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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1996
Commission file number 1-9330
INTELLIGENT SYSTEMS CORPORATION
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(Exact name of Registrant as specified in its charter)
GEORGIA 58-1964787
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4355 SHACKLEFORD ROAD, NORCROSS, GEORGIA 30093
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 381-2900
Indicate by a 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
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As of June 30, 1996, 5,312,867 shares of Common Stock were outstanding.
No exhibits are filed with this report.
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ITEM 1. FINANCIAL STATEMENTS
INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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ASSETS (Unaudited) (Audited)
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<S> <C> <C>
Current assets:
Cash $ 2,255 $ 520
Accounts receivable, net 4,758 3,964
Notes and interest receivable 2,910 3,127
Inventories 672 502
Other current assets 491 534
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Total current assets 11,086 8,647
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Long-term investments 12,716 10,922
Long-term notes receivable 1,561 1,356
Property and equipment, at cost less accumulated depreciation and amortization 1,552 1,619
Excess of cost over underlying net assets of businesses acquired,
net of accumulated amortization 629 786
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Total assets $27,544 $ 23,330
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Short-term borrowings $ -- $ 1,488
Accounts payable 1,487 1,632
Accrued expenses and other current liabilities 2,218 1,435
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Total current liabilities 3,705 4,555
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Long-term debt -- 50
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Stockholders' equity:
Common stock, $.01 par value, 20,000,000 authorized, 5,312,867
outstanding at June 30, 1996 and December 31, 1995 53 53
Paid-in capital 24,756 24,756
Foreign currency translation adjustment (150) (153)
Unrealized gain in available-for-sale securities 6,608 4,476
Accumulated deficit (7,428) (10,407)
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Total stockholders' equity 23,839 18,725
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Total liabilities and stockholders' equity $27,544 $ 23,330
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</TABLE>
The accompanying notes are an integral part of these balance sheets.
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INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $ 6,451 $ 7,360 $ 12,536 $ 13,293
Expenses:
Cost of sales 3,375 3,454 6,723 6,568
Marketing 1,325 1,014 2,464 2,063
General & administrative 2,180 2,520 4,072 5,021
Research & development 81 428 122 800
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Loss from operations (510) (56) (845) (1,159)
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Other income (expense):
Interest income, net 101 115 186 240
Investment income (expense) 3,896 (25) 3,658 (49)
Other, net 28 54 (13) 110
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Income (loss) before income tax provision and
minority interest 3,515 88 2,986 (858)
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Income tax provision -- 62 -- 62
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Income (loss) before minority interest 3,515 26 2,986 (920)
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Minority interest 4 44 7 16
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Net income (loss) $ 3,511 $ (18) $ 2,979 $ (936)
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Net income (loss) per share based upon
weighted average shares $ 0.66 $ 0.00 $ 0.56 $ (0.17)
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Weighted average shares outstanding 5,312,867 5,360,001 5,312,867 5,429,935
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</TABLE>
The accompanying notes are an integral part of these statements.
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INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
CASH PROVIDED BY (USED FOR): 1996 1995
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<S> <C> <C>
Net income (loss) $ 2,979 $ (936)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities, net of
effects of acquisitions and dispositions:
Depreciation and amortization 408 417
Loss (gain) from sale of assets (3,523) 31
Equity in net loss (income) of affiliates (136) (18)
Changes in operating assets and liabilities:
Accounts receivable (700) (1,302)
Inventories (226) (324)
Other current assets 44 406
Accounts payable (18) 580
Accrued expenses and other current liabilities 793 160
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Cash used for continuing operations (379) (950)
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INVESTING ACTIVITIES:
Proceeds from sale of investment 4,664 1,297
Decrease in net assets/liabilities of
discontinued operations -- 939
Acquisitions of companies, net of cash acquired (30) (8)
Increase (decrease) in minority interests -- (1)
Acquisitions of long-term investments (625) (389)
Repayments of (advances under) notes receivable, net 13 (1,295)
Purchases of property and equipment, net (423) (417)
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Cash provided by investing activities 3,599 126
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FINANCING ACTIVITIES:
Net borrowings (repayments) under short-term
borrowing arrangements (1,488) 1,288
Purchase and retirement of stock -- (509)
Foreign currency translation adjustment 3 46
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Cash provided by (used for) financing activities (1,485) 825
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Net increase in cash 1,735 1
Cash at beginning of period 520 970
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Cash at end of period $ 2,255 $ 971
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</TABLE>
The accompanying notes are an integral part of these statements.
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INTELLIGENT SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements furnished herein reflect all adjustments, consisting
of normal recurring accruals, which, in the opinion of management, are
necessary for a fair statement of the results for the periods for which they
are presented. Such results, however, are not necessarily indicative of the
results to be expected for the full year. The accounting policies followed
by the Company are set forth in Note 1 to the Consolidated Financial
Statements in the Company's Report on Form 10-K for the year ended December
31, 1995, previously filed with the Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company sold its interest in Intelligent Systems Japan (ISJ), a Japanese
subsidiary, in December 1995. Consequently, the results of operations of ISJ
are included in the second quarter and year-to-date periods in 1995 but are not
included in the results for the corresponding periods in 1996.
RESULTS OF OPERATIONS
Sales - Revenue from continuing operations is derived from two major areas:
technology-related products and services, and health care services. For the
three month period ended June 30, 1996, net sales were $6,451,000 compared to
$7,360,000 for the second quarter last year. After eliminating the revenue
related to ISJ in the second quarter last year, the net sales growth from
comparable continuing operations would have been 2 percent period-to-period.
The health care services sector represents 58 percent and 60 percent of revenue
in the second quarter and year-to-date periods, respectively. The Company's
PsyCare America subsidiary accounted for most of the growth through an increase
in the number of locations where its specialty psychiatric treatment programs
are conducted. The rate of implementing new inpatient programs is likely to be
somewhat slower during the second half of the year as PsyCare emphasizes an
increase in the number of intensive outpatient programs offered. After
eliminating the ISJ revenue in 1995, net revenue from continuing
technology-related subsidiaries was down slightly in the second quarter of 1996
compared to the same period in 1995 but up 4 percent year-to-date compared to
last year. A recent award of a government contract to the ChemFree subsidiary
should provide some incremental revenue growth at this company.
Cost of sales - Cost of sales as a percentage of revenue was 52 and 54 percent
for the three and six months ended June 30, 1996, respectively, compared to 47
and 49 percent, respectively, in the corresponding periods in 1995. The
difference reflects the fact that ISJ's cost of sales for software products,
which is a relatively low percentage, was included in the 1995 results but is
not included in 1996, thus resulting in a relatively higher cost as a
percentage of sales for the remaining technology companies taken as a whole.
Also, cost of sales at the ChemFree subsidiary was higher in 1996 than in 1995
because of increased warranty cost (due to a larger installed base of product)
and costs incurred to upgrade early models to the current product
specifications.
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Operating Expenses - Marketing expense increased in both the second quarter and
year-to-date periods, as compared to last year, for several reasons. PsyCare
expenses increased to support opening and operating more programs in 1996 and
ChemFree increased its marketing and sales activities in a very competitive
industry. General and administrative expense declined significantly in the
second quarter and year-to-date compared to the same periods last year, despite
recording a non-recurring, second quarter 1996 expense of $250,000 at PsyCare
to buy out a long-term contract at a substantial discount. Most of the
reduction is due to the elimination of expenses of ISJ and another small
subsidiary which ceased operations in 1995. Research and development expense
declined in the first quarter of 1996 compared to 1995 primarily because of the
elimination of expenses of ISJ.
Interest Income - Interest income declined by 12 and 22 percent in the second
quarter and year-to-date periods, respectively, in 1996 compared to the same
periods in 1995 because certain notes due the Company were paid in the latter
half of 1995 and early 1996.
Investment Income - In the second quarter of 1996, the Company sold 150,000
shares of common stock of IQ Software Corporation (IQ) for a gain of
$3,320,000. The Company retains 322,801 shares of common stock of IQ, a
company in which it has been a major shareholder since 1988. The second
quarter and year-to-date income also include $594,000 and $160,000,
respectively, representing the Company's pro rata share of the results of
PaySys International, Inc. (PaySys), a private company accounted for on the
equity method. As the largest shareholder of PaySys, the Company will
recognize its pro rata share of PaySys income or loss on an ongoing quarterly
basis. In addition, 1996 year-to-date income includes a gain of $337,000 on
the sale of 104,848 shares of common stock of OrCAD, Inc. (OrCAD) in OrCAD's
initial public offering. OrCAD is a former subsidiary of the Company.
Minority Interest - This amount represents the pro rata ownership share of
minority shareholders in certain subsidiary companies which are not
wholly-owned by the Company.
Common Shares - There was a slight period-to-period decline in the weighted
average number of shares outstanding because the Company repurchased shares of
its common stock from time to time during 1995.
FINANCIAL CONDITION
In the first half of 1996, the principal sources of liquidity were cash
proceeds of $1,069,000 from the sale of one-half of the Company's holdings of
common stock of OrCAD in OrCAD's IPO, repayment in full of a $400,000
promissory note, and cash proceeds of $3,589,000 from the sale of shares of
common stock of IQ. The principal uses of cash in the first half of 1996
included repayment of $1,538,000 of bank debt, approximately $1,023,000 to fund
new and follow-on investments in several minority owned partnership companies,
and for working capital purposes.
The net decline in short-term notes receivable during the six month period
reflects the $400,000 note repayment described above and the reclassification
of a portion of a long-term note receivable to short-term. The net increase in
long-term notes receivable is related to one of the investments described
above. The increase in long-term investments reflects a combination of an
increase in the market value of the remaining shares of IQ common stock and new
equity investments made by the Company. The net decline in property, plant and
equipment and
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goodwill is principally related to a small start-up subsidiary which
discontinued operations during the first quarter of 1996. The 48 percent
increase in unrealized gain in available-for-sale securities reflects the
market value of the 104,848 shares of common stock of OrCAD which the Company
retained after OrCAD's IPO and an increase in the market value of the 322,801
shares of common stock of IQ which the Company continues to own.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on June 7, 1996, the
shareholders elected J. Leland Strange, Donald A. McMahon, James V. Napier,
John B. Peatman and Parker H. Petit as directors of the Company. Each director
was elected by the following votes: J. Leland Strange (4,564,416 For, 151,878
Withheld); Donald A. McMahon (4,866,316 For, 149,978 Withheld); James V. Napier
(4,866,316 For, 149,878 Withheld); John B. Peatman (4,865,316 For, 150,978
Withheld) and Parker H. Petit (4,865,316 For, 150,978 Withheld).
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
A. 27 - Financial Data Schedule (for SEC use only)
B. The Company has not filed any Reports on Form 8-K during the period
covered by this report.
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, hereunto duly authorized.
INTELLIGENT SYSTEMS CORPORATION
Registrant
Date: August 13, 1996 By: /s/ J. LELAND STRANGE
---------------------------------
J. Leland Strange
Chairman of the Board,
President
Date: August 13, 1996 By: /s/ HENRY H. BIRDSONG
---------------------------------
Henry H. Birdsong
Chief Financial Officer
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,255
<SECURITIES> 0
<RECEIVABLES> 4,758
<ALLOWANCES> 0
<INVENTORY> 672
<CURRENT-ASSETS> 11,086
<PP&E> 1,552
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,544
<CURRENT-LIABILITIES> 3,705
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 23,786
<TOTAL-LIABILITY-AND-EQUITY> 27,544
<SALES> 12,536
<TOTAL-REVENUES> 0
<CGS> 6,723
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,986
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,979
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,979
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0
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