U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2000
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-17192
REVCARE, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 84-1061382
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
5400 Orange Avenue, Suite 200, Cypress, CA 90630
(Address of principle executive offices)
Issuer's telephone number (714) 995-0627
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 31, 2001 the issuer had
21,526,909 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
----- -----
REVCARE, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Balance Sheet as of
December 31, 2000 ..................................... 1
Condensed Consolidated Statements of
Operations for the three month periods ended
December 31, 2000 and 1999 ............................ 2
Condensed Consolidated Statements of
Cash Flows for the three month periods ended
December 31, 2000 and 1999 ............................ 3
Notes to Condensed Consolidated Financial
Statements ............................................ 4 to 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 11 to 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................... 15
Item 2. Changes in Securities ................................. 15
Item 3. Defaults Upon Senior Securities ....................... 15
Item 4. Submission of Matters to a Vote of Security Holders ... 15
Item 5. Other Information ..................................... 15
Item 6. Exhibits and Reports on Form 8-K ...................... 15
REVCARE, INC.
-------------
AND SUBSIDIARIES
----------------
CONDENSED (UNAUDITED) CONSOLIDATED BALANCE SHEET
------------------------------------------------
DECEMBER 31, 2000
-----------------
ASSETS
------
Cash $ 977,525
Restricted cash 365,474
Accounts receivable, net 1,707,477
Portfolio receivables, net 456,391
Property, net 3,124,981
Notes receivable from officers 100,000
Prepaid expenses and other 101,439
Goodwill, net 10,663,150
-----------
Total assets $17,496,437
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable $ 168,899
Trust payables 365,474
Accrued liabilities 700,606
Notes payable 7,769,799
Capital lease obligations 265,053
-----------
Total liabilities 9,269,831
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series A convertible, redeemable preferred stock, $0001 par value,
stated at $2.00 liquidation preference per share, 5,000,000 690,000
shares authorized; 345,000 shares issued and outstanding
Common stock, $0.001 par value; 55,000,000 shares authorized;
21,526,909 shares issued and outstanding 21,520
Paid-in capital 10,658,282
Accumulated deficit (3,093,196)
-----------
8,276,606
Less common stock in treasury at cost, 33,000 shares (50,000)
-----------
Total shareholders' equity 8,226,606
-----------
$17,496,437
===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
REVCARE, INC.
-------------
AND SUBSIDIARIES
----------------
CONDENSED (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
-----------------------------------------------------------
2000 1999
----------- ----------
REVENUES: $ 3,415,336 $1,085,152
OPERATING EXPENSES:
Salaries, wages and related benefits 2,255,265 993,877
Selling, general and administrative 1,169,982 289,119
Losses on portfolio receivables 50,154 92,737
Depreciation and amortization 216,683 56,301
----------- ----------
3,692,084 1,432,034
----------- ----------
LOSS FROM OPERATIONS (276,748) (346,882)
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense, net (113,049) (44,021)
Rental operations, net 53,559 17,392
----------- ----------
(59,490) (26,629)
LOSS BEFORE BENEFIT FOR INCOME TAXES (336,238) (373,511)
BENEFIT FOR INCOME TAXES - -
----------- ----------
NET LOSS $ (336,238) $ (373,511)
Earnings per share:
Basic $ (0.02) $ (0.06)
Diluted $ (0.02) $ (0.06)
Number of shares used in computing earnings per share:
Basic 21,526,909 6,526,911
Diluted 21,526,909 6,526,911
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
REVCARE, INC.
-------------
AND SUBSIDIARIES
----------------
CONDENSED (UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 2000 AND 1999
-----------------------------------------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (336,238) $ (373,511)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 216,683 60,738
Changes in operating assets and liabilities:
Decrease in restricted cash 24,787 39,589
Increase in accounts receivable, net (343,268) 89,194
Decrease in portfolio receivables 58,494 108,011
Decrease in prepaid expenses and other 348 (114,263)
Decrease in accounts payable (158,384) 4,816
Decrease in trust payables (24,787) (39,589)
Decrease in accrued liabilities (12,142) (60,603)
----------- -----------
Net cash used in operating activities (574,506) (285,618)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (18,886) (4,400)
----------- -----------
Net cash used in investing activities (18,886) (4,400)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mortgage note payable 2,990,000 -
Principal payments on notes payable (134,424) (5,411)
Principal payments on capital lease obligations (31,056) (20,035)
Principal payments on maturity of mortgage note payable - (Sanwa) (1,802,002) -
----------- -----------
Net cash provided by financing activities 1,022,518 (25,446)
----------- -----------
NET INCREASE IN CASH 429,126 (315,464)
CASH, at beginning of period 548,399 501,557
----------- -----------
CASH, at end of period $ 977,525 $ 186,093
=========== ===========
The accompanying notes are an intregral part of these condensed consolidated
financial statements.
3
REVCARE, INC.
-------------
AND SUBSIDIARIES
----------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
DECEMBER 31, 2000
-----------------
1. Quarterly Information
---------------------
The accompanying unaudited, condensed and consolidated financial statements have
been prepared in accordance with Securities and Exchange Commission requirements
for interim financial statements. Therefore, they do not include all disclosures
that would be presented in the Annual Report on Form 10-KSB of RevCare, Inc., a
Nevada corporation (together with its subsidiaries, the Company). These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements contained in the Company's 2000 Annual
Report on Form 10-KSB.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of financial position and results of operations for the
interim periods. The operating results are not necessarily indicative of results
to be expected for the year ending September 30, 2001.
2. Organization and Basis of Presentation
--------------------------------------
The Company provides accounts receivable management, administration, and debt
collection services primarily to healthcare providers and consumer credit
issuers. The Company also has, in the past, acquired accounts receivable and
other consumer obligations for its own collection portfolio. The Company
operates primarily through wholly owned subsidiaries that serve specific
industries. The Company's subsidiaries include: (i) Orange County Professional
Services Inc. dba California Professional Services (OCPS), a company that
provides collection services, billing services, outsourcing and temporary
staffing services, and specialty consulting services primarily in the healthcare
industry; (ii) Merchants Recovery Services, Inc. (MRSI), a company that
primarily offers accounts receivable collection services to banks, credit
unions, public utilities, and retailers; (iii) Medical Control Services, Inc.
(MCSI), a collection agency servicing the health care industry; (iv) Lien
Solutions, Inc. (LSI), a company that specializes in the recovery of unpaid
worker's compensation claims primarily for healthcare service providers,
including hospitals and doctors; (v) My Boss, Inc. dba Business Office Support
Services (BOSS), a company that provides pre-collection consulting and credit
monitoring services to medical providers and other businesses that extend
credit; and (vi) Pacific Process Serving, Inc. (PPS), a statewide legal document
process service company.
3. Summary of Significant Accounting Policies
------------------------------------------
a. Principles of Consolidation
---------------------------
The condensed consolidated financial statements include the accounts of
RevCare, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts have been eliminated in consolidation.
b. Use of Estimates
----------------
4
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reported periods. Actual results could materially
differ from those estimates.
c. Revenue Recognition
-------------------
i Service Fees
------------
The Company provides collection services for entities in the
commercial, retail and medical industries for a fee. Service fees are
reported as income when earned. Servicing costs are charged to expense
as incurred.
ii Portfolio Receivables
---------------------
Portfolio receivables (Receivables) represent liquidating portfolios of
delinquent accounts which have been purchased by the Company for
collection and are stated at the lower of cost or net realizable value.
Cost is reduced by cash collections on an account by account basis
until such time that aggregate collections equal the original cost. Net
realizable value represents management's estimate of the remaining net
proceeds to be realized from a given portfolio, based on an account by
account evaluation of the remaining uncollected delinquent receivables
and on the historical collection experience of the specific portfolio
and similar portfolios. Revenues from collections on purchased
portfolios of receivables are recognized on an account by account basis
after the cost of each account has been recovered. Gains and losses are
recorded as appropriate when Receivables are sold. The Company
considers a transfer of Receivables where the Company surrenders
control over the Receivables a sale to the extent that consideration
other than beneficial interests in the transferred Receivables is
received in exchange for the Receivables.
iii Residual Interests in Securitizations and Gain on Sale of
---------------------------------------------------------
Portfolio Receivables
---------------------
The Company purchases certain Receivables with the intention of
reselling them to investors as asset-backed securities through
securitizations. During 1998, the Company completed its first
securitization. The securitizations will generally be structured as
follows: First, the Company sells a portfolio of Receivables to a
wholly owned subsidiary which has been established for the limited
purpose of buying and reselling the Company's Receivables. This wholly
owned subsidiary in turn issues interest-bearing asset-backed
securities (the Certificates) which are purchased by one or more
investors. The proceeds from the sale of the Certificates are then used
to purchase the Receivables from the Company. In addition, the Company
provides a credit enhancement for the benefit of the investors in the
form of an initial cash deposit to a specific account held by the trust
which is required to be maintained at specific levels.
At the closing of a securitization, the Company removes from its
consolidated balance sheet the Receivables sold and adds to its
consolidated balance sheet (i) the cash received and (ii) the basis
associated with the portion of the Receivables retained from the
securitizations (Residuals), which relates to (a) the cash held on
deposit by the trust and (b) the discounted cash flows to be received
by the trust in the future. The excess of the cash received and the
assets retained by the Company over the carrying value of the
Receivables sold, less transaction costs, equals the net gain on sale
of Receivables recorded by the Company.
In future periods, the Company will recognize additional revenue from
the Residuals if the actual performance of the Receivables is higher
than the original estimate or the Company may increase the
5
estimated fair value of the Residuals. If the actual performance of the
Receivables is lower than the original estimate, then an adjustment to
the carrying value of the Residuals may be required if the estimated
fair value of the Residuals is less than the carrying value. As of
December 31, 2000, the carrying value of the Residuals was $0.
The Company is responsible for the ongoing servicing of the
Receivables. The Company has recorded a liability of $140,000 based on
the present value of the estimated costs to service the Receivables
less the estimated servicing fees over the remaining life of the
Receivables.
The Company did not complete any securitizations during the quarter.
d. Property
--------
Furniture, fixtures and equipment are carried at cost and depreciated using
both straight-line and accelerated methods over the estimated useful lives
of the assets, which are generally 4 to 7 years. The building is being
depreciated over a period of 39 years.
Repairs and maintenance are charged to expense as incurred; replacements
and improvements are capitalized.
e. Trust Accounts and Restricted Cash
----------------------------------
The Company maintains trust accounts for the benefit of its customers.
Related funds are deposited in trust bank accounts and reflected as a trust
liability until such amounts held in trust are remitted to customers. The
trust accounts cash balances of $365,474 are reflected as restricted cash
and trust payables in the accompanying condensed consolidated balance
sheet.
f. Fair Value of Financial Instruments
-----------------------------------
Fair values of financial instruments are estimated using available market
information and other valuation methodologies. The fair values of the
Company's financial instruments are estimated to approximate the related
book value, unless otherwise indicated.
g. Goodwill
--------
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over 20 years.
The Company assesses its intangible assets for impairment periodically.
6
h. Earnings Per Share
------------------
The Company reports basic and diluted earnings per share (EPS) for common
and converted preferred stock. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding. Diluted EPS is computed by
adding to the weighted average shares the dilutive effect if stock options
and warrants were exercised into common stock.
For the quarter ended December 31, 2000, the computations of basic and
diluted EPS were as follows:
Basic EPS Diluted EPS
------------ ------------
Numerator - net loss $ (336,238) $ (336,238)
Denominator - weighted average shares
outstanding 21,526,909 21,526,909
------------ ------------
Loss per share $ (0.02) $ (0.02)
============ ============
For the quarter ended December 31, 1999, the computations of basic and
diluted EPS were as follows:
Basic EPS Diluted EPS
------------ ------------
Numerator - net loss $ (373,511) $ (373,511)
Denominator - weighted average shares
outstanding 6,526,911 6,526,911
------------ ------------
Loss per share $ (0.06) $ (0.06)
============ ============
For the quarters ended December 31, 2000 and 1999, the denominator in the
diluted EPS computation was the same as the denominator for basic EPS due
to the antidilutive effects of preferred stock, warrants and stock options
on the Company's net loss. As of December 31, 2000 and 1999, the Company
had outstanding warrants and stock options of 1,880,508 and 1,187,050,
respectively, that were antidilutive.
i. Income Taxes
------ -----
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are determined based
on differences between the financial reporting and the tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. A valuation
allowance is provided for certain deferred tax assets if it is more likely
than not that the Company will not realize tax assets through future
operations.
j. Reclassification
----------------
Certain amounts in the accompanying 2000 financial statements have been
reclassified to conform to 2001 presentation.
7
k. Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended in June 1999 by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," and in June
2000, by SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," (collectively SFAS No. 133). SFAS No. 133 is
effective for all fiscal years beginning after June 15, 2000, with earlier
application encouraged. SFAS No. 133 requires that an entity recognize all
derivative instruments as either assets or liabilities on its balance sheet
at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction, and, if
it is, the type of hedge transaction. The Company adopted this standard
effective October 1, 2000, which did not have a material impact on the
Company's financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission (SEC) staff
released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," as
amended by SAB No. 101A, to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
explains the SEC staff's general framework for revenue recognition, stating
that certain criteria need to be met in order to recognize revenue. SAB No.
101 also addresses the question of gross vs. net revenue presentation and
financial statement and Management's Discussion and Analysis (MD&A)
disclosures related to revenue recognition. The adoption of SAB No. 101 in
fiscal year 2001 is not expected to have a material effect on the Company's
financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN44),
"Accounting for Certain Transactions Involving Stock Compensation." The
provisions of FIN44, which were effective on July 1, 2000, have not had a
material effect on the Company's financial position or results of
operations.
4. Acquisition and Goodwill
------------------------
On August 14, 2000, the Company completed the purchase of all of the outstanding
stock of OCPS and its wholly owned subsidiary, Impact Financial Services.
Concurrent with this acquisition, OCPS acquired substantially all of the assets
of RBA Rem-Care, Inc., Insource Medical Solutions, LLC and Hospital Employee
Labor Pool, affiliates of OCPS. This acquisition was accounted for using the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired was recorded as goodwill. The operations of
OCPS have been included in the accompanying consolidated financial statements
from the date of acquisition.
Below is a summary of the OCPS acquisition, subject to post closing adjustments:
Fair value of tangible assets acquired $ 1,317,668
Goodwill acquired 10,865,614
Liabilities assumed (1,216,216)
-----------
Acquisition price 10,967,066
Less cash acquired (33,396)
Less notes payable issued for acquisition (4,200,000)
-----------
Net cash paid for acquisition $ 6,733,670
===========
8
5. Portfolio Receivables
---------------------
The cost basis of portfolio receivables (Receivables) activity consists of the
following as of December 31, 2000, and for the three months then ended:
Portfolio receivables at September 30, 2000 $514,885
Increase in allowance for losses on portfolio receivables (50,154)
Collections applied to cost basis (8,340)
--------
Portfolio receivables at December 31, 2000 $456,391
========
For the three months ended December 31, 2000 and 1999, the Company had gross
collections from the Receivables of $89,991 and $166,216, respectively. After
applying $8,340 and $15,275 to the cost basis for the three months ended
December 31, 2000 and 1999, respectively, $83,454 and $150,941 was recognized as
portfolio receivables revenue in the accompanying condensed consolidated
statements of operations.
On August 14, 1998 the Company sold Receivables with a book value of $224,634 to
a wholly owned subsidiary for $2,750,000, which issued interest-bearing asset-
backed securities to Pacific Life Insurance Company for the same amount. As
permitted by SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities," the Company considers the transfer of
Receivables where the Company surrenders control over the Receivables a sale and
does not include the wholly owned subsidiary in its consolidated financial
statements. For the three months ended December 31, 2000 and 1999, the Company
had gross collections from these Receivables of $172,831 and $214,676,
respectively, of which $38,865 and $47,268 was recognized as service fee revenue
in the accompanying condensed consolidated statements of operations.
Due to the nature of these Receivables, there is no assurance that historical
collection results will reflect the future collectibility of the face value of
the Receivables.
6. Property
--------
Property consists of the following:
Land $ 866,575
Building 1,540,577
Equipment and furnishings 2,195,789
-----------
4,602,941
Less--Accumulated depreciation 1,477,960
-----------
$ 3,124,981
===========
7. Intangible Assets
Intangible assets consist of the following at December 31, 2000:
Goodwill $10,798,126
Less--Accumulated amortization 134,976
-----------
$10,663,150
===========
9
8. Notes Payable
-------------
Notes payable consists of a mortgage note payable to a bank of $2,990,000 of
principal amount outstanding at end of quarter, secured by land and a building,
due in monthly payments of $25,984, including interest currently at 8.4 percent
per annum, through January, 2021, at which time the entire principal balance is
due and payable.
In conjunction with the acquisition of OCPS on August 14, 2000 the Company
entered into $4,200,000 of Secured Convertible Promissory Notes to shareholders
and officers of OCPS, some of whom are currently employees or officers of
RevCare. All of these notes bear interest at the rate of 8 percent per annum
through August 2002, at which time the unpaid principal balances and all accrued
and unpaid interest are due. At the option of the holder, the notes are
convertible at $0.735 of any unpaid principal balance into $.001 par value
common stock.
9. Income Taxes
------------
Income tax expense for the periods presented are based on the estimated
affective tax rate to be incurred for the year. Because certain items of income
and expense are not recognized in the same year in the financial statements of
the Company as in its Federal and California tax returns, deferred assets and
liabilities are created. Due to a valuation allowance, the accompanying
condensed consolidated balance sheet reflects a net deferred tax asset of $0.
10. Stockholders' Equity Transactions
---------------------------------
On February 12, 1999, the Company issued a warrant to Batchelder & Partners,
Inc. to purchase up to 400,000 shares of the Company's common stock in
connection with their agreement to act as the Company's non-exclusive financial
advisor. This warrant is subject to specific exercise prices ranging from $1.75
to $4.75 with a weighted average exercise price of $3.06. Additionally, this
warrant is subject to vesting provisions whereas 100,000 shares vested
immediately and the balance vests if and when certain defined targets are
achieved. The warrant is exercisable until November 13, 2005.
On May 30, 2000, the Company sold 15,000,000 shares of its common stock to FBR
Financial Services Partners (FBR), representing 69.8 percent of the outstanding
common stock of the Company on a fully diluted basis for $7,500,000. Offering
costs related to this investment totaled $446,856.
10
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
RevCare, Inc. (RevCare) is one of the leading providers of revenue cycle
management services in California, Nevada and Hawaii. We have combined the
experience and knowledge of seven entities to form one unit that has the
capability of providing integrated revenue management services. We now have the
ability to provide all services required by our healthcare clients to manage all
phases of their revenue cycle, which include physician and hospital billing,
non-delinquent and delinquent receivable collections, reimbursement maximization
projects, back-office staffing and outsourcing and litigation management
services. While most of our services are focused on the healthcare industry, we
also provide national receivable management services to certain non-healthcare
companies in the financial services, auto and retail industries. Our clients in
these industries primarily utilize our delinquent debt recovery and litigation
management services.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the condensed consolidated
financial statements and notes thereto included elsewhere in this report.
Certain statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, as well as elsewhere in this
Quarterly Report on Form 10-QSB are forward-looking statements that involve
risks and uncertainties. Such forward-looking statements include, without
limitation, statements using words such as "may," "potential," "expects,"
"believes," "estimates," "plans," "intends," "anticipates," and similar
expressions. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to vary materially from those
expressed, implied or projected by such statements. Certain factors that might
cause a difference as well as other risks are detailed in the Company's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 2000. These
forward-looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statements are
based.
Results of Operations
The following table summarizes the revenue activities for the three months ended
December 31, 2000 and 1999.
2000 1999
----------- -----------
Gross collections $ 3,647,303 $ 3,617,870
Less: Remittances to holders of
portfolio backed securities (140,668) (166,598)
Less: Clients' share of collections (1,796,693) (2,350,845)
----------- -----------
Gross collection fees 1,709,942 1,100,427
Less: Fees applied to cost basis
of portfolio receivables (8,340) (15,275)
----------- -----------
Net collection fees 1,701,602 1,085,152
Billing fees 558,550 -
Staffing services 1,052,780 -
Special projects 102,404 -
----------- -----------
Fee revenue $ 3,415,336 $ 1,085,152
----------- -----------
Total revenue $ 3,415,336 $ 1,085,152
=========== ===========
Total gross collections increased by $29,433, or 1%, from $3,617,870 for the
three months ended December 31, 1999 to $3,647,303 for the three months ended
December 31, 2000. The significant components of gross collections can be
summarized into three categories; contingency collections, portfolio receivables
collections,
11
and securitization collections. Contingency collections increased by $147,503,
or 4%, from $3,236,978 for the three months ended December 31, 1999 to
$3,384,481 for the three months ended December 31, 2000. Portfolio receivables
collections decreased by $76,225, or 46%, from $166,216 for the three months
ended December 31, 1999 to $89,991 for the three months ended December 31, 2000.
Securitization collections decreased by $41,845, or 19%, from $214,676 for the
three months ended December 31, 1999 to $172,831 for the three months ended
December 31, 2000. The decrease noted in portfolio receivables collections as
well as securitization collections are to be expected given the fact that both
pools are static, i.e. no new receivables are being added to these pools.
Assuming the Company does not purchase additional receivables or perform
additional securitizations, these categories should continue to decrease. The
Company's current growth strategy is focused on contingency collections. By
actively pursuing additional business in both of its business segments, health
care and retail, the Company anticipates continued growth in contingency
collections.
Net collection fees recognized from gross collections increased by $616,450, or
57%, from $1,085,152 for the three months ended December 31, 1999 to $1,701,602
for the three months ended December 31, 2000. Net fees recognized from gross
collections is calculated by reducing gross collections by remittances to
clients' for their share of collections and by remittances to holders of
portfolio backed securities. As a percentage of gross collections, remittances
to clients' for their share of collections decreased 24%. Remittances to
holders of portfolio backed securities decreased by $25,930 from $166,598 for
the three months ended December 31, 1999 to $140,668 for the three months ended
December 31, 2000. As discussed above, the static nature of the securitized
receivables is the cause of this decrease and is to be expected.
Total revenue increased by $2,330,184, or 215%, from $1,085,152 for the three
months ended December 31, 1999 to $3,415,336 for the three months ended December
31, 2000. Total revenue is calculated by adding fees for services to net
collection fees. Net collection fees result from gross collections fees reduced
by fees applied to cost basis of portfolio receivables. These applied fees
decreased by 45% due to the static nature of this pool of receivables as
discussed above. The Company did not sell any receivables during the three
months ended December 31, 2000.
In the first quarter of fiscal 1999, the Company adopted an acquisition strategy
designed to expand its knowledge base and servicing capacity through selective
acquisitions of established accounts receivable management organizations as well
as continued internal expansion of its existing core businesses. Throughout the
remainder of fiscal 2000 and into the first quarter of fiscal 2001, the Company
dedicated significant attention as well as resources to the identification of
acceptable acquisition targets. Additionally, throughout the year, the Company
maintained an infrastructure designed to immediately accommodate the growth
associated with an acquisition strategy. As discussed below, some of the
operating expense increases can be attributed to the execution of this strategic
plan and the resulting acquisitions.
Operating expenses increased by $2,255,613, or 158%, from $1,432,034 for the
three months ended December 31, 1999 to $3,692,084 for the three months ended
December 31, 2000. The significant components of this increase are discussed
below. We expect to increase these expenses during the following months as we
execute our business plan.
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Salaries, wages and related benefits increased by $1,261,388, or 127%, from
$993,877 for the three months ended December 31, 1999 to $2,255,265 for the
three months ended December 31, 2000. This increase was caused by the
acquisitions completed August 14, 2000, growth in the Company's billing and
collecting staff as well as specific additions to the Company's management team.
Selling, general and administrative expenses increased by $1,219,183, or 422%,
from $289,119 for the three months ended December 31, 1999 to $1,508,302 for the
three months ended December 31, 2000. This increase is principally attributable
to the same factors referenced in the preceding paragraph.
Depreciation expense increased 39% over the same period last year principally
due to the assets acquired in the acquisitions, an increase in the rate of
technology upgrades and furniture purchases made by the Company during the past
year. Depreciation expense is expected to increase in the near future due to
the implementation of certain technology initiatives that the Company intends to
pursue.
Amortization expense increased to $134,976 due to amortization of the goodwill
booked with the acquisitions completed August 14, 2000. It should remain
constant for the foreseeable future.
Interest expense increased to $113,049 for the three months ended December 31,
2000 from $44,021 for the three months ended December 31, 1999. This 157%
increase is the result of an increase in net borrowings during the period and
interest on notes payable to related parties.
Net income from rental operations increased by $33,467, or 192%, from $17,392
for the three months ended December 31, 1999 to $50,859 for the three months
ended December 31, 2000. This increase is directly attributable to the growth in
the percentage space for unrelated third party leases in the building.
Liquidity and Capital Resources
Historically, we have financed our operations through cash flows generated by
operations and borrowings from credit facilities that are in place. Capital
expenditures and investments in new technology have been primarily financed
through non-cancelable capital leases, which expire at various times through
fiscal year 2005 and have a remaining balance of $265,053 at December 31, 2000.
The Company currently has outstanding long-term debt with a financial
institution totaling $2,990,000 secured by real estate that carries a variable
interest rate starting at 8.4% per annum and is due in January 2021. This
loan, which was closed on December 19, 2000, provided us with approximately
$1.1 million of additional working capital.
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Cash at December 31, 2000 increased by $429,126 from September 30, 2000, which
was the result of $574,506 used in operating activities, $18,886 used in
investing activities, and $1,022,518 from financing activities. This represents
a 425% improvement over the same period in the prior year.
Assuming revenues are maintained at or above the level of fiscal 2000,
management believes that its existing cash balances, combined with anticipated
cash flow from operations, will be sufficient to meet its cash requirements
through the end of fiscal 2001. In the event that cash flow from operations is
less than that anticipated and the Company is unable to obtain cash from any of
the above potential sources, in order to preserve cash, the Company would be
required to reduce expenditures as well as its corporate infrastructure, either
of which could have a material adverse affect on the Company's future
operations.
Recent Events
Management Changes
On January 2, 2001, the Board of Directors appointed Fred McGee to Chief
Financial Officer and Secretary. He succeeds Kenneth Leighton, who served as
the interim Chief Financial Officer and Secretary since July 25, 2000. Mr.
Leighton joined the Company as Chief Information Officer on October 11, 1999,
and will continue to hold that position.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended in June 1999 by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and in June 2000, by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively SFAS No. 133). SFAS No. 133 is effective for all fiscal years
beginning after June 15, 2000, with earlier application encouraged. SFAS No.
133 requires that an entity recognize all derivative instruments as either
assets or liabilities on its balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction, and, if it is, the type of hedge transaction. The Company
adopted this standard effective October 1, 2000, which did not have a material
impact on the Company's financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission (SEC) staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," as amended by
SAB No. 101A, to provide guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 explains the SEC
staff's general framework for revenue recognition, stating that certain criteria
need to be met in order to recognize revenue. SAB No. 101 also addresses the
question of gross vs. net revenue presentation and financial statement and
Management's Discussion and Analysis (MD&A) disclosures related to revenue
recognition. The adoption of SAB No. 101 in fiscal year 2001 is not expected to
have a material effect on the Company's financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 (FIN44), "Accounting
for Certain Transactions Involving Stock Compensation." The provisions of
FIN44, which were effective on July 1, 2000, have not had a material effect on
the Company's financial position or results of operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Promissory Note executed in favor of Imperial Bank for loan on
property dated December 19, 2000.
10.2 Deed of Trust executed in favor of Imperial Bank for loan on
property dated December 19, 2000
(b) Reports on Form 8-K
On October 27, 2000, the Company filed a report on Form 8-K/A that
included the financial statements of Orange County Professional
Services, Inc. ( dba California Professional Services ) and
affiliated companies ("OCPS") and the Pro Forma combined condensed
financial statements of RevCare, Inc. resulting from its acquisition
of OCPS.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REVCARE, INC.
Date: February 13, 2001 By: /s/ Manual Occiano
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Manual Occiano
Chief Executive Officer
By: /s/ Fred McGee
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Fred McGee
Chief Financial Officer
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