<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
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)
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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of July 29, 1996 there were 6,378,341 shares of the Company's common stock,
par value $.01 per share, outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30,1996
(In thousands, unaudited)
<TABLE>
<S> <C>
Assets
CURRENT ASSETS:
Cash $ 354
Trade Receivables 3,856
Inventories 2,335
Prepaid expenses and other 309
Due from Helm Resources, Inc. and subsidiaries 428
----------
7,282
Equipment and leasehold improvements, net 12,257
Other assets 654
----------
$ 20,193
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,803
Current portion of long-term debt 720
Accounts payable 2,914
Accrued expenses 777
-----
6,214
Convertible subordinated debentures 2,333
Construction financing 7,151
Long term debt - net of current portion 1,860
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; 6,369
shares issued and outstanding 64
Additional paid-in capital 3,459
Retained earnings (deficit) (2,952)
------------
TOTAL SHAREHOLDERS' EQUITY 571
------------
$ 20,193
============
</TABLE>
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<PAGE> 3
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
THREE MONTHS ENDED JUNE 30
1996 1995
<S> <C> <C>
Net sales $ 5,067 $ 3,906
Cost of sales 3,633 2,608
------- -------
Gross Profit 1,434 1,298
Selling, general and administrative
expenses 1,330 1,073
------- --------
Operating income 104 225
Interest income (6) (16)
Interest expense 147 209
------- ---------
Income (loss) from continuing
operations (37) 32
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. (328) --
Loss on disposal (250) --
-------- ----------
Loss from discontinued operations (578) --
---------- ----------
Net income (loss) $ (615) $ 32
========== ==========
Per share
Continuing operations (.01) .01
Discontinued operations (.09) --
---------- ----------
Net income (loss) $ (.10) $ .01
========== ==========
Average number of common shares outstanding 6,356,812 4,176,392
========= =========
</TABLE>
page 3 of 12
<PAGE> 4
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
SIX MONTHS ENDED JUNE 30
1996 1995
<S> <C> <C>
Net sales $ 8,971 $ 7,159
Cost of sales 6,225 4,839
-------- ---------
Gross Profit 2,746 2,320
Selling, general and administrative
expenses 2,586 2,175
Settlement of note receivable -
sale of Trading Business 45 --
-------- ----------
Operating income (loss) 115 145
Interest income (20) (39)
Interest expense 323 402
-------- -----------
Loss from continuing operations (188) (218)
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. (480) --
Loss on disposal (250) --
-------- ------------
Loss from discontinued operations (730) --
-------- ------------
Net income (loss) $ (918) $ (218)
========== ==========
Per share
Continuing operations (.03) (.06)
Discontinued operations (.13) --
---------- ----------
Net income (loss) $ (.16) $ (.06)
========== ==========
</TABLE>
Average number of common shares outstanding 5,746,751 4,102,748
========= =========
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<PAGE> 5
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Net cash used by operating
activities $ (657) $ (141)
-------- --------
Cash flows from investing activities:
Acquisition of fixed assets (7,242) (239)
Proceeds from sale of trading business 482 265
Additions to other assets (210) --
Advances to subsidiaries & affiliates (546) --
-------- --------
Net cash provided (used)
in investing activities $ (7,516) $ 26
-------- --------
Cash from financing activities:
Net borrowings -- 114
Repayments of long-term debt (781) (165)
Proceeds from promissory note 7,267 135
Exercise of common stock warrants -- 165
Issuance of common stock 2,035 --
-------- -------
Net cash provided by financing activities 8,521 249
-------- -------
Net increase (decrease) in cash 348 134
Cash at beginning of period 6 32
--------- --------
Cash at end of period $ 354 $ 166
========= ========
Cash paid during the periods for:
Interest $ 353 $ 385
Taxes $ 27 $ 24
</TABLE>
page 5 of 12
<PAGE> 6
InterSystems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 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 June 30, 1996, have aggregate future minimum
rentals of approximately $525,000.
The Company 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
agreed to accept $215,000 as full payment of the note, thereby resulting
in a charge of $45,000 in the first quarter 1996.
Note 3. During the six months ended June 30, 1996, $424,750 principal amount of
8% convertible debentures were converted into 294,154 shares of common
stock and $50,000 principal amount of 10% convertible debentures were
converted into 27,322 shares of 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 24% 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. 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
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<PAGE> 7
plant has been provided by Mitsubishi Bank. Once Chemtrusion has
obtained permanent financing, the joint venture partners will
guarantee such debt. As of June 30, 1996, approximately $7.151 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 fully operational by August 31, 1996.
Note 6. 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
acquisition.
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, 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 7. 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
page 7 of 12
<PAGE> 8
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.
Note 8. As of June 30, 1996, the Company adopted a plan to dispose of its Miami
based subsidiary Tropical Systems, Inc. ("TSI") through sale or
liquidation. Management is currently seeking companies that may have an
interest in purchasing TSI as well as considering the sale of TSI to
certain members of management.
Financial results of TSI are as follows:
<TABLE>
Operating data
Three Months Ended June 30,
1996 1995
<S> <C> <C>
Sales $ 738 $ 0
------ ------
Net loss ( 328) 0
===== ====
Six Months Ended June 30,
1996 1995
Sales $ 1,889 $ 0
------- -----
Net loss ( 480) 0
====== ====
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's continuing operations consist of the custom compounding business
operated by Chemtrusion and the designing, manufacturing, selling and leasing of
equipment for the industrial sectors of the economy operated by InterSystems,
Nebraska.
RESULTS OF OPERATIONS
Three Month Periods Ended June 30, 1996 and 1995
There was an increase of $1,161,000 (29.8%) in net sales for the three month
period ending June 30, 1996 (the "1996 period") compared to the three month
period ending June 30, 1995 (the "1995 period"). The sales increase was
primarily attributable to higher sales volumes of bulk materials handling
equipment at InterSystems Nebraska ($1,239,000). Chemtrusion's sales decreased
$78,000 due to a decrease in tolling volume. Tolling volume has increased in
July to levels comparable to historical averages.
page 8 of 12
<PAGE> 9
Gross profit as a percentage of sales was 28.3% in the 1996 period as compared
to 33.3% in the 1995 period. Chemtrusion's gross profit as a percentage of
sales decreased to 21.9% in the 1996 period from 30.8% in the 1995 period
because of increased labor costs and property taxes. Nebraska's gross profit as
a percentage of sales was 29.8% in the 1996 period as compared to 34.1% in the
1995 period. The decrease was a result of sales of lower margin products at
Nebraska.
The Company's selling, general and administrative expenses increased by $257,000
(24.0%) in the 1996 period as compared to the 1995 period. Nebraska's expenses
increased $188,000 primarily due to an increase in personnel, operating lease
costs and other general and administrative expenses associated with the
increased production capacity of the plant expansion.
Interest expense decreased $61,000 in the 1996 period as compared to the 1995
period. The decrease was primarily a result of lower interest costs at the
Parent company as a result of conversions of 8% and 10% subordinated
debentures.
The loss of $328,000 from discontinued operations represents the net loss of
Tropical Systems, Inc. for the three months ended June 30, 1996 and $250,000 is
the estimated loss on disposal.
RESULTS OF OPERATIONS
Six Month Periods Ended June 30, 1996 and 1995
There was an increase of $1,812,000 (25.4%) in net sales for the six month
period ending June 30, 1996 (the "1996 period") compared to the six month period
ending June 30, 1995 (the "1995 period"). Chemtrusion's sales decreased
$145,000 (7.2%) due to a decrease in tolling volume. Tolling volume has
increased in July to levels comparable to historical averages. InterSystems
Nebraska's sales increased $1,957,000 (38.2%) in the 1996 period as compared to
the 1995 period. The sales increase was a result of higher sales volumes of
bulk material handling equipment.
Gross profit as a percentage of sales decreased to 30.6% in the 1996 period as
compared to 32.4% in the 1995 period. Chemtrusion's gross profit as a
percentage of sales decreased to 21.57% in the 1996 period from 31.23% in the
1995 period. The decrease was primarily attributable to increased labor costs
and property taxes. Nebraska's gross profit as a percentage of sales remained
relatively constant at 32.3% in the 1996 period and in the 1995 period.
Selling, general and administrative expenses increased $411,000 (18.9%) in the
1996 period as compared to the 1995. Nebraska's expenses increased $315,000 as
a result of an increase in personnel, operating lease costs, and other general
and administrative expenses associated with the increased production capacity of
the plant expansion.
The loss of $480,000 from discontinued operations represents the net loss of
Tropical Systems, Inc. for the six months ended June 30, 1996 and $250,000 is
the estimated loss on disposal.
Page 9 of 12
<PAGE> 10
Liquidity and Capital Resources
Cash used by operating activities for the six months ended June 30, 1996
amounted to $657,000; $7,267,000 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; $482,000 was provided by proceeds from collections on
the notes for the sale of the Trading Business. Use of funds includes $7,242,000
for purchases of fixed assets primarily for the Indiana facility; $781,000 for
payments on notes and $546,000 was advanced to subsidiaries and affiliates. Cash
increased during the period by $348,000.
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 24% 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.
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. 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 June 30, 1996 InterSystems borrowing rate was 9.75%. At
June 30, 1996 outstanding borrowings were $1,410,000.
InterSystems Nebraska also entered into an agreement with the bank for an
additional $250,000 with interest at the bank's prime plus .5% and is due on
September 30, 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.
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<PAGE> 11
The expansion and automation was 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. The plant expansion
is essentially complete and fully operational.
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. As of August 7,
1996, the line of credit was fully utilized.
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 June 30, 1996, approximately $7.151 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 fully operational 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 June 30, 1996, InterSystems backlog was $3,121,000 compared to $3,372,000
as of June 30, 1995. Subsequent to June 30, 1996, the backlog at Nebraska has
decreased to $2.4 million as a result of faster processing of orders
attributable to the plant expansion.
11 of 12
<PAGE> 12
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: August 14, 1996 /s/ Fred S. Zeidman
-------------------
Fred S. Zeidman
President
Chief Executive Officer
page 12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 3,856
<ALLOWANCES> 0
<INVENTORY> 2,335
<CURRENT-ASSETS> 7,282
<PP&E> 12,257
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,193
<CURRENT-LIABILITIES> 6,214
<BONDS> 2,333
0
0
<COMMON> 64
<OTHER-SE> 507
<TOTAL-LIABILITY-AND-EQUITY> 20,193
<SALES> 8,971
<TOTAL-REVENUES> 8,971
<CGS> 6,225
<TOTAL-COSTS> 6,225
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> (188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (188)
<DISCONTINUED> (730)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (918)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> 0
</TABLE>
