UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] 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: 0-23952
AVERT, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1028716
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
301 Remington, Fort Collins, CO 80524
(Address of principal executive offices)
970/484-7722
(Registrant's telephone number, including area code)
No Change
(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 May 10, 1999 the issuer had 3,323,025 shares of Common Stock, no par
value, outstanding.
Transitional Small Business Disclosure Format.
[ ] Yes [ X ] No
<PAGE>
Form 10-QSB
Quarter Ended March 31, 1999
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, 5 and 6 Not applicable
Signatures........................................................... 11
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
AVERT, INC.
BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
(unaudited)
--------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................... $ 494,000 $ 531,000
Marketable securities ........................... 6,078,000 6,006,000
Accounts receivable, net of allowance ........... 1,147,000 1,061,000
Prepaid expenses and other ...................... 188,000 172,000
----------- -----------
Total current assets ................... $ 7,907,000 7,770,000
Property and equipment, net .............................. 2,998,000 3,138,000
Other assets ............................................. 6,000 0
----------- -----------
Total assets ............................................. $10,911,000 $10,908,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 481,000 $ 297,000
Accrued expenses ................................ 104,000 119,000
Deferred revenue ................................ 3,000 5,000
----------- -----------
Total current liabilities .............. 588,000 421,000
Deferred Taxes .................................. 476,000 476,000
----------- -----------
Total liabilities ...................... $ 1,064,000 $ 897,000
Shareholders' equity:
Preferred shares, no par value; authorized
1,000,000 shares; none outstanding ............ -- --
Common stock, no par value; authorized
9,000,000 shares; 3,323,025 shares issued
and outstanding ............................... 4,462,000 4,462,000
Retained earnings ............................... 5,385,000 5,549,000
----------- -----------
Total shareholders' equity ............. $ 9,847,000 $10,011,000
----------- -----------
Total liabilities and shareholders' equity ............... $10,911,000 $10,908,000
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AVERT, INC.
STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
-----------------------
1999 1998
<S> <C> <C>
Net revenues:
Search and product fees ................. $ 2,416,000 $ 2,147,000
Interest and other income ............... 76,000 86,000
----------- -----------
2,492,000 2,233,000
Expenses:
Search and product costs ................ 1,099,000 1,042,000
Marketing ............................... 349,000 379,000
General and administrative .............. 343,000 353,000
Software development .................... 132,000 73,000
Depreciation and amortization............ 149,000 111,000
----------- -----------
2,072,000 1,958,000
----------- -----------
Income before income taxes ....................... 420,000 275,000
Income tax expense ...................... (165,000) (108,000)
----------- -----------
Net income ....................................... $ 255,000 $ 167,000
=========== ===========
Net income per common share ...................... $ .08 $ .05
=========== ===========
Weighted average common
shares outstanding ...................... 3,323,024 3,546,124
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AVERT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ................................................................. $ 255,000 $ 167,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................................... 149,000 111,000
Bad debt expense ...................................................... 17,000 16,000
Increase/(decrease) in marketable securities and
other gains .................................................. (72,000) (80,000)
Changes in operating assets and liabilities:
Accounts receivable .............................................. (103,000) 73,000
Prepaid expenses and other current assets ........................ (22,000) (116,000)
Accounts payable ................................................. 184,000 210,000
Accrued expenses ................................................. (21,000) (70,000)
Income taxes payable ............................................. 6,000 108,000
Deferred revenue and deposits .................................... (2,000) (1,000)
--------- ---------
Net cash provided by operating activities ............................. $ 391,000 $ 418,000
Cash Flows from Investing Activities:
Additions to furniture and equipment ...................................... (9,000) (215,000)
Proceeds from sale of furniture and equipment ............................. -- --
--------- ---------
Net cash provided by investing activities ........................... (9,000) (215,000)
--------- ---------
Cash Flows from Financing Activities:
Purchase of Treasury Stock ............................................ -- (23,000)
Dividends declared .................................................... (419,000) 350,000
--------- ---------
Net cash provided by financing activities ........................... (419,000) (373,000)
Increase/(Decrease) in Cash and Cash Equivalents ............................... (37,000) (170,000)
Cash and Cash Equivalents, beginning of period ................................. 531,000 580,000
--------- ---------
Cash and Cash Equivalents, end of period ....................................... $ 494,000 $ 410,000
========= =========
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
AVERT, INC.
NOTES TO FINANCIAL STATEMENTS
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, 1998.
The results for interim periods are not necessarily indicative of results
to be expected for the fiscal year of the Company ending December 31, 1999. The
Company believes that the three 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 March 31, 1999 and 1998 covered thereby.
"The Company" or "Avert" is used in this report to refer to Avert, Inc. The
Company may from time to time make written or oral forward-looking statements,
including statements contained in the Company's filings with the Securities and
Exchange Commission and its reports to shareholders. This document may contain
forward-looking statements that are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. These
statements include, without limitation, statements relating to Avert's growth
and business strategies, regulatory matters affecting Avert, other plans and
objectives of Avert, management for future operations and activities, expansion
and growth of Avert's operations and other such matters. The words "believes,"
"expects," "intends," "strategy," "considers" or "anticipates" and similar
expressions identify forward-looking statements. The Company does not undertake
to update, revise or correct any of the forward-looking information.
New Pronouncement. SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued in June 1998. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for the Company's
financial statements for the year ended June 30, 2001 and the adoption of this
standard is not expected to have a material effect on the Company's financial
statements.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," was issued in February 1998. This statement revises the disclosure
requirement for pensions and other postretirement benefits. This statement is
effective for the Company's financial statements for the year ended June 30,
1999 and the adoption of this standard is not expected to have a material effect
on the Company's financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This statement establishes standards for
the way public business enterprises report information about operating segments.
It also establishes standards for related disclosure about products and
services, geographical areas and major customers. This statement is effective
for the company's financial statements for the year ended June 30, 1999 and the
adoption of this standard is not expected to have a material effect on the
Company's financial statements.
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997. This
statement establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, Statement 130
requires that all components of comprehensive income shall be classified based
on their nature and shall be reported in the financial statements in the period
in which they are recognized. A total amount for comprehensive income shall be
displayed in the financial statements where the components of other
comprehensive income are reported. This statement is effective for the Company's
financial statements for the year ended June 30, 1999 and the adoption of this
standard is not expected to have a material effect on the Company's financial
statements.
6
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Comparison of quarters ended March 31, 1999 and March 31, 1998
Total net revenues increased from $2,233,000 for the three month period
ended March 31, 1998 to $2,492,000 for the comparable three month period in 1999
or approximately 11.6%. This increase was primarily due to the overall growth of
its customer base and their use of its criminal history products. There were
5701 customers that actually used Avert services the first three months of 1999,
as compared to 4,574 the first three months of 1998, representing approximately
a 24.6% increase. However, the dollars spent per customer in the first quarter
1999 was $424 as compared to $456 in the first quarter 1998, representing a 7%
decrease. The Company believes that there continues to be a very low
unemployment rate job market where there are substantially fewer job applicants
to screen than in a higher unemployment rate job market. The sales categories
that experienced the largest increases had quick turnaround, and addressed
employers' need to fill positions quickly in the current job market.
Another key element in the improved first quarter 1999 revenue growth was
that the Company was able to focus on obtaining customers, implement
improvements in order processing, and other features and enhancements made
possible by the new computer system implemented in April, 1998. The breakdown of
net revenues, exclusive of product discounts and other miscellaneous income
items, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998 Percent of
-------------------- -------------------- Increase
Revenues % total Revenues % total (Decrease)
-------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Products:
Workers compensation histories $ 205,000 8.2% $ 242,000 10.8% (15.3)%
Criminal history reports ..... $1,404,000 56.3% $1,115,000 49.9% 25.9%
Previous employment reports/ . $ 241,000 9.7% $ 296,000 13.3% (18.6)%
credit reports
Motor vehicle driving records $ 282,000 11.3% $ 251,000 11.2% 12.4%
Other products ............... $ 125,000 6.5% $ 118,000 5.3% 5.9%
Services: ...................... $ 187,000 5.0% $ 125,000 5.6% 49.6%
Interest income ................ $ 74,000 3.0% 84,000 3.8% (11.9)%
NET REVENUES .......... $2,492,000 $2,233,000 11.6%
</TABLE>
The largest product growth of approximately 25.9% occurred in Criminal
history reports. This product line accounted for approximately 56.3% of total
net revenues in three month period ended March 31, 1999, as compared to
approximately 49.9% in the same three month period of 1998. The product
contributed $1,404,000 to total net revenues in the first quarter 1999, as
compared to $1,115,000 to total new revenues in the first quarter 1998. The
Company believes there continues to be a trend nationwide to check prospective
employees' criminal records and it continues to focus on obtaining the quickest,
most accurate data available.
Motor vehicle driving records enjoyed an approximate 12.4% increase in
total net revenues from the first three months of 1998 as compared to the same
period in 1999. Internal enhancements specific to this product line, improving
turnaround time were implemented in first quarter 1999, positively impacting the
customer base in their quest for quicker hiring decisions.
7
<PAGE>
There was approximately 18.6% decrease in growth for revenues generated in
the areas of education/credential verification and credit reports, which
decreased from $296,000 in the first quarter of 1998 to $241,000 in the first
quarter of 1999. This was primarily a result of a change of ordering behavior of
the Company's largest customer to other products shown above in "Other
Products". In addition, there was an increase as a percentage of total net
revenues of approximately 5.9% in "Other Products", representing $118,000 in the
three month period of 1998, and $125,000 in the three month period of 1999. This
increase was primarily due to a new product called Instant Address Link, just
introduced in first quarter 1999. Through its links with the service bureaus
this products offers an address locator service that identifies up to three
known addresses for an applicant, based on social security number usage.
Customers can match the findings of the report with information provided by the
applicant. Additionally, Instant Address Link "builds" a ready to go order for
criminal records searches that match the addresses identified. Customers can
order the criminal records on-line with just a click of the mouse.
Workers' compensation histories continued to decline as a percentage of net
revenues as previously predicted. In first quarter, 1998 workers' compensation
reports, represented $242,000 or approximately 10.8% of total net revenues, as
compared to $205,000 for the first three months of 1999, or approximately 8.2%
of total net revenues. The Company believes it will continue to decrease as a
percentage of total net revenues.
Service sales experienced approximately 49.6% revenue growth from $125,000
in the three month period ended March 31, 1998 to $187,000 in the three month
period ended March 31, 1999. This is primarily attributable to growth of the
customer base membership in the Avert Advantage program, which increased from
$57,000 in revenues for the first quarter 1998 to $107,000 for the first quarter
in 1999.
Income before income taxes increased from $275,000 in first quarter 1998,
to $420,000 in first quarter 1999 or approximately 52.7% and represented
approximately 12.3% in 1998, as compared to approximately 16.9% in 1999. The
Company believes that decreases in some expense areas and relatively small
increases in other expense categories was a direct result of increased internal
efficiencies and capacity made possible by the new computer system implemented
in April 1998.
Total expenses, when expressed as a percentage of total net revenues,
decreased from approximately 87.7% in the first quarter 1998, representing
$1,958,000 to approximately 83.1 in the first quarter 1999 representing
$2,072,000. A breakdown in expenses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Increase (Decrease)
March 31, 1999 March 31, 1998 % of Revenues
------------------------ ------------------------ ------------------
Expenses % of Revenue Expenses % of Revenue 1999 over 1998
<S> <C> <C> <C> <C> <C>
Search and product ...................... $1,099,000 44.0% $1,066,000 47.7% (3.7)%
Marketing ............................... 349,000 14.0 443,000 19.8 (5.8)
General and administration .............. 343,000 13.8 265,000 11.9 1.9
Software development .................... 132,000 5.3 73,000 3.3 2.0
Depreciation and amortization ........... 149,000 6.0 111,000 5.0 1.0
---------- ----- ---------- ----- ----
Expenses ....................... $2,072,000 83.1% $1,958,000 87.7% (4.6)%
========== -==== ========== ===== ====
</TABLE>
8
<PAGE>
Search and product fees decreased approximately 3.7% as a percentage of net
revenues in the first quarter 1999 over the first quarter 1998. The majority of
the decrease was attributable to the improved automation of the Company's supply
chain, specifically decreasing costs of obtaining criminal history information
from sources. Despite the level of increased product growth mentioned above, the
Company was able to only increase head count in the operations area by 1.5
full-time equivalents in first quarter 1999, as compared to first quarter 1998.
This was also due to improved internal efficiencies brought about by the new
computer system.
There was an approximate 5.8% decrease as a percentage of total net
revenues in marketing expenses, in the first three months of 1999 as compared to
the first three months of 1998. This resulted primarily from a decrease in 1.7
full-time equivalents, as well as decreased use of outside marketing consulting
in the first quarter 1999 as compared to first quarter 1998. Additionally, the
company has reduced expenditures in certain lead generation activities such as
yellow pages advertising and broadcast fax as it transitions its marketing
activities to web-based lead generation programs. Examples of web-based lead
generation activities include web site links with other human resource
providers, banner advertisements, listings on Internet portals, email messages
sponsored by human resource publications, and additional information services on
our own web site.
General and Administrative expenses increased slightly in first three-month
period ended March 31, 1999, representing approximately 13.8% of total net
revenues, as compared to the first three-month period ended March 31, 1998
representing 11.9% of total net revenues.
As predicted, there was an increase in software development and maintenance
expenses expressed as a percentage of total net revenues from approximately 5.3%
in first quarter 1999 to approximately 3.3% in the comparable period of 1998.
The primary reason for the increase is that personnel costs directly associated
with the development and implementation of the computer system were capitalized
with the software project in the first three months of 1998, but all costs were
expensed in the first three months of 1999. The Company continues to focus on
making technology its strategic advantage in its relationships with customers,
partners and suppliers. There was an increase in depreciation and amortization
expenses when expressed as a percentage of total net revenues, from
approximately 5.0% in the first three months of 1998, to approximately 6.0% in
the comparable period of 1999. The increase was due to the increased capitalized
costs associated with the software development project, which were fully
amortized in first quarter 1998, and expensed in 1999.
Income taxes for the combined federal and state statutory rate was
approximately 39% in first quarter 1999 and approximately 34% in the first
quarter 1998. The result was net income of $255,000 or $.08 per share on
3,323,024 shares (weighted average shares plus common stock equivalents) for the
first three months ended March 31, 1999, as compared to net income of $182,000
or $.05 per share on 3,366,320 shares (weighted average shares plus common stock
equivalents) for the first three months ended March 31, 1998.
Liquidity and Capital Resources
The Company's financial position at March 31, 1999 remained strong with
working capital at that date of $7,319,000 compared to $7,349,000 at December
31,1998. Cash and cash equivalents and marketable securities at March 31, 1999
were $6,572,000 and increased from $6,537,000 at December 31, 1998. Net cash
provided from operations for the three month period ended March 31, 1999 was
$391,000 and consisted primarily of net income of $255,000, a $103,000 increase
in accounts receivable, and a $184,000 increase in accounts payable. The Company
had capital expenditures of $9,000 for the three month period ended March 31,
1999 as compared to $215,000 for the three months ended March 31, 1998. The
majority of the capital expenditures during the three months ended March 31,
1998 was attributable to the development of new software and upgrade of existing
hardware and software implemented in April, 1998. Net cash used in financing
activities for the three month period ended March 31, 1999 was $419,000 and
consisted of a cash dividend of $.12 per common share payable on March 24, 1999
to shareholders of record on March 15, 1999.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
NONE
ITEM 6. Exhibits and Reports on Form 8-K
(a) NONE
(b) NONE
10
<PAGE>
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: May 11, 1999 BY: /s/ Dean A. Suposs
--------------------------------------
Dean A. Suposs, President
DATE: May 11, 1999 BY: /s/ Jamie M. Burgat
--------------------------------------
Jamie M. Burgat, Vice President of
Operations and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 494,000
<SECURITIES> 6,078,000
<RECEIVABLES> 1,221,000
<ALLOWANCES> (74,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,907,000
<PP&E> 4,649,000
<DEPRECIATION> (1,651,000)
<TOTAL-ASSETS> 10,911,000
<CURRENT-LIABILITIES> 588,000
<BONDS> 0
0
0
<COMMON> 4,462,000
<OTHER-SE> 5,130,000
<TOTAL-LIABILITY-AND-EQUITY> 10,911,000
<SALES> 2,416,000
<TOTAL-REVENUES> 2,492,000
<CGS> 1,099,000
<TOTAL-COSTS> 2,072,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 420,000
<INCOME-TAX> 165,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
