<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING OCTOBER 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________.
COMMISSION FILE NUMBER 0-15117
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THE ADMAR GROUP, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2579295
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1551 N. Tustin Avenue, Suite 300,
Santa Ana, California 92705
(Address of principal executives offices)
Registrant's telephone number, including area code: (714) 953-9600
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of Common Stock was 8,762,602 as of
October 31, 1995.
Transitional Small Business Disclosure Forms
Yes No X
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Page 1 of 13
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THE ADMAR GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at October 31, 1995 3-4
and January 31, 1995
Consolidated Statements of Operations for 5
the Three and Nine Months Ended October 31, 1995
and October 31, 1994
Consolidated Statements of Cash Flows for the 6-7
Nine Months Ended October 31, 1995 and
October 31, 1994
Notes to Condensed Consolidated Financial 8-9
Statements
Item 2. Management's Discussion and Analysis 10-11
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ADMAR GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
October 31,
1995 January 31,
(Unaudited) 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $1,225 $ 315
Accounts receivable - trade, net of allowance
for doubtful accounts of $100,000 1,733 1,550
Income tax refund receivable -- 63
Notes receivable from related parties 76 76
Accounts receivable - other 28 69
Other current assets 377 351
------ ------
Total current assets 3,439 2,424
Property and equipment, net 988 1,130
Preopening costs - net of accumulated
amortization of $2,434,400 at October 31,
1995 and $2,263,700 at January 31, 1995 2,889 2,440
Costs in excess of net assets acquired,
net of accumulated amortization of
$839,300 at October 31, 1995 and $735,400
at January 31, 1995 2,306 2,410
Other assets 11 24
------ ------
Total assets $9,633 $8,428
====== ======
</TABLE>
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THE ADMAR GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, 1995 January 31,
(Unaudited) 1995
---------------- -----------
<S> <C> <C>
Current liabilities:
Note payable to bank $ 500 $ 475
Accounts payable 474 579
Accrued salaries and benefits 407 356
Other accrued liabilities 41 496
Income taxes payable 200 --
Current portion of long-term debt and
obligations under capital leases 433 446
------ ------
Total current liabilities 2,055 2,352
Deferred rent 90 179
Deferred income taxes 94 94
Note payable to stockholder 1,000 1,000
Long-term debt 1,370 237
Obligations under capital leases 105 79
Stockholders' equity:
Common stock, $.005 par value, 20,000,000
shares authorized; 8,762,602 issued
and outstanding at October 31, 1995 44 44
Paid-in capital 3,046 3,046
Retained earnings 1,829 1,397
------ ------
Total stockholders' equity 4,919 4,487
------ ------
Total liabilities and sockholders' equity $9,633 $8,428
====== ======
</TABLE>
See Accompanying Notes
4
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THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
--------------------------- -----------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 4,280 $ 4,183 $ 13,251 $ 12,818
Cost and expense
General, administration and selling 3,825 3,838 11,779 11,513
Depreciation and amortization 300 205 636 603
Interest expense 47 40 141 116
---------- ---------- ---------- ----------
Total costs and expenses 4,172 4,083 12,556 12,232
---------- ---------- ---------- ----------
Earnings before provision for income
taxes 108 100 695 586
Provision for income taxes 46 40 263 233
---------- ---------- ---------- ----------
Net income $ 62 $ 60 $ 432 $ 353
========== ========== ========== ==========
Per share information:
Net income per common share $ .007 $ .007 $ .049 $ .041
========== ========== ========== ==========
Weighted average number of common
shares outstanding 8,762,602 8,728,000 8,762,602 8,633,470
========== ========== ========== ==========
</TABLE>
See Accompanying Notes
5
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THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 432 $ 353
Adjustment to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 636 603
Changes in assets and liabilities:
Increase in accounts receivable - trade (183) (261)
Decrease (increase) in receivables - other 41 (12)
Decrease in income tax receivable 63 67
Increase in prepaid expenses (26) (112)
Decrease in accounts payable & accrued liabilities (509) (88)
Increase in unearned revenue -- 11
Decrease in deferred rent (89) (73)
Decrease (increase) in other assets 13 (1)
Increase in income tax payable 200 96
----- ------
Net cash flows from operating activities $ 578 $ 583
===== ======
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to pre-opening $(620) $(826)
Purchase of property and equipment (219) (338)
Increase in Common Stock from sale of stock -- 1
Increase in capital in excess of par value from
sale of stock -- 2,499
----- ------
Net cash flow (used by) from investing activities $(839) $ (664)
===== ======
</TABLE>
See Accompanying Notes
6
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THE ADMAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt $ (276) $(233)
Proceeds from issuance of long-term debt 1,400 --
Principal payments of obligations under
capital leases (31) (54)
Proceeds from obligation under capitalized lease 53 --
Proceeds on note payable to bank 1,500 825
Principal payments of note payable to bank (1,475) (500)
------- -----
Net cash flows from financing activities 1,171 38
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Net increase (decrease) in cash 910 (43)
Cash at beginning of period 315 386
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Cash at end of period $ 1,225 $ 343
======= =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 96 $ 116
======= =====
Income taxes paid $ -- $ 70
======= =====
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
There were no dividends declared or unpaid for the nine month period ended
October 31, 1995 and October 31, 1994.
See Accompanying Notes
7
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THE ADMAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(UNAUDITED)
1. BUSINESS
The Admar Group, Inc. ("Admar" or the "Company") develops, markets and
administers managed care products and services which facilitate the
delivery and manage the cost of health care services. Admar provides a
complete array of managed health care programs and services to insurance
companies, self-funded employers and health care providers.
Admar was one of the first Preferred Provider Organizations ("PPOs") in
the nation and provides managed health care delivery systems nationally
through customized programs, including extensive Preferred Provider and
Exclusive Provider organizations, complete Utilization Management
services, Catastrophic Case Management and Managed Care Administration
services for employers and insurance carriers.
Admar provides the following managed care programs and services:
EXCLUSIVE HEALTH is Admar's health maintenance organization ("HMO")
alternative program which provides self-funded employers and insurance
companies the ability to have the same cost-containment benefits and
features of HMO's while still offering the flexibility of self-funded
and insured health benefit plans. The program creates a financial and
quality care partnership between medical providers, patients and
insurors, all of whom have the incentive to work together to contain
medical costs while maintaining the quality of care.
MED NETWORK is Admar's hospital and physician PPO which was developed
in 1978. Med Network offers a comprehensive network consisting of
primary care physicians, specialists, hospitals and pharmacies. Admar
maintains and carefully selects health care providers in order for
network participants to receive the highest quality health care
programs available at the lowest cost.
MED$ELECT is a hospital-only PPO available in all of the Med Network
areas and in additional states. Med$elect enables employers and
patients to save on their health care costs when they access care at
contracted hospitals, regional medical centers and outpatient surgical
centers.
MED NETWORK EPO is Admar's national Exclusive Provider Organization
("EPO") which offers the same quality as Med Network PPO providers.
Med Network EPO maintains stronger health care cost-containment
features than a PPO due to aggressive utilization management controls,
plan design incentives and referrals to the most cost-effective
network providers and primary care physicians.
HEALTHWATCH MEDICAL REVIEW SYSTEM ("HealthWatch") is designed to
ensure that hospitalizations, the most expensive component of the
nation's health care budget, are prescribed and utilized appropriately
without compromising health care. Within the HealthWatch utilization
management system, medical/surgical, psychiatric, substance abuse,
catastrophic illnesses/diseases and maternity management are monitored
beginning with hospital pre-admission review through discharge and
alternate site planning. In addition, HealthWatch provides complete
Ambulatory Care Management, including authorization for all physician
to physician referrals and all high cost ancillary services.
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HEALTHWATCH ADVANTAGE is a program that provides cost savings
opportunities outside of the formalized preferred provider networks.
HealthWatch Advantage identifies surgical and hospitalization cases
which are being treated outside the employer's contracted PPO network
and negotiates with attending hospitals and physicians to reduce their
costs and defray some of the expenses associated with providing
non-contracted health care services.
Admar also operates a third party administrator in Boulder Colorado,
Benefit Plan Administrators, Inc., which provides medically managed
claims payment services to self-insured employers. The division also
provides all required medical benefits consulting.
2. RECENT DEVELOPMENTS
On February 1, 1995, Admar received a loan payable in the principal amount
of $400,000 from Principal Mutual Insurance Company ("Principal") in
connection with Principal's agreement to use Admar's Exclusive Health
product in the Southern California area. The loan accrues interest at the
rate of 9.25% and is due in September, 2002.
Admar reserved for the issuance of three hundred thousand (300,000) shares
of the Company's Common Stock in connection with the adoption of its
Employee Stock Purchase Plan ("ESPP") on May 15, 1995.
On October 27, 1995, Admar entered into an Agreement and Plan of Merger
providing for the acquisition of Admar by Principal Health Care, Inc.,
("PHC") a privately held managed health care company which is a member of
The Principal Financial Group. Pursuant to the Agreement and Plan of
Merger, a wholly owned subsidiary of PHC, Inc. will be merged with and
into Admar and Admar will survive the merger as a wholly-owned subsidiary
of PHC. If the merger is approved by the shareholders of Admar, each
share of Admar's Common Stock (other than shares as to which dissenters'
rights have been properly exercised) will be converted into the right to
receive $2.25 in cash, without interest.
On October 31, 1995, Admar received three loans payable totaling
$1,000,000 from Principal in connection with Principal's agreement to use
Admar's Exclusive Health product in networks to be developed in Central
and Northern California and also in parts of Arizona.
3. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Form 10-KSB for the year ended January 31, 1995. The accompanying
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion
of management such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to summarize
fairly the Company's financial position and results of operations. The
results of operations for the nine months ended October 31, 1995 may not
be indicative of the results that may be expected for the year ending
January 31, 1996.
9
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4. PRE-OPENING COSTS
Costs relating to the development of medical networks are deferred and
amortized on a straight-line-basis over three years. Amortization
commences as the revenues from the networks are recognized. Costs
aggregating $620,000 have been capitalized for the nine month period
ending October 31, 1995 compared to $826,000 being capitalized for period
ending October 31, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The third quarter ended October 31, 1995 compared with the third quarter ended
- ------------------------------------------------------------------------------
October 31, 1994
- ----------------
Revenues for the third quarter ended October 31, 1995 increased 2.3% to
$4,280,000 from $4,183,000 for the quarter ended October 31, 1994. The
increase was primarily the result of an increase in revenue from
HealthWatch Advantage due to the addition of new clients and an increase
in volume from current clients. PPO revenue declined due to a drop in
volume with several clients while HealthWatch revenue increased due to a
price increase to a significant client. The increase in revenue to Image
Financial & Insurance Services, Inc., a subsidiary of the Company, was
primarily due to the increase of business with one client. The decrease
in revenue to Benefit Plan Administrators, Inc., the Company's Colorado
based third party administrator, was due to the loss of several clients.
The following table sets forth the revenue derived from each product line
and the percentage that each product line bears to total revenue:
<TABLE>
<CAPTION>
REVENUE COMPARISON BY PRODUCT
-----------------------------------------------------
QUARTER ENDED QUARTER ENDED
OCTOBER 31, 1995 % OCTOBER 31, 1994 %
---------------- ----- ---------------- ------
<S> <C> <C> <C> <C>
Alternate Delivery Systems (PPOs & EPOs) 2,603,000 60.8 2,765,000 66.1
HealthWatch (U.M. products) 629,000 14.7 562,000 13.4
Image Financial and Insurance Services, Inc. 137,000 3.2 116,000 2.8
Benefit Plan Administrators, Inc./
Wm. G. Hofgard & Company, Inc.
Managed Benefits 266,000 6.2 608,000 14.5
HealthWatch Advantage 645,000 15.1 124,000 3.0
Miscellaneous -- -- 8,000 .02
--------- ----- --------- ------
TOTAL 4,280,000 100.0 4,183,000 100.00
========= ===== ========= ======
</TABLE>
Total costs and expenses increased 2.2% to $4,172,000 from $4,083,000 in
the quarter ended October 31, 1995 compared with the quarter ended October
31, 1994. The increase was principally the result of additional
amortization of pre-opening costs. Total expenses improved as a
percentage of revenues to 97.5% from 97.6%.
General, administrative and selling expenses was constant in the quarter
ended October 31, 1995 as comparison to the quarter ended October 31, 1994
but decreased as a percentage of revenues to 89.4% from 91.7% for the
quarter ended October 31, 1995.
10
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Depreciation and amortization increased to $300,000 in the quarter ended
October 31, 1995 from $205,000 in the quarter ended October 31, 1994 due
to the increase of amortization of preopening costs for Exclusive Health.
Interest expense increased to $47,000 for the quarter ended October 31,
1995 from $40,000 for the quarter ended October 31, 1994 primarily due to
an increase in debt.
Net income for the third quarter ended October 31, 1995 increased to
$62,000 from $60,000 for the quarter ended October 31, 1994. The increase
in net income resulted from an increase in revenue partially offset by an
increase in costs.
Pre tax income increased to $108,000 in the quarter ended October 31, 1995
from $100,000 for the quarter ended October 31, 1994.
The nine months ended October 31, 1995 compared with the nine months ended
- --------------------------------------------------------------------------
July 31, 1994.
- --------------
Revenues increased 3.4% to $13,251,000 for the nine months ended October
31, 1995, from $12,818,000 for the nine months ended October 31, 1994
primarily because of an increase in the Advantage and HealthWatch
products. Total costs and expenses increased by 2.7% to $12,556,000 for
the nine months ended October 31, 1995 from $12,232,000 for the nine
months ended October 31, 1994 and decreased as a percentage of revenue
from 95.4% to 94.7%. The increase was due primarily to additional costs
in administrative and sales. Depreciation, amortization and interest
increased by 8.1% to $777,000 for the nine months ending October 31, 1995
from $719,000 for the nine months ended October 31, 1994, and increased as
a percentage of revenues from 5.6% to 5.9% due primarily to preopening for
Exclusive Health beginning to be amortized in the current period as well
as an increase in debt to be serviced.
Earnings before provision for income taxes for the nine months ended
October 31, 1995 increased by 18.6% to $695,000 as compared to $586,000
for the nine months ended October 31, 1994. Net income increased 22.4%
for the nine months ended October 31, 1995 to $432,000 from $353,000 for
the nine months ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased approximately $910,000 for the nine month quarter ended
October 31, 1995 primarily due to the receipt of the proceeds of a loan
from Principal in the principal amount of $1,400,000 to fund the building
of Exclusive Health networks. The Company continued to funds its cash
requirements from internal operations. Cash flows from operating
activities were $578,000 due primarily to net income. Cash flows used by
investing activities totaled $839,000 due to the purchase of new equipment
and furniture and additional preopening costs. Net cash flows from
financing increased by $1,171,000 due to proceeds generated by increasing
long term debt. Management believes that existing working capital and
funds generated from operations will continue to be sufficient to meet its
operational requirements along with the loans from Principal for expansion
of the Exclusive Health networks.
Inflation has not had a material effect on the Company.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. The Company is involved in legal actions incidental to its business.
There were no material developments during the quarter on any such
matters. Management does not believe the outcome of any of the
litigation will have a material adverse effect on the consolidated
operations or financial condition of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial Data Schedule
b. On November 8, 1995, the Company filed Form 8-K in connection with
the execution of a definitive Agreement and Plan of Merger between
the Company and PHC dated October 27, 1995. Incorporated by
reference on Form 8-K filed November 8, 1995.
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SIGNATURE
Pursuant to 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.
THE ADMAR GROUP, INC.
REGISTRANT
Date: December 14, 1995 By: /s/ EDWARD K. EVANS
---------------------------
Edward K. Evans,
Chief Financial Officer
13
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 1,225
<SECURITIES> 0
<RECEIVABLES> 1,833
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 3,439
<PP&E> 4,666
<DEPRECIATION> 3,678
<TOTAL-ASSETS> 9,633
<CURRENT-LIABILITIES> 2,055
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0
0
<OTHER-SE> 4,875
<TOTAL-LIABILITY-AND-EQUITY> 9,633
<SALES> 4,280
<TOTAL-REVENUES> 4,280
<CGS> 0
<TOTAL-COSTS> 3,825
<OTHER-EXPENSES> 300
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