U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
[ ] 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.: 33-42904
INTELLIGENT DECISION SYSTEMS, INC.
(Exact name of business issuer as specified in charter)
DELAWARE 38-3286394
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Weyhill Building, Suite 400, 2025 East Beltline Ave., SE,
Grand Rapids, Michigan 49546
(Address of Principal Executive Offices)
616-285-5830
(Issuer's Telephone No.)
No Changes
(Former name former address and former fiscal year if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [x] No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date.
Title of Class: Common Stock
Shares outstanding at: November 13, 1996: 14,223,065
Transitional Small Business Disclosure Format: Yes [ ]; No [x]
INTELLIGENT DECISION SYSTEMS, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and June 30, 1996 1
Condensed Consolidated Statements of Operations
for the three months ended September
30, 1996 and September 30, 1995 and cumulative
amounts since inception 2
Condensed Consolidated Statements of Cash Flows
for the three months ended September
30, 1996 and September 30, 1995 and cumulative
amounts since inception 3
Notes to Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis or Plan
of Operation 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Intelligent Decision Systems, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Balance Sheets
September 30, June 30,
1996 1996
------------ ------------
(unaudited)
Assets
Current Assets
Cash $2,205,299 $3,064,329
Accounts receivable (net) 79,108 53,253
Net investment in leases 502,991 143,394
Inventories 160,598 146,940
Contractual rights 271,666 251,250
Prepaid expenses 10,167 16,766
--------- ---------
Total current assets 3,229,829 3,675,932
Property and equipment 410,067 399,584
Other Assets
Contractual rights 117,362 194,445
Net investment in leases 101,336 105,590
Intellectual property 1,636,905 1,726,191
Other 167,953 158,736
--------- ---------
$5,663,452 $6,260,478
========= =========
Liabilities & Stockholders' Equity
Current Liabilities
Bank overdraft $ 0 $ 81,044
Current portion of long term debt 46,653 44,534
Notes payable 43,801 9,000
Accounts payable 618,399 470,946
Accrued expenses 322,493 575,033
--------- ---------
Total current liabilities 1,031,346 1,180,557
Long term debt 124,022 136,758
Commitments and contingencies 0 0
Stockholders' Equity
Preferred 1 2
Common 13,298 12,323
Additional paid in capital 13,084,945 12,443,319
Deficit accumulated during the
development stage (8,590,160) (7,512,481)
---------- ----------
Total stockholders' equity 4,508,084 4,943,163
---------- ----------
$ 5,663,452 $ 6,260,478
========== ==========
See accompanying notes to condensed consolidated financial statements.
1
Intelligent Decision Systems, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Operations (unaudited)
Three Months Ended Cumulative
September 30, Amounts
------------------------ Since
1996 1995 Inception
--------- --------- ------------
Revenues $ 225,763 $ 28,120 $1,290,548
Costs of Goods and Services 364,941 62,249 913,386
--------- --------- ---------
Gross Profit (139,178) (34,129) 377,162
Expenses
Selling 228,598 78,356 306,954
Administration 366,469 203,777 3,740,069
Research & development 221,442 209,595 4,216,430
Depreciation & amortization 138,427 20,895 628,151
Interest expense 12,690 51,767 346,625
--------- --------- ---------
967,626 564,390 9,238,229
Net income from operations (1,106,804) (598,519) (8,861,067)
Other income (expense) 29,125 (149,700) 280,207
Provision for income taxes 0 0 0
--------- --------- ---------
Net income $(1,077,679) $ (748,219) $(8,580,860)
========= ========= =========
Earnings per share ($0.10) ($0.10)
==== ====
Weighted average shares 11,045,816 7,314,636
========== =========
See accompanying notes to condensed consolidated financial statements.
2
Intelligent Decision Systems, Inc. and Subsidiaries
(a development stage company)
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months Ended Cumulative
September 30, Amounts
------------------------ Since
1996 1995 Inception
--------- --------- ------------
Cash flows from
operating activities $(1,479,915) $ (627,977) $(6,123,103)
Cash flows from
investing activities (45,899) 156,250 (552,083)
Cash flows from
financing activities 585,740 0 8,880,485
--------- --------- ----------
Net change in
cash and equivalents (859,030) (471,727) 2,205,299
Beginning cash and equivalents 3,064,329 620,992 0
--------- --------- ----------
Ending cash $ 2,205,299 $ 149,265 $ 2,205,299
========= ========= ==========
See accompanying notes to condensed consolidated financial statements.
3
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------
Note A -- Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions contained in Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997. The unaudited condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended June 30, 1996.
Note B -- Accounts Receivable
Trade accounts receivable as of September 30, 1996 and as of June 30, 1996 are
net of allowances for doubtful accounts of $8,000 and $8,000, respectively.
Note C -- Property, Plant and Equipment
The major classes of property, plant and equipment were as follows:
Sept. 30, June 30,
1996 1996
------------ ------------
Leasehold improvements $ 8,738 $ 8,738
Furniture and fixtures 127,963 127,288
Office equipment 107,389 80,297
Production equipment 2,082 2,082
Computer equipment 424,390 406,258
------------ ------------
$ 670,562 $ 624,663
Less accumulated depreciation (260,495) (225,079)
------------ ------------
$ 410,067 $ 399,584
============ ============
4
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------
Note D -- Stockholders' Equity
Changes in stockholders' equity for the three months ended September 30, 1996
are:
Common Preferred Accumulated
Shares Shares Amount Deficit Total
---------- --------- ----------- -------------- --------------
Balance at June 30, 1996 12,323,332 1,631 $12,455,644 $(7,512,481) $4,943,163
Conversion of warrants 515,100 515,100 515,100
Issued for services 3,000 5,125 5,125
Conversion of
preferred stock 456,821 (544)
Options issued for
services 122,375 122,375
Loss from operations (1,077,679) (1,077,679)
---------- ----- ---------- --------- ---------
Balance at Sept. 30, 1996 13,298,253 1,087 $13,098,244 $(8,590,160) $4,508,084
========== ===== ========== ========= =========
The par value of the Company's sole class of common stock is $.001. The par
value of the Company's Series A preferred stock is $.001 and its carrying value
is $1,000 per share.
Note E -- Earnings Per Share Computation
Earnings per share amounts are based on the weighted average number of shares
outstanding exclusive of warrants and options in view of the fact that inclusion
of these common stock equivalents would be anti-dilutive.
Note F -- Supplemental Disclosure of Cash Flow Information
Cash paid for interest during the three months ended September 30, 1996 was
$92,742 and cash paid for income taxes was $--0--.
Cash paid for interest during the three months ended September 30, 1995 was
$61,389 and cash paid for income taxes was $--0--.
5
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------
Note H -- Stock Based Compensation
Effective December 15, 1995, the Company has adopted SFAS 123 "Accounting for
Stock-Based Compensation" for non-employee stock purchase options and warrants
granted from that date forward. The Company has elected to account for stock
based compensation plans involving employees according to the provisions of APB
25 as allowed by SFAS 123. The adopted standard is not applicable to stock
derivatives granted prior to adoption and no "catch-up" adjustments are allowed
or required. The effect of the change in the method of accounting for
derivatives granted to non-employees since its adoption results to an additional
charge to expense of $122,375 for the three months ended September 30, 1996 over
the amount of $0 that would have been recorded under the old standard. The
effect of the change in accounting method on future financial statements cannot
be reasonably estimated at this time.
At September 30, 1996, the number of stock derivatives, exclusive of Series A
preferred stock, outstanding were:
Amount
of Exercise Expiration
Shares Prices Dates
----------- ------------ -------------
Balance at June 30, 1996 10,239,384 $.50 - $20.00 12/96 - 8/2000
Issued for services 97,500 $1.625 12/98
Issued for services 97,500 $1.625 9/2001
Issued for services 100,000 $2.25 9/99
Issued for services 2,000 $1.50 8/2000
Warrants converted (515,100)
Warrants expired (210,900)
----------
Balance at
September 30, 1996 9,810,384
==========
Note I -- Commitments and Contingencies
On June 28, 1996, the Company acquired certain assets of The Neptune Group,
Inc., a leasing company. In connection with this acquisition, the Company
assumed certain liabilities of The Neptune Group, Inc. including that certain
lawsuit entitled The Neptune Group, Inc. vs. MKT, Inc. (Case No. 3 94CV-587 AWT)
filed in the United States District Court for the District of Connecticut on
April 8, 1994. This case involves claims by The Neptune Group, Inc. for a
declaratory judgment and damages for breach of contract and a counterclaim by
MKT, Inc. claiming that certain commissions were unpaid in the amount of
$753,419.50 plus interest. Without further discovery from MKT, Inc. and third
parties, the Company has no basis to estimate the possible damages on The
Neptune Group, Inc.'s claims or the outcome with respect to MKT, Inc.'s
counterclaims. Management does not believe that this legal action, when
ultimately concluded and determined, will have a material adverse effect upon
IDSI's financial condition, results of operations or liquidity.
Management is aware that the Company is the subject of an investigation by the
Staff of the Securities and Exchange Commission. Management believes that this
investigation primarily concerns certain stock offerings to overseas investors
made by the Company in reliance upon Regulation S under the Securities Act, but
may relate to other operational matters as well. The management of the Company
believes that the Company has not engaged in any wrongdoing and intends to
cooperate fully with such investigation.
6
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------
Note J -- Subsequent Events
On October 29, 1996 the Company entered into a consulting agreement with James
N. Lane, R. Wayne Fritzsche and Anthony Kamin, which agreement provides that
Messrs. Lane, Fritzsche and Kamin will advise the Company on strategic planning,
licensing, technical issues, identify strategic alliances/partners and assist
the Company in the development of business opportunities. As consideration for
the services, the Company has granted each of the above individuals stock
options to purchase 650,000 shares of common stock of the Company at an exercise
price of $1.25 per share. The Company has also agreed to appoint two of the
above individuals (or their designee) to two seats on the board of directors of
the Company, subject to certain conditions and limitations.
Subsequent to September 30, 1996, pursuant to the provisions of an existing
subscription agreement, 1,087 shares of the Company's Series A preferred stock
(carrying value of $1,087,000) was converted into 902,812 shares of the
Company's common stock.
7
Intelligent Decision Systems, Inc.
Management's Discussion and Analysis or
Plan of Operation
For the Three Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
Results of Operations
Operations for the first three months of fiscal 1997 were comprised of
continuing development of the Vision system (a comprehensive hardware and
software product designed for nursing home management), modification and
updating of the Focus system (a comprehensive hardware and software product
designed for physicians' office management), and mostly unrelated leasing
activity.
Net revenues for the first fiscal quarter were as follows:
Three Months Ended Sept. 30, % incr.
1996 1995 (decr.)
-------- ------- --------
Computer systems $ 67,273 $ 28,120 139.2
Leasing 158,490 -- n/a
-------- -------
$ 225,763 $ 28,120 702.9
======== =======
The increase in computer system sales of $39,153 was due to increase in the
number of Vision systems sold. In total, 3 Vision systems were sold, and one
unit was returned, in the first quarter of fiscal 1997, bringing the total
number of Vision system installations to 20 at September 30, 1996. The total of
Focus systems installed remained at 5 as of the same date. Total backlog for
Vision systems was 15 at September 30, 1996 and was -0- for Focus systems as of
the same date. In general, sales of Vision systems have fallen short of
management's expectations due to delays in the completion of product
enhancements which were not planned or included in the initial introduction of
the product.
The Company purchased the operations of The Neptune Group, Inc. on June 28,
1996 and, as revenues are recorded from that date only, there were no leasing
revenues for the Company in the first quarter of fiscal 1996. Leasing revenues
for the first quarter of fiscal 1997 primarily resulted from leases that were
written with health care equipment users and resold to various financing
companies.
Costs of goods and services sold were as follows:
Three Months Ended Sept. 30, % incr.
1996 1995 (decr.)
-------- ------- --------
Computer systems $ 216,661 $ 62,249 248.1
Leasing 148,280 -- n/a
-------- -------
$ 364,941 $ 62,249 486.3
======== =======
Increases in costs associated with computer systems sales were due to slightly
increased unit sales and an increase in the cost of providing users with
technical support. In general, 36 months of technical support is included in the
system bundles that are sold.
Leasing costs increased with the commencement of leasing activity in the quarter
ended September 30, 1996.
Gross profit from operations decreased to $(139,178) from $(34,129) primarily
due to the costs of providing technical support to the 20 new Vision system
users.
8
Intelligent Decision Systems, Inc.
Management's Discussion and Analysis or
Plan of Operation
For the Three Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
Operating expenses were:
Three Months Ended Sept. 30, % incr.
1996 1995 (decr.)
-------- ------- --------
Selling $ 228,598 $ 78,356 191.7
Administration 366,469 203,777 79.8
Research & development 221,442 209,595 5.6
Depreciation & amortization 138,427 20,895 562.5
Interest expense 12,690 51,767 (75.5)
-------- -------
$ 967,626 $ 564,390 71.4
======== =======
Selling expenses increased due to increased sales commissions associated with
Vision system sales and as a result of expenses incurred during an attempt to
build an internal sales force for the Focus system. Most of these activities
were discontinued subsequent to September 30, 1996.
Administrative expenses increased due primarily to fees of $122,375 paid to a
consultant for a search for independent directors. The fees were paid in the
form of stock purchase options.
Research and development costs remained at levels similar to the previous year.
Depreciation and amortization increased due to amortization associated with
"Screenware", a proprietary computer program application generating language
that was purchased (for purposes of accounting) from Resource Finance Group,
Ltd. on April 1, 1996.
Interest expense decreased due to the retirement of private placement debt,
which occurred during June of 1996. The remaining interest expense relates
primarily to equipment purchased via capital leases.
Other expense for the first fiscal quarter of 1996 included a write-down of
Resource Finance Group, Ltd. common stock totaling $156,250. Digital Sciences,
Inc. owned one million shares of Resource Finance Group, Ltd. until just prior
to the April 1, 1996 merger of the companies.
No income tax provision was made for either period as losses were incurred. Net
tax assets were not recorded due to the uncertainty of future earnings.
Total employment increased to 42 at September 30, 1996 from 2 at September 30,
1995. For the first quarter of fiscal 1996, the Company purchased its
programming resources and administrative services from outside contractors,
including Resource Finance Group, Ltd.
9
Intelligent Decision Systems, Inc.
Management's Discussion and Analysis or
Plan of Operation
For the Three Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
During the first quarter of fiscal 1997, the Company used cash of $1,479,915 in
its operations, of which $1,077,679 resulted from losses from operations.
Accrued expenses, mostly related to liabilities assumed through the acquisition
of The Neptune Group, Inc., were reduced by $252,543 via cash payments. Lease
receivables increased by $363,853.
The Company purchased equipment totaling $45,899 during the three months ended
September 30, 1996. Payments for reduction of long term debt totaled $10,617.
Sources for the cash used, as described above, included cash received from the
exercise of warrants and options of $515,100 and proceeds from notes payable
of $34,801. The Company also used $859,030 of its cash reserves during the three
months ended September 30, 1996.
Cash and cash equivalents were $2,205,299 at September 30, 1996, which
represented approximately nine months of operating capital, assuming no increase
in current sales levels. Management believes that sales will increase over the
current levels during the remainder of the fiscal year, and that the increase in
revenues, as supplemented by the Company's cash reserves, will be sufficient to
provide adequate working capital for the next twelve months of operations.
Commitments and Contingencies
On June 28, 1996, the Company acquired certain assets of The Neptune Group,
Inc., a leasing company. In connection with this acquisition, the Company
assumed certain liabilities of The Neptune Group, Inc. including that certain
lawsuit entitled The Neptune Group, Inc. vs. MKT, Inc. (Case No. 3 94CV-587 AWT)
filed in the United States District Court for the District of Connecticut on
April 8, 1994. This case involves claims by The Neptune Group, Inc. for a
declaratory judgment and damages for breach of contract and a counterclaim by
MKT, Inc. claiming that certain commissions were unpaid in the amount of
$753,419.50 plus interest. Without further discovery from MKT, Inc. and third
parties, the Company has no basis to estimate the possible damages on The
Neptune Group, Inc.'s claims or the outcome with respect to MKT, Inc.'s
counterclaims. Management does not believe that this legal action, when
ultimately concluded and determined, will have a material adverse effect upon
IDSI's financial condition, results of operations or liquidity.
Management is aware that the Company is the subject of an investigation by the
Staff of the Securities and Exchange Commission. Management believes that this
investigation primarily concerns certain stock offerings to overseas investors
made by the Company in reliance upon Regulation S under the Securities Act, but
may relate to other operational matters as well. The management of the Company
believes that the Company has not engaged in any wrongdoing and intends to
cooperate fully with such investigation.
10
Intelligent Decision Systems, Inc.
Management's Discussion and Analysis or
Plan of Operation
For the Three Months Ended September 30, 1996 and 1995
- --------------------------------------------------------------------------------
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB, including all documents incorporated by reference, includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical facts included in this Form 10-QSB (and in documents incorporated by
reference), including without limitation, statements under "Management's
Discussion and Analysis or Plan of Operation" regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by this section.
Subsequent Events
On October 29, 1996 the Company entered into a consulting agreement with James
N. Lane, R. Wayne Fritzsche and Anthony Kamin, which agreement provides that
Messrs. Lane, Fritzsche and Kamin will advise the Company on strategic planning,
licensing, technical issues, identify strategic alliances/partners and assist
the Company in the development of business opportunities. As consideration for
the services, the Company has granted each of the above individuals stock
options to purchase 650,000 shares of common stock of the Company at an exercise
price of $1.25 per share. The Company has also agreed to appoint two of the
above individuals (or their designee) to two seats on the board of directors of
the Company, subject to certain conditions and limitations.
Subsequent to September 30, 1996, pursuant to the provisions of an existing
subscription agreement, 1,087 shares of the Company's Series A preferred stock
(carrying value of $1,087,000) was converted into 902,812 shares of the
Company's common stock.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
No other reportable events have occurred which would require
modification of the discussion under Legal Proceedings set
forth in the Company's Form 10-KSB Annual Report for the
fiscal year end June 30, 1996.
Item 2. Changes in Securities:
None.
Item 3. Defaults by the Company upon its Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
A) Exhibits.
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K filed during the quarter ended 9/30/96.
1. The Company filed a report on Form 8-K dated July 12,
1996 reporting the acquisition of the assets of the
Neptune Group, Inc.
2. The Company filed an amended report on Form 8-K dated
August 6, 1996 reporting the acquisition of the asset
of the Neptune Group, Inc.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELLIGENT DECISION SYSTEMS, INC.
Date: November 14, 1996 /s/ Mark A. Babin
--------------------------
Mark A. Babin
President
Chief Financial Officer
[Mark A. Babin is signing in the dual capacities as (i) the principal financial
officer, and (ii) a duly authorized officer of the Company.]
13