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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT OF 1934
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)
537 Steamboat Road
Greenwich, Connecticut 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, 2000 there were 7,607,029 shares of the Company's common stock,
par value $.01 per share outstanding.
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INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Operations (unaudited)
for the Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income for the
Three and Six Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 2000 and 1999 7
Notes to Consolidated Interim Financial Statements 8 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
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InterSystems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash $ 3,139 $ 4,877
Marketable equity securities 138 65
Trade receivables 1,830 1,507
Inventories 129 78
Prepaid expenses and other 143 166
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5,379 6,693
Cash in escrow 250 250
Note receivable - sale of InterSystems Nebraska 500 500
Equipment and leasehold improvements, net 23,598 21,329
Other assets 130 54
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Total Assets $ 29,857 $ 28,826
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,701 $ 2,205
Subordinated debentures -- 646
Accounts payable 1,118 539
Accrued expenses:
Compensation 136 732
Other 547 546
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6,502 4,668
Long term debt - net of current portion 16,572 17,178
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Total Liabilities 23,074 21,846
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SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000 shares
authorized; none issued and outstanding
Common stock $.01 par value, 20,000
shares authorized; 7,926
shares issued and 7,610 outstanding 79 79
Additional paid-in capital 7,992 7,992
Deficit (909) (642)
Accumulated other comprehensive loss (76) (150)
Treasury stock - 316 shares at cost (303) (299)
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TOTAL SHAREHOLDERS' EQUITY 6,783 6,980
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 29,857 $ 28,826
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</TABLE>
See accompanying notes to consolidated financial statements
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Unaudited)
Three months ended June 30,
2000 1999
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Net sales $ 4,388 $ 3,610
Cost of sales 3,200 2,455
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Gross Profit 1,188 1,155
Selling, general and administrative
expenses 1,037 881
Interest expense 402 401
Interest income (61) --
Other income (17)
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Loss from continuing operations (173) (127)
Discontinued operations - InterSystems Nebraska -- 358
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Net income (loss) $ (173) $ 231
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Per share - basic and assuming
dilution
Continuing operations $ (.02) $ (.02)
Discontinued operations - InterSystems Nebraska -- .05
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Net income (loss) $ (.02) $ .03
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Average number of common shares
outstanding 7,607 7,837
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See accompanying notes to consolidated financial statements
Page 4 of 14
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Unaudited)
Six months ended June 30,
2000 1999
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Net sales $ 8,311 $ 6,993
Cost of sales 5,906 4,729
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Gross Profit 2,405 2,264
Selling, general and administrative
expenses 1,999 1,739
Interest expense 823 750
Interest income (129)
Other income ( 22) --
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Loss from continuing operations (266) (225)
Discontinued operations - InterSystems Nebraska -- 235
Cumulative effect of change in
accounting principle -- (133)
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Net loss $ (266) $ (123)
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Per share - basic and assuming
dilution
Continuing operations $ (.04) $ (.03)
Discontinued operations - InterSystems Nebraska -- .03
Cumulative effect of change in
accounting principle -- (.02)
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Net loss $ (.04) $ (.02)
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Average number of common shares
outstanding 7,607 7,835
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands, Unaudited)
Three months ended June 30
2000 1999
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Net income (loss) $ (173) $ 231
Other comprehensive income:
Unrealized holding gains arising during period 18 --
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Comprehensive income (loss) $ (155) $ 231
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Six months ended June 30
2000 1999
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Net loss $ (266) $ (123)
Other comprehensive income:
Unrealized holding gains arising during period 73 --
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Comprehensive loss $ (193) $ (123)
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See accompanying notes to consolidated financial statements
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InterSystems, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
Six months ended June 30,
2000 1999
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Cash flows from operating activities:
Net loss $ (266) $ (123)
Adjustments to reconcile net loss to net cash
Provided (used) in operating activities:
Depreciation and amortization 970 969
Changes in:
Operating working capital (338) (973)
Non-current assets and liabilities (105) 125
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Net cash provided by (used in)
operating activities 261 (2)
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Net cash used in investing activities:
Acquisition of fixed assets (3,239) (4,089)
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Cash flows from financing activities:
Net borrowings -- 145
Proceeds from long-term debt obligations 2,957 4,816
Repayment of long-term debt (1,067) (740)
Extinguishment of 10% series
A bonds (646)
Purchase of Treasury stock (4) (3)
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Net cash provided by
financing activities 1,240 4,218
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Net increase (decrease) in cash (1,738) 127
Cash at beginning of period 4,877 133
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Cash at end of period $ 3,139 $ 260
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Cash paid during the periods for:
Interest $ 129 $ 297
Taxes $ -- $ 22
See accompanying notes to consolidated financial statements
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InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
June 30, 2000
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. The information included in this Form 10-Q
should be read in conjunction with Management's Discussion and
Analysis and Consolidated Financial Statements and notes thereto
included in the InterSystems, Inc. 1999 Form 10-K.
NOTE 2. Inventories consisted of the following (in thousands):
June 30, December 31,
2000 1999
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Raw materials 12 12
Finished goods 117 66
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Total inventory 129 78
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NOTE 3. The basic net income (loss) per common share is computed by dividing
the net income (loss) available to common shareholders by the
weighted average number of common shares outstanding.
Diluted net income (loss) per common share is computed by dividing
the net income (loss) 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 table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts):
THREE MONTHS ENDED
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JUNE 30, JUNE 30,
2000 1999
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Net income (loss):
Continuing operations $ (173) $ (127)
Discontinued operations -- 358
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Net income (loss) $ (173) $ 231
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Weighted average shares outstanding:
Basic and dilutive weighted average
shares 7,607 7,837
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For the three month period ended June 30, 2000 and 1999, certain
Securities were not included in the calculation of diluted earnings
(loss) because of their anti-dilutive effect. Those securities are
as follows (in thousands):
June 30, June 30,
2000 1999
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Stock options 867 1,039
Stock warrants 2,870 2,870
Shares issuable on conversion of debentures -- 512
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3,737 4,421
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SIX MONTHS ENDED
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JUNE 30, JUNE 30,
2000 1999
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Net loss:
Continuing operations $ (266) $ (225)
Discontinued operations -- 235
Cumulative effect of change in
Accounting principle -- (133)
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Net loss $ (173) $ (123)
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Weighted average shares outstanding:
Basic and dilutive weighted average
shares 7,607 7,835
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For the six month period ended June 30, 2000 and 1999, certain
Securities were not included in the calculation of diluted loss
because of their anti-dilutive effect. Those securities are as
follows (in thousands):
June 30, June 30,
2000 1999
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Stock options 867 1,039
Stock warrants 2,870 2,870
Shares issuable on conversion of debentures -- 512
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3,737 4,421
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Page 9 of 14
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NOTE 4. In April, 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-up Activities." The statement is
effective for fiscal Years beginning after December 15, 1998. The
statement requires costs of start-up activities and organizational
costs to be expensed as incurred and to write off any previously
deferred expenses. The Company adopted SOP 98-5 for calendar year
1999, and accordingly, $134,000 of start-up and organizational costs
at Chemtrusion have been expensed, as a cumulative effect of change
in accounting principle, for the period ending March 31, 1999.
NOTE 5. On December 1, 1999, the Company's Nebraska subsidiary, also known
as InterSystems, Inc. ( hereinafter "InterSystems Nebraska"),
completed the sale of substantially all of its assets to , and the
assumption of certain liabilities by, Enduro Systems, Inc.
("Enduro"), a privately held manufacturing company based in Houston,
Texas. As a results of this sale, the operations of InterSystems
Nebraska have been restated as discontinued operations in the
Company's consolidated results of operations.
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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 and six Month Periods Ended June 30, 2000 and 1999
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Revenue for the three months and six months ended June 30, 2000 increased by
$778,000 (21.6%) and $1,318,000 (18.9%), respectively, compared to the same
periods ended 1999. In 1999, Chemtrusion Texas began a vigorous campaign to
increase its customer base. As reported in the first quarter 1999 10-Q filing,
Chemtrusion Texas' revenues were negatively impacted by the Company's commitment
to two major customers. Chemtrusion Texas is beginning to realize the efforts
of its marketing campaign. Revenue for the second quarter 2000 increased by
$301,000 over the same period last year and $425,000 for the six months ended
June 30, 2000 versus the same period ended 1999. Revenue at Chemtrusion's Mytex
facility in Indiana (the "Mytex facility") increased $477,000 for the quarter
ended June 30, 2000 as compared to the same quarter ending June 30, 1999 and
$893,000 for the six months ended June 30, 2000 as compared to the six months
ended June 30, 1999. The Mytex facility added one new compounding line in mid
1998 and an additional compounding line in the first quarter of 1999. After
installation of these two new lines, the effective capacity of the Mytex
facility has more than doubled.
Chemtrusion's gross margin decreased from 32% for the second quarter ending June
30, 1999 as compared to 27.1% for the second quarter ending June 30, 2000. For
the six months ending June 30, 2000 gross margin decreased to 29% versus 32.4%
for the six months ending June 30, 1999. The decrease is primarily attributable
to increased fixed costs at Chemtrusion Texas to accommodate volume increases
experienced during the balance of 1999 and into year 2000. Additionally, the
Mytex facility recognizes revenue as cost plus a management fee. The cost of
goods sold at the Mytex facility increases at a rate faster than the increase in
management fee during years of plant expansion. Therefore, the rise in cost of
sales as compared to the increase in management fee from this facility results
in lower gross margins during these periods.
Selling, general and administrative expenses increased approximately $156,000
during the second quarter ending June 30, 2000 as compared to the same quarter
ending June 30, 1999, and $260,000 for the six months ending June 30, 2000
versus the same period ending June 30, 1999. The increase is primarily
attributable to the plant expansion at the Mytex facility and the increase in
fixed costs at Chemtrusion, Texas to accommodate anticipated increases in
tolling volume.
The Company realized $61,000 and $129,000 in interest income for the three and
six months ended June 30 2000, as a result of the investment of proceeds from
the sale of InterSystems Nebraska.
In early January 2000, the 10% series A bonds at the Parent company level were
retired. The early retirement of these bonds will save the Company $65,000 in
interest expense in the year 2000.
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Liquidity and Capital Resources
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Cash provided by operating activities for the six months ended June 30, 2000
amounted to $261,000.
During the first six months 2000, the Company has undertaken further expansion
of its Mytex facility. Through June 30, 2000, Chemtrusion has spent $2,961,000,
which will be financed by a long-term note payable to Mytex. It is anticipated
that Mytex will fund the plant expansion under similar terms as previous
projects. The balance of capital expenditures ($278,000) for the six month
period ended June 30, 2000 were spent for improvements at Chemtrusion, Texas.
Net borrowings provided by financing activities for the Mytex facility amounted
to $2,957,000. The Company extinguished all of its 10% series A bonds
($650,000) during the first quarter 2000. Repayment of long-term debt was
$1,067,000.
Cash decreased $1,738,000 for the period ending June 30, 2000.
The Company anticipates that its future operating needs will be satisfied from
the operations of its subsidiary and available cash on hand. 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.
Chemtrusion
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Chemtrusion is party to a credit agreement that provides for advances of up to
$300,000. The line of credit expires August 21, 2000. The agreement bears
interest at the bank's prime rate plus 1% (10.5% at June 30, 2000) and is
collateralized by Chemtrusion's accounts receivable. As of June 30, 2000,
borrowings were $300,000.
Year 2000 compliance
In early 1998, InterSystems, Inc., and its subsidiary initiated their Year 2000
compliance project. The evaluation addressed internal hardware and software,
production machinery, key vendors, customers and other significant third
parties. Neither the Company nor its subsidiary experienced any Y2K
disruptions, nor did any entity expend any significant amounts during 1999 to
ensure Y2K compliance. There can be no assurance that a Year 2000 problem will
not occur. However, most key dates relating to potential Year 2000 problems
have passed.
Forward Looking Statements
This quarterly report for the quarter ended June 30, 2000 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
Page 12 of 14
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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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's financial instruments include government money market funds, notes
payable and long-term debt. The carrying value of these instruments approximate
market values because the rates of return and borrowing rates are similar to
other financial instruments with similar maturities and terms.
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist primarily of trade accounts receivable. Concentrations
of credit risk with respect to such receivables are limited due to generally
short payment terms and their dispersion across geographic areas.
Available-for-sale securities are based on quoted market prices.
The Company's interest rates on lines of credit fluctuate based on the financial
institutions prime lending rate.
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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: August 10, 2000 /s/ Herbert M. Pearlman
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Herbert M. Pearlman
President
Chief Executive Officer
/s/ Daniel T. Murphy
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Daniel T. Murphy
Principal Financial Officer
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