<PAGE>
Exhibit 99.1 (a)
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Combined Consolidated Financial Statements
As of May 31, 2000 and December 31, 1999
Together with Report of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
Orange County Professional Services, Inc.
(dba California Professional Services) and Affiliated Companies:
We have audited the accompanying combined consolidated balance sheets of Orange
County Professional Services, Inc. (dba California Professional Services) and
Affiliated Companies (the "Company") as of May 31, 2000 and December 31, 1999,
and the related statements of operations, owners' equity and cash flows for the
five months ended May 31, 2000 and the years ended December 31, 1999 and 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orange County Professional
Services, Inc. (dba California Professional Services) and Affiliated Companies
as of May 31, 2000 and December 31, 1999, and the results of their operations
and their cash flows for the five months ended May 31, 2000 and the years ended
December 31, 1999 and 1998, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
August 9, 2000
<PAGE>
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Combined Consolidated Balance Sheets
May 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
Assets
------
May 31, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Cash $ 158,492 $ -
Restricted cash - 147,147
Accounts receivable, net 1,033,751 1,137,475
Property and equipment, net 117,218 128,271
Notes receivable from owners - 73,756
Prepaid expenses and other assets 144,084 151,064
Goodwill 333,745 344,508
---------- ----------
$1,787,290 $1,982,221
========== ==========
Liabilities and Owners' Equity
------------------------------
Cash overdraft $ - $ 247,225
Accounts payable 212,240 232,948
Trust payables - 147,147
Accrued liabilities 319,500 242,531
Lines of credit 299,391 334,451
Notes payable 515,730 610,991
Notes payable to owners 282,164 156,333
Interest payable to owners 54,584 47,092
---------- ----------
Total liabilities 1,683,609 2,018,718
---------- ----------
Commitments and Contingencies
Owners' Equity:
Common stock, no par value, 226,000 shares authorized,
17,640 shares issued and outstanding 30,000 30,000
Retained deficit (367,254) (608,053)
Partners' capital 440,935 541,556
---------- ----------
Total owners' equity 103,681 (36,497)
---------- ----------
$1,787,290 $1,982,221
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
balance sheets.
<PAGE>
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Combined Consolidated Statements of Operations
For the Five Months Ended May 31, 2000 and the Years Ended December 31, 1999 and
1998
<TABLE>
<CAPTION>
Five Months Year Ended Year Ended
Ended May 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Revenues $4,052,777 $9,616,382 $6,489,346
Operating Expenses:
Salaries, wages and related benefits 2,987,259 6,551,130 5,179,045
Selling, general and administrative 813,425 1,922,306 1,447,974
Depreciation and amortization 21,816 103,486 29,179
---------- ---------- ----------
3,822,500 8,576,922 6,656,198
---------- ---------- ----------
Income (loss) from operations 230,277 1,039,460 (166,852)
---------- ---------- ----------
Other Income (Expense):
Interest income 335 7,663 65
Interest expense (39,131) (42,784) (108,751)
---------- ---------- ----------
(38,796) (35,121) (108,686)
---------- ---------- ----------
Income (loss) before provision for
income taxes 191,481 1,004,339 (275,538)
Provision for Income Taxes 11,303 33,507 6,991
---------- ---------- ----------
Net income (loss) $ 180,178 $ 970,832 $ (282,529)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
<PAGE>
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Combined Consolidated Statements of Owners' Equity
For the Five Months Ended May 31, 2000 and the Years Ended December 31, 1999 and
1998
<TABLE>
<CAPTION>
Common Stock
--------------------- Retained Partners'
Shares Amount Deficit Capital Total
------------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 20,140 $30,000 $(587,313) $ 297,182 $(260,131)
Net loss - - (35,511) (247,018) (282,529)
Dividends paid - - (19,669) - (19,669)
------------ ------- --------- --------- ---------
Balance,
December 31, 1998 20,140 30,000 (642,493) 50,164 (562,329)
Net income - - 409,440 561,392 970,832
Stock repurchased (2,500) - (375,000) - (375,000)
Capital distributions - - - (70,000) (70,000)
------------ ------- --------- --------- ---------
Balance,
December 31, 1999 17,640 30,000 (608,053) 541,556 (36,497)
Net income (loss) - - 240,799 (60,621) 180,178
Capital distributions - - - (40,000) (40,000)
------------ ------- --------- --------- ---------
Balance, May 31, 2000 17,640 $30,000 $(367,254) $ 440,935 $ 103,681
============ ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
<PAGE>
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Combined Consolidated Statements of Cash Flows
For the Five Months Ended May 31, 2000 and the Years Ended December 31, 1999 and
1998
<TABLE>
<CAPTION>
Five Months Year Ended Year Ended
Ended May 31, December 31, December 31,
2000 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 180,178 $ 970,832 $(282,529)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 21,816 103,486 29,179
(Increase) decrease in assets:
Restricted cash 147,147 (147,147) -
Accounts receivable 103,724 (446,289) (176,046)
Prepaid expenses and other assets 6,980 18,379 (13,340)
Increase (decrease) in liabilities:
Accounts payable (20,708) (12,898) 194,565
Trust payables (147,147) 147,147 -
Accrued liabilities 84,461 (8,991) 171,365
--------- --------- ---------
Net cash provided by (used in)
operating activities 376,451 624,519 (76,806)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment - (74,074) (48,391)
Acquisition of Impact, net - - (247,449)
--------- --------- ---------
Net cash used in investing activities - (74,074) (295,840)
--------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) on overdraft facility (247,225) 221,180 26,045
Net borrowings (repayments) on line of credit (35,060) (40,549) 275,000
Net borrowings (repayments) on notes payable (95,261) (314,922) 54,880
Net borrowings (repayments) on owners notes 199,587 28,846 (96,064)
Stock repurchased - (375,000) -
Distributions to partners (40,000) (70,000) -
Dividends paid - - (19,669)
--------- --------- ---------
Net cash provided by (used in)
financing activities (217,959) (550,445) 240,192
--------- --------- ---------
Net Increase (Decrease) in Cash 158,492 - (132,454)
Cash, beginning of the period - - 132,454
--------- --------- ---------
Cash, end of the period $ 158,492 $ - $ -
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
Five Months Year Ended Year Ended
Ended May 31, December 31, December 31,
2000 1999 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 31,639 $ 41,201 $ 98,701
========= ========= =========
Cash paid during the period for income taxes $ 32,287 $ 10,923 $ -
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
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<PAGE>
ORANGE COUNTY PROFESSIONAL SERVICES, INC.
(DBA CALIFORNIA PROFESSIONAL SERVICES)
AND AFFILIATED COMPANIES
Notes to Financial Statements
May 31, 2000
1. Organization and Description of Business
----------------------------------------
Orange County Professional Services, Inc. (dba California Professional Services)
and Affiliated Companies (the "Company") consists of Orange County Professional
Services, Inc., a California corporation ("OCPS"), Impact Seminars and
Consulting, Inc., a Hawaii corporation and wholly-owned subsidiary of OCPS
("Impact"), RBA Rem-Care, Inc., a California corporation ("RBA"), Insource
Medical Solutions, LLC, a California limited liability company ("Insource"), and
Hospital Employee Labor Pool, a California corporation ("HELP").
The Company provides collection services, billing services, outsourcing and
temporary staffing services, and specialty consulting services primarily to the
healthcare industry. The collection services include the recovery of pre-
delinquent and delinquent healthcare receivables including early out programs.
The billing services include virtually all billing functions for healthcare
providers, including electronic bill submission capabilities. The outsourcing
and temporary staffing services include providing temporary staffing needs for
any business office function of healthcare providers. Available staff includes,
among other things, coders, billers, abstractors and collectors. The specialty
consulting services include insurance claims management, clinical denial audits,
zero balance reviews, and eligibility reviews.
2. Summary of Significant Accounting Policies
------------------------------------------
a. Principles of Consolidation and Combination
-------------------------------------------
The combined consolidated financial statements include the accounts of the
Company. All significant intercompany accounts have been eliminated in
consolidation.
b. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Actual results could materially
differ from those estimates.
<PAGE>
c. Fair Value of Financial Instruments
-----------------------------------
Fair values of financial instruments are estimated using available market
information and other valuation methodologies. The fair values of the
Company's financial instruments are estimated to approximate the related
book value, unless otherwise indicated.
d. Accounts Receivable
-------------------
Accounts receivable represent accounts in which the Company provides
services for entities primarily in the healthcare industry for a fee.
Service fees are reported as income when earned. Servicing costs are
charged to expense as incurred.
e. Property and Equipment
----------------------
Property and equipment are carried at cost and depreciated using both
straight-line and accelerated methods over the estimated useful lives of
the assets, which are generally 5 to 7 years.
Repairs and maintenance are charged to expense as incurred; replacements
and betterments are capitalized
f. Trust Accounts and Restricted Cash
----------------------------------
The Company maintains trust accounts for the benefit of its customers.
Related funds are deposited in trust bank accounts and reflected as a trust
liability until such amounts held in trust are remitted to customers. As of
May 31, 2000 and December 31, 1999, the trust accounts cash balances were
$0 and $147,147, respectively, and are reflected as restricted cash and
trust payables in the accompanying combined consolidated balance sheets.
g. Income Taxes
------------
The Company consists of five tax filing entities; OCPS, Impact, RBA,
Insource and HELP. With the consent of its owners, Insource has elected
under the Internal Revenue Code to be a LLC, and the remaining entities
have elected to be S corporations. As such, the Company does not pay
federal income taxes, and operating income and losses are passed through to
the owners. The Company is subject to state income taxes at a rate of 1.5
percent of taxable income or $800, whichever is greater.
-2-
<PAGE>
3. Property and Equipment
----------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
May 31, December 31,
2000 1999
-------- -----------
<S> <C> <C>
Machinery and equipment $171,654 $171,654
Furniture and fixtures 497,040 497,040
Leasehold improvements 5,075 5,075
-------- --------
673,769 673,769
Less--Accumulated depreciation 556,551 545,498
-------- --------
$117,218 $128,271
======== ========
</TABLE>
4. Lines of Credit
---------------
The Company has a line of credit, which permits borrowings up to a maximum of
$300,000 at the bank's reference rate plus two percent (11.5 percent at May 31,
2000). The line of credit expires on May 1, 2003. At May 31, 2000 and December
31, 1999, borrowings on the line totaled $199,700 and $234,451, respectively.
Borrowings are secured by substantially all the assets of OCPS, including
accounts receivable and equipment, as well as guaranteed by a principal owner of
OCPS.
The Company has a line of credit, which permits borrowings up to a maximum of
$100,000 at a fixed interest rate of 6.85 percent. The line of credit expires on
August 10, 2000. At May 31, 2000 and December 31, 1999, borrowings on the line
totaled $99,691 and $100,000, respectively. Borrowings are secured by a
certificate of deposit provided by the principal owner of RBA.
-3-
<PAGE>
5. Notes Payable
-------------
As of May 31,2000 and December 31, 1999, notes payable consists of the
following:
<TABLE>
<CAPTION>
May 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Note payable to a bank, interest at the bank's reference rate
plus 2.0 percent (11.5 percent at May 31, 2000), payments of
$4,048 are due in monthly installments through May 2001. The
loan is secured by substantially all the assets of Insource,
including accounts receivable and equipment. $ 45,815 $ 63,500
Note payable to an individual, interest at 9 percent, payments
of $15,112 are due in monthly installments through October 2002.
Shares of OCPS secure the loan. 392,555 452,050
Note payable to an individual, interest at 6.5 percent, payments
of $3,831 are due in monthly installments through October 2001.
Shares of Impact secure the loan. 62,060 79,254
Note payable to an equipment finance company, interest at 10.5
percent, payments of $399 are due in monthly installments through
February 2003. The loan is secured by the equipment. 15,300 16,187
--------- ---------
$ 515,730 $ 610,991
========= =========
</TABLE>
As of May 31, 2000, maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000 $ 140,888
2001 222,051
2002 149,860
2003 2,931
---------
$ 515,730
=========
</TABLE>
-4-
<PAGE>
6. Commitments and Contingencies
-----------------------------
a. Lessee -- The Company's operations are conducted in facilities leased
under non-cancelable operating lease agreements that expire at various
dates through 2003. The Company also leases office equipment under
operating leases that expire in 2003. Future minimum lease payments,
in the aggregate, at May 31, 2000 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
2000 $ 109,932
2001 163,521
2002 119,134
2003 4,246
----------
$ 396,833
==========
</TABLE>
b. Litigation -- As of May 31, 2000, the Company is not involved in any
litigation that is material to its financial position or results of
operations, although the Company is involved, from time to time, in
litigation that is incidental to its collection business. The Company
regularly initiates legal proceedings as a plaintiff in connection
with its routine collection activities.
7. Related Party Transactions
--------------------------
As of May 31, 2000 and December 31, 1999, the Company had notes payable and
accrued interest due to two of its owners totaling $336,748 and $203,425. The
notes are due upon demand with interest at seven percent. During the five months
ended May 31, 2000 and the year ended December 31, 1999, the Company recorded
interest expense of $7,492 and $12,161, respectively, related to these notes.
As of December 31, 1999, the Company had notes receivable from two of its owners
totaling $73,756. The notes were due upon demand with interest at seven percent.
During the year ended December 31, 1999, the Company recorded interest income of
$6,525 related to these notes.
-5-
<PAGE>
8. Owners' Equity
--------------
The following is a schedule, by entity, of the components of the Company's
owners' equity as of May 31, 2000:
<TABLE>
<CAPTION>
OCPS Impact RBA Insource HELP Total
---------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock
shares issued 100 40 12,500 - 5,000 17,640
shares authorized 25,000 1,000 100,000 - 100,000 226,000
========= ======== ========= ======== ======== =========
Common stock -
amount $ 7,500 $ - $ 12,500 $ - $ 10,000 $ 30,000
Retained deficit (794,083) 39,267 (297,589) - 685,151 (367,254)
Partners' capital - - - 440,935 - 440,935
--------- -------- --------- -------- -------- ---------
Owners' equity $(786,583) $ 39,267 $(285,089) $440,935 $695,151 $ 103,681
========= ======== ========= ======== ======== =========
</TABLE>
The following is a schedule, by entity, of the components of the Company's
owners' equity as of December 31, 1999:
<TABLE>
<CAPTION>
OCPS Impact RBA Insource HELP Total
--------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common stock
shares issued 100 40 12,500 - 5,000 17,640
shares authorized 25,000 1,000 100,000 - 100,000 226,000
========= ======== ========= ======== ======== =========
Common stock -
amount $ 7,500 $ - $ 12,500 $ - $ 10,000 $ 30,000
Retained deficit (973,634) (22,426) (234,940) - 622,947 (608,053)
Partners' capital - - - 541,556 - 541,556
--------- -------- --------- -------- -------- ---------
Owners' equity $(966,134) $(22,426) $(222,440) $541,556 $632,947 $ (36,497)
========= ======== ========= ======== ======== =========
</TABLE>
-6-
<PAGE>
9. Recent Event
------------
On May 30, 2000, the Company entered into agreements to sell (i) all of the
outstanding stock of OCPS and its subsidiary, Impact, and (ii) substantially all
of the assets of Insource, RBA and HELP, to Cypress Financial Services, Inc. The
sales price for these transactions, the consummation of which are subject to
certain conditions, is approximately $10,500,000, of which $4,200,000 shall be
paid in the form of convertible promissory notes. Once consummated, the Company
will be a wholly owned subsidiary of Cypress Financial Services, Inc. Management
expects these transactions to close on or around August 14, 2000.
-7-
