The Company leases approximately 10,168 square feet of executive and administrative offices in Uniondale, New York. The lease expires on January 31, 2003. The base annual rent is $230,952.00, plus real estate taxes, for the rental year ended January 31, 1996, with an increase of 4% each rental year thereafter during the term of the lease.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. ---------------------
Net income decreased to $70,926 during 1995 as compared to $91,128 during 1994. Gross margins increased 2.8% or $99,054 to $3,667,501 during 1995 as compared to $3,568,447 during 1994. Contributing to this increase in gross margin was an increase in administrative service income of $139,961 resulting from the fruition of continuing marketing efforts to obtain new administrative business. Gross margins from service revenues decreased to 55.5% during 1995 from 55.0% during 1994. Gross margins from premium income decreased to 16.8% during 1995 from 17.4% during 1994, primarily as a result of increased claims utilization.
We have audited the consolidated balance sheets of Healthplex, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
HEALTHPLEX, INC. & SUBSIDIARIES - ------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------- AS OF DECEMBER 31, 1995 AND 1994 - --------------------------------
Fixed assets, net of depreciation 867,890 758,715 (notes 2 & 3) Note receivable - less current portion 77,533 73,054 (note 4) Investments-available for sale (note 5) 758,243 722,516 Security deposits 24,138 16,382 Goodwill, less accumulated amortization of $10,832 in 1995 and $9,478 in 1994 16,251 17,605 Other assets 7,278 14,433 Loan to Dentcare Delivery Systems, Inc. 515,820 515,820 (note 10) --------- --------- $ 3,866,093 $ 3,615,476
Current liabilities: - -------------------- Accounts payable $ 437,126 $ 387,847 Current portion of capitalized lease 140,391 107,697 obligations (note 6) Accrued expenses and taxes 179,462 184,569 Due to Dentcare Delivery Systems, Inc. 134,199 120,110 Federal Income tax payable (notes 2 & 7) 35,748 52,291 --------- --------- Total current liabilities 926,926 852,514
Capitalized lease obligations, less 160,104 161,546 current portion (note 6) Deferred Federal income tax payable 37,941 42,403 (notes 2 & 7) --------- --------- Total liabilities 1,124,971 1,056,463
Unrealized gain (loss) on investments- 39,249 (71,934) available for sale Retained earnings 726,958 656,032 --------- --------- Total stockholders' equity 2,741,122 2,559,013 --------- --------- $ 3,866,093 $ 3,615,476 --------- --------- --------- ---------
Bal., December 31, 1995 $ 3,587 $ 1,971,328 39,249 $ 726,958 $ 2,741,122 - ----------------------- ----- --------- ------- ------- ---------- ----- --------- ------- ------- ----------
1995 1994 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from investing activities: Security deposits (7,756) 22,000 Capital expenditures (163,242) (95,028) Sale of investments 4,996 17,006 Reduction of notes receivable 5,387 10,355 --------- -------- Net cash used in investing activities (160,615) (45,667)
Net increase (decrease) in cash (33,291) 229,462 Cash and cash equivalents at beginning of 474,280 244,818 year --------- --------- Cash and cash equivalents at end of year $ 440,989 $ 474,280 --------- ---------- --------- ----------
Schedule of non-cash investing and financing transactions: Unrealized gain (loss) on investments $ 111,183 $ (71,934) available for sale ---------- ---------- ---------- ---------- Purchase of equipment with capitalized $ 163,470 $ 0 lease obligation ---------- ---------- ---------- ----------
The Company and its subsidiaries furnish marketing, claims processing, electronic data processing, printing, consulting and related services under an exclusive agreement with an affiliated dental health service corporation, Dentcare Delivery Systems, Inc. ("Dentcare"). The Company operates a second plan through a wholly-owned subsidiary, International Healthcare Services, Inc. (together, "The Plans"). The Company also provides services to other plans on an administrative services only basis. OASYS Corporation (OASYS) is a wholly-owned subsidiary that markets document imaging systems, including hardware and software components.
Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries International Healthcare Services, Inc.; and OASYS Corporation. All intercompany transactions and accounts have been eliminated.
Cash and Cash Equivalents ------------------------- For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Fixed Assets ------------ Property and equipment are carried at cost. Depreciation for financial reporting purposes is on a straight-line basis over the estimated useful lives of the assets.
Revenue Recognition ------------------- The Company derives revenues from the exclusive service agreements it has entered into with the plans. Under these agreements, the service fee revenue permitted to the Company is determined by applicable state law (a percentage of premium revenue of the applicable Plan). Premium income and administrative service income are recognized on an as billed basis according to the contracts with each group. Sales of computer services are recognized when the sale is made.
Income Taxes ------------ The provision for income taxes include federal and state taxes currently payable and deferred taxes arising from temporary differences between financial and tax accounting income. These temporary differences principally result from additional deductions available through the use of accelerated depreciation methods for income tax accounting purposes.
Earnings Per Share ------------------ Primary earnings per share are computed based on the weighted average number of shares of common stock outstanding during each year.
Fully diluted earnings per share are computed based on an increased number of shares to be issued by the exercise of options.
Goodwill -------- Goodwill represents the excess of the cost to acquire one of the Company's subsidiaries over the fair value of its net assets at acquisition and is being amortized over a twenty-year period. Amortization expense charged to operations was $1,354 in 1995 and 1994.
The Company maintains cash balances with several banks, which frequently exceed federally insured limits and invests its cash primarily in U.S. Government backed securities.
Major Customers --------------- The Company received more than 10% of its revenues from two customers that accounted for approximately $4,500,000 of revenue in 1995 and 1994. The Company has receivables of approximately $80,000 from one customer which represents more than 10% of the Company's total receivables in 1995 and 1994.
Reclassification ---------------- Certain accounts relating to the prior year have been reclassified to conform to the current year presentation with no effect on previously reported net income. These reclassifications relate primarily to investments - available for sale and the corresponding equity component.
Depreciation and amortization expenses charged to operations was $218,890 and $247,762 in 1995 and 1994, respectively.
Less: current maturities 17,050 26,916 -------- -------- $77,533 $73,054 -------- -------- -------- --------
The following is an analysis of investment securities available for sale
All investments available for sale which are classified as current mature in 1996.
Future minimum lease payments for all leases at December 31, 1995 are as follows:
Year Ended December 31, Operating Capital ---------------------- --------- -------- 1996 239,420 182,364 1997 248,996 112,938 1998 258,956 43,514 1999 269,315 43,514 2000 280,088 10,878 Subsequent years 607,211 0 ---------- ---------- Total minimum lease payments: $ 1,903,986 393,208
The rent expense under the operating lease was $237,351 and $233,833 for the years ended December 31, 1995 and 1994, respectively.
The provision for income taxes varies from the federal statutory income tax rate due to the following at December 31,
Shares Under Option ------------------- 1995 1994 ------ ------ Outstanding - beginning of year 32,818 32,818 Granted during the year 0 0 Canceled during the year 0 0 Exercised during the year 0 0 ------ ------ Outstanding - end of year 32,818 32,818 ====== ======
At December 31, 1995 and 1994, there were 32,818 and 32,818 shares, respectively, excercisable at a price of $.60156250 per share.
On April 1, 1985, the Company adopted a non-qualified stock option plan. An aggregate of 100,000 shares of the Company's common stock have been reserved for issuance under this plan.
The following is a summary of transactions: Shares Under Option ------------------- 1995 1994 ----- ----- Outstanding - beginning of year 8,000 8,000 Granted during the year 0 0 Canceled during the year 0 0 Exercised during the year 0 0 -------- -------- Outstanding - end of year 8,000 8,000 ===== =====
On April 17, 1992, the Company reserved 1,500,000 shares of its common stock to be used under this plan. Both incentive stock options and non-qualified stock options, as defined under section 422 of the Internal Revenue Code, may be issued under this plan.
Outstanding - beginning of year 317,500 0 Granted during the year 317,500 317,500 Canceled during the year 317,500 0 Exercised during the year 0 0 --------- -------- Outstanding - end of year 317,500 317,500 ======= =======
Eligible, end of year for exercise currently at a price of $1.089 per share.
NOTE 10: DENTCARE DELIVERY SYSTEMS. INC. - --------------------------------------- On June 26, 1990, the Company advanced $250,000 to Dentcare Delivery Systems, Inc. (Dentcare) as part of a loan of $561,377 with a stated interest rate of 10% per year. The remainder of the loan was advanced over the eighteen-month period subsequent to July 1, 1990 in equal quarterly installments of $51,896.17. In addition, the Company advanced additional funds aggregating $111,761 under the same terms during 1992. No amounts have been advanced to Dentcare since 1992. Payment of principal and/or interest on the loan is subject to the approval of the Superintendent of Insurance of the State of New York and the availability of excess funds. Due to the uncertainty as to Insurance Department approval of payment of the interest, the Company has elected not to recognize any interest income in the financial statements at this time. Additionally, the Company expects to receive full payment of its loan to Dentcare Delivery Systems, Inc. As such, no allowance has been provided against this loan.
Estimated fair values of the Company's financial instruments are as follows at December 31:
Carrying Fair Carrying Fair Amount Value Amount Value ---------- ---------- ---------- ----------