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 January 31, 1997
[ ] 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 March 13,1997, Registrant had issued and outstanding 3,398,233 shares of
Common Stock.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of
January 31, 1997 and October 31, 1996 3
Consolidated Statements of Operations
for the three months ended January 31,
1997 and 1996 4
Consolidated Statement of Shareholders'
Equity for the three months ended
January 31, 1997 5
Consolidated Statements of Cash Flows for
the three months ended January 31, 1997
and 1996 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 9
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
ASSETS 1997 1996
------ --------- ---------
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 12,142,094 $ 13,230,203
United States Treasury Notes, at cost 1,948,490 -
Accounts receivable 5,274,926 4,138,051
Prepaid expenses 202,474 250,169
------------ -----------
Total current assets 19,567,984 17,618,423
RESTRICTED CASH 1,639,038 1,975,505
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $328,120 and $283,850,
respectively 1,154,570 881,548
INTANGIBLE ASSETS, less accumulated
amortization of $91,325 and $81,232,
respectively 133,675 143,768
DEFERRED INCOME TAXES 966,227 852,980
OTHER ASSETS 703,283 686,945
----------- -----------
$24,164,777 $22,159,169
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,857,079 $ 1,569,897
Accrued expenses 755,784 512,115
Accrued commissions 489,697 548,472
Reserve for claims 703,191 653,847
Current portion of long-term debt to related
party 160,000 160,000
Other liabilities 162,982 155,752
---------- ---------
Total current liabilities 4,128,733 3,600,083
DEFERRED CONTRACT REVENUE 12,095,973 10,678,266
CONTINGENCY PAYABLE 1,639,038 1,975,505
----------- ----------
Total liabilities 17,863,744 16,253,854
----------- ----------
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 3,394,233 and 3,384,233
shares, respectively 33,943 33,843
Additional paid-in capital 4,351,492 4,347,592
Retained earnings 1,915,598 1,523,880
---------- ----------
Total stockholders' equity 6,301,033 5,905,315
---------- ------------
$24,164,777 $22,159,169
=========== ===========
The accompanying notes to financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
UNAUDITED
1997 1996
REVENUES $6,334,237 $4,116,283
OPERATING COSTS AND EXPENSES:
Costs of services provided 2,135,681 1,093,573
Selling, general and administrative expenses 3,693,506 2,878,215
--------- ---------
Operating income 505,050 144,495
OTHER INCOME (EXPENSE):
Interest income 150,488 114,203
Interest expense (3,325) (9,636)
---------- ----------
Income before income taxes 652,213 249,062
PROVISION FOR INCOME TAXES 260,495 107,405
---------- ----------
Net income $ 391,718 $ 141,657
========== ==========
Net income per share $ .11 $ .04
====== ======
Weighted average shares outstanding 3,593,927 3,439,032
========= ==========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JANUARY 31, 1997
UNAUDITED
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
BALANCE AT OCTOBER 31, 1996 3,384,233 $33,843 $4,347,592 $1,523,880 $5,905,315
Shares issued pursuant to
exercise of stock options 10,000 100 3,900 - 4,000
Net income for the three
months ended January
31, 1997 - - - 391,718 391,718
--------- ------- ---------- --------- ----------
BALANCE AT JANUARY 31, 1997 3,394,233 $33,943 $4,351,492 $1,915,598 $6,301,033
========= ======= ========== ========== ==========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
UNAUDITED
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 391,718 $ 141,657
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 74,945 34,921
Deferred income taxes (113,247) -
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (1,136,875) (375,216)
Prepaid expenses 47,695 14,731
Restricted cash 336,467 (144,966)
Other assets (25,339) (27,495)
Accounts payable 287,182 (161,721)
Accrued expenses 243,669 35,766
Accrued commissions (58,775) (77,133)
Reserve for claims 49,344 (31,795)
Other liabilities 7,230 3,393
Deferred contract revenue 1,417,707 846,211
Contingency payable (336,467) 144,966
---------- ---------
Net cash provided by operating activities 1,185,254 403,319
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of United States Treasury Notes (1,948,490) (1,459,783)
Purchase of furniture, fixtures and equipment,
net (328,873) (117,985)
---------- ----------
Net cash used in investing activities (2,277,363) (1,577,768)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 4,000 19,467
--------- ---------
Net cash provided by financing activities 4,000 19,467
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,088,109) (1,154,982)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,230,203 8,341,337
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $12,142,094 $7,186,355
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 184,460 $ 33,442
========= =========
Interest $ - $ 19,425
========= =========
The accompanying notes to financial statements
are an integral part of these consolidated statements.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
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, 1996.
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
January 31, 1997, and the consolidated results of operations and cash flows for
the periods ended January 31, 1997 and 1996. 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 three months ended January 31,
1997 and 1996 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 Three Months ended January 31, 1997 compared to the Three Months
ended January 31, 1996
Revenues increased approximately $2,218,000, or 54%, to approximately
$6,334,000 for the three months ended January 31, 1997 as compared to
approximately $4,116,000 for the three months ended January 31, 1996. 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 1997;
(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) a significant increase in telemarketing revenue. The
increase in the number of service contracts accepted for administration during
fiscal 1997 was primarily due to the aggressive efforts by the Company in
enrolling additional producers to sell the Company's products as well as to a
more diversified array of products offered by the Company.
Costs of services provided, which consist primarily of claims costs,
increased by approximately $1,042,000, or 95%, to approximately $2,136,000 in
the three months ended January 31, 1997, as compared to approximately $1,094,000
in the three months ended January 31, 1996. As a percentage of revenues, cost of
services provided increased to 34% in the year ended October 31, 1997 as
compared to 27% in the same period in 1996. Claims costs are directly affected
by the total number of unexpired contracts under administration, which has
increased on a yearly basis.
Selling, general and administrative expenses increased by approximately
$815,000, or 28%, to approximately $3,693,000 in the three months ended January
31, 1997, up from approximately $2,878,000 in the three months ended January 31,
1996. 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, telephone and postage 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 buy-out of such license in
March 1996 for $100,000. As a percentage of revenues, selling, general and
administrative expenses decreased to 58% in the three months ended January 31,
1997 as compared to 70% in the same period in 1996.
Other income, net increased by approximately $42,000 or 40%, to
approximately $147,000 in the three months ended January 31, 1997, as compared
to approximately $105,000 in the three months ended January 31, 1996. This
increase was the result of an increase in investment income generated by funds
provided by operating activities.
In the three months ended January 31, 1997, the Company had income before
income taxes of approximately $652,000 and recorded a provision for income taxes
of approximately $260,000, as compared to income before income taxes of
approximately $249,000 and a provision for income taxes of approximately
$107,000 in the same period in 1996. Net income increased approximately
$250,000, or 176%, to approximately $392,000 for the three months ended January
31, 1997 as compared to approximately $142,000 for the three months ended
January 31, 1996.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost were
approximately $14,091,000 at January 31, 1997, as compared to approximately
$13,230,000 at October 31, 1996. The increase of approximately $861,000 was
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 fiscal year at the Company's present level of
revenues and business activity.
<PAGE>
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.
Forward-Looking Statements
This Form 10-QSB, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based on assumptions and expectations which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be predicted
with accuracy and some of which might not even be anticipated. Future events and
actual results, financial or otherwise, may differ from the results discussed in
the forward-looking statements. A number of these risks and other factors that
might cause differences, some of which could be material, along with additional
discussion of forward-looking statements, are set forth in the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on December 23,
1996.
PART II - OTHER INFORMATION
Item 6(b) Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K with the Securities and Exchange
Commission on December 23, 1996. This Report contained Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereto duly authorized.
INTERSTATE NATIONAL DEALER SERVICES, INC.
March 13, 1997 By: /s/ Zvi D. Sprung
Date Zvi D. Sprung
Chief Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Nov-01-1996
<PERIOD-END> Jan-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,142,094
<SECURITIES> 1,948,490
<RECEIVABLES> 5,274,926
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<DEPRECIATION> 328,120
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0
0
<COMMON> 33,943
<OTHER-SE> 6,267,090
<TOTAL-LIABILITY-AND-EQUITY> 24,164,777
<SALES> 6,334,237
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<INCOME-PRETAX> 652,213
<INCOME-TAX> 260,495
<INCOME-CONTINUING> 391,718
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