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, 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 September 10, 1997, Registrant had issued and outstanding 3,403,033 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
July 31, 1997 and October 31, 1996 3
Consolidated Statements of Operations
for the nine and three month periods ended
July 31, 1997 and 1996 4
Consolidated Statement of Stockholders'
Equity for the nine month period ended
July 31, 1997 5
Consolidated Statements of Cash Flows for
the nine month periods ended July 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 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 $ 10,466,593 $13,230,203
United States Treasury Notes, at cost 7,787,575 -
Accounts receivable 8,407,457 4,138,051
Prepaid expenses 237,052 250,169
----------- ----------
Total current assets 26,898,677 17,618,423
RESTRICTED CASH 1,601,324 1,975,505
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $459,887 and $283,850,
respectively 1,123,057 881,548
INTANGIBLE ASSETS, less accumulated amortization
of $115,376 and $81,232, respectively 109,624 143,768
DEFERRED INCOME TAXES 1,361,759 852,980
NOTE FROM RELATED PARTY 110,000 -
OTHER ASSETS 670,575 686,945
----------- ----------
$31,875,016 $22,159,169
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,567,171 $ 1,569,897
Accrued expenses 1,072,056 512,115
Accrued commissions 1,027,199 548,472
Reserve for claims 751,404 653,847
Current portion of long-term debt to related
party 160,000 160,000
Other liabilities 187,077 155,752
---------- ----------
Total current liabilities 5,764,907 3,600,083
DEFERRED CONTRACT REVENUE 17,047,562 10,678,266
CONTINGENCY PAYABLE 1,601,324 1,975,505
----------- -----------
Total liabilities 24,413,793 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 3,403,033 and 3,384,233
shares, respectively 34,031 33,843
Additional paid-in capital 4,359,448 4,347,592
Retained earnings 3,067,744 1,523,880
----------- -----------
Total stockholders' equity 7,461,223 5,905,315
----------- -----------
$31,875,016 $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 Nine Months For the Three Months
Ended July 31, Ended July 31,
1997 1996 1997 1996
REVENUES $25,598,342 $14,912,879 $10,614,028 $5,934,875
OPERATING COSTS AND EXPENSES:
Costs of services provided 10,439,794 4,281,051 4,652,924 1,798,470
Selling, general and
administrative expenses 13,100,620 9,845,593 5,044,867 3,735,206
----------- ----------- ---------- ----------
Operating income 2,057,928 786,235 916,237 401,199
OTHER INCOME (EXPENSE):
Interest income 537,584 349,761 205,179 133,921
Interest expense (24,975) (31,802) (18,325) (8,505)
---------- ---------- --------- --------
Income before income taxes 2,570,537 1,104,194 1,103,091 526,615
PROVISION FOR INCOME TAXES 1,026,673 438,463 440,575 197,328
--------- --------- -------- --------
Net income $1,543,864 $ 665,731 $ 662,516 $329,287
========== ========= ========= ========
NET INCOME PER SHARE:
Primary $ .40 $ .19 $ .15 $ .09
======= ====== ======= ======
Weighted average shares 4,088,409 3,489,865 4,503,095 3,537,110
========= ========= ========= =========
Fully diluted $ .36 $ .19 $ .15 $ .09
======= ====== ======= ======
Weighted average shares 4,496,776 3,489,865 4,503,095 3,537,110
========= ========= ========= =========
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 NINE MONTHS ENDED JULY 31, 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 18,800 188 11,856 - 12,044
Net income for the nine
months ended July 31,
1997 - - - 1,543,864 1,543,864
------- ------- ---------- ------ ---------
BALANCE AT JULY 31, 1997 3,403,033 $34,031 $4,359,448 $3,067,744 $7,461,223
========= ======= ========== ======== ==========
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 NINE MONTHS ENDED JULY 31, 1997 AND 1996
UNAUDITED
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,543,864 $ 665,731
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 248,471 135,936
Deferred income taxes (508,779) (731,150)
Increase (decrease) in cash resulting
from changes in operating assets
and liabilities:
Accounts receivable (4,269,406) (1,196,288)
Prepaid expenses 13,117 32,453
Restricted cash 374,181 (324,056)
Other assets (10,339) (37,997)
Accounts payable 997,274 (129,613)
Accrued expenses 559,941 497
Accrued commissions 478,727 (11,244)
Reserve for claims 97,557 267,113
Accrued income taxes - 472,897
Other liabilities 31,325 88,855
Deferred contract revenue 6,369,296 3,934,829
Contingency payable (374,181) 324,056
---------- ----------
Net cash provided by operating activities 5,551,048 3,492,019
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (purchases of) proceeds from United States
Treasury Notes (7,787,575) 972,600
Purchases of furniture, fixtures and equipment,
net (429,127) (354,392)
Note from related party (110,000) -
Purchase of license (100,000)
----------- ---------
Net cash (used in) provided by
investing activities (8,326,702) 518,208
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 12,044 24,067
--------- ----------
Net cash provided by financing activities 12,044 24,067
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,763,610) 4,034,294
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,230,203 8,341,337
------------ ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $10,466,593 $12,375,631
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $1,210,059 $ 696,716
=========== ==========
Interest $ 15,000 $ 38,782
=========== ==========
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 July 31, 1997, and the consolidated results of operations and
cash flows for the periods ended July 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 nine and three month
periods ended July 31, 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.
5. In July 1997 the Company executed a $3,000,000 revolving credit
facility agreement (the "Credit Agreement") which is secured by all of
the Company's receivables and matures on July 20, 1999. Funds are
available thereunder for the general corporate purposes of the
Company. The interest rate for funds borrowed is prime plus one-half
of one percentage point. The Credit Agreement contains covenants
customary for such facilities, including a debt service coverage
ratio. To date the Company has not borrowed any funds under the Credit
Agreement.
6. Primary net income per share is computed based upon the weighted average
number of common and common equivalent shares outstanding during the
period. Fully diluted net income per share is computed as above, except
that for the nine months ended July 31, 1997 the outstanding warrants are
assumed to have been exercised at the beginning of the period.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the Nine Months ended July 31, 1997 compared to the Nine Months ended
July 31, 1996
Revenues increased approximately $10,685,000, or 72%, to approximately
$25,598,000 in the nine months ended July 31, 1997 as compared to approximately
$14,913,000 in the nine months ended July 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 and
cancellation costs, increased by approximately $6,159,000, or 144%, to
approximately $10,440,000 in the nine months ended July 31, 1997, as compared to
approximately $4,281,000 in the nine months ended July 31, 1996. As a percentage
of revenues, cost of services provided increased to 41% in the nine months ended
July 31, 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
$3,255,000, or 33%, to approximately $13,101,000 in the nine months ended July
31, 1997, up from approximately $9,846,000 in the nine months ended July 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, 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 51% in the nine months ended July 31, 1997 as compared to 66% in the same
period in 1996.
Other income, net increased by approximately $195,000 or 61%, to
approximately $513,000 in the nine months ended July 31, 1997, as compared to
approximately $318,000 in the nine months ended July 31, 1996. This increase was
the result of an increase in investment income generated by funds provided by
operating activities.
In the nine months ended July 31, 1997, the Company had income before income
taxes of approximately $2,571,000 and recorded a provision for income taxes of
approximately $1,027,000, as compared to income before income taxes of
approximately $1,104,000 and a provision for income taxes of approximately
$438,000 in the same period in 1996. Net income increased approximately
$878,000, or 132%, to approximately $1,544,000 for the nine months ended July
31, 1997 as compared to approximately $666,000 for the nine months ended July
31, 1996.
For the Three Months ended July 31, 1997 compared to the Three Months ended
July 31, 1996
Revenues increased approximately $4,679,000, or 79%, to approximately
$10,614,000 in the three months ended July 31, 1997 as compared to approximately
$5,935,000 in the three months ended July 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 and
cancellation costs, increased by approximately $2,855,000, or 159%, to
approximately $4,653,000 in the three months ended July 31, 1997, as compared to
approximately $1,798,000 in the three months ended July 31, 1996. As a
percentage of revenues, cost of services provided increased to 44% in the three
months ended July 31, 1997 as compared to 30% 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.
<PAGE>
Selling, general and administrative expenses increased by approximately
$1,310,000, or 35%, to approximately $5,045,000 in the three months ended July
31, 1997, up from approximately $3,735,000 in the three months ended July 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, printing and postage costs resulting from
increased sales volume. As a percentage of revenues, selling, general and
administrative expenses decreased to 48% in the three months ended July 31, 1997
as compared to 63% in the same period in 1996.
Other income, net increased by approximately $62,000 or 50%, to
approximately $187,000 in the three months ended July 31, 1997, as compared to
approximately $125,000 in the three months ended July 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 July 31, 1997, the Company had income before
income taxes of approximately $1,103,000 and recorded a provision for income
taxes of approximately $440,000, as compared to income before income taxes of
approximately $526,000 and a provision for income taxes of approximately
$197,000 in the same period in 1996. Net income increased approximately
$334,000, or 102%, to approximately $663,000 for the three months ended July 31,
1997 as compared to approximately $329,000 for the three months ended July 31,
1996.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost, were
approximately $18,254,000 at July 31, 1997, as compared to approximately
$13,230,000 at October 31, 1996. The increase of approximately $5,024,000 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 6(b) Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit
No. Description
11 Computation of per share earnings
B) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended July 31,
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.
September 10, 1997 By: /s/ Zvi D. Sprung
- ------------------ -----------------------------------------
Date Zvi D. Sprung
Chief Financial Officer
EXHIBIT 11
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
FOR THE NINE MONTHS ENDED JULY 31, 1997
UNAUDITED
Fully
Primary Diluted
SHARES
Weighted average number of common shares
outstanding 3,395,048 3,395,048
Exercise of options and warrants, using
the treasury stock method 693,361 1,101,728
------- ---------
Common and common equivalent shares used
to compute net income per share 4,088,409 4,496,776
========= =========
NET INCOME
Net income $1,543,864 $1,543,864
Interest income, net of taxes, on proceeds of
exercise of options and warrants, using the
treasury stock method 107,408 91,869
--------- --------
Net income used for computing net income
per share $1,651,272 $1,635,733
========== ==========
Net income per share $ .40 $ .36
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Oct-31-1997
<PERIOD-START> Nov-01-1996
<PERIOD-END> Jul-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,466,593
<SECURITIES> 7,787,575
<RECEIVABLES> 8,407,457
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,898,677
<PP&E> 1,582,944
<DEPRECIATION> 459,887
<TOTAL-ASSETS> 31,875,016
<CURRENT-LIABILITIES> 5,764,907
<BONDS> 0
0
0
<COMMON> 34,031
<OTHER-SE> 7,427,192
<TOTAL-LIABILITY-AND-EQUITY> 31,875,016
<SALES> 25,598,342
<TOTAL-REVENUES> 25,598,342
<CGS> 0
<TOTAL-COSTS> 10,439,794
<OTHER-EXPENSES> 13,100,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,975
<INCOME-PRETAX> 2,570,537
<INCOME-TAX> 1,026,673
<INCOME-CONTINUING> 1,543,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,543,864
<EPS-PRIMARY> .40
<EPS-DILUTED> .36
</TABLE>
