<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 September 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 November 10, 1995
- --------------------------------------- --------------------------------
Common stock, $.001 par value per share 9,001,091
Exhibit - Financial Data Schedule
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 September 30, 1995,
December 31, 1994 and August 31, 1994............................... 3
Consolidated Statement of Income for the Three
Month Period Ended September 30, 1995 and 1994...................... 4
Consolidated Statement of Income for the Nine
Month Period Ended September 30, 1995 and 1994...................... 5
Consolidated Statement of Cash Flows for the Three
Month Period Ended September 30, 1995 and 1994...................... 6
Consolidated Statement of Cash Flows for the Nine
Month Period Ended September 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>
September 30, December 31, August 31,
1995 1994 * 1994 **
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,592,015 $ 4,501,527 $ 4,932,535
Marketable securities, at fair value 2,231,418 1,685,444 1,596,982
Accounts receivable, net of allowance for doubtful
accounts of $41,367, $45,000 and $45,000 856,056 473,577 271,665
Officer and employee receivables 102,659 81,154 58,105
Notes receivable, net of allowance for doubtful
accounts of $16,000, $16,000 and $13,000 241,131 60,482 128,910
Income tax refund receivable 57,000 57,000
Inventories and program materials 55,833 85,278 104,398
Prepaid expenses 114,366 141,277 69,601
Deferred tax asset 150,000 45,000 45,000
----------- ---------- ----------
Total current assets 12,343,478 7,130,739 7,264,196
Property and equipment, net of accumulated
depreciation of $1,308,800,$1,086,800,and $987,800 791,121 687,798 688,367
Goodwill, net of accumulated amortization of
$337,997, $300,674 and $284,086 159,675 196,999 213,586
Marketable securities held to maturity 614,966 603,158
Deposits and balances to secure licenses 723,928 653,250 152,500
Other assets 97,933 21,399 79,668
----------- ---------- ----------
$14,731,101 $9,293,343 $8,398,317
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $6,068,840 $3,067,925 $3,290,216
Accounts payable 1,048,503 558,726 474,748
Accrued liabilities 558,435 212,283 269,227
Current income taxes payable 142,233 13,605 96,000
----------- ---------- ----------
Total current liabilities 7,818,011 3,852,539 4,130,191
Deferred income taxes 20,000 20,000
Redeemable preferred stock 300 300 300
----------- ---------- ----------
7,818,311 3,872,839 4,150,491
----------- ---------- ----------
Shareholders' equity:
Common stock; $.001 par value, 40,000,000
authorized, 6,111,075, 5,679,895 and 5,183,000
issued and outstanding 6,111 5,679 5,183
Additional paid-in capital 4,764,046 4,358,187 3,455,752
Retained earnings 2,142,633 1,056,638 786,891
----------- ---------- ----------
Total shareholders' equity 6,912,790 5,420,504 4,247,826
----------- ---------- ----------
$14,731,101 $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
September 30,
1995 1994
----------- ----------
<S> <C> <C>
Revenues $13,142,108 $8,011,801
Cost of sales 10,370,119 6,118,318
----------- ----------
2,771,989 1,893,483
----------- ----------
Expenses:
Compensation, selling and administrative 1,911,188 1,253,357
Depreciation and amortization 91,941 109,236
Interest, dividend and other income (105,468) (27,130)
----------- ----------
1,897,661 1,335,463
----------- ----------
Income before provision for income taxes 874,328 558,020
Provision for income taxes (326,893) (140,707)
----------- ----------
Net income $547,435 $417,313
=========== ==========
Per common share and common share equivalent
on both a primary and fully diluted basis $0.08 $0.06
=========== ==========
Weighted average number of common shares and common
share equivalents outstanding during the period:
Primary basis 6,987,000 6,470,000
Fully diluted basis 7,211,000 6,659,000
</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>
Nine Months Ended
September 30,
1995 1994
----------- -----------
<S> <C> <C>
Revenues $35,787,035 $21,394,012
Cost of sales 28,696,316 16,498,135
----------- -----------
7,090,719 4,895,877
----------- -----------
Expenses:
Compensation, selling and administrative 5,358,517 3,344,718
Depreciation and amortization 263,823 309,518
Interest, dividend and other income (294,023) (79,959)
----------- -----------
5,328,317 3,574,277
----------- -----------
Income before provision for income taxes 1,762,402 1,321,600
Provision for income taxes (676,407) (458,943)
----------- -----------
Net income $1,085,995 $862,657
=========== ===========
Per common share and common share equivalent
on both a primary and fully diluted basis $0.16 $0.13
=========== ===========
Weighted average number of common shares and common
share equivalents outstanding during the period:
Primary basis 6,993,000 6,454,000
Fully diluted basis 7,006,000 6,477,000
</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
September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $547,435 $417,313
Adjustments to reconcile net income to net cash ---------- ----------
provided by operating activities:
Depreciation and amortization 91,941 109,236
Deferred income taxes (75,000) (32,220)
Allowance for doubtful accounts (3,633) (67,000)
Tax benefit from stock option exercise 63,000
Stock compensation expense 10,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (153,191) 27
Decrease in officer and employee receivables 36,612 36,101
Increase in notes receivable (47,281) (30,190)
Increase in income tax refund receivable (57,000)
Decrease in inventories and program materials 26,960 37,574
(Increase) decrease in prepaid expenses and other assets (29,299) 8,899
Increase in premiums, fees and taxes payable 1,098,202 65,906
(Decrease) increase in accounts payable (27,240) 60,326
Increase (decrease) in accrued liabilities 155,441 (124,755)
Increase in income taxes payable 33,800 50,000
Purchases of marketable securities (1,241,078)
Sales of marketable securities 800,000
---------- ----------
Total adjustments 739,234 56,904
---------- ----------
Net cash provided by operating activities 1,286,669 474,217
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (195,683) (22,169)
Purchases of marketable securities (788,981)
Sales of marketable securities 52,515 74,674
Purchases of deposits and balances to secure licenses (11,125) (660)
---------- ----------
Net cash used in investing activities (154,293) (737,136)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 113,600 415,862
---------- ----------
Net cash provided by financing activities 113,600 415,862
---------- ----------
Net increase in cash and cash equivalents 1,245,976 152,943
Cash and cash equivalents at beginning of period 7,346,039 3,766,417
---------- ----------
Cash and cash equivalents at end of period $8,592,015 $3,919,360
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $305,000 $180,000
</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>
Nine Months Ended
September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,085,995 $862,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 263,823 309,518
Deferred income taxes (125,000) 30,446
Allowance for doubtful accounts 6,367 (27,203)
Tax benefit from stock option exercise 188,000
Stock compensation expense 30,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (378,846) 368,324
(Increase) decrease in officer and employee receivables (31,505) 25,175
Increase in notes receivable (180,649) (84,534)
Decrease (increase) in income tax refund receivable 57,000 (50,561)
Decrease in inventories and program materials 29,445 75,968
Increase in prepaid expenses and other assets (54,122) (52,411)
Increase (decrease) in premiums, fees and taxes payable 3,000,915 (378,275)
Increase in accounts payable 489,777 33,859
Increase in accrued liabilities 346,152 148,071
Increase in income taxes payable 128,628 137,000
Purchases of marketable securities (2,549,035)
Sales of marketable securities 2,138,738
---------- ---------
Total adjustments 3,359,688 535,377
---------- ---------
Net cash provided by operating activities 4,445,683 1,398,034
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (325,323) (177,314)
Purchases of marketable securities (200,000) (1,622,690)
Sales of marketable securities 52,515 432,503
Decrease in margin loan (100,837)
Purchases of deposits and balances to secure licenses (70,678) (152,500)
---------- ---------
Net cash used in investing activities (543,486) (1,620,838)
Cash flows from financing activities:
Issuance of common stock 206,100 509,440
Registration costs (17,809) (82,828)
---------- ---------
Net cash provided by financing activities 188,291 426,612
---------- ---------
Net increase in cash and cash equivalents 4,090,488 203,808
Cash and cash equivalents at beginning of period 4,501,527 3,715,552
---------- ---------
Cash and cash equivalents at end of period $8,592,015 $3,919,360
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $475,000 $370,000
</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.
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 September 30, 1995 are comprised of $2,024,712
of trading securities and $821,672 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 earnings when
incurred. The Company had no significant unrealized gains or losses on
trading securities during the three months ended September 30, 1995. Held-
to- maturity securities are stated at their amortized cost. The Company had
no significant concentration of credit risk at September 30, 1995
8
<PAGE>
INVENTORIES AND PROGRAM MATERIALS
Inventories and program materials consist primarily of supplies such as
service contract forms and point of sale brochures. Program materials are
stated at cost and are amortized as consumed.
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.
3. SUBSEQUENT EVENT
Subsequent to September 30, 1995, the Company received proceeds of
approximately $6,000,000, net of underwriting expenses, from the exercise of
the Company's Class A and Class B warrants, which expired on October 31,
1995. The total issued shares of the Company have increased to approximately
9,000,000 as a result of the exercise of these warrants.
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 nine months ended September 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 SEPTEMBER 30, 1995 ("1995") COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1994 ("1994").
Revenues for 1995 increased by 64% or $5,130,307 to $13,142,108 from
$8,011,801 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 expanded distribution
by more dealers.
The Company's gross margin decreased to 21% of revenues in 1995 from 24% 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 52%
or $657,831 to $1,911,188 from $1,253,357 in 1994. The 1994 expense included
non-recurring items having a net credit effect of $95,000 which was due to
the recovery of previously expensed legal costs. The additional 1995 expense
increase is primarily attributable to increases in personnel, compensation
and marketing. The Company has enlarged its marketing personnel to support
its growth opportunities.
Interest, dividend and other income increased in 1995 by $78,338 to
$105,468 from $27,130 in 1994. The increase is a result of the growth of the
Company's investable asset base and a market adjustment to securities in
1994.
The Company recorded a provision for income taxes in 1995 of $326,893 as
compared to $140,707 for 1994. The Company's effective tax rate is 37% for
1995 compared to 25% for 1994. The 1994 provision included normal year end
adjustments at August 31, 1994, the Company's previous year end, to reduce
the effective tax rate for the fiscal year based on final results.
NINE MONTHS ENDED SEPTEMBER 30, 1995 ("1995") COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 1994 ("1994").
Revenues for 1995 increased by 67% or $14,393,023 to $35,787,035 from
$21,394,012 in 1994. The Company's largest revenue source is from the
marketing and administration of extended vehicle service contracts ("VSCs")
under the EasyCare -registerd trademark- name, which provided 99% of revenues
10
<PAGE>
for 1995. EasyCare revenues increased due to expanded distribution by more
dealers.
The Company's gross margin decreased to 20% of revenues in 1995 from 23% 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 60%
or $2,013,799 to $5,358,517 from $3,344,718 in 1994. The 1994 expense
included non-recurring items having a net credit effect of approximately
$450,000 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 enlarged its marketing personnel to support its growth
opportunities.
Interest, dividend and other income increased in 1995 by $214,064 to
$294,023 from $79,959 in 1994. The increase is a result of the growth of the
Company's investable asset base and a market adjustment to securities in
1994.
The Company recorded a provision for income taxes in 1995 of $676,407 as
compared to $458,943 for 1994. The Company's effective tax rate is 38% for
1995 compared to 35% 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
September 30, 1995, the Company had working capital of $4,525,467, which is
an increase of $1,247,267 from the balance of $3,278,200 at December 31, 1994
and an increase of $1,391,462 from the balance of $3,134,005 at August 31,
1994. Additionally, the Company had investments classified as non-current of
$614,966 at September 30, 1995. During the quarter, the Company spent
approximately $195,000 on leasehold improvements to expand its leased office
space to support the growth of the Company's business.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27: Financial Data Schedule
(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 November 10, 1995
___________________________________ __________________
Martin J. Blank Date
Secretary (Duly Authorized Officer)
/s/ Anthony R. Levinson November 10, 1995
___________________________________ __________________
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
12
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,592,015
<SECURITIES> 2,846,384
<RECEIVABLES> 1,097,187
<ALLOWANCES> 57,367
<INVENTORY> 55,833
<CURRENT-ASSETS> 12,343,478
<PP&E> 791,121
<DEPRECIATION> 1,308,800
<TOTAL-ASSETS> 14,731,101
<CURRENT-LIABILITIES> 7,818,011
<BONDS> 0
<COMMON> 6,111
0
300
<OTHER-SE> 6,906,679
<TOTAL-LIABILITY-AND-EQUITY> 14,731,101
<SALES> 35,787,035
<TOTAL-REVENUES> 35,787,035
<CGS> 28,696,316
<TOTAL-COSTS> 28,696,316
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,762,402
<INCOME-TAX> 676,407
<INCOME-CONTINUING> 1,085,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,085,995
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
