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 July 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 September 13, 2000, Registrant had issued and outstanding 4,369,184 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
July 31, 2000 and October 31, 1999 3
Consolidated Statements of Operations
for the nine and three month periods ended
July 31, 2000 and 1999 4
Consolidated Statement of Stockholders'
Equity for the nine month period ended
July 31, 2000 5
Consolidated Statements of Cash Flows for
the nine month periods ended July 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 11
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, October 31,
ASSETS 2000 1999
------ --------- ---------
Unaudited
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,364,195 $ 30,145,855
United States Treasury Bills, at cost 1,694,873 15,296,768
Accounts receivable, net 7,248,341 6,957,454
Prepaid expenses 906,114 712,651
------------ -----------
Total current assets 27,213,523 53,112,728
MARKETABLE SECURITIES 36,385,531 5,184,074
RESTRICTED CASH 7,789,815 4,428,098
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,765,727 and $1,371,083,
respectively 1,442,680 1,779,234
INTANGIBLE ASSETS, less accumulated
amortization of $169,167 and $161,667,
respectively 55,833 63,333
DEFERRED INCOME TAXES 3,524,228 2,819,297
NOTE FROM RELATED PARTY 45,000 70,000
OTHER ASSETS 1,601,377 1,204,323
----------- -----------
$78,057,987 $68,661,087
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,509,653 $ 5,535,592
Accrued expenses 563,132 1,001,465
Accrued commissions 1,461,628 1,207,740
Reserve for claims 3,122,033 2,241,963
Other liabilities 454,324 487,867
---------- ---------
Total current liabilities 11,110,770 10,474,627
DEFERRED CONTRACT REVENUE 43,433,075 34,745,857
CONTINGENCY PAYABLE 2,602,814 2,516,188
----------- ----------
Total liabilities 57,146,659 47,736,672
----------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000
shares authorized; no issued shares - -
Common stock, $.01 par value; 10,000,000
shares authorized; 4,694,384 and 4,671,284
shares issued, respectively and 4,369,184
and 4,671,284 shares outstanding, respectively 46,944 46,713
Additional paid-in capital 11,224,470 11,156,423
Retained earnings 11,207,934 9,779,162
Accumulated other comprehensive income (loss) 50,684 (57,883)
Treasury stock, at cost (325,200 shares) (1,618,704) -
---------- ----------
Total stockholders' equity 20,911,328 20,924,415
---------- ------------
$78,057,987 $68,661,087
=========== ===========
</TABLE>
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
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended July 31, Ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
REVENUES $45,405,405 $40,627,555 $16,825,617 $15,343,542
OPERATING COSTS AND EXPENSES:
Costs of services provided 24,145,683 20,240,296 9,320,492 7,565,703
Selling, general and
administrative expenses 19,865,625 18,051,178 7,024,564 6,638,204
----------- ---------- ---------- ----------
Operating income 1,394,097 2,336,081 480,561 1,139,635
OTHER INCOME:
Interest income 2,208,576 1,299,502 863,189 486,780
---------- --------- --------- ----------
Income from continuing
operations before provision
for income taxes 3,602,673 3,635,583 1,343,750 1,626,415
PROVISION FOR INCOME TAXES 1,370,655 1,403,811 506,202 635,351
--------- --------- --------- ---------
Income from continuing
operations 2,232,018 2,231,772 837,548 991,064
DISCONTINUED OPERATIONS (Net
of taxes):
Loss from discontinued
operations (642,966) - (144,782) -
Loss from abandonment (160,280) - (160,280) -
-------- ---------- -------- -------
Total loss from discontinued
operations (803,246) - (305,062) -
-------- ---------- -------- -------
Net income $1,428,772 $2,231,772 $ 532,486 $991,064
========== ========== ========= ========
NET INCOME PER SHARE - BASIC:
Continuing operations $ .48 $ .48 $ .19 $ .21
Discontinued operations $(.17) $ - $(.07) $ -
------ ----- ------ -----
Total $ .31 $ .48 $ .12 $ .21
===== ===== ===== ======
Weighted average shares
outstanding 4,604,280 4,662,500 4,458,829 4,669,284
========= ========= ========= =========
NET INCOME PER SHARE - DILUTED:
Continuing operations $ .47 $ .45 $ .18 $ .20
Discontinued operations $(.17) $ - $(.07) $ -
------ ----- ------ -----
Total $ .30 $ .45 $ .11 $ .20
===== ===== ===== ======
Weighted average shares
outstanding 4,705,301 5,010,795 4,610,770 4,948,318
========= ========= ========= =========
</TABLE>
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, 2000
UNAUDITED
<TABLE>
<CAPTION>
Accum-
ulated
Other
Compre-
Common Stock Additional hensive
Number Paid-in Retained Income Treasury
of Shares Amount Capital Earnings (Loss) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
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 23,100 231 68,047 - - - 68,278
Purchase of
treasury stock - - - - - (1,618,704) (1,618,704)
COMPREHENSIVE INCOME:
Net income for
the nine months
ended July 31, 2000 - - - 1,428,772 - - 1,428,772
Other comprehensive income:
Unrealized gain on
available for sale
securities - - - - 108,567 - 108,567
-------- ----- --------- --------- -------- ------- --------
Total comprehensive income
for the nine months ended
July 31, 2000 - - - 1,428,772 108,567 - 1,537,339
-------- ----- --------- --------- -------- ------- --------
BALANCE AT
JULY 31, 2000 4,694,384 $46,944 $11,224,470 $11,207,934 $ 50,684 $(1,618,704) $20,911,328
========= ====== ========== ========= ======== ========= ===========
</TABLE>
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, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 2,232,018 $2,231,772
Adjustments to reconcile net income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 428,951 370,748
Deferred income taxes (704,931) (473,503)
Changes in operating assets
and liabilities:
Accounts receivable (290,887) 1,563,074
Prepaid expenses (193,463) (140,250)
Restricted cash (3,361,717) (1,199,934)
Other assets (423,861) (155,717)
Accounts payable (25,939) 22,565
Accrued expenses (438,333) 1,245,026
Accrued commissions 253,888 181,151
Reserve for claims 880,070 405,139
Other liabilities (33,543) 65,780
Deferred contract revenue 8,687,218 5,803,416
Contingency payable 86,626 438,896
---------- ----------
Net cash provided by operating activities
of continuing operations 7,096,097 10,358,163
----------- ---------
Net cash used in operating activities
of discontinued operations (578,821) -
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of United States Treasury Bills 13,601,895 2,353,197
Purchases of marketable securities (31,092,890) (5,179,716)
Purchases of furniture, fixtures and equipment,
net (282,515) (376,851)
Note from related party 25,000 20,000
----------- ---------
Net cash used in investing activities (17,748,510) (3,183,370)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,618,704) -
Proceeds from exercise of employee stock options 68,278 51,128
--------- ----------
Net cash (used in) provided by financing
activities (1,550,426) 51,128
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (12,781,660) 7,225,921
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,145,855 20,885,903
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $17,364,195 $28,111,824
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $1,675,618 $1,784,856
=========== ===========
</TABLE>
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-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
July 31, 2000, and the consolidated results of operations and cash flows for the
periods ended July 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 nine and three month periods
ended July 31, 2000 and 1999 are not necessarily indicative of the results to be
expected for the full year.
4. In July 2000, after an extensive review and evaluation, the Company decided
to abandon the operations of its Uautobid.com subsidiary. The Company determined
that further investment in this operation was not prudent due to the higher
level of risk associated with the rapidly changing and increasingly competitive
internet car buying market.
5. Certain prior year balances have been reclassified to conform with the
current year presentation.
6. The Company reports earnings per share in accordance with 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 nine months ended July 31, 2000
Basic EPS
Net income attributable to common shares $1,428,772 4,604,280 $.31
Effect of dilutive securities: stock options - 101,021 (.01)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $1,428,772 4,705,301 $.30
======== ========= =====
For the nine months ended July 31, 1999
Basic EPS
Net income attributable to common shares $2,231,772 4,662,500 $.48
Effect of dilutive securities: stock options - 348,295 (.03)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $2,231,772 5,010,795 $.45
======== ========= =====
<PAGE>
Net Income Shares Per Share
For the three months ended July 31, 2000
Basic EPS
Net income attributable to common shares $532,486 4,458,829 $.12
Effect of dilutive securities: stock options - 151,941 (.01)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $532,486 4,610,770 $.11
======== ========= ====
For the three months ended July 31, 1999
Basic EPS
Net income attributable to common shares $991,064 4,669,284 $.21
Effect of dilutive securities: stock options - 279,034 (.01)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $991,064 4,948,318 $.20
======== ========= =====
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the Nine Months ended July 31, 2000 compared to the Nine Months ended
July 31, 1999
Revenues increased approximately $4,778,000, or 12%, to approximately
$45,405,000 for the nine months ended July 31, 2000 as compared to approximately
$40,627,000 for the nine months ended July 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 fees resulting from an
increase in the fees charged per contract.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $3,906,000, or 19%, to
approximately $24,146,000 for the nine months ended July 31, 2000, as compared
to approximately $20,240,000 for the nine months ended July 31, 1999. As a
percentage of revenues, cost of services provided increased to 53% for the nine
months ended July 31, 2000 as compared to 50% 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 $872,000, or 4%, to approximately
$21,259,000 for the nine months ended July 31, 2000, as compared to
approximately $20,387,000 for the nine months ended July 31, 1999. This increase
is primarily attributable to the increase in revenues as described above. Gross
margin for the nine months ended July 31, 2000 was 47% as compared to 50% for
the nine months ended July 31, 1999. This decrease is primarily attributable to
an increase in claims expense.
Selling, general and administrative expenses increased by approximately
$1,815,000, or 10%, to approximately $19,866,000 for the nine months ended July
31, 2000, up from approximately $18,051,000 for the nine months ended July 31,
1999. This increase was in large part due to: (i) increased commissions paid as
a result of increased sales revenue; and (ii) increased personnel costs.
Selling, general and administrative expenses were 44% of revenues for both nine
month periods ended July 31, 2000 and July 31, 1999.
Interest income increased by approximately $909,000, or 70%, to
approximately $2,208,000 for the nine months ended July 31, 2000, as compared to
approximately $1,299,000 for the same period in 1999. The increase is primarily
a result of investment income generated by funds provided by operating
activities in the twelve months ended July 31, 2000 and a shift of investments
from short term United States Treasury Bills to longer term securities which
provide a greater yield.
Income from continuing operations before provision for income taxes
decreased by approximately $33,000, or 1%, to approximately $3,603,000 for the
nine months ended July 31, 2000, as compared to approximately $3,636,000 for the
same period in 1999. For the nine months ended July 31, 2000, the Company
recorded a provision for income taxes on continuing operations of approximately
$1,371,000, as compared to a provision for income taxes on continuing operations
of approximately $1,404,000 in the same period in 1999. Income from continuing
operations was approximately $2,232,000 for both the nine months ended July 31,
2000 and July 31, 1999.
Loss from discontinued operations net of taxes was approximately $803,000
for the nine months ended July 31, 2000. There were no losses from discontinued
operations during the same period in 1999. The loss from discontinued operations
resulted from costs incurred by the Company's subsidiary, Uautobid.com, to
develop and finance its car buying web site. In July 2000, after an extensive
review and evaluation, the Company decided to abandon the operations of its
Uautobid.com subsidiary. The Company determined that further investment in this
operation was not prudent due to the higher level of risk associated with the
rapidly changing and increasingly competitive internet car buying market.
Diluted income per share from continuing operations for the nine months
ended July 31, 2000 increased by $.02 to $.47 per share, as compared to $.45 per
share for the same period in 1999. Diluted net income per share for the nine
months ended July 31, 2000 was $.30 as compared to diluted net income per share
of $.45 for the same period in 1999.
For the Three Months ended July 31, 2000 compared to the Three Months ended
July 31, 1999
Revenues increased approximately $1,482,000, or 10%, to approximately
$16,826,000 for the three months ended July 31, 2000 as compared to
approximately $15,344,000 for the three months ended July 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
fees resulting from an increase in the fees charged per contract.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $1,754,000, or 23%, to
approximately $9,320,000 for the three months ended July 31, 2000, as compared
to approximately $7,566,000 for the three months ended July 31, 1999. As a
percentage of revenues, cost of services provided increased to 55% for the three
months ended July 31, 2000 as compared to 49% 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 decreased by approximately $272,000, or 3%, to approximately
$7,506,000 for the three months ended July 31, 2000, as compared to
approximately $7,778,000 for the three months ended July 31, 1999. Gross margin
for the three months ended July 31, 2000 was 45% as compared to 51% for the
three months ended July 31, 1999. This decrease is primarily attributable to an
increase in claims expense.
Selling, general and administrative expenses increased by approximately
$386,000, or 6%, to approximately $7,024,000 for the three months ended July 31,
2000, up from approximately $6,638,000 for the three months ended July 31, 1999.
This increase was in large part due to: (i) increased commissions paid as a
result of increased sales revenue; (ii) increased printing costs required for
new and revised programs; and (iii) increased professional fees. Selling,
general and administrative expenses were 42% of revenues for the three months
ended July 31, 2000 as compared to 43% for the three months ended July 31, 1999.
Interest income increased by approximately $376,000, or 77%, to
approximately $863,000 for the three months ended July 31, 2000, as compared to
approximately $487,000 for the same period in 1999. The increase is primarily a
result of investment income generated by funds provided by operating activities
in the twelve months ended July 31, 2000 and a shift of investments from short
term United States Treasury Bills to longer term securities which provide a
greater yield.
Income from continuing operations before provision for income taxes
decreased by approximately $282,000, or 17%, to approximately $1,344,000 for the
three months ended July 31, 2000, as compared to approximately $1,626,000 for
the same period in 1999. For the three months ended July 31, 2000, the Company
recorded a provision for income taxes on continuing operations of approximately
$506,000, as compared to a provision for income taxes on continuing operations
of approximately $635,000 for the same period in 1999. Income from continuing
operations was approximately $838,000 for the three months ended July 31, 2000
as compared to approximately $991,000 for the three months ended July 31, 1999.
Loss from discontinued operations net of taxes was approximately $305,000
for the three months ended July 31, 2000. There were no losses from discontinued
operations during the same period in 1999. The loss from discontinued operations
resulted from costs incurred by the Company's subsidiary, Uautobid.com, to
develop and finance its car buying web site. In July 2000, after an extensive
review and evaluation, the Company decided to abandon the operations of its
Uautobid.com subsidiary. The Company determined that further investment in this
operation was not prudent due to the higher level of risk associated with the
rapidly changing and increasingly competitive internet car buying market.
Diluted income per share from continuing operations for the three months
ended July 31, 2000 decreased by $.02 to $.18 per share, as compared to $.20 per
share for the same period in 1999. Diluted net income per share for the three
months ended July 31, 2000 was $.11 as compared to diluted net income per share
of $.20 for the same period in 1999.
Liquidity and Capital Resources
Cash and cash equivalents, United States Treasury Bills, at cost, and
marketable securities, which have maturities ranging between two to six years,
were approximately $55,445,000 at July 31, 2000, as compared to approximately
$50,627,000 at October 31, 1999. The increase of approximately $4,818,000 was
primarily the result of cash provided by the Company's operating activities
partially offset by cash used for the purchase of furniture, fixtures and
equipment and cash used to purchase treasury stock. As of September 8, 2000 the
Company had purchased 391,200 shares of treasury stock at an average price of
$5.06 per share.
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 July 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.
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 July 31,
2000.
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 13, 2000 By: /s/ Zvi D. Sprung
------------------ -----------------------------------------
Date Zvi D. Sprung
Chief Financial Officer
