UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly
period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to: _________
Commission File Number: 333-06966
IMMECOR CORPORATION
(Name of small business issuer in its charter)
California
68-0324628
(State or jurisdiction of incorporation or (I.R.S. Employer Identification No.)
Organization)
100 Professional Center Drive, Rohnert Park, California 94928-2137
(Address of principal executive offices)
(707) 585-3036
(Issuer's Telephone Number)
Securities registered under Section 12(b) of
the Exchange Act:
None
Securities registered under Section 12(g) of
the Exchange Act:
Common Stock, Without Par Value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ]
As of June 30, 1998, there were 2,433,351 shares of the issuer's Common
Stock, without par value, outstanding.
IMMECOR CORPORATION
INDEX
PART I.
FINANCIAL INFORMATION
Item 1. Balance Sheets at June 30, 1997 and 1998
Statements of Income for the three months and six months ended
June 30, 1997 and 1998 Statements of Cash Flows for the six
months ended June 30, 1997 and 1998 Statements of
Shareholders' Equity for the six months ended June 30, 1997
and 1998 Notes to Financial Statements Financial Data Sheet
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-1-
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I
FINANCIAL INFORMATION
-2-
<PAGE>
IMMECOR CORPORATION
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30,
1997 1998
------------------------------
Current Assets:
<S> <C> <C>
Cash 96,891 99,480
Accounts receivable (net of allowance for
doubtful accounts of $20,000, $20,478) 577,790 775,986
Inventories (Note 2) 204,250 188,490
Notes receivable 5,385 -
Prepaid expenses and other current assets 3,050 9,481
Deferred income taxes 2,500 17,683
--------- --------
Total current assets 889,866 1,091,120
Equipment and improvements, net (Note 3) 41,329 48,176
Offering costs (Note 10) 43,105 -
-------- ------------
Total assets 974,300 1,139,296
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, due within one year (Note 4) 7,303 3,985
Accounts payable 412,734 203,888
Accrued liabilities 57,779 8,549
Advances from shareholders (Note 5) 41,715 643
Customer deposits - 2,858
Income taxes 57,916 205,546
--------- -------
Total current liabilities 577,447 425,469
Long-term Liabilities:
Notes payable, due after one year (Note 4) - 10,619
Deferred income taxes - 10,822
---------- ---------
Total long-term liabilities - 21,441
---------- --------
Total liabilities 577,447 446,910
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Common stock, no par value, 50,000,000 shares authorized;
2,421,000 and 2,433,351 shares issued and outstanding (Note 9) 320,500 297,845
Preferred Stock, no par value, 20,000,000 shares authorized;
no shares issued and outstanding - -
Retained earnings (deficit) 76,353 394,541
--------- -------
Total shareholders' equity 396,853 692,386
------- -------
Total liabilities and shareholders' equity 974,300 1,139,296
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
IMMECOR CORPORATION
STATEMENT OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales (Note 7) 1,420,341 1,435,322 2,355,774 2,503,369
Cost of sales 1,086,455 994,046 1,822,194 1,797,114
Gross profit 333,886 441,276 533,580 706,255
Operating costs and expenses:
Selling, general and administrative expenses 198,981 240,643 330,114 429,578
Depreciation 3,418 3,871 6,636 7,742
--------- --------- --------- ----------
Total operating costs and expenses 202,399 244,514 336,750 437,320
------- ------- ------- --------
Operating income 131,487 196,762 196,830 268,935
Interest income 1,812 411 2,295 1,191
Interest expense - (4,013) - (4,603)
----------- -------- ---------- ---------
Income (loss) before income taxes 133,299 193,160 199,125 265,523
Income taxes (Note 8) 54,900 86,500 71,050 104,200
-------- -------- ------- ---------
Net income (loss) 78,399 106,660 128,075 161,323
Net income (loss) per share 0.032 0.043 0.053 0.066
Weighted average shares outstanding 2,421,000 2,432,051 2,421,000 2,427,730
</TABLE>
See accompanying notes to to financial statements
-4-
<PAGE>
IMMECOR CORPORATION
STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1998
---------- ----------
Operating Activities:
<S> <C> <C>
Net income (loss) 128,075 161,323
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 6,636 7,742
Provision for losses on accounts receivable 10,000 10,000
Deferred income taxes 12,334 (10,602)
Disposal of equipment - -
Changes in:
Accounts and notes receivable (207,053) (265,560)
Inventories (74,829) 154,668
Income taxes 57,916 73,821
Prepaid expenses and all other 1,500 (250)
Accounts payable 158,360 (117,503)
Accrued liabilities and customer deposits 24,314 (116,709)
------- ---------
Net cash provided by (used in) operating activities 117,253 (103,070)
-------- ----------
Investing Activities:
Purchase of equipment (6,005) (963)
Other - -
------------ ---------
Net cash used by investing activities (6,005) (963)
------- ----------
Financing Activities:
Proceeds from sale of common stock (Note 9) - 64,843
Additions to notes payable - -
Offering costs (26,867) (23,600)
Principal payments on notes payable (22,303) (1,855)
Shareholder advances (19,864) -
-------- ------------
Net cash (used) provided by financing activities (69,034) 39,388
-------- -------
Increase (decrease) in cash 42,214 (64,645)
Cash balance, beginning of period 54,677 164,125
-------- -------
Cash balance, end of period 96,981 99,480
-------- --------
Supplemental Disclosure of Cash Flow information:
Cash paid during the year for:
Interest - 4,603
----------- --------
Income taxes 800 40,981
--------- -------
</TABLE>
See accompanying notes to to financial statements
-5-
<PAGE>
IMMECOR CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Number of Retained
Outstanding Common Earnings
Shares Stock (Deficit) Total
<S> <C> <C> <C> <C>
Balance, December 31, 1996 2,421,000 $ 320,500 $ (51,722) $ 268,778
Six months ended
June 30, 1997 (unaudited):
Net income - - 128,075 128,075
----------- ------------ ------------ ----------
Balance, June 30, 1997 2,421,000 320,500 76,353 396,853
--------- ------------- ------------ ----------
Balance, December 31, 1997: 2,421,000 256,602 233,218 489,820
Six months ended
June 30, 1998 (unaudited):
Common stock issued (Note 9) 12,351 64,843 - 64,843
Offering costs (Note 9) - (23,600) - (23,600)
Net income - 161,323 161,323
-------- ------------ ------------ ----------
Balance, June 30, 1998 2,433,351 $ 297,845 $ 394,541 $ 692,386
--------- ------------- ------------ ---------------
</TABLE>
See accompanying notes to to financial statements
-6-
<PAGE>
IMMECOR CORPORATION
Notes to Financial Statements
Six Months ended June 30, 1997 and 1998 (unaudited)
Note 1: Summary of Significant Accounting Policies
Basis of presentation:
Immecor Corporation has prepared the financial statements on an accrual basis of
accounting and in accordance with generally accepted accounting principles. The
accompanying unaudited financial statements and notes thereto are the
responsibility of the Company's management and have been prepared from the
records of the Company and, in the opinion of management, include all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position at June 30, 1998 and results of operatoions and
cash flows for the six months then ended.
During 1996 the Company had a division which operated under the name of Computer
2000. During the second quarter of 1997 the division's operations were merged
with Immecor Corporation and it no longer operated as a separate division. Its
results of operations for 1997 and financial position as of June 30, 1997 are
included in the accompanying financial statements.
Description of business:
The Company designs and assembles specialized computer systems used in
semiconductor manufacturing processes in addition to personal computers
customized to specifications by business and individual users. The necessary
components are purchased from domestic and foreign manufacturers and
distributors. The Company markets the finished product through its own sales
force.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Equipment and improvements:
Equipment and improvements are carried at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over estimated useful lives
generally ranging from three to seven years.
Expenditures for major renewals that extend useful lives of equipment and
improvements are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
For income tax purposes, depreciation is computed using the accelerated
depreciation methods.
Advertising:
The Company expenses costs of advertising the first time the advertising takes
place.
Income taxes:
The Company has adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Accordingly, the Company computes income taxes
using the asset and liability method, under which deferred income taxes are
provided for temporary differences between the financial basis of the Company's
assets and liabilities.
Earnings per share:
Earnings per share amounts are based on the weighted average number of common
stock shares outstanding during the periods adjusted retroactively to reflect a
one for five reverse stock split approved by the Company's Board of Directors on
May 14, 1997. There were no common stock equivalents to be considered.
Note 2: Inventories
<TABLE>
<CAPTION>
Inventories consist of the following:
June 30,
1997 1998
------------------------------
<S> <C> <C>
Purchased parts 145,975 140,380
Finished Systems 58,275 48,110
-------- --------
204,250 188,490
</TABLE>
-7-
<PAGE>
Note 3: Equipment and Improvements
<TABLE>
<CAPTION>
Equipment and improvements consist of the following: June 30,
1997 1998
------------------------------
<S> <C> <C>
Equipment and furniture 55,502 52,705
Transportation equipment 12,243 24,814
------ ------
67,745 77,519
Less accumulated depreciation 26,416 29,343
------ ------
41,329 48,176
</TABLE>
Note 4: Notes Payable
<TABLE>
<CAPTION>
June 30,
1997 1998
------------------------------
Notes payable consist of the following:
<S> <C>
Note payable to Thu Tran with interest at 18% due on demand 7,303 -
Line of credit with Westamerica with interest at 3.5% over prime rate with a
maturity date of April 30, 1999.
Additional terms of the line of credit are described below - -
Note payable to GMAC, secured by transportation equipment, payable in
monthly installments of $443 hrough September 2001 - 14,604
------
7,303 14,604
Less notes payable due within one year 7,303 3,985
----- -----
Total notes due payable due after one year - 10,619
</TABLE>
The Company has a $500,000 line of credit to finance short-term working capital
needs. Advances under the line of credit cannot exceed 80% of eligible accounts
receivable and is secured by a security interest in all accounts receivable,
inventory and equipment.
The line of credit is also personally guaranteed by the Company's major
shareholder.
Maturities of long-term debt are as follows for the twelve months ended June 30,
1998:
1999 $ 3,985
2000 4,413
2001 4,899
2002 1,307
$ 14,604
Note 5: Advances from Shareholders
The Company receives advances from some of the corporate officers who are also
major shareholders to meet working capital requirements. These advances are
generally repaid within 30 to 60 days.
Note 6: Commitments and Contingencies
Long-Term Lease:
The Company leases its corporate headquarters under a non-cancelable operating
lease which expires in January 2001. The Company is also obligated to pay to the
lessor its pro-rata share of utilities for the building on a monthly basis.
Minimum future rental payments under the lease agreement as of June 30, 1998 are
as follows for the twelve months ended:
1999 $ 57,520
2000 59,821
2001 35,697
$ 153,038
Rental expense under the above lease was $25,244 and $28,289 for the six months
ended June 30, 1997 and 1998, respectively.
-8-
<PAGE>
Litigation:
The Company filed a lawsuit against three shareholders who were formerly
officers and directors of the Company seeking rescission of the issuance of
500,000 shares of the Company's common stock in the acquisition of Advanced
Network Communications, Inc. in 1994. In addition, the Company is seeking the
return of funds it believes were embezzled and taken through fraud during 1994
by the three defendants. The Company and its legal counsel are rigorously
pressing this litigation but the case has not been set for trial. It is unlikely
that the trial will commence before the end of 1998 and there is no assurance of
the outcome of the litigation. All legal expenses relating to this case have not
been significant to date and have been expensed as incurred as reflected in the
accompanying financial statements.
Note 7: Sales to Major Customers
A material part of the Company's business is dependent upon sales to major
customers, the loss of which would have a material adverse effect on the
Company's financial position and results of operations. One customer
individually accounted for over 10% of the Company's sales for the six months
ended June 30, 1997. Sales to this customer aggregated over 65% of total sales
for this period. One customer individually accounted for over 10% of the
Company's sales for the six months ended June 30, 1998. Sales to this customer
aggregated over 78% of total sales for this period. The Company is attempting to
expand its customer base to lessen the effect of having major customers.
Note 8: Income Taxes
A reconciliation of the statutory federal income tax rate with the Company's
effective tax rate is as follows for the six months ended:
<TABLE>
<CAPTION>
June 30,
1997 1998
-----------------------------
<S> <C> <C> <C>
Statutory rate for income from $100,000 to $335,000 39.0% 39.0%
Reduction due to income under $100,000 and over $335,000 (8.4) (6.3)
State income taxes, net of federal income tax benefit 5.7 5.5
Nondeductible costs 0.1 0.3
Other ( 0.7) 0.7
Effective tax rate 35.7% 39.2%
</TABLE>
<TABLE>
<CAPTION>
The provision (credit) for income taxes consists of the following for the six months ended:
June 30,
1997 1998
------------------------------
Currently payable:
<S> <C> <C>
Federal 43,229 90,002
State 15,487 24,800
Deferred liability (benefit) 12,334 (10,602)
------ -------
71,050 104,200
</TABLE>
Deferred income taxes (benefits) reflect the tax effect of temporary differences
between the amounts of assets and liabilities for financial reporting and
amounts as measured for tax purposes. The tax effect of temporary differences
and carryforwards that cause significant portions of deferred tax assets and
liabilities are as follows for the six months ended:
<TABLE>
<CAPTION>
June 30,
1997 1998
------------------------------
<S> <C> <C>
Depreciation (200) (662)
Inventory, accounts receivable allowances and prepaids (4,120) (9,940)
Tax loss carryforward 16,504 -
Other, net 150 -
------ -----
12,334 (10,602)
</TABLE>
The Company had federal net operating losses for income purposes of
approximately $63,900 at December 31, 1996 which were used to offset taxable
federal income in 1997. In addition, the Company had state net operating losses
for income purposes of approximately $44,900 at December 1996 which were used to
offset taxable state income in 1997.
-9-
<PAGE>
Note 9: Stock Offering
The Company's initial direct public offering filed with the Securities and
Exchange Commission became effective November 18, 1997. California approved the
filing effective December 19, 1997. The price per share of common stock has been
set at $5.25 and the Company will receive $3,937,500 assuming all 750,000 shares
are sold. There is no minimum number of shares that have to be sold.
Offering costs which had been classified as another asset at June 30, 1997 were
recorded as a reduction of common stock once the offering became effective and
any offering costs incurred from June 30, 1997 through June 30, 1998 have also
been recorded as a reduction of common stock proceeds received.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales
Net sales increased by $147,595 or 6.27% from $2,355,774 for the six months
ended June 30, 1997 to $2,503,369 for the six months ended June 30, 1998.
For the three months ended June 30, 1998, the Company's net sales increased by
$14,921 or 1.06% from $1,420,341 for the three months ended June 30, 1997 to
$1,435,322 for the three months ended June 30, 1998.
The net sales increase for the three months and six months ended June 30, 1998
compared to the prior year resulted primarily from increased demand from major
customers responsible for the majority of the Company's sales for each period
and fluctuations from period to period are primarily influenced by this
constraint. (See "Note 7 to Financial Statements"). Sales to the major customers
for high-end specialty computers have continued to increase steadily since the
Company has been able to meet strict shipping deadlines and to maintain high
quality control standards. Orders on the books of the Company for the remainder
of 1998 indicate that this trend will continue. Nevertheless, the loss of the
major customers would have a material adverse effect on the Company's financial
position and results of operations.
Gross Profit
As a percentage of net sales, gross profits increased significantly from 22.65%
for the six months ended June 30, 1997 to 28.21% for the six months ended June
30, 1998.
For the three months ended June 30, 1998, gross profits increased significantly
from 23.51% for the three months ended June 30, 1997 to 30.74% for the three
months ended June 30, 1998.
The increase related to higher margins realized for high-end customized
specialty computers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased as a percentage of net
sales from 14.01% for the six months ended June 30, 1997 to 17.16% for the six
months ended June 30, 1998.
For the three months ended June 30, 1998, selling, general and administrative
expense increased as a percentage of net sales from 14.01% for the three months
ended June 30, 1997 to 16.77% for the three months ended June 30, 1998.
The increase in expenses as a percentage of net sales was primarily due to
hiring additional employees, increased compensation levels for employees offset
by increased sales volume.
Net Income
For the first six months of 1998, the Company had net income of $161,323
compared to $128,075 for the comparable period in 1997. For the second quarter
of 1998, the Company had net income of $106,660 compared to $78,399 for the
comparable period in 1997.
The increase in net income in both 1998 periods compared to 1997 was primarily
caused by increased gross profit margins which were partially offset by
increased selling, general and administrative expenses.
Liquidity and Capital Resources
On June 30, 1998 the Company had net working capital of $665,651 compared to
$312,419 at June 30, 1997. The $353,232 increase in working capital from 1997 to
1998 was primarily due to significant improvement in profitablity for the last
two quarters of 1997 and first two quarters of 1998 compared with prior
quarters.
The Company had net cash provided by operating activities of $117,253 for the
six months ended June 30, 1997 compared to net cash used by operating activities
of $103,070 for the six months ended June 30, 1998. The $220,323 difference
relates primarily to significant decrease in current liabilities during the 1998
period.
-11-
<PAGE>
The Company had net cash used in financing activities of $69,034 for the six
months ended June 30, 1997 compared to net cash provided by financing activities
of $39,388 for the six months ended June 30, 1998. The $108,422 difference
relates primarily to significant repayments of notes payable and shareholder
advances in the 1997 period which did not reoccur during the 1998 period. In
addition the Company incurred offering costs in the 1997 period before the
offering was approved and stock could be sold. In the 1998 period, the Company
received proceeds from the stock offering.
The Company believes it can finance its operations for the next twelve months
with available cash, continued profitability and the proceeds of bank borrowings
(See Note 4 to Financial Statements) regardless of the amount of stock that is
sold to the public.
-12-
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Company filed a lawsuit against three shareholders who were formerly
officers and directors of the Company seeking rescission of the issuance of
500,000 shares of the Company's common stock in the acquisition of Advanced
Network Communications, Inc. in 1994. In addition, the Company is seeking the
return of funds it believes were embezzled and taken through fraud during 1994
by the three defendants. The Company and its legal counsel are rigorously
pressing this litigation but the case has not been set for trial. It is unlikely
that the trial will commence before the end of 1998 and there is no assurance of
the outcome of the litigation. All legal expenses relating to this case have not
been significant to date and have been expensed as incurred as reflected in the
accompanying financial statements.
Item 2. Changes in Securities
There were no changes in rights of securities holders.
Item 3. Defaults upon Senior Securities
There were no defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security-Holders
There were no matters submitted to the vote of securities holders.
Item 5. Other Information
There were no major contracts signed during the period.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the period.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Commission
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMECOR CORPORATION
(Registrant)
August 7, 1998 /s/ Heinot H. Hintereder
Date President and Chief Executive Officer
-13-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF IMMECOR CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> JUN-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 96891 99480
<SECURITIES> 0 0
<RECEIVABLES> 603175 796464
<ALLOWANCES> 20000 20478
<INVENTORY> 204250 188490
<CURRENT-ASSETS> 889866 1091120
<PP&E> 67745 77519
<DEPRECIATION> 26416 29343
<TOTAL-ASSETS> 974300 1139296
<CURRENT-LIABILITIES> 577447 425469
<BONDS> 0 0
0 0
0 0
<COMMON> 320500 297845
<OTHER-SE> 76353 394541
<TOTAL-LIABILITY-AND-EQUITY> 974300 1139296
<SALES> 2355774 2503369
<TOTAL-REVENUES> 2355774 2503369
<CGS> 1822194 1797114
<TOTAL-COSTS> 2158944 2234434
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 4603
<INCOME-PRETAX> 199125 265523
<INCOME-TAX> 71050 104200
<INCOME-CONTINUING> 128075 161323
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 128075 161323
<EPS-PRIMARY> .053 .066
<EPS-DILUTED> .053 .066
</TABLE>
