U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
Commission File No. 0-21099
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TESSA COMPLETE HEALTH CARE, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-0975098
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
138 Escondido Ave. Suite 207, Vista, CA 92084 (760) 643-3951
(Address and Registrant's telephone number)
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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 [ ]
As of August 15, 2000 the Registrant had outstanding 17,043,579 shares of
common stock $0.02 par value.
Transitional small business disclosure form: YES [ X ] NO [ ]
<PAGE>
TESSA COMPLETE HEALTH CARE, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
PART I............................................................. 1
Item 1. Financial Statements................................. 1
Balance Sheets....................................... 1
Statement of Operations.............................. 2
Statements of Cash Flows............................. 3
Notes to Financial Statements........................ 4
Item 2. Management's Discussion and Analysis of Operation.... 7
PART II............................................................ 8
Item 1. Legal Proceedings.................................... 8
Item 2. Changes in Securities................................ 9
Item 3. Defaults Upon Senior Securities...................... 9
Item 4. Submission of Matters to a Vote of Security Holders.. 9
Item 5. Other Information and Subsequent Events.............. 9
Item 6. Exhibits and Reports on Form 8-K..................... 9
Signatures......................................................... 10
<PAGE>
PART I
Item 1. Financial Statements.
The following financial statements of Tessa Complete Health Care, Inc.
(the "Company") are included herein and are unaudited, but in the opinion of
management include all adjustments necessary for fair presentation of the
Company's financial condition as of June 30, 2000 and results of operations
and cash flows for the three months and six months ended June 30, 1999 and
June 30, 2000, respectively:
(a) Balance Sheets
(b) Statements of Operations
(c) Statements of Cash Flows
(d) Notes to Financial Statements
<PAGE>
<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
December 31, June 30,
1999 2000
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ 55,224
Accounts receivable, net of allowances
of $3,047,921 3,109,051 3,296,865
----------- -----------
Total current assets 3,109,051 3,352,089
Property and equipment, net 687,437 584,469
Deferred charges and other assets 72,915 55,630
----------- -----------
Total assets $ 3,869,403 $ 3,992,188
=========== ===========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, June 30,
1999 2000
----------- -----------
Current liabilities:
Notes payable $ 1,379,620 $ 1,323,838
Current portion of long-term debt 39,681 -
Accounts payable 1,187,828 1,119,381
Accrued expenses 1,924,377 781,950
Related party payable 2,663,458 2,772,458
Stockholder loans payable 3,085,018 2,766,425
----------- -----------
Total current liabilities 10,279,982 8,764,052
Total long-term debt less current portion 94,344 -
----------- -----------
Total liabilities 10,374,326 8,764,052
----------- -----------
Stockholders' equity (deficit):
Common stock: $0.02 par value;
50,000,000 shares authorized;
13,809,375 outstanding at
December 31, 1999; 17,043,579
outstanding at June 30, 2000 275,846 340,530
Additional paid-in capital 7,802,153 9,938,107
Accumulated deficit (14,582,922) (15,050,501)
----------- -----------
Total stockholders' equity (deficit) (6,504,923) (4,771,864)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 3,869,403 $ 3,992,188
=========== ===========
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,200,602 $ 3,414,159 $ 4,251,029 $ 6,970,151
Operating expenses
Caregiver compensation and benefits 791,017 2,097,620 1,677,711 3,433,599
Other practice costs 104,287 210,405 213,596 430,832
Administrative compensation and benefits 653,491 1,538,489 1,274,176 4,324,188
Occupancy costs 195,346 434,789 418,876 828,475
Selling and administrative 121,390 729,685 148,380 1,276,659
Depreciation and amortization 60,127 390,000 120,254 662,691
----------- ----------- ----------- -----------
Total operating expenses 1,925,658 5,400,988 3,852,993 9,956,444
Income (loss) from operations 274,944 (1,986,829) 398,036 (2,986,293)
Other expense:
Reserve under asset sale agreement - 1,312,035 - 2,624,070
Financing related charges 399,264 361,278 785,393 670,735
Stock-based compensation 80,222 206,250 80,222 412,500
----------- ----------- ----------- -----------
Total other expenses 479,486 1,879,563 865,615 3,707,305
Net income (loss) $ (204,542) $ (3,866,392) $ (467,579) $ (6,693,598)
=========== =========== =========== ===========
Income (loss) per common share:
Net income (loss) $ (0.01) $ (0.30) $ (0.03) $ (0.55)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 15,824,321 12,784,295 15,108,515 12,277,995
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (467,579) $(6,693,598)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 120,254 662,691
Reserve in connection with A.R. purchase
agreement - 2,624,070
Changes in current assets and liabilities:
Increase (decrease) 0in accounts receivable (187,814) -
Increase (decrease) in Accounts payable
and accrued liabilities (1,149,230) 2,572,255
---------- ----------
Net cash used in operating activities (1,684,369) (834,582)
---------- ----------
Cash flows from investing activities:
Acquisition of equipment - (65,121)
Cash outlay in connection with merger (112,500) -
---------- ----------
Net cash used in investing activities (112,500) (65,121)
---------- ----------
Cash flows from financing activities:
Proceeds from accounts receivable
purchase agreement 150,000 755,266
Principal payments under loan agreements - -
Proceeds from sale of stock 1,646,869 1,000,000
---------- ----------
Net cash provided by financing activities $ 1,796,869 $ 1,755,266
---------- ----------
Net decrease in cash and cash equivalents $ - $ 855,563
Cash and cash equivalents at beginning of period $ - $ 855,563
---------- ----------
Cash and cash equivalents at end of period $ - $ -
========== ==========
The accompanying notes are an
integral part of these statements.
</TABLE>
<PAGE>
TESSA COMPLETE HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Interim Financial Statements
The financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements include
all adjustments necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. 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 rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The financial statements and these notes should
be read in conjunction with the financial statements of the Company included
in the Company's Annual Report for the years ended December 31, 1999 and
1998 as contained in the Company's Form 8-K dated March 24, 2000.
2. Basis of Presentation
Business combination
On March 24, 2000, pursuant to an Agreement and Plan of
Reorganization (the "Merger Agreement") between Zaba International, Inc.
("Zaba"), a Colorado corporation, and Tessa, all outstanding shares of
common stock of Zaba were exchanged for 225,000 shares of common stock of
Tessa and $112,500 in cash in a transaction in which Tessa was the surviving
company. Prior to the effectiveness of the Merger Agreement, Tessa had an
aggregate of 13,809,375 shares of common stock issued and outstanding. The
principal reason for this transaction was that the Company was required to
become a reporting company no later than May 4, 2000 or no longer be listed
on the OTC Bulletin Board.
The Merger has been accounted for as a reverse acquisition. Under
the accounting rules for a reverse acquisition, Tessa is considered the
acquiring entity. As a result, historical financial information for periods
prior to the date of the transaction are those of Tessa. Under purchase
method accounting, balances and results of operations of Tessa will be
included in the accompanying financial statements from the date of the
transaction, March 24, 2000. The Company recorded the assets and liabilities
(excluding intangibles) at their historical cost basis which was deemed to
be approximate fair market value.
Loss per share
Loss per share have been computed based on the weighted average
number of common shares outstanding.
<PAGE>
Private Placement
During May of 2000, the Company completed a private placement of
its common stock pursuant to Regulation D, Rule 504, promulgated under the
Securities Act of 1933, as amended, under which it issued 500,000 shares at
a price of $.40 per share. In addition, 1,298,093 shares of common stock
were sold pursuant to the exercise of options to purchase common stock at an
exercise price of $.3825.
3. Review of Report by Independent Auditor
Effective March 15, 2000, the Securities and Exchange Commission
adopted a rule requiring that interim auditor reviews must be undertaken by
all companies subject to the Section 12(g) reporting requirements
promulgated under the Securities Exchange Act of 1934, as amended. The
Company's independent auditor, Horton & Company LLC, has not reviewed the
interim financial statements included in this Report, but it is anticipated
that they will do so in the near future and in the event of any
requirement that revisions be undertaken by the Company to this Report,
the Company will file an amendment accordingly.
4. Restructuring/Going Concern
The Company's audited financial statements for the fiscal years
ended December 31, 1999 and 1998 contained in the Company's Form 8-K dated
March 24, 2000 and the accompanying unaudited interim financial statements
for the three and six month periods ended June 30, 2000 and 1999 were
prepared assuming that the Company will continue as a going concern.
The Company has suffered losses from operations and has a net capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company attributes much of the above mentioned losses and the
resulting capital deficiency to integration difficulties the Company
encountered during an expansion plan during fiscals 1998 and 1999 which
increased the number of Company-controlled clinics from 8 to 33 and
increased gross billings from $2.1 million to $22 million (number was
adjusted downward for reporting purposes to account for contractual
discounts) for the fiscal years 1997 through 1999. To help address the above
issues, the Company has undertaken plans that have initiated managerial,
financial, and operational restructurings.
With regard to managerial changes, Tessa has undergone changes
which have resulted in the resignations of Dr. Thomas Bolera as Chief
Executive Officer, Dr. Kim Christensen as an Officer and Director, David
Russell as Chief Financial Officer, Dr. Vaughn Dabbs as Director and Dr.
Dayna Bolla as Director. In connection with the above resignations, Robert
Flippin was appointed President, Chief Executive Officer, and a Director of
Tessa. Robert Vener, Robert Verhey and Dr. Mark Newman were also appointed
as Directors of Tessa.
<PAGE>
With respect to financial restructurings, the Company has undertaken
and executed plans initiated during the first quarter of fiscal 2000 which
have included: 1) the conversion of debt to equity; 2) the conversion
of debt to payment plans; 3) settlements of debt in exchange for heavily
discounted lump sum payments by the Company; and 4) raising capital through
the sale of common stock. The Company has also entered into negotiations
with Litchfield Financial Corporation (the source of the Company's funding
that is advanced against accounts receivable) to amongst other things,
reduce finance related charges and provide increased advances on the
Company's accounts receivable. Although the negotiations regarding the
aforementioned matters with Litchfield are not complete, subsequent to the
close of the quarter ended June 30, 2000, Litchfield has elected to defer
all financing related charges and has increased advancements against Tessa's
accounts receivable in order to provide the Company greater working capital
resources. See Liquidity and Capital Resource under the Management and
Discussion Section contained elsewhere herein.
For operations, the Company has started a restructuring process
that has included: 1) the combination of geographically related clinics; 2)
the elimination and separation of some clinics which provided
inconsequential or negative cash flow; and 3) the introduction of an
incentive plan to optimize clinic profitability. There has also been
opportunities which have not been acted upon due to the Company's decision
or inability to exercise purchase options on some clinics, however the
Company believes that it in the process of generating sufficient revenue in
addition to having plans in place to help address cash flow issues that may
arise in the near term.
There can be no assurances that the Company's above-mentioned plans
will generate profits in the near future, or at all. The Company's success
is dependent upon its ability to develop profitable clinics and clinical
programs with existing clinics, and to acquire additional profitable
practices/clinics. To accomplish these goals, Tessa may require additional
equity and/or debt financing and its absence may require additional
consolidation. There is no assurance that the Company will be able to
continue to operate if additional acquisitions and corresponding revenues
cannot be generated. See Liquidity and Capital Resources under the
Management Discussion and Analysis section contained elsewhere herein.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion should be read in conjunction with the
Company's unaudited financial statements and notes thereto included herein.
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
the Company cautions readers regarding certain forward looking statements in
the following discussion and elsewhere in this report and in any other
statement made by, or on the behalf of the Company, whether or not in future
filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which
relate to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant
business, economic and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which, with respect to
future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to
differ materially from those expressed in any forward looking statements
made by, or on behalf of, the Company. The Company disclaims any obligation
to update forward looking statements.
The following information is intended to highlight developments in the
Company's operations to present the results of operations of the Company, to
identify key trends affecting the Company's businesses and to identify other
factors affecting the Company's results of operations for the three and six
month periods ended June 30 , 2000 and 1999.
Restructuring/Going Concern
The financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered losses from
operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The Company attributes much of the above mentioned losses and the
resulting capital deficiency to integration difficulties the Company
encountered during an expansion plan during fiscals 1998 and 1999 which
increased the number of Company-controlled clinics from 8 to 33 and
increased gross billings from $2.1 million to $22 million for the fiscal
years 1997 through 1999. To help address the above issues, the Company has
undertaken plans that have initiated managerial, financial, and operational
restructurings.
With regard to managerial changes, Tessa has undergone changes which
have resulted in the resignations of Dr. Thomas Bolera as Chief Executive
Officer, Dr. Kim Christensen as an Officer and Director, David Russell as
Chief Financial Officer, Dr. Vaughn Dabbs as Director and Dr. Dayna Bolla as
Director. In connection with the above resignations, Robert Flippin was
appointed President, Chief Executive Officer, and a Director of Tessa.
Robert Vener and Dr. Mark Newman were also appointed as Directors of Tessa.
<PAGE>
As to financial restructurings, the Company has undertaken and executed
plans initiated during the first quarter of fiscal 2000 which have included:
1) the conversion of debt to equity; 2) the conversion of debt to payment
plans; 3) settlements of debt in exchange for heavily discounted lump sum
payments by the Company; and 4) raising capital through the sale of common
stock. The Company has also entered into negotiations with Litchfield
Financial Corporation (the source of the Company's funding that is advanced
against accounts receivable) to amongst other things, reduce finance
related charges and provide increased advances on the Company's accounts
receivable. Although the negotiations regarding the aforementioned matters
with Litchfield are not complete, as of the period subsequent to the close
of the quarter ended June 30, 2000, Litchfield has elected to defer all
financing related charges in order to provide the Company greater working
capital resources. See Liquidity and Capital Resource under the Management
and Discussion Section contained elsewhere herein.
For operations, the Company has started a restructuring process that
has included: 1) the combination of geographically related clinics; 2) the
elimination and separation of some clinics which provided inconsequential or
negative cash flow; and 3) the introduction of an incentive plan to optimize
clinic profitability. There has also been opportunities which have not been
acted upon due to the Company's decision or inability to exercise purchase
options on some clinics, however the Company believes that it is in the
process of generating sufficient revenue in addition to having plans in
place to help address cash flow issues that may arise in the near term.
There are no assurances that the Company's above-mentioned plans will
generate profits in the near future, or at all. The Company's success is
dependent upon its ability to develop profitable clinics and clinical
programs, such as sports medicine, exercise facility partnerships and to
acquire additional profitable practices/clinics. To accomplish these goals,
Tessa will/may require additional equity and/or debt financing and its
absence may require additional consolidation. There is no assurance that
the Company will be able to continue to operate if additional acquisitions
and corresponding revenues cannot be generated.
Results of Operations
Comparison of Results of Operations for the three and six months ended
June 30, 2000 and 1999.
Revenues decreased by $1,213,557 to $2,200,602 for the quarter ended
June 30, 2000 versus $3,414,159 for the quarter ended June 30, 1999. For
the six months ended June 30, 2000, revenues decreased by $2,719,122 to
$4,251,029 versus $6,970,151 for the six months ended June 30, 1999.
The Company attributes the 35.5% and 39% decreases in revenue primarily to
the restructuring efforts the company has initiated in order to maximize
profitability efforts at the expense of expansion and the elimination of
certain clinics that have separated from the Company at the direction of the
Company and/or due to clinics departing due to the difficulties the Company
experienced in integrating clinics.
<PAGE>
Operating expenses (hereinafter operating expenses shall be exclusive
of depreciation and amortization) decreased by $3,145,457 for the quarter
ended June 30, 2000 to $1,865,531 versus $5,010,988 for the prior year's
comparative quarter. As a percentage of revenue, operating expenses were
85% for the quarter ended June 30, 2000 versus 147% for the quarter ended
June 30, 1999. For the six months ended June 30, 2000, operating expenses
decreased by $5,561,014 to $3,732,739 as compared to 9,293,753 for the
prior year's six month period. The above decreases are primarily due to the
Company's efforts to reduce expenses by centralizing corporate functions
which allowed the Company to eliminate certain corporate duplications, the
reduction of overhead due to the separation of certain clinics, and the
reduction of expenses that were attributed to the substantial expansion
efforts that were initiated during fiscal 1998 and continued into fiscal
1999.
Amortization and depreciation expense decreased from $390,000 for the
quarter ended June 30, 1999 to $60,127 for the quarter ended June 30, 2000.
For the six months ended June 30, 1999 and 2000, amortization and
depreciation decreased from $662,691 to $120,254. The decrease is primarily
attributable to the elimination of amortization expense associated with
goodwill that was fully written off at the end of fiscal 1999 as these
assets were deemed to have been permanently impaired due to the separation
of certain previously acquired clinics.
Financing related charges increased from $361,278 for the quarter ended
June 30, 1999 to $399,264 for the prior year's quarter. For the six month
period ended June 30, 1999 and 2000, finance related charges increased from
670,735 to 785,393. The increase in financing related charges is
primarily a result of increased advances by DynaCorp and the increase in the
advance rate due to increases in the prime lending rate.
In addition, the Company also recognized additional expenses during
fiscal 1999 due to the increase of the Company's accounts receivable reserve
in connection with the Company's Purchase Agreement with DynaCorp of
$1,312,035, and the expense allocation of stock grants provided to outside
consultants for promotional and consulting services for the Company during
fiscal 1999 and during the second quarter of fiscal 2000.
As a result of the foregoing factors, the Company reported a net
loss of $204,542 for the quarter ended June 30, 2000 versus a net loss of
$3,866,392 for the prior year's comparative quarter. For the six month
periods ended June 30, 2000, the Company reported a net loss of $467,579
versus a net loss of $6,693,598 the prior year's comparative six month
period. The Company reported a net loss per share of $.01 the quarter ended
June 30, 2000 versus a net loss of $.30 for the quarter ended June 30,
1999. For the six month period ended June 30, 2000, the Company reported a
net loss per share of $.03 versus a net loss of $.55 for the prior year's
comparative period.
Liquidity and Capital Resources
Cash flow from operations was a negative $1,684,369 for the six months
ended June 30, 2000, as compared to a negative $834,582 for the prior
year's comparative period. The Company financed the negative cash flows
through the sale of equity during the first quarter and second quarters of
fiscal 2000 and primarily through the increased in amounts advanced by
DynaCorp in connection with accounts receivable purchases during the prior
year's six month period.
<PAGE>
During November 1998, the Company entered into an Accounts Receivable
Purchase Agreement ("Purchase Agreement") with DynaCorp Financial
Strategies, Inc. ("DynaCorp"). The Purchase Agreement provides for Tessa
agreeing to sell and assign to DynaCorp Tessa's right, title and interest in
accounts receivable proposed by Tessa. Upon the purchase of the proposed
accounts receivable, DynaCorp has agreed to advance Tessa an amount up to
60% of the net collectible value of proposed accounts receivables. The
original amount of advances per the Purchase Agreement was originally up to
$5 million, and was subsequently increased to $8.5 million during fiscal
1999. In the event that Dynacorp collects an amount less than the amounts
advanced by DynaCorp, the Company is responsible to make up any difference
between the amount collected and the amount due. To secure the collection
of the receivables, DynaCorp has been provided security interest in all
assets of the Company and certain officers of the Company at the time of the
inception of the DynaCorp agreement have executed stock pledge agreements.
Conversely, in the event that DynaCorp collects an excess of the amounts
advanced by DynaCorp against the proposed accounts receivable, DynaCorp is
to return the excess amount back to Tessa. The Company and DynaCorp are
currently in negotiations regarding other covenants and/or conditions that
could have an effect on the parameters of the above mentioned advance rates.
In addition to the above, the Purchase Agreement provided for an
origination fee of $50,000 and monthly charges consisting of: i) 4% over the
prime lending rate of amounts that are purchased and not yet collected by
DynaCorp; and ii) a service fee equaling .01% of the Net Collectable Value,
adjusted for actual collections. The service fee was originally capped at
$300,000 annually, and was subsequently increased to a cap of $480,000.
The Company accounts for the Purchase Agreement with DynaCorp by
designating $13,700,000 of its approximately $20,000,000 in accounts
receivable to offset the approximately $8.3 million advanced by DynaCorp.
The balance of the accounts receivable is accounted for on its balance sheet
less any reserve for contractual adjustments and/or bad debt allowances.
For the quarter ended June 30, 2000, charges under the DynaCorp
Accounts Receivable Purchase Agreement amounted to $399,264 as compared to
the same period in 1999, when charges with DynaCorp were 361,278,
representing an increase of $37,986.
Subsequent to the quarter ended June 30, 2000, the Company's above
mentioned Purchase Agreement with Dynacorp was acquired by Litchfield
Financial Corporation ("Litchfield"). In connection with the aforementioned
acquisition by Litchfield and in light of the Company's cash flow
constraints, the Company has entered into negotiations with Litchfield
Financial to, amongst other things, reduce finance related charges and
provide increased advances on the Company's accounts receivable. Although
the negotiations regarding the aforementioned matters with Litchfield are
not complete, subsequent to the close of the quarter ended June 30, 2000,
Litchfield has temporarily elected to defer financing related charges and
increase advancements against Tessa's accounts receivable in order to
provide the Company greater working capital resources.
<PAGE>
Management has recognized the Company's need to raise additional
capital for working capital purposes, as well as to eliminate the existing
debt. In response, the Company has initiated plans during the first and
second quarters of fiscal 2000 which have included: i) the conversion of
debt to equity; ii) the conversion of debt to payment plans; iii)
settlements of debt in exchange for heavily discounted lump sum payments by
the Company; and iv) raising capital through the sale of common stock.
During January and February 2000, the Company completed a private placement
of its common stock pursuant to Regulation D, Rule 504 promulgated under the
Securities Act of 1933, as amended, under which it issued 1 million
shares at a price of $1.00 per share. In addition, during the second
quarter of fiscal 2000, the Company completed a private placement of its
common stock pursuant to Regulation D, Rule 504, promulgated under the
Securities Act of 1933, as amended, under which it issued 500,000 shares at
a price of $.40 per share. In addition, 1,298,093 shares of common stock
were sold pursuant to the exercise of options to purchase common stock at an
exercise price of .3825.
During 1998, 1999 and until July of 2000, the Company operated under an
agreement with American Outsource Strategies ("AOS") a professional employer
organization. Under the terms of the agreement, AOS provided employee
leasing and payroll processing services. This agreement applied to all
personnel until the second quarter of 1999 when health care providers were
separated from the aforementioned leasing agreement and were directly
employed by medical corporations that were providing patient related
services through contractual arrangements with Tessa. Although, the health
care providers were separated as noted above, AOS continued to provide
payroll services for all Tessa (inclusive of the health care providers)
related personnel until July of 2000. Payment to AOS for employee leasing
services included employee salaries, payroll taxes, benefits and AOS's fees.
AOS is 50% owned by two individuals who are the former Chief Executive
Officer and former Chief Financial Officer of Tessa.
Payment to AOS for employee leasing services was intended to reimburse
AOS for employee salaries, payroll taxes, employee benefits and AOS's fees.
At June 30, 2000, the Company recorded a payable to AOS in the amount of
$2,772,458. The Company is reviewing all matters pertaining to amounts due
AOS. AOS is 50% owned by two individuals who are the former Chief Executive
Officer and former Chief Financial Officer of Tessa.
In addition to the above obligations, the Company owes approximately
$3.1 million to practitioners and past management of the Company related to
amounts due under acquisition and/or employment agreements and from amounts
advanced by practitionersfor expenses related to operating clinics. The
Company is reviewing certain of these agreements and related liabilities,
and is in negotiations to attempt to convert all or portions of the above
mentioned amount to equity and/or long-term debt.
The Company cannot assure that its negotiations and restructuring plans
will be successful, that it will be able to generate profits or that it will
have sufficient capital to continue operations.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
In the matter of Kathi Thelander v. Spine & Rehabilitation Centers of
Oregon, P.C., in the Circuit Court for the County of Multnomah, State of
Oregon, Civil Action No. 99 07 07399 (the Complaint of which alleges
unlawful termination and breach of an employment agreement) summary judgment
was entered on behalf of the plaintiff and against Spine & Rehabilitation
Centers of Oregon, Inc. in March 2000 in the amount of $162,313, plus $891
in costs and $7,440 in attorney fees. The Company was not a party to this
litigation but does have a contractual relationship with the defendant.
In the matter of Cheryl Collier v. Spine & Rehabilitation Centers of
Oregon, P.C., in the Circuit Court for the County of Multnomah, State of
Oregon, Civil Action No. 0002 01553 (the Complaint of which alleges wage
claims and breach of an employment agreement) judgment was entered on behalf
of the plaintiff and against Spine & Rehabilitation Centers of Oregon, Inc.
in April 2000 in the amount of $73,267. The Company was not a party to this
litigation but does have a contractual relationship with the defendant.
The Company has been named as a defendant in the matter of Woodburn
Chiropractic Clinic and Patrick Owen v. Tessa Complete Health Care, Inc., et
al., in the Circuit Court for the County of Clackamas, State of Oregon,
Civil Action No. CCV0002608, the Complaint of which alleges breach of an
employment contract. The Company is defending against this claim and has
filed a motion to dismiss the case, which is currently pending.
The Company has been named as a defendant in the matter of Stephen
Blevins v. Tessa Complete Health Care, Inc., et al., in the Circuit Court
for the County of Du Page, State of Illinois, Civil Action No. 00L 00435,
the Complaint of which alleges breach of an employment contract. The
Company is defending against this claim.
The Company has been named as a defendant in the matter of Jack Schmitz
v. Tessa Complete Health Care, Inc., et al., in the Superior Court for the
County of San Bernardino, State of California, Case No. RCV 044995, the
Complaint of which alleges wage claims and breach of an employment contract.
The Company is defending against these claims.
The Company is party to certain other legal proceedings which have
arisen in the normal course of operating the Company's business and is aware
of other threatened or pending litigation. However, it is believed that
such legal proceedings to which the Company (or any of its officers and
directors in their capacities as such) is or may be a party or to which the
property of the Company may be or is subject would not have a material
adverse effect on the Company's business, financial condition or results of
operations.
<PAGE>
Item 2. Changes in Securities.
During May of 2000, the Company completed a private placement of
its common stock pursuant to Regulation D, Rule 504, promulgated under
the Securities Act of 1933, as amended, under which it issued 500,000
shares at a price of $.40 per share. In addition, 1,298,093 shares of
common stock were sold pursuant to the exercise of options to purchase
common stock at an exercise price of .3825.
Item 3. Defaults Upon Senior Securities.
Other than as set forth elsewhere herein, there has been no material
default with respect to any indebtedness of the Company required to be
disclosed pursuant to this item.
Item 4. Submission of Matters to a Vote of Security Holders.
There have been no matters submitted to a vote of security holders
during the quarter ended June 30, 2000.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
- Financial Data Schedule
(b) Reports on Form 8-K None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tessa Complete Health Care, Inc.
Date: August 17, 2000 s/s Robert Flippin
-------------------------
Robert Flippin, President
and Chief Executive Officer
