10-Q/A 1 t10qa401.txt APRIL 30, 2001 FORM 10-QA UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------- Form 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2001 [ ] 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 12, 2001, Registrant had issued and outstanding 4,141,249 shares of Common Stock. 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, 2001 and October 31, 2000 3 Consolidated Statements of Operations for the six and three month periods ended April 30, 2001 and 2000 4 Consolidated Statement of Stockholders' Equity and Comprehensive Income for the six month period ended April 30, 2001 5 Consolidated Statements of Cash Flows for the six month periods ended April 30, 2001 and 2000 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 ------------------------------------------------------------------------ THIS FORM 10-Q/A IS A REFILING OF THE FORM 10-Q FILED JUNE 11, 2001 TO CORRECT AN ERROR IN THE DATE ON THE BALANCE SHEET. ------------------------------------------------------------------------ INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April October 30, 31, 2001 2000 ----- ---- Unaudited ASSETS CURRENT ASSETS: Cash and cash equivalents $ 27,924,198 $ 17,432,848 United States Treasury Bills, at cost 2,668,419 3,994,290 Accounts receivable, net 7,265,441 6,949,052 Prepaid expenses 497,387 643,971 ---------- --------- Total current assets 38,355,445 29,020,161 MARKETABLE SECURITIES 27,695,789 34,927,698 RESTRICTED CASH 10,796,790 8,951,105 FURNITURE, FIXTURES AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $2,175,797 and $1,906,110, respectively 1,204,969 1,440,152 INTANGIBLE ASSETS, less accumulated amortization of $176,667 and $171,667, respectively 48,333 53,333 DEFERRED INCOME TAXES 4,118,551 3,732,001 NOTE FROM RELATED PARTY 20,000 45,000 OTHER ASSETS 1,642,795 1,615,478 --------- --------- $ 83,882,672 $ 79,784,928 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $4,540,021 $5,258,874 Accrued expenses 763,242 615,774 Accrued commissions 1,289,484 1,178,561 Reserve for claims 1,998,728 3,082,260 Other liabilities 822,062 374,698 ---------- ----------- Total current liabilities 9,413,537 10,510,167 DEFERRED CONTRACT REVENUE 50,701,509 45,993,786 CONTINGENCY PAYABLE 2,271,650 2,480,408 ---------- ---------- Total liabilities 62,386,696 58,984,361 ---------- ---------- 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; 4,698,449 shares issued and 4,141,249 and 4,254,749 shares outstanding, respectively 46,985 46,985 Additional paid-in-capital 11,226,786 11,226,786 Retained earnings 13,036,448 11,846,574 Accumulated other comprehensive income (loss) 116,393 (34,393) Less: Treasury stock, at cost (557,200 and 443,700 shares, respectively) (2,930,636) (2,285,385) ------------- ----------- Total stockholders' equity 21,495,976 20,800,567 ------------- ------------- $ 83,882,672 $ 79,784,928 The accompanying notes to financial statements are an integral part of these consolidated balance sheets. INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED

The accompanying notes to financial statements are an integral part of these consolidated statements. INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2001 AND 2000 UNAUDITED 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $1,189,874 $1,394,470 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 274,687 312,630 Deferred income taxes (386,550) (414,748) Increase in cash resulting from changes in operating assets and liabilities: Accounts receivable (316,389) (653,549) Prepaid expenses 146,584 (381,207) Restricted cash (1,845,685) (262,007) Other assets (27,317) (2,354,185) Accounts payable (718,853) 143,968 Accrued expenses 147,468 (638,676) Accrued commissions 110,923 (9,406) Reserve for claims (1,083,532) (222,396) Other liabilities 447,364 57,987 Deferred contract revenue 4,707,723 5,046,521 Contingency payable (208,758) 262,007 ---------- ---------- Net cash provided by operating activities of continuing operations 2,437,539 2,281,409 ---------- --------- Net cash used in operating activities of discontinued operations - (498,184) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net sales of United States Treasury Bills 1,325,871 4,010,336 Net sales (purchases) of marketable securities 7,382,695 (17,424,217) Purchase of furniture, fixtures, and equipment (34,504) (237,755) Note from related party 25,000 25,000 -------- -------- Net cash provided by (used in) investing activities 8,699,062 (13,626,636) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock (645,251) (227,751) Proceeds from exercise of stock options - 68,016 ---------- -------- Net cash used in financing activities (645,251) (159,735) --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQIVALENTS 10,491,350 (12,003,146) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 17,432,848 30,145,855 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $27,924,198 $18,142,709 =========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Income taxes $ 770,359 $ 1,235,551 ========== ========= The accompanying notes to financial statements are an integral part of these consolidated statements. 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, 2000. 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, 2001, and the consolidated results of operations and cash flows for the periods ended April 30, 2001 and 2000. 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, 2001 and 2000 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, 2001 Basic EPS Net income attributable to common shares $1,189,874 4,183,503 $.28 Effect of dilutive securities: stock options - 179,128 (.01) -------- --------- --- Diluted EPS Net income attributable to common shares and assumed option exercises $1,189,874 4,362,631 $.27 ======== ========= ==== 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 ======== ========= ===== Net Income Shares Per Share For the three months ended April 30, 2001 Basic EPS Net income attributable to common shares $870,359 4,171,283 $.21 Effect of dilutive securities: stock options - 146,163 (.01) -------- --------- --- Diluted EPS Net income attributable to common shares and assumed option exercises $870,359 4,317,446 $.20 ======== ========= ==== 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 ======== ========= ===== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations For the Six Months ended April 30, 2001 compared to the Six Months ended April 30, 2000 Revenues decreased by approximately $962,000, or 3%, to approximately $27,618,000 for the six months ended April 30, 2001 as compared to approximately $28,580,000 for the six months ended April 30, 2000. This decrease was primarily due to: (i) a decrease in administrative and insurance fees resulting from a decrease in the number of service contracts accepted for administration by the Company in fiscal 2001; partially offset by (ii) 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. Costs of services provided, which consist primarily of claims and cancellation costs, increased by approximately $401,000, or 3%, to approximately $15,226,000 for the six months ended April 30, 2001, as compared to approximately $14,825,000 for the six months ended April 30, 2000. As a percentage of revenues, cost of services provided increased to 55% for the six months ended April 30, 2001 as compared to 52% for the same period in 2000. 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 $1,363,000, or 10%, to approximately $12,392,000 for the six months ended April 30, 2001, as compared to approximately $13,755,000 for the six months ended April 30, 2000. This decrease is attributable to the decrease in revenues and the increase in costs of services provided as described above. Gross margin for the six months ended April 30, 2001 was 45% as compared to 48% for the six months ended April 30, 2000. Selling, general and administrative expenses decreased by approximately $201,000, or 2%, to approximately $12,640,000 for the six months ended April 30, 2001, down from approximately $12,841,000 for the six months ended April 30, 2000. This decrease was in large part due to: (i) decreased commissions paid as a result of decreased sales revenue; partially offset by (ii) increases in personnel, telephone and credit card processing costs. Selling, general and administrative expenses were 45.8% of revenues for the six months ended April 30, 2001 as compared to 45.0% for the six months ended April 30, 2000. Investment income increased by approximately $813,000, or 60%, to approximately $2,158,000 for the six months ended April 30, 2001, as compared to approximately $1,345,000 for the same period in 2000. The increase is primarily a result of investment income generated by funds provided by operating activities in the twelve months ended April 30, 2001 and a shift of investments from short term United States Treasury Bills to longer term government securities which provide a greater yield. Income from continuing operations before provision for income taxes decreased by approximately $349,000, or 15%, to approximately $1,910,000 for the six months ended April 30, 2001, as compared to approximately $2,259,000 for the same period in 2000. For the six months ended April 30, 2001, the Company recorded a provision for income taxes on continuing operations of approximately $720,000, as compared to a provision for income taxes on continuing operations of approximately $865,000 in the same period in 2000. Income from continuing operations was approximately $1,190,000 for the six months ended April 30, 2001, as compared to approximately $1,394,000 for the six months ended April 30, 2000. Loss from discontinued operations net of taxes was approximately $498,000 for the six months ended April 30, 2000. 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. Net income for the six months ended April 30, 2001 was approximately $1,190,000, as compared to approximately $896,000 for the same period in 2000. Diluted income per share from continuing operations for the six months ended April 30, 2001 decreased by $.01 to $.27 per share, as compared to $.28 per share for the same period in 2000. Diluted net income per share for the six months ended April 30, 2001 was $.27 as compared to diluted net income per share of $.18 for the same period in 2000. For the Three Months ended April 30, 2001 compared to the Three Months ended April 30, 2000 Revenues decreased by approximately $608,000, or 4%, to approximately $14,739,000 for the three months ended April 30, 2001 as compared to approximately $15,347,000 for the three months ended April 30, 2000. This decrease was primarily due to: (i) a decrease in administrative and insurance fees resulting from a decrease in the number of service contracts accepted for administration by the Company in fiscal 2001; partially offset by (ii) 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. Costs of services provided, which consist primarily of claims and cancellation costs, decreased by approximately $220,000, or 3%, to approximately $7,776,000 for the three months ended April 30, 2001, as compared to approximately $7,996,000 for the three months ended April 30, 2000. As a percentage of revenues, cost of services provided increased to 53% for the three months ended April 30, 2001 as compared to 52% for the same period in 2000. Gross margin decreased by approximately $388,000, or 5%, to approximately $6,963,000 for the three months ended April 30, 2001, as compared to approximately $7,351,000 for the three months ended April 30, 2000. This decrease is attributable to the decrease in revenues as described above. Gross margin for the three months ended April 30, 2001 was 47% as compared to 48% for the three months ended April 30, 2000. Selling, general and administrative expenses decreased by approximately $87,000, or 1%, to approximately $6,756,000 for the three months ended April 30, 2001, down from approximately $6,843,000 for the three months ended April 30, 2000. This decrease was in large part due to: (i) decreased commissions paid as a result of decreased sales revenue; partially offset by (ii) increases in personnel, telephone and credit card processing costs. Selling, general and administrative expenses were 45.8% of revenues for the three months ended April 30, 2001 as compared to 44.6% for the three months ended April 30, 2000. Investment income increased by approximately $515,000, or 74%, to approximately $1,211,000 for the three months ended April 30, 2001, as compared to approximately $696,000 for the same period in 2000. The increase is primarily a result of investment income generated by funds provided by operating activities in the twelve months ended April 30, 2001 and a shift of investments from short term United States Treasury Bills to longer term government securities which provide a greater yield. Income from continuing operations before provision for income taxes increased by approximately $215,000, or 18%, to approximately $1,419,000 for the three months ended April 30, 2001, as compared to approximately $1,204,000 for the same period in 2000. For the three months ended April 30, 2001, the Company recorded a provision for income taxes on continuing operations of approximately $549,000, as compared to a provision for income taxes on continuing operations of approximately $463,000 in the same period in 2000. Income from continuing operations was approximately $870,000 for the three months ended April 30, 2001, as compared to approximately $741,000 for the three months ended April 30, 2000. Loss from discontinued operations net of taxes was approximately $261,000 for the three months ended April 30, 2000. 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. Net income for the three months ended April 30, 2001 was approximately $870,000, as compared to approximately $480,000 for the same period in 2000. Diluted income per share from continuing operations for the three months ended April 30, 2001 increased by $.05 to $.20 per share, as compared to $.15 per share for the same period in 2000. Diluted net income per share for the three months ended April 30, 2001 was $.20 as compared to diluted net income per share of $.10 for the same period in 2000. 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 $58,288,000 at April 30, 2001, as compared to approximately $56,355,000 at October 31, 2000. The increase of approximately $1,933,000 was primarily the result of cash provided by the Company's operating activities partially offset by the purchase of 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, 2001, 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. 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, 2001 to elect two directors for a term expiring at the annual meeting of stockholders to be held in 2004. 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 4,017,789 shares were voted for the election of Cindy H. Luby as Director; votes were withheld for 57,046 shares. A total of 4,017,789 shares were voted for the election of William H. Brown as Director; votes were withheld for 57,046 shares. In addition to the nominees elected as director, the other directors whose terms of office continue after the meeting are Chester J. Luby, Donald Kirsch and Harvey Granat. Item 6. Exhibits and Reports on Form 8-K -------------------------------- There were no reports on Form 8-K filed during the three months ended April 30, 2001. 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 12, 2001 By: /s/ Zvi D. Sprung ------------ ------------------ Date Zvi D. Sprung Chief Financial Officer

INTERSTATE NATIONAL DEALER SERVICES INC 10-Q/A