SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

              [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the fiscal year October 31, 1999

                                       OR

            [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

          For the transition period from _________ to______________

                           Commission file no.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, New York                                        11553
 (Address of principal executive offices)                      (Zip Code)

                                (516) 228-8600
             (Registrant's telephone number, including area code)


      Securities registered under Section 12 (b) of the Exchange Act:
                                                   Name of Each Exchange
       Title of Each Class                          on Which Registered

Common Stock, par value $.01 per share                NASDAQ
Common Stock Purchase Rights                          NASDAQ

      Securities registered under Section 12 (g) of the Exchange Act: None

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  preceding 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

Indicate by check mark if disclosure of  delinquent  filers  pursuant to item
405 of Regulation S-K is not contained  herein and will not be contained,  to
the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant, based upon the closing sale price of the Common Stock on January 13,
2000 as reported on the NASDAQ National  Market  ("NASDAQ"),  was  approximately
$21,583,000.

As of January 13, 2000,  Registrant had issued and outstanding  4,674,684 shares
of Common Stock.



<PAGE>


                                     PART I

Item 1.  Business

Forward Looking Statements

    The statements contained in this annual report that are not historical facts
are  "forward-looking  statements."  The Company cautions readers of this annual
report  that a number of  important  factors  could cause the  Company's  actual
future  results  to  differ   materially   from  those  expressed  in  any  such
forward-looking  statements.  These  important  factors,  and other factors that
could affect the Company,  are described in the Company's Current Report on Form
8-K filed with the  Securities  and  Exchange  Commission  on December 23, 1996.
Readers of this annual report are referred to such filing.

General

    Interstate  National Dealer Services,  Inc. (the "Company") was incorporated
in Delaware in 1991 and commenced  operations in November 1991 with the purchase
of certain assets and the assumption of certain liabilities of INDS Group, Inc.,
a  California  corporation  which  commenced  operations  in 1981 under the name
Interstate   National  Dealer  Services  Group,  Inc.  The  Company's  principal
executive  offices are located at 333 Earle Ovington Blvd.,  Mitchel Field,  New
York 11553, and its telephone number is (516) 228-8600.

    The  Company  designs,   markets  and  administers   service  contracts  and
warranties for new and used motor vehicles and  recreational  vehicles and, to a
lesser extent,  watercraft,  motorcycles and other vehicles.  A service contract
may be sold by any of the following entities:  (1) either the seller originating
the sale of the vehicle, (2) the financial institution financing the sale of the
vehicle, or (3) other entities,  including the Company,  which sell the contract
to the owner of the  vehicle  after the vehicle  has been  purchased.  A vehicle
service contract is an agreement  between either the seller or the administrator
of the service contract and the vehicle  purchaser under which the seller or the
administrator agrees to replace or repair for a specific term designated vehicle
parts  in  the  event  of a  mechanical  breakdown.  Vehicle  service  contracts
supplement,  or are in lieu of, manufacturers'  warranties and provide a variety
of extended coverage options (typically ranging from three months to seven years
and/or 3,000 miles to 150,000 miles).

    Each seller pays a net rate for each service  contract or warranty it sells.
This payment includes (i) an  administrative  fee for the Company from which the
Company pays any commission due the agent, (ii) insurance  premiums and fees for
the  insurance  underwriter,  and  (iii)  a claim  reserve  to be  placed  in an
interest-bearing loss reserve account maintained for the benefit of the contract
purchaser. The net rate for service contracts ranges from $75 to over $3,000 per
contract with a typical  average net rate per contract of $700 for a new or used
car,  $650 for a new  recreational  vehicle  and  $850  for a used  recreational
vehicle.  In most cases,  each seller is free to determine the price at which it
will sell the service contract to the purchaser. The amount a seller charges for
the  service  contract  in excess of the net rate is  additional  income to such
seller. The administrative fee for the Company ranges from $30 to $300 (prior to
the payment to the agent of any commission  which  generally  ranges from $10 to
$150) per contract,  which fee varies based on the type of service contract sold
by a seller.

    In April 1995, the Company formed an affiliated insurance company,  National
Service Contract Insurance Company Risk Retention Group, Inc. ("NSC"). Insurance
policies  arranged  by the  Company  are  underwritten  by a  subsidiary  of The
Travelers Indemnity Company  ("Travelers") and NSC. In January 1998, the Company
entered into an agreement  with a subsidiary  of Orion  Capital to  underwrite a
portion of the insurance policies arranged by the Company.

    The various vehicle  service  contract  programs  offered by the Company are
designed to provide sellers with an additional  source of revenue.  For example,
certain of the Company's  programs  provide that sellers and other  participants
who reach  certain  sales  volumes  receive  additional  revenues if, and to the
extent, claims paid on their service contracts are less than the claims reserves
maintained for such contracts. Under certain circumstances, the Company may also
be entitled to unconsumed  claim reserves,  including  reserves  attributable to
sellers who have not achieved specified sales volumes of service contracts.

    Initially,  the Company's  business  focused on extended  warranties for new
automobiles and, to a lesser extent, used cars. In the past five years, however,
a higher percentage of sales are from warranties for used cars. In addition, the
Company has expanded into other  markets and has realized an increasing  portion
of revenues from its recreational vehicle programs.
<PAGE>


     In February 1999, the Company formed a subsidiary,  Uautobid.com, which has
developed  an  internet  web site  where a car buyer can  purchase a new or used
vehicle online  directly from a  participating  dealer.  Uautobid.com  permits a
prospective  buyer to review a broad selection of in-stock  vehicles,  search by
price,  make,  model and location and other search criteria and choose the price
he wants to bid for the vehicle.  If the bid meets or exceeds the dealer minimum
the  consumer is assured of owning that  vehicle at his own price.  Each vehicle
will come with a comprehensive  warranty supplied by the Company.  As at October
31, 1999, Uautobid.com had not generated significant revenues.


    To date, the operations of  Uautobid.com  have been financed by the Company.
The Company is currently  seeking outside  funding for the subsidiary  through a
private placement or negotiated transaction.

Marketing

    The  Company  markets  its  services  and  products,  using its  network  of
independent  representatives,  primarily  to dealers  and,  to a lesser  extent,
leasing companies,  finance companies and other service contract marketers.  The
Company  promotes its services and products to the  independent  representatives
and, to some  extent,  to dealers  primarily  through the  participation  of the
Company at trade shows and  advertising in trade  publications.  The Company has
also obtained  independent  representatives and dealers through  recommendations
and referrals from existing independent  representatives and dealers and others,
some of  which  receive  a  commission  from  the  Company  upon the sale of its
services and products. To assure a high level of competence and awareness of its
current  administrative  services and products, the Company provides initial and
on-going training for its independent representatives and dealers.

    The dealers  participating in the Company's programs sell motor vehicles and
recreational  vehicles  manufactured  by all of the  major  manufacturers  whose
products are sold in North America.  Most of the Company's dealers sell products
from more than one  manufacturer.  Accordingly,  the Company  does not focus its
sales and  marketing  efforts on any one  vehicle  manufacturer  or on any small
group of manufacturers.

    The  Company  enters  into  an  agreement  with  each  of  its   independent
representatives  which generally is terminable at any time by the Company or the
representative  upon  giving  of  30  days  written  notice  or by  the  Company
immediately  for cause.  The agreement  provides that,  among other things,  the
independent  representative  solicit sellers, on a non-exclusive  basis, for the
Company within  designated  territories  which may include one or more states or
portions  thereof.  Most independent  representatives  are compensated on a flat
rate  commission  basis.  Independent  representatives  may  sell  products  and
services of other companies,  including  competitors of the Company, and have no
obligation to sell the products and services offered by the Company.

    In order to sell service contracts to vehicle owners who had not purchased a
service contract at the time of their vehicle  purchase,  the Company also makes
sales through its own and third party call center facilities and through its own
and third party internet  sites.  To facilitate  such direct sales,  the Company
offers a service  contract  financing  program.  Under the  Company's  financing
program,  a purchaser of a service  contract is given the option to pay for such
contract  on a monthly  basis  over a period of time,  without  interest.  As of
October 31, 1999, the Company's  receivables from its financing  program totaled
approximately $5,626,000.  The Company believes its exposure from these financed
contracts is limited because the service contract is terminated if the purchaser
fails to make his monthly payments to the Company.

Competition

    The business of marketing  administrative services and related products, and
specifically  services  related to motor vehicle  service  contracts,  is highly
competitive  and  dominated  by the  major  automotive  manufacturers  and other
independent  third-party  administrators.  The  Company is unable to predict the
extent to which automobile manufacturers (by, for example,  extending the period
covered  under  vehicle  warranties)  may  reduce a  dealer's  ability to market
extended vehicle service contracts such as those administered by the Company.

    Although management of the Company believes that it is competitive with most
third-party administrators,  the Company's position in the overall market is not
significant.  In addition,  many of the Company's competitors have significantly
better financial resources and operating resources than those of the Company. In
order to be  competitive  in the  marketplace,  the Company  provides  insurance
coverage at competitive prices, offers a range of products and services believed
not to be available from most of its competitors and supports sales with service
to its dealers and the vehicle purchaser. The Company maintains a toll-free line
to facilitate customer service.


<PAGE>


Seasonality

    A sale of a service  contract by the Company is  dependent  upon the sale of
the  primary  product  (such  as  motor  vehicles,   recreational  vehicles  and
watercraft) covered by the service contract. As a result, the Company's revenues
are  reduced in the  winter  months  when sales of new and used motor  vehicles,
recreational  vehicles and  watercraft are lower in some regions than during the
other months of the year.

Government Regulation

    The service contract programs  developed and marketed by the Company and its
related  operations are regulated by the statutes and regulations of a number of
states.  Generally,  some states require registration of administrators and some
state statutes concern the scope of service contract coverage and the content of
the service contract or warranty document. In the latter instances,  these state
statutes typically require that specific  provisions be included in the contract
expressly  stating  the  purchaser's  rights  in the  event of a claim,  how the
service contract or warranty may be canceled and identification of the insurance
underwriter   indemnifying  the  sellers  or  administrators  against  loss  for
performance under the terms of the contracts. The Company believes that it is in
compliance in all material  respects with the applicable  regulations  governing
vehicle  service  contracts  and  warranties  in the  states  in  which  it does
business,  and in some  cases  relies on its  insurance  underwriters  and their
managing  agents to monitor such  regulations  and respond to any inquiries from
state authorities.

    The  issuance  of  insurance  policies  in respect of service  contracts  is
regulated  under the  insurance  laws and  regulations  of the  various  states.
Although  the  Company  believes  that  its  activities  as a  service  contract
administrator  are not directly  proscribed by such  regulations,  the Company's
ability  to  perform  its  activities  as a service  contract  administrator  is
effected by such  regulations.  The Company does not believe that as a result of
performing such activities it can be  characterized  as an insurance  company or
insurance  agent  under any state  insurance  statute  in the states in which it
currently operates. In the event that any state insurance regulators require the
Company to comply with insurance  statutes or regulations or become an insurance
agent,  the Company  will  evaluate  the cost of such  compliance  to  determine
whether the Company  will  conduct  business in the state.  NSC,  the  Company's
insurance  affiliate,  is  regulated  by federal  statutes  and must comply with
certain state  registration  requirements.  The Company  believes that NSC is in
compliance in all material  respects with the insurance laws and  regulations in
the states in which NSC does business.

    It is possible  that some states in which the Company now conducts  business
may effect  changes in the current laws which may regulate the activities of the
Company,  including the imposition of new financial or other requirements on the
Company.  In  such  event,  the  Company  would  have  to  meet  the  regulatory
requirements or cease to conduct business in such state or states.

    The Company  does  business in 47 states and believes it has complied in all
material  respects with  applicable  regulations in all such states.  Of such 47
states,  the  Company is able to sell only  certain  products  and  services  in
Connecticut,  Wisconsin and Washington because of certain insurance  regulations
in these states.

Employees

    As of December  31, 1999,  the Company had 134  full-time  employees  and 24
part-time  employees.  None of the Company  employees is  represented by a labor
union, and the Company considers its relations with its employees to be good.



<PAGE>


Item 2.  Properties

    The Company currently  occupies  approximately  26,500 square feet of office
space at 333 Earle Ovington Blvd., Mitchel Field, New York 11553. Of such space,
13,000  square feet are occupied  pursuant to a ten-year  lease which  commenced
March 1, 1995,  at an initial  annual rent of  approximately  $300,000,  and the
remaining 13,500 square feet are occupied  pursuant to a six-year sublease which
commenced  October 1996 and was amended in November  1997, at an amended  annual
rent  of  approximately  $237,000.  (See  Note 8 to the  Notes  to  Consolidated
Financial Statements for future lease payments under this lease and sublease.)

Item 3.  Legal Proceedings

    There are no material legal  proceedings  pending  against the Company other
than ordinary routine litigation  incidental to the ordinary course of business,
and the Company is not aware of any  threatened  material  legal  proceedings to
which the Company may be a party.


Item 4.  Submission of Matters to a Vote of Security Holders

    None.

                                     PART II

Item 5.  Market  for  Registrant's  Common  Equity  and  Related  Stockholder
Matters

    The Company's common stock, par value $.01 per share (the "Common Stock") is
listed for trading on the NASDAQ National Market System under the symbol "ISTN".
The  following  table  sets  forth for the  periods  indicated  the high and low
closing  sales prices of the shares of Common  Stock as reported by NASDAQ.  The
quotations  represent  prices between dealers and do not include retail mark-up,
mark-down or commission.

                                    Common
                                    Stock

                                  High        Low
Fiscal 1998

First Quarter Ended 01/31/98     10-1/8      7-3/4

Second Quarter Ended 04/30/98    9-7/16      7-1/2

Third Quarter Ended 07/31/98     8-3/8       7

Fourth Quarter Ended 10/31/98    8-1/8       5-3/8

Fiscal 1999

First Quarter Ended 01/31/99     13-5/16     7-1/8

Second Quarter Ended 04/30/99    12-1/4      7

Third Quarter Ended 07/31/99     8           6-7/16

Fourth Quarter Ended 10/31/99    6-15/16     5-1/2

Fiscal 2000

First Quarter Through 01/13/00   6-1/4       5-1/16

<PAGE>

    As of January 13, 2000, there were 63 holders of record of Common Stock.

    The Company  has not paid cash  dividends  on the Common  Stock and does not
contemplate  paying cash  dividends  in the  foreseeable  future.  Instead,  the
Company intends to retain earnings for use in the Company's operations.

    In  September  1995,  the  Board  of  Directors  of the  Company  adopted  a
Shareholders  Rights Plan (the  "Rights  Plan") to help  protect  the  Company's
stockholders   against  certain  coercive  takeover  tactics  commonly  used  by
corporate  raiders  to  deprive  stockholders  of the  long-term  value of their
investment  through  transactions  that do not treat all  stockholders  equally.
Under the terms of the Rights Plan,  the Board of Directors  declared a dividend
of one common stock  purchase  right (a "Right") for each  outstanding  share of
Common Stock of the Company held by  stockholders of record on November 10, 1995
(the "Record Date"). Each Right entitles the holder to purchase from the Company
one share of Common  Stock at a price of $25 per share,  subject to  adjustment.
The  description  and terms of the  Rights  are set forth in a Rights  Agreement
dated as of October 24, 1995 between the Company and Continental  Stock Transfer
& Trust Company, as Rights Agent.

    Until the earlier to occur of (i) 10 days  following  a public  announcement
that a person  or group of  affiliated  or  associated  persons  (an  "Acquiring
Person") has  acquired  beneficial  ownership of 15% or more of the  outstanding
shares of Common  Stock or (ii) 10  business  days (or such later date as may be
determined by action of the Board of Directors  prior to such time as any person
becomes an Acquiring  Person)  following the commencement of, or an announcement
of an intention to make, a tender offer or exchange  offer the  consummation  of
which would  result in the  beneficial  ownership by a person or group of 15% or
more of such  outstanding  shares (the  earlier of such dates  being  called the
"Distribution  Date"),  the Rights will be evidenced  with respect to any of the
Common Stock  certificates  outstanding  as of the Record  Date,  by such Common
Stock certificate with a copy of the Summary of Rights to Purchase Common Shares
attached thereto.  The Rights are not exercisable  until the Distribution  Date.
The Rights  will expire on November  10,  2005 (the  "Final  Expiration  Date"),
unless the Final  Expiration  Date is  extended or unless the Rights are earlier
redeemed by the Company, in each case, as described below.

    In the event that, after the Distribution Date, the Company is acquired in a
merger  or  other  business  combination  transaction  or  50%  or  more  of its
consolidated  assets or earning power are sold, proper provision will be made so
that each  holder of a Right will  thereafter  have the right to  receive,  upon
exercise thereof at the then current exercise price of the Right, that number of
shares  of  common  stock  of the  acquiring  company  which at the time of such
transaction  will have a market  value of two times  the  exercise  price of the
Right.  In the  event  that any  person  becomes  an  Acquiring  Person,  proper
provision  shall be made so that  each  holder  of a Right,  other  than  Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter  have the right to receive  upon  exercise  that  number of shares of
Common Stock having a market value of two times the exercise price of the Right.

    At any time  after the  acquisition  by an  Acquiring  Person of  beneficial
ownership  of 15% or more of the  outstanding  Common  Stock  and  prior  to the
acquisition by such Acquiring  Person of 50% or more of the  outstanding  Common
Stock, the Board of Directors of the Company may exchange the Rights (other than
Rights owned by such  Acquiring  Person which have become void),  in whole or in
part,  at an exchange  ratio of one share of Common Stock per Right  (subject to
adjustment).

    At any time prior to the  acquisition  by an Acquiring  Person of beneficial
ownership of 15% or more of the outstanding Common Stock, the Board of Directors
of the  Company may redeem the Rights in whole,  but not in part,  at a price of
$.01 per Right (the  "Redemption  Price").  The  redemption of the Rights may be
made effective at such time, on such basis and with such conditions as the Board
of  Directors  in its  sole  discretion  may  establish.  Immediately  upon  any
redemption  of the Rights,  the right to exercise the Rights will  terminate and
the only right of the holders of Rights will be to receive the Redemption Price.

    The terms of the  Rights may be  amended  by the Board of  Directors  of the
Company  without the consent of the holders of the Rights,  except that from and
after such time as any person becomes an Acquiring  Person no such amendment may
adversely  affect the  interests  of the  holders of the Rights  (other than the
Acquiring Person).

    Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company,  including,  without  limitation,  the right to
vote or to receive dividends.

    There is no  separate  public  trading  market  for the  Rights.  Until  the
Distribution  Date, the Rights may be transferred  with and only with the shares
of Common Stock.


<PAGE>


Item 6.  Selected Financial Data

      The following table  summarizes  certain  selected  financial data,  which
should  be  read  in  conjunction  with  the  Company's  consolidated  financial
statements  and notes thereto and with  Management's  Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this report.
The selected  financial data below as of and for each of the fiscal years in the
five  year  period  ended   October  31,  1999  are  derived  from  the  audited
consolidated financial statements of the Company.

                       1999       1998        1997         1996        1995
                       ----       ----        ----         ----        ----

Revenues          $56,151,613 $49,283,426  $37,928,719 $21,354,148  $13,749,249

Net income          2,814,807   3,303,802    2,136,673     963,475      339,512

Diluted net income     .57        .67           .54          .27         .10
per share

Total assets       68,661,087  53,406,741   41,282,561  22,159,169   14,894,389

Long term          37,262,045  28,216,427   20,111,223  12,653,771    6,883,792
obligations

Stockholders'
 equity            20,924,415  18,115,563   14,458,838   5,905,315    4,917,773



Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

Results of Operations

    For the Year ended  October 31, 1999  compared to the Year ended October
31, 1998

      Revenues  increased  approximately  $6,869,000,  or 14%, to  approximately
$56,152,000  for the year ended  October 31,  1999 as compared to  approximately
$49,283,000 for the year ended October 31, 1998. 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 1999.

    Costs  of  services   provided,   which  consist  primarily  of  claims  and
cancellation  costs,   increased  by  approximately   $4,155,000,   or  17%,  to
approximately  $28,130,000  for the year ended  October 31, 1999, as compared to
approximately  $23,975,000  for the year ended October 31, 1998. As a percentage
of  revenues,  cost of  services  provided  increased  to 50% for the year ended
October  31,  1999 as  compared  to 49% in the same  period in 1998.  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 $2,714,000, or 11%, to approximately
$28,022,000  for the year ended October 31, 1999,  as compared to  approximately
$25,308,000  for the year ended  October 31,  1998.  This  increase is primarily
attributable  to the increase in revenues as described  above.  Gross margin for
the year ended  October  31,  1999 was 50% as compared to 51% for the year ended
October 31, 1998. 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
$3,467,000,  or 16%, to approximately $25,302,000 for the year ended October 31,
1999,  up from  approximately  $21,835,000  for the year ended October 31, 1998.
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 and printing costs resulting from increased
sales volume and the development of new service contract products.  Uautobid.com
expenses of approximately $504,000 were incurred in the fourth quarter of fiscal
1999 as the Company improved its web site and expanded its nationwide network of
dealers who will  provide  inventory of new and used cars to be auctioned to the
public on the Company's  Uautobid.com  internet web site.  Selling,  general and
administrative expenses were 45% of revenues for the year ended October 31, 1999
as compared to 44% for the year ended October 31, 1998.
<PAGE>

    Interest   income   increased  by   approximately   $387,000,   or  26%,  to
approximately  $1,870,000  for the year ended  October 31, 1999,  as compared to
approximately  $1,483,000  for the same period in 1998. The increase is a result
of an increase in  investment  income  generated by funds  provided by operating
activities.  Other income,  net decreased by approximately  $113,000,  or 6%, to
approximately  $1,855,000  for the year ended  October 31, 1999,  as compared to
approximately  $1,968,000 for the year ended October 31, 1998.  This decrease is
attributable to non-recurring  other income of $500,000  received by the Company
in  settlement of a dispute with an  unaffiliated  party in the first quarter of
1998.

    Income  before   provision  for  income  taxes  increased  by  approximately
$137,000,  or 3%, to  approximately  $5,078,000  for the year ended  October 31,
1999,  as  compared  to  approximately  $4,941,000  for the same period in 1998,
exclusive of the  Uautobid.com  expenses and the $500,000 non recurring  gain on
settlement.  For the year ended October 31, 1999,  the Company had income before
provision for income taxes of approximately  $4,574,000 and recorded a provision
for income  taxes of  approximately  $1,759,000,  as compared  to income  before
provision  for income  taxes of  approximately  $5,442,000  and a provision  for
income taxes of approximately  $2,138,000 in the same period in 1998. Net income
decreased  approximately  $489,000, or 15%, to approximately  $2,815,000 for the
year ended October 31, 1999 as compared to approximately $3,304,000 for the year
ended  October  31,  1998.  The  decrease  in net  income  is the  result of the
Uautobid.com  expenses  incurred in fiscal 1999 and the  $500,000  non-recurring
gain on settlement received in fiscal 1998.

   Diluted  net income per share for the year ended  October  31, 1999 was $.57
per share as  compared  to  diluted  net  income  per share of $.67 for the same
period  in  1998.   Excluding  the   Uautobid.com   expenses  and  the  $500,000
non-recurring  gain on  settlement,  diluted  net  income per share for the year
ended  October  31,  1999 was $.63 per  share,  or $.02 per share  greater  than
diluted net income per share for the year ended October 31, 1998.


    For the Year ended  October 31, 1998  compared to the Year ended October
31, 1997

    Revenues  increased  approximately  $11,354,000,  or 30%,  to  approximately
$49,283,000  for the year ended  October 31,  1998 as compared to  approximately
$37,929,000 for the year ended October 31, 1997. This increase was primarily due
to: (i) a significant  increase in the recognition of deferred  contract revenue
as a result of an increase in the total  number of unexpired  service  contracts
under  administration;  and (ii) a significant  increase in  administrative  and
insurance  fees  resulting  from an increase in the number of service  contracts
accepted for  administration  by the Company in fiscal 1998. The increase in the
number of service contracts accepted for  administration  during fiscal 1998 was
primarily due to the aggressive  efforts by the Company in enrolling  additional
producers  to sell the  Company's  products and to a more  diversified  array of
products offered by the Company.

    Costs  of  services   provided,   which  consist  primarily  of  claims  and
cancellation  costs,   increased  by  approximately   $7,129,000,   or  42%,  to
approximately  $23,975,000  for the year ended  October 31, 1998, as compared to
approximately  $16,846,000  for the year ended October 31, 1997. As a percentage
of  revenues,  cost of  services  provided  increased  to 49% for the year ended
October  31,  1998 as  compared  to 44% in the same  period in 1997.  Claims and
cancellation  costs  are  directly  affected  by the total  number of  unexpired
contracts under administration, which has increased on a yearly basis.

    Gross margin increased by approximately $4,226,000, or 20%, to approximately
$25,308,000  for the year ended October 31, 1998,  as compared to  approximately
$21,082,000  for the year ended  October 31,  1997.  This  increase is primarily
attributable  to the increase in revenues as described  above.  Gross margin for
the year ended  October  31,  1998 was 51% as compared to 56% for the year ended
October 30, 1997. 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
$3,544,000,  or 19%, to approximately $21,835,000 for the year ended October 31,
1998,  up from  approximately  $18,291,000  for the year ended October 31, 1997.
This  increase  was in  large  part due to (i)  increases  in  selling  expenses
primarily  due to  increased  commissions  paid as a result of  increased  sales
volume;  and (ii)  increases  in  general  and  administrative  expenses  due to
increased  personnel and postage costs resulting from increased sales volume and
to  the  development  of new  service  contract  products.  As a  percentage  of
revenues,  selling, general and administrative expenses decreased to 44% for the
year ended October 31, 1998 as compared to 48% in the same period in 1997.
<PAGE>

    Other  income,  net  increased  by  approximately  $1,224,000  or  165%,  to
approximately  $1,968,000  for the year ended  October 31, 1998,  as compared to
approximately  $744,000 for the year ended  October 31, 1997.  This  increase is
partially  attributable  to other income of $500,000  received by the Company in
settlement of a dispute with an unaffiliated party in the first quarter of 1998.
The balance of the increase was the result of an increase in  investment  income
generated  by  funds  provided  by the  exercise  of the  Company's  outstanding
warrants in October 1997 and by funds provided by operating activities.

    For the year ended  October 31, 1998,  the Company had income  before income
taxes of  approximately  $5,442,000 and recorded a provision for income taxes of
approximately   $2,138,000,  as  compared  to  income  before  income  taxes  of
approximately  $3,535,000  and a  provision  for income  taxes of  approximately
$1,398,000  in the same  period  in 1997.  Net  income  increased  approximately
$1,167,000,  or 55%, to approximately  $3,304,000 for the year ended October 31,
1998 as  compared to  approximately  $2,137,000  for the year ended  October 31,
1997.

Liquidity and Capital Resources

    Cash and cash  equivalents,  United  States  Treasury  Bills,  at cost,  and
marketable  securities  were  approximately  $50,627,000 at October 31, 1999, as
compared to  approximately  $37,331,000  at October 31,  1998.  The  increase of
approximately  $13,296,000  was  primarily  the result of cash  provided  by the
Company's  operating  activities  less cash used for the purchase of  furniture,
fixtures and equipment.

    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 October 31, 1999,  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.

Capital Expenditures

    The Company intends to spend  approximately  $700,000 in fiscal 2000 for the
purchase of computer  hardware and software,  telephone  equipment and leasehold
improvements  to enable the Company to  administer  the  contracts  generated by
increased sales volume and to expand its internet presence.

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 occurs,  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.

Item 8.  Financial Statements and Supplementary Data

       Annexed hereto starting on page F-1.




<PAGE>


           INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                       Page

Report of Independent Public Accountants                                F-2

FINANCIAL STATEMENTS:

  Consolidated Balance Sheets as of October 31, 1999 and 1998           F-3

  Consolidated Statements of Operations for the three years ended
  October 31, 1999                                                      F-4

  Consolidated Statements of Stockholders' Equity for the three years
  ended October 31, 1999                                                F-5

  Consolidated Statements of Cash Flows for the three years ended
  October 31, 1999                                                      F-6

  Notes to Consolidated Financial Statements                            F-7
























                                       F-1


<PAGE>








                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Interstate National Dealer Services, Inc.:


We have  audited the  accompanying  consolidated  balance  sheets of  Interstate
National Dealer Services,  Inc. (a Delaware  corporation) and subsidiaries as of
October  31,  1999  and  1998,  and  the  related  consolidated   statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the  period  ended  October  31,  1999.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Interstate  National  Dealer
Services, Inc. and subsidiaries as of October 31, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended October 31, 1999 in conformity with generally  accepted  accounting
principles.



                                          ARTHUR ANDERSEN LLP





Melville, New York
January 5, 2000








                                       F-2


<PAGE>


          INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                         AS OF OCTOBER 31, 1999 AND 1998

                     ASSETS                            1999          1998
                     ------                            ----          ----

CURRENT ASSETS:
  Cash and cash equivalents                       $ 30,145,855  $ 20,885,903
  United States Treasury Bills, at cost             15,296,768    16,445,339
  Accounts receivable, net                           6,957,454     8,163,882
  Prepaid expenses                                     712,651       653,281
                                                    ----------    ----------
           Total current assets                     53,112,728    46,148,405

MARKETABLE SECURITIES                                5,184,074          -

RESTRICTED CASH                                      2,516,188     1,951,856

FURNITURE, FIXTURES AND EQUIPMENT, at cost,
 less accumulated depreciation and amortization
 of $1,371,083 and $897,478, respectively             1,779,234     1,551,572

INTANGIBLE ASSETS, less accumulated
 amortization of $161,667 and $151,667
 respectively                                           63,333        73,333

DEFERRED INCOME TAXES                                2,819,297     2,127,843

NOTE FROM RELATED PARTY                                 70,000        90,000

OTHER ASSETS
                                                     3,116,233     1,463,732
                                                     ---------     ---------
                                                  $ 68,661,087  $ 53,406,741
                                                  ============  ============
      LIABILITIES AND STOCKHOLDERS' EQUITY
      ------------------------------------

CURRENT LIABILITIES:
  Accounts payable                                  $5,535,592    $3,502,872
  Accrued expenses                                   1,001,465       637,205
  Accrued commissions                                1,207,740     1,001,178
  Reserve for claims                                 2,241,963     1,622,361
  Other liabilities                                    487,867       311,135
                                                  ------------    -----------

           Total current liabilities                10,474,627     7,074,751

DEFERRED CONTRACT REVENUE                           34,745,857    26,264,571

CONTINGENCY PAYABLE                                  2,516,188     1,951,856
                                                    ----------    ----------
           Total liabilities                        47,736,672    35,291,178
                                                    ----------    ----------

COMMITMENTS AND CONTINGENCIES (Note 8)
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 4,671,284 and
   4,650,916 shares, respectively                       46,713        46,509
  Additional paid-in-capital                        11,156,423    11,104,699
  Retained earnings                                  9,779,162     6,964,355
  Accumulated other comprehensive loss                 (57,883)        -
                                                   -----------    ----------
           Total stockholders' equity               20,924,415    18,115,563
                                                  ------------   -----------
                                                  $ 68,661,087  $ 53,406,741
                                                  ============  ============

              The accompanying notes to financial statements are an
               integral part of these consolidated balance sheets.
                                       F-3


<PAGE>


          INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  FOR THE THREE YEARS ENDED OCTOBER 31, 1999



                                           1999        1998        1997
                                           ----        ----        ----

REVENUES                             $56,151,613 $49,283,426 $37,928,719

OPERATING COSTS AND EXPENSES:
  Costs of services provided          28,129,523  23,974,988  16,846,370
  Selling, general and administrative
  expenses                            25,302,494  21,835,259  18,290,862
                                      ----------  ----------  ----------

    Operating income                   2,719,596   3,473,179   2,791,487

OTHER INCOME (EXPENSE):
  Interest income                      1,869,802   1,483,296     771,702
  Interest expense                       (15,000)    (15,000)    (27,968)
  Other income                              -        500,000        -
                                        --------     -------    -------
  Income before provision for
    income taxes                       4,574,398   5,441,475   3,535,221

PROVISION FOR INCOME TAXES             1,759,591   2,137,673   1,398,548
                                       ---------   ---------   ---------
    Net income                       $ 2,814,807 $ 3,303,802 $ 2,136,673
                                     =========== =========== ===========


NET INCOME PER SHARE:

Basic                                    $   .60     $   .71     $   .62
                                         =======     =======     =======
Weighted average shares outstanding    4,664,632   4,635,301   3,434,008
                                       =========   =========   =========

Diluted                                  $   .57     $   .67     $   .54
                                         =======     =======     =======
Weighted average shares outstanding    4,980,000   4,960,939   3,949,744
                                       =========   =========   =========






        The accompanying notes to financial statements are an integral
                  part of these consolidated statements.


                                       F-4


<PAGE>



          INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  FOR THE THREE YEARS ENDED OCTOBER 31, 1999


                                                           Accum-
                                                           ulated
                                                            Other
                     Common Stock     Additional           Compre-
                    Number             Paid-in   Retained  hensive
                     of     Amount     Capital    Earnings  Loss         Total
                   Shares


BALANCE AT OCTOBER
   31,1996        3,384,233 $33,843 $ 4,347,592 $1,523,880 $    -    $ 5,905,315

 Shares issued
 pursuant to
 exercise of
 warrants         1,218,983  12,190   6,692,216       -         -      6,704,406

 Shares issued
 pursuant to
 exercise of stock
 options             19,800     198      12,246       -         -         12,444

 Net income for the
 year ended
 October 31, 1997      -        -         -      2,136,673      -      2,136,673
                  ---------  ------  ---------   ---------   ------    ---------
BALANCE AT OCTOBER
  31, 1997        4,623,016  46,231  11,052,054  3,660,553      -     14,758,838

 Shares issued
 pursuant to
 exercise of
 stock options       27,900     278      52,645       -         -         52,923

 Net income for the
 year ended
 October 31,1998       -         -         -     3,303,802      -      3,303,802

BALANCE AT OCTOBER --------  ------  ----------  ---------    -----    ---------
  31, 1998        4,650,916  46,509  11,104,699  6,964,355      -     18,115,563

 Shares issued
 pursuant to
 exercise of
 stock options       20,368     204      51,724       -         -         51,928

COMPREHENSIVE INCOME:
 Net income for the
 year ended
 October 31, 1999      -        -         -      2,814,807      -      2,814,807


 Other comprehensive
 loss:
  Unrealized loss on
  available
  for sale securities   -       -         -           -     (57,883)    (57,883)
                      ----    -----     ------    ---------  -------    -------
Total comprehensive
 income for the year
 ended October 31, 1999 -       -         -      2,814,807  (57,883)   2,756,924
                      ----    -----     ------   ---------   -------    -------
BALANCE AT OCTOBER
  31, 1999        4,671,284 $46,713 $11,156,423 $9,779,162 $(57,883) $20,924,415
                  =========  ======  ==========  =========   =======  =========




           The accompanying notes to financial statements are an
              integral part of these consolidated statements.



                                       F-5


<PAGE>


          INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE THREE YEARS ENDED OCTOBER 31, 1999

                                               1999        1998        1997
                                               ----        ----        ----

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                              $ 2,814,807 $ 3,303,802 $ 2,136,673
  Adjustments to reconcile net income to
  net cash provided by operating
  activities:
   Depreciation and amortization              519,315     427,173     339,891
   Deferred income taxes                     (691,454)   (636,072)   (638,791)
   Increase (decrease) in cash resulting
   from changes in
    operating assets and liabilities:
    Accounts receivable                     1,206,428     728,081  (4,753,912)
    Prepaid expenses                          (59,370)   (285,349)   (117,763)
    Restricted cash                          (564,332)   (318,788)    342,437
    Other assets                           (1,688,211)   (845,368)     (2,839)
    Accounts payable                        2,032,720     573,396   1,359,579
    Accrued expenses                          364,260    (403,516)    528,606
    Accrued commissions                       206,562     (79,000)    531,706
    Reserve for claims                        619,602     501,834     466,680
    Other liabilities                         176,732      69,537      85,846
    Deferred contract revenue               8,481,286   7,786,416   7,799,889
    Contingency payable                       564,332     318,788    (342,437)
                                           ----------  ----------  -----------

         Net cash provided by operating
         activities                        13,982,677  11,140,934   7,735,565
                                           ----------  ----------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net sales (purchases) of United States
  Treasury Bills                            1,148,571 (10,435,002) (6,010,337)
  Net purchases of marketable securities   (5,241,957)       -          -
  Purchase of furniture, fixtures, and
  equipment                                  (701,267)   (739,476)   (555,757)
  Note from related party                      20,000      20,000    (110,000)
                                               ------      ------   ---------
         Net cash used in investing
         activities                        (4,774,653)(11,154,478) (6,676,094)
                                           ----------  -----------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of warrants            -            -      6,704,406
  Payment of long-term debt to related
  party                                         -            -       (160,000)
  Proceeds from exercise of stock options      51,928      52,923      12,444
                                              -------      ------   ---------

         Net cash provided by financing
         activities                            51,928      52,923   6,556,850
                                              -------      ------  ----------

NET INCREASE IN CASH AND CASH EQUIVALENTS   9,259,952      39,379   7,616,321

CASH AND CASH EQUIVALENTS, BEGINNING OF
 YEAR                                      20,885,903  20,846,524  13,230,203
                                           ----------  ----------  ----------

CASH AND CASH EQUIVALENTS, END OF
 YEAR                                     $30,145,855 $20,885,903 $20,846,524
                                          ===========  ==========  ==========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Income taxes                          $ 2,384,824 $ 2,915,254  $2,083,791
                                          ===========  =========== ==========
    Interest                              $    15,000   $  15,000  $   27,968
                                          ===========  ========== ===========


        The accompanying  notes to financial  statements are an integral
                part of these consolidated statements.

                                       F-6


<PAGE>


          INTERSTATE NATIONAL DEALER SERVICES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE THREE YEARS ENDED OCTOBER 31, 1999



1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:

Nature of Business

Interstate  National  Dealer  Services,  Inc. and  subsidiaries  (the "Company")
designs,  markets and administers  service  contracts and warranties for new and
used  motor  vehicles  and  recreational  vehicles  and,  to  a  lesser  extent,
watercraft,  motorcycles and other vehicles.  A service  contract may be sold by
any of the following entities: (1) either the seller originating the sale of the
vehicle, (2) the financial institution financing the sale of the vehicle, or (3)
other entities,  including the Company,  which sell the contract to the owner of
the vehicle after the vehicle has been purchased.  A vehicle service contract is
an  agreement  between  either the seller or the  administrator  of the  service
contract and the vehicle  purchaser under which the seller or the  administrator
agrees to replace or repair for a specific term designated  vehicle parts in the
event of a mechanical breakdown. Vehicle service contracts supplement, or are in
lieu of,  manufacturers'  warranties and provide a variety of extended  coverage
options  (typically  ranging from three months to seven years and/or 3,000 miles
to 150,000 miles) generally offered for sale by sellers to vehicle purchasers in
a manner  similar to other  options.  The Company  enters  into a  non-exclusive
agreement with each seller,  under which the Company obtains insurance  coverage
to cover such seller's  liability for claims under its vehicle service contracts
and  assists  such  seller,  and  purchasers,  with the making,  processing  and
adjustment of claims. In April 1995, the Company formed an affiliated  insurance
company,  National Service Contract Insurance Company Risk Retention Group, Inc.
("NSC").  Commencing March 1996, the insurance  policies arranged by the Company
as  administrator  to  its  dealers  were  underwritten  by  NSC  and  a  single
non-affiliated  insurance company.  In January 1998, the Company entered into an
agreement with a second non-affiliated insurance company to underwrite a portion
of its service contracts.

     In February 1999, the Company formed a subsidiary,  Uautobid.com, which has
developed  an  internet  web site  where a car buyer can  purchase a new or used
vehicle online  directly from a participating  dealer.  The Company will issue a
warranty  for  each  vehicle  sold by  Uautobid.com.  As of  October  31,  1999,
Uautobid.com had not generated significant revenues.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries,  all of which are wholly-owned.  All significant  intercompany
transactions and balances have been eliminated in consolidation. As required for
insurance companies, NSC has a December 31 year end.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.

Marketable Securities

The  Company  follows  the  provisions  of  Statement  of  Financial  Accounting
Standards ("SFAS") No.

                                       F-7


<PAGE>


     115,  "Accounting for Certain  Investments in Debt and Equity  Securities".
Securities  classified  as available  for sale are reported at fair value,  with
unrealized  gains and losses  excluded  from earnings and reported as a separate
component  of   stockholders'   equity  (on  an  after  tax  basis  as  part  of
comprehensive  income).  Gains and losses on the  disposition  of securities are
recognized  on the  specific  identification  method in the period in which they
occur.

Furniture, Fixtures and Equipment

     Furniture,  fixtures and equipment are stated at cost. Depreciation for all
assets  acquired prior to fiscal 1995 is calculated  using  accelerated  methods
over the  estimated  useful  lives of the  assets.  Depreciation  for all assets
acquired  thereafter  is  calculated  using the  straight  line  method over the
estimated useful lives of the assets. The asset lives are as follows:

      Furniture and fixtures          7 years
      Office equipment                5 to 10 years
      Leasehold improvements          the lesser of the lease term or useful
                                      life

Restricted Cash

Pursuant  to  an  agreement  among  the  Company,   one  of  the  non-affiliated
underwriters  of the  insurance  policies  administered  by the  Company and its
managing  agent,  a specified  amount is required to be deposited into an escrow
account for each contract sold by the Company and  underwritten by such insurer.
These  funds  held in escrow by an  independent  third  party are to be used for
paying the costs of administering service contracts should the Company be unable
to do so for any reason. Under the agreement, the Company is entitled to receive
on a quarterly  basis, any funds in excess of a specified amount for each active
service  contract.  For the years ended  October 31,  1999,  1998 and 1997,  the
Company received approximately $227,000, $195,000 and $136,000, respectively, of
such funds,  which are  reflected in revenues in the  accompanying  consolidated
statements  of  operations.   The  balance  in  this  escrow   account   totaled
approximately $768,000 and $802,000 at October 31, 1999 and 1998,  respectively.
The same amounts have been reflected as contingency  payable in the accompanying
consolidated balance sheets.

Certain of the service contract programs offered by the Company provide that the
claim reserves generated by each dealer be placed in  interest-bearing  accounts
maintained  by The  Chase  Manhattan  Bank.  To the  extent  such  reserves  are
unconsumed  on expired  contracts,  then (a) with  respect to dealers  who reach
specified sales volumes of service contracts,  such unconsumed  reserves and any
interest earned thereon are distributed  (subject to the  underwriter's  consent
based on its satisfaction that a dealer's reserves are in an amount in excess of
an  actuarially  acceptable  level) to the dealer  and (b) with  respect to each
other  dealer,  such  unconsumed  reserves and any interest  earned  thereon are
distributed to the Company  (subject to the  underwriter's  consent based on its
satisfaction  that  a  dealer's  reserves  are  in an  amount  in  excess  of an
actuarially  acceptable  level).  The Company did not receive a distribution  of
such  unconsumed  reserves  in the year ended  October  31,  1999.  The  Company
received approximately $122,000 and $254,000 of such unconsumed reserves for the
years ended  October 31, 1998 and 1997,  respectively,  which are  reflected  in
revenues in the accompanying consolidated statements of operations.  The balance
in  these  interest-bearing   accounts  totaled  approximately   $1,748,000  and
$1,150,000  at October 31, 1999 and 1998,  respectively.  The same  amounts have
been reflected as contingency payable in the accompanying  consolidated  balance
sheets.

                                       F-8


<PAGE>


Reserve for Claims

Reserve  for claims  represents  claims  that were  approved  for  payment as of
October 31, 1999 and 1998, but not paid as of those respective dates.

Comprehensive Income

The Company  follows the  provisions of SFAS No. 130,  "Reporting  Comprehensive
Income,"  which  requires  companies  to report all  changes in equity  during a
period.  Comprehensive income is the total of net income and other comprehensive
income/loss which includes unrealized  gains/losses on securities  classified as
available-for-sale, foreign currency translation adjustments and minimum pension
liability  adjustments.  Included  in other  comprehensive  loss for the  period
ending  October 31, 1999 is $57,883 of  unrealized  losses on available for sale
securities.

Revenues

Revenues relating to administrative  and insurance fees from the sale of vehicle
service  contracts are recognized when the service contract sold is approved and
accepted by the Company.  Revenues are deferred on vehicle service  contracts in
those instances where the Company directly receives cash for that portion of the
total service contract that is allocated to estimated claims reserves.  Deferred
contract  revenue is recorded as earned over the life of the service contract in
proportion to expected claims.

Income Taxes

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for  Income  Taxes".  This  pronouncement   establishes   financial
accounting  and reporting  standards for the effects of income taxes that result
from the  Company's  activities  during  the  current  and  preceding  years and
requires an asset and liability approach for financial  accounting and reporting
for income  taxes.  The  provision  for income  taxes is based upon income after
adjustment  for  those   permanent   items  which  are  not  considered  in  the
determination of taxable income.  Deferred taxes result when the Company records
deductions  or  recognizes  revenue for income tax purposes in a different  year
than for financial reporting purposes.

Stock Based Compensation

The Company  accounts for  stock-based  compensation in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation". This pronouncement establishes a
fair  value  based  method  of  accounting   and   reporting   for   stock-based
compensation.  Under SFAS No.  123,  companies  may elect to follow the new fair
value based method or to continue to report under  Accounting  Principles  Board
Opinion No. 25 ("APB  25"),  "Accounting  for Stock  Issued to  Employees".  The
Company has elected to follow the  accounting  guidance of APB 25 with pro forma
disclosure of the fair value method specified in SFAS No. 123.

Net Income Per Share

The Company reports earnings per share in accordance with the provisions of 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.

                                       F-9


<PAGE>


Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of certain assets and liabilities and disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Reclassifications

     Certain  prior year  balances  have been  reclassified  to conform with the
current year presentation.

2.    FURNITURE, FIXTURES AND EQUIPMENT:

Furniture, fixtures and equipment consists of the following:
                                             October 31,
                                            1999      1998
                                            ----      ----
       Furniture and fixtures            $771,126   $624,366

       Office equipment                 2,113,458  1,616,828
       Leasehold improvements             265,733    207,856
                                      -----------  ---------
                                        3,150,317  2,449,050

       Less: Accumulated depreciation
       and amortization                 1,371,083    897,478
                                        ---------  ---------
                                       $1,779,234 $1,551,572
                                        ========= ==========
3. INCOME TAXES:

The provision for income taxes consists of the following:


                                  October 31,

                            1999        1998          1997
                            ----        ----          ----
     Federal:
        Current         $1,967,697   $2,182,830   $1,564,233
        Deferred          (517,656)    (480,872)    (463,523)

     State:
        Current            483,348      590,915      473,106
        Deferred          (173,798)    (155,200)    (175,268)
                         ---------   ----------   ----------
                        $1,759,591   $2,137,673   $1,398,548
                        ==========   ==========   ==========

The differences between the provision for income taxes and income taxes computed
using the U.S. Federal statutory income tax rate were as follows:

                                  October 31,
                          1999        1998          1997
                          ----       -----         -----
U.S. Federal
statutory rate             34%          34%          34%
State income taxes,
net of Federal benefit      4            5            6
                           ---          ---         ---
Effective tax rate         38%          39%          40%
                           ===          ===          ===

The deferred income taxes of approximately $2,819,000 which have been paid as of
October  31,  1999,  result from  temporary  differences  between the  financial
accounting and income tax treatment of deferred contract revenue.


                                     F-10


<PAGE>


4.  LINE OF CREDIT:

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 October 31, 1999 and
1998, no amounts had been borrowed under the credit facility.

5. STOCKHOLDERS' EQUITY:

a)  Warrants

In  connection  with a July 1994 public  offering of Common  Stock,  the Company
issued  warrants for the  purchase of 1,225,100  shares of its Common Stock at a
price per share of $5.50. On September 29, 1997 the Company  exercised its right
to redeem all of its outstanding  warrants.  The warrants  remained  exercisable
until October 29, 1997, thirty days after the date of the redemption  notice. As
of October 29, 1997,  1,218,983 of the 1,225,100 then  outstanding  warrants had
been  exercised  by the  holders  thereof for a price of $5.50 per share and the
Company received proceeds of $6,704,406 in connection  therewith.  All remaining
warrants are no longer excercisable.

b)  1993 Stock Option Plan

On  November  1, 1992,  the  Company  granted  certain  officers  and  employees
non-qualified  stock options for the purchase of up to 184,000  shares of common
stock and on May 5,  1993,  such non-  qualified  stock  options  were  formally
included in the Company's 1993 Stock Option Plan (the "Plan") adopted as of such
date.  Under the Plan,  as  amended,  344,000  shares of common  stock have been
reserved for issuance upon exercise of incentive stock options or  non-qualified
stock options to be granted to officers and employees  who are  instrumental  to
the  success  of the  Company.  The  majority  of  options  are  exercisable  in
increments of 20% of the underlying  option shares per annum following the first
anniversary of the issuance date.  However, no option shall be exercisable after
the expiration of ten years from the date the option was granted.

The following  options to purchase the Company's  common shares were outstanding
under the Plan at October 31, 1999:
                                                   Weighted
                                                   Average
                                     Number        Exercise
                                    of Shares       Price

   October 31, 1996                276,834        $2.10
      Exercised                     (19,800)         .63
      Canceled                       (3,400)        1.41
                                  ----------
    October 31, 1997                253,634        $2.23
      Exercised                     (16,300)         .53
                                  ----------
    October 31, 1998                237,334        $2.35
      Exercised                     (10,868)         .74
      Expired                          (900)        1.31
                                    --------
    October 31, 1999                225,566        $2.43
                                    =======

As of October 31, 1999,  options to purchase 198,565 shares were exercisable and
12,400 shares were available for future grant.


                                  F-11


<PAGE>


c)  1996 Incentive Plan

On December  18, 1995 the Board of  Directors  of the Company  approved the 1996
Incentive  Plan (the  "Incentive  Plan").  The  Incentive  Plan  authorizes  the
granting of incentive  awards through  grants of share options,  grants of share
appreciation  rights,  grants of share purchase  awards and grants of restricted
share awards to those individual directors and/or employees who are instrumental
to the  success of the  Company.  The  aggregate  number of shares  which may be
issued pursuant to the Incentive Plan shall not exceed 300,000.  The majority of
options issued under the Incentive Plan are  exercisable in increments of 20% of
the underlying  option shares per annum  following the first  anniversary of the
issuance date.  However,  no option shall be exercisable after the expiration of
ten years from the date the option was granted.

The following  options to purchase the Company's  common shares were outstanding
under the Incentive Plan at October 31, 1999:
                                                   Weighted
                                                   Average
                                     Number        Exercise
                                    of Shares       Price

    October 31, 1996                105,000        $4.36
      Granted                        37,500         6.73
                                    --------
    October 31, 1997                142,500        $4.98
      Granted                        93,000         5.375
      Exercised                      (9,800)        4.24
                                    --------
    October 31, 1998                225,700        $5.18
      Granted                        15,000         7.13
      Exercised                      (9,500)        4.62
      Expired                       (30,400)        4.63
                                    --------
    October 31, 1999                200,800        $5.43
                                    =======


As of October 31, 1999,  options to purchase 114,400 shares were exercisable and
79,900 shares were available for future grant.

d)  Other Options

On June 12, 1996,  the Company  granted  certain  officers  non-qualified  stock
options for the purchase of 180,000 shares of common stock at a weighted average
exercise  price of $4.63 per share.  Similarly,  on January 7, 1998, the Company
granted a certain officer  non-qualified stock options for the purchase of 6,000
shares of common  stock at an exercise  price of $9.313 per share.  The exercise
prices  exceeded the market  value per share on the dates of grant.  The options
were immediately exercisable and expire ten years from the dates of grant.

In September  1999,  the Company's  Uautobid.com  subsidiary  granted a total of
1,565,000  options to its  directors  and  officers  and various  employees  and
directors of the Company and outside  consultants.  The options expire ten years
after the date of grant and have an exercise  price of $.10 per share which,  in
management's view, equaled or exceeded the fair market value of the subsidiary's
common stock at the date of grant.  The Company  currently owns 7,500,000 shares
of common stock of  Uautobid.com,  Inc., and the options,  if exercised in full,
would represent  approximately  17% of the issued and outstanding  shares of the
subsidiary.


                                     F-12


<PAGE>


e)  SFAS No. 123

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost has
been  recognized  for the stock  option  plans.  Had  compensation  cost for the
Company's  stock  option  plans been  determined  based on the fair value at the
grant date for options granted in fiscal 1999, 1998 and 1997 as described by the
provisions  of SFAS No. 123, the Company's net income and diluted net income per
share would have been decreased as indicated below:

                                      1999       1998       1997
                                      ----       ----       ----

Net income - as reported           $2,814,807 $3,303,802 $2,136,673
Net income - pro forma              2,718,625  3,230,760  2,098,580
Diluted net income per share - as     .57        .67        .54
reported
Diluted net income per share -        .55        .65        .53
pro forma

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes  option-pricing model. The following weighted-average  assumptions
were used for grants in 1999:  dividend yield of 0%; expected volatility of 50%;
risk-free  interest rate of 5.13%;  expected life of 5 years and a fair value of
$3.54. The following weighted-average  assumptions were used for grants in 1998:
dividend yield of 0%;  expected  volatility of 50%;  risk-free  interest rate of
4.6%;  expected  life  of 5 years  and a fair  value  of  $2.74.  The  following
weighted-average assumptions were used for grants in 1997: dividend yield of 0%;
expected  volatility of 50%; risk-free interest rate of 6.5%; expected life of 5
years and a fair value of $3.48.

f)  Shareholders Rights Plan

In September  1995, the Board of Directors of the Company adopted a Shareholders
Rights  Plan (the  "Rights  Plan") to help  protect the  Company's  stockholders
against certain coercive  takeover tactics commonly used by corporate raiders to
deprive  stockholders  of  the  long-term  value  of  their  investment  through
transactions that do not treat all stockholders equally.  Under the terms of the
Rights  Plan,  the Board of  Directors  declared a dividend of one common  stock
purchase  right (a "Right")  for each  outstanding  share of Common Stock of the
Company held by stockholders of record on November 10, 1995. Each Right entitles
the holder to purchase  from the Company one share of Common Stock at a price of
$25 per share, subject to adjustment.

6. RELATED PARTY TRANSACTIONS:

In April 1997,  the Company  made a loan to one of its officers in the amount of
$110,000. The loan bears interest at 7 percent per annum, payable quarterly, and
is due in full in April 2002.  Interest income of $5,203,  $6,595 and $3,375 was
recognized  for the years ended October 31, 1999,  1998 and 1997,  respectively.
The balance outstanding at October 31, 1999 was $70,000.

In January  1998,  the Company  entered into an agreement  with a subsidiary  of
Orion  Capital  ("Orion")  to  underwrite  a portion of the  insurance  coverage
arranged by the Company for its service contract customers.  Concurrently, Orion
entered into a reinsurance  agreement  with Target  Insurance  Ltd.  ("Target"),
which  is  owned  by  certain  shareholders  of  the  Company,   which  provided
reinsurance  for losses to Orion under its  agreement  with the Company.  During
fiscal  1999  and  1998,  Target  received  approximately  $15,000  and  $2,100,
respectively,  in premiums  under its  agreement  with Orion.  In  addition,  in
January  1998,  NSC entered into a  reinsurance  agreement  with a subsidiary of
Orion which

                                     F-13


<PAGE>


provides   reinsurance   for   losses  to  NSC  under   certain   circumstances.
Concurrently,  the Company entered into agreements to indemnify Orion and Target
for any losses incurred under the aforementioned agreements.  There were no such
losses, and there were no payments made by the Company under the indemnification
agreements  in fiscal  1999 or 1998.  In  fiscal  1997 the  Company  and NSC had
similar reinsurance  agreements with Reliance National Indemnity Company,  which
agreements were terminated in December 1997.

7.  EMPLOYEE BENEFIT PLAN:

The Company  maintains a 401(k) Profit Sharing Plan covering  substantially  all
full-time  employees,  and provides for employee  contributions  of up to 15% of
their salary.  The Company does not match  employee  contributions.  The Company
makes  contributions  to the  profit  sharing  portion  of  the  plan  which  is
discretionary and non-contributory.  Approximately $101,000, $82,000 and $64,000
was  contributed  by the Company for the years ended October 31, 1999,  1998 and
1997, respectively.

8.  COMMITMENTS AND CONTINGENCIES:

Letters of Credit

Concurrent with the Orion agreements explained in Note 6, the Company issued two
letters of credit  through its principal  lending  institution  in the amount of
$1,750,000  and  $250,0000.  These  letters of credit are  irrevocable  and have
one-year renewable terms.  Under the terms of the Orion agreements,  the Company
has committed to pay Orion a minimum of $399,900 in premiums for the period July
1999  through  March 2000.  Pursuant to the terms of the Orion  agreements,  the
Company  deposits  certain  funds  collected  on the sale of  certain  contracts
insured by Orion into an escrow  account.  The balance of this  escrow  account,
which  totaled  approximately  $1,912,000  and  $397,000 at October 31, 1999 and
1998, respectively, is included in other assets.

Leases

In December 1994, the Company  entered into a 10 year lease agreement for office
space in Mitchel Field,  New York which enabled the Company to  consolidate  its
Great Neck, New York and Novato,  California  operations.  The term of the lease
commenced on March 1, 1995 and shall  terminate  on February  28,  2005.  In May
1996, the Company entered into a 6 year sublease for additional  office space at
its Mitchel Field location. In November 1997, the sublease was amended to expand
the  additional  office  space  available  to the Company at its  Mitchel  Field
location.  The term of the  sublease  commenced  on  October  1,  1996 and shall
terminate on November 30, 2002.  Future  minimum lease  payments under the lease
and sublease are as follows:

           Fiscal year                       Amount
           -----------                       ------
              2000                       $  650,000
              2001                          666,000
              2002                          465,000
              2003                          462,000
              2004                          479,000
           Thereafter                       137,000
                                           --------
                                         $2,859,000
                                         ==========

                                     F-14


<PAGE>



Rent expense totaled approximately $636,000, $578,000 and $479,000 for the years
ended October 31, 1999, 1998 and 1997, respectively.

Employment Agreements

On November 1, 1998, the Company entered into an Amended and Restated Employment
Agreement  with Chester J. Luby  providing for his employment as Chairman of the
Board of Directors  and Chief  Executive  Officer of the Company.  The agreement
terminates on December 31, 2008,  but is  automatically  extended for additional
one-year  periods  unless either party  provides  written notice that no further
extensions  shall be  granted.  The  employment  agreement  provides  for  total
compensation  as  the  sum  of  his  annual  salary,  annual  bonus  and  annual
performance  bonus (if any) for that fiscal year.  The annual salary of $250,000
may be  increased  annually at the  discretion  of the Board of  Directors.  The
annual bonus is calculated  based on the earnings of the Company and is equal to
the greater of $150,000 or 4 1/2% of the Company's  earnings before interest and
taxes for the fiscal year. The annual performance bonus may be granted each year
at the discretion of the Board of Directors. In the event of Mr. Luby's death or
the termination of his employment  agreement the amount the Company paid for his
split-dollar life insurance policies which are recorded as non-interest  bearing
loans and totaled approximately $312,000 and $249,000 as of October 31, 1999 and
1998, respectively, will be reimbursed to the Company.

On November 1, 1998, the Company entered into an Amended and Restated Employment
Agreement with Cindy H. Luby providing for her employment as President and Chief
Operating Officer of the Company. The agreement terminates on December 31, 2008,
but is  automatically  extended for  additional  one-year  periods unless either
party provides written notice that no further  extensions shall be granted.  The
employment  agreement  provides for total  compensation as the sum of her annual
salary, annual bonus and annual performance bonus (if any) for that fiscal year.
The annual salary of $175,000 may be increased annually at the discretion of the
Board of Directors.  The annual bonus is calculated based on the earnings of the
Company  and is equal to the  greater  of  $100,000  or 3 1/2% of the  Company's
earnings before  interest and taxes for the fiscal year. The annual  performance
bonus may be granted each year at the discretion of the Board of Directors.

On February 1, 1999, the Company entered into an Amended and Restated Employment
Agreement  with Lawrence J. Altman  providing for his  employment as Senior Vice
President,  Marketing,  of the Company. This agreement terminates on January 31,
2004.  Mr.  Altman  is to be paid an  annual  salary  of  $70,710,  which may be
increased annually in the discretion of the Company. Mr. Altman is also entitled
to receive monthly  commissions equal to 2% of (i) all  administrative  fees for
vehicle service contracts and vehicle warranties paid to the Company during each
calendar month minus (ii) the aggregate selling expenses incurred by the Company
for such month  minus (iii )  $150,000.  In  addition  to his annual  salary and
monthly commissions,  Mr. Altman may also be paid an annual performance bonus in
an amount, if any, determined at the discretion of the Board of Directors.

The future aggregate minimum annual compensation required under these agreements
is approximately $746,000.

Litigation

In the normal  course of  business,  the  Company  is a party to various  claims
and/or  litigation.  Management  believes that the settlement of all such claims
and/or litigation, considered in the aggregate, will not have a material adverse
effect on the Company's financial position and results of operations.

                                     F-15


<PAGE>


9.  DISPUTE SETTLEMENT:

Included in Other Income is a $500,000  payment  received in December  1997,  in
connection with the settlement of a dispute with an unaffiliated party.

10.   EARNINGS PER SHARE:

A  reconciliation between the numerators and denominators of Basic and Diluted
EPS is as follows:


                                            Net Income   Shares     Per
                                                                   Share

For the year ended October 31, 1999

Basic EPS
Net income attributable to common shares    $2,814,807  4,664,632    $.60

Effect of dilutive securities: stock
options and warrants                             -        315,368    (.03)
                                            ----------  ---------    -----

Diluted EPS
Net income attributable to common shares
  and assumed option and warrant exercises  $2,814,807  4,980,000    $.57
                                            ==========  =========    ====

For the year ended October 31, 1998

Basic EPS
Net income attributable to common shares    $3,303,802  4,635,301    $.71

Effect of dilutive securities: stock
options and warrants                             -        325,638    (.04)
                                            ----------  ---------    ----

Diluted EPS
Net income attributable to common shares
  and assumed option and warrant exercises  $3,303,802  4,960,939    $.67
                                            ==========  =========    ====

For the year ended October 31, 1997

Basic EPS
Net income attributable to common shares    $2,136,673  3,434,008    $.62

Effect of dilutive securities: stock
options and warrants                             -        515,736    (.08)
                                            ----------   --------     ----

Diluted EPS
Net income attributable to common shares
  and assumed option and warrant exercises  $2,136,673  3,949,744    $.54
                                            ==========  =========    ====





                                     F-16

<PAGE>

11. QUARTERLY CONSOLIDATED INFORMATION (unaudited):

The following is a summary of unaudited quarterly financial  information for the
years ended October 31, 1999 and 1998:



                                   Year Ended October 31, 1999


                            First         Second       Third        Fourth
                            Quarter      Quarter      Quarter      Quarter

Revenues                $11,534,491  $13,749,522  $15,343,542  $15,524,058
Operating income            381,983      814,463    1,139,635      383,515
Net income                  491,441      749,267      991,064      583,035
Basic earnings per share        .11          .16          .21          .12
Diluted earnings per share      .10          .15          .20          .12




                                   Year Ended October 31, 1998

                            First         Second       Third        Fourth
                            Quarter      Quarter      Quarter      Quarter

Revenues                $10,308,175  $11,792,534  $13,775,114  $13,407,603
Operating income            504,340      877,493    1,120,190      971,156
Net income                  806,253      746,602      915,187      835,760
Basic earnings per share        .17          .16          .20          .18
Diluted earnings per share      .16          .15          .19          .17


















                                     F-17


<PAGE>



Item 9.  Changes In and  Disagreements  with  Accountant  on  Accounting  and
Financial Disclosure

    None.
                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

    The table below sets forth certain  information  as of January 13, 2000 with
respect to the  executive  officers and  directors  of the  Company.  Other than
Chester J. Luby and Cindy H. Luby,  who are  father  and  daughter,  none of the
executive officers or directors of the Company is related.




    Name                            Age              Position

Chester J. Luby. . . . . . . .       68   Chairman, Chief Executive Officer and
                                           Director*

Cindy H. Luby. . . . . . . . .       45   President, Chief Operating Officer
                                           and Director**

Lawrence J. Altman . . . . . .       52   Senior Vice President, Marketing

Zvi D. Sprung . . . . . . . ..       50   Chief Financial Officer, Treasurer
                                           and Secretary

William H. Brown . . . . . . .       69   Director**

Donald Kirsch. . . . . . . . . .     68   Director*

Harvey Granat . . . . . . . . .      62   Director***


    * Term expires 2000

  **  Term expires 2001

 ***  Term expires 2002


    The Board of Directors of the Company is divided into three classes  serving
staggered three year terms. The Company's Certificate of Incorporation  provides
that  directors may be removed with or without  cause only upon the  affirmative
vote of holders of at least 66-2/3% of the voting power of the then  outstanding
shares of any class or series of capital  stock of the Company  entitled to vote
generally in the election of directors, voting as a class.

    Chester J. Luby has been the Chairman,  Chief Executive  Officer, a director
and a principal stockholder of the Company since its inception in 1991. For more
than five years, Mr. Luby has been the president and a principal  stockholder of
Target Agency,  Inc.  ("Agency"),  Target  Insurance Ltd., a Bermuda joint stock
company  ("Target"),  and Dealers  Extended  Services,  Inc.  ("DESI"),  private
companies involved in various aspects of the insurance  business.  Mr. Luby is a
graduate  of the  University  of Chicago and Yale Law School and a member of the
New York and Florida bars.

    Cindy H. Luby was  elected  President  and Chief  Operating  Officer  of the
Company  in  December  1995 and has been a  director  of the  Company  since its
inception  in 1991.  Ms.  Luby  was Vice  President,  Chief  Financial  Officer,
Treasurer and Secretary of the Company from its inception in 1991 until December
1995.  For more than five years,  Ms. Luby has been a vice  president of Agency,
Target and DESI. Ms. Luby is a licensed life and property and casualty insurance
agent and is a graduate  of  Wellesley  College  and  General  Motors  School of
Merchandising and Management.

    Lawrence J.  Altman was elected  Senior  Vice  President,  Marketing  of the
Company in April 1997. Mr. Altman was Vice President,  Marketing, of the Company
since its  inception  in 1991  until  April  1997.  For more than five years Mr.
Altman has been a vice  president of Agency and DESI.  From 1973 to the present,
Mr. Altman has been in the vehicle service  contract  industry as an employee of
companies selling or designing,  marketing and  administering  such contracts as
well as an independent agent marketing such contracts.
<PAGE>

    Zvi D. Sprung  joined the  Company in August  1995 and was elected  Chief
Financial  Officer,  Treasurer  and  Secretary  in  December  1995.  Prior to
joining the  Company,  Mr.  Sprung was  Controller  of Advanced  Media,  Inc.
(1994-95),   Chief  Financial  Officer  of  Pharmhouse  Corp.  (1992-94)  and
Controller  of Long  Lake  Energy  Corporation  (1987-92).  Mr.  Sprung  is a
Certified Public Accountant in the State of New York.

    William H. Brown has been  President  of Leroy  Holdings,  Inc., a privately
held vehicle leasing  company,  for more than the last five years. He has been a
director of the Company since September 1994.

    Donald Kirsch is Chairman and  President of The Wall Street Group,  Inc. and
President  and  Chief  Executive  Officer  of  Wall  Street  Consultants,  Inc.,
financial consulting and financial public relations firms, positions he has held
for more than five years.  He has been a director of the Company since  December
1996.

    Harvey  Granat  has  been the  President  and  Chief  Executive  Officer  of
Sterling/Carl  Marks Capital,  Inc.  ("Sterling"),  a Small Business  Investment
Company, since 1988. Prior to joining Sterling, Mr. Granat was the President and
Chief Executive  Officer of Sussex Leasing Corp., an equipment  leasing company.
He has been a director of the Company since January 1999.

    Based  solely on its review of copies  received by the Company of reports of
ownership of and changes in ownership of  securities  filed with the  Securities
and Exchange  Commission by the Company's  officers,  directors and greater than
10% shareholders, or written representations from certain reporting persons that
no Forms 5 were required for those persons,  the Company  believes that,  during
the fiscal year ended October 31, 1999,  all filing  requirements  applicable to
its officers,  directors and greater than 10% shareholders were complied with as
required  by Section  16 (a) of the  Securities  and  Exchange  Act of 1934,  as
amended.

Item 11.  Executive Compensation

    The  following  table  summarizes  the  compensation  paid or accrued by the
Company for services  rendered during the years indicated to the Company's Chief
Executive  Officer and to its  executive  officers  whose  salaries  and bonuses
exceeded  $100,000  during the fiscal  year ended  October  31, 1999 (the "Named
Executives").  The Company did not grant any  restricted  stock  awards or stock
appreciation  rights or make any  long-term  incentive  plan payouts  during the
years indicated.
                           Summary Compensation Table


                                                 Long-Term
                                                 Compensation
                Fiscal Year  Annual Compensation Securities
   Name and        Ended                        Underlying   All Other
   Principal      October     Salary    Bonus     Options   Compensation
    Position         31,                                         (4)

Chester J. Luby (1) 1999    $250,000  $208,313     $  -       $62,865
Chairman and Chief  1998     200,000   181,500     25,000      62,865
Executive Officer   1997     154,167   137,829       -         62,919


Cindy H. Luby (2)   1999     175,000   162,125       -            -
President and Chief 1998     125,000   141,100     31,000         -
Operating Officer   1997     100,961    98,450       -            -


Lawrence J.Altman(3)1999     244,134      -          -            -
Senior Vice         1998     217,464      -         6,000         -
 President,         1997     164,890      -          -            -
  Marketing


(1) Annual compensation paid to Mr. Luby was pursuant to an Amended and Restated
    Employment Agreement dated November 1, 1998 between the
    Company and Mr. Luby.
<PAGE>

(2) Annual compensation paid to Ms. Luby was pursuant to an Amended and Restated
    Employment  Agreement  dated  November  1, 1998  between the Company and Ms.
    Luby.  The  Company  has a loan  outstanding  to Ms.  Luby in the  amount of
    $45,000.  In April  1997,  the  Company  provided a loan to Ms.  Luby in the
    amount of $110,000 to assist her in the purchase of a new residence in close
    proximity  to the  Company's  offices.  The  loan  bears  interest,  payable
    quarterly in arrears, at 7% per annum, is unsecured,  and is due and payable
    in full April 2002.  The loan may be prepaid by Ms. Luby in whole or in part
    at any time. To date, Ms. Luby has prepaid $65,000 of the loan.

(3) Annual  compensation  paid to Mr.  Altman was  pursuant  to an  Amended  and
    Restated Employment Agreement dated February 1, 1999 between the Company
    and Mr. Altman.

(4) Amount  represents split dollar life insurance  premiums paid by the Company
    for the benefit of Mr. Luby.  This amount will be  reimbursed to the Company
    in the  event of Mr.  Luby's  death  or the  termination  of his  employment
    agreement under certain circumstances. Amount does not include certain other
    personal  benefits,  the total  value of which  was less than the  lesser of
    $50,000 or ten percent of the total  salary and bonus paid or accrued by the
    Company  for  services  rendered  by such  officer  during the  fiscal  year
    indicated.

    In  fiscal  1999  the  Directors  of the  Company  who  were  not  otherwise
affiliated  with the Company,  received a fee of $1,000 plus travel expenses for
attendance  at each  Board or  Committee  meeting,  while  Directors  that  were
employees of the Company did not receive any  compensation  for their attendance
at Board or Committee  meetings.  In  addition,  Mr.  Granat was awarded  15,000
options to purchase  Common Stock under the  Company's  1996  Incentive  Plan in
April 1999 upon his election to the Board of Directors.  These options, 3,000 of
which are currently exercisable, become exercisable at the rate of 3,000 options
per year.

    The Company  did not grant any stock  options or stock  appreciation  rights
during the fiscal  year ended  October  31,  1999 to the Named  Executives.  The
Company's  Uautobid.com  subsidiary,  however,  in order to provide equity based
compensation to persons  associated with the Company who have contributed to the
development  of the  subsidiary,  granted  options  to the Named  Executives  in
September 1999. Mr. Luby was granted options to purchase  1,000,000 shares;  Ms.
Luby was granted  options to purchase  200,000 shares and Mr. Altman was granted
options to purchase 10,000 shares. All of such options have an exercise price of
$.10 per share and expire ten years after the date of grant.  The  options  were
granted as a portion of a total of 1,565,000  options  granted by  Uautobid.com,
Inc. to its  directors  and officers and various  employees and directors of the
Company and outside consultants.  The Company currently owns 7,500,000 shares of
common stock of Uautobid.com, Inc., and the options, if exercised in full, would
represent  approximately  17%  of  the  issued  and  outstanding  shares  of the
subsidiary.

    The following table sets forth information  concerning the exercise of stock
options by the Named  Executives  during the fiscal year ended  October 31, 1999
and the value of  unexercised  options as of October  31, 1999 held by the Named
Executives.

               Aggregated Option Exercises in Last Fiscal Year
                                       and
                          Fiscal Year End Option Values



            Shares              Number of Securities   Value of Unexercised
             Acquired     Value   Underlying Unexercised  In-the-Money Options
            on Exercise Realized   Options at October    at October 31, 1999(1)
                                       31,1999
                                  Exercis-  Unexercis-   Exercis-    Unexercis-
                                    able        able       able          able

Chester Luby     -                 214,000     11,000    $336,643     $ 43,051
Cindy Luby     4,000     $24,650   186,834      9,000     273,224       35,450
Lawrence
 Altman          -           -      27,900     16,400      73,269       19,421




(1) Based on the  closing  price of the Common  Stock on NASDAQ on  October  31,
1999.

<PAGE>


Stock Option Plan

    The  Company's  Amended and Restated 1993 Stock Option Plan, as amended (the
"Option  Plan"),  is designed to attract,  retain and motivate key  employees by
granting them options to purchase Common Stock. The Option Plan provides for the
grant of a maximum of 344,000 shares of Common Stock and permits the granting of
stock options to employees which are either  "incentive stock options"  ("ISOs")
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or "nonqualified stock options" ("NSOs").  The Option Plan
is  administered  by a Stock Option and  Compensation  Committee of the Board of
Directors  established  for such  purpose and  consisting  of Donald  Kirsch and
William Brown, independent directors of the Company. Subject to the terms of the
Option Plan, such Committee  determines the recipients of options and the number
of options to be granted  under the Option Plan.  The Option Plan also  provides
for the Stock Option and  Compensation  Committee to establish an exercise price
for ISOs and NSOs that is not less than the fair  market  value per share at the
date of grant.  As of October 31, 1999,  options to purchase  225,566  shares of
Common  Stock  were  outstanding  under the  Option  Plan,  215,065 of which are
exercisable  at  January  13,  2000.  Under the Option  Plan,  a total of 12,400
additional options may be granted.

Incentive Plan

    The Company's  1996 Incentive Plan (the  "Incentive  Plan"),  is designed to
assist the Company in attracting and retaining selected  individuals to serve as
directors, officers, consultants, advisors and employees of the Company who will
contribute to the Company's long-term success. The Incentive Plan authorizes the
granting of incentive awards through grants of options to purchase Common Stock,
grants of Common Stock  appreciation  rights,  grants of Common  Stock  purchase
awards and grants of restricted  Common Stock.  The Incentive  Plan provides for
the grant of a  maximum  of  300,000  shares of  Common  Stock and  permits  the
granting of stock  options  which are either ISOs  meeting the  requirements  of
Section  422 of the Code,  or NSOs.  The  Incentive  Plan is  administered  by a
Committee of the Board of Directors  established for such purpose and consisting
of Donald  Kirsch and  William  Brown,  independent  directors  of the  Company.
Subject  to the terms of the  Incentive  Plan,  such  Committee  determines  the
recipients  of awards and the number of awards to be granted under the Incentive
Plan.  The  Incentive  Plan also  provides  for the  Committee  to  establish an
exercise price for ISOs and NSOs that is, in the case of ISOs, not less than the
fair market value per share at the date of grant.

    In  addition  to grants of  discretionary  awards  by the Stock  Option  and
Compensation  Committee,  the Incentive  Plan  provides for automatic  grants of
options to purchase  15,000 shares to all  independent  directors (as defined in
the Incentive  Plan) at an exercise  price equal to the fair market value of the
Common Stock,  upon the  appointment of an independent  director to the Board of
Directors.  As of October 31, 1999, options to purchase 200,800 shares of Common
Stock  were  outstanding  under  the  Incentive  Plan,   122,400  of  which  are
exercisable  at January 13, 2000.  Under the  Incentive  Plan, a total of 79,900
additional options may be granted

Employment Agreements

    On  November  1, 1998,  the Company  entered  into an Amended  and  Restated
Employment  Agreement  with  Chester J. Luby  providing  for his  employment  as
Chairman of the Board of Directors and Chief  Executive  Officer of the Company.
This  employment  agreement  terminates  on December  31, 2008.  However,  it is
automatically extended for additional one-year periods unless either the Company
or Mr. Luby provides written notice that no further extensions shall be granted.

    Mr. Luby is to be paid an annual salary of $250,000,  which may be increased
annually in the discretion of the Board of Directors.  Mr. Luby is also entitled
to an annual  bonus on  account  of each  fiscal  year  equal to the  greater of
$150,000 or 4 1/2% of the Company's  earnings  before interest and taxes for the
fiscal year.  In addition to his annual  salary and bonus,  Mr. Luby may also be
paid an annual  performance  bonus in the  discretion of the Board of Directors.
However,  the amount, if any, of this bonus is determined at the sole discretion
of the members of the Board. Mr. Luby's "Total  Compensation" (as defined in the
employment  agreement)  for any fiscal  year is defined as the sum of his annual
salary, annual bonus and annual performance bonus (if any) for that fiscal year.

    Under the terms of his employment agreement, Mr. Luby is entitled to the use
of a  leased  car and  reimbursement  for all  operating  expenses  for the car,
reimbursement for travel expenses incurred in attending conferences and meetings
of certain trade  associations and certain other business and employment related
expenses,  and premium payments for split dollar life insurance policies for the
benefit  of Mr.  Luby and his  family.  With  respect to the  split-dollar  life
insurance  policies,  the premium  payments  made by the Company are recorded as
non-interest  bearing loans and total  approximately  $312,000 as of October 31,
1999.  This amount will be  reimbursed to the Company in the event of Mr. Luby's
death  or  the   termination   of  his   employment   agreement   under  certain
circumstances.
<PAGE>

    If Mr. Luby dies during the term of his  employment  agreement,  the Company
will pay to his  estate a death  benefit  in an amount  equal to five  times Mr.
Luby's annual salary for the most recent  fiscal year  immediately  prior to his
death. If Mr. Luby's employment is terminated  because he becomes disabled,  the
Company will pay him  disability  benefits  equal to fifty  percent (50%) of his
average  Total  Compensation  during the three most recent fiscal years prior to
his  disability.  This annual  disability  benefit is payable  until Mr.  Luby's
death.  If Mr. Luby  terminates  his employment by the Company for "good reason"
(as  defined in the  employment  agreement)  or if the  Company  terminates  his
employment other than for "good cause" (as defined in the employment  agreement)
or  disability,  then  he is  entitled  to be  paid  the  amount  of  his  Total
Compensation for the Company's most recent fiscal year immediately  prior to his
termination multiplied by a factor equal to the greater of two (2) or the number
of  years  (including  fractions)  remaining  in  the  term  of  his  employment
agreement.  If Mr. Luby retires during the term of his employment agreement,  he
is to be paid  retirement  benefits  equal to fifty  percent  (50%) of his Total
Compensation  for the Company's most recent fiscal year prior to his retirement.
This annual retirement benefit is payable until Mr. Luby's death. If Mr. Luby is
an  employee  of the  Company  immediately  prior to a "Change in  Control"  (as
defined in the  employment  agreement)  of the Company all stock options he owns
immediately vest and become exercisable. In addition, the Company is required to
pay Mr. Luby an amount equal to the number of shares of Common Stock  underlying
his  options  multiplied  by the  amount,  if any,  that the  lesser  of (i) the
exercise  price of Mr. Luby's options or (ii) the closing price of the Company's
shares on the date of the Change in Control,  exceeds the average  closing price
of the Company's shares during the period beginning 180 days and ending 150 days
prior to the date of the Change in Control.  Upon  receipt of this  payment from
the Company,  Mr. Luby may then retain or exercise  his options.  Alternatively,
Mr. Luby may forfeit his options to the Company in exchange for payment equal to
the difference  between the closing price of the Company's shares on the date of
the Change in Control and the exercise price of his options.

    Mr. Luby's  employment  agreement  also contains a three year  "non-compete"
clause.  This clause does not apply in the event that Mr.  Luby  terminates  his
employment  with the Company for "good reason" or if the Company  terminates Mr.
Luby's  employment  for  reasons  other than  disability  or "proper  cause," as
defined in the employment agreement.

    On  November  1, 1998,  the Company  entered  into an Amended  and  Restated
Employment  Agreement  with  Cindy  H.  Luby  providing  for her  employment  as
President and Chief Operating Officer of the Company.  This employment agreement
terminates  on December  31, 2008.  However,  it is  automatically  extended for
additional  one-year  periods  unless  either the Company or Ms.  Luby  provides
written notice that no further extensions shall be granted.

    Ms. Luby is to be paid an annual salary of $175,000,  which may be increased
annually in the discretion of the Board of Directors.  Ms. Luby is also entitled
to an annual  bonus on  account  of each  fiscal  year  equal to the  greater of
$100,000 or 3 1/2% of the Company's  earnings  before interest and taxes for the
fiscal year.  In addition to her annual  salary and bonus,  Ms. Luby may also be
paid an annual  performance  bonus in the  discretion of the Board of Directors.
However,  the amount, if any, of this bonus is determined at the sole discretion
of the members of the Board.  Ms. Luby's Total  Compensation for any fiscal year
is defined as the sum of her annual salary,  annual bonus and annual performance
bonus (if any) for that fiscal year.

    Under the terms of her employment agreement, Ms. Luby is entitled to the use
of a leased car and  reimbursement  for all  operating  expenses for the car and
reimbursement for business expenses and employment  related expenses,  including
travel expenses incurred in attending  conferences and meetings of certain trade
associations and dues of certain associations.

    If Ms. Luby dies during the term of her  employment  agreement,  the Company
will pay to her  estate a death  benefit  in an amount  equal to five  times Ms.
Luby's annual salary for the most recent  fiscal year  immediately  prior to her
death. If Ms. Luby's employment is terminated because she becomes disabled,  the
Company will pay her  disability  benefits  equal to fifty  percent (50%) of her
average  Total  Compensation  during the three most recent fiscal years prior to
her disability.  This annual disability benefit is payable for the longer of two
(2) years or the balance of the term of her  employment  agreement.  If Ms. Luby
terminates her employment by the Company for "good reason", or if her employment
is terminated by the Company for reasons other than "good cause" or  disability,
then she is  entitled  to be paid the amount of her Total  Compensation  for the
Company's  most  recent  fiscal  year  immediately   prior  to  the  termination
multiplied  by a factor  equal to the  greater of two (2) or the number of years
(including fractions) remaining in the term of her employment agreement.  If Ms.
Luby is an employee of the Company  immediately  prior to a Change in Control of
the Company, all stock options she owns immediately vest and become exercisable.
In  addition,  the Company is  required  to pay Ms. Luby an amount  equal to the
number of shares  of Common  Stock  underlying  her  options  multiplied  by the
amount,  if any, that the lesser of (i) the exercise price of Ms. Luby's options
or (ii) the closing price of the  Company's  shares on the date of the Change in
Control,  exceeds the average  closing price of the Company's  shares during the
period beginning 180 days and ending 150 days prior to the date of the Change in
Control. Upon receipt of this payment from the Company, Ms. Luby may then retain
or exercise her options. Alternatively,  Ms. Luby may forfeit her options to the
Company in exchange  for  payment  equal to the  difference  between the closing
price of the  Company's  shares  on the date of the  Change in  Control  and the
exercise price of her options.
<PAGE>

    Ms. Luby's  employment  agreement  also contains a three year  "non-compete"
clause.  This clause does not apply in the event that Ms.  Luby  terminates  her
employment  with the Company for good  reason or if the Company  terminates  Ms.
Luby's employment for reasons other than disability or proper cause.

    On  February  1, 1999,  the Company  entered  into an Amended  and  Restated
Employment  Agreement  with Lawrence J. Altman  providing for his  employment as
Senior Vice President,  Marketing,  of the Company.  This  employment  agreement
terminates on January 31, 2004.

    Mr. Altman is to be paid an annual salary of $70,710, which may be increased
annually  in the  discretion  of the  Company.  Mr.  Altman is also  entitled to
receive  monthly  commissions  equal  to 2% of (i) all  administrative  fees for
vehicle service contracts and vehicle warranties paid to the Company during each
calendar month minus (ii) the aggregate selling expenses incurred by the Company
for such month  minus (iii )  $150,000.  In  addition  to his annual  salary and
monthly commissions,  Mr. Altman may also be paid an annual performance bonus in
an amount,  if any,  determined  at the sole  discretion  of the  members of the
Board.  Mr.  Altman's  "Total   Compensation"  (as  defined  in  the  employment
agreement)  for any fiscal  year is  defined  as the sum of his  annual  salary,
monthly commissions and annual performance bonus (if any) for that fiscal year.

    If Mr. Altman dies during the term of his employment agreement,  the Company
will  pay to his  estate  a  death  benefit  in an  amount  equal  to the  Total
Compensation  paid to Mr. Altman for the Company's most recent fiscal year prior
to his  death.  If Mr.  Altman's  employment  is  terminated  because he becomes
disabled,  the Company will pay him  disability  benefits equal to fifty percent
(50%) of his Total  Compensation  for the  Company's  most  recent  fiscal  year
immediately  prior  to Mr.  Altman's  disability  termination.  Such  disability
benefits  are to be paid for the longer of two years or the  balance of the term
of the  employment  agreement.  If Mr. Altman  terminates  his employment by the
Company for "good reason" or if the Company terminates his employment other than
for "proper cause" or  disability,  then he is entitled to be paid the amount of
his Total Compensation for the Company's most recent fiscal year multiplied by a
factor of two.

    If Mr. Altman is an employee of the Company  immediately  prior to a "Change
in Control"  of the  Company,  all stock  options he owns  immediately  vest and
become  exercisable.  In addition,  the Company is required to pay Mr. Altman an
amount equal to the number of Shares  underlying  his options  multiplied by the
amount,  if any, by which the lesser of (i) the exercise  price of Mr.  Altman's
options or (ii) the  closing  price of the  Company's  Shares on the date of the
Change in Control  exceeds the average  closing  price of the  Company's  Shares
during  the period  beginning  180 days and ending 150 days prior to the date of
the Change in Control. Upon receipt of this payment from the Company, Mr. Altman
may then retain or exercise his options. Alternately, Mr. Altman may forfeit his
options to the Company in exchange for payment equal to the  difference  between
the closing price of the  Company's  Shares on the date of the Change in Control
and the exercise price of his options.

    Mr. Altman's employment agreement contains a two year "non-compete"  clause.
This  clause  does  not  apply  in the  event  that Mr.  Altman  terminates  his
employment  with the Company for good  reason or if the Company  terminates  Mr.
Altman's employment for reasons other than disability or proper cause.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

    The  following  table  sets  forth  information   regarding  the  beneficial
ownership of shares of Common Stock,  as of January 13, 2000, by each person who
beneficially  owns more than five (5%) percent of such shares,  by each director
of the Company,  by each  executive  officer of the Company and by all directors
and executive officers of the Company as a group. Each person named in the table
has sole voting and investment  power with respect to all shares of Common Stock
shown as  beneficially  owned by him or it, except as otherwise set forth in the
notes to the table.


<PAGE>



                                              Shares        Percent of Shares
Name and Address of                         Beneficially      Beneficially
  Beneficial Owner                             Owned            Owned (1)

Chester J. Luby . .  . . . . . . .          705,800 (2)           14.4%
  333 Earle Ovington Blvd.
  Mitchel Field, New York 11553

Joan S. Luby  . . . . . . . . . . .         492,500 (3)           10.5%
  333 Earle Ovington Blvd.
  Mitchel Field, New York 11553

Cindy H. Luby . . . . . . . . . . .         210,394 (4)            4.3%
  333 Earle Ovington Blvd.
  Mitchel Field, New York 11553

Lawrence J. Altman . . . . . . . . .         62,300 (5)            1.3%
  333 Earle Ovington Blvd.
  Mitchel Field, New York 11553

Zvi D. Sprung. . . . . . . . . . . .         21,400 (6)             -
  333 Earle Ovington Blvd.
  Mitchel Field, New York 11553

William H. Brown . . . . . . . . . .         18,000 (7)             -

Donald Kirsch . . . . . . . . . . . .        15,000 (8)             -

Harvey Granat . . . . . . . . . . . .        15,000 (9)             -

First Wilshire Securities Management,
 Inc. . . . . . . . . . . .                 476,300 (10)          10.2%

All directors and executive officers
 as a group (seven persons)  . .           1,047,894              20.2%

(1) Amount  and  Percent  of Shares  Beneficially  Owned was  computed  based on
    4,674,684  shares of Common  Stock  outstanding  on January 13, 2000 and, in
    each person's  case,  the number of shares of Common Stock issuable upon the
    exercise of options and/or  Independent  Director  Warrants  (defined below)
    held by such person, or in the case of all directors and executive  officers
    as a group,  the number of shares of Common Stock issuable upon the exercise
    of options and/or Independent  Director Warrants held by all such members of
    such  group,  but does not  include  the  number of  shares of Common  Stock
    issuable  upon  the  exercise  of  any  other  outstanding   options  and/or
    Independent Director Warrants.

(2) Includes 225,000 shares issuable upon the exercise of stock options, 221,000
    of  which  are  currently  exercisable  and  the  balance  of  which  become
    exercisable at the rate of 4,000 options per year.

(3) Includes 15,000 shares  issuable upon the exercise of stock options,  all of
    which are currently exercisable.

(4) Includes 195,834 shares issuable upon the exercise of stock options, 191,834
    of  which  are  currently  exercisable  and  the  balance  of  which  become
    exercisable at the rate of 4,000 options per year.  Also includes 960 shares
    owned by Ms.  Luby's  husband,  as to which Ms.  Luby  disclaims  beneficial
    ownership.

(5) Includes 40,900 shares  issuable upon the exercise of stock options,  29,400
    of  which  are  currently  exercisable  and  the  balance  of  which  become
    exercisable at the rate of 1,700 options per year.

(6) All of these shares are issuable upon the exercise of stock  options,  9,100
    of  which  are  currently  exercisable  and  the  balance  of  which  become
    exercisable at the rate of 4,900 options per year.
<PAGE>

(7) Includes (a) 10,000 shares issuable upon the exercise of stock options,  all
    of which are  currently  exercisable  and (b)  1,200  shares  issuable  upon
    exercise of warrants to purchase  Common  Stock (the  "Independent  Director
    Warrants"), all of which are currently exercisable.

(8) All of these shares are issuable upon the exercise of stock options,  all of
    which are currently exercisable.

(9) All of these shares are issuable upon the exercise of stock  options,  3,000
    of  which  are  currently  exercisable  and  the  balance  of  which  become
    exercisable at the rate of 3,000 options per year.

(10)Based on  information  provided in Schedule  13G  supplied to the Company in
    February 1998.  First  Wilshire  Securities  Management,  Inc., a broker and
    investment advisor, has sole voting power over 96,000 of the 476,300 shares.


Item 13.  Certain Relationships and Related Transactions

    In January 1998, the Company  entered into an agreement with a subsidiary of
Orion  Capital  ("Orion")  to  underwrite  a portion of the  insurance  coverage
arranged by the Company for its service contract customers.  Concurrently, Orion
entered into a reinsurance  agreement with Target which provided reinsurance for
losses to Orion under its agreement with the Company. During fiscal 1999, Target
received  approximately  $15,000 in premiums under its agreement with Orion.  In
addition,  in January  1998,  NSC entered into a  reinsurance  agreement  with a
subsidiary of Orion which provides  reinsurance  for losses to NSC under certain
circumstances.  Concurrently,  the Company  entered into agreements to indemnify
Orion and Target for any losses  incurred under the  aforementioned  agreements.
There were no such losses,  and there were no payments made by the Company under
the indemnification agreements in fiscal 1999.



<PAGE>


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

  A) Exhibits

  Exhibit
  No.                          Description

  2.1 Certificate of Merger of INDS  Holdings,  Inc.  ("Holdings")  into the
      Company.(1)
  3.1 Restated Certificate of Incorporation of the Company.(1)
  3.2 Bylaws of the Company, as amended.(1)
  3.3 Amended and Restated  Certificate of Incorporation of the Company.(1)
  3.4 Amended and Restated Bylaws of the Company.(1) 4.1 Form of Common  Stock
      Certificate.(1)
  4.2 Form of Warrant  Agreement  and Form of  Warrant  Certificates.(1)
  4.3 Form of Unit Purchase Option Agreement and Form of Unit PurchaseOption
      Certificate.(1)
  4.4 Rights  Agreement  dated as of October  24,  1995  between the Company and
      Continental Stock Transfer & Trust Company,  which includes as exhibits
      the Form of Right Certificate as Exhibit A and the Summary of
      Rights to Purchase Common Shares as Exhibit B.(2)
 10.1 Amended and Restated Employment  Agreement between the Company and
      Chester J. Luby, dated as of November 1, 1998.(5)
 10.2 Amended and Restated Employment  Agreement between the Company and
      Cindy H. Luby, dated as of November 1, 1998.(5)
 10.3 Amended and Restated Employment  Agreement between the Company and
      Lawrence J. Altman, dated as of February 1, 1999.
 10.4 Amended and Restated 1993 Stock Option Plan.(1)
 10.5 Restated  Contingent  Claim  Reserve  and  Administration   Escrow
      Contract, dated  August  7,  1991,  among  Seller  (as predecessor
      -in-interest  to the Company), The Travelers Indemnity Company
      ("Travelers"), Brokerage Professionals, Inc. ("BPI")
       and The Massachusetts Company, Inc. (the "Escrow Agent").(1)
 10.6 Replacement Administrator Agreement,  dated October 1, 1991, among
      INDS Group Inc. (The "Seller") (as  predecessor-in-interest  to  the
      Company), Travelers, BPI and Automotive Professionals, Inc. ("API").(1)
10.7  INDS/BPI-Program  Agreement,  dated  October 1, 1991,  among Seller (as
      predecessor-in-interest to the Company), Travelers and BPI.(1)
10.8  Escrow Account  Agreement for Automobile  Vehicle Service Contract
      Primary Loss Primary Loss Reserve  Funds,  dated August 22, 1991,  among
      Seller (as predecessor-in-interest to the Company), BPI and the Escrow
      Agent.(1)
10.9  Assumption of  Contracts,  Rights and Actions,  dated  November 1,
      1991, among the Company, Seller and Travelers.(1)
10.10 Assumption of Contracts,  Rights and Actions,  dated November 1, 1991,
      among the Company, Seller and BPI.(1)
10.11 Assumption of Contracts,  Rights and Actions,  dated November 1, 1991,
      among the Company, Seller and the Escrow Agent.(1)
10.12 Assumption of Contracts,  Rights and Actions,  dated November 1, 1991,
      among the Company,   Seller  and  the  API.(1)  10.13  Form  of
      Independent  Agent Agreement.(1)
10.14 Form of Administrator  Agreement.(1)
10.15 Form of Dealer Administrator Agreement.(1)
10.16 Form  of  Service  Contract  Financing  Program   Agreement.(1)
10.17 Amendment to Amended and Restated  1993 Stock  Option  Plan.(1)
10.18 Lease, dated December 2, 1994, between The Omni Partners, a Limited
      Partnership, as lessor, and the Company, as lessee.(3)


<PAGE>


Exhibit
  No.                          Description


10.19 1996 Incentive Plan. (4)
21    List of Subsidiaries.
23    Consent of Experts and Counsel.
27    Financial Data Schedule. (6)


 (1) Incorporated by reference to Registration  Statement on Form SB-2, File No.
     33-74222-NY.
 (2) Incorporated by reference to Registration  Statement on Form 8-A dated
     October 26, 1995.
 (3) Incorporated  by reference to Annual Report on  Form 10-KSB for the
     fiscal year ended October 31, 1994.
 (4) Incorporated by reference to  Registration  Statement on Form S-8, File
     No. 333-09571.
 (5) Incorporated  by reference to Annual Report on  Form 10-KSB for the
     fiscal year ended October 31, 1998.
 (6) This Exhibit is filed for EDGAR filing purposes only.



 (B) Reports on Form 8-K.

    No  reports on Form 8-K were  filed  during  the last  quarter of the period
 covered by this report.



<PAGE>


                                   SIGNATURES


      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
  Exchange Act of 1934,  the registrant has duly caused this report to be signed
  on its behalf by the undersigned, thereunto duly authorized.

                            INTERSTATE NATIONAL DEALER SERVICES, INC.

  January 19, 2000

                            By             /s/Cindy H. Luby
                                              Cindy H. Luby
                                  President and Chief Operating Officer


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
  report  has been  signed  below by the  following  persons  on  behalf  of the
  registrant and in the capacities indicated, on the date set forth above.

           Signature                             Title


        /s/Chester J. Luby           Chairman of the Board
         Chester J. Luby               (Chief Executive Officer)


        /s/Cindy H. Luby             President and Director
         Cindy H. Luby                 (Chief Operating Officer)


        /s/Zvi D. Sprung             Chief Financial Officer
         Zvi D. Sprung                 (Chief Accounting Officer)


        /s/William H. Brown          Director
          William H. Brown


        /s/Donald Kirsch             Director
          Donald Kirsch


        /s/Harvey Granat             Director
          Harvey Granat