UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO 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: 0-23952
AVERT, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1028716
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Remington, Fort Collins, CO 80524
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(Address of principal executive offices)
970/484-7722
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year, if changed from last
report).
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
As of November 11, 1996 the issuer had 3,400,000 shares of Common Stock, no
par value, outstanding
Transitional Small Business Disclosure Format.
[ ] Yes [X] No
Form 10-QSB
Quarter Ended September 30, 1996
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial statements
Unaudited balance sheets.......................... 3
Unaudited statements of income.................... 4
Unaudited statements of cash flows................ 5
Notes to unaudited financial statements........... 6
ITEM 2. Management's Discussion and Analysis or
Plan of Operations............................. 7
PART II - OTHER INFORMATION
ITEMS 1, 2, 3, 4 and 5 ................................ Not applicable
ITEM 6 Exhibits and Reports on Form 8-K.............. 11
Signatures.................................................. 12
2
PART I - FINANCIAL INFORMATION
AVERT, INC.
BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
(unaudited)
------------ -----------
Current assets:
Cash and cash equivalents.................. $ 243,500 $ 159,700
Marketable securities...................... 5,500,400 5,966,500
Accounts receivable, net of allowance...... 1,002,900 607,900
Prepaid expenses and other................. 150,400 240,600
---------- ---------
Total current assets.................. $ 6,897,200 6,974,700
Property and equipment, net..................... 2,136,000 1,389,100
Other assets.................................... 16,200 19,400
---------- ---------
Total assets.................................... $ 9,049,400 $ 8,383,200
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 359,500 $ 407,900
Accrued expenses........................... 170,000 81,300
Deferred revenue........................... 53,000 58,600
---------- ---------
Total current liabilities............. 582,500 547,800
Shareholders' equity:
Preferred shares, no par value; authorized
1,000,000 shares; none outstanding........ --- ---
Common stock, no par value; authorized
9,000,000 shares; 3,442,250 shares issued
and outstanding........................... 4,960,600 4,960,600
Treasury Stock.............................. (168,200) ---
Retained earnings........................... 3,674,500 2,874,800
---------- ---------
Total shareholders' equity............. 8,466,900 7,835,400
Total liabilities and shareholders' equity....... $ 9,049,400 $ 8,383,200
========== ==========
See accompanying notes to the financial statements.
3
AVERT, INC.
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net revenues:
Search and product fees.........$2,054,900 $1,578,000 $5,466,800 $4,158,000
Interest and other income....... 158,900 106,800 367,100 303,500
--------- --------- --------- ---------
2,213,800 1,684,800 5,833,900 4,461,500
Expenses:
Search and product costs........ 892,700 740,400 2,385,100 1,841,300
Marketing....................... 374,100 213,900 984,300 578,100
General and administrative...... 259,400 231,300 774,700 670,800
Software development............ 91,500 53,800 268,400 168,000
Depreciation and amortization... 50,100 26,100 130,600 79,900
--------- --------- --------- ---------
1,667,800 1,265,500 4,543,100 3,338,100
Income before income taxes........... 546,000 419,300 1,290,800 1,123,400
Income tax expense.............. (207,900) (159,100) (491,100) (422,400)
--------- --------- --------- ---------
Net income...........................$ 338,100 $ 260,200 $ 799,700 $ 701,000
========== ========= ======== ========
Net income per common share..........$ .10 $ .08 $ .23 $ .20
========== ========= ======== ========
Weighted average common
shares outstanding.............. 3,422,797 3,442,250 3,423,893 3,442,250
========== ========= ========= =========
See accompanying notes to the financial statements.
4
AVERT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1995
---- ----
Cash Flows From Operating Activities:
Net income ....................................... $ 799,700 $ 701,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............... 130,600 79,900
Bad debt expense ............................ 22,500 21,500
Increase/(decrease) in marketable securities
and other gains ............................ (76,600) (259,400)
Changes in operating assets and liabilities:
Accounts receivable......................... (417,500) (286,200)
Prepaid expenses and other current assets .. 90,200 (88,600)
Other assets ............................... 3,200 11,300
Accounts payable ........................... (48,400) 167,200
Accrued expenses ........................... (36,900) (38,600)
Income taxes payable ....................... 125,600 (173,500)
Deferred revenue and deposits .............. (5,600) (25,900)
--------- ---------
Net cash provided by operating activities ....... 586,800 108,700
Cash Flows from Investing Activities:
Additions to furniture and equipment ............ (877,500) (677,500)
Sale of marketable securities ................... 542,700 --
--------- ---------
Net cash provided by investing activities ....... (334,800) (677,500)
Cash Flows from Financing Activities:
Purchase of Treasury Stock ...................... (168,200) --
--------- ---------
Net cash provided by financing activities ....... (168,200) --
Increase/(Decrease) in Cash and Cash Equivalents ..... 83,800 (568,800)
Cash and Cash Equivalents, beginning of period ....... 159,700 738,300
--------- ---------
Cash and Cash Equivalents, end of period ............. $ 243,500 $ 169,500
========= =========
See accompanying notes to the financial statements.
5
AVERT, INC.
NOTES TO FINANCIAL STATEMENTS
On June 22, 1994, the Company completed an initial public offering ("IPO")
of 1,000,000 units ("Units"), each consisting of one share of Common Stock and
one Redeemable Warrant. The Units separated on December 7, 1994, and the Common
Stock and the Redeemable Warrants began trading separately as of that date. Two
Redeemable Warrants entitle the holder to purchase one share of Common Stock at
a price of $6.50 per share (subject to adjustment) for a nine month period
originally stated as March 22, 1995 and ending December 22, 1995. On October 11,
1995, the Company announed that it extended the expiration date of its
Redeemable Warrants from December 22, 1995 to April 30, 1996. The expiration
date was further extended to April 30, 1997, as announced on Form 8-K dated
March 6, 1996. All of the other terms of the Redeemable Warrants remain the
same. The Redeemable Warrants are redeemable by the Company at a redemption
price of $0.05 per Redeemable Warrant at any time commencing March 22, 1995, on
at least 30 days prior written notice, provided that the closing price of the
Common Stock equals or exceeds $7.50 per share for a period of 15 consecutive
trading days ending within 15 days prior to the notice of redemption. Net
proceeds from the IPO totalled approximately $4,382,300.
The financial information contained herein is unaudited, but includes all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the information set forth. The
financial statements should be read in conjunction with the Notes to Financial
Statements which are included in the Annual Report on Form 10-KSB of the Company
for the year ended December 31, 1995.
The results for interim periods are not necessarily indicative of results
to be expected for the fiscal year of the Company ending December 31, 1996. The
Company believes that the six month report filed on Form 10-QSB is
representative of its financial position, its results of operations and its cash
flows as of and for the periods ended September 30, 1996 and 1995 covered
thereby.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Comparison of quarters ended September, 1996 and September 30, 1995
Net revenues increased from $1,684,800 for the three month period ended
September 30, 1995,to $2,213,800 for the comparable three month period in 1996
or 31%. The breakdown of net revenues, exclusive of product discounts and other
miscellaneous income items, is as follows:
Three Months Ended Three Months Ended
Septemer 30, 1996 Septemer 30, 1995 Percent of
------------------- -------------------- Increase
Revenues % total Revenues % total (Decrease)
-------- ------- -------- ------- ----------
Products:
Workers compensation histories.... ........... $ 354,600 16.0% $ 350,200 20.8% 1.3%
Criminal history reports ..................... $1,114,200 50.3% $ 831,800 49.4% 34.0%
Previous employment reports/credit reports .... $ 246,400 11.1% $ 165,900 9.9% 48.5%
Motor vehicle driving records ................ $ 256,700 11.6% $ 202,300 12.0% 26.9%
Other products ............................... $ 111,100 5.0% $ 75,300 4.5% 147.5%
Interest income ................................ $ 76,700 3.5% $ 93,200 5.5% (17.7)%
NET REVENUES .............................. $2,213,800 $1,684,800 31.4%
========= ========= =====
Moderate to strong growth in sales of all of the Company's products
continued during the third quarter of 1996 with the exception of Workers'
Compensation reports. Although sales of Workers' Compensation histories only
increased approximately 1.3% from third quarter 1995 to third quarter 1996, it
is still the second largest product line respresenting $354,600 for the third
three months of 1996 and $350,200 for the comparable period in 1995. Sales of
Workers' Compensation histories are expected to continue to be a viable product
as the Company new markets, continues to educate customers, continues workers'
compensation marketing campaigns, and locates new data sources, but to continue
to decrease as a percentage of total revenues. In terms of dollars, Criminal
History reports contributed the largest increase in net revenues and represented
strong growth of approximately 34% in the quarter ended September 30, 1995 over
the quarter ended September 30, 1996. The Criminal History product line
represented approximately 50.3% of net revenues in the third quarter of 1996 as
compared to approximately 49% of net revenues in the third quarter of 1995.
There was an approximate 48% growth from third quarter 1995 to third quarter
1996 in the area of Previous Employment/Credit. These products represent
approximately 11.1% of net revenues in the quarter ended September 30, 1996 as
compared to approximately 9.9% of net revenues in the same quarter in 1995.
The category above titled as "Other Products" consists of four products:
Education/Credential Verification, Name Link, Employment Applications, and First
Check. While these products do not represent a material amount of dollars, they
continue to experience strong growth and represent approximately 5% of net
revenues and $111,100 in revenues in the quarter ended September 30, 1996, as
compared to approximately 4.5% of net revenue and $75,300 in revenue for the
quarter ended September 30, 1995.
Income before income taxes increased from $419,300 in the period ended
September 30, 1995 to $546,000 in the period ended September 30, 1996 or
approximately 30.2% and represented approximately 24.7% of net revenues in the
third quarter 1996 compared to approximately 24.9% in the third quarter 1995.
7
Total expenses increased from $1,265,500 for the three month period ended
September 30, 1995 to $1,667,800 for the comparable period in 1996. A breakdown
in expenses is as follows:
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995 Increase (Decrease)
--------------------- --------------------- % of Revenues
Expense % of Revenue Expense % of Revenue 1995 over 1994
------- ------------ ------- ------------ ------------------
Search and product .............. $ 892,700 40.3% $ 740,400 43.9% (3.6)%
Marketing ....................... 374,100 16.9 213,900 12.7 4.2%
General and administration ...... 259,400 11.7 231,300 13.7 (2.0)%
Software development ............ 91,500 4.1 53,800 3.2 0.9%
Depreciation and amortization .... 50,100 2.3 26,100 1.6 0.7%
Expenses ................... $1,667,800 75.3% $1,265,500 75.1% .20%
========== ==== ========== ==== ====
The expenses for both third quarter periods in 1996 and 1995 remained
stable as a whole in terms of percentage of revenue. The Company experienced an
approximate 3.6% decrease in product costs and 2.0% decrease in general and
administrative costs. These decreases were offset by the increase primarily in
marketing expenses. This increase was primarily associated with the generation
of new customer leads and the hiring and training of additional sales personnel
needed for implementation of the Company's nationwide marketing efforts.
Income taxes remained consistent between the respective three month periods
at the expected combined federal and state statutory rate of approximately 38%,
resulting in net income of $338,100 or $.10 per share on 3,422,800 shares for
the third quarter ended September 30, 1996, as compared to net income of
$260,200 or $.08 per share on 3,442,250 shares for the third quarter ended
September 30, 1996.
Comparison of nine months ended September 30, 1996 and September 30, 1995
Net revenues increased from $4,461,500 for the nine month period ended
September 30, 1995, to $5,833,900 for the comparable nine month period in 1996
or approximately 30.8%. The breakdown of net revenues, exclusive of product
discounts and other miscellaneous income items, is as follows:
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995 Percent of
------------------- -------------------- Increase
Revenues % total Revenues % total (Decrease)
-------- ------- -------- ------- --------
Products:
Workers' compensation histories .............. $ 964,800 16.5% $ 982,000 22.0% (1.8)%
Criminal history reports ..................... $2,982,900 51.1% $2,125,400 47.6% 40.3%
Previous employment reports/credit report .... $ 645,200 11.1% $ 379,900 8.5% 69.9%
Motor vehicle driving records ................ $ 704,800 12.1% $ 583,500 13.1% 20.8%
Other products ............................... $ 320,100 5.5% $ 198,100 4.4% 161.6%
Interest income ................................. $ 237,700 4.1% $ 270,000 6.1% (12.0)%
NET REVENEUS ............................... $5,833,900 $4,461,500 30.8%
8
Moderate to strong growth in sales of all of the Company's products
continued during the first nine months of 1996 with the exception of Workers'
Compensation reports. Although sales of Workers' Compensation histories actually
decreased approximately 1.8% from the nine month period ended September 30, 1995
to the same nine month period in 1996, it is still the second largest product
line representing $964,800 for nine months of 1996 and $982,000 for nine months
of 1995. Sales of Workers' Compensation histories are expected to continue to be
a viable product as the Company enters new markets, continues to educate
customers, continues workers' compensation marketing campaigns, and locates new
data sources, but to continue to decrease as a percentage of total revenues.
Very strong growth of approximately 40.3% continued in the Criminal History
product line representing approximately 51.1% of net revenues in the first nine
month period of 1996 as compared to approximately 47.6% of net revenues in the
first nine month period of1995. There was an approximate 69.9% growth from the
nine month period ended September 30, 1995 to the nine month period ended
September 30, 1996 in the area of Previous Employment/Credit. These products
represent approximately 11.1% of net revenues in the nine months ended September
300, 1996 as compared to approximately 8.5% of net revenues in the same period
in 1995.
The category above labeled "Other Products" consists of four products:
Education/Credential Verification, Name Link, Employment Applications, and First
Check. These products continue to experience strong growth and represent
approximately 5.5% of net revenues or $320,100 in revenues in the nine month
period ended September 30, 1996, as compared to approximately 4.4% of net
revenues, or $198,100 in the same nine month period in 1995.
Income before income taxes increased from $1,123,400 in the nine month
period ended September 30, 1995 to $1,290,800 in the nine month period ended
September 30, 1996 or approximately 14.9% and represented approximately 22.1% of
net revenues in the first nine months of 1996 compared to approximately 25.2% in
the first nine months of 1995.
Total expenses increased from $3,338,100 for the nine month period ended
September 30, 1995, to $4,543,100 for the comparable period in 1996. A breakdown
in expenses is as follows:
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995 Increase(Decrease)
----------------------- ----------------------- % of Revenues
Expenses % of Revenue Expense % of Revenue 1996 over 1995
-------- ------------ ------- ------------ ----------------
Search and product .......... $2,385,100 40.9% $1,841,300 41.2% (0.3)%
Marketing ................... 984,300 16.9 578,100 13.0 3.9
General and administration .. 774,700 13.3 670,800 15.0 (1.7)
Software development ........ 268,400 4.6 168,000 3.8 0.8
Depreciation and amortization 130,600 2.2 79,900 1.8 0.4
Expenses ............... $4,543,100 77.9% $3,338,100 74.8% 3.1%
========== ==== ========== ==== ===
The expenses for the nine month period ended September 30, 1996 increased
approximately 3.1% as a percentage of revenues over the same nine month period
in 1995. Additional marketing expenses accounted for the majority of the
increase. Those expenses are primarily associated with the generation of new
customer leads and the hiring and training of additional sales personnel needed
for implementation of the Company's nationwide marketing efforts. The Company
experienced an approximate 1.7% decrease in product and general and
administrative costs. Other areas of expense remained relatively stable.
Income taxes remained consistent between the respective nine month periods
at the expected combined federal and state statutory rate of approximately 38%,
resulting in net income of $799,700 or $.23 per share on 3,423,900 shares for
the nine months ended September 30, 1996, as compared to net income of $701,000
or $.20 per share on 3,442,250 shares for the nine months ended September 30,
1995.
9
Liquidity and Capital Resources
The Company's financial position at September 30, 1996 remained strong with
working capital at that date of $6,314,700 compared to $6,426,900 at December 31
1995. Cash and cash equivalents at September 30, 1996 were $243,500 and
increased from $159,700 at December 31, 1995. Net cash provided from operations
for the nine month period ended September 30, 1996 was $586,800 and consisted
primarily of net income of $799,700, a $417,000 increase in accounts receivable,
and a $125,600 increase in income taxes payable. The Company had capital
expenditures of $877,500 for the nine month period ended September 30, 1996 as
compared to $387,400 for the year ended December 31,1995. The majority of the
capital expenditures during the nine months ended September 30, 1996 was
attributable to the final phase of construction and purchase of assets for an
approximate 14,600 square feet office building for use as its headquarters. The
total construction costs were approximately $1.2 million. Construction was
financed entirely by available cash derived from past operations. No proceeds
from the IPO was used for the purchase of the land or the construction of the
building. Construction was completed in March, 1996. In addition, Avert has now
internally committed to spend up to $1.5 million to develop new software and
upgrade its existing software. The Company expects the new software and upgrade
of its existing sfotware to allow the Company to: (1) manage its higher volume
with a lower cost per transaction; (2) introduce new products and services at a
much quicker pace; (3) directly integrate the Company's information technology
systems with strategic partners, suppliers, and large customers; and (4)
maintain the Company's competitive position and provide leading edge, but safe
and proven, technology for its customers. Development and upgrade of the
software will be financed by available cash derived from past or continued
operations. No proceeds from the IPO or this offering will be used for
development of this new software and upgrade of the Company's existing software.
Development and upgrading of the software presently is expected to be complete
in late 1997 or early 1998, with scheduled software releases occurring prior to
that time.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
NONE
ITEM 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K
The registrant filed the following reports on Form 8-K during the second
quarter, 1996:
(i) Form 8-K dated July 1, 1996 announcing the Avertadvantage Program
and price increase.
(ii) Form 8-K dated July 23, 1996 announcing financial results for the
second quarter and six month period.
(iii) Form 8-K dated November 11, 1996 announcing financial results for
the third quarter and nine month period.
10
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVERT, INC.
DATE: April 14, 1997 BY: /s/ Dean A. Suposs
-------------------------------
Dean A. Suposs, President
DATE: April 14, 1997 BY: /s/ Jamie M.Burgat
------------------------------
Jamie M. Burgat, Vice President of
Operations and Chief Financial
Officer