-----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, VWAqrGAF1am6C6OrWLc0wMMcyUyHs3D35Dj6K1V7KDrkIyZ1mtmANoHrGZz6pTcV +KJ1kGEHt3w3jJxBBFMZJA== 0000950147-97-000700.txt : 19971016 0000950147-97-000700.hdr.sgml : 19971016 ACCESSION NUMBER: 0000950147-97-000700 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970831 FILED AS OF DATE: 19971015 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: SEC FILE NUMBER: 000-15304 FILM NUMBER: 97695809 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 QUARTERLY REPORT 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, 1997 ---------------------------------------- [_] 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 incorporation or organization) (IRS Employer 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 10, 1997 was 4,100,420. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (Check One) [_] Yes [X] No 1 of 10 PART I FINANCIAL INFORMATION Item 1 Financial Statements
AVESIS INCORPORATED BALANCE SHEET AS OF AUGUST 31, 1997 ASSETS ------ Current assets: Cash and cash equivalents $ 924,282 Receivables, net 288,799 Prepaid expenses and other 89,199 ----------- Total current assets 1,302,280 Property and equipment, net 215,729 Deferred debenture issuance costs, net 600 Deposits 247,913 ----------- Total Assets $ 1,766,522 =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 593,292 Accrued expenses- Compensation 50,341 Other 41,773 Convertible subordinated debentures 189,000 Less unamortized debenture discount (635) Notes payable to stockholders 160,000 Deferred income 15,118 ----------- Total current liabilities 1,048,889 Accrued rent 86,953 ----------- Total liabilities 1,135,842 ----------- 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 20,000,000 shares; 4,100,420 shares issued and outstanding 41,004 Additional paid-in capital 9,949,158 Accumulated deficit (9,363,364) ----------- Net stockholders' equity 630,680 ----------- $ 1,766,522 ===========
The accompanying notes are an integral part of these statements. -2- AVESIS INCORPORATED STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED AUGUST 31, 1997 AND 1996 (Unaudited) Quarters Ended August 31 August 31 -------------------------- 1997 1996 ----------- ----------- Service revenues: Administration fees $ 1,364,712 $ 912,084 Buying group sales 418,530 388,629 Provider fees 26,466 34,051 Other 1,504 14,277 ----------- ----------- Total service revenues 1,811,212 1,349,041 Cost of services 1,382,649 888,809 ----------- ----------- Income from services 428,563 460,232 General and administrative expenses 227,139 254,965 Selling and marketing expenses 143,260 166,384 ----------- ----------- Income from operations 58,164 38,883 Non-operating income (expense): Other income 1,710 -- Interest income 8,753 6,238 Interest expense (7,385) (7,385) ----------- ----------- Net non-operating income (expense) 3,078 (1,147) ----------- ----------- Net income $ 61,242 $ 37,736 =========== =========== Net income per common share $ (.00) $ (.01) =========== =========== The accompanying notes are an integral part of these statements. -3- AVESIS INCORPORATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED AUGUST 31, 1997 AND 1996 (Unaudited) Quarters Ended 1997 1996 --------- --------- Cash flows from operating activities: Net income $ 61,242 $ 37,736 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,609 41,634 Provision for losses on accounts receivable -- (154) Changes in assets and liabilities: Decrease in receivables 51,557 74,371 Decrease in prepaid expenses 10,317 11,112 (Increase) in other assets (48,775) -- Increase (Decrease) in accounts payable 128,917 (2,496) (Decrease) in accrued expenses (50,298) (20,291) (Decrease) in deferred income (8,114) (9,035) (Decrease) Increase in accrued rent (5,091) 4,114 --------- --------- Total adjustments 104,122 99,255 --------- --------- Net cash provided by operating activities 165,364 136,991 --------- --------- Cash flows from investing activities: Purchases of property and equipment (58,617) (62,582) --------- --------- Net cash used in investing activities (58,617) (62,582) --------- --------- Cash flows from financing activities: --------- --------- Net cash used in financing activities -- -- --------- --------- Net increase in cash and cash equivalents 106,747 74,409 Cash and cash equivalents at beginning of period 817,535 436,083 --------- --------- Cash and cash equivalents at end of period $ 924,282 $ 510,492 ========= ========= Supplemental information: - ------------------------- Interest paid during the period: Debentures -- -- Notes payable to stockholders -- -- The accompanying notes are an integral part of these statements. -4- AVESIS INCORPORATED NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1997 AND 1996 (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 include all adjustments, which are all of a normal recurring nature, necessary in order to make the financial statements not misleading, 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, 1997, are not necessarily indicative of the results to be expected for any other period or the complete fiscal year. 2. For the quarter ended August 31, 1997, 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 for the quarter) by the weighted average number of common shares outstanding during the period. (See Exhibit 11) -5- Item 2 Management's Discussion and Analysis or Plan of Operations For the Quarters Ended August 31, 1997 and 1996 The statements contained in this discussion and analysis regarding management's anticipation of adequacy of cash reserves for operations, adequacy of reserves for claims, adequacy of capital allocation for debentures, sustained viability of the Company, continued positive cash flows and increased marketability of the Company, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management's anticipation is based upon assumptions regarding the market in which the Company operates, the level of competition, demand for services, stability of costs, retention of sponsors and cardholders enrolled in the Company's benefit programs, and stability of the regulatory environment. Any of these assumptions could prove inaccurate, and therefore there can be no assurance that the forward-looking information will prove to be accurate. Avesis Incorporated, a Delaware corporation (together with its subsidiary, the "Company"), incorporated in June 1978, markets and administers dental, chiropractic, vision and hearing managed care and discount programs ("Programs") nationally which are designed to enable participants ("Members"), who are enrolled through various Sponsoring organizations such as insurance carriers, Blue Cross and Blue Shield organizations, corporations, unions and various associations ("Sponsors"), to realize savings on purchases of products and services through networks of providers such as dentists, chiropractors, opticians, optometrists, ophthalmologists and hearing specialists ("Providers"). The Company derives its administration fee revenue from plan Sponsors who customarily pay a set fee per member per month. There are arrangements with certain Sponsors to pay for services rendered by the Company on a fee for service basis. Based upon the type of program (e.g., managed care, discount, third party administration) the Provider's claim for service provided to Members is paid either by the Company, Sponsor, Member or combination thereof. Buying group revenues are recorded as the total amount billed to participating Providers. Vision Provider fee revenue is based upon a percentage of materials sold by certain participating providers under certain plans. Results of Operations: - ---------------------- The Company's total service revenues totaled $1,811,212 for the quarter ended August 31, 1997, compared to $1,349,041 for the same period in fiscal 1996, representing a increase of $462,171 (34%). The increase is principally due to the addition of a vision plan Sponsor who added approximately 95,000 cardholders during January 1997 and a second vision plan Sponsor who added approximately 130,000 cardholders during July 1997. 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 to Sponsors depending on whether the benefit is funded in part or whole by the plan Sponsor. A substantial portion of the Company's cardholder base is derived from a limited number of sponsors. Administration fees from the Company's vision and hearing programs accounted for $1,057,207 (58%) and $535,342 (40%) of total service revenues during the quarters ended August 31, 1997 and 1996, respectively. There were approximately 579,000 vision and 7,000 hearing cardholders as of August 31, 1997, compared to approximately 356,000 vision and 82,000 hearing cardholders as of August 31, 1996. The increase in vision and hearing revenue during the current quarter was the result of the two new vision plan Sponsors mentioned above. The decrease in hearing cardholders was largely due to the discontinuation of services for two hearing plan Sponsors with approximately 70,000 total cardholders. The loss of hearing cardholders did not have a material impact on total service revenues. The other changes in the number of vision and hearing cardholders were due to Sponsors' employee or Member fluctuations. Vision provider fee revenue declined by $7,585 (22%) during the quarter ended August 31, 1997, as compared to the same period in fiscal 1996 due in part to a modification of the Company's agreements with its Providers in response to competitive pressures. Under the modified agreement, for new Sponsors, the Providers are not required to pay a fee based on gross sales to that Sponsor's Members. -6- Administration fees from the Company's dental program accounted for $297,389 (16%) and $409,891 (30%) of total service revenues during the quarters ended August 31, 1997 and 1996, respectively. There were approximately 124,000 and 112,000 dental cardholders as of August 31, 1997 and 1996, respectively. The Company's dental program revenue has decreased while the number of dental cardholders has increased due to pricing differences among the different plan benefits, as discussed above. The changes in the number of dental cardholders were due to Sponsors' Member and employee fluctuations. The Company makes available to its Providers a buying group program that enables the Provider to order eyeglass 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 $418,530 (23%) and $388,629 (29%) for the quarters ended August 31, 1997 and 1996, respectively. The cost of services increased by $493,840 (56%) to $1,382,649 during the quarter ended August 31, 1997 from $888,809 during the quarter ended August 31, 1996. These costs relate to servicing cardholders, Providers, and Sponsors under the Company's vision, hearing, dental and chiropractic benefit programs as well as the cost of frames that are sold through the Company's buying group program as discussed above. The increase in cost of services during the current quarter was primarily due to the payment of benefits for Members of the new plan Sponsors of approximately $432,000, which did not exist in the prior year, and an increase of other benefit payments for other plans of approximately $53,000. The Company's cost of services increased as a percentage of total service revenues due to a shift in product mix from discount to managed care programs which have greater associated costs due to additional customer service and claims payment functions. General and administrative expenses were $227,139 during the quarter ended August 31, 1997, which represents a decrease of $27,826 (11%) compared to the same period in fiscal 1996. The decrease in general and administrative expenses in the quarter ended August 31, 1997 as compared to the same period in fiscal 1996 is due to a decrease in personnel involved in the accounting and finance functions, a decrease in rent expense resulting from the sublease of excess office space, and a decrease in depreciation expense as the Company abandoned a significant portion of software prior to the start of the current quarter. Selling and marketing expenses were $143,260 during the quarter ended August 31, 1997, representing a decrease of $23,124 (14%) from the same period in the prior 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 decrease in expenses during the current period was primarily due to a decrease in personnel involved in the Company's sales and marketing activities. A significant amount of the Company's marketing activities has been outsourced to management consultants, National Health Enterprises, for a cost lower than the Company incurred when performing the functions internally. Liquidity and Capital Resources - ------------------------------- The Company had cash and cash equivalents of $924,282 as of August 31, 1997, compared to $817,535 as of May 31, 1997. The increase of $106,747 was due primarily to the Company's ability to reduce expenses, increase timely collections of accounts receivable and advantageously time payments to vendors during the quarter. The Company is maintaining its policy of paying vendors on a net 45 day basis and continues to be current on all of its trade accounts payable. Current cash on hand and cash provided from operations is expected to allow the Company to sustain operations for at least the next twelve months. During the first quarter of fiscal 1998 the Company entered into an agreement with a third party to develop new software systems. The cost of the project, including necessary hardware, of approximately $250,000 will be financed through cash from operations. As of August 31, 1997, the Company had $593,292 of Accounts Payable, compared to $218,412 in the prior fiscal year. The increase is predominately due to reserves for claims of $286,472 in the current year for the two new Sponsors, for claim reimbursements to Providers who participate in certain managed care programs. The Company believes this reserve is conservative and adequate. -7- As of August 31, 1997, the Company had $189,000 of Convertible Subordinated Debentures, less $635 of unamortized discount, due December 1, 1997 and $160,000 of subordinated notes payable to stockholders due March 18, 1998. The Company has allocated the required capital to repay the debenture holders upon maturity and has reported the amount on the Balance Sheet in cash and cash equivalents. The Company signed a new lease agreement for office space during the first quarter of fiscal 1998, and is scheduled to move the weekend of October 17, 1997. The Company's new office lease agreement is expected to reduce monthly rent expense by approximately $6,000 as compared to the monthly rent expense paid for the prior office space, which has been subleased at a rate at least equal to the Company's expense. -8- PART II OTHER INFORMATION Item 3. Defaults Upon Senior Securities (b) The Company determined not to pay the quarterly dividend otherwise scheduled for payment in October 1997, on shares of its Series 2 Preferred Stock. The dividend is cumulative. The arrearage is $1,747,340 as of September 30, 1997. Item 5. Other Information Effective October 17, 1997, the Company will move its principal executive offices to: 3724 North Third Street Suite 300 Phoenix, Arizona 85012 (602) 241-3400 Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are being filed with this report: 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended August 31, 1997. -9- 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: October 13, 1997 /s/ Neal A. Kempler ------------------------ ---------------------------------------- Neal A. Kempler, Vice President and Secretary Date: October 13, 1997 /s/ Joel H. Alperstein ------------------------ ---------------------------------------- Joel H. Alperstein, Director of Finance (Principal Financial Officer) -10- EX-11 2 CALCULATION OF EARNINGS PER COMMON SHARE Exhibit 11 Calculation of Earnings per Common Share For the Quarter Ended August 31, 1997 Primary Fully Diluted ----------------------------- CSE's: Common Stock 4,100,420 4,100,420 Series 2 Preferred (CSE) 970,450 970,450 Debentures (non-CSE): # bonds 189 189 x conversion rate 200 200 ----------------------------- # shares under bonds outstanding 37,800 37,800 x exercise price 5 5 ----------------------------- = cash generated 189,000 189,000 Market price of common stock: Average $ 0.2864 Closing $ 0.23375 # treasury shares that could be repurchased 659,929 808,556 ----------------------------- Incremental # shares 0 0 Warrants & options: # options & warrants outstanding 5,360,000 5,360,000 x exercise price = cash generated 2,458,818 2,458,818 Market price of common stock: Average $ 0.2864 Closing $ 0.23375 # treasury shares that could be repurchased 8,585,432 10,519,008 ----------------------------- Incremental # shares 0 0 ----------------------------- Total CSE 4,100,420 4,100,420 ============================= Debentures "if converted" 37,800 =========== EARNINGS PER SHARE: Net income 61,242 61,242 Subtract: preferred stock dividends 87,342 87,342 ----------- Add: interest expense on non-CSE debt 4,489 ----------------------------- (26,100) (21,611) Divided by #CSEs + non-CSE debt 4,100,420 4,138,220 ----------------------------- EPS (0.00) (0.00) ============================= Net income 61,242 61,242 Add: interest expense on non-CSE debt 4,489 ----------------------------- 61,242 65,731 Divided by #CSEs + non-CSE debt 5,070,870 5,108,670 ----------------------------- EPS 0.01 0.01 ============================= (Preferred Stock is anti-dilutive so it is not included in EPS.) (Debt is determined to be non-CSE due to the interest rate test.) EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's Form 10-QSB for the quarter ended August 31, 1997 and is qualified in its entirety by reference to such financial statements. 1 U.S. Dollars 3-MOS MAY-31-1998 JUN-01-1997 AUG-31-1997 1 924,282 0 308,650 (19,851) 0 1,302,280 1,241,457 (1,025,728) 1,766,522 1,048,889 0 0 3,882 41,004 0 1,766,522 0 1,811,212 0 1,382,649 370,399 0 (7,385) 61,242 0 61,242 0 0 0 61,242 (.00) (.00)
-----END PRIVACY-ENHANCED MESSAGE-----