U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
The number of shares outstanding of each of the issuer's classes of common
equity as of August 1, 1996:
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Common Stock 2,468,750
($.001 par value)
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DIGITAL DESCRIPTOR SYSTEMS, INC.
BALANCE SHEETS
30-Jun 30-Jun
1996 1995
--------- ---------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash 659,166 (3457)
Restricted cash 150,000 0
Short-term Investments 583,648 0
Accounts receivable, net of allowance for
doubtful accounts $24,000 in 1995 and 1,172,096 1,006,491
$134,759 in 1996
Unbilled 5,000 0
Accounts receivable - officers 91,300 4,500
Accounts receivable - other 8,252 26,025
Inventories 160,444 180,386
Prepaid expenses 71,426 11,596
Other 16,981 0
--------- ---------
Total current assets 2,918,313 1,225,541
Prepaid offering costs 0 679,327
Deposits 8,443 5,494
Furniture and equipment, net 259,850 122,661
Purchase Software, net 125,000 0
--------- ---------
3,311,606 2,033,023
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable 236,631 846,862
Notes Payable 50,000 0
Deferred income 366,358 499,687
Accrued expenses 67,880 223,802
Due to affiliates 0 406,075
--------- ---------
Total current liabilities 720,869 1,976,426
Notes Payable 62,500 0
Shareholder's equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,468,750 and 1,000,000
issued and outstanding 06/30/96 and 06/30/95 2,469 10,000
Additional paid-in capital 10,148,528 4,280,510
Unearned compensation (98,000) 0
Accumulated deficit (7,524,761) (4,233,913)
--------- ---------
Total shareholder's equity (deficit) 2,528,236 56,597
--------- ---------
3,311,605 2,033,023
========= =========
<PAGE>
DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended June 30
30-Jun 30-Jun
1996 1995
--------- ---------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss (1,274,822) (37,832)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable (3,326) (28,790)
Depreciation and amortization 154,795 30,113
Amortizaton of unearned compensation 12,000 0
Changes in assets and liabilities:
Receivables (469,909) (743,257)
Inventories 57,068 (89,545)
Prepaid expenses and other 75,251 10,717
Accounts payable (92,928) 283,938
Accrued expenses and other liabilities (181,152) 204,223
Deferred revenue (160,982) 321,106
Other noncurrent assets (852) 0
Due to affiliates (71,913) (370,912)
--------- ---------
Net cash provided by (used in) operating activities (1,956,770) (420,239)
--------- ---------
Cash flows from investing activities:
Equipment purchases (80,744) (27,438)
Purchase Software Acquisition (125,000) 0
Increase in short-term investments, including
restricted cash (194,305) 0
--------- ---------
Net cash used in investing activities (400,049) (27,438)
--------- ---------
Cash flows from financing activities:
Prepaid offering costs 0 (266825)
Repayment of note payable (25,000) 0
Common Stock Issued 60 0
Capital contributions 262,740 700,000
--------- ---------
Net cash used in financing activities 237800 433,175
--------- ---------
Increase (decrease) in cash (2,119,019) (14,502)
Cash at beginning of period 2,778,185 11,045
--------- ---------
Cash at end of period 659166 (3,457)
--------- ---------
<PAGE>
DIGITAL DESCRIPTOR SYTEMS, INC.
STATEMENT OF OPERATIONS
Six months ended
30-Jun 30-Jun
1996 1995
--------- ---------
(unaudited) (unaudited)
Sales 1,784,329 1,248,581
Cost of sales 856,884 640,149
--------- ---------
Gross profit 927,445 608,432
--------- ---------
Operating expenses:
Sales and marketing 565,363 204,442
Research and development 239,490 81,383
Depreciation and amortization 174,195 30,113
General and administrative 1,290,130 725,222
--------- ---------
Total Operating expenses 2,269,178 1,041,160
--------- ---------
Loss from operations (1,341,733) (432,728)
Interest income 71,693 0
Interest expense (4,781) (2,180)
Net loss (1,274,821) (434,908)
========= =========
Net loss per share (unaudited) (0.52) (0.43)
Weighted average shares outstanding 2,468,750 1,000,000
<PAGE>
DIGITAL DESCRIPTOR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-BASIS OF PRESENTATIONS
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
<PAGE>
DIGITAL DESCRIPTOR SYSTEMS, INC.
Item 2. Management's Discussion and Analysis Financial Condition
and Results of Operation
Results of Operations
Sales increased 7% in the second quarter of 1996 to $874,272 up $54,801 over the
second quarter of 1995. For the second quarter gross profit of $535,763
increased $127,828 or 31% against the same period in 1995. On a year to date
basis sales increased $303,126 or 30% while gross profit increased $319,013 or
52% over the same period a year ago. The sales increase was primarily due to an
increase in the amount of installations completed and contracts awarded to the
Company, while the margin increase is reflective of a greater proportion of
software in the sale , which has a higher margin, while sales of hardware has
decreased, mainly due to the continued decrease in prices of computers.
The Company expects general and administrative expenses to increase with
increases in volume and personnel. Sales and marketing expenses are expected to
increase as the Company continues to expand its geographic market. Total
operating expenses for the three months ended June 30 , 1996 increased 218% over
the six months ended June 30, 1995. General and administrative expenses
increased $564,908 or 78% to $1,290,130 for the six months ended June 30, 1996
as compared to the same period in 1995, primarily due to the increase in the
number of employees and related employee expenses, including a one time non-cash
charge for compensation expense of $262,800 relating to stock grants to outside
advisors. Sales and marketing expenses increased $360,921 or 176% to $565,363
for the six months ended June 30, 1996 as compared to the same period in 1995,
primarily due to the increased sales personnel hired by the Company in an effort
to increase both sales volume and geographic territory. Research and development
expenses increased $158,107 or 194% for the six months ended June 30, 1996 as
compared to the same period in 1995. The increases were due to increases in
personnel and external development costs as the Company continues to investigate
and develop new products as well as enhancing it's current product line. Overall
the Company's net loss from operations increased to $1,341,733 compared to
$432,728 for the same six month period of 1996 and 1995 respectively.
Liquidity and Sources of Capital
Cash Flows from operations were a negative $1,956,770 for the six months ended
June 30, 1996 as compared to a negative $420,239 in the comparable period of
1995. This was primarily due to the loss for the first six months.
<PAGE>
PART II
OTHER INFORMATION
Item 4. On May 21, 1996, at the Annual Meeting of Stockholders, five Directors
were elected. The results of the stockholder vote are shown below:
Broker/
Name For Against Abstention/Withheld Non-Votes
- ---- --- ------- ------------------- ---------
Garrett U. Cohn 2,294,003 0 7,500 0
Myrna L. Cohn, Ph.D. 2,290,003 0 11,500 0
Michael Ott 2,294,003 0 7,500 0
Steven F. Bright 2,294,003 0 7,500 0
Bartlett R. Rhoades 2,294,003 0 7,500 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
The Company was not required to and did not file a Form 8-K during the
quarter ended June 30, 1996.
<PAGE>
SIGNATURE PAGE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIGITAL DESCRIPTOR SYSTEMS, INC.
Date: August 8, 1996 By: /s/ Garrett U. Cohn
-------------------
Garrett U. Cohn, President and
Chief Executive Officer
Date: August 8, 1996 By: /s/ Michael Pellegrino
----------------------
Michael Pellegrino, Vice President
Finance and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Digital Descriptor Systems, Inc. financial statements for the three month period
ending June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 809,166
<SECURITIES> 583,648
<RECEIVABLES> 1,306,855
<ALLOWANCES> 134,759
<INVENTORY> 160,444
<CURRENT-ASSETS> 2,918,313
<PP&E> 770,585
<DEPRECIATION> 510,735
<TOTAL-ASSETS> 3,311,606
<CURRENT-LIABILITIES> 720,869
<BONDS> 0
0
0
<COMMON> 2,469
<OTHER-SE> 2,528,236
<TOTAL-LIABILITY-AND-EQUITY> 3,311,605
<SALES> 1,784,329
<TOTAL-REVENUES> 1,784,329
<CGS> 856,884
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,269,178
<LOSS-PROVISION> (1,341,733)
<INTEREST-EXPENSE> 4,781
<INCOME-PRETAX> 1,274,821
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,274,821)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
