UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 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 1-12938
Interstate National Dealer Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3078398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Earle Ovington Blvd., Mitchel Field, NY 11553
(Address of principal executive offices)
(516) 228-8600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 past 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
As of September 11, 1996, Registrant had issued and outstanding 3,384,233 shares
of Common Stock.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of
July 31, 1996 and October 31, 1995 3
Consolidated Statements of Operations
for the nine and three month periods ended
July 31, 1996 and 1995 4
Consolidated Statement of Shareholders'
Equity for the nine month period ended
July 31, 1996 5
Consolidated Statements of Cash Flows for
the nine month periods ended July 31, 1996
and 1995 6
Notes to Consolidated Financial Statements 7
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-K 10
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
July 31, October 31,
ASSETS 1996 1995
------ ------ -----
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 12,375,631 $ 8,341,337
United States Treasury Notes, at cost - 972,600
Accounts receivable 3,724,654 2,528,366
Prepaid expenses 183,748 216,201
------------- ------------
Total current assets 16,284,033 12,058,504
RESTRICTED CASH 1,829,567 1,505,511
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $241,363 and $150,453,
respectively 838,476 586,860
INTANGIBLE ASSETS, less accumulated amortization
of $70,836 and $59,649, respectively 149,997 65,351
DEFERRED INCOME TAXES 731,150 -
OTHER ASSETS 698,354 678,163
------------ ------------
$20,531,577 $14,894,389
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,437,186 $ 1,566,799
Accrued expenses 315,755 315,258
Accrued commissions 542,118 553,362
Reserve for claims 620,610 353,497
Accrued income taxes 472,897 -
Current portion of long-term debt to related
party 200,000 200,000
Other liabilities 192,763 103,908
------------ ----------
Total current liabilities 3,781,329 3,092,824
DEFERRED CONTRACT REVENUE 9,153,110 5,218,281
CONTINGENCY PAYABLE 1,829,567 1,505,511
LONG-TERM DEBT TO RELATED PARTY 160,000 160,000
------------ ----------
Total liabilities 14,924,006 9,976,616
------------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
authorized 1,000,000 shares; no issued
shares - -
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued
and outstanding 3,384,233 and 3,325,167
shares, respectively 33,843 33,252
Additional paid-in capital 4,347,592 4,324,116
Retained earnings 1,226,136 560,405
-------------- ------------
Total stockholders' equity 5,607,571 4,917,773
-------------- -----------
$20,531,577 $14,894,389
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Nine Months For the Three Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
REVENUES $ 14,912,879 $9,362,278 $5,934,875 $3,720,247
OPERATING COSTS AND EXPENSES:
Costs of services provided 4,281,051 2,098,313 1,798,470 910,078
Selling, general and
administrative expenses 9,845,593 6,911,922 3,735,206 2,755,756
Relocation costs - 182,725 - -
---------- ---------- ----------- ---------
Operating income 786,235 169,318 401,199 54,413
OTHER INCOME (EXPENSE):
Interest income 349,761 257,635 133,921 98,882
Interest expense (31,802) (26,881) (8,505) (8,460)
---------- --------- -------- --------
Income before income taxes 1,104,194 400,072 526,615 144,835
PROVISION FOR INCOME TAXES 438,463 162,343 197,328 60,402
--------- ----------- --------- --------
Net income $ 665,731 $ 237,729 $ 329,287 $ 84,433
========== ========= ========== ========
Net income per share $ .19 $ .07 $ .09 $ .02
====== ======= ====== ======
Weighted average shares
outstanding 3,489,865 3,481,699 3,537,110 3,478,284
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 1996
UNAUDITED
Common Stock Additional
Number Paid-in Retained
of Shares Amount Capital Earnings Total
BALANCE AT OCTOBER 31,1995 3,325,167 $33,252 $4,324,116 $560,405 $4,917,773
Shares issued pursuant
to exercise of employee
stock options 59,066 591 23,476 - 24,067
Net income for the nine
months ended July 31,
1996 - - - 665,731 665,731
-------- -------- --------- -------- --------
BALANCE AT JULY 31, 1996 3,384,233 $33,843 $4,347,592 $1,226,136 $5,607,571
========= ======= ========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1996 AND 1995
UNAUDITED
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 665,731 $ 237,729
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 135,936 71,781
Deferred income taxes (731,150) -
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (1,196,288) (1,177,246)
Prepaid expenses 32,453 (157,423)
Restricted cash (324,056) 166,217
Other assets (37,997) (368,810)
Accounts payable (129,613) 743,543
Accrued expenses 497 -
Accrued commissions (11,244) 176,663
Reserve for claims 267,113 305,715
Accrued income taxes 472,897 -
Other liabilities 88,855 82,947
Deferred contract revenue 3,934,829 2,299,837
Contingency payable 324,056 (166,217)
----------- ----------
Net cash provided by operating activities 3,492,019 2,214,736
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from maturity of United States
Treasury Notes 972,600 975,130
Purchase of furniture, fixtures and equipment,
net (354,392) (334,844)
Purchase of license (100,000) -
Sale of assets - 12,063
--------- --------
Net cash provided by investing activities 518,208 652,349
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 24,067 -
--------- --------
Net cash provided by financing activities 24,067 -
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,034,294 2,867,085
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,341,337 5,531,589
CASH AND CASH EQUIVALENTS, END OF PERIOD $12,375,631 $8,398,674
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 696,716 $ 145,678
========== =========
Interest $ 38,782 $ 22,200
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended October 31, 1995.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of July 31, 1996, and the consolidated results of operations and
cash flows for the periods ended July 31, 1996 and 1995. The
accounting policies followed by the Company are set forth in the
Company's consolidated financial statements included in the Annual
Report mentioned above.
3. The consolidated results of operations for the nine and three month
periods ended July 31, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the Nine Months ended July 31, 1996 compared to the Nine Months ended
July 31, 1995
Revenues increased approximately $5,551,000, or 59%, to approximately
$14,913,000 for the nine months ended July 31, 1996 as compared to approximately
$9,362,000 for the nine months ended July 31, 1995. This increase was due to a
number of factors: (i) a significant increase in administrative and insurance
fees resulting from an increase in the number of service contracts accepted for
administration by the Company in fiscal 1996; (ii) a significant increase in the
recognition of deferred contract revenue as a result of an increase in the total
number of unexpired service contracts under administration; and (iii) an
increase in the average price per contract sold. The increase in the number of
service contracts accepted for administration during fiscal 1996 was primarily
due to the aggressive efforts by the Company in enrolling additional dealers to
sell the Company's products as well as to a more diversified array of products
offered by the Company.
Cost of services provided, which consist primarily of claims costs,
increased by approximately $2,183,000, or 104%, to approximately $4,281,000 in
the nine months ended July 31, 1996, as compared to approximately $2,098,000 in
the nine months ended July 31, 1995. As a percentage of revenues, cost of
services provided increased to 29% in the nine months ended July 31, 1996 as
compared to 22% in the same period in 1995. The increase was due to a number of
factors: (i) claims costs are directly affected by the total number of unexpired
contracts under administration, which has increased on a yearly basis; and, as
anticipated (ii) there has been a shift in the mix of contracts sold; and (iii)
the average claim cost has increased.
Selling, general and administrative expenses increased by approximately
$2,934,000, or 42%, to approximately $9,846,000 in the nine months ended July
31, 1996, up from approximately $6,912,000 in the nine months ended July 31,
1995. This increase was in large part due to (i) increases in selling expenses
primarily due to increased commissions paid as a result of increased sales
volume and increased sales promotion and travel expenditures; and (ii) increases
in general and administrative expenses due to increased personnel and telephone
costs as a result of additional staffing to handle increased sales volume. The
increase in general and administrative expenses was partially offset by a
reduction in licensing fees paid by the Company resulting from the Company's
purchase of the license in March 1996 for $100,000. As a percentage of revenues,
selling, general and administrative expenses decreased to 66% in the nine months
ended July 31, 1996 as compared to 74% in the same period in 1995.
Other income increased by approximately $87,000 or 38%, to approximately
$318,000 in the nine months ended July 31, 1996, as compared to approximately
$231,000 in the nine months ended July 31, 1995. This increase is the result of
an increase in investment income generated by funds provided by operating
activities.
In the nine months ended July 31, 1996, the Company had income before income
taxes of approximately $1,104,000 and recorded a provision for income taxes of
approximately $438,000, as compared to income before income taxes of
approximately $400,000 and a provision for income taxes of approximately
$162,000 in the same period in 1995. Net income increased approximately
$428,000, or 180%, to approximately $666,000 for the nine months ended July 31,
1996 as compared to approximately $238,000 for the nine months ended July 31,
1995.
For the Three Months ended July 31, 1996 compared to the Three Months ended
July 31, 1995
Revenues increased approximately $2,215,000, or 60%, to approximately
$5,935,000 for the three months ended July 31, 1996 as compared to approximately
$3,720,000 for the three months ended July 31, 1995. This increase was due to a
number of factors: (i) a significant increase in administrative and insurance
fees resulting from an increase in the number of service contracts accepted for
administration by the Company in fiscal 1996; (ii) a significant increase in the
recognition of deferred contract revenue as a result of an increase in the total
number of unexpired service contracts under administration; and (iii) an
increase in the average price per contract sold. The increase in the number of
service contracts accepted for administration during fiscal 1996 was due to the
aggressive efforts by the Company in enrolling additional dealers to sell the
Company's products as well as to a more diversified array of products offered by
the Company.
Cost of services provided, which consist primarily of claims costs,
increased by approximately $888,000, or 98%, to approximately $1,798,000 in the
three months ended July 31, 1996, as compared to approximately $910,000 in the
three months ended July 31, 1995. As a percentage of revenues, cost of services
provided increased to 30% in the three months ended July 31, 1996 as compared to
24% in the same period in 1995. The increase was due to a number of factors: (i)
claims costs are directly affected by the total number of unexpired contracts
under administration, which has increased on a yearly basis; and, as anticipated
(ii) there has been a shift in the mix of contracts sold; and (iii) the average
claim cost has increased.
Selling, general and administrative expenses increased by approximately
$979,000, or 36%, to approximately $3,735,000 in the three months ended July 31,
1996, up from approximately $2,756,000 in the three months ended July 31, 1995.
This increase was in large part due to (i) increases in selling expenses
primarily due to increased commissions paid as a result of increased sales
volume; and (ii) increases in general and administrative expenses due to
increased personnel and telephone costs as a result of additional staffing to
handle increased sales volume. The increase in general and administrative
expenses was partially offset by a reduction in licensing fees paid by the
Company resulting from the Company's purchase of the license in March 1996 for
$100,000. As a percentage of revenues, selling, general and administrative
expenses decreased to 63% in the three months ended July 31, 1996 as compared to
74% in the same period in 1995.
Other income increased by approximately $35,000 or 39%, to approximately
$125,000 in the three months ended July 31, 1996, as compared to approximately
$90,000 in the three months ended July 31, 1995. This increase is the result of
an increase in investment income generated by funds provided by operating
activities.
In the three months ended July 31, 1996, the Company had income before
income taxes of approximately $526,000 and recorded a provision for income taxes
of approximately $197,000, as compared to income before income taxes of
approximately $145,000 and a provision for income taxes of approximately $61,000
in the same period in 1995. Net income increased approximately $245,000, or
291%, to approximately $329,000 for the three months ended July 31, 1996 as
compared to approximately $84,000 for the three months ended July 31, 1995.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost, were
approximately $12,376,000 at July 31, 1996, as compared to approximately
$9,314,000 at October 31, 1995. The increase of approximately $3,062,000 is
primarily the result of cash provided by the Company's operating activities less
cash used for the purchase of furniture, fixtures and equipment.
The Company believes that its current available cash and anticipated levels
of internally generated funds will be sufficient to fund its financial
requirements at least for the next twelve months at the Company's present level
of revenues and business activity.
Impact of Inflation
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended July
31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
INTERSTATE NATIONAL DEALER SERVICES, INC.
September 11, 1996 By: /s/ Zvi D. Sprung
- - ------------------ -------------------------------------------
Date Zvi D. Sprung
Chief Financial Officer
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1996
<PERIOD-START> Nov-01-1995
<PERIOD-END> Jul-31-1996
<EXCHANGE-RATE> 1
<CASH> 12,375,631
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<PP&E> 1,079,839
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0
0
<COMMON> 33,843
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