<PAGE>
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 March 31, 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
INTERSYSTEMS, INC.
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(Exact Name of registrant as specified in charter)
Delaware 13-3256265
(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 May 8, 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
March 31, 2000 (Unaudited) and December 31, 1999 (audited) 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Comprehensive Loss (unaudited)
For the Three Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Interim Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 11
Page 2 of 12
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InterSystems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,469 $ 4,877
Marketable equity securities 120 65
Trade receivables 1,679 1,507
Inventories 92 78
Prepaid expenses and other 192 166
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5,552 6,693
Cash in escrow 250 250
Note receivable - sale of InterSystems Nebraska 500 500
Equipment and leasehold improvements, net 21,812 21,329
Other assets 158 54
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Total Assets $28,272 $28,826
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,128 $ 2,205
Subordinated debentures -- 646
Accounts payable 917 539
Accrued expenses:
Compensation 136 732
Other 517 546
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3,698 4,668
Long term debt - net of current portion 17,635 17,178
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Total Liabilities 21,333 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 (735) (642)
Accumulated other comprehensive loss (94) (150)
Treasury stock - 316 shares at cost (303) (299)
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TOTAL SHAREHOLDERS' EQUITY 6,939 6,980
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $28,272 $28,826
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</TABLE>
See accompanying notes to consolidated financial statements
Page 3 of 12
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
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<S> <C> <C>
Net sales $ 3,922 $ 3,383
Cost of sales 2,705 2,274
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Gross Profit 1,217 1,109
Selling, general and administrative
expenses 958 798
Interest expense 421 418
Interest income (69) --
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Loss from continuing operations (93) (107)
Discontinued operations - InterSystems Nebraska -- (114)
Cumulative effect of change in
accounting principle -- (134)
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Net loss $ (93) $ (355)
======= =======
Per share - basic and assuming
dilution
Continuing operations $(.01) $(.01)
Discontinued operations - InterSystems Nebraska -- (.02)
Cumulative effect of change in
accounting principle -- (.02)
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Net loss $(.01) $(.05)
======= =======
Average number of common shares
outstanding 7,608 7,833
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
Page 4 of 12
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In Thousands, Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
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2000 1999
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<S> <C> <C>
Net loss $(93) $(355)
Other comprehensive income:
Unrealized holding gains arising during period 56 --
---- -----
Comprehensive loss $(37) $(355)
==== =====
</TABLE>
See accompanying notes to consolidated financial statements
Page 5 of 12
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InterSystems, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (93) $ (355)
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 477 506
Changes in:
Operating working capital (457) (179)
Non-current assets and liabilities (104) 152
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Net cash provided by (used in)
operating activities (177) 124
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Net cash used in investing activities:
Acquisition of fixed assets (960) (1,708)
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Cash flows from financing activities:
Net borrowings -- 360
Proceeds from long-term debt obligations 960 1,828
Repayment of long-term debt (576) (532)
Extinguishment of 10% series
A bonds (650)
Purchase of Treasury stock (5) (3)
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Net cash provided by (used in)
financing activities (271) 1,653
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Net increase (decrease) in cash (1,408) 69
Cash at beginning of period 4,877 133
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Cash at end of period $ 3,469 $ 202
======= =======
Cash paid during the periods for:
Interest $ 65 $ 127
Taxes $ -- $ 17
</TABLE>
See accompanying notes to consolidated financial statements
Page 6 of 12
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InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 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):
March 31, December 31,
2000 1999
--------- ------------
Raw materials 12 12
Finished goods 80 66
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Total inventory 92 78
==== ====
NOTE 3. The basic net loss per common share is computed by dividing the net loss
available to common shareholders by the weighted average number of
common shares outstanding.
Diluted net loss per common share is computed by dividing the net 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 loss
per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended
-----------------------
March 31, March 31,
2000 1999
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<S> <C> <C>
Net loss:
Continuing operations $ (93) $ (107)
Discontinued operations -- (114)
Effect of change in accounting principle -- (134)
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Net loss $ (93) $ (355)
====== ======
Weighted average shares outstanding:
Basic and dilutive weighted average
shares 7,608 7,833
====== ======
</TABLE>
Page 7 of 12
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<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
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<S> <C> <C>
Loss per common share:
Basic and assuming dilution:
Continuing operations $ (.01) $ (.01)
Discontinued operations - InterSystems
Nebraska -- (.02)
Cumulative effect of change in
accounting principle -- (.02)
------ ------
Net loss $ (.01) $ (.05)
====== ======
</TABLE>
For the period ended March 31, 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):
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
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<S> <C> <C>
Stock options 867 1,039
Stock warrants 2,870 2,870
Shares issuable on conversion of debentures -- 512
</TABLE>
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 result of this
sale, the operations of InterSystems Nebraska have been restated as
discontinued operations in the Company's consolidated results
operations.
Page 8 of 12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Month Periods Ended March 31, 2000 and 1999
Revenue for the first quarter 2000 increased by $539,000 (15.9%) compared to the
first quarter 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 first quarter 2000 increased by
$125,000 as a result. Revenue at Chemtrusion's Mytex facility in Indiana (the
"Mytex facility") increased $414,000 for the quarter ended March 31, 2000 as
compared to the same quarter ending March 31, 1999. The Mytex facility added one
new compounding line in mid 1998 and an additional compounding line in the first
quarter 1999. After installation of these two new lines, the effective capacity
of the Mytex facility has more than doubled.
Chemtrusion's gross margin decreased slightly from 32.8% in the first quarter
1999 as compared to 31% in the first quarter 2000. The decrease is primarily
attributable to increased fixed costs at Chemtrusion 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 $160,000
during the first quarter ending March 31, 2000 as compared to the same quarter
ending March 31, 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
compounding volume. The Parent Company's selling, general and administrative
expenses are anticipated to decrease substantially during year 2000 because of
the reduction of overhead as a result of the sale of its InterSystems Nebraska
facility.
The Company realized $52,000 in interest income 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.
Page 9 of 12
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Liquidity and Capital Resources
Cash used in operating activities for the three months ended March 31, 2000
amounted to $177,000.
During the first quarter 2000, the Company has undertaken further expansion of
its Mytex facility. Through March 31, 2000, Chemtrusion has spent $960,000,
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.
Net borrowings provided by financing activities for the Mytex facility amounted
to $960,000. The Company extinguished all of its 10% series A bonds ($650,000)
during the first quarter 2000. Repayment of long-term debt was $576,000.
Cash decreased $1,408,000 for the period ending March 31, 2000.
The Company anticipates that its future operating needs will be satisfied from
the operations of its subsidiary, which is 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.
Chemtrusion
Chemtrusion is party to a credit agreement that provides for advances of up to
$300,000 expired April 21, 2000. The agreement bears interest at the bank's
prime rate plus 1% (10% at March 31, 2000) and is collateralized by
Chemtrusion's accounts receivable. As of March 31, 2000, borrowings were
$300,000. The Company is currently negotiating renewal on this line of credit.
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 March 31, 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 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
Page 10 of 12
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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.
Page 11 of 12
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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 8, 2000 /s/ Herbert M. Pearlman
----------------------------
Herbert M. Pearlman
President
Chief Executive Officer
/s/ Daniel T. Murphy
----------------------------
Daniel T. Murphy
Principal Financial Officer
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,469
<SECURITIES> 120
<RECEIVABLES> 1,679
<ALLOWANCES> 0
<INVENTORY> 92
<CURRENT-ASSETS> 5,552
<PP&E> 21,812
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,272
<CURRENT-LIABILITIES> 3,698
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 6,860
<TOTAL-LIABILITY-AND-EQUITY> 28,272
<SALES> 3,922
<TOTAL-REVENUES> 3,922
<CGS> 2,705
<TOTAL-COSTS> 3,663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> (93)
<INCOME-TAX> 0
<INCOME-CONTINUING> (93)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
