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 April 30, 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 June 12, 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
April 30, 1996 and October 31, 1995 3
Consolidated Statements of Operations
for the six and three month periods ended
April 30, 1996 and 1995 4
Consolidated Statement of Shareholders'
Equity for the six month period ended
April 30, 1996 5
Consolidated Statements of Cash Flows for
the six and three month periods ended April
30, 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
ASSETS 1996 1995
------ ------ -----
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 9,780,211 $ 8,341,337
United States Treasury Notes, at cost 1,459,783 972,600
Accounts receivable 3,213,908 2,528,366
Prepaid expenses 215,578 216,201
----------- ----------
Total current assets 14,669,480 12,058,504
RESTRICTED CASH 1,641,014 1,505,511
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $214,509 and $150,453,
respectively 785,654 586,860
INTANGIBLE ASSETS, less accumulated amortization
of $68,774 and $59,649, respectively 156,226 65,351
OTHER ASSETS 709,658 678,163
----------- ----------
$17,962,032 $14,894,389
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,604,742 $ 1,566,799
Accrued expenses 380,203 315,258
Accrued commissions 642,236 553,362
Reserve for claims 429,189 353,497
Current portion of long-term debt to related
party 200,000 200,000
Other liabilities 207,771 103,908
---------- ----------
Total current liabilities 3,464,141 3,092,824
DEFERRED CONTRACT REVENUE 7,418,593 5,218,281
CONTINGENCY PAYABLE 1,641,014 1,505,511
LONG-TERM DEBT TO RELATED PARTY 160,000 160,000
----------- -----------
Total liabilities 12,683,748 9,976,616
------------ -----------
COMMITMENTS AND CONTINGENCIES
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 896,849 560,405
----------- -----------
Total stockholders' equity 5,278,284 4,917,773
----------- -----------
$17,962,032 $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 Six Months For the Three Months
Ended April 30, Ended April 30,
1996 1995 1996 1995
REVENUES $ 8,978,004 $5,642,031 $4,861,721 $3,199,863
OPERATING COSTS AND EXPENSES:
Costs of services provided 2,482,581 1,188,235 1,389,008 705,783
Selling, general and
administrative expenses 6,110,387 4,156,166 3,232,172 2,323,732
Relocation costs - 182,725 - 84,561
----------- ----------- ---------- ----------
Operating income 385,036 114,905 240,541 85,787
OTHER INCOME (EXPENSE):
Interest income 215,840 158,753 101,637 81,062
Interest expense (23,297) (18,421) (13,661) (9,304)
---------- ---------- --------- --------
Income before income taxes 577,579 255,237 328,517 157,545
PROVISION FOR INCOME TAXES 241,135 101,941 133,730 62,923
--------- --------- -------- --------
Net income $ 336,444 $ 153,296 $ 194,787 $ 94,622
========== ========= ========= ========
Net income per share $ .10 $ .04 $ .06 $ .03
======= ====== ======= ======
Weighted average shares
outstanding 3,464,926 3,486,657 3,509,268 3,480,520
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 SIX MONTHS ENDED APRIL 30, 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 six
months ended April 30,
1996 - - - 336,444 336,444
------- ------- ---------- ------- ---------
BALANCE AT APRIL 30, 1996 3,384,233 $33,843 $4,347,592 $896,849 $5,278,284
========= ======= ========== ======== ==========
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 SIX MONTHS ENDED APRIL 30, 1996 AND 1995
UNAUDITED
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 336,444 $153,296
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 77,981 52,765
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (685,542) (646,878)
Prepaid expenses 623 (59,339)
Restricted cash (135,503) 83,747
Other assets (36,295) (205,945)
Accounts payable 37,943 359,343
Accrued expenses 64,945 -
Accrued commissions 88,874 123,240
Reserve for claims 75,692 228,608
Other liabilities 103,863 74,994
Deferred contract revenue 2,200,312 1,273,022
Contingency payable 135,503 (83,747)
---------- ----------
Net cash provided by operating activities 2,264,840 1,353,106
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of United States Treasury Notes (487,183) (1,447,494)
Purchase of furniture, fixtures and equipment,
net (262,850) (242,653)
Purchase of license (100,000) -
Sale of assets - 12,063
--------- ---------
Net cash used by investing activities (850,033) (1,678,084)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 24,067 -
--------- ----------
Net cash provided by financing activities 24,067 -
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,438,874 (324,978)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,341,337 5,531,589
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,780,211 $5,206,611
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 142,342 $ 80,678
=========== ==========
Interest $ 22,132 $ 11,100
=========== ==========
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 April 30, 1996, and the consolidated results of operations and
cash flows for the periods ended April 30, 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 six and three month periods
ended April 30, 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 Six Months ended April 30, 1996 compared to the Six Months ended
April 30, 1995
Revenues increased approximately $3,336,000, or 59%, to approximately
$8,978,000 for the six months ended April 30, 1996 as compared to approximately
$5,642,000 for the six months ended April 30, 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 $1,295,000, or 109%, to approximately $2,483,000 in
the six months ended April 30, 1996, as compared to approximately $1,188,000 in
the six months ended April 30, 1995. As a percentage of revenues, cost of
services provided increased to 28% in the six months ended April 30, 1996 as
compared to 21% 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; (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
$1,954,000, or 47%, to approximately $6,110,000 in the six months ended April
30, 1996, up from approximately $4,156,000 in the six months ended April 30,
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. As a
percentage of revenues, selling, general and administrative expenses decreased
to 68% in the six months ended April 30, 1996 as compared to 74% in the same
period in 1995.
Other income increased by approximately $53,000 or 38%, to approximately
$193,000 in the six months ended April 30, 1996, as compared to approximately
$140,000 in the six months ended April 30, 1995. This increase is the result of
an increase in investment income generated by funds provided by operating
activities.
In the six months ended April 30, 1996, the Company had income before income
taxes of approximately $577,000 and recorded a provision for income taxes of
approximately $241,000, as compared to income before income taxes of
approximately $255,000 and a provision for income taxes of approximately
$102,000 in the same period in 1995. Net income increased approximately
$183,000, or 120%, to approximately $336,000 for the six months ended April 30,
1996 as compared to approximately $153,000 for the six months ended April 30,
1995.
For the Three Months ended April 30, 1996 compared to the Three Months ended
April 30, 1995
Revenues increased approximately $1,662,000, or 52%, to approximately
$4,862,000 for the three months ended April 30, 1996 as compared to
approximately $3,200,000 for the three months ended April 30, 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 $683,000, or 97%, to approximately $1,389,000 in the
three months ended April 30, 1996, as compared to approximately $706,000 in the
three months ended April 30, 1995. As a percentage of revenues, cost of services
provided increased to 29% in the three months ended April 30, 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; (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
$908,000, or 39%, to approximately $3,232,000 in the three months ended April
30, 1996, up from approximately $2,324,000 in the three months ended April 30,
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. As a
percentage of revenues, selling, general and administrative expenses decreased
to 66% in the three months ended April 30, 1996 as compared to 73% in the same
period in 1995.
Other income increased by approximately $16,000 or 22%, to approximately
$88,000 in the three months ended April 30, 1996, as compared to approximately
$72,000 in the three months ended April 30, 1995. This increase is the result of
an increase in investment income generated by funds provided by operating
activities.
In the three months ended April 30, 1996, the Company had income before
income taxes of approximately $329,000 and recorded a provision for income taxes
of approximately $134,000, as compared to income before income taxes of
approximately $158,000 and a provision for income taxes of approximately $63,000
in the same period in 1995. Net income increased approximately $100,000, or
105%, to approximately $195,000 for the three months ended April 30, 1996 as
compared to approximately $95,000 for the three months ended April 30, 1995.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost, were
approximately $11,240,000 at April 30, 1996, as compared to approximately
$9,314,000 at October 31, 1995. The increase of approximately $1,926,000 is 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 4 Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders was held on April 17, 1996 to elect one
director for a term expiring at the 1999 annual meeting of stockholders and to
approve the Interstate National Dealer Services, Inc. 1996 Incentive Plan (the
"Incentive Plan"). Proxies for the meeting were solicited by the registrant
pursuant to Regulation 14A under the Securities Exchange Act of 1934; there was
no solicitations in opposition to management's proposals. The nominee for
director was elected and the Incentive Plan was approved.
Votes of 2,981,996 were cast for the election of Robert E. Schulman as
a Director; votes of 10,400 were withheld. There were no abstentions and no
broker non-votes. In addition to the nominee elected as director, the other
directors whose terms of office continue after the meeting are Chester J.
Luby, Cindy H. Luby, William H. Brown and Louis F. Dente.
Votes of 2,111,354 were cast for the approval of the Incentive Plan;
26,415 against. There were 8,400 abstentions and 846,227 broker non-votes.
Item 6(b) Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended April
30, 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.
June 12, 1996 By: /s/ Zvi D. Sprung
Date Zvi D. Sprung
Chief Financial Officer
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<PERIOD-START> Nov-01-1995
<PERIOD-END> Apr-30-1996
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<CASH> 9,780,211
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