<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 March 31, 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
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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)
(404) 394-7070
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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 May 1, 1995
- - - - - - --------------------------------------- ---------------------------
Common stock, $.001 par value per share 6,042,275
Exhibits - None.
Total number of pages, including cover page - 10.
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AUTOMOBILE PROTECTION CORPORATION - APCO
INDEX
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<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet at March 31, 1995, December 31, 1994 and August 31, 1994...................... 3
Consolidated Statement of Income for the Three Month Period Ended March 31, 1995 and 1994................ 4
Consolidated Statement of Cash Flows for the Three Month Period Ended March 31, 1995 and 1994............ 5
Notes to Consolidated Financial Statements............................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8..................................................................... 9
</TABLE>
2
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, AUGUST 31,
1995 1994* 1994**
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<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,228,346 $4,501,527 $ 4,932,535
Marketable securities, at fair value 1,348,701 1,685,444 1,596,982
Accounts and notes receivable, net of allowance for doubtful
accounts of $61,000, $61,000 and $58,000 778,104 534,059 400,575
Officer and employee receivables 103,302 81,154 58,105
Income tax refund receivable 57,000 57,000 57,000
Inventories and program materials 57,005 85,278 104,398
Prepaid expenses 115,179 141,277 69,601
Deferred tax asset 25,000 45,000 45,000
------------- ------------ ------------
Total current assets 7,712,637 7,130,749 7,264,196
Property and equipment, net of accumulated depreciation of $1,158,800,
$1,086,800, and $987,800 700,983 687,798 688,367
Goodwill, net of accumulated amortization of $313,115, $300,674 and
$284,086 184,558 196,999 213,586
Marketable securities held to maturity 614,233 603,158
Deposits and balances to secure licenses 863,497 653,250 152,500
Other assets 19,899 21,399 79,668
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$ 10,095,807 $9,293,343 $ 8,398,317
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------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $ 3,480,771 $3,067,925 $ 3,290,216
Accounts payable 787,158 558,726 474,748
Accrued liabilities 227,465 212,283 269,227
Current income taxes payable 38,755 13,605 96,000
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Total current liabilities 4,534,149 3,852,539 4,130,191
Deferred income taxes 20,000 20,000
Redeemable preferred stock 300 300 300
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4,534,449 3,872,839 4,150,491
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Shareholders' equity:
Common stock; $.001 par value, 40,000,000 authorized, 6,020,275,
5,679,895 and 5,183,000 issued and outstanding 6,020 5,679 5,183
Additional paid-in capital 4,389,887 4,358,187 3,455,752
Retained earnings 1,165,451 1,056,638 786,891
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Total shareholders' equity 5,561,358 5,420,504 4,247,826
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$ 10,095,807 $9,293,343 $ 8,398,317
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<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
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
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<S> <C> <C>
Revenues $ 9,201,519 $ 6,354,130
Cost of sales 7,420,050 4,989,687
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1,781,469 1,364,443
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Expenses:
Compensation, selling and administrative 1,598,777 1,146,335
Depreciation and amortization 85,941 93,441
Interest, dividend and other income (82,562) (21,896)
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1,602,156 1,217,880
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Income before provision for income taxes 179,313 146,563
Provision for income taxes (70,500) (59,894)
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Net income $ 108,813 $ 86,669
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Per common share and common share equivalent on both a primary and fully diluted basis $0.02 $0.01
------------ ------------
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Weighted average number of common shares and common share equivalents outstanding
during the period on both a primary and fully diluted basis 6,894,000 5,838,459
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
4
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AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 108,813 $ 86,669
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Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 85,941 93,441
Deferred income taxes 18,084
Allowance for doubtful accounts 5,173
Tax benefit from stock option exercise 10,000
Stock compensation expense 10,000
Change in operating assets and liabilities:
Increase in accounts receivable (244,045) (50,184)
(Increase) decrease in officer and employee receivables (22,148) 13,047
Decrease in income tax refund receivable 6,439
Decrease in inventories and program materials 28,273 21,781
Decrease (increase) in prepaid expenses and other assets 26,098 (41,125)
Increase (decrease) in premiums, fees and taxes payable 412,846 (626,180)
Increase in accounts payable 228,432 53,774
Increase in accrued liabilities 15,182 181,250
Increase in income taxes payable 25,150 65,270
Purchases of marketable securities (813,070)
Sales of marketable securities 1,338,738
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Total adjustments 1,101,397 (259,230)
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Net cash provided by (used in) operating activities 1,210,210 (172,561)
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Cash flows from investing activities:
Purchase of property and equipment (85,185) (108,403)
Purchases of marketable securities (200,000)
Sales of marketable securities 128,908
Decrease in margin loan (8,115)
Purchase of deposits and balances to secure licenses (210,247) (150,000)
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Net cash used in investing activities (495,432) (137,610)
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Cash flows from financing activities:
Issuance of common stock 25,000
Registration costs (12,959)
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Net cash provided by financing activities 12,041 0
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Net increase (decrease) in cash and cash equivalents 726,819 (310,171)
Cash and cash equivalents at beginning of period 4,501,527 3,715,552
------------ ------------
Cash and cash equivalents at end of period $ 5,228,346 $ 3,405,381
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 25,000 $ 0
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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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 March 31, 1995 are comprised of $1,095,888 of
trading securities and $867,046 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
6
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earnings when incurred. The Company had no significant unrealized gains or
losses on trading securities during the three months ended March 31, 1995.
Held-to-maturity securities are stated at their amortized cost. The Company had
no significant concentration of credit risk at March 31, 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.
7
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3. SUPPLEMENTAL CASH FLOW INFORMATION
The Company issued a total of 315,380 shares of its common stock to two
officers and a former officer in connection with the exercise of certain stock
options granted to these individuals in 1990.
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 months ended March 31, 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 MARCH 31, 1995 ("1995") COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1994 ("1994").
Revenues for 1995 increased by 45% or $2,847,389 to $9,201,519 from
$6,354,130 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 98% of revenues for 1995.
EasyCare revenues increased due to the Company's success in recruiting
additional independent sales agents and introducing additional Dealers to the
EasyCare product.
The Company's gross margin decreased to 19% of revenues in 1995 from 21% 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 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 39%
or $452,442 to $1,598,777 from $1,146,335 in 1994. The 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 277% or $60,666 to
$82,562 from $21,896 in 1994. The increase is a result of the Company investing
more funds in marketable securities and interest earning deposits to secure
licenses.
The Company recorded a provision for income taxes in 1995 of $70,500 as
compared to $59,894 for 1994. The Company's effective tax rate is 39% for 1995
compared to 41% for 1994.
8
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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 March 31, 1995, the
Company had working capital of $3,178,488, which is a decrease of $99,722 from
the balance of $3,278,210 at December 31, 1994 and an increase of $44,483 from
the balance of $3,134,005 at August 31, 1994. The decrease from the December 31,
1994 balance is due to the Company investing more funds in non-current
marketable securities and deposits to secure state licenses.
II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
9
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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/ Anthony R. Levinson May 10, 1995
- - - - - - -------------------------------- -------------
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 5,228,346
<SECURITIES> 1,962,934
<RECEIVABLES> 778,104
<ALLOWANCES> 61,000
<INVENTORY> 57,005
<CURRENT-ASSETS> 7,712,637
<PP&E> 700,983
<DEPRECIATION> 1,158,800
<TOTAL-ASSETS> 10,095,807
<CURRENT-LIABILITIES> 4,534,149
<BONDS> 0
<COMMON> 6,020
0
300
<OTHER-SE> 5,555,338
<TOTAL-LIABILITY-AND-EQUITY> 10,095,807
<SALES> 9,201,519
<TOTAL-REVENUES> 9,201,519
<CGS> 7,420,050
<TOTAL-COSTS> 7,420,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 179,313
<INCOME-TAX> 70,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,813
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
