SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report: (Date of earliest event reported):
November 10, 2003 (September 30, 2003)
I-SECTOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-21479 76-0515249
(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
6401 SOUTHWEST FREEWAY
HOUSTON, TEXAS 77074
(Address of Registrant's principal executive offices)
(713) 795-2000
(Registrant's telephone number, including area code)
(NOT APPLICABLE)
(Former name or former address, if changed since last report)
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following comments on earnings for the quarter ended September 30, 2003 was
released on November 10, 2003:
I-SECTOR REPORTS ITS THIRD QUARTER RESULTS
HOUSTON--(BUSINESS WIRE)--Nov. 10, 2003--I-Sector Corporation (Nasdaq: ISEC -
news), announced today its results for its third quarter ended September 30,
2003.
FINANCIAL RESULTS
For the company's third quarter ended September 30, 2003:
o Revenue from continuing operations increased 81% to $21.0
million compared to $11.6 million for the corresponding prior
year period.
o Net profit for the quarter improved to a profit of $194,000
from a loss of $290,000 for the corresponding prior year
period.
o Basic earnings per share was a profit of $0.05 for the quarter
compared to a loss of $0.08 for the corresponding prior year
period.
o Fully diluted earnings per share was a profit of $0.04 for the
quarter compared to a loss of $0.08 for the corresponding
prior year period.
Commenting on the results for the second quarter, James H. Long, President and
CEO of the company stated, "We are very pleased with the substantial
year-over-year and sequential improvement in our results. Demand was better than
we had expected, with particularly strong customer demand in our Internetwork
Experts subsidiary as well as our Stratasoft subsidiary. 81% growth in revenue,
along with an improvement in gross margin, allowed us to record a 106% increase
in gross profit, enabling us to post our first quarterly profit since selling
off major divisions of the company and restructuring in 2000. We are very
pleased with this exceptional performance and pleased to be able to report that
we attained profitability earlier than we had anticipated. We were particularly
pleased with the substantial growth recorded by our Internetwork Experts
subsidiary, which posted over 100% year-over-year growth in revenue, with
services revenues growing over 150%, raising gross margin and driving 164%
improvement in gross profit. Our Stratasoft subsidiary, which posted over 38%
revenue growth, also recorded improved gross margin, which helped drive 75%
growth in gross profit. This was truly an exceptional quarter, and I want to
take this opportunity to publicly thank our employees, whose competence and
diligence made these outstanding results possible. The investments we've made in
our business have positioned us well to take advantage of improving market
conditions, and we are excited about our prospects for the future, including how
we are positioned to benefit from what we see is a rapidly improving market for
IP Telephony and Voice over IP technology."
STATUS OF SEC REVIEW OF FILINGS
On August 15, 2003, I-Sector reported that the Securities and Exchange
Commission was conducting a routine review by the SEC of its Form 10-K for the
year ended December 31, 2002 and its Form 10-Q for the quarter ended March 31,
2003. In October the SEC concluded its review and there was minimal effect on
our financial reporting.
OUTLOOK
The following statements are made by the company and are based upon current
expectations. These statements are forward-looking, and actual results may
differ materially. The weakness in general economic conditions and the slowdown
in corporate information technology spending experienced during
the past three years has made firm forecasting of future financial performance
more difficult than would otherwise be possible and the visibility for many
public technology companies is somewhat limited at this time as compared to the
past.
o Our strategy is to produce rapid growth of our subsidiary
companies, both through internally generated growth and
possibly through selective acquisitions.
o While our third quarter was exceptionally strong, our outlook
for the near-term future quarters remains approximately the
same as provided in our previous outlook update made on August
20, 2003.
o We expect revenue for our fourth quarter ending December 31,
2003 of approximately $17 million to $18 million, an
improvement of approximately 55% to 65% as compared to the
year earlier period, even though such levels of revenue would
be down somewhat as compared to the exceptionally strong third
quarter.
o We expect to post a net profit of approximately $75,000 to
$125,000 for the fourth quarter ending December 31, 2003 as
compared to a loss of $604,000 in the year earlier period,
even though such profitability would be down sequentially as
compared to the exceptionally strong third quarter.
o For our forth quarter ending December 31, 2003 we expect the
fully-diluted number of shares outstanding to be approximately
4 million, and the per share net profit to be approximately
$0.02 to $0.03 per share.
o Providing an outlook for any period further out than the
near-term quarter is more challenging and is subject to a
lesser degree of accuracy than our near-term outlook and an
attempt by us to predict results for periods further in the
future than the near-term quarter is subject to numerous risks
and uncertainties. We caution readers to consider this fact,
and to pay particular attention to the statements made in the
Safe Harbor Statement below. Based upon our current view of
market conditions, input received by us from our customers,
our expected sales and marketing efforts and our expected
expense structure, our current expectations for our first
quarter ending March 31, 2004 are for revenue of approximately
$18 million to $20 million with net profitability ranging from
approximately $100,000 to $200,000. Looking further out, we
currently expect revenue for our second quarter ending June
30, 2004, to be roughly in the range of approximately $19
million to $21 million, with net profitability ranging from
approximately $100,000 to $250,000.
o The forecasts set forth above are for the current organization
and do not include the effect of any future acquisitions. In
addition to internally generated growth, we anticipate
possibly making selective acquisitions during the next twelve
months and beyond that we expect will, if consummated, add
additional revenue. There is no guarantee that any other
suitable acquisitions will be identified or that any other
transactions will be consummated.
Regarding the company's outlook for the future, James H. Long, President and CEO
of the company stated, "While the third quarter results were better than had
been expected, the revenue production was exceptionally strong, and therefore,
while we anticipate substantial year-over-year improvement in the forth quarter
as per our previous forecast, we do not anticipate sequential improvement in the
fourth quarter as compared to the exceptional results of the third quarter."
SAFE HARBOR STATEMENT
The statements contained in this document that are not statements of historical
fact, including particularly the statements made in the Outlook section,
including but not limited to, statements identified by the use
of terms such as "anticipate," "appear," "believe," "could," "estimate,"
"expect," "hope," "indicate," "intend," "likely," "may," "might," "plan,"
"potential," "project," "seek," "should," "will," "would," and other variations
or negative expressions of these terms, are "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 and involve
a number of risks and uncertainties. The actual results of the future events
described in the forward-looking statements in this document could differ
materially from those stated in the forward-looking statements due to numerous
factors including:
o Market and economic conditions
o Risks associated with entry into new markets
o The company's ability to attract and retain key management,
sales and technical staff
o The company's ability to identify suitable acquisition
candidates and successfully integrate acquired companies
o The estimated needs of customers as conveyed to the company
and the nature and volume of products and services anticipated
to be delivered
o The Company's ability to obtain sufficient volumes of products
for resale
o The Company's ability to finance continued growth
o Unexpected losses related customer credit risk
o Unforeseen costs and results related to acquiring and
integrating new businesses
o Catastrophic events
o Uncertainties related to rapid changes in the information
technology industry
o Other risks and uncertainties set forth from time to time in
I-Sector's public statements and its most recent annual
report on Form 10K and other public reports and filings
Recipients of this document are cautioned to consider these risks and
uncertainties and to not place undue reliance on these forward-looking
statements.
The company expressly disclaims any obligation or undertaking to update or
revise any forward-looking statement contained herein to reflect any change in
the company's expectations with regard thereto or any change in events,
conditions or circumstances upon which any statement is based.
ABOUT I-SECTOR CORPORATION
I-Sector Corporation, headquartered in Houston, Texas, owns and operates
companies that are primarily engaged in the area of information technology.
Additional information about I-Sector is available on the Internet at
www.I-Sector.com.
Company Contact:
James H. Long
President and Chief Executive Officer
(713) 795-2000
Investor Relations Contact:
PR Financial Marketing LLC.
Jim Blackman, President
(713) 256-0369
jimblackman@prfinancialmarketing.com
I-SECTOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<Table>
<Caption>
September 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,954 $ 3,491
Accounts receivable-trade, net of allowance of
$1,965 and $2,153 10,951 6,525
Accounts receivable - affiliates 38 99
Accounts receivable - other 30 57
Notes receivable 655 898
Inventory 1,543 781
Cost and estimated earnings in excess of billings 1,370 709
Income taxes receivable -- 488
Other current assets 465 356
------------ ------------
Total current assets 17,006 13,404
Property and equipment, net 1,221 1,115
Patent licenses, net of amortization of $236 and $148 879 955
Other intangible assets, net of amortization of $546 and $356 487 207
Other assets 232 70
------------ ------------
Total $ 19,825 $ 15,751
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 525 $ 157
Accounts payable 8,801 4,844
Billings in excess of cost and estimated earnings 105 75
Accrued expenses 3,157 1,803
Net liabilities related to discontinued operations 600 904
Deferred revenue 157 81
------------ ------------
Total current liabilities 13,345 7,864
Long term debt, net of current maturities 203 247
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, no shares issued
Common stock, $.01 par value, 15,000,000 shares authorized,
4,518,955 and 4,441,325 shares issued at
September 30, 2003 and December 31, 2002 45 44
Additional paid-in capital 10,473 10,379
Deferred compensation 78 --
Treasury stock, 811,800 shares, at cost (1,373) (1,373)
Retained deficit (2,946) (1,410)
------------ ------------
Total stockholders' equity 6,277 7,640
------------ ------------
Total $ 19,825 $ 15,751
============ ============
</Table>
I-SECTOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Three Months Ended September 30,
------------------------------
2003 2002
------------ ------------
Revenues:
Products $ 16,302 $ 8,326
Services 2,264 1,538
Custom projects 2,415 1,743
------------ ------------
Total revenues 20,981 11,607
------------ ------------
Cost of sales and services:
Products 14,066 7,435
Services 1,396 1,064
Custom projects 728 781
------------ ------------
Total cost of sales and services 16,190 9,280
------------ ------------
Gross profit 4,791 2,327
Selling, general and administrative expenses 4,621 2,619
------------ ------------
Operating income (loss) 170 (292)
Interest and other income (expense) (11) 3
------------ ------------
Income (loss) from continuing operations before
benefit for income taxes 159 (289)
Benefit for income taxes (12) --
------------ ------------
Net income (loss) from continuing operations 171 (289)
Discontinued operations:
Gain (loss) on disposal of discontinued operations,
net of taxes 23 (1)
------------ ------------
Net income (loss) $ 194 $ (290)
============ ============
Net income (loss) per share:
Basic:
Net income (loss) from continuing operations $ 0.04 $ (0.08)
Gain on disposal of discontinued operations,
net of taxes 0.01 0.00
------------ ------------
Net income (loss) per share $ 0.05 $ (0.08)
============ ============
Diluted:
Net income (loss) from continuing operations $ 0.03 $ (0.08)
Gain on disposal of discontinued operations,
net of taxes 0.01 0.00
------------ ------------
Net income (loss) per share $ 0.04 $ (0.08)
============ ============
Shares used in computing net income (loss) per share:
Basic 3,703,206 3,629,525
============ ============
Diluted 3,974,298 3,629,525
============ ============
</Table>
I-SECTOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
<Table>
<Caption>
Nine Months Ended September 30,
------------------------------
2003 2002
------------ ------------
Revenues:
Products $ 35,655 $ 21,284
Services 5,282 4,220
Custom projects 5,995 5,571
------------ ------------
Total revenue 46,932 31,075
Cost of sales and services:
Products 31,181 18,964
Services 3,852 3,355
Custom projects 2,104 2,488
------------ ------------
Total cost of sales and services 37,137 24,807
------------ ------------
Gross profit 9,795 6,268
Selling, general and administrative expenses 11,556 7,255
------------ ------------
Operating loss (1,761) (987)
Interest and other income 93 1
------------ ------------
Loss from continuing operations before
benefit for income taxes (1,668) (986)
Benefit for income taxes (93) (1,189)
------------ ------------
Net (loss) income from continuing operations (1,575) 203
Discontinued operations:
Gain on disposal of discontinued operations, net of taxes 39 17
------------ ------------
Net (loss) income $ (1,536) $ 220
============ ============
Net (loss) income per share:
Basic:
Net (loss) income from continuing operations $ (0.43) $ 0.05
Gain on disposal of discontinued operations,
net of taxes 0.01 0.01
------------ ------------
Net (loss) income per share $ (0.42) $ 0.06
============ ============
Diluted:
Net (loss) income from continuing operations $ (0.43) $ 0.05
Gain on disposal of discontinued operations,
net of taxes 0.01 0.01
------------ ------------
Net (loss) income per share $ (0.42) $ 0.06
============ ============
Shares used in computing net income (loss) per share:
Basic 3,643,346 3,736,704
============ ============
Diluted 3,643,346 3,783,345
============ ============
</Table>
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002
The following table sets forth, for the periods indicated, certain
financial data derived from our unaudited consolidated statements of operations
for the three months ended September 30, 2003 and 2002. The discussion below
relates only to our continuing operations, unless otherwise noted.
<Table>
<Caption>
Three months ended September 30,
------------------------------------------------------------------
2003 2002
------------------------------ ------------------------------
Amount % Amount %
------------ ------------ ------------ ------------
Revenues:
INX $ 17,346 82.7 $ 8,584 74.0
Stratasoft 2,415 11.5 1,743 15.0
Valerent 1,392 6.6 1,291 11.1
Eliminations (172) (0.8) (11) (0.1)
------------ ------------ ------------ ------------
Total revenue 20,981 100.0 11,607 100.0
Gross profit:
INX 2,793 16.1 1,057 12.3
Stratasoft 1,687 69.9 962 55.2
Valerent 312 22.4 308 23.9
Eliminations (1) 0.0 0 0.0
------------ ------------ ------------ ------------
Total gross profit 4,791 22.8 2,327 20.0
Selling, general and administrative expenses:
INX 2,126 12.3 966 11.3
Stratasoft 1,754 72.6 914 52.4
Valerent 455 32.7 569 44.1
Corporate 287 N/A 170 N/A
Eliminations (1) 0.0 0 0.0
------------ ------------ ------------ ------------
Total selling, general and administrative
expenses 4,621 22.0 2,619 22.6
Operating income (loss):
INX 667 3.8 91 1.1
Stratasoft (67) (27.7) 48 2.8
Valerent (143) (10.3) (261) (20.2)
Corporate (287) N/A (170) N/A
------------ ------------ ------------ ------------
Total operating income (loss) 170 0.8 (292) (2.5)
Interest and other income (expense) (11) (0.0) 3 (0.0)
------------ ------------ ------------ ------------
Income (loss) before benefit for income taxes 159 0.8 (289) (2.5)
Benefit for income taxes (12) (0.0) 0.0
------------ ------------ ------------ ------------
Net income (loss) from continuing operations 171 0.8 (289) (2.5)
Discontinued operations:
Gain on disposal 23 0.1 (1) (0.0)
------------ ------------ ------------ ------------
Net income (loss) $ 194 0.9 $ (290) (2.5)
============ ============ ============ ============
Net income (loss) per share:
Basic:
Net income (loss) from continuing operations $ 0.04 $ (0.08)
Gain on disposal of discontinued operations
Net of taxes 0.01 0.00
------------ ------------
Net income (loss) per share $ 0.05 $ (0.08)
============ ============
Diluted:
Net income (loss) from continuing operations $ 0.03 $ (0.08)
Gain on disposal of discontinued operations
Net of taxes 0.01 0.00
------------ ------------
Net income (loss) per share $ 0.04 $ (0.08)
============ ============
</Table>
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
The following table sets forth, for the periods indicated, certain
financial data derived from our unaudited consolidated statements of operations
for the nine months ended September 30, 2003 and 2002. The discussion below
relates only to our continuing operations, unless otherwise noted.
<Table>
<Caption>
Nine months ended September 30,
------------------------------------------------------------------
2003 2002
------------------------------ ------------------------------
Amount % Amount %
------------ ------------ ------------ ------------
Revenue
INX $ 37,520 79.9 $ 21,727 69.9
Stratasoft 5,995 12.8 5,571 17.9
Valerent 3,781 8.1 3,983 12.8
Eliminations (364) (0.8) (206) (0.6)
------------ ------------ ------------ ------------
Total revenue 46,932 100.0 31,075 100.0
Gross profit:
INX 5,004 13.3 2,249 10.4
Stratasoft 3,891 64.9 3,083 55.3
Valerent 902 23.9 936 23.5
Eliminations (2) 0.0 0 0.0
------------ ------------ ------------ ------------
Total gross profit 9,795 20.9 6,268 20.2
Selling, general and administrative expenses:
INX 4,518 12.0 2,446 11.3
Stratasoft 4,694 78.3 2,600 46.7
Valerent 1,551 41.0 1,723 43.3
Corporate 795 N/A 486 N/A
Eliminations (2) 0.0 0 0.0
------------ ------------ ------------ ------------
Total selling, general and administrative
Expenses 11,556 24.6 7,255 23.3
Operating (loss) income:
INX 486 1.3 (197) (0.9)
Stratasoft (803) (13.4) 483 8.7
Valerent (649) (17.2) (787) (19.8)
Corporate (795) N/A (486) N/A
------------ ------------ ------------ ------------
Total operating loss (1,761) (3.8) (987) (3.2)
Interest and other income 93 0.2 1 (0.0)
------------ ------------ ------------ ------------
Loss before benefit for income taxes (1,668) (3.6) (986) (3.2)
Benefit for income taxes (93) (0.2) (1,189) (3.8)
------------ ------------ ------------ ------------
Net (loss) income from continuing operations (1,575) (3.4) 203 0.6
Discontinued operations:
Gain on disposal 39 0.1 17 0.1
------------ ------------ ------------ ------------
Net (loss) income $ (1,536) (3.3) $ 220 0.7
============ ============ ============ ============
Net (loss) income per share:
Basic:
Net (loss) income from continuing operations $ (0.43) $ 0.05
Gain on disposal of discontinued operations,
Net of taxes 0.01 0.01
------------ ------------
Net (loss) income per share $ (0.42) $ 0.06
============ ============
Diluted:
Net (loss) income from continuing operations $ (0.43) $ 0.05
Gain on disposal of discontinued operations,
Net of taxes 0.01 0.01
------------ ------------
Net (loss) income per share $ (0.42) $ 0.06
============ ============
</Table>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 12, 2003
I-SECTOR CORPORATION
By: /s/ JAMES H. LONG
--------------------------------
James H. Long
Chief Executive Officer, Chief Financial
Officer, President and
Chairman of the Board