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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, 1997
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 March 31, 1997, 5,092,567 shares of Common Stock were outstanding.
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ITEM 1. FINANCIAL STATEMENTS
INTELLIGENT SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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ASSETS (Unaudited) (Audited)
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<S> <C> <C>
Current assets:
Cash $ 1,432 $ 2,434
Certificate of deposit 1,364 1,056
Accounts receivable, net 3,449 3,764
Notes and interest receivable 3,550 3,212
Inventories 585 648
Other current assets 444 737
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Total current assets 10,824 11,851
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Long-term investments 8,604 8,967
Long-term notes receivable 907 1,414
Property and equipment, at cost less accumulated depreciation and amortization 2,429 2,126
Excess of cost over underlying net assets of businesses acquired,
net of accumulated amortization 464 569
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Total assets $23,228 $24,927
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable 1,058 984
Accrued expenses and other current liabilities 1,609 2,313
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Total current liabilities 2,667 3,297
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Stockholders' equity:
Common stock, $.01 par value, 20,000,000 authorized, 5,092,567 and
5,126,767 outstanding at March 31, 1997 and December 31, 1996, respectively 51 51
Paid-in capital 24,026 24,139
Foreign currency translation adjustment (186) (196)
Unrealized gain in available-for-sale securities 1,685 3,804
Accumulated deficit (5,015) (6,168)
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Total stockholders' equity 20,561 21,630
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Total liabilities and stockholders' equity $23,228 $24,927
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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 MARCH 31, 1997 1996
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<S> <C> <C>
Net sales $ 5,108 $ 6,085
Expenses:
Cost of sales 3,083 3,348
Marketing 871 1,139
General & administrative 1,794 1,892
Research & development 44 41
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Loss from operations (684) (335)
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Other income (expense):
Interest income, net 182 85
Investment income (expense), net 1,600 (238)
Other income (expense), net 61 (41)
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Income (loss) before income tax provision
and minority interest 1,159 (529)
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Income tax provision 4 --
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Income (loss) before minority interest 1,155 (529)
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Minority interest 2 3
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Net income (loss) $ 1,153 $ (532)
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Net income (loss) per share based upon weighted
average shares outstanding $ 0.23 $ (0.10)
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Weighted average shares outstanding 5,095,857 5,312,867
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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>
THREE MONTHS ENDED MARCH 31,
CASH PROVIDED BY (USED FOR): 1997 1996
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<S> <C> <C>
OPERATIONS:
Net income (loss) $ 1,153 $ (532)
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 274 187
Gain from sale of assets (1,864) (201)
Equity in net loss of affiliates 385 439
Changes in operating assets and liabilities:
Accounts receivable 315 (548)
Inventories 63 (14)
Other current assets 293 152
Accounts payable 74 (412)
Accrued expenses and other current liabilities 25 554
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Cash provided by (used for) continuing operations 718 (375)
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INVESTING ACTIVITIES:
Proceeds from sale of investment 2,000 1,074
Proceeds from sale of discontinued operations 100 --
Acquisitions of companies, net of cash acquired -- (30)
Purchase of certificate of deposit (308) --
Acquisitions of long-term investments (2,276) (200)
Repayments of (advances under) notes receivable, net (659) 123
Purchases of property and equipment, net (474) (59)
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Cash provided by (used for) investing activities (1,617) 908
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FINANCING ACTIVITIES:
Net borrowings (repayments) under short-term
borrowing arrangements -- (32)
Purchase and retirement of stock (113) --
Foreign currency translation adjustment 10 10
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Cash used for financing activities (103) (22)
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Net increase (decrease) in cash (1,002) 511
Cash at beginning of period 2,434 520
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Cash at end of period $ 1,432 $ 1,031
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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, 1996, previously filed with the Commission.
2. Accounting Changes - In February 1997, the Financial Accounting Standards
Board issued Statement 128 "Earnings Per Share" superseding Opinion 15, the
existing standard for calculating earnings per share. The Company believes
the adoption of this standard will not have a material impact on the
Company's computation of earnings per share. Earnings per share computed
under the provisions of Statement 128 were the same as those computed under
Opinion 15 for the three months ended March 31, 1997 and March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales - Revenue from operations is derived from two major industry segments:
technology-related products and services, and health care services. For the
three month period ended March 31, 1997, net sales were $5,108,000, a decline of
16 percent compared to the first quarter last year. Although each of the
subsidiaries in the technology sector experienced increases in revenue
year-to-year, revenue derived from health care services declined. The Company's
health care services subsidiary, PsyCare America, had fewer hospital based
programs in operation in the first quarter this year as compared to last year
and on-going price pressure in the managed care environment further reduced the
revenue contribution from each program. PsyCare is negotiating to open more
programs in additional hospitals over the next two quarters and plans to offer
new services as well, such as outpatient programs and counseling support
materials. However, during this transition, revenue and profit contribution from
the health care business will likely be lower than for the comparable periods in
1996.
Cost of sales - Cost of sales as a percentage of revenue was higher in the first
quarter this year compared to the same period last year. The change reflects
principally higher personnel costs in 1997 at two of the Company's technology
subsidiaries. The Company added more technical personnel to support increased
sales of products and services. In addition, industry-wide demand for technical
trainers and programmers increased compensation rates for personnel.
Operating Expenses - Total marketing, general and administrative and research
and development expenses in the first quarter of 1997 were $2,709,000, which was
12 percent less than the amount spent in the comparable period in 1996. In the
health care services sector, marketing and general and administrative expenses
declined significantly reflecting fewer program locations and more efficient
operations. On the other hand, marketing and G&A expenses increased year-to-year
at several technology subsidiaries to support higher levels of sales activities.
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Operating Loss - The loss from operations in the first quarter of 1997 was
greater than in the comparable period last year because the profit contribution
from the health care services sector was lower in 1997.
Interest Income - Net interest income increased 114 percent in the current
quarter compared to the same period last year. In the first quarter this year,
the Company earned interest income on notes receivable, which were at a higher
level and outstanding for more of the quarter this year as compared to the same
period last year. The Company also earned interest of $38,000 on its money
market funds and certificates of deposit in the first quarter this year. In the
first quarter last year, the Company had interest expense of $33,000 which
offset in part the interest income earned in that period on the notes
receivable. There was no interest expense in the current quarter since the
Company repaid all its bank debt in 1996.
Investment Income - The Company realized a gain of $1,865,000 on the sale of
50,537 shares of common stock of PaySys International, Inc., a privately held
firm in which the Company is the largest shareholder. The stock sold represented
approximately 6 percent of the common stock of PaySys which the Company owns or
has rights to own. Offset against the gain was an expense of approximately
$265,000 representing the Company's equity in losses of investee companies.
Minority Interest - This amount represents the pro rata ownership share of
minority shareholders in certain non-wholly-owned subsidiaries of the Company.
Common Shares - There was a decline of 4 percent in the weighted average number
of shares outstanding in the current period compared to the prior year because
of the Company's on-going share repurchase program.
FINANCIAL CONDITION
In the first three months of 1997, the principal source of cash was $2,000,000
from the sale of 50,537 shares of common stock of PaySys as well as cash
generated by operations through increased collections of accounts receivables
(including proceeds of sales in December 1996 of IQ common stock) and lower
inventory levels. The Company used cash to fund $2,276,000 in investments in two
software companies, to provide a $500,000 short-term loan to an affiliated
company (which was repaid in April 1997), to repurchase shares of the Company's
common stock, and to purchase computers and other equipment principally related
to expanding training classroom facilities at the InterQuad Services subsidiary
in the United Kingdom.
Since December 31, 1996, the Company's unrealized gain in available-for-sale
securities has declined by approximately $2.1 million as a result of a drop in
the trading prices of common stock of IQ Software Corporation and OrCAD, Inc.,
of which the Company holds 157,801 and 104,484 shares respectively.
The Company believes it has adequate working capital and access to additional
cash through borrowings or sales of marketable securities to support its
operations and other activities.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS, REPORTS ON FORM 8-K
A. Exhibit 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.
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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, 1997 By: /s/ J. LELAND STRANGE
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J. Leland Strange
Chairman of the Board, President
Date: May 13, 1997 By: /s/ HENRY H. BIRDSONG
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Henry H. Birdsong
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INTELLIGENT SYSTEMS CORP. FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,796
<SECURITIES> 0
<RECEIVABLES> 3,449
<ALLOWANCES> 0
<INVENTORY> 585
<CURRENT-ASSETS> 10,824
<PP&E> 2,429
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,228
<CURRENT-LIABILITIES> 2,667
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 20,510
<TOTAL-LIABILITY-AND-EQUITY> 23,228
<SALES> 5,108
<TOTAL-REVENUES> 5,108
<CGS> 3,083
<TOTAL-COSTS> 5,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,159
<INCOME-TAX> 4
<INCOME-CONTINUING> 1,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,153
<EPS-PRIMARY> .23
<EPS-DILUTED> 0
</TABLE>
