<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 November 30, 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.)
3201 Griffin Rd., Dania, Florida 33312
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 893-7555
--------------------------
(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 December 31,1996, there were 3,768,401 shares of the Registrant's $.05
par value common stock issued and 3,744,849 shares were outstanding.
-1-
<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
November 30, 1996 and February 29,1996 3
Condensed Consolidated Statement of Operations
of IDG for the nine months ended November 30,
1996 and 1995 4
Condensed Consolidated Statement of Operations
of IDG for the three months ended November 30,
1996 and 1995 5
Condensed Consolidated Statement of Cash Flows of
IDG for the nine months ended November 30, 1996 and
1995 6
Notes to Financial Statements 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>
NOVEMBER 30, FEBRUARY 29,
ASSETS 1996 1996
- ------------------------------- -------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $ 142,270 $ 130,679
Trading Securities 0 129,188
Finance Receivables, less allowance
for doubtful accounts of $ 710,000
and $591,000 and unearned income of
$ 894,000 and $542,000 12,949,324 8,149,416
Drafts receivable 408,408 312,793
Current maturities of notes receivable 168,973 171,515
Prepaid expenses and other 30,638 18,316
---------- ---------
TOTAL CURRENT ASSETS 13,644,613 8,911,907
---------- ---------
PROPERTY AND EQUIPMENT- less
accumulated depreciation of
$ 98,579 and $68,720 154,401 91,628
NOTES RECEIVABLE -
less current maturities 169,620 189,579
OTHER ASSETS,
less accumulated amortization
of $ 19,000 and $16,000 26,951 22,945
------- -------
$14,050,585 $9,216,059
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses
and other $510,486 $230,234
Drafts Payable 719,126 308,130
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 2,006,462 2,331,683
--------- ---------
Notes payable to bank 9,289,473 4,263,610
--------- ---------
TOTAL LIABILITIES 11,295,935 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 (3,204,687) (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 2,754,650 2,620,766
--------- ---------
$14,080,585 $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>
NINE MONTHS ENDED NOVEMBER 30,
1996 1995
---------- ----------
REVENUES:
<S> <C> <C>
Finance charge income $ 1,870,504, $ 1,157,032
Origination fees 774,947 577,999
Late fees and other charges 689,191 512,791
Interest income and Other 56,716 83,643
-------- --------
3,391,358 2,331,465
--------- ---------
EXPENSES
General and administrative
expenses 958,563 849,646
Sales and marketing 678,130 368,085
Provision for doubtful accounts 999,672 502,599
Interest expense 497,940 275,728
Interest expense to Directors 90,313 123,664
Depreciation and amortization 32,856 26,500
-------- -------
3,257,474 2,146,222
--------- ---------
NET INCOME $133,884 $185,243
======== ========
Net Income per Common Share:
Primary: $0.04 $0.06
Fully Diluted: $0.04 $0.05
Computation Of Fully Diluted
Earnings:
Net Income $133,884 $185,243
Less:Preferred Dividends 0 (6,750)
-------- -------
Primary net income 133,884 178,493
Assumed conversions:
Preferred dividends eliminated 0 6,750
------- -------
Fully diluted earnings $133,884 $185,243
------- -------
Average Number of Common Shares
Primary 3,793,063 3,093,825
Fully Diluted 3,793,063 3,593,825
</TABLE>
See Notes to Condensed Financial statements
-4-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30
1996 1995
----------- ----------
REVENUES:
<S> <C> <C>
Finance charge income $ 706,770 $ 408,492
Origination fees 316,325 202,382
Late fees and other charges 271,780 177,046
Interest income and Other 25,037 1,549
-------- --------
1,319,912 789,469
--------- --------
EXPENSES
General and administrative
expenses 345,691 304,601
Sales and marketing 302,524 113,514
Provision for doubtful accounts 419,539 185,476
Interest expense 198,713 105,178
Interest expense to directors 15,938 45,399
Depreciation and amortization 11,500 10,000
-------- --------
1,293,905 764,168
--------- --------
NET INCOME 26,007 25,301
========= ========
Net Income per Common Share:
Primary: $0.01 $0.01
Fully Diluted; $0.01 $0.01
Computation Of Fully Diluted
Earnings:
Net Income 26,007 25,301
Less:Preferred Dividends (2,250)
------- -------
Primary net income 26,007 23,051
------- -------
Assumed conversions:
Preferred dividends eliminated 0 2,250
------- -------
Fully diluted earnings $26,007 $25,301
------- -------
Average Number of Common Shares
Primary 3,793,063 3,104,434
Fully Diluted 3,793,063 3,618,356
</TABLE>
See Notes to Condensed Financial Statements
-5-
<PAGE>
INTERNATIONAL DESIGN GROUP, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30,
1996 1995
--------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 133,884 $ 185,243
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 32,856 26,500
Provision for doubtful
accounts 119,000 152,481
Change in operating
assets and liabilities:
Increase in unearned income 352,000 57,000
Increase in prepaid expenses
& other (19,328) (6,861)
Decrease in drafts
receivable (95,615) 24,543
Increase (Decrease) in
accounts payable,accrued
expenses 280,252 36,511
(Increase) Decrease
in drafts payable 410,996 (93,044)
--------- -------
Net cash provided by
operating activities 1,214,045 382,373
--------- -------
INVESTING ACTIVITIES:
Premium finance loans -
net of writeoffs (26,147,794) (16,596,528)
Payments received on
premium finance loans 20,876,886 13,818,175
Increase in notes receivable (127,013) (104,508)
Payments received on notes
receivable 149,514 67,657
Capital expenditures (92,629) (23,096)
Decrease in Marketable
Securities 129,188 19,151
Increase (Decrease) in
liability under options
sold (25,469) (27,901)
--------- ---------
Net Cash Used In
Investing Activities (5,237,317) (2,847,050)
--------- ---------
FINANCING ACTIVITIES
Increase in notes payable
to bank 35,392,802 3,268,000
Paydowns in notes payable
to bank (30,366,939) (767,000)
Increase in notes payable
to Directors 0 350,000
Paydowns to notes payable
to Directors (1,000,000) 0
Preferred dividends paid 0 (6,750)
Purchase of treasury shares 0 (18,362)
Net Cash (Used In) Provided
by Financing Activities 4,034,863 2,842,738
--------- ---------
Increase in notes payable 9,000 16,850
NET INCREASE IN CASH
AND CASH EQUIVALENTS 11,591 $378,061
CASH AND CASH EQUIVALENTS,
beginning of the period 130,679 306,162
-------- -------
CASH AND CASH EQUIVALENTS,
end of period $142,270 $684,223
======== ========
</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 nine
month period ended November 30, 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 $3,391,358 during the nine months ended November 30,
1996 as compared to $2,331,465 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 $26.7 million in 1996 compared to
$16.6 million for the same period in 1995. The number of contracts financed
increased to 46,900 during 1996 as compared to 31,800 in 1995. This increase
resulted from the expansion of the Company's premium finance business to
South Carolina as well as the increased contract volume in Florida. In
September of 1996, as a result of lower than expected profits, the Company
was no longer accepting business in South Carolina or Maryland.
The following table reflects the company's expenses as a percentage of
revenues for the nine months ended November 30,:
1996 1995
------- -------
<TABLE>
<CAPTION>
<S> <C> <C>
General and Administrative Expenses 28% 36%
Sales and Marketing 20% 16%
Depreciation and Amortization 1% 1%
Provision for Doubtful Accounts 30% 22%
Interest Expense 17% 17%
Total Expenses 96% 92%
Net Income 4% 8%
</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. 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 as a percentage of revenue remained constant even with
higher borrowing due to a more favorable interest rate with the Company's
lending bank. This is reflected by a higher interest Margin as shown below.
1996 1995
------ -------
<TABLE>
<CAPTION>
<S> <C> <C>
Finance charge income $ 1,870,504 $1,157,032
Interest expense 588,253 399,392
Net interest margin 1,282,251 757,640
Margin Percent 69% 65%
</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 $154,000 for the nine months
ended November 30, 1996 as compared to $185,000 during the same period in
1995. This decrease in net income is primarily attributable to a decrease in
income from the Companys' premium finance operations. Increased bad debt,
as well as higher marketing fees have both caused signifigantly lower profit
margins.
The Company recorded net income of $26,007 for the three months ended November
30, 1996 as compared to $25,301 during the comparable period in 1995.
Although the finance volume was signifigantly higher in 1996, decreased profit
margins as discussed above caused income to remain the same.
Liquidity and Capital Resources
-------------------------------
The Company's working capital position at November 30, 1996 increased to
$11,723,151 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 $5.0 million between February 29, 1996 and November 30, 1996.
This increase resulted from an increase in premium finance loans during the
period. Finance receivables increased to approximately $13.0 million at
August 31, 1996 from approximately $8.1 million at February 29, 1996.
As of November 30, 1996, the Company's revolving credit arrangements are
summarized as follows:
Description Lender Loan Balance Expiration Date
- ----------- ------ ------------ ---------------
$10,000,000 Revolving Credit Agreement Bank $ 9,289,473 Feb. 23, 1999
$1,000,000 Revolving Credit Agreement Chairman $ 500,000 On Demand
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 Directors. 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.
Theseoptions 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) January 14, 1997
(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> NOV-30-1996
<CASH> 142,270
<SECURITIES> 0
<RECEIVABLES> 13,689,324
<ALLOWANCES> 710,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,699,613
<PP&E> 253,080
<DEPRECIATION> 98,579
<TOTAL-ASSETS> 14,050,585
<CURRENT-LIABILITIES> 2,006,462
<BONDS> 0
0
0
<COMMON> 3,768,401
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,050,585
<SALES> 3,391,358
<TOTAL-REVENUES> 3,391,358
<CGS> 0
<TOTAL-COSTS> 3,257,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 133,884
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,884
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
