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, 2004 (May 12, 2004)
I-Sector Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-21479 76-0515249
(State of Incorporation) (Commission File Number)
(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 12. Other Events
The following announcement of earnings for the quarter ended March 31, 2004 was
released on May 12, 2004:
HOUSTON--(BUSINESS WIRE)--May 12, 2004--I-Sector Corporation (AMEX:ISR - NEWS;
the "Company") announced today its financial results for its first quarter ended
March 31, 2004.
Financial Results
Compared to the corresponding prior year period, for the Company's first quarter
ended March 31, 2004:
o Revenue increased 41.6% to $14.3 million
o Gross margin improved from 22.6% to 24.8%
o Gross profit increased 55.4%
o Net loss of $1.1 million improved to a profit of $39,000
o EPS improved from a loss of $0.30 per share to a profit of $0.01 per share
Commenting on the results, James H. Long, CEO of the Company, stated, "We are
very pleased to be able to announce that the first quarter results exceeded the
expectations we had presented at the time of our last earnings release. The
quarter's results were favorably influenced, as compared to our prior
expectations, by stronger customer demand late in the quarter, which helped push
revenue above the high end of our previously announced expectations. We are
particularly pleased with the performance of our InterNetwork Experts
subsidiary, which produced almost 77% of our first quarter revenue. InterNetwork
Experts produced 54% year-over-year revenue growth for the first quarter, with
gross margin improving from less than 11% to over 18%. InterNetwork Experts'
gross profit improved 158%, and their operating loss of $167,000 improved to an
operating profit of $119,000. InterNetwork Expert's gross profit and operating
profit were also favorably impacted this quarter by significant vendor
incentives based on Cisco IP Telephony product sales, sales growth and customer
satisfaction ratings. We are also extremely pleased with the fact that
InterNetwork Experts was able to produce 91% growth in services revenues while
improving service revenue gross margin from negative 8% last year to a positive
gross margin of 35%."
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. We caution readers to consider this fact and to pay
particular attention to the statements made in the Safe Harbor Statement below.
We do not have contracts in hand that will generate the revenue that we expect
for the current and upcoming quarters. We base our outlook for the future on our
current view of market conditions, input received from our customers and our
sales staff, our anticipated sales and marketing efforts, our anticipated vendor
pricing for products that we resell, anticipated vendor rebates, and our
anticipated expense structure.
o We expect revenue for our second quarter ending June 30, 2004, of
approximately $20 million to $23 million, which represents growth of
approximately 26% to 45% as compared to the corresponding prior year
period.
o We expect a net profit of approximately $150,000 to $350,000 for our
second quarter ending June 30, 2004, which compares to a loss of
$640,000 for the corresponding prior year period, with the variance
between the high and low end of such range primarily dependent upon the
level of revenue, the mix of low-margin and high-margin components of
revenue, and variances in variable expense items.
o Providing an outlook for any period further out than the current
quarter is more challenging and is subject to a lesser degree of
accuracy than our current outlook. Attempts to predict results for
periods further in the future than the current quarter are subject to
increased risk and uncertainty as compared to our attempt to predict
the current quarter results and are based upon the limited information
available to us at this time. That said, our current expectations for
our third quarter ending September 30, 2004, are for revenue of
approximately $21 million to $26 million, with net profit ranging from
approximately $600,000 to $900,000. The increase in profitability as
compared to our second quarter expectations is expected to result from
both the increase in expected revenue as well as our expectation that
certain manufacturer incentives with a measurement period ending in the
third quarter are not expected to be earned and determinable until
then.
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 making selective
acquisitions during the next twelve months, and beyond that we expect
will add additional revenue. There is no guarantee that any suitable
acquisitions will be identified or that any acquisition transactions
will be consummated.
Regarding the Company's outlook for the future, Mr. Long stated, "We have seen
customer demand generally pick up over the past several months. In addition, we
are now seeing larger customer transactions, as compared to the past several
years, as customers begin to move forward with fully adopting IP Telephony
technology and perform network infrastructure upgrades necessary to implement IP
Telephony. As we continue to implement larger projects for customers, we expect
to continue to see positive relative services revenue growth, and we expect that
improving services revenues, together with continued somewhat improved services
gross margins, will continue to enhance operating results. Having consummated
our recent equity offering, we are working on further increasing our credit
facilities to be able to finance substantially higher levels of revenue and
moving forward with discussions with acquisition candidates, which we believe
can help us to continue to drive market share gains and gain entrance to new
geographic markets going forward."
Safe Harbor Statement
The statements contained in this document that are not statements of historical
fact (including 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, including capital expenditures by
enterprises for communications products and services
o The Company's ability to attract and retain key management, sales and
technical staff
o Risks associated with entry into new markets
o The Company's ability to identify suitable acquisition candidates and
successfully integrate acquired companies
o Broad market acceptance of Cisco-centric IP telephony products and
technology
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 Whether anticipated contracts from which we expect revenues, if any, in
fact produce revenues, and whether that revenue, if any, is recognized
in the quarters in which we expect it
o The Company's ability to obtain sufficient volumes of products for
resale and maintain its relationship with its key supplier, Cisco
Systems, Inc.
o The Company's ability to finance continued growth
o Unexpected losses related to customer credit risk
o Catastrophic events
o Uncertainties related to rapid changes in the information and
communications technology industries
o Other risks and uncertainties set forth from time to time in the
Company's public statements and its most recent Annual Report on Form
10-K for the year 2003
Recipients of this document are cautioned to consider these risks and
uncertainties and to not place undue reliance on these forward-looking
statements. The financial information contained in this release should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's most recent reports on Form 10-K and Form 10-Q, each
as it may be amended from time to time. The Company's past results of operations
are not necessarily indicative of its operating results for any future periods.
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 (AMEX:ISR - NEWS), owns
and operates companies that are engaged in the area of information and
communications technology, with a particular focus on Cisco-centric network
infrastructure and IP telephony solutions. Additional information about I-Sector
is available on the Internet at WWW.I-SECTOR.COM.
I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three months ended
March 31,
-----------------------
2003 2004
----------- -----------
Revenue:
Products $ 6,722 $ 10,194
Services 1,289 1,944
Custom projects 2,069 2,137
---------- ----------
Total revenue 10,080 14,275
---------- ----------
Cost of goods and services:
Products 5,904 8,491
Services 1,100 1,286
Custom projects 801 962
---------- ----------
Total cost of goods and services 7,805 10,739
---------- ----------
Gross profit 2,275 3,536
Selling, general and administrative expenses 3,376 3,499
---------- ----------
Operating income (loss) (1,101) 37
Interest and other income, net (10) 19
---------- ----------
Income (loss) from continuing operations
before benefit from income taxes (1,091) 56
Income taxes - 5
---------- ----------
Net income (loss) from continuing operations (1,091) 51
Discontinued operations:
Loss on disposal of discontinued operations,
net of taxes - (12)
---------- ----------
Net income (loss) $ (1,091) $ 39
---------- ----------
Net income (loss) per share Basic:
Net income (loss) from continuing operations $ (0.30) $ 0.01
Loss on disposal of discontinued operations,
net of taxes - -
---------- ----------
Net income (loss) per share $ (0.30) $ 0.01
---------- ----------
Diluted:
Net income (loss) from continuing operations $ (0.30) $ 0.01
Loss on disposal of discontinued operations,
net of taxes - -
---------- ----------
Net income (loss) per share $ (0.30) $ 0.01
---------- ----------
Shares used in computing net income (loss) per share:
Basic 3,630,285 3,951,009
---------- ----------
Diluted 3,630,285 4,150,180
---------- ----------
See notes to consolidated financial statements
I-SECTOR CORPORATION AND SUBSIDIARIES
SEGMENT STATEMENTS OF INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three months ended March 31,
-------------------------------
2003 2004
--------------- ---------------
Amount % Amount %
-------- ------ -------- ------
Revenue:
INX product $ 6,661 66.1 $10,061 70.5
INX service 477 4.7 913 6.4
------- ------ ------- ------
Total INX revenue 7,138 70.8 10,974 76.9
------- ------ ------- ------
Stratasoft - Custom projects 2,069 20.5 2,137 15.0
Valerent product 193 1.9 334 2.4
Valerent service 812 8.1 1,031 7.2
------- ------ ------- ------
Total Valerent revenue 1,005 10.0 1,365 9.6
Eliminations revenue (132) (1.3) (201) (1.4)
------- ------ ------- ------
Total revenue 10,080 100.0 14,275 100.0
Cost of sales and service:
INX product 5,844 87.7 8,382 83.3
INX service 516 108.2 589 64.5
------- ------ ------- ------
Total INX cost of sales and
service 6,360 89.1 8,971 81.7
Stratasoft - Custom projects 801 38.7 962 45.0
Valerent product 192 99.5 310 92.8
Valerent service 584 71.9 697 67.6
------- ------ ------- ------
Total Valerent cost of sales and
service 776 77.2 1,007 73.8
Eliminations of cost of sales and
service (132) 100.0 (201) 100.0
------- ------ ------- ------
Total cost of sales and
service 7,805 77.4 10,739 75.2
Gross profit:
INX product 817 12.3 1,679 16.7
INX service (39) (8.2) 324 35.5
------- ------ ------- ------
Total INX gross profit 778 10.9 2,003 18.3
Stratasoft - Custom projects 1,268 61.3 1,175 55.0
Valerent product 1 0.5 24 7.2
Valerent service 228 28.1 334 32.4
------- ------ ------- ------
Total Valerent gross profit 229 22.8 358 26.2
------- ------ ------- ------
Total gross profit 2,275 22.6 3,536 24.8
Selling, general and administrative
expenses:
INX 945 13.2 1,884 17.2
Stratasoft 1,596 77.1 1,020 47.7
Valerent 560 55.7 390 28.6
Corporate 275 (NA) 205 (NA)
------- ------ ------- ------
Total selling, general and
administrative expenses 3,376 33.5 3,499 24.5
Operating income (loss):
INX (167) (2.3) 119 1.1
Stratasoft (328) (15.9) 155 7.3
Valerent (331) (32.9) (32) (2.3)
Corporate (275) (NA) (205) (NA)
------- ------ ------- ------
Total operating income (loss) (1,101) (10.9) 37 0.3
Interest and other income (expense),
net (10) (0.1) 19 0.1
------- ------ ------- ------
Income (loss) from continuing
operations before benefit for income
taxes (1,091) (10.8) 56 0.4
Benefit for income taxes - 0.0 - 0.0
------- ------ ------- ------
Net income (loss) from continuing
operations (1,091) (10.8) 56 0.4
Discontinued operations:
Gain (loss) on disposal, net of taxes - 0.0 (17) (0.1)
------- ------ ------- ------
Net income (loss) $(1,091) (10.8) $ 39 0.3
------- ------ ------- ------
[GRAPHIC OMITTED]
Contact:
I-Sector Corporation
James H. Long, 713-795-2000
or
PR Financial Marketing LLC
Jim Blackman, 713-256-0369 (IR)
JIMBLACKMAN@PRFINANCIALMARKETING.COM
------------------------------------
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 14, 2004
I-SECTOR CORPORATION
By: /s/ JAMES H. LONG
--------------------------------
James H. Long
Chief Executive Officer, Chief Financial
Officer, President and Chairman of the
Board