1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-27900
ISOCOR(R)
(Exact name of Registrant as specified in its charter)
California 95-4310259
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
3420 Ocean Park Blvd., Santa Monica, CA 90405
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (310) 581-8100
Indicate by check mark whether the registrant (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 [ ]
9,463,090 shares of Common Stock of the Registrant were outstanding as of September 30, 1997
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ISOCOR
INDEX TO FORM 10-Q
Page
----
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997
and December 31, 1996..................................................... 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 1997 and 1996......................................... 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996.................................. 5
Notes to Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk........... 13
Part II Other Information
Item 2. Change in Securities and Use of Proceeds..............................14
Item 6. Exhibits and Reports on Form 8-K..................................... 14
Signature........................................................................ 15
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ISOCOR
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
September 30, December 31,
1997 1996
------------- -------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,322 $ 13,374
Marketable securities 10,693 11,739
Trade accounts receivable
Customer, net 8,711 11,160
Related party 72 74
Other current assets 1,862 1,618
------------- -------------
Total current assets 31,660 37,965
Property and equipment, net 2,658 2,990
Other assets 287 343
------------- -------------
Total assets $ 34,605 $ 41,298
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 933 $ 819
Other accrued expenses 2,937 3,677
Deferred revenues 3,352 2,730
Product development obligation 76 380
Other current liabilities 230 301
------------- -------------
Total current liabilities 7,528 7,907
Other long-term liabilities 144 187
------------- -------------
Total liabilities 7,672 8,094
Commitments and contingencies
Shareholders' equity:
Common stock, authorized 50,000,000 shares,
issued and outstanding 9,463,090 and 9,315,241 shares at
September 30, 1997 and December 31, 1996, respectively 39,258 39,047
Notes receivable from shareholders (26) (26)
Accumulated deficit (12,121) (5,680)
Deferred compensation (149) (205)
Cumulative foreign currency translation adjustment (29) 68
------------- -------------
Total shareholders' equity 26,933 33,204
------------- -------------
Total liabilities and shareholders' equity $ 34,605 $ 41,298
============= =============
The accompanying notes are an integral part of these consolidated financial statements
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ISOCOR
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Products:
Customer $ 4,464 $ 5,185 $ 10,851 $ 15,310
Related parties 91 28 95 459
Services:
Customer 1,618 1,175 4,404 3,545
Related parties 14 25 26 74
-------- -------- -------- --------
Total revenues 6,187 6,413 15,376 19,388
Cost of revenues:
Products 808 517 1,743 2,066
Services 753 601 2,026 1,757
-------- -------- -------- --------
Total cost of revenues 1,561 1,118 3,769 3,823
-------- -------- -------- --------
Gross profit 4,626 5,295 11,607 15,565
-------- -------- -------- --------
Operating expenses:
Engineering 2,017 2,318 6,244 6,689
Sales and marketing 3,168 2,261 10,556 7,167
Administration 714 634 2,282 1,889
Agency grants 0 (117) (69) (373)
-------- -------- -------- --------
Total operating expenses 5,899 5,096 19,013 15,372
-------- -------- -------- --------
Income (loss) from operations (1,273) 199 (7,406) 193
Acquisition costs 0 182 0 182
(Income) loss from currency fluctuations 23 (15) (93) 49
Interest income (285) (326) (893) (687)
-------- -------- -------- --------
Income (loss) before income taxes (1,011) 358 (6,420) 649
Provision for income taxes 3 95 22 375
-------- -------- -------- --------
Income (loss) before minority interest (1,014) 263 (6,442) 274
Minority interest 0 (26) 0 0
-------- -------- -------- --------
Net Income (loss) ($ 1,014) $ 289 ($ 6,442) $ 274
======== ======== ======== ========
Net income (loss) per share $ (0.11) $ 0.03 $ (0.69) $ 0.03
======== ======== ======== ========
Shares used in per share calculation 9,429 10,452 9,405 7,947
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements
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ISOCOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Nine Months Ended September 30
-------------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net (loss) income ($6,442) $ 274
Adjustments to reconcile net loss to net
Cash provided (used) by operating activities:
Provision for doubtful accounts, returns and price protection 457 586
Depreciation and amortization 1,018 975
Amortization of deferred compensation 56 56
Deferred rent (26) (16)
(Increase) / decrease in:
Accounts receivable 1,045 (1,894)
Other current assets (388) (157)
Other assets (10) (15)
Increase / (decrease) in:
Accounts payable 11 (286)
Other accrued expenses (92) 635
Deferred revenues 843 806
Other current liabilities (221) 94
Product development obligation (304) (216)
Long-term liabilities (7) (78)
------------ ------------
Net cash (used) provided by operating activities (4,060) 764
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (859) (1,458)
Purchase of marketable securities 1,046 (12,474)
Sale of minority interest in non-consolidated subsidiary 0 547
------------ ------------
Net cash provided (used) by investing activities 187 (13,385)
------------ ------------
Cash flows from financing activities:
Proceeds from the sale of stock, net 211 20,153
------------ ------------
Net cash provided by financing activities 211 20,153
------------ ------------
Effect of exchange rate changes on cash 610 (95)
------------ ------------
Net (decrease) increase in cash (3,052) 7,437
Cash and cash equivalents, beginning of period 13,374 5,880
------------ ------------
Cash and cash equivalents, end of period $ 10,322 $ 13,317
============ ============
The accompanying notes are an integral part of these consolidated financial statements
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ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by ISOCOR
(the "Company"), pursuant to the regulations of the U.S. Securities and Exchange
Commission. In the opinion of management, the financial statements include all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the consolidated financial position at September 30, 1997, the
consolidated results of operations for the three and nine month periods ended
September 30, 1997 and 1996, and the consolidated cash flows for the nine month
periods ended September 30, 1997 and 1996. These interim statements do not
include all of the disclosures required by generally accepted accounting
principles for annual statements.
The statements of operations and cash flows for the 1997 interim periods are not
necessarily indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction with the
financial statements included in the Company's Annual Report on Form 10-K, as of
December 31, 1996, as filed with the Securities and Exchange Commission.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash, cash equivalents and accounts
receivable. The Company's accounts receivable are derived from sales directly to
customers and indirectly through resellers, systems integrators and OEMs. The
Company performs ongoing credit evaluations of its customers before granting
uncollateralized credit and to date has not experienced any unusual
credit-related losses. Cash equivalents are managed by major investment firms in
accordance with the Company's investment policy. At September 30, 1997, the
Company held balances in U.S. banks of approximately $135,000 which exceeded
federally insured limits.
Statement of Financial Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." This
statement requires dual presentation of newly defined basic and diluted earnings
per share ("EPS") on the face of the income statement for all entities with
complex capital structures. The accounting standard is effective for both
interim and annual periods ending after December 15, 1997 and requires
restatement of all prior period EPS data presented. Earlier application is not
permitted. The Company is currently evaluating the requirements of SFAS No. 128.
On June 30, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Comprehensive Income." This statement establishes standards for the reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. This accounting standards is effective for fiscal
years beginning after December 15, 1997 and requires restatement of earlier
periods presented. The Company is currently evaluating the requirements of SFAS
No. 130.
On June 30, 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented. Management is currently evaluating the requirements
of SFAS No. 131.
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ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
2. MARKETABLE SECURITIES
At September 30, 1997, the Company held the following positions (dollars in
thousands):
September 30, 1997
------------------
Corporate notes........................... $10,198
U.S. Government obligations............... 495
-------
$10,693
=======
3. ACCOUNTS RECEIVABLE
Customer trade accounts receivable, net of allowances as of September 30, 1997
and December 31, 1996, were (dollars in thousands):
September 30, 1997 December 31, 1996
------------------ -----------------
Accounts receivable............................... $ 10,683 $12,807
Less: Allowance for doubtful accounts, returns and
price protection..................................
(1,972) (1,647)
-------- -------
$ 8,711 $11,160
======== =======
4. OTHER ACCRUED EXPENSES
Other accrued expenses include (dollars in thousands):
September 30, 1997 December 31, 1996
------------------ -----------------
Salaries and related expenses............. $1,187 $1,196
Commissions............................... 385 440
Royalties................................. 179 556
Other..................................... 1,186 1,485
------ ------
$2,937 $3,677
====== ======
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ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
5. INCOME TAXES
The source of income (loss) before income taxes for the three and nine months
ended September 30, 1997 and 1996 is as follows (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
United States....... $ (48) $(420) $(1,891) $(1,389)
Foreign............. (963) 778 (4,529) 2,038
------------- ------------- ------------- -------------
Income (loss)
before income taxes
and minority
interest............ $(1,011) $358 $(6,420) $649
------------- ------------- ------------- -------------
On an interim basis, the Company provides for income taxes using its estimated
effective tax rate for the year for foreign and domestic source income. As of
September 30, 1997, no net operating loss carryforwards remain in foreign
jurisdictions. The taxes provided relate primarily to foreign source income.
6. PER SHARE INFORMATION
Net income (loss) per common share is computed using the weighted average number
of shares of Common Stock and common equivalent shares outstanding. Common
equivalent shares related to stock options are excluded from the computation
when their effect is antidilutive.
All of the 475,000 common shares of the Company issued to effect the business
combination with NetCS have been treated as outstanding for all periods
presented for the computation of the weighted average number of shares
outstanding as required for "pooling of interests" accounting treatment.
7. RELATED PARTY TRANSACTIONS
Included in revenues for the three months ended September 30, 1997 and 1996 was
approximately $14,000 and $26,000, respectively, relating to product sales to,
and software maintenance agreements with, an affiliate of a shareholder.
Revenues from this same affiliate for the nine months ended September 30, 1997
and 1996 were approximately $26,000 and $292,000, respectively. Included in
accounts receivable as of September 30, 1997 was approximately $27,000 relating
to this affiliate. Included in operating expenses for the three months ended
September 30, 1997 and 1996 were approximately $22,000 and $35,000,
respectively, relating to consulting services provided by this affiliate.
Operating expenses relating to this same affiliate for the nine months ended
September 30, 1997 and 1996 were approximately $135,000 and $109,000,
respectively. Included in accounts payable as of September 30, 1997 was
approximately $56,000 related to these consulting services.
Included in revenues for the three months ended September 30, 1997 and 1996 were
approximately $95,000 and $27,000, respectively, relating to software license
and maintenance agreements with a shareholder. Revenues from this same
shareholder for the nine months ended September 30, 1997 and 1996 were
approximately $94,000 and $241,000, respectively. Included in accounts
receivable as of September 30, 1997 was approximately $45,000 relating to this
affiliate.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The consolidated financial statements of the Company contained in this report
have been retroactively restated for all periods presented to include the
financial position, results of operations and cash flows of NetCS
Informationstechnik GmbH in accordance with the pooling of interests method of
accounting.
Except for the historical information contained in this Report on Form 10-Q, the
matters discussed herein are forward-looking statements that are subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected. Factors that could cause actual results to
differ materially include, but are not limited to, the introduction and market
acceptance of new products offered by the Company and its competitors, the
volume and timing of large transactions with customers, the level of product and
price competition, the Company's success in expanding its direct sales force and
indirect distribution channels, the risks related to international operations,
the effect of shifting standards and platforms for messaging products, and other
risks detailed below and discussed from time to time in the Company's other SEC
reports and press releases, copies of which are available from the Company upon
request. The Company assumes no obligation to update any forward-looking
statements contained herein.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Total revenues were $6,187,000 and $6,413,000 for the three
months ended September 30, 1997 and 1996, respectively, representing a 4%
decrease in 1997 over the same period one year ago. Revenues from domestic
sources accounted for approximately 29% and 27% of total revenues in the three
months ended September 30, 1997 and 1996, respectively, while the Company's
international revenues accounted for 71% and 73%, respectively, of the Company's
total revenues in the same periods. Within international revenues, revenues
outside of Europe accounted for approximately 21% and 4% of total revenues in
the three months ended September 30, 1997 and 1996, respectively. The increase
in the three months ended September 30, 1997 is largely due to increased
revenues in South America, which the Company does not view as an upward trend.
Product revenues were $4,555,000 and $5,213,000 for the three months
ended September 30, 1997 and 1996, respectively. The 13% decrease from 1996 to
1997 was mainly due to decreased volumes of, and declining prices for, the
Company's X.400 products, partially offset by increased volumes of the Company's
newer Internet/Intranet products. The decreased volumes of X.400 products sold
relate primarily to a continuing shift in market demand away from the Company's
X.400 product lines which the Company expects to continue.
Service revenues were $1,632,000 and $1,200,000 for the three months
ended September 30, 1997 and 1996, respectively. The 36% increase from 1996 to
1997 resulted primarily from increased software support and update service fees,
and to a lesser extent from increased custom engineering services.
Cost of Revenues. Cost of product revenues were $808,000 and $517,000
for the three months ended September 30, 1997 and 1996, respectively. The 56%
increase in cost of product revenues from the three months ended September 30,
1996 to the three months ended September 30, 1997 resulted primarily from a
$310,000 writedown of third-party prepaid royalties relating to a specific
product technology which the Company believes is non-strategic.
Cost of service revenues were $753,000 and $601,000 for the three months
ended September 30, 1997 and 1996, respectively. The 25% increase from 1996 to
1997 resulted primarily from higher personnel-related costs due to supporting
increased revenue levels of software support and update, and custom engineering
services.
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Gross Profit. Gross profit was $4,626,000 and $5,295,000 for the three
months ended September 30, 1997 and 1996, respectively, representing 75% and 83%
of revenues for those same periods, respectively.
Gross profit from product sales was $3,747,000 and $4,696,000 for the
three months ended September 30, 1997 and 1996, respectively, representing 82%
and 90% of product sales for those same periods, respectively. This percentage
decrease is primarily due to the impact of the writedown of third- party prepaid
royalties discussed above.
Gross profit from services was $879,000 and $599,000 for the three
months ended September 30, 1997 and 1996, respectively, representing 54% and 50%
of services revenues for those same periods, respectively.
Engineering. Engineering expenses were $2,017,000 and $2,318,000 for the
three months ended September 30, 1997 and 1996, respectively, representing 32.6%
and 36.1% of revenues for those same periods, respectively. The absolute
decrease in engineering expenses resulted principally from decreased expenses in
labor and consulting.
Sales and Marketing. Sales and marketing expenses were $3,168,000 and
$2,261,000 for the three months ended September 30, 1997 and 1996, respectively,
representing 51.2% and 35.3% of revenues for those same periods, respectively.
The increase in sales and marketing expenses resulted principally from
labor-related costs arising from increased levels of personnel and to a lesser
extent from marketing program expenses. Both increases resulted from an
intensified focus by the Company on sales and marketing efforts which the
Company expects to continue.
Administration. Administration expenses were $714,000 and $634,000 for
the three months ended September 30, 1997 and 1996, respectively, representing
11.5% and 9.9% of revenues for those same periods, respectively. The absolute
increase primarily resulted from increased labor expenses relating to the
additional personnel devoted to these activities.
Agency Grants. Agency grants have been received from two sources. Under
an incentive program designed to induce organizations to locate and conduct
business in Ireland, the Industrial Development Authority of Ireland makes
grants that are based predominately upon the number of new jobs created by the
Company there. The amount of grants in any given period will therefore vary
based upon the number of jobs created and the timing of receipt of grant aid
payments and will continue to fluctuate on a quarterly basis. The Company
currently expects the level of these grants to be insignificant in the
short-term. The Economic and Technological Finance Authority - Berlin makes
grants to promote research and development in small and medium-sized
German-owned companies located in Berlin. The grants are paid quarterly based
upon actual development costs, including salaries, and depend upon the work
being carried out in Berlin. As of August 31, 1996, the Company was no longer
eligible to receive these grants in Germany.
(Income) loss from currency fluctuations. (Income) loss from currency
fluctuations was $23,000 and $(15,000) for the three months ended September 30,
1997 and 1996, respectively. The fluctuation during these periods resulted from
changes in foreign currency exchange rates.
Interest income. Interest income was $285,000 for the three months ended
September 30, 1997 as compared with $326,000 in the same period in 1996. This
decline is largely due to the Company's lower cash and cash equivalent
balances during the three months ended September 30, 1997 versus
September 30, 1996. See Liquidity and Capital Resources.
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Provision for Income Taxes. The income tax provision was $3,000 on a
pre-tax loss of $1,011,000 for the three months ended September 30, 1997. For
the three months ended September 30, 1996, the income tax provision was $95,000
on pre-tax income of $358,000. The tax provisions resulted from taxes on the
Company's international operations.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues. Total revenues were $15,376,000 and $19,388,000 for the nine
months ended September 30, 1997 and 1996, respectively, representing a decrease
in 1997 of 21% over the same period one year ago. Revenues from domestic sources
accounted for approximately 28% and 23% of total revenues in the nine months
ended September 30, 1997 and 1996, respectively, while the Company's
international revenues accounted for 72% and 77%, respectively, of the Company's
total revenues in the same periods.
Product revenues were $10,946,000 and $15,769,000 for the nine months
ended September 30, 1997 and 1996, respectively. The 31% decrease from 1996 to
1997 was mainly due to decreased volumes of, and declining prices for, the
Company's X.400 products, partially offset by increased volumes in the Company's
newer Internet/Intranet products. The decreased volumes of X.400 products sold
relate primarily to a continuing shift in market demand away from the Company's
X.400 product lines which the Company expects to continue.
Service revenues were $4,430,000 and $3,619,000 for the nine months
ended September 30, 1997 and 1996, respectively. The 22.4% increase from 1996 to
1997 resulted primarily from increased software support and update service fees.
Cost of Revenues. Cost of product revenues were $1,743,000 and
$2,066,000 for the nine months ended September 30, 1997 and 1996, respectively.
The 16% decrease in cost of product revenues from the nine months ended
September 30, 1996 to the nine months ended September 30, 1997 resulted from a
decreased level of costs relating to hardware purchased from third-party vendors
as a result of decreased sales of these components, which the Company expects to
continue, offset by an increase in third-party royalties primarily relating to a
$310,000 writedown of third-party prepaid royalties relating to a specific
product technology which the Company believes is non-strategic.
Cost of service revenues were $2,026,000 and $1,757,000 for the nine
months ended September 30, 1997 and 1996, respectively. The 15% increase in cost
of service revenues from 1996 to 1997 resulted primarily from increased
personnel-related costs of providing software support and update, training and
installation, and custom engineering services.
Gross Profit. Gross profit was $11,607,000 and $15,565,000 for the nine
months ended September 30, 1997 and 1996, respectively, representing 75% and 80%
of revenues for those same periods.
Gross profit from product sales was $9,203,000 and $13,703,000 for the
nine months ended September 30, 1997 and 1996, respectively, representing 84.1%
and 86.9% of product sales for those same periods, respectively. This percentage
decrease is primarily due to the impact of the writedown of third-party prepaid
royalties discussed above.
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Gross profit from services was $2,404,000 and $1,862,000 for the nine
months ended September 30, 1997 and 1996, respectively, representing 54.3% and
51.5% of services revenues for those same periods, respectively. This
percentage increase is primarily due to reductions in the costs of providing
software support and upgrade services.
Engineering. Engineering expenses were $6,244,000 and $6,689,000 for the
nine months ended September 30, 1997 and 1996, respectively, representing 40.6%
and 34.5% of revenues for those same periods, respectively. The absolute
decrease in engineering expenses resulted principally from decreased expenses in
labor and consulting, while the increase in the percentage is driven by the
lower revenues in the nine months ended September 30, 1997.
Sales and Marketing. Sales and marketing expenses were $10,556,000 and
$7,167,000 for the nine months ended September 30, 1997 and 1996, respectively,
representing 69% and 37% of revenues for those same periods, respectively. The
increase in sales and marketing expenses resulted principally from labor-related
costs, increased levels of personnel and, to a lesser extent, from marketing
program expenses. Both increases resulted from an intensified focus by the
Company on sales and marketing efforts which the Company expects to continue.
The increase in sales and marketing expenses as a percentage of revenues is also
driven by the lower revenues in the nine months ended September 30, 1997.
Administration. Administration expenses were $2,282,000 and $1,889,000
for the nine months ended September 30, 1997 and 1996, respectively,
representing 14.8% and 9.7% of revenues for those same periods, respectively.
The absolute increase primarily resulted from increased labor expenses and
additional personnel devoted to these activities. The increase in administation
expenses as a percentage of revenues is also driven by the lower revenues in the
nine months ended September 30, 1997.
Agency Grants. Agency grants have been received from two sources. Under
an incentive program designed to induce organizations to locate and conduct
business in Ireland, the Industrial Development Authority of Ireland makes
grants that are based predominately upon the number of new jobs created by the
Company there. The amount of grants in any given period will therefore vary
based upon the number of jobs created and the timing of receipt of grant aid
payments and will continue to fluctuate on a quarterly basis. The Company
currently expects the level of these grants to be insignificant in the
short-term. The Economic and Technological Finance Authority - Berlin makes
grants to promote research and development in small and medium-sized
German-owned companies located in Berlin. The grants are paid quarterly based
upon actual development costs, including salaries, and depend upon the work
being carried out in Berlin. As of August 31, 1996, the Company was no longer
eligible to receive these grants in Germany.
(Income) loss from currency fluctuations. (Income) loss from currency
fluctuations was $(93,000) and $49,000 for the nine months ended September 30,
1997 and 1996, respectively. The fluctuation during these periods resulted from
changes in foreign currency exchange rates.
Interest income. Interest income was $893,000 for the nine months ended
September 30, 1997 as compared with $687,000 in the same period in 1996. The
increase resulted primarily from interest earned on the investment of cash
received from the Company's initial public offering which was completed in
mid-March 1996, partially offset by declining cash balances during 1997.
Provision for Income Taxes. The income tax provision was $22,000 on a
pre-tax loss of $6,420,000 for the nine months ended September 30, 1997, which
resulted from taxes on the Company's international operations. For the nine
months ended September 30, 1996, the income tax provision of $375,000 on pre-tax
income of $649,000 related primarily to the Company's profitable international
operations.
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LIQUIDITY AND CAPITAL RESOURCES
During March 1996, the Company completed a public offering and sale of 2,300,000
shares (including the over-allotment option) of its Common Stock at $9 per
share, resulting in net proceeds to the Company, after offering costs, of
approximately $18,300,000. Concurrently with such offering, the Company received
an additional $1,500,000 from Intel Corporation and an additional $288,000 from
Thomson-CSF Ventures as a result of the sale and issuance of 166,667 and 39,942
shares of Common Stock, respectively.
The Company (used)/generated cash from operating activities of $(4,060,000) and
$764,000 for the nine months ended September 30, 1997 and 1996, respectively.
The primary factors contributing to this decrease in cash flow in 1997 are the
higher operating loss for the nine months ended September 30, 1997 of $7.4
million versus operating income of $193,000 for the nine months ended September
30, 1996, and a decrease in other accrued expenses, both of which are offset by
an increased cash flow relating to a decrease in accounts receivable.
As of September 30, 1997, total accounts receivable, net was $8,783,000 versus
$11,234,000 at December 31, 1996. This lower accounts receivable balance at
September 30, 1997 is partially attributable to lower revenue levels in the nine
months ended at that same date. The Company typically generates a large
percentage of its quarterly revenue during the last few weeks of the quarter,
and has payment terms in excess of 90 days on some of its larger sales. Certain
of the Company's larger sales have longer payment terms, thus slowing the cash
flow cycle, and the Company expects that future large sales will follow the same
pattern. The Company does not believe these longer payment terms are likely to
have a material adverse effect on the collectibility of the related receivables.
As of September 30, 1997, the Company had a balance of $10,322,000 in cash and
cash equivalents, and a balance of $10,693,000 in marketable securities. The
Company believes that its existing capital resources will be adequate to finance
the Company's operations and capital expenditures through the end of 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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PART II Other Information
Item 2. Changes in Securities and Use of Proceeds
In connection with its initial public offering in 1996, the Company filed a
Registration Statement on Form S-1, SEC File No. 333-606 (the "Registration
Statement"), which was declared effective by the Commission on March 13, 1996,
the Company registered 2,300,000 shares of its Common Stock, $0.001 par value
per share. The offering commenced on March 14, 1996 and did not terminate until
all of the registered shares had been sold. The aggregate offering price of the
registered shares was $20,700,000. The managing underwriters of the offering
were Hambrecht & Quist and Furman Selz LLP.
The Company incurred the following expenses in connection with the offering:
Underwriting discounts and commissions $1,449,000
Other expenses $ 951,000
Total $2,400,000
All of such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total expenses
above were approximately $18,300,000. From March 14, 1996 to September 30, 1997,
the Company used such net offering proceeds, in direct or indirect payments to
others, as follows:
Purchase and installment of machinery and equipment $ 2,172,000
Working capital $ 6,193,000
Investment in short term interest-bearing obligations
and cash equivalents $ 7,959,000
Repayment of short term liabilities $ 1,292,000
Application to short term assets $ 684,000
Total $18,300,000
Each of such amounts is a reasonable estimate of the application of the net
offering proceeds. This use of proceeds does not represent a material change in
the use of proceeds described in the prospectus of the Registration Statement.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly
Report on Form 10-Q:
11.1 - Statement of Computation of Shares Used in Per Share
Computation.
27.1 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter covered by
this report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by Janine M. Bushman, thereunto duly authorized to sign on behalf of the
registrant and as the principal financial officer thereof.
ISOCOR
Date: November 14, 1997 By: /s/ JANINE M. BUSHMAN
-----------------------------------
Janine M. Bushman, Vice President,
Finance and Administration and Chief
Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Exhibits Page
- ------------------------------------------------------------------------------
11.1 Statement of Computation of Shares Used in Per Share Computation.....1
27.1 Financial Data Schedule..............................................2