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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 March 31, 1999
Commission file number 1-12312
INTERSCIENCE COMPUTER CORPORATION
(Name of small business issuer 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)
Issuer's telephone number: (818) 707-2000
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 May 11, 1999: 5,236,556 shares of common stock, no par value.
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
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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 March 31, 1999 3 - 4
and September 30, 1998
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Operations for the Six 6
Months Ended March 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1999 and 1998 7
Note to the Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis and Plan of Operation 9
PART II - OTHER INFORMATION 12
</TABLE>
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 and September 30, 1998
<TABLE>
<CAPTION>
Unaudited Audited
ASSETS March 31, September 30,
1999 1998
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 137,945 $ 522,060
Accounts receivable, net of allowance for doubtful
accounts of $89,754 and $209,754 315,709 520,848
Inventory 38,700 --
Deferred income taxes 250,000 250,000
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Total current assets 742,354 1,292,908
Property and Equipment, net of accumulated depreciation 9,638 11,703
of $19,891 and $18,858
OTHER ASSETS
Patents, net of accumulated amortization 223,404 242,395
Deposits 11,280 11,280
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Total other assets 234,684 253,675
Total assets $ 986,676 $1,558,286
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1999 and September 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY Unaudited Audited
March 31, September 30,
1999 1998
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<S> <C> <C>
Current Liabilities
Current portion of long term debt $ 188,167 $ 373,482
Trade accounts payable 212,155 204,918
Accrued liabilities 112,724 292,718
Income taxes payable -- --
----------- -----------
Total current liabilities 513,046 871,118
Long term debt 91,367 571,650
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Total liabilities 604,413 1,442,768
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 5,236,556 shares 8,439,230 8,439,230
Accumulated deficit (8,056,967) (8,323,712)
----------- -----------
Total shareholders' equity 382,263 115,518
Total liabilities and shareholders' equity $ 986,676 $ 1,558,286
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
4
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
--------------------------------
1999 1998
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<S> <C> <C>
SALES $ 524,397 $ 1,312,537
COST OF SALES 236,665 769,532
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GROSS PROFIT 287,732 543,005
OPERATING EXPENSES
Sales and administrative 159,043 377,520
Development -- 808
Depreciation and amortization 18,028 31,336
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Total operating expenses 177,071 409,664
Operating income 110,661 133,341
OTHER INCOME (expense)
Interest income 6 1,349
Interest expense (4,116) (25,672)
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Total other income (expense) (4,110) (24,323)
Earnings from continuing operations 106,551 109,018
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Net Income $ 106,551 $ 109,018
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 5,236,556 2,541,666
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Net income per common share $ 0.02 $ 0.04
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</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 31,
--------------------------------
1999 1998
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<S> <C> <C>
SALES $ 1,147,635 $ 2,998,934
COST OF SALES 485,347 2,175,968
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GROSS PROFIT 662,288 822,966
OPERATING EXPENSES
Sales and administrative 342,184 1,013,814
Development -- 3,230
Depreciation and amortization 36,056 62,920
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Total operating expenses 378,240 1,079,964
Operating income (loss) 284,048 (256,998)
OTHER INCOME (expense)
Interest income 43 12,828
Interest expense (17,346) (55,828)
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Total other income (expense) (17,303) (43,000)
Earnings (loss) from continuing operations 266,745 (299,998)
Extraordinary Items
Reorganization Items
Gain on asset sale -- 666,263
Gain on legal settlement -- 118,038
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Total reorganization items -- 784,301
Extraordinary Item (77,944)
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Net Income $ 266,745 $ 406,359
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 5,236,556 2,541,666
Net income per common share (basic and diluted)
From continuing operations $ 0.05 ($ 0.12)
From reorganization items -- 0.31
From extraordinary item -- (0.03)
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Net income per common share $ 0.05 $ 0.16
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</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 31,
--------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 266,745 $ 406,359
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 21,055 62,920
Loss from discontinued operations -- --
Changes in operating assets and liabilities:
Accounts receivable 205,139 645,070
Inventories (38,700) 524,012
Prepaid expenses and other receivables -- 72,256
Deposits and other -- (9,931)
Accounts payable and accrued expenses (81,390) (64,289)
Deferred revenue -- (111,966)
Income taxes payable and deferred -- (189,370)
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Net cash provided by (used in) operating activities 372,849 1,335,061
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of assets -- 103,442
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Net cash provided by (used in) investing activities -- 103,442
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of short-term and long-term
obligations (Pre-payment bank notes) (756,964) (1,141,072)
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Net cash provided by (used in) financing activities (756,964) (1,141,072)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (384,115) 297,431
CASH AND CASH EQUIVALENTS, beginning of period 522,060 586,811
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CASH AND CASH EQUIVALENTS, end of period $ 137,945 $ 884,242
=========== ===========
Supplemental cash flow information
The Company paid $17,347 in interest during
the current six month period
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
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 disclosure 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 March 31, 1999, and the statements of its
operations and its cash flows for the three and six month periods ended March
31, 1999 and 1998 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. These interim
financial statements for the period ended March 31, 1998, reflect continuing
operations; discontinued or sold subsidiaries have been included on a separate
line item.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, 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 the 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 and Plan of Operation." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Interscience Computer Corporation
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risks 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, 1998, the
Quarterly Reports on Form 10-QSB to be filed by the Company and any Current
Reports on Form 8-K by the Company.
Item 2. Management's Discussion and Analysis and 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
The Company was organized in 1983 to be a third-party provider of
maintenance services for computer hardware and related peripheral equipment.
Unless otherwise specified herein, all references to the "Company" shall mean
Interscience Computer Corporation. The Company's principal executive offices are
currently located in Agoura Hills, California.
On March 6, 1997, the Company filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The bankruptcy filing was caused by several factors.
The Company had made four acquisitions, and the cash flow of the Company was not
sufficient to pay the operating expenses and the substantial debts assumed as
part of the acquisitions. In addition, the Company was incurring substantial
legal expense from six lawsuits which were then pending against the Company.
On April 1, 1998, a hearing was held in the Bankruptcy Court to
consider confirmation of the Company's First Amended Plan of Reorganization (the
"Plan"). The Plan was confirmed on April 20, 1998. As a result, the Company was
revested with all of its assets. The Plan terms control all claims and equity
interests which existed as of March 6, 1997, the date when the Company filed its
Chapter 11 reorganization case. Distributions to approved creditors, as required
under the Plan, have been made. All claim objections have been resolved, and the
Bankruptcy Court approved settlement of the outstanding claims. On December 16,
1998, the Bankruptcy Court issued a final decree formally closing the bankruptcy
proceedings.
The Company is the assignee of the entire right, title and interest in
and to U.S. Patent Number 5,333,042 (the "Patent") directed to a method for
using fusing agent in cold fusion laser printers. On October 16, 1995, the
Patent Office issued a notice to the Company that an unnamed party had copied a
claim of the Patent for purposes of instituting an Interference proceedings
under 35 U.S.C. 135 to determine priority of invention. In February 1997, the
Patent Office declared Interference Number 103692 with a patent application
filed in the name of Gerd Goldman (the "Goldman Application"). The Company
understands that the Goldman Application is owned by OCE Printing Systems GmbH.
The Company is identified as the Junior Party in the Interference. In May 1997,
pursuant to the Company's request, the Interference was stayed and the Company
was ordered to notify the Administrative Patent Judge within fifteen days of the
Company's discharge from bankruptcy. Once notified of the discharge from
bankruptcy, the Patent Office continued the formal proceedings to determine who
was the first inventor of
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the copied claim. Such proceedings could take several years to resolve and be
expensive to defend. The Company intends to vigorously defend its rights to the
Patent in the Interference Proceedings. The Company filed on December 7, 1998
its claim to priority on the Patent. The interference proceedings continue at
this time.
The Company has been informed that OCE Printing Systems USA Inc. has
purchased the rights of a former employee as to the ownership of the Patent. In
February, 1999 the former employee and OCE Printing Systems USA Inc. filed a
lawsuit against the Company in the U.S. District Court in Maryland claiming the
employee was the sole inventor and owner of the Patent. The Company believes
that the lawsuit is without merit and intends to defend its rights vigorously,
although no assurance can be given as to the outcome of the litigation.
RESULTS OF OPERATIONS
The Three Month Periods Ended March 31, 1999 and March 31, 1998.
Sales for the current quarter decreased by $788,140 or 60% compared to
sales for the fiscal quarter ended March 31, 1998. The decrease was attributable
to the sale of the Siemens maintenance business during the third quarter of
1998. During the current quarter, the Company had no revenue related to
maintenance. Although the revenue for the current quarter decreased, the gross
profit as a percentage of sales increased during the current quarter to 55% as
compared to 41% in the comparable quarter in 1998. The increased gross profit
percentage is attributable to the higher margins associated with product and
consumable sales which are now the Company's main source of revenue.
Cost of sales decreased by $532,867 or 69% during the current fiscal
quarter from the comparable quarter in 1998, again as a result of the sale of
the Siemens maintenance service business and reduction of the related costs.
Cost of sales as a percentage of sales decreased from 59% in 1998 to 45% for the
comparable three month period in 1999. The reduction is related to sale of the
Siemens maintenance business and reduction of the employee and parts related
expenses associated with the maintenance business. Closure of parts warehouses
in New Jersey and Virginia during the quarter ending March 31, 1998 also
contributed to higher cost of sales in 1998.
Selling and administrative expenses decreased by approximately $218,000
during the current three month period as compared 1998, but remained unchanged
as a percentage of sales. This was due to the Company's reorganization program,
consolidating all out of state warehouses and offices, and reducing staff and
administrative expense. Depreciation and amortization decreased by approximately
$13,300 from the comparable quarter in 1998, but increased to 3.4% from 2.4% of
sales. This was a result of certain assets relating to the Xerox maintenance
business and other discontinued operations being liquidated and written off
during the 1998 fiscal year although depreciation relating to the Company's
patents remain at the same level.
Net interest expense decreased by $20,213 from the three month period
ending in 1998, and decreased from 1.9% to .78% as a percentage of sales. The
expense reduction came about as a result of the reduction in principal balances
for notes payable to Sanwa Bank and Horizon Bank. Total bank debt has been
reduced by approximately $757,000 since September 30, 1998.
The Six Month Periods Ended March 31, 1999 and March 31, 1998.
Sales for the current six month period decreased by approximately
$1,851,000 or 62% from the comparable six month period in 1998. The decrease was
the result of the sale of the Xerox maintenance business during the first
quarter of 1998 and the sale of the Siemens maintenance business in the third
quarter of 1998. Sales from the current six month period were all derived from
sales of parts, equipment or consumables. There were no maintenance related
sales during the current six month period.
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Cost of sales decreased by approximately $1,690,600 or 78% for the
current six month period again as a result of the sale of the maintenance
business. Cost of sales as a percentage of sales decreased from 73% to 42% for
the current six month period. The decline in cost of sales was due to higher
gross margins on consumable and product sales which constituted the majority of
sales during the current fiscal year.
Selling and administrative expenses decreased by $671,630 or 66% from
the prior year six month period. Selling and administrative expense as a
percentage of sales decreased from 34% in 1998, to 30% in the six month period
in 1999. This was achieved by the Company's continued consolidation and expense
reduction program during the current fiscal year. The Company had no development
expense during the current fiscal year compared to approximately $3,400 during
the prior year six month period. Depreciation and amortization expense decreased
by $26,864 or 43% from the six month ended March 31, 1998. The decrease is a
result of sale or disposal of assets related to the Company's discontinued or
sold maintenance operations.
Net interest expense decreased by $25,697 or 60% from the comparable
six month period in 1998. Reductions in the principal balances for notes payable
resulted in the reduced interest expense for the current six month period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by approximately $384,000 from
$522,060 for the period ended September 30, 1998, to $137,945 for the current
quarter. As referenced above the Company reduced the principal balance on notes
payable to Sanwa and Horizon banks during the six months since September 30,
1998, by approximately $757,000. The reduction was achieved using funds from the
Company's IRS tax refund received in October of 1998 and by making monthly
principal and interest payments during the six month period in the current
fiscal year. The Company believes that its working capital and projected cash
flow from operations will be sufficient to meet its ongoing requirements over
the next twelve months.
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PART II
OTHER INFORMATION
Item 2. Legal Proceedings
The Company has been informed that OCE Printing Systems USA Inc. has
purchased the rights of a former employee as to the ownership of the Patent. In
February, 1999 the former employee and OCE Printing Systems USA Inc. filed a
lawsuit against the Company in the U.S. District Court in Maryland claiming the
employee was the sole inventor and owner of the Patent. The Company believes
that the lawsuit is without merit and intends to defend its rights vigorously,
although no assurance can be given as to the outcome of the litigation.
Item 3. Exhibits and Reports on Form 8-K
(a) Exhibit 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: May 11, 1999 /s/ Walter Kornbluh
---------------------------------------------
Walter Kornbluh, Chairman of the Board,
President and Chief Executive Officer
/s/ Stephen Crosson
---------------------------------------------
Stephen Crosson, Vice President of Operations
and Chief Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 137,945
<SECURITIES> 0
<RECEIVABLES> 405,463
<ALLOWANCES> 89,754
<INVENTORY> 38,700
<CURRENT-ASSETS> 742,354
<PP&E> 29,529
<DEPRECIATION> 19,891
<TOTAL-ASSETS> 986,676
<CURRENT-LIABILITIES> 513,046
<BONDS> 0
0
0
<COMMON> 8,439,230
<OTHER-SE> (8,056,967)
<TOTAL-LIABILITY-AND-EQUITY> 986,676
<SALES> 524,397
<TOTAL-REVENUES> 524,397
<CGS> 236,665
<TOTAL-COSTS> 236,665
<OTHER-EXPENSES> 177,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,110
<INCOME-PRETAX> 106,551
<INCOME-TAX> 0
<INCOME-CONTINUING> 106,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,551
<EPS-PRIMARY> 0
<EPS-DILUTED> .02
</TABLE>
