<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, 1997
OR
[]TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File Number 1-9547
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INTERSYSTEMS, INC.
(Exact Name of registrant as specified in charter)
<TABLE>
<S> <C>
Delaware 13-3256265
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(State or other jurisdiction IRS Employer
of incorporation or organization) (Identification number)
</TABLE>
537 Steamboat Road
Greenwich, CT 06830
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(Address of principal executive offices)
(Zip Code)
203-629-1400
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(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 July 31, 1997 there were 6,384,665 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, 1997
(In thousands, unaudited)
Assets
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 750
Trade Receivables 3,855
Inventories 2,123
Prepaid expenses and other 285
Due from Helm Resources, Inc. And Subsidiaries 133
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7,146
Equipment and leasehold improvements, net 19,212
Other Assets 262
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$ 26,620
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LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 2,328
Current portion of long-term debt 546
Accounts payable 2,373
Net liabilities of discontinued operations 496
Accrued expenses 1,086
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6,829
Convertible subordinated debentures 2,301
Long term debt - net of current portion 16,367
COMMON STOCK SUBJECT TO REDEMPTION-
PRIVATE PLACEMENT 2,076
SHAREHOLDER'S EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 6,385
shares issued and outstanding 64
Additional paid-in capital 3,463
Retained earnings (deficit) (4,280)
Note receivable - sale of common stock (100)
Treasury stock - 50,000 shares at cost (100)
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TOTAL SHAREHOLDER'S EQUITY (953)
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$ 26,620
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</TABLE>
Page 2 of 12
<PAGE> 3
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30
1997 1996
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<S> <C> <C>
Net Sales $ 7,481 $ 5,067
Cost of Sales 4,950 3,633
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Gross Profit 2,531 1,434
Selling, general and administrative
expenses 1,703 1,330
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Operating income 828 104
Interest income (2) (6)
Interest expense 527 147
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Income (loss) from continuing
operations 303 (37)
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. -- (328)
Loss on disposal -- (250)
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Loss from discontinued operations -- (578)
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Net income $ 303 $ (615)
========= ==========
Per share
Continuing operations .05 (.01)
Discontinued operations -- (.09)
Per share net income --------- ----------
Net income (loss) $ .05 $ (.10)
========= ==========
Average number of common shares
outstanding 6,383,588 6,356,812
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</TABLE>
Page 3 of 12
<PAGE> 4
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
1997 1996
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<S> <C> <C>
Net sales $ 12,965 $ 8,971
Cost of sales 8,501 6,225
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Gross Profit 4,464 2,746
Selling, general and administrative
expenses 3,282 2,586
Settlement of note receivable-
sale of Trading Business -- 45
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Operating income (loss) 1,182 115
Interest income (5) (20)
Interest expense 864 323
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Income (loss) from continuing operations 323 (188)
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. -- (480)
Loss on disposal -- (250)
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Loss from discontinued operations -- (730)
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Net income (loss) $ 323 $ (918)
========= =========
Per Share
Continuing operations .05 (.03)
Discontinued operations -- (.13)
--------- ---------
Net income (loss) $ .05 $ (.16)
========= =========
Average number of common shares
outstanding 6,382,839 5,746,751
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</TABLE>
Page 4 of 12
<PAGE> 5
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30
1997 1996
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<S> <C>
Net cash used by operating activities: $ (348) $ (657)
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Cash flows from investing activities:
Acquisition of fixed assets (1,038) (7,242)
Proceeds from sale of trading
business -- 482
Additions to other assets -- (210)
Advances to subsidiaries &
affiliates -- (546)
=========== =========
Net cash provided (used)
in investing activities $ (1,038) $ (7,516)
----------- ---------
Cash from financing activities:
Net borrowings 916 --
Repayments of long-term debt (264) (781)
Proceeds from promissory notes -- 7,267
Issuance of common stock -- 2,035
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Net cash provided by financing
activities 652 8,521
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Net increase (decrease) in cash (733) 348
Cash at beginning of period 1,484 6
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Cash at end of period $ 750 $ 354
=========== =========
Cash paid during the periods for:
Interest $ 129 $ 353
Taxes $ 7 $ 27
</TABLE>
Page 5 of 12
<PAGE> 6
InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1997
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, 1997, have aggregate future minimum rentals of approximately
$400,000.
NOTE 3. In early 1996, the Company completed 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 4. As of June 30, 1996, InterSystems Nebraska adopted a plan to
discontinue its Miami based subsidiary Tropical Systems, Inc. ("Tropical").
Tropical ceased operations as of September 30, 1996 and accordingly, Tropical
has been presented as a discontinued operation.
NOTE 5. Amounts due from Helm Resources, Inc. were reduced by $130,000
during the quarter by the transfer to the Company from Helm, of Company common
stock valued at market of $100,000 and $30,000 of the Company's 10% convertible
subordinated debentures.
Page 6 of 12
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 and 1996
The Company experienced record sales volumes for the second quarter 1997 of
$7,481,000. Revenue for the 2nd qtr '97 increased by $2,414,000 (47.6%)
compared to the 2nd qtr '96. A substantial portion of the increase in the
Company's 1997 revenue, and expected future revenue, is and will be
attributable to Chemtrusion's new state-of-the-art Mytex facility ("Mytex") in
Jeffersonville, Indiana as well as record tolling volumes at the Chemtrusion,
Texas facility. The Mytex facility is operated under a cost plus management
fee arrangement. Sales for the Mytex facility include all costs associated
with the operation of the facility, including interest expense, plus the
monthly management fee earned from operating the facility. Chemtrusion's sales
volume increased $1,939,000 in the 2nd qtr '97 as compared to the 2nd qtr '96.
The Mytex facility recorded sales of $1,682,000 in the 2nd qtr '97 (the
facility opened in the 3rd qtr '96) while the Chemtrusion, Texas facility sales
increased $257,000 for the 2nd qtr '97 as compared to the 2nd qtr '96.
Additionally, higher sales volumes resulting from the recently expanded
InterSystems Nebraska facility contributed to the Company's overall sales
volume. InterSystems Nebraska's sales increased $475,000 in the 2nd qtr '97 as
compared to the 2nd qtr '96. The increase in sales has been driven by the
added plant capacity from the 1996 expansion and a very strong market for the
goods produced by InterSystems Nebraska.
Gross margins were 33.8% in the 2nd qtr '97 as compared to 28.3% in the 2nd qtr
'96. Chemtrusion's gross margin increased significantly to 41.1% in the 2nd
qtr '97 from 21.9% in the 2nd qtr '96. This increase was a result of higher
toll processing volumes at Chemtrusion Texas without an associated increase in
fixed costs and the contribution of the Mytex facility. Gross margin at
Nebraska was 28.3% in the 2nd qtr '97 as compared to 29.8% in the 2nd qtr '96.
The decrease is due to product mix.
The Company's selling, general and administrative expenses increased by
$373,000 (28.0%) in the 2nd qtr '97 as compared to the 2nd qtr '96.
Chemtrusion's expenses increased $376,000 primarily due to the addition of the
Mytex facility ($267,000) and an increase in salary expense at Chemtrusion,
Texas for the addition of two new upper level management positions.
Interest expense increased $380,000 in the 2nd qtr '97 as compared to the 1st
qtr '96. The increase was primarily a result of financing costs for the Mytex
facility. Interest expense for the Mytex facility is charged back under the
facility operating agreement and is recaptured by the Company through sales.
Page 7 of 12
<PAGE> 8
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1996
There was an increase of $3,994,000 (44.5%) in revenue for the six months
ending June 30, 1997 compared to the six months ending June 30, 1996.
Chemtrusion's sales increased $3,403,000 due to the new Indiana project
($2,925,000) as well as increased tolling volume at Chemtrusion, Texas
($478,000). Additionally, higher sales volumes of bulk materials handling
equipment ($591,000) resulting from the recently expanded InterSystems Nebraska
facility contributed to the Company's overall sales increase.
Gross margins were 34.4% for the first six months of 1997 as compared to 30.6%
for the same period ending 1996. Chemtrusion's gross margin rose considerably
to 40.6% for the first six months of 1997 as compared to 21.6% for the same
period ending 1996. This increase was a result of higher toll processing
volumes at Chemtrusion, Texas without an associated increase in fixed costs and
the contribution of the Mytex facility. InterSystems Nebraska's gross margin
decreased from 33% during the first six months of 1996 to 29% for the same
period ending 1997. The decrease is primarily a result of product mix.
Selling, general and administrative expenses increased $696,000 (27%) for the
first six months of 1997 as compared to the same period for 1996.
Chemtrusion's expenses increased $716,000 primarily due to the addition of the
Mytex facility ($512,000) and an increase in salary expense at Chemtrusion,
Texas for the addition two new upper level management positions.
Interest expense increased $541,000 for the first six months of 1997 as
compared to the same period ending 1996. The increase was primarily a result
of financing for the Mytex facility as well as an increase at InterSystems
Nebraska for additional receivables and inventory borrowings against their line
of credit. Interest expense for the Mytex facility is charged back under the
facility operating agreement and is recaptured by the Company through sales.
Liquidity and Capital Resources
Cash used by operating activities for the six months ended June 30, 1997
amounted to $348,000. This is primarily due to an increase in accounts
receivable at InterSystems Nebraska resulting from increased sales volume.
The Company purchased fixed assets year-to-date in the amount of $1,038,000.
These purchases were primarily for assets acquired for the Mytex facility.
Net borrowing provided by financing activities amounted to $916,000. The
proceeds were used primarily to finance the increase in accounts receivables at
InterSystems Nebraska. Repayments of long-term debt amounted to $264,000.
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. The Company from time to time may seek to borrow
funds for actual or anticipated capital needs. There can be no assurances that
management will be able to obtain such financing on favorable terms.
page 8 of 12
<PAGE> 9
Parent Company
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 3 to the condensed
consolidated financial statements.
InterSystems Nebraska
At June 30, 1997, InterSystems Nebraska had a revolving credit agreement with a
bank. The financing agreement provides for borrowings of up to $3,000,000
based upon a borrowing base and is due on demand. At June 30, 1997, borrowings
of $1,850,952 were outstanding under this agreement and bear interest at the
bank's base rate plus 1.25% (9.75% at June 30, 1997). At June 30, 1997,
$324,000 was available under this line of credit. InterSystems Nebraska has
pledged its accounts receivable, inventory, equipment, fixtures and intangibles
as collateral for the debt. The net book value of the collateral totaled
approximately $3,560,000 at June 30, 1997. In addition, InterSystems, Inc., a
Delaware corporation, has pledged all outstanding shares of InterSystems
Nebraska's common stock as collateral. Under the terms of the agreement,
InterSystems Nebraska is subject to certain covenant requirements that, among
other things, require maintenance of minimum net worth, working capital, debt
to worth ratio, and also limits the amount of capital expenditures, payments to
affiliates, indebtedness, dividends and management fees.
Subsequent to June 30, 1997, InterSystems Nebraska entered into a refinancing
agreement with a bank for their building and certain equipment. The
refinancing for the building totaled $675,000 with a fixed interest rate of
2.75% over the 5 year T-bill rate (8.82%). The note matures on 7/1/2002 with
monthly payments of $3,750 plus interest with the remaining balance of
$450,000 due at maturity. The refinancing for the equipment totaled $663,000
with a fixed interest rate of 9.31%. The note is amortized over 7 years with
monthly payments of $7,892 and matures July 1, 2004. The notes contain
essentially the same covenants as the line of credit. Furthermore,
InterSystems Nebraska stock has been pledged as collateral and the notes are
guaranteed by the Company. After repayments on remaining balances of the pre-
existing notes and loan transaction fees, $484,000 was available to
InterSystems Nebraska for working capital.
As of June 30, 1996, InterSystems Nebraska adopted a plan to discontinue its
Miami subsidiary Tropical Systems, Inc. ("Tropical"). At June 30, 1997, the
Company had a net liability associated with discontinued operations of
$496,000.
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 June
30, 1997, the line of credit balance was $177,500. Subsequent to June 30,
1997, $90,000 was temporarily drawn on the line of credit to partially finance
the down payment on a new extruding line for the Texas facility.
page 9 of 12
<PAGE> 10
During the second quarter 1997, Chemtrusion entered into a loan agreement for
$1,459,000 with a financial institution. Proceeds of the note were used to
purchase certain equipment that was under capital lease, pay other related
costs and provide $250,000 in working capital. The note is payable in monthly
installments of $24,320, plus interest at prime plus 1.5%, through April 2002,
and is collateralized by the equipment.
Chemtrusion is in the process of expanding its technological and volume
capabilities. In order to achieve this expansion, a new extruding line has
been delivered to the Texas facility and installation has begun. The cost of
the extruder is $1,400,000. Chemtrusion has made the down payment for the
extruder through available cash and amounts available from its line of credit.
Chemtrusion is seeking financing to effect the purchase of the extruding line.
Although financial institutions have made proposals for the financing, there
can be no assurances that management will be able to obtain such financing on
favorable terms.
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 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, 1997, InterSystems' backlog was $5,765,000
compared to $3,121,000 as of June 30, 1996. Subsequent to June 30, 1997, the
backlog at Nebraska has remained relatively stable at $5,708,000.
Outlook
The Company believes that it has made significant progress towards its goal of
profitability. The Company is experiencing record sales and profits which are
a result of investments made last year in technology, automation and expanding
and providing additional capacity at both subsidiaries.
The turnaround is being led by the Company's high-tech plastics compounding
subsidiary, Chemtrusion, Inc.. The Company is in the process of expanding the
subsidiary's operating capacity to meet the increasing demand for its custom-
compounding services by chemical and petrochemical producers. A fourth
production line has been delivered at the Texas facility and will be on line in
September. Chemtrusion's Mytex facility has performed better than expected.
Additional manufacturing equipment on order for the Mytex facility will
significantly increase capacity for fiscal year 1998.
InterSystems Nebraska, which specializes in the development of
materials-handling systems for large agricultural and industrial companies, is
beginning to benefit from a doubling of manufacturing capacity and the addition
of advanced robotics and other automated efficiencies. Sales at InterSystems
Nebraska have increased during the period as a result of the continuing
strength of the grain industry, which has been investing heavily in capital
improvements. The current backlog is the highest in the Company's history.
page 10 of 12
<PAGE> 11
Forward Looking Statements
This quarterly report on Form 10QSB for the quarter ended and six months ended
June 30, 1997 as well as other public documents of the Company contains
forward-looking statements which involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievement of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such statements include, without limitation, the Company's
expectations and estimates as to future financial performance, cash flows from
operations, capital expenditures and the availability of funds from refinancing
of indebtedness. Readers are urged to consider statements which use the terms
"believes," "intends," "expects," "plans," "estimates," "anticipated," or
"anticipates" to be uncertain and forward looking. In addition to other
factors that may be discussed in the Company's filings with the Securities and
Exchange Commission, including this report, the following factors, among
others, could cause the Company's actual results to differ materially from
those expressed in any forward-looking statement made by the Company: (i)
general economic and business conditions, acts of God and natural disasters
which may effect the demand for the Company's products and services or the
ability of the Company to manufacture and/or provide such products and
services; (ii) the loss, insolvency or failure to pay its debts by a
significant customer or customers; (iii) increased competition; (iv) changes
in customer preferences and the inability of the Company to develop and
introduce new products to accommodate these changes; (v) cancellation or
termination of significant customer contracts; and (vi) the maturing of debt
and the ability of the Company to raise capital to repay or refinance such debt
on favorable terms.
page 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, 1997 /s/ Fred S. Zeidman
-------------------
Fred S. Zeidman
President
Chief Executive Officer
Page 12 of 12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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Ex 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 750
<SECURITIES> 0
<RECEIVABLES> 3,855
<ALLOWANCES> 0
<INVENTORY> 2,123
<CURRENT-ASSETS> 7,146
<PP&E> 19,212
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,620
<CURRENT-LIABILITIES> 6,829
<BONDS> 2,301
0
0
<COMMON> 64
<OTHER-SE> (1,017)
<TOTAL-LIABILITY-AND-EQUITY> 26,620
<SALES> 12,965
<TOTAL-REVENUES> 12,965
<CGS> 8,501
<TOTAL-COSTS> 8,501
<OTHER-EXPENSES> 3,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 864
<INCOME-PRETAX> 323
<INCOME-TAX> 0
<INCOME-CONTINUING> 323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 323
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
