<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13946
INTERNATIONAL DESIGN GROUP, INC.
------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 59-2521916
---------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1815 Griffin Rd, Dania, Florida 33004
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 927-9119
---------------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether 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 ___.
As of September 30,1996, there were 3,768,401 shares of the Registrant's $.05
par value common stock issued and 3,744,849 shares were outstanding.
<PAGE>
INTERNATIONAL DESIGN GROUP, INC.
CONTENTS
PART I - FINANCIAL INFORMATION Pages
Item 1. Financial Statements
Condensed Consolidated Balance Sheets of
International Design Group, Inc. ("IDG") as of
August 31, 1996 and February 29,1996 3
Condensed Consolidated Statement of Operations
of IDG for the six months ended August 31,
1996 and 1995 4
Condensed Consolidated Statement of Operations
of IDG for the three months ended August 31,
1996 and 1995 5
Condensed Consolidated Statement of Cash Flows of
IDG for the six months ended August 31, 1996 and
1995 6
Notes to Financial Satements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
PART II. OTHER INFORMATION
Item 1.Legal Proceedings 11
Item 2.Changes in Securities 11
Item 3.Defaults Upon Senior Securities 11
Item 4.Submission of Matters to a Vote
of Security Holders 11
Item 5.Other Information 11
Item 6.Exhibits and Reports on Form 8- K. 11
Signatures 12
-2-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 29,
ASSETS 1996 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $204,704 $130,679
Trading Securities 22,812 129,188
Finance Receivables, less allowance
for doubtful accounts of $ 598,000
and $591,000 and unearned income of
$ 786,000 and $542,000 11,209,123 8,149,416
Drafts receivable 409,148 312,793
Current maturities of notes receivable 164,360 171,515
Prepaid expenses and other 33,325 18,316
----------- -----------
TOTAL CURRENT ASSETS
12,043,472 8,911,907
----------- -----------
PROPERTY AND EQUIPMENT- less
accumulated depreciation of $ 88,076
and $68,720 153,306 91,628
NOTES RECEIVABLE - less current maturities 201,048 189,579
OTHER ASSETS, less accumulated amortization
of $ 18,000 and $16,000 29,854 22,945
----------- ----------
$12,427,680 $9,216,059
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other $345,722 $230,234
Drafts Payable 633,532 308,130
Notes payable 276,850 267,850
Liability under options sold 0 25,469
Notes Payable to Directors 500,000 1,500,000
----------- ----------
TOTAL CURRENT LIABILITIES 1,756,104 2,331,683
----------- ----------
Notes payable to bank 7,942,933 4,263,610
----------- ----------
TOTAL LIABILITIES 9,699,037 6,595,293
----------- ----------
STOCKHOLDERS' EQUITY:
Common stock $.05 par, shares authorized
10,000,000; 3,768,401 issued and 3,744,849
outstanding 188,420 188,420
ADDITIONAL PAID IN CAPITAL 5,837,706 5,837,706
DEFICIT (3,230,694) (3,338,571)
TREASURY STOCK ( 23,552 shares at cost ) (8,289) (8,289)
COMMON STOCK SUBSCRIPTIONS RECEIVABLE (58,500) (58,500)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,728,643 2,620,766
----------- ----------
12,427,680 9,216,059
========== =========
</TABLE>
See Notes to Condensed Financial statements
-3-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
1996 1995
----------------------------
REVENUES:
<S> <C> <C>
Finance charge income $1,163,734 $748,540
Origination fees 458,622 375,617
Late fees and other charges 417,411 335,745
Interest income and Other 31,679 82,094
--------- ---------
2,071,446 1,541,996
--------- ---------
EXPENSES
General and administrative expenses 612,872 545,045
Sales and marketing 375,606 254,571
Provision for doubtful accounts 580,133 317,123
Interest expense 299,227 170,550
Interest expense to Directors 74,375 78,265
Depreciation and amortization 21,356 16,500
--------- ---------
1,963,569 1,382,054
--------- ---------
NET INCOME $ 107,877 $ 159,942
========= =========
Net Income per Common Share:
Primary: $0.03 $0.05
Fully Diluted: $0.03 $0.04
Computation Of Fully Diluted Earnings:
Net Income $107,877 $159,942
Less:Preferred Dividends 0 (4,500)
-------- --------
Primary net income 107,877 155,442
Assumed conversions:
Preferred dividends eliminated 0 4,500
-------- --------
Fully diluted earnings $107,877 $159,942
-------- --------
Average Number of Common Shares
Primary 3,793,063 3,088,577
Fully Diluted 3,793,063 3,588,577
</TABLE>
See Notes to Condensed Financial statements
-4-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
1996 1995
-----------------------------
<S> <C> <C>
REVENUES:
Finance charge income $614,715 $395,334
Origination fees 238,942 196,022
Late fees and other charges 223,785 183,470
Interest income and Other 12,875 34,831
--------- -------
1,090,317 809,657
--------- -------
EXPENSES
General and administrative expenses 305,391 286,536
Sales and marketing 226,938 116,011
Provision for doubtful accounts 296,871 168,962
Interest expense 167,803 98,050
Interest expense to directors 26,562 39,453
Depreciation and amortization 11,078 9,300
--------- -------
1,034,643 718,312
--------- -------
NET INCOME 55,674 91,345
========= =======
Net Income per Commin Share:
Primary: $0.01 $0.03
Fully Diluted; $0.01 $0.03
Computation Of Fully Diluted Earnings:
Net Income 55,674 91,345
Less:Preferred Dividends (2,250)
------ ------
Primary net income 55,674 89,095
------ ------
Assumed conversions:
Preferred dividends eliminated 0 2,250
------- -------
Fully diluted earnings $55,674 $91,345
------- -------
Average Number of Common Shares
Primary 3,793,063 3,128,356
Fully Diluted 3,793,063 3,628,356
</TABLE>
See Notes to Condensed Financial Statements
-5-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $107,877 $159,942
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 21,356 16,500
Provision for doubtful accounts 7,000 48,496
Change in operating assets and
liabilities:
Increase in unearned income 244,000 80,240
Increase in prepaid expenses & other (23,918) (5,142)
Decrease in drafts receivable (96,355) (40,102)
Increase (Decrease) in accounts payable,
accrued expenses 115,488 (5,443)
Increase (Decrease) in drafts payable 325,402 (74,338)
-------- --------
Net cash provided by operating gactivities 700,850 180,153
-------- --------
INVESTING ACTIVITIES:
Premium finance loans - net of writeoffs (16,442,009) (10,318,864)
Payments received on premium finance loans 13,131,302 8,536,015
Increase in notes receivable (127,013) (82,008)
Payments received on notes receivable 122,699 110,398
Capital expenditures (81,034) (12,527)
Decrease in Marketable Securities 106,376 11,651
Increase (Decrease) in liability under options
sold (25,469) (36,432)
----------- -----------
Net Cash Used In Investing Activities (3,315,148) (1,791,767)
----------- -----------
FINANCING ACTIVITIES
Increase in notes payable to bank 19,947,000 2,236,150
Paydowns in notes payable to bank (16,267,677) (575,150)
Paydowns in notes payable 9,000 200,000
Paydowns to notes payable to Directors (1,000,000) 0
Preferred dividends paid 0 (4,500)
Purchase of treasury shares 0 (14,115)
Net Cash (Used In) Provided by Financing --------- ---------
Activities 2,688,323 1,842,385
--------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 74,025 $230,771
CASH AND CASH EQUIVALENTS,
beginning of the period 130,679 306,162
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $204,704 $536,933
======== ========
</TABLE>
See Notes to Condensed Financial Statements
-6-
<PAGE>
International Design Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A -- Basis of Presentation
- -----------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. 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 six month period ended August 31, 1996 are not necessarily indicative of
the results that may be expected for the year ending February 28, 1997. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
February 29, 1996.
The accompanying financial statements include the Company, its wholly owned
subsidiaries Finco Financial Corporation, Eagle Premium Finance, Inc., QRS
Acquisition, Inc., Reserve Funding Corporation, VoiceSoft Corporation and
Federal Funding Corporation. All intercompany transactions and balances have
been eliminated in consolidation.
-7-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations - General
- -------------------------------
Revenues increased to $2,071,446 during the six months ended August 31, 1996
as compared to $1,541,996 during the comparable period in 1995 as a result of
the Company's growth in the insurance premium finance business. Insurance
premiums financed increased to $16.4 million in 1996 compared to $10.3
million for the same period in 1995. The number of contracts financed
increased to 28,200 during 1996 as compared to 20,900 in 1995. This increase
resulted primarily from the expansion of the Company's premium finance
business to South Carolina as well as increased volume in Florida.
The following table reflects the company's expenses as a percentage of
revenues for the six months ended August 31,:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
General and Administrative Expenses 30% 35%
Sales and Marketing 18% 17%
Depreciation and Amortization 1% 1%
Provision for Doubtful Accounts 28% 21%
Interest Expense 18% 16%
Total Expenses 95% 90%
</TABLE>
General and administrative expenses, as a percentage of revenue, decreased as
a substantial portion of these expenses are fixed and do not directly
correlate to revenue. The provision for doubtful accounts has increased
substantially as the Company has been accepting lower down payments on its
finance agreements in an effort to compete effectively. Additionally, the
Company expanded its finance operations to South Carolina and Maryland where
the average down payment on finance contracts is significantly lower than in
Florida. These lower down payments translate into higher bad debt write-offs
when an insurance contract is canceled. As a result of increased competition
among finance companies, the Company expects that the down payment levels may
continue to decrease which will have a negative impact on the Company's
profit margins. In determining the provision for doubtful accounts,
management takes into account factors such as its average down payment rate,
cancellation rate, unrefunded canceled contracts, specific problems with
insurance agents, and financial condition of insurance companies among other
factors.
Until July 1, 1996, there was a statute in Florida which prohibited insurance
premium finance companies from rebating a portion of the interest or
origination fees to insurance brokers in an effort to induce the brokers to
refer finance business to the Company. This prohibition expired on July 1,
1996. This has resulted in the Company's costs increasing as the Company, in
an effort to maintain its market share, was forced to rebate a portion of
its finance charges and origination fees to the insurance brokers. This may
have a negative impact on future profitability.
Interest expense increased primarily as a result of increased borrowings
during the current period.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Finance charge income $1, 163,734 $ 748,540
Interest expense 373,602 248,815
Net interest margin 790,132 499,725
Margin Percent 68% 67%
</TABLE>
-8-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Cont'd)
Overall, net income decreased to approximately $108,000 for the six months
ended August 31, 1996 as compared to $160,000 during the same period in 1995.
This decrease in net income is primarily attributable to a decrease in income
from securities trading.
The Company recorded net income of $55,674 for the three months ended August
31, 1996 as compared to $91,345 during the comparable period in 1995. The
lower income in 1996 is attributed to increases in provision of bad debt
since the Company is experiencing higher write - offs due to lower down
payments being taken as well as a decrease in income from securities
trading.
Liquidity and Capital Resources
-------------------------------
The Company's working capital position at August 31, 1996 increased to
$10,287,368 as compared to $6,580,224 at February 29, 1996. This increase was
due primarily to an increased level of premium finance activity during the
period which was funded by long term debt.
The Company increased borrowings under its bank revolving line of credit by
approximately $3.7 million between February 29, 1996 and August 31, 1996.
This increase resulted from an increase in premium finance loans during the
period. Finance receivables increased to approximately $11.2 million at
August 31, 1996 from approximately $8.1 million at February 29, 1996.
As of August 31, 1996, the Company's revolving credit arrangements are
summarized as follows:
<TABLE>
<CAPTION>
Description Lender Loan Balance Expiration Date
- ----------- ----- ------------- ---------------
<S> <C> <C> <C>
$10,000,000 Revolving Credit
Agreement Bank $ 7,942,933 Feb. 23, 1999
$1,000,000 Revolving Credit
Agreement Chairman $ 500,000 On Demand
</TABLE>
During June 1996, the Company repaid $500,000 of the $1 million revolving
credit agreement with the Company's Chairman as well as the $500,000
revolving credit agreement with one of the Company's Director's. These
repayments were funded with the Company's Revolving Credit Agreement with a
Bank. Both the revolving credit agreements with the Company's Chairman and
one of the Company's Directors expired in July 1996. The agreement with the
Chairman was extended on a month to month basis. The agreement with the
Director was not extended.
The Company extended its line of credit with a bank to $10.0 million in
August 1996 with an option to increase it to $11.0 million. The new
agreement, which matures in 1999, also requires the Company to maintain
certain financial ratios. Borrowings under the line are based on eligible
finance receivables, interest is payable monthly at the Company's choice of
LIBOR plus 3.25% or the bank's prime rate plus 1.25%.
As part of the Company's investment activities, the Company sells put
options. These options give the purchaser the right to sell to the Company
a certain security at a fixed price through a certain date. These options
involve a high degree of risk because if the value were to substantially
decrease on a security which the Company sold put options on, the loss to
the Company could greatly exceed the proceeds of the sale of the option.
It is the opinion of management that the Company will have sufficient funds
to satisfy its cash requirements for at least the next 12 months .
-9-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
Inflation and Foreign Currency Fluctuations:
- --------------------------------------------
Presently, inflation and foreign currency fluctuations do not have any
adverse effect on the Company's business. However, inflation would have an
adverse effect on the Company as its cost of money would increase while the
maximum interest rates the Company is allowed to charge are set by state law.
-10-
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon 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
NONE
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant> INTERNATIONAL DESIGN GROUP, INC.
BY (Signature) /s/ David Raymond
(Date) July 15, 1996
(Name and Title) David Raymond, President and
Chief Financial Officer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1996
<CASH> 204,704
<SECURITIES> 22,812
<RECEIVABLES> 11,807,123
<ALLOWANCES> 598,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,043,472
<PP&E> 241,382
<DEPRECIATION> 88,076
<TOTAL-ASSETS> 12,427,680
<CURRENT-LIABILITIES> 1,756,104
<BONDS> 0
0
0
<COMMON> 3,768,401
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,427,680
<SALES> 2,039,767
<TOTAL-REVENUES> 2,071,446
<CGS> 0
<TOTAL-COSTS> 1,963,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299,227
<INCOME-PRETAX> 107,877
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,877
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
