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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission file number 1-12312
INTERSCIENCE COMPUTER CORPORATION
(Name of small business issuer in its charter)
CALIFORNIA 95-3880130
(State of incorporation) (I.R.S. Employer Identification No)
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 February 10, 1999: 5,704,556 shares of common stock, no par value.
Transitional Small Business Disclosure Format:
YES [ ] NO [X]
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INTERSCIENCE COMPUTER CORPORATION
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999 3 - 4
and September 30, 1999
Condensed Consolidated Statements of Operations for the Three
Months Ended December 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1999 and 1998 6
Note to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis and Plan of Operation 8
PART II - OTHER INFORMATION 11
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PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999 and September 30, 1999
<TABLE>
<CAPTION>
Unaudited Audited
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 968,030 $ 464,311
Accounts receivable, net of allowance for doubtful
accounts of $53,687 and $53,687 190,205 45,444
Inventory 208,442 208,442
Deferred income taxes 250,000 250,000
---------- ----------
Total current assets 1,616,677 968,197
Property and Equipment, net of accumulated depreciation 7,008 7,746
of $23,727 and $22,989
Investment in Camino (Software) 502,372 502,372
OTHER ASSETS
Patents, net of accumulated amortization 389,016 414,951
of $344,738 and $318,803
Deposits 11,280 11,280
---------- ----------
Total other assets 400,296 426,231
Total assets $2,526,353 $1,904,546
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1999 and September 30, 1999
<TABLE>
<CAPTION>
Unaudited Audited
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long term debt $ 80,216 $ 114,607
Trade accounts payable 436,292 462,722
Accrued liabilities 68,720 271,516
----------- -----------
Total current liabilities 585,228 848,845
Long term debt 562,488 500,000
----------- -----------
Total liabilities 1,147,716 1,348,845
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized 10,000,000 shares;
issued and outstanding 5,704,556 shares 8,626,430 8,626,430
Accumulated deficit (7,247,793) (8,070,729)
----------- -----------
Total shareholders' equity 1,378,637 555,701
Total liabilities and shareholders' equity $ 2,526,353 $ 1,904,546
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
December 31,
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1999 1998
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<S> <C> <C>
SALES $ 366,529 $ 623,238
COST OF SALES 129,992 248,683
----------- -----------
GROSS PROFIT 236,537 374,555
OPERATING EXPENSES
Sales and administrative 326,929 183,150
Depreciation and amortization 26,767 18,028
----------- -----------
Total operating expenses 353,696 201,178
Operating income (117,159) 173,377
OTHER INCOME (expense)
Interest income -- 37
Interest expense (9,905) (13,230)
Legal Settlement 950,000 --
----------- -----------
Total other income (expense) 940,095 (13,193)
Earnings from continuing operations 704,340 160,184
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations 118,596 --
----------- -----------
Net Income $ 822,936 $ 160,184
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 5,704,556 5,236,556
----------- -----------
Net income per common share $ 0.14 $ 0.03
=========== ===========
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
December 31,
------------------------
1999 1998
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<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 822,936 $ 160,184
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 26,673 3,028
Changes in operating assets and liabilities:
Accounts receivable (144,762) 144,309
Inventories -- --
Prepaid expenses and other receivables -- --
Deposits and other -- --
Accounts payable and accrued expenses (157,811) 3,861
Deferred revenue -- --
Income taxes payable and deferred (8,926) (1,750)
Insurance Settlement -- --
Settlement with unsecured creditors -- --
--------- ---------
Net cash provided by (used in) operating activities 538,110 309,632
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of assets -- --
--------- ---------
Net cash provided by (used in) investing activities -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of short-term and long-term
obligations (Pre-payment bank notes) (34,391) (666,263)
--------- ---------
Net cash provided by (used in) financing activities (34,391) (666,263)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 503,719 (356,631)
CASH AND CASH EQUIVALENTS, beginning of period 464,311 522,060
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 968,030 $ 165,429
========= =========
Supplemental cash flow information
The Company received $950,000 from Legal Settlement During the Period
</TABLE>
See accompanying note to Condensed Consolidated Financial Statements
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INTERSCIENCE COMPUTER CORPORATION AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
The accompanying condensed consolidated financial statements of
Interscience Computer Corporation (the "Company") have been prepared without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-KSB. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the financial
position of the Company as of December 31, 1999, and the statements of its
operations and its cash flows for the three month periods ended December 31,
1999 and 1998 have been included. The results of operations for interim periods
are not necessarily indicative of the results which may be realized for the full
year.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. These interim
financial statements for the period ended December 31, 1999, reflect continuing
operations; discontinued or sold subsidiaries have been included on a separate
line item.
SUBSEQUENT EVENTS
In December 1999, the Company reached settlement with OCE GmbH and OCE
Printing Systems, USA Inc., resolving all disputes. 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.
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 exclusive right
to use the Company's U.S. Fusing Agent Patent number 5,333,042.
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Management's Discussion and Analysis
and Plan of Operation." Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's analysis only as of
the date hereof. Interscience Computer Corporation undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Readers should carefully review
the risks described in other documents the Company files from time to time with
the Securities and Exchange Commission, including the Annual Report on Form
10-KSB for the fiscal year ended September 30, 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
The Company was organized in 1983 to be a third-party provider of
maintenance services for computer hardware and related peripheral equipment.
Unless otherwise specified herein, all references to the "Company" shall mean
Interscience Computer Corporation. The Company's principal executive offices are
currently located in Westlake Village, California.
On March 6, 1997, the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The bankruptcy filing was caused by several factors. The
Company had made four acquisitions, and the cash flow of the Company was not
sufficient to pay the operating expenses and the substantial debts assumed as
part of the acquisitions. In addition, the Company was incurring substantial
legal expense from six lawsuits which were then pending against the Company.
On April 20, 1998, the Company's First Amended Plan of Reorganization (the
"Plan"), was confirmed. As a result, the Company was revested with all of its
assets. The Plan terms control all claims and equity interests which existed as
of March 6, 1997, the date when the Company filed its Chapter 11 reorganization
case. Distributions to approved creditors, as required under the Plan, have been
made. All claim objections have been resolved, and the Bankruptcy Court approved
settlement of the outstanding claims. On December 16, 1998, the Bankruptcy Court
issued a final decree formally closing the bankruptcy proceedings.
The Company is the assignee of the entire right, title and interest in and
to U.S. Patent Number 5,333,042 (the "Patent") directed to a method for using
fusing agent in cold fusion laser printers. The Company has been involved in a
dispute with OCE Printing Systems GmbH ("OCE GmbH") regarding ownership of the
Patent.
In December 1999, the Company, OCE GmbH and OCE Printing Systems, USA Inc.
reached a settlement resolving all disputes regarding the 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 OCE and both sides have released all claims against each other.
The Company has retained all rights against
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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 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 companies 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.
RESULTS OF OPERATIONS
The Three Month Periods Ended December 31, 1999 and December 31, 1998.
Sales for the current quarter decreased by $256,709 or 41% compared to
sales for the fiscal quarter ended December 31, 1998. The decrease was
attributable to the final payment from the sale of the Xerox maintenance
business during the comparable quarter last year and a decline in parts and
equipment sales during the current quarter of approximately $100,000 as compared
to the quarter ended December 31, 1998. During the current quarter, sales of
fusing agent accounted for approximately 71% of the total revenue while sales of
the Highway Server software accounted for approximately $88,000 or 24%, with the
remaining sales coming from parts and equipment sales. Although the revenue for
the current quarter decreased, the gross profit as a percentage of sales
increased during the current quarter to 65% as compared to 60% in the comparable
quarter in 1998. The increased gross profit percentage is attributable to the
higher margins associated with product and consumable sales and sale of the
highway server software. During the current quarter, sales of Fusing Agent
constituted approximately 71% of total revenues compared to 68% for the
comparable quarter in 1998.
Cost of sales decreased by $118,691 or 48% during the current fiscal
quarter from the comparable quarter in 1998, again as a result of the sale of
the maintenance service business and reduction of the related costs. Cost of
sales as a percentage of sales decreased from 40% in 1998 to 35% for the
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comparable three month period in 1999. The reduction is related to sale of the
maintenance business eliminating the related parts and labor costs and to sales
of higher margin consumable and software sales.
Selling and administrative expenses increased by approximately $144,000 or
79% during the current three month period as compared 1998. This increase was
due to the addition of the Camino software business and associated expenses.
Selling and administrative expenses relating to Camino for the current quarter
were approximately $154,000 or 47% of the total selling and administrative
expense. Advertising expense of approximately $41,000 represented approximately
27% of the total Camino related expense. Depreciation and amortization increased
by approximately $8,700 from the comparable quarter in 1998 resulting from
reduced amortization period for the Company's fusing agent patent.
Net interest expense decreased by $3,325 from the three month period ending
in 1998, and increased from 2% to 3% as a percentage of sales. The interest
expense increase came about as a result of the interest associated with $500,000
thirteen month loan from Renaissance Capital Group at 8% annual interest. As of
the date of this filing all other notes have been paid in full.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by approximately $504,000 from $464,311
for the period ended September 30, 1999, to $968,030 for the current quarter.
The Company has paid in full the principal balance on notes payable to Sanwa and
Horizon banks. 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.
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PART II
OTHER INFORMATION
Item 3. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERSCIENCE COMPUTER CORPORATION
Date: February 10, 2000 /s/ Walter Kornbluh
--------------------------------------
Walter Kornbluh, Chairman of the Board,
President and Chief Executive Officer
/s/ Stephen Crosson
--------------------------------------
Stephen Crosson, Vice President of
Operations and Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 968,030
<SECURITIES> 0
<RECEIVABLES> 243,892
<ALLOWANCES> 53,687
<INVENTORY> 208,442
<CURRENT-ASSETS> 1,616,677
<PP&E> 30,735
<DEPRECIATION> 23,727
<TOTAL-ASSETS> 2,526,353
<CURRENT-LIABILITIES> 585,228
<BONDS> 0
0
0
<COMMON> 8,626,430
<OTHER-SE> 7,247,793
<TOTAL-LIABILITY-AND-EQUITY> 2,526,353
<SALES> 366,529
<TOTAL-REVENUES> 366,529
<CGS> 129,992
<TOTAL-COSTS> 129,992
<OTHER-EXPENSES> 353,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,905
<INCOME-PRETAX> 822,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 704,340
<DISCONTINUED> 118,596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822,936
<EPS-BASIC> 0
<EPS-DILUTED> .14
</TABLE>
