<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1993
for the transition period from__________to___________
Commission File Number 1-9547
------
INTERSYSTEMS INC.
-----------------
(Exact name of registrant as specified in charter)
Delaware 13-3256265
------------------------ --------------------
(State or other jurisdiction IRS Employer
of incorporation or organization)
(Identification number)
8790 Wallisville Road
Houston, Texas 77029
---------------------
(Address of principal executive offices)
(Zip Code)
713-675-0307
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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_____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
As of April 29, 1996 there were 6,298,941 shares of the
Company's common stock, par value $.01 per share,
outstanding.
page 1 of 11
<PAGE> 2
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands, unaudited)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements March 31,1996
-------------
ASSETS
------
[S] [C]
CURRENT ASSETS:
Cash $ 237
Trade Receivables 3,135
Inventories 2,480
Prepaid expenses and other 209
Due from Helm Resources, Inc. and subsidiaries 356
Note receivable - Non compete, net 215
Note receivable - sale of Trading Business 265
--------------
6,897
Equipment and leasehold improvements, net 7,878
Other assets 451
--------------
$ 15,226
==============
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Revolving lines of credit $ 1,943
Current portion of long-term debt 696
Accounts payable 2,543
Accrued expenses 791
-------------
5,973
Convertible subordinated debentures 2,499
Construction financing 2,300
Long term debt - net of current portion 1,715
Common stock subject to redemption - private placement 2,064
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 6,299
shares issued and outstanding 63
Additional paid-in capital 3,300
Retained earnings (deficit) (2,588)
Note receivable - sale of common stock (100)
--------------
TOTAL SHAREHOLDERS' EQUITY 675
--------------
$ 15,226
==============
page 2 of 11
<PAGE> 3
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
Three months ended March 31,
1996 1995
---- ----
[S] [C] [C]
Net sales $ 5,055 $ 3,253
Cost of sales 3,573 2,231
---------- ----------
Gross Profit 1,482 1,022
Selling, general and administrative
expenses 1,541 1,102
Settlement of note receivable -
sale of Trading Business 45 --
Interest income (14) (23)
Interest expense 213 193
----------- -----------
Net income (loss) $ (303) $ (250)
=========== ===========
Per share:
Net income (loss) $ (.06) $ (.06)
----------- -----------
Average number of common shares
outstanding 5,139,000 4,028,000
=========== ===========
page 3 of 11
<PAGE> 4
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
Three Months Ended March 31,
1996 1995
---- ----
[S] [C] [C]
Net cash provided (used) by operating
activities $ (217) $ 154
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (2,668) --
Loans to subsidiaries & affiliates (526) (81)
----------- -----------
Net cash used in investing activities $ (3,194) (81)
----------- -----------
Cash from financing activities:
Net borrowings -- 66
Proceeds from promissory note 2,370 --
Repayments of long-term debt (763) (153)
Issuance of common stock 2,035 --
----------- -----------
Net cash provided (used) by financing
activities 3,642 (87)
----------- -----------
Net increase (decrease) in cash 231 (14)
Cash at beginning of period 6 32
----------- -----------
Cash at end of period $ 237 $ 18
=========== ===========
Cash paid during the periods for:
Interest $ 125 $ 110
Taxes $ 1 $ 13
page 4 of 11
<PAGE> 5
InterSystems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1996
Note 1. The accompanying condensed consolidated financial statements are
unaudited, but, in the opinion of management, include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation
of financial position and results of operations. Interim results are not
necessarily indicative of results for a full year.
Note 2. In April 1993, the Company sold the net assets and operations
related to the Company's Trading Business to certain members of management.
The company remains liable under certain operating leases which were
either sublet or assigned to the purchaser. The leases expire in years
through 1998 and, at March 31, 1996, have aggregate future minimum
rentals of approximately $600,000.
The Company has negotiated a settlement for the early collection of the
non-interest bearing non compete portion of the note receivable for the
sale of the Trading Business. Under the negotiated terms, the Company
has agreed to accept $ 215,000 as full payment of the note, thereby
resulting in a current charge of $45,000.
Note 3. During the three months ended March 31, 1996, $305,500 principal
amount of 8% convertible debentures were converted into 210,762 shares
of the Company's common stock.
Note 4. The Company is proceeding with negotiations for the acquisition of
Interpak Holdings, Inc. headquartered in Houston, Texas ("Interpak") from
Helm Resources, Inc. ("Helm"), which currently owns approximately 25% of the
Company's outstanding shares of Common Stock. If an agreement is reached,
the acquisition would be subject to a number of conditions, including the
Company's arranging financing to complete the acquisition and stockholder
approval. The Company may be required to undertake a debt or equity
financing to have sufficient available funds to pay any cash down payment.
It is expected that the purchase price will be paid with a combination of
cash, the assumption of certain Helm debentures and the issuance to Helm of
shares of common stock. Interpak is a custom-packager of thermoplastic
resins and also provides warehousing services to plastic producers and
distributors.
Note 5. In September 1995, InterSystems Nebraska, through its subsidiary,
Tropical Systems, Inc., signed a letter of intent to acquire the assets of the
Tropical Manufacturing Group, Inc. ("Tropical Group") and has entered
into an operating agreement with Tropical Group, which is engaged in the
business of manufacturing and selling commercial rolling doors and hurricane
resistant doors and shutters in South Florida, Latin America and
page 5 of 11
<PAGE> 6
the Caribbean. In accordance with the operating agreement, Tropical
Group has assigned to Tropical Systems its right to sell, market and
distribute its products and is manufacturing its products solely for
Tropical Systems, in exchange for the agreement of Tropical Systems
to pay Tropical Group cost plus 1% for each product manufactured.
This is intended as an interim arrangement which may be terminated at any
time by Tropical Systems, and which will be terminated upon the purchase of
all of Tropical Group's assets and assumption of certain liabilities of
Tropical Group in accordance with the letter of intent. The consummation of
the purchase is conditioned upon arranging the necessary financing to
complete the purchase and obtaining clear title to the assets of Tropical
Group, which are currently subject to various tax and other liens. At the
present time, the cost of acquiring the assets of Tropical Group is expected
to be approximately $150,000, although transactional expenses and the
cost of clearing the title will increase this estimate.
Note 6. On January 26, 1996, Chemtrusion entered into an exclusive
long-term contract with a non-related joint venture to provide custom
compounding of thermoplastics and related services. The agreement requires
Chemtrusion to construct a thermoplastics compounding plant in
Jeffersonville, Indiana. The estimated cost of the plant is expected to be
approximately $12.7 million. Interim financing for the construction of the
plant has been provided by Mitsubushi bank. Once Chemtrusion has obtained
permanent financing, the joint venture partners will guarantee such debt.
As of March 31, 1996, approximately $2.26 million has been funded from the
construction financing loan and the related liability and construction in
progress asset has been recorded in the consolidated financial statements.
The plant is expected to be completed and on line by August 31, 1996.
Note 7. On December 1, 1995, the Company commenced a private placement of
Units consisting of 40,000 shares of Common Stock and 20,000 Common Stock
Purchase Warrants for $55,000 per Unit. The Company sold 39 Units, which
yielded over $2,100,000 in proceeds to the Company. These proceeds were
used to repay debt, to provide working capital and to provide in part funds
for the proposed Interpak and Tropical Manufacturing Group acquisitions.
The warrants are exercisable beginning July 15, 1996 through January 15,
2000 at an exercise price of $1.80 per share, the warrants may be called by
the Company at $.05 per warrant if during the three year period following
the effectiveness of a Registration Statement covering the shares and shares
underlying the warrants, the closing price of the Company's common stock
equals or exceeds $2.50 per share for at least thirty consecutive trading
days.
Holders of the units have the right at the end of the two year period
following the effectiveness of a Registration Statement covering the shares,
page 6 of 11
<PAGE> 7
to cause the Company to redeem the common stock contained in the units,
but not the common stock underlying the warrants, for $ 1.80 per share as
defined by the agreement, unless during such period the closing price of the
Company's common stock is at least $1.80 per share for any thirty
consecutive days.
Note 8. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets to be Disposed Of" (SFAS No.121).
SFAS No. 121 requires, among other things, that impairment losses on assets
to be held, and gains or losses from assets that are expected to be disposed
of, be included as a component of income from continuing operations. The
Company adopted SFAS No. 121 in 1996 and its implementation did not have a
material effect on the consolidated financial statements.
In October 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123). SFAS No. 123 encourages
entities to adopt the fair value method in place of the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25), for all arrangements under which employees receive
shares of stock or other equity instrument of the employer or the employer
incurs liabilities to employees in amounts based on the price of its stock.
The Company did not adopt the fair value method encouraged by SFAS No. 123
and will continue to account for such transactions in accordance with APB
No. 25. However, the Company will be required to provide additional
disclosures for the 1996 annual financial statements providing pro forma
effects as if the Company had elected to adopt SFAS No. 123.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
- ---------------------
Three Month Periods Ended March 31, 1996 and 1995
- -------------------------------------------------
Net sales increased $1,802,000 (55%) for the three month
period ended March 31, 1996 (the "1996 period") compared to the three month
period ended March 31, 1995 (the "1995 period"). The increase was primarily
attributable to higher sales volumes of bulk materials handling equipment at
InterSystems Nebraska ($718,000) as well as the addition of Tropical sales
($1,151,000). Chemtrusion sales decreased $67,000 due to a temporary
decrease in tolling volume.
Gross profit as a percentage of sales was 29.3% in the 1996 period as
compared to 31.4% in the 1995 period. Chemtrusion's gross profit as a
percentage of sales decreased to 21.5% in the 1996 period from 31.7%
in the 1995 period because of increased labor costs and property taxes.
page 7 of 11
<PAGE> 8
Nebraska's gross profit as a percentage of sales was 31.1% in the 1996 period
as compared to 31.3% in the 1995 period.
Selling, general and administrative expenses increased by $463,000 (14.3%)
in the 1996 period as compared to the 1995 period. The increase was
primarily a result of Tropical Systems, Inc. which began operations in the
fourth quarter 1995.
Interest expense edged up approximately $13,200 in the 1996 period as
compared to the 1995 period. The increase was primarily a result of Tropical
Systems, Inc. which began operations in the fourth quarter 1995.
The Company has negotiated a settlement for the early collection of the
non-interest bearing non compete portion of the note receivable for the sale
of the Trading Business. Under the negotiated terms, the Company has agreed
to accept $ 215,000 as full payment of the note, thereby resulting in a
current charge of $45,000.
Liquidity and Capital Resources
- -------------------------------
Cash used by operating activities for the three months ended March 31, 1996
amounted to $217,000; $2,370,000 was provided by proceeds from
notes primarily for the construction of the facility in Indiana; $2,035,000
was provided from issuance of common stock; $2,668,000 was used for
purchases of fixed assets primarily for the Indiana facility; $763,000 was
used for payments on notes and $526,000 was repaid and advanced to
subsidiaries and affiliates. Cash increased during the period by $231,000.
The Company anticipates that its future operating needs will be satisfied
from the operations of its subsidiaries, which on a combined basis are
expected to generate positive cash flow, collections on the notes receivable
from the sale of the Trading Business, and the approximately $2.1 million
in proceeds from a private placement in the first quarter of 1996. The
Company may also seek financing, possibly including a debt or equity
offering, to supplement available resources. There can be no assurances that
management will be able to obtain any such debt or equity financing.
Parent Company
- --------------
The Company is proceeding with negotiations for the acquisition of Interpak
Holdings, Inc. headquartered in Houston, Texas ("Interpak") from Helm
Resources, Inc. ("Helm"), which currently owns approximately 25% of the
Company's outstanding shares of Common Stock. If an agreement is reached,
the acquisition would be subject to a number of conditions, including the
Company's arranging financing to complete the acquisition and stockholder
approval. The Company may be required to undertake a debt or equity
financing to have sufficient available funds to pay any cash down payment.
It is expected that the purchase price will be paid with a combination of
cash, the assumption of certain Helm debentures and the issuance to Helm of
shares of common stock. Interpak is a custom-packager of thermoplastic
resins and also provides warehousing services to plastic producers and
distributors.
page 8 of 11
<PAGE> 9
On December 1, 1995, the Company commenced a private placement of Units
consisting of 40,000 shares of Common Stock and 20,000 Common Stock Purchase
Warrants for $55,000 per Unit. The Company reserved the right to sell up to
35 Units, and to sell fractional Units. The Company sold 39 Units, which
yielded over $2,100,000 in proceeds to the Company. These proceeds were
used to repay debt, to provide working capital and to provide in part funds
for the proposed Interpak and Tropical Manufacturing Group acquisitions.
The offering contains redemption features if certain conditions are not met.
See note 7 to the consolidated financial statements.
InterSystems Nebraska
- ---------------------
InterSystems Nebraska manufactures products to meet customer
specifications. InterSystems Nebraska is a party to a credit agreement that
provides for advances of up to $1,500,000 secured by accounts receivable and
inventory. Interest on borrowings is .5% in excess of the financial
institution's base lending rate. At March 31, 1996 InterSystems' borrowing
rate was 9.75%. At March 31, 1996 outstanding borrowings were $1,500,000.
InterSystems Nebraska also entered into an additional agreement with the
bank for an additional $250,000 with interest at the bank's prime plus .5% and
is due on July 31, 1996. The agreement has the same loan covenants and
collateral as defined above. In addition, a limited partnership, owned by
Helm and certain of its officers, has guaranteed the additional
borrowings. The Company believes these credit facilities are sufficient to
finance InterSystems Nebraska's present operations.
InterSystems Nebraska entered into a lease for a second 30,000 square foot
facility in Omaha, thereby increasing total square footage under use to
70,000 square feet. The planned expansion and automation are designed to
render the combined facility efficient and state of the art without
changing the present workforce, and to increase manufacturing capacity to
permit InterSystems Nebraska to meet its record backlog, bring subcontracted
work back into the plant and take on additional customers. In connection
with the expansion, the subsidiary has arranged $1.1 million in operating
leases and $250,000 in equipment financing for advanced robotics, software
and other automated equipment to be installed in both of their facilities.
This equipment financing is pursuant to a 9.25% term loan agreement which
InterSystems Nebraska entered into with a bank in December 1995. The
agreement has substantially the same loan covenants and collateral as the
revolving credit agreement previously described, in addition to requiring the
maintenance of minimum debt service ratio.
In September 1995, InterSystems Nebraska, through its subsidiary, Tropical
Systems, Inc., signed a letter of intent to acquire the assets of the
Tropical Manufacturing Group, Inc. ("Tropical Group") and has entered into an
operating agreement with Tropical Group, which is engaged in the business of
manufacturing and selling commercial rolling doors and hurricane resistant
doors and shutters in South Florida, Latin America and the Caribbean. In
accordance with the operating agreement, Tropical Group has assigned to
InterSystems Nebraska its right to sell, market and distribute its products
page 9 of 11
<PAGE> 10
and is manufacturing its products solely for InterSystems Nebraska, in
exchange for the agreement of InterSystems Nebraska to pay Tropical Group
cost plus 1% for each product manufactured. This is intended as an interim
arrangement which may be terminated at any time by InterSystems Nebraska,
and which will be terminated upon the purchase of all of Tropical Group's
assets and assumption of certain liabilities of Tropical Group in accordance
with the letter of intent. The consummation of the purchase is conditioned
upon arranging the necessary financing to complete the purchase and
obtaining clear title to the assets of Tropical Group, which are currently
subject to various tax and other liens. At the present time, the cost of
acquiring the assets of Tropical Group is expected to be approximately
$250,000, although transactional expenses and the cost of clearing the
title may increase this estimate considerably.
Chemtrusion
- -----------
Chemtrusion is a party to a credit agreement that provides for advances of
up to $300,000 and expires in September 1996. The agreement bears interest
at 10.5% and is collateralized by Chemtrusion's accounts receivable. At
March 31, 1996, Chemtrusion had borrowings outstanding totaling $192,500
and net book value of collateral totaled approximately $377,000.
On January 26, 1996, Chemtrusion entered into an exclusive long-term contract
with a non-related joint venture to provide custom compounding of
thermoplastics and related services. The agreement requires Chemtrusion to
construct a thermoplastics compounding plant in Jeffersonville, Indiana.
The estimated cost of the plant is expected to be approximately $12.7
million. The agreement states that the joint venture partners will provide
the interim financing for the construction of the plant until Chemtrusion can
obtain permanent financing, at which time the joint venture partners will
guarantee such debt. As of March 31, 1996, approximately $2.3 million has
been funded from the construction financing loan and the related liability
and construction in progress asset has been recorded in the consolidated
financial statements. The plant is expected to be completed and on line by
August 31, 1996.
Seasonality
- -----------
A substantial portion of InterSystems Nebraska's revenues are derived from
the agricultural sector of the economy and, accordingly, are subject to
seasonal fluctuations. InterSystems Nebraska's revenues are highest in the
third quarter (32% of annual revenues in 1995 were recorded, exclusive of
Tropical). While revenues for the remaining quarters are generally
constant, InterSystems Nebraska's success is, to some extent, dependent upon
weather conditions affecting domestic grain production, conditions in the
grain industry generally and the value of the United States dollar against
foreign currency. As of March 31, 1996, InterSystems backlog was $4,117,000
compared with $1,911,000 as of March 31, 1995.
The acquisition of Tropical is expected to complement the present product
demand of InterSystems Nebraska, which usually peaks in the summer months
and drops in the winter months, whereas Tropical experiences high product
demand year round, especially during hurricane season.
page 10 of 11
<PAGE> 11
SIGNATURES
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.
INTERSYSTEMS, INC.
Dated: May 13, 1996 /s/ Fred S.Zeidman
------------------
Fred S. Zeidman
President
Chief Executive Officer
page 11 of 11
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