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 September 30, 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 November 2, 1999 the issuer had 3,294,325 shares of Common Stock, no par
value, outstanding.
Transitional Small Business Disclosure Format.
[ ] Yes [X] No
<PAGE>
Form 10-QSB
Quarter Ended September 30, 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............................................................. 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AVERT, INC.
BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 1,098,000 $ 531,000
Marketable securities ..................................... 6,242,000 6,006,000
Accounts receivable, net of allowance ..................... 1,685,000 1,061,000
Prepaid expenses and other ................................ 155,000 172,000
----------- -----------
Total current assets ............................. $ 9,180,000 7,770,000
Property and equipment, net ........................................ 2,963,000 3,138,000
Other assets ....................................................... 1,000 0
----------- -----------
Total assets ....................................................... $12,144,000 $10,908,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................... $ 481,000 $ 297,000
Accrued expenses .......................................... 386,000 119,000
Deferred revenue .......................................... 40,000 5,000
----------- -----------
Total current liabilities ........................ 907,000 421,000
Deferred Taxes ............................................ 476,000 476,000
----------- -----------
Total liabilities ................................ $ 1,383,000 $ 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; 3,310,525 shares issued
and outstanding ......................................... 4,386,000 4,462,000
Retained earnings ......................................... 6,375,000 5,549,000
----------- -----------
Total shareholders' equity ....................... $10,761,000 $10,011,000
----------- -----------
Total liabilities and shareholders' equity ......................... $12,144,000 $10,908,000
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AVERT, INC.
STATEMENTS OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues:
Search and product fees ..... $ 3,382,700 $ 2,504,600 $ 8,695,200 $ 7,126,800
Interest and other income ... 83,200 85,600 240,100 253,400
----------- ----------- ----------- -----------
3,465,900 2,590,200 $ 8,935,300 $ 7,380,200
Expenses:
Search and product costs .... 1,519,700 1,269,400 3,926,300 3,540,700
Marketing ................... 315,000 414,500 974,700 1,153,700
General and administrative .. 409,900 346,000 1,148,800 1,043,400
Software development ........ 134,600 169,200 373,000 420,100
Depreciation and amortization 162,500 150,900 461,000 412,100
----------- ----------- ----------- -----------
2,541,700 2,350,000 $ 6,883,800 $ 6,570,000
----------- ----------- ----------- -----------
Income before income taxes ........... 924,200 240,200 $ 2,051,500 810,200
Income tax expense .......... (363,000) (93,400) (805,800) (317,500)
----------- ----------- ----------- -----------
Net income ........................... $ 561,200 $ 146,800 $ 1,245,700 $ 492,700
=========== =========== =========== ===========
Net income per common share .......... $ .17 $ .04 $ .37 $ .14
=========== =========== =========== ===========
Weighted average common
shares outstanding .......... 3,320,715 3,444,924 3,322,247 3,454,001
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AVERT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
Cash Flows From Operating Activities:
<S> <C> <C>
Net income .......................................... $ 1,245,700 $ 345,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 461,000 261,200
Bad debt expense ............................... 55,600 13,100
Increase/(decrease) in marketable securities and
other gains ........................... (235,600) (162,300)
Changes in operating assets and liabilities:
Accounts receivable ....................... (679,300) (283,200)
Prepaid expenses and other current assets . 16,400 12,500
Accounts payable .......................... 185,000 180,100
Accrued expenses .......................... 186,000 (52,800)
Income taxes payable ...................... 80,500 (40,000)
Deferred revenue and deposits ............. 34,900 3,100
----------- -----------
Net cash provided by operating activities ...... $ 1,350,200 $ 277,500
Cash Flows from Investing Activities:
Additions to furniture and equipment ............... (286,500) (319,200)
Proceeds from sale of furniture and equipment ...... -- --
----------- -----------
Net cash provided by investing activities .... (286,500) (319,200)
----------- -----------
Cash Flows from Financing Activities:
Purchase of Treasury Stock ..................... (87,200) (171,200)
Exercising of Options .......................... 10,500 --
Dividends declared ............................. (419,300) (349,400)
----------- -----------
Net cash provided by financing activities .... (496,000) (520,600)
Increase/(Decrease) in Cash and Cash Equivalents ........ 567,700 (562,300)
Cash and Cash Equivalents, beginning of period .......... 530,600 580,000
----------- -----------
Cash and Cash Equivalents, end of period ................ $ 1,098,300 $ 17,700
=========== ===========
</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 September 30, 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 September
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 September 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 September 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 September 30, 1999 and September 30, 1998
Total net revenues increased from $2,590,200 for the three-month period
ended September 30, 1998, to $3,465,900 for the comparable three-month period in
1999, or approximately 33.8%. This increase was primarily due to the continued
overall growth of its customer base and their increased membership in Avert
programs, as well as additional customers obtained through Avert's agreement
with Automatic Data Processing (ADP). In total, Avert added 1,460 new customers
to its customer base in the three-month period ended September 30, 1999, as
compared to 587 new customers in the same period of 1998. This represents an
approximate 149% increase. In addition, there were 7,218 customers that actually
utilized Avert services the third three months of 1999, as compared to 5,447 the
third three months of 1998, representing approximately a 32.5% increase. The
dollars spent per customer in the third quarter 1999 was $476 as compared to
$461 in the third quarter 1998, representing an approximate 3.3% increase.
As previously announced, Avert began its rollout of products and services
during the third quarter of 1999 with Automatic Data Processing, Emerging
Business Services (EBS) division and Major Account Division (MAJORS) of ADP
Employer Services. The focus of this partnership agreement is for ADP's Emerging
Business Services division to actively market Avert services to its customers
utilizing a package format. This format uses a combination of cross-referenced
and cascading on-line services to provide ADP's customers with a very
cost-effective way to help screen employees and reduce their hiring risk. In the
third quarter 1999, there were 485 new customers added through EBS channel
(employers of 1-999 employees), and MAJORS channel (employers of 1,000 employees
and up) accounted for 36 new Avert customers.
It is the Company's belief that the investments made in a new computer
system, implemented in April, 1998, have made it possible to extend our market
by leveraging our fundamental competencies in process management, technology,
and order/delivery systems. In addition, there has been concentrated focus on
processing improvements to enable more profitable growth. 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
September 30, 1999 September 30, 1998 Percent of
---------------------- ------------------------ Increase
Revenues % total Revenues % total (Decrease)
-------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Products:
Workers compensation histories $ 230,900 6.7% $ 253,200 9.8% (8.8)%
Criminal history reports $1,954,500 56.4% $1,461,000 56.4% 33.8%
Reference Check reports/ $ 394,600 11.4% $ 298,100 11.5% 32.4%
Credit reports
Motor vehicle driving records $ 411,600 11.9% $ 243,100 9.4% 69.3%
Other products $ 168,400 4.9% $ 91,700 3.5% 83.6%
Services: $ 289,900 8.4% $ 160,300 6.2% 80.1%
Interest income $ 83,000 2.4% $ 80,300 3.1% 3.3%
NET REVENUES $3,465,900 $2,590,200 33.8%
</TABLE>
7
<PAGE>
The largest single product growth of approximately 69.3% occurred in Motor
Vehicle Driving records. This product line accounted for approximately $411,600
or approximately 11.9% of total net revenues in the three-month period ended
September 30, 1999, as compared to approximately $243,100 or 9.4% in the same
three-month period of 1998. 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.
Enhanced automated features made possible by the new computer system implemented
in second quarter 1998, currently being piloted by several customers has
increased the usage of this product.
The Criminal History product line experienced growth of approximately 33.8%
in third quarter 1999 over third quarter 1998. The product contributed
$1,954,500 to total net revenues in the third quarter 1999, as compared to
$1,461,000 to total net revenues in the third quarter 1998. The Company believes
there continues to be a nationwide trend to check prospective employees'
criminal records and it continues to have as a key initiative, obtaining the
quickest, most accurate data available.
There was an increase as a percentage of total net revenues of
approximately 83.6% in "Other Products", representing $168,400 in the third
three-month period of 1999, and $91,700 in the third three-month period of 1998.
This increase was primarily due to a new product called Instant Address Link,
just introduced in first quarter 1999. This product accounted for $52,800 in
third quarter 1999. Through its links with the service bureaus this product
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 can be used to "build" 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.
There was revenue growth of approximately 32.4% generated in the areas of
education/credential verification and credit reports, which increased from
$394,600 in the third quarter of 1998 to $298,100 in the third quarter of 1999.
Workers' compensation histories continued to decline as a percentage of net
revenues as previously predicted. In third quarter, 1999 workers' compensation
reports, represented $230,900 or approximately 6.7% of total net revenues, as
compared to $253,200 for the third three months of 1999, or approximately 9.8%
of total net revenues. The Company believes it will continue to decrease as a
percentage of total net revenues.
Service sales experienced approximately 80.1% revenue growth from $160,300
in the three-month period ended September 30, 1998, to $289,900 in the
three-month period ended September 30, 1999. This increase is primarily
attributable to growth of the customer base membership and corresponding setup
fees, as well as their membership in the Avert Advantage and Avert Advantage
On-line programs, and subscription fee model associated with the ADP partnership
mentioned above.
Income before income taxes increased from $240,200 in third quarter 1998,
to $924,200 in third quarter 1999 or approximately 285.8% and represented
approximately 9.3% in 1998, as compared to approximately 26.7% in 1999. The
Company believes that decreases in all expenses areas was a direct result of
decreased head count, and increased internal efficiencies and capacity made
possible by the new computer system implemented in April 1998.
8
<PAGE>
Total expenses, when expressed as a percentage of total net revenues,
decreased from approximately 90.7% in the third three-month period of 1998,
representing $2,350,000 to approximately 73.3% in the third three-month period
of 1999, representing $2,541,700. A breakdown in expenses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Increase (Decrease)
September 30, 1999 September 30, 1998 % of Revenues
------------------ ------------------ ------------------
Expenses % of Revenue Expenses % of Revenue 1999 over 1998
-------- ------------ -------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Search and product $ 1,519,700 43.8% $ 1,269,400 49.0% (5.2)%
Marketing 315,000 9.1 414,500 16.0 (6.9)
General and administration 409,900 11.8 346,000 13.4 (1.6)
Software development 134,600 3.9 169,200 6.5 (2.6)
Depreciation and amortization 162,500 4.7 150,900 5.8 (1.1)
---------- ----- ---------- ----- -----
Expenses $ 2,541,700 73.3% $ 2,350,000 90.7% (17.4)%
========= ===== ========== ===== =====
</TABLE>
Search and product fees decreased approximately 5.2% as a percentage of net
revenues in the third quarter 1999 over the third 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 decrease head count in the operations area of 7.7 full-time
equivalents, or approximately 23%, in third quarter 1999, as compared to third
quarter 1998. This was also due to improved internal efficiencies brought about
by the new computer system.
There was an approximate 6.9% decrease as a percentage of total net
revenues in marketing expenses, in the third three-month period of 1999 as
compared to the same period 1998. This resulted primarily from a decrease of 2.6
full-time equivalents, or approximately 17%, as well as decreased costs
associated with lead generation activities, in the third quarter 1999 as
compared to the third quarter 1998. 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 and distribution partnerships. 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. Examples of distribution partnerships include Automated Data
Processing, WebHire and Employee Information Services.
General and Administrative expenses decreased approximately 1.6% as a
percentage of total net revenues in the third three months ended September 30,
1999, representing approximately 11.8%, as compared to the third three months
ended September 30, 1998 representing 13.4% of total net revenues. There was a
decrease of 1 full-time equivalent from third quarter 1999 over third quarter
1998, as well as reduced expenditures for temporary personnel.
There was a decrease in software development and maintenance expenses
expressed as a percentage of total net revenues to approximately 3.9% in third
quarter 1999 from approximately 6.5% in the comparable period of 1998. The
primary reason for the reduction of expenses is the decrease in third quarter
1999 of expenditures associated with outside consultants required for the
computer system implementation in April 1998.
9
<PAGE>
There was a decrease in depreciation and amortization expenses when
expressed as a percentage of total net revenues, from approximately 5.8% in the
third three months of 1998, to approximately 4.7% in the comparable period of
1999. This decrease was primarily due to the decrease of depreciation as a
result of the sale of an automobile.
Income taxes for the combined federal and state statutory rate was
approximately 39.2% in third quarter period of 1999 and 38.9% in same period of
1998. The result was net income of $561,200 or $.17 per share on 3,320,715
shares (weighted average shares plus common stock equivalents) for the third
three months ended September 30, 1999, as compared to net income of $146,800 or
$.04 per share on 3,444,924 shares (weighted average shares plus common stock
equivalents) for the third three months ended September 30, 1998. The increased
net income generated in third quarter 1999 represented an approximate 282%
increase over the net income generated in third quarter 1998.
Comparison of nine months ended September 30, 1999 and September 30, 1998
Net revenues increased from $7,380,200 for the nine-month period ended
September 30, 1998, to $8,935,300 for the comparable nine-month period in 1999
or approximately 21.1%. The breakdown of net revenues, exclusive of product
discounts and other miscellaneous income items, is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998 Percent of
----------------------- ------------------------ Increase
Revenues % total Revenues % total (Decrease)
-------- ------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Products:
Workers compensation histories $ 660,500 7.4 $ 746,100 10.1% (11.5)%
Criminal history reports $ 5,074,200 56.8% $ 4,038,500 54.7% 25.6%
Reference Check reports/ $ 930,900 10.4% $ 882,000 12.0% 5.5%
Credit reports
Motor vehicle driving records $ 1,039,700 11.6% $ 750,200 10.2% 38.6%
Other products $ 439,800 4.9% $ 307,200 4.2% 43.2%
Services: $ 661,500 7.4% $ 409,100 5.5% 61.7%
Interest income $ 232,300 2.6% $ 245,100 3.3% (5.2)%
NET REVENUES $ 8,935,300 $ 7,380,200 21.1%
</TABLE>
The largest single product line growth of approximately 38.6%, during the
first nine months of 1999 over the first nine months of 1998, was Motor vehicle
driving records. It represented approximately 11.6% of total net revenues, or
$1,039,700 in the first nine months of 1999, as compared to approximately 10.2%
of total net revenues, or $750,200 in the first nine months of 1998.
The Criminal History product line experienced continued growth of
approximately 25.6% in the nine-month period ended September 30, 1999 as
compared to the nine-month period ended September 30, 1998. It has increased as
a percentage of total net revenues from approximately 54.7% in the first nine
months of 1998, representing $4,038,500, to approximately 56.8% in the same
period of 1999, representing $5,074,200.
Workers' compensation reports continued its downward trend, decreasing from
$746,100 in revenues for the nine-month period ended September 30, 1998 to
$660,500 in revenues for the nine-month period ended September 30, 1999. The
regulation requirements of this product have made it less viable in the
marketplace.
10
<PAGE>
The Services category increased as a percentage of total net revenues by
approximately 61.7% when comparing the first nine months of 1999 to the first
nine months of 1998. The increase resulted primarily from increased membership
in Avert Advantage and Avert Advantage On-line programs, along with the
subscription fee model associated with the ADP partnership mentioned above.
Partner relationships have continued to be a focus of Avert in 1999, as
evidenced by the recent announcements of ADP joint venture relationship and
national rollout.
The category of "Other Products" experienced an increase of approximately
43.2% of total net revenues in the first nine months ended September 30, 1999 as
compared to the first nine months ended September 30, 1998. This increase was
primarily a result of the new product Instant Address Link introduced in first
quarter 1999 which is an address locator service that identifies up to three
known addresses for an applicant, based on social security number usage. These
addresses can be used by customers to "build" criminal history orders in those
geographical areas.
Income before income taxes increased from $810,200 in the nine-month period
ended September 30, 1998 to $2,051,500 in the nine-month period ended September
30, 1999 or approximately 153.2%. This represented approximately 11.0% of net
revenues in the first nine months of 1998 compared to approximately 23.0% in the
first nine months of 1999.
Total expenses increased from $6,570,000 for the nine-month period ended
September 30, 1998 to $6,883,800 for the comparable period in 1999. A breakdown
in expenses is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Increase (Decrease)
September 30, 1999 September 30, 1998 % of Revenues
-------------------------- --------------------------- ------------------
Expenses % of Revenue Expense % of Revenue 1998 over 1997
-------- ------------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Search and product $ 3,926,300 43.9% $ 3,540,700 48.0% (4.1)%
Marketing 974,700 10.9 1,153,700 15.6 (4.7)
General and administration 1,148,800 12.8 1,043,400 14.1 (1.3)
Software development 373,000 4.2 420,100 5.7 (1.5)
Depreciation and amortization 461,000 5.2 412,100 5.6 (0.4)
----------- ------ ----------- ----- -----
Expenses $ 6,883,800 77.0% $ 6,570,000 89.0% (12.0)%
=========== ===== ========== ===== =====
</TABLE>
Total expenses decreased approximately 12.0% as a percentage of total net
revenues in the first nine-month period of 1999 as compared to the first
nine-month period of 1998. One of the primary decreases was in the area of
Search and Products costs, which decreased as a result of increased efficiencies
and decreased head count directly enabled by the new computer system implemented
in second quarter 1998. The other primary area in which expenses decreased was
Marketing, which resulted from a decrease in head count and costs associated
with lead generation activities.
There were decreases as a percentage of total net revenues in general and
administrative, software development, and depreciation and amortization expenses
in the first nine-month period ended September 30, 1999 as compared to the same
period in 1998. These decreases resulted primarily from a decrease in head count
in general and administration area, and amortized personnel costs associated
with the development and implementation of software required for the recently
announced ADP joint marketing venture in the software development area.
Income taxes for the combined federal and state statutory rate remained at
approximately 39% in both the first nine months of 1998 and 1999. The result was
an increase of net income of approximately 97.9%, representing $492,700 or $.14
per share on 3,454,401 shares for the nine months ended September 30, 1998, as
compared to $1,245,700 or $.37 per share on 3,322,247 shares for the nine months
ended September 30, 1999.
11
<PAGE>
Liquidity and Capital Resources
The Company's financial position at September 30, 1999 remained strong with
working capital at that date of $8,273,000 compared to $7,349,000 at December
31,1998. Cash and cash equivalents and marketable securities at September 30,
1999 were $7,340,000 and increased from $6,537,000 at December 31, 1998. Net
cash provided from operations for the nine-month period ended September 30, 1999
was $1,350,200 and consisted primarily of net income of $1,245,700, a $679,300
increase in accounts receivable, and a $186,000 increase in accrued expenses.
The Company had capital expenditures of $286,500 for the nine-month period ended
September 30, 1999 as compared to $319,200 at December 31, 1998. The majority of
the capital expenditures during the nine months ended September 30, 1999 were
attributable to the development of new software and upgrade of existing hardware
for the ADP joint marketing venture and ongoing enhancements. Net cash used in
financing activities for the nine-month period ended September 30, 1999 was
$496,000 and consisted primarily of a cash dividend of $.12 per common share
payable on March 24, 1999 to shareholders of record on March 15, 1999, as well
as $87,200 utilized to repurchase Company stock.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
NONE
ITEM 6. Exhibits and Reports on Form 8-K
(a) 2nd Quarter 1999 Results
(b) Additional Funds Approved for Repurchase of Shares in Open
Market
(c) Avert, Inc. addes Major Account Division to its Joint
Marketing Agreement with ADP for Pre- Employment Screening
(d) Avert, Inc. Selected by CIO Magazine as Top Web-Based
Business
12
<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: November 12, 1999 BY:/s/ Dean A. Suposs
--------------------------------------
Dean A. Suposs, President
DATE: November 12, 1999 BY:/s/ Jamie M. Burgat
--------------------------------------
Jamie M. Burgat, Vice President of
Operations and Chief Financial Officer
13
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,098,000
<SECURITIES> 6,242,000
<RECEIVABLES> 1,796,800
<ALLOWANCES> (112,200)
<INVENTORY> 0
<CURRENT-ASSETS> 9,180,000
<PP&E> 4,926,700
<DEPRECIATION> (1,963,300)
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0
0
<COMMON> 4,386,000
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<SALES> 3,382,700
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