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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 September 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
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)
1011 Highway 71
Spring Lake, New Jersey 07762
(Address of principal executive offices)
(Zip Code)
732-282-1411
(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 October 31, 2000 there were 7,644,098 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
September 30, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Operations (unaudited)
for the Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income (loss)
(unaudited) for the Three and Nine Months Ended
September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 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 10 - 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
Page 2 of 13
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InterSystems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash (Including $250 cash in escrow for
September 2000) $ 2,104 $ 4,877
Marketable equity securities 150 65
Trade receivables 1,464 1,507
Participation in receivables 800 --
Inventories 164 78
Prepaid expenses and other 255 166
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4,937 6,693
Cash in escrow -- 250
Note receivable - sale of InterSystems Nebraska 500 500
Equipment and leasehold improvements, net 27,254 21,329
Other assets 55 54
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Total Assets $32,746 $28,826
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 9,314 $ 2,205
Subordinated debentures -- 646
Accounts payable 810 539
Accrued expenses:
Compensation 152 732
Other 751 546
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11,027 4,668
Long term debt - net of current portion 15,194 17,178
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Total Liabilities 26,221 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; 7,923
shares issued and 7,610 outstanding 79 79
Additional paid-in capital 7,992 7,992
Deficit (1,196) (642)
Accumulated other comprehensive loss (65) (150)
Treasury stock - 279 and 306 shares at cost (285) (299)
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TOTAL SHAREHOLDERS' EQUITY 6,525 6,980
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,746 $28,826
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
Page 3 of 13
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
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<S> <C> <C>
Net sales $ 4,044 $ 3,607
Cost of sales 2,937 2,441
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Gross Profit 1,107 1,166
Selling, general and administrative
expenses 1,038 996
Interest expense 399 455
Interest income (55) (2)
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Loss from continuing operations (275) (283)
Discontinued operations - InterSystems Nebraska -- 384
Net income(loss) $ (275) $ 101
======= =======
Per share - basic and assuming
dilution
Continuing operations $(.04) $(.04)
Discontinued operations - InterSystems Nebraska -- .05
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Net income (loss) $(.04) $.01
======= =======
Average number of common shares
outstanding 7,608 7,833
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
Page 4 of 13
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts, Unaudited)
Nine months ended September 30,
2000 1999
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Net sales $12,377 $10,600
Cost of sales 8,842 7,170
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Gross Profit 3,535 3,430
Selling, general and administrative
expenses 3,039 2,755
Interest expense 1,222 1,314
Interest income (172) (6)
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Loss from continuing operations (554) (633)
Discontinued operations - InterSystems Nebraska -- 745
Cumulative effect of change in
accounting principle -- (134)
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Net loss $ (554) $ (22)
======= =======
Per share - basic and assuming dilution
Continuing operations $ (.07) $ (.08)
Discontinued operations - InterSystems Nebraska -- .10
Cumulative effect of change in
Accounting principle -- (.02)
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Net income (loss) $ (.07) $ --
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Average number of common shares outstanding 7,608 7,833
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InterSystems, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (loss)
(In Thousands, Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
------ ------
<S> <C> <C>
Net income (loss) $(275) $101
Other comprehensive income:
Unrealized holding gains arising during period 10 2
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Comprehensive income (loss) $(265) $103
===== ====
Nine months ended September 30,
2000 1999
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Net loss $(554) $ (22)
Other comprehensive income:
Unrealized holding gains (loss) arising
during period 84 (63)
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Comprehensive loss $(470) $ (85)
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</TABLE>
See accompanying notes to consolidated financial statements
Page 6 of 13
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InterSystems, Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands, Unaudited)
Nine months ended September 30,
2000 1999
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Cash flows from operating activities:
Net loss $ (554) $ (22)
Adjustments to reconcile net income to net cash
Provided (used) in operating activities:
Depreciation and amortization 1,452 1,637
Changes in:
Operating working capital (218) 545
Non-current assets and liabilities (1) 9
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Net cash provided by
operating activities 679 2,169
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Cash flows from investing activities:
Acquisition of fixed assets (7,377) (4,292)
Maturity of time deposits 123
Participation in receivables of affiliate (800) --
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Net cash used in investing activities (8,177) (4,169)
Cash flows from financing activities:
Net borrowings -- (490)
Proceeds from long-term debt obligations 6,729 4,392
Repayment of long-term debt (1,604) (1,783)
Extinguishment of 10% series
A bonds (646) --
Purchase of Treasury stock (4) (3)
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Net cash provided by
financing activities 4,475 2,116
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Net increase (decrease) in cash (3,023) 116
Cash at beginning of period 4,877 133
Reclassification of cash in escrow 250 --
------- -------
Cash at end of period $ 2,104 $ 249
======= =======
Treasury stock issued for settlement
of liability 18 --
Cash paid during the periods for:
Interest $ 190 $ 421
Taxes $ -- $ 22
See accompanying notes to consolidated financial statements
Page 7 of 13
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InterSystems, Inc. And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 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 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. As of September 30, 2000, the Company purchased participations of
$800,000 in third party receivables held by Mezzanine Financial Fund LP.
Interest accrues at the rate of 1.5% per month.
NOTE 3. Inventories consisted of the following (in thousands):
September 30, December 31,
2000 1999
Raw materials 152 12
Finished goods 12 66
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Total inventory 164 78
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NOTE 4. 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
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
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Net income (loss):
Continuing operations $ (275) $ (283)
Discontinued operations -- 384
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Net income (loss) $ (275) $ 101
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Weighted average shares outstanding:
Basic and dilutive weighted average
shares 7,608 7,833
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For the three month period ended September 30, 2000 and 1999,
Certain securities were not included in the calculation of diluted
Earning (loss) because of their anti-dilutive effect. Those
Securities are as follows (in thousands):
September 30, September 30,
2000 1999
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Stock options 867 1,039
Stock warrants 2,870 2,920
Shares issuable on conversion of debentures -- 512
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3,737 4,421
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NINE MONTHS ENDED
---------------------
September 30, September 30,
2000 1999
------------- -------------
Net income (loss):
Continuing operations $ (554) $ (633)
Discontinued operations -- 745
Cumulative effect of change in
Accounting principle -- (134)
------ ------
Net income (loss) $ (554) $ ( 22)
====== ======
Weighted average shares outstanding:
Basic and dilutive weighted average
shares 7,608 7,833
====== ======
For the nine month period ended September 30, 2000 and 1999,
Certain securities were not included in the calculation of diluted
Earning (loss) because of their anti-dilutive effect. Those
Securities are as follows (in thousands):
September 30, September 30,
2000 1999
------------- -------------
Stock options 867 1,039
Stock warrants 2,870 2,920
Shares issuable on conversion of debentures -- 512
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3,737 4,421
====== ======
NOTE 5. 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 was 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
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expensed, as a cumulative effect of change in accounting principle, for
the period ended March 31, 1999.
NOTE 6. 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 of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As of August 28, 2000, the Board of Directors of InterSystems, Inc. has
authorized the Company to embark on a strategic new initiative of utilizing its
cash position to provide structured capital funding for small and mid size
business enterprises. Presently the Company's primary operations consist of the
custom compounding of thermoplastic resins as operated by Chemtrusion, Inc.
RESULTS OF OPERATIONS
Three and Nine Month Periods Ended September 30, 2000 and 1999
Revenue for the third quarter 2000 increased by $437,000 (12.1%) compared to the
third 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. While Chemtrusion Texas has attempted to broaden its
customer base, sales in Texas remain slow because of the cyclical nature of the
plastics industry. The effect of interest rate hikes have negatively impacted
Chemtrusion, Texas business. Revenue at Texas were essentially flat for the
comparative three month period ending September 30, 2000 and 1999. Revenue at
Chemtrusion's Mytex facility in Indiana (the "Mytex facility") increased
$455,000 for the quarter ended September 30, 2000 as compared to the same
quarter ending September 30, 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. Revenue for the nine months ending September
30, 2000 increased by $1,777,000 over the nine month period ending September 30,
1999. The increase was a result of increased toll compounding volume at the
Mytex facility.
Chemtrusion's gross margin decreased from 32.3% in the third quarter 1999 to
27.4% in the third quarter 2000, and from 32.4% to 28.6% for the nine months
ending September 30, 1999 and September 30, 2000, respectively. 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 $42,000
during the third quarter ending September 30, 2000 as compared to the same
quarter ending September 30, 1999, and $284,000 for the nine months ending
September 30,
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2000 and 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 have decreased
substantially during year 2000 because of the reduction of overhead as a result
of the sale of its InterSystems Nebraska facility.
The Company realized $172,000 in interest income year-to-date 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.
Liquidity and Capital Resources
Cash provided by operating activities for the nine months ended September 30,
2000 amounted to $679,000.
During the first quarter 2000, the Company has undertaken further expansion of
its Mytex facility. Through September 30, 2000, Chemtrusion has spent
$6,729,000 in the year 2000 for plant expansion, which is financed by Mytex. It
is anticipated that Mytex will fund the plant expansion under similar terms as
previous projects. Chemtrusion, Texas has completed modifications of one of its
compounding lines. The total cost of the Texas project was approximately
$600,000.
During the third quarter, the Company announced that it would pursue a business
of providing structured capital to small and mid sized business enterprises. In
furtherance of that business, the Company, as of September 30, 2000, had
purchased participations of $800,000 in accounts receivable that had been
purchased from third parties by Mezzanine Financial Fund LP. The Company's
participation is earning interest at the rate of 1.5% per month.
Net borrowings provided by financing activities for the Mytex facility amounted
to $6,729,000. The Company extinguished all of its 10% series A bonds
($646,000) during the first quarter 2000. Repayment of long-term debt was
$1,604,000.
Cash decreased $3,023,000 for the nine months ending September 30, 2000 as a
result of repayment of bank and bond debt, the purchase of the participations,
and payment of the modifications to the compounding line in Texas.
The Company anticipates that its future operating cash needs will be satisfied
from the operations of its Chemtrusion 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
Chemtrusion was party to a credit agreement that provided for advances of up to
$300,000. The line of credit expired October 21, 2000 and was repaid in full at
that time. The interest rate was the bank's prime rate plus 1% (10.5% at
September 30, 2000) and was collateralized by Chemtrusion's accounts receivable.
At September 30, 2000, borrowings were $300,000.
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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 report for the quarter ended September 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 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.
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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: November 10, 2000 /s/ Walter M. Craig, Jr.
-----------------------
Walter M. Craig, Jr.
President
Chief Executive Officer
/s/ Daniel T. Murphy
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Daniel T. Murphy
Principal Financial Officer
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