<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
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 JUNE 30, 1997
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.)
5236 COLODNY DRIVE, SUITE 100
AGOURA HILLS, CALIFORNIA 91301
(Address of principal executive offices) (Zip Code)
(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
----- -----
Number of shares outstanding of each of the issuer's classes of common
stock, as of August 10, 1997: 2,541,666 shares of common stock, no par value.
Transitional Small Business Disclosure Format:
YES NO X
----- -----
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This report contains 12 sequentially numbered pages.
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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 June 30, 1997 and September 30, 1996..3
Condensed Consolidated Statement of Operations
for the Three Months Ended June 30, 1997 and 1996.......................5
Condensed Consolidated Statement of Operations
for the Nine Months Ended June 30, 1997 and 1996........................6
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended June 30, 1997 and 1996........................7
Notes to the Condensed Consolidated Financial Statements...........................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION............................................................9
PART II - OTHER INFORMATION.........................................................12
</TABLE>
2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................ $ 336,355 $ 571,147
Accounts receivable, net of allowance ............ 2,020,399 1,829,542
Inventories ...................................... 3,555,318 3,651,760
Prepaid expenses and other receivables ........... 60,525 90,780
Due from officers, net of allowance of $104,134 .. 30,000 30,000
Current portion of net investment in equipment
contracts receivables ........................... 55,146
Deferred income taxes ............................ 424,000 206,000
------------- -------------
TOTAL CURRENT ASSETS ....................... 6,481,743 6,379,229
REPLACEMENT PARTS INVENTORY ........................ 5,648,261 5,412,227
PROPERTY AND EQUIPMENT, net ........................ 434,086 406,820
OTHER ASSETS
Net investment in equipment contracts receivable
less current portion ......................... --
Notes receivable ............................... --
Patent, net of accumulated amortization ........ 378,357 327,371
Goodwill, net of accumulated amortization ...... 1,191,862 1,434,318
Deferred income taxes .......................... 218,000
Deposits and other ............................. 96,272 77,504
------------- -------------
TOTAL OTHER ASSETS ............................. 1,666,491 2,057,193
------------- -------------
$ 14,230,581 $ 14,255,469
============= =============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
3
<PAGE> 4
INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt ................. 2,645,056 3,304,807
Accounts payable .................................. 1,486,000 2,570,721
Accrued liabilities ............................... 480,068 406,931
Deferred revenue .................................. 325,677 355,973
Income taxes payable .............................. 497,178 272,558
-------------- --------------
TOTAL CURRENT LIABILITIES ..................... 5,433,979 6,910,990
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASE, net of current portion ....................... 469,686 52,901
-------------- --------------
TOTAL LIABILITIES ............................... 5,903,665 6,963,891
-------------- --------------
SHAREHOLDERS' EQUITY
Series A cumulative convertible preferred
stock, $100 stated value;
36,000 authorized, issued
and outstanding .................................. 3,200,000 3,200,000
Series B cumulative convertible preferred
stock, $100 stated value; 4,000
authorized, issued and outstanding ............... 390,000 390,000
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 (540,170)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY .................. 8,326,916 7,291,578
-------------- --------------
$ 14,230,581 $ 14,255,469
============== ==============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
4
<PAGE> 5
INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
1996 1997
------------- -------------
<S> <C> <C>
SALES ...................................... $ 2,388,768 $ 2,683,200
COST OF SALES .............................. 1,745,752 2,382,684
------------- -------------
GROSS PROFIT ............................... 643,016 300,516
------------- -------------
OPERATING EXPENSES
Sales and administrative ................. 1,277,147 477,648
Development .............................. (1,221) 3,493
Depreciation and amortization ............ 74,846 65,536
Interest expense (income) ................ 40,960 33,553
------------- -------------
TOTAL OPERATING EXPENSES ............. 1,391,732 580,230
------------- -------------
INCOME BEFORE TAX .......................... (748,716) (279,714)
INCOME TAX ................................. (302,424) --
------------- -------------
NET INCOME ............................... $ (446,292) $ (279,714)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ....................... 2,541,666 2,541,666
------------- -------------
NET INCOME ................................. $ (.18) $ (.11)
============= =============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
5
<PAGE> 6
INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------------
1996 1997
------------- -------------
<S> <C> <C>
SALES ................................. $ 8,300,918 $ 9,114,746
COST OF SALES ......................... 5,199,753 7,152,526
------------- -------------
GROSS PROFIT ........................ 3,101,165 1,962,220
------------- -------------
OPERATING EXPENSES
Sales and administrative ............ 2,726,838 2,634,414
Development ......................... 65,377 10,989
Depreciation and amortization ....... 200,154 193,091
Interest expense (income) ........... 9,390 101,276
------------- -------------
TOTAL OPERATING EXPENSES ........ 3,001,759 2,939,770
INCOME BEFORE TAX ..................... 99,406 (977,550)
------------- -------------
INCOME TAX ............................ (18,425) 1,233
------------- -------------
NET INCOME ............................ $ 117,831 $ (978,783)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ............... 2,541,666 2,541,666
------------- -------------
EARNINGS PER COMMON SHARE ............. $ .20 $ (.39)
============= =============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
6
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------------
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 117,831 $ (978,784)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and Amortization .................... 213,556 177,497
Loss from rescission of asset sale ............... 61,927 --
Changes in operating assets and liabilities:
Accounts receivable ............................ 96,646 307,736
Inventory ...................................... (1,831,047) 309,170
Prepaid expenses ............................... 22,448 8,668
Deposits and other ............................. 7,278 (12,115)
Accounts payable and accrued expenses ....... (685,031) 871,752
Deferred revenue ............................. 36,839 30,296
Income taxes payable ........................... (202,228) (224,620)
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES ...................... (2,161,781) 489,600
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary ......................... (238,951) (36,905)
Rescission of asset sale ......................... 51,809 --
Sale of assets ................................... 7,499 (57,872)
Investment in equipment contracts receivable ..... 487,290 55,146
Patent acquisition costs ......................... (72,849) --
Purchase of property and equipment ............... (27,616) --
------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES ..................... 207,182 (39,631)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of short-term
and long-term obligations ..................... (1,034,774) (486,612)
Proceeds of public offering ..................... 1,400,000 --
Proceeds from bank loan ......................... -- 346,435
Proceeds from preferred offering ................ 400,000 --
Preferred stock dividends paid .................. (210,246) (75,000)
------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES ...................... 554,980 (215,177)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... (1,399,619) 234,792
CASH AND CASH EQUIVALENTS, Beginning of period ...... 2,046,017 336,355
------------ ------------
CASH AND CASH EQUIVALENTS, End of period ............ $ 646,398 $ 571,147
------------ ------------
</TABLE>
See accompanying Notes to Condensed Financial Statements.
7
<PAGE> 8
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. 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 June 30,
1997, and the statements of its operations and its cash flows for the nine month
periods ended June 30, 1997 and 1996 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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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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. Until 1992, the Company's maintenance activities were
directed primarily at the Model 2200 Siemens Printer market. In 1992, the
Company developed and commenced commercially marketing a fusing agent for use in
specific printers manufactured by Siemens. The Company applied for a usage
patent for the fusing agent and such patent was issued in 1994. Since February
1993, the Company has been selling the Fusing Agent directly to end users and to
unaffiliated distributors.
During the past 30 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. In this connection, between June 1995 and October 1996 the Company
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. ("LSE"), the Page Printing Division of Miltope Business
Products, Inc., Laser Printing Services, Inc. ("LPS") and 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 over $2,000,000 of additional indebtedness to the
sellers and creditors of these assets and businesses. In addition, the Company
incurred other additional on-going 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. On March 6, 1997 the
Company filed for protection under Chapter 11 of the US Bankruptcy Code. The
filing was made to allow the Company time to reorganize its operations and to
conserve its cash position in view of the negative cash flow from the Acquired
Operations (See - "Liquidity and Capital Resources").
Results of Operations
Nine Months Ended June 30, 1997 and June 30, 1996
The Company's revenue, for the nine-month period ended June 30, 1997
increased by $814,000, or 10 percent when compared with revenues for the
nine-month period ended June 30, 1996 primarily as a result of an increase in
maintenance revenue from annual contracted service contracts from the Acquired
Operations. Consumable sales increased by $272,000 from the comparable nine
month period in 1996.
Revenues from annual maintenance contracts of $4,932,000 for the
nine-month period ended June 30, 1997 increased by $1,611,000 from $3,321,000
for the comparable nine-month period ended June 30, 1996. The Company's growth
in maintenance revenues is due to having a full nine months worth of added
revenue from the BancTec and LPS Acquired Operations. The Company's maintenance
revenue for this nine-month reporting period was 54 percent of total revenue, as
compared with 40 percent for the prior period.
Revenues from the sales of consumable products during the nine-month
period ended June 30, 1997 was $3,420,000, which included $3,140,000 of the
Company's patented fusing agent for certain Siemens printers, and the balance of
$280,000, consisting of toners for Siemens and Xerox printers. The Company's
consumable product revenue during the current nine-month reporting period was 38
percent of total revenue, as compared with 47 percent for the prior period.
Gross profit for the nine-month period ended June 30, 1997 decreased to
$1,962,000 from $3,101,000, or 37 percent, from the corresponding prior year's
period. Gross profit as a percentage of
9
<PAGE> 10
revenues decreased from 37 percent to 22 percent. The decrease in the Company's
gross profit was due to the Company's increased emphasis on the acquired
maintenance revenue which require increased replacement parts and labor expense
and decreased sales of consumable products which have higher gross profits.
Sales and administrative expense for the nine-month period ended June
30, 1997 decreased by $92,000, or 3 percent from the prior year's nine month
period. The decrease was achieved during a period when the sales and
administrative expense for Interscience PLC, the Company's United Kingdom
subsidiary, included in the nine-month period increased by $124,000 or 69
percent. This increase was due to the operating and closing of Interscience GmbH
the Company's German subsidiary.
Comparison of the Three Months Ended June 30, 1997 and June 30, 1996
Revenues for the three-month period ended June 30, 1997 increased by
$294,000, or 12% over revenues for the three-month period ended June 30, 1996.
The growth in revenues was attributable to increased maintenance revenue from
the Acquired Operations. Revenue from contracted maintenance for the three-month
period was $1,273,000 or 47 percent of total revenue. Sale of consumables for
the period was $1,183,000 or 44 percent of total revenue.
Gross profit for the three-month period ended June 30, 1997 decreased by
$342,000 from $643,000 to $301,000, or 53 percent, from the corresponding prior
year's period. Gross profit as a percentage of revenues decreased to 11 percent
from 27 percent during the comparable period. The decrease in the Company's
gross profit was due to the write off of the Interscience German subsidiary
during the current quarter. This resulted in a decrease in the gross profit from
Interscience PLC of $223,000 or 199 percent. Additionally the expenses related
to the acquired multi state service operations are still high and result in
lower gross profit than the sales of consumables.
Sales and administrative expenses decreased for the three-month period
ended June 30, 1997, by $799,000 or 63 percent from the prior year's three month
period. The decreased G&A expense is a result of the initial phases of the
Chapter 11 reorganization plan being implemented. Four leases have been
rejected, the Company has withdrawn from Dallas, Denver, Norfolk and Charlotte
and field staff has been decreased. As additional duplicated functions and multi
state offices are consolidated into fewer locations, the Company expects
continued reductions in G & A expenses.
Liquidity and Capital Resources:
Prior to filing for Chapter 11 protection the Company was unable to fund
its monthly cash outlays from cash receipts. This negative cash flow had been
reported for the past two years, and the Company no longer had any cash reserves
to make up this shortage.
During the past two years, the Company purchased the Acquired Operations
with the expectation that it would be able to 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 increased debt service obligations of the Company resulted in continued
negative cash flow. The monthly cash outlays have significantly exceeded the
cash it generated from operations prior to
10
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bankruptcy. This has already been corrected since the filing. The Company
expects to address these problems while operating under protection of Chapter
11.
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 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 litigation with the former shareholders of LSE. The letter of credit will
expire on September 5, 1997. 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 LSE.
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 LSE. As of March
6, 1997, the outstanding principal balance of the term loan made pursuant to the
Credit Agreement was $1,466,662, 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.
The Company is attempting to reorganize its business and restructure its
indebtedness while under protection of Chapter 11. There can be no assurance
that the Company will be successful in this effort.
Cash and cash equivalents of the Company on June 30, 1997 increased by
approximately $235,000 or 70 percent over September 30, 1996. This increase has
been achieved during a period when the Company receives little or no credit
terms from suppliers. Although the total reorganization is still in process many
of the overhead expense reduction actions have been enacted and are having
immediate affect on the cash. Additional consolidation plans will be implemented
during the forth quarter of the fiscal year to further increase the potential
for cash retention.
The Company has been granted the use of cash collateral on an interim
basis through and including September 30, 1997, in accordance with certain
agreed to stipulations.
The Company plans to sell or dispose of assets not essential to the
business, eliminate areas of operations that are unprofitable, and compromise or
restructure its present payment obligations while under Chapter 11 to correct
the negative cash flow. The Company moved its principal office to the address
shown on the front of this report to effectuate a rent savings of approximately
$60,000 per year. By consolidating efforts in profitable areas and rescheduling
debts, the Company's plan is to emerge from Chapter 11 as a profitable
enterprise with a positive cash flow during 1997.
11
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27. Financial Data 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: August 12, 1997 ----------------------------------------
Frank J. LaChapelle,
Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEET
AND IS QUALIFIED IN ITS ENTIRETTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 571,147
<SECURITIES> 0
<RECEIVABLES> 1,829,542
<ALLOWANCES> 0
<INVENTORY> 3,651,760
<CURRENT-ASSETS> 6,379,229
<PP&E> 886,234
<DEPRECIATION> 479,414
<TOTAL-ASSETS> 14,255,469
<CURRENT-LIABILITIES> 6,910,990
<BONDS> 0
0
3,590,000
<COMMON> 4,241,478
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,255,469
<SALES> 0
<TOTAL-REVENUES> 2,683,200
<CGS> 0
<TOTAL-COSTS> 2,382,684
<OTHER-EXPENSES> 580,230
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (279,714)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,714)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
