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..............January 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...............
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 March 9, 1995 11,421,827 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 Six Months Ended
----------------------- -----------------------
January 28, January 29, January 28, January 29,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $2,638 $2,012 $5,701 $3,967
Cost of sales 1,446 927 3,194 1,978
----- ----- ----- -----
Gross margin 1,192 1,085 2,507 1,989
Operating expenses:
Research and development 421 378 928 781
Marketing and sales 216 252 521 459
General and administrative 293 377 631 675
----- ----- ----- -----
Total operating expenses 930 1,007 2,080 1,915
Income from operations 262 78 427 74
Other income (expense):
Interest income 63 60 125 117
Interest expense (2) (6) (6) (12)
----- ----- ----- -----
Total other income 61 54 119 105
Income before income taxes 323 132 546 179
Provision for income taxes 16 10 27 10
----- ----- ----- -----
Net Income $ 307 $ 122 $ 519 $ 169
====== ====== ====== ======
Net Income Per Share $ 0.03 $ 0.01 $ 0.04 $ 0.01
====== ====== ====== ======
Weighted Average Number of
Common Shares and Common
Share Equivalents 11,444 12,356 11,625 12,441
====== ====== ====== ======
<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)
January 28, July 30,
1995 1994
(Unaudited)
----------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,135 $ 645
Short-term investments 4,427 5,392
Accounts receivable, less allowance of
$24 in 1995 and $25 in 1994 1,276 1,405
Inventories 1,439 1,395
Other current assets 828 626
------- -------
Total current assets 9,105 9,463
Equipment and leasehold improvements-net 750 933
Other assets 951 995
------- -------
Total Assets $ 10,806 $ 11,391
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized
lease obligations $ 37 $ 82
Accounts payable and accrued expenses 1,507 1,756
Employee compensation 216 333
------- -------
Total current liabilities 1,760 2,171
------- -------
Long-term liabilities:
Capitalized lease obligations, less
current maturities 3 10
Obligations under lease commitments 294 418
------- -------
Total long-term liabilities 297 428
------- -------
Stockholders' equity 8,749 8,792
------- -------
Total Liabilities and Stockholders' Equity $ 10,806 $ 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)
Six Months Ended
--------------------------
January 28, January 29,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 519 $ 169
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 239 207
Retirement of capital equipment 1 16
Decrease (increase) in accounts receivable 129 (348)
Increase in inventories (44) (880)
Decrease (increase) in other assets (202) 132
Increase (decrease) in accounts payable,
accrued expenses and employee
compensation (366) 624
Decrease in other liabilities (124) (176)
------ ------
Total adjustments (367) (425)
------ ------
Net cash provided by (used for) operating
activities 152 (256)
------ ------
Cash flows from investing activities:
Purchase of short-term investments (3,437) (6,633)
Liquidation of held-to-maturity investments 4,402 1,793
Capital expenditures (13) (20)
Capitalized software development costs - (265)
------ ------
Net cash provided by (used for) investing
activities 952 (5,125)
------ ------
Cash flows from financing activities:
Payment of lease obligations (52) (51)
Repurchase of common stock (564) (947)
Proceeds from exercise of stock options 2 33
------ ------
Net cash used for financing activities (614) (965)
------ ------
Net increase (decrease) in cash and cash equivalents 490 (6,346)
Beginning balance-cash and cash equivalents 645 8,800
------- -------
Ending balance-cash and cash equivalents $ 1,135 $ 2,454
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 6 $ 12
======= =======
<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
January 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 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:
January 28, 1995 July 30, 1994
---------------- -------------
Finished goods $ 2 $ 64
Work in progress 1,018 477
Purchased and service parts 419 854
---------- ---------
$ 1,439 $ 1,395
========== =========
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
January 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Total net sales in the second quarter of fiscal 1995 increased
31% to $2,638,000 from sales of $2,012,000 in the second quarter
of the prior fiscal year. For the first six months of fiscal
1995, net sales increased 44% to $5,701,000 compared to sales of
$3,967,000 for the comparable fiscal 1994 six-month period. The
increase for both the second quarter and first half of fiscal
1995 is a result of shipments to the Company's largest Original
Equipment Manufacturer ("OEM") customer, International Business
Machines ("IBM"), of products launched into the market in 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 the
second quarter and first half of fiscal 1995 compared with 64%
for the comparable periods of fiscal 1994. These sales 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. While IBM has
the exclusive responsibility for marketing and selling of the
products that ICOT develops, the Company's profitability can be
significantly affected by IBM's success in the market place.
PC to Mainframe Connectivity sales of $508,000 and $1,110,000 in
the second quarter and first six months of fiscal 1995 represent
a decline of 30% and 23%, respectively, when compared with the
same periods of the prior fiscal year. The Company is continuing
its efforts to look for additional opportunities, principally OEM
arrangements, to incorporate its technology into other marketed
products. It has sought to form alliances with companies that
have established market positions but are lacking in data
communication solutions. To date, the Company's efforts have not
resulted in any definitive arrangements.
Gross margins as a percent of sales were 45% in the second
quarter and 44% for the first six months of fiscal 1995 compared
with 54% and 50% 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 $23,000 and $44,000 in the second quarter and first
six 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 11% to $421,000
in the second quarter and 19% to $928,000 in the first six 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 were no capitalized software
development costs, resulting in higher expenses for the current
period. Software development costs capitalized in the second
quarter and six-month period of the prior fiscal year were
$115,000 and $265,000 , respectively. Funded development costs
in the second quarter and six-month period of fiscal 1995 were
$153,000 and $248,000 compared with $146,000 and $299,000,
respectively, 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 second quarter of fiscal 1995
decreased by $36,000 or 14% from the comparable quarter of fiscal
1994. Expenses were higher by $62,000 or 14% for the six-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 $84,000 or 22%
in the second quarter and $44,000 or 7% for the six months 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 favorable spending levels.
Interest income increased to $63,000 in the second quarter and
$125,000 for the six 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 second quarter and six-
month period of fiscal 1995 were $16,000 and $27,000 compared to
$10,000 for the second quater and six-month period of fiscal 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 $5,562,000 as
of January 28, 1995, compared to $6,037,000 as of July 30, 1994.
Cash provided by operating activities of $152,000 resulted
primarily from improved net operating profit realized in the
first half of fiscal 1995, offset by a decrease in accrued
expenses.
Cash provided by investing activities of $952,000 related primarily
to the liquidation of $4,402,000 of short-term investments upon
their maturity, offset by the purchase of $3,437,000 of short-term
investments. There were no capitalized software costs in the current
fiscal year. In the same period of fiscal 1994, however, $265,000
was used for capitalization of internal software development costs.
Cash used for financing activities in fiscal 1995 of $614,000 was
primarily due to the Company's repurchase of 537,347 shares of
its own common stock for $564,000 and payments of capital lease
equipment obligations of $52,000, offset by proceeds from the
exercise of stock options of $2,000. In September 1994 the
Company's Board of Directors approved an additional repurchase of
1,500,000 shares of its common stock. These purchases are to be
made from time to time in the open market.
<PAGE>
Currently, the Company does not have a bank line of credit.
Establishment of a credit line renewal is subject to the
Company's review of its cash requirements. The Company believes
that its current cash and short-term investments will be
sufficient to meet its cash requirements for the fiscal year.
The Company's ability to satisfy its cash requirements beyond its
current cash balances is subject to uncertainties in generating
cash flow from improved operating margins.
The Company had no material commitments for capital expenditures
as of January 28, 1995. It is the Company's policy to monitor
the state of its business, cash requirements, and capital
structure.
<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
January 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: March 9, 1995 /S/ AAMER LATIF
--------------------------
Aamer Latif
Director, President,
Chief Executive Officer and
Chief Financial Officer
Dated: March 9, 1995 /S/ TERRY MEDEL
------------------------------------
Terry Medel
Controller, Treasurer, Secretary and
Chief Accounting Officer
