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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-KSB
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHNAGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
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
Check mark indicates 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__
Check mark indicates that the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
distribution of securities under a plan confirmed by a court.
YES X NO__
Check mark indicates that the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $1,751,219.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 17, 1999 was approximately $1,732,000.
Number of shares outstanding of each of the issuer's classes of common stock, as
of December 17, 1999: 5,704,556 shares of common stock, no par value.
The following documents are incorporated by reference into this report:
None.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual 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 Quarterly Reports on Form
10-QSB and any Current Reports on Form 8-K.
Item 1. DESCRIPTION OF BUSINESS.
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 and all of its subsidiaries. The Company's
principal executive offices are 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 made four acquisitions, and the cash flows of the Company were not
sufficient to pay the operating expenses and the substantial debt 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.
The Company's First Amended Plan of Reorganization (the "Plan") was
confirmed on April 20, 1998. On December 16, 1998, the Bankruptcy Court issued a
final decree formally closing the bankruptcy proceedings.
The Company's principal product is a liquid fusing agent (the "Fusing
Agent") used by the Model 2200 Siemens Printer. The Company distributes the
Fusing Agent directly to its end user clients and other operators of the Model
2200 Siemens Printer. The Company also sells the Fusing Agent to NCR
Corporation, OCE Printing Systems, Inc. ("OCE") and The Bradshaw Group. During
the 1999 Fiscal Year, sales of the Fusing Agent constituted approximately 77% of
the Company's total revenue.
RECENT DEVELOPMENTS
On September 17, 1999, the Company acquired the assets of Camino Software
Systems, Inc. ("Camino") for 468,000 shares of the Company's common stock and
assumed $315,172 of certain Camino liabilities. The Company had considered over
65 companies as possible acquisition candidates prior to the acquisition of the
Camino Assets. The Camino Assets consisted of the name, Camino Software Systems,
Inc., the data storage management software, certain business contracts and
intangible personal property. Camino had developed the powerful Highway Server
hierarchical storage management ("HSM") software. The Company intends on
improving customer service and continuing development of its HSM technology.
The Company believes that the acquisition of Camino will allow
diversification of its revenue base and augment the declining revenues from the
traditional fusing agent and toner business that support the high speed printing
industry. The Company's fusing agent business has always been profitable.
However, this business is declining as the machines using this product age and
are being replaced. In
<PAGE> 3
addition, the chemical used in the product cannot be manufactured after January
1, 2003. Accordingly management had been searching for an acquisition or merger
partner to add to the fusing agent business.
As of the date of this filing the Company has resolved all disputes with
OCE Printing Systems, USA Inc. and OCE GmbH ("OCE"). The matters resolved
included (a) a patent interference proceeding relating to the Company's fusing
agent patent, (b) a lawsuit brought by OCE and a former employee of the Company
contesting the Company's ownership of the fusing agent patent, and ( c) certain
antitrust claims by the Company against OCE. The settlement included (a) a
payment by OCE to the Company of $950,000, (b) an agreement by OCE not to
challenge the fusing agent patent, and ( c) a mutual release of all claims which
either party has against the other.
CAMINO - PRODUCT DESCRIPTION
Camino's Highway Server software provides a unique solution for addressing
the increasing need for sophisticated management of data. Designed to meet the
data storage management requirements for local area networks (LAN), wide area
networks (WAN), and intranet environments, the Highway Server offers its users
the ability to more efficiently manage available storage within a multi-server
environment where mass storage devices are used to increase storage capacity. As
more and more companies move away from mid and main frame computer to networked
systems to meet their computing requirements, the need for more sophisticated
software to emulate the flexibility and power of mid and main frames has become
more acute. With the exponential growth of information, data storage
requirements have also grown exponentially. The result has been that network
managers are having to deal with the re-occurring "out of disk space" problem on
their company's network. Though hardware cost for storage continues to come
down, the cost of managing the data being stored has not. Human intervention is
still required on the part of network managers to determine which data files on
the system need to be "on-line", "near-line", or are used sufficiently
infrequently to be relegated to "off-line" storage. This sophisticated
hierarchical storage management (HSM) is the domain of the Highway Server.
Developed in conjunction with Novell's NetWare 4.X, the Highway Server is
able to work in a multi-server and multi-platform environment, enabling the user
to better utilize the storage capacity available throughout the network. Based
upon user defined parameters, the software will automatically migrate minimally
used files to designated storage devices, hard drives, RAID, magnetic optical,
tape, or any other type of mass storage device. This migration is seamless and
transparent to the user. As the server's file system begins to fill up, the
Highway Server automatically transfers or migrates old, seldom accessed files to
user defined medium to make room for newer, more frequently accessed files. The
directory entry is modified which enables the system to quickly locate and
retrieve the file when needed. The user is unaware that the file has been
migrated and no longer resident at the original site. Generally, this migration
is desired to free up space in the more expensive storage medium, moving the
data to less expensive medium, such as removable optical drives. The uniqueness
of the program is that it enables the user to designate under what conditions
the files should be migrated and where the files should be migrated, i.e., all
financial files to one location, correspondence files to another, etc. In the
case of mass storage devices using removable optical medium, this is
particularly important. Whereas other HSM programs manage multi-disk hardware as
one large repository, scattering data throughout the system, the Highway Server
enables the user to designate what data goes to which disk, thus enabling
related data to be organized and stored on a specific disk rather than be
scattered throughout the storage device. A disk can then be removed to off-line
storage and more easily indexed, making retrieval considerably more efficient.
The Highway Server can accommodate virtually unlimited volumes of information.
Efficient management of data has and will continue to be one of the foremost
problems associated with the "information age". The Company believes the Camino
Highway Server represents the most efficient solution to data management in the
networked environment.
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MARKET
One of the foremost challenges for information managers is balancing the
requirements of storing and managing increasingly large amounts of information
in a cost effective manner. As equipment costs come down, the human intervention
side represents an increasingly higher percentage of the cost associated with
data management. It is estimated that more than 66% of the cost associated with
managing information is attributable to manual intervention on the part of the
network managers and that the cost to businesses for this people related expense
is in the range of $180 billion per year.
As the trend moves away from main and mid-frame computing to networked
computing increases, management believes that the market for network storage
management solutions will grow exponentially. The advent of multi-server
environments, where there are often 50 to 100 plus servers and hundreds of users
has created the need for increasingly sophisticated software to manage the
gigabyte and terabytes of data. Though it is difficult to project the market for
the Highway Server based upon the numbers of new servers put on-line every year,
the existing Novell based operating systems alone account for an estimated 50
million users and 3.2 million servers. International Data Corporation, a market
research firm in Framingham, Massachusetts, has estimated that network storage
and access (multi-user disk subsystems) will grow by 40% from a $25 billion
market in 1998 to more than $35 billion by year 2000.
The development and implementation of network-attached storage (NAS) and
storage area networking (SAN) solutions is increasingly becoming the answer to
dealing with this explosion of data storage required for the networked
environment. These systems essentially allow multiple servers to share a common
storage system or device. This trend towards migrating data from local servers
to mass storage devices is reflected in the high growth rate seen in optical
disk drives, libraries, disk arrays, and other types of removable disk storage
devices in the last few years. According to a Disk/Trends report, removable data
storage products 1999 sales are projected to be over $4.5 billion, with growth
forecast at over 16% per year through 2001.
The Highway Server is targeted at this growing need for efficient
management of large amounts of data. As the cost of storage comes down, there
has been a tendency on the part of computer users to store more and more data
for longer periods of time. Data warehousing is increasingly becoming the normal
way to handle this data. Larger companies use historical data for decision
support and business intelligence. Because data warehousing encompasses years of
historical information, the storage requirements are enormous. The Highway
Server's ability to automatically manage large amounts of data makes it an ideal
solution. For companies that extract information from disparate platforms, such
as NT, UNIX, OS/2, Mac and mainframes, the Highway Server's ability to handle
cross-platform data is a major attraction. As document imaging, multi-media,
video, and the internet become an increasing part of the normal course of
business, the demands for efficient data storage and its management become more
and more acute. Any company with a Novell server is a potential customer for the
Highway Server, the Company intends to continue to focus on the fortune 2000
companies and all current and future Novell Netware clients as the intended
market
COMPETITION
Although there are several HSM products in existence, management believes
that the Company's product competes only with computer systems utilizing the
Novell operating system. For example, products which run only on the Microsoft
NT platform would not be considered direct competition to the Company's Highway
Server. Computer Associates has an HSM product that is currently in use for
Novell customers. However, Computer Associates has announced that it would not
be upgrading its current HSM product to work with the Novell 5.X operating
system. Management believes that the Highway Server is the only HSM product that
is compatible with Novell's 5.X operating systems which is Novell's latest
technology.
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STRATEGY
To date, marketing of the product has been through placement of
advertisements in one trade publication, NetWare Connection, a Novell
publication, participation in four trade shows, and a seminar given at one of
the Novell centers in cooperation with Novell and Sony Corporation. A public
relations firm retained by Camino has placed articles on the product in numerous
trade publications. Camino is in the early stages of cultivating relationships
with a number of VAR's (value added reseller). The current VAR's have had a
focus and primary expertise in the storage technology area.
The marketing strategy is to maintain and expand the placement of
advertising in trade publications, continued participation in trade shows,
exchange Internet links with strategic partners, and to conduct additional
seminars in conjunction with Novell and hardware manufacturers of storage
devices. The placement of articles has been an effective tool in generating
leads and in getting the technical story out about the Highway Server and will
continue to be an important marketing tool.
The Company's plan for facilitating better entry into the marketplace is to
initially hire 4 regional sales managers to work in developing and servicing the
VAR network. Regional sales managers will be placed in the
Northeast/Mid-Atlantic, Mid-West, South and West regions. The Western region
will be covered initially by the Vice President of Sales. Besides developing and
providing support for the VAR network, these regional sales managers will be
tasked with marketing directly to those companies which prefer not to use VAR's
but would rather do business directly with the Company. Direct contact will be
made with the MIS staffs of the fortune 1,000 companies. Also, the regional
marketing managers will participate in Novell/Partners seminars and local trade
shows.
The Company also plans to develop strategic partnerships with hardware
manufacturers whose products either require or can be enhanced by the use of
Camino software products. Many of the manufacturers of mass storage devices have
intentionally stayed away from developing sophisticated software, leaving this
domain to the companies specializing in this area. As the number of companies
manufacturing removable optical devices, such as CD-ROM and DVD-ROM increase and
the market expands, it is anticipated that the opportunities for the Company to
expand its market base for its products will increase accordingly. Initially,
private label storage library will be explored. Ideally, a "Black Box" Virtual
Network Attached Storage solution consisting of hardware (LAN server w/hard
drives, M/O storage library) and software (Novell Netware and Highway Server
licenses) would be most profitable for all (including VAR's who prefer to sell
bundled solutions which are less prone to deep commodity type discounting).
The Company's Highway Server product is not currently protected by
copyright or patent although the Company's counsel is reviewing whether to seek
copyright protection. Management intends that all future products developed will
be protected by patent or copyright to the extent practicable.
The Company's fusing agent business has always been profitable and
continues to generate current profits. However, this business is declining as
the machines using this product age and are being replaced. In addition, the
chemical used in the product cannot be manufactured after January 1, 2003. The
Company will continue to service the fusing agent customers until the end of
life of the machines or product while it expands the new Camino software
business. The Company is presently exploring the possibility of selling the
fusing agent business.
Item 2. DESCRIPTION OF PROPERTY
As of December 1, 1999, the Company leases one warehouse in Los Angeles
pursuant to a three-year lease expiring February 2001 at a rent of $4,700 per
month, and one office facility in Agoura Hills, California for the Company's
executive offices pursuant to a lease extension expiring January 31, 2000, at a
rental rate of $2,807 per month. The Company is currently negotiating to extend
the lease for another
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year at a similar monthly rate. The warehouse in Los Angeles has 10,500 square
feet and the office in Agoura Hills has 2,362 square feet.
Item 3. LEGAL PROCEEDINGS
As of the time of this filing, the Company has settled all disputes with
OCE Printing Systems, USA Inc. and OCE Gmbh. See "Business - Recent
Developments". Under the settlement, the Company will retain all rights to its
Fusing Agent patent, and all lawsuits pending between the Company and OCE will
be dismissed. The Company has received $950,000 from OCE and both sides have
released all claims against each other, including the antitrust claims
referenced to in the next paragraph.
The Company was a plaintiff in a class action suit against Siemens Nixdorf
Printing Systems, OCE Printing Systems and NCR Corporation. While the Company
withdrew as a named plaintiff in 1997, the Company retained the right to
participate as a class member. The class has been certified and is currently
under appeal by the defendants. Since that time the Company has settled with
both NCR Corporation and, as indicated, OCE Printing Systems, USA Inc. and OCE
GmbH. The Company retains all rights against Siemens Corporation for any acts of
Siemens prior to April 1, 1996 which affected the Company. The Company will
decide the best course of action as to its rights against Siemens Corporation
during the first quarter of the year 2000.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the security holders.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is currently traded in the OTC Electronic Bulletin Board
under the symbol "IEIC". The following table sets forth the high and low sales
prices for the Common Stock during the two most recent fiscal years. The prices
do not include retail mark-ups, mark-downs or fees.
<TABLE>
<CAPTION>
Common Stock Sales Prices
Year Ended September 30, 1998 High Low
----------------------------- --------- -------
<S> <C> <C>
October 1, 1997 - December 31, 1997 $ .938 $ .563
January 1, 1998 - March 31, 1998 $ .750 $ .281
April 1, 1998 - June 30, 1998 $ .750 $ .375
July 1, 1998 - September 30, 1998 $ .6875 $ .438
Year Ended September 30, 1999
- -----------------------------
October 1, 1998 - December 31, 1998 $ .500 $ .281
January 1, 1999 - March 31, 1999 $ .906 $ .438
April 1, 1999 - June 30, 1999 $ .630 $ .375
July 1, 1999 - September 30, 1999 $ .880 $ .406
October 1, 1999 - December 31, 1999 $ 1.25 $ .562
</TABLE>
To date, the Company has not declared or paid any cash dividends with
respect to its Common Stock, and the current policy of the Board of Directors is
to retain earnings, if any, to provide for the
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growth of the Company. Consequently, no cash dividends are expected to be paid
on the Common Stock in the foreseeable future.
Item 6. 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 appearing elsewhere in this Annual
Report.
OVERVIEW
The Company was organized in 1983 to be a third-party provider of
maintenance services for computer hardware and related peripheral equipment. On
March 6, 1997 and 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 debt assumed as
part of the acquisitions. In addition, the Company was incurring substantial
legal expense from lawsuits which were then pending against the Company.
The Company's business plan had been to expand its maintenance services
through these acquisitions to include maintenance on Xerox machines as well as
those manufactured by Siemens. The Company was not able to operate the Xerox
maintenance business on a profitable basis and it was sold effective November 1,
1997, with the approval of the Bankruptcy Court. Subsequently, in May 1998, the
Company sold the remaining maintenance business as part of the reorganization
plan. As of the date of this report the Company has completely divested itself
of all contracted maintenance. The Company continues to sell parts associated
with Xerox and Siemens high speed laser printers as part of its continuing
operations. Substantially all of the Company's revenues are now generated from
the sale of consumable products used by high speed production printers to
historical maintenance clients and other users of the equipment.
On April 20, 1998, the Bankruptcy Court confirmed the Company's Plan of
Reorganization. Distributions to creditors, as required under the Plan, have
been made and, on December 16, 1998, the Bankruptcy Court issued a final decree
formally closing the bankruptcy proceedings.
The Company's principal consumable product is Fusing Agent used by the
Model 2200 Siemens Printer. In July 1994, the U.S. Patent and Trademark Office
issued a patent to the Company for the use of the Fusing Agent in the cold or
vapor fusion laser printing process. The Company currently sells the Fusing
Agent directly to its historical maintenance clients and distributes the Fusing
Agent to other operators of the Model 2200 Siemens Printer. The Company also
sells the Fusing Agent to NCR Corporation, OCE, and the Bradshaw Group. During
the 1999 Fiscal Year, sales of Fusing Agent constituted approximately 77% of the
Company's total revenue. The Company expects that U.S. sales of the Fusing Agent
will decrease in the future as the Model 2200 Siemens Printer is gradually
replaced by newer models of printers that do not use the Fusing Agent. The
Company is currently exploring the possibility of selling the fusing agent
business.
On September 17, 1999, the Company acquired the assets of Camino Software
Systems, Inc. a California based software company whose principal product is
called "Highway Server" software. Camino provides a unique solution for
addressing the increasing need for sophisticated management of data. The product
was developed in conjunction with Novell's Netware. The Highway Server is able
to work in a multi-server and multi-platform environment, enabling the user to
better utilize the storage capacity available throughout the network. The
Company currently sells the product to fortune 1000 companies. The following
companies are currently using the Camino Highway Server Software, Baxter
Healthcare, Hughes Communications, Polygram Records, Royal Canadian Mounted
Police, United Technologies and U.S. Department of Engery to list a few. The
Company plans to increase the advertising and marketing of the product jointly
with Novell and Hewlett Packard who will also be referenced in some of the
marketing
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material and advertising. The Company plans to participate in at least four
trade shows per year taking advantage of being in the Novell partner pavilion
for the large shows such as COMDEX. The Company also will give at least six
seminars at Novell regional offices with the first seminar scheduled for
February 2000. Novell will provide the facility and sales personnel, Hewlett
Packard will provide hardware (optical jukebox) and Camino will provide the
software and educate the potential customers as to the benefits and ease of use
of the Highway Server. The Company also has plans to distribute the product
internationally as well as through value added resellers who can also be trained
to sell and install the product.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMER 30, 1999 AND SEPTEMBER 30, 1998
Sales for the fiscal year ended September 30, 1999 decreased by
approximately $2,358,000 or 57% from sales in the prior year. The decrease in
total sales for fiscal year 1999 was attributable to the decline of fusing agent
sales which corresponds with the decrease in the number of machines in use. The
sale of Fusing Agent represented 77% of total revenue as compared to 74% for
fiscal year 1998. The other 23% of the total revenue were made from sales of
toner, parts and equipment sales relating to Siemens and Xerox high speed
printers. The reduction in total revenue was also affected by the sale or
discontinuance of all maintenance contracts during fiscal year 1998.
Cost of sales decreased from approximately $2,667,000 or 65% of sales to
$720,000 or 41% of sales for the fiscal year 1999. The decrease in cost of sales
included higher profits for sale of parts and equipment written down during the
reorganization and continued high margins on the sale of fusing agent. Gross
profit as a percentage of sales increased from 35% in 1998 to 59% in 1999
reflecting lower cost of items being sold during the fiscal year 1999.
Selling and administrative expenses decreased by $264,103. However, as a
percentage of sales, these expenses increased from 26% to 45% during fiscal year
1999. Although the reorganization substantially reduced these overhead expenses
the full amount of savings was not realized during the fiscal year due to
additional legal expenses relating to litigation involving the Company's patent
which has now been resolved. Depreciation and amortization increased by
approximately $17,000 during the fiscal year 1999 due to addition of capital
assets. Total operating expenses decreased by approximately $247,000 or 22% as
compared to the prior year as a result of completion of the overhead reduction
plan as part of the Company's reorgainization.
Other income and expense for the current year was an addition to income of
approximately $97,000 as compared to approximately $76,000 in additional expense
for fiscal year 1998. Other income and expense is made up of three components,
interest income, interest expense and for the fiscal year 1999 a gain on legal
settlement. Interest income decreased by approximately $17,850 from $17,894 in
1998 to $43 in 1999, as the Company's interest bearing assets were reduced as
part of the reorganization plan and for the current year were minimal. Interest
expense decreased by approximately $69,500 or 74% as compared to fiscal year
1998, resulting from reductions of interest bearing notes during the
reorganization and the subsequent payments during the fiscal year 1999. The
reason for the additional income during the current fiscal year is the Company's
settlement with NCR Corporation one of the defendants in the Mailers Data
Services, Inc., et al., v. Siemens Nixdorf Printing Systems, L.P., et al. case
on September 10, 1999. The Company has retained its rights against the other two
defendants in the case.
The Company posted net income during fiscal year 1999 of approximately $253,000
as compared to $2,789,500 in fiscal year 1998. The profit in fiscal year 1999
was all from continuing operations in contrast with the 1998 net income which
included, income tax benefit of $902,471, income from discontinued operations of
$332,471 and gain on creditor settlements of $1,450,380. The Company's
reorganization plan completion created these additional income benefits for
fiscal year 1998. The Company made no provision for taxes for fiscal year 1999
as a result of tax loss carry forwards created during the reorganization. The
Company could receive future tax benefits based on the prior years losses
<PAGE> 9
when the inventory that was written down is sold or abandoned. The Company has
provided a valuation allowance of $2,569,381 on the net operating loss carry
forwards since it is not more likely than not that all the net operating losses
will be realized.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 1999, the Company's cash position decreased by
approximately $58,000 from $522,000 on September 30, 1998 to $464,000 on
September 30, 1999. During fiscal year 1999, the Company reduced long term debt
by approximately $330,000. The principal balance due to Sanwa Bank was
approximately $887,000 as of September 30, 1998 and the principal balance due to
Sanwa as of September 30, 1999 was approximately $85,000. In addition to
payments made from cash generated from operations, the Company utilized a
portion of a tax refund to further reduce the principal balance due Sanwa. The
total principal reduction of the Sanwa note during the fiscal year 1999 was
approximately $802,000. The Company will need additional capital to carry out
the business plan which now focuses on the sales and marketing of the Camino
"Highway Server" product and is currently looking at all possibilities for
additional investment. The Company believes that cash generated from operations
will be sufficient to fund a scaled down business and marketing plan if
necessary. In September 1999 the Company obtained an unsecured $500,000 loan
from Renaissance Capital Group at 8%, Renaissance is the Company's largest
shareholder. The note matures on October 31, 2000. The Company is required to
make monthly payments of interest only of $3,333 beginning on October 1, 1999.
BACKLOG
The Company's total backlog for fusing agent orders as of September 30,
1999 was approximately $137,000 and the backlog for the Camino software products
was approximately $60,000. Backlog consists of the total amount of orders for
products that remain to be filled. All such backlog revenues were realized
during the three-month period ending December 31, 1999.
Item 7. FINANCIAL STATEMENTS
The following is a list of financial statements filed herewith:
Balance Sheets as of September 30, 1999 and September 30, 1998
Statements of Operations for the years ended September 30, 1999 and
1998
Statements of Shareholder's Equity (Deficit) for the years ended
September 30, 1999 and 1998
Statements of Cash Flows for the years ended September 30, 1999 and
1998
Notes to Financial Statements
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements during the fiscal
year covered by this report.
<PAGE> 10
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 15, 1999, the directors and executive officers of the
Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Joseph R. Mancuso, Ph.D. 57 Director
George O. Harmon 75 Director
Norman Baker 59 Director
Robert Pearson 64 Director
Kyo Paul Jhin 66 Director
Walter Kornbluh 68 President, Chief Executive Officer
and Chairman of the Board
Stephen Crosson 40 Chief Operating Officer,
Secretary and Treasurer
Barry Lederman 51 Vice President of Marketing
Neil Murvin 48 Vice President of Technology
C.A. Vitagliano 60 Vice President of Sales
</TABLE>
Joseph Mancuso, Ph.D. Dr. Mancuso became a director of the Company in
September 1993 following the closing of the Company's initial public offering.
Since 1978, Dr. Mancuso has been the publisher of the Entrepreneurial Manager's
Newsletter and the principal of both the Center for Entrepreneurial Management,
Inc., and the Chief Executive Officers Club. He is a director of the Globus
Growth Group, a venture capital firm.
George Harmon, Mr. Harmon became a director of the Company in September
1993 following the closing of the Company's initial public offering. From March
1988 to the present, Mr. Harmon has been the Chairman of the Board and the Chief
Executive Officer of Harmon Associates, and since March 1987 he has been the
Chairman of the Board of Omnidata Corporation, a netware company. Mr. Harmon is
a director of Cirvis Inc., a computer service firm.
Norman Baker, Mr. Baker a U.K. national, joined the Company in January 1994
as Managing Director of Interscience Computer Corporation-PLC. Mr. Baker has for
the past fifteen years been a director and associate of N.B. Direct Mail Ltd., a
U.K. domiciled direct marketing, research and mailing operation. Mr. Baker was
elected to the Company's board in March 1995.
Robert Pearson, Mr. Pearson who became a director in 1997 has been
associated with Renaissance Capital Corporation ("RCC") since April of 1994. RCC
is the Investment advisor of the controlling shareholder of the Company.
Presently, Mr. Pearson serves as a Senior Vice President and Director of
Corporate Finance of RCC. He has served as Executive Vice President of the
Thomas Group from May 1990 to March 1994. For 25 years, Mr. Pearson held various
senior management positions at Texas Instruments, including Vice President of
Finance from October 1983 to June 1985. Mr. Pearson holds directorships in the
following companies: Poore Brothers, Inc., which manufactures and distributes
snack food products and Tava Technologies, a provider of systems integration and
information technology.
<PAGE> 11
Dr. Kyo Paul Jhin, Dr. Jhin was elected a member of the Board of Directors
of the Company at the meeting of the Board on September 28, 1999. Dr. Jhin is
Director of the National Asian Pacific Center on Aging. He also served as
Director of International Programs for the Korean Vietnam Memorial National
Education Center. He was Executive Assistant to the Secretary, Department of
Veterans Affairs Washington D.C. from 1990 to 1993.
Walter Kornbluh, Mr. Kornbluh joined the Company in May 1997 and became a
director in April 1998. Mr. Kornbluh is a licensed Certified Public Accountant
in the States of California and New York. For the past 10 years he has been the
President and majority owner of Workout Specialist Inc., a firm that specializes
in assisting companies with financial problems. He spent 17 years as President
of Marathon Office Supply, Inc., a public company whose stock was listed on the
American Stock Exchange.
Stephen Crosson, Mr. Crosson first joined the Company in March 1985 and was
manager of accounting, government contracts and logistics. In September of 1989,
Mr. Crosson became a financial analysis officers with First Interstate Bank of
California. In March 1992, Mr. Crosson joined the Company again as Director of
Operations, and in April 1995, he became Vice President of Operations. In
January 1997 Mr. Crosson became Secretary of the Corporation and in April of
1998 he became Treasurer.
Barry Lederman, Mr. Lederman joined the Company as Vice President of
Marketing in September 1999 as part of the acquisition of Camino. In 1978 Mr.
Lederman co-founded CharterHouse Software Corporation, a California based
developer of PC and LAN based accounting software. Prior to founding
CharterHouse, he was Director of Technical Services for the Bekins Van Lines
Company. He is a graduate of CCNY School of Engineering where he received a BS
in 1970 and a MS in 1973 in computer science. He was a Senior Computer Systems
Scientist on the NASA sponsored Landsat project while at CCNY.
Neil Murvin, Mr. Murvin joined the Company as Vice President of Technology
in September 1999 as part of the acquisition of Camino. He is responsible for
all software design and development for the Company. He was co-founder of
CharterHouse Software Corporation in 1978. Prior to founding CharterHouse, he
was the director of systems and programming for the Bekins Van Lines Company and
has been a manager of application programming for Price Pfister. A graduate of
UC Irvine, he received a BS in Computer Science in 1973.
C.A. Vitagliano, Mr. Vitagliano joined the Company as Vice President of
Sales in September 1999 as part of the acquisition of Camino. Prior to joining
Camino, he was the Western Region Manager for Standard Microsystems Corporation.
Prior to that he was the Western Regional Manager for Proteon, Inc., a worldwide
provider of advanced internet solutions for multi-protocol IBM-SNR environments.
From 1989 to 1992 he was Vice President for the Optical Disk Products Division
of Toshiba America. From 1979 to 1982 he was the Western Regional Director for
Olivetti Corporation of America.
DIRECTOR COMPENSATION
Directors do not receive any annual compensation. Outside directors receive
$1,000 each for each meeting attended and reimbursement for out-of-pocket
expenses for attending meetings.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for its
fiscal years ended September 30, 1999, and September 30, 1998 to its Chief
Financial Executive Officer (the "Named Executive Officer"). No other executive
officer received compensation which exceeded $100,000 for the fiscal year ended
September 30, 1999.
<PAGE> 12
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
FISCAL YEAR ALL
NAME AND ENDED OTHER
PRINCIPAL POSITION SEPTEMBER 30, SALARY BONUS COMPENSATION
- ------------------ ------------ ------ --------- ------------
<S> <C> <C> <C> <C>
Walter Kornbluh, 1999 $150,000 -- --
President, Chief Executive 1998 $150,000 -- --
Officer and Chairman
of the Board
Stephen Crosson, 1999 $120,000 -- --
Vice President, Secretary 1998 $ 97,083 -- --
and Treasurer
</TABLE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 17, 1999 by (I) each
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock; (ii) each of the Company's directors; (iii)
the named Executive Officer; and (iv) executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
COMMON STOCK(1)
----------------------------
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS(2) SHARES OUTSTANDING(3)
-------------------- --------- --------------
<S> <C> <C>
Frank J. LaChapelle(4) 835,000 14.63
George O. Harmon 70,000(6) --
Joseph R. Mancuso 56,500(6) --
Robert Pearson(5) -- --
Norman Baker 85,000(6) --
Kyo Paul Jhin 166,696 --
Walter Kornbluh 750,000(8) 11.87
Stephen Crosson 458,800(9) 7.51
Renaissance Capital Growth &
Income Fund III, Inc. 2,500,000(7) 38.73
8080 N. Central Expressway
Suite 210
Dallas, Texas 75206
All executive officers and
directors as a group
(7 persons) 1,586,996 23.10
</TABLE>
- --------------------------------------------------------------------------------
(1) As used herein, the term beneficial ownership is defined by Rule 13d-3
under the Securities Exchange Act of 1934 as consisting of sole or shared
voting power and/or sole or shared investment power subject to community
property laws where applicable.
<PAGE> 13
(2) The address of each person is c/o the Company at 5236 Colodny Drive, #100,
Agoura Hills, California 91301.
(3) Based on 6,858,556 shares of Common Stock outstanding which includes all
warrants outstanding, as of December 17, 1999, represents to Company's
estimate of shares outstanding on the date of filing this report.
(4) All shares are held in the LaChapelle Family Trust with respect to which
Mr. LaChapelle exercises voting and investment power.
(5) Does not include any shares owned by RCC. Mr. Pearson is an executive
officer of RCC.
(6) Includes three year warrants to purchase 50,000 shares of Common Stock of
the Company at $1.00 per share.
(7) According to Schedule 13D, dated September 13, 1994, filed with the
Commission, RCC is the investment advisor of Renaissance Capital Growth &
Income Fund III, Inc. (the "Fund"). The Fund owns 1,750,000 shares of the
Company's Common Stock and has three year warrants to purchase 500,000
shares of Common Stock at $1.00 per share and three year warrants to
purchase 250,000 shares of Common Stock at $.50 per share.
(8) Includes currently exercisable options to purchase 300,000 shares from RCC
at $2.00 per share and 120,000 shares from Frank LaChapelle at $3.00 per
share and 180,000 shares from LaJolla Cove Investors for $1.80 per share
and 12,000 shares from the Company at $.56 per share.
(9) Includes currently exercisable options to purchase 200,000 shares from RCC
at $2.00 per share and 80,000 shares from Frank LaChapelle at $3.00 per
share and 74,800 shares from LaJolla Cove Investors at $1.80 per share and
48,000 shares from the Company at $.56 per share.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1999 and 1998 the Company paid $111,400 and $40,000,
respectively, in consulting fees to a firm owned by the Company's Chairman of
the Board.
On April 1, 1998, Interscience PLC, the Company's subsidiary in the U.K.
("PLC") was sold to Mr. Norman Baker. Payment for the acquisition included an
initial $10,000 payment and a royalty agreement that calls a charge of $10 per
case to be paid for each case of fusing agent sold by PLC starting in May 1999.
The Company and PLC continue to work on consumable distribution projects that
involve both U.S. and European sales efforts. Mr. Baker remains a current member
of the Company's Board of Directors.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
10.1 Settlement Agreement dated December 29, 1999 among OCE Printing
Systems U.S.A. Inc., OCE Printing Systems, G.m.b.H. and Interscience
Computer Corporation
(a) Exhibits - Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. None
<PAGE> 14
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities 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
By /s/ WALTER KORNBLUH
---------------------------------------
Walter Kornbluh, Chairman of the Board,
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WALTER KORNBLUH Chairman of the Board, January 7, 2000
- ------------------------------ President and Chief
Walter Kornbluh Executive Officer
/s/ STEPHEN CROSSON Chief Operating Officer, January 7, 2000
- ------------------------------ Secretary and Treasurer
Stephen Crosson and Principal Financial and
Accounting Officer
/s/ JOSEPH R. MANCUSO Director January 7, 2000
- ------------------------------
Joseph R. Mancuso
/s/ GEORGE O. HARMON Director January 7, 2000
- ------------------------------
George O. Harmon
/s/ NORMAN BAKER Director January 7, 2000
- ------------------------------
Norman Baker
/s/ ROBERT PEARSON Director January 7, 2000
- ------------------------------
Robert Pearson
/s/ KYO PAUL JHIN Director January 7, 2000
- ------------------------------
Kyo Paul Jhin
</TABLE>
<PAGE> 15
INTERSCIENCE COMPUTER CORPORATION
CONTENTS
================================================================================
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT 3
FINANCIAL STATEMENTS
Balance sheets 4
Statements of operations 5
Statements of shareholders' equity 6
Statements of cash flows 7
NOTES TO FINANCIAL STATEMENTS 8-22
2
<PAGE> 16
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders
Interscience Computer Corporation
We have audited the accompanying balance sheets of Interscience Computer
Corporation as of September 30, 1999 and 1998 and the related statements of
operations, shareholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interscience Computer
Corporation as of September 30, 1999 and 1998 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Los Angeles, California
November 5, 1999
3
<PAGE> 17
INTERSCIENCE COMPUTER CORPORATION
BALANCE SHEETS
================================================================================
September 30, 1999 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 464,311 $ 522,060
Accounts receivable, net of allowance
for doubtful accounts of
$53,687 and $209,754 (Note 8) 45,444 520,848
Inventories (Notes 3 and 8) 208,442 --
Deferred income taxes (Note 9) 250,000 250,000
- --------------------------------------------------------------------------------
Total current assets 968,197 1,292,908
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $22,989 and $18,858 (Note 4) 7,746 11,703
SOFTWARE (Note 11) 502,372 --
PATENTS, net of accumulated amortization of
$318,803 and $233,473 (Note 2) 414,951 242,395
OTHER ASSETS
Deposits 11,280 11,280
- --------------------------------------------------------------------------------
Total assets $ 1,904,546 $ 1,558,286
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 232,815 $ 204,918
Accrued liabilities 271,516 292,718
Accrued legal costs 229,907 -
Current portion of long-term debt
(Note 8) 114,607 373,482
- --------------------------------------------------------------------------------
Total current liabilities 848,845 871,118
LONG-TERM DEBT, less current portion
(Note 8) 500,000 571,649
- --------------------------------------------------------------------------------
Total liabilities 1,348,845 1,442,767
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 2 and 7)
SHAREHOLDERS' EQUITY (Note 5)
Preferred stock, no par value; authorized
1,000,000 shares; no shares are issued
and outstanding - -
Common stock, no par value; authorized
10,000,000 shares; issued and outstanding
5,704,556 and 5,188,487 shares 8,626,430 8,438,230
Accumulated deficit (8,070,729) (8,323,712)
- --------------------------------------------------------------------------------
Total shareholders' equity 555,701 115,518
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,904,546 $ 1,5558,286
================================================================================
See accompanying notes to financial statements.
4
<PAGE> 18
INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF OPERATIONS
================================================================================
Years ended September 30, 1999 1998
- --------------------------------------------------------------------------------
SALES (Note 2) $ 1,751,219 $ 4,109,318
COST OF SALES 719,839 2,667,270
- --------------------------------------------------------------------------------
GROSS PROFIT 1,031,380 1,442,048
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Sales and administrative 786,029 1,050,132
Depreciation and amortization 89,461 72,117
- --------------------------------------------------------------------------------
Total operating expenses 875,490 1,122,249
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 155,890 319,799
- --------------------------------------------------------------------------------
REORGANIZATION ITEMS
Professional fees -- 139,246
OTHER INCOME (EXPENSE)
Interest income 43 17,894
Interest expense (24,479) (94,137)
Gain on legal settlement (Note 12) 121,529 --
- --------------------------------------------------------------------------------
Total other income (expense) 97,093 (76,243)
- --------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE 252,983 104,310
INCOME TAX
INCOME TAX BENEFIT (Note 9) -- 902,471
- --------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS 252,983 1,006,781
- --------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 10):
Loss from discontinued operations, net of -- (80,961)
income tax benefit of $27,500
Gain on disposal, net of income taxes of $140,600 -- 413,432
- --------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 252,983 1,339,252
- --------------------------------------------------------------------------------
EXTRAORDINARY ITEM:
Gain on creditor settlements (Note 1) -- 1,450,380
- --------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 252,983 $ 2,789,632
================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic 5,253,225 2,880,929
Diluted 5,262,129 2,880,929
================================================================================
NET INCOME PER COMMON SHARE (BASIC AND
DILUTED):
From continuing operations $ .05 $ .35
From discontinued operations -- .12
Extraordinary item -- .50
- --------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ .05 $ .97
================================================================================
See accompanying notes to financial statements.
5
<PAGE> 19
<TABLE>
<CAPTION>
INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================================================================
Preferred Stock Common Stock
------------------------ ------------------------ Accumulated
Shares Amount Shares Amount Deficit Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, at September 30, 1997 40,000 $ 3,590,000 2,541,666 $ 4,241,748 $(11,113,344) $ (3,281,596)
Common stock issued as partial
settlement of unsecured
creditors (Note 1) -- -- 896,821 607,482 -- 607,482
Preferred stock converted
to common stock (Note 1) (40,000) (3,590,000) 1,750,000 3,590,000 -- --
Net income -- -- -- -- 2,789,632 2,789,632
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 30, 1998 -- -- 5,188,487 8,439,230 (8,323,712) 115,518
Common stock issued as partial
settlement of unsecured
creditors (Note 1)* -- -- 48,069 -- -- --
Common stock issued in purchase
of software (Notes 5 and 11) -- -- 468,000 187,200 -- 187,200
Net income -- -- -- -- 252,983 252,983
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, at September 30, 1999 -- $ -- 5,704,556 $ 8,626,430 $ (8,070,729) $ 555,701
===============================================================================================================================
* The value of these shares was accounted for in the prior year, however, the shares were not issued by the transfer agent until
the 1999 fiscal year.
See accompanying notes to financial statements.
</TABLE>
6
<PAGE> 20
INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF CASH FLOWS
================================================================================
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended September 30, 1999 1998
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 252,983 $ 2,789,632
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain from discontinued operations -- (332,471)
Gain on creditor settlements -- (1,450,380)
Depreciation and amortization 89,461 72,117
Change in allowance for doubtful accounts (156,067) (80,375)
Deferred income taxes -- (250,000)
Write-off of due from officers -- 30,000
Changes in operating assets and liabilities
net of effects of divestitures:
Accounts receivable 631,471 501,912
Inventories (208,442) 166,717
Prepaid expenses and other receivables 208,705 197,764
Patents (257,886) 26,001
Accounts payable and accrued expenses (287,275) (552,491)
Deferred revenue -- (141,967)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 272,950 976,459
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equipment (174) --
Proceeds for sale of businesses 1,230,000
- --------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (174) 1,230,000
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing (Note 8) 500,000 --
Payment of long-term debt (830,525) (2,184,273)
- --------------------------------------------------------------------------------
Net cash used in financing activities (330,525) (2,184,273)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (57,749) 22,186
CASH AND CASH EQUIVALENTS, beginning of period 522,060 499,874
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 464,311 $ 522,060
================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 24,479 $ 93,760
================================================================================
Income taxes paid $ -- $ 4,483
================================================================================
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES
In conjunction with the purchase of Camino Software, the Company issued
468,000 shares of common stock valued at $0.40 for a total of $187,200 and
assumed $315,172 in accounts payable for a total of $502,372.
The reorganization plan was approved by the Bankruptcy court on April 20,
1998 (see Note 1) which required the conversion of $3,590,000 of shares of
preferred stock into shares of common stock, and the settlement of
pre-petition liabilities in the amount of $2,764,119 by paying $706,257 in
cash, exchanging shares of common stock valued at $607,482 and the
forgiveness of the remaining balance.
================================================================================
See accompanying notes to financial statements.
7
<PAGE> 21
INTERSCIENCE COMPUTER CORPORATION
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF DESCRIPTION OF BUSINESS AND NATURE
SIGNIFICANT OF OPERATIONS
ACCOUNTING Interscience Computer Corporation (the
POLICIES "Company" or the "Debtor") was incorporated
under the laws of the State of California on
October 14, 1983, to be a third party provider
of maintenance services for computer hardware
and related peripheral equipment. The Company
currently provides spare parts for the Siemens,
Xerox, and Delphax families of business, as
well as technical support for Siemens. In 1992,
the Company introduced a non-chloroflurocarbon
fusing agent, developed by the Company and
patented on July 26, 1994, for use with certain
high speed laser printers. Soon thereafter, the
Company initiated a toner development program.
As a result of the Company's development of the
Fusing Agent and toner, gross revenues from
these items constituted approximately 80% and
74% of Company sales, for the years ended 1999
and 1998.
PETITION FOR RELIEF UNDER CHAPTER 11
On March 6, 1997, the Debtor filed petitions
for relief under Chapter 11 of the federal
bankruptcy laws in the United States Bankruptcy
Court in Los Angeles, California. Under Chapter
11, certain claims against the Debtor in
existence prior to the filing of the petitions
for relief under the federal bankruptcy laws
were stayed while the Debtor continued business
operations as Debtor-in-possession.
The Reorganization Plan (the "Plan") was
approved by the Bankruptcy Court on April 20,
1998. The confirmed plan provided for the
following:
1. Administrative expenses were paid in cash
shortly after confirmation.
2. Tax liabilities will be paid over a six-year
period in equal quarterly payments.
8
<PAGE> 22
1. SUMMARY OF PETITION FOR RELIEF UNDER CHAPTER 11
SIGNIFICANT
ACCOUNTING 3. Sanwa Bank received $1,000,000 and the
POLICIES balance of the loan will be paid POLICIES
(CONTINUED) over three years at prime interest plus 3%.
4. Horizon Bank will be paid in 36 equal
installments of principal and interest.
5. All vendors under $500 were paid in full at
closing.
6. All unsecured creditors received 25% of
their approved debt shortly after closing
plus one (1) share of stock for every five
dollars ($5.00) of approved debt. There is a
possibility of an additional payment based
on future sales of Xerox parts. The Company
realized a gain of $1,450,380 as a result of
the settlement of this class of claims.
7. The preferred shareholders agreed to
accept 1,750,000 shares of common stock with
two year warrants to purchase an additional
500,000 shares of common stock at $1.00 per
share. All delinquent dividends were
forgiven.
8. Original shareholders retained their
shares. They were diluted by issuance of
common stock to the preferred shareholders
and unsecured creditors.
9. An additional 250,000 shares of common
stock were issued to management.
In April, 1998, during the course of
evaluating creditor claims submitted to the
Bankruptcy Court, the Court allowed
approximately $94,000 of additional
liabilities against the Company.
9
<PAGE> 23
1. SUMMARY OF After considering the evidence, the
SIGNIFICANT Bankruptcy Court ruled that the Plan should
ACCOUNTING be and was in fact confirmed on April 20,
POLICIES 1998. As a result, the Company has been
(CONTINUED) 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 now conducts
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 has approved settlement of the
outstanding claims. On December 16, 1998, the
Bankruptcy Court issued a final decree formally
closing the bankruptcy proceedings.
USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly,
actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid
investments with an original maturity of three
months or less when purchased to be cash
equivalents. Such cash equivalents, at times,
may exceed federally insured limits. The
Company maintains its accounts with financial
institutions with high credit ratings.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No.
107 "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair
value of certain financial instruments.
Accounts receivable and accounts payable and
liabilities as reflected in the financial
statements approximate fair value because of
the short-term maturity of these instruments.
10
<PAGE> 24
1. SUMMARY OF The carrying amount of long-term debt
SIGNIFICANT approximates fair value because the interest
ACCOUNTING rates of these instruments approximates the
POLICIES rate at which the Company could borrow at
(CONTINUED) September 30, 1999 and 1998.
INVENTORIES
Inventories consist of consumables held for
sale in the normal course of business.
Consumables are recorded at the lower of cost
or market. Cost is determined on the first-in,
first-out method. The Company periodically
reviews its components of replacement parts and
establishes a provision for excess quantities
and obsolescence.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost.
Depreciation is computed on the straight-line
and accelerated methods based upon the
estimated useful life of the asset, primarily 5
years.
INTANGIBLES
The cost of patents acquired are being
amortized on the straight-line method over
seven years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically assesses the
recoverability of the carrying amounts of
long-lived assets, including intangible assets.
A loss is recognized when expected undiscounted
future cash flows are less than the carrying
amount of the asset. The impairment loss is the
difference by which the carrying amount of the
asset exceeds its fair value.
11
<PAGE> 25
1. SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS
SIGNIFICANT
ACCOUNTING In March 1998, the American Institute of
POLICIES Certified Public Accountants issued
(CONTINUED) Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP
98-1, which was adopted as of the beginning of
fiscal 1999, requires capitalization of certain
costs incurred in connection with developing or
obtaining internal use software. The Company's
previous accounting policy for internal use
software was generally consistent with the
requirements of SOP 98-1. Accordingly, the
adoption of SOP 98-1 did not have a significant
impact on the Company's operating results or
financial position.
Statement of Financial Accounting Standards
("FASB") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No.
133") issued by the FASB is effective for all
fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS 133 requires companies to
recognize all derivatives contracts as either
assets or liabilities in the balance sheet and
to measure them at fair value. If certain
conditions are met, a derivative may be
specifically designated as a hedge, the
objective of which is to match the timing of
gain or loss recognition on the hedging
derivative with the recognition of (i) the
changes in the fair value of the hedged asset
or liability that are attributable to the
hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the
gain or loss is recognized in income in the
period of change.
12
<PAGE> 26
1. SUMMARY OF Historically, the Company has not entered into
SIGNIFICANT derivatives contracts either to hedge existing
ACCOUNTING risks or for speculative purposes. Accordingly,
POLICIES the Company does not expect adoption of the
(CONTINUED) new standard on January 1, 2001 to affect its
financial statements.
CONSOLIDATION
Consolidated amounts are presented for the year
ended September 30, 1998. As the Company sold
and discontinued the operations of its two
subsidiaries, Laser Support and Engineering,
Inc. and Interscience, PLC during the 1998
fiscal year (see Note 10), amounts are not
presented on a consolidated basis for the year
ended September 30, 1999.
2. DISCLOSURE OF PATENT
CERTAIN RISKS
AND UNCERTAINTIES The Company is the assignee of the entire
right, title and interest in and to U.S. Patent
No. 5,333,042 (the "Patent") directed to a
method for using fusing agent in cold fusion
laser printers. The Fusing Agent represents
approximately 80% and 74% of the Company's
sales for the years ended September 30, 1999
and 1998. A loss of this Patent would have a
material adverse effect on the business of the
Company. 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
proceeding 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
13
<PAGE> 27
2. DISCLOSURE OF determine who was the first inventor of the
CERTAIN RISKS copied claim. Such proceedings could take
AND UNCERTAINTIES several years to resolve and be expensive to
(CONTINUED) 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 who
claimed 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 of 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. The Company has
capitalized certain legal expenses of $242,886
incurred while defending the patent from
infringement.
SOURCES OF SUPPLY
The manufacturing of HCFC has been banned in
the United States as of January 1, 2003.
However, the Company believes that there are
several domestic and foreign companies that can
provide the Company with the hydro
chloro-flouro carbon ("HCFC") that it expects
to need in the future for the manufacture of
its fusing agent.
MAJOR CUSTOMERS
Three customers accounted for approximately
39%, 26% and 14% of total sales in fiscal 1999.
The same customers accounted for approximately
27%, 30% and 11% of total sales in fiscal 1998.
3. INVENTORIES Inventories at September 30, 1999 were $208,442
and consist of fusing agent and raw materials.
There was no inventory at September 30, 1998.
Inventory is valued on a first in - first out
basis.
14
<PAGE> 28
4. PROPERTY AND Property and equipment consists of the
EQUIPMENT following:
September 30, 1999 1998
--------------------------------------------
Furniture and fixtures $ 9,905 $ 9,905
Test and training
equipment 20,830 20,656
--------------------------------------------
30,735 30,561
Less accumulated
depreciation 22,989 18,858
--------------------------------------------
$ 7,746 $ 11,703
============================================
Property and equipment are depreciated on a
straight-line basis with an average useful life
of five years.
5. COMMON STOCK In connection with its bankruptcy
PURCHASE WARRANTS reorganization, the Company exchanged
1,750,000 shares of its common stock and
warrants for 500,000 shares of common stock at
$1.00 per share for all outstanding preferred
stock. The warrants are exercisable during the
three year period commencing August 12, 1998.
No warrants have been exercised as of September
30, 1999. No value was recorded for the
warrants issued as the value was deminimus.
In conjunction with the purchase of Camino
Software in 1999 the Company issued 468,000
shares of common stock valued at $0.40 for a
total of $187,200 (Note 11).
In 1998 the Company issued warrants for 200,000
shares of common stock at $1.00 per share to
its directors and an individual. The warrants
are exercisable during the three year period
commencing August 12, 1998. No warrants have
been exercised as of September 30, 1999. No
value was recorded for the warrants issued as
the value was deminimus.
In 1999 the Company issued warrants to purchase
250,000 shares of common stock at $.50 per
share to Renaissance Capital Growth & Income
Fund III in connection with the capital growth
loan granted by Renaissance. The warrants are
exercisable during the three year period
commencing September 10, 1999. No warrants were
exercised as of September 30, 1999. No value
was recorded for the warrants issued as the
value was deminimus (Note 8).
15
<PAGE> 29
6. RELATED PARTY During fiscal 1999 and 1998 the Company paid
TRANSACTION $111,400 and $40,000,
respectively, in consulting fees to a firm
owned by the Company's Chairman of the Board.
On April 1, 1998, Interscience PLC, the
Company's subsidiary in the U.K., was sold to
Mr. Norman Baker, a related party. Payment for
the acquisition included an initial $10,000
payment and a royalty agreement that calls for
a charge of $10 per case to be paid for each
case of fusing agent sold by PLC starting in
May 1999. The Company and PLC continue to work
on consumable distribution projects that
involve both U.S. and European sales efforts.
Mr. Baker remains a current member of the
Company's Board of Directors.
7. COMMITMENTS OPERATING LEASES
AND
CONTINGENCIES The Company leases its facilities pursuant
to various leases.
Minimum annual lease payments required under
non-cancelable leases as of September 30, 1999
consist of $24,479 due during the year ended
September 30, 2000. The Company's leases for
the Agora Hills, CA and Los Angeles, CA
locations expire during the year ending
September 30, 2000. The Company will renew the
leases for an amount that is not expected to be
materially higher.
Total rent expense for the years ended
September 30, 1999 and 1998 amounted to $35,435
and $118,588.
16
<PAGE> 30
7. COMMITMENTS TAX-QUALIFIED SAVINGS PLAN
AND
CONTINGENCIES The Company has adopted a tax-qualified savings
(CONTINUED) plan (the "401(k) Plan") which is intended to
qualify under Section 401(k) of the Internal
Revenue Code. The Company pays the
administrative expenses of the 401(k) Plan and
currently matches 25% of an employee's
contribution, up to 1% of an employee's salary.
An employee becomes eligible for participation
in the 401(k) Plan after six months of
employment with the Company. Each employee may
elect to contribute to the 401(k) Plan, through
payroll deductions, up to the statutory
limitation. Salary reduction contributions are
immediately 100% vested. Company contributions
vest 20% after two years of service and 20%
each service year thereafter. The Company made
a matching contribution of $6,316 in fiscal
1998 and chose not to make a contribution to
the Plan in fiscal 1999. In 1999 the Company
discontinued the 401(k) Plan and is in the
process of obtaining approval from the IRS for
final termination.
8. LONG TERM DEBT In connection with the Company's bankruptcy
reorganization, on April 1, 1998 the Company
restructured a $62,897 loan from a bank at
prime plus one percent (9.25% at September 30,
1999). The loan has a term of two years
requiring monthly payments of principal and
interest of approximately $2,518 with an
irregular last payment estimated at $9,816. The
loan is secured by certain receivables and
inventory of the Company. The loan may be
prepaid at any time without any penalties. As
of September 30, 1999, $24,532 remains
outstanding on this loan.
In connection with the Company's bankruptcy
reorganization, on April 1, 1998, the Company
restructured a $12,034 loan from a bank at
10.5%. The loan has a term of two years
requiring monthly payments of principal and
interest of approximately $2,047. The loan is
secured by certain receivables and inventory of
the Company. The loan may be prepaid at any
time without penalty. As of September 30, 1999,
$4,149 remains outstanding on this loan.
17
<PAGE> 31
8. LONG TERM DEBT On July 30, 1996, the Company obtained a
$2,230,234 loan from a bank at the bank's
reference rate plus 3%. As a result of the
Company's bankruptcy reoganization, the loan
was redated on April 1, 1998. The bank was
allowed a claim of $2,250,000 at that date. The
interest rate remained unchanged (interest is
9.00% at September 30, 1999). The redated loan
requires monthly payments for three years of
principal and interest of approximately $28,620
and a portion of the proceeds of the Anacomp
sale (see Note 10). The loan is secured by
certain receivables and inventory of the
Company and is subject to certain covenants
which the Company was in compliance with at
September 30, 1999. The loan may be prepaid at
any time without penalty. As of September 30,
1999, $85,926 remains outstanding on this loan.
In September 1999 the Company obtained an
unsecured $500,000 loan from a business
development company at 8%. The loan matures on
October 31, 2000. The Company is required to
make monthly payments of interest only of
$3,333 beginning on October 1, 1999.
Estimated future maturities of the Company's
long-term debt as of September 30, 1999 are as
follows:
September 30, Amount
---------------------------------------------
2000 $ 114,607
2001 500,000
---------------------------------------------
$ 614,607
=============================================
18
<PAGE> 32
9. INCOME TAXES Provision (benefit) for income taxes included
in the accompanying statements of operations
consist of the following components:
1999 1998
----------------------------------------------
Current:
Federal $ - $ (654,071)
State - 1,600
----------------------------------------------
- (652,471)
----------------------------------------------
Deferred:
Federal - (250,000)
State - -
----------------------------------------------
- (250,000)
----------------------------------------------
Income tax provision
(benefit) $ - $ (902,471)
==============================================
The effective tax rate on income (loss) before
income taxes differed from the federal
statutory tax rate. The following summary
reconciles income taxes at the federal
statutory tax rate with the actual taxes and
the effective tax rate:
1999 1998
----------------------------------------------
Federal statutory
tax rate 34% 34%
Permanent differences 1 5
Change in valuation
allowance (35) (279)
Federal tax refund - (625)
----------------------------------------------
Effective tax rate - % (865)%
==============================================
19
<PAGE> 33
9. INCOME TAXES At September 30, 1999, the Company has
(CONTINUED) available net operating loss carryforwards
of approximately $900,000 for federal income
tax purposes, which expire in varying amounts
through 2019. The temporary differences between
assets reported for financial statements and
their related tax basis amounted to $7,135,208
of which $6,166,316 are inventory related
items. These differences give rise to a
deferred tax asset of $2,819,381. A portion of
the deferred tax asset was not recognized since
management believes it is more likely than not
that it will not be realized. Accordingly, a
valuation allowance of $2,569,381 was provided
at September 30, 1999.
At September 30, 1998, the Company had
available net operating loss carryforwards of
approximately $1,400,000 for income tax
purposes, which expire in varying amounts
through 2012. The temporary differences between
amounts reported for financial statements and
the tax basis of the assets amounted to
$6,466,772 of which $6,454,396 were inventory
related items. These differences gave rise to a
deferred tax asset of $2,198,703. A portion of
the deferred tax asset was not recognized since
it is more likely than not that it will not be
realized. Accordingly, a valuation allowance of
$1,948,703 was provided at September 30, 1998.
10. DISCONTINUED On December 12, 1997, the Company's Board of
OPERATIONS AND Directors adopted a plan to sell and
SALE OF XEROX discontinue the operations of Laser Support and
MAINTENANCE Engineering, Inc. ("LSE"). Accordingly, the
BUSINESS Company realized a gain on disposal of $261,248
and a loss on LSE's operations of $26,319 which
have been segregated from continuing operations
and reported as a loss from discontinued
operations on the statement of operations.
20
<PAGE> 34
10. DISCONTINUED On April 1, 1998, the Company's Board of
OPERATIONS AND Directors adopted a plan and discontinued the
SALE OF XEROX operations of Interscience, PLC ("PLC").
MAINTENANCE Accordingly, the Company recognized a loss on
BUSINESS the disposal of $19,212 and a loss on PLC's
(CONTINUED) operations of approximately $54,642 which have
been segregated from continuing operations and
reported as a loss from discontinued operations
on the consolidated statement of operations.
In May 1998, the remaining maintenance business
was sold to complete the termination of the
service division. The six Siemens laser printer
contracts in Southern California were sold as
of May 1, 1998 to Landmark Computer Group
(L.C.G.). The purchase agreement calls for a
nine month payment plan based on 50% of the
annual service revenue for the acquired
accounts. The remaining three Siemens laser
printer maintenance contracts in the Maryland
and Virginia area were sold for a nominal
amount which included a small inventory located
at the three sites.
Net sales, income, and assets from discontinued
operations are as follows:
Year ended September 30, 1998
----------------------------------------------
(IN THOUSANDS)
Net sales $ 299
Operating loss (81)
Loss from discontinuing
operations (81)
==============================================
Year ended September 30, 1998
----------------------------------------------
(IN THOUSANDS)
Net assets of discontinued
operations $ -
==============================================
There were no transactions arising from
discontinued operations during the year ended
September 30, 1999.
21
<PAGE> 35
10. DISCONTINUED SALE OF XEROX MAINTENANCE BUSINESS
OPERATIONS AND
SALE OF XEROX The Company sold its Xerox maintenance business
MAINTENANCE to Anacomp Corporation, an Indiana corporation
BUSINESS as of November 1, 1997. The purchase price
(CONTINUED) consisted of $1,220,000 cash paid at closing
and an earnout payment based on revenues
generated by the Xerox maintenance business to
be made in the 13th month following closing.
The Company realized a gain on this sale of
approximately $562,000. In connection with the
sale of the Xerox maintenance business to
Anacomp, the Company abandoned assets with a
net book value of $199,183 and inventories
valued at $191,421.
11. SOFTWARE On September 17, 1999, the Company acquired
the assets (the "Camino Assets") of Camino
Systems Inc. ("Camino") for 468,000 shares of
the Company's common stock and assumed $315,172
of certain Camino liabilities. The Camino
Assets consisted of the name, Camino Software
Systems, Inc., the data storage management
software, certain business contracts and
intangible personal property. The Company has
allocated all amounts paid and assumed in the
amount of $502,372 to the cost of software.
Proforma disclosures reflecting the results of
operations as if the acquisition had occurred
as of October 1, 1997 are not presented as the
proforma results are not significantly
different than the historical results of the
Company.
12. GAIN ON LEGAL In 1999, the Company received $145,000 in
SETTLEMENT settlement of its claims as a plaintiff
against one of the defendants in an anti-trust
action involving various defendants. The gain
of $121,529 is presented net of $23,471 of
contingent legal fees related to the case.
22
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (the "Agreement") is entered
into by and between Oce Printing Systems U.S.A., Inc., a Delaware corporation,
Oce Printing Systems, G.m.b.H., a German corporation (collectively "OPS") and
Interscience Computer Corporation, a California corporation ("Interscience"), in
settlement of any and all claims between OPS and Interscience, including but not
limited to the claims and counterclaim made in the action pending in the Circuit
Court for Pinellas County, Florida, Circuit Civil Case No. 96-7077-CI-8 ("the
Florida Action"); in the action pending in the District of Maryland at Civil
Action No. CC3 99-386 ("the Maryland Action"); and in the interference
proceeding pending before the U.S. Patent Office at Interference No. 103692
("the Patent Action").
WHEREAS, Interscience and others commenced the Florida Action against OPS
and others to recover damages arising out of conduct with respect to sales and
service practices relating to certain high-speed printers;
WHEREAS, OPS and Jeffrey Zillmer filed the Maryland Action against
Interscience for conduct arising out of Interscience's practice of United States
Patent No. 5,333,042, issued July 26, 1994, entitled "Cold Fusing Agent" ("the
'042 Patent");
WHEREAS, Interscience filed the Patent Action in the United States Patent
Office for conduct relating to the 1042 Patent;
WHEREAS, OPS and Interscience have denied liability to each other and
maintained their respective claims to the '042 Patent; and
WHEREAS, it being the intention of the parties to settle and resolve all
disputes that are or may be asserted between them which relate to the subject
matter of the Florida Action, the Maryland Action and the Patent Action;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the matters referred to herein, and
intending to be legally bound, OPS and Interscience agree as follows:
1. The parties shall take all steps within their authority and control (but
not including any new litigation) to conclude the Maryland Action insofar as it
relates to the 1042 Patent. The parties will cause the Patent Action to be
terminated in the manner agreed upon by their respective patent counsel. Each
party shall bear its own attorneys' fees, expenses and other costs. Furthermore,
OPS hereby assigns (without any warranty of assignment) to Interscience and
Interscience hereby accepts all of OPS's rights and obligations under the
contract between OPS and Zillmer dated December 29, 1998, relating to the `042
Patent.
2. Interscience acknowledges that it is no longer a class representative in
the Florida Action and that it will take no action to attempt to become a class
representative.
3. Interscience agrees that it will take all steps necessary to opt out of
any class, whether for litigation or settlement purposes, that may be finally
certified against OPS in the Florida Action. Interscience acknowledges that by
opting out of any such class finally certified against OPS, it will not share in
any potential monetary benefits that may be provided to the class in resolution
of the claims. Each party shall bear its own attorneys' fees, expenses and other
costs.
4. OPS agrees that henceforth it will not challenge the 1042 Patent and
will transfer to Interscience the Goldman Application Serial Number 081 196090.
5. OPS shall order and Interscience shall deliver 5,000 cases of fusing
agent, for which OPS shall pay the current price of $72.00 per case, without any
canister deposit, and with a price reduction of $61,544.00 reflecting an
adjustment for former
2
<PAGE> 3
canister deposits. Accordingly, the net purchase price shall be $298,456.00 for
the 5,000 cases.
6. OPS agrees to, and following the execution of this Agreement, shall pay
Interscience the amount of $950,000.00 by wire transfer on or before December
31, 1999.
7. In consideration of OPS's release, described below, and the other
matters contained herein, Interscience releases and forever discharges OPS, its
officers, agents, employees, attorneys, parent corporations, subsidiaries,
related entities, affiliates, divisions, successors, persons acting on its
behalf in connection with the matters set forth above, and/or assigns, and any
and all other persons, firms, partnerships and corporations which are or might
be claimed to be liable to Interscience, its successors and assigns, of and from
any and all claims, counterclaims, rights, demands, costs, damages, losses,
liabilities, actions, and causes of action including attorneys' fees and court
costs of every nature and description, whether known or unknown, suspected or
unsuspected, foreseen or unforeseen, real or imaginary, actual or potential, and
whether arising in tort or contract or at law or in equity, under the common
law, state law, federal law, or any other law, or otherwise, including but not
limited to canister deposit claims and claims which have been or which might
have been asserted in the Florida Action, the Maryland Action and the Patent
Action, it being the intention of Interscience to effect a general release of
all such claims against OPS.
8. In further consideration of OPS's release described below, and the other
matters contained herein, Interscience releases and forever discharges Siemens
Nixdorf Printing Systems L.P., Siemens Credit Corporation, Seimans Nixdorf
Information Systems Inc., and Siemens-Nixdorf Informationsysteme AG, their
officers, agents, employees, attorneys, parent corporations, subsidiaries,
related entities, affiliates,
3
<PAGE> 4
divisions, successors, persons acting on its behalf in connection with the
matters set forth above, and/or assigns, and any and all other persons, firms,
partnerships and corporations which are or might be claimed to be liable to
Interscience, its successors and assigns, of and from any and all claims,
counterclaims, rights, demands, costs, damages, losses, liabilities, actions,
and causes of action for conduct after April 1, 1996, including attorneys' fees
and court costs of every nature and description, whether known or unknown,
suspected or unsuspected, foreseen or unforeseen, real or imaginary, actual or
potential, and whether arising in tort or contract or at law or in equity, under
the common law, state law, federal law, or any other law, or otherwise, it being
the intention of Interscience to effect a general release of all such specified
claims.
9. In consideration for Interscience's release, described above, and the
other matters contained herein, OPS releases and forever discharges
Interscience, its officers, agents, employees, attorneys, parent corporations,
subsidiaries, affiliates, related entities, divisions, predecessors, successors,
persons acting on its behalf in connection with the matters set forth above,
and/or assigns and any and all other persons, firms, partnerships and
corporations which are or might be claimed to be liable to OPS, its successors
and assigns, of and from any and al1 claims, counterclaims, rights, demands,
costs, damages, losses, liabilities, actions, and causes of action including
attorneys' fees and court costs of every nature and description, whether known
or unknown, suspected or unsuspected, foreseen or unforeseen, real or imaginary,
actual or potential, and whether arising in tort or contract or at law or in
equity, under the common law, state law, federal law, or any other law, or
otherwise, including but not limited to canister deposit claims and claims or
counterclaims which have been or which might have been asserted in the Florida
Action,
4
<PAGE> 5
the Maryland Action and the Patent Action, it being the intention of OPS to
effect a general release of all such claims against Interscience.
10. OPS and Interscience further covenant and agree that this Agreement is
intended to cover not only all known claims arising out of, or in any way
related to the Florida Action, the Maryland Action and the Patent Action, but
also any claims in the future, arising out of, or in any way relating to the
issues raised by those Actions, not now known or anticipated, which may develop
later, and that no further lawsuits shall be filed by either party against the
other arising out of the subject matter of the three Actions or this Agreement.
11. OPS and Interscience further understand and agree that they will not
enter or file suit against the released parties herein with respect to the
claims mentioned above. OPS and Interscience further agree that, in addition to
other relief, either party shall be entitled to reasonable attorneys' fees,
costs and the expenses of litigation incurred in defending any action filed in
breach of this provision.
12. OPS and Interscience deny liability of any sort with respect to the
claims and counterclaims made in the three Actions. This Agreement is made as a
compromise of the disputed claims between OPS and Interscience, to avoid further
expense and to terminate finally and completely the controversies between the
parties. Interscience further understands, covenants and agrees that the payment
of the above-mentioned cash consideration does not constitute any admission of
liability by OPS or any other persons, firms or partnerships, with regard to the
three Actions.
13. It is further understood, and agreed, that this Agreement is the full
and complete agreement between OPS and Interscience and that there are no other
agreements, covenants, promises, or arrangements other than those set forth
herein, it is
5
<PAGE> 6
further agreed that this Agreement will be construed in accordance with and
governed by Delaware law.
14. This Agreement may be executed in counterparts, all of which together
shall constitute one and the same instrument. The facsimile signature of any
party shall be effective as an original signature.
In witness whereof and intending to be legally bound, Oce Printing Systems
U.S.A., Inc., Oc6 Printing Systems, G.m.b.H., and Interscience Computer
Corporation have caused this Agreement and Mutual Release to be executed by
their duly authorized representatives, on this 29th day of December, 1999.
ATTEST: OCE PRINTING SYSTEMS U.S.A., INC.
OCE PRINTING SYSTEMS U.S.A., INC.
By: /s/ DANIEL I. BOOKER
- ---------------------------- -----------------------------
Daniel I. Booker
Counsel
ATTEST: INTERSCIENCE COMPUTER CORPORATION
By: /s/ WALTER KORNBLAH
- ---------------------------- ------------------------------
Walter Kornblah
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 464,311
<SECURITIES> 0
<RECEIVABLES> 99,131
<ALLOWANCES> 53,687
<INVENTORY> 208,442
<CURRENT-ASSETS> 968,197
<PP&E> 30,735
<DEPRECIATION> 22,989
<TOTAL-ASSETS> 1,904,546
<CURRENT-LIABILITIES> 848,545
<BONDS> 0
0
0
<COMMON> 8,626,430
<OTHER-SE> (8,070,729)
<TOTAL-LIABILITY-AND-EQUITY> 1,904,546
<SALES> 1,751,219
<TOTAL-REVENUES> 1,751,219
<CGS> 719,839
<TOTAL-COSTS> 719,839
<OTHER-EXPENSES> 875,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,479
<INCOME-PRETAX> 252,983
<INCOME-TAX> 0
<INCOME-CONTINUING> 252,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,983
<EPS-BASIC> 0
<EPS-DILUTED> .05
</TABLE>
