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):
March 31, 2003 (December 31, 2002)
I-Sector Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-21479
(State of Incorporation) (Commission File Number)
76-0515249
(IRS Employer 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 5. Other Events
The following announcement of earnings for the year ended December 31, 2002 was
released on March 31, 2003:
I-Sector Reports 4th Quarter and Year Results
HOUSTON, March 31, 2003 /PRNewswire/ -- I-Sector Corporation (Nasdaq: ISEC -
NEWS), today announced financial results for its fourth quarter ended December
31, 2002 and provided an update on its outlook for the future.
FINANCIAL RESULTS
Fourth quarter results were in line with what the company announced in its
statement of February 14, 2003, in which revenue was expected to be between
$10.8 million and $11 million and a net loss in the range of $600,000 to
$675,000 were forecast.
For the company's fourth quarter ended December 31, 2002:
o Revenue from continuing operations increased 48% to $10.9 million compared
to $7.4 million for the corresponding prior year period.
o The net loss from continuing operations was $849,000 compared to a net loss
of $451,000 for the corresponding prior year period.
o Net loss for the quarter, including the impact of discontinued operations,
was $604,000 compared to a net loss of $476,000 for the corresponding prior
year period.
o Earnings per share was a net loss of $0.17 for the quarter compared to a
net loss per share of $0.12 for the corresponding prior year period.
For the twelve months ended December 31, 2002:
o Revenue from continuing operations increased 78% to $42.0 million compared
to $23.6 million for the corresponding prior year period.
o Operating loss provides a comparison of prior period performance without
the influence of significant changes in interest income and income taxes.
Operating loss from continuing operations was $2.4 million compared to $4.3
million in the corresponding prior year period.
o Including the impact related to discontinued operations and a tax benefit
of $1.6 million in the current period compared to a tax benefit of $87,000
in the corresponding prior period, the company's net loss was $384,000
compared to a net loss of $3.7 million for the corresponding prior year
period.
o Earnings per share was a net loss of $0.10 compared to a net loss per share
of $0.95 for the corresponding prior year period.
Commenting on the results for the quarter, James H. Long, President and CEO of
the company stated, "As we announced on February 14, 2003, our Stratasoft, Inc.
subsidiary results were below our previous expectations, our Internetwork
Experts, Inc. subsidiary exceeded our previous expectations and our Valerent,
Inc. subsidiary performed in-line with our previous expectations." 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 two
years has made firm forecasting of future financial performance more difficult
than would otherwise be possible and the visibility for many public 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 of complementary
companies.
o We expect revenue for our first quarter ending March 31, 2003 of
approximately $9.3 million to $9.6 million. Revenue for the first quarter
is expected to be somewhat negatively impacted by softness related to what
we believe is unwillingness of organizations to proceed with capital
expenditures during the period leading up to the Iraq conflict.
o We expect the net loss for the first quarter ending March 31, 2003 to be
approximately $900,000 to $1.1 million. The first quarter is expected to be
negatively impacted by softness in revenue as mentioned above together with
costs related to an anticipated acquisition by Internetwork Experts, costs
of starting up an India subsidiary operation by our Stratasoft subsidiary,
and ongoing costs related to expanding our Valerent subsidiary.
o We expect the per share net loss for the first quarter ending March 31,
2003 to be approximately $0.26 to $0.28 per share.
o Providing an outlook for any period further out than the near-term quarter
is more challenging and subject to a lesser degree of accuracy than our
near-term outlook. Based upon our current view of market conditions, our
expected sales and marketing efforts, our expected expense structure, and
including the expected net impact related to an anticipated acquisition
that our Internetwork Experts subsidiary expects to close early in the
second quarter, our current expectations for our second quarter ending June
30, 2003 are for revenue of approximately $13 million to $16 million with a
net loss of approximately $500,000 to $300,000. Looking further out, we
currently expect revenue for our third quarter ending September 30, 2003,
to be roughly in the range of approximately $14 million to $17 million,
with a net loss in the range of approximately $50,000 to $200,000. For the
fourth quarter and beyond we generally expect revenue to continue to
increase sequentially and our operating profitability to continue to
improve. Our expected revenue improvements are based upon our previous and
ongoing expenditures in the area of sales and marketing as well as an
expected improvement in general market conditions over the next several
quarters, together with the anticipated net impact of the contemplated
Internetwork Experts acquisition.
o The forecasts set forth above are for the current organization and the
anticipated Internetwork Experts acquisition previously mentioned, and do
not include the effect of any other future acquisitions. In addition to
internally generated growth, we anticipate possibly making other selective
acquisitions during the next twelve months 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 anticipation of and start of the Iraq conflict
seems to have generally depressed activity during the first quarter, we expect
activity to pick up in the coming quarters. While many customers seem to have
put some capital expenditure projects on temporary hold during the first
quarter, the majority of these projects appear to be slated for implementation
in the coming quarters. We anticipate that our Internetwork Experts subsidiary
will close a small acquisition early in the second quarter of 2003, and that
this acquisition will be accretive to earnings and will result in increased
revenue for Internetwork Experts. Our Stratasoft subsidiary has been working
over the past several months to establish a Stratasoft India subsidiary that
will be charged with expanding Stratasoft's presence in India, the leading
country for call center expansion, and a country in which Stratasoft has already
had considerable success. Our Valerent, Inc. subsidiary is well on its way to
executing its recently announced new business strategy and we are seeing
substantial interest in Valerent's new offerings."
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 ability to attract and retain key management, sales and technical staff
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, operates or invests
in 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.
For additional information contact:
James H. Long
President and Chief Executive Officer
(713) 795-2301
I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2002
(In thousands, except share and par value amounts)
ASSETS 2001 2002
---- ----
Current Assets:
Cash and cash equivalents $ 3,434 $ 3,491
Accounts receivable, net 4,302 6,525
Accounts receivable - affiliates 250 99
Accounts receivable - other 21 57
Notes receivable 169 898
Inventory 587 781
Cost and estimated earnings
in excess of billings 1,695 709
Income taxes receivable 151 488
Other current assets 302 356
----------- -----------
Total current assets 10,911 13,404
Property and equipment, net 1,226 1,115
Intangible assets 1,356 1,162
Other assets 55 70
----------- -----------
Total Assets $ 13,548 $ 15,751
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 213 $ 157
Accounts payable 1,772 4,844
Billings in excess of cost and
estimated earnings 72 75
Accrued expenses 2,091 1,803
Net liabilities related to
discontinued operations 654 904
Deferred service revenue 126 81
----------- -----------
Total current liabilities 4,928 7,864
Long term debt 410 247
Deferred credit - stock warrants 195
Commitments and Contingencies (See Note 10)
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,
4,441,325 issued at December 31,
2001 and 2002, respectively 44 44
Additional paid in capital 10,184 10,379
Treasury stock, at cost, 591,800 and
811,800 shares at December 31,
2001 and 2002, respectively (1,187) (1,373)
Retained earnings (1,026) (1,410)
----------- -----------
Total stockholders' equity 8,015 7,640
----------- -----------
$ 13,548 $ 15,751
=========== ===========
See notes to consolidated financial statements.
I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002 (In thousands, except share
and per share amounts)
Years ended December 31,
---------------------------------
2000 2001 2002
Total revenue $ 17,087 $ 23,620 $ 42,021
Cost of goods and services 12,968 17,325 33,752
-------- -------- ---------
Gross profit 4,119 6,295 8,269
Selling, general and administrative expenses 9,479 10,573 10,625
-------- -------- ---------
Operating loss 5,360 4,278 2,356
Interest and other income, net 239 316 115
-------- -------- ---------
Loss from continuing operations before
benefit for income taxes 5,121 3,962 2,241
Benefit for income taxes 1,493 87 1,595
-------- -------- ---------
Net loss from continuing operations 3,628 3,875 646
Discontinued operations:
Net income (loss) from discontinued
operations, net of taxes 195 (167)
Gain on disposal, net of taxes 3,390 337 262
-------- -------- ---------
Net loss $ 43 $ 3,705 $ 384
======== ======== =========
Net income (loss) per share:
Basic and diluted:
Net loss from continuing operations $ (0.90) $ (0.99) $ (0.17)
Net income (loss) from discontinued
operations 0.05 (0.04)
Gain on disposal 0.84 0.08 0.07
-------- -------- ---------
Net loss per share $ (0.01) $ (0.95) $ (0.10)
======== ======== =========
Weighted average number of shares outstanding:
Basic and diluted 4,059,618 3,911,019 3,709,689
========= ========= =========
See notes to consolidated financial statements
I-SECTOR CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION
(In thousands, except share and per share amounts)
Quarter Ended Year Ended
December 31, December 31,
2001 2002 2001 2002
(Unaudited)
(Unaudited) (Unaudited)
(Unaudited) Revenue:
Valerent $ 1,592 $ 1,009 $ 5,668 $ 4,992
INX 3,535 9,011 10,775 30,738
Stratasoft 2,298 998 7,257 6,569
Corporate 1 (6)
Eliminations (47) (72) (74) (278)
-------- --------- --------- ---------
Total 7,379 10,946 23,620 42,021
Gross Profit
Valerent 432 263 1,265 1,199
INX 428 1,171 1,112 3,421
Stratasoft 1,357 567 3,939 3,649
Corporate 9 7
Eliminations (13) (28)
--------- --------- --------- ---------
Total 2,213 2,001 6,295 8,269
Selling, general and
administrative expenses
Valerent 624 513 3,077 2,236
INX 983 1,099 3,103 3,545
Stratasoft 907 1,322 3,021 3,922
Corporate 192 436 1,400 922
Eliminations (13) (28)
-------- --------- --------- ---------
Total 2,693 3,370 10,573 10,625
Operating income (loss):
Valerent (192) (250) (1,812) (1,037)
INX (555) 72 (1,991) (124)
Stratasoft 450 (755) 918 (273)
Corporate (183) (436) (1,393) (922)
-------- --------- --------- ---------
Total (480) (1,369) (4,278) (2,356)
Interest and other
income, net (43) (114) (316) (115)
-------- --------- --------- ---------
Loss from continuing
operations before (benefit)
provision for income taxes (437) (1,255) (3,962) (2,241)
Benefit provision for income tax 14 (406) (87) (1,595)
-------- --------- -------- ---------
Net loss from continuing
operations (451) (849) (3,875) (646)
Net loss from discontinued
operations, net of tax (14) (167)
Gain (loss) on disposal (11) 245 337 262
--------- --------- --------- ---------
Net Loss $ (476) $ (604) $ (3,705) $ (384)
======== ========= ========== =========
Net (loss) income per share:
Basic and diluted:
Continuing operations $ (0.12) $ (0.23) $ (0.99) $ (0.17)
Discontinued operations,
net of tax (0.00) (0.00) (0.04)
(Loss) gain on disposal,
net of tax (0.00) 0.06 0.08 0.07
----------- -------- ---------- ----------
Net loss per share $ (0.12) $ (0.17) $ (0.95) $ (0.10)
============ ========= ========== ==========
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: March 31, 2003
I-SECTOR CORPORATION
By: /s/ JAMES H. LONG
--------------------------------
James H. Long
Chief Executive Officer, Chief Financial Officer,
President and Chairman of the Board