<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 September 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
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INTERSYSTEMS, INC.
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(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 of 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 October 31, 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
September 30, 1996
(In thousands, unaudited)
Assets
- ------
CURRENT ASSETS:
Cash $ 380
Trade Receivables 4,067
Inventories 1,951
Prepaid expenses and other 245
Due from Helm Resources, Inc. And Subsidiaries 387
------------
7,030
Equipment and leasehold improvements, net 17,416
Other Assets 671
------------
$ 25,117
============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,949
Current portion of long-term debt 743
Accounts payable 1,953
Accrued expenses 849
------------
5,494
Convertible subordinated debentures 2,323
Construction financing 12,924
Long term debt - net of current portion 1,825
COMMON STOCK SUBJECT TO REDEMPTION-
PRIVATE PLACEMENT 1,997
SHAREHOLDER'S EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 6,378
shares issued and outstanding 64
Additional paid-in capital 3,538
Retained earnings (deficit) (3,048)
------------
TOTAL SHAREHOLDER'S EQUITY 554
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$ 25,117
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Page 2 of 13
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InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
Three months ended September 30
1996 1995
---- ----
Net Sales $ 5,855 $ 4,747
Cost of Sales 4,229 3,254
--------- ----------
Gross Profit 1,626 1,493
Selling, general and administrative
expenses 1,394 1,215
--------- ----------
Operating income 232 278
Interest income (12) (16)
Interest expense 178 210
Acquisition costs -- 25
--------- ----------
Net income $ 66 $ 59
========= ==========
Per share net income $ .01 $ .01
========= ==========
Average number of common shares
outstanding 6,378,135 4,362,589
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Page 3 of 13
<PAGE> 4
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
Nine months ended September 30
1996 1995
---- ----
Net sales $ 14,826 $ 11,906
Cost of sales 10,453 8,093
--------- ---------
Gross Profit 4,373 3,813
Selling, general and administrative
expenses 3,980 3,365
Settlement of note receivable-
sale of Trading Business 48 --
--------- ---------
Operating income (loss) 345 448
Interest income (32) (55)
Interest expense 501 613
Acquisition costs -- 49
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Loss from continuing operations (124) (159)
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. (480) --
Loss on disposal (250) --
--------- ---------
Loss from discontinued operations (730) --
--------- ---------
Net income (loss) $ (854) $ (159)
========= =========
Per Share
Continuing operations (.02) (.04)
Discontinued operations (.12) --
--------- ---------
Net income (loss) $ (.14) $ (.04)
========= =========
Average number of common shares
outstanding 5,946,243 4,156,159
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Page 4 of 13
<PAGE> 5
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
Nine months ended September 30
1996 1995
---- ----
Net cash used by operating activities $ (1,335) $ (43)
----------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (12,571) (328)
Proceeds from sale of trading business 482 265
Additions to other assets (230) --
Advances to subsidiaries & affiliates (489) --
----------- ---------
Net cash provided (used)
in investing activities $ (12,808) $ (63)
----------- ---------
Cash from financing activities:
Net borrowings -- 38
Repayments of long-term debt (709) (315)
Proceeds from promissory notes 13,204 220
Issuance of common stock 2,022 170
----------- ---------
Net cash provided by financing activities 14,517 113
----------- ---------
Net increase (decrease) in cash 374 7
Cash at beginning of period 6 32
----------- ---------
Cash at end of period $ 380 $ 39
=========== =========
Cash paid during the periods for:
Interest $ 482 $ 517
Taxes $ 30 $ 30
Page 5 of 13
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InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 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 September
30, 1996, have aggregate future minimum rentals of approximately
$500,000.
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 $48,000 in 1996.
NOTE 3. During the nine months ended September 30, 1996, $424,750
principal amount of 8% convertible debentures were converted into
294,154 shares of common stock and $62,500 principal amount of 10%
convertible debentures were converted into 36,792 shares of common
stock.
NOTE 4. The Company's Board of Directors met on October 29, 1996
and resolved to terminate discussions with Helm Resources, Inc.
("Helm") concerning the previously announced proposed acquisition of
Interpak Holdings, Inc. ("Interpak") from Helm. Helm currently owns
approximately 23% of the Company's outstanding shares of Common
Stock. After several months of negotiations, the Acquisition
Committee of the Company's Board of Directors and Helm have been
unable to reach an agreement as to price, nor has the Company been
able to arrange financing to complete the acquisition. Interpak is a
custom-packager of thermoplastic resins and also provides warehousing
and delivery services to plastics 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 and operate a
thermoplastics compounding plant in Jeffersonville, Indiana. The
original estimated cost of the plant was expected to be approximately
$12.7 million.
Page 6 of 13
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The revised estimate is $13.4 million. Interim financing for the
construction of the plant has been provided by Mitsubishi Bank. Once
Chemtrusion has obtained permanent financing, the joint venture
partners will guarantee such debt. As of September 30, 1996,
approximately $12.924 million has been funded from the construction
financing loan and the related liability and construction in progress
asset have been recorded in the consolidated financial statements.
The plant is fully operational as of October 15, 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.
The warrants are exercisable through January 15, 2000 at the 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 (August 9, 1996) 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 (August 9, 1996) 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 and 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 instruments of the
employer or the employee 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
Page 7 of 13
<PAGE> 8
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.
Financial results of TSI are as follows:
Operating data
Three Months Ended September 30,
1996 1995
---- ----
Sales $ 734 $ 0
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Net loss (161) 0
======= =======
Nine Months Ended September 30,
1996 1995
---- ----
Sales $ 2,623 $ 0
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Net loss (587) 0
======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three Month Periods Ended September 30, 1996 and 1995
- -----------------------------------------------------
There was an increase of $1,108,000 (23.4%) in net sales for the
three month period ending September 30, 1996 (the "1996 period")
compared to the three month period ending September 30, 1995 (the
"1995 period"). The sales increase was primarily attributable to
Chemtrusion's new Indiana project ($624,000), as well as increased
tolling volume ($95,000) at Chemtrusion, Texas. In addition, higher
sales volume of bulk materials handling equipment at InterSystems
Nebraska ($389,000) contributed to the overall increase.
Gross profit as a percentage of sales was 27.8% in the 1996 period as
compared to 31.4% in the 1995 period. Chemtrusion's gross profit as
a percentage of sales decreased to 27.6% in the 1996 period from
31.1% in the 1995 period. Chemtrusion's order volume increased in
the third quarter 1996 from the second quarter 1996 which required
additional labor costs for processing. In addition, Chemtrusion
incurred downtime for equipment refurbishing in the third quarter
1996. Increased production is expected in the fourth quarter 1996.
Nebraska's gross profit as a percentage of sales was 27.9% in the
Page 8 of 13
<PAGE> 9
1996 period as compared to 31.5% in the 1995 period. The decrease
was primarily a result of an increase in sales of lower margin
products.
The Company's selling, general and administrative expenses increased
by $179,000 (17.2%) in the 1996 period as compared to the 1995
period. Chemtrusion's expenses increased $198,000 primarily due to
the addition of Indiana expenses for the third quarter 1996.
Interest expense decreased $32,000 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.
RESULTS OF OPERATIONS
- ---------------------
Nine Months Ended September 30, 1996 and 1995
- ---------------------------------------------
There was an increase of $2,920,000 (24.6%) in net sales for the nine
months ending September 30, 1996 (the "1996 period") compared to the
nine months ended September 30, 1995 (the "1995 period").
Chemtrusion's sales increased $573,000 (19.0%) due to the new Indiana
project ($624,000). However, a decrease in tolling volume in the
early part of the year at Chemtrusion, Texas somewhat offset this
growth. InterSystems Nebraska's sales increased $2,347,000 (26.4%)
in the 1996 period as compared to the 1995 period as a result of
higher sales volume of bulk material handling equipment.
Gross profit as a percentage of sales decreased to 29.5% in the 1996
period as compared to 32.1% in the 1995 period. Chemtrusion's gross
profit as a percentage of sales decreased to 24.4% in the 1996
period from 31.2% in the 1995 period. In the first six months of
1996, Chemtrusion was adversely impacted by a lower plant utilization
rate due to an interruption in feedstock supply from one of its
customers, an internal restructuring by another customer and
concentration on the startup of the Indiana facility. Production
increased in the third quarter and is expected to continue through
the fourth quarter. Nebraska's gross profit as a percentage of sales
dropped slightly to 31.2% in the 1996 period from 32.6% in the 1995
period. This was primarily a result of an increase in sales of lower
margin products and increased operating costs associated with the
plant expansion.
Selling, general and administrative expenses increased $615,000
(19.2%) in the 1996 period as compared to the 1995. Nebraska's
expenses increased $352,000 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. Chemtrusion's expenses increased $181,000 primarily due to
the addition of Indiana expenses for the third quarter 1996.
Page 9 of 13
<PAGE> 10
Interest expense decreased $112,000 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.
Liquidity and Capital Resources
- -------------------------------
Cash used by operating activities for the nine months ended September
30, 1996 amounted to $1,335,000; $13,204,000 was provided by proceeds
from notes primarily for the construction of the facility in Indiana;
$2,022,000 was provided from issuance of common stock and $482,000
was provided by proceeds from collections on the notes for the sale
of the Trading Business. Use of funds includes $12,571,000 for
purchases of fixed assets primarily for the Indiana facility;
$709,000 for payments on notes and $489,000 was advanced to
subsidiaries and affiliates. Cash increased during the period by
$374,000.
Parent Company
- --------------
The Company's Board of Directors met on October 29, 1996 and resolved
to terminate discussions with Helm Resources, Inc. ("Helm")
concerning the previously announced proposed acquisition of Interpak
Holdings, Inc. ("Interpak") from Helm. Helm currently owns
approximately 23% of the Company's outstanding shares of Common
Stock. After several months of negotiations, the Acquisition
Committee of the Company's Board of Directors and Helm have been
unable to reach an agreement as to price, nor has the Company been
able to arrange financing to complete the acquisition. Interpak is a
custom-packager of thermoplastic resins and also provides warehousing
and delivery services to plastics 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 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
September 30, 1996, Nebraska's borrowing rate was 9.75% and
outstanding borrowings were $1,445,000.
Page 10 of 13
<PAGE> 11
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 February 11, 2001. 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 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 1997. The
agreement bears interest at 10.25% and is collateralized by
Chemtrusion's accounts receivable. As of October 29, 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 and operate a thermoplastics
compounding plant in Jeffersonville, Indiana. The original estimated
cost of the plant was expected to be approximately $12.7 million.
The revised estimate is $13.4 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 September 30, 1996,
approximately $12.924 million has been funded from the construction
financing loan and the related liability and construction in progress
asset have been recorded in the consolidated financial statements.
The plant is fully operational as of October 15, 1996.
Page 11 of 13
<PAGE> 12
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
September 30, 1996, InterSystems' backlog was $2,444,000 compared to
$2,317,000 as of September 30, 1995. Subsequent to September 30,
1996, the backlog at Nebraska has increased to $2,751,000.
Page 12 of 13
<PAGE> 13
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: November 14, 1996 /s/ Fred S. Zeidman
-------------------
Fred S. Zeidman
President
Chief Executive Officer
Page 13 of 13
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