UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended................April 29,1995.............
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ended...................to....................
Commission file number.............................0-4187...............
ICOT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1675494
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3801 Zanker Road, PO Box 5143, San Jose , CA 95150-5143
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 433-3300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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 at least the past 90 days.
YES X NO
Number of shares outstanding of each of the issuer's classes of
common stock:
As of June 9, 1995 11,487,827 shares of Registrant's Common
Stock were outstanding.
<PAGE>
FORM 10-Q
Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Cash Flows
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ICOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $3,036 $1,870 $8,737 $5,837
Cost of sales 1,867 982 5,061 2,959
----- ----- ----- -----
Gross margin 1,169 888 3,676 2,878
Operating expenses:
Research and development 353 297 1,281 1,078
Marketing and sales 239 200 760 659
General and administrative 184 274 815 949
----- ----- ----- -----
Total operating expenses 776 771 2,856 2,686
Income from operations 393 117 820 192
Other income (expense):
Interest income 72 56 198 173
Interest expense (1) (4) (7) (17)
----- ----- ----- -----
Total other income 71 52 191 156
Income before income taxes 464 169 1,011 348
Provision for income taxes 23 12 51 22
----- ----- ----- -----
Net Income $ 441 $ 157 $ 960 $ 326
====== ====== ====== ======
Net Income Per Share $ 0.04 $ 0.01 $ 0.08 $ 0.03
====== ====== ====== ======
Weighted Average Number of
Common Shares and Common
Share Equivalents 11,454 12,183 11,595 12,428
====== ====== ====== ======
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ICOT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
April 29, July 30,
1995 1994
(Unaudited)
----------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 921 $ 645
Short-term investments 4,369 5,392
Accounts receivable, less allowance of
$21 in 1995 and $25 in 1994 1,628 1,405
Inventories 1,061 1,395
Advances to Amati 550 --
Other current assets 987 626
------- -------
Total current assets 9,516 9,463
Equipment and leasehold improvements-net 661 933
Other assets 553 995
------- -------
Total Assets $ 10,730 $ 11,391
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized
lease obligations $ 15 $ 82
Accounts payable and accrued expenses 961 1,756
Employee compensation 268 333
------- -------
Total current liabilities 1,244 2,171
------- -------
Long-term liabilities:
Capitalized lease obligations, less
current maturities 1 10
Obligations under lease commitments 294 418
------- -------
Total long-term liabilities 295 428
------- -------
Stockholders' equity 9,191 8,792
------- -------
Total Liabilities and Stockholders' Equity $ 10,730 $ 11,391
======= =======
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ICOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
--------------------------
April 29, April 30,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 960 $ 326
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 539 316
Retirement of capital equipment 43 57
Increase in accounts receivable (223) (290)
Decrease (increase) in inventories 334 (1,216)
Decrease (increase) in other assets (361) 119
Increase (decrease) in accounts payable,
accrued expenses and employee
compensation (667) (111)
Decrease in other liabilities (124) (339)
------ ------
Net cash provided by (used for) operating
activities 501 (1,138)
------ ------
Cash flows from investing activities:
Advances to Amati (550) -
Purchase of short-term investments (5,862) (5,432)
Liquidation of held-to-maturity investments 6,885 1,793
Capital expenditures (61) (77)
Capitalized software development costs - (390)
------ ------
Net cash provided by (used for) investing
activities 412 (4,106)
------ ------
Cash flows from financing activities:
Payment of lease obligations (76) (78)
Repurchase of common stock (563) (947)
Proceeds from exercise of stock options 2 65
------ ------
Net cash used for financing activities (637) (960)
------ ------
Net increase (decrease) in cash and cash equivalents 276 (6,204)
Beginning balance-cash and cash equivalents 645 8,800
------- -------
Ending balance-cash and cash equivalents $ 921 $ 2,596
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 7 $ 17
======= =======
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</FN>
</TABLE>
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 29, 1995
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring entries) considered necessary for
a fair presentation have been included. For further information,
refer to the financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended July 30,
1994. The results for the period are not necessarily indicative
of results for the full fiscal year.
Note B - Net Income Per Share
Net income per share is based on the weighted average number of
shares outstanding of common stock and common stock equivalents
(when dilutive) using the treasury stock method.
Note C - Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market and are comprised of the following:
April 29, 1995 July 30, 1994
---------------- -------------
Finished goods $ 2 $ 64
Work in progress 632 477
Purchased and service parts 427 854
---------- ---------
$ 1,061 $ 1,395
========== =========
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
April 28, 1995
(Unaudited)
Note D - Adoption of SFAS No. 115
The Company adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" as of
July 31, 1994. SFAS No. 115 establishes standards for financial
accounting and reporting for investments in equity securities
that have readily determinable fair values and for all
investments in debt securities.
Each investment is classified into one of three categories: held-
to-maturity, available-for-sale and trading securities.
Investments which the Company has the intent and ability to hold
until maturity are classified as held-to-maturity securities and
are reported at amortized cost. Trading securities are
investments which are bought and held principally for the purpose
of selling them in the near term and are reflected at fair value
with unrealized gains and losses included in earnings. Available-
for-sale securities represent all investments not classified as
either held-to-maturity or trading and are reported at fair value
with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity.
The adoption of SFAS No. 115 did not have a material impact on
the Company's financial statements.
Note E - Litigation
In November 1993, an action was brought against the Company for damages
related to the use of the Company's products. The plaintiff filed a suit
claiming repetitive stress injuries resulting from the use of the Company's
product in the course of employment with American Airlines from the period
May 1981 through July 1991. The plaintiff alleges damages in the amount of $1
million and punitive damages of $10 million. The Company believes that the
claim is without merit and has tendered defense of this action to its
insurance carriers. In the opinion of managment, the outcome of this
litigation will not have a material adverse effect on the Company's finacial
position or its results of operations. The Company is not involved in any
other substantial litigation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total net sales in the third quarter of fiscal 1995 increased
62% to $3,036,000 from sales of $1,870,000 in the third quarter
of the prior fiscal year. For the first nine months of fiscal
1995, net sales increased 50% to $8,737,000 compared to sales of
$5,837,000 for the comparable fiscal 1994 nine-month period. The
increase for both the third quarter and nine months of fiscal
1995 is a result of shipments to the Company's largest Original
Equipment Manufacturer ("OEM") customer, International Business
Machines ("IBM"), of LAN products launched into the market in late
fiscal 1994. In addition, royalty revenues were realized in fiscal
1995 from another new product developed by the Company and released
by IBM in July 1994.
Sales to IBM accounted for 81% of the Company's revenue in both the
third quarter and nine months of fiscal 1995 compared with 60%
and 63% respectively, for the comparable periods of fiscal 1994.
Sales to IBM continue to account for a substantial portion of
the Company's revenues and, consequently, the Company's business
continues to be volatile due to its dependence on a dominant customer.
Since IBM considers product sales and market data confidential,
the Company has very little ability to forecast future demand.
Because IBM has the exclusive responsibility for marketing and
selling of the products that ICOT develops for IBM, the Company's
profitability can be significantly affected by IBM's success in the
market place.
PC to Mainframe Connectivity sales of $532,000 and $1,642,000 in
the third quarter and the nine months of fiscal 1995 represent
a decrease of 29% and 25%, respectively, when compared with the
same periods of the prior fiscal year due to reduce royalties recieved
from an OEM customer and a general decline in the Company's connectivity
market share.
Gross margins as a percent of sales were 39% in the third
quarter and 42% for the nine months of fiscal 1995 compared
with 47% and 49% for the same periods of fiscal 1994. The
decrease in margins was primarily attributable to product mix
resulting from shipment of new products in the current fiscal
year. Amortization of capitalized software costs charged to cost
of sales were $205,000 and $249,000 in the third quarter and nine
months of fiscal 1995, respectively. There was no amortization
expense in the comparable periods of the prior fiscal year.
<PAGE>
Net research and development expenses increased 19% to $353,000
in the third quarter and 19% to $1,281,000 in the nine months
of fiscal 1995 when compared to the same periods of fiscal 1994.
Research and development expenses are net of software development
costs capitalized in accordance with Statement of Financial
Accounting Standards No. 86 ("SFAS 86") and of funded development
costs. During fiscal 1995 there was no capitalization of
software development costs, resulting in higher expenses for the
current period. Software development costs capitalized in the
third quarter and nine-month period of the prior fiscal year were
$125,000 and $390,000 , respectively. Funded development costs
in the third quarter and nine-month period of fiscal 1995 were
$222,000 and $470,000 compared with $96,000 and $395,000,
respectively, for the comparable periods of fiscal 1994. The
Company believes that research and development is a key element
in its ability to compete and will continue to make investments
in product development and its support of product reliability.
Marketing and sales expenses in the third quarter of fiscal 1995
decreased by $39,000 or 20% from the comparable quarter of fiscal
1994. Such expenses were higher by $101,000 or 15% for the nine-
month period of the current fiscal year when compared to last fiscal
year due to the Company's participation in trade shows and sales
promotion related to the PC-Connectivity business and the hiring
of additional inside sales personnel.
General and administrative expenses decreased by $90,000 or 33%
in the third quarter and $134,000 or 14% for the nine-month
period of fiscal 1995 when compared with the same periods of prior
fiscal year. Lower occupancy costs, combined with reduced legal,
audit and professional fees, contributed to reduced spending levels.
Interest income increased to $72,000 in the third quarter and
$198,000 for the nine months of fiscal 1995 when compared with the
same periods of fiscal 1994. This increase is primarily due to
higher interest yields on short-term investments.
The provision for income taxes in the third quarter and nine-
month period of fiscal 1995 were $23,000 and $51,000 compared to
$12,000 and $22,000 for the comparable periods of 1994. This
provision was a result of net operating profit after benefit of
Federal net operating loss carry forwards.
Liquidity and Capital Resources
The Company had cash and short term investments of $5,290,000 as
of April 29, 1995, compared to $6,037,000 as of July 30, 1994. Such
amount was subsequently reduced, primarily as a result of loans to
Amati. See "Acquisition of Amati".
Cash provided by operating activities of $501,000 resulted
primarily from $960,000 net operating profit realized in fiscal
1995, offset by a decrease in accrued expenses of $667,000.
Cash provided by investing activities of $412,000 related primarily
to the liquidation of $6,885,000 of short-term investments upon
their maturity, offset by the purchase of $5,862,000 of short-term
investments. As of April 29, 1995 the Company has advanced to Amati
$550,000 of working capital loans under a senior promissory note
which is secured by Amati's proprietary technology, bearing interest
at 7.91% per annum and are due on March 21, 1996.
Cash used for financing activities in fiscal 1995 of $637,000 was
primarily due to the Company's repurchase of 537,347 shares of
its own common stock for $563,000 and payments of capital lease
obligations of $76,000, offset by proceeds from the exercise
of stock options of $2,000. These stock repurchases have been
discontinued and the Company does not expect to continue to
repurchase any additional common stock.
<PAGE>
Currently, the Company does not have a bank line of credit.
Establishment of a credit line renewal is underway following
a review of cash requirements for the combined business operations
of ICOT and Amati. The Company anticipates that its available cash
reserves and funds from improved operating margins, collaborative
research and devolopment agreements, licensing agreements and
investment income should be adequate to satisfy cash requirements
of the combine business entity into the first half of fiscal 1996 under
currently projected revenues and planned levels of spending. The Company's
future capital requirements will depend on many factors, including
sales levels, progress in its research and development programs,
the establishment of collaborative agreements, cost of manufacturing and
commercialization activities and the demand for the Company's products,
if and when developed.
The Company had no material commitments for capital expenditures
as of April 29, 1995. It is the Company's policy to monitor
the state of its business, cash requirements, and capital
structure.
Acquistion of Amati
On May 15,1995 the Company signed a definitive agreement to merge
with Amati Communications Corporation, a privately held Mountain View,
California based company, subject to the approval of the shareholders
of both companies and registration of the ICOT shares to be issued in
the merger. Amati is a devolopment stage company that develops advanced
transmission systems utilizing Discrete Multi-tone ("DMT") technology
to provide high speed transmission over copper and cable media. The merger
is expected to be completed in approximately three months. Under the terms
of the agreement, after the merger, the shareholders, and warrant and
option holders of Amati will aquire shares, warrants and options
totaling 45% of the fully diluted shares of ICOT. Because Amati is
a development stage company, the combination will have an adverse effect
on the combined company's financial position and results of operations
in the forseeable future. However, the combination with Amati is expected
to provide ICOT with a leading edge technology in an emerging market of
significant potential.
Pursuant to the definitive agreement with Amati Communications Corporation,
the Company agreed to loan $3,400,000 under Senior Secured Promissory Notes.
As of June 8, 1995 the outstanding aggregate principal amount advanced to
Amati is $2,433,000.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
fiscal quarter ended April 29, 1995.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
ICOT CORPORATION
----------------
(Registrant)
Dated: June 9, 1995 /S/ AAMER LATIF
--------------------------
Aamer Latif
Director, President,
Chief Executive Officer and
Chief Financial Officer
Dated: June 9, 1995 /S/ TERRY MEDEL
------------------------------------
Terry Medel
Controller, Treasurer, Secretary and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> APR-29-1995
<CASH> 5290
<SECURITIES> 0
<RECEIVABLES> 1649
<ALLOWANCES> 21
<INVENTORY> 1061
<CURRENT-ASSETS> 9516
<PP&E> 3491
<DEPRECIATION> 2830
<TOTAL-ASSETS> 10730
<CURRENT-LIABILITIES> 1244
<BONDS> 0
<COMMON> 2284
0
0
<OTHER-SE> 6907
<TOTAL-LIABILITY-AND-EQUITY> 10730
<SALES> 8737
<TOTAL-REVENUES> 8737
<CGS> 5061
<TOTAL-COSTS> 5061
<OTHER-EXPENSES> 2856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 1011
<INCOME-TAX> 51
<INCOME-CONTINUING> 960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 960
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
