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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1995
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 0-17192
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CYPRESS FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 95-313122
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 ORANGE AVENUE, SUITE 200, CYPRESS, CA 90630
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number including area code (714) 995-0627
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.
(1)Yes X No
--- ---
(2)Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Common Stock 4,500,271 as of July 29, 1996
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<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet at
December 31, 1995............................... 1
Condensed Consolidated Statements of Operation
for the three months ended December 31, 1995
and 1994........................................ 2
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31, 1995
and 1994........................................ 3
Notes to Condensed Consolidated
Financial Statements............................ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 8
PART II. OTHER INFORMATION
Item 1. Other Information............................... 10
</TABLE>
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash $ 173,979
Restricted cash 348,290
Notes receivable from shareholders 65,583
Accounts receivable, net 283,928
Portfolio receivables 494,135
Property, net 2,705,774
Other 42,178
-----------
$ 4,113,867
===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
<S> <C>
Accounts payable $ 42,517
Trust payables 348,290
Accrued liabilities 100,670
Notes payable to related parties 750,000
Line of credit 749,195
Long-term debt 2,675,949
-----------
Total liabilities 4,666,621
-----------
Commitments and contingencies
Shareholders' equity (capital deficiency):
Preferred stock, 5,000,000 shares
authorized, none outstanding -
Common stock, $0.001 par value; 30,000,000
shares authorized; 4,500,271 shares
issued and outstanding 4,500
Additional paid-in capital 495,500
Accumulated deficit (1,052,754)
-----------
Total capital deficiency (552,754)
-----------
$ 4,113,867
===========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
1
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three-Month Periods Ended
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Service fees $1,034,472 $1,210,573
Portfolio income 2,431 ---
---------- ----------
1,036,903 1,210,573
Selling, general and administrative
expenses 1,070,477 1,210,940
---------- ----------
Loss from operations (33,574) (367)
---------- ----------
Other income (expense):
Interest expense (58,032) (41,287)
Rental operations, net 35,201 36,002
Loss on sale of assets --- (6,548)
---------- ----------
(22,831) (11,833)
---------- ----------
Loss before provision for income taxes (56,405) (12,200)
Provision for income taxes 3,949 2,951
---------- ----------
Net loss $ (60,354) $ (15,151)
========== ==========
Net loss per share $(0.01) $(0.01)
========== ==========
Weighted average shares outstanding 4,500,271 2,249,000
========== ==========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
2
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three-Month Periods Ended
December 31, 1995 and 1994
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (60,354) $ (15,151)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 21,990 13,812
Changes in operating assets and
liabilities:
Accounts receivable 14,262 (159,801)
Portfolio receivable (10,802) -
Accounts payable (57,586) 54,465
Trust payables (46,368) (23,311)
Accrued liabilities (139,582) (14,077)
--------- ---------
Net cash used in operating activities (278,440) (144,063)
--------- ---------
Cash flows from investing activities:
Purchases of plant, property and
equipment (4,684) (56,760)
Notes receivable from shareholder (5,083) (54,250)
Decrease (increase) in other assets (16,361) 33,049
Decrease in restricted cash 46,868 23,031
--------- ---------
Net cash provided by (used in)investing
activities 20,740 (54,930)
--------- ---------
Cash flows from financing activities:
Net borrowings from line of credit 90,100 (50,000)
Long-term debt (20,655) 136,056
--------- ---------
Net cash provided by financing activities 69,445 86,056
--------- ---------
Net decrease in cash (188,255) (112,937)
Cash, at beginning of period 362,234 127,817
--------- ---------
Cash, at end of period $ 173,979 $ 14,880
========= =========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
3
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For The Three-Month Periods Ended
December 31, 1995 and 1994
NOTE 1 - QUARTERLY INFORMATION
- ------------------------------
The accompanying unaudited, condensed and consolidated financial statements have
been prepared in accordance with Securities and Exchange Commission requirements
for interim financial statements. Therefore, they do not include all
disclosures that would be presented in the Annual Report on Form 10-KSB of
Cypress Financial Services, Inc. (the "Company"). These financial statements
should be read in conjunction with the financial statements contained in the
Company's Annual Report on Form 10-KSB as of and for the nine-month period ended
September 30, 1995.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of financial position for the interim period. The results are
not necessarily indicative of results to be expected for the full year.
NOTE 2 - RESTATEMENT OF FINANCIAL INFORMATION
- ---------------------------------------------
As described in the Company's 1995 Annual Report on Form 10-KSB, The Christmas
Guild, Inc. ("TCG") acquired the issued and outstanding common stock of Medical
Control Services, Inc. ("MCSI"). The Company previously reported the transaction
as an acquisition by TCG of MCSI. The acquisition should have been accounted for
as a reverse acquisition, with MCSI being the acquiring corporation.
Accordingly, management has retroactively restated the consolidated financial
statements for all periods presented to properly reflect the effects of the
reverse acquisition. The accompanying condensed consolidated statements of
operations and of cash flows have been presented for the three months ended
December 31, 1994 to include the accounts of MCSI previously excluded.
Continued
4
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For The Three-Month Periods Ended
December 31, 1995 and 1994
NOTE 2 - RESTATEMENT OF FINANCIAL INFORMATION, continued
- --------------------------------------------------------
The effect of the restatement on the condensed consolidated balance sheet of the
Company as of December 31, 1995 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Decrease in property, net $(1,660,229)
Decrease in reimbursable collection
costs (628,836)
Decrease in goodwill (2,063,151)
Decrease in deferred income taxes 910,333
-----------
Net decrease in shareholders' equity $(3,441,883)
===========
</TABLE>
The effects of the restatement on the results of the Company's operations for
the three months ended December 31, 1995 was to decrease the net loss by $13,876
and net loss per share by $0.01.
NOTE 3 - PORTFOLIO RECEIVABLES
- ------------------------------
Portfolio receivables represent liquidating portfolios of delinquent accounts
which have been purchased by the Company for collection and are stated at cost.
Cost is reduced by cash collections on a portfolio by portfolio basis and
revenue is recognized when cash collections for a portfolio exceed its cost
basis. Portfolio receivables consist of the following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Face value $35,226,771
===========
Original purchase price $ 1,383,995
Proceeds from sales (658,806)
Collections (cost recovery) (231,054)
-----------
Portfolio receivables $ 494,135
===========
NOTE 4 - PROPERTY
- -----------------
Property consists of the following at December 31, 1995:
Land $ 866,575
Building 1,540,577
Equipment and furnishings 1,417,687
-----------
3,824,839
Less accumulated depreciation (1,119,065)
-----------
$ 2,705,774
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</TABLE>
Continued
5
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For The Three-Month Periods Ended
December 31, 1995 and 1994
NOTE 5 - INDEBTEDNESS
- ---------------------
Net borrowings from the line of credit at December 31, 1995 amounted to
$749,195. Interest on the borrowings are charged monthly based on a commercial
bank's prime rate plus 2.0% per annum (10.75% at December 31, 1995). Proceeds
from the line of credit were primarily used to acquire portfolio receivables.
At December 31, 1995, the Company has $805 available under this line of credit.
Long-term debt at December 31, 1995 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank, secured by certain
equipment, due in monthly payments of
$10,969, including interest at 11% per annum,
through 2000 at which time the entire
principal balance is due and payable. $ 775,262
Mortgage note payable to bank, collateralized
by land and building, due in monthly payments
of $14,089, including interest at 8% per annum
through December 5, 2000, at which time the
entire principal balance is due and payable. 1,891,167
Note payable to an unrelated retirement trust
collateralized by certain equipment,
interest at 11% per annum, due in monthly
installments of $1,957 through May 3, 1996. 9,520
----------
Long-term debt $ 2,675,949
- -------------- ===========
</TABLE>
Continued
6
<PAGE>
CYPRESS FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For The Three-Month Periods Ended
December 31, 1995 and 1994
NOTE 6 - INCOME TAXES
- ---------------------
The Company provides for income taxes based on the estimated effective tax rate
expected for the year. During the three-month periods ended December 31, 1995
and 1994, income tax expense was not significant. In addition, at December 31,
1995, deferred tax assets and liabilities were not significant.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged primarily in the collection of receivables
owned by entities in the commercial, retail and medical industries. Commencing
in January, 1995, the Company began purchasing a significant amount of portfolio
receivables for its own collection account. The Company anticipates that the
purchase of portfolio receivables for its own collection account will become a
significant portion of its future operations.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this report.
Management has retroactively restated the Consolidated Financial Statements for
all periods presented in this report to properly reflect the effect of the
acquisition of MCSI by the Company. The acquisition had previously been
reported as an acquisition of MCSI by the Company rather than a recapitalization
of MCSI and the acquisition of The Christmas Guild through the issuance of new
shares.
Generally, the effects of such restatement on the Company's
Consolidated Balance Sheet as of September 30, 1995 is a net decrease in
shareholder's equity of approximately $3,471,000 which primarily is the result
of an approximately $1,663,000 decrease in the property to its original cost and
the elimination of approximately $2,098,000 of previously reported goodwill.
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, competition which has and will continue to put
price pressure on the Company's third party collection business, the cost and
availability of capital to finance its receivables portfolio and overall macro
economic conditions which generally have a direct effect on the Company's
ability to collect on the receivables
RESULTS OF OPERATIONS.
----------------------
THREE MONTHS ENDED DECEMBER 31, 1995 VERSUS THREE MONTHS ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
The Company's operating revenues of approximately $1,037,000 for the
three months ended December 31, 1995 are compared to its operating revenues for
the three months ended December 31, 1994 of approximately $1,210,000. Operating
revenues during these periods primarily represent fees related to the collection
of receivables owned by the Company's customers and do not include any material
revenues from the portfolio receivables purchased directly by the Company. The
decrease in the Company's operating revenues for the three months ended December
31, 1995 as compared to its operating revenues for the three months ended
December 31, 1994 is primarily the result of the Company's efforts to expand its
business to include direct purchases of receivables and other debtor obligations
for its own portfolio. In 1994, management identified a downward trend in the
commission rate structure of the collection business and has aggressively
increased its direct portfolio purchases, which it expects will eventually lead
to increased operating revenues.
As of December 31, 1995 the Company's direct purchases of portfolio
receivables had a face value of approximately $35,226,000 as compared to a face
value of approximately $26,944,000 as of September 30, 1995. During the three
months ended December 31, 1995, the Company did realize proceeds from sales of
portfolio receivables of approximately $658,000 as compared to approximately
$353,000 for the three months ended September 30, 1995 and from collection of
the portfolio receivables of approximately $231,000 as compared to approximately
$115,000. The Company's accounting policy does not recognize revenue from the
sales or collections of its portfolio receivables until after the recovery of
the cost of the portfolio. Therefore, the Company expects to start to recognize
a significant portion of its revenues from portfolio receivables later this
fiscal year after it recovers the cost of acquiring the receivables.
Operating expenses for the three months ended December 31, 1995 were
approximately $1,070,000 as compared to operating expenses of approximately
$1,211,000 for the three month period ended December 31, 1994. The Company was
able to substantially reduce its operating expenses as a result of management's
early recognition of the commission rate trend and its efforts to consolidate
its operations and lower administrative overhead.
8
<PAGE>
The Company had a loss from operations for the three months ended
December 31, 1995 of approximately $34,000 as compared to approximately breaking
even for the three months ended December 31, 1994. The Company's efforts to
reduce its overhead and consolidate its operations enabled the Company to
minimize its loss from operations despite its lower revenues. The Company
believes that, after it recovers the cost of its portfolio receivables, it will
realize an increase in revenues from servicing its own portfolio receivables
without any material increase in its operating expenses.
Interest expense for the three months ended December 31, 1995
increased to approximately $58,000 from approximately $41,000 for the three
month period ended December 31, 1994 due to an increase in borrowings to acquire
its portfolio receivables. The Company expects to continue to utilize its
credit facility to finance future acquisitions of portfolio receivables.
Net rental income for the three months ended December 31,1995 was
approximately $35,000 as compared to approximately $36,000 for the three month
period ended December 31, 1994.
The Company reported a net loss of approximately $60,000 for the three
months ended December 31, 1995 as compared to a net loss of approximately
$15,000 for the three months ended December 31, 1994. The increased net loss
resulted primarily from lower revenues from its third party collection of
receivables and higher interest expenses to finance its portfolio receivables.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has historically been funded though cash flows from
operations. The Company has recently used its existing credit facility which
has an outstanding balance of approximately $749,195 as of December 31, 1995 to
acquire portfolio receivables. The Company's credit facility, which carries an
interest rate of prime plus 2% and, which was due to expire on August 16, 1996,
has been extended to January 1997. Management plans to purchase additional
portfolio receivables which will necessitate the raising of additional capital
through the issuance of either debt or equity securities. There are no
assurances that such financing will be obtained and any delays in raising
additional capital will effect the Company's ability to acquire a material
amount of additional portfolio receivables.
The Company currently has outstanding long-term debt which is secured
by a mortgage and certain equipment with certain financial institutions in the
amount of approximately $2,675,000. The Company's equipment debt is a term note
with a remaining balance of approximately $775,000 which is due in 2000 and
which carries an interest rate of 11%. The Company mortgage note has a
remaining balance of approximately $1,891,000 and carries an 8% interest rate
and is due on December 5, 2000. Management will continue to service its
outstanding long-term debt through its cash flows from operations.
The Company also has outstanding approximately $750,000 notes which
are payable to the shareholders of MCSI and were incurred in connection with the
acquisition. These notes carry an interest rate of 8% and are due on December
31, 1996. Management expects to satisfy this obligation through the issuance of
either debt or equity securities, or otherwise through general working capital.
There are no assurances that such debt or equity financing will be obtained.
9
<PAGE>
Part II OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CYPRESS FINANCIAL SERVICES, INC.
Date: July 29, 1996 By: /s/ FARREST HAYDEN
----------------------------
Farrest Hayden
Chairman of the Board
and Chief Executive Officer
Date: July 29, 1996 By: /s/ OTTO LACAYO
---------------------------
Otto J. Lacayo
Director, Chief Financial
Officer and Vice President
(Principal Accounting
Officer)
10
