U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission File No. 0-21099
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)
1 S. 443 Summit Ave., Suite 203,
Oakbrook Terrace, IL
(Address of principal executive offices)
60181
(Zip Code)
(630) 889-8811
(Issuer'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
--- ---
The number of shares of the registrant's only class of common stock issued and
outstanding, as of April 30, 2000, was 15,034,375 shares.
<PAGE>
PART I
Item 1. Financial Statements.
The unaudited financial statements for the three month period ended March
31, 2000, are attached hereto.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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 month
periods ended March 31, 2000 and 1999.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three Month Periods Ended March
31, 2000 and 1999
Revenues decreased by $1,505,564 to $2,050,427 for the quarter ended March
31, 2000, compared to $3,555,992 for the quarter ended March 31, 1999. The
Company attributes the 42.3% decrease primarily to the restructuring efforts the
Company has initiated in order to maximize profitability efforts at the expense
of expansion and to certain clinics that have separated from the Company at the
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direction of the Company and/or due to clinics departing due to the difficulties
the Company experienced in integrating clinics.
Operating expenses decreased from $5,555,456 for the quarter ended March
31, 1999 to $1,927,335 for the quarter ended March 31, 2000. The $3,564,168
decrease is 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 $272,691 for the
quarter ended March 31, 1999 to $60,127 for the quarter ended March 31, 2000.
The decrease is primarily attributable to the elimination of amortization
expense associated with goodwill that was fully written off as these assets were
deemed to have been permanently impaired due to the separation of certain
clinics, as well as to the substantial losses that the Company incurred during
the fiscal year ended December 31, 1999.
Financing related charges increased to $386,129 during the three month
period ended March 31, 2000, from $309,457 for the three month period ended
March 31, 1999, an increase of $76,672 (24.8%) due to increased advances by
DynaCorp Financial Strategies, Inc. ("DynaCorp") and the increase in the
interest rate due to increases in the prime lending rate.
In addition, the Company also recognized additional expenses 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 a stock grant provided to an outside consultant for promotional
services for the Company during fiscal 1999.
As a result of the foregoing factors, the Company incurred a net loss of
($263,037) for the quarter ended March 31, 2000 ($.02 per share), compared to a
net loss of ($3,827,206) for the three month period ended March 31, 1999 ($.33
per share).
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 the fiscal years ended December 31, 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.
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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 a Director and Dr. Dayna Bolla as a Director.
Robert Flippin was appointed President, Chief Executive Officer and a Director
of Tessa. Robert Vener and Dr. Mark Newman were also appointed as Directors.
With respect to financial restructurings, the Company has undertaken and
executed plans initiated during the first quarter of fiscal 2000 which have
included the conversion of debt to equity, or5 alternatively, the repayment of
debt through agreed upon payment plansm or the settlement of debt in exchange
for heavily discounted lump sum payments by the Company. The Company has also
raised additional capital through the sale of common stock and may do so again
in the foreseeable future.
For operations, the Company has started a restructuring process that has
included: (i) the combination of geographically related clinics; (ii) the
elimination and separation of some clinics which provided inconsequential or
negative cash flow; and (iii) 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 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 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.
Liquidity and Capital Resources
At the end of the three month period ended March 31, 2000, the Company had
$118,252 in cash and cash equivalents. Accounts receivable increased by $162,027
(5%) to $3,396,865 from $3,234,838 for the similar period in 1999. The Company
believes the increase is attributable to the Company's efforts in centralizing
collection efforts as part of the restructuring process the Company is currently
undertaking, which have delayed efforts made at collecting amounts due.
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Cash flow from operations was a negative $881,748 for the quarter ended
March 31, 2000, as compared to a negative $468,741 for the prior year's quarter.
The Company financed the negative cash flows through the sale of equity during
the first quarter fiscal 2000 and primarily through the increases in amounts
advanced by DynaCorp in connection with accounts receivable purchases during the
prior year's first quarter.
During November 1998, the Company entered into an Accounts Receivable
Purchase Agreement (the "Purchase Agreement") with 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 $8.2 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 March 31 2000, charges under the Purchase Agreement
amounted to $386,129, as compared to the same period in 1999, when charges with
DynaCorp were $309,457, an increase of $76,672 (24.8%).
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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 quarter of the fiscal
year ending December 31, 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 one million shares at a price of $1.00 per share.
During 1999 and 1998, 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. 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.
During 1998, Tessa leased substantially all of its employees through AOS
pursuant to a written agreement (the "AOS Agreement"). Effective April 1999,
Tessa began leasing only its non-medical personnel. AOS has continued to provide
payroll-processing services for medical personnel who are now directly employed
by Tessa's affiliated physician groups. At March 31, 2000 the amount outstanding
to AOS was $2,772,458. The Company has notified AOS of its intention to
terminate the AOS Agreement effective June 30, 2000.
In addition to the above, the Company owes approximately $3.1 million to
past and current practitioners 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
currently in negotiations regarding the above mentioned amount in order to
convert amounts owing to equity and/or long-term debt. This obligation does not
accrue interest.
In March 2000, two former affiliates advanced to the Company the principal
amount of $92,500. This amount is expected to be satisfied through the issuance
of the Company's common stock during the second quarter of fiscal 2000.
Trends
Throughout fiscal 1999 and into the first quarter of fiscal 2000, the
Company has experienced substantial losses which the Company attributes to the
Company's expansion of clinics and Revenues, and the resulting difficulties the
Company incurred
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integrating such clinics. Although the Company does not foresee losses and
negative cash flows incurring to the same extent that occurred during fiscal
1999, the Company could continue to incur losses (such as the net loss of
$263,037) during fiscal 2000 in its efforts to further stabilize the Company and
structure operations for growth and positive cash flow going forward.
Inflation
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material affect on
the results of operations during the three month period ended March 31, 2000.
Year 2000 Disclosure
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. As a result, many companies will be required to undertake major projects
to address the Year 2000 issue. The Year 2000 issue is the result of computer
programs written using two digits rather than four to define the applicable
year. As a result, date-sensitive software may recognize dates using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. The Company did not incur any negative impact as a
result of this problem and no problems in this regard are anticipated in the
future.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is the defendant in an action entitled 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, alleging unlawful
termination and breach of an employment agreement between the plaintiff and
defendant. Summary judgment was entered on behalf of the plaintiff and against
SRA Oregon in March 2000 in the amount of $162,313, plus $891 in costs and
$7,440 in attorneys' fees. The Company intends to appeal the judgment, but no
assurances can be provided that this judgment will be set aside.
The Company is also a defendant in an action entitled Vania Kaady v. Spine
& Rehabilitation Centers of Oregon, P.C., in the Circuit Court of the County of
Multnomah, State of Oregon, Civil Action No. 99 02 02066, alleging malpractice
arising as a result of
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an automobile accident and claiming damages in the amount of $200,000. The
Company is vigorously defending this action and believes this action is without
merit.
The Company has also been advised of a potential claim by Business Software
Alliance, who has alleged copyrighted product infringement for illegal
duplication of certain software. The Company is presently investigating this
matter by performing an internal audit of software presently being utilized by
the Company. If Business Software Alliance's claim is filed against the Company
and such claim is upheld, the Company could be subject to a penalty of up to
$100,000 per copyrighted product infringement. The Company has accrued
approximately $100,000 to cover any potential liabilities.
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.
Item 2. Changes in Securities.
During January and February 2000, the Company completed a private placement
of its common stock in which it issued 1 million shares at a price of $1.00 per
share to Dan Smith, who provided representations to the Company that he was an
"accredited investor" as that term is defined under the Securities Act of 1933,
as amended (the "1933 Act"). The Company relied upon the exemptions from
registration provided by Regulation D, Rule 504 as promulgated under the 1933
Act, in this offering.
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 Merger
Agreement, Tessa had been a non-reporting, publicly-traded company with a
portion of its issued and outstanding common stock exempt from registration
under the 1933 Act, pursuant to Rule 504 of Regulation D and Rule 144
promulgated under the 1933 Act.
Item 3. Defaults Upon Senior Securities. - None
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Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended March 31, 2000, the Company held a special meeting
of its shareholders. At that meeting, there were three matters that were
presented to and approved by a majority of the Company's shareholders, including
(i) an amendment to the Company's Articles of Incorporation, whereby a provision
allowing a majority of the Company's issued and outstanding shareholders to take
action without a meeting was adopted; (ii) the Company's shareholders ratified
the adoption of the Company's Stock Option Plan (the "2000 Stock Option Plan")
reserving from its authorized but unissued common shares an aggregate of
1,500,000 shares which shall underlie stock options to be granted pursuant to
the 2000 Stock Option Plan; and (iii) ratified the merger between the Company
and Zaba.
No other matters were submitted to a vote of security holders during the
quarter ended March 31, 2000.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
The following report on Form 8-K was filed by the Company during the
quarter ended March 31, 2000.
Form 8-K dated March 24, 2000, filed on or about April 10, 2000, wherein
the Company reported (i) the successful closing of the merger with Zaba; (ii)
the resignation of the Company's former independent accountant and the retention
of Horton & Associates, LLC, as the Company's new independent accountant and a
change in the Company's fiscal year to December 31. On or about May 3, 2000, the
Company filed an amendment to said Form 8-K, which included the Company's
audited financial statements for the fiscal years ended December 31, 1999 and
1998 and unaudited consolidated pro forma financial statements dated December
31, 1999.
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<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<CAPTION>
March 31, December 31
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 118,252 $ -
Accounts receivable, net of allowances of
$3,047,921 3,396,865 3,109,051
------------ -----------
Total current assets 3,515,117 3,109,051
Property and equipment, net 635,953 687,437
Deferred charges and other assets 487,273 72,915
----------- -----------
Total assets $ 4,638,343 $ 3,869,403
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 1,390,845 $ 1,379,620
Current portion of long-term debt 39,861 39,681
Accounts payable 1,231,382 1,187,828
Accrued expenses 1,451,646 1,924,377
Related party payable 2,884,958 2,663,458
Stockholder loans payable 3,002,947 3,085,018
Total current liabilities 10,001,459 10,279,982
----------- -----------
Total long-term debt less current portion 94,344 94,344
----------- -----------
Total liabilities 10,095,803 10,374,326
----------- -----------
Stockholders' equity (deficit):
Common stock: $0.02 par value; 50,000,000 shares
authorized; 13,809,375 outstanding at
December 31, 1999; 15,034,375 outstanding
at March 31, 2000 300,346 275,846
Additional paid-in capital 9,088,153 7,802,153
Accumulated deficit (14,845,959) (14,582,922)
----------- -----------
Total stockholders' equity (deficit) (5,457,460) 6,504,923)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 4,638,343 $ 3,869,403
=========== ===========
The accompanying notes are an integral part of these
statements.
</TABLE>
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<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three-month period ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 2,050,427 $ 3,555,992
----------- -----------
Operating expenses
Caregiver compensation and benefits 886,694 1,335,979
Other practice costs 109,309 220,427
Administrative compensation and benefits 620,685 2,785,699
Occupancy costs 223,530 393,686
Selling and administrative 26,990 546,974
Depreciation and amortization 60,127 272,691
----------- -----------
Total operating expenses 1,927,335 5,555,456
----------- -----------
Income (loss) from operations 123,092 (1,999,464)
Other expense:
Reserve under asset sale agreement - 1,312,035
Financing related charges 386,129 309,457
Stock-based compensation - 206,250
----------- -----------
Total other expenses 386,129 1,827,742
----------- -----------
Net (loss) $ (263,037) $(3,827,206)
=========== ===========
Loss per share $ (0.02) $ (0.33)
=========== ===========
Weighted average shares outstanding 14,392,708 11,771,695
=========== ===========
The accompanying notes are an integral part of these
statements.
</TABLE>
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<TABLE>
TESSA COMPLETE HEALTH CARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three-month period ended
March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (263,037) $(3,555,992)
----------- -----------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 60,127 272,691
Reserve increase in connection with A.R. purchase agreement - 1,312,035
Changes in current assets and liabilities:
Decrease in accounts receivable (287,815) (830,786)
Increase (decrease) in accounts payable
and accrued liabilities (278,523) 2,333,311
----------- -----------
Net cash used in operating activities (769,248) (468,741)
----------- -----------
Cash flows from investing activities:
Acquisition of equipment - (78,466)
Cash outlay in connection with merger (112,500) -
----------- -----------
Net cash used in investing activities (112,500) (78,466)
----------- -----------
Cash flows from financing activities:
Proceeds from accounts receivable purchase agreement - 1,225,000
Principal payments under loan agreements - -
Proceeds from sale of stock 1,000,000 -
----------- -----------
Net cash provided by financing activities 1,000,000 1,225,000
----------- -----------
Net increase in cash and cash equivalents 118,252 677,793
Cash and cash equivalents at beginning of period - 855,563
----------- -----------
Cash and cash equivalents at end of period 118,252 $ 1,533,356
=========== ===========
The accompanying notes are an integral part of these
statements.
</TABLE>
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TESSA COMPLETE HEALTH CARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 2000
1. Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been
included. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year.
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.
Earnings per share
Earnings per share have been computed based on the weighted average
number of common shares outstanding.
Private Placement
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.
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TESSA COMPLETE HEALTH CARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 2000
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-month periods ended March 31, 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 and Dr. Mark Newman
were also appointed as Directors of Tessa.
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TESSA COMPLETE HEALTH CARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Three Month Period Ended March 31, 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.
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 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 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.
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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: May 22, 2000 By:s/ Robert Flippin
------------------------
Robert Flippin, President
and Chief Executive Officer
16
<PAGE>
TESSA COMPLETE HEALTH CARE, INC.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
EXHIBITS Page No.
EX-27 Financial Data Schedule.....................................18
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,109,051
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,109,051
<PP&E> 687,437
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,869,403
<CURRENT-LIABILITIES> 10,279,982
<BONDS> 0
0
0
<COMMON> 275,846
<OTHER-SE> (6,780,769)
<TOTAL-LIABILITY-AND-EQUITY> 3,869,403
<SALES> 3,555,992
<TOTAL-REVENUES> 3,555,992
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,555,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,827,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,827,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,827,206)
<EPS-BASIC> (.33)
<EPS-DILUTED> 0
</TABLE>
