SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-14236
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HEALTHPLEX, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 11-2714365
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
60 CHARLES LINDBERGH BLVD., UNIONDALE, NEW YORK 11553
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(ISSUER'S TELEPHONE NUMBER) (516) 542-2200
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SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(TITLE OF CLASS)
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 PURSUANT TO
ITEM 405 OF REGULATION S-B 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. [ ]
THE REGISTRANT'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE
$13,728,211.
AS AT APRIL 21, 1998, 3,590,082 SHARES OF COMMON STOCK OF THE
REGISTRANT WERE OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE
1,845,064 SHARES OF COMMON STOCK HELD BY NON-AFFILIATES AS OF
SUCH DATE WAS $3,690,128.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
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Healthplex, Inc. (the "Company" or "Healthplex") is a
Delaware corporation and the successor by merger of Dentshield,
Inc., a New York corporation organized on March 26, 1981. The
Company's address is Nassau West Corporate Center I, 60 Charles
Lindbergh Boulevard, Uniondale, New York 11553 and its telephone
number there is (516) 542-2200.
The Company renders marketing, claims processing, electronic
data processing, printing and related services to Dentcare
Delivery Systems, Inc. ("Dentcare"), a dental health-care plan
company, pursuant to an exclusive agreement. (See Item 12.
Certain Relationships and Related Transactions). The Company
also operates its own separate plan through a wholly-owned
subsidiary, International Healthcare Services, Inc. ("IHS," and
together with Dentcare, the "Plans"). The Company also provides
administrative services to certain unaffiliated dental plans on
an "administrative services-only" basis.
The Company's wholly-owned subsidiary, O.A.SYS. Corporation,
develops document imaging systems, including hardware and
software components, and markets these systems to hospitals,
insurance companies and small businesses. O.A.SYS. derives
revenues from consulting fees and software development. The
Company's majority-owned subsidiary, DHG, Inc., markets dental
plans.
A significant portion of the Company's revenues are derived
from its service arrangement with Dentcare and from the Company's
operation of IHS. The Company renders consulting, data systems,
claims processing, marketing, printing and other services to the
Plans pursuant to Service Agreements between the Company and each
of the Plans. The Company's Service Agreement with Dentcare
provides for compensation to the Company based upon various fee
components designed to allocate reasonably the various costs of
providing services. The fee may not exceed that permitted by
applicable law. See "Government-Regulation - General." Service
fee income is generally determined as a percentage of premium
income of the related Plan. The Company is responsible for
collection of bills and accounts receivable, establishing and
maintaining records and books of accounts, processing and payment
of claims, marketing, preparation of annual budgets (including
setting forth major operating objectives, anticipated revenues,
expenses, cash flow and capital expenditures), management of all
purchases and leases of equipment (with delegated authority to
commit for purchases or leases of up to $5,000), obtaining
general liability insurance, review of employee benefit plans,
design and implementation of utilization programs and cost
control measures, professionalism and quality control systems,
banking, contract negotiations and overall responsibility for
administrative functions.
Each Service Agreement is for a term of three years and is
automatically renewable for additional one-year periods upon
notice given two years in advance. Dentcare may terminate the
Service Agreement by furnishing written notice thereof to the
Company on or before the anniversary date of the Service
Agreement. Such termination would be effective two years after
the applicable anniversary date. The Service Agreements may be
terminated by either party, among other reasons, for cause upon
60 days prior written notice.
The Service Agreement with Dentcare ends automatically if
Dentcare's authority to operate a dental health service program
is terminated and ends on 15 days' written notice if the parties
determine that their best interests cannot be served by
modifications to the Service Agreement required by the applicable
State Insurance Department.
The Company also derives premium revenues from the pre-paid
dental plan operations of its wholly-owned subsidiary, IHS.
The Company also provides administrative services, primarily
claims processing and related electronic data processing
services, to unaffiliated dental plans. The administrative
services only business enables the Company to utilize the excess
capacity of its electronic data processing capabilities. The
Company typically charges a per claim handling fee for processing
these claims. The administrative services only business is
attractive since the Company is not subject to the same risks
which exist in those instances where the Company's affiliates
undertake an underwriting risk in providing fee-for-service or
capitation programs.
ELECTRONIC DATA PROCESSING SERVICES
As an integral part of its services, the Company renders
information and image processing services to its Plans and to
unaffiliated businesses. The Company's EDP functions are
provided in-house with a Data General 6240 Series Computer with
128 megabytes of memory and over 16 billion bytes of disk space.
The Company has developed its own software using an SQL Fourth
Generation Language and an Oracle Database. Over 60 terminals
are in use with unlimited expansion capabilities. The Company
also utilizes an Oasys document imaging system with PC
workstations and a Hewlett-Packard 144 disk optical autochanger.
MARKETING
The Company markets its services through its own employees
and through marketing arrangements with third parties. The
Company's marketing efforts traditionally have entailed
convincing groups to switch from existing dental plans to those
of the Plans or convincing groups to join a dental plan. This
marketing effort involves a two-tier process in which the Company
must first convince a group to contract with a Plan to make plan
participation available to the members of the group and, if this
external marketing is achieved, the Company must then convince
potential subscribers and enrollees to participate in the Plan.
These marketing efforts typically involve significant marketing
costs incurred over a period of several months prior to
realization of revenues derived from such efforts. In addition
to marketing efforts undertaken directly by the Company, the
Company's majority-owned subsidiary, DHG, Inc., in which the
Company owns a two-thirds interest, is principally engaged in the
marketing of dental plans, for which it earns commission income.
THE PLANS - GENERAL
Dentcare is a New York not-for-profit corporation. Pursuant
to its charter and by-laws, Dentcare has no stockholders or
members as such. IHS is a New Jersey for profit business
corporation and is wholly-owned by Healthplex.
Dentcare is authorized to furnish health expense indemnity
under Article 43 of the New York Insurance Law, and provides
prepaid dental insurance programs and fee-for-service programs to
groups and to individuals in New York State. Under a prepaid
plan, the dentist is compensated on the basis of the number of
enrolled patients, regardless of the extent of services
performed. Under a fee-for-service, or indemnity program, the
dentist is paid fees for the performance of various dental
procedures. Dentcare's primary service area consists of New York
City and surrounding counties.
IHS is authorized by the New Jersey Department of Banking
and Insurance to act as a "dental plan organization" in the State
of New Jersey. IHS provides prepaid dental plans to groups and
individuals and is a wholly-owned subsidiary of the Company. As
such, the consolidated financial statements of the Company
contained elsewhere herein include the financial statements of
IHS.
At April 17, 1998, Dentcare and IHS had 135,381 and 24,409
members, respectively, and the Company serviced 255,581 members
on an administrative service only basis.
PREPAID PLANS
Under the prepaid dental plans of both Dentcare and IHS,
monthly premiums are collected on behalf of Dentcare and IHS from
the groups and are paid to participating dentists, or providers,
after deduction of expenses paid by Dentcare or IHS or charged by
the Company in accordance with its Service Agreement. Such
payments to the provider are commonly referred to as capitation
fees. Under the Company's capitation fee program, the capitation
fee is a fixed monthly fee based only on the number of
subscribers enrolled with a particular provider without regard to
the number of patient visits or types of work performed. The
Company believes that the capitation fee concept provides
significant incentive for providers to practice preventive
dentistry. If the provider actively improves the dental health
of his patients, the provider's work load decreases, thereby
improving the provider's operating margins and profitability.
Specialized dental services, such as orthodontics,
endodontics, periodontics and oral surgery are provided through
specialists with whom the Company contracts on behalf of the
Plan.
Dentcare and IHS offer several different plans for
subscribers, principally groups such as unions, associations,
school systems, law enforcement agencies, municipalities and
pension benefit organizations. As of April 17, 1998, Dentcare
had 1,856 subscribing groups and IHS had 1,112 subscribing groups
for prepaid dental plan programs.
Under the prepaid plans of Dentcare and IHS there is no
pre-enrollment examination of the enrollee. The plans accept the
existing condition of each of the subscribers and their
dependents. There are no deductible amounts prior to coverage
under the plan, maximum limitation on coverage(s) provided under
the plan contract or pre-authorizations as commonly required by
indemnity insurance carriers for treatment. In addition, neither
the provider, group nor subscriber is burdened with submitting
insurance claim forms.
The Dentcare and IHS form of group dental agreements do not
cover fixed and removable prosthetic devices and orthodontic
services. However, Dentcare and IHS offer prosthetic and
orthodontic service options to groups through providers and
specialists with whom the applicable plan contracts, up to dollar
amounts specified in the individual plan. The standard
arrangement generally requires subscribers to share in the cost
of such services.
FEE-FOR-SERVICE PLAN
Dentcare is authorized to provide fee-for-service dental
plans in New York.
Under the fee-for-service dental plan operating in New York,
enrollees are entitled to reimbursement for certain dental
procedures performed based upon a specified schedule of fees for
services. Enrollees are entitled to select dentists of their
choice and are not restricted to providers participating in
Company managed plans.
Under its fee-for-service plans, Dentcare reimburses for all
types of dental services based upon specified schedules of fees
for services and the Company provides claims processing services
to facilitate reimbursement for services performed. Fee
schedules are provided to each subscriber with the subscriber's
plan contract. The schedules are filed with the New York
Insurance Department. Such schedules are subject to change at
such time as a subscriber's contract is renewed. The Company
undertakes all responsibility for claims processing and
professional review of claims presented for payment on behalf of
Dentcare.
PROVIDERS
Neither the Company, Dentcare nor IHS engages in the
practice of dentistry, providing of professional dental services
or the operation of dental offices or facilities. Dental
services are provided by practicing dentists, providers, who
enter into participating dentist agreements with Dentcare or IHS.
Under the standard participation agreement, the participating
dentist represents that he or she is a duly licensed dentist, has
professional malpractice liability insurance, agrees to provide
necessary dental services to enrollees and agrees not to
differentiate or discriminate in treatment of patients by reason
of their status as enrollees. The providers are compensated on a
monthly basis by payment of a capitation fee per enrollee equal
to proceeds of dental premiums less administrative expenses and
costs for specialty dental services.
The providers furnish dental services to enrollees at their
own dental facilities and may continue to treat their own
patients on a fee-for-service basis. The providers are regulated
by the Boards of Dental Examiners of their respective states of
practice.
QUALITY ASSURANCE PROCEDURES
Dentcare and IHS each has a Professional Standards Committee
("Standards Committee"), which is responsible for reviewing the
quality, appropriateness and costs of dental care delivered by
the providers to the enrollees. Each Standards Committee is
composed of several participating providers. The Committee
reviews the adequacy of the physical facilities, staffing and
equipment of each provider office. Prior to entering into a
contractual relationship with any provider, the Company
credentials all dentists to determine whether the potential
providers have adequate education, appropriate board
certification by the applicable Board of Dental Examiners and
proper licensing. See "Government Regulation." The Plans do not
accept providers who have had their licenses suspended or
revoked. The Committee also inspects the potential provider
facility to determine whether the facility, staffing and
equipment comply with minimum standards. A random sample of the
provider's dental records are reviewed to assure that records are
comprehensive and complete. The Committee performs periodic
dental audits and surveys of selected providers to determine the
quality and dollar value of care rendered by the provider to the
enrollees. The audits are based on review of patient dental
records and utilization and service reports. The results of the
dental audits are furnished to the provider in reports that
describe the scope of the review, problems and deficiencies,
suggestions for corrective actions and notification of reaudits
to determine the effectiveness of corrective actions which are to
be implemented by the Plan and/or the provider.
The Committee reviews the utilization of certain services by
the subscriber in relationship to the premium fees in order to
evaluate the adequacy of the capitation fees paid to the provider
and whether the services provided are being rendered in an
efficient and cost effective manner. The providers are required
to maintain utilization statistics of services rendered to the
Plans' enrollees which reports are collected on a monthly basis.
Rules and regulations under the applicable New York and New
Jersey statutes require internal review of dental care delivered
to the consumer. The procedures described above are believed by
management to be adequate to insure the quality and control of
dental services. Management also believes that the quality
assurance procedures which are set forth hereinabove are in
compliance with the statutes, rules and regulations which will
govern the prepaid fee-for-service dental plans which are
intended to be affiliated with and organized by the Company in
the future.
GOVERNMENT REGULATION
Prepaid dental plans and fee-for-service dental plans are
subject to statutes, rules and regulations in each state in which
a plan operates.
The applicable rules and regulations of New York and New
Jersey provide specific limitations on the dollar amount of
expenditures which the Company may charge its Plans for service
and other fees. The balance of premiums must be remitted to the
provider, as capitation fees or fees for specific procedures.
Under Article 43 of the New York Insurance Law, a dental
expense indemnity corporation such as Dentcare may not disburse
for all expenses other than benefit payments more than 20% for
the first $1,000,000 of annual premiums, declining by 1% for each
additional $5,000,000 or fraction thereof of additional premiums
to 15%.
Under the New Jersey Dental Plan Organization Act, IHS may
expend up to 20% of its income for general expenses, acquisition
expenses and miscellaneous taxes, licenses and fees.
The marketing, management, advertising, legal, accounting
and general administrative expenses charged by Healthplex to its
Plans are encompassed in the various expense limitations
described above.
In addition to regulation of the Company's business and
operations by statutes regulating prepaid dental plans and
fee-for-service dental plans, the practice of dentistry in the
United States is regulated by state statutes, rules and
regulations of state dental boards and voluntary associations. In
New York and New Jersey, respective Boards of Dental Examiners
regulate all dentists licensed to practice dentistry. Complaints
lodged against dentists regarding fitness to practice dentistry
are subject to review by the Board of Dental Examiners. These
Boards are authorized to withdraw a dentist's license if it deems
such action to be appropriate. Guidelines are also established
for dentists in connection with the manner in which they must
operate and advertise dental facilities.
Applicable regulations provide that a dentist can be denied
the right to act as a provider of dental services if the dentist
fails to meet the requisite standards pursuant to applicable
regulations and rules.
INSURANCE COVERAGE
Providers who contract with a Plan are required to maintain
malpractice insurance which provides coverage per individual
claim in an amount not less than $100,000 per person and $300,000
per year. In management's opinion this insurance coverage will
be sufficient to cover potential claims in light of the nature of
the services performed. Directors and officers of the Company
are covered by directors' and officers' indemnification
insurance. The Company also maintains customary casualty and
liability insurance.
COMPETITION
Management believes that its largest competitors are
traditional insurance carriers, including Metropolitan Life
Insurance Co., The Prudential Insurance Company of America, The
Guardian and Connecticut General Insurance Company Corp.
Management believes that most dental insurance coverage in
New York and New Jersey, as well as in the rest of the United
States, is provided through indemnity insurance. To date, such
dental insurance coverage has obtained substantially greater
market penetration than prepaid dental plans and is sponsored by
major insurance companies which have greater financial and other
resources than the Company. The Company believes that its
prepaid dental plans provide several advantages over traditional
indemnity or fee-for-service insurance programs.
Management believes that dental patients generally pay less
through prepaid dental plans than through indemnity insurance
companies since fee-for-service insurance, as customarily
provided by insurance carriers, generally has monetary limits on
its coverage and deductible amounts prior to coverage. In
addition, management believes that private dentists' charges are
generally higher than the co-payments charged by plan providers.
The Plans may also compete with HMOs which include dental
plans. In the New York and New Jersey areas, U.S. Healthcare,
Oxford and PruCare are currently offering prepaid dental plans.
There is no assurance that the prepaid and fee-for-service dental
plans of the Plans will obtain general market acceptance with
consumers, or that prepaid and fee-for-service dental plans will
be able successfully to compete against large commercial
insurance carriers.
EMPLOYEES
As of April 17, 1998, the Company had 75 full-time and seven
part-time employees. Seven employees are engaged in electronic
data process services, five in managerial positions, three in
marketing and 67 in general, administrative and support
positions. The employees of the Company are not subject to
collective bargaining agreements. The Company believes its labor
relations are good.
RECENT DEVELOPMENTS
On July 9, 1997, the Company entered into an agreement with
M.H. Meyerson & Co., Inc. ("Meyerson") pursuant to which Meyerson
would provide various investment banking services to the Company
over a five-year period through July 9, 2002. See Note 10 to the
Consolidated Financial Statement for a description of the terms
and highlights of such agreement.
On March 17, 1998, the Company's Common Stock was delisted
from the National Association of Securities Dealers ("NASD")
Automated Quotation ("NASDAQ") SmallCap Market and began trad-
ing on the NASD OTC Bulletin Board Service. See Item 5. Market
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for the Company's Common Equity and Related Stockholder Matters.
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ITEM 2. DESCRIPTION OF PROPERTY.
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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
$249,798, plus real estate taxes, for the rental year ended
January 31, 1998, with an increase of 4% each rental year
thereafter during the term of the lease.
ITEM 3. LEGAL PROCEEDINGS.
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There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries is a party or by which any
of their properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted during the fourth quarter of
fiscal 1997 to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS.
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The Company's Common Stock trades under the symbol HPLX. It
began trading in the over-the-counter market under the National
Association of Securities Dealers ("NASD") OTC Bulletin Board
service on March 17, 1998. Prior thereto, the Common Stock had
traded under the NASD Automated Quotation System (NASDAQ")
SmallCap Market.
The Company's shares of Common Stock were delisted from the
NASDAQ SmallCap Market as a result of the implementation by the
NASD of new listing standards requiring SmallCap Market companies
to have at least two independent directors and an independent
audit committee.
The following table sets forth the high and low bid prices
in the NASDAQ system for the Common Stock for each calendar
quarter indicated, as reported by NASDAQ. The prices represent
quotations between dealers and do not include certain mark-ups,
mark-downs or commissions, and do not necessarily represent
actual transactions.
Common Stock
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High Low
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Calendar 1997
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First quarter 2-1/32 1-7/32
Second quarter 1-3/4 1-9/16
Third quarter 2-9/16 1-17/32
Fourth quarter 1-13/16 1-9/16
Common Stock
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High Low
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Calendar 1996
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First quarter 1-1/4 25/32
Second quarter 3 1-1/8
Third quarter 2-5/16 1-11/32
Fourth quarter 1-5/8 1-1/16
Based upon information provided by the Company's transfer
agent, as of March 1, 1998, the Company had 99 stockholders of
record. The Company believes that there are in excess of 500
beneficial holders of the Company's Common Stock.
The Company has paid no dividends to date and it does not
anticipate paying dividends in the foreseeable future. It is
expected that the Company will retain earnings, if any, to
finance the development and expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS.
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For The Years Ended December 31, 1997 and 1996
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Results of Operations Revenue Overview
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Revenue increased by $974,820, or 7.6%, to $13,728,211 from
$12,753,391. Approximately $866,000 or 88.9%, of the increase
represented an increase in revenue from the Company's
administrative service income business. Such increase is the
result of a full year servicing major groups added during 1996.
The Company continues to emphasize its administrative service
business through focused marketing efforts targeting specific
entities.
The amounts for administrative service income, total service fee
income and total revenue reported herein for the fiscal year
ended December 31, 1996 have each been increased by $284,995 from
the amounts previously reported therefor. Such amount represents
the administrative service income of the Company s majority-owned
subsidiary, DHG, Inc. In previously issued financial statements,
the Company accounted for its two-thirds interest in this
subsidiary on the equity method. For fiscal 1997, the accounts
of this subsidiary have been fully consolidated with that of the
Company and its wholly-owned subsidiaries. The 1996 financial
statements have been revised accordingly to reflect the
components of the subsidiary s revenues, expenses and related
minority interest rather than the Company s proportionate share
of the subsidiary s net income which had previously been reported
as $10,333 of miscellaneous income in 1996. The revisions to
reclassify the components of the subsidiary's net income had no
effect on reported net income for fiscal 1996.
The following table illustrates the changes in revenue for the
years 1997 and 1996:
Increase
For the years ended December 31, 1997 1996 (Decrease)
-------------------------------- ---- ---- ----------
Service fee income $ 2,453,764 $ 2,438,342 $ 15,422
Administrative service income 4,128,263 3,262,102 866,161
Total service fee income ------------ ------------ -----------
Premium income 6,582,027 5,700,444 881,583
Sales - computer service 7,139,236 7,026,125 113,111
Total 6,948 26,822 (19,874)
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$ 13,728,211 $ 12,753,391 $ 974,820
============ ============ ===========
Results of Operations Gross Margin, Expenses, & Income
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Gross margin on revenue increased by $510,250, or 11.0%, to
$5,139,884 during 1997 as compared to $4,629,634 during 1996.
All of the increase in gross margin was due to the increase in
gross margin from service fee income of $545,039 due to the
continuing expansion of the administrative service business, less
minor decreases in the other components of gross margin.
The amount of gross margin reported for 1996 has been increased
by $284,995 from that previously reported, which revision is due
to the inclusion of DHG, Inc. s revenues for such year. There
are no costs of revenues reported therefor; expenses and related
overhead are included in selling, general and administrative
expense.
The following table illustrates the changes in gross margin for
the years 1997 and 1996:
Increase
For the years ended December 1997 1996 (Decrease)
31, ---- ---- ----------
Service fee income $ 3,980,932 $ 3,435,893 $ 545,039
Premium income 1,153,435 1,174,351 (20,916)
Sales - computer service 5,517 19,390 (13,873)
Total ------------ ------------ -----------
$ 5,139,884 $ 4,629,634 $ 510,250
============ ============ ===========
Selling, general and administrative expenses increased by
$386,426, or 8.9%, to $4,747,859 in 1997 from $4,361,433 in 1996,
primarily as a result of $437,988 in increased payroll related
costs incurred to meet the demands of the expanding
administrative service business. The amount of selling, general
and administrative expenses reported for 1996 has been increased
by $269,503, from that previously reported due to the inclusion
of DHG, Inc.'s expenses for such year.
Pre-tax income increased by $128,792, or 38.1%, to $466,849 in
1997 from $338,057 in 1996, principally as a result of an
increase in administrative service business. The amount reported
for 1996 has been increased by $5,159 from that previously
reported. Such amount represents the one-third minority interest
in DHG, Inc. which is deducted after the provision for income
taxes.
The provision for income taxes increased by $52,910, or 34.1%, to
$207,980 in 1997 from $155,070 in 1996. Due to an available net
operating tax loss carryforward, DHG, Inc. had no income tax
expense in either year.
As a result, net income increased by $79,673 or 44.8% to $257,501
in 1997. Net income of $177,828 for 1996 was not affected by the
inclusion of DHG, Inc.
Liquidity and Capital Resources
-------------------------------
The Company's cash, cash equivalents and short term investments
increased by $284,318 to $1,585,482 at December 31, 1997 from
$1,301,164 at December 31, 1996. The amount reported at December
31, 1996 has been increased by $75,769 from that previously
reported due to the consolidation of the Company's two-thirds
owned subsidiary, DHG, Inc. Excluding its cash balance,
consolidation of such subsidiary at December 31, 1996 resulted in
a reduction in net consolidated current assets of $16,664 and an
increase in net consolidated fixed assets of $642. Cash and cash
equivalents, exclusive of short-term investments increased by
$440,600 to $784,709. Earnings before depreciation and deferred
items amounted to $514,023 for the year ended December 31, 1997
and were the principal reason for the $544,734 of cash flows
provided by operating activities. In addition, these same
elements continue to be the Company's primary source of
liquidity.
The Company used $137,931 to purchase additional computer and
telephone equipment, providing more efficient use for the
Company's expansion of business. Cash inflows of $188,581 were
provided from the sale of investments. Other net inflows of
$12,442 brought the total cash provided by investment activities
to $63,092.
The Company used $172,671 to repay long-term debt. Issuance of
capital stock from the exercise of stock options resulted in
proceeds of $5,445 to the Company, bringing the total used in
financing activities to $167,226.
The Company leases approximately 10,200 square feet of executive
office space in Uniondale, New York, on a ten-year lease that
expires in 2003. The Company currently utilizes 100% of its
existing space and is actively seeking additional space at the
same location. The existing lease provides for current base
rental of $249,798, which increases by 4% annually throughout
the lease term, as well as additional escalations to cover
increases in real estate taxes.
The Company's receivable from Dentcare, together with interest
thereon, if any, can only be repaid with the approval of the New
York State Insurance Department. As such, the Company has not
recognized any interest income on such loan since its inception.
Despite the illiquidity of this receivable, the Company believes
it will ultimately be repaid based on its assessment of
Dentcare's financial condition. (See Item 12. Certain
Relationships and Related Transactions, and Note 11 to the
Consolidated Financial Statements).
The Company anticipates, based on management's internal forecasts
and assumptions, that available cash and cash flows from
operations will be more than sufficient to satisfy the Company's
cash requirements for 1998. Heretofore, the Company has invested
excess cash in various short and long-term bond funds, U.S.
Treasury Notes and other governmental obligations. (See Note 5 to
the Consolidated Financial Statements). On July 9, 1997, the
Company entered into an investment banking services agreement
with an investment banker to advise the Company regarding
potential acquisition or merger candidates and to assist in
structuring and/or obtaining financing necessary to consummate
such a transaction, in excess of that which could be financed
internally or by issuance of new shares of the Company's common
stock. As of April 21, 1998, no potential acquisition or merger
candidates have been identified.
Impact of New Accounting Pronouncements
---------------------------------------
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 123, Accounting for
Stock-Based Compensation , which became effective for fiscal
1996. SFAS No. 123 requires disclosures of stock-based
compensation arrangements with employees and encourages but does
not require cost of compensation to be measured by the fair value
of the equity instrument awards. Under SFAS No. 123, companies
may continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the instrument
awarded. The Company will continue to apply APB Option 25 to its
stock-based compensation awards granted to employees and will
disclose the required pro-forma effect on net income and earnings
per share in any year when such awards are granted. The stock
options granted in 1996 are not considered compensatory due to
the conditions restricting their exercise. (See Note 9 to the
Consolidated Financial Statements).
SFAS No. 123 also applies to stock options or warrants issued
after December 15, 1995 to non-employees in consideration of
goods or services. Such transactions are required to be
accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued,
whichever is more reliably measurable. In connection with the
investment banking services agreement referred to above, the
Company issued to the investment banker 175,000 common stock
purchase warrants, exercisable at $2.25 per share for a four-year
period from July 6, 1998 through July 9, 2002.
The fair value of such warrants has been measured using a Black-
Scholes option pricing model at $1.59 per warrant. Deferred
investment banking fees aggregating $293,250, including $15,000
paid in cash, have accordingly been recognized with an offset of
$278,250 to additional paid-in capital for the non-cash portion
thereof. Such fees are being amortized over the five-year life
of the agreement. (See Note 10 to the Consolidated Financial
Statements).
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, Earnings per
Share which became effective in the fourth quarter of fiscal
1997. SFAS No. 128 changes prior practice to require that
earnings per share be computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share are reported when applicable
to reflect the potential dilution that could occur if outstanding
options and warrants to purchase common stock were exercised.
SFAS No. 128 is required to be adopted retroactively; however,
such adoption did not result in any change to the Company's
previously reported earnings per share for fiscal 1996. In 1997
and 1996, the Company's common stock options give rise to
dilutive common shares; however in neither year were such
dilutive shares sufficient to result in reportable dilution as
illustrated in the following table:
1997 1996
---- ----
Net income $ 257,501 $ 177,828
============ ===========
Weighted average shares of 3,586,534 3,585,587
common stock outstanding ============ ===========
Earnings per share $ .07 $ .05
============ ===========
Additional dilutive shares
resulting in no reportable 131,485 81,471
dilution ============ ===========
ITEM 7. FINANCIAL STATEMENTS.
--------------------
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Independent Auditors' Report 18
Consolidated Balance Sheet 19
Consolidated Statements of Income 20
Consolidated Statements of Stockholders' Equity 21
Consolidated Statements of Cash Flows 22
Notes to Consolidated Financial Statements 23 to 35
<PAGE>
LIBERO & KAPPEL
CERTIFIED PUBLIC ACCOUNTANTS
57 Old Country Road, Westbury, New York 11590
Telephone (516) 333-5511 0 Fax (516) 333-5621
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
Healthplex, Inc.
60 Charles Lindbergh Boulevard
Uniondale, New York 11553
We have audited the consolidated balance sheet of Healthplex,
Inc. and Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the years in the two-year period ended December
31, 1997. 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.
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 consolidated
financial position of Healthplex, Inc. and Subsidiaries as of
December 31, 1997, and the consolidated results of their
operations and cash flows for each of the years in the two-year
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Libero & Kappel
Westbury, New York
March 20, 1998
<PAGE>
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
AS OF DECEMBER 31, 1997
-----------------------
ASSETS
------
Current assets:
Cash and cash equivalents $784,709
Investments-available for sale (Note 5) 800,773
Accounts receivable 541,836
Notes receivable-current portion (Note 4) 33,331
Other receivables 40,832
Prepaid expenses 6,827
-----------
Total current assets 2,208,308
Fixed assets, net of depreciation (Notes 2 & 3) 1,000,509
Note receivable - less current portion (Note 4) 78,516
Investments-available for sale (Note 5) 597,856
Security deposits 55,406
Deferred investment banking fees (Notes 2 & 10) 263,925
Goodwill, less accumulated amortization of $13,540 (Note 2) 13,543
Loan to Dentcare Delivery Systems, Inc. (Note 11) 515,820
-----------
$ 4,733,883
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
--------------------
Accounts payable $ 395,536
Current portion of capitalized lease obligations (Notes 2 &
6) 134,988
Accrued expenses and taxes 278,883
Due to Dentcare Delivery Systems, Inc. 161,328
Income taxes payable (Notes 2 & 7) 188,422
Deferred rent payable (Notes 2 & 6) 2,594
---------
Total current liabilities 1,161,751
Capitalized lease obligations, less current portion (Notes 2
& 6) 124,794
Deferred rent payable (Notes 2 & 6) 122,143
Deferred income taxes payable (Notes 2 & 7) 61,735
-----------
Total liabilities 1,470,423
-----------
Commitments and Contingencies (Notes 6, 8, 9, 10 & 11)
Minority interest (Note 1) 10,159
-----------
Stockholders' equity:
Common stock $.001 par value, authorized 20,000,000 shares;
issued 3,591,682 3,592
Paid-in capital 2,255,018
Unrealized loss on investments-available for sale (Note 5) (44,871)
Retained earnings 1,042,212
Less: Treasury stock, 1,600 shares (Note 2) 2,650
-----------
Total stockholders' equity 3,253,301
-----------
$ 4,733,883
===========
The accompanying notes are an integral part of the financial statements.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
1997 1996
-------------- -------------
(Reclassified)
(Note 1)
Revenues
--------
Service fee income (Note 11) $ 2,453,764 $ 2,438,342
Administrative service income 4,128,263 3,262,102
----------- -----------
Total service fee income 6,582,027 5,700,444
Premium income 7,139,236 7,026,125
Sales-computer services 6,948 26,822
----------- -----------
Total revenues 13,728,211 12,753,391
----------- -----------
Cost of Revenues
Direct expenses - related to service
fees 2,601,095 2,264,551
Dental expenses - related to premium
income 5,985,801 5,851,774
Cost of sales-computer services 1,431 7,432
----------- -----------
8,588,327 8,123,757
----------- -----------
Gross Margin on Revenues 5,139,884 4,629,634
----------- -----------
Selling, general and
administrative expense 4,747,859 4,361,433
Interest expense 41,642 49,605
----------- -----------
4,789,501 4,411,038
----------- -----------
Income from operations 350,383 218,596
Other income
Interest income 101,162 99,270
Dividend income 14,450 15,591
Gain on sale of securities 854 4,600
----------- -----------
Income before income
taxes and minority
interest 466,849 338,057
Provision for income taxes (Notes 2
& 7) 207,980 155,070
----------- -----------
Income before minority interest 258,869 182,987
Minority interest (Note 1) 1,368 5,159
----------- -----------
Net income $ 257,501 $ 177,828
=========== ===========
Earnings per share (Note 2) $ 0.07 $ 0.05
=========== ===========
Weighted average number of shares
of common stock outstanding 3,586,534 3,585,587
=========== ===========
The accompanying notes are an integral part of the financial statements.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
UNREALIZED
GAIN (LOSS)
COMMON PAID-IN ON
STOCK CAPITAL INVESTMENTS
----- ------- -----------
Balance, January 1, 1996 $ 3,587 $ 1,971,328 $ 39,249
------------------------
Purchase of treasury stock
(Note 2) 0 0 0
Net income for the year
ended December 31, 1996 0 0 0
Unrealized loss on
investments available for
sale (Note 5) 0 0 (79,485)
------- ----------- ---------
Balance, December 31, 1996 3,587 1,971,328 (40,236)
--------------------------
Exercise of 5,000 stock
options at $1.089 per share
(Note 9) 5 5,440 0
Common stock purchase
warrants issued for
investment banking services
(Note 10) 0 278,250 0
Net income for the year
ended December 31, 1997 0 0 0
Unrealized loss on
investments
available for sale
(Note 5) 0 0 (4,635)
------- ----------- ---------
Balance, December 31, 1997 $ 3,592 $ 2,255,018 $ (44,871)
======= =========== =========
RETAINED TREASURY
EARNINGS STOCK TOTAL
-------- ----- -----
Balance, January 1, 1996 $ 606,883 $ 0 $ 2,621,047
------------------------
Purchase of treasury stock
(Note 2) 0 (2,650) (2,650)
Net income for the year
ended December 31, 1996 177,828 0 177,828
Unrealized loss on
investments available for
sale (Note 5) 0 0 (79,485)
----------- -------- -----------
Balance, December 31, 1996 784,711 (2,650) 2,716,740
Exercise of 5,000 stock
options at $1.089 per share
(Note 9) 0 0 5,445
Common stock purchase
warrants issued for
investment banking services
(Note 10) 0 0 278,250
Net income for the year
ended December 31, 1997 257,501 0 257,501
Unrealized loss on
investments
available for sale
(Note 5) 0 0 (4,635)
----------- -------- -----------
Balance, December 31, 1997 $ 1,042,212 $ (2,650) $ 3,253,301
=========== ======== ===========
The accompanying notes are an integral part of the financial statements.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------------------------------
1997 1996
---- ----
(Restated)
(Note 1)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities:
Net income $257,501 $177,828
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of investments (854) (4,600)
Depreciation and amortization 231,788 222,001
Deferred rent expense 7,368 16,944
Deferred income tax provision (benefit) (13,327) 14,056
Deferred investment banking fees 29,325 0
Minority interest 1,368 5,159
(Increase) decrease in:
Accounts receivable (154,700) 9,626
Other receivables (11,854) (6,006)
Prepaid expenses 3,828 (10,655)
Increase (decrease) in:
Accounts payable (31,358) (32,833)
Accrued expenses and taxes 172,638 (52,864)
Due to Dentcare Delivery Systems, Inc. (3,366) 30,495
Income taxes payable 56,377 79,359
-------- --------
Net cash provided by operating activities 544,734 448,510
-------- --------
Cash flows from investing activities:
Capital expenditures (137,931) (135,903)
Proceeds from sale of investments 188,581 146,804
Purchase of investments 0 (362,928)
Repayments of secured note receivable 18,458 17,056
Loans (made to) repaid from officers, net 33,334 (86,112)
Increase in security deposits (24,350) (6,918)
Investment banking fees (15,000) 0
-------- --------
Net cash provided by (used in) investing
activities 63,092 (428,001)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (172,671) (174,930)
Proceeds from exercise of stock options 5,445 0
Purchase of treasury stock 0 (2,650)
-------- --------
Net cash used in financing activities (167,226) (177,580)
-------- --------
Net increase (decrease) in cash 440,600 (157,071)
Cash and cash equivalents at beginning of year
(Note 1) 344,109 501,180
-------- --------
Cash and cash equivalents at end of year $784,709 $344,109
======== ========
Supplemental cash flow disclosures (Note 13)
Cash paid during the year for:
Interest $ 41,642 $ 49,605
======== ========
Income taxes $162,351 $ 59,925
======== ========
The accompanying notes are an integral part of the financial statements.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
-----------------------------------------------
Organization
------------
The Company and its subsidiaries furnish marketing, claims processing,
electronic data processing, printing, consulting and related services under
an exclusive agreement with a contractually affiliated dental plan service
corporation, Dentcare Delivery Systems, Inc. ("Dentcare"). The Company
operates its own plan through its 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. DHG,
Inc. is a majority (two-thirds) owned subsidiary engaged in marketing
dental plans.
Most of the Company's business activity is with customers located in New
York and New Jersey. A significant portion of the revenues that the
Company reports are derived from the Plans. The Company has entered into
service agreements with the Plans, subject to provisions providing for
annual renewal. The termination of the service agreements would have a
material adverse effect on the business of the Company.
Basis of Presentation
---------------------
The consolidated financial statements presented herein include the accounts
of the Company, its wholly-owned subsidiaries, International Healthcare
Services, Inc. and OASYS Corporation, and its majority-owned subsidiary,
DHG, Inc. All intercompany balances and transactions have been eliminated.
In previously issued financial statements, the majority-owned subsidiary,
DHG, Inc., was reported under the equity method of accounting. The
statement of income for fiscal 1996 has been reclassified to reflect the
revenues and expenses (and related minority interest) of this subsidiary
(rather than the single amount for the Company's two-thirds interest in the
subsidiary's net income previously presented) so as to conform to the
consolidated presentation for fiscal 1997. Such change had no effect on
reported net income for fiscal 1996. The consolidated statement of cash
flows for fiscal 1996 has been restated to include the cash balances and
cash flows of this subsidiary.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
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.
Allowance for Doubtful Accounts
-------------------------------
The Company's credit experience indicates its accounts receivable to be
fully collectible; accordingly, no allowance for doubtful accounts is
required.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------
Fixed Assets and Depreciation
-----------------------------
Property and equipment are carried at cost. Depreciation for financial
reporting purposes is provided on the straight-line basis over the
estimated useful lives of the assets.
Expenditures constituting maintenance and repairs are charged to operations
as incurred. Major expenditures, renewals and betterments are capitalized
and depreciated over their useful life. At the time properties are retired
or otherwise disposed of, appropriate adjustments are made in property
accounts and the gain or loss is reflected in operations.
Leases
------
Leases which transfer substantially all of the risks and benefits of
ownership are classified as capital leases, and assets and liabilities are
recorded at amounts equal to the lesser of the present value of the minimum
lease payments or the fair value of the leased properties at the beginning
of the respective lease terms. Such assets are depreciated in the same
manner as owned assets. Interest expense relating to the lease liabilities
is recorded to effect constant rates of interest over the terms of the
leases.
Leases which do not meet the above criteria are classified as operating
leases and the related rentals are charged to expense on the straight-line
method. Such method allocates the total base rentals (including scheduled
increases) evenly over the entire term of the lease. The amounts of rent
expense recognized in excess of the base rentals actually payable are
reported as deferred rent payable.
Deferred Investment Banking Fees
--------------------------------
Deferred investment banking fees are amortized over the five-year life of
the related contractual agreement (See Note 10).
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 each of 1997 and 1996.
Treasury Stock
--------------
Treasury stock, acquired by the Company in the open market in April of
1996, is accounted for at cost.
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.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------
Stock Options and Warrants
--------------------------
The Company, consistent with generally accepted accounting principles,
accounts for stock options pursuant to the intrinsic value method specified
by Accounting Principles Board Opinion No. 25., "Accounting for Stock
Issued to Employees." Under this method, compensation cost is not
recognized as long as the exercise price of stock equals or exceeds the
fair value of the underlying stock on the date of grant. In October 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation,"
("SFAS No. 123"). SFAS No. 123 requires that the fair value of stock
options be measured on the date of grant using an applicable statistically-
based, market-sensitive, computerized financial model. However, this
pronouncement allows companies to continue to account for stock options
under the previous intrinsic value method as long as they disclose the pro-
forma effects of the new method as if it had been adopted. (See Note 9).
SFAS No. 123 also applies to all transactions entered into after December
15, 1995 in which goods or services received from non-employees are the
consideration for the issuance of equity instruments. Such transactions
are accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. (See Note 10).
Income Taxes
------------
The provision for income taxes includes federal and state taxes currently
payable and deferred taxes arising from the effects of temporary
differences between financial reporting and income tax accounting. These
temporary differences arise principally from the use of accelerated
depreciation methods for income tax accounting purposes and the straight-
lining of rent expense and the recording of deferred investment banking
fees for financial reporting purposes.
Earnings Per Share
------------------
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which
superseded Accounting Principles Board Opinion No. 15. Under SFAS No. 128,
earnings per share is computed by dividing net income by the weighted-
average number of common shares outstanding during the period. Diluted
earnings per share are reported when applicable to reflect the potential
dilution that could occur if outstanding options and warrants to purchase
common stock were exercised. SFAS No 128 is required to be adopted
retroactively; however, such adoption did not result in any change to the
Company's previously reported earnings per share for fiscal 1996.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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 reporting period. Actual results could differ from those
estimates.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 3: FIXED ASSETS
---------------------
Fixed assets at December 31, 1997 consist of:
Furniture, fixtures and equipment $ 763,257
Equipment under capitalized leases 1,008,844
Leasehold improvements 39,395
----------
1,811,496
Accumulated depreciation and amortization,
including $471,559 applicable to
capitalized leases 810,987
----------
$1,000,509
==========
The annual depreciation rates used by the Company are as follows:
Furniture, fixtures & equipment 5 - 8 Years
Capitalized leased equipment 8 Years
Leasehold improvements 5 Years
Depreciation and amortization expenses charged to operations was $230,434
and $220,647 in 1997 and 1996, respectively.
NOTE 4: NOTES RECEIVABLE
-------------------------
Notes receivable at December 31, 1997 consist of:
Secured installment note receivable from the
buyer of a former subsidiary, due in monthly
payments of $2,000 including interest at 10% per
annum, through August 1, 1999. $ 59,069
Unsecured installment notes receivable from the
Company's co-chief executive officers, due in
monthly payments of $2,778 plus interest at prime
plus 2% per annum, through July 1, 1999. 52,778
-------
111,847
Less: Current maturities 33,331
-------
$ 78,516
========
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 5: INVESTMENTS
--------------------
Investment securities consist of bond funds, United States Treasury Notes
and other governmental obligations with a maturity of more than three
months when purchased. The Company's investment securities are classified
as "available-for-sale." Accordingly, unrealized gains and losses are
excluded from earnings and reported in a separate component of
stockholders' equity. Realized gains or losses are computed on specific
identification of the securities sold.
Investment securities at December 31, 1997 consist of:
Bond funds $ 656,438
U.S. Treasury Notes 665,601
Other governmental obligations 76,590
----------
Total 1,398,629
Less: Portfolio classified as current 800,773
----------
Non-current portfolio $ 597,856
==========
The following is an analysis of investment securities
available for sale:
Balance at amortized cost $1,443,500
Gross unrealized losses (44,871)
----------
$1,398,629
==========
NOTE 6: LEASES
---------------
The Company leases executive and administrative office space and equipment
under leases expiring at various dates through 2003. The Company has
classified its lease of executive and administrative office space as an
operating lease. This lease provides for an annual increase of 4%
throughout the entire term of the lease.
The Company capitalized its equipment leases and depreciates them over the
useful life of the assets. The corresponding lease obligations reflect the
present value of the future rental payments, discounted at the interest
rate implicit in the lease:
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 6: LEASES (CONTINUED)
---------------------------
Future minimum lease payments for all leases at December 31, 1997 are as
follows:
Year Ending December 31, Operating Capitalized
------------------------ --------- -----------
1998 $258,956 $162,122
1999 269,315 122,056
2000 280,088 29,586
2001 291,292 0
2002 302,943 0
2003 12,976 0
---------- ----------
Total minimum lease payments: $1,415,570 313,764
==========
Less amount representing interest 53,982
----------
Present value of net minimum lease payments 259,782
Less current portion of obligations under
capital leases 134,988
----------
Capitalized lease obligations, less current
portion $ 124,794
==========
The rent expense under the operating lease was $273,569 and $260,196 for
the years ended December 31, 1997 and 1996, respectively.
NOTE 7: INCOME TAXES
---------------------
The provision for income taxes consists of the following:
1997 1996
---- ----
Current:
Federal $155,998 $106,871
State 65,309 34,143
-------- --------
Total current 221,307 141,014
-------- --------
Deferred:
Federal (3,332) 10,542
State (9,995) 3,514
-------- --------
Total deferred (13,327) 14,056
-------- --------
Total provision for income taxes $207,980 $155,070
======== ========
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 7: INCOME TAXES - CONTINUED
---------------------------------
The provision for income taxes varies from the federal statutory income tax
rate due to the following:
1997 1996
---- ----
Federal statutory rate applied to pre-tax income 34.0 % 34.0 %
State income taxes, net of federal tax benefit 7.8 7.4
Other, including the effect of non-taxable
income and non-deductible expense 2.7 4.5
---- ----
44.5 % 45.9 %
==== ====
The tax effects of temporary differences that give rise to deferred tax
assets (none of which required a valuation allowance) and deferred tax
liabilities at December 31, 1997 as well as the components of the deferred
income tax provision (benefit) in fiscal 1997 and 1996 are as follows:
Assets/(Liabilities) Provision/(Benefit)
------------------- -------------------
December 31, 1997 1997 1996
----------------- ---- ----
Assets (Non-current)
Deferred investment
banking fees $ 11,730 $ (11,730) $ 0
Deferred rent payable $ 49,895 (2,947) (6,778)
--------
Sub-total 61,625
Liabilities (Non-current)
(123,360) $ 1,350 20,834
Fixed assets -------- -------- --------
$(61,735) $(13,327) $ 14,056
Net deferred income taxes ======== ======== ========
NOTE 8: COMMITMENTS AND CONTINGENCIES
--------------------------------------
Concentration of Credit Risk
----------------------------
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.
Concentrations of credit risk with respect to accounts receivable, with one
exception discussed below, are limited due to the large number of customers
comprising the Company's customer base. The Company does not require
collateral from its customers.
Major Customers
---------------
The Company's two largest customers accounted for approximately 18% and 16%
of total revenues in 1997 and approximately 19% and 17% of total revenues
in 1996. The Company has receivables from two customers which represent
approximately 25% and 16% of accounts receivable in 1997, respectively.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8: COMMITMENTS AND CONTINGENCIES - CONTINUED
--------------------------------------------------
Employment Agreements
---------------------
On October 3, 1984, the Company entered into employment agreements with
Drs. Stephen J. Cuchel, Martin Kane and Bruce Safran, each a founder,
principal stockholder, executive officer and director of the Company.
These agreements may be terminated by either party upon thirty days written
notice. Pursuant to these agreements, Drs. Cuchel, Kane and Safran each
devote substantially all of their time and efforts to the business of the
Company.
Employee Benefit Plan
---------------------
The Company has adopted a 401(K) plan which allows employees to defer a
percentage of their wages. The plan requires the Company to match 25% of
employee deferrals up to 5% of the employee's wages. The Company's
matching contribution was approximately $13,400 in 1997 and $13,000 in
1996.
NOTE 9: STOCK OPTIONS
----------------------
The Company has stock options outstanding pursuant to the following four
stock option plans and one free-standing stock option agreement:
1985 Incentive Stock Option Plan
1985 Non-Qualified Stock Option Plan
1992 Stock Incentive Plan
1992 Director Stock Incentive Plan
1994 Non-Qualified Stock Option Agreement
Each of the four plans provide that exercise prices of options granted
thereunder must equal or exceed the fair value of the underlying stock at
the date of grant. Options under any plan can not be granted after ten
years from the date the plan was adopted. None of the options granted have
vesting requirements. In order to receive favorable treatment under
Section 422 of the Internal Revenue Code, shares issued upon exercise of
qualified options can not be sold by the optionee until the later of two
years from the date of grant or one year from the date of exercise. The
exercise price of qualified options granted to 10% or more shareholders may
not be less than 110% of the fair value of the underlying stock at the date
of grant. Such options may be exercised for a five-year period only.
No further options may be granted under the 1985 Plans. The only options
outstanding thereunder are 32,818 incentive options exercisable at
$0.6015625 per share through July 14, 2002. There has been no grant,
exercise, cancellation or forfeiture of any options under the 1985 Plans
during the two-year period ended December 31, 1997; however, 8,000 non-
qualified options, exercisable at $0.6015625 per share, expired unexercised
on July 14, 1997.
The 1992 Stock Incentive Plan provides for the grant of up to 1,500,000
qualifying and non-qualifying options. There are presently 312,500 options
outstanding under this plan, of which 182,500 and 130,000, respectively,
are exercisable at prices of $1.089 and $1.1979 per share, with respective
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
----------------------------------
exercise terms of ten and five years. On September 17, 1997, 5,000
qualifying options under this plan were exercised at $1.089 per share.
There has been no other activity with respect to options under this plan
during the two-year period ended December 31, 1997.
The 1992 Director Stock Incentive Plan provides for the grants of up to
500,000 non-qualifying options. There are presently 55,000 options
outstanding under this plan of which 45,000 and 10,000, respectively, are
exercisable at $1.1979 and $1.089 per share, with respective exercise terms
of five and ten years. There has been no activity with respect to options
under this plan during the two-year period ended December 31, 1997.
The 1994 Non-Qualified Stock Option Agreement granted to a consultant of
the Company a non-qualified option to purchase 8,000 shares. Such options
are presently exercisable at $1.089 per share until November 27, 2005.
On June 11, 1996, 500,000 conditional options were granted under the 1992
Stock Incentive Plan at exercise prices of $1.6201 for 300,000 shares with
a ten-year exercise period and $1.7821 for 200,000 shares with a five-year
exercise period. However, these options are only exercisable in the event
of a sale or merger of the Company to or with an unaffiliated party.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Statement No. 123, "Accounting for Stock-Based Compensation," requires use
of option valuation models to determine fair value. Pro-forma information
regarding net income and earnings per share is required by Statement 123 in
any year in which compensatory stock options are granted to employees and
is reported as if the Company had accounted for such stock options under
the fair value method of that statement. The conditional options granted
in 1996 are not susceptible of fair value measurement due to the
impossibility of quantifying their likelihood of being exercised;
accordingly, they are not considered to be stock options giving rise to
compensation expense as defined by the Statement. (See Note 10).
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
---------------------------------
A summary of option activity and related information for the years ended
December 31, 1997 and 1996 is as follows:
1997 1996
-------------------------- ---------------------
Qualifying Weighted Qualifying Weighted
and Non- Average and Non- Average
Qualifying Exercise Qualifying Exercise
Options Price Options Price
---------- -------- ---------- ---------
Outstanding,
beginning of year 921,318 $1.4115 421,318 $1.0870
Granted during year (1) 0 0 500,000 1.6849
Exercised during year 5,000 1.0890 0 0
Expired during year 8,000 0.6016 0 0
------- ------- ------- -------
Outstanding, end of year 908,318 $1.4204 921,318 $1.4115
======= ======= ======= =======
Exercisable, end of year 408,318 $1.0965 421,318 $1.0870
======= ======= ======= =======
Weighted average
fair value of
option granted
during the
year:
Exercise price
equals market
price at date N/A N/A (1)
of grant
Exercise price
exceeds
market price at N/A N/A (1)
date of grant
All options
granted N/A N/A (1)
during the year
(1) The 500,000 options granted on June 11, 1996 are only exercisable in
the event of a sale or merger of the Company to or with an
unaffiliated party. Their fair value is accordingly not susceptible
of measurement and they are not considered compensatory. (See Note
10).
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 9: STOCK OPTIONS - CONTINUED
---------------------------------
The weighted average remaining life and exercise price of options
outstanding at the end of 1997 is as follows:
Weighted Average
-------------------
Number
of Options Remaining Exercise
Outstanding Life Price
----------- --------- -------
Qualifying 1985 Plan options 32,818 4.5 yrs $0.6016
Other options granted prior to 1996 375,000 5.6 yrs 1.1398
-------
All options granted prior to 1996,
all of which are exercisable 408,318 5.5 yrs 1.0965
Options granted in 1996, none of
which are exercisable 500,000 6.5 yrs 1.6849
Options granted in 1997 0
-------
All options outstanding 908,318 6.0 yrs 1.4204
=======
NOTE 10: DEFERRED INVESTMENT BANKING FEES
-----------------------------------------
On July 9, 1997 the Company entered into an agreement with an investment
banking firm whereby such firm would provide various investment banking
services to the Company over a five-year period through July 8, 2002. The
range of services contemplated includes assistance in identifying merger
and acquisition candidates and sources of private and institutional funds,
and planning, structuring, strategic and other advisory services. The
agreement specified that in addition to the initial consideration agreed to
by the Company, the investment banker would receive specific additional
compensation based on future consummated transactions in amounts to be
negotiated consistent with industry practice.
The initial consideration consisted of $15,000 in cash and 175,000 common
stock purchase warrants all exercisable at $2.25 per share. Rights to
exercise 100,000 of the warrants became irrevocable upon the signing of the
agreement; rights to exercise the remaining warrants vest nine months after
the signing of the agreement. The warrants may be exercised over a four-
year period from July 6, 1998 through July 9, 2002. The agreement also
granted the investment banker piggy-back registration rights and one demand
registration right, exercisable during the five-year term of the agreement,
to register, under the Securities Act of 1933, the shares underlying the
warrants.
The fair value of these warrants was estimated at the date of issuance
using a Black-Scholes option pricing model with the following weighted
average assumptions: a risk free interest rate of 6.12%; a dividend yield
of 0.0%; a volatility factor of the expected market price of the Company's
common stock of 85%; and a weighted average expected life of the warrants
of 5 years.
Based on the Black-Scholes valuation method described above, the warrants
issued to the investment banker were valued at $1.59 each, resulting in an
aggregate fair value of $278,250. Such amount has been credited to
additional paid-in capital at December 31, 1997, and together with the cash
payment of $15,000, has been recorded as deferred investment banking fees
on the accompanying balance sheet. For the year ended December 31, 1997,
amortization of $29,325 thereof has been charged to operations.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 11: DENTCARE DELIVERY SYSTEMS, INC.
----------------------------------------
During the years 1990 through 1992, the Company loaned to Dentcare a total
of $673,138 repayable with interest at 10% per year. In February 1994, in
connection with a regular periodic audit of Dentcare by the New York State
Insurance Department, Dentcare was required to seek reimbursement of
certain expenses paid by Dentcare to the Company during 1985 and 1986, and
which had subsequently been incorporated as part of the loan between the
Company and Dentcare. The Insurance Department agreed that this
reimbursement would be met by a reduction of the loan. On February 23,
1994, the Company and Dentcare agreed to this reimbursement. As a result of
such reimbursement, totaling $157,318, the loan was adjusted to $515,820.
Subsequent audits for the years 1987 through 1992 were completed with no
reimbursements requested. An audit for the years 1993 through 1996 was
completed in 1997; however, the Company has not yet been advised of any
audit findings.
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 to
defer the recognition of all interest income on the loan since inception.
The amount of interest not recognized was $51,582 for each of 1997 and 1996
and the cumulative balance thereof at December 31, 1997 is $366,453. The
Company will account for any interest payments as interest income when
designated interest payments are received from Dentcare. Notwithstanding
the uncertainty of future interest payments subject to regulatory approval,
the Company, based on its assessment of Dentcare's financial condition,
believes that the principal balance of the loan will ultimately be repaid;
accordingly no provision for impairment thereon has been made. When
repayments designated as principal are received, they will be so recorded.
Service fee income from this affiliate was $2,453,764 in 1997 and
$2,438,342 in 1996.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------------
Estimated fair values of the Company's financial instruments are as follows
at December 31, 1997:
Carrying Fair
Amount Value
------ -----
Cash and short-term investments $1,585,482 $1,585,482
Long-term investments 597,856 597,856
Loan Receivable, Dentcare Delivery Systems, Inc. 515,820 515,820
Capitalized lease obligations 259,782 259,782
The fair value of financial instruments classified as current assets or
liabilities approximate carrying value due to the short-term maturity of
the investment. For long-term investments, fair values are estimated based
on quoted market prices. The fair value of capitalized lease obligations is
based on the current rates at which the Company could borrow funds with
similar remaining maturities.
HEALTHPLEX, INC. & SUBSIDIARIES
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
-------------------------------------------
1997 1996
---- ----
Non-cash investing and
financing activities:
Unrealized loss on investments
available for sale $ 4,635 $ 79,485
========= =========
Acquisition of equipment under
capitalized leases $ 58,212 $ 248,676
========= =========
Issuance of warrants for deferred
investment banking fees $ 278,250 $ 0
========= =========
ITEM 8. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
--------------------------------------------------------
Each of the Directors serves from the date of his election until the
next annual meeting of stockholders and until his successor is elected and
qualified. Officers serve at the discretion of the Board of Directors.
Information concerning the executive officers and directors of the
Company are set forth below:
Name Age Office Held
---- --- -----------
Stephen J. Cuchel 59 Chairman of the Board,
Co-Chief Executive Officer
and a Director
Martin Kane 58 President, Co-Chief Executive
Officer and a Director
Bruce H. Safran 48 Vice President, Secretary and a
Director
George Kane 54 Vice President, Treasurer
and a Director
Philip J. Rizzuto 54 Vice President, Management
Information Systems and
a Director
Douglas L. King 56 a Director
John Forte 55 Vice President and Chief
Financial Officer
Dr. Stephen J. Cuchel has been Chairman of the Board, Co-Chief
---------------------
Executive Officer and a Director of the Company for more than the past five
years. He is a Director of IHS, President of the American Dental Research
Foundation, a partner in a group dental practice with Drs. George Kane and
Martin Kane, Assistant Professor at New York University Medical Center and
a lecturer at C.W. Post Long Island University. He is a member of the 9th
Dental Society, North Eastern Conference of Health, Welfare and Pension
Plans. He is also a member of the Board of Directors of the Health
Services Administration, Nassau and Suffolk counties. Dr. Cuchel received
a B.S. from Union College in 1960 and a D.D.S. from New York University
College of Dentistry in 1964. He has also completed post-graduate training
at New York Institute of Clinical Oral Pathology, and a residency at Long
Island College Hospital in Anesthesiology and Dentistry for Handicapped
Children.
Dr. Martin Kane has been President, Co-Chief Executive Officer and a
---------------
Director of the Company for more than the past five years. He is also a
Director of IHS. He, with Drs. George Kane and Stephen Cuchel, operate a
group dental practice from four private offices in New York City and
environs. Between 1964 and 1976 he and Dr. Cuchel established various
dental offices in the New York metropolitan area. Dr. Kane received a B.S.
from City College of New York in 1960 and a D.D.S. from New York University
College of Dentistry in 1964. He is a member of the American Dental
Association, SED Professional Fraternity for Continuing Education,
Conference of Oral Medicine, North Eastern Conference of Health, Welfare
and Pension Funds and is dental care adviser to Local 1125 Retail Menswear
Union.
Dr. Bruce H. Safran has been a Secretary, Vice President and a
-------------------
Director of the Company for more than the past five years. His duties
include product development, professional relations and the marketing of
dental services. He is also President and a Director of IHS (having served
since 1981). Dr. Safran is licensed to practice dentistry in New York and
New Jersey, was a solo practitioner between 1974 and 1982 and occasionally
serves as a dental consultant to private dental offices. Dr. Safran
attended Ohio State University between 1967 and 1970, received a D.D.S. in
1974 from the University of Maryland and an M.B.A. in 1989 from the
University of New Haven. He is a member of the American, New York State
and Nassau County Dental Societies, the Self-Insurance Institute of
America, the Association of Managed Health Care Organizations, the American
Health Information Management Association and the National Association of
Dental Plans, of which he is a Director.
Dr. George Kane has been a Vice President and a Director of the
---------------
Company since July 1984, and has been Treasurer of the Company since
February 1988. He is a Director and Vice President of IHS. Together with
his brother, Martin Kane, and Stephen J. Cuchel, Dr. Kane operates a group
dental practice from four offices in New York City and environs. He is a
member of the American Dental Association, SED Professional Fraternity for
Continuing Education, Academy of General Dentistry, American Endodontic
Society, American Society of Preventive Dentistry and Yonkers New York
Chamber of Commerce. He received his B.A. from The State University,
Rutgers, New Jersey in 1965 and a D.D.S. from New York University College
of Dentistry in 1969.
Philip J. Rizzuto has been a Director of the Company and Vice
-----------------
President of Management Information Systems since March 1990. He was a
Director, Chief Executive Officer, Secretary and Treasurer of the
Healthplex Computer Group from December 1987 until July 31, 1993. His
duties include providing technical support services for in-house computer
and imaging systems and providing market support for all products. Prior
thereto, and at various times since 1982, he was a self-employed consultant
to the Company and to other companies. From August 1982 through 1986, Mr.
Rizzuto was a Director and Vice President of Management Information Systems
for AGS International, Ltd., a privately-held concern. From 1981 to August
1982, Mr. Rizzuto was a Senior Director of Information Systems for the New
York City Transit Authority. Mr. Rizzuto received his B.S., Cum Laude, in
Computer Technology in 1975 from New York Institute of Technology.
Douglas L. King has been a Director of the Company for more than the
---------------
past five years. Mr. King has also been President and Chief Executive
Officer of Smyth, Sanford and Gerard Reinsurance Intermediaries, Inc. and a
director of United States Surgical Corporation for more than the past five
years. He is also President and Chief Executive Officer of C.C. King &
Co., Inc. Mr. King received his B.A. in 1963 from Stanford University, his
J.D. from Stanford University in 1966 and a Masters of Philosophy from the
University of London in 1968. He is a member of the Association of the Bar
of the State of California.
John Forte has been with the Company for more than the past five years
----------
and is a Vice President and Chief Financial Officer of the Company. Since
July 1991, Mr. Forte has served as a Vice President of the Company.
Mr. Forte received his A.A.S. from Brooklyn College, New York in 1962 and
his B.B.A. from the City College of New York in 1966. He is a Certified
Public Accountant and has been a member of the New York State Society of
Certified Public Accountants and A.I.C.P.A. since 1969. Mr. Forte also
maintains a private accounting practice for his own clients and devotes
approximately one day per week to such practice.
Drs. Martin Kane and George Kane are brothers.
Based on a review of the Forms 3 and 4, and any amendments thereto,
filed during the year ended December 31, 1997 by those individuals required
to file and furnish to the Company such reports and the written
representation furnished to the Company by each such individual that he is
not required to file a Form 5, the Company knows of no delinquent filing
of, or failure to file, any such Form which was required to be filed during
such year.
ITEM 10. EXECUTIVE COMPENSATION.
----------------------
The Summary Compensation Table below sets forth the compensation for
services paid or accrued for services in all capacities during the last
three fiscal years by the Company and its subsidiaries to the two Co-Chief
Executive Officers and the other most highly compensated executive officers
whose annual compensation exceeded $100,000:
SUMMARY COMPENSATION
Annual Long Term
Compensation Compensation
------------ ------------
Fiscal
Name and ------ Options/ All other
Principal Position Year Salary SARs (No.) Compensation 1
------------------ ---- ------ ---------- ------------
Stephen J. Cuchel, 1997 $250,000 - $14,275
Chairman of the 1996 $183,121 100,000 2 $13,171
Board Co-Chief 1995 $158,445 65,000 3 $13,627
Executive
Officer and a
Director
Martin Kane, 1997 $250,000 - $11,175
President, 1996 $183,121 100,000 2 $10,168
Co-Chief 1995 $158,185 65,000 3 $10,546
Executive
Officer and a
Director
Bruce H. Safran, 1997 $200,000 - $ 9,677
Vice President, 1996 $150,207 100,000 2 $ 8,589
Secretary and a 1995 $136,597 50,000 3 $ 8,725
Director
John F. Forte, 1997 $130,000 - $ 7,463
Vice President, 1996 $128,640 150,000 2 $ 6,316
Chief Financial 1995 $103,290 25,000 3 $ 6,468
Officer
Philip J. Rizutto, 1997 $112,000 - $ 5,132
Vice President 1996 $106,014 ---- $ 4,802
and a 1995 $ 99,999 25,000 3 $ 5,244
Director
1 Consists of (i) matching contributions to the Retirement Savings
Plan of the Company for the years 1997, 1996 and 1995 for each of Drs.
Cuchel ($2,275, $1,171 and $1,627), Martin Kane ($2,275, $1,268 and
$1,646), Safran ($2,275, $1,187 and $1,323) and Philip J. Rizutto ($1,138,
$808 and $1,250), and (ii) insurance premiums paid by the Company for the
years 1997, 1996 and 1995 for each of Drs. Cuchel ($12,000, $12,000 and
$12,000), Martin Kane ($8,900, $8,900 and $8,900), Safran ($7,402, $7,402
and $7,402), John Forte ($7,463, $6,316 and $6,468) and Philip J. Rizutto
($3,994, $3,994 and $3,994) on life insurance policies payable to
beneficiaries respectively designated by each insured.
2 These options were granted to the named executive in 1996.
3 These options were issued in 1995 in replacement of a like
number of options granted to the named executive in 1994.
During 1997, the Company paid a director's fee of $12,000 to Mr.
Douglas King and $25,000 to Dr. George Kane for services as a director and
officer of the Company.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
/ OPTION VALUES AT FISCAL YEAR END
----------------------------------
During 1997, neither the co-Chief Executive Officers of the
Company nor any of the most highly compensated executive officers whose
annual compensation exceeded $100,000 were granted or exercised options to
purchase Common Stock of the Corporation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The following table sets forth the number and percentage of shares of
the Company's Common Stock, par value $.001 per share, held by each
director, by each executive officer named in the compensation tables of
Item 10, by each person known by the Company to own in excess of five
percent of the Company's Common Stock and by all directors and officers as
a group as of March 11, 1998.
Name and address of Shares Percent
Beneficial owner Beneficially Owned of Class
------------------- ------------------ --------
Stephen J. Cuchel (1) 520,418 14.24%
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
Martin Kane (2) 499,400 13.66
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
Bruce H. Safran (3) 342,200 9.40
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
George Kane (4) 525,000 14.44
73 Gin Lane
Southampton, NY 11968
Douglas L. King (5) 18,000 0.50
535 Center Island Road
Oyster Bay, NY 11771
Philip J. Rizzuto (6) 132,818 3.64
60 Charles Lindbergh Blvd.
Uniondale, NY 11553
All Directors and 2,062,836 52.79
Officers as a group
(seven persons)(7)
----------------------
(1) Includes 10,280 shares held in custody for certain members of Dr.
Cuchel's family; 65,000 shares which Dr. Cuchel may acquire upon exercise
of an Incentive Stock Option which is exercisable at a price of $1.1979 per
share. Does not include a conditional option, exercisable at a price of
$1.7821 per share, to acquire 100,000 shares of common stock which was
granted to Dr. Cuchel on June 11, 1996. See Item 10. Executive
Compensation.
(2) Includes 65,000 shares which Dr. Martin Kane may acquire upon
exercise of an Incentive Stock Option which is exercisable at a price of
$1.1979 per share. Does not include a conditional option, which is
exercisable at a price of $1.7821 per share, to acquire 100,000 shares of
Common Stock which was granted to Dr. Martin Kane on June 11, 1996. See
Item 10. Executive Compensation.
George Kane and Martin Kane are brothers.
Each disclaims any voting or investment power over the shares of Common
Stock owned by the other.
(3) Includes 50,000 shares which Dr. Safran may acquire upon exercise of
an Incentive Stock Option which is exercisable at a price of $1.089 per
share. Does not include a conditional option, exercisable at a price of
$1.6201 per share, to acquire 100,000 shares of Common Stock which was
granted to Dr. Safran on June 11, 1996. See Item 10. Executive
Compensation.
(4) Includes 45,000 shares which Dr. George Kane may acquire upon
exercise of a Non-Qualified Stock Option which is exercisable at a price of
$1.089 per share. George Kane and Martin Kane are brothers. Each
disclaims any voting or investment power over the shares of Common Stock
owned by the other.
(5) Includes 6,000 shares held in a trust of which Mr. King is a
one-third beneficiary; and 10,000 shares which Mr. King may acquire upon
exercise of a Non-Qualified Stock Option which is exercisable at a price of
$1.089 per share.
(6) Includes 25,000 shares which Mr. Rizzuto may acquire upon exercise of
an Incentive Stock Option which is exercisable at a price of $1.089 per
share; and 32,818 shares which Mr. Rizzuto may acquire upon exercise of an
Incentive Stock Option which is exercisable at a price of $.6015625 per
share.
(7) Includes the shares and options referred to in Footnotes (1) through
(6) and 25,000 shares issuable to Mr. Forte upon exercise of an Incentive
Stock Option which is exercisable at a price of $1.089 per share. Does not
include conditional options to acquire 300,000 share of Common Stock
referred to in Footnotes (1), (2) and (3) above or a conditional option,
exercisable at a price of $1.6201 per share, to acquire 150,000 shares of
Common Stock which was granted to an officer (Mr. Forte) on June 11, 1996.
See Item 10. Executive Compensation.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
During the year ended December 31, 1997, the Company derived revenues
from Dentcare of $2,453,764.
Drs. Martin Kane, Stephen J. Cuchel, Bruce H. Safran and George Kane are
directors of IHS and Drs. Bruce H. Safran and George Kane are also officers
of IHS.
In July 1996, each of Drs. Stephen J. Cuchel and Martin Kane borrowed the
amount of $50,000 from the Company. Each loan is evidenced by a promissory
note payable by the borrower to the Company in 35 equal, consecutive,
monthly installments commencing in August 1996, with a final payment due in
July 1999, and bears interest at a rate per annum equal to the current
prime rate of interest plus two percent.
A loan in the principal amount of $515,820 is payable by Dentcare to the
Company. See Item 6. (Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources) and
Note 9 to the Consolidated Financial Statements.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
--------------------------------------
Financial Statements
--------------------
The following financial statements are included in PART
II, Item 7.
Independent Auditor's Report
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Income for the Years Ended December
31, 1997 and 1996
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December
31, 1997 and 1996
Notes to the Consolidated Financial Statements
Exhibits
--------
3.1 Certificate of Incorporation of the Company, as amended,
incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended 1987,
Commission File No. 0-14236.
3.2 By-Laws of the Company incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-18, Commission File No. 2-98215-NY.
10.1 Service Agreement, dated April 30, 1986, between the Company and
International Healthcare Services, Inc. ("IHS") incorporated herein
by reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended 1986, Commission File No. 0-14236.
10.3 Service Agreement between the Company and Dentcare Delivery Systems,
Inc. ("Dentcare") incorporated herein by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended 1986,
Commission File No. 0-14236.
10.4 Agreement, dated December 13, 1983, between Dentshield and
Dascit/White & Winston, Inc. incorporated herein by reference to
Exhibit 10.5 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.5 General Agent Agreement, dated October 1983, between Dentshield and
The Only Company t/a Capital Marketing incorporated herein by
reference to Exhibit 10.6 to the Company's Registration Statement on
Form S-18, Commission File No. 2-98215-NY.
10.6 Incentive Stock Option Plan incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.7 Non-Qualified Stock Option Plan incorporated herein by reference to
Exhibit 10.11 to the Company's Registration Statement on Form S-18,
Commission File No. 2-98215-NY.
10.8 Incentive Stock Compensation Plan incorporated herein by reference to
Exhibit 10.8 to the Company's Annual Report or Form 10-K for the year
ended 1989, Commission File No. 0-14236.
10.9 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Martin Kane incorporated herein by
reference to Exhibits 10.14 and 10.25 to the Company's Registration
Statement on Form S-18, Commission File No. 2-98215-NY.
10.10 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Stephen J. Cuchel incorporated
herein by reference to Exhibits 10.15 and 10.25 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.11 Employment Agreement, dated October 3, 1984, as amended on October
17, 1985, between the Company and Bruce H. Safran incorporated herein
by reference to Exhibits 10.17 and 10.25 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.12 Agreement, dated August 30, 1985, among the Company and certain
individuals, regarding certain computer, telephone and printing
equipment incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-18, Commission File No. 2-98215-NY.
10.13 1992 Stock Incentive Plan, incorporated herein by reference to
Exhibit 4.7 to the Company's Registration Statement on Form S-8,
Commission File No. 33-56758.
10.14 1992 Director Stock Incentive Plan, incorporated herein by reference
to Exhibit 4.11 to the Company's Registration Statement on Form S-8,
Commission File No. 33-56758.
10.15 Lease Agreement between Reckson Associates and the Company dated as
of February 1, 1993, incorporated herein by reference to Exhibit
10.16 to the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1992, Commission File No. 0-14236.
10.16 Stock Purchase Agreement dated as of July 30, 1993 by and between the
Company and Compu-Lan, Inc., incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1993, Commission File No. 0-14236.
10.17 Non-Qualified Stock Option Agreement dated as of November 28, 1995
between the Company and Paul Osher, incorporated herein by reference
to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995, Commission File No. 0-14236.
10.18 Promissory Note in the amount of $50,000 dated July 2, 1996, executed
by Martin Kane in favor of the Company, incorporated herein by
reference to Exhibit 10,18 to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1996, Commission File No. 0-
14236.
10.19 Promissory Note in the amount of $50,000 dated July 2, 1996, executed
by Stephen J. Cuchel in favor of the Company, incorporated herein by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-
KSB for the year ended December 31, 1996, Commission File No. 0-
14236.
10.20 Form of Conditional Stock Option Agreement granted to Drs. Stephen
Cuchel, Martin Kane and Bruce H. Safran and Mr. John Forte on June
11, 1996, incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, commission File No. 0-14236.
10.21 Agreement dated July 9, 1997 between the Company and M.H. Meyerson &
Co., Inc. incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated September 3, 1997,
Commission File No. 0-14236.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants relating to the Company's
Registration Statement on Form S-8, Commission File No. 33-56758.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule for the year ended December 31,
1996.
28.1 Flexible Benefits Cafeteria Plan of the Company and its affiliates
effective January 1, 1989 incorporated herein by reference to Exhibit
28.1 to the Company's Annual Report on Form 10-K for the year ended
1988, Commission File No. 0-14236.
28.2 Retirement Savings Plan of the Company effective January 1, 1989
incorporated herein by reference to Exhibit 28.2 to the Company's
Annual Report on Form 10-K for the year ended 1988, Commission File
No. 0-14236.
Reports on Form 8-K
-------------------
No report on Form 8-K was filed during the fiscal quarter ended
December 31, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEALTHPLEX, INC.
By:/s/ Martin Kane
-----------------------
Martin Kane, President
Date: April 23, 1998
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen J. Cuchel Chairman of the Board April 23, 1998
--------------------- of Directors, Co-Chief
Stephen J. Cuchel Executive Officer and a
Director (Co-Principal
Executive Officer)
/s/ Martin Kane President, Co-Chief April 23, 1998
--------------------- Executive Officer and a
Martin Kane Director (Co-Principal
Executive Officer)
/s/ Bruce H. Safran Vice President, April 23, 1998
--------------------- Secretary and a
Bruce H. Safran Director
/s/ George Kane Vice President, April 23, 1998
--------------------- Treasurer and a
George Kane Director
/s/ Douglas L. King a Director April 23, 1998
---------------------
Douglas L. King
/s/ Philip J. Rizzuto Vice President and a April 23, 1998
--------------------- Director
Philip J. Rizzuto
/s/ John Forte Vice President and April 23, 1998
--------------------- Chief Financial Officer
John Forte
Index to Exhibits
-----------------
Exhibit No. Description
----------- -----------
21.1 Subsidiaries of the Company
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
27.2 Restated 1996 Financial Data Schedule
Exhibit 21.1
------------
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
---- ----------------------
International Healthcare, Inc. New Jersey
O.A.SYS. Corporation New York
DHG, Inc. New York (66-2/3% owned by the
Registrant)
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statement on Form S-8 (Registration No.
33-56758) pertaining to the 1992 Stock Incentive Plan, the 1992 Director
Stock Incentive Plan, the 1989 Incentive Stock Compensation Plan, the 1985
Nonqualified Stock Option Plan and the 1985 Incentive Stock Option Plan of
Healthplex, Inc., and related prospectuses, of our report dated March 20,
1998 with respect to the consolidated financial statements included in the
Annual Report on Form 10-KSB for the year ended December 31, 1997.
Libero & Kappel
Certified Public Accountants
/s/ Libero & Kappel
-----------------------------
Westbury, New York
March 20, 1998
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