U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 0-26604
DIGITAL DESCRIPTOR SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 23-2770048
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2010-F Cabot Boulevard, Langhorne, Pennsylvania 19047
(Address of Principal Executive Offices)
(215) 752-0963
(Issuer's Telephone Number, Including Area Code)
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PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
30-Sep 30-Sep
1995 1996
(unaudited) (unaudited)
----------- -----------
Cash flows from operating activities:
Net loss $ (980,924) $(2,044,638)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable $ (28,790) $ 62,227
Provision for inventory obsolescence $ 30,000
Depreciation and amortization $ 48,886 $ 177,709
Amortizaton of unearned compensation $ -- $ 18,000
Changes in assets and liabilities:
Stock awards to consultants $ 262,800
Receivables $ 13,866 $ 136,425
Inventories $ (163,499) $ 64,601
Prepaid expenses and other $ (14,558) $ 75,617
Accounts payable $ (152,378) $ (218,021)
Accrued expenses and other liabilities $ 101,399 $ (174,885)
Deferred revenue $ 138,143 $ (98,198)
Other noncurrent assets $ -- $ (853)
Due to affiliates $ (776,987) $ (71,913)
----------- -----------
Net cash provided by (used in) operating activities $(1,814,842) $(1,781,129)
----------- -----------
Cash flows from investing activities:
Equipment purchases $ (223,787) $ (109,349)
Purchase Software Acquisition $ -- $ (150,000)
Increase in short-term investments, including
restricted cash $ -- $ 196,023
Officer notes receivable $ (148,000)
----------- -----------
Net cash used in investing activities $ (223,787) $ (211,314)
----------- -----------
Cash flows from financing activities:
Prepaid offering costs $ 412,502 $ --
Repayment of note payable $ -- $ (37,500)
----------- -----------
Net cash used in financing activities $ 412,502 $ (37,500)
----------- -----------
Increase (decrease) in cash $(1,626,127) $(2,029,943)
Cash at beginning of period $ 11,045 $ 2,778,185
----------- -----------
Cash at end of period $(1,615,082) $ 748,242
----------- -----------
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DIGITAL DESCRIPTOR SYTEMS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
30-Sep 30-Sep 30-Sep 30-Sep
1995 1996 1995 1996
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 429,273 441,038 $ 1,677,854 $ 2,225,367
Cost of sales $ 204,582 259,298 $ 844,731 $ 1,116,182
----------- ----------- ----------- -----------
Gross profit $ 224,691 181,740 $ 833,123 $ 1,109,185
Operating expenses:
Sales and marketing $ 114,336 340,703 $ 318,778 $ 906,066
Research and development $ 18,237 120,452 $ 99,620 $ 358,942
Depreciation and amortization $ 18,773 62,269 $ 48,886 $ 177,709
General and administrative $ 613,843 441,417 $ 1,339,065 $ 1,790,302
----------- ----------- ----------- -----------
Total operating expenses $ 765,189 964,841 $ 1,806,349 $ 3,233,019
----------- ----------- ----------- -----------
Loss from operations $ (540,498) (783,101) $ (973,226) $(2,123,834)
Interest income $ 9,878 14,332 $ 7,698 $ 86,025
Interest expense $ -- (2,048) $ -- $ (6,829)
Net loss $ (550,376) (770,817) $ (980,924) $(2,044,638)
----------- ----------- ----------- -----------
Net loss per share (0.32) (0.30) (0.56) (0.84)
Weighted average shares outstanding 1,774,986 2,468,750 1,744,986 2,446,852
</TABLE>
<PAGE>
DIGITAL DESCRIPTOR SYSTEMS, INC.
BALANCE SHEETS
31-Dec 30-Sep
ASSETS 1995 1996
----------- -----------
(audited) (unaudited)
Current assets:
Cash $ 2,778,185 $ 748,242
Restricted cash $ 150,000 $ 150,000
Short-term Investments $ 389,343 $ 193,320
Accounts receivable, net of allowance for
doubtful accounts $138,085 in 1995 and $ 689,240 $ 589,351
$200,312 in 1996
Unbilled receivables $ 113,172 $ 6,857
Accounts receivable - other $ 1,000 $ 8,552
Inventories $ 217,512 $ 122,911
Prepaid expenses $ 84,536 $ 71,060
Other $ 79,122 $ 16,981
----------- -----------
Total current assets $ 4,502,110 $ 1,907,274
Deposits $ 7,590 $ 8,443
Accounts receivable-officers notes -- $ 148,000
Furniture and equipment, net $ 333,901 $ 303,029
Purchase software, net -- $ 112,500
----------- -----------
Total assets $ 4,843,601 $ 2,479,246
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 329,559 $ 111,538
Notes payable $ 50,000 $ 50,000
Deferred income $ 527,340 $ 429,142
Accrued expenses $ 249,032 $ 74,147
Due to affiliates $ 71,913 $ --
----------- -----------
Total current liabilities $ 1,227,844 $ 664,827
Notes payable $ 87,500 $ 50,000
Shareholder's equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,408,750 and 2,468,750
issued and outstanding 12/31/95 and 09/30/96 $ 2,409 $ 2,469
Additional paid-in capital $ 9,885,788 $10,148,528
Unearned compensation $ (110,000) $ (92,000)
Accumulated deficit $(6,249,940) $(8,294,578)
----------- -----------
Total shareholder's equity $ 3,528,257 $ 1,764,418
----------- -----------
$ 4,843,601 $ 2,479,246
=========== ===========
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DIGITAL DESCRIPTOR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-BASIS OF PRESENTATIONS
The interim financial data is unaudited; however , in the opinion of management,
the interim data includes all adjustments, consisting only of normal recurring
adjustments necessary for a fair statement of the results for the interim
periods. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statement prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. The results of
operations for the nine month period ending September 30,1996 are not
necessarily indicative of the results to be expected for the full year.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's December 31, 1995 Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.
NOTE B - NET LOSS PER COMMON SHARE
Net loss per common share was computed by dividing the net loss by the weighted
average number of shares outstanding during the period. Conversion of options
and warrants was not assumed as the effect would be anti-dilutive.
NOTE C - ACQUISITION
In January 1996, the Company acquired all of the assets of VISATEX Corporation,
including the proprietary rights to the VISATEX products, Compu-Sketch,
Compu-Scene and FotoFile which are compatible with the Company's core product,
Compu-Capture(R). Compu-Sketch is a comprehensive program to generate, touch-up
and enhance composites; Compu-Scene is a computerized drafting program for
drawing crime and accident scenes; and FotoFile is a mug-shot system similar to
Compu-Capture(R). The purchase price for the VISATEX assets was $100,000 in cash
plus potential additional payments equal to the greater of 10% of revenues from,
or a fixed commission on sales of VISATEX products for the three year period
ending December 31, 1998. An additional payment of $60,000 was made in the first
quarter of 1996. The total cost of the purchased software is being amortized
over a three year period.
NOTE D - OFFICER NOTE
Through the period ended September 31, 1996 the Company has loaned the President
of the Company $148,000. The Company has obtained an unsecured term note for
the outstanding balance payable in three years.
<PAGE>
NOTE E - CONSULTANTS AND ADVISORS COMPENSATION PLAN
In February 1996 the Company adopted a Consultants and Advisors Compensation
Plan and granted 60,000 shares of stock under the Plan to certain individuals on
April 9, 1996. Accordingly, in the first quarter, the Company has recorded a
compensation charge of $262,800 related to the issuance of those shares.
NOTE F - 1996 DIRECTOR OPTION PLAN
In August 1996, the Company adopted the 1996 Director Option Plan for the
purpose of granting stock options to directors. Two hundred thousand shares of
common stock have been reserved under this Plan. Options for 45,000 shares of
common stock have been granted to non-employee directors, subject to
stockholders approval.
<PAGE>
SIGNATURE PAGE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this amendment to report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIGITAL DESCRIPTOR SYSTEMS,
INC.
Date: December 16, 1996 By: /s/ Garrett U. Cohn
-----------------------------------
Garrett U. Cohn, President and
Chief Executive Officer
Date: December 16, 1996 By: /s/ Michael Pellegrino
-----------------------------------
Michael Pellegrino, Vice President
Finance and Chief Financial Officer
