<PAGE>
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 quarterly period ended June 30, 1995
-----------------------
[ ] 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 0-17231
------------------------------------
AUTOMOBILE PROTECTION CORPORATION - APCO
(Exact name of registrant as specified in its charter)
Georgia 58-1582432
----------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
15 Dunwoody Park Drive, Suite 100
Atlanta, Georgia 30338
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 394-7070
-------------------
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.
Class Outstanding at August 1, 1995
--------------------------------------- ------------------------------------
Common stock, $.001 par value per share 6,058,975
Exhibits - None.
Total number of pages, including cover page - 12.
1
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet at June 30, 1995,
December 31, 1994 and August 31, 1994 . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income for the Three
Month Period Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 4
Consolidated Statement of Income for the Six
Month Period Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows for the Three
Month Period Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 6
Consolidated Statement of Cash Flows for the Six
Month Period Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8. . . . . . . . . . . . . . . . . 11
2
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31, August 31,
1995 1994 * 1994 **
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,346,039 $4,501,527 $4,932,535
Marketable securities, at fair value 1,842,301 1,685,444 1,596,982
Accounts receivable, net of allowance for
doubtful accounts of $45,000 each period 699,232 473,577 271,665
Officer and employee receivables 139,271 81,154 58,105
Notes receivable, net of allowance for
doubtful accounts of $16,000, $16,000
and $13,000 193,850 60,482 128,910
Income tax refund receivable 57,000 57,000
Inventories and program materials 82,793 85,278 104,398
Prepaid expenses 89,629 141,277 69,601
Deferred tax asset 75,000 45,000 45,000
----------- ---------- ----------
Total current assets 10,468,115 7,130,739 7,264,196
Property and equipment, net of accumulated
depreciation of $1,230,780, $1,086,800,
and $987,800 673,438 687,798 688,367
Goodwill, net of accumulated amortization of
$325,556, $300,674 and $284,086 172,117 196,999 213,586
Marketable securities held to maturity 615,520 603,158
Deposits and balances to secure licenses 712,803 653,250 152,500
Other assets 94,870 21,399 79,668
----------- ---------- ----------
$12,736,863 $9,293,343 $8,398,317
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $ 4,970,638 $3,067,925 $3,290,216
Accounts payable 1,075,743 558,726 474,748
Accrued liabilities 402,994 212,283 269,227
Current income taxes payable 108,433 13,605 96,000
----------- ---------- ----------
Total current liabilities 6,557,808 3,852,539 4,130,191
Deferred income taxes 20,000 20,000
Redeemable preferred stock 300 300 300
----------- ---------- ----------
6,558,108 3,872,839 4,150,491
----------- ---------- ----------
Shareholders' equity:
Common stock; $.001 par value, 40,000,000
authorized, 6,054,275, 5,679,895
and 5,183,000 issued and outstanding 6,054 5,679 5,183
Additional paid-in capital 4,577,503 4,358,187 3,455,752
Retained earnings 1,595,198 1,056,638 786,891
----------- ---------- ----------
Total shareholders' equity 6,178,755 5,420,504 4,247,826
----------- ---------- ----------
$12,736,863 $9,293,343 $8,398,317
----------- ---------- ----------
----------- ---------- ----------
<FN>
* Certain December 31, 1994 amounts have been reclassified for comparative purposes.
** From audited financial statements contained in Registrant's Annual Report on Form 10-K for the fiscal year ended August 31,
1994.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
------------ ----------
<S> <C> <C>
Revenues $13,443,408 $7,028,081
Cost of sales 10,906,147 5,390,130
------------ ----------
2,537,261 1,637,951
------------ ----------
Expenses:
Compensation, selling and administrative 1,848,552 945,026
Depreciation and amortization 85,941 106,841
Interest, dividend and other income (105,993) (30,933)
------------ ----------
1,828,500 1,020,934
------------ ----------
Income before provision for income taxes 708,761 617,017
Provision for income taxes (279,014) (258,342)
------------ ----------
Net income $429,747 $358,675
------------ ----------
------------ ----------
Per common share and common share equivalent
on both a primary and fully diluted basis $0.06 $0.06
------------ ----------
------------ ----------
Weighted average number of common shares
and common share equivalents outstanding
during the period:
Primary basis 6,909,000 6,020,000
Fully diluted basis 6,909,000 6,225,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
------------ ----------
<S> <C> <C>
Revenues $22,644,927 $13,382,211
Cost of sales 18,326,197 10,379,817
------------ ----------
4,318,730 3,002,394
------------ ----------
Expenses:
Compensation, selling and administrative 3,447,329 2,091,361
Depreciation and amortization 171,882 200,282
Interest, dividend and other income (188,555) (52,829)
------------ ----------
3,430,656 2,238,814
------------ ----------
Income before provision for income taxes 888,074 763,580
Provision for income taxes (349,514) (318,236)
------------ ----------
Net income $538,560 $445,344
------------ ----------
------------ ----------
Per common share and common share equivalent
on both a primary and fully diluted basis $0.08 $0.07
------------ ----------
------------ ----------
Weighted average number of common shares
and common share equivalents outstanding
during the period:
Primary basis 6,901,000 5,929,000
Fully diluted basis 6,901,000 6,122,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $429,747 $358,675
------------ ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 85,941 106,841
Deferred income taxes (50,000) 44,582
Allowance for doubtful accounts 10,000 34,624
Tax benefit from stock option exercise 115,000
Stock compensation expense 10,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (86,318) 332,606
(Increase) decrease in officer and employee
receivables (45,969) 3,525
(Increase) decrease in notes receivable (28,660) 4,033
Decrease in income tax refund receivable 57,000
(Increase) decrease in inventories and program
materials (25,788) 16,613
Increase in prepaid expenses and other assets (50,921) (20,185)
Increase in premiums, fees and taxes payable 1,489,867 181,999
Increase (decrease) in accounts payable 288,585 (80,241)
Increase in accrued liabilities 175,529 91,576
Increase in income taxes payable 69,678 21,730
Purchases of marketable securities (494,887)
------------ ----------
Total adjustments 1,519,057 737,703
------------ ----------
Net cash provided by operating
activities 1,948,804 1,096,378
------------ ----------
Cash flows from investing activities:
Purchases of property and equipment (44,455) (46,742)
Purchases of marketable securities (833,709)
Sales of marketable securities 228,921
Decrease in margin loan (92,722)
Sales (purchases) of deposits and balances
to secure licenses 150,694 (1,840)
------------ ----------
Net cash provided by
(used in) investing
activities 106,239 (746,092)
------------ ----------
Cash flows from financing activities:
Issuance of common stock 67,500 10,750
Registration costs (4,850)
------------ ----------
Net cash provided by
financing activities 62,650 10,750
------------ ----------
Net increase in cash and cash equivalents 2,117,693 361,036
Cash and cash equivalents at beginning of
period 5,228,346 3,405,381
------------ ----------
Cash and cash equivalents at end of period $7,346,039 $3,766,417
------------ ----------
------------ ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for income taxes $145,000 $190,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 538,560 $ 445,344
------------ ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 171,882 200,282
Deferred income taxes (50,000) 62,666
Allowance for doubtful accounts 10,000 39,797
Tax benefit from stock option exercise 125,000
Stock compensation expense 20,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (225,655) 368,297
Increase in officer and employee receivables (68,117) (10,926)
Increase in notes receivable (133,368) (54,344)
Decrease in income tax refund receivable 57,000 6,439
Decrease in inventories and program materials 2,485 38,394
Increase in prepaid expenses and other assets (24,823) (61,310)
Increase (decrease) in premiums, fees and
taxes payable 1,902,713 (444,181)
Increase (decrease) in accounts payable 517,017 (26,467)
Increase in accrued liabilities 190,711 272,826
Increase in income taxes payable 94,828 87,000
Purchases of marketable securities (1,307,957)
Sales of marketable securities 1,338,738
------------ ----------
Total adjustments 2,620,454 478,473
------------ ----------
Net cash provided by
operating activities 3,159,014 923,817
------------ ----------
Cash flows from investing activities:
Purchases of property and equipment (129,640) (155,145)
Purchases of marketable securities (200,000) (833,709)
Sales of marketable securities 357,829
Decrease in margin loan (100,837)
Purchases of deposits and balances to
secure licenses (59,553) (151,840)
------------ ----------
Net cash used in
investing activities (389,193) (883,702)
------------ ----------
Cash flows from financing activities:
Issuance of common stock 92,500 10,750
Registration costs (17,809)
------------ ----------
Net cash provided by
financing activities 74,691 10,750
------------ ----------
Net increase in cash and cash equivalents 2,844,512 50,865
Cash and cash equivalents at beginning
of period 4,501,527 3,715,552
------------ ----------
Cash and cash equivalents at end of period $7,346,039 $3,766,417
------------ ----------
------------ ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for income
taxes $170,000 $190,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments, consisting solely of normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the periods indicated. The accompanying consolidated
financial statements include the accounts of Automobile Protection
Corporation - APCO and its wholly-owned subsidiaries (the "Company").
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
financial statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's Annual
Report on Form 10-K for the twelve months ended August 31, 1994. The Company
has changed its reporting period to a calendar basis and accordingly is
reporting its quarterly results and annual results on a calendar basis
commencing with the three month period ended March 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
REVENUES
Revenues from the sale of extended vehicle service contracts and
warranty programs are recognized when the service contract or warranty sold
by the dealer is approved and accepted by the Company. Revenues are comprised
of the Company's administration fee, insurance premium costs, taxes and other
costs associated with the vehicle service contracts. Revenues from sales of
software are recognized when the software is delivered to the customer and
the Company has no significant obligations remaining, and collection of the
resulting receivable is probable.
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with an original maturity of
ninety days or less to be cash equivalents.
MARKETABLE SECURITIES
The Company's investments at June 30, 1995 are comprised of $1,585,954 of
trading securities and $871,867 of held-to-maturity securities. Trading
securities are stated at their fair value, which is based on quoted market
prices, and all unrealized gains and losses are recognized in
8
<PAGE>
earnings when incurred. The Company had no significant unrealized gains or
losses on trading securities during the three months ended June 30, 1995.
Held-to-maturity securities are stated at their amortized cost. The Company
had no significant concentration of credit risk at June 30, 1995.
INVENTORIES AND PROGRAM MATERIALS
Inventories and program materials consist of computer equipment for resale
and service contract program materials, such as contract forms and point of
sale brochures. Program materials are stated at cost and are amortized as
consumed. Computer equipment is stated at the lower of cost or market using
the first-in, first-out method. Market is defined as net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes and accelerated
methods for income tax purposes over the estimated useful lives of the
assets ranging from three to ten years. Maintenance and repair costs are
charged to expense as incurred, and major renewals and betterments are
capitalized. When property and equipment is retired or sold, the related
carrying value and accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in income.
GOODWILL
Cost in excess of the fair value of net assets acquired, which resulted from
the Company's acquisition of a software company, has been recorded as
goodwill and is being amortized using the straight-line method over an
estimated useful life of ten years.
PREMIUMS, FEES AND TAXES PAYABLE
Premiums, fees and taxes payable represent unremitted amounts payable to the
Company's insurers or their agents for premiums due on extended vehicle
service contracts, extended warranty and other insurance programs accepted
for administration by the Company. The balance also includes brokerage fees,
state insurance taxes, and amounts advanced to the Company by the insurers
for payment of claims.
INCOME TAXES
The Company provides income taxes on income reported for financial statement
purposes. Deferred income taxes are recorded for differences in the
recognition of various items for financial reporting and income tax purposes.
The Company files a consolidated income tax return with its subsidiaries.
NET INCOME PER COMMON SHARE
Net income per share has been calculated based on the weighted average number
of common shares and common share equivalents outstanding during each period
presented.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations presents the more significant factors affecting the Company during
the three and six months ended June 30, 1995. The discussion and analysis
should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein and the Company's
Annual Report on Form 10-K for the 12 months ended August 31, 1994.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 ("1995") COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1994 ("1994").
Revenues for 1995 increased by 91% or $6,415,327 to $13,443,408 from
$7,028,081 in 1994. The Company's largest revenue source is from the
marketing and administration of extended vehicle service contracts ("VSCs")
under the EasyCare-Registered Trademark- name, which provided 99% of revenues
for 1995. EasyCare revenues increased due to the greater number of dealers
selling the EasyCare product.
The Company's gross margin decreased to 19% of revenues in 1995
from 23% of revenues in 1994. The decrease is due to increased incentives
paid to agents and dealers to promote the EasyCare product and additional
benefit features provided with the EasyCare product. The gross margin may
also be effected by the insurance cost and the change in the mix of new and
used, makes and models of vehicles for which VSCs were accepted for
administration.
Compensation, selling and administrative expenses for 1995
increased by 96% or $903,526 to $1,848,552 from $945,026 in 1994. The 1994
expense included non-recurring items having a net credit effect of $355,000
which was due to the recovery of previously expensed legal costs. The
additional 1995 expense increase is primarily attributable to increases in
personnel, compensation, printed program materials and marketing. The
Company has been enlarging its marketing personnel to support its growth
opportunities.
Interest, dividend and other income increased in 1995 by 243% or $75,060
to $105,993 from $30,933 in 1994. The increase is a result of the Company
investing more funds in marketable securities and interest earning deposits
to secure state licenses.
The Company recorded a provision for income taxes in 1995 of $279,014 as
compared to $258,342 for 1994. The Company's effective tax rate is 39% for
1995 compared to 42% for 1994.
SIX MONTHS ENDED JUNE 30, 1995 ("1995") COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1994 ("1994").
Revenues for 1995 increased by 69% or $9,262,716 to $22,644,927 from
$13,382,211 in 1994. The Company's largest revenue source is from the
marketing and administration of extended vehicle service contracts ("VSCs")
under the EasyCare, name, which provided 98% of revenues for 1995. EasyCare
revenues increased due to the greater number of dealers selling the EasyCare
product.
10
<PAGE>
The Company's gross margin decreased to 19% of revenues in 1995 from 22%
of revenues in 1994. The decrease is due to the prior year including
consulting fees on a major contract, increased incentives paid to agents and
dealers to promote the EasyCare product and additional benefit features
provided with the EasyCare product. The gross margin may also be effected by
the insurance cost and the change in the mix of new and used, makes and
models of vehicles for which VSCs were accepted for administration.
Compensation, selling and administrative expenses for 1995 increased by 65%
or $1,355,968 to $3,447,329 from $2,091,361 in 1994. The 1994 expense
included non-recurring items having a net credit effect of $355,000 which was
due to the recovery of previously expensed legal costs. The additional 1995
expense increase is primarily attributable to increases in personnel,
compensation, printed program materials and marketing. The Company has been
enlarging its marketing personnel to support its growth opportunities.
Interest, dividend and other income increased in 1995 by 257% or $135,726 to
$188,555 from $52,829 in 1994. The increase is a result of the Company
investing more funds in marketable securities and interest earning deposits
to secure state licenses.
The Company recorded a provision for income taxes in 1995 of $349,514 as
compared to $318,236 for 1994. The Company's effective tax rate is 39% for
1995 compared to 42% for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its current working capital and anticipated levels
of internally generated funds will be sufficient to fund its operating and
capital expenditure requirements for the next twenty four months. This
estimate is based on the Company's current level of operations and certain
assumptions relating to the Company's business and planned growth. At June
30, 1995, the Company had working capital of $3,910,307, which is an increase
of $632,107 from the balance of $3,278,200 at December 31, 1994 and an
increase of $776,302 from the balance of $3,134,005 at August 31, 1994.
Additionally, the Company had investments classified as non-current of
$615,520 at June 30, 1995.
II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOMOBILE PROTECTION CORPORATION - APCO
/s/ Martin J. Blank August 11, 1995
___________________________________ _______________
Martin J. Blank Date
Secretary (Duly Authorized Officer)
/s/ Anthony R. Levinson August 11, 1995
___________________________________ _______________
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 7,346,039
<SECURITIES> 2,457,821
<RECEIVABLES> 893,082
<ALLOWANCES> 61,000
<INVENTORY> 82,793
<CURRENT-ASSETS> 10,468,115
<PP&E> 673,438
<DEPRECIATION> 1,230,780
<TOTAL-ASSETS> 12,736,863
<CURRENT-LIABILITIES> 6,557,808
<BONDS> 0
<COMMON> 6,054
0
300
<OTHER-SE> 6,172,701
<TOTAL-LIABILITY-AND-EQUITY> 12,736,863
<SALES> 22,644,927
<TOTAL-REVENUES> 22,644,927
<CGS> 18,326,197
<TOTAL-COSTS> 18,326,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 888,074
<INCOME-TAX> 349,514
<INCOME-CONTINUING> 538,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 538,560
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
