<PAGE> 1
FORM 10-QSB
U.S. 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, 1998
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.
------------------
(Exact Name of registrant as specified in charter)
Delaware 13-3256265
-------------------- ---------------------
(State or other jurisdiction IRS Employer
of incorporation or organization) (Identification number)
7115 Clinton Drive
Houston, TX 77020
--------------------
(Address of principal executive offices)
(Zip Code)
713-622-7710
------------------------------------------------------------
(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 28, 1998 there were 7,806,377 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, 1998
(In thousands, unaudited)
<TABLE>
<S> <C>
Assets
CURRENT ASSETS:
Cash $ 537
Marketable equity securities 148
Trade Receivables 5,039
Inventories 2,768
Prepaid expenses and other 229
Time deposits 110
----------
8,831
Equipment and leasehold improvements, net 23,015
Other Assets 229
----------
$ 32,075
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 2,473
Current portion of long-term debt 870
Accounts payable 3,034
Accrued expenses 1,657
----------
8,034
Convertible subordinated debentures 639
Long term debt - net of current portion 19,419
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; 7,916
shares issued 79
Additional paid-in capital 7,768
Retained earnings (deficit) (3,594)
Unrealized holding gains 31
Note receivable - sale of common stock (100)
Treasury stock - 114,860 shares at cost (201)
----------
TOTAL SHAREHOLDER'S EQUITY 3,983
----------
$ 32,075
==========
</TABLE>
Page 2 of 13
<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
1998 1997
---------- ----------
<S> <C> <C>
Net Sales $ 9,803 $ 7,481
Cost of Sales 7,226 4,950
---------- ----------
Gross Profit 2,577 2,531
Selling, general and administrative
expenses 1,932 1,703
Interest expense (net) 434 525
---------- ----------
Net income $ 211 $ 303
========== ==========
Per share:
Basic .03 .05
Assuming dilution .03 .04
Average number of common shares Outstanding:
Basic 7,808 6,383
Assuming dilution 8,389 8,056
</TABLE>
Page 3 of 13
<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
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 17,990 $ 12,965
Cost of sales 13,013 8,501
---------- ----------
Gross Profit 4,977 4,464
Selling, general and administrative
expenses 3,702 3,282
Interest expense 835 859
---------- ----------
Net income $ 440 $ 323
========== ==========
Per Share
Basic .06 .05
Assuming dilution .05 .05
Average number of common shares Outstanding:
Basic 7,791 6,382
Assuming dilution 8,299 6,425
</TABLE>
Page 4 of 13
<PAGE> 5
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income
(In Thousands)
<TABLE>
<CAPTION>
Three months ended June 30
1998 1997
---------- ----------
<S> <C> <C>
Net income $ 211 $ 323
Other comprehensive income:
Unrealized holding losses arising
during period (42) --
---------- ----------
Comprehensive income $ 169 $ 323
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30
1998 1997
---------- ----------
<S> <C> <C>
Net income $ 440 $ 323
Other comprehensive income:
Unrealized holding (losses) arising
during period -- --
---------- ----------
Comprehensive income $ 440 $ 323
========== ==========
</TABLE>
Page 5 of 13
<PAGE> 6
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30
1998 1997
---------- ----------
<S> <C> <C>
Net cash provided (used) by
operating activities $ 488 $ (348)
---------- ----------
Net cash used in investing activities-
Acquisition of fixed assets (2,886) (1,038)
---------- ----------
Cash from financing activities:
Net borrowings 2,261 916
Repayments of long-term debt (198) (264)
Issuance of common stock 92 --
Purchase of treasury stock (22) --
---------- ----------
Net cash provided by financing activities 2,133 652
---------- ----------
Net increase (decrease) in cash (265) (733)
Cash at beginning of period 802 1,484
---------- ----------
Cash at end of period $ 537 $ 750
========== ==========
Cash paid during the periods for:
Interest $ 274 $ 129
Taxes $ 10 $ 7
</TABLE>
Page 6 of 13
<PAGE> 7
InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 1998
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. Inventories consisted of the following at June 30, 1998 (in thousands)
<TABLE>
<S> <C>
Raw materials and component parts $ 1,841
Finished goods 927
----------
Total inventory $ 2,768
==========
</TABLE>
NOTE 3. Effective for the year ended December 31, 1997, the Company was
required to adopt Statement of Financial Standards No. 128, "Earnings
Per Share" ("SFAS 128"). In accordance with SFAS 128, the Company is
required to provide basic and dilutive earnings per common share
information.
The basic net income per common share is computed by dividing the net
income available to common shareholders by the weighted average number
of common shares outstanding.
Diluted net income per common share is computed by dividing the net
income available to common shareholders, adjusted on an as if
converted basis, by the weighted average number of common shares
outstanding plus potential dilutive securities.
The following is the effect of potential dilutive securities on
weighted average number of shares outstanding used in computing
earnings per share assuming dilution for the three month period ended
June 30, (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Weighted average number of common shares used in
basic earnings per share 7,808 6,383
Effect of dilutive securities:
Stock options 297 80
Stock warrants 284 21
10% convertible subordinated debentures -- 350
10% series A convertible subordinated debentures -- 492
8% convertible subordinated debentures -- 730
---------- ----------
Weighted number of common shares and dilutive potential
Common stock used in diluted earnings per share 8,389 8,056
========== ==========
</TABLE>
Page 7 of 13
<PAGE> 8
For the three month periods ended June 30, 1998 and 1997, certain
securities were not included in the calculation of diluted earnings
per share because of their anti-dilutive effect, those securities are
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
(shares) (shares)
<S> <C> <C>
Stock options 744 1,070
Stock warrants 1,100 2,206
Shares issuable on conversion of debentures 512 --
</TABLE>
The following is the effect of potential dilutive securities on
weighted average number of shares outstanding used in computing
earnings per share assuming dilution for the six month period ended
June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Weighted average number of common shares used in
basic earnings per share 7,791
Effect of dilutive securities:
Stock options 270
Stock warrants 238
----------
Weighted number of common shares and dilutive potential
Common stock used in diluted earnings per share 8,299
==========
</TABLE>
For the six month period ended June 30, 1997, potential dilutive
securities had an anti-dilutive effect and were not included in the
calculation of diluted net income per common share.
For the six month periods ended June 30, 1998 and 1997, certain
securities were not included in the calculation of diluted earnings
because of their anti-dilutive effect, those securities are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
(shares) (shares)
<S> <C> <C>
Stock options 970 1,634
Stock warrants 1,100 2,356
Shares issuable on conversion of debentures 512 1,571
</TABLE>
NOTE 4. The Company has adopted FASB Statement no. 130, "Reporting
Comprehensive Income." Statement no. 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net
income.
Page 8 of 13
<PAGE> 9
The Company holds securities classified as available-for-sale, which
had unrealized losses of $42,000 during the period ended June 30,
1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 and 1997
Intersystems sales for the quarter climbed 31% to a record $9,803,000 from
$7,481,000 a year earlier. The increase was a result of higher sales volumes at
the InterSystems Nebraska subsidiary. InterSystems Nebraska's sales increased
approximately $2,376,000 in the 2nd qtr `98 as compared to the 2nd qtr '97
primarily due to the shipment of a large overseas order to Romania and the
continuing strong capital improvement purchases by the grain industry.
Chemtrusion's Indiana division continued to operate at record levels with a
major plant expansion having been successfully implemented in June 1998. A new
testing facility, located in the Chemtrusion, Texas plant, is in place and
operating as of the beginning of July.
Gross margins were 26.3% in the 2nd qtr `98 as compared to 33.8% in the 2nd qtr
`97. Margins at both subsidiaries slipped in the 2nd qtr '98. Chemtrusion's
gross margin decreased to 34.5% in the 2nd qtr `98 from 41% in the 2nd qtr `97.
This decrease was a result of lower toll processing volumes at Chemtrusion
Texas. The quarterly results were negatively impacted by the Company `s
commitment to two (2) major customers in the Chemtrusion, Texas plant. The
Company expects to diversify its customer base over the remainder of the year,
thus lessening its dependence on these customers.
Gross margin at Nebraska was 22% in the 2nd qtr `98 as compared to 28.3% in the
2nd qtr `97. The decrease is primarily attributable to the large overseas order.
A portion of this job is manufactured by outside contractors whereby
InterSystems Nebraska did not realize normal manufacturing profit.
The Company's selling, general and administrative expenses increased by $229,000
(13.45%) in the 2nd qtr `98 as compared to the 2nd qtr `97. Chemtrusion's
expenses increased approximately $40,000 primarily due to the addition of
additional warehouse space to accommodate expansion and associated fixed costs
at Chemtrusion, Texas. InterSystems Nebraska's selling, general and
administrative expenses increased by approximately $75,000 primarily due to the
addition of its new Chief Operating Officer and compensation based on profit.
Parent Company expenses increased approximately $ 120,000 for various expenses
of business operations including compensation based on profit.
Interest expense decreased $91,000 in the 2nd qtr `98 as compared to the 2nd qtr
`97. The decrease was primarily a result of bond conversions at the Parent
Company in late 1997 and more favorable interest rates through refinancing of
debt at Chemtrusion, Texas and InterSystems Nebraska.
Page 9 of 13
<PAGE> 10
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
For the six months ended June 30, 1998, sales reached a record $17,990,000; up
38.7% from the $12,965,000 reported for the first half of 1997. InterSystems
Nebraska's sales increased approximately $4,812,000 as a result of the large
overseas order as well as the continued demand for bulk systems in the grain
industry as a whole.
Gross margins were 27.6% for the first six months of 1998 as compared to 34.4%
for the same period ending 1997. Chemtrusion's gross margin decreased to 35.8%
for the six months 1998 as compared to 40.6% for the first six months of 1997.
The decrease was a result of lower toll processing volumes at Chemtrusion,
Texas. InterSystems Nebraska's gross margin decreased from 29% during the first
six months of 1997 to 23.4% for the same period ending 1998. The decrease is
primarily attributable to the large overseas order.
Selling, general and administrative expenses increased $420,000 (12.8%) for the
first six months of 1998 as compared to the same period for 1997. Chemtrusion's
expenses increased $98,000 primarily due to the addition of additional warehouse
space and associated fixed costs at Chemtrusion, Texas. InterSystems Nebraska's
selling, general and administrative expenses increased approximately $100,000
primarily due to the addition of its new Chief Operating Officer and
compensation based on profit. Parent Company expenses increased approximately $
222,000 for various expenses of business operations including compensation based
on profit.
Liquidity and Capital Resources
Cash provided by operating activities for the six months ended June 30, 1998
amounted to $488,000.
The Company purchased fixed assets year-to-date in the amount of $2,886,000.
These purchases were primarily for a new extrusion line and rail spur acquired
for the Mytex facility ($2,334,000) and the new testing facility and additional
warehouse and office space at Chemtrusion, Texas ($480,000).
Net borrowing provided by financing activities amounted to $2,261,000. The
proceeds were used primarily to finance the new fixed assets at the Mytex
facility and Chemtrusion, Texas as well as the increase in accounts receivables
at InterSystems Nebraska . The Company realized $92,000 from the issuance of
common stock. Repayments of long-term debt amounted to $198,000. Purchase of
treasury stock amounted to $22,000.
Cash decreased $265,000 for the period ending June 30, 1998.
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 10 of 13
<PAGE> 11
InterSystems Nebraska
At June 30, 1998, 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, 1998, borrowings of
$1,795,000 were outstanding under this agreement and bear interest at the bank's
base rate plus .50% (9.00% at June 30, 1998). At June 30, 1998, $1,205,000 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 $5,558,000 at June 30, 1998. 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.
Chemtrusion
Chemtrusion is a party to a credit agreement that provides for advances of up to
$300,000 and expires April 21, 2002. The agreement bears interest at the bank's
prime rate plus 1% (currently 9.5%) and is collateralized by Chemtrusion's
accounts receivable. As of June 30, 1998, the line of credit balance was
$225,000 with an available balance of $74,104.
Chemtrusion is in the process of expanding its technological capabilities by
pursuing an additional line of business. In order to achieve this expansion, new
equipment has been delivered and has been placed in service subsequent to June
30, 1998. The cost of the equipment is approximately $325,000. Financing for the
new equipment has been secured through a financial institution under a 9.68%,
fifty-five month lease with a 10% buyout at the end of the term.
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, 1998, InterSystems' backlog was $5,730,000 compared to
$5,765,000 as of June 30, 1997. Subsequent to June 30, 1998, the backlog at
Nebraska has increased to $6,004,000.
Forward Looking Statements
This quarterly report on Form 10QSB for the quarter ended and six months ended
June 30, 1998 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
Page 11 of 13
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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 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: August 7, 1998 /s/ Fred S. Zeidman
-----------------------------
Fred S. Zeidman
President
Chief Executive Officer
Page 13 of 13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 537
<SECURITIES> 148
<RECEIVABLES> 5,039
<ALLOWANCES> 0
<INVENTORY> 2,768
<CURRENT-ASSETS> 8,831
<PP&E> 23,015
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,075
<CURRENT-LIABILITIES> 8,034
<BONDS> 639
0
0
<COMMON> 79
<OTHER-SE> 3,904
<TOTAL-LIABILITY-AND-EQUITY> 32,075
<SALES> 9,803
<TOTAL-REVENUES> 9,803
<CGS> 7,226
<TOTAL-COSTS> 9,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434
<INCOME-PRETAX> 211
<INCOME-TAX> 0
<INCOME-CONTINUING> 211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
