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 September 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. EmployerIdentificationNo.)
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 September 30, 1998, there were 2,435,376 shares of the issuer's
Common Stock, without par value, outstanding.
<PAGE>
IMMECOR CORPORATION
INDEX
PART I.
FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at September 30, 1997 and 1998
Consolidated Statements of Income for the three months and nine months
ended September 30, 1997 and 1998
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 and 1998
Consolidated Statements of Shareholders' Equity for the nine months
ended September 30, 1997 and 1998
Condensed Notes to Financial Statements
Financial Data Sheet
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<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 Sheets (unaudited)
Nine months ended
September 30,
1997 1998
---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 31,731 $ 231,274
Accounts receivable (net of allowance for
doubtful accounts of$20,000,$20,478) 647,600 456,382
Inventories 285,434 381,319
Notes receivable 5,283 -
Prepaid expenses and other current assets 10,550 11,856
Deferred income taxes 7,034 18,737
----- ------
Total current assets 987,632 1,099,568
Equipment and improvements, net 53,036 45,535
Offering costs (Note 7) 49,818 -
---------------------------------------
Total assets $ 1,090,486 $ 1,145,103
------------- --------------
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, due within one year (Note 2) $ 61,221 $ 4,115
Accounts payable 327,111 233,635
Accrued liabilities 92,242 22,257
Advances from shareholders (Note 3) 1,261 643
Customer deposits - 3,912
Income taxes 118,350 160,662
------- -------
Total current liabilities 600,185 425,224
Long-term Liabilities:
Notes payable, due after one year (Note 2) 13,639 9,559
Deferred income taxes - 10,454
-----------------------------------
Total long-term liabilities 13,639 20,013
------ ------
Total liabilities 613,824 445,237
Commitments and Contingencies (Note 4)
Shareholders' Equity:
Common stock, no par value, 50,000,000 shares autho-
rized; 2,421,000 and 2,435,376 shares issued and - -
outstanding (Note7) 320,500 292,196
Preferred Stock,no par value,20,000,000 shares autho-
rized; no shares issued and outstanding
Retained earnings (deficit) 156,162 407,670
------- -------
Total shareholders' equity 476,662 699,866
------- -------
Total liabilities and shareholders'equity $ 1,090,486 $ 1,145,103
------------ ------------
</TABLE>
See accompanying notes to to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
Three months ended Nine months ended
September 30, September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net sales (Note 5) 1,502,228 1,089,965 3,858,002 3,593,334
Cost of sales 1,144,227 863,791 2,966,421 2,660,905
---------- --------- --------- ---------
Gross profit 358,001 226,174 891,581 932,429
Operating costs and expenses:
Selling, general and administrative expenses 217,687 184,966 547,801 614,544
Depreciation and amortization 3,818 3,950 10,454 11,692
----- ----- ------ ------
Total operating costs and expenses 221,505 188,916 558,255 626,236
------- ------- ------- -------
Operating income 136,496 37,258 333,326 306,193
Interest income 944 347 3,239 1,538
Interest expense ( 1,731) ( 8,676) ( 1,731) (13,279)
- ----- - ----- - ----- -------
Income (loss) before income taxes 135,709 28,929 334,834 294,452
Income taxes (Note 6) 55,900 15,800 126,950 120,000
------ ------ ------- -------
Net income (loss) 79,809 13,129 207,884 174,452
Net income (loss) per share 0.033 0.005 0.086 0.072
Weighted average shares outstanding 2,421,000 2,434,368 2,421,000 2,429,943
</TABLE>
See accompanying notes to to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended
September 30,
1997 1998
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 207,884 $ 174,452
Adjustments to reconcile net income to net cash
net cash provided by (used in) operating activities:
Depreciation 10,454 11,692
Provision for losses on accounts receivable 10,000 10,000
Deferred income taxes 7,800 (12,024)
Disposal of equipment 10,367 -
Changes in:
Accounts and notes receivable (276,761) 54,044
Inventories (156,013) (38,161)
Income taxes 118,350 28,937
Prepaid expenses and all other (6,000) (2,625)
Accounts payable 72,737 (87,756)
Accrued liabilities and customer deposits 58,777 (97,384)
------ -------
Net cash provided by (used in) operating activities 57,595 41,175
------ ------
Investing Activities:
Purchase of equipment (31,897) (2,272)
Net assets acquired in purchase of Intelnet (Note 8) - -
-------- -------
Net cash provided by (used in) investing activities (31,897) (2,272)
------- ------
Financing Activities:
Proceeds from sale of common stock (Note 7) - 70,911
Additions to notes payable 74,860 -
Offering costs (33,580) (39,880)
Principal payments on notes payable (29,606) (2,785)
Shareholder advances (60,318) -
------- -------
Net cash provided by (used) financing activities (48,644) 28,246
------- ------
Increase (decrease) in cash (22,946) 67,149
Cash balance, beginning of period 54,677 164,125
------ -------
Cash balance, end of period $ 31,731 $ 231,274
----------- ------------
Supplemental Disclosure of Cash Flow information:
Cash paid during the year for:
Interest $ 1,731 $ 13,279
----------- ------------
Income taxes $ 800 $ 111,603
----------- ------------
</TABLE>
See accompanying notes to to financial statements
<PAGE>
<TABLE>
<CAPTION>
IMMECOR CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
Retained
Common Preferred Earnings
Stock Stock (Deficit) Total
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 320,500 $ - (51,722) $268,778
Nine months ended
September 30, 1997 (unaudited)
Net income - - 207,884 207.884
---------------------------------------------------
Balance, September 30, 1997 $ 320,000 $ - $ 156,162 $ 476,662
---------------------------------------------------
Balance, December 31, 1997 $ 256,602 $ - $ 233,218 $ 489,820
Nine months ended
September 30, 1998 (unaudited)
Common Shares issued (14,376) 75,474 - - 75,474
Offering costs (Note 7) (39,880) - - (39,880)
Net income - - 174,452 174,452
Balance, September 30, 1998 $ 292,196 $ $ 407,670 $ 699,866
---------------------------------------------------
</TABLE>
See accompanying notes to to financial statements
<PAGE>
IMMECOR CORPORATION
Notes to Financial Statements
Nine months ended September 30, 1997 and 1998 (unaudited)
Note 1: Basis of presentation
Immecor Corporation has prepared the financial statements on an accrual basis of
accounting. The accompanying unaudited financial statements have been prepared
from the records of the Company and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position at September 30, 1997 and 1998, the interim
results of operations for the three and nine months periods ended September 30,
1997 and 1998, the interim cash flows for the nine months ended September 30,
1997 and 1998, and the interim changes in shareholders' equity for the nine
months ended September 30, 1997 and 1998.
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 are included in the accompanying financial
statements.
Accounting policies followed by the Company are described in Note 1 to the
audited financial statements in the Company's Annual Report on Form 10KSB for
the year ended December 31, 1997. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted for purposes of
these financial statements
<TABLE>
<CAPTION>
Note 2: Notes Payable September 30,
following: 1997 1998
---- ----
Line of credit with Westamerica with interest at 3.5% over prime rate with a
maturity date of April 30, 1999. Additional terms of
<S> <C> <C>
the line of credit are described below. $ 57,546 $ -
Note payable to GMAC, secured by transportation equipment, payable in
monthly installments of $443 including interest
of 10.5% through September 2001 17,314 13,674
------ ------
74,860 13,674
Total notes payable due within one year 61,221 4115
------ ----
Total notes payable due after one year $ 13,639 $ 9,559
--------- ---------
</TABLE>
Immecor Corporation has a $500,000 line of credit to finance short-term working
capital needs. Advances under the line of credit can not 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. There were no unpaid advances on
the line of credit as of September 30, 1998.
Maturities of long-term debt are as follows for the twelve months ending
September 30:
1999 $ 4,115
2000 4,530
2001 5,029
-------------
$ 13,674
------------
Note 3: 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 4: Commitments and Contingencies
Long-Term Lease:
Immecor Corporation leases its corporate headquarters under a non-cancelable
operating lease which expires in January 2001. Immecor is also obligated to pay
to the lessor its pro-rata share of utilities for the building on a monthly
basis. Immecor also leases equipment under a non-cancelable operating lease
which expires in July 2003 and is obligated to pay the majority of all expenses
for the equipment.
Minimum future rental payments under all lease agreements as of September 30,
1998 are as follows for the twelve months ended:
1999 $ 69,486
2000 71,810
2001 16,500
2002 11,400
2003 9,500
---- -----
$ 178,696
Rental expenses under the above leases were $39,389 and $49,292 for the nine
months ended September 30, 1997 and 1998, respectively.
<PAGE>
IMMECOR CORPORATION
Notes to Financial Statements, continued
Nine months ended September 30, 1997 and 1998 (unaudited)
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; 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 5: 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 nine months
ended September 30, 1997. Sales to this customer aggregated over 63% of total
sales for this period. One customer individually accounted for over 10% of the
Company's sales for the nine months ended September 30, 1998. Sales to this
customer aggregated over 76% of total sales for this period. The Company is
attempting to expand its customer base to lessen the effect of having major
customers.
Note 6: Income Taxes
The provision for income taxes as a percentage of pretax income was 37.9% for
the nine months ended September 30, 1997 and 40.8% for the nine months ended
September 30, 1998. The Company believes that the applied tax rates accurately
reflect its actual tax provision with appropriate consideration for deferred
income taxes.
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.
Note 7: 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 September 30, 1997
were recorded as a reduction of common stock proceeds once the offering became
effective and any offering costs incurred from September 30, 1997 through
September 30, 1998 have also been recorded 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 decreased by $264,668 or 6.9% from $3,858,002 for the nine
months ended September 30, 1997 to $3,593,334 for the nine months ended
September 30, 1998. Net sales decreased by $412,263 or 27.4% from $1,502,228 for
the three months ended September 30, 1997 to $1,089,965 for the three months
ended September 30, 1998.
The primary reason for the decrease in sales as described above was caused by
decreased orders from major customers due to the Asian crisis.
Gross Profit. As a percentage of net sales, gross profits increased from 23.1%
for the nine months ended September 30, 1997 to 25.9% for the nine months ended
September 30, 1998. This increase related to higher margins realized on high-end
customized specialty computers during 1998 compared to the 1997 period. For the
three months ended September 30, 1998, gross profits decreased from 23.8% for
the third quarter of 1997 to 20.8% for the third quarter of 1998.
The decrease was primarily due to lower sales of high margin systems to major
customers in the third quarter of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased as a percentage of net sales from 14.2% for
the nine months ended September 30, 1997 to 17.1% for the nine months ended
September 30, 1998. For the third quarter of 1998, selling, general and
administrative expenses as a percentage of net sales were 17.0% compared to
14.5% for the comparable period in 1997.
The primary reason for the increase in 1998 were due to hiring of additional
employees, increased compensation levels for employees and decreased sales
volume in 1998.
Interest Expense. Interest expense was $13,279 for the nine months ended
September 30, 1998 compared to $1,731 for the nine months ended September 30,
1997. For the third quarter of 1998 interest expense was $8,676 compared to
$1,731 for the third quarter of 1997.
The increases in the 1998 periods were caused by interest on unpaid 1997 income
tax liabilities which were not fully paid until October 1998.
Net Income. For the nine months ended September 30, 1998, the Company had net
income of $174,452 compared to $207,884 for the comparable period in 1997. For
the third quarter of 1998, the Company had a net income of $13,129 compared to a
net income of $79,809 for the comparable period in 1997.
These decreases in profitability in the 1998 periods were primarily caused by
decreased third quarter sales as described above.
Liquidity and Capital Resources. At September 30, 1998, the Company had net
working capital of $674,344 compared to $387,447 at September 30, 1997. The
increase in working capital from 1997 to 1998 was primarily due to Immecor's
continued profitability.
The Company had net cash provided by operating activities of $57,595 for the
nine months ended September 30, 1997 compared to net cash provided by operating
activities of $41,175 for the nine months ended September 30, 1998. The $16,420
difference relates primarily to significant decreases in current liabilities
during the 1998 period.
The Company had net cash used by financing activities of $48,644 for the nine
months ended September 30, 1997 compared to net cash provided by financing
activities of $28,246 for the nine months ended September 30, 1998. The $76,890
difference relates to proceeds from sale of common stock in 1998 while in 1997
the Company incurred offering costs before common stock could be sold and the
repayment of over $89,000 of notes payable and shareholder advances.
The Company believes it can finance its operations for the next twelve months
with available cash and with available lines of credit
<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
None.
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)
November 15, 1998 /s/ Heinot H. Hintereder
Date President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF IMMECOR CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> dollars
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> SEP-30-1997 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 37731 231274
<SECURITIES> 0 0
<RECEIVABLES> 672883 476860
<ALLOWANCES> 20000 20478
<INVENTORY> 285434 381319
<CURRENT-ASSETS> 987632 1099568
<PP&E> 75036 78828
<DEPRECIATION> 22000 33293
<TOTAL-ASSETS> 1090486 1145103
<CURRENT-LIABILITIES> 600185 425224
<BONDS> 0 0
0 0
0 0
<COMMON> 320500 292196
<OTHER-SE> 156162 407670
<TOTAL-LIABILITY-AND-EQUITY>1090486 1145103
<SALES> 3858002 3593334
<TOTAL-REVENUES> 3858002 3593334
<CGS> 2966421 2660905
<TOTAL-COSTS> 3524676 3287141
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1731 13279
<INCOME-PRETAX> 334834 294452
<INCOME-TAX> 126950 120000
<INCOME-CONTINUING> 207884 174452
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 207884 174452
<EPS-PRIMARY> .086 .072
<EPS-DILUTED> .086 .072
</TABLE>
