<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: DECEMBER 31, 1998
Commission File Number 0-21333
RMH TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2250564
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
40 MORRIS AVENUE, BRYN MAWR, PA 19010
(Address of principal executive offices and zip code)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 8,120,000 shares of Common
Stock outstanding as of February 9, 1999.
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1998..................... 3
Consolidated Statements of Operations for the
three months ended December 31, 1998 and 1997................ 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1998 and 1997................ 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 14
Item 2. Changes in Securities and Use of Proceeds.................... 14
Item 3. Defaults upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 15
Item 6. Exhibits and Reports on Form 8-K............................. 15
SIGNATURES............................................................ 16
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30, LIABILITIES AND December 31, September 30,
ASSETS 1998 1998 SHAREHOLDERS' EQUITY 1998 1998
- --------------------------------------- ------------ ------------- -------------------------------- ------------ -------------
CURRENT ASSETS: CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,327,000 $ 4,179,000 Accounts payable $ 860,000 $ 1,423,000
Marketable securities 5,686,000 6,779,000 Accrued expenses 2,604,000 3,021,000
Accounts receivable, net of allowance Deferred income taxes 554,000 554,000
for doubtful accounts of $46,000 ------------ ------------
and $37,000 Total current liabilities 4,018,000 4,998,000
14,221,000 10,739,000 ------------ ------------
Prepaid expenses and other current
assets 1,360,000 1,463,000
----------- -----------
Total current assets 22,594,000 23,160,000 DEFERRED INCOME TAXES 150,000 150,000
----------- ----------- ------------ ------------
PROPERTY AND EQUIPMENT 10,740,000 10,530,000
Less - Accumulated depreciation and SHAREHOLDERS' EQUITY:
amortization (6,850,000) (6,483,000) Common stock 48,638,000 48,638,000
----------- -----------
Common stock warrant outstanding 450,000 450,000
3,890,000 4,047,000 Accumulated deficit (26,644,000) (26,901,000)
Net property and equipment ----------- ----------- ------------ ------------
Total shareholders' equity 22,444,000 22,187,000
------------ ------------
OTHER ASSETS 128,000 128,000
----------- -----------
$ 26,612,000 $ 27,335,000 $ 26,612,000 $ 27,335,000
=========== =========== ============ ============
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
3
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
-----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES $15,837,000 $12,247,000
----------- -----------
OPERATING EXPENSES:
Cost of services 11,950,000 8,983,000
Selling, general and administrative 3,583,000 2,564,000
----------- -----------
Total operating expenses 15,533,000 11,547,000
----------- -----------
Operating income 304,000 700,000
INTEREST INCOME 107,000 148,000
----------- -----------
Income before income taxes 411,000 848,000
INCOME TAXES 154,000 305,000
----------- -----------
NET INCOME $ 257,000 $ 543,000
=========== ===========
BASIC INCOME PER COMMON SHARE $0 .03 $ 0 .07
=========== ===========
DILUTED INCOME PER COMMON SHARE $0 .03 $ 0.07
=========== ===========
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,120,000 8,120,000
=========== ===========
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,263,000 8,262,000
=========== ===========
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
4
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
---------------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 257,000 $ 543,000
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 367,000 365,000
Changes in operating assets and liabilities -
Accounts receivable (3,482,000) (1,705,000)
Prepaid expenses and other current assets 103,000 (389,000)
Other assets --- 4,000
Accounts payable and accrued expenses (980,000) (1,313,000)
----------- -----------
Net cash used in operating activities (3,735,000) (2,495,000)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (210,000) (583,000)
Purchases of marketable securities (2,686,000) (4,337,000)
Maturities of marketable securities 3,779,000 2,200,000
----------- -----------
Net cash provided by (used in)
investing activities 883,000 (2,720,000)
----------- -----------
FINANCING ACTIVITIES:
Repayment on capitalized lease obligations --- (3,000)
----------- -----------
Net cash used in financing activities --- (3,000)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (2,852,000) (5,218,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,179,000 6,882,000
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,327,000 $ 1,664,000
=========== ===========
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
5
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
- ----------------------------------------------
RMH Teleservices, Inc., and Subsidiaries, (the "Company") provides outbound and
inbound teleservices to major corporations in the insurance, financial services,
telecommunications and membership service industries.
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows.
Operating results for the three-month periods ended December 31, 1998 and 1997,
are not necessarily indicative of the results that may be expected for the
complete fiscal year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. These financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30, 1998.
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
The Company has provided basic and diluted income per share pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 requires dual presentation of basic and diluted earnings
per share. According to SFAS No. 128, basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution from
the exercise or conversion of securities into Common stock, such as stock
options and warrants.
6
<PAGE>
The following is a reconciliation of the numerators and denominators of the
basic and diluted income per share computations:
<TABLE>
<CAPTION>
For the Three Months Ended, December 31,
----------------------------------------
1998 1997
-----------------------------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------- ------------------ ------------ ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $257,000 8,120,000 $0.03 $543,000 8,120,000 $0.07
===== =====
Effect of dilutive
securities:
Stock warrants --- 142,000 --- 142,000
Stock options -- 1,000 -- --
-------- --------- -------- ---------
Diluted income
per Common share:
Net income and
assumed
conversion
of dilutive $257,000 8,263,000 $0.03 $543,000 8,262,000 $0.07
securities ======== ========= ===== ======== ========= =====
</TABLE>
Options to purchase approximately 599,000 and 255,000 shares of Common stock
with an average exercise price of $3.47 and $12.22 were outstanding during the
three months ended December 31, 1998 and 1997, respectively, but were not
included in the computation of diluted income per share because the options'
exercise prices were greater than the average market price of the Common shares
during the period. The options, which expire at various times through September
2008, were still outstanding as of December 31, 1998.
NOTE 3 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
- ---------------------------------------------------------
The Company is dependent on several large customers for a significant portion of
its revenues. These three customers accounted for 57.9% and 71.6% of revenues
for the quarter ended December 31, 1998 and 1997, respectively. The loss of one
or more of these customers could have a materially adverse effect on the
Company's business.
The Company is affiliated with one of its customers. This customer represented
4.7% and 8.7% of revenues for the quarter ended December 31, 1998 and 1997,
respectively.
Concentration of credit risk is limited to accounts receivable and is subject to
the financial conditions of the Company's customers. Three of the Company's
largest customers are engaged in transactions with each other and represent a
single credit risk to the Company. The Company does not require collateral or
other securities to support customer receivables. At December 31, 1998, the
accounts receivable from the customers that represent a single credit risk were
$7,985,000.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Safe Harbor for Forward-Looking Statements
- ------------------------------------------
From time-to-time, the Company may publish statements which are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's business include, but are not limited to: (i) reliance
on principal client relationships in the insurance and financial services
industries; (ii) fluctuations in quarterly results of operations due to the
timing of clients' telemarketing campaigns, the timing of opening new call
centers and expansion of existing call centers and changes in competitive
conditions affecting the telemarketing industry; (iii) difficulties of managing
growth profitably; (iv) dependence on the services of the Company's executive
officers and other key operations and technical personnel; (v) changes in the
availability of qualified employees; (vi) performance of automated call-
processing systems and other technological factors; (vii) the impact of the Year
2000 issues on the Company; (viii) reliance on independent long-distance
companies; (ix) changes in government regulations affecting the teleservices and
telecommunications industries; (x) competition from other outside providers of
teleservices and in-house telemarketing operations of existing and potential
clients; and (xi) competition from providers of other marketing formats, such as
direct mail and emerging strategies such as interactive shopping and marketing
over the Internet.
Overview
- --------
The Company is a leading outsourcing provider of outbound and inbound
teleservices to major corporations in the insurance, financial services,
telecommunications and membership services industries. Founded in 1983, the
Company opened its first call center in 1985 to support the marketing efforts of
its consulting customers. At the present time, outbound business-to-consumer
teleservices has become the predominant business of the Company.
On December 10, 1998, RMH Teleservices International Inc. ("RMHTI"), a wholly-
owned subsidiary, was incorporated in the Province of New Brunswick, Canada.
The purpose of establishing this new subsidiary was to create a legal entity to
conduct the Company's business operations in Canada. Subsequent to December 31,
1998, RMHTI entered into leases for premises in Oromocto, New Brunswick and
Brantford, Ontario for new call centers. These call centers will each have 200
workstations and are scheduled to begin operations during March 1999.
The Company's results of operations in any single interim period should not be
viewed as an indication of future results of operations. The Company may
experience quarterly variations in net revenue and operating income as a result
of the timing of clients' telemarketing campaigns, the commencement and
expiration of contracts, the amount of new business generated by the Company,
the timing of additional selling, general and administrative expenses to acquire
and support such new business and changes in the Company's revenue mix among its
various customers.
8
<PAGE>
Results of Operations
- ---------------------
Three Months Ended December 31, 1998 Compared to Three Months Ended December 31,
- --------------------------------------------------------------------------------
1997
- ----
Revenues - Revenues increased to $15,837,000 for the quarter ended December 31,
1998 from $12,247,000 for the quarter ended December 31, 1997, an increase of
$3,590,000 or 29.3%. Of such increase in revenues, approximately $3,454,000 was
attributable to increased calling volumes from existing clients who have been
with the Company prior to October 1, 1998, and $136,000 was attributable to new
clients. To meet client demand, the Company added 60 new workstations in Ewing
Township, NJ and opened a 96 seat call center in Largo, FL during the quarter
ended December 31, 1998. The Company plans on opening at least three additional
call centers by September 30, 1999.
Cost of Services - Cost of services increased to $11,950,000 for the quarter
ended December 31, 1998 from $8,983,000 for the quarter ended December 31, 1997.
As a percentage of revenues, cost of services increased to 75.5% for the quarter
ended December 31, 1998 as compared to 73.3% for the quarter ended December 31,
1997. The Company believes that the increase in cost of services, as a
percentage of revenues during the quarter, is attributable to pricing pressures
coupled with the upward pressure on labor rates as a result of the tight labor
market. The Company anticipates that cost of services, as a percentage of
revenues, may increase during the year to the degree that large volume
opportunities warrant additional pricing discounts to be offered by the Company,
longer periods of time are required to generate acceptable levels of utilization
at new call centers, and/or continuous upward pressures are placed on hourly
wages as a result of tighter or more competitive labor markets.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $3,583,000 for the quarter ended December 31, 1998 from
$2,564,000 for the quarter ended December 31, 1997. As a percentage of
revenues, selling, general and administrative expenses increased to 22.6% for
the quarter ended December 31, 1998 from 20.9% for the quarter ended December
31, 1997. The increase was primarily the result of increased staffing and
other cost increases required to support the growth in the Company's revenues.
Interest Income - Interest income for the quarter ended December 31, 1998 and
1997, was $107,000 and $148,000, respectively, and was earned by investing the
remaining proceeds of the Company's initial public offering in marketable
securities and cash equivalents.
Income Tax Expense - Income tax expense for the quarter ended December 31, 1998
and 1997 was $154,000 and $305,000, respectively, and represents income taxes
based upon an effective tax rate of 37.5% and 36.0% respectively. This tax rate
is reflective of both the Federal tax rate in effect and those state tax rates
in effect where the Company does business coupled with certain tax planning
strategies previously implemented in fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company's primary sources of liquidity have been cash flow
from operations and borrowings under its credit facilities. On September 24,
1996, the Company completed an initial public offering and raised net proceeds
of approximately $36.3 million. The Company used approximately $27.9 million of
these proceeds to repay all bank indebtedness, redeem its Series B Preferred
Stock and pay certain one-time special bonuses to it's founders. The remaining
$8.3 million in proceeds has been, and will continue to be, used for working
capital and general corporate purposes.
9
<PAGE>
On March 21, 1997, the Company entered into a new $4.0 million line of credit
facility (the "Credit Line") with PNC Bank (the "Bank"). The Credit Line
replaced the Company's former term loan and credit facility. The Credit Line
expires on April 1, 1999, subject to renewal. Outstanding balances bear
interest at the Company's option at either the LIBOR rate plus 95 basis points
or at the Bank's prime rate minus 50 basis points. It is the Company's
intention to renew the existing Credit Line with terms comparable to those
currently in place. The Credit Line is secured by all of the assets of the
Company and contains financial covenants and certain restrictions on the
Company's ability to incur additional debt or dispose of its assets. As of
December 31, 1998, the Company had no borrowings outstanding on the Credit Line.
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company had up to $6.0 million available for purposes of
leasing call center equipment. The $6.0 million commitment expired on April 1,
1998, and required that such leases meet the accounting definition of an
operating lease with rent to be paid over a period not to exceed sixty months.
The Company financed $4.1 million of equipment under this facility.
Under a separate agreement dated March 10, 1998, with PNC Leasing Corporation,
the Company has established an additional lease facility of $6.0 million
available for purposes of leasing call center equipment. The $6.0 million
commitment expires April 1, 1999, and requires that such leases meet the
accounting definition of an operating lease with rent to be paid over a period
not to exceed sixty months. As of December 31, 1998, the Company has financed
$4.4 million of equipment under this facility.
Net cash used in operating activities was $3,735,000 during the quarter ended
December 31, 1998. During the quarter ended December 31, 1997, net cash used in
operating activities was $2,495,000. The cash used in operations in the 1998
period resulted from an increase in the Company's accounts receivable coupled
with a decrease in its accounts payable and accrued expenses partially offset by
the Company's net income for the quarter.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the three month period ended
December 31, 1998, were $210,000. The Company expects to allocate approximately
$6.0 million for capital equipment expenditures during the remainder of the
fiscal year ending September 30, 1999, primarily for call center capacity
expansion and other enhancements of technology used throughout its call center
operations.
The Company believes that cash generated from operations, when available,
together with its cash and marketable securities and available credit under the
Credit Line and leasing agreement will be sufficient to finance its current
operations and planned capital equipment expenditures at least until December
31, 1999.
Recent Accounting Pronouncements
- --------------------------------
Effective with the first quarter of fiscal 1999, the Company was subject to the
provisions of SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130 had
no impact on the Company's financial statements as the Company does not have any
"comprehensive income" type earnings (losses).
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and require
that those enterprises report selected information about operating segments in
interim financial reports to stockholders. It also establishes standards for
related disclosures about
10
<PAGE>
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 131 for its fiscal year ending September 30, 1999 financial
statements. Management believes that SFAS No. 131 will not have a material
effect on the Company's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998 and provides guidance on the financial reporting of start-up activities and
organization costs. It requires costs or start-up activities to be charged to
expense as incurred. SOP 98-5 is required to be adopted for the Company's
fiscal year ending September 30, 2000. The adoption of this pronouncement is
expected to have no material impact on the Company's financial position or
results of operations.
Year 2000 Readiness Disclosure
- ------------------------------
The year 2000 problem arises as a result of computer programs being written
using two digits rather than four digits to define the applicable year. In other
words, date-sensitive software, including those with embedded microprocessors,
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system and equipment failures or malfunctions causing
disruptions of operations, including among others, a temporary inability to
process calls, transactions and information, or engage in similar normal
business activities.
The Company's Internal Systems. The Company has evaluated its infrastructure as
it relates to information technology and has developed a plan to ensure its Year
2000 compliance. This plan includes, among other things, replacing certain
systems with new internally developed Year 2000 compliant systems and upgrading
the remaining software systems to be Year 2000 compliant. Year 2000 compliant
upgrades to the Company's predictive dialing equipment have been installed in
all but two call centers. These remaining call centers are on target for
completion in February 1999. These processes will allow the Company to receive
lead information, make and receive calls, and produce reports on compliant and
non-compliant date formats. Modification and testing of all information and non-
information systems will extend into the third fiscal quarter and are scheduled
to be completed by June 1999. The Company has replaced 25 of 55 non-compliant
personal computer workstations and anticipates replacing the remaining
workstations by March 1999.
The Company is also in the process of evaluating its security systems, copiers
and other non-information technology infrastructure in which non-compliant
software or embedded microprocessors might exist. The Company believes that all
material components in this infrastructure will be Year 2000 compliant by the
end of fiscal 1999.
Readiness of Third Parties. The Company has requested information from its
third party vendors and clients on their Year 2000 readiness to determine the
extent to which their inability to be Year 2000 compliant will affect the
Company. This process has included identifying vendors and defining the
readiness of their products and services. The Company's primary focus as it
relates to vendors is on those that support the teleservices platform and
information technology platforms, followed by all others. The Company is
approximately 25% through the vendor compliance documentation process which
includes use of vendor compliance documentation published on the Internet. A
similar process will be followed with clients to assess their Year 2000
readiness. The Company's software is being modified to accept two digit year or
four digit century inputs, and will output in either format. Accordingly, the
Company is prepared for either occurrence and should not be adversely affected
by year format.
11
<PAGE>
Cost of Year 2000 Compliance. The Company has incurred minimal costs to date
in addressing the Year 2000 issue. The Year 2000 evaluation, modification and
testing that has been undertaken to date has not had a material effect on the
Company's ability to deliver reports and other output on a timely basis.
However, the Company anticipates that the Year 2000 project could affect
development of internal systems nearing the latter part of fiscal 1999. The
Company currently expects that the total costs to become Year 2000 compliant
will not exceed $750,000. Hardware costs are projected to be approximately
$300,000, software costs are projected to be approximately $250,000, and
consulting and testing costs are projected to be approximately $200,000. The
Company is researching the use of a third party to independently review its plan
and processes. New capital equipment which the Company will require will be
either purchased or financed under the Company's operating lease line. The
remaining costs will be financed out of operating working capital.
Risks Associated with the Year 2000. The extent of the Company's Year 2000
exposure, the costs of achieving Year 2000 compliance and the time period
within which the Company believes it will achieve Year 2000 compliance are based
on management's knowledge to date and its best estimates. The Company is not
aware, at this time, of any internal or third party vendor Year 2000 non-
compliance that will not be fixed by the end of December 1999 and that will
materially affect the Company. However, these estimates were derived using
numerous assumptions, and some risks that the Company faces include: the failure
of internal information systems, the failure of third parties to provide
services, such as electricity and telecommunication services and a slow down in
clients ability to make payments. There can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel, the
ability to identify and correct all Year 2000 impacted areas, the ability of
third party vendors and clients to be Year 2000 compliant and other similar
uncertainties.
Contingency Plans. The Company believes that the most reasonably likely worst
case scenario, other than the loss of telecommunications and power, is loss of
the dialers which will prevent the Company from generating revenue. It is
reasonable to assume that there might be some interruptions related to specific
campaigns and applications. The Company is in the process of developing
contingency plans. Such plans are expected to be completed by July 1999.
12
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high credit quality issuers
and limits the amount of credit exposure with any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in only the safest and highest
credit quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below represents principal (or notional) amounts and related weighted
average interest rates for the Company's investment portfolio as of December 31,
1998. All investments mature in one year or less.
<TABLE>
<CAPTION>
Principal Amount Fair Value
----------------- -----------
(in thousands)
<S> <C> <C>
Assets
Cash equivalents:
Variable rate $1,287 $1,287
Average interest rate 5.01% 5.01%
Marketable Securities:
Fixed rate $5,825 $5,686
Average interest rate 5.48% 5.48%
------ ------
Total Investments $7,112* $6,973
- ----------------- ====== ======
</TABLE>
*Includes $123,000 of unaccrued interest to be received at maturity.
13
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities and Use of Proceeds
a. None.
b. None.
c. The Company has not sold any securities that were not
registered under the Securities Act.
d. The Company's Registration Statement on Form S-1 (File No.
333-07501) (the "Registration Statement") was declared
effective by the Commission on September 18, 1996. Pursuant
to the Registration Statement, the Company registered an
aggregate of 3,220,000 shares of Common Stock, with no par
value. All of the shares registered by the Registration
Statement were sold at $12.50 per share, realizing aggregate
proceeds of $40,250,000 and net aggregate proceeds of
$36,317,000 (after deduction of underwriters' discounts,
commissions and other offering expenses of $3,933,000).
None of these expenses were paid to directors, officers,
general partners or their associates or to 10% shareholders
of the Company. Of the net proceeds of the offering,
$15,300,000 were used to repay indebtedness and $6,000,000
were used to pay a special bonus to Raymond J. Hansell and
MarySue Lucci, the Company's founders and owners of in
excess of 10% of the Common Stock. The amount of $6,400,000
was used to fund the redemption of Series B Preferred Stock
by Advanta Partners LP, an owner of 10% or more of the
Common Stock, and the amount of $281,000 to fund the
redemption of Series B Preferred Stock by Glengar
International Investments Limited. The remainder of the
proceeds were invested in short-term investments pending
their withdrawal for general corporate purposes. At
February 9, 1999, the balance of these investments was
approximately $5,229,000 reflecting the use of approximately
$3,107,000 for general corporate purposes.
14
<PAGE>
Item 3: Defaults upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. 27 - Financial Data Schedule
b. Reports on Form 8-K
None
15
<PAGE>
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.
RMH Teleservices, Inc.
DATED: February 10, 1999 BY: /s/ John A. Fellows
----------------------------
John A. Fellows
Chief Executive Officer
DATED: February 10, 1999 BY: /s/ Michael J. Scharff
-------------------------------
Michael J. Scharff
Executive Vice President and
Acting Chief Financial Officer
(Principal Financial and Accounting Officer)
16
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,327,000
<SECURITIES> 5,686,000
<RECEIVABLES> 14,267,000
<ALLOWANCES> (46,000)
<INVENTORY> 0
<CURRENT-ASSETS> 22,594,000
<PP&E> 10,740,000
<DEPRECIATION> (6,850,000)
<TOTAL-ASSETS> 26,612,000
<CURRENT-LIABILITIES> 4,018,000
<BONDS> 0
0
0
<COMMON> 48,638,000
<OTHER-SE> (26,194,000)
<TOTAL-LIABILITY-AND-EQUITY> 26,612,000
<SALES> 0
<TOTAL-REVENUES> 15,837,000
<CGS> 0
<TOTAL-COSTS> 15,533,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 411,000
<INCOME-TAX> 154,000
<INCOME-CONTINUING> 257,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
