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.....October 28, 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........
AMATI COMMUNICATIONS CORPORATION
(Formerly 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 December 8, 1995 16,700,119 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
October 28, October 29,
1995 1994
<S> <C> <C>
Net sales $ 3,354 $ 3,063
Cost of sales 1,840 1,748
Gross margin 1,514 1,315
Operating expenses:
Research and development 360 507
Marketing and sales 60 305
General and administrative 321 338
Total operating expenses 741 1,150
Income from operations 773 165
Other income (expense):
Interest income 86 62
Interest expense --- (4)
Total other income 86 58
Income before income taxes 859 223
Provision for income taxes 43 11
Net Income $ 816 $ 212
Net Income Per Share $ 0.07 $ 0.02
Weighted Average Number of
Common Shares and Common
Share Equivalents 12,264 11,599
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ICOT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
October 28, July 29,
1995 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 691 $ 1,066
Short-term investments 1,992 2,425
Accounts receivable, less allowance of
$21 in 1996 and in 1995 2,010 1,933
Inventories 1,247 1,427
Other current assets 716 942
Total current assets 6,656 7,793
Equipment and leasehold improvements-net 510 586
Amati advances and acquisition costs 5,657 3,240
Other assets 431 492
Total Assets $ 13,254 $ 12,111
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized
lease obligations $ 6 $ 10
Accounts payable and accrued expenses 1,096 1,231
Employee compensation 211 350
Total current liabilities 1,313 1,591
Long-term liabilities:
Obligations under lease commitments 294 294
Total long-term liabilities 294 294
Stockholders' equity 11,647 10,226
Total Liabilities and Stockholders'
Equity $ 13,254 $ 12,111
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ICOT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
October 28, October 29,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 816 $ 212
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 136 94
Retirement of capital equipment 3 1
Increase in accounts receivable (77) (556)
Decrease (increase) in inventories 180 (109)
Decrease (increase) in other assets 226 (95)
Increase (decrease) in accounts payable,
accrued expenses and employee compensation (274) 56
Decrease in other liabilities --- (67)
Net cash provided by (used for) operating
activities 1,010 (464)
Cash flows from investing activities:
Advances to Amati and acquisition costs incurred (2,417) ---
Purchases of held-to-maturity investments (1,992) (999)
Proceeds from maturities of held-to-maturity
investments 2,425 1,972
Capital expenditures (2) (10)
Net cash provided by (used for) investing
activities (1,986) 963
Cash flows from financing activities:
Payment of lease obligations (4) (25)
Repurchase of common stock --- (512)
Proceeds from exercise of stock options 605 2
Net cash provided by (used for) financing
activities 601 (535)
Net decrease in cash and cash equivalents (375) (36)
Beginning balance-cash and cash equivalents 1,066 645
Ending balance-cash and cash equivalents $ 691 $ 609
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ --- $ 4
<FN>
The accompanying notes are integral part of these consolidated condensed
financial statements.
</TABLE>
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
October 28, 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 29, 1995. The results for the period are not necessarily indicative
of results for the full fiscal year.
On November 28, 1995, the Company announced the completion of its merger
with Amati Communications Corporation ("Amati"). Since the transaction
was completed October 28,1995, the merger, which will be accounted for as
a purchase, is not reflected in the accompanying condensed financial
statements.
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:
October 28, 1995 July 29, 1995
Finished goods $ 6 $ 1
Work in process 527 711
Purchased and service parts 714 715
$ 1,247 $ 1,427
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
October 28, 1995
(Unaudited)
Note D - 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 form 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 management, the outcome of
this litigation will not have a material adverse effect on the Company's
financial 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
Overview
On November 28, 1995 - ICOT Corporation and Amati Communications Corporation
("Amati"), a privately held Mountain View, California based company announced
the completion of the merger by which Amati became a wholly-owned subsidiary
of ICOT. The name "ICOT Corporation" has been changed to "Amati
Communications Corporation" and its common stock began trading on the Nasdaq
National Market under the symbol "AMTX" on November 29, 1995. Amati is a
development stage company that develops advanced transmission systems
utilizing Discrete Multi-tone ("DMT") technology to provide high speed
transmission over copper and cable media. Under the terms of the Merger
Agreement with Amati, the shareholders, warrant holders and option holders
of Amati acquired approximately 35% (6,788,924) of the fully diluted shares
of the Company. The combined company is not expected to operate profitably
in the foreseeable future.
Results of Operations
Total net sales in the first quarter of fiscal 1996 increased 10% to
$3,354,000 from sales of $3,063,000 in the first quarter of the prior
fiscal year. This is a result of shipments to the Company's largest Original
Equipment Manufacturer ("OEM") customer of LAN products, International
Business Machines ("IBM"), and an increase in royalty revenues from another
new product developed by the Company for IBM.
Sales to IBM accounted for 80% of the Company's revenue in both quarters of
fiscal 1996 and 1995. This continues 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 $644,000 in the first quarter of
fiscal 1996 represents an increase of 7%, when compared with the same quarter
of the prior fiscal year due to a single large order from an OEM customer.
Gross margins as a percent of sales increased to 45% in the first quarter of
fiscal 1996 from 43% in the same period of fiscal 1995. The increase in
margins was primarily attributable to product mix resulting from shipment of
new products and additional royalty revenues in the current fiscal year.
Amortization of capitalized software costs charged to cost of sales were
$61,000 and $21,000 in the first quarter of fiscal 1996 and 1995,
respectively.
<PAGE>
Net research and development expenses decreased 29% to $360,000 in the first
quarter of fiscal 1996 when compared to the same period of the prior year due
to a reduction of engineers engaged in PC Connectivity product development
resulting from a general decline in the Company's market share. Research and
development expenses are net of funded development costs. Funded development
costs in the first quarter of fiscal 1996 were $5,000 compared with $95,000
for the comparable period of fiscal 1995. There was no capitalization of
software development costs in either fiscal quarter. 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 first quarter of fiscal 1996 decreased
by $245,000 or 81% from the comparable quarter of fiscal 1995. Such expenses
were higher in the prior fiscal quarter due to the Company's hiring of
additional inside sales personnel and more participation in trade shows and
sales promotion related to the PC-Connectivity business.
General and administrative expenses decreased by $17,000 or 5% from the
comparable quarter of fiscal 1995. Lower occupancy costs, combined with
reduced legal, audit and professional fees, contributed to the reduced
spending levels.
Interest income increased to $86,000 in the first quarter of fiscal 1996
compared with the same period of fiscal 1995. This increase is primarily
due to higher interest yields on short-term investments and interest of
$52,000 on secured promissory notes receivable from Amati.
The provision for income taxes in the first quarter of fiscal 1996 were
$43,000 compared to $11,000 for the comparable period of fiscal 1995.
This provision was a result of net operating profit after benefit of Federal
net operating loss carryforwards. Tax provisions were required for Federal
alternative minimum tax and California state taxes due to limitations on the
use of California's loss carryforwards.
Liquidity and Capital Resources
The Company had cash and short term investments of $2,683,000 as of
October 28, 1995, compared to $3,491,000 as of July 29, 1995.
Cash provided by operating activities of $1,010,000 resulted primarily from
$816,000 of net income offset by a decrease in accrued expenses and
liabilities.
Cash used for investing activities of $1,986,000 resulted primarily from
$2,417,000 of acquisition costs and advances to Amati. During the current
fiscal quarter $2,425,000 of proceeds were received upon maturities of
held-to-maturity investments, offset by purchases of $1,992,000.
Cash provided by financing activities of $601,000 was primarily due to
proceeds from the exercise of stock options of $605,000 offset by payments
on capital lease obligations.
<PAGE>
Currently, the Company does not have a bank line of credit. Establishment
of a credit line is underway following a review of cash requirements for the
combined business operations. The Company anticipates that available cash
reserves, along with its collaborative research and development agreements,
licensing agreements and investment income should be adequate to satisfy
capital requirements of the Company through the 1996 fiscal year under
currently projected revenues and levels of spending. The Company's future
capital requirements will depend on many factors, including sales levels,
progress in research and development programs, the establishment of
collaborative agreements, and costs of manufacturing facilities and
commercialization activities. It is likely that the Company will seek
additional funding through collaborative agreements or through public or
private sale of securities prior to the commercialization of Amati products.
The Company had no material commitments for capital expenditures as of
October 28, 1995.
Pursuant to the Merger Agreement with Amati, the Company agreed to lend Amati
up to $5,500,000 in exchange for a senior secured promissory note due and
payable on the earlier of November 30, 1995 or a material breach by Amati of
the Merger Agreement, the ("New Amati Note"). The outstanding principal and
interest due on the New Amati Note was approximately $5,275,000 as of
October 28, 1995. The New Amati Note was subsequently cancelled in
conjunction with the merger. The outstanding principal and interest were
included in the total purchase price allocated among the assets and
liabilities upon completion of the merger on November 28, 1995.
It is the Company's policy to monitor the state of its business, cash
requirements, and capital structure.
Effects of Recent Accounting Pronouncements
In October, 1995, the Financial Accounting Standards Board issued a Statement
of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock Based
Compensation." The Company does not expect the new pronouncement to have an
impact on its results of operations since the intrinsic value based method
prescribed by APB Opinion No. 25 and also allowed by SFAS No. 123 will
continue to be used.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.15 Severance Agreement dated May 15, 1995, amended August 12,
1995 between Registrant and Aamer Latif is filed as Exhibit
10.15 hereto.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fiscal quarter
ended October 28, 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: December 8, 1995 /S/ JAMES STEENBERGEN
James Steenbergen
Director, President,
Chief Executive Officer and
Chief Financial Officer
Dated: December 8, 1995 /S/ TERRY MEDEL
Terry Medel
Controller, Treasurer,
Secretary and
Chief Accounting Officer
August 12, 1995
Mr. Aamer Latif
ICOT Corporation
3801 Zanker Road
San Jose, California
Severance Agreement
Dear Aamer:
The Board of Directors of ICOT Corporation has approved the following
amendment to the Severance Agreement dated as of May 15, 1995 between ICOT
Corporation and you: The 18 month period referenced in Section 2(a) of the
Agreement is extended to 24 months.
The Severance Agreement is amended to the extent stated above, and
otherwise remains in full force and effect in accordance with its terms.
Please sign below to acknowledge this amendment and the effectiveness of the
Severance Agreement.
Sincerely,
Arnold Silverman
Director
Acknowledged:
_________________
Aamer Latif
<PAGE>
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT ("Agreement"), dated as of May 15, 1995, is
entered into by and between ICOT Corporation, a Delaware corporation with its
principal office at 3801 Zanker Road, San Jose, California 95150 (the
"Corporation"), and Aamer Latif, whose home address is 2047 Blue Ridge Drvie,
Milipitas, CA 95035 (the "Executive").
WHEREAS, the Executive currently serves the Corporation as its Chief
Executive Officer (CEO) and sits on its Board of Directors; and
WHEREAS, the Corporation is contemplating entering into a business
combination with Amati Communications Corporation ("Amati"); and
WHEREAS, the Corporation wishes to provide for severance benefits for
the Executive as a consequence of merger with Amati, which will result in the
election of a new CEO for the Corporation;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the Corporation and the Executive agree as follows:
1. GENERAL.
Nothing in this Agreement is intended to modify any of the
existing terms and conditions of the Executive's employment with the
Corporation or to create any express or implied contract of employment,
except as specifically provided herein.
2. SEVERANCE PAY ELIGIBILITY.
(a) If the Corporation terminates the Executive's employment
after signing a definitive merger agreement with Amati and prior to six
months after a new CEO is appointed, the Executive will be offered the
following severance: (i) Salary continuation for eighteen (18) months, paid
on the Corporation's regular paydays; and (ii) payment by the Corporation for
continuation of all employee benefits (the medical benefits will be paid by
the Corporation's paying COBRA insurance premiums on behalf of the
Executive), excluding vacation and sick time. If the benefits cannot be
provided under any applicable benefits plans or applicable law, the
Corporation and the Executive will use their best efforts to provide the
benefits to the Executive in another manner. The Corporation will cancel
the Executive's options granted under the 1981 Incentive and Supplemental
Stock Option Plans and regrant them at the same exercise prices, with the
same expiration dates, and with the same vesting schedules under the
Corporation's 1990 Stock Option Plan. In case of the Executive's death,
these benefits will be extended to the Executive's spouse and dependents.
<PAGE>
(b) In the event the Executive is not offered a position after
a new CEO is appointed that is considered satisfactory by the Executive, the
Corporation will terminate his employment and offer him the severance
compensation described in paragraph 2(a) above, if (and only if) all of the
following occur:
(i) a merger is closed between the Corporation and
Amati; and
(ii) the Executive waits until a reasonable
transition period has elapsed after a new CEO is appointed before he leaves
the Corporation; and
(iii) the Executive's departure from the Corporation takes
place no more than six months after a new CEO is appointed.
(c) If the Executive should become eligible for the severance
compensation described in paragraph 2(a) and if he should cease being a
Director on the Board of the Corporation prior to the end of his severance
benefits, the Executive will be retained as an independent consultant to the
Corporation. For the consulting services, the Executive's pay will be
negotiated between the parties.
3. BUSINESS JUDGMENT. Nothing contained herein shall in any way
limit, restrict or interfere with the determination of the officers and
directors of the Corporation as to the manner in which the Corporation
business shall be run.
4. COUNTERPARTS. This Agreement may be executed simultaneously
in two (2) or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
5. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
between the parties relating to the Executive's entitlement to severance
compensation or benefits arising out of the Corporation's entering into a
business combination with Amati, and there are no representations, agreements
or understandings between the parties relating thereto except as set forth
or specifically referred to herein and with the exception of the ICOT
Corporation Nondisclosure Statement/Confidentiality Agreement, which remains
in full force and effect.
<PAGE>
6. NOTICES. All notices shall be sent to the parties by hand
delivery or by certified or registered mail at the addresses set forth above
or to any changed address which may be given in writing hereafter. Unless
hand delivered, notices shall be deemed given three business days following
the date deposited in the U.S. mails or one business day following the date
of delivery to a nationally recognized overnight courier service.
7. SEVERABILITY. In the event that this Agreement or any provision
hereof is declared invalid, unenforceable or illegal by any court, agency,
commission or arbitrators) having jurisdiction hereof or thereof, neither
party shall have any cause of action or claim against the other by reason of
such declaration of invalidity, unenforceability or illegality; and any such
declaration concerning any provision hereof shall not affect, impair or
invalidate the remainder of this Agreement, but shall be confined in its
operation to that provision hereof only and the remainder of this Agreement
shall remain in full force and effect. The parties hereto agree to
substitute the invalid, unenforceable or illegal provision by a valid,
enforceable or legal one which corresponds to the spirit and purpose of the
invalid, unenforceable or illegal provisions to the greatest extent possible.
8. AMENDMENT. This Agreement may not be changed, modified or
amended in any manner except by an instrument in writing signed by all
parties hereto.
9. ASSIGNMENT. This Agreement is personal to each of the parties
hereto and no party hereto may assign or delegate any of its rights or
obligations hereunder without first obtaining the written consent of the
other party hereto; provided, however, that no consent shall be required
hereunder in the event that the Corporation assigns this Agreement to any
other entity or person which shall succeed to the business of the Corporation
and which assignment does not materially alter the rights or duties of the
Executive hereunder, in which event the obligations of the Corporation
hereunder shall be binding upon such assignee.
10. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
11. WAIVER. No failure or delay on the part of any party hereto in
the exercise of any right hereunder in enforcing or requiring the compliance
or performance by the other party of any of the terms and conditions of this
Agreement shall operate as a waiver of any such right, or constitute a waiver
of a breach of any such terms and conditions, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of
any other right, nor shall any of the aforementioned failures or delays
affect or impair such rights generally in any way. The waiver by any party
of a breach of any term or condition of this Agreement by the another party
shall not operate as nor be construed as a waiver of any subsequent breach
thereof.
<PAGE>
12. GOVERNING LAW. This Agreement and its validity, construction
and performance shall be governed in all respects by the laws of the State
of California, without giving effect to its conflicts of laws principles.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement,
as of the date first above written.
/S/ AAMER LATIF
Aamer Latif
ICOT Corporation
By:/S/ ARNOLD SILVERMAN
Its CHAIRMAN
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-27-1996
<PERIOD-START> JUL-30-1995
<PERIOD-END> OCT-28-1995
<CASH> 2683
<SECURITIES> 0
<RECEIVABLES> 2031
<ALLOWANCES> 21
<INVENTORY> 1247
<CURRENT-ASSETS> 6656
<PP&E> 3451
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0
0
<OTHER-SE> 9234
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<CGS> 1840
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</TABLE>
