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, 1996
--------------
[ ] 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 May 10, 1996
- ------------------------------------ ---------------------------
Common stock, $.001 par value per share 9,688,313
Exhibits - None.
Total number of pages, including cover page - 9.
1
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995...................................................... 3
Consolidated Statement of Income for the Three
Month Period Ended March 31, 1996 and 1995............................. 4
Consolidated Statement of Cash Flows for the Three
Month Period Ended March 31, 1996 and 1995 ............................ 5
Notes to Consolidated Financial Statements ............................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8.................................... 8
2
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1996 * December 31, 1995
---------------- -------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $9,940,642 $10,210,768
Trading securities, at fair value 4,196,712 3,582,423
Investment securities held to maturity 1,233,644 255,576
Accounts receivable, net of provision for doubtful
accounts of $36,000 and $36,000 1,351,622 1,212,000
Notes receivable, net of provision for doubtful
accounts of $13,650 and $9,000 708,959 421,882
Officer and employee receivables 192,278 133,072
Prepaid expenses 444,680 220,177
Deferred tax asset 110,643 110,643
---------------- -------------------
Total current assets 18,179,180 16,146,541
Property and equipment, net of accumulated
depreciation of $1,472,300 and $1,389,800 1,058,632 874,718
Investment securities held to maturity 1,238,491 1,509,288
Deposits to secure licenses 728,911 726,319
Deferred tax asset 185,861 185,861
Other assets 132,940 149,734
---------------- -------------------
$21,524,015 $19,592,461
================ ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $4,441,175 $3,467,947
Accounts payable 1,134,452 886,155
Accrued liabilities 756,034 470,723
Current income taxes payable 126,662 51,000
---------------- -------------------
Total current liabilities 6,458,323 4,875,825
Deferred income taxes 22,330 22,330
Redeemable preferred stock 300 300
---------------- -------------------
6,480,953 4,898,455
---------------- -------------------
Shareholders' equity:
Common stock; $.001 par value, 40,000,000
authorized, 9,687,238 and 9,614,616
issued and outstanding 9,687 9,614
Additional paid-in capital 12,211,179 12,102,172
Retained earnings 2,822,196 2,582,220
---------------- -------------------
Total shareholders' equity 15,043,062 14,694,006
---------------- -------------------
$21,524,015 $19,592,461
================ ===================
* From audited financial statements contained in Registrant's Annual Report on Form 10-K
for the twelve months ended 12/31/95
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
-------------- --------------
<S> <C> <C>
Revenues $14,352,288 $9,201,519
Cost of sales 11,280,529 7,420,050
-------------- --------------
3,071,759 1,781,469
-------------- --------------
Expenses:
Compensation, selling and administrative 2,739,551 1,598,777
Depreciation and amortization 99,294 85,941
Interest, dividend and other income (165,062) (82,562)
-------------- --------------
2,673,783 1,602,156
-------------- --------------
Income before provision for income taxes 397,976 179,313
Provision for income taxes 158,000 70,500
-------------- --------------
Net income $239,976 $108,813
============== ==============
Net income per share $0.02 $0.02
============== ==============
Number of shares used in computing
net income per share 10,730,000 6,894,000
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
4
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 239,976 $ 108,813
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 99,294 85,941
Provision for doubtful accounts 4,650
Tax benefit from stock option exercise 10,000
Stock compensation expense 24,600 10,000
Change in operating assets and liabilities:
Increase in accounts receivable (139,622) (139,337)
Increase in officer and employee receivables (59,206) (22,148)
Increase in notes receivable (291,727) (104,708)
(Increase) decrease in prepaid expenses and other
assets (224,503) 54,371
Increase in premiums, fees and taxes payable 973,228 412,846
Increase in accounts payable 248,297 228,432
Increase in accrued liabilities 285,311 15,182
Increase in income taxes payable 75,662 25,150
Purchases of trading securities (2,154,947) (813,070)
Sales of trading securities 1,563,715 1,338,738
------------ ------------
Total adjustments 404,752 1,101,397
------------ ------------
Net cash provided by operating activities 644,728 1,210,210
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (277,413) (85,185)
Sales of property and equipment 10,999
Purchases of investment securities (1,230,328) (200,000)
Sales of investment securities 500,000
Increase in deposits to secure licenses (2,592) (210,247)
------------ ------------
Net cash used in investing activities (999,334) (495,432)
------------ ------------
Cash flows from financing activities:
Issuance of common stock, net of underwriting fee 84,480 25,000
Registration costs (12,959)
------------ ------------
Net cash provided by financing activities 84,480 12,041
------------ ------------
Net increase in cash and cash equivalents (270,126) 726,819
Cash and cash equivalents at beginning of period 10,210,768 4,501,527
------------ ------------
Cash and cash equivalents at end of period $ 9,940,642 $ 5,228,346
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 80,000 $ 25,000
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<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 December 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 extended
warranty programs are recognized when the service contract or extended warranty
sold by the dealer is received and accepted by the Company. Revenues are
comprised of the Company's administration fee, underlying insurance premium and
tax.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include all funds with an original maturity of ninety
days or less.
Investment Securities
- ---------------------
The Company's investments at March 31, 1996 are comprised of trading securities
and 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 as incurred. The Company had no significant
unrealized gains or losses on trading securities during the three months ended
March 31, 1996. Held-to- maturity securities are stated at their amortized cost.
Market value of the Company's held-to-maturity securities at March 31, 1996 is
$2,471,122. The Company had no significant concentration of credit risk at March
31, 1996.
6
<PAGE>
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 seven 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.
Premiums and Taxes Payable
- --------------------------
Premiums and taxes payable includes premiums due to the insurers or their
agents, taxes payable to various states 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
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, 1996. 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 twelve months ended December 31, 1995.
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, 1996, the Company had
working capital of $11,720,857 and non-current investment securities of
$1,238,491.
7
<PAGE>
Results of Operations
- ---------------------
THREE MONTHS ENDED MARCH 31, 1996 ("1996") COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1995 ("1995").
Revenues for 1996 increased by 56% or $5,150,769 to $14,352,288 over 1995. The
Company's largest revenue source is from the marketing and administration of
extended vehicle service contracts ("VSCs") under the EasyCare(R) name, which
provided 99% of revenues for 1996. EasyCare revenues increased due to the
introduction of additional Dealers to EasyCare by the Company's independent
sales representatives and from the contract with American Honda Finance
Corporation.
The Company's gross margin increased to 21% of revenues in 1996 from 19% of
revenues in 1995. The increase is primarily attributable to revenues collected
under the motorsports sponsorship program. The change in the mix of new and
used, makes and models of vehicles also impacts the gross margin.
Compensation, selling and administrative expenses for 1996 increased by 71%
or $1,140,774 to $2,739,551 over 1995. The increase for 1996 is primarily
attributable to compensation, professional fees and advertising costs, including
motorsports sponsorship programs.
Interest, dividend and other income for 1996 increased by 100% or $82,500 to
$165,062 over 1995. The increase is due to the larger cash and investment
securities balances on hand from the exercise of the Company's Class A and Class
B warrants in the fourth quarter of 1995, net income from operations and higher
cash floats resulting from the increased volume of business.
The Company recorded a provision for income taxes in 1996 of $158,000
as compared to $70,500 for 1995. The increase is mostly related to higher pretax
income.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule *
(b) Reports on Form 8-K: None
* Electronic filing only
8
<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 May 14, 1996
- ----------------------------------- ------------------
Martin J. Blank Date
Secretary (Duly Authorized Officer)
/s/ Anthony R. Levinson May 14, 1996
- ----------------------------------- ------------------
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 9,940,642
<SECURITIES> 6,668,847
<RECEIVABLES> 2,252,859
<ALLOWANCES> 49,650
<INVENTORY> 0
<CURRENT-ASSETS> 18,179,180
<PP&E> 2,530,932
<DEPRECIATION> 1,472,300
<TOTAL-ASSETS> 21,524,015
<CURRENT-LIABILITIES> 6,458,823
<BONDS> 0
<COMMON> 9,687
0
300
<OTHER-SE> 15,033,375
<TOTAL-LIABILITY-AND-EQUITY> 15,043,062
<SALES> 14,352,288
<TOTAL-REVENUES> 14,352,288
<CGS> 11,280,529
<TOTAL-COSTS> 11,280,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 397,976
<INCOME-TAX> 158,000
<INCOME-CONTINUING> 239,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239,976
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
