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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 MARCH 31, 1996
Commission file number 1-9330
INTELLIGENT SYSTEMS CORPORATION
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(Exact name of Registrant as specified in its charter)
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<S> <C>
GEORGIA 58-1964787
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4355 SHACKLEFORD ROAD, NORCROSS, GEORGIA 30093
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(Address of principal executive offices) (Zip Code)
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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 March 31, 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)
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<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS (Unaudited) (Audited)
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Current assets:
Cash $ 1,031 $ 520
Accounts receivable, net 4,506 3,964
Notes and interest receivable 2,716 3,127
Inventories 460 502
Other current assets 384 534
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Total current assets 9,097 8,647
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Long-term investments 11,153 10,922
Long-term notes receivable 1,643 1,356
Property and equipment, at cost less accumulated depreciation and amortization 1,325 1,619
Excess of cost over underlying net assets of businesses acquired,
net of accumulated amortization 713 786
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Total assets $ 23,931 $ 23,330
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Short-term borrowings $ 1,456 $ 1,488
Accounts payable 1,093 1,632
Accrued expenses and other current liabilities 1,979 1,435
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Total current liabilities 4,528 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 March 31, 1996 and December 31, 1995 53 53
Paid-in capital 24,756 24,756
Foreign currency translation adjustment (143) (153)
Unrealized gain in available-for-sale securities 5,676 4,476
Accumulated deficit (10,939) (10,407)
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Total stockholders' equity 19,403 18,725
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Total liabilities and stockholders' equity $ 23,931 $ 23,330
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The accompanying notes are an integral part of these balance sheets.
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INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share amounts)
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THREE MONTHS ENDED MARCH 31, 1996 1995
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Net sales $ 6,085 $ 5,933
Expenses:
Cost of sales 3,348 3,114
Marketing 1,139 1,049
General & administrative 1,892 2,501
Research & development 41 371
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Loss from operations (335) (1,102)
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Other income (expense):
Interest income, net 85 125
Investment income (expense), net (238) (24)
Other income (expense), net (41) 56
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Loss before minority interest (529) (945)
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Minority interest 3 (28)
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Net loss $ (532) $ (917)
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Net loss per share based upon weighted
average shares outstanding $ (0.10) $ (0.17)
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Weighted average shares outstanding 5,312,867 5,499,870
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The accompanying notes are an integral part of these statements.
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INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
CASH PROVIDED BY (USED FOR): 1996 1995
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OPERATIONS:
Net loss $ (532) $ (917)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities, net of
effects of acquisitions and dispositions:
Depreciation and amortization 187 223
Loss (gain) from sale of assets (201) 31
Equity in net loss (income) of affiliates 439 (6)
Changes in operating assets and liabilities:
Accounts receivable (548) (816)
Inventories (14) 47
Other current assets 152 242
Accounts payable (412) (102)
Accrued expenses and other current liabilities 554 418
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Cash used for continuing operations (375) (880)
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INVESTING ACTIVITIES:
Proceeds from sale of investment 1,074 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 - (34)
Acquisitions of long-term investments (200) (82)
Repayments of (advances under) notes receivable, net 123 (1,624)
Purchases of property and equipment, net (59) (223)
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Cash provided by investing activities 908 265
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FINANCING ACTIVITIES:
Net borrowings (repayments) under short-term
borrowing arrangements (32) 368
Purchase and retirement of stock - (294)
Foreign currency translation adjustment 10 (18)
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Cash provided by (used for) financing activities (22) 56
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Net increase (decrease) in cash 511 (559)
Cash at beginning of period 520 970
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Cash at end of period $1,031 $ 411
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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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company sold its interest in its Intelligent Systems Japan (ISJ) subsidiary
in December 1995. Consequently, the results of operations of ISJ are included
in the first quarter 1995 results but are not included in the results for the
corresponding period 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 March 31, 1996, net sales were $6,085,000, an increase
of 3 percent compared to the first quarter last year. After eliminating the
revenue related to ISJ in the first quarter last year, the net sales growth
from comparable continuing operations would have been 13 percent
period-to-period. 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. For the balance of
1996, PsyCare plans to open additional program locations although at a slower
pace than during the first part of the year. In the first quarter of 1996,
approximately 61 percent of Company revenue was derived from the health care
services sector compared to 51 percent in the same period last year. This
change reflects both revenue growth at PsyCare America and also the fact that
ISJ's revenue is no longer included in the technology sector results.
Cost of Sales - Cost of sales as a percentage of revenue increased from 53
percent in 1995 to 55 percent in the first quarter of 1996. The difference
reflects principally 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.
The Company's ChemFree subsidiary also increased its cost of sales due to
increased testing and product evaluation expenses.
Operating Expenses - Marketing expense increased this period as compared to
last year, mainly due to increased expenses at PsyCare America and ChemFree to
support higher levels of revenue. General and administrative expense declined
significantly in the first quarter of 1996
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compared to the first quarter last year, both in absolute terms and as a
percentage of sales. Part of the reduction is due to the elimination of ISJ
expenses but there was also a reduction at remaining operations in management
and administrative personnel and facility expense. Research and development
expense declined in the first quarter of 1996 compared to 1995 primarily because
of the elimination of expenses at ISJ and another small subsidiary which ceased
operations in 1995.
Interest Income - Net interest income declined by 32 percent in the first
quarter of 1996 compared to the first quarter of 1995 because certain notes due
the company were paid in the latter half of 1995 and early 1996.
Investment Income - Included in this category for the first quarter of 1996 is
a gain of $337,000 on the sale of 104,848 shares of OrCAD common stock in
OrCAD's initial public offering. The gain is offset by a loss of $434,000
representing the Company's pro rata share of the results of PaySys
International, a private company which is accounted for on the equity method,
and approximately $140,000 to write-off the remaining investment in a start-up
company which ceased operations in the first quarter. A large portion of the
$434,000 loss is attributable to extensive research and development expense for
a new generation of software products.
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 period-to-period decline of 3 percent 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 quarter 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, Inc. in OrCAD's IPO. The Company also received
repayment in full of a $400,000 promissory note. The principal uses of cash in
the first quarter of 1996 included $375,000 to support the working capital
needs of certain operations and approximately $450,000 to fund additional
investment in two of the Company's minority owned partnership businesses.
Accounts receivable were 14 percent higher at March 31, 1996 than at year-end
1995, reflecting stronger sales at the Company's technology operations during
the month of March 1996, as compared to sales levels in the month of December
1995. The net decline in short-term notes and interest receivable during the
quarter reflects the $400,000 note repayment described above. The increase in
long-term notes receivable is related to one of the investments described
above. The net decline in property, plant and equipment and goodwill is
principally related to a small start-up subsidiary which discontinued
operations during the first quarter of 1996. The 27 percent increase in
unrealized gain in available-for-sale securities reflects the increase in
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 472,801
shares of common stock of IQ Software Corporation held by the Company.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
A. There are no exhibits filed with this report.
B. The Company has not filed any Reports on Form 8-K during the period
covered by this report.
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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: May 13, 1996 By: /s/ J. LELAND STRANGE
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J. Leland Strange
Chairman of the Board, President
Date: May 13, 1996 By: /s/ HENRY H. BIRDSONG
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Henry H. Birdsong
Chief Financial Officer
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