapplicable.

(ix) Government Contracts

Inapplicable.

(x) Competition

The Company competes with other health care management companies for contracts with acute care hospitals. Also, the Company’s Programs will compete for patients with the programs of other hospitals and other health care facilities. The success of the Company’s Programs is also dependent on its ability to establish relationships with sources of patient referrals.

The Company’s principal competitors include Charter Medical Corporation, Comprehensive Care Corporation, Mental Health Management, PMR Corporation and Horizon Health Services, most of which have greater financial and other resources and more experience than the Company. In addition, some health maintenance organizations (“HMOs”) offer competing programs; however, the HMO-owned hospitals typically do not provide inpatient psychiatric services, or coverage for these services. Most HMOs also do not provide programs for partial hospitalization or substance abuse, but often provide coverage for these programs, usually at a reduced rate.

Other health care facilities offer comparable programs which compete with the Company’s Programs in each service area. The Company believes, however, that in general its community awareness efforts are primarily effective within a ten (10) mile radius around the host hospital and that patients outside such radius are not directly affected by such advertising unless their personal physician has admitting privileges and recommends the Company’s program at that host hospital.

The temporary staffing business, which the Company operates through its wholly owned subsidiary, also competes with other staffing companies for contracts with acute care hospitals. Principal competitors in the industry are Medical Staffing Network Holdings, Cross Country Inc. and AMN Healthcare Services, Inc. These companies have significantly greater financial and other resources than the Staffing Subsidiary. However, much of the business is based on referrals, reputation and geographic area. As such, the Staffing Subsidiary believes that it has no significant competitor in the Los Angeles area.

The Company believes that the principal competitive factors in obtaining contracts with health care facilities are experience, reputation for quality programs, the availability of program support services and price. The primary competitive factors in attracting referral sources and patients are reputation, record of success, quality of care and location and scope of services offered by a host health care facility. The Company implements active promotional programs and believes it is competitive in attracting referral sources and patients based on these factors.

(xi) Research and Development

Inapplicable.

(xii) Government Regulation and or Environmental Protection

The health care industry is extensively regulated by federal, state and local governments. Regulations that affect the Company relate to controlling the growth of health care facilities, requiring licensure of the host health care facility, requiring certification of the Program at the host facility and controlling reimbursement for health care services. Licensure of facilities and certification of Programs are state requirements, while certification for Medicare is a federal requirement. Compliance with the licensure and certification requirements is monitored by annual on-site inspections by representatives of the licensing agencies. Loss of licensure or Medicare certification by a host facility could result in termination of a contract with the Company.

Certificate of need (“CON”) laws in some states require approval for capital expenditures in excess of certain threshold amounts, expansion of bed capacity or facilities, acquisition of medical equipment or institution of new services. If a CON must be obtained, it may take up to 12 months to do so, and in some instances longer, depending upon the state involved and whether the application is contested by a competitor or the state agency. CON’s usually are issued for a specified maximum expenditure and require implementation of the proposed improvement within a specified period of time. Certain states, including California, Texas, Utah, Colorado and Arizona, have enacted legislation repealing CON requirements for the construction of new health care facilities, the expansion of existing facilities and the institution of new services. Some states have enacted or have under legislative consideration “sunset” provisions which require the review, modification or deletion of these statutes when no longer needed. The Company is unable to predict whether such legislative proposals will be enacted but believes that the elimination of CON requirements positively impacts its business.

The Joint Commission on the Accreditation of Healthcare Organizations (“JCAHO”), at a facility’s request, participates in the periodic surveys conducted by state and local health agencies to ensure continuous compliance with all licensing requirements by health care facilities. JCAHO accreditation satisfies certain of the certification requirements for participation in the Medicare and Medicaid programs. A facility found to comply substantially with JCAHO standards receives accreditation. A patient’s choice of a treatment facility may be affected by JCAHO accreditation considerations because most third-party payers limit coverage to services provided by an accredited facility. All of the hospitals currently under contract with the Company have received JCAHO accreditation.

The laws of various states in which the Company may choose to operate, including California, generally prevent corporations from engaging in the practice of medicine. These laws (e.g., Section 2052 of the California Business and Professions Code), as well as applicable case law, were enacted to protect the public from the rendering of unnecessary medical or other services for treatment of the ill. Although the Company has not obtained a legal opinion, it believes that

the establishment and operation of Programs will not cause it to be engaged in the “practice of medicine” as that term is used in such laws and regulations. These laws and regulations are subject to interpretation and, accordingly, the issue is not free from doubt. Since the Company has not sought or obtained any rulings, there can be no assurance that state authorities or courts will not determine that the Company is engaged in the unauthorized practice of medicine. If such a determination is made and is not overturned, the Company would have to terminate its operations in that state.

The Company’s medical directors are engaged to provide administrative services, including but not limited to planning the clinical program, supervising the clinical staff, establishing standards of professional care, and advising the Company and staff on questions of policy. The co-medical directors assist the medical directors in performing their duties. Although the Company has not obtained a legal opinion, it believes that the proposed agreements between the Company and its medical and co-medical directors do not violate any fee-sharing prohibitions. The federal prohibition, as it relates to the Medicare program, is found at 42 U.S.C. 1320a-7b. Such prohibitions are found in Section 650 of the California Business and Professional Code and Section 445 of the California Health and Safety Code, as well as comparable statutes in other states. However, future judicial, legislative or administrative interpretations of these arrangements could prohibit the Company from hiring professionals which could have a materially adverse effect on the Company.

Given the recent political mandate for health care reform, it appears likely that health care cost containment will occur. However, legislation has begun to recognize the need for placing mental health illness on par with other physical ailments. For example, federal legislation effective in 1998, (the Kennedy-Kassebaum bill), mandates parity with other reimbursable medical services for those who receive behavioral health care. This law raised the lifetime cap from the current $50,000 level to $1 million. The Company is practiced in administrating “managed care type” programs and is familiar with the pressures of improving productivity and reducing costs.

(xiii) Employees

As of February 3, 2003, the Company employed approximately 65 persons full-time and 64 persons part-time. Those figures do not include physicians and psychiatrists who are medical directors of the Company’s Programs and not employees. The Staffing Subsidiary employed 50 full-time and 33 part-time employees as of March 9, 2003.

(d) Financial Information About Foreign and Domestic Operations and Export Sales

Inapplicable.

ITEM 2 - PROPERTIES

The Company maintains its corporate offices in an approximately 1,277-square-foot suite of executive offices in Laguna Niguel, California, under a lease agreement providing for a monthly base rent of $2,235 which expires June 30, 2003. The Company leases additional satellite corporate offices in Culver City and Venice, California. The lease agreement for Culver City, California provides for a monthly base rent of $3,434 for the first year of the agreement. Rent

increases are scheduled annually through the lease expiration date of November 30, 2006. The lease agreement for Venice, California provides for a monthly base rent of $2,884 and is on a month to month basis. In addition, the Company also maintains an office in Mission Hills, California to service potential incoming patient inquiries under a lease agreement providing for a monthly base rent of $1,313 which expires October 31, 2003. The Company believes that this office space is adequate for its reasonably foreseeable needs. It is expected that the expiring leases will be renewed on similar terms.

The Company leased space under two separate lease agreements for the operation of its outpatient partial hospitalization programs. One agreement was between the Lessor and the Community Mental Health Center (CMHC) which was scheduled to expire November 30, 2003. However, the Company was obligated to pay the lease costs for the program, under its contract with the facility which initially expired December 6, 2010. The Company terminated its contract with the CMHC effective March 8, 2002. The other agreement expired August 14, 2002. Aggregate payments were $38,949 for the year ended December 31, 2002.

In August, 2002 the Company began leasing space for the operations of the Staffing Subsidiary by accepting the terms and conditions of the existing lease of the entity acquired. The lease provides for a monthly rent of $2,500 for offices in Los Angeles, California which expires August 1, 2005.

In November, 2002, the Company became obligated on another lease in Seal Beach, California through a business acquisition. On November 25, 2002, the lease was assigned for the full term and payment, therefore, the Company has no financial impact from this obligation.

ITEM 3 - LEGAL PROCEEDINGS

Inapplicable.

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Inapplicable.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS

(a) Market Information

The Company’s common stock is currently quoted on the over the counter “OTC” electronic bulletin board under the symbol OPMC.


	High Bid		Low Bid

2002:
Fourth Quarter		5/16		1/8
Third Quarter		3/8		1/8
Second Quarter		29/64		11/64
First Quarter		5/8		11/32

2001:
Fourth Quarter		45/64		1/2
Third Quarter		23/32		15/32
Second Quarter		49/64		27/64
First Quarter		25/32		33/64

The listed prices represent inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actula transactions.

(b) Holders

The approximate number of holders of record of each class of the Company’s common equity securities as of the close of business on February 3, 2003 is set forth below:


			Approximate
	Title of Class		Number of Record Holders

	Common Stock, $.001 par value		225

The Company has not paid or declared cash dividends on its Common Stock. The Company does not anticipate the payment of cash dividends on its common stock in the foreseeable future.

The transfer agent for the Company’s common stock is American Stock Transfer & Trust Company, New York, New York.

ITEM 6 - SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Financial Statements and Notes thereto of the Company included elsewhere herein, and such data should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The data at December 31, 2002 and December 31, 2001 and for each of the fiscal years in the three year period ended December 31, 2002 are derived from the Company’s Financial Statements for such years which were audited by Lesley, Thomas, Schwarz & Postma, Inc. which Financial Statements are included elsewhere herein.

STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31

2002 2001 2000 1999 1998

Contract Revenues
$ 4,129,113 $ 6,906,496 $ 8,010,491 $ 10,553,427 $ 11,409,690

Temporary Staffing Revenues
$ 1,237,167 $ 0 $ 0 $ 0 $ 0

Net (Loss) Income
($ 432,274 ) ($ 572,398 ) $ 391,686 $ 365,798 $ 377,133

Basic (Loss) Earnings Per Share Of Common Stock
($ 0.07 ) ($ 0.10 ) $ 0.07 $ 0.06 $ 0.06

Diluted (Loss) Earnings Per Share Of Common Stock
($ 0.07 ) ($ 0.10 ) $ 0.06 $ 0.06 $ 0.06

Weighted Number Of Shares Outstanding
5,908,675 5,908,675 5,907,511 5,910,939 6,567,280

Total Diluted Shares
5,942,444 6,018,323 6,164,140 6,028,496 6,699,648

Cash Dividends Per Common Share
$ 0 $ 0 $ 0 $ 0 $ 0

The net loss amounts set forth above include the results of operations of the Staffing Subsidiary, which commenced operations as a wholly-owned subsidiary of the Company during the second half of 2002 and includes the acquisition of two companies – Associated Social Resources, Inc. on July 29, 2002 and Social Work Services, Inc. on November 7, 2002. Without these acquisitions, net loss would have been $467,002 and basis and diluted loss per share would have been $.08.

BALANCE SHEET INFORMATION
AS OF DECEMBER 31

2002 2001 2000 1999 1998

Total Assets
$ 2,754,122 $ 4,053,950 $ 3,933,483 $ 3,462,345 $ 3,154,744

Current Assets
$ 2,397,040 $ 4,015,433 $ 3,398,132 $ 3,115,702 $ 2,652,044

Current Liabilities
$ 304,007 $ 1,171,561 $ 478,696 $ 415,182 $ 429,375

Net Working Capital
$ 2,093,033 $ 2,843,872 $ 2,919,436 $ 2,700,520 $ 2,222,669

Long-Term Obligations
$ 0 $ 0 $ 0 $ 0 $ 0

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe harbor statements under the Private Securities Litigation Reform Act of 1995

The statements in this Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Form 10-K are forward-looking in time and involve risks and uncertainties, including the risks associated with plans, the effect 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.

(a) Liquidity and Capital Resources

At fiscal year end 2002 and 2001, the Company’s working capital was $2,093,033 and $2,843,872, respectively. The decrease in working capital for the year is primarily due to the net operating loss generated by the Company for the year along with the purchase of two new business entities during the year. On July 29, 2002, the Company acquired certain assets of Associated Social Resources, Inc., a healthcare staffing company, through a newly formed wholly-owned subsidiary. On November 7, 2002, the subsidiary acquired certain assets of Social Work Services, Inc., which is also a healthcare staffing company. 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 contract business, the inability to collect certain 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 December 31, 2002 has decreased from those which existed at December 31, 2001. This decrease is primarily due to the collection of receivables from two contracts with one hospital that were terminated April 30, 2002. At December 31, 2002, all contract accounts receivable were less than ninety days outstanding. Temporary staffing receivables at December 31, 2002 were approximately $564,605. This balance is composed of many small dollar accounts. However more than 50% of the balance is due from three hospitals. Management believes that no collection problems with respect to these receivables exist. Accordingly, no allowance for doubtful accounts has been recorded at December 31, 2002.

Cash flows used in operations were $508,384 for the year ended December 31, 2002. This primarily resulted from the net operating loss incurred during the year, discussed above.

Cash flows used in investing activities were $359,272 for the year ended December 31, 2002. Funds received were from principal payments on a note receivable from an officer. Funds used were payments for the purchase of short-term government securities and two new business entities.

No cash was received from financing activities for the year ended December 31, 2002. The Company had a line of credit with a bank which expired February 28, 2003. The maximum indebtedness under the line was $1,500,000. Amounts allowable for draw were based on 80% of certain qualified accounts receivable. The line of credit is currently in the process of renegotiation. The new agreement is expected to be a ninety day commitment for a maximum indebtedness of $750,000 computed on a similar basis as the previous agreement. The Company’s principal sources of liquidity for the fiscal year 2003 are cash on hand, accounts receivable, the line of credit with a bank and continuing revenues from programs. The company has contractual obligations under operating leases of $316,885. Payments due in less than one year total $107,556. Payments due in one to three years total $153,404. Payments due in four to five years total $55,925.

(b) Results of Operations

Fiscal Year 2002 Compared to Fiscal Year 2001

The Company operated six programs during the year ended December 31, 2002, and nine programs during the year ended December 31, 2001. As of February 3, 2002, the Company had one inpatient, two partial hospitalization programs and one consulting contract. Net revenues from contract programs were $4,129,113 and $6,906,496 for the years ended December 31, 2002 and 2001, respectively. The decrease in net revenues is due to the decrease in the number of programs.

Cost of contract services provided were $3,030,972 and $5,796,162 for the years ended December 31, 2002 and 2001. This decrease is due to the decrease in the number of contract programs.

Revenues for temporary staffing services were $1,237,167 for the year ending December 31, 2002. Costs of providing these services were $1,202,439 for the same period. Revenues and operations for the year commenced during the third quarter of 2002.

Selling, general and administrative expenses were $1,843,882 and $2,104,770 for the years ended December 31, 2002 and 2001, respectively. The decrease is primarily due to the decrease in compensation expense among years partially offset by the increases in costs related to the acquisitions made during the year. Although executive bonuses were reduced during 2002 and certain positions were eliminated due to the downsizing of the contract program sector of the business, costs of independent consultants and legal costs necessary to perform the acquisitions have increased from the prior year.

The provision for uncollectible accounts were $0 and $9,865 for the years ended December 31, 2002 and 2001, respectively. The Company provides for uncollectible accounts on a case by case basis. The provision for uncollectible accounts among periods relates to different programs which existed at December 31, 2002 versus 2001.

The Company’s income tax benefit has decreased in 2002 over 2001 due to a smaller net loss generated by the Company in 2002.

Net loss was $(432,274) and $(572,398) for the years ended December 31, 2002 and 2001, respectively. The loss was primarily due to decreasing revenue coupled with the high costs of acquiring two new business entities during the year. Net loss would have been $467,002 in 2002 without taking into account the two acquisitions.

The Company is continuing to make efforts to expand the number of its operational contract programs and has contracted with a consulting firm managed by one of the Company’s previous directors to launch an aggressive marketing program.

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. During 2002, the Company acquired two temporary staffing businesses. Revenues from those two entities comprise approximately 23% of consolidated annual revenues. The Company has identified other acquisition candidates and intends to continue to pursue this line of business.

The Company’s contract business has a dependence on a small customer base, presently consisting of three hospitals. However, the temporary staffing services segment has a fairly large customer base consisting of approximately 60 active hospitals. 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 certain customers could have a significant adverse effect on the Company’s profit margin. The Company expects a loss from business operations for 2003, should no new contract programs be obtained and no acquisitions of temporary staffing business occur. As a result, there is a special emphasis paragraph in the report of the Company’s independent auditors of the financial statements for the fiscal year ended December 31, 2002.

Fiscal Year 2001 Compared to Fiscal Year 2000

The Company operated nine programs during the year ended December 31, 2001, and eleven programs during the year ended December 31, 2000. As of February 5, 2002, the Company had two inpatient and four partial hospitalization programs. Generally, the size and profit potential of inpatient programs are greater than partial hospitalization programs. During the year ended December 31, 2001, the Company’s net earnings from three inpatient programs exceeded net earnings from six operational partial hospitalization programs. Net revenues were $6,906,496 and $8,010,491 for the years ended December 31, 2001 and 2000, respectively. The decrease in net revenues is due to the decrease in the number of programs, particularly one program which terminated in February of 2001.

Cost of services provided were $5,796,162 and $5,691,617 for the years ended December 31, 2001 and 2000. This increase is due to a variety of factors. Census increase caused one program’s expenses to significantly rise over the preceding year. In addition, the expensing of software to be used in an on-line counseling program also contributed to an increase in costs. Yet, the decrease in the number of operational programs, particularly one which terminated in February of 2001 substantially offset the increase in costs associated with operating programs among years.

Selling, general and administrative expenses were $2,104,770 and $1,421,001 for the years ended December 31, 2001 and 2000, respectively. The increase is primarily due to the forgiveness of debt, accrued interest receivable, short-term advances and the personal income taxes associated with these items to one officer of the Company.

The provision for uncollectible accounts were $9,865 and $340,009 for the years ended December 31, 2001 and 2000, respectively. The Company provides for uncollectible accounts on a case by case basis. The provision for uncollectible accounts among periods relates to different programs which existed at December 31, 2001 versus 2000.

The Company’s income taxes have decreased in 2001 over 2000 due to the net loss generated by the Company in 2001.

Net loss was $(572,398) and net income was $391,686 for the years ended December 31, 2001 and 2000, respectively. The loss was primarily due to decreasing revenue coupled with increasing cost of services provided and selling, general and administrative expenses.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Immaterial.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

Our financial statements and related notes and schedules are contained on pages F-1 to F-19 of this report. The index to such items is included in Item 15(a)(i)

Quarterly Results

The following table sets forth certain unaudited quarterly financial data for 2002 and 2001. In our opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information set forth therein. The operating results for any quarter are not necessarily indicative of results for any future period.

QUARTERLY DATA FOR THE YEAR ENDED DECEMBER 31, 2002

3/31/02 6/30/02 9/30/02 12/31/02

Contract Revenues
$ 1,388,758 $ 1,247,750 $ 756,573 $ 736,032

Temporary Staffing Revenues
$ 0 $ 0 $ 486,170 $ 750,997

Net (Loss) Income
($ 126,152 ) $ 83,383 ($ 295,903 ) ($ 93,602 )

Basic (Loss) Earnings Per Share Of Common Stock
($ 0.02 ) $ 0.01 ($ 0.05 ) ($ 0.02 )

Diluted (Loss) Earnings Per Share Of Common Stock
($ 0.02 ) $ 0.01 ($ 0.05 ) ($ 0.02 )

QUARTERLY DATA FOR THE YEAR ENDED DECEMBER 31, 2001

3/31/01 6/30/01 9/30/01 12/31/01

Contract Revenues
$ 2,061,590 $ 1,892,294 $ 1,888,493 $ 1,064,119

Temporary Staffing Revenues
$ 0 $ 0 $ 0 $ 0

Net (Loss) Income
$ 175,545 $ 189,453 $ 196,131 ($ 1,133,527 )

Basic (Loss) Earnings Per Share Of Common Stock
$ 0.03 $ 0.03 $ 0.03 ($ 0.19 )

Diluted (Loss) Earnings Per Share Of Common Stock
$ 0.03 $ 0.03 $ 0.03 ($ 0.19 )

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Inapplicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) and (b) Identification of Directors and Executive Officers

The directors and executive officers of the Company are:


Name	Age		Position

Edward A. Johnson		57	Chief Executive Officer, Principal Financial Officer, Secretary and Chairman of the Board
Mulumebet G. Michael		54	Director, President and Chief Operating Officer
Gary L. Dreher		56	Director
Michael S. Callison		64	Director
Peter C. McMahon		54	Director

Each director serves for a term of one year or until his successor has been elected and qualified. Each executive officer serves at the pleasure of the Board of Directors. Mr. Dreher receives compensation of $1,000 per month for his service on the Audit Committee. No other directors receive any director’s fees or other compensation for their services, as such, but receive reimbursement for their expenses in attending meetings of the Board of Directors.

Inapplicable.

(d) Family Relationships

Inapplicable.

(e) Business Experience

Edward A. Johnson - Chairman & CEO

Mr. Johnson has spent almost his entire professional career in behavioral healthcare services and co-founded OptimumCare in 1986. As Chief Executive Officer, Mr. Johnson has overall responsibility for developing strategic program direction with the firm’s current and future healthcare providers at hospitals, medical centers and community care centers. He also monitors and evaluates trends shaping the healthcare industry that will impact the Company. In response, from this larger perspective, he fashions policies, procedures and systems to maximize patient service while enhancing profitability for OptimumCare and value for its shareholders. Mr.

Johnson received an M.S. degree in psychology and a B.A. degree in business from Colorado State College. He is also licensed in California as a Marriage and Family Counselor.

Mulumebet G. Michael - President, COO & Board Member

Ms. Michael joined OptimumCare in 1993 as a Program Administrator, advanced to Executive Vice President and COO in 1997, and was named President and a member of the Board of Directors in June 1998. Ms. Michael’s extensive experience both as a registered nurse and in behavioral healthcare management over a nineteen year career has provided superb insight, vision and knowledge, ensuring the best behavioral health practices are incorporated into each OptimumCare program. She manages the Company’s staff of more than 100 professionals and support personnel. Ms. Michael completed a four-year nursing school curriculum leading to her being a licensed nurse (RN) in three countries: America, Canada and Ethiopia. She also completed a three-year advanced hospital management program with the British Columbia Institute of Technology in Canada.

Gary L. Dreher - Director

Mr. Dreher was elected to the Board of Directors during September 1993. He received his B.S. degree in Microbiology and Lab Technology from California State University in 1971. He is President, Chief Executive Officer and a Director of AMDL, an inventor and marketer of state-of-the-art diagnostic kits. AMDL is a public company traded on the American Stock Exchange. Prior to this, Mr. Dreher was President of Medical Market International, a marketing and management services company he co-founded. Mr. Dreher also served as Vice President of International Sales for Apotex Scientific, an international distributor network for Esoteric Diagnostic Tests, from 1992 to 1996. Mr. Dreher has 30 years experience in the healthcare industry.

Michael Callison - Director

Mr. Callison was elected to the Board of Directors in September 1993. From 1990 to 1999, he was responsible for sales and business development, as well as seeking out and nurturing relationships with strategic alliance partners to help the Company expand its services and coverage area. His 41 years of healthcare experience began while he attended college and worked as a psychiatric technician at a Washington state veteran’s hospital. Thereafter, he held positions of increasing responsibility primarily in sales and marketing with Pfizer Labs, Borg Warner Healthcare and Hill-Rom, a hospital architectural and furnishing company. Mr. Callison received his B.A. degree in Economics from the University of Puget Sound.

Peter C. McMahon - Director

Mr. McMahon was elected to the Board of Directors during November 2002. Mr. McMahon has practiced for over 26 years with an emphasis on business litigation and estate planning. Representative clients include Fortune 500 Companies and numerous high net worth individuals. Mr. McMahon practices in Laguna Beach, California with the firm of McMahon and McMahon. Mr. McMahon received his B.A. degree from University of California, Santa Barbara and his Law degree from Western State University College of Law Fullerton, California.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers, and stockholders holding more than 10% of our outstanding common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the copies of such reports furnished to us for the period ended December 31, 2002, all Section 16(a) reports required to be filed by our executive officers, directors and greater-than-10% stockholders were filed on a timely basis, except that Peter McMahon did not timely file a Form 3 upon his appointment to the Board in November 2002.

(f) Involvement in Certain Legal Proceedings

Inapplicable.

ITEM 11 - EXECUTIVE COMPENSATION

(a) (b) Cash Compensation

The following table sets forth the elements of compensation paid, earned or awarded for the named individuals. All aspects of executive compensation is determined by the Board of Directors.

SUMMARY COMPENSATION TABLE


										Long Term
	Annual Compensation									Compensation
												All Other
							Other Annual			(#)		Compensation
Name & Principal Position	Year		Salary ($)		Bonus ($)		Compensation ($)			Options/SARs		($)

Edward A. Johnson,		2002		210,000				365,585	(2)		200,000		16,674	(1)
Chief Executive Officer		2001		204,000		209,790		700,000	(2)		100,000		21,410	(1)
		2000		204,000		158,800							16,673	(1)

Mulumebet G. Michael		2002		161,848		38,033
President & Chief		2001		155,509		109,337					175,000
Operating Officer		2000		172,545		68,944					100,000

Helen Tvelia		2002		72,047		40,101
Program Director		2001		66,206		56,972					25,000
		2000		62,974		66,000

(1) Car Allowance and Life Insurance Premiums

(2) Payment to Settle Officer’s Debt

Other Compensation

In addition to all other options held by him, the Company has obtained life insurance on the life of Mr. Johnson in the amount of $2,000,000, $1,000,000 for the benefit of the Company and $1,000,000 for the benefit of his estate.

Compensation Pursuant to Plans

Stock Option Plans

1994 Plan

On December 20, 1994, the Board of Directors re-adopted the Company’s 1994 stock option plan. The plan allows the Company to grant officers, directors, employees and consultants nonqualified stock options. The Plan terminates on March 22, 2004. The purpose of the Plan is to enable the Company to attract and retain qualified persons as employees, officers and directors and others whose services are required by the Company, and to motivate such persons by providing them with an equity participation in the Company. A maximum of 500,000 shares of the Company’s common stock were reserved for issuance pursuant to the plan. No options to purchase shares were exercised during fiscal year ended December 31, 2002. There are currently 150,000 shares available for option and no shares outstanding under the Plan. The Plan is administered by the Board of Directors, which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions under which they may be exercised.

The exercise price of nonqualified stock options can be no less than 85% of the fair market value on the date of grant, although the Company does not intend to grant any such stock options at less than fair market value. In the discretion of the Board, the exercise price may be payable in cash, by delivery of a promissory note or in Common Stock of the Company.

The options are subject to forfeiture upon termination of employment or other relationship with the Company except by reason of death or disability and are nonassignable. Options may be granted for terms up to 10 years. Options granted under the Plan to officers, employees or consultants may be exercised only while the optionee is employed or retained by the Company or within six (6) months after termination of the employment or consulting relationship by reason of death or permanent disability, and three months after termination for any reason.

Other Options

The Company granted options to purchase 325,000 shares of common stock to various officers, directors and employees of the Company during 2000. On October 24, 2000, the Board of Directors granted options to Edward A. Johnson and Mulumebet G. Michael to each purchase 100,000 shares, granted options to Jon Jenett to purchase 50,000 shares and granted options to Michael S. Callison and Gary Dreher to each purchase 25,000 shares. The option exercise price is $.67. The options have a five year term and vest immediately.

During 2001, no options were granted.

During 2002, the Company granted 650,000 options for the purchase of common stock to various officers, directors and employees of the Company. On April 16, 2002, The Board of Directors granted options to Edward A. Johnson to purchase 200,000 shares, granted options to Mulumebet G. Michael to purchase 175,000 shares and granted options to Michael S. Callison and Gray Dreher to each purchase 50,000 shares. The options exercise price is $.35. The option have a five year term and vest immediately.



			Individual Grants							Potential Realizable Value
			% Of Total							At Assumed Annual Rates
			Options/SARs							Of Stock Price Appreciation
			Granted To			Exercise Of					For Option Term			Grant Date
	Options		Employees In			Base Price		Expiration						Present Value
Name	Granted		Fiscal Year			($/Share)		Date		5% ($)		10% ($)		($)*

Edward A. Johnson		200,000		31	%	$	.35		4/16/2007		14,000		36,000		24,000
Mulumbet. G Michael		175,000		27	%	$	.35		4/16/2007		12,250		31,500		21,000
Helen Tvelia		25,000		4	%	$	.35		4/16/2007		1,750		4,500		3,000

*Present values were calculated using the Black-Scholes options pricing model which should not be viewed in any way as a forecast of the future performance of the Company’s stock. The estimated present value of each stock option is $.12 based on the following inputs:


Stock Price (Fair Market Value) at Grant	$	.33
Exercise Price	$	.35
Expected Option Term	5 years
Risk Free Interest Rate		2.72	%
Stock Price Volatility		41	%
Dividend Yield		0	%

The model assumes: (a) an Expected Option Term of 5 years which reflects the actual life of the option; (b) a Risk-Free Interest Rate that represents the interest rate on a U.S. Treasury Note with a maturity date corresponding to that of the Expected Option Term; and (c) Stock Price Volatility is calculated using quarterly stock prices over the period from January 1, 1998 to December 31, 2002.

(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

The following table summarizes options and SARs exercised during 2002, and presents the value of unexercised options and SARs held by the named individuals at fiscal year end:


							Value Of
							Unexercised
					Number Of Unexercised		In-The-Money
	Shares Acquired On				Options/SARs At Fiscal		Options/SARs At Fiscal
Name	Exercise (#)		Value Realized ($)		Year-End (#)		Year-End ($)*

Edward A. Johnson		0		0		850,000		0
Mulumebet G. Michael		0		0		775,000		0
Helen Tvelia		0		0		150,000		0

* The difference between fair market value at February 3, 2003 and the exercise price.

(g) Compensation of Directors

Directors do not receive compensation for their services although they are entitled to reimbursement for expenses incurred in attending board meetings except Mr. Dreher, who began receiving $1,000 per month for his service on the Audit Committee, effective October 1, 2002. Mr. Dreher received $9,000 in marketing fees during 2002 for the marketing of the Company’s programs to the hospitals during 2002.

(h) Executive Management Change in Control Severance Pay Plan

On May 14, 2001, the Company’s Board of Directors adopted an Executive Management Change in Control Severance Pay Plan. The Directors who may become entitled to benefits under the plan did not participate in the deliberations or the vote to approve the plan.

The plan covers the persons who at any time during the 90-day period ending on the date of a change in control, are employed by the Company as Chief Executive Officer, President or Chief Operating Officer. These persons become eligible for benefits under the plan if (1) (a) the Company terminates his or her employment for any reason other than his or her death or cause (as defined in the plan) or (b) the person terminates his or her employment with the Company for good reason (as defined in the plan) and (2) the termination occurs within the period beginning on the date of a change in control and ending on the last day of the twelfth month that begins after the month in which the change in control occurs. These persons also become eligible for benefits under the plan if the person terminates employment with the Company for any reason during a one month period commencing six months following a change in control as defined in the plan.

The plan requires the Company to make a cash payment in an amount equal to: (1) Seven Hundred Fifty Thousand Dollars ($750,000) to the Chief Executive Officer if he or she becomes eligible to receive benefits under the plan, and (2) Three Hundred Thousand Dollars ($300,000) to the President and/or Chief Operating Officer if he or she becomes eligible to receive benefits under the plan. The benefits are paid in a single lump sum.

If the Company’s auditors determine that the total payments made to a person result in an excise tax imposed by Internal Revenue Code 4999, the Company will make an additional cash payment to the person equal to an amount such that after payment by the person of all taxes (including any interest or penalties imposed with respect to such taxes), including any excise tax, imposed upon the additional payment, the person would retain an amount of the additional payment equal to the excise tax imposed upon the total payments.

Immediately following a change in control, the Company is required to establish a trust and fund the trust with the amount of any payments which may become owing to persons entitled to receive benefits under the plan but only to the extent that the funding of the trust would not impair the working capital of the Company.

REPORT OF THE AUDIT COMMITTEE

The Company’s audit committee consists of two of the Company’s Directors, Gary L. Dreher and Peter C. McMahon. The Board of Directors has not adopted a written charter for the audit committee. The audit committee has reviewed and discussed the audited financial statements with management. The audit committee plans to discuss with the independent auditors the matters required to be discussed by SAS 61. The audit committee has received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No.1 (Independence Standards Board Standard No.1, Independence Discussions with Audit Committees), as may be modified or supplemented, but has not yet discussed with the independent accountant the independent accountant’s independence. Based on the review, the audit committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the last fiscal year for filing with the Securities and Exchange Commission.

Gary L. Dreher
Peter C. McMahon

Audit Fees

The aggregate fees billed for professional services rendered for the audit of the registrant’s annual financial statements for the most recent fiscal year and the reviews of the financial statements included in the registrant’s Forms 10-Q for that fiscal year was $27,500.

Financial Information Systems Design and Implementation Fees

No fees were billed for professional services directly or indirectly operating, or supervising the operation of the audit client’s information system or managing the audit client’s local area network or for designing or implementing a hardware or software system that aggregates source data underlying the financial statements or generates information that is significant to the audit client’s financial statements taken as a whole or for appraisal or valuation services or fairness opinions rendered by the principal accountant for the most recent fiscal year.

All Other Fees

The aggregate fees billed for other services rendered by the principal accountant was $10,407 for the most recent fiscal year. The audit committee has not yet considered whether the provision of other services is compatible with maintaining the principal accountant’s independence.

(k) Board Compensation Committee Report on Executive Compensation

The entire Board of Directors is responsible for determining the Chief Executive Officer’s compensation. The Board’s philosophy has been to offer a stable base salary plus a monthly bonus based on a percentage of corporate monthly profits before income taxes.

The Board’s approach to base compensation is to offer competitive salaries in comparison with market practices. However, base salaries have become a relatively smaller element in the total executive officer compensation package as the Company has introduced incentive compensation programs which it believes reinforce strategic performance objectives.

(l) Stock Performance Graph

The following graph sets forth the cumulative total shareholder return (assuming reinvestment of dividends) to Company’s stockholders during the five year period ended December 31, 2002 as well as the U.S. NASDAQ stock market index and the S&P Healthcare (Hospital) Management Index.

The Company does not currently meet the standards required for trading on the NASDAQ exchange, however the Company believes that the securities traded on this exchange most closely resemble its market capitalization.

LINE GRAPH

OPMC S&P NASDAQ

12/31/1997
100 100 100

12/31/1998
64 82 140

12/31/1999
52 92 260

12/31/2000
55 149 159

12/31/2001
41 154 126

12/31/2002
26 133 86

NOTE: The stock performance graph assumes $100 was invested on January 1, 1997

(1) Standard & Poors Changed its market index classifications January 1, 2002. This index most closely resembles the hospital management index used for comparison in the prior years.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

(a) and (b) Security Ownership

The following table sets forth certain information regarding the ownership of the Company’s Common Stock as of February 3, 2003, (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) by each of the Company’s directors and named executive officers; and (iii) by all directors and named executive officers of the Company as a group. Unless otherwise indicated below, the person or persons named have sole voting and dispositive power.


	Amount & Nature Of
Name (1)	Beneficial Ownership			Percent Of Class

Edward A. Johnson		1,542,866	(2)		20.1	%
Mulumebet G. Michael		822,266	(3)		12.2	%
Michael S. Callison		772,895	(4)		11.6	%
Gary L. Dreher		226,745	(5)		4.3	%
Peter C. McMahon		100	(6)		<1	%
All Officers And Directors As A Group (5 Persons)		3,364,872	(7)		36.3	%

(1) The addresses of these persons are as follows: Mr. Johnson - 24 South Stonington Road, Laguna Beach, CA 92651; Ms. Michael - 5304 Shenandoah Avenue, Los Angeles, CA 90056; Mr. Callison - 21972 Summerwind Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia Hill Drive, Yorba Linda, CA 92886; Mr. McMahon - 6 South Vista De Catalina, Laguna Beach, CA 92651.

(2) Includes presently exercisable options to purchase 750,000 shares of Common Stock, with 50,587 shares held indirectly through an individual retirement account.

(3) Includes presently exercisable options to purchase 675,000 shares of Common Stock. All shares are directly owned.

(4) Includes presently exercisable options to purchase 175,000 shares of Common Stock, 480,000 shares held through a revocable living trust, 17,500 shares held indirectly through an individual retirement account, 2,395 shares held indirectly through a 401K plan, 92,000 shares directly owned and 6,000 shares held as custodian for five of Mr. Callison’s grandchildren.

(5) Includes presently exercisable options to purchase 150,000 shares of Common Stock and 58,890 shares directly held, with 13,210 shares held indirectly through an individual retirement account and 4,645 held indirectly through an individual retirement account of Mr. Dreher’s spouse.

(6) Shares are held indirectly through an individual retirement account.

(7) Includes presently exercisable options to purchase 1,750,000 shares of Common Stock.

Inapplicable.

Equity Compensation Plan Information

The following table summarizes outstanding options under our equity compensation plans as of December 31, 2002.


	(a)	(b)	(c)
			Number of Securities
	Number of Securities		Remaining Available for
	to be Issued Upon	Weighted-Average	Future Issuance Under
	Exercise of	Exercise Price of	Equity Compensation
	Outstanding Options,	Outstanding Options,	Plans (excluding securities
Plan Category	Warrants and Rights	Warrants and Rights	reflected in column (a))

Equity compensation plans approved by security holders	- -0-	-0-		150,000

Equity compensation plans not approved by security holders	-0-	-0-		-0-

Total	- -0-	- -0-		150,000

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions With Management and Others

Inapplicable.

(b) Certain Business Relationships

Inapplicable.

Inapplicable

(d) Transactions With Promoters

Inapplicable.

Item 14 - CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief

Executive Officer/Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon and as of the date of that evaluation, the Company’s Chief Executive Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the last day they were evaluated.

PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) List of Financial Statements Filed as a Part of this Report (Filed Under Item 8 above)


		Page
		Number

Report of Independent Auditors		F-1
Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001		F-2 through F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000		F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000		F-5 through F-6
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000		F-7
Notes to Consolidated Financial Statements		F-8 through F-19

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

(a) (3) List of Exhibits Filed as a Part of This Report


3.1		Certificate of Incorporation incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.1.

3.2		Bylaws incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2.

3.3		Certificate of Amendment of Certificate of Incorporation filed February 29, 1988. Incorporated by reference from Form S-18 Registration Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit 3.5.

3.4		Restated Certificate of Incorporation, filed October 3, 1989. Incorporation by reference from Form 10-K for the year ended December 31, 1989.


10.1		Lease between the Company and Laguna Niguel Office Center dated June 23, 1988 which supersedes lease dated December 15, 1986, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.1.

10.34		Agreement between Huntington InterCommunity Hospital and the Company dated November 1, 1991 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1991, Exhibit 10.34.

10.38		Agreement between Huntington Intercommunity Hospital and the Company dated October 1, 1992 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1992, Exhibit 10.38.

10.55*		1994 Stock Option Plan incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.55

10.66		Agreement between Sherman Oaks Hospital and Health Center dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995.

10.73		Agreement between San Fernando Community Hospital, Inc. dba Mission Community Hospital and the Company dated October 6, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995.0

10.88		Lease Agreement between the Company and Jay Arteaga dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996.

10.97		Lease Agreement between the Company and Harriet Maizels, Daniel Gold, Lesley Gold and Mildred Gold dated July 8, 1997, incorporated by reference from Form 10-K for the year ended December 31, 1997.

10.109		Lease Agreement between the Company and P.S. Business Parks, LP dated August 14, 1998, incorporated by reference from Form 10-K for the year ended December 31, 1998.

10.113		Lease Agreement between the Company and Coldwell Banker dated November 1, 1998, incorporated by reference from Form 10-K for the year ended December 31, 1998.

10.115		Change in Terms Agreement between the Company and Southern California Bank dated April 27, 1999, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.

10.116		Lease Agreement between the Company and Laguna Niguel Office Center dated May 12, 1999 which supersedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.

10.117		Contract amendment between the Company and Huntington Intercommunity Hospital d/b/a Humana Hospital Huntington Beach dated August 1, 1999 which supersedes the


		contract dated November 5, 1991, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.118		Contract amendment between the Company and Huntington Intercommunity Hospital d/b/a Humana Hospital Huntington Beach dated August 1, 1999 which supersedes the contract dated October 1, 1992, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.119		Inpatient Psychiatric Services contract amendment dated August 6, 1999 between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach which supersedes contract amendment dated August 1, 1999, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.120		Partial Hospitalization Agreement contract amendment dated August 6, 1999 between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach which supersedes contract amendment dated August 1, 1999, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.122		First amendment to lease between the Company and Jay Arteaga dated October 11, 1999 which supercedes lease dated September 30, 1996, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.125		Lease Amendment between the Company and Laguna Niguel Office Center dated May 31, 2000 which supercedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the quarter ended June 30, 2000.

10.126		Loan agreement between the Company and US Bank dated July 14, 2000, incorporated by reference from Form 10-Q for the quarter ended September 30, 2000.

10.127		Psychiatric Partial Hospitalization Management agreement between the Company and New Life Guidance Center dated October 1, 2000, incorporated by reference from Form 10-Q for the quarter ended September 30, 2000.

10.128		Agreement between the Company and Sherman Oaks Hospital and Health Center dated January 1, 1999, which supercedes the agreement dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.129		First amendment to agreement between the Company and Sherman Oaks Hospital and Health Center dated July 17, 2000, which supercedes the agreement dated January 1, 1999, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.130		Second amendment to lease between the Company and Jay Arteaga dated September 21, 2000, which supercedes the lease dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 2000.


10.131		Agreement between the Company and Friendship Community Mental Health Center dated December 7, 2000, which supercedes the agreement dated June 25, 1997, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.132*		Executive Management Change in Control Severance Plan dated May 14, 2001, incorporated by reference from Form 10-Q for the quarter ended March 31, 2001.

10.133		Lease Amendment between the Company and Laguna Niguel Office Center dated April 23, 2001 which supersedes the lease dated June 23, 1988, incorporated by reference from Form 10Q for the quarter ended June 30, 2001.

10.135		Partial hospitalization agreement contract amendment between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach dated October 20, 2001, which supersedes the amendment dated August 6, 1999.

10.136		Third Amendment to lease between the Company and Jay Arteaga dated September 19, 2001, which supersedes the lease dated September 30, 1996.

10.137		Amendment to lease agreement between the Company and P.S. Business Parks, LP dated December 19, 2001, which supersedes the lease dated August 14, 1998,incorporated by reference from Form 10-K for the year ended December 31, 2001.

10.138		Loan agreement between the Company and Merrill Lynch dated January 8, 2002,incorporated by reference from Form 10-K for the year ended December 31, 2001.

10.139		Services Termination Agreement between the Company and San Fernando Community Hospital, a California nonprofit public benefit corporation d/b/a Mission Community Hospital & San Fernando Community Hospital dated April 30, 2002, incorporated by reference from Form 10-Q for the Quarter ending March 31, 2002.

10.140		Management services agreement between the Company and La Palma Intercommunity Hospital dated June 16, 2002, incorporate by reference from Form 10-Q for the quarter ending June 30, 2002.

10.141		Lease amendment between the Company and Laguna Niguel Office Center dated April 17, 2002 which supercedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the Quarter ended June 30, 2002.

10.142		Asset Purchase Agreement dated July 24, 2002 between Associated Staffing Resources, Inc., Associated Social Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.

10.143*		Employment Agreement dated July 29, 2002 between Associated Staffing Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.

10.144		Non-Compete Agreement dated July 29, 2002 between Associated Staffing Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.


10.145		Asset purchase agreement between the Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Social Work Services, Inc. dated November 1, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.146*		Employment agreement between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Kyle M. Krogh dated December 1, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.147		Non-compete agreement between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Kyle M. Krogh dated November 7, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.148		Agreement between the Company and Sherman Oaks Hospital and Health Center dated August 1, 2002. (Filed herewith)

10.149		Fourth Amendment to lease between the Company and Jay Arteaga dated September 4, 2002 which supercedes the lease dated September 30, 1996. (Filed herewith)

10.150		Agreement and Mutual Release between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Social Work Services, Inc. and Kyle Menichetti Kaogh, dated January 22, 2003. (Filed herewith)

10.151		Asset Purchase Agreement, dated March 12, 2003 among OptimumCare Staffing, Inc., OptimumCare Corporation, Chicago Care Nurse Staffing, L.L.C., John W. Stephens, Joshua G. Zayas and Aaron Schwartz incorporated by reference from the Company’s Current Report on Form 8-K filed on March 21, 2003.

21.1		Subsidiaries of the Company. (Filed herewith)

23.1		Consent of Lesley, Thomas, Schwarz & Postma, Inc. (Filed herewith)

* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.

(b) Reports on Form 8-K

Inapplicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 24, 2003 OPTIMUMCARE CORPORATION

By: /s/ Edward A. Johnson

Edward A. Johnson, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the registrant in the capacities and on the dates indicated.

/s/ Edward A. Johnson March 24, 2003

Edward A. Johnson, Chief Executive Officer
and Director (Principal Financial and
Accounting Officer)

March , 2003

Mulumebet G. Michael, Director,
President and Chief Operating Officer

/s/ Michael S. Callison March 24, 2003

Michael S. Callison, Director

/s/ Gary L. Dreher March 24, 2003

Gary L. Dreher, Director

/s/ Peter C. McMahon March 24, 2003

Peter C. McMahon, Director

CERTIFICATIONS

I, Edward A. Johnson, certify that:

1. I have reviewed this annual report on Form 10-K of OptimumCare Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared;

(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

(c) presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date: March 25, 2003		/s/ Edward A. Johnson Edward A. Johnson Chief Executive Officer and Chief Financial Officer

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of OptimumCare Corporation, (the “Company”) on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward A. Johnson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	/s/Edward A. Johnson Edward A. Johnson Chief Executive Officer March 25, 2003

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of OptimumCare Corporation, (the “Company”) on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward A. Johnson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


	/s/Edward A. Johnson Edward A. Johnson Chief Financial Officer March 25, 2003

Optimumcare Corporation

Index to Financial Statements


		Page

Independent Auditors’ Report		F-1
Consolidated Balance Sheets		F-2 — F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Cash Flows		F-5 — F-6
Consolidated Statements of Stockholders’ Equity		F-7
Notes to Consolidated Financial Statements		F-8 — F-19

February 28, 2003

Independent Auditors’ Report

To the Stockholders and Board of Directors of
OptimumCare Corporation

We have audited the accompanying consolidated balance sheets of OptimumCare Corporation and its subsidiary as of December 31, 2002 and 2001, and their related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 10 to the consolidated financial statements, the Company is dependent upon a small number of contracts, the loss of any of which could have a significant adverse effect on the Company’s operations.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of OptimumCare Corporation and its subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.


	/s/ Lesley, Thomas, Schwarz & Postma, Inc. A Professional Accountancy Corporation Newport Beach, California

F-1

OPTIMUMCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS


			December 31,

			2002		2001

CURRENT ASSETS
	Cash and cash equivalents		$	779,235	$	1,646,891
	Accounts receivable, net of allowance of $0 (Note 1)			927,445		1,217,353
	Note receivable from officer (Note 2)			—		225,136
	Advances due from officer (Note 2)			—		144,596
	Prepaid expenses			116,030		127,913
	Prepaid income taxes			216,114		582,430
	Investments (Note 5)			330,268		—
	Deferred tax asset (Note 9)			27,948		71,114

		Total current assets		2,397,040		4,015,433
FURNITURE AND EQUIPMENT, less accumulated depreciation of $132,059 in 2002 and $160,017 in 2001 (Note 6)				32,800		18,757
GOODWILL				225,181		—
DEFERRED TAX ASSET (Note 9)				80,867		—
OTHER ASSETS				18,234		19,760

		Total assets	$	2,754,122	$	4,053,950

See accompanying notes to the consolidated financial statements.

F-2

OPTIMUMCARE CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY


			December 31,

			2002		2001

CURRENT LIABILITIES
	Accounts payable		$	112,339	$	206,046
	Accrued professional fees			34,737		26,237
	Accrued vacation			43,320		54,499
	Accrued business acquisition payment			50,000		—
	Accrued expenses			63,611		184,779
	Accrued payment to officer			—		700,000

		Total current liabilities		304,007		1,171,561

COMMITMENTS (Notes 3, 4 and 7)
STOCKHOLDERS’ EQUITY (Note 8)
	Preferred stock, $.001 par value; 10,000,000 shares authorized 0 shares issued and outstanding at December 31, 2002 and 2001			—		—
	Common stock, $.001 par value; 20,000,000 shares authorized 5,908,675 shares issued and outstanding at December 31, 2002 and 2001			5,909		5,909
	Paid-in capital			2,403,706		2,403,706
	Retained earnings			40,500		472,774

		Total stockholders’ equity		2,450,115		2,882,389

		Total liabilities and stockholders’ equity	$	2,754,122	$	4,053,950

See accompanying notes to the consolidated financial statements.

F-3

OPTIMUMCARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


			Years Ended December 31,

			2002			2001			2000

CONTRACT REVENUES			$	4,129,113		$	6,906,496		$	8,010,491
TEMPORARY STAFFING REVENUES				1,237,167			—			—
INTEREST INCOME				26,512			72,647			94,625

				5,392,792			6,979,143			8,105,116

OPERATING EXPENSES
	Costs of contract services provided			3,030,972			5,796,162			5,691,617
	Costs of temporary staffing services provided			1,202,439			—			—
	Selling, general and administrative			1,843,882			2,104,770			1,421,001
	Provision for uncollectible accounts			—			9,865			340,009
	Interest			181			137			507

		Total operating expenses		6,077,474			7,910,934			7,453,134

(LOSS) INCOME BEFORE INCOME TAXES				(684,682	)		(931,791	)		651,982
INCOME TAX (BENEFIT) EXPENSE (Note 9)				(252,408	)		(359,393	)		260,296

NET (LOSS) INCOME			$	(432,274	)	$	(572,398	)	$	391,686

BASIC (LOSS) EARNINGS PER SHARE			$	(0.07	)	$	(0.10	)	$	0.07

DILUTED (LOSS) EARNINGS PER SHARE			$	(0.07	)	$	(0.10	)	$	0.06

See accompanying notes to the consolidated financial statements.

F-4

OPTIMUMCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


					Years Ended December 31,

					2002			2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES
	Net (loss) income				$	(432,274	)	$	(572,398	)	$	391,686
	Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities
		Depreciation				12,276			17,131			19,883
		Provision for uncollectible accounts				—			9,865			340,009
		Deferred taxes				(37,701	)		(38,524	)		17,861
		Impairment of capitalized software				—			380,000			—
		Accrued payment to officer				(700,000	)		700,000			—
		Changes in operating assets and liabilities
		Decrease (increase) in accounts receivable				289,908			(344,981	)		1,337,596
			Decrease (increase) in advances due from Officers			144,596			(88,272	)		5,015
			Decrease (increase) in prepaid expenses			11,883			(27,103	)		(69,973	)
			Decrease (increase) in prepaid income taxes			366,316			(569,151	)		(13,279	)
			Decrease in other assets			4,166			25,142			7,408
			(Decrease) increase in accounts payable			(93,707	)		16,051			12,092
			(Decrease) increase in accrued expenses			(73,847	)		(23,186	)		51,422

				Net cash (used in) provided by operating activities		(508,384	)		(515,426	)		2,099,720

CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of marketable securities					(330,268	)		—			—
	Purchase of software					—			(95,000	)		(285,000	)
	Purchases of equipment					(7,039	)		(1,505	)		(21,997	)
	Purchase of other assets					(12,930	)		—			—
	Note receivable payment from officer					225,136			71,500			95,434
	Purchase of new business entities					(234,171	)		—			—

				Net cash used in investing activities		(359,272	)		(25,005	)		(211,563	)

CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options						—			—			15,938

				Net cash provided by financing activities		—			—			15,938

NET (DECREASE) INCREASE IN CASH						(867,656	)		(540,431	)		1,904,095
CASH, beginning of year						1,646,891			2,187,322			283,227

CASH, end of year					$	779,235		$	1,646,891		$	2,187,322

F-5

OPTIMUMCARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


		Years Ended December 31,

		2002		2001		2000

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
	Interest paid	$	181	$	137	$	507

	Income taxes paid	$	0	$	248,446	$	248,000

See accompanying notes to consolidated financial statements.

F-6

OPTIMUMCARE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000


	Common Stock

					Paid-In		Retained
	Shares		Amount		Capital		Earnings			Total

BALANCE, December 31, 1999		5,883,675	$	5,884	$	2,387,793	$	653,486		$	3,047,163
Exercise of stock options		25,000		25		15,913		—			15,938
Net income		—		—		—		391,686			391,686

BALANCE, December 31, 2000		5,908,675		5,909		2,403,706		1,045,172			3,454,787
Net loss		—		—		—		(572,398	)		(572,398	)

BALANCE, December 31, 2001		5,908,675		5,909		2,403,706		472,774			2,882,389
Net loss		—		—		—		(432,274	)		(432,274	)

BALANCE, December 31, 2002		5,908,675	$	5,909	$	2,403,706	$	40,500		$	2,450,115

See accompanying notes to consolidated financial statements.

F-7

OPTIMUMCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization – OptimumCare Corporation (the “Company”) develops, markets and manages hospital-based programs for the treatment of psychiatric disorders on both an inpatient and outpatient basis. Hospitals are primarily reimbursed by Medicare and Medicaid for the majority of these programs which in turn pay the Company a contracted management fee. The Company’s programs are currently being marketed in the United States, principally California, to independent acute general hospitals and other health care facilities.

During the second half of 2002, the Company formed a wholly owned subsidiary, Associated Staffing Resources, Inc. through which they acquired certain assets of two (2) healthcare staffing companies. Staffing services are provided to healthcare customers on a contractual basis for which they pay a fee.

The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries. Revenues from the operations of these subsidiaries approximate twenty-three percent (23%) of the Company’s consolidated revenues for 2002. Plans currently exist for additional acquisitions during 2003, which should increase the amount of revenues generated by these subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Cash and Cash Equivalents – For purposes of the balance sheets and statements of cash flows, cash and cash equivalents consist of all cash balances and highly liquid investments with an initial maturity of three (3) months or less. At December 31, 2002 and 2001, there were no cash equivalents.

Accounts Receivable – The Company extends credit to its customers as part of its normal business operations. Accounts receivable is presented net of an allowance for doubtful accounts of $0 and $0 at December 31, 2002 and 2001 respectively.

The Company monitors all receivables, especially those balances over sixty (60) days past due. Balances are written off only when all reasonable collection efforts have been exhausted. Management must approve all write-offs of customer balances. Bad debt write-offs were $0 and $9,865 for the years ended December 31, 2002 and 2001, respectively. Management believes that the allowance for doubtful accounts is adequate to ensure against unforeseeable events.

F-8

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Furniture and Equipment – Furniture and equipment is stated at cost. Depreciation is computed on the straight-line method based upon the estimated useful lives of the related assets which range from three months (3) to five (5) years. Included in furniture and equipment is artwork of $12,930 which is not depreciated.

Revenue Recognition – Contract revenues are recognized in the period services are provided and are recorded net of contractual adjustments representing the difference between standard rates and estimated net realizable amounts under reimbursement agreements with customers. Staffing revenues are recognized in the period services are provided.

Goodwill – The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under this statement, the Company is not required to amortize goodwill and other intangible assets with indefinite lives but will be subject to periodic testing for impairment.

Earnings Per Share – The Company accounts for earnings (loss) per share in accordance with the provisions of Statement of Financial Accounting Statement No. 128, “Earnings Per Share”. Statement 128 excludes any dilutive effects of options, warrants and convertible securities in basic earnings (loss) per share.

Income Taxes – The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, “Accounting For Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted rates in effect for the periods in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future that affect the amounts reported in the financial statements. These estimates include assessing the collectibility of accounts receivable and the usage and recoverability of long-lived assets. The actual results could differ from those estimates.

Fair Value of Financial Instruments – The Company’s financial instruments consist principally of cash, accounts and note receivable, and current liabilities. The Company believes all of the financial instruments recorded values approximate fair values.

Professional Liability Insurance – OptimumCare maintains an occurrence based professional liability insurance coverage of up to $1,000,000 per occurrence, $5,000,000 annual aggregate.

F-9

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Risks and Uncertainties – The Company contracts with hospitals which are primarily reimbursed by Medicare and Medicaid for the majority of the Company’s programs. Laws and regulations governing Medicare and Medicaid reimbursement programs are complex and subject to interpretation. The Company is indirectly affected by such laws and regulations governing Medicare and Medicaid programs. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation.

The Company’s cash and cash equivalents are deposited with a large financial institution. Though substantially all of these deposits may not be covered by federal insurance programs, the Company believes the institution to be financially sound.

The Company’s policy generally does not require collateral to cover credit risk.

Reclassifications – Certain amounts for prior periods have been reclassified to conform with current year presentation.

Concentration of Credit Risk – The Company maintains its cash accounts with three (3) financial institutions. The accounts are insured by the F.D.I.C. up to $100,000. The total cash balance on deposit at December 31, 2002 and 2001 that exceeded the balance insured was approximately $363,000 and $1,355,000, respectively.

NOTE 2 – RELATED PARTY TRANSACTIONS

During 1998, the Company converted a series of short-term advances and a $274,000 note dated December 29, 1997 into a promissory note from an officer totaling $392,070. The note accrued interest at the current prime rate and provided for a bi-monthly payment plan. During 2001, principal payments totaling $71,500 were received by the Company. During February 2002 principal payments of $71,500 were received by the Company.

On January 31, 2002 the Company’s Board of Directors approved a payment to the officer to settle the note, accrued interest and short term advances receivable balances at December 31, 2002. During February 2002, payments of $364,833 were received by the Company.

NOTE 3 – LINE OF CREDIT

The Company has a line of credit which expires March 31, 2003 and is collateralized by substantially all of the Company’s assets. The maximum indebtedness is $1,500,000. Amounts allowable for draw are based on eighty percent 80% of certain qualified accounts receivable. As of December 31, 2002, approximately $728,579 was available for future draws on the line of credit agreement. The line of credit is in the process of renegotiation. The new agreement is expected to be a ninety (90) day commitment for a maximum indebtedness of $750,000 computed on a similar basis as the previous agreement.

F-10

NOTE 4 – EMPLOYEE BENEFIT PLAN

The Company provides a 401(k) Plan for all employees having completed one (1) year of service. Under the 401(k) Plan, eligible employees voluntarily contribute to the Plan up to fifteen percent (15%) of their salary through payroll deductions. Effective January 1, 2000, the Company adopted a 401(k) Safe Harbor Plan. The Plan provided for immediate vesting of employee contributions. The Company matched one hundred percent (100%) of the first three percent (3%), and fifty percent (50%) of employee contributions from three percent (3%) to five percent (5%) to the Plan through payroll deductions. Effective January 1, 2002, the Company amended the Plan to provide for a non-elective contribution of 3% of compensation to all eligible participants and an employer discretionary contribution of 1% of compensation to all eligible non-officer employee participants. The Company provides for a match of funds for all officers who are eligible participants up to a maximum salary deferral up to $35,000. Expenses associated with employer contributions were $67,213, $167,504 and $89,694, for 2002, 2001 and 2000, respectively.

NOTE 5 – INVESTMENTS

Investments available for sale as of December 31, 2002 are summarized as follows:


			Gross		Gross
			Unrealized		Unrealized
			Holding		Holding			Market
	Cost		Gains		Losses			Value

Federal Home Loan Bank Bonds	$	153,238	$	128	$	(2,111	)	$	151,255
U.S. Treasury Notes		177,930		1,083		—			179,013

	$	331,168	$	1,211	$	(2,111	)	$	330,268

The contractual maturities of available for sale debt securities at December 31, 2002 are as follows:


	Government Securities

			Estimated
	Amortized		Fair
	Cost		Value

Within one year	$	255,291	$	253,862
Between one year and two years		75,877		76,406
Between two years and three years		—		—

Short-term investments	$	331,168	$	330,268

F-11

NOTE 6 – FURNITURE AND EQUIPMENT

Major classifications of furniture and equipment are as follows:


	December 31,

	2002			2001

Furniture and fixtures	$	30,953		$	49,715
Machinery and equipment		100,835			113,984
Automobile		13,000			13,000
Artwork		12,930			—
Software		5,066			—
Trademark		2,075			2,075

		164,859			178,774
Less: accumulated depreciation		(132,059	)		(160,017	)

	$	32,800		$	18,757

NOTE 7 – LEASE COMMITMENTS

The Company leases six (6) office facilities and office equipment under non-cancelable lease agreements. The agreements expire June 30, 2003, October 31, 2003, August 1, 2005, November 30, 2006 and August 1, 2007. The Company also leased space under two (2) separate lease agreements for the operation of two (2) of its outpatient partial hospitalization psychiatric program sites. One agreement was between the lessor and the community mental health center (CMHC). However, the Company was obligated to pay the lease costs for the program under its contract with the facility which initially expired December 6, 2010. The Company terminated their contract with the CMHC effective March 8, 2002. The remaining agreement expired August 14, 2002. Additionally, the Company is obligated on a lease it acquired in one of its business acquisitions in November 2002. On November 25, 2002 the lease was assigned for the full lease payment and term, therefore, the Company has no financial impact from this obligation. Aggregate future minimum lease payments under remaining noncancelable leases are as follows:


Years Ending December 31,	Amount

2003	$	107,556
2004		82,295
2005		71,109
2006		50,983
2007		4,942

	$	316,885

The Company had a sublease with one of its host hospitals which expired on February 28, 2002. Sublease rental income was $0, $11,571 and $65,685 for the years ended December 31, 2002, 2001 and 2000, respectively. Rent expense was $174,360, $229,959 and $361,197 for the years ended December 31, 2002, 2001 and 2000, respectively.

F-12

NOTE 8 – STOCKHOLDERS’ EQUITY

Stock Option Plans – The Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement No. 123, “Accounting for Stock-Based Compensation”, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, no compensation expense is recognized because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant.

In July 1987, the Company adopted a stock option plan (the “1987 Plan”) including incentive stock options and nonqualified stock options. A maximum of 455,000 shares of the Company’s common stock was reserved for issuance under the 1987 Plan. Under the 1987 Plan, incentive stock options were granted at an exercise price not less than one hundred percent (100%) of the fair market value on the date of grant (110% for greater than 10% stockholders) and, nonqualified stock options were granted at an exercise price not less than eighty-five percent (85%) of the fair market value on the date of grant. Options were granted for terms up to ten (10) years (five years for greater than 10% stockholders). No options have been granted after July 1997, but options granted before such date may still be exercisable after such date.

In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the “1994 Plan”) including incentive stock options and nonqualified stock options. In December 1995, the Company readopted and approved the 1994 Stock Option Plan. A maximum of 500,000 shares of the Company’s common stock has been reserved for issuance under the 1994 Plan. Incentive stock options may be granted at an exercise price which is not less than one hundred percent (100%) of the fair market value on the date of grant (110% for greater than 10% stockholders), and nonqualified stock options may be granted at an exercise price which is no less than eighty-five percent (85%) of the fair market value on the date of grant. Options may be granted for terms up to ten (10) years (five years for greater than 10% stockholders).

On February 3, 1998, the Company granted to certain officers, directors, employees and consultants, non-qualified options to purchase 350,000 shares of its common stock at $1.00 per share. All options are vested upon grant and expire five (5) years from the date of grant.

During various dates in 1999, the Company granted to certain officers, directors, employees and consultants, non-qualified options to purchase 1,433,000 shares of its common stock at prices ranging from $0.62 to $0.90 per share. Options to purchase 1,283,000 shares are vested upon grant. Options to purchase 150,000 shares vest over six (6) months. No options have been exercised under these grants and they expire on various dates in 2004.

On October 24, 2000, the Company granted to certain officers, directors and employees, non-qualified options to purchase 325,000 shares of its common stock at $.67 per share. All options vested immediately and expire on October 24, 2005.

On April 16, 2002, the Company granted to certain officers, directors and employees, more nonqualified options to purchase 550,000 shares of its common stock at $0.35 per share. All options are vested upon grant and they expire on April 16, 2007.

F-13

NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)

On July 29, 2002, in connection with the acquisition of Associated Social Resources, Inc. and in accordance with an employment agreement, the Company issued options to purchase 100,000 shares of its common stock at $.50 per share. The options vest over two years at 50,000 per year and expire on July 29, 2007.

A summary of stock option activity during 2002, 2001 and 2000 is as follows:


				Weighted						Weighted						Weighted
				Average						Average						Average
	Various			Exercise			1987			Exercise			1994			Exercise
	Non-Plan			Price			Plan			Price			Plan			Price

Outstanding, December 31, 1999		2,316,000		$	.82			100,000		$	1.08			75,000		$	.83
Granted		325,000			.67			—			—			—			—
Exercised		—			—			—			—			(25,000	)		.6375
Canceled		—			—			—			—			(50,000	)		.92

Outstanding, December 31, 2000		2,641,000			.80			100,000			1.08			—			—
Granted		—			—			—			—			—			—
Exercised		—			—			—			—			—			—
Canceled		(500,000	)		(1.15	)		(100,000	)		(1.08	)		—			—

Outstanding, December 31, 2001		2,141,000			.72			—			—			—			—
Granted		650,000			.37			—			—			—			—
Exercised		—			—			—			—			—			—
Canceled		(183,000	)		(.70	)		—			—			—			—

Outstanding, December 31, 2002		2,608,000		$	.64			—		$	—			—		$	—

Options Outstanding and Exercisable


			Number		Weighted-
			Outstanding		Average
Range of			and		Remaining	Weighted-
Exercise			Exercisable		Contractual	Average
Price			At 12/31/02		Life	Exercise Price

	$	1.00		350,000	0.5 years	$	1.00
		.62 to .90		1,283,000	1.5 years		.69
		.67		325,000	2.5 years		.67
		.35		600,000	4.5 years		.35

	$	.35 to 1.00		2,558,000	2.5 years	$	.65

A total of 2,608,000 shares of common stock are reserved for future issuance upon the exercise of stock options at December 31, 2002. A total of 150,000 options were available for future grant at December 31, 2001 under existing stock option plans.

Pro forma information regarding net income and earnings per share is required by Statement No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. No options were granted during 2001. The fair value for options granted in 2002, 2000 and 1999 were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free

F-14

interest rates of 2.72%, 5.75% and 6.20%; a dividend yield of 0%; a volatility factor of the expected market price of the Company’s common stock of .409, .433 and .398 for 2002, 2000 and 1999, respectively.

NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)

The Black Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because of the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:


		Years Ended December 31,

		2002			2001			2000

Net (loss)/income
	As reported	$	(432,274	)	$	(572,398	)	$	391,686
	Pro forma	$	(473,566	)	$	(576,808	)	$	296,526
(Loss)/earnings per share
	Basic as reported	$	(0.07	)	$	(.10	)	$	.07
	Diluted as reported	$	(0.07	)	$	(.10	)	$	.06
	Basic pro forma	$	(0.08	)	$	(.10	)	$	.05
	Diluted pro forma	$	(0.08	)	$	(.10	)	$	.05
	Options whose exercise price equals the market price of the stock on the grant date	$	—		$	—		$	—
	Options whose exercise price is less than the market price of the stock on the grant date	$	—		$	—		$	.67
	Options whose exercise price is more than the market price of the stock on the grant date	$	.375		$	—		$	—
Weighted average fair value of:
	Options whose exercise price equals the market price of the stock on the grant date	$	—		$	—		$	—
	Options whose exercise price is less than the market price of the stock on the grant date	$	—		$	—		$	.26
	Options whose exercise price is more than the market price of the stock on the grant date	$	.10		$	—		$	—

F-15

NOTE 8 – STOCKHOLDERS’ EQUITY (CONTINUED)

Earnings/(Loss) Per Share – The following table sets forth the computation of basic and diluted earnings/(loss) per share:


		Years Ended December 31,

		2002			2001			2000

Numerator: net income/(loss)		$	(432,274	)	$	(572,398	)	$	391,686

Denominator:
	Denominator for basic earnings/(loss) per share – weighted-average shares outstanding		5,908,675			5,908,675			5,907,511
	Dilutive employee stock options		33,769			109,648			256,629

	Denominator for diluted earnings/(loss) per share		5,942,444			6,018,323			6,164,140

Basic earnings/(loss) per share		$	(.07	)	$	(.10	)	$	.07

Diluted earnings/(loss) per share		$	(.07	)	$	(.10	)	$	.06

NOTE 9 – INCOME TAXES

A reconciliation of the (benefit) provision for income taxes using the federal statutory rate to the book (benefit) provision for income taxes follows:


		Years Ended December 31,

		2002			2001			2000

Statutory federal (benefit) provision for income taxes		$	(222,383	)	$	(316,809	)	$	221,000
Increase (decrease) in taxes resulting from:
	Permanent differences and other		(11,122	)		(13,529	)		2,644
	State tax, net of federal benefit		(18,903	)		(29,055	)		36,652

		$	(252,408	)	$	(359,393	)	$	260,296

Significant components of the (benefit) provision for income taxes are as follows:


			Years Ended December 31,

			2002			2001			2000

Current:
	Federal		$	(215,283	)	$	(320,868	)	$	191,523
	State			—			—			50,911

		Total current		(215,283	)		(320,868	)		242,434

Deferred:
	Federal			(8,484	)		5,497			14,111
	State			(28,641	)		(44,022	)		3,751

		Total deferred		(37,125	)		(38,525	)		17,862

			$	(252,408	)	$	(359,393	)	$	260,296

F-16

NOTE 9 – INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the net deferred tax asset at December 31, 2002 and 2001 consist of the following:


	December 31,

	2002		2001

Net operating loss carryforward	$	70,445	$	47,384
Charitable contributions		9,062		—
Accruals not currently deductible for tax purposes		18,559		23,347
Depreciation and amortization not currently deductible for tax purposes		10,423		111
State taxes		326		272

Total deferred tax assets		108,815		71,114
Less valuation allowance		—		—

Net deferred tax asset	$	108,815	$	71,114

NOTE 10 – MAJOR CUSTOMERS

The following table summarizes the amount of revenue for each major customer:


	Years Ended December 31,

	2002					2001					2000

	Amount		Percent			Amount		Percent			Amount		Percent

(1) Hospital 1	$	1,533,980		28.5	%	$	1,601,520		23.2	%	$	1,740,000		21.7	%
(2) Hospital 2		—		.0	%		703,330		10.2	%		843,663		10.5	%
(3) Hospital 3		1,482,133		27.5	%		3,095,724		44.8	%		2,972,555		37.1	%
(4) Hospital 4		950,400		17.6	%		824,400		11.9	%		696,000		8.7	%
(5) Hospital 5		—		.0	%		174,000		2.5	%		1,224,066		15.3	%
(6) Hospital 6		162,500		3.0	%		—		.0	%		—		.0	%

In addition, these hospitals accounted for $340,120, $1,201,184 and $789,603 of accounts receivable at December 31, 2002, 2001 and 2000, respectively.


				(1)		Huntington Intercommunity Hospital dba Humana Hospital Huntington Beach. Composed of two contracts. Inpatient contract expired November 2002, automatically extended for successive one-year periods, unless terminated with 120-day notice. Partial hospitalization contract expired October 2002, automatically extended for successive one-year periods, unless terminated with 90-day notice.

				(2)		Catholic Healthcare West Southern California. Contracts terminated October 2001.

				(3)		San Fernando Community Hospital dba Mission Community Hospital. Contracts terminated April 30, 2002. Utilization review consulting agreement terminated December 31, 2002.

				(4)		Sherman Oaks Hospital and Health Center. Contract expires June 30, 2003.

F-17

The Company is continuing to make efforts to expand the number of its operational programs. However, the Company does recognize that it has a dependence on a relatively small customer base, presently consisting of three hospitals. The Company has a significant amount of variable expenses associated with the production of its revenues. However, some fixed costs do exist. To that end, the loss of certain of its customers could have a significant adverse effect on the Company’s operations.

The Company only has one customer that represents more than ten percent (10%) of its temporary staffing revenues. Homeless Community Center provided revenues of $328,873 or twenty-seven percent (27%) of total temporary staffing revenues. This hospital also accounted for $210,525 of accounts receivable at December 31, 2002.

NOTE 11 – BUSINESS SEGMENTS

The Company’s principal business is to develop, market and manage hospital based programs for the treatment of psychiatric disorders on both an inpatient and outpatient basis. However, with the acquisition of two (2) healthcare staffing companies during 2002, the Company adopted Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). The Company has two (2) segments, psychiatric programs and temporary staffing.

The Company evaluates segment performance and allocates resources based on several factors, of which net sales, accounts receivable and operating income are the primary financial measures. The accounting policies of the reportable segments are the same as those described in Note 1 to the consolidated financial statements.


			Operating		Operating
	Net Sales		Expenses		Income/(Loss)
	2002		2002		2002

Psychiatric Programs	$	4,129,113	$	3,030,972	$	1,098,141
Temporary Staffing		1,237,167		1,202,439		34,728
Corporate		26,512		1,844,063		(1,817,551	)

	$	5,392,792	$	6,077,474	$	(684,682	)


	Accounts
	Receivable		Total Assets (1)
	2002		2002

Psychiatric Programs	$	340,120	$	—
Temporary Staffing		564,605		817,855
Corporate		22,720		1,936,267

	$	927,445	$	2,754,122

(1) The temporary staffing business is part of the Company’s wholly owned subsidiary, Associated Staffing Resources, Inc. which is accounted for separately internally. However, the assets of the parent company’s corporate offices are not maintained separately from those that are associated with the psychiatric programs such as, cash, fixed assets, etc. and therefore, cannot be reported individually.

F-18

NOTE 12 – SUBSEQUENT EVENTS

On January 2, 2003, the Company formed a new wholly owned subsidiary, OptimumCare Staffing, Inc. as a Florida Corporation.

On March 12, 2003, the Company acquired the assets of Chicago Care Nurse Staffing, LLC through its wholly owned subsidiary OptimumCare Staffing, Inc., for an initial purchase price of $179,083. Additional purchase price payments are due sixty (60) days after the six (6) month and eighteen (18) month anniversaries of the closing date computed on the basis of the net sales ratio multiplied by the gross margin multiplier as defined in the asset purchase agreement. In addition, earn-out provisions call for payments of thirty percent (30%) of adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the Orlando, Florida office payable sixty (60) days after the first and second year anniversaries of the closing date of the purchase, contingent upon the continued employment of certain members of the acquired company.

F-19

EXHIBIT INDEX


3.1		Certificate of Incorporation incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.1.

3.2		Bylaws incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2.

3.3		Certificate of Amendment of Certificate of Incorporation filed February 29, 1988. Incorporated by reference from Form S-18 Registration Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit 3.5.

3.4		Restated Certificate of Incorporation, filed October 3, 1989. Incorporation by reference from Form 10-K for the year ended December 31, 1989.


10.1		Lease between the Company and Laguna Niguel Office Center dated June 23, 1988 which supersedes lease dated December 15, 1986, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.1.

10.34		Agreement between Huntington InterCommunity Hospital and the Company dated November 1, 1991 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1991, Exhibit 10.34.

10.38		Agreement between Huntington Intercommunity Hospital and the Company dated October 1, 1992 incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1992, Exhibit 10.38.

10.55*		1994 Stock Option Plan incorporated by reference from Annual Report on Form 10-K for the year ended December 31, 1994, Exhibit 10.55

10.66		Agreement between Sherman Oaks Hospital and Health Center dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995.

10.73		Agreement between San Fernando Community Hospital, Inc. dba Mission Community Hospital and the Company dated October 6, 1995, incorporated by reference from Form 10-K for the year ended December 31, 1995.0

10.88		Lease Agreement between the Company and Jay Arteaga dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 1996.

10.97		Lease Agreement between the Company and Harriet Maizels, Daniel Gold, Lesley Gold and Mildred Gold dated July 8, 1997, incorporated by reference from Form 10-K for the year ended December 31, 1997.

10.109		Lease Agreement between the Company and P.S. Business Parks, LP dated August 14, 1998, incorporated by reference from Form 10-K for the year ended December 31, 1998.

10.113		Lease Agreement between the Company and Coldwell Banker dated November 1, 1998, incorporated by reference from Form 10-K for the year ended December 31, 1998.

10.115		Change in Terms Agreement between the Company and Southern California Bank dated April 27, 1999, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.

10.116		Lease Agreement between the Company and Laguna Niguel Office Center dated May 12, 1999 which supersedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the quarter ended June 30, 1999.

10.117		Contract amendment between the Company and Huntington Intercommunity Hospital d/b/a Humana Hospital Huntington Beach dated August 1, 1999 which supersedes the


		contract dated November 5, 1991, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.118		Contract amendment between the Company and Huntington Intercommunity Hospital d/b/a Humana Hospital Huntington Beach dated August 1, 1999 which supersedes the contract dated October 1, 1992, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.119		Inpatient Psychiatric Services contract amendment dated August 6, 1999 between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach which supersedes contract amendment dated August 1, 1999, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.120		Partial Hospitalization Agreement contract amendment dated August 6, 1999 between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach which supersedes contract amendment dated August 1, 1999, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.122		First amendment to lease between the Company and Jay Arteaga dated October 11, 1999 which supercedes lease dated September 30, 1996, incorporated by reference from Form 10-Q for the quarter ended September 30, 1999.

10.125		Lease Amendment between the Company and Laguna Niguel Office Center dated May 31, 2000 which supercedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the quarter ended June 30, 2000.

10.126		Loan agreement between the Company and US Bank dated July 14, 2000, incorporated by reference from Form 10-Q for the quarter ended September 30, 2000.

10.127		Psychiatric Partial Hospitalization Management agreement between the Company and New Life Guidance Center dated October 1, 2000, incorporated by reference from Form 10-Q for the quarter ended September 30, 2000.

10.128		Agreement between the Company and Sherman Oaks Hospital and Health Center dated January 1, 1999, which supercedes the agreement dated March 30, 1995, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.129		First amendment to agreement between the Company and Sherman Oaks Hospital and Health Center dated July 17, 2000, which supercedes the agreement dated January 1, 1999, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.130		Second amendment to lease between the Company and Jay Arteaga dated September 21, 2000, which supercedes the lease dated September 30, 1996, incorporated by reference from Form 10-K for the year ended December 31, 2000.


10.131		Agreement between the Company and Friendship Community Mental Health Center dated December 7, 2000, which supercedes the agreement dated June 25, 1997, incorporated by reference from Form 10-K for the year ended December 31, 2000.

10.132*		Executive Management Change in Control Severance Plan dated May 14, 2001, incorporated by reference from Form 10-Q for the quarter ended March 31, 2001.

10.133		Lease Amendment between the Company and Laguna Niguel Office Center dated April 23, 2001 which supersedes the lease dated June 23, 1988, incorporated by reference from Form 10Q for the quarter ended June 30, 2001.

10.135		Partial hospitalization agreement contract amendment between the Company and Huntington InterCommunity Hospital d/b/a Humana Hospital Huntington Beach dated October 20, 2001, which supersedes the amendment dated August 6, 1999.

10.136		Third Amendment to lease between the Company and Jay Arteaga dated September 19, 2001, which supersedes the lease dated September 30, 1996.

10.137		Amendment to lease agreement between the Company and P.S. Business Parks, LP dated December 19, 2001, which supersedes the lease dated August 14, 1998, incorporated by reference from Form 10-K for the year ended December 31, 2001.

10.138		Loan agreement between the Company and Merrill Lynch dated January 8, 2002, incorporated by reference from Form 10-K for the year ended December 31, 2001.

10.139		Services Termination Agreement between the Company and San Fernando Community Hospital, a California nonprofit public benefit corporation d/b/a Mission Community Hospital & San Fernando Community Hospital dated April 30, 2002, incorporated by reference from Form 10-Q for the Quarter ending March 31, 2002.

10.140		Management services agreement between the Company and La Palma Intercommunity Hospital dated June 16, 2002, incorporate by reference from Form 10-Q for the quarter ending June 30, 2002.

10.141		Lease amendment between the Company and Laguna Niguel Office Center dated April 17, 2002 which supercedes the lease dated June 23, 1988, incorporated by reference from Form 10-Q for the Quarter ended June 30, 2002.

10.142		Asset Purchase Agreement dated July 24, 2002 between Associated Staffing Resources, Inc., Associated Social Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.

10.143*		Employment Agreement dated July 29, 2002 between Associated Staffing Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.

10.144		Non-Compete Agreement dated July 29, 2002 between Associated Staffing Resources, Inc. and Meryl C. Stern, incorporated by reference from Form 8-K dated July 29, 2002.


10.145		Asset purchase agreement between the Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Social Work Services, Inc. dated November 1, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.146*		Employment agreement between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Kyle M. Krogh dated December 1, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.147		Non-compete agreement between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Kyle M. Krogh dated November 7, 2002, incorporated by reference from Form 10-Q for the quarter ended September 30, 2002.

10.148		Agreement between the Company and Sherman Oaks Hospital and Health Center dated August 1, 2002. (Filed herewith)

10.149		Fourth Amendment to lease between the Company and Jay Arteaga dated September 4, 2002 which supercedes the lease dated September 30, 1996. (Filed herewith)

10.150		Agreement and Mutual Release between Associated Staffing Resources, Inc., a wholly owned subsidiary of OptimumCare Corporation and Social Work Services, Inc. and Kyle Menichetti Kaogh, dated January 22, 2003. (Filed herewith)

10.151		Asset Purchase Agreement, dated March 12, 2003 among OptimumCare Staffing, Inc., OptimumCare Corporation, Chicago Care Nurse Staffing, L.L.C., John W. Stephens, Joshua G. Zayas and Aaron Schwartz incorporated by reference from the Company’s Current Report on Form 8-K filed on March 21, 2003.

21.1		Subsidiaries of the Company. (Filed herewith)

23.1		Consent of Lesley, Thomas, Schwarz & Postma, Inc. (Filed herewith)

* The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.


	3/31/02			6/30/02		9/30/02			12/31/02

Contract Revenues	$	1,388,758		$	1,247,750	$	756,573		$	736,032
Temporary Staffing Revenues	$	0		$	0	$	486,170		$	750,997
Net (Loss) Income	($	126,152	)	$	83,383	($	295,903	)	($	93,602	)
Basic (Loss) Earnings Per Share Of Common Stock	($	0.02	)	$	0.01	($	0.05	)	($	0.02	)
Diluted (Loss) Earnings Per Share Of Common Stock	($	0.02	)	$	0.01	($	0.05	)	($	0.02	)


	3/31/01		6/30/01		9/30/01		12/31/01

Contract Revenues	$	2,061,590	$	1,892,294	$	1,888,493	$	1,064,119
Temporary Staffing Revenues	$	0	$	0	$	0	$	0
Net (Loss) Income	$	175,545	$	189,453	$	196,131	($	1,133,527	)
Basic (Loss) Earnings Per Share Of Common Stock	$	0.03	$	0.03	$	0.03	($	0.19	)
Diluted (Loss) Earnings Per Share Of Common Stock	$	0.03	$	0.03	$	0.03	($	0.19	)

(1)		Car Allowance and Life Insurance Premiums

(2)		Payment to Settle Officer’s Debt


	OPMC		S&P		NASDAQ
12/31/1997		100		100		100
12/31/1998		64		82		140
12/31/1999		52		92		260
12/31/2000		55		149		159
12/31/2001		41		154		126
12/31/2002		26		133		86


Dated: March 24, 2003	OPTIMUMCARE CORPORATION

	By:	/s/ Edward A. Johnson

		Edward A. Johnson, Chief Executive Officer


/s/ Edward A. Johnson		March 24, 2003
Edward A. Johnson, Chief Executive Officer and Director (Principal Financial and Accounting Officer)

		March , 2003
Mulumebet G. Michael, Director, President and Chief Operating Officer

/s/ Michael S. Callison		March 24, 2003
Michael S. Callison, Director

/s/ Gary L. Dreher		March 24, 2003
Gary L. Dreher, Director

/s/ Peter C. McMahon		March 24, 2003
Peter C. McMahon, Director


	(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	(c) presented in this annual report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date;


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

	(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.