<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 May 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)
(305) 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 June 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
May 31, 1996 and February 29,1996 3
Condensed Consolidated Statement of Operations
of IDG for the three months ended May 31,
1996 and 1995 4
Condensed Consolidated Statement of Cash Flows of
IDG for the three months ended May 31, 1996 and
1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
PART II. OTHER INFORMATION
Item 1.Legal Proceedings 10
Item 2.Changes in Securities 10
Item 3.Defaults Upon Senior Securities 10
Item 4.Submission of Matters to a Vote
of Security Holders 10
Item 5.Other Information 10
Item 6.Exhibits and Reports on Form 8- K. 10
Signatures 11
Financial Data Schedule 12
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<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
ASSETS 1996 1996
- ------ --------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 185,534 $ 130,679
Trading Securities 71,083 129,188
Finance Receivables, less allowance
for doubtful accounts of $ 644,000
and $591,000 and unearned income of
$ 740,298 and $542,000 9,839,410 8,149,416
Drafts receivable 214,362 312,793
Current maturities of notes receivable 200,302 171,515
Prepaid expenses and other 33,370 18,316
---------- ---------
TOTAL CURRENT ASSETS 10,544,061 8,911,907
========== =========
PROPERTY AND EQUIPMENT- less
accumulated depreciation of $ 77,998 and
$68,720 146,129 91,628
NOTES RECEIVABLE - less current maturities 215,113 189,579
OTHER ASSETS, less accumulated amortization
of $ 17,000 and $16,000 27,156 22,945
---------- ---------
$10,932,459 $9,216,059
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other $ 301,292 $ 230,234
Drafts Payable 284,810 308,130
Notes payable 249,850 267,850
Liability under options sold 0 25,469
Notes Payable to Directors 1,500,000 1,500,000
--------- ---------
TOTAL CURRENT LIABILITIES 2,335,952 2,331,683
Notes payable to bank 5,923,538 4,263,610
TOTAL LIABILITIES 8,259,490 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 (3,286,368) (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 2,672,969 2,620,766
--------- ---------
$10,932,459 $9,216,059
========== =========
</TABLE>
See Notes to Condensed Financial Statements
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<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
1996 1995
--------- --------
REVENUES:
<S> <C> <C>
Finance charge income $ 549,019 $ 353,206
Origination fees 219,680 179,595
Late fees and other charges 193,626 152,275
Interest income and Other 18,804 47,263
-------- --------
981,129 732,339
-------- --------
EXPENSES
General and administrative expenses 307,481 258,509
Sales and marketing 148,668 138,560
Provision for doubtful accounts 283,262 148,161
Interest expense 131,424 72,500
Interest expense to Directors 47,813 38,812
Depreciation and amortization 10,278 7,200
------- -------
928,926 663,742
------- -------
$ 52,203 $ 68,597
======== ========
NET INCOME:
Net Income per Common Share:
Primary: $0.02 $0.02
Fully Diluted: $0.02 $0.02
Computation Of Fully Diluted Earnings:
Net Income $ 52,203 $ 68,597
Less:Preferred Dividends 0 (2,250)
-------- --------
Primary net income 52,203 66,347
Assumed conversions:
Preferred dividends eliminated 0 2,250
-------- --------
Fully diluted earnings $ 52,203 $ 68,597
-------- --------
Average Number of Common Shares
Primary 2,903,882 3,048,686
Fully Diluted 2,903,882 3,548,686
Earnings per share $.02 $.02
</TABLE>
See Notes to Condensed Financial Statements
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<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
1996 1995
----------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 52,203 $ 68,597
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 10,278 7,200
Provision for doubtful accounts 283,262 148,161
Change in operating assets and
liabilities:
Increase in unearned income 39,010 117,425
Increase in prepaid expenses & other (20,265) (8,855)
Decrease in drafts receivable 98,431 37,811
Increase (Decrease) in accounts payable,
accrued expenses 71,058 (15,955)
Increase in drafts payable (23,320) 239,253
------- -------
Net cash provided by operating gactivities 510,657 593,637
INVESTING ACTIVITIES:
Premium finance loans - net of writeoffs (7,814,655) (5,491,762)
Payments received on premium finance loans 5,802,389 3,759,915
Increase in notes receivable (98,013) (37,008)
Payments received on notes receivable 43,692 58,245
Capital expenditures (63,779) (8,044)
Investment in Marketable Securities 58,105 (18,014)
Increase (Decrease) in liability under options
sold (25,469) (27,257)
----------- -----------
Net Cash Used In Investing Activities (2,097,730) (1,646,500)
----------- -----------
FINANCING ACTIVITIES
Increase in notes payable to bank 9,306,000 1,268,000
Paydowns in notes payable to bank (7,646,072) 0
Paydowns in notes payable (18,000) 0
Preferred dividends paid 0 (2,250)
Purchase of treasury shares 0 (7,665)
--------- ---------
Net Cash (Used In) Provided by Financing
Activities 1,641,928 1,258,085
--------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 54,855 $ 87,797
CASH AND CASH EQUIVALENTS,
beginning of the period 130,679 306,162
-------- --------
CASH AND CASH EQUIVALENTS,
end of period $185,534 $393,959
======== ========
</TABLE>
See Notes to Condensed Financial Statements
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<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 three
month period ended May 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.
-6-
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations - General
- -------------------------------
Revenues increased to approximately $981,129 during the three months ended
May 31, 1996 as compared to $732,339 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 $7.8 million in 1996 compared to
$5.5 million for the same period in 1995. The number of contracts financed
increased to 13,365 during 1996 as compared to 11,343 in 1995. This increase
resulted primarily from the expansion of the Company's premium finance
business to South Carolina. The Company is continuing its efforts to increase
growth in the premium finance business but is meeting stiff competition from
both new and existing premium finance companies. Additionally, direct bill
insurance companies, which generally offer lower down payments than the
Company, are increasing their presence in Florida. If this trend continues,
this could limit the Company's future growth prospects.
The following table reflects the company's expenses as a percentage of
revenues for the three months ended May 31,:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
General and Administrative Expenses 31% 35%
Sales and Marketing 15% 19%
Depreciation and Amortization 1% 1%
Provision for Doubtful Accounts 29% 20%
Interest Expense 18% 15%
Total Expenses 94% 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. Sales and marketing expenses decreased slightly as a
percentage of revenue as a result of lower marketing expenses associated with
the Company's out of state premium finance operations. 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 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. Interest expense increased
primarily as a result of increased borrowings during the current year.
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 may result in the Company's costs increasing as the Company, in
an effort to maintain its market share, may be 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>
1995 1994
------- -------
<S> <C> <C>
Finance charge income $ 549,019 $ 353,206
Interest expense 179,237 111,312
Net interest margin 369,782 241,894
Margin Percent 67% 68%
</TABLE>
-7-
<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 $52,000 for the three months
ended May 31, 1996 as compared to $69,000 during the same period in 1995.
This decrease in net income is primarily attributable to a decrease in
income from securities trading.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital position at May 31, 1996 increased to
$8,208,109 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 $1.7 million between February 29, 1996 and May 31, 1996. This
increase resulted from an increase in premium finance loans during the
period. Finance receivables increased to approximately $9.8 million at May
31, 1996 from approximately $8.1 million at February 29, 1996.
As of May 31, 1996, the Company's revolving credit arrangements are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$8,000,000 Revolving Credit Agreement Bank $ 5,923,538 Feb. 23, 1999
$1,000,000 Revolving Credit Agreement Chairman $ 1,000,000 July 31, 1996
$500,000 Revolving Credit Agreement Director $ 500,000 July 31, 1996
</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 million
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.
The Company's $8.0 million line of credit with a bank was entered into on
February 23, 1996. 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%.
The Company's $1,000,000 revolving credit facility with the Company's
Chairman was extended until July 31, 1996.
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, unless the
Company is unsuccessful in its attempts to extend or replace its loan
facilities.
-8-
<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.
-9-
<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
EX-27 Financial Data Schedule
-10-
<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
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> MAY-31-1996
<CASH> 185,534
<SECURITIES> 71,083
<RECEIVABLES> 9,195,410
<ALLOWANCES> 644,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,544,061
<PP&E> 224,127
<DEPRECIATION> 77,998
<TOTAL-ASSETS> 10,932,459
<CURRENT-LIABILITIES> 2,335,952
<BONDS> 0
3,768,401
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,932,459
<SALES> 981,129
<TOTAL-REVENUES> 981,129
<CGS> 0
<TOTAL-COSTS> 928,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,804
<INCOME-PRETAX> 52,203
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,203
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
