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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 (Fee Required) for the fiscal year ended December
31, 1995 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
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Commission File Number: 0-17401
OPTIMUMCARE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-0218003
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30011 Ivy Glenn Drive, Suite 219
Laguna Niguel, California 92677
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (714) 495-1100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for, such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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COMMON STOCK, -$.001-PAR-VALUE
(TITLE OF CLASS)
The aggregate market value of the voting stock held by non-affiliates of the
Company on March 11, 1996 (4,094,786 shares of Common Stock) was $4,627,105
based on the bid price of the Company's voting stock on March 11, 1996.*
The number of shares outstanding of each of the Company's classes of Common
Stock, as of March 11, 1996 was:
Common Stock, - 4,938,509 shares
$.001 par value
Documents Incorporated by Reference
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will be contained to the best of
registrants 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./ /
* 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 non-affiliates of 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.
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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 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 the host health care facility and
usually approximate 20 to 60 beds. Generally, the Company and the host health
care facility negotiate a per patient management fee which depends on the scope
of services provided by the Company number of beds, rates charged and
reimbursements received by the facility, and in some instances, a fixed monthly
administrative fee and reimbursement of certain direct program costs. 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. The health care
facility pays the Company a fixed management fee per patient which approximates
$160 per patient day or in some cases, a reimbursement of direct costs plus a
per patient per day incentive fee and a percentage of overhead fee, and a fixed
management fee per visit which approximates $85 per visit or in some cases, a
percentage of collected revenues for outpatient contracts. 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.
As of March 11, 1996, the Company has thirteen (13) Programs that are hosted by
six (6) hospitals: Five PsychPrograms through Huntington InterCommunity
Hospital, D/B/A Humana Hospital Huntington Beach, Huntington Beach, California,
two PsychPrograms at St. Francis Medical Center, Lynwood, California, one
PsychProgram at Brotman Medical Center, Culver City, California, one
PsychProgram at Samaritan Health System D/B/A Samaritan Medical Center, San
Clemente, California, two PsychPrograms through Sherman Oaks Hospital and
HealthCenter, Sherman Oaks, California, and two PsychPrograms at Mission
Community Hospital, San Fernando, California.
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(b) Financial Information About Industry Segments
The Company competes in one industry segment which is the development, marketing
and operation of Programs.
(c) Narrative Description of the Business
(i) and (ii) Products
OptimumCare's PsychPrograms ("PsychProgram")
The PsychProgram is a medically-supervised psychiatric care program for certain
types of mental health disorders that is offered on both an inpatient and
outpatient basis. The PsychProgram is directed at assisting the patient to
return to a normal life. The PsychProgram is designed to treat patients with
neuroses and personality disorders; however, the Company's marketing focus is to
attract patients who exhibit symptoms of depression. Patients suffering from
depressive mental illness manifest, among other things, loss of interest in the
world generally, loss of activity and capacity to love, sadness, hopelessness,
fatigue, boredom, restlessness, loss of belief in personal future, anxiety and
feelings of ill-at-ease. At the outset, a patient receives a physical
examination and diagnostic testing to eliminate any physical illnesses which may
evidence some symptoms of mental disorders.
Each PsychProgram also includes individual and group therapy and a full daily
regimen of activities including sessions for relaxation, assertiveness training,
exercise and men's and women's sexual awareness. The Company estimates that the
average stay for a patient in a PsychProgram will be 7-10 days.
OptimumCare's Partial Hospitalization Program ("Partial Hospitalization")
Partial Hospitalization is a new behavioral medicine outpatient product that
provides daytime treatment programs that employ an integrated and individualized
schedule of recognized psychiatric treatment modalities.
Partial Hospitalization is a treatment approach developed as an alternative to
inpatient treatment. It includes the major psychiatric evaluation and treatment
modalities (both psychosocial and biological), which are usually found in a
comprehensive psychiatric inpatient program. It is designed for voluntary
patients with serious mental disorders who require intensive and
multi-disciplinary treatment which cannot be provided in an outpatient setting.
By offering a medically-supervised alternative to inpatient treatment, it
provides a more flexible, less costly and less restrictive form of treatment.
Partial Hospitalization can be utilized by individuals who are mentally or
emotionally impaired, but who are able to be maintained in the community at
least part of each day, and present little risk of imminent danger to themselves
or others. The Company believes that the benefits of partial hospitalization
include: lessening the disruption of social, family, and community ties;
allowing the patient to test new skills in a more natural environment than a
hospital setting; providing a treatment milieu that fosters independence and
self reliance; allowing daily feedback from the home environment thereby closely
involving members of the patient's family or supportive environment in the
treatment program; providing flexibility in the number of treatment days per
week thus allowing a patient to pursue other activities such as a shortening of
the
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inpatient stay or preventing the need for full hospitalization.
Expansion of Products
The Company is seeking to expand the scope of psychological services it offers
by acquiring entities which offer complimentary mental health services.
Negotiations are currently underway to purchase Psychological Healthcare, Inc.
and Care Source, Inc. Psychological Healthcare operates outpatient mental health
clinics. Care Source provides management and other administrative behavioral
healthcare services to skilled nursing and other similar bed and board
facilities. Although there is no definitive agreement as of December 31, 1995,
the Company believes that the transaction will close in the second quarter of
1996.
The Company believes that it can more effectively market its services to managed
care payors by increasing the scope of services it provides.
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 counselor 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, but is principally a
marketing representative of the Company. Program managers are officed at their
respective Program's facility.
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. Nursing, dietary, X-ray, laboratory, housekeeping, admissions and
billing are the responsibility of the host health care facility.
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Existing contracts range from a period of one to five years and may be renewed
for subsequent terms, of usually one year periods. In some cases, if the Company
does not maintain a stipulated minimum average daily census for specified
periods the health care facility may terminate the contract on reasonable notice
to the Company.
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 the total patient days of service provided at the
specified contract rate. Generally, the Company bills the host health care
facility fifteen (15) 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.
Many of the hospitals the Company contracts with have a large number of Medicare
and Medicaid patients. However, the Company has negotiated with these hospitals
whereby they are paid either a flat per diem rate or a per diem rate with a hold
back for days ultimately denied. Thus, the Company is not directly dependent on
Medicare or Medicaid for payment under its contracts. It is unknown, whether in
the future other contracts or programs will be dependent on a disproportionate
amount of Medicare/Medicaid patients.
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 their
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 media press kit for each Program. The program director coordinates
all local advertising consistent with the Company's overall marketing plan. Each
program director implements a local market development strategy to increase the
public awareness of the Program, including the establishment of a media
appearance and community speakers bureau which are referred to the broadcast
media for further exposure. The co-medical directors direct local continuing
professional education and community service programs on an as-needed basis. The
host hospital's administrative and medical staffs are also encouraged to
participate in community relations activities.
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Direct marketing to psychiatrists, psychologists and other licensed
professionals by the Company is emphasized because these individuals motivate
potential patients to seek inpatient treatment for their mental health. The
Company's marketing approach to physicians and clinicians emphasizes involvement
through one-on-one communication with the professionals who will provide patient
referrals. These professionals are invited to the Company-sponsored community
relations activities, speaker programs and continuing education seminars.
(iii) Raw Materials
Inapplicable.
(iv) Patents and Trademarks
The Company holds a federal service mark, Registration #1628745, for its
tradename "OptimumCare". The Company has marketed its programs under the names
"OptimumCare PsychProgram" and "OptimumCare Treatment Program".
(v) Seasonality
The Company has noted a trend that its business appears to be susceptible to
some seasonal variation. Census tends to substantially decrease near various
holidays, particularly during the fourth quarter.
(vi) Working Capital Items
The Company expects to experience an initial one-time maximum 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 thirteen (13) Programs operating through six (6)
hospitals. If any of these Programs were terminated, or if any of the accounts
receivable from these contracts were to become uncollectible, such event could
have a material adverse effect on the Company.
(viii) Backlog
Inapplicable.
(ix) Government Contracts
The Company is not currently a party to any government contract.
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(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,
Community Psychiatric Centers, Comprehensive Care Corporation, Mental Health
Management and Horizon Health Services, all 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, nor
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 marketing 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 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 marketing,
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 which 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 such contract.
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
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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, will participate in the periodic surveys which are
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 substantially to comply 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, advising the
Company and staff on questions of policy. The co-medical directors conduct
public relations activities and assist the Company in marketing. 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.
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Given the recent political mandate for health care reform, it appears likely
that health care cost containment will occur. 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 29, 1996, the Company employed 121 persons full-time and
fifty-two (52) persons part-time. Those figures do not include physicians and
psychiatrists who are medical directors of the Company's Programs and not
employees.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
Inapplicable.
ITEM 2 - PROPERTIES
The Company maintains its corporate offices in an approximately
2,200-square-foot suite of executive offices in Laguna Niguel, California, under
a lease agreement providing for a monthly base rent of $2,880 which expires June
30, 1996. The Company began leasing an additional satellite corporate office in
Playa Del Rey, California November 1, 1995 under a lease agreement providing for
a monthly base rent of $1,900 which expires October 31, 1996. The Company
believes that this office space is adequate for its reasonably foreseeable
needs. It is expected that the terms will be extended thereafter on similar
terms.
The Company has also leased space under five separate lease agreements for the
operation of its outpatient partial hospitalization programs. One agreement is
on a month to month basis. The remaining agreements expire September 30, 1996,
June 3, 1997, June 23, 1997 and June 30, 1997 respectively. The lease which
expires June 30, 1997 contains five (5) one (1) year options to extend the
lease. Aggregate monthly payments total $10,432,60 and are fully reimbursed
through subleases with the Company's host hospitals.
ITEM 3 - LEGAL PROCEEDINGS
Inapplicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On December 5, 1995, the Company held its annual Meeting of Stockholders. At the
meeting, Edward A. Johnson, Gary L. Dreher, Jon Jenett and Michael S. Callison
were each elected as Directors of the Company with 4,601,001 shares voting for
the Director nominees and 17,900 shares withholding authority to vote. The
meeting was continued to December 22, 1995 for consideration of the adoption of
the 1994 Stock Option Plan. The adoption of the plan requires a majority vote of
the outstanding shares. The Plan was adopted with 2,503,337 shares voting for
the Plan, 247,604 shares voting against the Plan and 54,974 shares abstaining
from voting.
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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
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1995:
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Fourth Quarter 1 1/4 1 5/16
Third Quarter 1 1/4 29/32
Second Quarter 1 7/32 21/32
First Quarter 7/8 3/4
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1994:
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Fourth Quarter 7/8 3/4
Third Quarter 1 23/32
Second Quarter 31/32 3/4
First Quarter 7/8 5/8
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The listed prices represent inter-dealer quotations, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
(b) Holders
The approximate number of holders of record each class of the Company's
common equity securities as of the close of business on March 11, 1996
is set forth below:
Approximate
Title of Class Number of Record Holders
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Common Stock, $.001 par value 300
(c) Dividends
The Company has never paid or declared dividends on its Common Stock.
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ITEM 6 - SELECTED FINANCIAL DATA
The following selected financial data should 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, 1995 and December 31, 1994 and
for each of the fiscal years in the three year period ended December
31, 1995 are derived from the Company's Financial Statements for such
years audited by Ernst & Young LLP which Financial Statements are
included elsewhere herein.
STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED DECEMBER 31
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1995 1994 1993 1992 1991
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NET REVENUES $6,027,122 $5,596,283 $3,825,613 $2,314,376 $2,222,220
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NET INCOME 2,070 465,045 365,189 127,045 183,037
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NET INCOME PER
SHARE OF COMMON
STOCK .00 .09 .07 .03 .04
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WEIGHTED NUMBER
OF SHARES
OUTSTANDING 5,432,748 5,239,503 5,139,080 4,908,909 4,888,509
================================================================================
BALANCE SHEET INFORMATION
AS OF DECEMBER 31
================================================================================
1995 1994 1993 1992 1991
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TOTAL ASSETS $2,059,537 $1,814,153 $1,299,215 $917,779 $659,369
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CURRENT ASSETS 1,739,112 1,699,801 1,237,885 904,072 639,857
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CURRENT
LIABILITIES 381,531 333,209 269,343 249,701 118,336
- --------------------------------------------------------------------------------
NET WORKING
CAPITAL 1,357,581 1,366,592 968,542 654,371 521,521
- --------------------------------------------------------------------------------
LONG-TERM
OBLIGATIONS 166,000 0 0 0 0
================================================================================
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(a) Liquidity and Capital Resources
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994.
At fiscal year end 1995 and 1994, the Company's working capital was $1,357,581
and $1,366,592 respectively. The nature of the Company's business requires
significant working capital to fund operations of its programs as well as to
fund corporate expenditures until receivables can be collected. Moreover,
because each of the existing contracts represents a significant portion of the
Company's business, the inability to collect any of the accounts receivable
could materially and adversely affect the Company's liquidity.
Cash flows from operations were $159,554 and ($191,639) for the years ended
December 31, 1995 and 1994, respectively. The increase was primarily
attributable to increase in program accounts receivable due to an increase in
program volume.
Cash flows used in investing activities were ($215,196) and ($63,362) for the
years ended December 31, 1995 and 1994, respectively. The decrease in cash was
primarily attributable to deferred acquisition costs incurred in connection with
the proposed acquisitions of two companies performing complimentary mental
health services.
The cash flows from financing activities was $189,917 and ($13,973) for the
years ended December 31, 1995 and 1994, respectively. The increase was primarily
due to draws on the Company's line of credit agreement with a bank. The credit
agreement expires May 1, 1996, but is convertible into a one year term loan with
an initial due date of May 1, 1997 but with a five (5) year repayment schedule.
As of March 11, 1996, approximately $260,000 is available for future draws on of
the line of credit agreement. The Company's principal sources of liquidity for
the fiscal year 1996 are cash on hand, accounts receivable, the line of credit
with a bank and continuing revenues from programs.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993.
At fiscal year end 1994 and 1993, the Company's working capital was $1,366,592
and $968,542 respectively. The increase in working capital at December 31, 1994
over December 31, 1993 was primarily due to the increase in Program accounts
receivable due to the increase in Program volume. The nature of the Company's
business requires significant working capital to fund operations of its Programs
as well as to fund corporate expenditures until receivables can be collected.
Moreover, because each of the existing contracts represents a significant
portion of the Company's business, the inability to collect any of the accounts
receivable would materially and adversely affect the Company's liquidity. During
1994, the Company wrote off approximately $142,000 in billings to an entity who
leased facilities from a hospital which filed bankruptcy in June, 1994.
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The Company's cash flow at fiscal year end 1994 declined due to the significant
increase in receivables. However, through March 7, 1995, the Company collected
approximately $1,000,000 against total receivables which existed at fiscal year
end 1994, thereby improving the Company cash position considerably.
(b) Results of Operations
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company operated seventeen (17) programs during the year ended December 31,
1995 and sixteen (16) programs during the year ended December 31, 1994. The
Company currently has thirteen (13) operating programs. Net Revenues were
$6,027,122 and $5,596,283 for the years ended December 31, 1995 and 1994
respectively. The increase in revenues in 1995 over 1994 is due to the greater
number of total operating programs among years and a greater number of inpatient
psychiatric programs operating for a greater portion of 1995 versus 1994. The
Company typically earns a larger management fee on managing inpatient versus
partial hospitalization programs. In addition, the volume of patient days
treated through inpatient programs is greater than those treated through partial
hospitalization programs.
Cost of services provided were $5,022,040 and $4,238,555 for the years ended
December 31, 1995 and 1994 respectively. The increase in the cost of services
provided among years is primarily due to the increase in program volume among
years and an expanded scope of services provided in connection with certain
contracts such as nursing, transportation and lease costs.
Selling, general and administrative expenses have increased over the prior year
due to increased corporate marketing wages and activities, and various
professional fees incurred with the Company's contract and business acquisition
efforts.
The provision for uncollectible accounts decreased from the prior year due to
the termination of two contracts with one entity which leased facilities from a
hospital which filed bankruptcy in June, 1994.
Net income was $2,070 and $465,045 for the years ended December 31, 1995 and
1994, respectively. The decrease was primarily attributable to increased cost of
services provided and increased sales and marketing efforts.
The Company does not know of any events which are likely to materially change
the costs of operating its Programs; however, if the mix of individual operating
programs remains stable, and revenues increase significantly, gross profit
should rise favorably and disproportionately to the increase in cost for such
Programs. During 1995 and 1994, the mix of programs changed significantly.
Conversely, if the patient census and the resulting revenue decreases
(especially below the minimum break even level) costs will be disproportionately
high in relation thereto which would adversely impact the results of operations
and the Company's available resources. In that event, the Company may not have
enough operating capital to continue operations.
The Company's revenue is expected to increase in 1996 due to higher census under
existing contracts and a larger number of programs operational for the entire
year. Marketing plans for expanding the volume of the business by obtaining new
contracts for programs and expanding the scope of mental health services offered
by the acquisition of complementary businesses
12
15
currently exist. However, it is uncertain at this time, to what extent the
Company's fixed costs will be impacted by this expansion. Due to the Company's
dependence on a relatively small customer base presently consisting of only six
(6) hospitals, the loss of any of its customers could have a significant adverse
effect on the Company's operations. Hence, there is a special emphasis paragraph
in the report of the Company's independent audit of the financial statements for
the fiscal year ended December 31, 1995. In addition, the Company wrote off
approximately $36,000 in billings to one entity in 1995, and $142,000 in
billings to one hospital in 1994.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993.
The Company operated sixteen (16) Programs during the year ended December 31,
1994 and fourteen (14) Programs during the year ended December 31, 1993. The
increase in revenues in 1994 over 1993 is due to the greater number of operating
Programs among years, and increased volume at the individual Programs. This
increase was compounded due to the fact that a majority of the new Programs
which were opened in 1993 were opened during the latter half of the year.
The increase in the cost of services provided among years is directly due to the
increase in revenues.
Selling, general and administrative expenses increased over the prior year due
to increased wages and benefits resulting from the addition of a Vice President
of Corporate Marketing and Development in 1994, as well as an executive bonus
program based on the Company's profits.
The provision for uncollectible accounts increased over the prior year due to
the termination of two contracts with one entity which leased facilities from a
hospital which filed bankruptcy in June, 1994.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OPTIMUMCARE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
See pages F1 through F11 of this Form 10-K and Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
13
16
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 50 President, Principal Financial
Officer, Secretary and Chairman of the Board
Gary L. Dreher 49 Director
Michael S. Callison 57 Director, Vice President of
Corporate Development
Jon E. Jenett 43 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. Directors do not 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.
(c) Identification of Certain Significant Employees
Inapplicable.
(d) Family Relationships
Inapplicable.
(e) Business Experience
Mr. Johnson has been President, Chief Executive Officer and Chairman of the
Board of the Company since co-founding the Company in November 1986. During May,
1990, Mr. Johnson assumed the role of Principal Financial Officer following the
resignation of the former Chief Financial Officer. From August 1985 through July
1986, he was Executive Vice President of Behavioral Medicine Corporation, a
joint venture between The Voluntary Hospital Association of America and
Comprehensive Care Corporation.
Mr. Johnson's duties principally included the development of psychiatric and
substance abuse programs for hospitals throughout the United States. From 1969
until August 1985, Mr. Johnson was employed in various positions with
Comprehensive Care Corporation, a significant provider of management programs
for psychiatric disorders and substance abuse. Mr. Johnson's most recent
position at Comprehensive Care Corporation was the Executive Vice President of
Operations. His principal duties were to develop and implement marketing systems
for that company's programs. Mr. Johnson received a M.S. degree in Psychology
from Colorado State
14
17
College in 1966 and is licensed in California as a Marriage and Family
Counselor.
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. For the past four years, he has served as Vice
President of International Sales for Apotex Scientific, an international
distributor network for Esoteric Diagnostic Tests. From 1984 to 1991, he was
Vice President of Sales at Ventrex Laboratories, a manufacturer of Diagnostic
Tests for medical and biotechnology markets.
Mr. Callison was elected to the Board of Directors during September, 1993. He
received his B.A. degree in Economics from the University of Puget Sound,
Tacoma, Washington in 1966. In 1994, Mr. Callison was promoted to Vice President
of Marketing and Development. From 1990 to 1993, he was a sales and marketing
consultant to the Company, assisting in business development and responsible for
securing various key management contracts for the Company. From 1984 to 1990,
Mr. Callison was a Senior Account Executive for the Hill-Rom Company,
responsible for marketing hospital patient room furniture.
Mr. Jenett was elected to the Board of Directors during December, 1995. He
received his B.A. degree in Economics from Harvard College in 1974 and his
M.B.A. from Stanford Business School in 1978. For the past five years, he has
served as the Chief Financial Officer of Mission Electronics Corporation, a
wholesale broker of electronic components. From 1981-1990, he was a partner of
Investment Group of Santa Barbara, an investment fund specializing in small
public an private companies.
(f) Involvement in Certain Legal Proceedings
Inapplicable.
15
18
ITEM 11 - EXECUTIVE COMPENSATION
(a) Cash Compensation
The following table sets forth the elements of compensation paid,
earned or awarded for the sole executive of the Company. All aspects of
executive compensation is determined by the Board of Directors.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
======================================================================================================
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------------------------------------
NAME & OTHER ALL OTHER
PRINCIPAL ANNUAL RESTRICTED OPTIONS PAYOUTS COMPEN-
POSITION YEAR SALARY($) BONUS($) COMPEN- STOCK /SARs ($) SATION ($)
SATION($) AWARDS($)
- ------------------------------------------------------------------------------------------------------
1995 $144,000 $40,259 $11,602 (1)(2)
EDWARD A. JOHNSON, 1994 144,000 61,703 11,196 (1)(2)
PRESIDENT 1993 154,021 32,811 8,626 (1)(2)
MULU G. MICHAEL, 1995 $103,433 $30,833
VICE PRESIDENT OF 1994 67,500 14,072
CLINICAL 1993 26,500 1,692
OPERATIONS
LESTER H. HARMAN 1995 $ 74,218 $38,430 $ 1,800 (1)
REGIONAL 1994 60,000 37,295 1,800 (1)
MARKETING 1993 45,000 11,550 1,350 (1)
MANAGER
======================================================================================================
# NUMBER OF UNITS
$ DOLLAR AMOUNTS
(1) CAR ALLOWANCE
(2) LIFE INSURANCE PREMIUMS
16
19
(b) Compensation Pursuant to Plans
Stock Option Plans
The Company's 1987 Stock Option Plan (the "Plan"), adopted by the Board of
Directors on July 28, 1987, and approved by the stockholders on August 28, 1987,
provides for the grant to officers, directors, employees and consultants of
nonqualified stock options and stock options to employees that qualify as
incentive stock options under Section 422A of the Internal Revenue Code of 1986.
The Plan terminates on July 28, 1997. 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 455,000 shares of the Company's Common Stock were reserved for
issuance pursuant to the Plan. Options to purchase 19,000 shares were exercised
during fiscal year ended December 31, 1995. There are currently 317,500 shares
subject to options 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 incentive stock options granted under the Plan is required
to be not less than the fair market value of the common stock on the date of
grant (110% in the case of a greater than 10% stockholder). 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 (five years in
the case of incentive stock options granted to greater than 10% stockholders).
No optionee may be granted incentive stock options such that the fair market
value of the options which first become exercisable in any one calendar year
exceeds $100,000. 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 other reason.
On December 31, 1991, the Board of Directors granted additional options under
the Plan to Edward A. Johnson to purchase 27,500 shares and Michael S. Callison
to purchase 25,000 shares. The option exercise price is $ .21 per share. The
options have a five year term and vest immediately. On August 23, 1993, the
Board of Directors granted additional options under the Plan to Michael S.
Callison to purchase 25,000 shares and Gary L. Dreher to purchase 25,000 shares.
The option exercise price is $ .30 per share. The options have a five year term
and vest immediately.
On December 20, 1994, the Board of Directors re-adopted the Company's 1994 stock
option plan. The plan was approved by the stockholders on December 22, 1995 and
provides for the grant to officers, directors, employees and consultants of
nonqualified stock options and stock options to employees that qualify as
incentive stock options under Section 422A of the Internal Revenue
17
20
Code of 1986. 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. Options to purchase an aggregate of
250,000 shares were granted during fiscal year ended December 31, 1995 including
options under the Plan to Jon E. Jenett to purchase 25,000 shares. The option
exercise price is $.93 per share. The options have a five year term and vest
immediately. No options were exercised during fiscal year ended December 31,
1995. There are currently 475,000 shares subject to option 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 incentive stock options granted under the Plan is required
to be not less than the fair market value of the common stock on the date of
grant (110% in the case of a greater than 10% stockholder). 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 (five years in
the case of incentive stock options granted incentive stock options such that
the fair market value of the options which first become exercisable in any one
calendar year exceeds $100,000. Options granted under the Plan to officers,
employees or consultants may be exercised only while the optionee is employed or
retained by the Company or within six (6) months after termination of the
employment or consulting relationship by reason of death or permanent
disability, and three months after termination for any reason.
18
21
Options/SAR Grants in Last Fiscal Year
The following table sets forth certain information concerning
Options/SARs granted during 1995 to the named executives:
=======================================================================================================
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERM
- -------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARs
GRANTED TO EXERCISE OF GRANT DATE
OPTIONS/SARs EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED IN FISCAL ($/SHARE) DATE 5%($) 10%($) VALUE ($)*
YEAR
- -------------------------------------------------------------------------------------------------------
JON E. JENETT 25,000 .10% $.93 8/8/2000 6,750 14,500 6,792
=======================================================================================================
* 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 $.35 based on the following inputs:
Stock Price (Fair Market Value) at Grant (8/8/95) $ .9375
Exercise Price .93
Expected Option Term 5 years
Risk-Free Interest Rate 6.25%
Stock Price Volatility 14%
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, 1995 to December 31, 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table summarizes options and SARs exercised during 1995
and presents the value of unexercised options and SARS held by the
named executives at fiscal year end:
19
22
======================================================================================================
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED MONEY OPTIONS/SARs
SHARES ACQUIRED ON OPTIONS/SARS AT AT FISCAL YEAR-END
NAME EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR-END (#)* ($)**
- ------------------------------------------------------------------------------------------------------
EDWARD A. JOHNSON 0 0 300,000 254,625
- ------------------------------------------------------------------------------------------------------
MICHAEL S. CALLISON 0 0 100,000 68,375
- ------------------------------------------------------------------------------------------------------
GARY L. DREHER 0 0 75,000 45,475
- ------------------------------------------------------------------------------------------------------
JON E. JENETT 0 0 25,000 5,000
======================================================================================================
* All options are exercisable at fiscal year-end
** The difference between fair market value at 3/11/96 and the
exercise price.
(c) Other Compensation
In Addition to all other options held by him, Mr. Johnson received on
December 31, 1991, five years options to purchase 222,500 shares of the
Company's Common Stock. The option exercise price is $.21 per share.
The options have a five year term and vest immediately. The shares
issuable upon exercise of these options are subject to certain
restrictions. The Company has also 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.
(d) Compensation of Directors
Directors do not receive compensation for their services although they
are entitled to reimbursement for expenses incurred in attending board
meetings. Michael S. Callison received $84,000 of wages as Vice
President of Marketing and Development in 1995. Mr. Dreher received
$20,000 in marketing fees during 1995 for the marketing of the
Company's programs to the hospitals during 1995.
(e) 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 committee'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.
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, 1995 as well as the U.S. NASDAQ
stock market index and the S&P 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.
20
23
[PERFORMANCE GRAPH - PLOT POINTS IN TABLE BELOW]
OPMC S&P NASDAQ
---- --- ------
DEC 31, 1990 100 100 100
DEC 31, 1991 76 86 57
DEC 31, 1992 38 65 79
DEC 31, 1993 120 96 109
DEC 31, 1994 176 102 126
DEC 31, 1995 225 142 176
Note: The stock performance graph assumes $100 was invested on January 1, 1990.
21
24
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) Security Ownership
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 11, 1996, (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 (iii) by all directors and 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 617,426 (2) 11.6%
- --------------------------------------------------------------------------------
MICHAEL S. CALLISON 430,000 (3) 8.5%
- --------------------------------------------------------------------------------
GARY L. DREHER 138,800 (4) 2.8%
- --------------------------------------------------------------------------------
JON E. JENETT 50,000 (5) 1.0%
- --------------------------------------------------------------------------------
DR. LINDSEY ROSENWALD 282,500 5.7%
- --------------------------------------------------------------------------------
ALL OFFICERS AND
DIRECTORS AS A GROUP (4
PERSONS) 1,236,226 (6) 22.0%
================================================================================
(1) The addresses of these persons are as follows: Mr. Johnson - 24
South Stonington Road, South Laguna, CA 92677; Mr. Callison - 21972
Summerwind Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia
Hill Drive, Yorba Linda, CA 92686; Mr. Jenett - 8 South Vista De La
Luna, South Laguna, CA 92677; Dr. Lindsey Rosenwald - 375 Park Avenue,
Suite 1501, New York, New York 10152.
(2) Includes presently exercisable options to purchase 400,000 shares
of Common Stock.
(3) Includes presently exercisable options to purchase 125,000 shares
of Common Stock.
(4) Includes presently exercisable options to purchase 100,000 shares
of Common Stock.
(5) Includes presently exercisable options to purchase 50,000 shares of
Common Stock.
(6) Includes presently exercisable options to purchase 675,000 shares
of Common Stock.
(c) Changes in Control
Inapplicable.
22
25
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
On June 24, 1994, the Company loaned Mr. Johnson and Mr. Dreher $26,400 and
$13,200 respectively to purchase corporate common stock in the open market. The
notes accrued interest at the rate of 7.25% and were payable in monthly
installments due July 1, 1995. On September 19, 1994, Mr. Dreher repaid the
$13,200 note in full with interest. On July 1, 1995, Mr. Johnson repaid the note
in full plus interest.
On December 20, 1994, Mr. Johnson, Mr. Callison and Mr. Dreher were each granted
options to purchase 50,000 shares of the Company's Common Stock at $.6375 per
share. The options vest immediately and expire five years from the date of
grant.
On December 30, 1994, the Company converted a series of short term advances to
Mr. Johnson totaling $47,000 and a promissory note for $50,000 into a $97,000
promissory note due from Mr. Johnson. The note accrues interest at 4.03% and is
payable in monthly installments beginning August 1, 1995.
On May 12, 1995, the Company loaned Mr. Callison $22,800. The note accrued
interest at the rate of 9% and was repaid in full on May 26, 1995.
On August 8, 1995, the Company granted to Mr. Jenett options to purchase 25,000
shares of the Company's common stock at $.93 per share. The options vest
immediately and expire five years from the date of grant.
On December 29, 1995, the Company converted a series of short-term advances to
Mr. Johnson and a $97,000 note dated December 30, 1994 into a $155,000
promissory note due from Mr. Johnson. The note accrues interest at 4.03% and is
due December 30, 1996.
On January 16, 1996, the Company granted to Mr. Johnson options to purchase
100,000 shares of the Company's common stock and granted Mr. Callison, Mr.
Dreher and Mr. Jenett options to each purchase 25,000 shares of the Company's
common stock at $.901 per share. The options vest immediately and expire five
years from the date of grant.
During 1995, Mr. Dreher received $20,000 in marketing fees for the marketing of
the Company's programs to Hospitals during 1995.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions With Promoters
Inapplicable.
23
26
PART IV
ITEM 14 - 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 Ernst & Young LLP, Independent Auditors --
Balance Sheets as of December 31, --
1995 and December 31, 1994
Statements of Income for the years --
ended December 31, 1995, 1994 and 1993
Statements of Stockholders' Equity for the --
years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the --
year ended December 31, 1995, 1994 and 1993
Notes to Financial Statements. --
(a) (2) List of Financial Statement Schedules filed as a Part of this
Report
Schedule II - Valuation and Qualifying Accounts
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.
0033-16313-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.
24
27
3.4 Restated Certificate of Incorporation, filed October 3, 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.
10.2 Agreement between the Company and Costa Mesa Medical Center
Hospital dated April 1, 1987, incorporated by reference from
Form S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.2. (Terminated)
10.3 Agreement between the Company and County of Trinity dated May
5, 1987, incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 10.3. (Terminated)
10.4 Stock Purchase Agreement dated May 27, 1987, incorporated by
reference from Form S- 18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.4.
(Terminated)
10.5 Agreement between the Company and Corona Community Hospital
dated July 8, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33- 16313-LA) filed
July 28, 1988, Exhibit 10.5.
(Terminated)
10.6 Amended and Restated 1987 Stock Option Plan incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.6.
10.7 Agreement between Calexico Hospital and the Company dated July
27, 1987, incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 10.7.
(Terminated)
10.8 Employment between the Company and Edward A. Johnson dated July
28, 1987, incorporated by reference from Form S-18 Registration
Statement (Registration No. 33-16313-LA) filed July 28, 1988,
Exhibit 10.8.
(Terminated)
10.9 Employment between the Company and John Anthony Whalen dated
July 28, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.9.
(Terminated)
10.10 Agreement between Pacific Coast Hospital and the Company dated
July 29, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33- 16313-LA) filed
July 28, 1988, Exhibit 10.10.
(Terminated)
25
28
10.11 Agreement between Freedom Recovery Center, Inc. and the Company
dated July 31, 1987, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.11.
(Terminated)
10.12 Agreement between Temple Community Hospital and the Company
dated September 10, 1987, incorporated by reference from Form
S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.12.
(Terminated)
10.13 Agreement between Burbank Community Hospital and the Company
dated November 23, 1987, incorporated by reference from Form
S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.13.
(Terminated)
10.14 Stock Purchase Warrant between Equity Dynamics, Inc. and the
Company dated January 20, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.14.
(Expired)
10.15 Stock Purchase Warrant between Ventana Growth Fund and the
Company dated January 20, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.15.
(Expired)
10.16 Form of Demand Promissory Note and Stock Purchase Warrant
between the Company and various purchasers, incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.16.
(Expired)
10.17 Form of Unsecured Promissory Note to Ventana and Equity
Dynamics (issued in the aggregate of $99,700), incorporated by
reference from Form S-18 Registration Statement (Registration
No. 33-16313-LA) filed July 28, 1988, Exhibit 10.17.
(Paid)
10.18 Form of Modification Agreement to Incentive Stock Option
Agreement, dated January 20, 1988, incorporated by reference
from Form S-18 Registration Statement (Registration No.
33-16313-LA) filed July 28, 1988, Exhibit 10.18.
26
29
10.19 Form of Stock Purchase Warrant issued to Edward A. Johnson
dated April 29, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.19.
(Expired)
10.20 Agreement between Midwood Community Hospital and the Company
executed March 11, 1988, incorporated by reference from Form
S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.20.
(Terminated)
10.21 Commercial Promissory Note between the Company and American
Valley Bank, dated May 2, 1988, incorporated by reference from
Form S-18 Registration Statement (Registration No. 33-16313-LA)
filed July 28, 1988, Exhibit 10.21.
(Paid)
10.22 Agreement between Middletown Regional Hospital and the Company
dated July 5, 1988, incorporated by reference from Form S-18
Registration Statement (Registration No. 33-16313-LA) filed
July 28, 1988, Exhibit 10.22.
(Terminated)
10.23 Agreement between Bellflower Doctors Hospital and the Company
dated March 10, 1989.
(Terminated)
10.24 Lease amendment between the Company and Laguna Niguel Office
Center dated September 27, 1989 which supersedes lease dated
June 23, 1988.
(Terminated)
10.25 Amendment to Agreement between Midwood Community Hospital and
the Company executed November 1, 1989.
(Terminated)
10.26 Agreement between Middletown Regional Hospital and the Company
dated January 1, 1990, incorporated by reference from Form 10-K
for the year ended December 31, 1990.
(Terminated)
10.27 Amendment to agreement between Bellflower Doctors Hospital and
the Company dated February 19, 1990.
(Terminated)
10.28 Agreement between Washington Medical Center and the Company
dated July 25, 1990.
(Terminated)
10.29 Agreement between Medical Rehabilitation Incorporated and the
Company dated September 1, 1990.
(Terminated)
27
30
10.30 Lease amendment between the Company and Laguna Niguel Office
Center dated September 24, 1990 which supersedes lease dated
June 23, 1988.
10.31 Commercial Promissory Note between the Company and Monarch Bank
dated March 28, 1991. (Paid)
10.32 Agreement between Phoenix Baptist Hospital and Medical Center,
Inc. and the Company dated May 1, 1991.
(Terminated)
10.33 Promissory Demand Note between the Company and Ventana Growth
Fund L.P. dated August 30, 1991.
(Paid)
10.34 Agreement between Huntington Intercommunity Hospital and the
Company dated November 1, 1991.
10.35 Agreement between Medical Rehabilitation Incorporated and the
Company dated June 1, 1992.
(Terminated)
10.36 Agreement between General-Psych Partners and the Company dated
June 14, 1992.
(Terminated)
10.37 Amendment to Agreement dated June 14, 1992 between
General-Psych Partners and the Company dated October 1, 1992.
(Terminated)
10.38 Agreement between Huntington Intercommunity Hospital and the
Company dated October 1, 1992.
10.39 Agreement between Brotman Medical Center and the Company dated
October 20, 1992.
10.40 Agreement between General-Psych Partners and the Company dated
November 1, 1992.
(Terminated)
10.41 Promissory Note between the Company and Edward A. Johnson dated
December 10, 1992.
(Expired)
10.42 Agreement between GlenComm, Limited, a California Limited
Partnership by Glendora Acquisition Partners, Inc., a
California Corporation, General Partner, d/b/a Glendora
Community Hospital and the Company dated April 20, 1993.
(Terminated)
10.43 Lease amendment between the Company and Laguna Niguel Office
Center dated May 12, 1993 which supersedes lease dated June 23,
1988.
28
31
10.44 Stipulation for entry of judgement between the Company and
General-Psych Partners; Manohara Healthcare Investments, Inc.;
Good Samaritan Hospital; Alliance Investments for Healthcare
Inc. and Tri-Star Healthcare Corporation dated June 7, 1993.
(Paid)
10.45 Lease agreement between Mt. Carmel Resources and the Company
dated June 16, 1993.
(Expired)
10.46 Sublease agreement between Glendora Community Hospital and the
Company dated July 15, 1993.
(Terminated)
10.47 Agreement between Samaritan Health System, an Arizona
non-profit corporation d/b/a Samaritan Medical Center, San
Clemente dated October 8, 1993.
10.48 Lease agreement between Columbia Healthcare Corporation and the
Company dated October 18, 1993.
10.49 Consulting agreement between the Company and Harbor View Health
Partners, LP, d/b/a Harbor View Medical Center dated December
1, 1993.
(Terminated)
10.50 Unanimous written consent dated December 10, 1993 of the Board
of Directors amending the Promissory Note between the Company
and Edward A. Johnson dated December 10, 1992.
10.51 Agreement between Long Beach Doctors Hospital and the Company
dated January 10, 1994.
(Terminated)
10.52 Lease agreement between Whittier Narrows Business Park and the
Company dated January 10, 1994.
10.53 Sublease agreements between the Company and Medical
Rehabilitation Incorporated dated January 27, 1994.
(Terminated)
10.54 Amendment to agreement dated January 1, 1994 between Long Beach
Doctors Hospital and the Company dated February 23, 1994.
(Terminated)
10.55 1994 Stock Option Plan.
10.56 Lease Agreement between Frank T. Howard and the Company dated
May 4, 1994.
10.57 Promissory note between Edward A. Johnson and the Company dated
June 24, 1994.
(Paid)
10.58 Promissory note between Gary L. Dreher and the Company dated
June 24, 1994.
(Paid)
29
32
10.59 Sublease Agreements between Long Beach Doctor's Hospital and
the Company dated June 24, 1994.
(Terminated)
10.60 Lease amendment between the Company and Laguna Niguel Office
Center dated July 7, 1994 which supersedes lease dated June 23,
1988.
10.61 Agreement between Pacifica Hospital of the Valley and the
Company dated September 15, 1994.
(Terminated)
10.62 Agreement between Queen of the Angels - Hollywood Presbyterian
Medical Center, Inc. and the Company dated December 6, 1994.
10.63 Agreement between Pacifica Hospital of the Valley and the
Company dated December 6, 1994.
(Terminated)
10.64 Unanimous written consent dated December 30, 1994 of the Board
of Directors amending the Promissory Note between the Company
and Edward A. Johnson dated December 10, 1993.
10.65 Sublease Agreement between Pacifica Hospital of the Valley and
the Company dated January 24, 1995.
(Terminated)
10.66 Agreement between Sherman Oaks Hospital and Health Center dated
March 30, 1995.
10.67 Loan Agreement between the Company and National Bank of
Southern California dated March 31, 1995.
10.68 Lease Agreement between the Company and Laguna Niguel Office
Center dated June 5, 1995 which supersedes lease dated June 23,
1988.
10.69 Sublease Agreements between the Company and Huntington Beach
and Medical Center dated July 1, 1995.
30
33
10.70 Lease Agreement between the Company and 757 Pacific Partnership
dated July 3, 1995.
10.71 Sublease Agreement between the Company and Huntington Beach
Hospital and Medical Center dated July 24, 1995.
10.72 Lease Agreement between the Company and Columbia Healthcare
Corporation dated September 14, 1995 which supersedes lease
dated October 18, 1993.
10.73 Agreement between San Fernando Community Hospital, Inc. dba
Mission Community Hospital and the Company dated October 6,
1995.
10.74 Lease Agreement between the Company and Solomon, Saltsman &
Jameson dated October 10, 1995.
10.75 Unanimous written consent dated December 29, 1995 of the Board
of Directors amending the promissory note between the Company
and Edward A. Johnson dated December 30, 1994.
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K
Inapplicable.
31
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
OPTIMUMCARE CORPORATION
By: /s/ Edward A. Johnson
------------------------
Edward A. Johnson, President
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature/Title Date
--------------- ----
/s/ EDWARD A. JOHNSON March 27, 1996
- -----------------------
EDWARD A. JOHNSON, President &
Principal Financial Officer & Director
/s/ MICHAEL S. CALLISON March 27, 1996
- -----------------------
MICHAEL S. CALLISON, Director
/s/ GARY L. DREHER March 27, 1996
- -----------------------
GARY L. DREHER, Director
/s/ JON E. JENETT March 27, 1996
- -----------------------
JON E. JENETT, Director
32
35
Financial Statements
OptimumCare Corporation
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
36
OptimumCare Corporation
Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
Report of Independent Auditors............................................... 1
Financial Statements
Balance Sheets............................................................... 2
Statements of Income......................................................... 3
Statements of Stockholders' Equity........................................... 4
Statements of Cash Flows..................................................... 5
Notes to Financial Statements................................................ 6
37
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
OptimumCare Corporation
We have audited the accompanying balance sheets of OptimumCare Corporation as of
December 31, 1995 and 1994, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the financial statements and schedule listed
in the index at Item 14(a). These financial statements and schedule 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 8 to the 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 financial statements referred to above present fairly, in
all material respects, the financial position of OptimumCare Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
---------------------
Orange County, California
March 18, 1996
38
OptimumCare Corporation
Balance Sheets
DECEMBER 31
1995 1994
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 170,932 $ 36,657
Accounts receivable, net 1,536,693 1,642,040
Prepaid expenses 31,487 21,104
----------- -----------
Total current assets 1,739,112 1,699,801
Note receivable from officer 155,000 97,000
Furniture and equipment, less accumulated depreciation
of $34,382 in 1995 and $25,463 in 1994 25,617 16,093
Deferred acquisition costs 138,753 --
Intangibles, less accumulated amortization of $1,020 in
1995 and $816 in 1994 1,055 1,259
----------- -----------
Total assets $ 2,059,537 $ 1,814,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 192,743 $ 152,535
Accrued expenses 188,788 180,674
----------- -----------
Total current liabilities 381,531 333,209
Note payable to bank 166,000 --
Commitments
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 20,000,000
4,923,509 shares issued and outstanding in 1995;
4,904,509 shares issued and 4,896,009 shares
outstanding in 1994 4,924 4,905
Paid-in-capital 2,927,593 2,919,348
Accumulated deficit (1,420,511) (1,422,581)
Less cost of 8,500 shares in treasury in 1994 -- (5,075)
Note receivable from officer -- (15,653)
----------- -----------
Total stockholders' equity 1,512,006 1,480,944
----------- -----------
Total liabilities and stockholders' equity $ 2,059,537 $ 1,814,153
=========== ===========
See accompanying notes.
2
39
OptimumCare Corporation
Statements of Income
YEAR ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
Net revenues $6,027,122 $5,596,283 $3,825,613
Interest income 8,741 8,487 1,158
---------- ---------- ----------
6,035,863 5,604,770 3,826,771
Operating expenses:
Costs of services provided 5,022,040 4,238,355 2,877,383
Provision for uncollectible accounts 36,030 141,620 27,460
Selling, general and administrative 964,701 741,919 552,571
Interest 10,222 4,065 2,077
---------- ---------- ----------
6,032,993 5,125,959 3,459,491
---------- ---------- ----------
Income before income taxes 2,870 478,811 367,280
Income taxes 800 13,766 2,091
---------- ---------- ----------
Net income $ 2,070 $ 465,045 $ 365,189
========== ========== ==========
Net income per share $ .00 $ .09 $ .07
========== ========== ==========
See accompanying notes.
3
40
OptimumCare Corporation
Statements of Stockholders' Equity
Years ended December 31, 1993, 1994 and 1995
Note
receivable
Common stock Paid-in Accumulated Treasury from
Shares Amount capital deficit Shares Amount officer Total
--------- ------ ---------- ------------ --------- --------- --------- ----------
Balance at December 31, 1992 4,888,509 $4,889 $2,916,004 $(2,252,815) -- $ -- $ -- $ 668,078
Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680
Purchase of treasury stock -- -- -- -- 20,000 (11,646) -- (11,646)
Reissue of treasury stock -- -- -- -- (11,500) 6,571 -- 6,571
Net income -- -- -- 365,189 -- -- -- 365,189
--------- ------ ---------- ----------- ------- -------- -------- ----------
Balance at December 31, 1993 4,896,509 4,897 2,917,676 (1,887,626) 8,500 (5,075) -- 1,029,872
Note receivable from officer -- -- -- -- -- -- (15,653) (15,653)
Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680
Net income -- -- -- 465,045 -- -- -- 465,045
--------- ------ ---------- ----------- ------- -------- -------- ----------
Balance at December 31, 1994 4,904,509 4,905 2,919,348 (1,422,581) 8,500 (5,075) (15,653) 1,480,944
Payment of note receivable
from officer -- -- -- -- -- -- 15,653 15,653
Exercise of stock options 19,000 19 8,245 -- -- -- -- 8,264
Reissue of treasury stock -- -- -- -- (8,500) 5,075 -- 5,075
Net income -- -- -- 2,070 -- -- -- 2,070
--------- ------ ---------- ----------- ------- -------- -------- ----------
Balance at December 31, 1995 4,923,509 $4,924 $2,927,593 $(1,420,511) -- $ -- $ -- $1,512,006
========= ====== ========== =========== ======= ======== ======== ==========
See accompanying notes.
4
41
OptimumCare Corporation
Statements of Cash Flows
YEAR ENDED DECEMBER 31
1995 1994 1993
---- ---- ----
OPERATING ACTIVITIES
Net income (loss) $ 2,070 $ 465,045 $ 365,189
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,123 6,826 5,678
Provision for uncollectible accounts 36,030 141,620 27,460
Loss on sale of equipment -- 514 --
Common stock issued as bonuses 5,075 -- 6,571
Changes in operating assets and liabilities:
(Increase) in accounts receivable 69,317 (1,022,363) (190,305)
(Increase) decrease in prepaid expenses (10,383) 152,853 (154,588)
Increase (decrease) in accounts payable 40,208 (2,728) (40,775)
Increase in accrued liabilities 8,114 66,594 60,417
--------- ----------- ---------
Net cash provided by (used in) operating
activities
159,554 (191,639) 79,647
INVESTING ACTIVITIES
Purchases of equipment (18,443) (13,362) (3,301)
Deferred acquisition costs (138,753) -- --
Note receivable from officer (58,000) (47,000) (20,000)
--------- ----------- ---------
Net cash used in investing activities (215,196) (60,362) (23,301)
FINANCING ACTIVITIES
Note payable to bank 166,000 -- --
Note receivable from officer 15,653 (15,653) --
Exercise of stock options 8,264 1,680 1,680
Purchase of treasury stock -- -- (11,646)
--------- ----------- ---------
Net cash provided by (used in) financing
activities
189,917 (13,973) (9,966)
--------- ----------- ---------
Net increase (decrease) increase in cash 134,275 (265,974) 46,380
Cash and cash equivalents at beginning of year 36,657 302,631 256,251
--------- ----------- ---------
Cash and cash equivalents at end of year $ 170,932 $ 36,657 $ 302,631
========= =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 8,720 $ 4,065 $ 2,077
Cash paid for income taxes $ 31,201 $ 22,065 $ 2,091
See accompanying notes.
5
42
OptimumCare Corporation
Notes to Financial Statements
December 31, 1995
1. 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. The Company's programs are currently being
marketed in the United States, principally California, to independent acute
general hospitals and other health care facilities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less, when purchased to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed by the
straight-line method based upon the estimated useful lives of the related
assets.
INTANGIBLE ASSETS
The Company's trade name became registered during December 1990. It is recorded
at cost and is being amortized over its estimated useful life of 10 years using
the straight-line method. Accumulated amortization is $1,020 and $816 as of
December 31, 1995 and 1994, respectively.
REVENUE RECOGNITION
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.
INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, Accounting for Income Taxes. As permitted under the new
rules, prior year's financial statements have not been restated. The cumulative
effort of adopting Statement No. 109 as of January 1, 1993 was not material.
6
43
OptimumCare Corporation
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
shares outstanding, giving effect to common stock equivalents arising from stock
options, of 5,432,748, 5,239,163 and 5,139,080 in 1995, 1994 and 1993,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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, the
usage and recoverability of long-lived assets. The actual results could differ
from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"), which requires pro forma disclosures of net income and earnings
per share using a fair value based method of accounting for all employee stock
options or similar equity instrument plans. OptimumCare Corporation will
implement the disclosure provisions of SFAS 123 effective December 31, 1996.
OptimumCare Corporation is required to adopt statement of Financial Accounting
Standards No. 121, Accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of ("SFAS 121") in 1996. SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets, certain
identifiable intangibles and goodwill. Management has not yet determined whether
the adoption of SFAS 121 will have a material impact on OptimumCare Corporations
financial position or the results of its operations.
7
44
OptimumCare Corporation
Notes to Financial Statements (continued)
2. PROVISION FOR UNCOLLECTIBLE ACCOUNTS
In June 1994, two contracts with one entity which leased facilities from one
hospital were canceled due to the filing of bankruptcy by the hospital. All
unpaid amounts due from the contracts have been written off in full at December
31, 1994, which totaled $141,620.
3. NOTE RECEIVABLE FROM OFFICER
On December 29, 1995, the Company converted a series of short-term advances and
a $97,000 note dated December 30, 1994 into a promissory note from an officer
totaling $155,000. The note accrues interest at the rate of 4.03% and is due
December 30, 1996.
On June 24, 1994, the Company loaned two officers $26,400 and $13,200,
respectively, to purchase corporate common stock in the open market. The notes
accrued interest at the rate of 7.25% and were payable in monthly installments
due July 1, 1995. On September 19, 1994 one officer repaid the $13,200 note in
full. The other note was repaid in full on July 1, 1995.
On May 12, 1995 the Company loaned an officer $22,800. The note accrued interest
at the rate of 9% and was repaid in full on May 26, 1995.
4. NOTE PAYABLE TO BANK
On April 12, 1995, the Company entered into a $500,000 line of credit agreement
with a bank that expires May 1, 1996. At the expiration date, the then principal
balance of the loan shall be convertible into a one year term loan with an
initial due date of May 1, 1997, but with a five (5) year repayment schedule.
The term loan is renewable for an additional term of one year. The loan bears
interest at the rate of 11% per year and is secured by all the assets of the
Company. At December 31, 1995, $334,000 was available for future draws on the
line of credit agreement. During 1996, $72,872 of additional funds were borrowed
under this agreement.
8
45
OptimumCare Corporation
Notes to Financial Statements (continued)
5. LEASE COMMITMENT
The Company leases two office facilities under lease agreements that expire June
30, 1996 and October 31, 1996, respectively. The Company also leased space under
five separate lease agreements for the operation of four of its outpatient
partial hospitalization psychiatric programs, of which one agreement is on a
month-to-month basis and the remaining agreements expire, September 30, 1996,
June 3, 1997, June 23, 1997 and June 30, 1997, respectively. Aggregate future
minimum lease payments under these leases are as follows:
1996 $189,271
1997 59,896
--------
$249,167
========
The lease which expires June 30, 1997 contains five one-year options to extend
the lease. Subleases with two of the Company's host hospitals exist for the
entire amount of aggregate future minimum lease payments above. Sublease rental
income was $154,621, $48,995 and $14,876 for the years ended December 31, 1995,
1994 and 1993, respectively. Rent expense was $191,251, $119,520, and $49,436
for the years ended December 31, 1995, 1994 and 1993, respectively.
6. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In July 1987, the Company adopted a stock option plan (the Plan) including
incentive stock options and nonqualified stock options. A maximum of 455,000
shares of the Company's common stock has been reserved for issuance under the
plan. Under the Plan, incentive stock options may be granted at an exercise
price which is not less than 100% of the fair market value on the date of grant
(110% for greater than 10% stockholders). In addition, nonqualified stock
options may be granted at an exercise price which is no less than 85% of the
fair market value on the date of grant. Options may be granted for terms up to
10 years (five years for greater than 10% stockholders).
In 1991, the Company granted options to purchase 239,600 shares of its common
stock at $.21 per share that were vested upon grant. Of these options 222,500
were granted to an officer of the Company.
9
46
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the
Plan) including incentive stock options and nonqualified stock options. In
December 1995, the Company readopted and approved the 1994 Stock Option Plan
(the Plan) A maximum of 500,000 shares of the Company's common stock has been
reserved for issuance under the plan. Under the Plan, incentive stock options
may be granted at an exercise price which is not less than 100% of the fair
market value on the date of grant (110% for greater than 10% stockholders). In
addition, nonqualified stock options may be granted at an exercise price which
is no less than 85% of the fair market value on the date of grant. Options may
be granted for terms up to 10 years (five years for greater than 10%
stockholders).
In December 1994, the Company granted non-qualified options to purchase 225,000
shares of its common stock at $.6375 per share that are vested upon grant. No
options have been exercised under these grants.
In 1995, the Company granted options to purchase 200,000 shares of its common
stock at $.65 per share that are vested upon grant. No options have been
exercised under these grants.
During various dates in 1995, the Company granted to certain officers,
directors, employees and consultants, non-qualified options to purchase 250,000
shares of its common stock at prices ranging from $.6375 to $.93 per share that
are vested upon grant. No options have been exercised under these grants.
10
47
OptimumCare Corporation
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
A summary of incentive stock option activity under the 1987 plan during 1993,
1994 and 1995 is as follows:
1987
Shares under option PLAN
----
Outstanding at December 31, 1992 305,000
Granted 235,000
Exercised (8,000)
Canceled (187,500)
--------
Outstanding at December 31, 1993 344,500
Granted 50,000
Exercised (8,000)
Canceled (25,000)
--------
Outstanding at December 31, 1994 361,500
Granted --
Exercised (19,000)
Canceled (25,000)
========
Outstanding at December 31, 1995 317,500
========
Exercise price of outstanding options
at December 31, 1993 $.21 to $.375
at December 31, 1994 $.21 to $.67
at December 31, 1995 $.21 to $.67
Options exercisable
at December 31, 1993 294,500
at December 31, 1994 311,500
at December 31, 1995 317,500
A total of 1,394,600 and 1,194,600 shares of common stock were reserved for
future issuance upon the exercise of stock options at December 31, 1995 and
1994, respectively. A total of 162,500 options were available for future grant
at December 31, 1995.
11
48
OptimumCare Corporation
Notes to Financial Statements (continued)
7. INCOME TAXES
A reconciliation of the provision for income taxes using the federal statutory
rate to the book provision for income taxes follows:
1995 1994 1993
---- ---- ----
Statutory federal provision for income taxes $ 1,000 $ 167,583 $ 124,875
Increase (decrease) in taxes resulting from:
Current use of net operating loss
carryforwards (1,000) (167,583) (124,875)
Federal alternative minimum tax -- 6,000 --
State tax, net of federal benefit 800 7,776 2,091
------- --------- ---------
$ 800 $ 13,766 $ 2,091
======= ========= =========
Significant components of the provision for income taxes are as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ -- $ 6,000 $ --
State 800 7,766 2,091
---- ------- ------
Total current 800 13,766 2,091
---- ------- ------
Deferred:
Federal -- -- --
State -- -- --
Total deferred -- -- --
---- ------- ------
$800 $13,766 $2,091
==== ======= ======
At December 31, 1995, the Company has unused net operating loss carryforwards of
approximately $1,179,000 for federal income tax purposes which expire beginning
in the year 2003. The Company has unused net operating loss carryforwards of
approximately $16,000 for state income tax purposes which expire beginning in
the year 2003. A valuation allowance has been recorded to entirely offset the
tax benefits of this attribute.
12
49
OptimumCare Corporation
Notes to Financial Statements (continued)
7. 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, 1995 and 1994 consist of the following:
1995 1994 1993
---- ---- ----
Net operating loss carryforwards $ 413,000 $ 401,000 $ 648,000
Alternative minimum tax credit carryforwards 4,000 4,000 --
Reserves and accruals not currently deductible
for tax purposes 17,000 43,000 9,000
Depreciation not currently deductible for tax
purposes -- 1,000 1,000
--------- --------- ---------
Total deferred tax assets 434,000 449,000 658,000
Less valuation allowance (434,000) (449,000) (658,000)
--------- --------- ---------
Net deferred tax asset $ -- $ -- $ --
========= ========= =========
8. MAJOR CUSTOMERS
Four of the Company's hospitals accounted for $4,726,068 and five of the
Company's hospitals accounted for $4,670,236 of net revenue in 1995 and 1994,
respectively. In addition, these hospitals accounted for approximately
$1,080,633 and $1,467,940 of accounts receivable at December 31, 1995 and 1994,
respectively. As the Company is dependent upon a small number of hospitals, the
loss of any contract could have a significant adverse effect on the Company's
operations. Management intends to use its best efforts to retain existing
contracts and expand the scope of services on these contracts, obtain new
contracts, and maintain patient census at the same or higher levels than has
historically been experienced.
9. DEFERRED ACQUISITION COSTS
Deferred acquisition costs consist of the direct cost of fees paid to outside
consultants and other professionals incurred in assisting with the proposed
acquisitions of Psychological Healthcare, Inc. and Care Source Inc. The specific
terms of the proposed purchases have not yet been finalized. In the event the
acquisitions are not consummated these items will be expensed. The Company plans
to amortize all acquisition costs over the useful life of the Psychological
Healthcare and Care Source products and services.
13
50
OptimumCare Corporation
Notes to Financial Statements (continued)
9. DEFERRED ACQUISITION COSTS (CONTINUED)
Psychological Healthcare operates outpatient mental health clinics. Care Source
provides management and other administrative behavioral healthcare services to
skilled nursing and other similar board and care facilities.
14
51
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
OPTIMUMCARE CORPORATION
===================================================================================
COL. A COL. B COL. C COL. D COL. E
===================================================================================
ADDITIONS
Charged
Balance at Charged to Other Balance
Beginning to Costs Accounts Deductions At End
Description of Period & Expenses Describe Describe of Period
===================================================================================
YEAR ENDED
DECEMBER 31, 1995
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts $ 0 $ 36,030 $ (36,030) $0
YEAR ENDED
DECEMBER 31, 1994
Reserves and
allowances deducted
from asset accounts:
Allowance for
uncollectible
accounts 0 141,620 (141,620) 0
YEAR ENDED
DECEMBER 31, 1993
Reserves and allowances
from asset accounts:
Allowance for
uncollectible
accounts 2,822 27,460 (30,282)(1) 0
(1) Uncollectible accounts written off, net of recoveries
33