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, 1998
[ ] 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 June 30, 1998
- -------------------------------------------- ----------------------------
Common stock, $.001 par value per share 11,709,244
Exhibits - None.
Total number of pages, including cover page - 14.
1
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements.
Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997......................................................... 3
Consolidated Statements of Income for the Three
Month Period Ended June 30, 1998 and 1997................................. 4
Consolidated Statements of Income for the Six
Month Period Ended June 30, 1998 and 1997................................. 5
Consolidated Statements of Cash Flows for the Six
Month Period Ended June 30, 1998 and 1997 ................................ 6
Notes to Consolidated Financial Statements ............................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 9
Part II. Other Information
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, * December 31,
-------- --------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $13,356,692 $11,297,049
Trading securities, at fair value 10,601,699 8,067,180
Investment securities held to maturity 1,663,560 1,851,019
Accounts receivable, net of provision for doubtful
accounts of $100,000 and $60,000 4,337,841 2,400,701
Notes receivable 3,049,134 2,554,978
Officer and employee receivables 491,469 250,190
Income tax refund receivable 1,435,852
Prepaid expenses 1,265,980 287,766
Deferred tax asset 859,697 785,882
Restricted cash 16,912,114 8,324,628
----------------- ------------------
Total current assets 53,974,038 35,819,393
Property and equipment, net of accumulated
depreciation of $2,249,056 and $2,015,368 1,398,389 1,220,876
Investment securities held to maturity, non current 1,020,430 1,474,493
Deposits to secure licenses 751,040 743,762
Deferred tax asset 36,845 18,793
Other assets 27,924 37,733
----------------- ------------------
$57,208,666 $39,315,050
----------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Premiums, fees and taxes payable $16,912,114 $8,324,628
Accounts payable 2,174,033 1,255,831
Accrued liabilities 6,338,615 4,805,471
Income taxes payable 399,033
----------------- ------------------
Total current liabilities 25,424,762 14,784,963
Deferred income taxes 476,836 254,420
Redeemable preferred stock 300
----------------- ------------------
25,901,598 15,039,683
----------------- ------------------
Shareholders' equity:
Common stock; $.001 par value, 40,000,000 authorized,
11,709,244 and 10,976,964 issued and outstanding 11,709 10,976
Additional paid-in capital 19,959,704 16,067,536
Retained earnings 11,335,655 8,196,855
----------------- ------------------
Total shareholders' equity 31,307,068 24,275,367
----------------- ------------------
$57,208,666 $39,315,050
----------------- ------------------
</TABLE>
* From audited financial statements contained in Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
------------------ ------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $30,060,872 $23,797,029
----------------- ------------------
Cost of sales:
Premiums and taxes 19,274,527 15,447,524
Commissions and other costs 4,200,876 3,499,856
----------------- ------------------
Total cost of sales 23,475,403 18,947,380
----------------- ------------------
6,585,469 4,849,649
----------------- ------------------
Expenses:
Compensation, selling and administrative 4,071,331 3,568,624
Depreciation and amortization 120,000 110,000
Interest, dividend and other income (416,044) (259,064)
----------------- ------------------
3,775,287 3,419,560
----------------- ------------------
Income before provision for income taxes 2,810,182 1,430,089
Provision for income taxes 1,039,000 545,000
----------------- ------------------
Net income $1,771,182 $885,089
----------------- ------------------
Earnings per share:
Basic $0.15 $0.08
Diluted $0.14 $0.08
Number of shares used in computing earnings per share:
Basic 11,604,000 10,681,000
Diluted 12,552,000 11,404,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
---------------- ----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $55,874,387 $43,892,343
----------------- ------------------
Cost of sales:
Premiums and taxes 35,241,306 28,378,948
Commissions and other costs 8,203,158 6,392,389
----------------- ------------------
Total cost of sales 43,444,464 34,771,337
----------------- ------------------
12,429,923 9,121,006
----------------- ------------------
Expenses:
Compensation, selling and administrative 7,979,685 6,955,320
Depreciation and amortization 238,000 214,500
Interest, dividend and other income (768,562) (493,206)
----------------- ------------------
7,449,123 6,676,614
----------------- ------------------
Income before provision for income taxes 4,980,800 2,444,392
Provision for income taxes 1,842,000 930,000
----------------- ------------------
Net income $3,138,800 $1,514,392
----------------- ------------------
Earnings per share:
Basic $0.27 $0.14
Diluted $0.25 $0.13
Number of shares used in computing earnings per share:
Basic 11,408,000 10,658,000
Diluted 12,285,000 11,440,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
---------------- ----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,138,800 $1,514,392
----------------- ------------------
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization 238,000 214,500
Deferred income taxes 130,549 (54,715)
Provision for doubtful accounts 40,000
Tax benefit from stock option exercise 2,294,000
Stock compensation expense 85,400
Changes in operating assets and liabilities:
Restricted cash (8,587,486) (319,437)
Accounts receivable (1,977,140) (1,052,490)
Officer and employee receivables (241,279) (10,701)
Notes receivable (494,156) (404,530)
Prepaid expenses and other assets (968,405) 83,608
Premiums, fees and taxes payable 8,587,486 319,437
Accounts payable 918,202 122,832
Accrued liabilities 1,533,144 1,147,144
Income taxes (1,834,885) 709,851
Purchases of trading securities (8,728,488) (2,649,800)
Sales of trading securities 6,193,969 1,509,265
----------------- ------------------
Total adjustments (2,811,089) (385,036)
----------------- ------------------
Net cash provided by operating activities 327,711 1,129,356
----------------- ------------------
Cash flows from investing activities:
Purchases of property and equipment (422,451) (188,493)
Proceeds from sales of property and equipment 6,938
Purchases of investment securities (189,846) (375,628)
Redemptions and maturities of investment securities 831,368 368,230
Increase in deposits to secure licenses (7,278) (6,654)
----------------- ------------------
Net cash provided by (used in) investing activities 218,731 (202,545)
----------------- ------------------
Cash flows from financing activities:
Issuance of common stock 1,513,501 309,094
Redemption of preferred stock (300)
----------------- ------------------
Net cash provided by financing activities 1,513,201 309,094
----------------- ------------------
Net increase in cash and cash equivalents 2,059,643 1,235,905
Cash and cash equivalents at beginning of period 11,297,049 6,967,904
----------------- ------------------
Cash and cash equivalents at end of period $13,356,692 $8,203,809
----------------- ------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $1,252,336 $250,000
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
AUTOMOBILE PROTECTION CORPORATION - APCO
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
1. Nature of Business and Summary of Significant Accounting Policies
Automobile Protection Corporation - APCO was incorporated in the State of
Georgia on September 10, 1984. APCO and its wholly-owned subsidiaries (the
"Company") are engaged primarily in the marketing and administration of extended
vehicle service contracts and extended vehicle warranty programs sold by new and
used automobile retailers located throughout the United States. Extended vehicle
service contracts augment and enhance upon the basic warranty offered by the
automobile manufacturer. The Company markets its contracts nationally under the
EasyCare(R) trade name and also administers vehicle service contracts under
private label programs for a major automobile manufacturer and others.
The Company arranges for insurance coverage to be provided by certain
Underwriters at Lloyd's of London, Greenwich Insurance Company, Indian Harbor
Insurance Company and CIGNA Property & Casualty companies. These insurers
underwrite and insure the obligations to pay for covered mechanical repairs and
benefits under all vehicle service contract and warranty programs marketed and
administered by the Company.
The Company's subsidiary, The Aegis Group, Inc., provides a wide range of third
party administrative and insurance brokerage services to companies serving the
automotive industry.
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. 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, 1997.
The following is a summary of the significant accounting policies followed by
the Company:
Basis of Presentation
- ---------------------
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. Certain
comparative amounts have been reclassified to conform with current year
presentation.
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.
7
<PAGE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include all funds with an original maturity of ninety
days or less. Certain funds are considered restricted as they are held for the
benefit of the insurers and to pay claims.
Restricted Cash
- ---------------
Restricted cash represents funds collected by the Company on behalf of its
insurers and claims payment floats provided by the insurers, to enable the
Company to make claims payments on behalf of the insurers.
Investment Securities
- ---------------------
The Company's investments consist of trading securities and 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 recorded in
earnings as incurred. Gains and losses during the periods encompassed by these
financial statements were insignificant. Held to maturity securities are stated
at their amortized cost. The market value of the Company's held-to-maturity
securities at June 30, 1998 is $2,682,786.
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, Fees 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.
Advertising costs
- -----------------
The Company sponsors motorsport activities to advertise its products. The
Company has entered into an associate sponsorship agreement with Joe Gibbs
Racing, Inc. and separate agreements with race track owners to sponsor race
events. Costs associated with the Joe Gibbs Racing, Inc. associate sponsorship
are expensed evenly during the year, while costs associated with race events are
expensed in the month the event takes place.
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 federal income tax return with its subsidiaries.
8
<PAGE>
Stock-based Compensation Plans
- ------------------------------
The Company has elected to account for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25) with the annual associated disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS No. 123). SFAS No. 123 requires that companies which elect
to not account for stock-based compensation as prescribed by that statement
shall disclose annually, among other things, pro forma effects on net income and
net income per share as if SFAS No. 123 had been adopted. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no compensation
expense is recognized.
Earnings Per Share
- ------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128) during 1997. SFAS No. 128 provides for new
accounting principles to be used in the calculation of earnings per share and
was effective for financial statements for both interim and annual periods ended
after December 15, 1997. The company has restated its net income per share for
all periods presented to give effect to SFAS No. 128. Basic earnings per share
is based upon the weighted average number of issued common shares for each
period. Diluted earnings per share is based upon the weighted average number of
issued common shares for each period, in addition to the effect of common stock
equivalents (stock options) which are calculated using the treasury stock
method.
2. Other Items
In June 1998, the Company entered into a marketing and sales license agreement
with a software vendor, whereby the Company licensed certain computer software
for the automotive industry, which it intends to market to automobile dealers
and others. Under the agreement, the Company is required to purchase software
with a minimum aggregate value of $1,750,000.
In July 1998, the Company settled its lawsuit against Everest Reinsurance
Company (formerly Prudential Reinsurance Company) under confidential terms. The
Company expects to pay claims under the various assumption of liability
endorsements through the third quarter of 1999 and believes the reserves
recorded for this liability are adequate.
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 month periods ended June 30, 1998. 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, 1997.
9
<PAGE>
Forward-Looking Statements
When used herein and in future filings by the Company with the Securities and
Exchange Commission, the words or phrases "will likely result", "management
expects" or "the Company expects", "will continue", "is expected", "is
anticipated", "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance
on any such forward-looking statements, each of which speak only as of the date
made. Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. The Company has no obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Certain of these risks and uncertainties are discussed herein. The industry in
which the Company operates is highly competitive, with some competitors having
significantly greater financial resources and name recognition than the Company.
The Company depends on independent sales representatives, automobile
dealers/retailers and a major automobile manufacturer to market its products.
The distribution of automobiles has been subject to cyclical economic conditions
in the past and could be subject to such conditions in the future, which could
adversely impact the Company. A trend towards consolidation in the distribution
of automobiles has commenced, which could reduce the number of franchised and
independent dealers and consequently the Company's market. Additional risks
related to insurance carriers are discussed in the "Overview" section.
Overview
The Company's primary business is the marketing and administration of extended
vehicle service contracts (hereinafter referred to as "VSCs") for automobile
dealers. Dealers often engage a third party administrator, such as the Company,
to design a VSC program, to arrange for insurance to limit their financial risk
and to perform all of the related administrative functions associated therewith.
A function of the Company is to arrange for insurance to cover obligations to
pay all future claims, which the Company does through unrelated insurers,
including: (a) Greenwich Insurance Company, a wholly-owned subsidiary of NAC Re
Corporation, which is rated "A+" (Superior) by A.M. Best; (b) Indian Harbor
Insurance Company, a wholly-owned subsidiary of NAC Re Corporation, which is
rated "A+" (Superior) by A.M. Best; (c) Certain Underwriters at Lloyd's of
London, which is rated "A" (Excellent) by A.M. Best; and (d) CIGNA Property and
Casualty companies, which are rated "A-" (Excellent) by A.M. Best. Greenwich,
Indian Harbor and CIGNA may choose to purchase reinsurance from Lloyd's, NAC Re
Corporation or other reinsurers. Most of the VSC's accepted by the Company for
administration between 1991 and 1996 are insured by Lloyd's. The availability of
insurance coverage at competitive rates and of insurance funds to make claims
payments, including the financial condition of the insurance carriers, is
critical to the Company and any disruption could have a material adverse effect
on the Company.
The Company's reported revenues represent the amount it bills to automobile
dealers, which is based on rate schedules developed by the Company. The amounts
billed consider insurance, taxes, commissions and other costs and profit. The
Company's reported cost of sales represents the amounts it pays to the insurers
for insurance, state insurance taxes and commissions to its sales
representatives.
10
<PAGE>
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, 1998, the Company had
working capital of $28,549,276 (compared to $21,034,430 at December 31, 1997)
and investment securities with maturities greater than twelve months of
$1,020,430 (compared to $1,474,493 at December 31, 1997). The net increase in
working capital and investment securities of $7,060,783 is attributable to
operations of the Company and to proceeds from the exercise of stock options
($1,513,501). The Company expects to receive a tax benefit from the stock option
exercises of $2,294,000 over the remainder of the year through lower current tax
payments. The Company invests its funds in treasury securities, municipal bonds
and financial instruments with maturities of less than five years and money
market accounts.
Results of Operations
Three months ended June 30, 1998 ("1998") compared to the three months ended
- ----------------------------------------------------------------------------
June 30, 1997 ("1997").
- -----------------------
Revenues for 1998 increased by 26% or $6,263,843 to $30,060,872 over 1997. 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. EasyCare(R) revenues increased due to the introduction
of additional automobile dealers to EasyCare(R) vehicle service contracts by the
Company's independent sales representatives, increased average production by
dealers and from 32% growth under the contract with American Honda Finance
Corporation.
The Company's gross margin was 21.9% of revenues in 1998 compared to 20.4% of
revenues in 1997. Gross margin is impacted by the mix of new and used, makes and
models of vehicles and the types of coverage sold. The gross margin for 1998 was
also impacted by an insurance change introduced late last year. The Company has
recently entered into agreements with two large dealership groups and with Banc
One Insurance Services Corporation and is also preparing to launch the
EasyCare(R) standard product line. Management anticipates future gross margins
will be reduced as a result of the expected change in the mix of business.
Compensation, selling and administrative expenses for 1998 increased by 14% or
$502,707 to $4,071,331 over 1997. The increase for 1998 is primarily
attributable to compensation cost, which increased to support the growth of the
business.
Interest, dividend and other income for 1998 increased by 61% or $156,980 to
$416,044 over 1997. The increase is due to the larger cash and investment
securities balances on hand.
The Company recorded a provision for income taxes in 1998 of $1,039,000 compared
to $545,000 for 1997. The increase is primarily due to higher pretax income,
offset by a lower effective combined tax rate of 37% compared to 38% in 1997.
11
<PAGE>
Six months ended June 30, 1998 ("1998") compared to the six months ended June
- -----------------------------------------------------------------------------
30, 1997 ("1997").
- ------------------
Revenues for 1998 increased by 27.3% or $11,982,044 to $55,874,387 over 1997.
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. EasyCare(R) revenues increased due to the introduction
of additional automobile dealers to EasyCare(R) vehicle service contracts by the
Company's independent sales representatives, increased average production by
dealers and from 35% growth under the contract with American Honda Finance
Corporation.
The Company's gross margin was 22.2% of revenues in 1998 compared to 20.8% of
revenues in 1997. Gross margin is impacted by the mix of new and used, makes and
models of vehicles and the types of coverage sold. The gross margin for 1998 was
also impacted by an insurance change introduced late last year. The Company has
recently entered into agreements with two large dealership groups and with Banc
One Insurance Services Corporation and is also preparing to launch the
EasyCare(R) standard product line. Management anticipates future gross margins
will be reduced as a result of the expected change in the mix of business.
Compensation, selling and administrative expenses for 1998 increased by 15% or
$1,024,365 to $7,979,685 over 1997. The increase for 1998 is primarily
attributable to compensation cost, which increased to support the growth of the
business.
Interest, dividend and other income for 1998 increased by 56% or $275,356 to
$768,562 over 1997. The increase is due to the larger cash and investment
securities balances on hand.
The Company recorded a provision for income taxes in 1998 of $1,842,000 compared
to $930,000 for 1997. The increase is primarily due to higher pretax income,
offset by a lower effective combined tax rate of 37% compared to 38% in 1997.
12
<PAGE>
Year 2000 problem
The Company's proprietary warranty administration system was developed
internally and was designed with large enough "date" fields to counteract the
effect of the Year 2000 problem. It is possible that the Company's customers and
vendors, working either alone or in conjunction with other software systems,
will not accept input of, store, manipulate and output dates for the years 1999,
2000 or thereafter without error or interruption. The Company has conducted a
review of its business systems, including its computer systems, and is querying
its customers and vendors as to their progress in identifying and addressing
problems that their computer systems may face in correctly processing date
information as the Year 2000 approaches and is reached. However, there can be no
assurance that the Company will identify all such Year 2000 problems in its
computer systems or those of its customers and vendors in advance of their
occurrence or that the Company will be able to successfully remedy any problems
that are discovered. The expenses of the Company's efforts to identify and
address such problems, or the expenses or liabilities to which the Company may
become subject as a result of such problems, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenues. In addition, failure of the Company to identify and remedy
Year 2000 problems could put the Company at a competitive disadvantage relative
to companies that have corrected Year 2000 problems.
II. OTHER INFORMATION
Item 2. Changes in Securities
- -----------------------------
During the second quarter of 1998, the Company issued the following securities:
<TABLE>
<CAPTION>
Exemption
Consideration from
Date of sale Title of security Number sold received registration Option terms
- --------------- ----------------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
04/98-06/98 Common stock 77,447 $176,303 4 (2)
issued upon
exercise of
options granted
to customers
and consultant
05/98 Common stock 1,150 $ - 4 (2)
issued to
employees
</TABLE>
13
<PAGE>
Item 5. Other Information
- -------------------------
Notice to Stockholders Regarding 1999 Annual Meeting of Stockholders:
Pursuant to the Amended and Restated Certificate of Incorporation, stockholders
are advised that the Company's management will be permitted to exercise
discretionary voting authority under proxies it solicits and obtains for the
Company's 1999 Annual Meeting of Stockholders with respect to any proposal
presented by a stockholder at such meeting, without any discussion of the
proposal in the Company's proxy statement for such meeting, unless the Company
receives notice of such proposal at its principal office in Atlanta, Georgia not
later than the 60th day prior to the scheduled meeting date, provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given, notice of such proposal be delivered to the principal office
the earlier of the 10th day after the notice of the meeting is mailed or public
disclosure of the meeting date was made.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits: None
(b) Reports on Form 8-K: None
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 12, 1998
- ----------------------------------- ------------------
Martin J. Blank Date
Secretary (Duly Authorized Officer)
/s/ Anthony R. Levinson August 12, 1998
- ----------------------------------- ------------------
Anthony R. Levinson Date
Chief Financial Officer (Principal
Financial and Accounting Officer,
Duly Authorized Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,356,692
<SECURITIES> 13,285,689
<RECEIVABLES> 7,878,444
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 53,974,038
<PP&E> 1,398,389
<DEPRECIATION> 2,249,056
<TOTAL-ASSETS> 57,208,666
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0
0
<COMMON> 11,709
<OTHER-SE> 31,295,359
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<SALES> 55,874,387
<TOTAL-REVENUES> 55,874,387
<CGS> 43,444,464
<TOTAL-COSTS> 43,444,464
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<INCOME-PRETAX> 4,980,800
<INCOME-TAX> 1,842,000
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<NET-INCOME> 3,138,800
<EPS-PRIMARY> 0.27
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</TABLE>
