UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
[ ] 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 9, 2000, Registrant had issued and outstanding 4,694,184 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, 2000 and October 31, 1999 3
Consolidated Statements of Operations
for the three months ended January 31,
2000 and 1999 4
Consolidated Statement of Stockholders'
Equity for the three months ended
January 31, 2000 5
Consolidated Statements of Cash Flows for
the three months ended January 31, 2000
and 1999 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
January 31, October 31,
ASSETS 2000 1999
------ --------- ---------
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 23,663,359 $ 30,145,855
United States Treasury Bills, at cost 18,351,097 15,296,768
Accounts receivable, net 7,583,240 6,957,454
Prepaid expenses 516,592 712,651
------------ -----------
Total current assets 50,114,288 53,112,728
MARKETABLE SECURITIES 8,174,969 5,184,074
RESTRICTED CASH 2,767,444 2,516,188
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,512,152 and $1,371,083,
respectively 1,735,159 1,779,234
INTANGIBLE ASSETS, less accumulated
amortization of $164,167 and $161,667,
respectively 60,833 63,333
DEFERRED INCOME TAXES 2,971,716 2,819,297
NOTE FROM RELATED PARTY 45,000 70,000
OTHER ASSETS 4,136,549 3,116,233
----------- -----------
$70,005,958 $68,661,087
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,532,753 $ 5,535,592
Accrued expenses 577,780 1,001,465
Accrued commissions 1,120,458 1,207,740
Reserve for claims 2,063,145 2,241,963
Other liabilities 70,857 487,867
---------- ---------
Total current liabilities 9,364,993 10,474,627
DEFERRED CONTRACT REVENUE 36,599,589 34,745,857
CONTINGENCY PAYABLE 2,767,444 2,516,188
----------- ----------
Total liabilities 48,732,026 47,736,672
----------- ----------
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 4,676,184 and 4,671,284
shares, respectively 46,762 46,713
Additional paid-in capital 11,159,890 11,156,423
Retained earnings 10,195,825 9,779,162
Accumulated other comprehensive loss (128,545) (57,883)
---------- ----------
Total stockholders' equity 21,273,932 20,924,415
---------- ------------
$70,005,958 $68,661,087
=========== ===========
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, 2000 AND 1999
UNAUDITED
2000 1999
REVENUES $13,232,786 $11,534,491
OPERATING COSTS AND EXPENSES:
Costs of services provided 6,828,741 5,933,966
Selling, general and administrative expenses 6,399,930 5,218,542
--------- ---------
Operating income 4,115 381,983
OTHER INCOME:
Interest income 649,213 405,721
---------- ----------
Income before provision for income taxes 653,328 787,704
PROVISION FOR INCOME TAXES 236,665 296,263
---------- ----------
Net income $ 416,663 $ 491,441
========== ==========
NET INCOME PER SHARE:
Basic $ .09 $ .11
====== ======
Weighted average shares outstanding 4,672,136 4,653,229
========= ==========
Diluted $ .09 $ .10
====== ======
Weighted average shares outstanding 4,849,486 5,049,557
========= ==========
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, 2000
UNAUDITED
Accum-
ulated
Other
Common Stock Additional Compre-
Number Paid-in Retained hensive
of Amount Capital Earnings Loss Total
Shares
BALANCE AT OCTOBER
31,1999 4,671,284 $46,713 $11,156,423 $9,779,162 $(57,883) $20,924,415
Shares issued
pursuant to
exercise of stock
options 4,900 49 3,467 - - 3,516
COMPREHENSIVE INCOME:
Net income for the
three months ended
January 31, 2000 - - - 416,663 - 416,663
Other comprehensive
loss:
Unrealized loss on
available
for sale securities - - - - (70,662) (70,662)
---- ----- ------ --------- ------- -------
Total comprehensive
income for the three months
ended January 31, 2000 - - - 416,663 (70,662) 346,001
---- ----- ------ --------- ------- -------
BALANCE AT JANUARY
31, 2000 4,676,184 $46,762 $11,159,890$10,195,825$(128,545) $21,273,932
========= ====== ========== ========= ======= =========
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, 2000 AND 1999
UNAUDITED
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 416,663 $ 491,441
Adjustments to reconcile net income
to net cash (used in)provided by
operating activities:
Depreciation and amortization 152,570 117,657
Deferred income taxes (152,419) (85,078)
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (625,786) 30,550
Prepaid expenses 196,059 82,792
Restricted cash (251,256) (157,859)
Other assets (1,029,317) (193,990)
Accounts payable (2,839) 377,258
Accrued expenses (423,685) 227,664
Accrued commissions (87,282) (56,971)
Reserve for claims (178,818) (69,176)
Other liabilities (417,010) 64,376
Deferred contract revenue 1,853,732 1,040,671
Contingency payable 251,256 157,859
---------- ---------
Net cash (used in)provided by
operating activities (298,132) 2,027,194
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (purchases) sales of United States
Treasury Bills (3,054,329) 7,281
Net purchases of marketable securities (3,061,557) -
Purchase of furniture,fixtures and equipment (96,994) (47,051)
Note from related party 25,000 20,000
---------- ----------
Net cash used in investing activities (6,187,880) (19,770)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options 3,516 49,100
--------- ---------
Net cash provided by financing activities 3,516 49,100
--------- ---------
NET (DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (6,482,496) 2,056,524
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,145,855 20,885,903
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $23,663,359 $22,942,427
=========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 110,742 $ 38,343
========= =========
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-K for the fiscal year ended October 31, 1999.
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, 2000, and the consolidated results of operations and cash flows for
the periods ended January 31, 2000 and 1999. 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,
2000 and 1999 are not necessarily indicative of the results to be expected for
the full year.
4. The Company follows the provisions of 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.
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, 1999
Basic EPS
Net income attributable to common shares $491,441 4,653,229 $.11
Effect of dilutive securities: stock options - 396,328 (.01)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $491,441 5,049,557 $.10
======== ========= ====
For the three months ended January 31, 2000
Basic EPS
Net income attributable to common shares $416,663 4,672,136 $.09
Effect of dilutive securities: stock options - 177,350 (.00)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $416,663 4,849,486 $.09
======== ========= =====
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues increased approximately $1,699,000, or 15%, to approximately
$13,233,000 for the three months ended January 31, 2000 as compared to
approximately $11,534,000 for the three months ended January 31, 1999. This
increase was primarily due to: (i) an 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) an increase in administrative
and insurance fees resulting from an increase in the administrative fees charged
per contract and an increase in the number of service contracts accepted for
administration by the Company in fiscal 2000.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $895,000, or 15%, to
approximately $6,829,000 for the three months ended January 31, 2000, as
compared to approximately $5,934,000 for the three months ended January 31,
1999. As a percentage of revenues, cost of services provided were approximately
51.5% for both the three months ended January 31, 2000 and for the same period
in 1999. Claims and cancellation costs are directly affected by the total number
of unexpired contracts under administration, which has increased on a yearly
basis.
Gross margin increased by approximately $804,000, or 14%, to approximately
$6,404,000 for the three months ended January 31, 2000, as compared to
approximately $5,600,000 for the three months ended January 31, 1999. This
increase is primarily attributable to the increase in revenues as described
above. Gross margin for both the three months ended January 31, 2000 and the
three months ended January 31, 1999 was approximately 48.5%.
Selling, general and administrative expenses increased by approximately
$1,181,000, or 23%, to approximately $6,400,000 for the three months ended
January 31, 2000, up from approximately $5,219,000 for the three months ended
January 31, 1999. This increase was in large part due to (i) Uautobid.com
expenses; (ii) increases in selling expenses primarily due to increased
commissions paid as a result of increased sales revenue; and (iii) increases in
general and administrative expenses due to increased personnel costs resulting
from increased sales volume and the development of new service contract
products. Uautobid.com expenses of approximately $437,000 were incurred in the
three months ended January 31, 2000 as the Company continued to develop and
position its web site. Selling, general and administrative expenses were 48% of
revenues for the three months ended January 31, 2000 as compared to 45% for the
three months ended January 31, 1999.
Interest income increased by approximately $243,000, or 60%, to
approximately $649,000 for the three months ended January 31, 2000, as compared
to approximately $406,000 for the same period in 1999. The increase is a result
of an increase in investment income generated by funds provided by operating
activities in the twelve months ended October 31, 1999.
Income before provision for income taxes increased by approximately
$302,000, or 38%, to approximately $1,090,000 for the three months ended January
31, 2000, as compared to approximately $788,000 for the same period in 1999,
exclusive of the Uautobid.com expenses. For the three months ended January 31,
2000, the Company had income before provision for income taxes of approximately
$653,000 and recorded a provision for income taxes of approximately $236,000, as
compared to income before provision for income taxes of approximately $788,000
and a provision for income taxes of approximately $296,000 in the same period in
1999. Net income decreased approximately $75,000, or 15%, to approximately
$417,000 for the three months ended January 31, 2000 as compared to
approximately $492,000 for the three months ended January 31, 1999. The decrease
in net income is the result of the Uautobid.com expenses incurred in fiscal
2000.
Diluted net income per share for the three months ended January 31, 2000 was
$.09 per share as compared to diluted net income per share of $.10 for the same
period in 1999. Excluding the Uautobid.com expenses, diluted net income per
share for the three months ended January 31, 2000 was $.14 per share, or $.04
per share greater than diluted net income per share for the three months ended
January 31, 1999.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents, United States Treasury Bills, at cost, and
marketable securities were approximately $50,189,000 at January 31, 2000, as
compared to approximately $50,627,000 at October 31, 1999. The decrease of
approximately $438,000 was primarily the result of cash used in the Company's
operating activities plus cash used for the purchase of furniture, fixtures and
equipment.
During the fiscal year ended October 31, 1997, the Company entered into a
$3,000,000 revolving credit facility with the Chase Manhattan Bank. Under the
terms of the facility, advances bear interest at 1/2% above the prime rate and
the Company is obligated to pay an annual facility fee of 1/2% of the total
available amount. Outstanding amounts under the credit facility are secured by a
pledge of all accounts receivable of the Company. As at January 31, 2000, no
amounts had been borrowed under the credit facility.
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.
Year 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. As the century date
change occurred, date-sensitive systems will recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the Year 2000 may
cause systems to process critical financial and operational information
incorrectly. The Company's computer systems use four-digit date fields to
designate a year and, as a result, the Company believes that its systems will
properly recognize the Year 2000. The Company has contacted its critical
suppliers of services to determine that the services that they provide are Year
2000 compliant. The Company believes, based upon its internal reviews, the
configuration of the Company's systems, inquiries made of its critical customers
and suppliers, and other factors, that the future external and internal costs to
be incurred relating to the modification of internal-use software for the Year
2000 will not be material to the Company's results of operations or financial
position. To date, the Company has not experienced any Year 2000 related
problems.
Forward-Looking Statements
This Form 10-Q, 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. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
January 31, 2000.
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 9, 2000 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-31-2000
<PERIOD-START> Nov-01-1999
<PERIOD-END> Jan-31-2000
<EXCHANGE-RATE> 1
<CASH> 23,663,359
<SECURITIES> 18,351,097
<RECEIVABLES> 7,583,240
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,114,288
<PP&E> 3,247,311
<DEPRECIATION> 1,512,152
<TOTAL-ASSETS> 70,005,958
<CURRENT-LIABILITIES> 9,364,993
<BONDS> 0
0
0
<COMMON> 46,762
<OTHER-SE> 21,227,170
<TOTAL-LIABILITY-AND-EQUITY> 70,005,958
<SALES> 13,232,786
<TOTAL-REVENUES> 13,232,786
<CGS> 0
<TOTAL-COSTS> 6,828,741
<OTHER-EXPENSES> 6,399,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 653,328
<INCOME-TAX> 236,665
<INCOME-CONTINUING> 416,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416,663
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
