-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, USG52zHFejIU+Im1uFQwgVSlS5Jc82nSD8DMvetrODEILez4SBcvlraxDNlSsKLh MrXaNOoHDVxwpVQMZXypbw== 0000950147-95-000157.txt : 19951017 0000950147-95-000157.hdr.sgml : 19951017 ACCESSION NUMBER: 0000950147-95-000157 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951016 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVESIS INC CENTRAL INDEX KEY: 0000795574 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 860349350 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-15304 FILM NUMBER: 95580861 BUSINESS ADDRESS: STREET 1: 1001 WEST CLARENDON SUITE 2300 STREET 2: STE 300 CITY: PHOENIX STATE: AZ ZIP: 85013 BUSINESS PHONE: 6029567287 MAIL ADDRESS: STREET 1: 1001 W CLARENDON STREET 2: NO 2300 CITY: PHOENIX STATE: AZ ZIP: 85013 FORMER COMPANY: FORMER CONFORMED NAME: NBS NATIONAL BENEFIT SERVICES INC DATE OF NAME CHANGE: 19910114 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL VISION SERVICES INC DATE OF NAME CHANGE: 19900117 10QSB 1 FORM 10QSB Securities and Exchange Commission Washington D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1995 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to ----------------- ---------------- Commission File Number 0-15304 ----------------- AVESIS INCORPORATED -------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 86-0349350 ------------------------------- ---------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 100 West Clarendon Avenue, Suite 2300 Phoenix, Arizona 85013 ---------------------------------------------------------------------- (Address of principal executive offices) (602) 241 - 3400 --------------------------- (Issuer's telephone number) 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 -------- -------- The number of outstanding shares of the registrant's Common Stock on October 12, 1995 was 4,075,420. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One) [ ] Yes [X] No PART I FINANCIAL INFORMATION Item 1 Financial Statements AVESIS INCORPORATED BALANCE SHEET AUGUST 31, 1995 ASSETS ------ Current assets: Cash and cash equivalents $ 400,260 Receivables, net 681,909 Prepaid expenses and other 145,871 ----------- Total current assets 1,228,040 Property and equipment, net 345,671 Deferred debenture issuance costs, net 4,197 Deposits 236,572 ----------- $ 1,814,480 =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 270,840 Accrued expenses- Compensation 75,589 Other 45,894 Deferred income 41,523 ----------- Total current liabilities 433,846 Convertible subordinated debentures 189,000 Less unamortized debenture discount (4,447) Accrued rent 90,861 Notes payable to stockholders 160,000 ----------- Total liabilities 869,260 ----------- Stockholders' equity: Preferred stock $.01 par value, authorized 12,000,000 shares: $100 Class A, nonvoting cumulative convertible preferred stock, Series 1, $.01 par value; authorized 1,000,000 shares; none issued and outstanding (liquidation preference of $100 per share) -- $10 Class A, nonvoting cumulative convertible preferred stock, Series 2, $.01 par value; authorized 1,000,000 shares; 388,180 shares issued and outstanding (liquidation preference of $10 per share) 3,882 Class A, voting cumulative convertible preferred stock, Series 3, $.01 par value; authorized 100,000 shares; none issued and outstanding (liquidation preference of $100 per share) -- Common stock of $.01 par value, authorized 12,000,000 shares; 4,075,420 shares issued and outstanding 40,754 Additional paid-in capital 9,824,408 Accumulated deficit (8,923,824) ----------- Net stockholders' equity 945,220 ----------- $ 1,814,480 =========== The accompanying notes are an integral part of these statements. AVESIS INCORPORATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 1995 AND 1994 (Unaudited) Quarters Ended August 31 August 31 --------------------------- 1995 1994 ---- ---- Service revenues: Administration fees $ 1,113,741 $ 817,758 Buying group sales 362,154 400,982 Provider fees 57,720 79,214 Other 28,346 34,251 ------------ ------------ Total service revenues 1,561,961 1,332,205 Cost of services 963,396 839,763 ------------ ------------ Income from services 598,565 492,442 General and administrative expenses 294,335 265,915 Selling and marketing expenses 232,417 199,171 ------------ ------------ Income from operations 71,813 27,356 ------------ ------------ Non-operating income (expense): Other income 15,417 -- Interest income 6,662 1,374 Interest expense (8,238) (9,224) ------------ ------------ Net non-operating income 13,841 (7,850) ------------ ------------ Net income $ 85,654 $ 19,506 ============ ============ Net income (loss) per common share $ .00 $ (.02) ============ ============ Weighted average common shares and equivalents outstanding 4,075,420 4,075,420 ============ ============ The accompanying notes are an integral part of these statements. AVESIS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED AUGUST 31, 1995 AND 1994 (Unaudited) 1995 1994 ---- ---- Cash flows from operating activities: Net income $ 85,654 $ 19,506 ----------- ----------- Adjustments to reconcile net income to net cash provided (used) in operating activities: Depreciation and amortization 28,351 17,525 Gain on fixed asset disposal (8,250) -- Gain on retirement of debentures (7,067) -- Provision for losses on accounts receivable (625) 211 Changes in assets and liabilities: Increase in receivables (341,658) (73,476) Decrease (increase) in prepaid expenses (58,531) 509 Decrease in other assets 150 -- Increase (decrease) in accounts payable (30,949) 34,631 Decrease in accrued expenses (5,837) (13,061) Decrease in deferred income (10,194) (5,212) Increase (decrease) in accrued rent 4,370 (14,260) ----------- ----------- Total adjustments (430,240) (53,133) ----------- ----------- Net cash used by operating activities (344,586) (33,627) ----------- ----------- Cash flows from financing activities: Repurchase of debentures (59,473) -- Disposition of fixed assets 8,250 -- Purchases of fixed assets (19,228) -- ----------- ----------- Net cash used by financing activities (70,721) -- ----------- ----------- Net decrease in cash and cash equivalents (415,307) (33,627) Cash and cash equivalents at beginning of period 815,567 347,681 ----------- ----------- Cash and cash equivalents at end of period $ 400,260 $ 314,054 =========== =========== The accompanying notes are an integral part of these statements. AVESIS INCORPORATED NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1995 AND 1994 (Unaudited) 1. The condensed financial statements included herein have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared at the fiscal year end have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of Management, the adjustments included in the accompanying interim financial statements are all of a normal recurring nature and present fairly the Company's financial position and the results of operations and cash flows for the periods indicated. The results of operations for the period ended August 31, 1995, are not necessarily indicative of the results to be expected for the complete fiscal year. 2. Loss per common share is computed by dividing net loss, after giving appropriate effect to undeclared preferred stock dividends payable and accrued during the period ($87,342 in each of the quarters ended August 31, 1995 and 1994) by the weighted average number of common shares outstanding during the period. Item 2 Management's Discussion and Analysis or Plan of Operations For the Three Months Ended August 31, 1995 Results of Operations: - ---------------------- Service revenues totaled $1,561,961 for the three months ended August 31, 1995, compared to $1,332,205 for the same period in fiscal 1995, representing an increase of $229,756 (17%). The Company's vision and hearing programs accounted for $656,123 (42%) of total service revenues during the quarter ended August 31, 1995 compared to $496,142 (37%) for the same quarter last year. The increase in vision and hearing revenue during the current quarter was the result of an increase in vision cardholders attributable to three sponsors. Two of the sponsors were existing sponsors that added an additional combined total of approximately 125,000 cardholders and the third sponsor was a new contract whereby approximately 3,400 members receive vision benefits. There were approximately 383,000 vision cardholders in force at August 31, 1995, compared to approximately 248,000 cardholders at August 31, 1994. Vision provider fee revenue declined by $21,494 (27%) during the current quarter as compared to fiscal 1994 due in part to a modification of the Company's agreements with its providers that for new sponsors, the providers are not required to pay a fee based on gross sales to that sponsor's members. The Company's dental program accounted for $465,403 (30%) of total service revenues during the quarter ended August 31, 1995 compared to $315,747 (23%) during the quarter ended August 31 1994. The 47% growth in this line of business was primarily due to the addition of approximately 73,000 uninsured cardholders from one sponsor, which have been added intermittently beginning October 1993, and 3,400 insured cardholders related to a new sponsor effective July 1994. There were approximately 81,000 dental cardholders at August 31, 1995, compared to approximately 75,000 at August 31, 1994. On December 30, 1992, the Company completed the sale of its pharmacy line of business to Medi-Mail, Inc. The Company contracted to provide certain administrative services with respect to the pharmacy line of business until December 31, 1993. However, due to delays encountered by Medi-Mail during the conversion of the claims processing, the Company entered into a month to month agreement to continue to provide administrative services to Medi-Mail. Medi-Mail terminated the agreement in August 1995. Pharmaceutical revenues constituted $78,281 (5%) of total service revenues during the current quarter, compared to $130,775 (9%) during the quarter ended August 31, 1994. The Company makes available to its providers, a buying group program that enables the provider to purchase frames from the manufacturers at discounts from wholesale costs. These discounted prices are generally lower than a provider could negotiate individually, due to the large volume of purchases of the buying group. Buying group revenues were $362,154 (23%) of total service revenues for the quarter ended August 31, 1995, compared to $400,982 (30%) for the same quarter last year. Past and future revenues in all lines of business are directly related to the number of cardholders enrolled in the Company's benefit programs. However, there may be significant pricing differences depending on whether the benefit is insured in part or whole by the plan sponsor. The Company's current cardholder base pricipally is derived from a limited number of sponsors. The cost of services increased by $123,633 (15%) from $839,763 during the quarter ended August 31, 1994 to $963,396 during the quarter ended August 31, 1995. These costs primarily relate to servicing cardholders, providers, and sponsors under the Company's vision, hearing and dental benefit programs and under the pharmaceutical program sold to Medi-Mail in December 1992. The increase in cost of services during the current quarter was due to the incremental costs incurred related to servicing the new cardholders as discussed above. General and administrative expenses were $294,335 during the quarter ended August 31, 1995, which represents an increase of 28,420 (11%) compared to the same period in fiscal 1994. The increase in the current quarter was due to slight increases in several expenses such as wages, depreciation and an increased allocation of rent. Selling and marketing expenses were $232,417 for the quarter ended August 31, 1995, representing an increase of $33,246 (17%) from the same period last year. Selling and marketing expenses include marketing fees, broker commissions, inside sales and marketing salaries and related expenses, travel related to the Company's sales activities and an allocation of other overhead expenses relating to the Company's sales and marketing functions. The increase in expenses during the quarter ended August 31, 1995, was primarily due to an increase in broker commissions related to the new cardholders that were added as discussed above. A significant amount of the Company's marketing activities are performed by National Health Enterprises. Liquidity and Capital Resources - ------------------------------- The Company had cash and cash equivalents of $400,260 at August 31, 1995, compared to $815,567 at May 31, 1995. The decrease of $415,307 was due primarily to an increase in receivables as a result of not receiving payments from clients until after the end of the quarter. At August 31, 1995, the Company had aggregate outstanding long-term liabilities of $435,414, consisting of $189,000 of Convertible Subordinated Debentures, less $4,447 of unamortized discount, $160,000 of subordinated notes payable to stockholders, and $90,861 in accrued rent. The Company has generated income from operations for the last six consecutive quarters, and based on the existing and anticipated levels of cardholders, the Company expects to generate positive cash flows and income from operations for fiscal 1996. PART II OTHER INFORMATION Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from the Company's report on Form 10-KSB for the year ended May 31, 1995. Item 3. Defaults Upon Senior Securities (b) The Company determined not to pay the quarterly dividend otherwise scheduled for payment in October 1995, on shares of its Series 2 Preferred Stock. The dividend is cumulative. The arrearage is $1,019,508 as of August 31, 1995. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are being filed with this report: 10.1 Software development agreement between the Company and National Computer Services, Inc. 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended August 31, 1995. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AVESIS INCORPORATED ----------------------- (Registrant) Date: 10/13/95 /s/ Mark L. Smith ---------------------- -------------------------------- Mark L. Smith, Vice President and Chief Financial Officer (Principal Financial Officer) EX-10.1 2 AGREEMENT SOFTWARE DEVELOPMENT AND COMPUTER USAGE AGREEMENT This AGREEMENT is made and entered into as of this 12th day of May 1995, by and between AVESlS INCORPORATED (hereinafter, "Avesis"), a Delaware corporation, maintaining its principal place of business at 100 West Clarendon Avenue, Suite 2300, Phoenix, Arizona, 85013, and NATIONAL COMPUTER SERVICES, INC. (hereinafter, "National"), a Maryland corporation maintaining its principal place of business at 11460 Cronridge Drive, Suite 118, Owings Mills, Maryland, 21117. 1. TERM: This agreement shall be in effect for a period of 5 years from the date of its acceptance by National. Thereafter, should either party hereto desire to terminate or modify any provision herein as of the termination date, said party shall notify the other of its desire for such termination or modification in writing at least 60 days prior to such termination date. Failing such notice, this Agreement shall automatically renew itself for one year terms and continue in full force and effect from term to term thereafter unless either party hereto shall notify the other of its desire for such changes not later than 60 days prior to the anniversary of any renewal date. Either party may terminate this agreement for cause at any time by giving 30 days written notice and opportunity to cure. 2. COMPUTER OPERATIONS: National will provide computer usage services to Avesis. A fee for Services in the amount of $2,500 will be paid to National each month. The computer will be available 7 days a week, 24 hours a day except time for scheduled backup. National will not be responsible to Avesis for delays or failure in performance caused by events beyond National's control including but not limited to fire, strikes, floods, utility failure, war and other disasters. National agrees: (a) To back up the Avesis database and all programs and secure off site to prevent any loss of data due to any catastrophe. (b) To maintain a security system within the database so that each user can access only those records in the common databases that pertain to that specific user's business requirements and needs. 3. PROGRAMMING: National will provide programming services as needed to meet the requirements of Avesis in accordance with the specifications and schedule set forth on Exhibit "A". National will bill for these services monthly on a time and expenses basis as work is performed. National's total fee for developing the vision, dental and hearing claims, eligibility, and reporting systems and providing complete documentation for all software as mutually agreed, will not exceed $250,000 without the written approval from Avesis Board of Directors. National will be free to use all ideas, concepts, know-how and techniques related to data processing and computer programs in its own behalf during the course of this agreement, subject to the provisions of Sections 11 and 12 of this agreement. 4. IT IS EXPRESSLY AGREED AND UNDERSTOOD THAT: The fee payable to National hereunder includes and shall cover all of the services set forth in this agreement and there will be no additional charges whatsoever to Avesis for changes to the case system required by programming errors. National agrees to provide reasonable documentation for its fees and expenses to Avesis upon request. 5. WARRANTY: In the event of an error or omission by National in connection with the services to be performed hereunder by National which is the proximate cause of damages or loss to Avesis, National will either (a) rerun the work correctly at no extra cost to Avesis, or (b) credit Avesis' account for the improper work. This election shall be determined jointly by Avesis and National. National warrants that all software developed for Avesis will be National's original work and will not incorporate any material created by or belonging to others. 6. MAINTENANCE: National agrees to pay for maintenance of all computer equipment, workstations, PC's and printers located in National's office. Likewise, Avesis agrees to pay for maintenance on all computer equipment, workstations, PC's and printers located at Avesis' office. 7. COMPUTER SUPPLIES AND EQUIPMENT: National agrees to pay for all data processing equipment, workstations, PC's, software products, etc. and any necessary computer supplies such as green bar stock paper, computer tapes and printer ribbons used in National's operations. Likewise, Avesis agrees to pay for all data processing equipment, workstations, PC's, software products, etc. and any necessary computer supplies such as green bar stock paper, computer tapes and printer ribbons used in Avesis' operations. 8. OUT-OF-POCKET EXPENSES: Any out-of-pocket expenses such as long distance telephone calls, travel or any other out-of-pocket expenses made by National in conjunction with services provided to Avesis shall be billed back to Avesis each month. 9. INSURANCE: Avesis will be responsible for maintaining all insurance on equipment located in its office. National will be responsible for maintaining all insurance for equipment located in its office. 10. WAIVER OF AGREEMENT: A term of condition of this Agreement can be waived as modified only by written consent by both parties. 11. CONFlDENTlALlTY: National agrees that it will not disclose any proprietary information, knowledge or data of Avesis obtained in connection with this Agreement except as authorized by Avesis in writing. 12. OWNERSHIP AND LICENSE: All of the information, data and contents of data bases and reports developed and compiled by National for Avesis pursuant to this agreement shall be the property of Avesis, and shall be delivered to Avesis promptly whenever requested by Avesis and upon the termination or expiration of this agreement. The software, programs and related documentation developed by National for Avesis pursuant to this agreement Shall be owned by National. National hereby grants to Avesis and its successors and assigns, without further compensation, an irrevocable, perpetual license to use all such software, programs and related documentation in any manner and at any place and time. Copies of the software, programs and related documentation, including without limitation the source code, shall be delivered to Avesis promptly whenever requested by Avesis and upon the termination or expiration of this agreement . National further agrees that while this agreement is in effect, the license granted to Avesis shall be exclusive, and National will not market, sell, license or provide any of the software, programs or documentation developed for Avesis pursuant to this agreement to any other person or entity. This Agreement will be governed by the laws of the State of Maryland: NATIONAL ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY ITS TERMS AND FURTHER AGREES THAT IT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN PARTIES, WHICH SUPERSEDES ALL PROPOSALS ORAL OR WRITTEN AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT OF THIS AGREEMENT. AVESIS INCORPORATED NATIONAL COMPUTER SERVICES, lNC. By: /s/ Mark L. Smith By: /s/ Frank Cappadora --------------------------------- --------------------------------- Mark L. Smith Frank Cappadora Title: CFO Title: CEO ------------------------------- -------------------------------- Date: 5/12/95 Date: 5/12/95 -------------------------------- -------------------------------- EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS MAY-31-1996 JUN-01-1995 AUG-31-1995 400,260 0 681,909 0 0 1,228,040 1,378,512 1,032,841 1,814,480 433,846 189,000 40,754 0 3,882 945,220 1,814,480 1,561,961 1,561,961 0 0 1,490,148 0 8,238 85,654 0 85,654 0 0 0 85,654 0 0
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