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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 March 31, 1997
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
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(State or other jurisdiction IRS Employer
of incorporation or organization) (Identification number)
8790 Wallisville Road
Houston, Texas 77029
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(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 May 2, 1997 there were 6,384,665 shares of the Company's common
stock, par value $.01 per share, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 1997
(In thousands, unaudited)
Assets
- - - - ------
CURRENT ASSETS:
Cash $ 309
Trade Receivables 3,756
Inventories 1,839
Prepaid expenses and other 178
Due from Helm Resources, Inc. And Subsidiaries 264
------------
6,346
Equipment and leasehold improvements, net 19,238
Other Assets 247
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$ 25,831
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 2,276
Current portion of long-term debt 706
Accounts payable 1,990
Accrued expenses 991
Net liabilities of discontinued operations 547
------------
6,510
Convertible subordinated debentures 2,327
Long term debt - net of current portion 16,075
COMMON STOCK SUBJECT TO REDEMPTION-
PRIVATE PLACEMENT 2,076
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 6,384
shares issued and outstanding 64
Additional paid-in capital 3,463
Retained earnings (deficit) (4,584)
Note Receivable - sale of common stock (100)
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TOTAL SHAREHOLDERS' EQUITY (1,157)
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$ 25,831
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Page 2 of 10
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InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
Three months ended March 31
1997 1996
---- ----
Net Sales $ 5,484 $ 3,904
Cost of Sales 3,551 2,592
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Gross Profit 1,933 1,312
Selling, general and administrative
expenses 1,579 1,257
Settlement of note receivable -
sale of Trading Business -- 45
Interest income (3) (14)
Interest expense 337 175
--------- ----------
Income (loss) from continuing
operations $ 20 $ (151)
Discontinued operations:
Loss from operations of
Tropical Systems, Inc. -- 152
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Net income (loss) $ 20 $ (303)
========= ==========
Per share
Continuing operations $ -- $ (.03)
Discontinued operations -- (.03)
--------- ----------
Net income $ -- $ (.06)
========= ==========
Average number of common shares
outstanding 6,384,665 5,139,000
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InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
Three months ended March 31
1997 1996
---- ----
Net cash used by operating activities $ (944) $ (217)
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Cash flows from investing activities:
Acquisition of fixed assets (696) (2,668)
Advances to subsidiaries & affiliates (5) ( 526)
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Net cash provided (used)
in investing activities $ (701) $ (3,194)
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Cash from financing activities:
Net borrowings 913 --
Repayments of long-term debt (443) (763)
Proceeds from promissory notes -- 2,370
Issuance of common stock -- 2,035
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Net cash provided by financing
activities 470 3,642
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Net increase (decrease) in cash (1,175) 231
Cash at beginning of period 1,484 6
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Cash at end of period $ 309 $ 237
=========== =========
Cash paid during the periods for:
Interest $ 252 $ 125
Taxes $ 8 $ 1
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InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31,
1997, have aggregate future minimum rentals of approximately
$350,000.
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 InterSystems Nebraska anticipates that Tropical will be disposed
of by September 30, 1997 through liquidation. Accordingly, Tropical
has been presented as a discontinued operation and the statement of
loss for the quarter ended March 31, 1996 has been restated to
conform with this presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Three Month Periods Ended March 31, 1997 and 1996
- - - - -----------------------------------------------------
Revenues for the 1st qtr '97 increased by $1,580,000 (40.5%) compared
to the 1st qtr '96. A substantial portion of the increase in the
Company's 1997 and future revenue 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. Additionally, higher sales volumes
($116,000) resulting from the recently expanded InterSystems Nebraska
facility contributed to the Company's overall sales increase.
Gross margins were 35.3% in 1st qtr '97 as compared to 33.6% in 1st
qtr '96. Chemtrusion's gross margin increased significantly to 40.0%
in 1st qtr '97 from 21.3% in 1st 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. Mytex has contributed substantially to the Company's gross
profit. InterSystems Nebraska's gross margin decreased to 31.6% in
1st qtr '97 compared to 35.6% in 1st qtr '96. The decrease was
primarily a result of costs associated with its major plant
expansion, which was designed to accommodate anticipated future
revenue growth.
The Company's selling, general and administrative expenses increased
by $324,000 (8.3%) in 1st qtr '97 as compared to 1st qtr '96.
Chemtrusion's expenses increased $353,000 primarily due to the
addition of the Mytex facility. Selling, general and administrative
expenses for the remainder of the Company decreased $29,000.
Interest expense increased $161,000 in 1st qtr '97 as compared to 1st
qtr '96. The increase was primarily a result of financing costs for
the Mytex facility.
Liquidity and Capital Resources
- - - - -------------------------------
Cash used by operating activities for the three months ended March
31, 1997 amounted to $944,000. This is primarily due to an increase
in accounts receivable at InterSystems Nebraska resulting from
increased sales volume in the first quarter 1997 as compared to the
fourth quarter 1996.
The Company purchased fixed assets during the first quarter 1997 in
the amount of $696,000. These purchases were primarily for assets
acquired for the Mytex facility.
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Net borrowings provided by financing activities amounted to $913,000.
The proceeds were used primarily to finance the increase in accounts
receivables at InterSystems Nebraska. Repayments of long-term debt
amounted to $443,000.
Cash decreased $1,175,000 for the period ending March 31, 1997. This
decrease was primarily due to cash used for the purchase of fixed
assets at the Mytex facility.
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.
Parent Company
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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
offering contains redemption features if certain conditions are not
met as fully described in note 3 to the condensed consolidated
financial statements.
InterSystems Nebraska
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At March 31, 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 March 31, 1997, borrowings of $1,719,000 were
outstanding under this agreement and bear interest at the bank's base
rate plus 1.25% (9.75% at March 31, 1997). At March 31, 1997,
$258,000 was available under this line of credit. InterSystems
Nebraska has pledged its accounts receivable, inventory, equipment
and fixtures and intangibles as collateral for the debt.
The net book value of the collateral totaled approximately $3,582,000
at March 31, 1997. In addition, InterSystems, Inc., a Delaware
corporation, has pledged all outstanding shares of InterSystems
Nebraska's common stock as collateral.
InterSystems Nebraska also entered into an agreement with the bank
for an additional $125,000 loan with interest at the bank's base rate
plus 2% (10.25% at March 31, 1997) and is due on May 31, 1997.
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.
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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 InterSystems Nebraska anticipates that Tropical will be disposed
of by September 30, 1997 through liquidation. At March 31, 1997, the
Company had a net liability associated with discontinued operations
of $547,000.
Chemtrusion
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Chemtrusion is 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 March 31, 1997, the line of credit balance was
$257,500 with $42,500 available.
Subsequent to March 31, 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 at March 31, 1997, pay other related costs and provide
$250,000 in working capital. The note is payable in monthly
installments beginning April 1997, 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 ordered for delivery in September 1997 and is scheduled to be placed
in service in the fourth quarter 1997. The estimated cost of the
extruder is estimated to be $1,400,000. Chemtrusion will seek financing to
effect the purchase of the extruding line. There can be no assurance that
management will be able to obtain such financing.
Seasonality
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A substantial portion of InterSystems Nebraska's revenues are derived
from the agricultural sector of the economy and, accordingly, are
subject to seasonal fluctuations due to weather conditions.
InterSystems Nebraska's revenues are highest in the third quarter
(29% of annual revenues in 1996 were recorded). 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 April 30, 1997, InterSystems'
backlog was $4,891,000 compared to $4,250,000 as of April 30, 1996.
Outlook
The Company believes that it is making significant progress towards
its goal of profitability. Positive earnings in the first quarter is
encouraging, since the first quarter is historically the slowest
period of the year for the Company's operations.
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The turnaround is being led by the Company's high-tech plastics
compounding subsidiary, Chemtrusion, Inc., which is starting to make
a material contribution as a result of the Company's investments in
expanding its technological capabilities. The Company is planning to
expand the subsidiary's operating capacity later this year to meet
the increasing demand for its custom-compounding services by chemical
and petrochemical producers.
InterSystems Nebraska, which specializes in the development of
materials-handling systems for large agricultural and industrial
companies, is starting to benefit from a doubling of manufacturing
capacity and the addition of advanced robotics and other automated
efficiencies.
The Company expects to produce earnings growth that should accelerate
in 1997 and beyond. InterSystems, Inc. had the strongest April in its
history. Revenues for the month of April 1997 were $2,218,000 as compared
to $1,216,000 for the month of April 1996. Net earnings exceeded $100,000
for April 1997 as compared to a loss from continuing operations of $104,000
for the month of April 1996.
Forward Looking Statements
This quarterly report for the quarter ended March 31, 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 refinancings 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; and (v) the maturing of debt and the
ability of the Company to raise capital to repay or refinance such
debt on favorable terms.
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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 14, 1997 /s/ Fred S. Zeidman
-------------------
Fred S. Zeidman
President
Chief Executive Officer
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[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] MAR-31-1997
[CASH] 309
[SECURITIES] 0
[RECEIVABLES] 3,756
[ALLOWANCES] 0
[INVENTORY] 1,839
[CURRENT-ASSETS] 6,346
[PP&E] 19,238
[DEPRECIATION] 0
[TOTAL-ASSETS] 25,831
[CURRENT-LIABILITIES] 6,510
[BONDS] 2,327
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 64
[OTHER-SE] (1,221)
[TOTAL-LIABILITY-AND-EQUITY] 25,831
[SALES] 5,484
[TOTAL-REVENUES] 5,484
[CGS] 3,551
[TOTAL-COSTS] 5,130
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 337
[INCOME-PRETAX] 20
[INCOME-TAX] 0
[INCOME-CONTINUING] 20
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 20
[EPS-PRIMARY] 0
[EPS-DILUTED] 0
</TABLE>
