UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
(X) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
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 0-13084
WARRANTECH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3178732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Atlantic Street, Stamford, CT 06901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 975-1100
(Former name, former address and former fiscal year, if changed since last year)
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.
Class Outstanding at June 30, 1995
Common stock, par value $.007 per share 13,045,302 shares
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
JUNE 30, 1995
(Unaudited)
I N D E X
Page No.
PART I - Financial Information:
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet at June 30, 1995
(Unaudited) and March 31, 1995 3
Condensed Consolidated Statement of Operations
For the Three Months Ended June 30, 1995
and 1994 (Unaudited) 4
Condensed Consolidated Statement of Cash Flows
For the Three Months Ended June 30, 1995
and 1994 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - Other Information 10
Signatures 11
Page 2
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
A S S E T S
June 30, March 31,
1995 1995
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,960,057 $ 3,039,361
Investment in marketable
securities 595,448 472,344
Accounts and sundry receivable, less
allowance for doubtful accounts of
$124,207 and $126,115, respectively 15,554,181 12,705,664
Other receivables 8,937,695 8,599,198
Prepaid expenses and other current
assets 1,842,175 1,065,062
__________ __________
Total Current Assets 29,889,556 25,881,629
__________ __________
Property and Equipment - Net 3,234,773 2,865,910
_________ _________
Other Assets:
Deferred income taxes 1,006,975 1,029,083
Excess of cost over fair value of assets
acquired - net of accumulated amortization
of $2,823,883 and $2,723,429, respectively 3,750,271 3,850,724
Insurance escrow fund - administrative costs 199,389 199,389
Certificates of deposit and cash trust
fund - restricted 500,000 500,000
Investments in marketable securities 2,723,005 2,671,507
Notes receivable - long-term 333,305 290,125
Split dollar life insurance policies 708,338 698,338
Receivable from insurance company- long term 505,606 505,606
Investment in and advances to joint venture 2,411,515 2,880,921
Other assets 411,261 485,314
__________ __________
Total Other Assets 12,549,665 13,111,007
__________ __________
Total Assets $45,673,994 $41,858,546
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March 31,
1995 1995
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 909,082 $ 205,200
Income taxes payable 977,421 1,010,878
Insurance premiums payable 9,271,528 9,230,377
Accounts and commissions payable 4,459,205 2,641,843
Accrued expenses and other
current liabilities 2,184,025 1,725,348
__________ __________
Total Current Liabilities 17,801,261 14,813,646
__________ __________
Deferred Revenues 2,630,563 2,470,449
__________ __________
Long-Term Debt and Capital Lease Obligations 291,812 293,648
__________ __________
Deferred Rent Payable 454,213 440,245
__________ __________
Convertible Exchangeable
Preferred Stock - $.0007 par value
Authorized, issued and
outstanding - 3,234,697 shares
(Redemption value - $6,430,000) 6,406,213 6,396,795
__________ __________
Preferred Stock - $.0007 par value
Authorized - 11,765,303 shares
Issued and outstanding - none - -
__________ __________
Common Stockholders' Equity:
Common stock - $.007 par value
Authorized 30,000,000 shares
Issued and outstanding - 13,045,302
shares, respectively 89,117 89,117
Additional paid-in-capital 12,097,507 12,097,507
Net unrealized loss on investments,
net of income taxes of $4,981 and $27,089,
respectively ( 7,790) ( 42,370)
Retained earnings 6,113,213 5,472,039
__________ __________
18,292,047 17,616,293
Less: Deferred compensation ( 23,438) ( 23,438)
Treasury stock - at cost 47,000
shares and 41,000 shares,
respectively ( 178,677) ( 149,092)
__________ __________
Total Common Stockholders' Equity 18,089,932 17,443,763
Total Liabilities and Common
Stockholders'Equity $45,673,994 $41,858,546
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1995 1994
<S> <C> <C>
Gross revenues $20,154,335 $14,045,638
Net increase in deferred revenues (160,114) (106,454)
Net revenues 19,994,221 13,939,184
Costs and expenses:
Direct costs 12,278,938 8,386,156
Service, selling, and general and
administrative 5,572,729 4,335,008
Provision for bad debt expense 109,536 2,976
Depreciation and amortization 285,824 357,954
__________ __________
Total costs and expenses 18,247,027 13,082,094
__________ __________
Income from operations 1,747,194 857,090
__________ __________
Equity (loss) income from joint venture (416,905) 58,803
Other income 60,213 52,262
_________ __________
Income before provision for income taxes 1,390,502 968,155
Provision for income taxes 740,042 349,342
_________ __________
Net Income $ 650,460 $ 618,813
========= ==========
Earnings per share:
Primary $.04 $.04
Fully Diluted $.04 $.04
Weighted average number of shares
outstanding:
Primary 15,702,401 15,321,513
Fully Diluted 16,943,218 16,910,583
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1995 1994
<S> <C> <C>
Net cash (used in) provided by operating
activities ($ 35,009) $2,106,211
Cash flows from investing activities:
Purchase of property and equipment ( 549,664) ( 143,400)
Investment in marketable securities ( 323,912) ( 200,000)
Proceeds from sale of marketable securities 200,000 -
__________ __________
Net cash provided by (used in) investing
activities ( 673,576) ( 343,400)
__________ __________
Cash flows from financing activities:
(Increase) decrease in notes receivable ( 43,180) 100
Repayments of borrowings ( 87,954) ( 84,434)
Purchase of treasury stock ( 29,585) -
Proceeds from borrowings of short-term debt 790,000 -
__________ ___________
Net cash provided by (used in) financing
activities 629,281 ( 84,334)
__________ ___________
Net increase (decrease) in cash and
cash equivalents ( 79,304) 1,678,477
Cash and cash equivalents at beginning of period 3,039,361 5,024,282
__________ ___________
Cash and cash equivalents at end of period $2,960,057 $ 6,702,759
========== ===========
Supplemental Cash Flows Information:
Cash Payments for the Periods:
Interest $ 13,139 $ 21,971
======= =======
Income taxes $ 304,500 $ 177,550
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(Unaudited)
1. THE COMPANY
Warrantech Corporation, (the "Company"), through its subsidiaries
Warrantech Consumer Product Services, Inc. ("WCPS"), Warrantech
Automotive, Inc. ("WAUTO"), Warrantech Direct, Inc. ("Direct") and
Warrantech International, Inc. markets and administers service contract
programs for retailers, distributors and manufacturers of automobiles,
recreational vehicles, automotive components, home appliances, home
entertainment products, computers and peripherals, and office and
communication equipment worldwide. Additionally, third-party
administrative services are provided to manufacturers of consumer and
automotive products and other business entities requiring such
services. The predominant terms of the contracts and manufacturer's
warranties range from three (3) to eighty-four (84) months.
The Company assists the dealer-clients of both WCPS and WAUTO in
obtaining insurance coverage that indemnifies the clients against
losses resulting from service contract claims and protects the consumer
by ensuring that their claims will be paid. Additionally, the Company
and the insurer have agreements that provide eligibility for the
Company to participate in the profits generated by the programs and for
the Company to provide administrative services to the insurer with
regard to the programs.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter ended June 30, 1995
are not necessarily indicative of the results that may be expected for
the year ending March 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended March 31, 1995.
Page 6
<PAGE>
3. JOINT VENTURE
Following is the summarized financial information of Techmark Services
Limited ("Techmark"), a 49% owned joint venture of the Company:
<TABLE>
<CAPTION>
June 30,
1995 1994
<S> <C> <C>
Current Assets $5,318,507 $7,206,477
Total Assets 6,466,481 9,703,559
Current Liabilities 3,370,510 4,291,059
Total Liabilities 3,370,510 5,941,734
Equity 3,095,971 3,761,825
</TABLE>
<TABLE>
<CAPTION>
For the three months ended June 30,
1995 1994
<S> <C> <C>
Net Revenues $ 3,886,116 $12,613,350
Net (Loss) Income (850,826) 123,115
</TABLE>
The joint venture, Techmark, during fiscal 1995 eliminated a non-profitable
portion of its UK operation's business with a major customer. This action
resulted in reduced revenues, but improved margins.
The loss from the joint venture for the three months ended June 30, 1995,
is principally the result of continued start-up expenses related to
Techmark's operations in Japan.
4. SUBSEQUENT EVENT
On July 16, 1995, the Company acquired all of the outstanding shares of
Home Guarantee Corporation PLC, a British company, for cash and assumed
certain liabilities. The transaction, which will be accounted for as a
purchase, will not have a material effect on the Company.
Page 7
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net revenues for the three month period ended June 30, 1995 were
$19,994,221, as compared to net revenues for the three month period
ended June 30, 1994 in the amount of $13,939,184 reflecting an increase
of 43%. This increase in net revenue is directly attributable to
volume increases in both automotive and consumer product related
programs resulting from the introduction of new programs and increased
levels of business with existing dealers and new accounts.
Direct costs are those costs directly related to the production and
acquisition of service contracts. Direct costs were $12,212,938 for
the three month period ended June 30, 1995, as compared to $8,386,156
for the three month period ended June 30, 1994. The increase in direct
costs for the three month period is primarily due to increased premium
and commission expenses related to the increased volume.
Service, selling, general and administrative expenses for the three
month period ended June 30, 1995 amounted to $5,572,729, as compared to
$4,335,008 for the three month period ended June 30, 1994. The
increase in expenses for the comparable three month period is primarily
attributable to an increase in the number of employees and related
employee costs and other increases in sales related expenses,
principally advertising and printing, attributable to the volume
increases. Service, selling, general and administrative expenses as
a percentage of net revenues for the three month period ended June 30, 1995,
as compared with the same period in fiscal 1995, has declined as a result of
the implementation of management's cost containment programs.
The loss from the joint venture, Techmark, for the three months ended
June 30, 1995 is principally the result of continued start-up expenses
related to Techmark's operations in Japan which are expected to
continue through the end of the fiscal year.
Net income for the three month period ended June 30, 1995 was $650,460,
as compared to $618,813 for the three month period ended June 30, 1994.
The increase in net income for the comparable three month period is
primarily attributable to the continued volume increases in the first
three months of fiscal 1996 despite the losses of the joint venture. The loss
related to Techmark's operations in Japan included in the Company's results
for the first quarter of fiscal 1996 had the effect of reducing net income,
on a comparable basis with the same period last year, approximately $.03 per
share.
Liquidity and Financial Resources
The Company believes that internally generated funds will be sufficient
to finance its current operations for at least the next twelve months.
Page 8
<PAGE>
The change in cash (used in) provided by operations is a result of an
increase in accounts receivable levels principally attributable to new
accounts and a tax receivable recorded in the fourth quarter of fiscal 1995
as compared with comparable levels of accounts receivable at June 30, 1994.
The increase in capital spending is the result of the Company's ongoing
project to upgrade its information systems. The anticipated capital
requirements during fiscal 1996 related to this project are estimated
to be approximately $ 1,400,000.
The Company has a line of credit with a bank which provides for a
maximum aggregate borrowing up to $1,000,000 with interest at the
bank's prime rate. As of June 30, 1995, the amount available under the
line of credit amounted to $210,000.
The effects of inflation have not been significant to the Company since
its formation.
Page 9
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
A. No material developments regarding litigation have occurred
since March 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended March
31, 1995.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6 (a) Exhibits
(11)Statement re: computation of per share earnings.
(27)Financial Data Schedule
Item 6 (b) Reports on 8-K
None.
Page 10
<PAGE>
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 thereunto duly authorized.
WARRANTECH CORPORATION
S/N/S Joel San Antonio
Joel San Antonio - Chairman of the Board
(Chief Executive Officer)
Date: August 8, 1995
S/N/S Bernard J. White
Bernard J. White
(Chief Financial Officer)
Date: August 8, 1995
Page 11
<PAGE>
WARRANTECH CORPORATION AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1995 1994
<S> <C> <C>
Earnings:
Net income $ 650,460 $ 618,813
Weighted average shares outstanding:
Primary (A):
Common shares 12,999,181 12,927,546
Assumed exercise of stock options 753,833 626,253
Assumed conversion of preferred stock 1,949,387 1,767,714
__________ __________
15,702,401 15,321,513
========== ==========
Fully diluted (B):
Common shares 12,999,181 12,927,546
Assumed exercise of stock options 1,994,500 2,023,383
Assumed conversion of preferred stock 1,949,537 1,959,654
__________ __________
16,943,218 16,910,583
========== ==========
Earnings Per Common Share:
Primary (A):
Net income $0.04 $0.04
Fully diluted (B):
Net income $0.04 $0.04
</TABLE>
(A) The treasury method was used in the calculation of primary
earnings per share for all periods presented.
(B) The modified treasury method was used in the calculation of fully
diluted earnings per share for for all periods presented.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,960,057
<SECURITIES> 595,448
<RECEIVABLES> 24,491,876
<ALLOWANCES> 124,307
<INVENTORY> 0
<CURRENT-ASSETS> 29,889,566
<PP&E> 7,249,502
<DEPRECIATION> 4,014,729
<TOTAL-ASSETS> 45,673,994
<CURRENT-LIABILITIES> 17,801,261
<BONDS> 0
<COMMON> 89,117
0
6,406,213
<OTHER-SE> 18,000,815
<TOTAL-LIABILITY-AND-EQUITY> 45,673,994
<SALES> 0
<TOTAL-REVENUES> 20,154,335
<CGS> 0
<TOTAL-COSTS> 18,247,027
<OTHER-EXPENSES> 1,812
<LOSS-PROVISION> 109,536
<INTEREST-EXPENSE> 13,938
<INCOME-PRETAX> 1,390,502
<INCOME-TAX> 740,042
<INCOME-CONTINUING> 650,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650,460
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
