=============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED
MARCH 31, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
to
------------------ ------------------
COMMISSION FILE NUMBER 0-11453
AMERICAN PHYSICIANS SERVICE GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1458323
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1301 CAPITAL OF TEXAS HIGHWAY AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip Code)
(512) 328-0888
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d ) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES
OUTSTANDING AT
TITLE OF EACH CLASS May 1, 2006
-------------------- ----------------
Common Stock, $.10 par value 2,748,172
=============================================================================
PART I
FINANCIAL INFORMATION
- 2 -
Item 1 - Financial Statements
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
------------------------------------
2006 2005
---------- --------
Financial services $3,578 $3,267
Insurance services 3,655 3,395
------ ------
Total revenues 7,233 6,662
Expenses:
Financial services 3,285 2,950
Insurance services 2,754 2,503
General and administrative 518 667
Gain on sale of assets (Note 4) - (35)
------ ------
Total expenses 6,557 6,085
------ ------
Operating income 676 577
Gain on investments (Note 5) 7 630
Loss on impairment of investment (Note 6) - (39)
------ ------
Income from operations before interest,
income taxes and minority interest 683 1,168
Interest income 197 122
Other income 6 55
Interest expense - 4
Income tax expense 323 477
Minority interests 1 11
------ ------
Net income $562 $853
====== ======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, continued
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
------------------------
2006 2005
------ ------
Net income per common share
Basic:
Income from operations $ 0.20 $ 0.32
------ ------
Net income $ 0.20 $ 0.32
====== ======
Diluted:
Income from operations $ 0.19 $ 0.30
------ ------
Net income $ 0.19 $ 0.30
====== ======
Basic weighted average shares
outstanding 2,762 2,642
====== ======
Diluted weighted average
shares outstanding 2,909 2,867
====== ======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 4 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $6,466 $6,680
Trading account securities 90 --
Trade receivables, net 317 42
Notes receivable - current 645 599
Management fees and other receivables 991 3,192
Deposit with clearing organization 501 501
Investment in available-for-sale fixed
income securities - current (Note 8) 11,154 9,662
Net deferred income tax asset 342 355
Prepaid expenses and other 966 632
------- ------
Total current assets 21,472 21,663
Notes receivable, less current portion 405 326
Property and equipment, net 669 687
Investment in available-for-sale equity
securities (Note 7) 5,191 5,017
Investment in available-for-sale fixed
income securities - non-current (Note 8) 3,353 3,584
Net deferred income tax asset 560 686
Goodwill 1,247 1,247
Other assets 252 295
------- -------
Total Assets $33,149 $33,505
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 5 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
(In thousands, except share data)
March 31, December 31,
2006 2005
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $851 $736
Accrued incentive compensation 612 2,595
Accrued expenses and other liabilities (Note 9) 3,171 1,912
Federal income tax payable 185 71
Deferred gain - current 328 469
------- -------
Total current liabilities 5,147 5,783
Long term liabilities -- --
------- -------
Total liabilities 5,147 5,783
Minority interests 16 15
Commitments and contingencies (Note 3)
Shareholders' Equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized, none issued or outstanding -- --
Common stock, $0.10 par value, shares authorized 20,000,000;
2,754,472 and 2,784,120 issued and outstanding
at 3/31/06 and 12/31/05, respectively 275 278
Additional paid-in capital 7,826 8,204
Retained earnings 19,300 18,737
Accumulated other comprehensive income,
net of taxes 585 488
------- -------
Total shareholders' equity 27,986 27,707
------- -------
Total Liabilities and Shareholders' Equity $33,149 $33,505
======== =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 6 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2006 2005
------ ------
Cash flows from operating activities:
Net Income $ 562 $ 853
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 106 67
Extinguishment of debt and other 108 63
Common stock awarded 102 159
Gain on sale of assets -- (35)
Deferred gain on sale of building (141) (122)
Gain on sale of investment (7) (630)
Loss on impairment of investment -- 39
Changes in operating assets and liabilities:
Trade receivables (275) 15
Trading account securities (90) --
Income tax payable (90) 514
Deferred income tax 139 (278)
Deferred compensation 23 --
Management fees & other receivables 2,201 811
Prepaid expenses & other assets (344) (271)
Trade payables 115 (41)
Accrued expenses & other liabilities (604) (2,311)
------ ------
Net cash provided by (used in) operating activities 1,805 (1,167)
Cash flows from investing activities:
Capital expenditures (57) (94)
Proceeds from the sale of available-for-sale equity
and fixed income securities 2,741 1,154
Purchase of available-for-sale equity securities (3,987) (4,616)
Funds loaned to others (243) (381)
Collection of notes receivable 10 60
------ ------
Net cash used in investing activities (1,536) (3,877)
Cash flows from financing activities:
Exercise of stock options 64 17
Purchase and cancellation of treasury stock (577) (258)
Stock options expensed 27 --
Excess tax benefits from stock-based compensation 3 --
------ ------
Net cash provided by (used in) financing activities (483) (241)
Net change in cash and cash equivalents $ (214) $ (5,285)
Cash and cash equivalents at beginning of period 6,680 9,673
------ ------
Cash and cash equivalents at end of period $ 6,466 $ 4,388
====== ======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 7 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (LOSS)
For the three months ended March 31, 2005 and March 31, 2006
(Unaudited)
(In thousands)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Comprehensive Treasury Shareholders'
Stock Capital Earnings Income (loss) Income (loss) Stock Equity
------------------------------------------------------------------------------------------------
Balance December 31, 2004 $ 265 $ 7,919 $ 13,948 $ -- $ 2,081 $ -- $ 24,213
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 853 $ 853 -- -- 853
Other comprehensive income:
Unrealized loss on securities,
net of taxes of $200 -- -- -- (389) (389) -- (389)
------
Comprehensive income: -- -- -- $ 464 -- -- --
======
Stock options exercised -- 17 -- -- -- -- 17
Treasury stock purchases -- -- -- -- -- (258) (258)
Cancelled treasury stock (2) (256) -- -- -- 258 --
Stock awarded 1 158 -- -- -- -- 159
------------------------------------------------------------------------------------------------
Balance March 31, 2005 $ 264 $ 7,838 $14,801 $ -- $ 1,692 $ -- $ 24,595
================================================================================================
Balance December 31, 2005 $ 278 $ 8,204 $ 18,737 $ -- $ 488 $ -- $ 27,707
------------------------------------------------------------------------------------------------
Comprehensive income:
Net income -- -- 562 $ 562 -- -- 562
Other comprehensive income:
Unrealized gain on securities,
net of taxes of $50 -- -- -- 97 97 -- 97
-----
Comprehensive income: -- -- -- $ 659 -- -- --
=====
Stock options exercised 1 63 -- -- -- -- 64
Stock options expensed -- 27 -- -- -- -- 27
Tax benefit from exercise
of stock options -- 3 -- -- -- -- 3
Treasury stock purchases -- -- -- -- -- (577) (577)
Cancelled treasury stock (5) (572) -- -- -- 577 --
Stock awarded 1 101 -- -- -- -- 102
------------------------------------------------------------------------------------------------
Balance March 31, 2006 $ 275 $ 7,826 $19,300 $ -- $ 585 $ -- $ 27,986
================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 8 -
AMERICAN PHYSICIANS SERVICE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
1. GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the
United States of America ("GAAP") and pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to such rules and regulations.
The consolidated financial statements for the three months ended March 31, 2006
and 2005 reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented. Such adjustments consist of
only items of a normal recurring nature. These consolidated financial statements
have not been audited by our independent registered public accounting firm. The
operating results for the interim periods are not necessarily indicative of
results for the full fiscal year.
The notes to consolidated financial statements appearing in our Annual
Report on Form 10-K for the year ended December 31, 2005 filed with the
Securities Exchange Commission should be read in conjunction with this Quarterly
Report on Form 10-Q. There have been no significant changes in the information
reported in those notes other than from normal business activities.
Certain reclassifications have been made to amounts in prior periods to be
consistent with the 2006 presentation. A change in segment expenses on page 3 of
this report was made which reclassified overhead charges of $181,000 previously
allocated to Insurance Services in 2005 to General and Administrative.
2. MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. CONTINGENCIES
We are involved in various claims and legal actions that have arisen in the
ordinary course of business. Management believes that any liabilities arising
from these actions will not have a significant adverse effect on our financial
condition or results of operations.
- 9 -
4. GAIN ON SALE OF ASSETS
During the three months ended March 31, 2006, we recognized $141,000 of
deferred gain related to the November 2001 sale and subsequent leaseback of real
estate to Prime Medical (now called HealthTronics, Inc.). Due to our continuing
involvement in the property, we deferred recognizing approximately $2,400,000 of
the approximately $5,100,000 gain and are recognizing it in earnings, as a
reduction of rent expense, monthly through September 2006. A total of $281,000
remains to be recognized in the coming six months, with the final amount
recognized in September, 2006. In addition, 15% of the gain ($760,000) related
to our then 15% ownership in the purchaser, was deferred. As our ownership
percentage in HealthTronics declines through our sales of HealthTronics common
stock, we recognize these gains proportionately to our reduction of our interest
in HealthTronics. During the first three months of 2006 we did not recognize any
of these deferred gains as no HealthTronics common stock was sold in the period.
As of March 31, 2006, there remained a balance of approximately $46,000 to be
recognized.
5. GAIN (LOSS) ON INVESTMENTS
Our gains resulted primarily from the sales of available-for-sale equity
and fixed income securities. During the three months ended March 31, 2006, we
received net cash proceeds of approximately $2,741,000 and recognized gains of
$7,000 resulting from these sales and scheduled maturities.
6. LOSS ON IMPAIRMENT OF INVESTMENT
Although there was no loss taken thus far in 2006, the prior year loss
represents an impairment in the value of our investment in FIC common stock.
During 2004, the value of our investment in FIC had declined significantly. In
October 2004, we determined that this decline in market price should be
considered "other than temporary" as defined in Statements of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities, as amended. Consequently, we recorded pre-tax charges to
earnings totaling $2,567,000 in 2004. These charges reduced our cost basis in
FIC from $5,647,000, or $14.67 per share, to $3,080,000, or $8.00 per share
which was equal to the quoted market price of FIC shares on December 31, 2004.
During the first three months of 2005, we took additional pre-tax charges to
earnings totaling $39,000, and ultimately a total of $135,000 during all of
2005, further reducing our cost basis in FIC to $2,945,000, or $7.65 per share.
While we currently continue to have the ability and the intent to hold the stock
indefinitely, we concluded that the additional uncertainty created by FIC's late
filings, together with the lack of its current financial information, dictated
that the 2004 and 2005 declines should be viewed as other than temporary. In
July 2005, FIC was able to file its 2003 Form 10-K but has yet to file any 2004
or 2005 Forms 10-Q or 10-K and thus continues to be de-listed on the NASDAQ
Stock Market.
- 10 -
7. INVESTMENT IN AVAILABLE-FOR-SALE EQUITY SECURITIES
A portion of this balance sheet account is comprised of our investment in
FIC common stock. As mentioned in Footnote 6 above, during 2005 and 2004, we
recognized "other than temporary" impairment losses and, accordingly, our
original cost basis in the 385,000 shares of FIC common stock we own has been
reduced from $14.67 per share to $7.65 per share during 2005. The effect of any
"other than temporary" impairment loss is to reclassify from accumulated other
comprehensive income the unrealized loss to realized loss in the statement of
operations. We classify all of these shares as securities available-for-sale and
record temporary unrealized changes in their value, net of tax, in our balance
sheet as part of Accumulated Other Comprehensive Income (Loss) in Stockholders'
Equity. Changes in their fair market value deemed to be "other than temporary"
are charged to earnings in the period that the determination was made. As FIC
was trading above $7.65 per share at March 31, 2006, no impairment charges were
necessary.
8. INVESTMENT IN AVAILABLE-FOR-SALE FIXED INCOME SECURITIES
We have invested primarily in U.S. government-backed securities with
maturities varying from one to two years, as well as three corporate bonds with
Standard and Poor's ratings of no lower than B (investment grade).
9. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
March 31 December 31
2005 2005
-------- ----------
Commissions payable $ 623,000 $ 1,258,000
Customer deposits 1,960,000 --
Taxes payable 246,000 219,000
Vacation 161,000 161,000
401(k) plan matching 91,000 208,000
Other accrued liabilities 90,000 66,000
---------- ---------
$3,171,000 $ 1,912,000
========== ==========
- 11 -
10. NET INCOME PER SHARE
Basic income per share is based on the weighted average shares outstanding
without any dilutive effects considered. Diluted income per share reflects
dilution from all contingently issuable shares, such as options and convertible
debt. A reconciliation of earnings and weighted average shares outstanding used
in the calculation of basic and diluted earnings per share from operations
follows:
For the Three Months Ended March 31, 2006
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- --------
Basic EPS
Net income $ 562,000 2,762,000 $ 0.20
======
Diluted EPS
Effect of dilutive securities -- 147,000
-------- ---------
Net income $ 562,000 2,909,000 $ 0.19
======== ========= ======
For the Three Months Ended March 31, 2005
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ---------- -------
Basic EPS
Net income $ 853,000 2,642,000 $ 0.32
======
Diluted EPS
Effect of dilutive securities -- 225,000
--------- ---------
Net income $ 853,000 2,867,000 $ 0.30
========= ========== ======
- 12 -
11. SEGMENT INFORMATION
The Company's segments are distinct by type of service provided. Comparative
financial data for the three months period ended March 31, 2006 and 2005 are
shown as follows:
Three months ended March 31,
2006 2005
-------- -----------
Operating Revenue:
Financial services $ 3,578,000 $ 3,267,000
Insurance services 3,655,000 3,395,000
Corporate 2,100,000 --
---------- ----------
Total Segment Revenues $ 9,333,000 $ 6,662,000
========== ==========
Reconciliation to Consolidated
Statement of Operations:
Total segment revenues $ 9,333,000 $ 6,662,000
Less: Intercompany dividends (2,100,000) --
----------- -----------
Total Revenues $ 7,233,000 $ 6,662,000
=========== ===========
Operating Income
Financial services $ 293,000 $ 317,000
Insurance services 901,000 892,000
Corporate (518,000) (632,000)
---------- ---------
Total segments operating income 676,000 577,000
Gain on investments 7,000 630,000
Loss on impairment of investment -- (39,000)
---------- ---------
Income (loss) from operations before
interest, income taxes and minority
interest 683,000 1,168,000
Interest income 197,000 122,000
Other gain 6,000 55,000
Interest expense -- 4,000
Income tax expense 323,000 477,000
Minority interest 1 11
--------- ---------
Net income $ 562,000 $ 853,000
========= =========
- 13 -
12. STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (SFAS 123 (R)). The standard amends SFAS 123, Accounting for Stock-Based
Compensation, and concludes that services received from employees in exchange
for stock-based compensation results in a cost to the employer that must be
recognized in the financial statements. The cost of such awards should be
measured at fair value at grant date.
On January 1, 2006 we adopted SFAS No. 123R. We use the
Black-Scholes-Merton option-pricing model to determine the fair value of
stock-based awards, consistent with that used for pro forma disclosures under
SFAS No. 123, Accounting for Stock-Based Compensation. We have elected the
modified prospective transition method as permitted by SFAS No, 123R and
accordingly prior periods have not been restated to reflect the impact of SFAS
No. 123R. SFAS No. 123R requires that stock-based compensation be recorded for
all new and unvested stock options expected to vest as the requisite service is
rendered beginning January 1, 2006, the first day of our 2006 fiscal year.
Stock-based compensation expense for awards granted on or before December 31,
2005, but unvested as of that date, is based on the grant date fair value as
determined under the pro forma provisions of SFAS No. 123. For the three months
ended March 31, 2006 we recorded compensation cost related to stock options of
$27,000 and a related reduction in income taxes of $10,000. The compensation
cost is the total fair value, at date of grant, of shares that vested during the
three month period. No compensation costs were capitalized in the three month
period ended March 31, 2006.
During the quarter ended March 31, 2006 7,000 options were exercised with
an intrinsic value of $20,000. We received proceeds of $64,000 from the exercise
of these options. Based on unvested options outstanding at March 31, 2006
compensation costs to be recorded in future periods are expected to be
recognized as follows: 2006, $96,000; 2007, $21,000; 2008, $19,000; and 2009,
$4,000.
We have adopted, with shareholder approval, the "2005 Incentive and
Non-Qualified Stock Option Plan" ("Incentive Plan"). The Incentive Plan provides
for the issuance of up to 350,000 shares of common stock to our directors and
key employees. A total of 128,000 of these options have been granted as of March
31, 2006, 113,000 of which are exercisable. Under the previous plan, the "1995
Incentive and Non-Qualified Stock Option Plan", 453,000 options remain
unexercised, of which 412,000 are exercisable at March 31, 2006. Upon the
exercise of an option we issue the shares from our authorized, but un-issued
shares.
The exercise price for each non-qualified option share is determined by the
Compensation Committee of the Board of Directors ("the Committee"). The exercise
price of a qualified incentive stock option has to be at least 100% of the fair
market value of such shares on the date of grant of the option. Under the Plans,
option grants are limited to a maximum of ten-year terms; however, the Committee
has issued all currently outstanding grants with five-year terms. The Committee
also determines vesting for each option grant and traditionally has had options
vest in three approximately equal annual installments beginning one year from
the date of grant.
- 14 -
Presented below is a summary of the stock options held by our employees
and our directors and the related transactions for the three months ended March
31. 2006 and the year ended December 31, 2005.
Three Months Ended Year Ended
March 31, December 31,
------------------ ---------------
2006 2005
------------------ ---------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ ------
Balance at January 1 573,000 $7.92 721,000 $6.04
Options granted 15,000 13.50 113,000 11.60
Options exercised (7,000) 9.84 (251,000) 4.13
Options forfeited/expired -- -- (10,000) 9.10
------- -------- ------- ------
Balance at end of period 581,000 $8.04 573,000 $7.92
======= ===== ======= =====
Options exercisable 525,000 $7.78 483,000 $7.96
======= ===== ======= =====
The weighted average fair value of Company stock options granted is $3.83
and $3.19 per option for the three months ended March 31, 2006 and the year
ended December 31, 2005, respectively. The fair value of the options was
calculated using the Black-Scholes-Merton option pricing model with the
following assumptions:
Three months Year
ended ended
March 31, 2006 December 31, 2005
-------------- -----------------
Expected option term: 3.7 years 3.6 years
Expected volatility 0.354 0.363
Expected dividend yield 1.85% 2.15%
Risk-free rate of return 4.72% 4.33%
The expected volatility assumptions we used are based on the historical
volatility of our common stock over the most recent period commensurate with the
estimated expected life of our stock options, such estimated life being based on
the historical experience of our stock option exercises. The following table
summarizes the Company's options outstanding and exercisable options at March
31, 2006:
- 15 -
Stock Options Outstanding Stock Options Exercisable
------------------------------------------------------------ ---------------------------------------- ------------------
Shares Weighted Aggregate Average Weighted Aggregate Average
------
Average Remaining Average Remaining
Exercise Intrinsic Contractual Exercise Intrinsic Contractual
Price Value (1) Life Shares Price Value (1) Life
----- --------- ---- ------ ----- --------- ----
581,000 $8.04 3,375,000 2.8 yrs. 525,000 7.78 3,184,000 2.7 yrs.
(1) Based on the $13.85 closing price of our stock at March 31, 2006.
Prior to the adoption of SFAS No. 123R, we adopted the disclosure-only
provision of SFAS No. 123, but applied APB Option No. 25, Accounting for Stock
Issued to Employees, in accounting for our stock option plans. No compensation
expense was recognized for the three months ended March 31, 2005 under the
provisions of APB No. 25. If we had elected to recognize compensation expense
for options granted based on their fair values at the grant dates, consistent
with Statement 123, net income and earnings per share would have changed to the
pro forma amounts indicated below:
Three Months Ended
March 31, 2005
------------------
Net income as reported $853,000
Deduct: Total additional stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects (53,000)
--------
Pro forma net income $800,000
========
Net income per share
Basic - as reported $0.32
=====
Basic - pro forma $0.30
=====
Diluted - as reported $0.30
=====
Diluted - pro forma $0.28
=====
- 16 -
13. RECENT ACCOUNTING PRONOUNCEMENTS
In February, 2006 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 155, Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140.
This Statement Permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation; clarifies which interest-only strips and principal-only strips are
not subject to the requirements of Statement 133; establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation; clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives; and amends Statement 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. The Company does not expect the adoption of this standard to have a
material effect on its financial position, results of operations or cash flows.
- 17 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Our statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding our expectations, hopes, intentions or strategies regarding
the future. You should not place undue reliance on forward-looking statements.
All forward-looking statements included in this report are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could differ materially from those in the forward-looking statements. In
addition to any risks and uncertainties specifically identified in the text
surrounding the forward-looking statements, you should consult our reports on
Forms 10-K and our other filings under the Securities Act of 1933 and the
Securities Exchange Act of 1934, for factors that could cause our actual results
to differ materially from those presented.
The forward-looking statements included herein are necessarily based on
various assumptions and estimates and are inherently subject to various risks
and uncertainties, including risks and uncertainties relating to the possible
invalidity of the underlying assumptions and estimates and possible changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including customers, suppliers, business partners and
competitors and legislative, judicial and other governmental authorities and
officials. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Any of these assumptions
could be inaccurate and, therefore, there can be no assurance that the
forward-looking statements included in this report will prove to be accurate.
GENERAL
We provide (1) financial services, including brokerage and investment
services to individuals and institutions, and (2) insurance services, including
management and agency services to medical malpractice insurance companies.
FINANCIAL SERVICES. We provide investment and investment advisory services to
institutions and individuals throughout the United States through the following
subsidiaries:
o APS FINANCIAL. APS Financial is a fully licensed broker/dealer that provides
brokerage and investment services primarily to institutional and high net worth
individual clients. APS Financial also provides portfolio accounting, analysis,
and other services to insurance companies, banks and public funds. We recognize
commissions revenue, and the related compensation expense, on a trade date
basis.
- 18 -
o APS CLEARING. APS Clearing is dedicated to the clearing and settlement of
trades involving syndicated bank loans, trade claims and distressed private loan
portfolios. We recognize commissions revenue, and the related compensation
expense, when the transaction is complete and fully funded.
o ASSET MANAGEMENT. Asset Management manages fixed income and equity assets for
institutional and individual clients on a fee basis. We recognize fee revenues
monthly based on the amount of funds under management.
INSURANCE SERVICES. Through Insurance Services we provide management and agency
services to medical malpractice insurance companies through the following
subsidiary:
o FMI. APS Facilities Management, Inc., dba APMC Insurance Services, Inc., or
FMI, provides management and administrative services to APIE, a regional
insurance exchange that sells medical professional liability insurance only to
its physician subscribers, who pay annual insurance premiums and maintenance
fees to APIE. APIE is governed by a physician board of directors. Pursuant to a
management agreement and the direction of this board, FMI manages and operates
APIE, including performing policy issuance, claims investigation and settlement,
and all other management and operational functions. As a management fee, FMI
receives a percentage of APIE's earned premiums and a portion of APIE's profit,
subject to a cap based on premium levels. We recognize revenues for the
management fee portion based on a percentage of earned premium on a monthly
basis, and we recognize revenues on profit sharing in the fourth quarter, when
it is certain the managed company will have an annual profit. FMI's assets are
not subject to APIE policyholder claims.
OTHER
As of March 31, 2006, we have the following significant investments
accounted for as available-for-sale securities: (1) we own approximately 143,000
shares of HealthTronics (formerly Prime Medical) common stock, representing less
than 1% of its outstanding common stock, and (2) we own 385,000 shares of
Financial Industries Corporation, representing approximately 4% of its
outstanding common stock. We account for these investments as available-for-sale
securities, which means they are reflected on our consolidated balance sheets at
fair value, and fluctuations in fair value are recognized as unrealized gains or
losses excluded from earnings and reported as a separate component of
stockholders' equity, net of income taxes.
- 19 -
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an on-going basis, we evaluate our
estimates, including those related to: impairment of assets; bad debts; income
taxes; and contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect
our more significant judgments and estimates used in the preparation of our
consolidated financial statements. We periodically review the carrying value of
our assets to determine if events and circumstances exist indicating that assets
might be impaired. If facts and circumstances support this possibility of
impairment, our management will prepare undiscounted and discounted cash flow
projections, which require judgments that are both subjective and complex.
Management may also obtain independent valuations.
Our financial services revenues are composed primarily of commissions on
securities trades and clearing of trade claims and asset management fees.
Revenues related to securities transactions are recognized on a trade date
basis. Revenues from the clearing and settlement of trades involving syndicated
bank loans, trade claims and distressed private loan portfolios are recognized
when the transaction is complete and fully funded. Asset management fees are
recognized as a percentage of assets under management during the period based
upon the terms of agreements with the applicable customers.
Our insurance service revenues related to management fees are recognized
monthly at 13.5% of the earned premiums of the managed company. We also share
equally any profits of the managed company, to a maximum of 3% of the earned
insurance premiums. Any past losses of the managed company are carried forward
and applied against earnings before any profits are shared. The profit sharing
component is recorded in the fourth quarter based on the audited financial
results of the managed company.
Stock-Based Compensation
In December 2004, the FASB issued a revision ("SFAS No. 123(R)") to SFAS
No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), and the
Company was required to adopt SFAS No. 123(R) in the first quarter of 2006. SFAS
No. 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB No. 25), and related Interpretations, and
requires that all stock-based compensation, including options, be expensed at
fair value, as of the grant date, over the
- 20 -
vesting period. Companies are required to use an option pricing model (e.g.:
Black-Scholes or Binomial) to determine compensation expense, consistent with
the model previously used in the already required disclosures of SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure. The adoption
of SFAS No. 123(R) has not had a material effect on the Company's financial
position, operations or cash flow.
At March 31, 2006, the Company has several stock-based compensation plans,
which are described more fully in Note 12 to the audited consolidated financial
statements contained in our most recently filed Annual Report on Form 10-K.
Prior to January 1, 2006, the Company accounted for these plans under the
recognition and measurement principles of APB No. 25, under which stock-based
employee compensation cost was not reflected in net income, as all options
granted under these plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. In accordance with SFAS No. 123,
as amended by SFAS No. 148, the Company provided footnote disclosure of the pro
forma stock-based compensation cost, net loss and net loss per share as if the
fair-value based method of expense recognition and measurement prescribed by
SFAS No. 123 had been applied to all employee options.
As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company's
net gain for the quarter ended March 31, 2006 is $27,000 less than it would have
been if the Company had continued to account for stock-based compensation under
APB No. 25. Basic and diluted net income per share would be unchanged if the
Company had not adopted SFAS No. 123(R). The adoption of SFAS No. 123(R) had
minimal effect on the Company's Statement of Cash Flows, as there were minimal
exercises of stock options in the three months ended March 31, 2006.
RESULTS OF OPERATIONS
REVENUES
Revenues from operations increased $571,000 (9%) in the three months ended
March 31, 2006, respectively, compared to the same period in 2005. Our operating
income increased $99,000 (17%) in the current year three months compared to the
same period in 2005. Our net income decreased $291,000 (34%) in the current year
three months, compared to the same period in 2005. Lastly, our diluted net
income per share decreased $0.11 (37%) in the current year three months compared
to the same period in 2005. The reasons for these changes are described below.
- 21 -
FINANCIAL SERVICES
Our financial services revenue increased $311,000 (10.0%) in the first
three months of 2006 compared to the same period in 2005. Revenues from our
investment banking division increased $725,000 (967%) while those from our new
subsidiary, APS Clearing, contributed $154,000. Investment banking revenues were
up substantially due to the ramping up of the business in the third quarter of
2005, primarily through the hiring of an investment banking managing director.
Bank debt trading generated revenues were not recorded in the first quarter of
2005 as APS Clearing was not formed until later in 2005. Partially offsetting
these revenue increases was a decrease in commission revenues earned at APS
Financial, the broker/dealer, which derives most of its revenue from
transactions in the fixed income market, in both investment and non-investment
grade securities. Commission revenues fell $568,000 (18%) in the first three
months of 2006 compared to the same period in 2005. Revenue from our investment
grade trading continued to be flat in a rising interest rate environment in
which the Fed has raised rates fifteen times since June 2004 (for a total of 375
basis points). Revenue from trading of non-investment grade (high yield bonds)
has also been generally weaker due to the increasing general level of interest
rates, poor fundamentals and price transparency created by automated reporting
processes such as TRACE.
Our financial services expenses increased $335,000 (11%) in the three
months ended March 31, 2006 compared to the same period in 2005. The primary
reason for the current year increase is a $167,000 (9%) increase in commission
expense in the current year three month period compared to the same period in
2005 resulting from commissions paid on increased investment banking and bank
debt trading revenues mentioned above. In addition, salaries expense was up
$136,000 (34%) due primarily to the hiring of two full time managers to head up
the investment banking and bank debt trading divisions. Also, normal annual
merit raises as well as an increase in performance-related forgivable loans
contributed to the increase in salaries expense. Incentive compensation costs
totaled $50,000 in the current year quarter compared to zero in the same period
in 2005 as a result of the profits generated from our investment banking
division. Partially offsetting these expense increases is a decrease in
professional fees of $60,000 (54%) in the three month period ended March 31,
2006 compared to the same period in 2005 primarily as a result of higher fees
incurred in 2005 related to Sarbanes Oxley compliance.
INSURANCE SERVICES
Total revenues from our insurance services segment increased $260,000 (8%)
in the three month period ended March 31, 2006 compared to the same period in
2005. Current year increases in commission income and in management fees were
the primary reasons for this growth. Pass through commission income was up
$202,000 (19%) in 2006 as a result of higher commission rates and higher new
business written at our managed
- 22 -
medical malpractice insurance company, APIE, compared to the same period in
2005. As noted in the following paragraph, commissions paid to third party
independent agents increased by an equivalent amount, resulting in no impact on
net income. Management fee revenues increased $108,000 (5%) in the three months
ended March 31, 2006 compared to the same period in 2005 primarily due to
writing a large extended reporting period policy that earns out immediately
instead of earning out pro-rata over twelve months, as is normally the case. New
written business at APIE was up $2.7 million (208%) in the current quarter, but
despite our more intense marketing effort and an overall 13% increase in the
number of doctors insured, premiums from renewal business were down $2.8 million
(17%) compared to the same period in the prior year. This decline in renewal
business was caused by increased competition.
Insurance services expenses increased $251,000 (10%) in the three months
ended March 31, 2006 compared to the same period in 2005. The current quarter
increase is primarily due to a $202,000 (19%) increase in commissions expense
due to the above-mentioned increase in commissions paid to third party
independent agents during the first quarter of 2006 compared to the same period
in 2005. Also, payroll increased $64,000 (8%) in the three months ended March
31, 2006 compared to the same period in 2005 as a result of normal merit raises
as well as the addition of two new managerial positions.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $150,000 (22%) in the three
month period ended March 31, 2006 compared to the same period in 2005. This
decrease is primarily due to lower professional fees and lower incentive
compensation expenses. Professional fees declined $67,000 (66%) in the current
quarter as costs associated with internal controls disclosures and procedures
under the Sarbanes-Oxley Act of 2002 ("SOX 404") compliance are minimal in the
first quarter of 2006 compared to the first quarter of 2005 when we were ramping
up our compliance efforts. With the most recent deadline delay and continued
uncertainty as to what, if any, relief is to be granted to non-accelerated
filers like us, we have slowed our efforts in an attempt to control future SOX
404 compliance costs. Incentive compensation expense decreased $66,000 (35%) in
the current year three month periods compared to the same period in 2005 due to
lower investment gains in 2006.
GAIN ON SALE OF ASSETS
During the three months ended March 31, 2006, we recognized $141,000 of
deferred gain related to the November 2001 sale and subsequent leaseback of real
estate to Prime Medical (now called HealthTronics, Inc.). Due to our continuing
involvement in the property, we deferred recognizing approximately $2,400,000 of
the approximately
- 23 -
$5,100,000 gain and are recognizing it in earnings, as a reduction of rent
expense, monthly through September 2006. A total of $281,000 remains to be
recognized in the coming six months, with the final amount recognized in
September, 2006. In addition, 15% of the gain ($760,000) related to our then 15%
ownership in the purchaser, was deferred. As our ownership percentage in
HealthTronics declines through our sales of HealthTronics common stock, we
recognize these gains proportionately to our reduction of our interest in
HealthTronics. During the first three months of 2006 we did not recognize any of
these deferred gains as no HealthTronics common stock was sold in the period. As
of March 31, 2006, there remained a balance of approximately $46,000 to be
recognized.
GAIN ON INVESTMENTS
The decrease in the current three month period of is due to the sale of a
large number of available-for-sale equity securities in 2005 compared to a small
gain on the sale of an available-for-sale fixed income security in the first
three months of 2006.
LOSS ON IMPAIRMENT OF INVESTMENT
The loss recorded in the first quarter of 2005 represents a write-down of
our investment in Financial Industries ("FIC") common stock, having previously
resolved that declines in FIC's stock price will be considered to be "other than
temporary". As explained on page 19 of this report, we record pretax charges to
earnings should the common stock price on the last day of each interim or annual
period fall below the adjusted cost basis of our investment in FIC. In the first
three months of 2005, that charge totaled $39,000. As our adjusted cost basis in
FIC is $7.65 and with the stock price above $8.00 per share in 2006, there was
no need to take an additional charge in the current period. We will continue to
monitor and evaluate the situation at Financial Industries.
INTEREST INCOME
Our interest income increased $75,000 (61%) in the three month period ended
March 31, 2006 compared to the same period in 2005. The current year three month
increase was due to interest earned on a higher rate as well as on a much higher
balance of interest-bearing fixed income securities. At March 31, 2006 there was
a balance in investment securities held of $14.5 million compared to a balance
of $9.3 million held at March 31, 2005.
- 24 -
OTHER INCOME (LOSS)
Our other income decreased $49,000 (89%) for the three month period
ended March 31, 2006 compared to the same period in 2005. The decrease in the
current year three month period is primarily due to inventory losses on
securities held at APS Financial totaling $6,000 in 2006 compared to inventory
gains of $18,000 in 2005.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Our net working capital was $16,325,000 and $15,880,000 at March 31, 2006
and December 31, 2005, respectively. The increase in the current year was due
primarily to cash received from operations. Cash and cash equivalents decreased
$214,000 during this period as cash provided by operations was more than offset
by net cash used in investing and financing activities. Cash from operating
activities increased primarily due to cash received from APIE for profit sharing
($2.0 million) that was recorded in 2005 as well as from an advance payment from
a trade claim transaction that was completed in April, 2006 ($2.0 million).
Partially offsetting this was cash paid in the current quarter for incentive
compensation earned and accrued in 2005 ($2.2 million). Cash from investing
activities decreased $1.5 million as purchases of available-for-sale securities
exceeded cash received from the sales of other available-for-sale securities.
Cash from financing activities decreased $483,000 due to purchases of treasury
stock exceeding cash received from the exercise of employee stock options. For
details of the amounts described above, refer to the Condensed Consolidated
Statements of Cash Flows on page 7 of this Form 10-Q.
Historically, we have maintained a strong working capital position and, as
a result, we have been able to satisfy our operational and capital expenditure
requirements with cash generated from our operating and investing activities.
These same sources of funds have also allowed us to pursue investment and
expansion opportunities consistent with our growth plans. Although there can be
no assurance our operating activities will provide positive cash flow in 2006,
we are optimistic that our working capital requirements will be met for the
foreseeable future for the following reasons: (1) our current cash position is
very strong, with a balance of approximately $6.5 million comprising 20 percent
of our total assets; (2) our investments in available-for-sale equity and fixed
income securities could provide an additional $16.4 million should the need
arise; and (3) we renewed a line of credit in April 2006 that is described
below.
- 25 -
LINE OF CREDIT
We renewed a $3.0 million line of credit that was originally established in
November 2003 with PlainsCapital Bank. The loan called for interest payments
only to be made on any amount drawn until April 15, 2007, when the entire amount
of the note, principal and interest then remaining unpaid, became due and
payable. At March 31, 2006, there were no draws taken against this line of
credit. We are in compliance with the covenants of the loan agreement, including
requirements for a minimum of $5.0 million of unencumbered liquidity and a
minimum 2 to 1 net worth ratio.
CAPITAL EXPENDITURES
Our capital expenditures for equipment were $57,000 in the three months of
2006. The majority of these expenditures were primarily hardware and software
upgrades to our computer network. We expect capital expenditures in 2006 to be
approximately $250,000 and is expected to be funded through cash on hand.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In February, 2006 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, or SFAS, No. 155, Accounting for Certain
Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140.
This Statement permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation; clarifies which interest-only strips and principal-only strips are
not subject to the requirements of Statement 133; establishes a requirement to
evaluate interests in securitized financial assets to identify interests that
are freestanding derivatives or that are hybrid financial instruments that
contain an embedded derivative requiring bifurcation; clarifies that
concentrations of credit risk in the form of subordination are not embedded
derivatives; and amends Statement 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. The Company does not expect the adoption of this standard to have a
material effect on its financial position, results of operations or cash flows.
- 26 -
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We have exposure to changes in interest rates and the market values of our
investments but have no material exposure to fluctuations in foreign currency.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates to both
our investment portfolio and our revenues generated through commissions at our
financial services segment. A one percent change in interest rates on our
current cash and fixed income securities balance of approximately $21 million
would result in a change of $210,000 annually in interest income. All of our
marketable fixed income securities are designated as available-for-sale and,
accordingly, are presented at fair value on our balance sheets. Fixed rate
securities may have their fair market value adversely affected due to a rise in
interest rates, and we may suffer losses in principal if forced to sell
securities that have declined in market value due to changes in interest rates.
Changes in interest rates could have an impact at our broker/dealer
subsidiary, APS Financial. The general level of interest rates may trend higher
or lower in 2006, and this move may impact our level of business in different
fixed-income sectors. If a generally improving economy is the impetus behind
higher rates, then while our investment grade business may drop off, our high
yield business might improve with improving credit conditions. A volatile
interest rate environment in 2006 could also impact our business as this type of
market condition can lead to investor uncertainty and their corresponding
willingness to commit funds.
As we currently have no debt and do not anticipate the need to take on any
debt in 2006, interest rate changes will have no impact on our financial
position as it pertains to interest expense.
INVESTMENT RISK
As of March 31, 2006, our recorded basis in debt and equity securities was
approximately $19.7 million. We regularly review the carrying value of our
investments and identify and record losses when events and circumstances
indicate that such declines in the fair value of such assets below our
accounting basis are other-than-temporary.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed by us in reports that we file or
submit under the Securities Exchange Act, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and that
such information is accumulated and communicated to our management, including
our Chief Executive
- 27 -
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosures. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurances
of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. As of the end of the period covered by this
report, and under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of the design and operation of these disclosure procedures.
Based on this evaluation and subject to the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective in reaching a reasonable level of assurance of
achieving management's desired controls and procedures objectives.
There have been no changes in internal controls over financial reporting
that occurred during our most recent fiscal quarter that have materially
affected, or are reasonably likely to affect, our internal control over
financial reporting.
As part of a continuing effort to improve our business processes we are
evaluating our internal controls and may update certain controls to accommodate
any modifications to our business processes or accounting procedures.
- 28 -
PART II
OTHER INFORMATION
- 29 -
Item 1. LEGAL PROCEEDINGS
-------------------
We are involved in various claims and legal actions that have arisen in
the ordinary course of business. Management believes that any liabilities
arising from these actions will not have a significant adverse effect on our
financial condition or results of operations.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
------------------------------------------------------------
Items 2(a) through(d) are inapplicable.
(e) Stock Repurchases
(d) Maximum
(c) Total Number Dollar Value
of Shares of Shares that
Purchased as Part May yet be
Period (a) Total Number (b) Average of Publicly Purchased under
of shares Price Paid Announced Plans the Plans or
Purchased (1) per Share or Programs Programs
------------- ----------- ---------------- ---------------
Jan 1, 2006 - Jan 31, 2006 20,600 $ 13.01 20,600 $ 1,750,000
Feb 1, 2006 - Feb 28, 2006 12,856 $ 12.86 12,856 $ 1,585,000
Mar 1, 2006 - Mar 31, 2006 10,800 $ 13.28 10,800 $ 1,442,000
(1) Of the total shares purchased 44,256 were purchased in open market
transactions and none were purchased in private transactions. Our
original share repurchase program was announced August 17, 2004
and was increased by an additional 2,000,000 on December 12, 2005.
Item 3. DEFAULTS UPON SENIOR SECURITIES
--------------------------------
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not Applicable
- 30 -
Item 5. OTHER INFORMATION
------------------
Not Applicable
Item 6. EXHIBITS
---------
Exhibits
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
- 31 -