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, 1998
[ ] 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 2, 1998, Registrant had issued and outstanding 4,623,016 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, 1998 and October 31, 1997 3
Consolidated Statements of Operations
for the three months ended January 31,
1998 and 1997 4
Consolidated Statement of Shareholders'
Equity for the three months ended
January 31, 1998 5
Consolidated Statements of Cash Flows for
the three months ended January 31, 1998
and 1997 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 1998 1997
------ --------- ---------
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 22,079,814 $ 20,846,524
United States Treasury Notes, at cost 7,909,984 6,010,337
Accounts receivable 7,499,943 8,891,963
Prepaid expenses 435,014 367,932
------------ -----------
Total current assets 37,924,755 36,116,756
RESTRICTED CASH 1,615,086 1,633,068
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $607,872 and $530,281,
respectively 1,245,883 1,179,293
INTANGIBLE ASSETS, less accumulated
amortization of $133,474 and $127,401,
respectively 91,526 97,599
DEFERRED INCOME TAXES 1,573,099 1,491,771
NOTE FROM RELATED PARTY 90,000 110,000
OTHER ASSETS 875,766 654,074
----------- -----------
$43,416,115 $41,282,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,040,926 $ 2,929,476
Accrued expenses 1,374,790 1,040,721
Accrued commissions 1,007,580 1,080,178
Reserve for claims 1,003,646 1,120,527
Other liabilities 321,264 241,598
---------- ---------
Total current liabilities 6,748,206 6,412,500
DEFERRED CONTRACT REVENUE 19,487,732 18,478,155
CONTINGENCY PAYABLE 1,615,086 1,633,068
----------- ----------
Total liabilities 27,851,024 26,523,723
----------- ----------
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 4,623,016 shares 46,231 46,231
Additional paid-in capital 11,052,054 11,052,054
Retained earnings 4,466,806 3,660,553
---------- ----------
Total stockholders' equity 15,565,091 14,758,838
---------- ------------
$43,416,115 $41,282,561
=========== ===========
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, 1998 AND 1997
UNAUDITED
1998 1997
REVENUES $10,308,175 $6,334,237
OPERATING COSTS AND EXPENSES:
Costs of services provided 5,102,013 2,135,681
Selling, general and administrative expenses 4,701,822 3,693,506
--------- ---------
Operating income 504,340 505,050
OTHER INCOME (EXPENSE):
Interest income 329,997 150,488
Interest expense - (3,325)
Gain on settlement 500,000 -
---------- ----------
Income before income taxes 1,334,337 652,213
PROVISION FOR INCOME TAXES 528,084 260,495
---------- ----------
Net income $ 806,253 $ 391,718
========== ==========
NET INCOME PER SHARE:
Basic $ .17 $ .11
====== ======
Weighted average shares outstanding 4,623,016 3,385,972
========= ==========
Diluted $ .16 $ .11
====== ======
Weighted average shares outstanding 4,998,808 3,593,927
========= ==========
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, 1998
UNAUDITED
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
BALANCE AT OCTOBER 31, 1997 4,623,016 $46,231 $11,052,054 $3,660,553 $14,758,838
Net income for the three
months ended January
31, 1998 - - - 806,253 806,253
--------- ------- ---------- --------- ----------
BALANCE AT JANUARY 31, 1998 4,623,016 $46,231 $11,052,054 $4,466,806 $15,565,091
========= ======= =========== ========== ==========
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, 1998 AND 1997
UNAUDITED
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 806,253 $ 391,718
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 92,665 74,945
Deferred income taxes (81,328) (113,247)
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable 1,392,020 (1,136,875)
Prepaid expenses (67,082) 47,695
Restricted cash 17,982 336,467
Other assets (230,693) (25,339)
Accounts payable 111,450 287,182
Accrued expenses 334,069 243,669
Accrued commissions (72,598) (58,775)
Reserve for claims (116,881) 49,344
Other liabilities 79,666 7,230
Deferred contract revenue 1,009,577 1,417,707
Contingency payable (17,982) (336,467)
---------- ---------
Net cash provided by operating activities 3,257,118 1,185,254
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of United States Treasury Notes (1,899,647) (1,948,490)
Purchase of furniture, fixtures and equipment,
net (144,181) (328,873)
Note from related party 20,000 -
---------- ----------
Net cash used in investing activities (2,023,828) (2,277,363)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options - 4,000
--------- ---------
Net cash provided by financing activities - 4,000
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,233,290 (1,088,109)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,846,524 13,230,203
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $22,079,814 $12,142,094
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 201,967 $184,460
========= =========
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, 1997.
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, 1998, and the consolidated results of operations and cash flows for
the periods ended January 31, 1998 and 1997. 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,
1998 and 1997 are not necessarily indicative of the results to be expected for
the full year.
4. Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic net income
per share ("Basic EPS") is computed by dividing net income by the weighted
average number of common shares outstanding. Diluted net income per share
("Diluted EPS") is computed by dividing net income by the weighted average
number of common shares and dilutive common share equivalents then outstanding.
SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the
face of the statements of operations. The impact of the adoption of this
statement was not material to all previously reported EPS amounts.
A reconciliation between the numerators and denominators of Basic and Diluted
EPS is as follows:
Net Income Shares Per Share
For the three months ended January 31, 1997
Basic EPS
Net income attributable to common shares $391,718 3,385,972 $.11
Effect of dilutive securities: stock options - 207,955
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $391,718 3,593,927 $.11
======== ========= ====
For the three months ended January 31, 1998
Basic EPS
Net income attributable to common shares $806,253 4,623,016 $.17
Effect of dilutive securities: stock options - 375,792 (.01)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $806,253 4,998,808 $.16
======== ========= =====
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues increased approximately $3,974,000, or 63%, to approximately
$10,308,000 for the three months ended January 31, 1998 as compared to
approximately $6,334,000 for the three months ended January 31, 1997. This
increase was primarily due to: (i) 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 (ii) 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
1998. The increase in the number of service contracts accepted for
administration during fiscal 1998 was primarily due to the aggressive efforts by
the Company in enrolling additional producers to sell the Company's products and
to a more diversified array of products offered by the Company.
Gross margin for the three months ended January 31, 1998 was 51% as compared
to 66% for the three months ended January 31, 1997. This decrease is primarily
attributable to: (i) an increase in the relative percentage of revenue
represented by deferred contract revenue, which has a low gross margin; and (ii)
a higher level of cancellations of telemarketing sales. The Company has put in
place several procedures to reduce telemarketing cancellations. Gross margin
increased by approximately $1,008,000, or 24%, to approximately $5,206,000 for
the three months ended January 31, 1998, as compared to approximately $4,198,000
for the three months ended January 31, 1997. This increase is primarily
attributable to the increase in revenues as described above.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $2,966,000, or 139%, to
approximately $5,102,000 for the three months ended January 31, 1998, as
compared to approximately $2,136,000 for the three months ended January 31,
1997. As a percentage of revenues, cost of services provided increased to 49%
for the three months ended January 31, 1998 as compared to 34% in the same
period in 1997. Claims and cancellation 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
$1,008,000, or 27%, to approximately $4,702,000 for the three months ended
January 31, 1998, up from approximately $3,694,000 for the three months ended
January 31, 1997. 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 and to the development of new service
contract products. As a percentage of revenues, selling, general and
administrative expenses decreased to 46% for the three months ended January 31,
1998 as compared to 58% in the same period in 1997.
Other income, net increased by approximately $683,000 or 464%, to
approximately $830,000 for the three months ended January 31, 1998, as compared
to approximately $147,000 for the three months ended January 31, 1997. This
increase is primarily attributable to other income of $500,000 received by the
Company in settlement of a dispute with an unaffiliated party. The balance of
the increase was the result of an increase in investment income generated by
funds provided by the exercise of the Company's outstanding warrants in October
1997 and by funds provided by operating activities.
For the three months ended January 31, 1998, the Company had income before
income taxes of approximately $1,334,000 and recorded a provision for income
taxes of approximately $528,000, as compared to income before income taxes of
approximately $652,000 and a provision for income taxes of approximately
$260,000 in the same period in 1997. Net income increased approximately
$414,000, or 106%, to approximately $806,000 for the three months ended January
31, 1998 as compared to approximately $392,000 for the three months ended
January 31, 1997.
Liquidity and Capital Resources
Cash and cash equivalents and United States Treasury Notes, at cost, were
approximately $29,990,000 at January 31, 1998, as compared to approximately
$26,857,000 at October 31, 1997. The increase of approximately $3,133,000 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.
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 November 19, 1997 with respect to the exercise of 1,218,983 of the
1,225,100 then outstanding common stock purchase warrants.
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 2, 1998 By: /s/ Zvi D. Sprung
Date Zvi D. Sprung
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Oct-31-1998
<PERIOD-START> Nov-01-1997
<PERIOD-END> Jan-31-1998
<EXCHANGE-RATE> 1
<CASH> 22,079,814
<SECURITIES> 7,909,984
<RECEIVABLES> 7,499,943
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,924,755
<PP&E> 1,853,755
<DEPRECIATION> 607,872
<TOTAL-ASSETS> 43,416,115
<CURRENT-LIABILITIES> 6,748,206
<BONDS> 0
0
0
<COMMON> 46,231
<OTHER-SE> 15,518,860
<TOTAL-LIABILITY-AND-EQUITY> 43,416,115
<SALES> 10,308,175
<TOTAL-REVENUES> 10,308,175
<CGS> 0
<TOTAL-COSTS> 5,102,013
<OTHER-EXPENSES> 4,701,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,334,337
<INCOME-TAX> 528,084
<INCOME-CONTINUING> 806,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 806,253
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
