<PAGE>

================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 [Fee Required]

  For the fiscal year ended September 30, 1999 Commission File Number: 0-17192

                        CYPRESS FINANCIAL SERVICES, INC.
                 (Name of small business issuer in its charter)

                  Nevada                                84-1061382
      (State or other jurisdiction of                  (IRS Employer
       incorporation or organization)                Identification No.)

     5400 Orange Avenue, Suite 200, Cypress, California             90630
          (Address of principal executive offices)                (Zip Code)

Issuer's Telephone Number:  (714) 995-0627

Securities registered under Section 12(b) of the Exchange Act:
             (Title of each class)                               (Name of each
                                                               exchange on which
                                                                   registered)
                     NONE                                             NONE

Securities registered under Section 12(g) of the Exchange Act:
                                 (Title of class)
                                   COMMON STOCK

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 [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year:  $5,241,199.

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: $2,958,249.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,526,911 shares of Common Stock
issued and outstanding as of November 30, 1999.

Transitional Small Business Disclosure Format (Check one):     Yes [_]  No [X]

================================================================================
<PAGE>

ITEM 1   DESCRIPTION OF BUSINESS

General

Cypress Financial Services, Inc. provides accounts receivable management
services to various health care providers, banks, financial institutions, and
retail firms. These services include, among other things, billing, delinquent
debt recovery, management of litigation and bankruptcy claims, and workers'
compensation lien claim resolution. Having been in the business since 1977, the
Company augments its 22 years of experience and vast knowledge base in
receivable management with the innovative use of advanced telecommunications and
operating systems technology to provide its clients with responsive and thorough
service. The most critical element for optimum client service, however, still
remains with the Company's human resources. Accordingly, the Company has
established experience-based selection criteria to guide its recruiting program.
The Company complements its recruiting process with a training program carefully
designed to equip its people with the essential knowledge and attitude to
perform as professional receivable management specialists.

The Company focuses its services on the three segments of the accounts
receivable management industry that it believes it knows best and deems most
significant - healthcare, banking and retail. The services are rendered through
wholly owned subsidiaries as identified and discussed below.

Services to Healthcare Providers

The Company began providing accounts receivable management services to the
healthcare industry in 1977 when Medical Control Services, Inc. (MCSI) was
founded. The Company's healthcare division (i.e. MCSI and its subsidiaries) has
service contracts with over 1,000 clients that include hospitals, medical
groups, doctors, laboratories, radiology centers, emergency rooms, and home
health organizations. This division has serviced over $450 million in receivable
placements since inception and received approximately $51 million in new
placements during fiscal year 1999. The following briefly describes the core
services performed for healthcare providers:

     Pre-Collect Services

     The Company acts as an extension of its clients' accounts receivable
     department by utilizing its staff of trained specialists and its advanced
     data processing support systems to replace or supplement the traditional
     accounts receivable department. By using its employees, computers and
     predictive dialing technology, the Company is able to more timely and
     effectively reach the customers and receive payments than the traditional
     method of pre-collection demand letters. The pre-collection services
     offered by the Company are aimed at lowering the cost of collection for its
     clients and increasing recovery rates of receivables by minimizing the
     probability of such receivables to become delinquent. The Company acts as
     the accounts receivable department allowing the client's personnel to focus
     on revenue producing activities of their business. In fiscal year 1999, the
     Company received pre-collect placements of approximately $1.3 million.

     Billing Services

     The Company currently performs bill submission and follow-up services for
     its healthcare clients. This service is integrated into the debt recovery
     service that it currently provides to health care providers. The Company
     intends to expand this service to include, among other services, actual
     bill creation and coding services as the Company aims to provide a full
     service receivable management menu to its healthcare provider clients. In
     fiscal year 1999, the Company received billing placements of approximately
     $6.7 million.
<PAGE>

     Delinquent Debt Recovery

     Managing and collecting delinquent receivable accounts currently comprises
     a significant portion of the Company's receivable management service to
     health care providers. The Company relies on its more than two decades of
     experience in providing effective receivables management to its health care
     provider clients. Its skilled and experienced staff facilitates the
     transfer of debtor account information with little or no disturbance to the
     medical business office. Once the data is in-house, the Company applies its
     technology to access state and national files containing debtor information
     and their assets. On an as needed basis, the Company's specialty recovery
     department provides instant legal advice to recovery specialists to
     facilitate any immediate action that may be necessary to increase the
     probability of recovery of the clients' receivables. In fiscal year 1999,
     MCSI received placements of approximately $31 million of delinquent
     receivable accounts.

     Insurance Claims Management

     Lien Solutions, Inc. (LSI) began providing Workers' Compensation case
     resolution services in 1985. LSI developed a system to resolve contested
     Workers' Compensation claims and provide better solutions for the day to
     day problems in the medical business office. Workers' Compensation claims
     are more complex than other debt assigned to the Company. This type of
     receivables claim is unique because the Workers' Compensation Appeals Board
     (WCAB) has exclusive jurisdictions over all claims. The State legislature
     mandates the WCAB and periodically enacts legislation controlling lien
     claims, making it cumbersome for most healthcare business office personnel
     to keep up with regulatory changes impacting certain claims. LSI has
     established a unique lien service menu that allows for a complete follow
     through on all claims assigned for resolution. In addition, LSI extends its
     specialized service to third party payer disputes, such as personal injury
     liens, Medicare, HMO denials and lien subrogation. LSI received placements
     of approximately $12 million during fiscal year 1999.

Services to Banking and Financial Institutions

Merchants' Recovery Services, Inc. (MRSI) was founded in 1982 to provide third
party accounts receivable recovery services to non-healthcare commercial
businesses. Historically, MRSI's recovery services have been provided to banks
and financial institutions solely on a contingency fee basis which ranged from
25% to 50% depending on the size, age and the Company's assessment of the
collectibility of the accounts placed for service. Account assignments are
generally covered by month to month contracts.

The Company's primary intent is to pursue longer-term fee-for-service contracts
with banks and financial institutions. However, in February 1994 the Company
realized that it had to adapt to the changes that had been occurring in this
industry segment in order for the Company to remain competitive and began
purchasing charged off credit card debt for its own account. The traditional
means of obtaining business volume through building relationships and optimum
client service was giving way to the "commoditization" of charged off credit
card receivables. Ownership of the accounts allows the Company to provide the
consumers/debtors additional options in settling their respective debt. As such,
the recovery processes and techniques used to settle purchased accounts can
differ from accounts worked on a fee for service basis. During fiscal year 1999,
the Company purchased and retained approximately $25 million of such obligations
for its own account.
<PAGE>

Services to Retail Segment

MRSI has been providing accounts receivable management services to the retail
segment for over 20 years. The Company has developed a particular expertise in
the handling of accounts financed by automotive finance companies, which account
for a large portion of the Company's client base in this segment. In addition,
the Company receives accounts from a national furniture outlet chain, a major
Southern California utility service, a large financier of home appliances, and
many other independent operators. The Company has recently diversified its
operation to include the collection of commercial (business to business)
accounts, which could open an entirely new market to the Company. In fiscal year
1999, MRSI received placements of approximately $141 million of delinquent
receivable accounts.

Support Services

The Company realizes that to provide effective and thorough receivable
management services to its client, it needs to establish other services and
systems to support its core operations.

     Litigation Management

     The Company has in place a specialty recovery department with a full time
     attorney to manage all aspects of litigation and bankruptcy related
     activities. The attorney and support staff all have more than ten years of
     full time employment with the Company. Litigation management includes
     filing legal actions on collection accounts, enforcement of judgments
     entered on the Company's collection accounts as well as client assigned
     judgments, and the perfecting of Chapter 13 bankruptcy proofs of claim
     nationwide.

     All collection accounts with a verified asset and significant balances are
     submitted to the legal department for evaluation. The legal department
     processes those accounts within the state of California. Those accounts
     outside the state of California are forwarded to a nationwide network or to
     select attorney firms that have a working relationship with the legal
     department.

     The Company's first twenty years in the collection industry were enhanced
     by its in-house legal staff. It has accumulated California judgments with a
     dollar value in excess of $35 million, which is continually replenished.
     All California judgments accrue interest at the rate of 10% per annum. The
     specialty recovery department employs experienced and knowledgeable skip
     tracers and asset locators to tap this revenue source. Most of the
     judgments are secured by California real property, a substantial portion of
     which are bankruptcy proof. The specialty recovery department is able to
     renew these older judgments every ten years through a very low cost legal
     procedure.

     The specialty recovery department aggressively pursues collection of
     Chapter 13 bankruptcy accounts by timely filing the respective proof of
     claim and monitoring these accounts for compliance with the repayment plan.
     This revenue source is low cost yet provides a wealth of information about
     the consumers if they fail to complete the plan.

     Litigation management services are available to all of the Company's
     clients.
<PAGE>

     Management Information Systems

     The Company recognizes the value of combining human resources with the
     latest computer and telecommunications technology to manage its receivables
     effectively. Accordingly, the Company maintains sophisticated data
     processing support and management information systems that are most
     friendly to use by its work force of recovery specialists.

     The Company's management application software system is compiled under a
     widely used high level programming language. It operates under a Microsoft
     Windows environment distributed by a Novel network system. A central
     computer file server connected to an array of disk drives maintains the
     Company's management information database. The Company's recovery
     specialists utilize individualized personal computers to access and record
     customer information using Microsoft Windows point and click application
     screens.

     Locating customers who move without notice has always been one of the most
     important activities in debt recovery. To address this problem the
     Company's recovery specialists have on-line access to large databases of
     consumer information. These databases are constantly updated and contain
     the latest customer demographic information, which could include, but are
     not limited to, telephone numbers, property ownership records, fictitious
     business name records, UCC listings, and other pertinent information that
     facilitate locating customers. To complement these sources, the Company
     utilizes the services of national credit reporting companies and other
     national consumer information databases to add to its internal skip-tracing
     tools.

     The Company utilizes a combination of its new telephone technology with its
     predictive dialing computer system to make customer-calling campaigns. The
     computer dialer is given a large number of customers to dial. Upon
     connection with a given telephone number the system attempts to recognize a
     live voice by detecting busy signals, recorders, and disconnected numbers
     before sending the call to a waiting recovery specialist. As the call is
     being routed to an available specialist, the computer finds the customer in
     the database and paints their work card on the PC screen and dialog begins
     with the customer.

     In the service business, one of the key differentiating factors is
     knowledge. The Company's long experience in the receivable management
     business has allowed the Company to accumulate a knowledge base that
     allowed it to perform and, therefore, retain long-standing relationships
     with its existing client base. Increasing client demand in a competitive
     environment, however, requires the Company to continue to expand its
     knowledge base in receivable management. The Company believes that a
     distinctive organizational knowledge can only be acquired through the
     proper management of the data it continuously gathers from its daily
     consumer interaction. This data based knowledge will continue to drive the
     continuous improvement in the Company's recovery strategies and consumer
     management for its clients' benefit and its own.

     To accommodate the expected increase in consumer volume, the Company is in
     the process of expanding its data management capability by migrating on to
     a larger open database operating system. The new system will integrate with
     the Company's current receivable management software and existing
     telecommunication technology. The hardware will provide the latest computer
     technology with more than enough speed to handle an increasing number of
     users locally as well as expansion throughout the country utilizing the
     Internet. The open database management system was selected as the choice to
     maintain unlimited growth in the storage of the Company's ongoing and
     historical consumer information.
<PAGE>

     Recruiting and Training

     Notwithstanding the factors discussed above, the most critical factor that
     impacts the Company's ability to execute its operating mission is its
     ability to manage the three R's of human resources -Recruit, Retool,
     Retain.

     An effective recruiting program mitigates the follow on issues that could
     surround the retooling (training) and retention processes. Accordingly, the
     Company has established an experience-based selection criteria to drive its
     recruiting program. The criteria are based upon a careful study of the
     skills common to its successful and long time employees. The selection
     process is conducted through a standardized scoring matrix that effectively
     sorts candidates according to their ability to demonstrate the success
     traits that the Company looks for.

     The Company's retooling (training) process is comprised of two programs.
     The Basic Training Course is a twelve-week training process. It starts with
     a three-week classroom course that focuses on teaching the five basic skill
     sets required to become an effective recovery specialist. Graduates of this
     course are accepted to the training division, the purpose of which is to
     allow the trainees to work on live accounts and fine tune the skills taught
     during the preceding three-week course under the close supervision of
     training supervisors. This nine-week process allows both the trainees and
     the Company to determine the real aptitude of trainees to become recovery
     specialists.

     The Advanced Training Course is designed for the recovery specialists to be
     trained on selected specialty skills (e.g. healthcare billing, recovery,
     specialty recovery, loan servicing, insurance processing etc.). It also
     provides a continuous improvement training program that allows employees to
     expand their skills on some of the more difficult or technical aspects of
     the job (e.g. negotiation skills, customer service techniques, team
     building concepts and recent regulatory pronouncements).

Marketing

The Company maintains a full-time staff of sales representatives that
continuously solicit business by pursuing leads from existing clients, using
multiple business and commerce directories, and utilizing promotional materials.
Recently, the Company began promoting its services on the Internet by
establishing a WEB page which describes the Company's services. In addition, the
Company has started to advertise its services through more traditional media,
including newspapers and magazines.

Government Regulation

The Company is regulated by the Fair Debt Collection Practice Act and the
Telephone Consumer Protection Act which are enforced by the Federal Trade
Commission. In this regard, the Company devotes continuous efforts, through
training of personnel and monitoring of compliance in order to provide ethical,
innovative, high quality accounts receivable management and collection business
which meets the needs of its clients and that complies with the law.

Although the Company believes that it is currently in compliance with applicable
statutes and regulations, there can be no assurance that the Company will always
be able to maintain such compliance. The failure to comply with such statutes
and regulations could have a material adverse effect upon the Company.
Furthermore, the adoption of additional statutes and regulations, changes in the
interpretation and enforcement of current statutes and regulations, or the
expansion of the Company's business into jurisdictions that have adopted more
stringent regulatory requirements than those in which the Company currently
conducts business could have a material adverse effect upon the Company.
<PAGE>

Competition

The accounts receivable management and collection business is highly
competitive. The Company competes with a number of national, regional, and local
companies with operations similar to those of the Company. Many of the Company's
competitors have far greater resources than the Company and have access to
capital markets which may be unavailable to the Company.

The Company believes that the principal competitive factors affecting the
Company's receivable management and collection business is increasingly based
upon collection performance, price, and services provided. These competitive
factors have generally caused a downward adjustment to commission rates. The
Company believes that it can compete effectively by offering its clients
innovative receivable management solutions and by continually enhancing its
collection procedures.

There is substantial competition for the acquisition and management of
distressed and non-performing consumer obligations and accounts receivables.
Although the amount of non-performing and other distressed obligations available
for sale is quite large, there are numerous competitors for these assets that
have more resources than the Company.

Employees

As of September 30, 1999, the Company had 103 full time employees and 17
part-time employees, of whom 38 are MCSI collectors, 10 are LSI collectors, 3
are billers, 17 are MRSI collectors, 10 are legal personnel, 10 are collections
managers/supervisors, 12 are operations support personnel, 3 are training
personnel, 6 are management personnel, 2 are sales and marketing personnel, 5
are finance/human resource personnel, 2 are computer technicians, and 2 are
building maintenance personnel. The Company believes that its relations with its
employees are good. The Company is a not a party to any collective bargaining
agreement.

See "Recent Events - Restructuring Program" in Item 6 "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion regarding the Company's employees.


ITEM 2   DESCRIPTION OF PROPERTY

The Company owns its office building and property located at 5400 Orange Avenue,
Cypress, California, where it conducts its operations. The office building,
which was purchased in 1993, contains approximately 50,000 square feet of office
space. Currently, the Company occupies approximately 37,000 square feet for its
operations, and makes the remainder of the building available for lease to third
party tenants. Although the Company may establish remote offices to better serve
its clients, the Company believes that its current facility is suitable and
adequate for its current and anticipated operations.


ITEM 3   LEGAL PROCEEDINGS

In December 1998, Federal Asset Factoring Corporation (Federal) filed a claim
against the Company for negligent misrepresentation. The Company sold certain
portfolio receivables (Receivables) to Track, Inc. (Track), which Track then
sold to Federal. Federal alleges that it was unable to obtain media on the
Receivables which resulted in lower than anticipated returns for Federal's
investors. Federal sued Track and obtained a judgment, but was unable to collect
on the judgment. Consequently, Federal sued the Company on the basis that Track
was acting as a broker for the Company when the Receivables were sold to
Federal. The Company believes the allegations are without merit and intends to
vigorously pursue its defense. The lawsuit is set for trial in February 2000.
<PAGE>

In March 1999, DDT Medical Credit (DDT) filed a claim against the Company for
breach of contract. DDT contends it purchased certain Receivables from Towne
Medical Center (Towne) in May 1998 and simultaneously entered into an agreement
with the Company to bill and collect these Receivables. Although the Company had
been performing such services for Towne prior to May 1998, the agreement between
Towne and the Company was mutually terminated on May 15, 1998 and no agreement
was reached between DDT and the Company to continue such services. The Company
believes the allegations are without merit and intends to vigorously pursue its
defense. A trial has been set for February 2000.


In addition to the litigation matters discussed above, the Company is involved,
from time to time, in litigation that is incidental to its collection business.
The Company regularly initiates legal proceedings as a plaintiff in connection
with its routine collection activities. In management's opinion, none of these
legal matters will have a material adverse effect on the Company's financial
position or the results of its operations.


ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended September 30, 1999.


                                    PART II

ITEM 5   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common stock, $.001 par value, is traded under the symbol "CYFS"
through the OTC Electronic Bulletin Board maintained by the National Association
Securities of Security Dealers, Inc. (the "NASDAQ"), which has no financial
eligibility standards and is totally separate from NASDAQ. The Electronic
Bulletin Board does not constitute an active trading market and trading in the
Company's Common Stock is limited and sporadic. The following table sets forth
the range of high bid and low bid quotations for the Common Stock for the
periods indicated. The quotations are inter-dealer prices in the
over-the-counter market without retail mark-ups, markdowns or commissions, and
may not represent actual transactions.
<TABLE>
<CAPTION>

                                             1999           1998
                                          -----------   -----------
                                          High    Low   High    Low
                                          ----   ----   ----   ----
<S>                                       <C>    <C>    <C>    <C>

            4th Quarter ending 9/30       1.75   1.00   2.00   0.94
            3rd Quarter ending 6/30       1.88   1.06   2.59   0.94
            2nd Quarter ending 3/31       1.88   1.31   1.63   1.00
            1st Quarter ending 12/31      1.94   1.38   2.50   1.13
</TABLE>

As of September 30, 1999 there were 1,817 holders of record of the Company's
Common Stock.

Dividend Policy

The Company has never paid a dividend and does not anticipate paying any cash
dividends in the foreseeable future. The Company intends to retain any earnings
to provide funds to finance future growth.
<PAGE>

ITEM 6   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

General

The Company provides accounts receivable management services to various health
care providers, banks, financial institutions, and retail firms. These services
include, among other things, billing, delinquent debt recovery, management of
litigation and bankruptcy claims, and workers' compensation lien claim
resolution. In the early nineties, financial institutions, primarily credit card
issuers, began changing their approach regarding the management of charged off
consumer receivables. These financial institutions started to sell portions of
their charged off portfolios to certain delinquent debt recovery firms and
investment groups in lieu of third party placements. Accordingly, in February
1994, the Company began to purchase portfolios of consumer receivables for its
own account, and has continued to do so into 1999.

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
Annual Report on Form 10-KSB are forward-looking statements, and the actual
results and developments may be materially different from those expressed in or
implied by such statements.

Results of Operations

The following table summarizes the gross collection and revenue activities for
the years ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
                                                                                              % Positive
                                                  1999         %       1998          %        (Negative)
                                              ------------    ---    -----------    ---    -------------
<S>                                           <C>             <C>    <C>            <C>    <C>
   Gross collections                          $ 16,494,808    100%   $13,000,820    100%         26.9%
   Less: Remittances to holders of
        portfolio backed securities             (1,117,523)    -7%      (194,717)    -1%       -473.9%
   Less: Clients' share of collections         (10,208,205)   -62%    (8,195,761)   -63%        -24.6%
                                              ------------    ---    -----------    ---        ------
   Net fees                                      5,169,079     31%     4,610,342     35%         12.1%

   Less: Fees applied to cost basis
        of portfolio receivables                  (124,306)    -1%      (276,874)    -2%         55.1%
                                              ------------    ---    -----------    ---        ------
   Fee revenue (core operations)              $  5,044,773     31%   $ 4,333,468     33%         16.4%

   Gain on sale of portfolio receivables           171,192             2,537,805                -93.3%
   Fee revenue (non-core operations)                25,234               276,743                -90.9%
                                              ------------           -----------               ------
   Total revenue                              $  5,241,199           $ 7,148,016                -26.7%
                                              ============           ===========               ======
</TABLE>

Gross collections increased by $3,493,988, or 26.9%, from $13,000,820 for the
year ended September 30, 1998 to $16,494,808 for the year ended September 30,
1999. This increase is directly attributable to the Company's ongoing strategic
growth plan, which was initiated in the first quarter of 1999. The Company is
actively pursuing additional business in all three of its business segments;
health care, banking and retail.
<PAGE>

Net fees recognized from gross collections increased by $558,737, or 12.1%, from
$4,610,342 for the year ended September 30, 1998 to $5,044,773 for the year
ended September 30, 1999. 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 remained flat at approximately 63%. However,
remittances to holders of portfolio backed securities increased by $922,807 from
$194,717 for the year ended September 30, 1998 to $1,117,523 for the year ended
September 30, 1999. This increase is the result of the Company completing a sale
of certain portfolio receivables totaling $149.5 million through a private
securitization in August 1998. As a result of the securitization, the Company
now collects the accounts for the benefit of the security holders and receives a
20% servicing fee. Prior to the securitization, the Company owned the
receivables and collected them for its own account.

Fee revenue from core operations increased by $711,305, or 16.4%, from
$4,333,468 for the year ended September 30, 1998 to $5,044,773 for the year
ended September 30, 1999. Fee revenue is calculated by reducing net fees
recognized from gross collections by fees applied to cost basis of portfolio
receivables. These applied fees decreased by 55.1% primarily due to the sale of
substantially all of the Company's portfolio receivables in the securitization
discussed above. As of September 30, 1999, the Company's direct purchases of
portfolio receivables had a remaining face value of $36 million as compared to a
remaining face value of $16.8 million as of September 30, 1998. During the year
ended September 30, 1999, the Company purchased and retained approximately $25
million of such obligations for its own account.

The balance of total revenue consists of gain on sale of portfolio receivables
and fee revenue from non-core operations. Gain on sale of portfolio receivables
decreased by $2,366,613, or 93.3%, from $2,537,805 for the year ended September
30, 1998 to $171,192 for the year ended September 30, 1999. However, excluding
the $2,363,148 gain on sale of portfolio receivables that was realized in 1998
from the securitization discussed above, gain on sale of portfolio receivables
decreased by less than 2%. Fee revenue from non-core operations decreased by
$251,509, or 90.9%, from $276,743 for the year ended September 30, 1998 to
$25,234 for the year ended September 30, 1999. This decrease can be attributed
to a decision made by the Company to discontinue efforts regarding certain non-
core operating units (principally Revenue Practice Enhancements). These units
were determined to be unprofitable and therefore non-essential to the Company's
overall strategic growth plan, which was initiated in the first quarter of 1999.

Operating expenses increased by $1,652,111, or 30.0%, from $5,509,515 for the
year ended September 30, 1998 to $7,161,626 for the year ended September 30,
1999. The significant components of this increase are discussed below.

Salaries, wages and related benefits increased by $991,661, or 29.4%, from
$3,379,049 for the year ended September 30, 1998 to $4,370,710 for the year
ended September 30, 1999. Due to growth in the Company's billing and collecting
staff, operating salaries paid increased by $901,176 from $2,095,028 for the
year ended September 30, 1998 to $2,996,204 for the year ended September 30,
1999. This growth in billers and collectors is directly attributable to the
growth of $3,493,988 in gross collections noted above. The remaining increase of
$90,485 resulted from increased benefit expenses associated with these
additional billers and collectors as well as specific additions to the Company's
management team.

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
fiscal 1999, the Company dedicated significant attention as well as resources to
the identification of acceptable acquisition targets. Although several targets
were identified, and many were thoroughly due diligenced, the Company has been
unable to consummate a transaction. Additionally, throughout the year, the
Company maintained an infrastructure designed to immediately accommodate the
growth associated with an acquisition strategy. As discussed below, most of the
fiscal 1999 operating expense increases can be attributed to the execution of
this strategic plan. Please refer to "Recent Events" within the "Liquidity and
Capital Resources" section below for further discussion regarding the Company's
restructuring and cost-reduction program designated to restore the Company to
profitability at current operating levels in the near term.
<PAGE>

Selling, general and administrative expenses increased by 3.9% to $2,044,205 for
the year ended September 30, 1999 from $1,967,584 for the year ended September
30, 1998. After isolating the decrease in bad debt charges of $285,901, there
was an increase of $362,522. This increase is principally attributable to
certain non-recurring, non-operating expenses associated with the execution of
the Company's strategic growth plan, which include, among other things, fees
paid for due diligence work related to acquisition activities, attorney fees,
and fees paid to third party financial advisors. In addition, during Q4 1999,
management recorded a $100,000 reserve related to the legal proceedings
discussed in Item 3.

The Company ratably allocates the cost of purchased loans receivable portfolios
on an account by account basis. Collections received from any one account are
applied first to the basis of the respective account before revenue is
recognized. Integral to the Company's collection operations is the timely
identification of accounts that are deemed uncollectible. The uncollectibility
of an account is primarily based on the current status of the account (i.e.
bankrupt, deceased, etc.) and the historical experience of the specific
portfolio as well as similar portfolios. The Company records an allowance for
loan losses reflecting the accumulated costs allocated to those accounts deemed
uncollectible to properly reflect management's estimate of the remaining net
proceeds to be realized from a given portfolio. Due to the nature of these
receivables at purchase date, it is not uncommon for the Company to immediately
identify certain accounts to be uncollectible at the time of acquisition.
Accordingly, for the year ended September 30, 1999, the Company increased its
allowance for loan losses on acquired portfolios by $548,014.

Depreciation expense increased 22.0% over the same period last year principally
due to certain technology upgrades as well as furniture purchases made by the
Company in the fourth quarter of 1998 as well as the first quarter of 1999.

Interest expense decreased to $117,690 for the year ended September 30, 1999
from $265,072 for the year ended September 30, 1998. This 55.6% decrease
resulted from retiring the Company's credit facility and equipment loans in the
fourth quarter of 1998 using proceeds of a $3,000,000 private placement as well
as a $2,750,000 securitization (see discussion below).

Net income from rental operations decreased by $34,259, or 22.8%, from $123,300
for the year ended September 30, 1998 to $89,041 for the year ended September
30, 1999. This decrease is directly attributable to the growth of the Company
into areas of its building which were leased to unrelated third parties in prior
years.

Liquidity and Capital Resources

The Company currently has outstanding long-term debt with financial institutions
totaling $2,184,393. The Company's mortgage note has a remaining balance of
$1,823,510, carries an interest rate of 8% per annum and is due in December
2000. Additionally, the Company leases certain equipment under non-cancelable
capital leases which expire at various times through fiscal 2004, which have a
remaining balance of $360,883 at September 30, 1999.

The Company is funded primarily through cash flows from operations.
Historically, the Company has used its credit facility to acquire portfolio
receivables. However, in July 1998, the Company sold 2,000,000 shares of its
common stock to Pacific Life Insurance Company for $3,000,000, representing 28%
of the outstanding common stock of the Company on a fully diluted basis.
Additionally, in August 1998, the Company completed its first securitization of
portfolio receivables, which generated net cash flows to the Company of
$2,551,684. The combined $5,551,684 was used to retire the Company's credit
facility and existing equipment loans leaving the balance available for
operations as well as ongoing purchases of portfolio receivables.
<PAGE>

Cash at September 30, 1999 decreased by $1,828,194 from September 30, 1998,
which was the result of $1,433,010 used in operating activities, $320,920 used
in investing activities, and $74,264 used in financing activities. Approximately
84% of this cash decrease occurred in the first half of the year when the
Company was actively purchasing portfolio receivables for its own account.
During the last six months of fiscal 1999, the Company's cash used in operating
activities was $190,036, cash used in investing activities was $61,306, and cash
used in financing activities was $43,278.

  Recent Events

     Restructuring Program

     As a result of these cash decreases, management has begun the immediate
     implementation of the Company's restructuring and cost-reduction program
     approved by the Board on December 14, 1999. The program is designed to
     achieve a $1 million reduction in operating costs, increase revenues and
     restore the Company to profitability at current operating levels in the
     near term. The program includes significant personnel and general payroll
     reductions and consolidations of positions throughout the Company at all
     levels, with over $400,000 of annualized cost savings expected to be
     realized from consolidation of executive level positions.

     The Company has also begun restructuring its operating units to minimize
     the amount of office space it occupies within its building, allowing the
     Company to reduce occupancy costs, increase rental income, and potentially
     extract in excess of $2.5 million cash out of the building by either
     refinancing the mortgage note payable or selling the building sometime
     during fiscal 2000. This estimate is based on a recent independent
     appraisal of the property. Additionally, the Company is negotiating to sell
     principally all of its wholly owned portfolio receivables, which have a
     book value of $905,220 as of September 30, 1999. As these portfolio
     receivables were purchased with Company cash, all of the proceeds from this
     sale will be immediately available for operations. Management expects the
     proceeds from this sale to exceed the September 30, 1999 book value of
     these assets. Finally, the Company is actively exploring possible financing
     sources as well as the possibility of issuing additional debt and/or equity
     to provide additional capital, but has no commitment to do so.

     Due to these cost reduction measures, and assuming revenues are maintained
     at or above the level of fiscal 1999, 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 2000. 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
     further reduce expenditures as well as its corporate infrastructure, either
     of which could have a material adverse affect on the Company's future
     operations.

     Management Changes

     On December 22, 1999, the Board of Directors appointed John Hindman to
     Chief Executive Officer and elected Mr. Hindman to the Board of Directors.
     Mr. Hindman will assume management responsibility for the daily operations
     and report directly to the Board. Mr. Hindman succeeds Manuel Occiano, who
     has been serving as the Chief Executive Officer since September 1998. Mr.
     Hindman joined the Company as Chief Financial Officer in September 1998,
     and also will continue to hold that position.

     Farrest Hayden and Otto Lacayo, the co-founders of the Company, will remain
     active as Directors, with Mr. Hayden continuing to serve as Chairman of the
     Board, although they are relinquishing their daily operational
     responsibilities.
<PAGE>

Year 2000

State of Readiness -- Since early 1997, the Company has been addressing the
impact of the Year 2000 to its data processing systems. Key financial
information and operational systems were addressed and detailed plans were
developed to ensure that Year 2000 system modifications were in place by
September 1998 for all critical systems. As most of the critical software is
purchased from vendors which have already made the necessary Year 2000 changes,
the Company has concentrated its efforts on testing its "Year 2000 Compliant"
systems.

Costs to Address Year 2000 Issues -- In the process of identifying the Company's
critical systems and determining the extent to which they must be modified or
replaced, management has found no systems which need to be replaced or
extensively modified to ensure they will function as intended. Accordingly,
management does not anticipate a material adverse impact to the Company's
results of operations or financial position.

Risks for the Company -- The primary risk of failure to adequately address the
Year 2000 problem would be the inability to accurately process and track
financial records and transactions. Additionally, the Company is exposed to risk
if its customers, clients, and financial institutions are unable to adequately
address the Year 2000 dates in their own data processing systems. The Company
has contacted all of the major customers, clients and financial institutions
with whom it does business to ensure that they are addressing the issue for
themselves and their customers.

Contingency Plans -- Should the Company's vendor for its core processing
applications fail to provide the modifications necessary to correctly recognize
Year 2000 dates, as a contingency plan for core operations, the Company would
out source its mainframe computer applications. For non-core operations, the
Company will rely on manual processing until modifications or replacement
systems are in place.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In June 1999,
the effective date of SFAS No. 133 was extended for one year; consequently, the
statement will now be effective for all fiscal quarters of 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
believes that adoption of this standard will not have a material impact on the
Company.


ITEM 7   FINANCIAL STATEMENTS

See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements filed with this report.


ITEM 8   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None.
<PAGE>

                                    PART III

ITEM 9   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Information required by this item will be contained in the Company's Information
Statement to be filed with the Securities and Exchange Commission within 120
days after September 30, 1998 and is incorporated herein by reference.

Mr. John Hindman was appointed Chief Executive Officer and elected to the Board
of Directors on December 22, 1999, succeeding Mr. Manuel Occiano in those
positions. Mr. Hindman will continue to serve as Chief Financial Officer of the
Company. Mr. Hindman's biographical information will be included in the
Company's Information Statement referenced above.


ITEM 10  Executive Compensation

The information required by this item will be contained in the Company's
Information Statement to be filed with the Securities and Exchange Commission
within 120 days after September 30, 1999 and is incorporated herein by
reference.


ITEM 11  Security Ownership of Certain Beneficial Owners and Management

The information required by this item will be contained in the Company's
Information Statement to be filed with the Securities and Exchange Commission
within 120 days after September 30, 1999 and is incorporated herein by
reference.


ITEM 12  Certain Relationships and Related Transactions

The information required by this item will be contained in the Company's
Information Statement to be filed with the Securities and Exchange Commission
within 120 days after September 30, 1999 and is incorporated herein by
reference.


                                    PART IV

ITEM 13  Exhibits and Reports on Form 8-K

     (a) Exhibits: See "Exhibit Index".

     (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last
         quarter of the fiscal year ended September 30, 1998.

     (c) On December 22, Mr. John Hindman was elected to the Board of Directors
         of the Company.
<PAGE>

                                   SIGNATURES


In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       CYPRESS FINANCIAL SERVICES, INC.


Date:  January 12, 2000                By: /s/ John C. Hindman
                                          ----------------------
                                          John C. Hindman
                                          Director and
                                          Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.

Signatures                        Title                    Date Signed
----------                        -----                    -----------


/s/ Farrest Hayden       Chairman of the Board           January 12, 2000
----------------------
Farrest Hayden


/s/ John C. Hindman      Director and Chief Executive    January 12, 2000
----------------------   Officer
John C. Hindman


/s/ Otto J. Lacayo       Director                        January 12, 2000
----------------------
Otto J. Lacayo


/s/ John C. Hindman      Chief Financial Officer and     January 12, 2000
----------------------   Principal Accounting Officer
John C. Hindman
<PAGE>

                    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                    ------------------------------------------

<TABLE>
<CAPTION>
                                                                            Page
                                                                         -----------
<S>                                                                      <C>

Report of Independent Public Accountants                                         F-2

Consolidated Balance Sheets as of September 30, 1999 and 1998                    F-3

Consolidated Statements of Operations for the years ended
    September 30, 1999 and 1998                                                  F-4

Consolidated Statements of Shareholders' Equity for the years ended
    September 30, 1999 and 1998                                                  F-5

Consolidated Statements of Cash Flows for the years ended
    September 30, 1999 and 1998                                           F-6 to F-7

Notes to Consolidated Financial Statements                               F-8 to F-20
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------


To the Shareholders of Cypress Financial Services, Inc.:

We have audited the accompanying consolidated balance sheets of Cypress
Financial Services, Inc. (a Nevada Corporation) and subsidiaries as of September
30, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cypress Financial
Services, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.



                                    ARTHUR ANDERSEN LLP


Orange County, California
November 10, 1999

                                      F-2
<PAGE>

                        CYPRESS FINANCIAL SERVICES, INC.
                        --------------------------------
                                AND SUBSIDIARIES
                                ----------------

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                           SEPTEMBER 30, 1999 and 1998
                           ---------------------------

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                           1999         1998
                                                        ----------   ----------
<S>                                                     <C>          <C>
Cash                                                    $  501,557   $2,329,751
Restricted cash                                            411,815      418,168
Accounts receivable, net of allowance for doubtful
 accounts of $400,000 and $328,841, respectively           180,877      393,786
Portfolio receivables, net                                 905,220      765,033
Property, net                                            3,127,869    2,743,152
Notes receivable from officers                             150,000      152,012
Prepaid expenses and other                                 149,684      125,394
                                                        ----------   ----------
       Total assets                                     $5,427,022   $6,927,296
                                                        ==========   ==========
</TABLE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------
<TABLE>
<CAPTION>

<S>                                                     <C>          <C>
Accounts payable                                        $   54,113   $   54,328
Trust payables                                             411,815      418,168
Accrued liabilities                                        330,330      162,503
Notes payable                                            1,823,510    1,843,743
Capital lease obligations                                  360,883      141,798
Deferred income taxes                                            -      465,000
                                                        ----------   ----------
       Total liabilities                                 2,980,651    3,085,540
                                                        ----------   ----------
COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Series A convertible, redeemable preferred stock,
    $0.001 par value, stated at $2.00 liquidation
    preference per share, 5,000,000 shares authorized;
    345,000 shares issued and outstanding                  690,000      690,000
  Common stock, $0.001 par value; 30,000,000 shares
    authorized; 6,527,571 shares issued and outstanding      6,527        6,527
  Paid-in capital                                        3,622,403    3,522,403
  Accumulated deficit                                   (1,870,287)    (377,174)
                                                        ----------   ----------
                                                         2,448,643    3,841,756
  Less common stock in treasury at cost, 660 shares          2,272            -
                                                        ----------   ----------
       Total shareholders' equity                        2,446,371    3,841,756
                                                        ----------   ----------
                                                        $5,427,022   $6,927,296
                                                        ==========   ==========

</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>

                        CYPRESS FINANCIAL SERVICES, INC.
                        --------------------------------
                                AND SUBSIDIARIES
                                ----------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------

                 FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
                 -----------------------------------------------

<TABLE>
<CAPTION>


                                                                1999          1998
                                                            ------------   -----------
<S>                                                         <C>            <C>
REVENUES:
    Service fees                                            $ 4,133,188    $3,366,831
    Portfolio receivables revenue                               936,819     1,243,380
    Net gain on sale of portfolio receivables                   171,192     2,537,805
                                                            -----------    ----------
                                                              5,241,199     7,148,016
                                                            -----------    ----------
OPERATING EXPENSES:
    Salaries, wages and related benefits                      4,370,710     3,379,049
    Selling, general and administrative                       2,044,205     1,967,584
    Losses on portfolio receivables                             548,014             -
    Depreciation                                                198,697       162,882
                                                            -----------    ----------
                                                              7,161,626     5,509,515
                                                            -----------    ----------
INCOME (LOSS) FROM OPERATIONS                                (1,920,427)    1,638,501
                                                            -----------    ----------
OTHER INCOME (EXPENSE):
    Interest expense, net                                      (117,690)     (265,072)
    Gain on sale of assets                                            -         8,700
    Rental operations, net                                       89,041       123,300
                                                            -----------    ----------
                                                                (28,649)     (133,072)
                                                            -----------    ----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
   FOR INCOME TAXES                                          (1,949,076)    1,505,429

PROVISION (BENEFIT) FOR INCOME TAXES                           (455,964)      465,602
                                                            -----------    ----------
NET INCOME (LOSS)                                           $(1,493,112)   $1,039,827
                                                            ===========    ==========

Earnings per share:
     Basic                                                       $(0.23)        $0.21
     Diluted                                                     $(0.23)        $0.19

Number of shares used in computing earnings per share:
     Basic                                                    6,527,225     5,015,762
     Diluted                                                  6,527,225     5,425,832

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                      F-4
<PAGE>

                       CYPRESS FINANCIAL SERVICES, INC.
                       --------------------------------
                               AND SUBSIDIARIES
                               ----------------

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                -----------------------------------------------

                FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
                -----------------------------------------------

<TABLE>
<CAPTION>
                               Series A Convertible,
                                    Redeemable
                                  Preferred Stock          Common Stock                                                  Total
                               ---------------------   --------------------    Treasury      Paid-in     Accumulated  Shareholders'
                               Shares        Amount      Shares     Amount      Stock        Capital       Deficit        Equity
                               -------      --------   ----------   ------     --------    -----------   -----------  -------------
<S>                            <C>          <C>        <C>          <C>        <C>         <C>           <C>          <C>
BALANCES, at
September 30, 1997             345,000      $690,000    4,520,271   $4,520     $      -    $   510,480   $(1,417,002) $   (212,002)

 Stock issued in exchange
  for services provided              -             -        7,300        7            -          7,293             -         7,300

 Options issued in exchange
  for services provided              -             -            -        -            -          6,630             -         6,630

 Stock issued                        -             -    2,000,000    2,000            -      2,998,000             -     3,000,000

 Net income                          -             -            -        -            -              -     1,039,827     1,039,827
                               -------      --------   ----------   ------     --------    -----------   -----------  -------------
BALANCES, at September 30,
 1998                          345,000       690,000    6,527,571    6,527            -      3,522,403      (377,175)    3,841,755

 Stock repurchased                   -             -         (660)       -       (2,272)             -             -        (2,272)

 Warrant issued                      -             -            -        -            -        100,000             -       100,000

 Net loss                            -             -           -         -            -              -    (1,493,112)   (1,493,112)
                               -------      --------   ----------   ------     --------    -----------   -----------  -------------
BALANCES, at September 30,
 1999                          345,000      $690,000    6,526,911   $6,527      $(2,272)   $ 3,622,403   $(1,870,287)  $ 2,446,371
                               =======      ========   ==========   ======     ========    ===========   ===========  =============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-5
<PAGE>

                        CYPRESS FINANCIAL SERVICES, INC.
                        --------------------------------
                                AND SUBSIDIARIES
                                ----------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     -------------------------------------

                FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
                -----------------------------------------------
<TABLE>
<CAPTION>


                                                                                 1999           1998
                                                                             ------------   ------------
<S>                                                                          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                        $(1,493,112)   $ 1,039,827
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
        Depreciation and amortization                                            217,101        175,890
        Stock issued in exchange for services provided                                 -          7,300
        Stock options issued in exchange for services provided                         -          6,630
        Issuance of warrant                                                      100,000              -
        Changes in operating assets and liabilities:
            (Increase) decrease in restricted cash                                 6,353        (20,870)
            Decrease in accounts receivable, net                                 212,909         51,220
            Increase in portfolio receivables                                   (140,187)      (294,473)
            Increase in prepaid expenses and other                               (32,331)       (26,309)
            Increase (decrease) in accounts payable                                 (217)         4,122
            Increase (decrease) in trust payables                                 (6,353)        20,870
            Increase in accrued liabilities                                      167,827         15,531
                Increase (decrease) in deferred income taxes                    (465,000)       465,000
                                                                             -----------    -----------
                    Net cash provided by (used in) operating activities       (1,433,010)     1,444,738
                                                                             -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property                                                        (347,403)      (222,167)
   Proceeds from sale of property                                                 26,483              -
                                                                             -----------    -----------
                    Net cash used in investing activities                       (320,920)      (222,167)
                                                                             -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Issuance of common stock                                                           -      3,000,000
    Purchases of common stock                                                     (2,272)             -
    Net repayments on line of credit                                                   -     (1,150,000)
    Net loans to officers                                                          2,013       (147,987)
    Principal payments on notes payable                                          (20,233)      (827,388)
    Principal payments on capital lease obligations                              (53,772)       (38,900)
                                                                             -----------    -----------
                    Net cash provided by (used in) financing activities          (74,264)       835,725
                                                                             -----------    -----------
NET INCREASE (DECREASE)  IN CASH                                              (1,828,194)     2,058,296

CASH, at beginning of year                                                     2,329,751        271,455
                                                                             -----------    -----------
CASH, at end of year                                                         $   501,557    $ 2,329,751
                                                                             ===========    ===========
</TABLE>

                                      F-6
<PAGE>

                        CYPRESS FINANCIAL SERVICES, INC.
                        --------------------------------
                                AND SUBSIDIARIES
                                ----------------

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                     --------------------------------------

          FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998 - Continued
          -----------------------------------------------------------

<TABLE>
<CAPTION>


                                                1999       1998
                                              --------   --------
<S>                                           <C>        <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION--
        Cash paid during the period for:
            Interest                          $189,816   $330,090
                                              ========   ========
            Income taxes                      $  2,080   $    800
                                              ========   ========
</TABLE>



SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING, FINANCING AND OPERATING
 ACTIVITIES--

   On February 12, 1999, the Company issued a warrant to Batchelder & Partners,
    Inc. to purchase up to 400,000 shares of its common stock in exchange for
    services provided. These services were valued at $415,000, of which $100,000
    was recognized during the year ended September 30, 1999.

   The Company entered into four capital leases during the year ended September
    30, 1999. The value of the property purchased totaled $272,857.

   During the year ended September 30, 1998, the Company issued 7,300 shares of
    its common stock to employees in exchange for services provided. The
    services were valued at the market value of the common stock on the date
    issued, which totaled $7,300.

   During the year ended September 30, 1998, the Company issued options to
    purchase 8,000 shares of its common stock to a consultant in exchange for
    services provided. The services were valued at the fair value of the options
    on the grant date, which totaled $6,630.

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-7
<PAGE>

                        CYPRESS FINANCIAL SERVICES, INC.
                        --------------------------------
                                AND SUBSIDIARIES
                                ----------------


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                               SEPTEMBER 30, 1999
                               ------------------



1.   Organization and Basis of Presentation
     --------------------------------------

Cypress Financial Services, Inc., a Nevada corporation, (together with its
subsidiaries, the Company), provides accounts receivable management,
administration, and debt collection services primarily to health care providers
and consumer credit issuers. The Company also acquires 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) Merchants Recovery
Services, Inc. (MRSI), a company that primarily offers accounts receivable
collection services to banks, credit unions, public utilities, and retailers;
(ii) Medical Control Services, Inc. (MCSI), a collection agency servicing the
health care industry; (iii) 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; (iv) 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 (v) Pacific Process Serving, Inc.
(PPS), a statewide legal document process service company.

2.  Operating Losses
    ----------------

The Company incurred significant operating losses during the year ended
September 30, 1999. Management has subsequently implemented specific cost
reduction measures, including, but not limited to certain personnel reductions
as well as general payroll reductions. The Company has also begun restructuring
its operating units to minimize the amount of office space it occupies within
its building, allowing the Company to reduce occupancy costs and increase rental
income. Management expects these measures to restore the Company to
profitability.

In order to further improve the liquidity and financial condition of the
Company, management is negotiating to sell principally all of its wholly owned
portfolio receivables, which have a book value of $905,220. These receivables
are expected to generate proceeds in excess of their book value. The Company
also has the ability to sell or refinance its building and, based on a recent
independent appraisal of the property, generate a further $2.5 million in cash
proceeds.

                                      F-8
<PAGE>

3.  Summary of Significant Accounting Policies
    ------------------------------------------

     a.  Principles of Consolidation
         ---------------------------

     The consolidated financial statements include the accounts of Cypress
     Financial Services, Inc. and its wholly owned subsidiaries. All significant
     intercompany accounts have been eliminated in consolidation.

     b.  Use of Estimates
         ----------------

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make certain
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the financial statements, and the reported amounts of revenues and
     expenses during the reported periods. Actual results could materially
     differ from those estimates.

     c.  Accounts Receivable
         -------------------

     Accounts receivable represent accounts in which 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.

     d.  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.

     e.  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.

                                      F-9
<PAGE>

     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 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.

     The Company is responsible for the ongoing servicing of the Receivables.
     At this time, no value has been attributed to the related servicing rights
     on the basis that the cost to service is expected to equal the servicing
     fees generated.

     f.  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 5 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 betterments are capitalized.

     g.  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 $411,815 and $418,168 are reflected as
     restricted cash and trust payables in the accompanying consolidated balance
     sheets at September 30, 1999 and 1998, respectively.

     h.  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.

     i.  Earnings Per Share
         ------------------

     During fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share
     (EPS)." SFAS No. 128 replaces primary EPS with basic EPS and fully diluted
     EPS with diluted EPS. Basic EPS is computed by dividing reported earnings
     by weighted average shares outstanding. Diluted EPS is computed in the same
     way as fully diluted EPS, except that the calculation now uses the average
     share price for the reporting period to compute dilution from options under
     the treasury stock method. All earnings per share amounts have been
     restated to conform to the SFAS No. 128 requirements.

                                      F-10
<PAGE>

     For the year ended September 30, 1999, the computations of basic and
     diluted EPS were as follows:

                                               Basic EPS      Diluted EPS
                                               ---------      -----------

      Numerator - net loss                    $(1,493,112)   $(1,493,112)

      Denominator - weighted
        Average shares outstanding              6,527,225      6,527,225

      Earnings per share                      $     (0.23)   $     (0.23)
                                              ===========    ===========



     For the year ended September 30, 1998, the computations of basic and
     diluted EPS were as follows:

                                               Basic EPS      Diluted EPS
                                               ---------      -----------


      Numerator - net income                   $1,039,827    $ 1,039,827

      Denominator - weighted
        Average shares outstanding              5,015,762      5,015,762


      Plus - net shares issued in
        Assumed preferred stock conversion                       345,000


      Plus - net shares issued in
        Assumed stock option exercises                            65,070


      Diluted denominator                                      5,425,832

      Earnings per share                       $     0.21    $      0.19
                                               ==========    ===========



     For the year ended September 30, 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 September 30, 1999 and 1998, the Company had
     outstanding warrants and stock options of 447,050 and 57,300, respectively,
     that were antidilutive.

     j.  Income Taxes
         ------------

     The Company accounts for income taxes using the liability method in
     accordance with SFAS No. 109, "Accounting for Income Taxes," which requires
     the asset and liability method of accounting for income taxes.

     k.  Stock Option Plan
         -----------------

     As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation,"
     the Company accounts for stock-based employee compensation plans in
     accordance with Accounting Principles Board Opinion No. 25, "Accounting for
     Stock Issued to Employees," and related interpretations. The Company
     provides the pro forma net earnings, pro forma earnings per share, and
     stock based compensation plan disclosure requirements set forth in SFAS No.
     123.

                                      F-11
<PAGE>

     l.  Rental Operations
         -----------------

     The Company leases a portion of its building to unrelated parties.
     Management allocates certain costs incurred to rental operations based on a
     ratio of square footage to the total square footage of the respective
     building. The results of rental operations for the years ended September
     30, 1999 and 1998 are as follows:


                                               1999        1998
                                             ---------   ---------
          Rental income                      $192,512    $254,233
          Interest expense                    (39,829)    (47,091)
          Depreciation and amortization       (12,473)    (12,567)
          Utilities and other                 (51,169)    (71,275)
                                             --------    --------
                                             $ 89,041    $123,300
                                             ========    ========


     m.  Recent Accounting Pronouncements
         --------------------------------

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
     "Accounting for Derivative Instruments and Hedging Activities." In June
     1999, the effective date of SFAS No. 133 was extended for one year;
     consequently, the statement will now be 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 believes that adoption of this
     standard will not have a material impact on the Company's Financial
     Position or Results of Operations.

     n.  Reclassification
         ----------------

     Certain amounts in the accompanying 1998 financial statements have been
     reclassified to conform to 1999 presentation.

4.  Portfolio Receivables
    ---------------------

The cost basis of portfolio receivables (Receivables) activity consists of the
following as of September 30, 1999 and 1998, and for the years then ended:


     Portfolio receivables at September 30, 1997                $  470,561
      Purchases of portfolio receivables                           930,405
      Collections applied to cost basis                           (276,874)
      Sales of portfolio receivables applied to cost basis        (359,059)
                                                                ----------
     Portfolio receivables at September 30, 1998                   765,033

      Purchases of portfolio receivables                         1,100,885
      Increase in allowance for losses on portfolio receivable    (548,014)
      Collections applied to cost basis                           (124,306)
      Sales of portfolio receivables applied to cost basis        (288,378)
                                                                ----------
     Portfolio receivables at September 30, 1999                $  905,220
                                                                ==========

                                      F-12
<PAGE>

For the years ended September 30, 1999 and 1998, the Company had gross
collections from the Receivables of $1,061,125 and $1,532,849, respectively.
After applying $124,306 and $276,874 to the cost basis for the years ended
September 30, 1999 and 1998, respectively, $936,819 and $1,243,380 was
recognized as portfolio receivables revenue in the accompanying consolidated
statements of operations.

For the years ended September 30, 1999 and 1998, the Company had proceeds from
sales of the Receivables of $459,570 and $2,896,864, respectively. After
applying $288,378 and $359,059 to the cost basis for the years ended September
30, 1999 and 1998, respectively, $171,192 and $2,537,805 was recognized as net
gain on sale of portfolio receivables in the accompanying 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, 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 years ended September 30, 1999 and 1998, the Company had gross
collections from these Receivables of $1,442,414 and $242,978, respectively, of
which $321,190 and $48,596 was recognized as service fee revenue in the
accompanying 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.

5.  Related Party Transactions
    --------------------------

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 (Pacific Life) for the same
amount. As permitted by SFAS No. 125, 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. The sale resulted in a
net gain of $2,363,148 which was recognized as net gain on sale of portfolio
receivables in the accompanying consolidated statements of operations and a
carried residual interest of $36,098. As discussed further in Note 9, Pacific
Life purchased 2,000,000 shares of common stock from the Company during the
year.

6.  Property
    --------

Property consists of the following:
                                                     1999         1998
                                                  ----------   ----------

            Land                                  $  866,575   $  866,575
            Building                               1,540,577    1,540,577
            Equipment and furnishings              2,378,448    1,758,188
            Autos                                          -      132,415
                                                  ----------   ----------
                                                   4,785,600    4,297,755
              Less--Accumulated depreciation       1,657,731    1,554,603
                                                  ----------   ----------
                                                  $3,127,869   $2,743,152
                                                  ==========   ==========

                                      F-13
<PAGE>

Depreciation expense for the years ended September 30, 1999 and 1998 totaled
$209,060 and $175,249, respectively. At September 30, 1999 and 1998, the net
book value of equipment under capital leases was $379,711 and $129,394,
respectively.

7.  Line of Credit
    --------------

Through August 1998, the Company had a line of credit agreement (the Agreement)
with a financial institution. Under the terms of the Agreement, the Company
could borrow up to $1,500,000. The borrowings were secured by substantially all
of the Company's assets as defined under the Agreement. In August 1998, the
outstanding borrowings were paid in full and the Agreement was cancelled.

8.  Notes Payable
    -------------

Notes payable consists of a mortgage note payable to a bank, collateralized by
land and a building, due in monthly payments of $14,089, including interest at 8
percent per annum, through December 2000, at which time the entire principal
balance is due and payable.

Annual maturities of notes payable at September 30, 1999 are as follows:

     Years Ending
     September 30,
     -------------

         2000                                        $   21,504
         2001                                         1,802,006
                                                     ----------
                                                     $1,823,510
                                                     ==========

9.  Capital Transactions
    --------------------

     a.  Series A Convertible, Redeemable Preferred Stock
         ------------------------------------------------

     On September 30, 1996, the Company converted the balance of notes issued in
     connection with the acquisition of MCSI totaling $690,000 into 345,000
     shares of the Company's Series A convertible, redeemable preferred stock.
     The preferred stock is convertible into shares of common stock at $1.50 per
     share at the option of the holders, subject to antidilution provisions. The
     Company has the right to redeem these preferred shares at $2.50 per share.
     The holders of the Company's Series A convertible, redeemable preferred
     shares are entitled to the same voting and dividend rights as the common
     shareholders. Such preferred shares have a liquidation preference at $2.00
     per share over common shareholders.

     b.  Common Stock

     Pursuant to an odd-lot tender offer dated January 30, 1999 whereby the
     Company offered to purchase all outstanding shares of common stock held in
     odd-lots of 1-99 shares at $3.00 per share and a minimum tender offer of
     $5.00 to each tendering shareholder, the Company purchased 660 shares of
     common stock through September 30, 1999 at an aggregate cost of $2,272.

                                      F-14
<PAGE>

     On July 2, 1998, the Company sold 2,000,000 shares of its common stock to
     Pacific Life Insurance Company, representing 28% of the outstanding common
     stock of the Company on a fully diluted basis for $3,000,000.

     On June 5, 1998, the Company issued 7,300 shares of its common stock to
     employees in exchange for services provided. The services were valued at
     the market value of the common stock on the date issued, which totaled
     $7,300.

     c.  Warrants and Stock Options

     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.

     The fair value of the warrant was estimated to be $415,000 on the date of
     grant using the Black Scholes pricing model with the following assumptions:
     weighted average risk-free interest rate of 4.5 percent; a weighted average
     volatility of 86.9 percent; an expected life of 6.75 years; and no expected
     dividend yield. This amount will be recognized in the income statement
     during the period the services are deemed to have been provided. During the
     year ended September 30, 1999, the Company recognized advisory fees of
     $100,000 relating to this warrant. The remaining expense will be recognized
     in future periods if and when various conditions have been met.

     In 1995, the Company adopted, and the shareholders approved, the Cypress
     Financial Services, Inc. 1995 Stock Option Plan (the Plan) which authorized
     450,000 stock option grants to purchase the Company's common stock. In
     August 1998, the Board of Directors and Shareholders approved a 500,000
     share increase to the Plan increasing the total number of shares reserved
     for issuance pursuant to the Plan to 950,000.

     The Plan provides for the grant by the Company of options to purchase
     shares of the Company's common stock to its officers, directors, employees,
     consultants and advisors. The Plan provides that it is to be administered
     by a committee appointed by the Board of Directors (the Committee) all of
     whom are "disinterested" under 16b-3 of the Securities Exchange Act of
     1934, as amended. The Committee has discretion, subject to the terms of the
     Plan, to select the persons entitled to receive options under the Plan, the
     terms and conditions on which options are granted, the exercise price, the
     time period for vesting such shares, the number of shares subject thereto,
     and whether such options shall qualify as "incentive stock options" within
     the meaning of Section 422 of the Internal Revenue code, or "non-qualified
     stock options."

     The Company has granted 869,400 options under the Plan of which 71,600 have
     been forfeited. These options are issued at fair market value or at a 10
     percent premium over fair market value if the individual is a 10 percent or
     more shareholder. All options granted expire ten years from the date of
     grant. At September 30, 1999, there were 162,950 additional shares
     available for grant under the Plan.

                                      F-15
<PAGE>

     A summary of the status of the Plan at September 30, 1999 and 1998 and
     changes during the years then ended is presented in the table and narrative
     below:
<TABLE>
<CAPTION>


                                                  September 30, 1999               September 30, 1998
                                          -----------------------------    ----------------------------
                                                            Weighted                        Weighted
                                                             Average                        Average
                                                            Exercise                        Exercise
                                             Shares           Price           Shares         Price
                                          ------------    -------------    ------------  --------------
<S>                                       <C>             <C>              <C>           <C>
      Outstanding at beg. of year              797,300            $1.29         118,650      $2.75
        Granted                                      -                -         740,000      $1.17
        Exercised                                    -                -               -          -
        Forfeited                              (10,250)           $2.75         (61,350)     $2.75
                                               -------            -----         -------      -----
      Outstanding at end of year               787,050            $1.27         797,300      $1.29
                                               =======            =====         =======      =====

      Exercisable at end of year               567,050            $1.25         307,300      $1.33
                                               =======            =====         =======      =====

      Weighted average remaining
       contractual life                                             8.6                        9.6
                                                                  =====                      =====

      Weighted average fair value of
       options granted                                              N/A                      $1.07
                                                                    ===                      =====
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
     the Black Scholes pricing model with the following assumptions used for the
     grants in fiscal year 1998: weighted average risk-free interest rate of 4.5
     percent; a weighted average volatility of 90.6 percent; an expected life of
     7 years; and no expected dividend yield.

     The Black Scholes pricing model was developed for use in estimating the
     fair value of traded options which have no vesting restrictions and are
     fully transferable. In addition, option valuation models require the input
     of highly subjective assumptions including the expected stock price
     volatility. Because the Company's employee stock options have
     characteristics significantly different from those of traded options, and
     because changes in the subjective input assumptions can materially affect
     the fair value estimate, in management's opinion, the existing models do
     not necessarily provide a reliable single measure of the fair value of its
     employee stock options.

     As permitted by SFAS No. 123, the Company continues to account for the Plan
     based on APB Opinion No. 25, under which no compensation cost has been
     recognized. Pro forma disclosures, as if the Company had adopted the cost
     recognition method, are shown below. This alternative method recognizes the
     fair value of stock options granted in net income during the period that
     the stock options vest. Had compensation cost for stock options awarded
     under this plan been determined consistent with this methodology, the
     Company's net income and earnings per share would have reflected the
     following pro forma amounts:
<TABLE>
<CAPTION>

                                                        1999             1998
                                                    -----------       ----------
<S>                               <C>               <C>               <C>
      Net Income (Loss):          As Reported       $(1,493,112)      $1,039,827
                                  Pro Forma         $(1,596,612)      $  817,410
      Basic EPS:                  As Reported       $     (0.23)      $     0.21
                                  Pro Forma         $     (0.24)      $     0.16
      Diluted EPS:                As Reported       $     (0.23)      $     0.19
                                  Pro Forma         $     (0.24)      $     0.15

</TABLE>

                                      F-16
<PAGE>

10.  Commitments and Contingencies
     -----------------------------

          a.   Lessee -- The Company leases certain equipment under
               non-cancelable capital leases which expire at various times
               through fiscal 2004. Future annual minimum lease payments, in the
               aggregate, under capital leases at September 30, 1999 are as
               follows:

                    Years Ending
                    September 30,
                    -------------
                         2000                              $135,742
                         2001                               135,742
                         2002                                79,843
                         2003                                72,560
                         2004                                64,313
                                                           --------
                    Total minimum lease
                     payments                               488,200

                    Less--  Amounts
                     representing interest                  127,317
                                                           --------
                    Present value of capital
                     lease obligations                     $360,883
                                                           ========

          Rent expense under all operating leases totaled $10,808 in 1999 and
          $22,938 in 1998.

          b.   Lessor -- As discussed in Note 1, the Company leases a portion of
               its building to unrelated entities under operating leases which
               expire at various times through fiscal 2003. The Company leases
               to several tenants on a month-to-month basis. Future annual
               collections under non-cancelable operating leases as of September
               30, 1999 are scheduled as follows:

                    Years Ending
                    September 30,
                    -------------

                         2000                              $138,237
                         2001                                88,400
                         2002                                65,061
                         2003                                61,819
                                                           --------
                                                           $353,517
                                                           ========

          c.   Employment Agreements
               ---------------------

          In November 1996, the Company entered into a three-year agreement with
          one of its employees. In September 1998, the Company entered into
          three-year employment agreements with two of its officers. The
          agreements provide for annual salaries, paid vacations and other
          related benefits. The minimum annual compensation pursuant to such
          agreements, excluding provisions for fringe benefits (e.g., vacations,
          etc.), will be approximately $315,000 in fiscal 2000.

                                      F-17
<PAGE>

          d.   Litigation
               ----------

          In December 1998, Federal Asset Factoring Corporation (Federal) filed
          a claim against the Company for negligent misrepresentation. The
          Company sold certain portfolio receivables (Receivables) to Track,
          Inc. (Track), which Track then sold to Federal. Federal alleges that
          it was unable to obtain media on the Receivables which resulted in
          lower than anticipated returns for Federal's investors. Federal sued
          Track and obtained a judgment, but was unable to collect on the
          judgment. Consequently, Federal sued the Company on the basis that
          Track was acting as a broker for the Company when the Receivables were
          sold to Federal. The Company believes the allegations are without
          merit and intends to vigorously pursue its defense. The lawsuit is set
          for trial in February 2000.

          In March 1999, DDT Medical Credit (DDT) filed a claim against the
          Company for breach of contract. DDT contends it purchased certain
          Receivables from Towne Medical Center (Towne) in May 1998 and
          simultaneously entered into an agreement with the Company to bill and
          collect these Receivables. Although the Company had been performing
          such services for Towne prior to May 1998, the agreement between Towne
          and the Company was mutually terminated on May 15, 1998 and no
          agreement was reached between DDT and the Company to continue such
          services. The Company believes the allegations are without merit and
          intends to vigorously pursue its defense. A trial has been set for
          February 2000.

          In addition to the litigation matters discussed above, the Company is
          involved, from time to time, in litigation that is incidental to its
          collection business. The Company regularly initiates legal proceedings
          as a plaintiff in connection with its routine collection activities.
          In management's opinion, none of these legal matters will have a
          material adverse effect on the Company's financial position or the
          results of its operations.

11.  Income Taxes
     ------------

The provisions (benefits) for income taxes for the years ended September 30,
1999 and 1998 are shown in the table below:

                                      1999        1998
                                   ---------    --------
Federal:
  Current                          $       -    $      -
  Deferred                          (322,710)    322,710
State:
  Current                             (5,776)     15,413
  Deferred                          (127,479)    127,479
                                   ---------    --------
Total tax provision (benefit)      $(455,965)   $465,602
                                   =========    ========

Although not affecting the total provision, actual income tax payments may
differ from the amounts shown as current as a result of the final determination
as to the timing of certain deductions and credits.

                                      F-18
<PAGE>

The total tax provision (benefit) differs from the Federal statutory rate of 34
percent for the reasons shown in the table below:

                                                  1999         1998
                                               ----------   ---------
Federal statutory tax rate                         (34.0)%       34.0%
State income taxes, net of Federal
   income tax benefit                               (4.8)         7.9
Other                                               (0.9)        (2.4)
Valuation Allowance                                 16.3        (13.4)
                                               ---------    ---------
Actual tax provision (benefit)                     (23.4)%       26.1%
                                               =========    =========

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. As of September 30, 1999
and 1998, the accompanying consolidated balance sheets reflect net deferred tax
liabilities of $0 and $465,000, respectively. The net deferred tax liabilities
as of September 30, 1999 and 1998 are disclosed in the table below:

                                                  1999         1998
                                               ---------    ---------
Deferred tax assets:
  Allowance for doubtful accounts              $ 417,315    $ 142,388
  Vacation accrual                                45,182       30,647
  Net operating loss                             492,539      314,328
  Deferred state taxes                                 -       43,343
  Other                                           18,830        3,231
                                               ---------    ---------
  Total deferred tax assets                      973,866      533,937
                                               ---------    ---------

Deferred tax liabilities:
  Securitization                                (671,685)    (974,433)
  Other                                                -       (9,693)
                                               ---------    ---------
  Total deferred tax liabilities                (671,685)    (984,126)
                                               ---------    ---------
  Valuation allowance                           (302,181)           -
                                               ---------    ---------
Net deferred tax liability                     $       -    $(450,189)
                                               =========    =========

12.  Reportable Business Segments
     ----------------------------

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," introduces a new model for segment reporting, referred to as the
"management approach." The management approach is intended to present reportable
segments consistent with how the chief operating decision maker organizes
segments within a company for making operating decisions and assessing
performance. Presently, the Company is segregated into healthcare, banking, and
retail.

                                      F-19
<PAGE>

The healthcare segment consists of pre-collect services, billing services,
delinquent debt recovery, and insurance claims management and is managed as a
single strategic unit. The banking and retail segments focus primarily on
delinquent debt recovery and are therefore managed collectively while their
performance is assessed independent of one another.

Below is a summary statement of income for the years ended September 30, 1999
and 1998. The accounting policies used in the disclosure of business segments
are the same as those described in the summary of significant accounting
policies. Certain assumptions are made concerning the allocations of costs
between segments which may influence relative results, most notably, allocations
of various types of technology, legal, recruiting and training costs. Management
believes that the allocations utilized below are reasonable and consistent with
the way it manages the business.

For the year ended September 30, 1999:
<TABLE>
<CAPTION>

                                            Healthcare     Banking       Retail        Total
                                            ----------   -----------   ----------   -----------
<S>                                         <C>          <C>           <C>          <C>

  Revenues                                  $2,569,469   $1,493,365    $1,178,365   $ 5,241,199
  Operating expenses                         2,175,184    1,080,244       715,847     3,971,275
  Losses on portfolio receivables                    -      548,014             -       548,014
                                            ----------   ----------    ----------   -----------
  Operating income (loss)                   $  394,285   $ (134,893)   $  462,518       721,910
                                            ==========   ==========    ==========
  Overhead & administrative expenses                                                  2,443,640
  Depreciation                                                                          198,697
                                                                                    -----------
  Loss from operations                                                              $(1,920,427)
                                                                                    ===========

For the year ended September 30, 1998:

                                            Healthcare    Banking        Retail        Total
                                            ----------   ----------    ----------   -----------

  Revenues                                  $2,408,819   $3,800,730    $  929,767   $ 7,148,016
  Operating expenses                         1,735,072    1,094,799       601,767     3,431,638
                                            ----------   ----------    ----------   -----------
  Operating income                          $  673,747   $2,705,931    $  328,000     3,716,378
                                            ==========   ==========    ==========
  Overhead & administrative expenses                                                  1,914,995
  Depreciation                                                                          162,882
                                                                                    -----------
  Income from operations                                                            $ 1,638,501
                                                                                    ===========
</TABLE>

                                      F-20
<PAGE>

                                 EXHIBIT INDEX

EXHIBIT
NUMBER                            DESCRIPTION
--------------------------------------------------------------------------------

   2.1    Definitive Purchase Agreement and Plan of Reorganization dated
          September 12, 1995 incorporated by reference from Registrant's Form
          8-K dated September 12, 1995, Exhibit 7(b)(i).

   3.1    Amended and Restated Articles of Incorporation as filed with the
          Secretary of State of Nevada on December 7, 1995, incorporated by
          reference from Registrant's Form 8-K filed on December 20, 1995,
          Exhibit 3.1.

   3.2    Bylaws of the registrant, incorporated by reference from Registrant's
          Registration Statement on Form S-18 (SEC No.33-12361-LA) filed on
          March 18, 1987, Exhibit 3.2.

   3.3    Certificate of Determination re: Series A Preferred Stock,
          incorporated by reference from Registrant's Form 10-KSB filed on
          December 27, 1996.

   4.1   Specimen of Common Stock of Registrant, incorporated by reference from
         Registrant's Form 8-K filed on December 20, 1995, Exhibit 4.2.

  10.2   1995 Stock Option Plan of Registrant, incorporated by reference from
         Registrant's Form 8-K filed on December 20, 1995, Exhibit 10.2.

  10.3   Preferred Stock Purchase Agreement dated September 30, 1996,
         incorporated by reference from Registrant's Form 10-KSB filed on
         December 27, 1996.

  10.4   Executive Employment Agreements of Manuel Occiano dated September 16,
         1998 and John Hindman dated September 4, 1998, incorporated by
         reference from Registrant's Form 10-KSB filed on December 27, 1998.

  10.5   Warrant to Purchase 400,000 Shares of Common Stock dated February 12,
         1999 issued to Batchelder & Partners, Inc., incorporated by reference
         from Registrant's Form 10-QSB filed on February 12, 1999.

  27     Financial Data Schedule