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, 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 June 10, 1997, Registrant had issued and outstanding 3,399,833 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
April 30, 1997 and October 31, 1996 3
Consolidated Statements of Operations
for the six and three month periods ended
April 30, 1997 and 1996 4
Consolidated Statement of Stockholders'
Equity for the six month period ended
April 30, 1997 5
Consolidated Statements of Cash Flows for
the six month periods ended April 30,1997
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 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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
ASSETS 1997 1996
------ ------ -----
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 9,221,319 $13,230,203
United States Treasury Notes, at cost 6,816,795 -
Accounts receivable 6,390,977 4,138,051
Prepaid expenses 241,913 250,169
----------- ----------
Total current assets 22,671,004 17,618,423
RESTRICTED CASH 1,726,956 1,975,505
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $393,545 and $283,850,
respectively 1,138,531 881,548
INTANGIBLE ASSETS, less accumulated amortization
of $103,350 and $81,232, respectively 121,650 143,768
DEFERRED INCOME TAXES 1,131,961 852,980
NOTE FROM RELATED PARTY 110,000 -
OTHER ASSETS 686,978 686,945
----------- ----------
$27,587,080 $22,159,169
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,419,147 $ 1,569,897
Accrued expenses 662,888 512,115
Accrued commissions 724,434 548,472
Reserve for claims 785,768 653,847
Current portion of long-term debt to related
party 160,000 160,000
Other liabilities 139,871 155,752
---------- ----------
Total current liabilities 4,892,108 3,600,083
DEFERRED CONTRACT REVENUE 14,170,772 10,678,266
CONTINGENCY PAYABLE 1,726,956 1,975,505
----------- -----------
Total liabilities 20,789,836 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 3,399,833 and 3,384,233
shares, respectively 33,999 33,843
Additional paid-in capital 4,358,017 4,347,592
Retained earnings 2,405,228 1,523,880
----------- -----------
Total stockholders' equity 6,797,244 5,905,315
----------- -----------
$27,587,080 $22,159,169
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Six Months For the Three Months
Ended April 30, Ended April 30,
1997 1996 1997 1996
REVENUES $14,984,314 $8,978,004 $8,650,077 $4,861,721
OPERATING COSTS AND EXPENSES:
Costs of services provided 5,786,870 2,482,581 3,651,189 1,389,008
Selling, general and
administrative expenses 8,055,753 6,110,387 4,362,247 3,232,172
----------- ----------- ---------- ----------
Operating income 1,141,691 385,036 636,641 240,541
OTHER INCOME (EXPENSE):
Interest income 332,405 215,840 181,917 101,637
Interest expense (6,650) (23,297) (3,325) (13,661)
---------- ---------- --------- --------
Income before income taxes 1,467,446 577,579 815,233 328,517
PROVISION FOR INCOME TAXES 586,098 241,135 325,603 133,730
--------- --------- -------- --------
Net income $ 881,348 $ 336,444 $ 489,630 $194,787
========== ========= ========= ========
Net income per share $ .24 $ .10 $ .13 $ .06
======= ====== ======= ======
Weighted average shares
outstanding 3,731,773 3,464,926 3,860,396 3,509,268
The accompanying notes to consolidated 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 SIX MONTHS ENDED APRIL 30, 1997
UNAUDITED
Common Stock Additional
Number Paid-in Retained
of 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 employee
stock options 15,600 156 10,425 - 10,581
Net income for the six
months ended April 30,
1997 - - - 881,348 881,348
------- ------- ---------- ------ ---------
BALANCE AT APRIL 30, 1997 3,399,833 $33,999 $4,358,017 $2,405,228 $6,797,244
========= ======= ========== ======== ==========
The accompanying notes to consolidated 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 SIX MONTHS ENDED APRIL 30, 1997 AND 1996
UNAUDITED
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 881,348 $336,444
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 161,200 77,981
Deferred income taxes (278,981) -
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (2,252,926) (685,542)
Prepaid expenses 8,256 623
Restricted cash 248,549 (135,503)
Note from related party (110,000) -
Other assets (17,839) (36,295)
Accounts payable 813,180 37,943
Accrued expenses 186,843 64,945
Accrued commissions 175,962 88,874
Reserve for claims 131,921 75,692
Other liabilities (15,881) 103,863
Deferred contract revenue 3,492,506 2,200,312
Contingency payable (248,549) 135,503
---------- ----------
Net cash provided by operating activities 3,175,589 2,264,840
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of United States Treasury Notes (6,816,795) (487,183)
Purchases of furniture, fixtures and equipment,
net (378,259) (262,850)
Purchase of license (100,000)
----------- ---------
Net cash used by investing activities (7,195,054) (850,033)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 10,581 24,067
--------- ----------
Net cash provided by financing activities 10,581 24,067
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4,008,884) 1,438,874
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,230,203 8,341,337
------------ ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,221,319 $9,780,211
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 648,362 $142,342
=========== ==========
Interest $ - $ 22,132
=========== ==========
The accompanying notes to consolidated 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 April 30, 1997, and the consolidated results of operations and
cash flows for the periods ended April 30, 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 six and three month periods
ended April 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the full year.
4. In April 1997 the Company made a loan to one of its officers in the amount
of $110,000. The loan bears interest at 7 percent per annum, payable
quarterly, and is due in full in April 2002.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the Six Months ended April 30, 1997 compared to the Six Months ended
April 30, 1996
Revenues increased approximately $6,006,000, or 67%, to approximately
$14,984,000 in the six months ended April 30, 1997 as compared to approximately
$8,978,000 in the six months ended April 30, 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 and
cancellation costs, increased by approximately $3,305,000, or 133%, to
approximately $5,787,000 in the six months ended April 30, 1997, as compared to
approximately $2,482,000 in the six months ended April 30, 1996. As a percentage
of revenues, cost of services provided increased to 39% in the six months ended
April 30, 1997 as compared to 28% 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. Cancellation costs are
primarily affected by the total number of contracts accepted for administration
during the period, which has also increased.
Selling, general and administrative expenses increased by approximately
$1,946,000, or 32%, to approximately $8,056,000 in the six months ended April
30, 1997, up from approximately $6,110,000 in the six months ended April 30,
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, printing and postage costs resulting from
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 54% in the six months ended April 30, 1997 as compared to 68% in the same
period in 1996.
Other income, net increased by approximately $134,000 or 70%, to
approximately $326,000 in the six months ended April 30, 1997, as compared to
approximately $192,000 in the six months ended April 30, 1996. This increase was
the result of an increase in investment income generated by funds provided by
operating activities.
In the six months ended April 30, 1997, the Company had income before income
taxes of approximately $1,467,000 and recorded a provision for income taxes of
approximately $586,000, as compared to income before income taxes of
approximately $577,000 and a provision for income taxes of approximately
$241,000 in the same period in 1996. Net income increased approximately
$545,000, or 162%, to approximately $881,000 for the six months ended April 30,
1997 as compared to approximately $336,000 for the six months ended April 30,
1996.
For the Three Months ended April 30, 1997 compared to the Three Months ended
April 30, 1996
Revenues increased approximately $3,788,000, or 78%, to approximately
$8,650,000 in the three months ended April 30, 1997 as compared to
approximately $4,862,000 in the three months ended April 30, 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 and
cancellation costs, increased by approximately $2,262,000, or 163%, to
approximately $3,651,000 in the three months ended April 30, 1997, as compared
to approximately $1,389,000 in the three months ended April 30, 1996. As a
percentage of revenues, cost of services provided increased to 42% in the three
months ended April 30, 1997 as compared to 29% 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. Cancellation costs
are primarily affected by the total number of contracts accepted for
administration during the period, which has also increased.
Selling, general and administrative expenses increased by approximately
$1,130,000, or 35%, to approximately $4,362,000 in the three months ended April
30, 1997, up from approximately $3,232,000 in the three months ended April 30,
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, printing and postage costs resulting from
increased sales volume. As a percentage of revenues, selling, general and
administrative expenses decreased to 50% in the three months ended April 30,
1997 as compared to 66% in the same period in 1996.
Other income, net increased by approximately $91,000 or 103%, to
approximately $179,000 in the three months ended April 30, 1997, as compared to
approximately $88,000 in the three months ended April 30, 1996. This increase
was the result of an increase in investment income generated by funds provided
by operating activities.
In the three months ended April 30, 1997, the Company had income before
income taxes of approximately $815,000 and recorded a provision for income taxes
of approximately $325,000, as compared to income before income taxes of
approximately $329,000 and a provision for income taxes of approximately
$134,000 in the same period in 1996. Net income increased approximately
$295,000, or 151%, to approximately $490,000 for the three months ended April
30, 1997 as compared to approximately $195,000 for the three months ended April
30, 1996.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost, were
approximately $16,038,000 at April 30, 1997, as compared to approximately
$13,230,000 at October 31, 1996. The increase of approximately $2,808,000 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.
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.
<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 16, 1997 to elect two
directors for a term expiring at the annual meeting of stockholders to be held
in 2000. Proxies for the meeting were solicited by the registrant pursuant to
Regulation 14A under the Securities Exchange Act of 1934; there were no
solicitations in opposition to management's proposals. The nominees for director
were elected.
Votes of 3,239,837 were cast for the election of Chester J. Luby as
Director; votes of 10,500 were withheld. Votes of 3,239,837 were cast for the
election of Donald Kirsch as Director; votes of 10,500 were withheld. There were
no abstentions and no broker non-votes. In addition to the nominees elected as
director, the other directors whose terms of office continue after the meeting
are Cindy H. Luby, William H. Brown and Robert E. Schulman.
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, 1997.
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 10, 1997 By: /s/ Zvi D. Sprung
Date Zvi D. Sprung
Chief Financial Officer
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<S> <C>
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<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Nov-01-1996
<PERIOD-END> Apr-30-1997
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<CASH> 9,221,319
<SECURITIES> 6,816,795
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0
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<COMMON> 33,999
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