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 April 30, 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 June 13, 2000, Registrant had issued and outstanding 4,648,684 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, 2000 and October 31, 1999 3
Consolidated Statements of Operations
for the six and three month periods ended
April 30, 2000 and 1999 4
Consolidated Statement of Stockholders'
Equity for the six month period ended
April 30, 2000 5
Consolidated Statements of Cash Flows for
the six month periods ended April 30,2000
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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
ASSETS 2000 1999
------ --------- ---------
Unaudited
CURRENT ASSETS:
Cash and cash equivalents $ 18,142,709 $ 30,145,855
United States Treasury Bills, at cost 11,286,432 15,296,768
Accounts receivable, net 7,611,003 6,957,454
Prepaid expenses 1,093,858 712,651
------------ -----------
Total current assets 38,134,002 53,112,728
MARKETABLE SECURITIES 22,535,176 5,184,074
RESTRICTED CASH 2,778,195 2,516,188
FURNITURE, FIXTURES AND EQUIPMENT, at cost,
less accumulated depreciation and
amortization of $1,660,809 and $1,371,083,
respectively 1,727,263 1,779,234
INTANGIBLE ASSETS, less accumulated
amortization of $166,667 and $161,667,
respectively 58,333 63,333
DEFERRED INCOME TAXES 3,234,045 2,819,297
NOTE FROM RELATED PARTY 45,000 70,000
OTHER ASSETS 5,452,514 3,116,233
----------- -----------
$73,964,528 $68,661,087
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,679,560 $ 5,535,592
Accrued expenses 362,789 1,001,465
Accrued commissions 1,198,334 1,207,740
Reserve for claims 2,019,567 2,241,963
Other liabilities 545,854 487,867
---------- ---------
Total current liabilities 9,806,104 10,474,627
DEFERRED CONTRACT REVENUE 39,792,378 34,745,857
CONTINGENCY PAYABLE 2,778,195 2,516,188
----------- ----------
Total liabilities 52,376,677 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; 4,694,184 and 4,671,284
shares issued, respectively and 4,648,684
and 4,671,284 shares outstanding, respectively 46,942 46,713
Additional paid-in capital 11,224,210 11,156,423
Retained earnings 10,675,448 9,779,162
Accumulated other comprehensive loss (130,998) (57,883)
Treasury stock, at cost (45,500 shares) (227,751) -
---------- ----------
Total stockholders' equity 21,587,851 20,924,415
---------- ------------
$73,964,528 $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
UNAUDITED
For the Six Months For the Three Months
Ended April 30, Ended April 30,
2000 1999 2000 1999
REVENUES $28,579,788 $25,284,013 $15,347,002 $13,749,522
OPERATING COSTS AND EXPENSES:
Costs of services provided 14,825,191 12,674,593 7,996,450 6,740,627
Selling, general and
administrative expenses 13,684,726 11,412,974 7,284,796 6,194,432
----------- ----------- ---------- ----------
Operating income 69,871 1,196,446 65,756 814,463
OTHER INCOME:
Interest income 1,345,387 812,722 696,174 407,001
---------- ---------- --------- --------
Income before provision for
income taxes 1,415,258 2,009,168 761,930 1,221,464
PROVISION FOR INCOME TAXES 518,972 768,460 282,307 472,197
--------- --------- --------- --------
Net income $ 896,286 $1,240,708 $ 479,623 $749,267
=========== ========= ========= ========
NET INCOME PER SHARE:
Basic $ .19 $ .27 $ .10 $ .16
====== ====== ====== ======
Weighted average shares
outstanding 4,677,805 4,659,051 4,683,601 4,665,070
========= ========= ========= =========
Diluted $ .18 $ .25 $ .10 $ .15
====== ====== ====== ======
Weighted average shares
outstanding 4,873,366 5,041,978 4,897,372 5,034,595
========= ========= ========= =========
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, 2000
UNAUDITED
Accum-
ulated
Other
Common Stock Additional Compre-
Number Paid-in Retained hensive Treasury
of Shares Amount Capital Earnings Loss Stock
BALANCE AT
OCTOBER 31, 1999 4,671,284 $46,713 $11,156,423 $9,779,162 $(57,883) $ -
Shares issued
pursuant to
exercise of
stock options 22,900 229 67,787 - - -
Purchase of
treasury stock - - - - - (227,751)
COMPREHENSIVE INCOME:
Net income for
the six months
ended April 30, 2000 - - - 896,286 - -
Other comprehensive loss:
Unrealized loss on
available for sale
securities - - - - (73,115) -
-------- ----- --------- --------- -------- -------
Total comprehensive income
for the six months ended
April 30, 2000 - - - 896,286 (73,115) -
-------- ----- --------- --------- -------- -------
BALANCE AT
APRIL 30, 2000 4,694,184 $46,942 $11,224,210$10,675,448 $(130,998)$(227,751)
========= ====== ========== ========= ========= =======
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, 2000 AND 1999
UNAUDITED
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 896,286 $1,240,708
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 312,630 240,511
Deferred income taxes (414,748) (255,892)
Changes in operating assets and liabilities:
Accounts receivable (653,549) 1,943,727
Prepaid expenses (381,207) (342,402)
Restricted cash (262,007) (347,430)
Other assets (2,354,185) (498,541)
Accounts payable 143,968 (82,982)
Accrued expenses (638,676) (220,236)
Accrued commissions (9,406) 250,209
Reserve for claims (222,396) (24,364)
Other liabilities 57,987 20,330
Deferred contract revenue 5,046,521 3,127,491
Contingency payable 262,007 347,430
---------- ----------
Net cash provided by operating activities 1,783,225 5,398,559
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales of United States Treasury Bills 4,010,336 3,158 993
Net purchases of marketable securities (17,424,217) (4,010,600)
Purchases of furniture, fixtures and equipment,
net (237,755) (177,555)
Note from related party 25,000 20,000
----------- ---------
Net cash used in investing activities (13,626,636) (1,009,162)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (227,751) -
Proceeds from exercise of employee stock options 68,016 51,128
--------- ----------
Net cash(used in) provided by financing
activities (159,735) 51,128
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (12,003,146) 4,440,525
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 30,145,855 20,885,903
------------ ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $18,142,709 $25,326,428
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $1,235,551 $1,208,522
=========== ==========
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
April 30, 2000, and the consolidated results of operations and cash flows for
the periods ended April 30, 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 six and three month periods
ended April 30, 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 six months ended April 30, 2000
Basic EPS
Net income attributable to common shares $ 896,286 4,677,805 $.19
Effect of dilutive securities: stock options - 195,561 (.01)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $ 896,286 4,873,366 $.18
======== ========= =====
For the six months ended April 30, 1999
Basic EPS
Net income attributable to common shares $1,240,708 4,659,051 $.27
Effect of dilutive securities: stock
options - 382,927 (.02)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $1,240,708 5,041,978 $.25
========== ========= =====
<PAGE>
Net Income Shares Per Share
For the three months ended April 30, 2000
Basic EPS
Net income attributable to common shares $479,623 4,683,601 $.10
Effect of dilutive securities: stock options - 213,771 (.00)
-------- --------- ---
Diluted EPS
Net income attributable to common shares
and assumed option exercises $479,623 4,897,372 $.10
======== ========= ====
For the three months ended April 30, 1999
Basic EPS
Net income attributable to common shares $749,267 4,665,070 $.16
Effect of dilutive securities: stock
options - 369,525 (.01)
-------- --------- -----
Diluted EPS
Net income attributable to common shares
and assumed option exercises $749,267 5,034,595 $.15
======== ========= =====
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
For the Six Months ended April 30, 2000 compared to the Six Months ended
April 30, 1999
Revenues increased approximately $3,296,000, or 13%, to approximately
$28,580,000 for the six months ended April 30, 2000 as compared to approximately
$25,284,000 for the six months ended April 30, 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 fees charged per contract.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $2,151,000, or 17%, to
approximately $14,825,000 for the six months ended April 30, 2000, as compared
to approximately $12,674,000 for the six months ended April 30, 1999. As a
percentage of revenues, cost of services provided increased to 52% for the six
months ended April 30, 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 $1,145,000, or 9%, to approximately
$13,755,000 for the six months ended April 30, 2000, as compared to
approximately $12,610,000 for the six months ended April 30, 1999. This increase
is primarily attributable to the increase in revenues as described above. Gross
margin for the six months ended April 30, 2000 was 48% as compared to 50% for
the six months ended April 30, 1999. This decrease is primarily attributable to
an increase in the relative percentage of revenue represented by deferred
contract revenue, which has a low gross margin, as compared to administrative
fees which have a higher gross margin.
Selling, general and administrative expenses increased by approximately
$2,272,000, or 20%, to approximately $13,685,000 for the six months ended April
30, 2000, up from approximately $11,413,000 for the six months ended April 30,
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. Uautobid.com expenses
of approximately $917,000 were incurred in the six months ended April 30, 2000
as the Company continued to develop and position its web site. Selling, general
and administrative expenses were 48% of revenues for the six months ended April
30, 2000 as compared to 45% for the six months ended April 30, 1999.
Interest income increased by approximately $532,000, or 65%, to
approximately $1,345,000 for the six months ended April 30, 2000, as compared to
approximately $813,000 for the same period in 1999. The increase is primarily a
result of an increase in investment income generated by funds provided by
operating activities in the twelve months ended April 30, 2000.
Income before provision for income taxes increased by approximately
$323,000, or 16%, to approximately $2,332,000 for the six months ended April 30,
2000, as compared to approximately $2,009,000 for the same period in 1999,
exclusive of the Uautobid.com expenses. For the six months ended April 30, 2000,
the Company had income before provision for income taxes of approximately
$1,415,000 and recorded a provision for income taxes of approximately $519,000,
as compared to income before provision for income taxes of approximately
$2,009,000 and a provision for income taxes of approximately $768,000 in the
same period in 1999. Net income decreased approximately $345,000, or 28%, to
approximately $896,000 for the six months ended April 30, 2000 as compared to
approximately $1,241,000 for the six months ended April 30, 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 six months ended April 30, 2000 was
$.18 per share as compared to diluted net income per share of $.25 for the same
period in 1999. Excluding the Uautobid.com expenses, diluted net income per
share for the six months ended April 30, 2000 was $.29 per share, or $.04 per
share greater than diluted net income per share for the six months ended April
30, 1999.
For the Three Months ended April 30, 2000 compared to the Three Months ended
April 30, 1999
Revenues increased approximately $1,597,000, or 12%, to approximately
$15,347,000 for the three months ended April 30, 2000 as compared to
approximately $13,750,000 for the three months ended April 30, 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 fees charged per contract.
Costs of services provided, which consist primarily of claims and
cancellation costs, increased by approximately $1,255,000, or 19%, to
approximately $7,996,000 for the three months ended April 30, 2000, as compared
to approximately $6,741,000 for the three months ended April 30, 1999. As a
percentage of revenues, cost of services provided increased to 52% for the three
months ended April 30, 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 increased by approximately $342,000, or 5%, to approximately
$7,351,000 for the three months ended April 30, 2000, as compared to
approximately $7,009,000 for the three months ended April 30, 1999. This
increase is primarily attributable to the increase in revenues as described
above. Gross margin for the three months ended April 30, 2000 was 48% as
compared to 51% for the three months ended April 30, 1999. This decrease is
primarily attributable to an increase in the relative percentage of revenue
represented by deferred contract revenue, which has a low gross margin, as
compared to administrative fees which have a higher gross margin.
Selling, general and administrative expenses increased by approximately
$1,091,000, or 18%, to approximately $7,285,000 for the three months ended April
30, 2000, up from approximately $6,194,000 for the three months ended April 30,
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 and increased
professional fees. Uautobid.com expenses of approximately $480,000 were incurred
in the three months ended April 30, 2000 as the Company continued to develop and
position its web site. Selling, general and administrative expenses were 47% of
revenues for the three months ended April 30, 2000 as compared to 45% for the
three months ended April 30, 1999.
Interest income increased by approximately $289,000, or 71%, to
approximately $696,000 for the three months ended April 30, 2000, as compared to
approximately $407,000 for the same period in 1999. The increase is primarily a
result of an increase in investment income generated by funds provided by
operating activities in the twelve months ended April 30, 2000.
Income before provision for income taxes increased by approximately $21,000,
or 2%, to approximately $1,242,000 for the three months ended April 30, 2000, as
compared to approximately $1,221,000 for the same period in 1999, exclusive of
the Uautobid.com expenses. For the three months ended April 30, 2000, the
Company had income before provision for income taxes of approximately $762,000
and recorded a provision for income taxes of approximately $282,000, as compared
to income before provision for income taxes of approximately $1,221,000 and a
provision for income taxes of approximately $472,000 in the same period in 1999.
Net income decreased approximately $270,000, or 36%, to approximately $480,000
for the three months ended April 30, 2000 as compared to approximately $749,000
for the three months ended April 30, 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 April 30, 2000 was
$.10 per share as compared to diluted net income per share of $.15 for the same
period in 1999. Excluding the Uautobid.com expenses, diluted net income per
share for the three months ended April 30, 2000 was $.15 per share, the same as
diluted net income per share for the three months ended April 30, 1999.
Liquidity and Capital Resources
Cash and cash equivalents, United States Treasury Bills, at cost, and
marketable securities were approximately $51,964,000 at April 30, 2000, as
compared to approximately $50,627,000 at October 31, 1999. The increase of
approximately $1,337,000 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.
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 April 30, 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.
<PAGE>
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.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders was held on April 12, 2000 to elect two
directors for a term expiring at the annual meeting of stockholders to be held
in 2003. 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.
A total of 4,471,469 shares were voted for the election of Chester J. Luby
as Director; votes were withheld for 62,546 shares. A total of 4,474,330 shares
were voted for the election of Donald Kirsch as Director; votes were withheld
for 59,685 shares. 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 Harvey Granat.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Form 8-K reporting certain information under Item 5
on February 28, 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.
June 13, 2000 By: /s/ Zvi D. Sprung
------------- -----------------
Date Zvi D. Sprung
Chief Financial Officer
