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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 1-12312
INTERSCIENCE COMPUTER CORPORATION
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-3880130
(State of incorporation) (I.R.S. Employer
Identification No.)
5171 Clareton Drive
Agoura Hills, California 91301
(Address of principal (Zip Code)
executive offices)
(818) 707-2000
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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
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Number of shares outstanding of each of the issuer's classes of common
stock, as of February 9, 1996: 2,541,666 shares of common stock, no par value.
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INTERSCIENCE COMPUTER CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations
for the Three Months Ended December 31, 1996 and 1995 . . . . . . 5
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended December 31, 1996 and 1995 . . . . . . 6
Notes to the Condensed Consolidated Financial Statements . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $336,355 $291,087
Accounts receivable, net of allowance
for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . 2,020,399 2,291,506
Due from officers, net of allowance of $104,134 in 1996 (Note 7). 30,000 30,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,555,318 3,745,389
Prepaid expenses and other receivables . . . . . . . . . . . . . . 60,525 121,410
Current portion of net investment in equipment
contracts receivable . . . . . . . . . . . . . . . . . . . . . . . 55,146 55,146
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 424,000 206,000
------------ ------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . 6,481,743 6,740,538
REPLACEMENT PARTS INVENTORY . . . . . . . . . . . . . . . . . . . . 5,648,261 5,620,561
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . 434,086 501,171
OTHER ASSETS
Patents, net of accumulated amortization of
$97,511 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 378,357 361,361
Goodwill, net of accumulated amortization of
$196,414 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,862 1,361,772
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 218,000
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . 96,272 128,160
------------ ------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . 1,666,491 2,069,293
------------ ------------
$14,230,581 $14,931,563
============ ============
</TABLE>
See accompanying Note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and obligations
under capital leases . . . . . . . . . . . . . . . . . . . . . . 2,645,056 3,174,365
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,480,000 1,762,692
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 480,068 787,348
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . 157,285 339,632
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 497,178 344,375
----------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . 5,276,694 6,408,412
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of current portion . . . . . . . . . . . . . . . . . . 469,686 353,811
----------- -----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . 5,903,665 6,762,223
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized 1,000,000
shares; issued and outstanding 36,000 shares . . . . . . . . . . . 3,590,000 3,590,000
Common stock, no par value; authorized 10,000,000
shares; issued and outstanding 2,541,666 shares . . . . . . . . . 4,241,748 4,241,748
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 495,168 337,592
------------ -----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . 8,326,916 8,169,340
------------ -----------
$14,230,581 $14,931,563
============ ===========
</TABLE>
See accompanying Note to Condensed Consolidated Financial Statements.
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------
1995 1996
------------ ------------
<S> <C> <C>
SALES . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,898,203 $3,171,207
COST OF SALES . . . . . . . . . . . . . . . . . . . . . 1,523,736 2,253,311
------------ ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . 1,374,467 917,896
------------ ------------
OPERATING EXPENSES
Sales and administrative . . . . . . . . . . . . . . 880,872 957,799
Development . . . . . . . . . . . . . . . . . . . . 10,299 4,233
Depreciation and amortization . . . . . . . . . . . . 67,722 62,018
------------ ------------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . 958,893 1,024,050
------------ ------------
OPERATING INCOME (LOSS) . . . . . . . . . . . . . . . . 415,574 (106,154)
------------ ------------
OTHER INCOME
Interest income . . . . . . . . . . . . . . . . . . . 26,279
Interest expense . . . . . . . . . . . . . . . . . . 10,460 51,363
------------ ------------
INCOME (LOSS) BEFORE TAX . . . . . . . . . . . . . . . . 431,393 (157,517)
INCOME TAX . . . . . . . . . . . . . . . . . . . . . . . 159,000 (74,942)
------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . $ 272,393 $ (82,575)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . 2,541,666 2,541,666
============ ============
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . .
INCOME BEFORE PREFERRED DIVIDEND . . . . . . . . . . . $ .11 $ (.03)
PREFERRED DIVIDEND . . . . . . . . . . . . . . . . . . .03 .03
------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . $ .08 $ (.06)
============ ============
</TABLE>
See accompanying Note to Condensed Consolidated Financial Statements.
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------------------
1995 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . $ 272,393 $ (82,575)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization . . . . . . . . . . . . 67,722 61,071
Gain from asset sale . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (722,645) (149,993)
Inventories . . . . . . . . . . . . . . . . . . (21,856) 7,207
Prepaid expenses and other receivables . . . . 98,871 (26,196)
Deposits and other . . . . . . . . . . . . . . . 5,171 (22,398)
Accounts payable and accrued expenses . . . . . 19,304 444,140
Deferred revenue . . . . . . . . . . . . . . . . 32,805 13,955
Income taxes payable and deferred . . . . . . . 13,426 (152,803)
------------- -------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES . . . . . . . . . . . . . . . (236,809) 92,408
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary . . . . . . . . . . . . . . (118,780) 24,165
Investment in equipment contracts receivable . . . . 39,525
Sale of assets . . . . . . . . . . . . . . . . . . . 7,499
Patent acquisition costs . . . . . . . . . . . . . . (37,515)
Purchase of property and equipment . . . . . . . . . (7,402) (57,872)
------------- -------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES . . . . . . . . . . . . (116,673) (33,707)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of bank loan . . . . . . . . . . . . . . . . 346,435
Principal reductions of other short-term and
long-term obligations . . . . . . . . . . . . . . . (375,404)
Preferred stock dividends paid . . . . . . . . . . . (67,500) (75,000)
------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES . . . . (279,102) (103,969)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (632,584) (45,268)
CASH AND CASH EQUIVALENTS, Beginning of period 2,046,017 336,355
------------- -------------
CASH AND CASH EQUIVALENTS, End of period $ 1,413,433 $ 291,087
============= =============
</TABLE>
See accompanying Note to Condensed Consolidated Financial Statements.
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Introduction
The accompanying condensed consolidated financial statements of
Interscience Computer Corporation (the "Company") have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-KSB. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial
position of the Company as of December 31, 1996, and the statements of its
operations and its cash flows for the three month periods ended December 31,
1996 and 1995 have been included. The results of operations for interim periods
are not necessarily indicative of the results which may be realized for the
full year.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
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FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Quarterly
Report contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could
cause actual results to differ materially from those reflected in these
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission, including
the Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996,
the Quarterly Reports on Form 10-Q filed by the Company in fiscal 1997 and any
Current Reports on Form 8-K by the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto in this Quarterly Report.
OVERVIEW
Since its organization, the principal business of Interscience
Computer Corporation (the "Company") has been providing maintenance services
for computers and for a wide range of related peripheral equipment, including
high-speed printers. During the past few years, the Company's maintenance
activities were directed primarily at the Model 2200 Siemens Printer market.
In 1992, the Company developed and commenced commercially marketing the Fusing
Agent and, since February 1993, has been selling the Fusing Agent directly to
end users and to unaffiliated distributors. Revenues realized by the Company
from the sale of the Fusing Agent constituted 40% and 31% of the Company's
total revenues for the fiscal quarters ended December 31, 1995 and 1996,
respectively.
During the past 24 months, the Company has been expanding its
maintenance business to include maintenance services for the Xerox line of
high-speed production printers and, to a lesser extent, other non-Siemens
printers. Accordingly, during the past 24 months, the Company has made a
number of acquisitions for the purpose of acquiring the parts and inventory,
the technical expertise, and the maintenance contracts that are required to
effectively compete in these other printer maintenance markets. These
acquisitions have consisted of the purchase of Laser Support & Engineering,
Inc., the Page Printing Division of Miltope Business Products, Inc., Laser
Printing Services, Inc. and of certain of the assets of BancTec, Inc.
(collectively, the "Acquired Operations"). To date, the Company has paid a
total of $2,308,000 in cash for the purchase of these assets and businesses,
and has incurred $1,733,000 of additional indebtedness to the sellers of these
assets and businesses. In addition, the Company incurred other expenses
related to these acquisitions, including the general and administrative
expenses of the acquired operations and the additional labor costs of employees
of such operations. In order to fully integrate the acquisitions with the
Company's existing operations, and in order to reduce redundant general and
administrative expenses and excess labor expenses, during the fiscal quarter
ended December 31, 1996 (the "Current Quarter") the Company initiated a
company-wide reorganization pursuant to which its labor force is being reduced
to eliminate duplication, the offices and warehouses are being consolidated,
and the finan-
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cial, reporting and communications systems of the various operations are
being connected by a new computer network.
RESULTS OF OPERATIONS
Fiscal Quarter Ended December 31, 1995 and December 31, 1996.
Sales for the Current Quarter increased by $273,000 or 9% over
sales for the fiscal quarter ended December 31, 1995 (the "Prior Quarter").
The increase is attributable to the additional maintenance generated by
the Acquired Operations, which increase was partly offset by a decrease in
sales revenues derived from the sales of Fusing Agent. During the Current
Quarter, the Company generated $976,000 of sales revenues from the sale of
Fusing Agent, compared to $1,153,000 derived during the Prior Quarter.
The sales of Fusing Agent during the Current Quarter are the result of orders
placed by OCE Printing Systems USA, Inc. pursuant to the new Supply Agreement
that the Company entered into in September 1996.
Cost of sales increased by $729,000, or 48%, from $1,524,000 during
the Prior Quarter to $2,253,000 in the Current Quarter. The substantial
increase in cost of sales is primarily attributable to the additional labor
costs and additional costs of parts and equipment incurred in connection with
the Acquired Operations. During the Current Quarter, the Company has reduced
the number of its field engineers by 10 in connection with its on-going
reorganization. The reduction of its field engineers is expected to reduce
the Company's cost of sales in the future. In addition, as part of its
acquisition of the Acquired Operations, the Company acquired a company that
remanufactures Xerox parts. By using such remanufactured parts, the Company
believes that it will able to further reduce its cost of sales in the future.
Sales and administrative expenses increased by $77,000, or by 9%,
from the Prior Quarter to the Current Quarter. The increase is primarily due
to the additional costs associated with the operations of the Acquired
Operations. During the Current Quarter, the Company took steps to reduce its
sales and administrative expenses by reducing its office staff and by
consolidating eight offices/facilities into six offices/facilities. However,
the savings resulting from the staff reductions and office consolidations were
offset by the one-time costs incurred by the Company in connection with such
layoffs and consolidations. The Company expects to further consolidate its
facilities. The Company believes that its reorganization efforts will reduce
its sales and administrative expenses in the future. The Company's efforts to
reduce its sales and administrative expenses were further offset by a
significant increase in legal fees related to the six lawsuits the Company is
currently defending. Because the Company intends to vigorously defend each of
the pending lawsuits, these fees are not expected to decrease in the near
future and are expected to continue to adversely effect the Company's sales and
administrative expenses.
As a result of the $457,000 decrease in gross profit and the
$65,000 increase in total operating expenses, the Company posted a loss of
$106,000 from its operations for the Current Quarter compared to operating
income of $416,000 during the Prior Quarter. Although the Company is currently
attempting to reduce its operating expenses and its cost of sales, no assurance
can be given that the Company will be able to further reduce these expenses or
other costs or that any future reductions will be sufficient to enable the
Company to prevent the Company from incurring loss from future operations.
During the Current Quarter, the Company generated no interest income
compared to $26,000 of interest income during the prior quarter. The
elimination of interest income is due to the reduction in the Company's cash
balances in the Current Quarter compared to the Prior Quarter. Interest
expense increased by $41,000, or 410%, from $10,000 in the Prior Quarter to
$51,000 in the Current Quarter
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due to the additional indebtedness incurred by the Company in connection with
the acquisition of the Acquired Operations. As of December 31, 1996, the
Company owed the sellers or the various businesses that it had acquired a total
of $1,786,000. In addition, the Company had borrowed a total of $1,644,000 from
its bank under its credit facility, which amount it had borrowed to purchase the
Acquired Operations. Interest on this acquisition indebtedness will continue to
accrue in the future until the indebtedness is repaid in full. Accordingly, the
Company's interest expense is not expected to decrease significantly in the near
future.
As a result of the Company's net loss Current Quarter, the Company had
an income tax benefit of approximately $80,000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's current ratio was 1.05:1
compared to a current ratio of 1.2:1 as of September 30, 1996. The decrease in
the Company's working capital is due to the operating loss incurred by the
Company during the Current Quarter.
Although the Company's balance sheet indicates that the Company's
current assets exceed its current liabilities, the Company is currently
experiencing a significant liquidity difficulties. As of the date of this
Quarterly Report, the Company is unable to fund its monthly cash outlays from
its monthly cash receipts. To date, the Company has funded its monthly
negative cash flow from its existing cash reserves. However, the Company's
cash reserves have been substantially depleted (in part because the Company
used over $2.3 million of its cash to fund a portion of the combined price of
the Acquired Operations), and the Company is attempting to take additional
emergency steps to remedy its cash flow difficulties.
During the past two years, the Company purchased the Acquired
Operations with the expectation that it would reduce certain of the redundant
expenses (such as duplicative personnel and unneeded facilities) that it
inherited as part of the acquisitions. In addition, the Company expected that
the synergies created by combining the operations and abilities of the Acquired
Operations with those of the Company would increase the Company's cash flow and
profitability. At a minimum, the Company expected that the combined operations
of the Company and the Acquired Operations would produce sufficient cash flow
to enable the Company to make the monthly payments on the additional
indebtedness that the Company incurred in order to pay the purchase price of
the Acquired Operations. Although some of the synergistic benefits of the
Acquired Operations are being recognized, the benefits have not been of the
magnitude that the Company expected and the Company has, to date, not been able
to materially reduce the expenses associated with its new operations.
Accordingly, the combination of the lower than expected benefits from the
Acquired Operations and the increase debt service obligations of the Company,
the Company's monthly cash outlays have significantly exceeded cash it
generates from operations.
During the Current Quarter, the Company took steps that will reduce
its monthly operating expenses by approximately $100,000. As part of its plan
of reorganization, the Company also is implementing reductions in its labor and
rental expenses that will further reduce future monthly operating expenses. In
addition, the Company may close or sell certain field offices that it acquired
as part of the Acquired Operations that it has determined operate at a loss and
that are not expected to become profitable in the near future. The Company
also intends to implement procedures that are intended to reduce the Company's
cost of parts and inventory and to more efficiently use its inventory.
Over the longer term, the Company expects that the foregoing
reorganization will enable the Company to reduce its costs to a level that it
can fund from operating revenues. However, the Company
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does not expect that benefits of the reorganization will be realized in time to
remedy the Company's short term cash needs. Because the Company has no cash
reserves from which to fund its monthly negative cash flow until the foregoing
cost reductions and other steps are fully implemented, the Company has
determined that it will take some or all of the following actions: (i) The
Company plans to attempt to restructure its existing indebtedness with certain
of its major creditors and to possibly convert some of such indebtedness into
Common Stock of the Company; (ii) The Company has held discussions with the
holder of its currently outstanding preferred stock regarding the conversion of
the preferred stock into Common Stock, which conversion, if agreed to by the
holder, would reduce the Company's dividend obligations; (iii) Raising
additional capital through the sale of the Company's securities. Unless the
Company is able to obtain significant concessions from its creditors and/or
able to raise capital through the sale of securities in the next few months,
the company will have to reorganize under the protection of the federal
bankruptcy laws. No assurance can be given that the Company will be able to
effect any of the foregoing emergency actions, or that if such actions are
taken, that the actions will be sufficient to prevent the Company from having
to file for protection under the bankruptcy laws.
On July 30, 1996, the Company entered into a credit agreement (the
"Credit Agreement") with Sanwa Bank of California (the "Bank") pursuant to
which the Bank has agreed to make a revolving credit facility and a term loan
facility available to the Company. Under the revolving credit facility, the
Company is entitled to borrow, from time to time as requested by the Company,
an amount not to exceed an aggregate of $1,000,000 at any time. The rate of
interest on all borrowings under the line of credit facility is, at the
Company's option, either a variable rate equal to the Bank's reference rate
plus 1/2%, or a fixed rate equal to 2 3/4% over the Bank's cost of acquiring
funds on the date that the fixed rate is set. The revolving credit facility
expires on February 28, 1998. As of the date of this Quarterly Report, the
Company had used approximately $997,000 of the amount available under the
revolving credit facility. Of this amount, approximately $45,000 represented
cash advances made to the Company and the balance, $952,000, represented a
letter of credit that the Company obtained in order to secure the surety bond
obtained by the Company in connection with the on-going litigation with the
former shareholders of Laser Support & Engineering, Inc. The arbitration
proceeding with Laser Support & Engineering, Inc. commenced on February 24,
1997. After the arbitration, the foregoing surely bond will be extinguished
and will become a loan that will accrue additional interest. The size of the
loan will depend on the outcome of the arbitration and cannot currently be
estimated. All loans extended under the Credit Agreement are secured by a
blanket lien on the Company's assets and by guarantees executed by Interscience
PLC and by Laser Support & Engineering, Inc.
The Credit Agreement also provides the Company with a term loan
facility pursuant to which, until August 30, 1996, the Company could borrow an
amount up to $2,000,000 for the purposes of funding its corporate acquisitions.
The Company initially borrowed a total of $800,000 under the term loan facility
in connection with the Company's acquisition of certain assets from BancTec,
Inc. in June 1996 and $800,000 to pay part of the purchase price of Laser
Support & Engineering, Inc. As of February 1, 1997, the outstanding principal
balance of the term loan made pursuant to the Credit Agreement was
$1,267,000, and the interest rate on the term loan was 9%. The Company
currently is required to make monthly payments of principal in the amount of
$33,334, plus interest, under the term loan credit facility. The entire
outstanding balance of the term loan is due and payable on February 28, 1998.
As of the date of this Quarterly Report, the Company was not in
compliance with certain of the covenants contained in the Credit Agreement.
However, the Company has timely made all required payments under both the
revolving line of credit and term loan facility, and the Bank has not yet
declared the loans made under the Credit Facility to be in default. Pursuant
to the terms of the Credit Facility, if the Company is in non-compliance with
the covenants, the Bank is entitled to stop making additional advances
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to the Company under the revolving line of credit. in addition, should the
Bank declare an event of default under the Credit Facility due to the Company's
non-compliance with certain of the covenants, the loans would immediately
become due and payable and, unless the loans are repaid, would entitle the Bank
to foreclose on the Company's assets. Should the Bank accelerate the maturity
dates of the loans due to the foregoing non-compliance, the Company would
attempt to refinance the loans under the Credit Facility with another bank or
would attempt to otherwise obtain sufficient debt or equity financing to repay
the loans. The Bank has orally informed the Company that it does not intend to
accelerate the loans and has also indicated that it is considering changing
certain of the covenants so that the Company would be brought into compliance
with the Credit Facility. However, no assurance can be given that the Bank
will not declare the loans to be in default or, if the loans do become due and
payable, that the Company could repay the loans before its assets are lost in
foreclosure.
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PART II
OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8-K
(a) 27. Financial Date Schedule.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURE
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.
INTERSCIENCE COMPUTER CORPORATION
Date: February 24, 1997 /s/ FRANK J. LACHAPELLE
---------------------------------------
Frank J. LaChapelle,
Chief Executive Officer
13
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