UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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 August 1, 2000
Common stock, par value $.007 per share 15,305,954 shares
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WARRANTECH CORPORATION AND SUBSIDIARIES
I N D E X
Page No.
PART I - Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000
(Unaudited) and March 31, 2000 ...................................... 3
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2000 and 1999 (Unaudited) .... 4
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 2000 and 1999 (Unaudited) .... 5
Notes to Condensed Consolidated Financial Statements ............... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 9
PART II - Other Information .............................................. 11
Signatures ................................................................ 13
2
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WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
A S S E T S
(Unaudited)
June 30, March 31,
2000 2000
------------ ------------
Current assets:
Cash and cash equivalents $7,501,682 $10,035,003
Investments in marketable securities 3,308,268 4,638,875
Accounts receivable, (net of allowances of
$1,112,495 and $1,164,125, respectively) 15,408,054 11,858,653
Other receivables, net 5,111,028 2,416,248
Income tax receivable 3,635,718 4,035,346
Deferred income taxes 974,606 926,321
Prepaid expenses and other current assets 1,651,533 1,238,051
------------ ------------
Total current assets 37,590,889 35,148,497
------------ ------------
Property and equipment, net 14,581,830 15,417,255
Other assets:
Excess of cost over fair value of assets acquired
(net of accumulated amortization of $5,718,074
and $5,550,861, respectively) 2,440,458 2,607,671
Deferred income taxes 7,930,899 8,279,643
Deferred direct costs 72,162,641 80,797,199
Investments in marketable securities 1,844,056 1,499,247
Restricted cash 800,000 800,000
Split dollar life insurance policies 857,262 827,262
Notes receivable 1,120,352 1,167,725
Collateral security fund 199,389 199,389
Other assets 182,160 177,266
------------ ------------
Total other assets 87,537,217 96,355,402
------------ ------------
Total Assets $139,709,936 $146,921,154
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
June 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt and capital lease $1,228,614 $1,451,020
obligations
Insurance premiums payable 20,747,222 18,161,357
Accounts and commissions payable 7,637,576 8,857,556
Accrued expenses and other current liabilities 11,289,635 9,491,175
------------- -------------
Total current liabilities 40,903,047 37,961,108
------------- -------------
Deferred revenues 94,816,268 105,028,425
Long-term debt and capital lease obligations 1,640,011 1,668,478
Deferred rent payable 366,318 384,501
------------- -------------
Total liabilities 137,725,644 145,042,512
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.0007 par value authorized - 15,000,000
Shares
issued - none at June 30, 2000 and March 31, 2000 -- --
Common stock - $.007 par value authorized - 30,000,000 Shares
issued - 16,507,286 shares at June 30, 2000 and
16,501,911 shares at March 31, 2000 115,541 115,541
Additional paid-in capital 23,737,835 23,737,835
Loans to directors and officers (9,582,582) (9,505,406)
Accumulated other comprehensive income, net of taxes (201,906) (144,132)
Retained earnings (deficit) (7,860,429) (8,101,029)
------------- -------------
6,208,459 6,102,809
Treasury stock - at cost, 1,211,024 shares at June 30, 2000
and March 31, 2000 (4,224,167) (4,224,167)
------------- -------------
Total Stockholders' Equity 1,984,292 1,878,642
------------- -------------
Total Liabilities and Stockholders' Equity $139,709,936 $146,921,154
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Earned administrative fees (Net of amortization
of deferred costs) $12,504,977 $9,464,325
------------ ------------
Costs and expenses
Service, selling, and general and administrative 10,098,142 12,999,952
Depreciation and amortization 1,544,926 1,413,347
------------ ------------
Total costs and expenses 11,643,068 14,413,299
------------ ------------
Income (loss) from operations 861,909 (4,948,974)
Other income (expense) 167,110 253,095
------------ ------------
Income (loss) before provision for income taxes 1,029,019 (4,695,879)
Provision (benefit) for income taxes 788,419 (1,263,615)
------------ ------------
Net income (loss) $240,600 ($3,432,264)
============ ============
Earnings per share:
Basic $0.02 ($0.23)
============ ============
Diluted $0.02 ($0.23)
============ ============
Weighted average number of shares outstanding:
Basic 15,296,262 15,222,861
============ ============
Diluted 15,296,262 15,222,861
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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WARRANTECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net cash flows from (used in ) operating activities (2,735,429) 5,033,186
Cash flows from investing activities:
Property and equipment purchased-net of retirements (371,461) (635,602)
Purchase of marketable securities (350,000) (1,300,000)
Proceeds from sales of marketable securities 1,300,000 235,000
------------ ------------
Net cash from(used in) investing activities 578,539 (1,700,602)
Cash flows from financing activities:
Decrease in notes receivable 47,373 42,759
Exercise of common stock options and stock grants -- 4,426
Repayments, notes and capital leases (423,804) (434,915)
------------ ------------
Net cash (used in) financing activities (376,431) (387,730)
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,533,321) 2,944,854
Cash and cash equivalents at beginning of period 10,035,003 15,032,473
------------ ------------
Cash and cash equivalents at end of period $7,501,682 $17,977,327
============ ============
Supplemental Cash Flow Information:
Cash payments for:
Interest $80,616 $105,534
============ ============
Income taxes $20,085 $43,324
============ ============
Non-Cash investing and financing activities:
Property and equipment financed through capital leases $172,930 $356,746
Exercise of restricted common stock options 9,335,588
Increase in loans to officers and directors (77,176) (143,377)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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WARRANTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. THE COMPANY
Warrantech, through its wholly owned subsidiaries, markets and administers
service contracts and extended warranties. The Company is a third party
administrator for a variety of dealer/clients in selected industries and offers
call center and technical computer services. The Company assists dealer/clients
in obtaining insurance policies from highly rated independent insurance
companies for all contracts and programs offered. The insurance company is then
responsible for the cost of repairs or replacements for the contracts
administered by Warrantech.
The Company operates under three major business segments: Automotive, Consumer
Products and International. The Automotive segment markets and administers
extended warranties on automobiles, light trucks, recreational vehicles and
automotive components. These products are sold principally by franchised and
independent automobile dealers, leasing companies, repair facilities, retail
stores and financial institutions. The Consumer Products segment markets and
administers extended warranties on household appliances, electronics and homes.
These products include home appliances, consumer electronics, televisions,
computers, home office equipment and homes. These products are sold principally
by retailers, distributors, manufacturers, utility companies and financial
institutions. Warrantech also direct markets these products to the ultimate
consumer through telemarketing and direct mail campaigns. The International
segment markets and administers outside the United States predominately the same
products and services of the other business segments. The International segment
is currently operating in the United Kingdom, Central and South America, Puerto
Rico and the Caribbean.
The predominant terms of the service contracts and extended warranties range
from twelve (12) to eighty-four (84) months. The Company acts solely as a third
party administrator on behalf of the dealer/clients and insurance companies. The
actual repairs and replacements required under the service contract agreements
are performed by independent third party authorized repair facilities. The cost
of these repairs is borne by the insurance companies that have the ultimate
responsibility for the claims. The insurance policy indemnifies the
dealer/clients against losses resulting from service contract claims and
protects the consumer by ensuring their claims will be paid.
The Company's service contract programs benefit consumers with expanded and/or
extensions of product coverage for a specified period of time (and/or mileage in
the case of automobiles and recreational vehicles), similar to that provided by
manufacturers under the terms of their product warranties. Such coverage
generally provides for the repair or replacement of the product, or a component
thereof, in the event of its failure. The Company's service contract programs
benefit the dealer/clients by providing enhanced value to the goods and services
they offer. It also provides the opportunity for increased revenue and income
while outsourcing the costs and responsibilities of operating an extended
warranty program.
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 three Months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10K for the year
ended March 31, 2000.
Certain prior year amounts may have been reclassified to conform to current year
presentation.
Revenue Recognition Policy - The Company's revenue recognition policy for fiscal
years ending March 31, 2000 and prior are segregated into two distinct methods
depending on whether the Company or the retailer/dealer is
6
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designated as the obligor on the service contract sale. In either case, a highly
rated independent insurance company assumes all claims liabilities of the
service contracts administered by the Company.
Dealer obligor service contracts are sales in which the retailer/dealer is
designated as the obligor. For these service contract sales, using the
proportional performance method, the Company recognizes revenues in direct
proportion to the costs incurred in providing the service contract programs to
the Company's clients. Revenues in amounts sufficient to meet future
administrative costs and a reasonable gross profit thereon are deferred. Sales
of dealer obligor service contracts are reflected in gross revenues net of
premiums paid to insurance companies.
Administrator obligor service contracts are sales in which Warrantech is
designated as the obligor. Effective April 1, 2000 Warrantech no longer sells
administrative obligor service contracts. It has entered into an agreement with
Butler Solutions Inc., wherein Butler will be the obligor. As all contracts sold
will be dealer obligor or third party obligor contracts, the company will
recognize all of its revenue using the proportional performance method
commencing April 1, 2000.
The Company previously recognized revenues for its administrative obligor
contracts in accordance with Financial Accounting Standards Board Technical
Bulletin 90-1 ("TB 90-1"), Accounting for Separately Priced Extended Warranty
and Product Maintenance Contracts, and Statement of Financial Accounting
Standards No. 60 ("SFAS 60"), Accounting and Reporting by Insurance Enterprises.
These accounting standards require the recognition of revenue over the life of
the contract on a straight-line basis, unless sufficient, company-specific,
historical evidence indicates that the costs of performing services under these
contracts are incurred on other than a straight-line basis. The Company is
recognizing revenue on administrative obligor contracts based on company
specific historical claims experience over the life of the contract.
3. COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
For the Three Months Ended
--------------------------
June 30,
--------------------------
2000 1999
----------- -----------
Net income(loss) $240,600 ($3,432,264)
Other Comprehensive Income, net of tax:
Unrealized gain(loss) on investments 2,647 (8,931)
Foreign currency translation
adjustments (60,421) (42,502)
Comprehensive Income ----------- -----------
$182,826 ($3,483,697)
=========== ===========
Comprehensive income per share: $0.01 ($0.23)
----------- -----------
The components of accumulated June 30, March 31,
comprehensive income are as follows: 2000 2000
----------- -----------
Unrealized gain(loss) on investments ($14,085) ($16,732)
Foreign currency translation (187,821) (127,400)
adjustments ----------- -----------
Accumulated other comprehensive income ($201,906) ($144,132)
=========== ===========
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4. EARNINGS PER SHARE
The computation of earnings per share was as follows
For the Three Months Ended
--------------------------
June 30,
--------------------------
2000 1999
---------- ------------
Numerator:
Net income (loss) applicable to common
stock $240,600 ($3,432,264)
Denominator: ========== ============
Average outstanding shares used in
the
computation of per share earnings:
Common Stock issued-Basic shares 15,296,262 15,222,861
Stock Options (treasury method) -- --
---------- ------------
Diluted shares 15,296,262 15,222,861
========== ============
Earnings Per Common Share:
Basic $0.02 ($0.23)
========== ============
Diluted $0.02 ($0.23)
========== ============
5. SEGMENTS
The Company defines its operations into three business segments: Automotive,
Consumer Products and International operations. All other includes general
corporate income and expenses, inter-segment sales and expenses and other
corporate assets not related to the three business segments.
<TABLE>
<CAPTION>
Consumer Reportable
Three Months Ended Automotive Products International Segments Other Total
------------------ ---------- -------- ------------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000
Earned administrative fees $4,213,253 $7,901,252 $489,962 $12,604,467 ($99,492) $12,504,975
Profit (loss) from operations 2,374,669 2,879,185 (1,267,305) 3,986,549 (3,124,640) 861,909
Pretax Income (Loss) 1,482,725 1,167,793 (1,576,404) 1,074,114 (45,095) 1,029,019
Net Interest and dividend 11,616 (5,821) (11,086) (5,291) 165,982 160,691
Income
Depreciation/Amortization 211,650 471,142 229,271 912,063 632,863 1,544,926
Total Assets 56,941,499 64,450,212 6,612,574 128,004,285 11,705,651 139,709,936
June 30, 1999
Earned administrative fees $3,580,570 $4,923,514 $1,147,246 $9,651,330 (187,005) $9,464,325
Profit (loss) from operations 1,429,824 (2,435,122) (649,575) (1,654,873) (3,294,101) (4,948,974)
Pretax Income (Loss) 369,596 (4,488,606) (921,538) (5,040,548) 344,669 (4,695,879)
Net Interest and dividend 7,970 511 (1,291) 7,190 210,660 217,850
Income
Depreciation/Amortization 181,917 353,594 216,074 751,585 661,762 1,413,347
Total Assets 78,876,032 87,757,181 9,756,434 176,389,647 12,006,509 188,396,156
</TABLE>
6. SIGNIFICANT CUSTOMERS
The Company has one significant customer, Staples, which accounted for
approximately 11% and 7% respectively, of consolidated gross revenues for the
three months ended June 30, 2000, and 1999. CompUSA, accounted for approximately
14% of consolidated gross revenues for the three months ended June 30, 1999. The
Company notified CompUSA in May 1999 of price increases resulting from premium
increases imposed by CIGNA Insurance Company. On June 24, 1999, CompUSA publicly
announced as part of a major corporate restructuring their intentions to
leverage their internal call center capabilities by taking over customer contact
regarding extended warranty repair calls. On June 28, 1999 Warrantech received
formal notification of termination from CompUSA effective July 28, 1999. The
loss of CompUSA had an adverse impact on prior operating results.
8
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WARRANTECH CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for the historical information contained herein, the matters discussed
below or elsewhere in this quarterly report are forward looking statements that
involve risks and uncertainties. The Company makes such forward-looking
statements under the provisions of the "safe harbor" section of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are based
on management's beliefs and assumptions, as well as information currently
available to management. Such beliefs and assumptions are based on, among other
things, the Company's operating and financial performance over recent years and
its expectations about its business for the current fiscal year. Although the
Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such statements are subject to certain risks, uncertainties
and assumptions, including (a) prevailing economic conditions may significantly
deteriorate, thereby reducing the demand for the Company's products and
services, (b) unavailability of technical support personnel or increases in the
rate of turnover of such personnel, reflecting increased demand for such
qualified personnel, (c) changes in the terms or availability of insurance
coverage for the Company's programs or (d) regulatory or legal changes affecting
the Company's business, although none of these risks are anticipated at the
present time. Should one or more of these or any other risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or expected.
Results of Operations
Three Months Ended June 30, 2000 Compared to the Three Months ended June 30,
1999
Earned administrative fees for the three month period ended June 30, 2000
increased to $12,504,977 as compared with $9,464,325 for the same period last
year. This was a quarter to quarter increase of $3,040,652 or 32.1%. Higher
volume from existing and new customers and an increase in deferred revenue
recognition in the current quarter in the Consumer Products segment increased
earned administrative fees to $7,901,252 from $4,923,514 for the June 30, 1999
quarter. Our South American and Puerto Rico markets also contributed higher
volumes from existing and new customers although earned administrative fees from
the total International segment declined from $1,47,246 for the quarter ended
June 30, 1999 to $489,962 in the current quarter due to shrinking volumes from
the United Kingdom. The Automotive segment had an increase in earned
administrative fees of $632,683 from $3,580,570 to $4,213,253 resulting an
increase in deferred revenues recognized in the current quarter.
Service, selling and general and administrative expenses (SG&A) for the three
months ended June 30, 2000 were reduced by $2,901,810 or 22.3% to $10,098,142 as
compared to $12,999,952 for the three months ended June 30, 1999. The decrease
in SG&A expenses reflects the Company's improved technologies and cost-cutting
measures. Total employee and payroll related costs were down 27% from $8,1897,47
for the quarter ended June 30, 1999 to $5,974,269 in the current quarter.
Depreciation and amortization were $1,544,926 for the three months ended June
30, 2000 as compared to $1,413,347 for the same period last year due primarily
to capital additions related to the Company's ongoing upgrade of its computer
systems.
The provision (benefit) for income taxes is based on the Company's projection of
its estimated effective tax rate for the fiscal year.
Net income for the three months ended June 30, 2000 was $240,600 or $0.02 per
diluted share compared to a net loss of ($3,432,264) or ($.23) per diluted share
for the comparable period last year. This change is the result of the
amortization of prior period deferred revenues and deferred costs being
recognized in the current year and the other factors listed above.
9
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Liquidity and Financial Resources
The primary source of liquidity during the current year was cash generated
by operations. Funds were utilized for working capital expenditures as well as
capital expenditures relating to the development of the Company's information
systems.
The Company has ongoing relationships with equipment financing companies
and intends to continue financing certain future equipment needs through leasing
transactions. The total amount financed through leasing transactions during the
three months ended June 30, 2000 amounted to $172,930. In addition, the Company
had a revolving credit agreement with a bank, which provided for maximum
aggregate borrowings up to $1,500,000, with interest at the bank's prevailing
prime rate or LIBOR plus 2%. The Company is presently in negotiations to replace
this line of credit which expired June 30, 2000.
On July 6, 1998, Joel San Antonio, Warrantech's Chairman and Chief
Executive Officer, and William Tweed and Jeff J. White, members of Warrantech's
Board of Directors, exercised 3,000,000 of their vested options to purchase
Warrantech common stock. Promissory notes totaling $8,062,500 were signed with
interest payable over three years at an annual rate of 6%. The promissory notes,
which are with recourse and secured by the stock certificates issued, mature
July 5, 2001. An additional promissory note was signed by Joel San Antonio for
$595,634 on March 22, 1999, which represents the amounts funded by the Company
with respect to his payroll taxes for the exercise of these options. The
exercise of these stock options and the anticipated tax benefit from this
transaction total approximately $10 million. These amounts have been recorded as
a contra-equity account, which is a reduction of stockholders' equity.
The Company recently agreed to restructure these loans by capitalizing the
interest due on the loans and making the loans payable over five (5) years, with
respect to Mr. Tweed and Mr. White, and over one (1) year with respect to Mr.
San Antonio. Interest on the new loans to Messrs. Tweed and White accrues
annually at the applicable federal rate (currently approximately 6.2%) but will
first become payable on the third anniversary of the new loans and will be
payable annually thereafter. The new loan to Mr. San Antonio, which is payable
in one year, is without interest. The specific terms of this new loan agreement
with Mr. San Antonio are still being negotiated. The total amount of the new
loans, including the capitalized interest, which accrued on the prior loans
through June 30, 2000, is $9,582,582.
While the working capital deficiency at June 30, 2000 was $3,312,158, the
Company believes that internally generated funds will be sufficient to finance
its current operations for at least the next twelve months. The Company is
continuing its restructuring plan to consolidate operations and reduce costs.
This restructuring plan includes the reduction of operational and administrative
personnel, consolidation of office space and an overall review of service,
selling, general and administrative expenses.
The effect of inflation has not been significant to the Company.
10
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
The Company is from time to time involved in litigation incidental to
the conduct of its business.
On December 9, 1999, a complaint and order to show cause were filed
against Warrantech Automotive, Inc. in the Supreme Court of the State of
New York by American Home Assurance Company, Illinois National Insurance
Company, National Union Insurance Company of Louisiana and the New
Hampshire Insurance Company (collectively, "AIG") in which AIG sought to
inspect and copy certain books and records kept by Warrantech in the course
of the business it conducted under a General Agency Agreement ("GAA") with
AIG. On December 14, 1999, this action was removed by Warrantech to the
United States District Court for the Southern District of New York. The
action is entitled "American Home Assurance Co., et al, v. Warrantech
Automotive, Inc., 99 Civ. 12040 (BSG)." At a December 16, 1999 hearing,
Warrantech agreed to make the books and records at issue available to AIG
for copying. On January 24, 2000 AIG made a motion (the "Motion to Amend")
to amend its complaint to add claims for replevin and a declaratory
judgment seeking possession of the originals of the books and records and
to add claims for breach of contract, breach of fiduciary duty, negligence
and gross negligence based on allegations that Warrantech mishandled claims
under the GAA. AIG seeks damages in excess of $20 million. AIG also moved
for summary judgment (the "Motion for Summary Judgment") on its claims
seeking possession of the books and records. Warrantech believes all of
these claims are without merit and intends to defend them vigorously. On
February 7, 2000, Warrantech filed papers opposing AIG's motion to amend
its complaint insofar as it seeks to add a claim for replevin and a
declaratory judgment and opposing the motion for summary judgment.
Warrantech believes the claims in AIG's proposed amended pleading are
entirely without merit and intends to vigorously defend against such claims
if the Court grants AIG's motion to amend. The Motion to Amend and the
Motion for Summary Judgment are currently pending and the parties are
awaiting the Court's decision on the motions.
Service Guard Insurance Agency, Inc. ("Service Guard") v. Warrantech
Automotive, Inc., New Hampshire Insurance Company, Ronald Glime and
Christopher Ford, Cause No. 99-12650, pending in the 126th Judicial
District Court of Travis County, Texas. Service Guard filed suit against
Warrantech Automotive and New Hampshire Insurance Company on October 28,
1999, seeking an injunction to transfer claims-handling administration over
automobile warranty claims to a third-party, and seeking an unspecified
amount of damages attributed to alleged improper claims handling and
tortious interference with contract. Service Guard never pursued its
original request for injunctive relief. On January 27, 2000, Service Guard
amended its petition to add AIG Warranty Services as a defendant, again
seeking to recover an unspecified amount of damages from all defendants. On
February 2, 2000, Service Guard filed an application for a temporary
restraining order against New Hampshire Insurance Company and AIG Warranty
Services to mediate within twenty-one days the disputes that form the basis
for the requested injunctive relief. Warrantech, Ford and Glime believe
Service Guard's claims against them are wholly without merit and intend to
vigorously defend against those claims.
Service Guard has amended its Complaint to limit its claims against
Warrantech Automotive, Inc. Warrantech Automotive, Inc. has filed an answer
denying Service Guard's allegations and has also filed a cross-claim
against New Hampshire Insurance Company and AIG Warranty Services of
Florida, Inc.
Warrantech has filed a claim for coverage of the above mentioned claims
under an errors and omissions policy issued by National Union Fire
Insurance Company of Pittsburgh, PA., a member of the AIG family of
insurance companies ("National Union"). On June 7, 2000, National Union
filed a complaint in the Supreme Court of the State of New York, County of
New York, against Warrantech Automotive, Inc. and Warrantech Corporation.
The complaint seeks a declaration from the court that National Union has no
obligation under the policy to pay any of the claims submitted. Warrantech
believes National Union's position is without merit and intends to contest
the action vigorously.
Warrantech is not able to estimate its potential liability in either of the
above actions although Warrantech believes that these cases are without
merit, and accordingly, no reserves for potential liabilities have been
provided for either of these actions.
11
<PAGE>
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
The Company was informed on August 2, 2000 that the Nasdaq Listing and
Hearing Review Council ("Review Council") affirmed the September 2, 1999
decision by the Nasdaq Listing Qualifications Panel which had determined to
delist the Company's securities from the Nasdaq National Market. The basis of
the Review Council's determination is that the Company does not currently
satisfy the requirements for listing on the Nasdaq markets. The Company's stock
is currently quoted on the OTC Bulletin Board and will continue to trade on the
Bulletin Board until the Company can meet the criteria for relisting on Nasdaq.
Item 6 (a) Exhibits
(27) Financial Data Schedule
Item 6 (b) Reports on 8-K
Not applicable.
12
<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 2, 2000
S/N/S Richard F. Gavino
---------------------------------------------
Richard F. Gavino - Executive Vice President
and Chief Financial Officer
Date: August 2, 2000
13
