Form 10-Q/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q/A
(Amended
May 31, 2011)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number 000-30099
Access Plans, Inc.
(Exact name of registrant as specified in its charter)
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OKLAHOMA
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27-1846323 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
900 36th Avenue, Suite 105, Norman, OK 73072
(Address of principal executive offices and zip code)
Registrants telephone number, including area code: (405) 579-8525
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No þ
Indicate by check mark whether registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a small reporting company.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of February 11, 2011, 19,877,204 shares of the registrants common stock, $.001 par value
were outstanding.
Explanatory
Note
Access Plans, Inc. is filing this Amendment No. 1 on Form 10-Q/A to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2010, initially filed with the Securities and Exchange Commission on
February 11, 2011.
The following sections of this Form 10-Q/A have been amended:
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Item 9A Controls and Procedures was revised to modify our conclusions regarding
disclosure controls and procedures as of these dates. |
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The signature page date has been revised. |
PART I. FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
Access Plans, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
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December 31, 2010 |
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September 30, 2010 |
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(Audited) |
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Assets |
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Cash and cash equivalents |
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$ |
7,772,648 |
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$ |
5,380,571 |
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Restricted cash |
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714,348 |
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786,871 |
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Accounts receivable, net |
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4,491,144 |
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4,429,885 |
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Advanced agency commissions, net |
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3,553,641 |
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4,619,814 |
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Deferred income taxes |
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930,885 |
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1,010,000 |
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Prepaid expenses |
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65,505 |
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69,987 |
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Total current assets |
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17,528,171 |
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16,297,128 |
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Furniture, fixtures and equipment, net |
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280,481 |
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327,560 |
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Goodwill |
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4,376,339 |
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4,376,339 |
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Intangibles, net |
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2,769,568 |
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3,010,823 |
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Deferred income taxes |
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677,405 |
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736,000 |
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Other assets |
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96,601 |
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103,722 |
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Total assets |
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$ |
25,728,565 |
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$ |
24,851,572 |
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable |
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$ |
993,330 |
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$ |
907,586 |
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Accrued commissions |
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569,159 |
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582,729 |
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Unearned commissions |
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3,353,017 |
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4,571,883 |
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Waiver reimbursement liability |
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650,600 |
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846,600 |
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Deferred revenue |
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812,233 |
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857,942 |
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Notes payable |
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153,901 |
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352,298 |
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Liability for unrecognized tax benefit |
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166,000 |
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166,000 |
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Other accrued liabilities |
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3,287,047 |
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2,352,486 |
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Total current liabilities |
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9,985,287 |
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10,637,524 |
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Total liabilities |
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9,985,287 |
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10,637,524 |
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Stockholders equity: |
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Common stock, $.001 par value;
100,000,000 shares authorized; 19,877,204
shares issued and outstanding |
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19,877 |
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19,877 |
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Additional paid-in-capital |
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11,276,740 |
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11,259,020 |
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Accumulated earnings |
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4,446,661 |
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2,935,151 |
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Total stockholders equity |
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15,743,278 |
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14,214,048 |
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Total liabilities and stockholders equity |
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$ |
25,728,565 |
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24,851,572 |
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See the accompanying notes to the condensed consolidated financial statements.
3
Access Plans, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
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December 31, |
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2010 |
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2009 |
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Net revenues |
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$ |
14,276,142 |
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$ |
13,302,648 |
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Direct costs |
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8,793,119 |
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8,799,708 |
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Gross profit |
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5,483,023 |
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4,502,940 |
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Marketing and sales expenses |
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454,662 |
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581,154 |
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General and administrative expenses |
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2,232,021 |
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2,002,659 |
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Depreciation and amortization |
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292,747 |
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284,026 |
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Operating income |
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2,503,593 |
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1,635,101 |
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Other income (expense): |
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Other income |
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94,444 |
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Interest income (expense), net |
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3,666 |
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(38,090 |
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Total other income (expense): |
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3,666 |
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56,354 |
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Income before income taxes |
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2,507,259 |
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1,691,455 |
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Provision for income taxes |
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Current |
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857,771 |
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670,465 |
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Deferred |
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137,978 |
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124,495 |
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Total provision for income taxes |
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995,749 |
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794,960 |
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Net income |
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$ |
1,511,510 |
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$ |
896,495 |
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Per share data: |
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Basic |
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$ |
0.08 |
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$ |
0.04 |
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Diluted |
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$ |
0.08 |
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$ |
0.04 |
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Average Shares Outstanding: |
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Basic |
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19,877,204 |
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20,301,867 |
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Diluted |
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20,028,482 |
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20,459,674 |
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See the accompanying notes to the condensed consolidated financial statements.
4
Access Plans, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended |
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December 31, |
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2010 |
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2009 |
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Cash flows from operating activities |
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Net income |
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$ |
1,511,510 |
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$ |
896,495 |
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Adjustments to reconcile net income to net cash
provided by operating activities: |
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Deferred tax expense |
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137,978 |
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124,495 |
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Depreciation and amortization |
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292,747 |
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284,026 |
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Amortization of loan discount to interest expense |
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38,643 |
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Stock-based compensation |
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17,720 |
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800 |
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Gain on reduction in related party debt |
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(94,444 |
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Provision for losses on receivables |
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7,067 |
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Change in operating assets and liabilities: |
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Receivables |
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(68,326 |
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(59,305 |
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Advanced agency commissions |
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1,066,173 |
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480,024 |
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Prepaid expenses and other assets |
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11,603 |
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26,064 |
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Accounts payable |
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85,744 |
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121,018 |
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Accrued commissions |
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(13,750 |
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(54,556 |
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Unearned commissions |
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(1,218,866 |
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(624,581 |
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Deferred revenue |
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(45,709 |
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(145,443 |
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Claims and other accrued liabilities |
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738,561 |
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261,738 |
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Net cash provided by operating activities |
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2,522,452 |
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1,254,974 |
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Cash flows from investing activities |
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Decrease in restricted cash |
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72,523 |
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463,963 |
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Purchase of equipment |
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(4,501 |
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(18,185 |
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Net cash provided by investing activities |
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68,022 |
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445,778 |
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Cash flows from financing activities |
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Payments on other debt |
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(198,397 |
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(134,940 |
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Purchase of treasury stock |
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(500,000 |
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Net cash (used in) financing activities |
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(198,397 |
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(634,940 |
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Net increase in cash and cash equivalents |
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2,392,077 |
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1,065,812 |
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Cash and cash equivalents at beginning of period |
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5,380,571 |
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4,108,183 |
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Cash and cash equivalents at end of period |
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$ |
7,772,648 |
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$ |
5,173,995 |
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See the accompanying notes to the condensed consolidated financial statements.
5
ACCESS PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2010
(UNAUDITED)
NOTE 1 NATURE OF BUSINESS
Access Plans, Inc. (the Company) develops and distributes consumer membership plans and consumer
driven healthcare programs.
The Companys operations are currently organized under four segments:
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Wholesale Plans Division plan offerings are customized membership marketing plans
primarily offered at rent-to-own retail stores. |
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Retail Plans Division plan offerings are primarily healthcare savings plans. These
plans are not insurance, but allow members access to a variety of healthcare networks to
obtain discounts from usual and customary fees. |
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Insurance Marketing Division markets individual major medical health insurance and
other insurance products through a national network of independent agents. |
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Corporate includes compensation and other expenses for individuals performing
services for administration of overall operations of the Company. |
NOTE 2 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are adequate to make the
information not misleading. It is suggested that these condensed consolidated financial statements
be read in conjunction with the financial statements and the notes thereto included in the
Companys Annual Report on Form 10-K for the year ended September 30, 2010.
All adjustments that, in the opinion of management, are necessary for a fair presentation for the
periods presented have been reflected as required by Regulation S-X, Rule 10-01. All such
adjustments made during the three months ended December 31, 2010 and 2009 are of a normal,
recurring nature.
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RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
None
Recently Issued Accounting Pronouncements Not Yet Adopted
In July 2010, the FASB issued Accounting Standards Update No. 2010-20 (ASU 2010-20), Receivables
(Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for
Credit Losses. ASU 2010-20 requires disclosures about the nature of the credit risk in an entitys
financing receivables, how that risk is incorporated into the allowance for credit losses, and the
reasons for any changes in the allowance. Disclosure is required to be disaggregated at the level
at which an entity calculates its allowance for credit losses. ASU 2010-20 was effective for the
Company beginning December 31, 2010, but was extended to June 30, 2011 per ASU 2011-01. The
adoption of this accounting standard is not expected to have a material impact on our financial
position, results of operations, cash flows and disclosures.
In January 2011, the FASB issued Accounting Standards Update No. 2011-01 (ASU 2011-01), Receivables
(Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in
Update No. 2010-20. ASU 2011-01 defers the effective date of the disclosure requirements for
public entities about troubled debt restructurings in Accounting Standards Update No. 2010-20,
Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses, to be concurrent with the effective date of the guidance for
determining what constitutes a troubled debt restructuring, as presented in proposed Accounting
Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt
Restructurings by Creditors. ASU 2011-01 is effective for the Company beginning June 30, 2011. The
adoption of this accounting standard is not expected to have a material impact on our financial
position, results of operations, cash flows and disclosures.
In December 2010, the FASB issued Accounting Standards Update No. 2010-28 (ASU 2010-28),
IntangiblesGoodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test
for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update modify
Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.
For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test
if it is more likely than not that a goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. The qualitative factors are
consistent with the existing guidance, which requires that goodwill of a reporting unit be tested
for impairment between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments
in this Update are effective for fiscal years, and interim periods within those years, beginning
after December 15, 2010. Early adoption is not permitted. ASU 2010-28 is effective for us beginning
January 1, 2011 and is not expected to have a material impact on the Companys financial position,
results of operations, cash flows and disclosures.
In December 2010, the FASB issued Accounting Standards Update No. 2010-29 (ASU 2010-29), Business
Combinations (Topic 805) Disclosure of Supplementary Pro Forma Information for Business
Combinations. ASU 2010-29 requires a public entity to disclose pro forma information for business
combinations that occurred in the current reporting period. The disclosures include pro forma
revenue and earnings of the combined business combinations that occurred during the year had been
as of the beginning of the annual reporting period. If comparative financial statements are
presented, the pro forma revenue and earnings of the combined entity for the comparable prior
reporting period should be reported as though the acquisition date for all business combinations
that occurred during the current year had been as of the beginning of the comparable prior annual
reporting period. The amendments in this update are effective prospectively for business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010 effective for the Company beginning
September 30, 2011. The adoption of this accounting standard is not expected to have a material
impact on the Companys financial position, results of operations, cash flows and disclosures.
7
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable and Credit Policies
Accounts receivable are recorded net of the allowance for doubtful accounts established to provide
for losses on uncollectible accounts based on managements estimates and historical collection
experience. The allowance for doubtful accounts was $99,586 and $98,929, respectively, at December
31, 2010 and September 30, 2010. The Company recorded bad debt expense of $7,067 for the three
months ended December 31, 2010 and $0 for the three months ended December 31, 2009.
Advanced Agent Commissions
For the Companys Insurance Marketing Division, the allowance for doubtful recoveries for advanced
agent commissions is determined based primarily upon estimates of the recovery of future
commissions expected to be earned by the insurance agents to whom advances are outstanding and,
where applicable, the agents responsible for the management of those agents. The allowance for
doubtful recoveries was $1,277,579 at December 31, 2010 and $1,472,939 at September 30, 2010. The
Company did not recognize any bad debt expense on advanced agent commissions during the three month
periods ended at December 31, 2010 and 2009.
The allowance for doubtful recoveries reflects significant judgment regarding the estimates used in
the determination of the allowance. Accordingly, subsequent actual results may differ from the
assumptions and estimates utilized for the analysis at December 31, 2010.
Revenue Recognition
The Company recognizes revenue when four basic criteria are met:
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Persuasive evidence of an arrangement exists; |
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Delivery has occurred or services have been rendered; |
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The sellers price to the buyer is fixed or determinable; and, |
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Collectability is reasonably assured. |
The Companys revenue recognition varies based on source.
Wholesale and Retail Plans membership fees are paid to the Company on a weekly, monthly or annual
basis, and fees paid in advance are recorded as deferred revenue and recognized monthly over the
applicable membership term. The Companys wholesale and private label partners bill their
customers for the membership fees and periodically remit to the Company its portion of the fees.
For the Companys retail members that are typically billed directly, the billed amount is collected
by electronic charge to the members credit card, automated clearinghouse or electronic check.
Insurance Marketing revenue reflects commissions and fees reported to the Company by insurance
companies for policies sold by the divisions agents. Commissions and fees collected are
recognized as earned on a monthly basis until such time that the underlying contract is reported to
the division as terminated. The Companys commission rates vary by insurance carrier, the type of
policy purchased by the policyholder and the amount of time the policy has been active, with
commission rates typically being higher during the first 12 months of the policy period. Revenue
also includes administrative fees the Company charges and the interest income earned on commissions
advanced to the divisions agents.
Unearned commissions comprise commission advances received from insurance carriers but not yet
earned or collected. These advances are subject to repayment to the carrier in the event that the
policy lapses before the advanced commissions are earned and collected. Additionally, enrollment
fees received are recorded as deferred revenue and amortized over the expected weighted average
life of the policies sold which currently approximates 18 months. Deferred revenue is reported net
of related policy acquisition costs, principally lead and marketing credits, which are capitalized
and amortized over the same weighted average life, to the extent such deferred costs do not exceed
the related gross deferred revenue. Any excess costs are expensed as incurred.
8
Commission Expense
Commission expense is based on the applicable rates applied to membership revenues billed or
insurance commissions collected, and are recognized as incurred on a monthly basis until the
underlying program member or insurance policy is terminated.
The Insurance Marketing Division advances agent commissions, up to nine months, for certain
insurance programs. The advance commissions to the Companys agents are funded partly by the
insurance carriers represented and partly by the Company. These commissions advanced to agents are
reflected on the balance sheet as advanced agent commissions. Collection of the commissions
advanced (plus accrued interest) is accomplished by withholding amounts earned by the agent on the
policy upon which the advance was made. In the event of early termination of the underlying policy,
the division seeks to recover the unpaid advance balance by withholding advanced and earned
commissions on other policies sold by the agent. This division also has the contractual right to
pursue other sources of recovery, including recovery from the agents managing the agent to whom
advances were made.
This allowance requires judgment and is based primarily upon estimates of the recovery of future
commissions expected to be earned by the agents with outstanding balances and, where applicable,
the agents responsible for their management. Advances are written off when determined to be
non-collectible.
The Retail Plans Division advances agents commissions for certain retail plan programs. The
advance commissions to the Companys agents are funded by the Company and are reflected on the
balance sheet as advanced agent commissions. Collection of the commissions advanced is
accomplished by withholding amounts earned by the agent on the memberships upon which the
advance was made. In addition, certain membership persistency levels must be maintained.
Restricted Cash
Restricted cash represents investments with original maturities of one year or less pledged to
obtain bonds for regulatory licenses and processing and collection arrangements for credit card and
automated clearing house payments.
Goodwill and Intangible Assets
Goodwill associated with business acquisitions and combinations represents the excess of the cost
of a business acquired over the net of the amounts assigned to assets acquired, including
identifiable intangible assets and liabilities assumed. U.S. generally accepted accounting
principles specify criteria used in determining whether intangible assets acquired in a business
acquisition or combination must be recognized and reported separately from goodwill. Amounts
assigned to goodwill and other intangible assets are based on independent appraisals or internal
estimates.
Intangible assets, other than goodwill, acquired on April 1, 2009 as part of Access Plans USA
acquisition, were valued at $3,000,000 and are being amortized over the estimated useful life of
those assets. The related amortization expense was $116,250 for each of the three month periods
ended December 31, 2010 and 2009.
Customer lists acquired in fiscal 2007 were valued at $2,500,000 and are being amortized over 60
months, the estimated useful life of the lists. The related amortization expense was $125,001 for
each of the three month periods ended December 31, 2010 and 2009.
Earnings per Share
Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable
to common shareholders by the weighted-average number of common shares outstanding during the
period. Diluted net earnings (loss) per common share is determined using the weighted-average
number of common share shares outstanding during the period, adjusted for the dilutive effect of
common stock equivalents, consisting of shares that may be issued upon exercise of common stock
options. In periods where losses are reported, the weighted-average number of common shares
outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about financial instruments. The
carrying amounts reflected in the balance sheets for cash, cash equivalents, restricted cash,
accounts receivable, advanced agency commissions, accounts payable
and accrued expenses approximate the respective fair values due to the short maturities of those
instruments. The fair value of the notes payable approximates carrying value since stated rates
are similar to rates currently available to the Company for debt with similar terms and remaining
maturities.
9
NOTE 4 ADVANCED AGENT COMMISSIONS
Advanced agent commissions at December 31, 2010 and September 30, 2010 consist of:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
Advances funded by: |
|
|
|
|
|
|
|
|
Insurance carriers |
|
$ |
3,353,017 |
|
|
$ |
4,571,883 |
|
Specialty lending corporation |
|
|
153,303 |
|
|
|
352,298 |
|
Self-funded |
|
|
1,324,900 |
|
|
|
1,168,572 |
|
|
|
|
|
|
|
|
Sub-total |
|
|
4,831,220 |
|
|
|
6,092,753 |
|
Allowance for doubtful recoveries |
|
|
(1,277,579 |
) |
|
|
(1,472,939 |
) |
|
|
|
|
|
|
|
Advanced agent commissions, net |
|
$ |
3,553,641 |
|
|
$ |
4,619,814 |
|
|
|
|
|
|
|
|
The allowance for doubtful recoveries for advanced agent commissions was determined based primarily
upon estimates of the recovery of future commissions expected to be earned by the agents to whom
advances are outstanding and, where applicable, the agents responsible for the management. The
Company did not recognize any bad debt expense on advanced agent commissions during the three month
periods ended December 31, 2010 and 2009.
NOTE 5 GOODWILL AND INTANGIBLE ASSETS
The Company evaluates the recoverability of identifiable intangible assets whenever events or
changes in circumstances indicate that an intangible assets carrying amount may not be
recoverable. The Company has not recognized an impairment loss related to intangible assets during
the three month periods ended December 31, 2010 and 2009.
The Company evaluates the impairment of goodwill as of the end of each fiscal year and the
recoverability of identifiable intangible assets whenever events or changes in circumstances
indicate that an intangible assets carrying amount may not be recoverable. If considered
impaired goodwill will be written down to fair value and a corresponding impairment loss
recognized. There were no changes in the carrying amount of goodwill during the three month
periods ended December 31, 2010 and 2009.
In conducting the impairment analysis as of September 30, 2010, the Company incorporated a
sensitivity analysis. Either the discount rate could increase by 30% of the discount rate utilized
or the sales growth assumption could decline by 20% and the Companys reporting units or divisions
would continue to have fair value in excess of carrying value. The Company currently does not have
any reporting units or divisions that are in risk of failing step 1 of this goodwill impairment
test.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful |
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
|
|
Life |
|
|
Gross |
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
Amortization |
|
|
Net |
|
Alliance HealthCard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
5 |
|
|
$ |
2,500,000 |
|
|
$ |
(1,916,682 |
) |
|
|
583,318 |
|
|
$ |
(1,791,677 |
) |
|
$ |
708,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Access Plans USA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-force books
of business |
|
|
5 |
|
|
|
1,200,000 |
|
|
|
(420,000 |
) |
|
|
780,000 |
|
|
|
(360,000 |
) |
|
|
840,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency relationships |
|
|
8 |
|
|
|
1,500,000 |
|
|
|
(328,125 |
) |
|
|
1,171,875 |
|
|
|
(281,250 |
) |
|
|
1,218,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary programs |
|
|
8 |
|
|
|
300,000 |
|
|
|
(65,625 |
) |
|
|
234,375 |
|
|
|
(56,250 |
) |
|
|
243,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
5,500,000 |
|
|
|
(2,730,432 |
) |
|
|
2,769,568 |
|
|
$ |
(2,489,177 |
) |
|
$ |
3,010,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the each of the three month periods ended December 31, 2010 and 2009 was
$241,251.
10
NOTE 6 SUPPLEMENTAL CASH FLOWS INFORMATION
Cash payments for interest and income taxes for the three months ended December 31, 2010 and 2009
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
5,963 |
|
|
$ |
20,463 |
|
Income taxes paid |
|
$ |
126,158 |
|
|
$ |
267,900 |
|
NOTE 8 OTHER BORROWINGS
During March 2008, Access Plans USA, Inc. obtained a loan of $1,605,000 from Commission Funding
Group (CFG), a specialty lending corporation. The current CFG loan matures March 2011, and the
loan principal is repayable in equal monthly installments. The interest rate, which is variable,
together with the origination fee amortization charge, was 10% at December 31, 2010, the minimum
rate provided by the loan agreement. Collateral provided to CFG includes rights, only in the event
of a default, to cash, accounts receivable, and certain Insurance Marketing commissions from
insurance carriers. Principal and interest payments on this loan were $149,441 and $5,963,
respectively for the three months ended December 31, 2010.
In January 2010, Americas Healthcare/Rx Plan Agency (AHCP) obtained a loan of $195,800 from Loyal
American Life Insurance Company (Loyal). The loan represents AHCPs unsecured obligations or
advances from Loyal. The amount may be adjusted for any secured advances transferred to unsecured
obligations during the loan period. At December 31, 2010 these transfers were not significant. The
loan matured in December 2010. Principal payments made on this loan were $48,956 for the three
months ended December 31, 2010.
Principal payments due on these loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Payments |
|
Fiscal Year Ended September 30, |
|
CFG |
|
|
Loyal |
|
|
Total |
|
2011 |
|
$ |
153,303 |
|
|
$ |
598 |
|
|
$ |
153,901 |
|
NOTE 9 INCOME TAXES
Components of income tax expense for the three months ended December 31, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Current income tax expense |
|
|
|
|
|
|
|
|
Federal |
|
$ |
843,492 |
|
|
$ |
617,306 |
|
State |
|
|
14,279 |
|
|
|
53,159 |
|
|
|
|
|
|
|
|
Total current income tax expense |
|
|
857,771 |
|
|
|
670,465 |
|
|
|
|
|
|
|
|
Deferred income tax (benefit) |
|
|
|
|
|
|
|
|
Federal |
|
|
133,777 |
|
|
|
109,489 |
|
State |
|
|
4,201 |
|
|
|
15,006 |
|
|
|
|
|
|
|
|
Total deferred income tax (benefit) |
|
|
137,978 |
|
|
|
124,495 |
|
|
|
|
|
|
|
|
Net income tax expense |
|
$ |
995,749 |
|
|
$ |
794,960 |
|
|
|
|
|
|
|
|
NOTE 10 WAIVER REIMBURSEMENTS LIABILITY
The Company has entered into contractual arrangements to administer certain membership programs
for its clients, primarily in the rental purchase industry. For some clients, the administration
duties include reimbursing the client for certain expenses incurred in the operation of a
particular membership program. Under these arrangements, the Company is responsible for
reimbursing the client when (under the terms of the agreement with the clients customer) the
client waives rental payments required of the clients customer under specifically defined and
limited circumstances, such as when the customer becomes unemployed for a stated time period or
when the Companys client provides product service to its customer. It is the Companys policy
to reserve the necessary funds in order to meet the anticipated reimbursement obligation owed to
the Companys clients in the event the Companys reimbursement obligations require payment in the
future. The Companys obligations for these
reimbursements do not have any kind of a tail that extends beyond Companys clients payment
obligations following termination of the contractual arrangement or agreement with either the
Companys client or the clients customer. As of December 31, 2010 and September 30, 2010 the
Company recorded an estimated incurred-but-not-reported-reimbursements obligation of $650,600 and
$846,600, respectively.
11
NOTE 11 RELATED PARTY TRANSACTIONS
The Company occupies its corporate offices and Wholesale Plans Division in Norman, Oklahoma under
a lease that expires September 30, 2011. The total leased space is approximately 6,523 square
feet. The lease agreement is with Southwest Brokers, Inc., a company owned by Brett Wimberley, one
of the Companys Directors, President and Chief Financial Officer. This lease was executed on May
1, 2005, amended on August 1, 2006 and August 1, 2008, September 30, 2009, and September 30, 2010.
In the event the Company is required to move from the current Norman, Oklahoma office facilities,
the terms and cost of occupancy may be substantially different than those under which the office
space is currently occupied and the rental rate may be substantially greater.
The Companys rent expense associated with related party transactions was approximately $24,746
and $22,968 for the three month periods ending December 31, 2010 and 2009, respectively.
NOTE 12 SEGMENT REPORTING
The Company operates in four reportable business segments; a) Wholesale Plans; b), Retail Plans;
c) Insurance Marketing; and d) Corporate (holding company).
Reportable business segment information follows.
The following tables set forth revenue, gross margin and operating income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
December 31, |
|
($ in thousands) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Net revenues by segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
6,054 |
|
|
$ |
5,138 |
|
|
|
18 |
% |
Retail Plans (a) |
|
|
4,574 |
|
|
|
3,881 |
|
|
|
18 |
% |
Insurance Marketing |
|
|
5,065 |
|
|
|
5,475 |
|
|
|
(7 |
%) |
Corporate (holding company) |
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Eliminations |
|
|
(1,417 |
) |
|
|
(1,191 |
) |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,276 |
|
|
$ |
13,303 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin by segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
2,312 |
|
|
$ |
1,220 |
|
|
|
90 |
% |
Retail Plans (a) |
|
|
2,400 |
|
|
|
2,237 |
|
|
|
7 |
% |
Insurance Marketing |
|
|
771 |
|
|
|
1,046 |
|
|
|
(26 |
%) |
Corporate (holding company) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,483 |
|
|
$ |
4,503 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income by
segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
1,810 |
|
|
$ |
706 |
|
|
|
156 |
% |
Retail Plans (a) |
|
|
1,238 |
|
|
|
935 |
|
|
|
32 |
% |
Insurance Marketing |
|
|
36 |
|
|
|
256 |
|
|
|
(86 |
%) |
Corporate (holding company) |
|
|
(580 |
) |
|
|
(262 |
) |
|
|
(122 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,504 |
|
|
$ |
1,635 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gross of intercompany eliminations |
12
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2010 |
|
|
2010 |
|
Segment assets |
|
|
|
|
|
|
|
|
Wholesale Plans (a) |
|
$ |
22,146 |
|
|
$ |
18,998 |
|
Retail Plans (a) |
|
|
27,972 |
|
|
|
26,369 |
|
Insurance Marketing |
|
|
7,798 |
|
|
|
8,499 |
|
Corporate |
|
|
(32,187 |
) |
|
|
(29,014 |
) |
Intercompany Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
25,729 |
|
|
$ |
24,852 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gross of intercompany eliminations |
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Except as otherwise indicated, the first personal plural pronoun in the nominative case form we
and its objective case form us, its possessive and the intensive case forms our and ourselves
and its reflexive form ourselves in this report refer collectively to Access Plans, Inc. and its
subsidiaries and its executive officers and directors.
Overview
The Companys operations are currently organized under four segments:
|
|
|
Wholesale Plans Division plan offerings are customized membership marketing plans
primarily offered at rent-to-own retail stores. |
|
|
|
Retail Plans Division plan offerings are primarily healthcare savings plans. These
plans are not insurance, but allow members access to a variety of healthcare networks to
obtain discounts from usual and customary fees. |
|
|
|
Insurance Marketing Division markets individual major medical health insurance and
other insurance products through a national network of independent agents. |
|
|
|
Corporate includes compensation and other expenses for individuals performing
services for administration of overall management and operations of the Company. |
Wholesale Plans
The Wholesale Plans Division provides our clients with customized membership marketing plans that
leverage their brand names, customer relationships and typically their payment mechanism, plus
offer benefits that appeal to their customers. The value provided by the plans to our clients,
includes increased customer attraction and retention, plus incremental fee income with limited
risk or capital cost.
Our plans are primarily offered at rent-to-own retail stores. Nationwide there are approximately
8,600 locations serving approximately 4.1 million households at any given time during the year
according to the Association of Progressive Rental Organizations (APRO). It is estimated that
the two largest rent-to-own industry participants account for approximately 4,800 of the total
number of stores, and the majority of the remainder of the industry consists of companies each
with fewer than 50 stores. The industry has been consolidating and is expected to continue,
resulting in an increased concentration of stores in the two largest rent-to-own industry
participants.
The rent-to-own industry serves a highly diverse customer base. According to the APRO,
approximately 83% of rent-to-own customers have household incomes between $15,000 and $50,000 per
year. The rent-to-own industry serves a wide variety of customers by allowing them to obtain
merchandise that they might otherwise be unable to obtain due to insufficient cash resources or a
lack of access to credit. APRO also estimates that 96% of customers have high school diplomas.
13
We currently deliver membership plans to over 220 companies, including retail purchase
dealers, insurance companies, financial institutions, retail merchants, and consumer finance
companies. At December 31, 2010, our wholesale plans were offered at approximately 4,910
locations. Of the locations at December 31, 2010, 2,880 locations were Rent-A-Center owned
locations operated under their brand, Rent-A-Center, Inc., a Nasdaq (symbol RCII) traded company.
Rent-A-Center, Inc. is the largest rent-to-own company in the United States, Puerto Rico and
Canada. Our revenue attributable to the contractual arrangements with Rent-A-Center was
approximately $3.2 million (22% of total revenue) during the three months ended December 31, 2010,
compared to $3.0 million (23% of total revenue) during the three months ended December 31, 2009.
Revenue attributable to our Wholesale Plans Division accounted for $6.1 million (42% of total
revenue) during the three months ended December 31, 2010 compared to $5.1 million (39% of total
revenue) during the three months ended December 31, 2009. Our growth in wholesale plans revenue
is dependent in significant part on an increase in the number of rent-to-own locations at which
our plans are offered and the sales efforts of those locations. Although our revenue from
wholesale plans continues to grow, revenue of this division has declined as a percentage of total
revenues as we have diversified our revenue sources through the merger with Access Plans USA.
Although we have long-term contracts with Rent-A-Center and other rent-to-own companies, loss of
either, especially Rent-A-Center would have a significant impact on our revenues, profitability
and our ability to negotiate discounts with our vendors.
Retail Plans
Our Retail Plans Division offerings include healthcare savings plans, auto related discount plans
and association memberships that are not insurance, but provide insurance features and benefits.
These membership savings plans allow members access to a variety of healthcare, auto related and
retail merchant networks to obtain discounts from usual and customary fees or charges.
Additionally, we offer wellness programs, prescription drug and dental discount programs, medical
discount cards, and limited benefit insured plans. Our members pay healthcare providers the
discounted rate at the time services are provided to them. These plans are designed to serve the
markets in which individuals either have no health insurance or limited healthcare benefits.
Revenue attributable to our Retail Plans Division was approximately $4.6 million (32% of total
revenue) during the three months ended December 31, 2010, compared to $3.9 million (29% of total
revenue) during the three months ended December 31, 2009.
This division is comprised of the membership business of Alliance Healthcard, The Capella Group,
Inc. (Capella) and Protective Marketing Enterprises, Inc. (PME). Capella and PME are
subsidiaries of Access Plans USA which was acquired on April 1, 2009. PME also owns and manages
proprietary networks of dental and vision providers that provide services at negotiated rates to
certain members of our plans and other plans that have contracted with us for access to our
networks.
Through our healthcare savings plans, we believe customers save an average of 35% on their medical
costs and between 10% and 50% on services through other discount medical providers. These
discounts for services that do not require the use of a medical preferred provider organization
(PPO) are more difficult to track because our members pay a discounted rate at point of service.
Some of our Retail Plans clients choose to include our benefits with their own membership plan
offering. In these instances, the client bears the cost of marketing and fulfillment, and we
provide customer service. These offerings are designed to enhance our clients existing offering
and improve their product value relative to their competition and in some instances to improve
their customer retention. While these plans provide lower periodic member fees, we incur limited
implementation costs and receive higher revenue participation rates. Other target distribution
channels for this division include retailers, insurance companies, network marketing
organizations, independent insurance agencies and agents, consumer direct sales call centers, and
financial institutions.
In order to deliver our membership offerings, we contract with a number of different vendors to
provide various products and services to our members. The majority of these vendor relationships
involve the vendor providing our members access to their network or providers or their locations
and our members obtain a discount at the time of service. We have vendor relationships with
medical networks, automotive service companies, insurance companies, travel related entities and
food and entertainment consumer discount providers. Our vendors value the relationship with us
because we deliver many customers to them without incremental capital cost or risk on their part
and these relationships are governed by multi-year agreements and aggregated volume scaling.
Insurance Marketing
Our Insurance Marketing Division offers and sells individual major medical health insurance
products and related benefit plans, including specialty insurance products, primarily through a
national network of independent agents.
Americas Healthcare/Rx Plan Agency (AHCP) is the centerpiece of the Insurance Marketing Division.
AHCP distributes major medical, short-term medical, critical illness and related health insurance
products to small businesses, self-employed and other individuals and families through a network
of approximately 7,607 independent agents. Our primary carriers that we represent include Golden
Rule Insurance Company, World Insurance Company, Aetna and Colorado Bankers.
14
We support our agents and recruit new agents via access to proprietary and private label
products, leads for new sales, commission advance programs, incentive programs, including an
annual convention, web-based technology, and back-office support. More specifically, our agent
support and recruiting tools include:
|
|
|
e-Agent Center provides agents with access to real-time rate quoting, on-line
licensing and contracting, insurance application submission, access to brochures and other
marketing materials. |
|
|
|
Lead Distribution we utilize an electronic system to connect agents with an on-line
lead ordering and delivery system. Leads are also provided in certain situations as
incentives to sell certain policies. |
|
|
|
Incentive programs to assist with agent motivation and recruitment, we provide paid
annual convention trips and periodic sales contests. |
|
|
|
Agent advances with most of the major medical products we represent, agents are
entitled to three to nine months of advance commissions either funded by AHCP or our
insurance carrier partner. Our ability to grow this segment will depend, in part, on our
continued access to working capital to fund these advances. |
|
|
|
Home office support this includes agent and product training, marketing materials
and agent communication. The training programs include both on-site and in-house schools,
DVDs and webcasts covering product knowledge and sales techniques as well as market
conduct and regulatory compliance issues. In addition, our support includes development
and distribution of a wide variety of marketing materials including flyers, brochures,
email blasts and letters. We also promote and inform our agents on important news and
updates via a weekly newsletter. |
Our strategy for the Insurance Marketing Division is to:
|
|
|
Continue working with insurance carriers in the development of proprietary products
for our agents to represent and offer; |
|
|
|
Expand the number of carriers that we represent for more product choice for customers
and expanded geographic representation; and |
|
|
|
Enhance our e-agent platforms in order to better serve our existing agents and improve
attraction to new agents to sell plans we represent. |
The revenue of our Insurance Marketing Division is primarily from earned sales commissions paid by
the insurance companies this Division represents. These sales commissions are generally a
percentage of premium revenue. Revenue attributable to our Insurance Marketing Division was
approximately $5.1 million (35% of total revenue) for the three months ended December 31, 2010,
compared to $5.5 million (41% of total revenue) during the three months ended December 31, 2009.
Growth of our commission revenue is based on continued recruitment efforts of agents and the
resulting penetration of the individual, family and small business health insurance markets,
driving a corresponding growth in the number of policies in force. We estimate that as of December
31, 2010 and September 30, 2010 we had 25,200 policies in force.
The Health Care and Education Affordability Reconciliation Act of 2010 (Health Care Reform Law)
was signed into law on March 30, 2010. Beginning in August 2010 insurers were required to
implement a number of changes related to major medical insurance policies. These changes include,
but are not limited to changes to required coverage, elimination of most preexisting condition
exclusions, and a minimum loss ratio of 80%. The minimum loss ratio requires health insurance
companies to maintain premium levels such that 80% of the premium is utilized for claims on
medical services and related expenses (85% for group health). The law will require certain people
to purchase health insurance and will set up subsidies to assist certain people in purchasing
health insurance and allows certain people to obtain insurance from the federal government. It is
possible that this law will impact the products we currently offer or change the number of
customers or potential customers for our products. As a result of the minimum loss ratio
requirement in the Health Care Reform Law, commissions on the sale of individual major medical
insurance policies were reduced in January 2011. This will result in a reduction in our revenue
related to the sale of major medical policies. Most of our commission revenue is ultimately paid
to our agents so the reduction in revenue will not cause a reduction in our profitability in the
same proportion. The reduction in commission could cause our agents to stop selling health
insurance because of the reduced commissions or cause them to sell other products to make up for
the loss of their revenues.
In response, we are endeavoring to expand the portfolio of health related insurance products that
we provide to our agents. These new and expanded products will furnish our agents a means to
mitigate the possible financial impact that may result from the new law.
15
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. Actual results may differ from
those estimates and the differences may be material to the financial statements. Certain
significant estimates are required in the evaluation of goodwill for impairment and intangible
assets for amortization, allowances for doubtful recoveries of advanced agent commissions, deferred
income taxes, accounts and notes receivable and the waiver reimbursements liability. Actual results
could differ from those estimates and the differences could be material.
Goodwill and Intangible Assets
Goodwill in business acquisitions represents the excess of the cost of a business acquired over the
net of the amounts assigned to assets acquired, including identifiable intangible assets and
liabilities assumed. GAAP specifies criteria to be used in determining whether intangible assets
acquired in a business combination must be recognized and reported separately from goodwill.
Amounts assigned to goodwill and other intangible assets are based on independent appraisals or
internal estimates.
Intangible assets, other than goodwill, acquired on April 1, 2009 as part of Access Plans USA
acquisition were valued at $3,000,000 and are being amortized over the estimated useful life of
those assets. The related amortization expense was $116,250 for each of the three month periods
ended December 31, 2010 and 2009.
Customer lists acquired in acquisitions are capitalized and amortized over the estimated useful
lives of the customer lists.
Customer lists acquired in 2007 were valued at $2,500,000 and are being amortized over 60 months,
the estimated useful life of the lists. The related amortization expense was $125,001 for each of
the three month periods ended December 31, 2010 and 2009.
Stock Based Compensation
We measure stock based compensation expense using the modified prospective method. Under the
modified prospective method, stock-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as expense on a straight-line basis over the
requisite service or vesting period.
Revenue Recognition
We recognize revenue when four basic criteria are met:
|
|
|
Persuasive evidence of an arrangement exists; |
|
|
|
Delivery has occurred or services have been rendered; |
|
|
|
The sellers price to the buyer is fixed or determinable; and, |
|
|
|
Collectability is reasonably assured. |
Our revenue recognition varies based on the revenue source.
Wholesale and Retail Plans Division membership fees are paid to us on a weekly, monthly or annual
basis and fees paid in advance are recorded as deferred revenue and recognized monthly over the
applicable membership term. Our wholesale and private label partners bill their customers for the
membership fees and periodically remit our portion of the fees to us. For our retail members that
are typically billed directly, the billed amount is collected by electronic charge to the members
credit card, automated clearinghouse or electronic check.
Insurance Marketing Division revenue reflects commissions and fees reported to us by insurance
companies for policies sold by the divisions agents. Commissions and fees collected are
recognized as earned on a monthly basis until the underlying insurance contract is reported to the
division as terminated. Our commission rates vary by insurance carrier, the type of policy
purchased by the policyholder and the amount of time the policy has been active, with commission
rates typically being higher during the first 12 months of the policy period. Revenue also includes
interest income earned on commissions advanced to the divisions agents.
16
Unearned commissions comprise commission advances received from insurance carriers but not yet
earned or collected. These advances are subject to repayment back to the carrier in the event that
the policy lapses before the advanced commissions are earned and collected. Additionally,
enrollment fees received are recorded as deferred revenue and amortized over the expected weighted
average life of the policies sold which currently approximates 18 months. Deferred revenue is
reported net of related policy acquisition costs, principally lead and marketing credits, which are
capitalized and amortized over the same weighted average life, to the extent these deferred costs
do not exceed the related gross deferred revenue. Any excess costs are expensed as incurred.
Commission Expense
Commission expense is based on the applicable rates applied to membership revenues billed or
insurance commissions collected, and are recognized as incurred on a monthly basis until the
underlying program member or insurance policy is terminated.
The Insurance Marketing Division advances agent commissions, up to nine months, for certain
insurance programs. The advance commissions to our agents are funded partly by the insurance
carriers we represent and partly by us. These commissions advanced to agents are reflected on our
balance sheet as advanced agent commissions. Collection of the commissions advanced (plus accrued
interest) is accomplished by withholding amounts earned by the agent on the policy upon which the
advance was made. In the event of early termination of the underlying policy, the division seeks to
recover the unpaid advance balance by withholding advanced and earned commissions on other policies
sold by the agent. This division also has the contractual right to pursue other sources of
recovery, including recovery from the agents managing the agent to whom advances were made.
Advanced agent commissions are reviewed and an allowance is provided for those balances where
recovery is considered doubtful. This allowance requires judgment and is based primarily upon
estimates of the recovery of future commissions expected to be earned by the agents with
outstanding balances and, where applicable, the agents responsible for their management. Advances
are written off when determined to be non-collectible.
The Retail Plans Division advances agent commissions for certain retail plan programs. The advance
commissions to the Companys agents are funded by the Company and are reflected on the balance
sheet as advanced agent commissions. Collection of the commissions advanced is accomplished by
predetermined sales quotas that must be attained prior to the payment of additional commissions.
In the event of early termination of the program, the division recovers the unpaid advance balance
by withholding amounts earned by the agent on the memberships upon which the advance was made. In
addition, certain membership persistency levels must be maintained.
Recent Accounting Pronouncements
None.
Recently Issued Accounting Pronouncements Not Yet Adopted
In July 2010, the FASB issued Accounting Standards Update No. 2010-20 (ASU 2010-20), Receivables
(Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for
Credit Losses. ASU 2010-20 requires disclosures about the nature of the credit risk in an entitys
financing receivables, how that risk is incorporated into the allowance for credit losses, and the
reasons for any changes in the allowance. Disclosure is required to be disaggregated at the level
at which an entity calculates its allowance for credit losses. ASU 2010-20 was effective for the
Company beginning December 31, 2010 but was extended to June 30, 2011 per ASU 2011-01. The
adoption of this accounting standard is not expected to have a material impact on the Companys
financial position, results of operations, cash flows and disclosures.
In January 2011, the FASB issued Accounting Standards Update No. 2011-01 (ASU 2011-01),
Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt
Restructurings in Update No. 2010-20. ASU 2011-01 defers the effective date of the disclosure
requirements for public entities about troubled debt restructurings in Accounting Stands Update No.
2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and
the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for
determining what constitutes a troubled debt restructuring, as presented in proposed Accounting
Standards Update, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt
Restructurings by Creditors. ASU 2011-01 is effective for the Company beginning June 30, 2011. The
adoption of this accounting standard is not expected to have a material impact on the Companys
financial position, results of operations, cash flows and disclosures.
17
In December 2010, the FASB issued Accounting Standards Update No. 2010-28 (ASU 2010-28),
IntangiblesGoodwill and Other (Topic 350), When to Perform Step 2 of the Goodwill Impairment Test
for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update modify
Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts.
For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test
if it is more likely than not that a goodwill impairment exists. In determining whether it is more
likely than not that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. The qualitative factors are
consistent with the existing guidance, which requires that goodwill of a reporting unit be tested
for impairment between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments
in this Update are effective for fiscal years, and interim periods within those years, beginning
after December 15, 2010. Early adoption is not permitted. ASU 2010-28 is effective for the Company
beginning January 1, 2011 and is not expected to have a material impact on the Companys financial
position, results of operations, cash flows and disclosures.
In December 2010, the FASB issued Accounting Standards Update No. 2010-29 (ASU 2010-29), Business
Combinations (Topic 805) Disclosure of Supplementary Pro Forma Information for Business
Combinations. ASU 2010-29 requires a public entity to disclose pro forma information for business
combinations that occurred in the current reporting period. The disclosures include pro forma
revenue and earnings of the combined business combinations that occurred during the year had been
as of the beginning of the annual reporting period. If comparative financial statements are
presented, the pro forma revenue and earnings of the combined entity for the comparable prior
reporting period should be reported as though the acquisition date for all business combinations
that occurred during the current year had been as of the beginning of the comparable prior annual
reporting period. The amendments in this update are effective prospectively for business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010 effective for the Company September 30,
2011. The adoption of this accounting standard is not expected to have a material impact on the
Companys financial position, results of operations, cash flows and disclosures.
Results of Operations
Introduction
We are a provider of consumer membership plans, healthcare savings membership plans and a marketer
of individual major medical health insurance products. Through working with our wholesale and
retail clients, we design and build membership plans that contain benefits aggregated from our
vendors that appeal to our clients customers. For our major medical health insurance products, we
offer and sell these products through a national network of independent agents.
The following table sets forth selected results of our operations for the three months ended
December 31, 2010 and 2009. We operate in four reportable business segments: Wholesale Plans,
Retail Plans, Insurance Marketing and Corporate. The Wholesale Plans operating segment includes
the operations of our customized membership marketing plans primarily offered at rent-to-own retail
stores. The Retail Plans operating segment includes the operations from our healthcare and
membership savings plans designed to serve the markets other than rent to own. The Insurance
Marketing operating segment offers and sells individual major medical health insurance products and
related benefit plans. The Corporate operating segment includes compensation and other expenses for
individuals performing services for administration of overall operations of the Company at its
holding company level.
18
The following information was derived and taken from our unaudited financial statements appearing
elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
December 31, |
|
($ in thousands) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Net revenues |
|
$ |
14,276 |
|
|
$ |
13,303 |
|
|
|
7 |
% |
Direct costs |
|
|
8,793 |
|
|
|
8,800 |
|
|
|
0 |
% |
Operating expenses |
|
|
2,979 |
|
|
|
2,868 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,504 |
|
|
|
1,635 |
|
|
|
53 |
% |
Net other income (expense) |
|
|
3 |
|
|
|
56 |
|
|
|
(95 |
%) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,507 |
|
|
|
1,691 |
|
|
|
48 |
% |
Income taxes, net |
|
|
995 |
|
|
|
795 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,512 |
|
|
$ |
896 |
|
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
The following tables set forth revenue, gross margin and operating income by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
December 31, |
|
($ in thousands) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Net revenues by segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
6,054 |
|
|
$ |
5,138 |
|
|
|
18 |
% |
Retail Plans (a) |
|
|
4,574 |
|
|
|
3,881 |
|
|
|
18 |
% |
Insurance Marketing |
|
|
5,065 |
|
|
|
5,475 |
|
|
|
(7 |
%) |
Corporate (holding company) |
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany Eliminations |
|
|
(1,417 |
) |
|
|
(1,191 |
) |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,276 |
|
|
$ |
13,303 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin by segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
2,312 |
|
|
$ |
1,220 |
|
|
|
90 |
% |
Retail Plans (a) |
|
|
2,400 |
|
|
|
2,237 |
|
|
|
7 |
% |
Insurance Marketing |
|
|
771 |
|
|
|
1,046 |
|
|
|
(26 |
%) |
Corporate (holding company) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,483 |
|
|
$ |
4,503 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income by
segment |
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Plans |
|
$ |
1,810 |
|
|
$ |
706 |
|
|
|
156 |
% |
Retail Plans (a) |
|
|
1,238 |
|
|
|
935 |
|
|
|
32 |
% |
Insurance Marketing |
|
|
36 |
|
|
|
256 |
|
|
|
(86 |
%) |
Corporate (holding company) |
|
|
(580 |
) |
|
|
(262 |
) |
|
|
(122 |
%) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,504 |
|
|
$ |
1,635 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gross of intercompany eliminations |
19
Discussion of Three Months Ended December 31, 2010 and 2009
Net revenues increased $1.0 million (a 7% increase) during the three months ended December 31, 2010
(the 2011 1st quarter), compared with the three months ended December 31, 2009 (the
2010 1st quarter) to $14.3 million from $13.3 million in 2009. The increase in net
revenues was primarily due to:
|
|
|
Growth in our Wholesale Plans Division of approximately $0.9 million attributable
to additional rent-to-own locations offering our plans and an increase in member
acceptance rates among existing clients. See the Segment Discussion Analysis below for
additional information. |
|
|
|
Growth in our Retail Plans Division of approximately $0.7 million attributable to
new business implemented beginning in the second quarter of 2010. See the Segment
Discussion Analysis below for additional information. |
|
|
|
Our Insurance Marketing Division experienced a decrease of $0.4 million primarily
attributable to two of our contracted insurance carriers that ceased sales of new major
medical insurance policies. See the Segment Discussion Analysis below for additional
information. |
|
|
|
Other decreases of $0.2 million. |
Direct costs remained at $8.8 million during the 2011 and 2010 1st quarter. Although
total direct cost did not change, there were changes within each Division as follows:
|
|
|
Our Wholesale Plans Division direct costs decreased $0.2 million primarily
attributable to a decline in our product service expense and waiver reimbursements
liability. See the Segment Discussion Analysis below for additional information. |
|
|
|
Increase in our Retail Plans Division direct costs of $0.5 million attributable
to new business implemented beginning in the second quarter of 2010. See the Segment
Discussion Analysis below for additional information; |
|
|
|
Our Insurance Marketing Division experienced a decrease in direct costs of $0.1
million attributable to lower revenues. See the Segment Discussion Analysis below for
additional information; and |
|
|
|
Other changes of $(0.3) million. |
Operating expenses increased $0.1 million during the 2011 1st quarter to $3.0 million
from $2.9 million in the 2010 1st quarter. The increase was attributable to increases
for existing employee compensation and outside consulting expenses.
Other income decreased $0.5 primarily attributable to income earned from the early retirement of
notes payable to related parties during the 2010 1st quarter.
Provision for income taxes, net increased by $0.2 million during the 2011 1st quarter to
$1.0 million from $0.8 million in the 2010 1st quarter. The increase was attributable
to an increase in pretax income.
Net income increased $0.6 million (a 69% increase) to approximately $1.5 million during the 2011
1st quarter compared to $0.9 million during the 2010 1st quarter.
20
Segment Discussion Analysis
Wholesale Plans Division
Selected Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, |
|
($ in thousands except member data) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
6,054 |
|
|
$ |
5,138 |
|
|
|
18 |
% |
Direct costs |
|
|
3,742 |
|
|
|
3,919 |
|
|
|
(5 |
%) |
Operating expenses |
|
|
502 |
|
|
|
513 |
|
|
|
(2 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1,810 |
|
|
$ |
706 |
|
|
|
156 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
Direct costs |
|
|
62 |
% |
|
|
76 |
% |
|
|
(14 |
%) |
Operating expenses |
|
|
8 |
% |
|
|
10 |
% |
|
|
(2 |
%) |
Operating income |
|
|
30 |
% |
|
|
14 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Member count at December 31, |
|
|
677,947 |
|
|
|
584,632 |
|
|
|
93,315 |
|
Net revenues increased $1.0 million (an 18% increase) during the 2011 1st quarter to
$6.1 million from $5.1 million during the 2010 1st quarter. The increase in net
revenues was related to the increase in the number of new rent-to-own locations offering our
membership plans plus membership growth from existing locations.
Direct costs decreased $0.2 million (a 5% decrease) during the 2011 1st quarter to $3.7
million from $3.9 million during the 2010 1st quarter. The decrease was primarily
attributable to lower product service expense resulting from lower repair and replacement cost for
electronics. We enter into contractual arrangements to administer certain membership programs for
clients, primarily in the rental-purchase industry. For approximately 3,100 (78%) of our
point-of-sale locations the administration duties include reimbursing the client for certain
expenses it incurs in the operation of the program. Those expenses are primarily related to product
service expenses and the clients waiver of rental payments under defined circumstances including
circumstances when the clients customer becomes unemployed for a stated period of time. It is our
policy to reserve the necessary funds in order to reimburse our clients as those obligations become
due in the future.
Operating expenses remained at $0.5 million during the 2011 1st quarter and the 2010
1st quarter as a result of approximately $0.04 million of compensation expense
reclassified to the Corporate operating segment during the 2011 1st quarter.
Operating income increased $1.1 million (a 156% increase) during the 2011 1st quarter to
$1.8 million from $0.7 million during the 2010 1st quarter.
21
Retail Plans Operating Segment
Selected Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, |
|
($ in thousands except member data) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues (a) |
|
$ |
4,574 |
|
|
$ |
3,881 |
|
|
|
18 |
% |
Direct costs |
|
|
2,173 |
|
|
|
1,644 |
|
|
|
32 |
% |
Operating expenses |
|
|
1,163 |
|
|
|
1,302 |
|
|
|
(11 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating income (a) |
|
$ |
1,238 |
|
|
$ |
935 |
|
|
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
Direct costs |
|
|
48 |
% |
|
|
42 |
% |
|
|
6 |
% |
Operating expenses |
|
|
25 |
% |
|
|
34 |
% |
|
|
(9 |
%) |
Operating income |
|
|
27 |
% |
|
|
24 |
% |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Member count at December 31, |
|
|
1,637,312 |
|
|
|
1,321,737 |
|
|
|
315,575 |
|
|
|
|
(a) |
|
Gross of intercompany eliminations |
Net revenues increased $0.7 million (an 18% increase) during the 2011 1st quarter to
$4.6 million from $3.9 million during the 2010 1st quarter. The increase in net
revenues was attributable to new business implemented beginning in the second quarter of 2010.
Direct costs increased $0.6 million (a 32% increase) during the 2011 1st quarter to $2.2
million from $1.6 million during the 2010 1st quarter. The increase in direct costs was
attributable to new business beginning in the second quarter of 2010.
Operating expenses decreased $0.1 million (an 11% decrease) to $1.2 million during the 2011
1st quarter from $1.3 million during the 2010 1st quarter. The decrease in
operating expenses was primarily attributable to the reclassification of accounting and consulting
fees of approximately $0.2 million to the Corporate operating segment during the 2011
1st quarter. Other operating expenses increased $0.1 million related to outside billing
expenses for new business that beginning in the 2010 2nd quarter.
Operating income increased $0.3 million (a 32% increase) to $1.2 million during the 2011
1st quarter from $0.9 million in the 2010 1st quarter.
22
Insurance Marketing Operating Segment
Selected Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, |
|
($ in thousands except agent and policy data) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
5,065 |
|
|
$ |
5,475 |
|
|
|
(7 |
%) |
Direct costs |
|
|
4,293 |
|
|
|
4,429 |
|
|
|
(3 |
%) |
Operating expenses |
|
|
736 |
|
|
|
790 |
|
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
36 |
|
|
$ |
256 |
|
|
|
(86 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
Direct costs |
|
|
85 |
% |
|
|
81 |
% |
|
|
4 |
% |
Operating expenses |
|
|
15 |
% |
|
|
14 |
% |
|
|
1 |
% |
Operating income |
|
|
1 |
% |
|
|
5 |
% |
|
|
(4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Agents |
|
|
7,607 |
|
|
|
6,218 |
|
|
|
1,389 |
|
Number of In-force Policies |
|
|
25,199 |
|
|
|
23,964 |
|
|
|
1,235 |
|
Net revenues decreased $0.4 million (a 7% decrease) during the 2011 1st quarter to
$5.1 million from $5.5 million during the 2010 1st quarter. The decrease in net
revenues was attributable to carrier programs that have terminated of $1.0 million offset by an
increase in active programs of $0.6 million.
Direct costs decreased $0.1 million (a 3% decrease) during the 2011 1st quarter to $4.3
million from $4.4 million during the 2010 1st quarter. The decrease in direct costs was
attributable to the decrease in net revenues.
Operating expenses decreased $0.1 million (a 7% decrease) to $0.7 million during the 2011
1st quarter from $0.8 million during the 2010 1st quarter. The decrease in
operating expenses was attributable to a decrease in outsourced data services, legal and consulting
expense during the current fiscal quarter.
Operating income decreased $0.3 million (an 86% decrease) to $0.04 million during the 2011
1st quarter from $0.3 million in the 2010 1st quarter.
Corporate Operating Segment
Selected Operating Metrics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, |
|
($ in thousands) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
Results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Direct costs |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
580 |
|
|
|
262 |
|
|
|
121 |
% |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
(580 |
) |
|
$ |
(262 |
) |
|
|
(121 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating expenses increased $0.3 million (a 121% increase) to $0.6 million during the 2011 1st
quarter from $0.3 million during the 2010 1st quarter. The increase was attributable to the
reclassification of expenses from the Wholesale Plans and Retail Plans Division of approximately
$0.2 million consisting of accounting, consulting and compensation expenses. The remaining $0.1
million was attributable to an increase in compensation expense for existing employees.
23
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
LIQUIDITY AND CAPITAL RESOURCES
We had unrestricted cash of $7.8 million and $5.4 million at December 31, 2010 and September 30,
2010, respectively. Our working capital was $7.5 million at December 31, 2010 compared to $5.7
million at September 30, 2010. The improvement of $1.8 million was due to the following:
|
|
|
Cash increased $2.4 million which was partially a result of net income; |
|
|
|
Other accrued liabilities increased $0.9 million attributable to income taxes
payable of $0.7 million and other accrued liabilities of $0.2 million; |
|
|
|
Advanced agency and unearned commissions, net decreased $0.1 million primarily
attributable to shortened advancing agent periods; |
|
|
|
Waiver reimbursements liability decreased $0.2 million due to a reduction of
product service and waiver reimbursements expenses; and |
Cash provided by operating activities was $2.5 million for the three months ended December 31,
2010 compared to $1.3 million for the same period in 2009. The increase of $1.2 million was
attributable to:
|
|
|
An increase in net income of $0.6 million; |
|
|
|
Claims and other accrued liabilities, net increased $0.3 million primarily
attributable to an increase for income taxes payable of $0.7 million offset by a
decrease for other accrued liabilities of $0.4 million; and |
|
|
|
Other increases of $0.3 million. |
Cash provided by investing activities decreased by $0.3 million to $0.1 million for the three
months ended December 31, 2010 from $0.4 million for the same 2009 period. The decrease of $0.3
million was primarily attributable to a decrease in restricted cash of $0.4 million resulting from
the settlement of the States General legal proceedings on October 27, 2009.
Cash used in financing activities decreased $0.4 million to $0.2 million for the three months
ended December 31, 2010 from $0.6 million for the same 2009 period. The decrease of $0.4 million resulted
primarily from the acquisition of treasury stock on October 27, 2009.
We anticipate that our cash on hand, together with cash flow from operations, will be sufficient
for the next 12 months and beyond to finance operations, make capital investments in the ordinary
course of business, and pay indebtedness when due.
IMPACT OF INFLATION
Inflation has not had a material effect on us to date. However, the effects of inflation on
future operating results will depend in part, on our ability to increase prices or lower
expenses, or both, in amounts that offset inflationary cost increases.
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
During the three months ended December 31, 2010 we did not have any risks associated with market
risk sensitive instruments or portfolio securities.
24
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer and other members of our management are
responsible primarily for establishing and maintaining disclosure controls and procedures designed
to ensure that information required to be disclosed in our reports filed or submitted under the
Securities and Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the U.S
Securities and Exchange Commission. These controls and procedures are designed to ensure that
information required to be disclosed in our reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on such evaluations, our
Principal Executive Officer and Principal Financial Officer
concluded that, as of December 31, 2010, our disclosure controls and procedures were effective.
Furthermore, our Chief Executive Officer and Chief Financial Officer are responsible for the design
and supervision of our internal controls over financial reporting that are then effected by and
through our board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles.
Managements Assessment of Internal Control Over Financial Reporting
Our management, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2010. Additionally, our Chief
Executive Officer and Chief Financial Officer concluded that the design and operation of our
internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the
Exchange Act) were effective as of December 31, 2010 in all material respects based on the criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Our Chief Executive Officer and Chief Financial Officer have concluded that the consolidated
financial statements included in this report fairly present, in all material respects, our
financial condition, results of operations and cash flows for the periods presented in accordance
with U. S. generally accepted accounting principles.
During the period covered by this report on Form 10Q, there
have been no changes in our internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS. |
Except as provided below, since our 2010 Annual Report for the year ended September 30, 2010 on
Form 10-K there have been no new material legal proceedings, and there have been no material
developments in legal proceedings reported by us in the Form 10-K. The following legal proceedings
all involves the subsidiaries of Access Plans USA, Inc. which was acquired by us in a merger on
April 1, 2009.
Zermeno v Precis, Inc. The case styled Manuela Zermeno, individually and on behalf of the general
public; and Juan A. Zermeno, individually and on behalf of the general public v Precis, Inc., and
Does 1 through 100, inclusive was filed on August 14, 2003 in the Superior Court of the State of
California for the County of Los Angeles under case number BC 300788. The Zermeno plaintiffs are
former members of the Care Entrée discount healthcare program who allege that they (for themselves
and for the general public) are entitled to injunctive, declaratory, and equitable relief under
Section 445 of the California Health and Safety Code. That Section governs medical referral
services. The plaintiffs also sought relief under Section 17200 of the Business and Professions
Code, Californias Unfair Competition Law. On December 21, 2007, we received a favorable verdict
based on the courts finding that the Plaintiffs did not have standing to sue since they were no
longer customers of Precis. The plaintiffs appealed and on December 23, 2009 the Court of Appeals
reversed the trial courts ruling on standing and remanded the case to the trial court for a ruling
on the merits. On November 1, 2010 the Court issued a Statement of Decision in which it ruled that
Section 445 applied to the Care Entrée program and that Section 445 had been violated. On January
21, 2011 the Court issued a judgment enjoining Defendants Precis, Inc. and The Capella Group Inc,
and Defendants agents, employees and representatives, as of six months after the effective date of
the injunction, from operating the Care Entrée program in the State of California as it pertains to
referring people to a physician, hospital, health-related facility, or dispensary for any form of
medical care or treatment. The Judgment also provides that it does not prohibit Defendants from
operating a program that complies with California law. The Judgment further provides that pursuant
to the prior settlement agreement the injunctive relief is stayed pending appeal and the effective
date of the injunction is the date the appeals process ends. Precis, Inc. and the Capella Group,
Inc. have until March 25, 2011 to appeal the Judgment. An adverse outcome in this case would have
a material affect our financial condition and would limit our ability (and that of other healthcare
discount programs) to do business in California. We believe that we have complied with all
California statues and regulations. Although we believe the Plaintiffs claims are without merit,
we cannot provide any assurance regarding the outcome or results of this litigation.
25
Our risk factors are disclosed in its Annual Report on Form 10K for the year ended September 30,
2010.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OR PROCEEDS. |
There are no items to report under this item.
|
|
|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES. |
There are no items to report under this item.
|
|
|
ITEM 5. |
|
OTHER INFORMATION. |
There are no items to report under this item.
|
|
|
|
|
|
31.1 |
|
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934,
as amended |
|
|
|
|
|
|
31.2 |
|
|
Certification Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as
amended. |
|
|
|
|
|
|
32.1 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 |
26
SIGNATURES
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 hereunto duly authorized.
|
|
|
|
|
|
Access Plans, Inc.
|
|
May 31, 2011 |
By: |
/s/ Danny Wright
|
|
|
|
Danny Wright |
|
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
May 31, 2011 |
By: |
/s/ Brett Wimberley
|
|
|
|
Brett Wimberley |
|
|
|
Chief Financial Officer
(Principal Financial Officer) |
|
27