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 SEPTEMBER 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)
----------------------------------
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 November 15, 2000 the Registrant had outstanding 19,624,594 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 SEPTEMBER 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 September 30, 2000 and results of
operations and cash flows for the three months and nine months ended
September 30, 1999 and September 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, September 30,
1999 2000
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ 138,647
Accounts receivable, net of allowances
of $3,047,921 3,109,051 3,296,865
----------- -----------
Total current assets 3,109,051 3,435,512
Property and equipment, net 687,437 532,985
Deferred charges and other assets 72,915 46,987
----------- -----------
Total assets $ 3,869,403 $ 4,015,484
=========== ===========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, September 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 1,203,091
Accrued expenses 1,924,377 611,306
Related party payable 2,663,458 2,772,458
Stockholder loans payable 3,085,018 2,041,430
----------- -----------
Total current liabilities 10,279,982 7,952,123
Total long-term debt less current portion 94,344 -
----------- -----------
Total liabilities 10,374,326 7,952,123
----------- -----------
Stockholders' equity (deficit):
Common stock: $0.02 par value;
50,000,000 shares authorized;
13,809,375 outstanding at
December 31, 1999; 19,624,594
outstanding at September, 2000 275,846 392,492
Additional paid-in capital 7,802,153 10,892,584
Accumulated deficit (14,582,922) (15,221,715)
----------- -----------
Total stockholders' equity (deficit) (6,504,923) (3,936,639)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 3,869,403 $ 4,015,484
=========== ===========
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 nine months ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,709,263 $ 3,719,434 $ 5,960,292 $ 10,689,585
Operating expenses
Caregiver comp. and benefits 706,805 1,533,006 2,384,516 4,966,605
Other practice costs 58,128 200,735 271,724 631,567
Admin. Comp. and benefits 416,752 435,336 1,690,928 4,759,524
Occupancy costs 167,316 388,608 586,192 1,217,083
Selling and administrative 58,152 641,150 206,532 1,917,809
Depreciation and amortization 60,127 316,857 180,381 979,548
----------- ----------- ----------- -----------
Total operating expenses 1,467,280 3,515,692 5,320,273 14,472,136
Income (loss) from operations 241,983 203,742 640,019 (3,782,551)
Other expense:
Reserve - asset sale agreement - 1,312,035 - 3,936,105
Financing related charges 413,197 377,422 1,198,590 1,048,157
Stock-based compensation - 206,250 80,222 618,750
----------- ----------- ----------- -----------
Total other expenses 413,197 1,895,707 1,278,812 5,603,012
Net income (loss) $ (171,214) $ (1,691,965) $ (638,793) $ (9,385,563)
========== =========== =========== ===========
Income (loss) per common share:
Net income (loss) $ (0.01) $ (0.13) $ (0.04) $ (0.75)
========== =========== =========== ===========
Weighted average number of
common shares outstanding 18,046,447 13,080,962 16,087,825 12,545,651
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 nine months ended
September 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ (638,793) $(9,385,563)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 180,381 979,548
Reserve in connection with A.R. purchase
agreement - 3,936,105
Changes in current assets and liabilities:
Increase (decrease) in accounts receivable (187,814) -
Increase (decrease) in Accounts payable
and accrued liabilities (1,501,810) 3,665,852
---------- ----------
Net cash used in operating activities (2,148,036) (804,058)
---------- ----------
Cash flows from investing activities:
Acquisition of equipment - 163,867
Cash outlay in connection with merger (112,500) -
---------- ----------
Net cash used in investing activities (112,500) 163,867
---------- ----------
Cash flows from financing activities:
Proceeds from accounts receivable
purchase agreement - 755,266
Principal payments under loan agreements - -
Proceeds from sale of stock 2,399,184 1,000,000
---------- ----------
Net cash provided by financing activities $ 2,399,184 $ 1,755,266
---------- ----------
Net decrease in cash and cash equivalents $ 138,647 $ 1,115,075
Cash and cash equivalents at beginning of period $ - $ 855,563
---------- ----------
Cash and cash equivalents at end of period $ 138,647 $ 259,512
========== ==========
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 August of 2000, 1,564,320 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 nine month periods ended September 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 Verhey and Dr. Mark Newman were appointed as Directors during
the second quarter of fiscal 2000 and Judith Krueger was appointed during
the third quarter of fiscal 2000.
<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 and a potential new funding
entity for the Company have also entered into negotiations with Litchfield
Financial Corporation ("Litchfield"), the source of the Company's funding
that is advanced against accounts receivable, to purchase Tessa-related
accounts receivables from Litchfield. Although the negotiations regarding
the accounts receivable are proceeding under the assumption that a discount
would be applied which could reduce Tessa's obligations, as of November 1,
2000 Litchfield has elected to stop further funding to the Company which has
severely impaired the Company's abilities to fund operations. If the above
negotiations with Litchfield proceed positively, the Company does believe
that it will be able to resume funding of operations while the Company
continues its efforts in restructuring all areas of the Company. 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; 3) the introduction of an incentive
plan to optimize clinic profitability; and 4) the creation of new revenue
streams from alternative operations such as the expansion into Las Vegas,
Nevada. See Changes in Securities under Part II Other Information contained
elsewhere herein. 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 options 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, amongst other things, its ability to successfully
obtain a new funding source with parameters that would allow for cash
availability, 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 nine
month periods ended September 30 , 2000 and 1999.
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 nine month periods ended September 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.
<PAGE>
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 Verhey and Dr. Mark Newman were appointed as Directors during
the second quarter of fiscal 2000 and Judith Krueger was appointed during
the third quarter of fiscal 2000.
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 and a potentially new funding
source for the Company have also entered into negotiations with Litchfield
Financial Corporation ("Litchfield"), the source of the Company's funding
that is advanced against accounts receivable, to purchase Tessa-related
accounts receivable portfolio from Litchfield. Although the negotiations
regarding the accounts receivable are proceeding under the assumption that a
discount would be applied which could reduce Tessa's obligations, as of
November 1, 2000 Litchfield has elected to stop further funding to the
Company which has severely impaired the Company's abilities to fund
operations. If the above negotiations with Litchfield proceed positively,
the Company does believe that it will be able to resume funding of
operations while the Company continues its efforts in restructuring all
areas of the Company. 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; 3) the introduction of an incentive
plan to optimize clinic profitability; and 4) the creation of new revenue
streams from alternative operations such as the expansion into Las Vegas,
Nevada. See Changes in Securities under Part II Other Information contained
elsewhere herein. 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 options 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, amongst other things, its ability to successfully
obtain a new funding source with parameters that would allow for cash
availability, 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>
Results of Operations
Comparison of Results of Operations for the three and nine months
ended September 30, 2000 and 1999.
Revenues decreased by $2,010,171 to $1,709,263 for the quarter ended
September 30, 2000 versus $3,719,434 for the quarter ended September 30,
1999. For the nine months ended September 30, 2000, revenues decreased by
$4,729,293 to $5,960,292 versus $10,689,585 for the nine months ended
September 30, 1999. The Company attributes the 54% and 44.2% 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.
Operating expenses (hereinafter operating expenses shall be exclusive
of depreciation and amortization) decreased by $1,791,682 for the quarter
ended September 30, 2000 to $1,407,153 versus $3,198,835 for the prior
year's comparative quarter. As a percentage of revenue, operating expenses
were 82.3% for the quarter ended September 30, 2000 versus 86% for the
quarter ended September 30, 1999. For the nine months ended September 30,
2000, operating expenses decreased by $8,352,696 to $5,139,892 as compared
to 13,492,588 for the prior year's nine 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 $316,857 for the
quarter ended September 30, 1999 to $60,127 for the quarter ended September
30, 2000. For the nine months ended September 30, 1999 and 2000,
amortization and depreciation decreased from $979,548 to $180,381. 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 $377,422 for the quarter
ended September 30, 1999 to $413,197 for the prior year's quarter. For the
nine month period ended September 30, 1999 and 2000, finance related charges
increased from 1,048,157 to 1,198,590. The increase in financing related
charges is primarily a result of increased advances by DynaCorp and
Litchfield and the increase in the advance rate due to increases in the
prime lending rate. See Liquidity and Capital Resource under the Management
and Discussion Section contained elsewhere herein.
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.
<PAGE>
As a result of the foregoing factors, the Company reported a net loss
of $171,214 for the quarter ended September 30, 2000 versus a net loss of
$1,691,95 for the prior year's comparative quarter. For the nine month
period ended September 30, 2000, the Company reported a net loss of $638,793
versus a net loss of $9,385,563 the prior year's comparative nine month
period. The Company reported a net loss per share of $.01 the quarter ended
September 30, 2000 versus a net loss per share of $.13 for the quarter ended
September 30, 1999. For the nine month period ended September 30, 2000, the
Company reported a net loss per share of $.04 versus a net loss of $.75 for
the prior year's comparative period.
Liquidity and Capital Resources
Cash flow from operations was a negative $2,148,036 for the nine
months ended September 30, 2000, as compared to a negative $804,058 for the
prior year's comparative period. The Company financed the negative cash
flows through the sale of equity during the first three quarters of fiscal
2000 and primarily through the increased in amounts advanced by DynaCorp and
Litchfield in connection with accounts receivable purchases during the prior
year's nine month period.
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 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. 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.
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 September 30, 2000, charges under the Accounts
Receivable Purchase Agreement amounted to $413,197 as compared to the same
period in 1999, when charges with DynaCorp were 377,422, representing an
increase of $35,775.
<PAGE>
During the quarter ended September 30, 2000, the Company's above
mentioned Purchase Agreement with Dynacorp was acquired by Litchfield
Financial Corporation ("Litchfield"). The Company and a potential new
funding entity for the Company have also entered into negotiations with
Litchfield Financial Corporation ("Litchfield"), the source of the Company's
funding that is advanced against accounts receivable, to purchase Tessa-
related accounts receivable portfolio from Litchfield. Although the
negotiations regarding the accounts receivable are proceeding under the
assumption that a discount would be applied which could reduce Tessa's
obligations, as of November 1, 2000 Litchfield has elected to stop funding
to the Company which has severely impaired the Company's abilities to fund
operations. If the above negotiations with Litchfield proceed positively,
the Company does believe that it will be able to resume funding of
operations while the Company continues its efforts in restructuring all
areas of the Company.
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 three
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.
During the third quarter, 1,564,320 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.
<PAGE>
In addition to the above obligations, the Company owes approximately
$2.1 million to practitioners and past management of the Company related to
amounts due under acquisition and/or employment agreements and from amounts
advanced by practitioners for 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.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
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 has been named as a defendant in the matter of Comasa v.
Tessa Complete Health Care, Inc., in the United States District Court for
the Eastern District of New York, Case No. CV005085, the Complaint of which
alleges breach of promissory note. The Company is defending against this
claim.
The Company has been named as a defendant in the matter of Gonzalez v.
Tessa Complete Health Care, Inc., et al. in the United States District Court
for the Disctrict of Oregon, Case No. CV001320AS, the Complaint of which
alleges wage, contract and employment claims. 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 the third quarter of 2000, 1,564,320 shares of common stock
were sold pursuant to the exercise of options to purchase common stock at an
exercise price of .3825. In addition, the Company completed the acquisition
of a Las Vegas, Nevada clinic which included: 1) accounts receivable
of $212,539; 2) equipment; and supplies totaling $115,541; and 3) rent
subsidization of $24,715; in exchange for 940,787 shares of the Company's
common stock.
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 September 30, 2000.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
10.1 Member Interest Purchase Agreement of September 12, 2000,
effective as of June 30, 2000 Advanced Medical Management,
Inc., and Tessa Complete Health Care, Inc.
27 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: November 21, 2000 s/s Robert Flippin
-------------------------
Robert Flippin, President
and Chief Executive Officer
