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 March 31, 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 March 31, 1998, there were 2,428,226 shares of the issuer's
Common Stock, without par value, outstanding.
IMMECOR CORPORATION
INDEX
PART I.
FINANCIAL INFORMATION
Item 1. Balance Sheets at March 31, 1997 and 1998
Statements of Income for the three months ended March 31, 1997
and 1998 Statements of Cash Flows for the three months ended
March 31, 1997 and 1998 Statements of Shareholders' Equity for
the three months ended March 31, 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
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
BALANCE SHEET
(unaudited)
ASSETS
March 31,
1997 1998
Current Assets:
<S> <C> <C>
Cash 10,776 60,663
Accounts receivable (net of allowance for
doubtful accounts of $10,000, $10,478) 437,662 465,895
Inventories (Note 2) 209,167 361,823
Notes receivable 5,543 -
Prepaid expenses and other current assets 3,050 12,106
Deferred income taxes 384 9,953
--- -----
Total current assets 666,582 910,440
Equipment and improvements, net (Note 3) 41,694 51,832
Offering costs (Note 10) 26,799 -
-- ------ ------
Total assets 735,075 962,272
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, due within one year (Note 4) 7,303 3,872
Accounts payable 353,019 199,765
Accrued liabilities 25,194 21,549
Advances from shareholders (Note 5) 28,227 643
Customer deposits 1,178 3,582
Income taxes 1,700 145,781
----- -------
Total current liabilities 416,621 375,192
Long-term Liabilities:
Notes payable, due after one year (Note 4) - 11,662
Deferred income taxes - 11,153
------ ------
Total long-term liabilities - 22,815
------
Total liabilities 416,621 398,007
Commitments and Contingencies (Note 6)
Shareholders' Equity:
Common stock, no par value, 50,000,000 shares authorized;
2,421,000 and 2,428,226 shares issued and outstanding (Note 9) 320,500 276,384
Preferred Stock, no par value, 20,000,000 shares authorize
no shares issued and outstanding - -
Retained earnings (deficit) (2,046) 287,881
------ -------
Total shareholders' equity 318,454 564,265
------- -------
Total liabilities and shareholders' equity 735,075 962,272
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENT OF INCOME
(unaudited)
March 31,
1997 1998
Net sales (Note 7) 935,433 1,068,047
<S> <C> <C>
Cost of sales 735,739 803,068
------- -------
Gross profit 199,694 264,979
Operating costs and expenses:
Selling, general and administrative expenses 131,133 188,935
Depreciation 3,218 3,871
----- -----
Total operating costs and expenses 134,351 192,806
Operating income 65,343 72,173
Interest income 483 780
Interest expense - (590)
----
Income (loss) before income taxes 65,826 72,363
Income taxes (Note 8) 16,150 17,700
------ ------
Net income (loss) 49,676 54,663
Net income (loss) per share .021 .023
Weighted average shares outstanding 2,421,000 2,423,409
</TABLE>
See accompanying notes to to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENT OF CASH FLOWS
(unaudited)
March 31,
1997 1998
Operating Activities:
<S> <C> <C>
Net income (loss) 49,676 54,663
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,218 3,871
Provision for losses on accounts receivable - -
Deferred income taxes 14,450 (2,541)
Disposal of equipment - -
Changes in:
Accounts and notes receivable (57,083) 54,531
Inventories (79,746) (18,665)
Income taxes 1,700 14,056
Prepaid expenses and all other 1,500 (2,875)
Accounts payable 98,645 (121,626)
Accrued liabilities and customer deposits (7,093) (98,422)
------ -------
Net cash provided by (used in) operating activities 25,267 (117,008)
Investing Activities:
Purchase of equipment (2,952) (748)
Other - -
------ -------
Net cash used by investing activities (2,952) (748)
------ ----
Financing Activities:
Proceeds from sale of common stock (Note 9) - 33,374
Additions to notes payable - -
Offering costs (10,561) (18,155)
Principal payments on notes payable (22,303) (925)
Shareholder advances (33,352) -
------- -------
Net cash (used) provided by financing activities (66,216) 14,294
------- ------
Increase (decrease) in cash (43,901) (103,462)
Cash balance, beginning of period 54,677 164,125
------ -------
Cash balance, end of period 10,776 60,663
------ ------
Supplemental Disclosure of Cash Flow information:
Cash paid during the year for:
Interest - 590
---
Income taxes - 6,185
-----
</TABLE>
See accompanying notes to to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
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
Three months ended March 31, 1997 (unaudited):
Net income - $ - $ 49,676 $ 49,676
---------- ------------ ------------ -------------
Balance, March 31, 1997 2,421,000 $ 320,500 $ (2,046) $ 318,454
--------- ----------- ------------ -----------
Balance, December 31, 1997: 2,421,000 $ 256,602 $ 233,218 $ 489,820
Three months ended March 31, 1998 (unaudited):
Common stock issued (Note 9) 7,226 $ 37,937 $ - $ 37,937
Offering costs (Note 9) - $ (18,155) $ - $ (18,155)
Net income $ - $ 54,663 $ 54,663
----------- ------------ -----------
Balance, March 31, 1998 2,428,226 $ 276,384 $ 287,881 $ 564,265
--------- ------------ ----------- -------------
</TABLE>
See accompanying notes to to financial statements
<PAGE>
IMMECOR CORPORATION
Notes to Financial Statements
Three Months ended March 31, 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
financial statements and notes thereto are the responsibility of the Company's
management. 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 March
31, 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 five 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
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
1997 1998
---- ----
<S> <C> <C>
Purchased parts 163,547 259,225
Finished Systems 45,620 102,598
------- -------
209,167 361,823
</TABLE>
<PAGE>
Note 3: Equipment and Improvements
<TABLE>
<CAPTION>
Equipment and improvements consist of the following: March 31,
1997 1998
---- ----
<S> <C> <C>
Equipment and furniture 52,449 52,490
Transportation equipment 12,243 24,814
------ ------
64,692 77,304
Less accumulated depreciation 22,998 25,472
------ ------
41,694 51,832
Note 4: Notes Payable
March 31,
1997 1998
---- ----
Note payable to Thu Tran with interest at 18% due on demand 7,303 -
Line of credit with Westamerica with interest at 4.0% over prime rate (12.50% at
December 31, 1997) with a maturity date of
May 31, 1998. 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 - 15,534
------
7,303 15,534
Less notes payable due within one year 7,303 3,872
----- -----
Total notes due payable due after one year - 11,662
</TABLE>
The Company received approval on July 9, 1997 for a $250,000 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 years ended March 31, 1998:
1999 $ 3,872
2000 4,299
2001 4,773
2002 2,590
$ 15,534
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 March 31, 1997
and 1998 are as follows for the twelve months ended:
1999 $ 56,955
2000 59,233
2001 50,995
$ 167,183
Rental expense was $11,100 and $14,144 for the three months ended March 31, 1997
and 1998, respectively.
<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. Two customers
individually accounted for over 10% of the Company's sales for the three months
ended March 31, 1997. Sales to these two customers aggregated over 62% of total
sales for this period. One customer individually accounted for over 10% of the
Company's sales for the three months ended March 31, 1998. Sales to this
customer aggregated over 77% 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
<TABLE>
<CAPTION>
A reconciliation of the statutory federal income tax rate with the Company's
effective tax rate is as follows for the three months ended:
March 31,
1997 1998
---- ----
<S> <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 (21.6) (21.5)
State income taxes, net of federal income tax benefit 7.0 6.8
--- ---
Nondeductible costs 0.1 0.2
--- ---
Other -
Effective tax rate 24.5 24.5
The provision (credit) for income taxes consists of the following for the three months ended:
March 31,
1997 1998
---- ----
Currently payable:
Federal - 13,700
State 1,700 6,541
Deferred liability (benefit) 14,450 (2,541)
------ ------
16,150 17,700
</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 three months ended:
<TABLE>
<CAPTION>
March 31,
1997 1998
---- ----
<S> <C> <C>
Depreciation (100) (331)
Inventory, accounts receivable allowances and prepaids - (2,210)
Tax loss carryforward 14,400 -
Other, net 150 -
--- ------
14,450 (2,541)
</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.
<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 March 31, 1997 were
recorded as a reduction of common stock once the offering became effective and
any offering costs incurred during the three months ended March 31, 1998 are
also reported as a reduction of common stock proceeds received.
.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net Sales
Net sales increased by $132,614 or 14.17% from $935,433 for the three months
ended March 31, 1997 (the "1997 period") to $1,068,047 for the three months
ended March 31, 1998 ("the 1998 period"). As in prior years sales in the first
quarter of each year tend to be significantly lower than sales during the last
three quarters of the year.
The net sales increase 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 from 21.35% in the 1997
period to 24.81% in the 1998 period because of 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 14.02% in the 1997 period to 17.69% in the 1998 period. 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.
Liquidity and Capital Resources
On March 31, 1997 and March 31, 1998 the Company had net working capital of
$249,961 and $535,248 respectively. The $285,287 increase in working capital
from 1997 to 1998 was primarily due to significant improvement in profitablity
for the last three quarters of 1997 compared to the last three quarters of 1996.
The Company had net cash provided by operating activities of $25,267 in the 1997
period compared to net cash used by operating activities of $117,008 in the 1998
period. The $142,275 difference relates primarily to significant decrease in
current liabilities during the 1998 period.
The Company had net cash used by by financing activities of $66,216 in the 1997
period compared to net cash provided by financing activities of $14,294 in the
1998 period. The $80,510 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.
<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)
May 12, 1998 Heinot H. Hintereder
Date President and Chief Executive Officer
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 THREE MONTHS ENDED mARCH 31, 1997 AND
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> MAR-31-1997 MAR-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 10776 60663
<SECURITIES> 0 0
<RECEIVABLES> 447662 476373
<ALLOWANCES> 10000 10478
<INVENTORY> 209167 361823
<CURRENT-ASSETS> 666582 910440
<PP&E> 64692 77304
<DEPRECIATION> 22998 25472
<TOTAL-ASSETS> 735075 962272
<CURRENT-LIABILITIES> 379024 375192
<BONDS> 0 0
0 0
0 0
<COMMON> 320500 276384
<OTHER-SE> (2,046) 287881
<TOTAL-LIABILITY-AND-EQUITY> 735075 962272
<SALES> 935433 1068047
<TOTAL-REVENUES> 935433 1068047
<CGS> 735739 803068
<TOTAL-COSTS> 870090 995874
<OTHER-EXPENSES> (65244) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3786 590
<INCOME-PRETAX> 71581 72363
<INCOME-TAX> 18800 17700
<INCOME-CONTINUING> 52781 54663
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 52781 54663
<EPS-PRIMARY> .022 .023
<EPS-DILUTED> .022 .023
</TABLE>
