<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 March 31, 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
------
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, Texas 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 May 5, 1998 there were 7,909,503 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
March 31, 1998
(In thousands, unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
CURRENT ASSETS:
Cash $ 592
Marketable equity securities 191
Trade receivables 5,439
Inventories 2,950
Prepaid expenses and other 191
Time deposits 110
--------
9,473
Equipment and leasehold improvements, net 20,655
Other assets 435
--------
$ 30,563
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 2,264
Current portion of long-term debt 817
Accounts payable 3,351
Accrued expenses 1,346
Customer deposits 794
--------
8,572
Convertible subordinated debentures 636
Long term debt - net of current portion 17,536
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 7,907
shares issued and outstanding 79
Additional paid-in capital 7,751
Retained earnings (deficit) (3,805)
Unrealized holding gains 74
Treasury stock - 102 shares at cost (180)
Note receivable - sale of common stock (100)
--------
TOTAL SHAREHOLDERS' EQUITY 3,819
--------
$ 30,563
========
</TABLE>
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<PAGE> 3
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statements of Income
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1998 1997
------- -------
<S> <C> <C>
Net sales $8,187 $5,484
Cost of sales 5,787 3,551
------ ------
Gross Profit 2,400 1,933
Selling, general and administrative
expenses 1,770 1,579
Interest expense - net 400 334
------ ------
Net Income $ 230 $ 20
====== ======
Per share - basic and assuming
dilution $ .03 $ --
====== ======
Average number of common shares
outstanding 7,878 6,385
------ ------
</TABLE>
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<PAGE> 4
InterSystems, Inc. and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income
(In Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
<S> <C> <C>
1998 1997
--------- ---------
Net income $ 230 $ 20
Other comprehensive income:
Unrealized holding gains arising during period 42 --
--------- ---------
Comprehensive income $ 272 $ 20
========= =========
</TABLE>
Page 4 of 11
<PAGE> 5
InterSystems, Inc. And Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31
1998 1997
--------- -------
<S> <C> <C>
Net cash used by operating activities $ (171) $ (944)
--------- -------
Cash flows from investing activities:
Acquisition of fixed assets (24) (696)
Advances to subsidiaries & affiliates -- (5)
--------- -------
Net cash used
in investing activities $ (24) $ (701)
--------- -------
Cash from financing activities:
Net borrowings 304 913
Repayments of long-term debt (386) (443)
Issuance of common stock 67 --
--------- -------
Net cash provided (used) by
Financing activities (15) 470
--------- -------
Net (decrease) in cash (210) (1,175)
Cash at beginning of period 802 1,484
--------- -------
Cash at end of period $ 592 $ 309
========= =======
Cash paid during the periods for:
Interest $ 130 $ 252
Taxes $ 10 $ 8
</TABLE>
Page 5 of 11
<PAGE> 6
InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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 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 March 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Raw materials and component parts 1,737
Finished goods 1,213
-----
Total inventory 2,950
</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 period ended March 31,
1998 (in thousands):
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Weighted average number of common shares used in
basic earnings per share 7,878
Effect of dilutive securities:
Stock options 252
Stock warrants 193
------
Weighted number of common shares and dilutive potential
Common stock used in diluted earnings per share 8,323
======
</TABLE>
For the period ended March 31, 1998, there was no adjustment to
income available to common shareholders used in computing earnings
per share assuming dilution because the convertible debentures were
anti-dilutive.
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.
The company holds securities classified as available-for-sale, which
had unrealized gains of $42,000 during the period ended March 31,
1998.
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<PAGE> 7
For the period ended March 31, 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 periods ended March 31, 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 513 1,587
</TABLE>
The adoption of SFAS 128 had no effect on net income per common
share for the period ended March 31, 1997, accordingly, no
restatement was necessary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Month Periods Ended March 31, 1998 and 1997
Revenues for the first quarter 1998 increased by $2,703,000 (49.3%) compared to
the first quarter 1997. A substantial portion of the increase ($2 million) is
the result of one large overseas order at InterSystems Nebraska. The remaining
increase in sales for the quarter was primarily attributable to Chemtrusion's
Mytex project in Jeffersonville, Indiana.
Gross margins were 29.4% in the first quarter 1998 as compared to 35.3% in the
first quarter 1997. Chemtrusion's gross margin decreased slightly to 37.1% in
the first quarter 1998 versus 40% in the first quarter 1997. The decrease is
primarily attributable to lower tolling volumes at Chemtrusion, Texas. Most of
Chemtrusion, Texas' costs are fixed. InterSystems Nebraska's gross margin
decreased to 24.75% in the first quarter 1998 as compared to 30.15% in the first
quarter 1997. The decrease is a result of 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 $191,000
(12.1%) in the first quarter 1998 as compared to the first quarter 1997.
Chemtrusion's expenses increased $59,000 primarily due to additional warehouse
space leased in the first quarter 1998. Parent Company expenses increased
approximately $108,000 for certain expenses of business operations including
compensation based on profit. InterSystems Nebraska's selling, general and
administrative expenses increased $24,000 primarily due to executive
compensation based on profit.
Interest expense increased $66,000 in the first quarter 1998 as compared to the
first quarter 1997. Chemtrusion's interest expense increased approximately
$104,000. Interest expense at the Mytex facility increased approximately $81,000
Page 7 of 11
<PAGE> 8
primarily due to three full months of interest expense in the first quarter 1998
versus only two full months for the same period ending 1997. The remaining
increase at Chemtrusion is the result of an additional extruding line installed
at the Texas facility in late 1997. Parent Company interest expense decreased
approximately $50,000 due to subordinated debenture conversions in late 1997.
Liquidity and Capital Resources
Cash used by operating activities for the three months ended March 31, 1998
amounted to $178,000. This is primarily due to an increase in accounts
receivable at InterSystems Nebraska resulting from the large overseas order in
the first quarter 1998.
The Company purchased fixed assets during the first quarter 1998 in the amount
of $24,000.
Net borrowings provided by financing activities amounted to $304,000. The
proceeds were used primarily to finance the increase in accounts receivables at
InterSystems Nebraska. Proceeds resulting from the sale of common stock were
$67,000. Repayments of long-term debt amounted to $386,000.
Cash decreased $210,000 for the period ending March 31, 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.
InterSystems Nebraska
InterSystems Nebraska has a revolving credit agreement with an asset based
lending subsidiary of a bank. The financing agreement provides for borrowings of
up to $3,000,000 based upon eligible collateral and is due on demand. At March
31, 1998, borrowings of $1,761,000 were outstanding under this agreement and
bear interest at the bank's base rate plus 1.25% (9.75% at March 31, 1998). At
March 31, 1998, $954,000 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 $4,469,000 at March
31, 1998. In addition, InterSystems, Inc., a Delaware corporation, has pledged
all outstanding shares of InterSystems Nebraska's common stock as collateral.
Subsequent to March 31, 1998, InterSystems Nebraska has moved its line of
credit, equipment loan and real estate mortgage to a commercial bank. The terms
of the three loans are essentially identical to those terms previously in place
with the asset based lender except that the interest rates with the bank are
more favorable. The interest rate on the line of credit is now .5% over prime
versus 1.25% over prime with the asset based lender. The new interest rates for
the equipment loan and the real estate mortgage are 8.8% and 8.6%, respectively,
versus 9.31% and 8.82%, respectively, with the asset based lender. The line of
credit agreement provides for borrowings of up to $3,000,000 based upon eligible
collateral and is due on demand.
Page 8 of 11
<PAGE> 9
Chemtrusion
Chemtrusion is party to a credit agreement that provides for advances of up to
$300,000 and expires in September 1998. The agreement bears interest at 10.5%
and is collateralized by Chemtrusion's accounts receivable. As of March 31,
1998, borrowings were $50,000 with $250,000 available.
Subsequent to March 31, 1998, Chemtrusion has arranged new financing agreements
for its line of credit with a different bank. The line of credit allows for a
borrowing base of $300,000 of eligible accounts receivable and bears interest at
the bank's prime rate plus 1% (currently 9.5%). The Company also arranged a new
term loan in the amount of $400,000 which bears interest at the bank's prime
rate plus 1%. The proceeds were used to consolidate three existing equipment
loans and to provide capital for office space expansion within their existing
facility.
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 is scheduled to be placed in service in the
third quarter 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 April 30, 1998, InterSystems' backlog was $7.7 million compared
to $4.9 million as of April 30, 1997.
Forward Looking Statements
This quarterly report for the quarter ended March 31, 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 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.
Page 9 of 11
<PAGE> 10
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, 1998 /s/ Fred S. Zeidman
-------------------------------------
Fred S. Zeidman
President
Chief Executive Officer
Page 10 of 11
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 592
<SECURITIES> 191
<RECEIVABLES> 5,439
<ALLOWANCES> 0
<INVENTORY> 2,950
<CURRENT-ASSETS> 9,473
<PP&E> 20,665
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,563
<CURRENT-LIABILITIES> 8,572
<BONDS> 636
0
0
<COMMON> 79
<OTHER-SE> 3,740
<TOTAL-LIABILITY-AND-EQUITY> 30,563
<SALES> 8,187
<TOTAL-REVENUES> 8,187
<CGS> 5,787
<TOTAL-COSTS> 7,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400
<INCOME-PRETAX> 230
<INCOME-TAX> 0
<INCOME-CONTINUING> 230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
