SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event reported)
June 28, 1996
INTELLIGENT DECISION SYSTEMS, INC.
(as successor to Resource Finance Group, Ltd.)
(Exact name of registrant as specified in its charter)
Delaware 0-22254 38-3286394
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Suite 400
2025 East Beltline Avenue, S.E.
Grand Rapids, Michigan 49546
(Address of principal executive offices) (Zip Code)
(616) 285-5830
(Registrant's telephone number, including area code)
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC.
Index to Current Report on Form 8-K/A
Page No.
Item 2 Acquisition or Disposition of Assets 3
Item 7 Financial Statements and Exhibits 4
Signatures 5
2
<PAGE>
Item 2 Acquisition or Disposition of Assets
On June 28, 1996, Intelligent Decision Systems, Inc. (IDSI), a Delaware
corporation purchased substantially all the assets of The Neptune Group, Inc.
("TNG"), a Delaware corporation, and those of its subsidiaries. The assets
purchased consisted of primarily cash, accounts receivable and notes receivable,
the total value of which is approximately $2.1 million. IDSI issued 750,000
unregistered shares of its common stock, par value of $.001, to TNG for those
assets and assumed certain liabilities, which totaled approximately $600,000.
IDSI agreed to file a registration statement covering the stock issued to TNG by
September 30, 1996, and TNG agreed not to sell those shares for a period of one
year plus one day after the closing date of the transaction.
TNG specializes in the area of medical and computer equipment leasing. In
the past eight months TNG has purchased from and leased back to Digital
Sciences, Inc. ("DSI"), a wholly owned subsidiary of IDSI, over $250,000 dollars
in computer and software systems. TNG will continue this relationship with DSI,
as well as continue to develop other leasing relationships.
3
<PAGE>
Item 7 Financial Statements and Exhibits
(a) Financial Statements of the Business Acquired June 28, 1996
and of the Businesses Combined on April 1, 1996.
Financial Statements relating to the June 28, 1996 transaction,
and the April 1, 1996 transaction are set forth in Schedule A
attached hereto.
(b) Pro-Forma Financial Information
Pro-Forma Financial Information relating to the June 28, 1996
transaction and the April 1, 1996 transaction, are set forth in
Schedule A attached hereto.
(c) Exhibits
The Neptune Group Purchase Agreement, dated as of June 28, 1996.
(Previously filed as exhibit 99.A9 to the Company's current report
on Form 8-K filed on July 11, 1996, and incorporated herein by
reference).
Exhibit 23.01 - Consent of Bloom Hochberg & Co., P.C.
4
<PAGE>
SIGNATURE
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 DECISION SYSTEMS, INC.
Dated: August 6, 1996 By: /s/ Mark A. Babin
Mark A. Babin
President
5
<PAGE>
SCHEDULE A - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
RESOURCE FINANCE GROUP, LTD.
(A Development Stage Company)
Financial statements as of June 30, 1995 and 1994 (audited) have been
previously reported in, and therefore are incorporated by reference
from, the 8-K report filed with the Securities and Exchange Commission
dated April 1, 1996.
Interim financial statements as of March 31, 1996 (unaudited) have
been previously reported in , and therefore are incorporated by
reference from, the 10-QSB report filed with the Securities and
Exchange Commission on May 7, 1996.
DIGITAL SCIENCES, INC.
(A Development Stage Company)
Consolidated financial statements as of December 31, 1995 and 1994
(audited) have been previously reported in, and therefore are
incorporated by reference from, the 8-K report filed with the
Securities and Exchange Commission dated April 1, 1996.
Interim condensed consolidated financial statements as of
Page
----
March 31, 1996 (unaudited)......................................F-3
F-1
<PAGE>
THE NEPTUNE GROUP, INC. and SUBSIDIARIES
The Business Acquired
Page
----
Consolidated financial statements as of November 30, 1995
and 1994 (audited)..............................................F-11
Interim consolidated financial statements as of March 31,
1996 (unaudited)................................................F-22
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Pro Forma Financial Statements Page
------------------------------ ----
Introduction F-26
Pro Forma Condensed Consolidated
Balance Sheet (unaudited) at March 31, 1996 F-27
Pro Forma Condensed Consolidated Statement of
Operations (unaudited) for year ended June 30, 1995 F-28
Pro Forma Condensed Consolidated Statement of
Operations (unaudited) for the nine months ended
March 31, 1996 F-29
Notes to Pro Forma Condensed
Consolidated Financial Statements F-30
F-2
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(All amounts in thousands)
ASSETS Mar. 31 Dec. 31,
1996 1995
-------- --------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 490.4 $ 51.2
Notes receivable - related parties 65.0
Accounts receivable - related parties 36.8 186.7
Inventories 132.2 141.4
Other 30.8 35.3
-------- -------
TOTAL CURRENT ASSETS 755.2 414.6
EQUIPMENT, NET 233.6 105.2
OTHER ASSETS
Receivables from sales type leases 197.1 -
Contractual rights 79.9 90.3
Investments - 187.5
Deferred financing costs 69.6 92.8
Other 11.3 10.3
-------- -------
$ 1,346.7 $ 900.7
======= =======
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(All amounts in thousands except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY Mar. 31 Dec. 31,
1996 1995
-------- --------
(unaudited)
CURRENT LIABILITIES
Current portion - long term debt $1,502.0 $1,476.9
Notes payable 43.8 -
Notes payable - related party 271.3 327.5
Accounts payable 222.6 227.1
Accounts payable - related party - 37.4
Accrued interest 122.5 127.9
Other 63.6 70.8
------- -------
TOTAL CURRENT LIABILITIES 2,225.8 2,267.6
LONG-TERM DEBT 281.1 7.1
COMMITMENTS AND CONTINGENCIES 41.2 0
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; $.001 par value; 3,000,000
shares authorized; no shares issued 0 0
Common stock; $.002 par value; 11,000,000
shares authorized, 8,743,208 and 7,314,636
shares issued and outstanding 17.5 14.6
Additional paid in capital 5,044.5 3,537.4
Deficit accumulated during the development stage (6,263.4) (4,926.0)
------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,201.4) (1,374.0)
------- -------
$1,346.7 $ 900.7
======= =======
F-4
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(All amounts in thousands except per share amounts)
Three Months Ended Cumulative
Mar. 31, Mar. 31, Amounts From
1996 1995 Inception
----------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES $ 211.4 $ 12.2 $ 835.0
COSTS AND EXPENSES
Cost of goods sold 587.4 256.7 897.5
Research and development - - 4,203.0
Contracted services - administration 751.3 101.8 1,257.3
Advertising and promotion 26.3 39.7 184.3
Travel & entertainment 23.3 176.7
Professional fees 83.7 27.0 288.7
Interest expense 76.8 6.7 276.7
------- ----- -------
1,548.8 431.9 7,284.2
------- ----- -------
INCOME FROM OPERATIONS (1,337.4) (419.7) (6,449.2)
OTHER INCOME (EXPENSE)
Loss from impairment of investment - - (2,312.5)
Gain on sale of intellectual property - - 2,498.3
------- ----- -------
NET LOSS $(1,337.4) $(419.7) $(6,263.4)
======= ===== =======
Earnings per common share
Net income (loss) $(.16) $(.07)
=== ===
Weighted Average Shares 8,409.9 5,951.8
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(All amounts in thousands)
Three Months Ended Cumulative
Mar. 31, Mar. 31, Amounts From
1996 1995 Inception
----------- ---------- ----------
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(1,192.5) $(1,173.1) $(4,764.3)
CASH FLOWS FROM INVESTING ACTIVITIES (164.9) (183.8) (352.6)
CASH FLOWS FROM FINANCING ACTIVITIES 1,796.6 2,660.9 5,607.3
------- ------- -------
NET INCREASE (DECREASE) IN CASH 439.2 1,304.0 490.4
CASH AT BEGINNING OF PERIOD 51.2 8.6 -
------- ------- -------
CASH AT END OF PERIOD $ 490.4 $ 1,312.6 $ 490.4
======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-6
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
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 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 ending March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996 (the Company's fiscal year was changed as a consequence of
the April 1, 1996 merger with Intelligent Decision Systems). The unaudited
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's audited financial
statements elsewhere herein.
NOTE B -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
Amounts due from related parties:
Mar. 31, Dec. 31,
1996 1995
--------- ---------
Due from officers, (stockholders) $ 36.8 $ 35.3
Due from Mid America Venture
Capital Fund, Inc. - 151.4
Note receivable from Mid America Venture
Capital, Inc. 65.0 -
----- -----
$101.8 $186.7
===== =====
NOTE C -- RECEIVABLES FROM SALES TYPE LEASES
The Company markets its bundled software and hardware products primarily through
sales type leases. The present value of the payments to be received is recorded
as a receivable and as the amount of the sale as per SFAS 13. Implicit interest
rates are generally determined by the interest rate for Company borrowings
collateralized by the sales type lease receivables.
NOTE D -- RESTRICTED INVESTMENTS
The Company exchanged 1,000 shares of Resource Finance Group, Ltd. ("RFG")
restricted common stock, valued at $200.0 at March 27, 1996, and at $187.5 at
December 31, 1995, for a consulting services contract with Mid America Venture
Capital and note for $65. A gain of $12.5 was recorded as a result of the
appreciation of the stock. The value of the stock had been recorded according to
the provisions of SFAS 115, and was based on the quoted market price for RFG
stock, less a 50% discount for restrictions on trading.
F-7
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE E -- AMOUNTS DUE TO RELATED PARTIES
Amounts due from related parties:
Mar. 31, Dec. 31,
1996 1995
--------- ---------
Note payable to Mid America Venture
Capital, Inc. $271.3 $327.5
NOTE F -- LONG TERM DEBT
The Company entered into several capital lease agreements which relate to the
purchase of office furniture and computer equipment. Interest rates associated
with these leases range from 17.8% to 21.8% and the terms of the leases range
from thirty-six to sixty months.
NOTE G -- COMMITMENTS AND CONTINGENCIES
According to the terms of the Company's sales type leases, the Company is
responsible to maintain the software and hardware it sells. A provision has been
established to record the related estimated future costs of providing those
services. The provision is computed with reference to the estimated future costs
of those services and the number of installations that are projected to be in
service during the terms of the leases.
NOTE H -- STOCKHOLDERS' EQUITY
Common Shares Paid-In Capital
------------- ---------------
Balance at December 31, 1995 7,314.6 $3,552.0
Issued for cash at $.70 1,428.6 1,000.0
Stock purchase warrants and options issued - 510.0
------- -------
Balance at March 31, 1996 8,743.2 $5,062.0
======= =======
F-8
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements (Unaudited)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE I -- WARRANTS AND OPTIONS
Number of
Underlying
Common Shares Expiration
------------- ---------------
WARRANTS
Balance at December 31, 1995 2,900.0 1996-2000
Issued with Private Placement of Debt
at $2.00 per share 10.0 1996
at $1.00 per share 10.0 1996
Issued for services at $3.00 per share 225.0 2000
-------
Balance at March 31, 1996 3,145.0
=======
OPTIONS
Balance at December 31, 1995 4,455.6 1996-2000
Issued for services at $1.00 300.0 1999
-------
Balance at March 31, 1996 4,755.6
=======
Total common stock equivalents
outstanding at March 31, 1996 7,900.6
=======
At March 31, 1996, the Company's authorized but unissued shares were
insufficient to cover the exercise of all outstanding warrants, and an
additional 618.2 shares would need to be authorized should all warrants be
exercised. No stock has been reserved for any of the outstanding stock purchase
options.
NOTE J -- RELATED PARTY TRANSACTIONS
During the first three months of 1996, the Company purchased services from an
affiliate, RFG, totaling $364.5 and during the same three months in 1995, the
Company purchased services from RFG totaling $30.0.
F-9
<PAGE>
DIGITAL SCIENCES, INC. and SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NOTE K -- EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of shares
outstanding exclusive of warrants and options in view of the fact that these
items would be anti-dilutive for each period presented.
NOTE L -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Three Months Three Months
Ended Ended
Mar. 31, 1996 Mar. 31, 1995
-------------- -------------
Cash paid for interest $76.6 $1.3
Cash paid for income taxes $ 0 $7.0
Non-cash investing and financing activities
Write down of investment in RFG of $913.2 according to treatment prescribed
by SFAS 115 for investments held for resale.
NOTE M -- SUBSEQUENT EVENTS
On April 1, 1996, the Company was merged into Intelligent Decision Systems, Inc.
("IDSI") through IDSI's wholly owned subsidiary DSI Acquisition Corp. DSI
Acquisition Corp. subsequently changed its name to Digital Sciences, Inc. IDSI
is the successor corporation to RFG, and became so via a reincorporation of the
former Colorado corporation, RFG, into the succeeding Delaware corporation.
As a group, DSI shareholders represented over eighty percent of the ownership
interests of the merged IDSI, and DSI was deemed to be the acquirer for
accounting purposes. RFG's results will be included in the results from
operations from the time of the merger only. IDSI continues on as the SEC
registrant and reporting company
On June 28, 1996, IDSI acquired substantially all of the assets of The Neptune
Group, Inc. ("TNG") a Delaware corporation involved in lease financing. Prior to
the acquisition, TNG had been a party to several sales/leaseback transactions
with DSI and DSI's wholly owned finance subsidiary, DSI Financial Corp.
On June 27, 1996, IDSI completed a private placement of "Series A" convertible
preferred stock, 1.6 shares and net proceeds amounted to $1,500.0. The
conversion terms are variable and the preferred stock is convertible into shares
exempt from registration via Regulation S.
F-10
<PAGE>
The Neptune Group, Inc.
and Subsidiaries
Stamford, Connecticut
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated balance sheets of The Neptune
Group, Inc. and Subsidiaries as at November 30, 1995 and 1994, and the related
consolidated statements of operations and retained earnings, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Neptune Group,
Inc. and subsidiaries as at November 30, 1995 and 1994 and the consolidated
results of their operations and their consolidated cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Bloom Hochberg & Co., P.C.
Certified Public Accountants
New York, New York
February 2, 1996
F-11
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
1995 1994
--------- ---------
ASSETS:
Cash and cash equivalents (Note 2) $3,512 $ 1,260
Accounts receivable and other receivables 258 516
Notes receivable less allowance for
uncollectibility of $475 in 1995 (Note 3) 137 1,214
Investor notes receivable (Note 4) - 65
Net investment in finance
leases (Notes 1, 4, 5, 6 and 7) 292 15,457
Equipment on operating leases, less accumulated
depreciation of $2,019 in 1995 and $22,820
in 1994 (Notes 1, 4, 6 and 7) 863 1,901
Equipment inventory (Note 1) - 16
Long-term investments - 266
----- ------
TOTAL ASSETS $5,062 $20,695
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued expenses $ 489 $ 408
Capital lease liability (Note 4) - 65
Notes payable (Notes 1, 6 and 7):
Full recourse 358 358
Limited recourse - 5,975
Non-recourse 691 15,827
Income taxes payable (Note 8): 53 -
---- ------
Total liabilities 1,591 22,633
----- ------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value -
1,000 shares authorized;
100 issued and outstanding 1 1
Additional paid-in capital 999 999
Retained earnings 2,471 (2,938)
----- ------
Total stockholders' equity 3,471 (1,938)
----- ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,062 $20,695
===== ======
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
1995 1994
--------- ---------
REVENUES (Note 1):
Rental income $ 1,031 $ 4,899
Finance lease income 822 1,881
Sales of equipment 19,967 27,615
Lease brokerage income 633 146
Interest and other 1,577 1,234
Cancellation of limited recourse
indebtedness (Note 7(b)) 5,925 -
------ ------
Total revenues 29,955 35,775
------ ------
EXPENSES:
Operating 2,660 2,530
Cost of equipment sold (Note 1) 18,729 22,685
Depreciation of equipment on
operating leases (Note 1) 884 5,223
Interest (Note 7) 608 2,649
Decline in value of investments (Note 3) 1,442 260
------ ------
Total expenses 24,323 33,347
------ ------
INCOME (LOSS) BEFORE PROVISION FOR (RECOVERY OF)
INCOME TAXES 5,632 2,428
PROVISION FOR INCOME TAXES (Note 8):
Current 73 50
------ ------
NET INCOME (LOSS) 5,559 2,378
RETAINED EARNINGS:
Beginning of the year (2,938) (5,166)
Dividends paid (150) (150)
------ ------
End of the year $ 2,471 $ (2,938)
====== ======
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,559 $ 2,378
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation of equipment on operating leases 884 5,223
(Increase) decrease in receivables and
long-term investments 1,601 (95)
Decrease in equipment inventory 16 2,957
Increase (decrease) in accounts payable and
accrued expenses 81 (359)
Increase in current income taxes payable 53 -
----- ------
Net cash provided by operating activities 8,194 10,104
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in equipment on operating leases - (4,470)
Investment in finance leases (218) (123)
Payments on finance lease receivables 2,113 7,349
Sales of computer equipment 13,424 27,615
------ ------
Net cash provided by investing activities 15,319 30,371
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 1,681
Repayment of notes payable (21,111) (43,620)
Payment of dividends (150) (150)
------ ------
Net cash used in financing activities (21,261) (42,089)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,252 (1,614)
CASH AND CASH EQUIVALENTS:
Beginning of the year 1,260 2,874
------ ------
End of the year $ 3,512 $ 1,260
====== ======
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(1) Organization and Summary of Significant Accounting Policies
The Company
The Neptune Group, Inc. and Subsidiaries (the Company), is incorporated
in the State of Delaware, and began operations on May 4, 1989. The
Company operates primarily as a lessor of high technology equipment
domestically. The Company also has entered into certain transactions
where it has invested in start-up companies and growing entities seeking
additional capital. These investments and loans are highly speculative
in nature and the collectibility of the amounts invested cannot be
assured.
(a) Principles of consolidation
The consolidated financial statements include the accounts of The
Neptune Group, Inc. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
(b) Revenue recognition
(1) Operating leases
Rental income from operating leases is recorded when earned,
on a straight-line basis over the term of the lease.
(2) Finance leases
Finance lease income is recorded under the interest method
Under this method, unearned income, representing the excess of
the total lease receivable plus the estimate of fair market
value of the leased equipment on the lease's termination date
over the cost of the leased equipment, is amortized to income
over the lease term to produce a level rate of return on the
net investment in the lease.
(3) Equipment sales
Equipment sales includes sales of off-lease equipment. The
full selling price is reflected herein as "Sales of equipment"
and all related costs are shown as "Cost of equipment sold".
F-15
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(1) Organization and Summary of Significant Accounting Policies
(Continued)
(b) (4) Lease brokerage income
A wholly owned subsidiary of the Company is a lessor of high
technology equipment serving hospital, nursing home, and
medical practice lessees. Typically, the Company sells its
lease receivables to a funding source. In such a transaction
the Company recognizes the excess proceeds received from the
sale (plus any advance rental payments received) over the cost
of the equipment, including any initial direct costs, as lease
brokerage income.
(c) Equipment on operating leases
Equipment is stated at cost, net of accumulated depreciation.
Equipment on operating leases is depreciated based upon the
estimate of fair market value of the leased equipment on the lease
termination date, using the straight line method on a pooled
basis.
(d) Equipment inventory
Equipment held for sale or equipment currently off-lease is
recorded in inventory at the lower of cost/depreciated carrying
value or market, which is not in excess of net realizable value.
(e) Statements of cash flows
For purposes of the consolidated statements of cash flows, cash
equivalents include highly liquid debt instruments.
(2) Cash and Cash Equivalents
At November 30, 1995 and 1994, the Company had cash and cash
equivalents totalling $3,512 and $1,260, respectively. Of this total,
$49 and $54, respectively, were being held in escrow to partially
guarantee future property tax obligations.
F-16
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(3) Notes Receivable
At November 30, 1995 and 1994, the Company had outstanding notes
receivable in the amounts of $137 ($612 note receivable less allowance
for uncollectibility of $475) and $1,214, respectively. These notes bear
interest at rates ranging from prime to prime plus 3.5% per annum.
As described in Note (1), the Company has entered into several highly
speculative investments in start-up companies and the collectibility of
these investments cannot be assured. Notes receivable from these
investments totalled $575 and $1,008 at November 30, 1995 and 1994,
respectively. At November 30, 1995, an allowance of $475 was established
against the $575 outstanding.
In 1995 and 1994, the Company wrote off or established allowances for
against notes and investments in the amount of $1,442 and $260,
respectively, resulting from the uncollectibility of certain of these
assets.
(4) Investor Notes Receivable and Capital Lease Liability
The Company entered into certain sale/leaseback transactions. Proceeds
from the sales of equipment included initial cash payments, short-term
notes and investor notes receivable. Concurrent with the sale, the
Company entered into leaseback arrangements, which ranged in duration
from 36 to 49 months, with the purchasers of the equipment. These lease
obligations were capitalized in the accompanying financial statements.
The Company applied the initial cash proceeds from sale against the
basis of the equipment. The capitalized cost of the equipment was
included in either net investment in finance leases or equipment on
operating leases, depending on the proper categorization in accordance
with SFAS 13.
The capital lease obligations of $65 matured in 1995.
F-17
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(5) Net Investment in Finance Leases
The components of net investment in finance leases at November 30, 1995
and 1994 are as follows:
1995 1994
----- ------
Minimum lease payments receivable (Note 6) $336 $18,838
Estimated residual value of leased equipment 20 1,017
Unearned income (64) (4,398)
----- ------
Total $292 $15,457
===== ======
(6) Minimum Lease Payments Receivable
Minimum lease payments receivable under operating and finance
lease arrangements at November 30, 1995 are as follows:
Years Ending Operating Finance
November 30, Leases Leases Total
----------- --------- ------- -----
1996 $653 $120 $773
1997 - 85 85
1998 - 83 83
1999 - 46 46
2000 - 2 2
--- --- ---
Total $653 $336 $989
=== === ===
At November 30, 1995, $718 of the total $989 lease payments
receivable are pledged to secure notes payable.
F-18
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(7) Notes Payable
(a) Full Recourse
All full recourse notes payable are recourse only to the
assets of the subsidiary in which those notes payable are
reflected. The remaining balances as at November 30, 1995 and
1994 of amounts borrowed under these agreements were to be
paid out of residual proceeds generated by the equipment owned
and managed by NC I and the equipment managed by Neptune
Computer III, Inc. (NC III) (which had originated in NC I).
Effective March 1, 1994, two separate parties consummated
transactions with the Company and the financial institution
with whom NC I maintained its credit agreements described in
Notes (7)(a) and (7)(b). Pursuant to these transactions, the
parties purchased the rights of the financial institution
under the remaining full recourse and limited recourse notes
owed by NC I and NC III (with respect to equipment originated
in NCI and currently managed by NC III), and purchased the
rights and title to all equipment owned and managed by NC I
and NC III. This transaction resulted in a gain on sale of
$1,434 and eliminated all material assets and liabilities of
NC I and NC III.
The Company has no further obligations under any of the
terminated credit agreements.
Additionally, The Neptune Group, Inc. (TNG) borrowed $358 from
a financial institution under the terms of a full recourse
note. The note bears interest at a rate of prime plus 1.5%,
payable monthly. The note matures on December 20, 1996 and is
secured by the assets of TNG.
During 1995, Neptune Technology Leasing Corp., a wholly-owned
subsidiary of TNG, established a short-term borrowing
agreement with a financial institution with a maximum credit
availability of $750. Interest on these borrowings is payable
at a rate of prime plus 1.5% on a monthly basis. The notes
under this line are secured by the assets to which they relate
and are additionally guaranteed by TNG. As of November 30,
1995, there were no outstanding borrowings on this line.
F-19
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(7) Notes Payable (Continued)
(b) Limited Recourse
The limited recourse note payable owed by NC II at November
30, 1995 and 1994 of $-0- and $5,975, respectively, bore
interest (payable semi-annually) at a rate of 12% per annum.
Effective July 1, 1993, NC II and the note holder agreed to
cease the accrual of interest on the note. Principal was
payable solely from residuals from computer equipment managed
by NC III which originated in NC II. All of the equipment
which secured this note was sold during 1995 and the unpaid
portion of the note was cancelled.
(c) Non-recourse
Non-recourse notes payable at November 30, 1995 and 1994 were
$691 and $15,827, respectively. These notes payable bear
interest at rates ranging from 7.21% to 10% per annum. All
non-recourse notes payable are secured by equipment on
operating or finance leases.
Maturities of long-term debt are as follows:
Years Ending Full Non-
November 30, Recourse Recourse
----------- -------- --------
1996 $358 $651
1997 - 17
1998 - 18
1999 - 5
2000 - -
--- ---
Total $358 $691
=== ===
Interest expense incurred during the years ended November 30, 1995
and November 30, 1994 was $608 and $2,649, respectively.
(8) Income Taxes
The Company files a consolidated federal income tax return. Deferred
income taxes result primarily from (1) different depreciation methods,
(2) different treatment of finance leases, and (3) different treatment
of sale and leaseback transactions, for financial statement and income
tax purposes. There were no deferred income taxes at November 30, 1995
and 1994.
F-20
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
(9) Commitments and contingencies
The Company is involved in litigation with a former sales agent for the
Company. The Company has filed suit for breach of contract regarding the
agent's prior obligation to act exclusively on the Company's behalf with
respect to transactions involving a specific manufacturer's equipment.
The agent has filed suit against the Company for additional commissions
relating to a transaction consummated in 1990 on which the agent had
received a previously agreed upon fee. Management of the Company
disputes this claim for additional commissions and intends on vigorously
defending its position. Although the ultimate disposition of these
proceedings is not determinable, management does not expect the outcome
to have a material adverse effect on the Company's financial position.
The IRS is currently examining the Company's federal income tax returns
for the years ended November 30, 1991 and 1992. The IRS has not yet
proposed any adjustments in connection with the ongoing tax examination.
The years ended November 30, 1993, 1994 and 1995 are not currently under
audit, but are subject to examination by the IRS and other taxing
authorities. At this time, management is unable to reasonably estimate
the amount of the Company's potential loss, if any, relating to income
tax assessments.
F-21
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- -------------------------------------------------------------------------------
(All amounts in thousands except share amounts)
Mar. 31, Nov. 30,
1996 1995
--------- ---------
ASSETS (unaudited)
CURRENT ASSETS
Cash and equivalents $2,928 $3,512
Accounts receivable (net) 274 258
Prepaid expenses 5
Current portion of amounts receivable 101 104
----- -----
3,308 3,874
NOTES RECEIVABLE 272 137
NET INVESTMENT IN FINANCE LEASES 103 188
EQUIPMENT ON OPERATING LEASES 304 863
FIXED ASSETS (NET) 9
----- -----
$3,996 $5,062
----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 436 $1,009
Accounts payable and accrued expenses 354 489
Income taxes payable 19 53
----- -----
809 1,551
NOTES PAYABLE
Full recourse 29
Non-recourse 91 40
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY
Common stock, $1.00 par, 1,000 shares
authorized; 100 issued and outstanding 1 1
Additional paid-in capital 999 999
Retained earnings 2,067 2,471
----- -----
3,067 3,471
----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,996 $5,062
===== =====
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and
Statements of Retained Earnings (Unaudited)
- --------------------------------------------------------------------------------
(All amounts in thousands) Four Months Ended
Mar. 31, Mar. 31,
1996 1995
--------- ---------
REVENUES $ 974 $8,005
COSTS AND EXPENSES
Cost of operations 753 887
Cost of equipment sold 273 6,243
Depreciation of equipment on operating lea 324 295
Interest expense 28 203
Decline in value of investments 481
----- -----
1,378 8,109
----- -----
NET INCOME BEFORE INCOME TAXES (404) (100)
PROVISION FOR INCOME TAXES - -
----- -----
NET INCOME $ (404) $ (100)
===== =====
EARNINGS PER SHARE ($4,040) ($1,000)
===== =====
DIVIDENDS PER SHARE $ - $ 490
===== =====
WEIGHTED AVERAGE SHARES .1 .1
===== =====
BEGINNING RETAINED EARNINGS $2,471 $(2,938)
NET INCOME (404) (100)
DIVIDENDS - (49)
===== =====
ENDING RETAINED EARNINGS $2,067 $(3,087)
===== =====
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
THE NEPTUNE GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
(All amounts in thousands) Four Months Ended
Mar. 31, Mar. 31,
1996 1995
--------- ---------
CASH FLOW FROM OPERATIONS (35) 377
CASH FLOWS FROM INVESTING ACTIVITIES (56) 7,133
CASH FLOWS FROM FINANCING ACTIVITIES (493) (7,108)
----- -----
NET INCREASE (DECREASE) IN CASH (584) 402
BEGINNING CASH BALANCE 3,512 1,260
----- -----
ENDING CASH BALANCE $2,928 $1,662
===== =====
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
THE NEPTUNE GROUP, INC.
NOTES TO CONDENSED 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 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 four month period ending March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996 (the Company's fiscal year was changed as a consequence of
the June 28, 1996 purchase of the Company by Intelligent Decision Systems). The
unaudited condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's audited
financial statements elsewhere herein.
NOTE B -- COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation with a former sales agent for the Company.
The Company has filed suit for breach of contract regarding the agent's prior
obligation to act exclusively on the Company's behalf with respect to
transactions involving a specific manufacturer's equipment. The agent has filed
suit against the Company for additional commissions relating to a transaction
consummated in 1990 on which the agent had received a previously agreed upon
fee. Management of the Company disputes this claim for additional commissions
and intends on vigorously defending its position. Although the ultimate
disposition of these proceedings is not determinable, management does not expect
the outcome to have a material adverse effect on the Company's financial
position.
The IRS is currently examining the Company's federal income tax returns for the
years ended November 30, 1991 and 1992. The IRS has not yet proposed any
adjustments in connection with the ongoing tax examination. The years ended
November 30, 1993, 1994 and 1995 are not currently under audit, but are subject
to examination by the IRS and other taxing authorities. At this time, management
is unable to reasonably estimate the amount of the Company's potential loss, if
any, relating to income tax assessments.
NOTE C -- EARNINGS PER SHARE AND DIVIDENDS PER SHARE
Earnings per share are computed using the average weighted shares outstanding
for the periods presented. Dividends per share are computed using the average
weighted shares outstanding as there were no common stock equivalents or other
potentially dilutive elements outstanding during the periods presented.
NOTE D -- SUBSEQUENT EVENTS
On June 28, 1996, Intelligent Decision Systems, Inc. (IDSI), a Delaware
corporation purchased substantially all the assets of the Company. The assets
purchased consisted of primarily cash, accounts receivable and notes receivable,
the total value of which is approximately $2.1 million. IDSI issued 750,000
unregistered shares of its common stock, par value of $.001, to TNG for those
assets and assumed certain liabilities, which totaled approximately $600,000.
IDSI agreed to file a registration statement covering the stock issued to TNG by
September 30, 1996, and TNG agreed not to sell those shares for a period of one
year plus one day after the closing date of the transaction.
IDSI did not assume any federal income tax liabilities which may result from the
IRS examination described in Note B, "Commitments and Contingencies".
NOTE E -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Four Months Four Months
Ended Ended
Mar. 31, 1996 Mar. 31, 1995
-------------- -------------
Cash paid for interest $275.1 $520.5
Cash paid for income taxes $ 34.0 $ 0.0
F-25
<PAGE>
Introduction
Resource Finance Group, Ltd. ("RFG") and Digital Sciences, Inc. ("DSI")
have undertaken a merger pursuant to which Resource Finance Group, Ltd. has
merged into Intelligent Decision Systems, Inc. ("IDS") and IDS has acquired all
of the outstanding shares of DSI common stock through its subsidiary, DSI
Acquisition Corp. ("DSAC"). Although, RFG/IDS is the legal acquirer, DSI/DSAC is
deemed to be the acquirer for purchase accounting purposes because its
shareholders owned a majority of the IDS stock outstanding after the merger was
completed on April 1, 1996. The business combination is accounted for as an
asset purchase. The assets acquired and the liabilities assumed are recorded at
fair values.
IDS issued one share of its common stock for four shares of RFG. As of
March 31, 1996, the date of the accompanying pro forma condensed consolidated
balance sheet, RFG had 6,363,236 shares outstanding. As of the same date, DSI
had 7,314,636 shares outstanding. The pro forma condensed consolidated financial
statements presented include the significant terms of the purchase of RFG by
DSI, essentially an exchange of one share of DSI for every four shares of RFG.
Because DSI is deemed to be the acquirer for accounting purposes, the
results of the operations of RFG will be included in IDS from the date of the
merger only. However, the fiscal year for IDS will be the same as that for RFG,
which will continue to end on June 30 of each year.
On June 28, 1996, Intelligent Decision Systems, Inc. (IDSI), a Delaware
corporation purchased substantially all the assets of The Neptune Group, Inc.
("TNG"), a Delaware corporation, and those of its subsidiaries. The assets
purchased consisted of primarily cash, accounts receivable and notes receivable,
the total value of which is approximately $2.1 million. IDSI issued 750,000
unregistered shares of its common stock, par value of $.001, to TNG for those
assets and assumed certain liabilities, which totaled approximately $600,000.
IDSI agreed to file a registration statement covering the stock issued to TNG by
September 30, 1996, and TNG agreed not to sell those shares for a period of one
year plus one day after the closing date of the transaction.
The acquisition of TNG will be accounted for as an asset purchase and those
assets acquired and the liabilities assumed will be recorded at their fair
values. The results of operations of TNG will be included in IDS from the date
of the acquisition only.
The accompanying condensed consolidated pro forma financial statements
illustrate the effect of the merger and acquisition on DSI's financial position
and results of operations.
The condensed consolidated balance sheet as of March 31, 1996 is based on
the historical unaudited balance sheet of RFG as of that date but which, in the
opinion of RFG's management, includes all adjustments necessary for the fair
presentation of its financial condition as of that date, and the historical
balance sheet of DSI as of that date, but which, in the opinion of DSI's
management, includes all adjustments necessary for the fair presentation of its
financial condition as of that date, and the historical balance sheet of TNG as
of that date, but which, in the opinion of TNG's management, includes all
adjustments necessary for the fair presentation of its financial condition as of
that date and assumes the merger betook place on that date. The condensed
consolidated statement of operations for the year ended June 30, 1995 is
prepared based on the historical statement of operations of RFG for the period
presented and the statement of operations of DSI for that period which is
unaudited but which, in the opinion of DSI's management, includes all
adjustments necessary for the fair presentation of the results of operations,
and the statement of operations of TNG for that period which is unaudited but
which, in the opinion of TNG's management, includes all adjustments necessary
for the fair presentation of the results of operations. The condensed
consolidated statement of operations for the nine months ended March 31, 1996 is
prepared based on the statement of operations of RFG for that period which is
unaudited but which, in the opinion of RFG's management, includes all
adjustments necessary for the fair presentation of the results of operations and
the statement of operations of DSI for that period which is unaudited but which,
in the opinion of DSI's management, includes all adjustments necessary for the
fair presentation of the results of operations, and the statement of operations
of TNG for that period which is unaudited but which, in the opinion of TNG's
management, includes all adjustments necessary for the fair presentation of the
results of operations. The pro forma condensed consolidated statements of
operations assume the merger of RFG and DSI and the acquisition of TNG took
place on July 1, 1994. The pro forma condensed consolidated financial statements
may not be indicative of the actual results of the merger and the acquisition.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of DSI and
RFG included elsewhere herein.
F-26
<PAGE>
INTELLIGENT DECISIONS SYSTEMS, INC.
(A Development Stage Company)
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
As of March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(all amounts in thousands of dollars Purchase
Pro Forma accounting
DSI RFG adjustments TNG adjustments Elimin. Pro Forma
(1) Subtotal (2) (3) as adjusted
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 490.4 $ 68.2 $ 558.6 $2,928.0 $(1,628.0) $1,858.6
Accounts receivable (net) 30.8 30.8 274.0 (104.0) (135.4) 65.4
Accounts receivable - related parties 36.8 36.8 36.8
Notes receivable - related parties 65.0 329.7 394.7 394.7
Federal income tax refund receivable
Inventories 132.2 132.2 132.2
Prepaid expenses 5.0 11.0 16.0
Current portion of amounts rec. 101.0 (1.0) 100.0
Deposit
------- ------- ------- ------- -------
TOTAL CURRENT ASSETS 755.2 397.9 1,153.1 3,308.0 2,603.7
PROPERTY AND EQUIPMENT 233.6 40.5 274.1 9.0 283.1
OTHER ASSETS
Long term notes receivable 197.1 197.1 272.0 145.0 (156.9) 457.2
Contract rights 79.9 79.9 79.9
Investments
Intellectual property 1,815.5 1,815.5 1,815.5
Net investment in finance leases 103.0 (55.0) 48.0
Equipment on operating leases 304.0 (304.0)
Deferred financing costs 69.6 69.6 69.6
Other 11.3 152.3 163.6 163.6
------- ------- ------- ------- -------
TOTAL ASSETS $1,346.7 $2,406.2 $3,752.9 $3,996.0 $5,520.6
======= ======= ======= ======= =======
CURRENT LIABILITIES
Current portion long-term debt $1,502.0 $ $1,502.0 $ 436.0 $ (286.0) $1,652.0
Notes payable - related parties 271.3 271.3 271.3
Notes payable 43.8 9.0 52.8 52.8
Accounts payable - trade 222.6 72.0 294.6 354.0 (56.0) (135.4) 457.2
Accounts payable - related party
Accrued expenses 186.1 56.8 242.9 19.0 (19.0) 242.9
------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES 2,225.8 137.8 2,363.6 809.0 2,676.2
LONG-TERM DEBT 281.1 281.1 120.0 35.0 (156.9) 279.2
COMMITMENTS AND CONTINGENCIES 41.2 41.2 41.2
STOCKHOLDERS' EQUITY (1,201.4) 2,268.4 (2,268.4) 3,067.0 (3,067.0)
2,268.4 1,067.0 1,457.0 2,524.0
TOTAL LIABILITIES AND ------- ------- ------- ------- -------
STOCKHOLDERS' EQUITY (DEFICIT) $1,346.7 $2,406.2 $3,752.9 $3,996.0 $5,520.6
======= ======= ======= ======= =======
</TABLE>
See notes to pro forma condensed consolidated financial statements.
F-27
<PAGE>
INTELLIGENT DECISIONS SYSTEMS, INC.
(A Development Stage Company)
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
Year Ended June 30, 1995
<TABLE>
<CAPTION>
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma Pro Forma
DSI RFG Adjustments IDS TNG Adj. Pro Forma
(none) As Adjusted
NET REVENUES $ 50.4 $ 1,283.8 (320.3)(4) $1,013.9 $14,906.0 $15,919.9
COSTS AND EXPENSES
Costs of goods 28.4 1,005.2 (60.5)(4) 973.1 10,506.0 11,479.1
Depreciation & amortization 57.7 440.4 498.1 2,176.0 2,674.1
Interest 64.3 13.1 77.4 1,104.0 1,181.4
General and administrative 2,159.0 970.4 (289.4)(4) 2,840.0 108.0 2,948.0
------- ------- ------- -------- --------
TOTAL COSTS AND EXPENSES 2,309.4 2,429.1 4,388.6 13,894.0 18,282.6
------- ------- ------- -------- --------
NET LOSS FROM OPERATIONS (2,259.0) (1,145.3) (3,374.7) 1,012.0 (2,362.7)
OTHER INCOME (EXPENSE) (1,000.0) (194.4) 1,000.0 (4) (194.4) (194.4)
------- ------- ------- -------- ---------
NET INCOME BEFORE TAXES (3,259.0) (1,339.7) (3,569.1) 1,012.0 (2,557.1)
PROVISION FOR RECOVERABLE INCOME (451.3) (451.3) (451.3)
------- ------- ------- -------- ---------
NET LOSS FROM CONTINUING OPERATIONS $(2,807.7) $(1,339.7) $(2,105.8) $ 1,012.0 $(2,105.8)
======= ======= ======= ======== ========
EARNINGS PER COMMON SHARE:
Per common share ($0.62) ($0.34) ($0.31)
======= ======= ========
Weighted average shares 4,558.8 6,149.7 6,899.7
======= ======= ========
</TABLE>
See notes to pro forma condensed consolidated financial statements.
F-28
<PAGE>
- -------------------------------------------------------------------------------
INTELLIGENT DECISIONS SYSTEMS, INC.
(A Development Stage Company)
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
Nine Months Ended March 31, 1996
<TABLE>
<CAPTION>
(in thousands except per share amounts)
Pro Forma Pro Forma Pro Forma
DSI RFG Adjustments Subtotal TNG Adjustments As Adjusted
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES $ 380.7 $1,247.5 $(1,221.6)(5) $ 406.6 $10,987.0 (19.2)(6) $11,374.4
COSTS AND EXPENSES
Costs of goods 1,447.0 1,107.7 (760.6)(5) 1,794.1 10,000.0 (13.7)(6) 11,780.4
Depreciation & amortization 201.7 283.0 484.7 692.0 1,176.7
Interest 184.9 23.4 208.3 281.0 (5.5)(6) 483.8
Other expenses 1,438.0 490.9 (461.1)(5) 1,467.8 1,467.8
------- ------- ------- -------- --------
TOTAL COSTS AND EXPENSES 3,271.6 1,905.0 3,954.9 10,973.0 14,908.7
------- ------- ------- -------- --------
NET LOSS FROM OPERATIONS (2,890.9) (657.5) (3,548.3) 14.0 (3,534.3)
OTHER INCOME (EXPENSE) (2,312.5) 2,312.5 (5) (601.0) (601.0)
------- ------- ------- -------- --------
NET INCOME BEFORE TAXES (5,203.4) (657.5) (3,548.3) (587.0) (4,135.3)
PROVISION FOR INCOME TAXES
------- ------- ------- -------- --------
NET LOSS FROM CONTINUING OPERATIONS $(5,203.4) $ (657.5) $(3,548.3) $ (587.0) $(4,135.3)
======= ======= ======= ======== ========
EARNINGS PER COMMON SHARE:
Per common share $(0.68) ($0.38) ($0.41)
======= ======= ========
Weighted average shares 7,679.7 9,270.6 10,020.6
======= ======= ========
</TABLE>
See notes to pro forma condensed consolidated financial statements.
F-29
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
(All amounts in thousands except per share amounts)
- --------------------------------------------------------------------------------
Note A -- BASIS FOR PRESENTATION
Reference is made to the "Introduction" at page F-26.
NOTE B -- PRO FORMA ADJUSTMENTS
The pro forma adjustments to condensed consolidated balance sheet are as
follows:
(1)
To reflect the acquisition of RFG by DSI (assumed for purposes of purchase
accounting) and including the components of the purchase price and its
allocation on the basis of the fair values of the assets acquired and
liabilities assumed:
Components of purchase price
DSI stock assumed to be issued - 1,590.9 shares $ 2,268.4
=========
Allocation of purchase price
Net assets of RFG as at March 31, 1996 $ 2,268.4
=========
(2)
To reflect the acquisition of TNG by IDS including the components of the
purchase price and its allocation on the basis of the fair values of the assets
acquired and liabilities assumed.
Components of purchase price
IDS stock issued - 750.0 $ 1,457.0
Assumption of certain liabilities 603.0
---------
$ 2,060.0
=========
Allocation of purchase price
Net assets of TNG as of March 31, 1996 $ 3,067.0
Net adjustments to fair values (1,007.0)
---------
$ 2,060.0
=========
(3)
To eliminate balances due to TNG from DSI and its wholly owned subsidiary:
Elimination of accounts receivable $ (135.4)
Elimination of long term notes receivable (156.9)
--------
$ (292.3)
========
F-30
<PAGE>
INTELLIGENT DECISION SYSTEMS, INC.
(A Development Stage Company)
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
(All amounts in thousands except per share amounts)
- --------------------------------------------------------------------------------
NOTE B -- PRO FORMA ADJUSTMENTS - continued
The pro forma adjustments to condensed consolidated statement of operations for
the year ended June 30, 1995 are as follows:
(4)
To eliminate transactions between RFG and DSI:
Elimination of revenues billed to DSI by RFG $ (320.3)
Elimination of related costs of goods for DSI (60.5)
Elimination of related general and admin. expenses (289.4)
Elimination of "other than temporary" loss on
RFG common stock previously owned by DSI (1,000.0)
(5)
The pro forma adjustments to condensed consolidated statement of operations for
the nine months ended March 31, 1996 are as follows:
To eliminate transactions between RFG and DSI:
Elimination of revenues billed to DSI by RFG $(1,221.6)
Elimination of related costs of goods for DSI (760.6)
Elimination of related general and admin. expenses (461.1)
Elimination of "other than temporary" loss on
RFG common stock previously owned by DSI (2,312.5)
(6)
To eliminate transactions between TNG and DSI and its wholly owned subsidiary:
Elimination of revenues billed to DSI and subsidiary $ (19.2)
Elimination of related costs of goods for DSI (13.7)
Elimination of interest expense of DSI's subsidiary (5.5)
NOTE C -- EARNINGS PER SHARE
All per share amounts have been computed using the weighted average shares
outstanding for the periods presented. Outstanding warrants and options were
excluded from each calculation as there were losses for all periods presented
and their inclusion would be anti-dilutive. The number of shares added to DSI's
weighted average shares outstanding for the purchase of RFG was 1,590.9 for each
period presented and was 750 for the purchase of TNG for each period presented.
F-31
BLOOM HOCHBERG & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
450 SEVENTH AVENUE
NEW YORK, N.Y. 10123 TELEPHONE
(212) 244-2112
FAX
(212) 629-5058
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report in the Form 8-K of Intelligent Decision
Systems, Inc. This consent applies to our Independent Auditor's Report dated
June 14, 1996.
/S/ BLOOM HOCHBERG & CO., P.C.
BLOOM HOCHBERG & CO., P.C.
July 11, 1996
