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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, 1998
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
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Number of shares outstanding of each of the issuer's classes of common stock, as
of February 8, 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 December 31, 1998 3-4
and September 30, 1998
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1998 and 1997 6
Note to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis and Plan of Operation 8
PART II - OTHER INFORMATION 11
</TABLE>
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1998
<TABLE>
<CAPTION>
Unaudited Audited
ASSETS December 31, September 30,
1998 1998
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 165,429 $ 522,060
Accounts receivable, net of allowance for doubtful
accounts of $89,754 and $209,754 376,538 520,848
Deferred income taxes 250,000 250,000
---------- ----------
Total current assets 791,967 1,292,908
Property and Equipment, net of accumulated depreciation
of $19,891 and $18,858 10,671 11,703
OTHER ASSETS
Patents, net of accumulated amortization 240,399 242,395
Deposits 11,280 11,280
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Total other assets 251,679 253,675
Total assets $1,054,317 $1,558,286
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY Unaudited Audited
December 31, September 30,
1998 1998
<S> <C> <C>
Current Liabilities
Current portion of long term debt $ 259,068 $ 373,482
Trade accounts payable 185,255 204,918
Accrued liabilities 316,242 292,718
Income taxes payable (1,750) --
----------- -----------
Total current liabilities 758,815 871,118
Long term debt 19,800 571,650
----------- -----------
Total liabilities 778,615 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 (8,163,528) (8,323,712)
----------- -----------
Total shareholders' equity 275,702 115,518
Total liabilities and shareholders' equity $ 1,054,317 $ 1,558,286
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
SALES $ 623,238 $ 1,458,763
COST OF SALES 248,683 1,294,555
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GROSS PROFIT 374,555 164,208
OPERATING EXPENSES
Sales and administrative 183,150 452,337
Development -- 2,423
Depreciation and amortization 18,028 31,584
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Total operating expenses 201,178 486,344
Operating income (loss) 173,377 (322,136)
OTHER INCOME (expense)
Interest income 37 11,394
Interest expense (13,230) (29,761)
----------- -----------
Total other income (expense) (13,193) (18,367)
Earnings (loss) from continuing operations 160,184 (340,503)
Loss from discontinued operations -- (42,194)
Extraordinary Items
Reorganization Items
Gain on asset sale -- 562,000
Gain on legal settlement -- 118,038
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Total reorganization items -- 680,038
----------- -----------
Net Income $ 160,184 $ 297,341
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 5,236,556 2,541,666
Net income per common share (basic and diluted)
From continuing operations $ 0.03 $ (0.13)
From discontinued operations -- (0.02)
From extraordinary item -- 0.27
----------- -----------
Net income per common share $ 0.03 $ 0.12
=========== ===========
</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>
THREE MONTHS ENDED
DECEMBER 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 160,184 $ 297,341
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,028 31,584
Loss from discontinued operations -- 42,194
Changes in operating assets and liabilities:
Accounts receivable 144,309 386,984
Inventories -- 486,707
Prepaid expenses and other receivables -- 36,950
Deposits and other -- (9,931)
Accounts payable and accrued expenses 3,861 (81,773)
Deferred revenue -- (111,966)
Income taxes payable and deferred (1,750) (189,370)
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Net cash provided by (used in) operating activities 309,632 888,720
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of assets -- 61,248
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Net cash provided by (used in) investing activities -- 61,248
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of short-term and long-term
obligations (666,263) (1,035,070)
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Net cash provided by (used in) financing activities (666,263) (1,035,070)
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (356,631) (85,102)
CASH AND CASH EQUIVALENTS, beginning of period 522,060 586,811
--------- -----------
--------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 165,429 $ 501,709
========= ===========
Supplemental cash flow information
The Company paid no cash for interest or taxes during the current 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. 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 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 December 31, 1998, and the statements of its
operations and its cash flows for the three month periods ended December 31,
1998 and 1997 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 December 31, 1997, 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. The Company could then conduct business as usual without
the requirement of obtaining Bankruptcy Court approval. 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
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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 Patent 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 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.
RESULTS OF OPERATIONS
Fiscal Quarter Ended December 31, 1997 and December 31, 1998.
Sales for the current quarter decreased by $835,525 or 57% compared to
sales for the fiscal quarter ended December 31, 1997. The decrease was
attributable to the sale of the Xerox maintenance business as of November 1,
1997. During the current quarter, the Company had no revenue related to
maintenance. Although the revenue for the current quarter decreased, the gross
profit increased by approximately $210,000 or 189%. The increase in gross profit
was a result of the higher margin on consumable sales which accounted for 68% of
the total revenue for the current quarter. Other revenues for the current
quarter included $88,000 for the final payment for the sale of the Xerox
maintenance business which was effective November 1, 1997. Sales of equipment
and parts accounted for the remaining sales for the quarter of approximately
$117,000.
Cost of sales decreased by $1,046,000 or 81% during the current fiscal
quarter from the comparable quarter in 1997, again as a result of the sale of
the Xerox maintenance service business and reduction of the related costs. Cost
of sales as a percentage of sales decreased from 89% to 40% for the comparable
three month periods. This decrease in cost of sales was due to the final charges
associated with the sale of the Xerox business and related employee expenses
during the comparable three month period. The Company had 20 employees as of
December 31, 1997 compared to 6 as of December 31, 1998. The reduction consisted
of employees whose jobs were related to the remaining Siemens and other non
Xerox maintenance business, including office and warehouse staff at the Fairfax,
Virginia and Carlstadt, New Jersey warehouses. These warehouses were
subsequently closed during the second quarter of the 1998 fiscal year.
Selling and administrative expenses decreased by approximately $269,000
and decreased from 31% to 29% 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 $13,500 from the comparable quarter in
1997, but increased to 2.9% from 2.2% 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. The
Company had $2,400 in research and development expense for the three month
period ending December 31, 1997, relating to the final phase of the Delphax
toner development. The Company had no research or development expense during the
current year.
Net interest expense decreased by $5,174 from the three month period
ending in 1997, although net interest expense increased from 1.3% to 2.1% 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. During the current quarter the principal balances for notes payable were
reduced by approximately $666,000 which included normal monthly principal
payments to both Sanwa and Horizon banks and an additional one time principal
reduction payment of approximately $572,000 to Sanwa Bank.
9
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $356,631 from $501,709 for the
comparable three month period to $165,429 for the current quarter. As referenced
above the Company reduced the principal balance on notes payable to Sanwa and
Horizon banks during the quarter by over $666,000. The reduction was achieved
using funds from the Company's IRS tax refund received in October of 1998. The
Company has been operating on a positive cash basis since filing for protection
under Chapter 11 of the U.S. Bankruptcy Code. This trend has continued through
the current quarter. The Company believes cash flow from operations will be
sufficient to fund the business during the current year. As the Company's
reorganization is now complete the following items have been accomplished during
the process. The number of employees have been reduced from 85 prior to the
filing of bankruptcy to 6 as of December 31, 1998. Since the filing of Chapter
11 on March 6, 1997, the Company has reduced the bank debt by over $2,100,000 to
approximately $250,000 at the end of the current quarter. The Company has made
approximately $935,000 in cash payments to creditors as part of the approved and
completed reorganization plan. These payments consisted of approximately
$872,000 to approved class 5 creditors, $25,000 to approved class 4 creditors,
$23,000 to state taxing authorities and $14,000 for approved employee claims. In
addition to the creditor claims and bank principal reductions, the Company has
paid over $328,000 in approved legal fees during the reorganization process. The
Company has also issued all stock to creditors called for in the approved plan
of reorganization and a final decree was issued by the Bankruptcy Court formally
closing the proceedings on December 16, 1998.
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PART II
OTHER INFORMATION
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: February 9, 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
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 165,429
<SECURITIES> 0
<RECEIVABLES> 466,292
<ALLOWANCES> 89,754
<INVENTORY> 0
<CURRENT-ASSETS> 791,967
<PP&E> 30,562
<DEPRECIATION> 19,891
<TOTAL-ASSETS> 1,054,317
<CURRENT-LIABILITIES> 758,815
<BONDS> 0
0
0
<COMMON> 8,439,230
<OTHER-SE> (8,163,528)
<TOTAL-LIABILITY-AND-EQUITY> 1,054,317
<SALES> 535,370
<TOTAL-REVENUES> 623,238
<CGS> 248,683
<TOTAL-COSTS> 248,683
<OTHER-EXPENSES> 201,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,193
<INCOME-PRETAX> 160,184
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,184
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
