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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB
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[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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)
600 HAMPSHIRE ROAD, SUITE 105, WESTLAKE VILLAGE, CALIFORNIA 91361
(Address of principal executive offices)
Issuer's telephone number: (805) 370-3100
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 11, 2000: 7,339,556 shares of common stock, no par value.
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
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INTERSCIENCE COMPUTER CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 2000 3 - 4
and September 30, 1999
Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 5
Statements of Operations for the Six
Months Ended March 31, 2000 and 1999 6
Statements of Cash Flows for the Six
Months Ended March 31, 2000 and 1999 7
Note to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis and Plan of Operation 9
PART II - OTHER INFORMATION 12
Item 2 Changes in Securities and Use of Proceeds
Item 6 Exhibits and Reports on Form 8-K
</TABLE>
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERSCIENCE COMPUTER CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
ASSETS March 31, September 30,
2000 1999
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,466,445 $ 464,311
Accounts receivable, net of allowance for doubtful
accounts of $53,687 and $53,687 307,146 45,444
Inventory -- 208,442
Deferred income taxes 250,000 250,000
------------ ------------
Total current assets 4,023,591 968,197
Property and Equipment, net of accumulated depreciation 25,390 7,746
of $23,727 and $22,989
SOFTWARE 502,372 502,372
OTHER ASSETS
Patents, net of accumulated amortization 353,323 414,951
of $344,738 and $318,803
Deposits 18,936 11,280
------------ ------------
Total other assets 372,259 426,231
Total assets $ 4,923,612 $ 1,904,546
</TABLE>
See accompanying note to Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY Unaudited Audited
March 31, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Current Liabilities
Current portion of long term debt $ 12,682 $ 114,607
Trade accounts payable 514,212 462,722
Accrued liabilities 54,874 271,516
------------ ------------
Total current liabilities 581,768 848,845
Long term debt 62,488 500,000
------------ ------------
Total liabilities 644,256 1,348,845
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 7,339,556 shares 12,066,630 8,626,430
Accumulated deficit (7,787,274) (8,070,729)
------------ ------------
Total shareholders' equity 4,279,356 555,701
Total liabilities and shareholders' equity $ 4,923,612 $ 1,904,546
</TABLE>
See accompanying note to Financial Statements
4
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INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March 31,
2000 1999
----------- -----------
<S> <C> <C>
SALES $ 413,839 $ 524,397
COST OF SALES 346,202 236,665
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GROSS PROFIT 67,637 287,732
OPERATING EXPENSES
General and administrative 714,898 159,043
Depreciation and amortization 26,767 18,028
----------- -----------
Total operating expenses 741,665 177,071
Operating income (Loss) (674,028) 110,661
OTHER INCOME (expense)
Interest income 7,945 6
Interest expense (10,517) (4,116)
Legal Settlement (182,000) --
----------- -----------
Total other income (expense) (184,572) (4,110)
Earnings from continuing operations (858,600) 106,551
DISCONTINUED OPERATIONS
Income from discontinued operations 319,119 --
----------- -----------
Net Income $ (539,481) $ 106,551
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,339,556 5,236,556
Net income per common share (basic and diluted)
From continuing operations $ (0.11) $ 0.02
From discontinued operations 0.04 0.00
----------- -----------
Net income (loss) per common share $ (0.07) $ 0.02
=========== ===========
</TABLE>
See accompanying note to Financial Statements
5
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INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
March 31,
2000 1999
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<S> <C> <C>
SALES $ 780,368 $ 1,147,635
COST OF SALES 498,268 485,347
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GROSS PROFIT 282,100 662,288
OPERATING EXPENSES
General and administrative 997,314 342,184
Development -- --
Depreciation and amortization 53,534 36,056
----------- -----------
Total operating expenses 1,050,848 378,240
Operating income (loss) (768,748) 284,048
OTHER INCOME (expense)
Interest income 7,945 43
Interest expense (20,422) (17,346)
Gain on Legal Settlement (net of legal cost of $182,000) 768,000 --
----------- -----------
Total other income (expense) 755,523 (17,303)
Earnings (loss) from continuing operations (13,225) 266,745
DISCONTINUED OPERATIONS
Income from discontinued operations 296,680 --
----------- -----------
Net Income $ 283,455 $ 266,745
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,339,556 5,236,556
Net income per common share (basic and diluted)
From continuing operations $ 0.00 $ 0.05
From discontinued operations 0.04 0.00
----------- -----------
Net income per common share $ 0.04 $ 0.05
=========== ===========
</TABLE>
See accompanying note to Financial Statements
6
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INTERSCIENCE COMPUTER CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS March 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 283,455 $ 266,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 53,535 21,055
Changes in operating assets and liabilities:
Accounts receivable (261,702) 205,139
Inventories 208,442 (38,700)
Deposits and other (7,656) --
Accounts payable and accrued expenses (89,982) (81,390)
Patent Acquisition 9,759 --
----------- -----------
Net cash provided by operating activities 195,851 372,849
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Property & Equipment (19,310) --
Net cash provided by (used in) investing activities (19,310) --
CASH FLOWS FROM FINANCING ACTIVITIES
Sale common stock 3,440,200 --
Principal reductions of short-term and long-term
obligations (Pre-payment bank notes) (614,607) (756,964)
----------- -----------
Net cash provided by (used in) financing activities 2,825,593 (756,964)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,002,134 (384,115)
CASH AND CASH EQUIVALENTS, beginning of period 464,311 522,060
----------- -----------
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,466,445 $ 137,945
=========== ===========
</TABLE>
Supplemental cash flow information
The Company received a $950,000 from Legal Settlement During the Period
Sale of Fusing Agent business for $550,000 with a net gain of $296,680
During the Period
See accompanying note to Financial Statements
7
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INTERSCIENCE COMPUTER CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
The accompanying consolidated financial statements of Interscience
Computer Corporation (the "Company") have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the consolidated financial statements and related footnotes
included in the Company's latest Annual Report on Form 10-KSB. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of March
31, 2000, and the statements of its operations for the three month periods ended
March 31, 2000 and 1999, and the statements of its operations and its cash flows
for the six month periods ended March 31, 2000 and 1999 have been included. The
results of operations for interim periods are not necessarily indicative of the
results which may be realized for the full year.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. These interim
financial statements for the period ended March 31, 2000, reflect continuing
operations; discontinued or sold subsidiaries have been included on a separate
line item.
SIGNIFICANT EVENTS
In December 1999, the Company reached a settlement with OCE GmbH and OCE
Printing Systems, USA Inc., ("OCE") resolving all disputes between the
companies. Under the settlement, the Company retained all rights to its Fusing
Agent Patent, and all lawsuits pending between the Company and OCE will be
dismissed. The Company also received $950,000 from OCE on December 31, 1999 and
both sides have released all claims against each other. Legal expense of
$182,000 related to the settlement was booked during the current quarter.
On January 25, 2000, the Company sold all assets relating to the fusing
agent business to The Bradshaw Group for $550,000 in cash. Assets included
inventory and work in process located in Chino, California and the exclusive
right to use the Company's U.S. Fusing Agent Patent number 5,333,042.
During the period the Company completed a private placement of
$3,270,000 of common stock. It is anticipated that these funds will be used to
expand the Highway Server business.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis and Plan of Operation." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. Interscience Computer Corporation (the
"Company") undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the risks described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Annual Report on Form 10-KSB for the fiscal year ended September
30, 1999, the Quarterly Reports on Form 10-QSB to be filed by the Company and
any Current Reports on Form 8-K by the Company.
Item 2. Management's Discussion and Analysis and Plan of Operation.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto in this quarterly report.
OVERVIEW
In December 1999, the Company, OCE GmbH and OCE Printing Systems, USA
Inc. (the "OCE Group") reached a settlement resolving all disputes regarding the
Company's Fusing Agent Patent and the Company's allegations that the OCE Group
and others committed violations of the U.S. antitrust laws which damaged the
Company. Under the settlement, the Company retained all rights to its Fusing
Agent Patent, and all lawsuits pending between the Company and OCE Group will be
dismissed. The Company has also received $950,000 from the OCE Group and both
sides have released all claims against each other. Legal expense of $182,000
related to the settlement was booked during current quarter. The Company has
retained all rights against Siemens Corporation for violations of the U.S.
antitrust laws by Siemens prior to April 1, 1996 which affected the Company.
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
Highway Server hierarchical storage management ("HSM") software. The Company
plans on improving sales, marketing and customer service while continuing
development of its HSM technology. The objective of the acquisition of Camino
was to diversify the Company's revenue base to initially augment and eventually
replace declining revenues from the traditional fusing agent and toner business.
Camino's Highway Server software provides a 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
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disk space" problem on their company's network. Though hardware cost of storage
continues to decrease, the cost of managing the data being stored has increased.
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.
Prior to January 25, 2000 the Company's principal product was a liquid
Fusing Agent used by the Model 2200 Siemens Printer. The Company sold the Fusing
Agent to distributors of the product including OCE Printing Systems, USA Inc.,
The Bradshaw Group and NCR Corporation. On January 25, 2000, the Company sold
all of the assets related to the Fusing Agent business to the Bradshaw Group for
$550,000 in cash.
During the period the Company completed a private placement of
$3,270,000 of common stock. It is anticipated that these funds will be used to
expand the Highway Server business.
RESULTS OF OPERATIONS
The Three Month Periods Ended March 31, 2000 and March 31, 1999.
Sales of fusing agent for the current quarter decreased by approximately
$211,000 as compared to the previous year. The decline is attributable to the
fact that the business was sold in January 2000. Sales of the Highway Server
software which was purchased in September 1999, did not exist last year. The
Highway Server sales were the same in this quarter as in the quarter ended
December 31 1999.
Cost of sales increased by approximately $110,000 or 46%. The increase
was due to a final sale of fusing agent in connection with the sale of that
business. Cost of sales of the Highway Server remains at approximately 1% of the
Highway Server sales.
Selling and administrative expenses increased by approximately $556,000.
The increase is due to the expansion of our staff in preparation for additional
Highway Server sales. This increase also includes $150,000 of executive bonuses
which were paid in stock.
The expense of $182,000 on the legal settlement reflects legal costs
which are applied to the $950,000 settlement reported in the quarter ended
December 31, 1999.
The income from discontinued operations reflects the profit on the sale
of the declining fusing agent business net of all applicable expenses.
The loss for the period of $539,481 represents the termination of the
prior fusing agent business and the startup expenses of the newly acquired
business.
The Six Month Periods Ended March 31, 2000 and March 31, 1999.
Sales of fusing agent decreased approximately $547,000 or 48% compared
to the prior year. This decrease was attributable to the fact that the business
was sold in January 2000. The prior period had six months of sales compared to
four months in the current period.
Cost of sales remained approximately the same but increased as a
percentage of sales from 42% to 64%. This was due to one large accommodation
sale in connection with the sale of the business.
Sales and administrative expenses increased approximately $655,000 or
191%. This was due to the startup expenses of the new business acquired in
September 1999, as well as year end stock bonuses paid to 2 key executives.
10
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The income from Legal Settlement reflects the net income received from
OCE Corp. on settling the companies claims against them on an anti-trust matter.
The Company has retained its rights against Siemens Corp. with respect to
possible violations of the U.S. antitrust laws.
Income from Discontinued Operations of $296,680 reflects sale of the
fusing agent business after all expenses.
Net profit for the six months remains approximately the same but is
derived from different sources.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased in the six months by approximately $3,000,000 as a result
of the Company completing a $3,270,000 private placement of common stock. The
Company believes that its working capital and projected cash flow from
operations will be sufficient to meet its ongoing operational requirements over
the next twelve months. The Company presently has over $3,000,000 in cash and
short term investments and no bank or long term debt.
11
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PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On March 1, 2000, the Company sold an aggregate of 1,635,000 shares of
its Common Stock to 23 investors for $3,270,000 pursuant to a private placement
under Rule 506 of Regulation D. The purchasers were all accredited investors as
defined in Rule 501.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTERSCIENCE COMPUTER CORPORATION
Date: May 11, 2000 /s/ Walter Kornbluh
---------------------------------------------
Walter Kornbluh, Chairman of the Board,
President and Chief Executive Officer
Date: May 11, 2000 /s/ Stephen Crosson
---------------------------------------------
Stephen Crosson, Vice President of Operations
and Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,466,445
<SECURITIES> 0
<RECEIVABLES> 360,833
<ALLOWANCES> 53,687
<INVENTORY> 0
<CURRENT-ASSETS> 4,023,591
<PP&E> 49,117
<DEPRECIATION> 23,727
<TOTAL-ASSETS> 4,923,612
<CURRENT-LIABILITIES> 581,768
<BONDS> 0
0
0
<COMMON> 12,066,630
<OTHER-SE> 7,787,274
<TOTAL-LIABILITY-AND-EQUITY> 4,923,612
<SALES> 413,839
<TOTAL-REVENUES> 413,839
<CGS> 346,202
<TOTAL-COSTS> 346,202
<OTHER-EXPENSES> 741,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,517
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (858,600)
<DISCONTINUED> 319,119
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (539,481)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
