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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 29, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-4187
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ICOT CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-1675494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 ZANKER ROAD P.O. BOX 5143, SAN JOSE, 95150-5143
CA
(Address of principal (Zip Code)
executive offices)
</TABLE>
Registrant's telephone number, including area code: (408) 433-3300
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
NONE
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Securities registered pursuant to Section 12(g) of the Act:
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<CAPTION>
TITLE OF CLASS
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<S> <C>
COMMON STOCK, $.20 Par Value
</TABLE>
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K /X/
The approximate aggregate market value of the registrant's common stock held
by non-affiliates on October 20, 1995 (based upon the closing sales price of
such stock as reported in the National Market by NASDAQ as of such date) was
$45,242,258.
As of October 20 1995, 12,064,602 shares of Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Proxy Statement/Prospectus included in the
Registrant's Amendment No. 3 to Form S-4 Registration Statement (File No.
33-62023) are incorporated by reference into Part III.
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ICOT CORPORATION
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business..................................................................... 1
Item 2. Properties................................................................... 4
Item 3. Legal Proceedings............................................................ 4
Item 4. Submission of Matters to a Vote of Security Holders.......................... 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 5
Item 6. Selected Financial Data...................................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 5
Item 8. Financial Statements and Supplementary Data.................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 23
Item 11. Executive Compensation....................................................... 24
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 25
Item 13. Certain Relationships and Related Transactions............................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 26
SIGNATURES.............................................................................. 30
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
ICOT Corporation (the "Company") operates a one-segment business for which
it develops, manufactures, markets and services network connectivity products
for sales primarily to Original Equipment Manufacturers ("OEM"). These products
are used primarily in two applications:
- International Business Machines Corporation ("IBM") compatible personal
computers ("PC") to IBM mainframe connectivity applications in Local Area
Networks ("LAN")s.
- Bridge products for interconnecting Token-Ring LANs, Token-Ring and
Ethernet LANs, and Token-Ring LANs over Wide Area Networks ("WAN").
The Company was incorporated under the laws of the state of Delaware in 1968
as Microform Data Systems, Inc. and changed its name to ICOT Corporation in
1980. The Company's principal offices are at 3801 Zanker Road, P.O. Box 5143,
San Jose, California 95150, and its telephone number is (408) 433-3300.
PRODUCTS
The Company's products are mainly used by large companies with mainframes
and significant PC network applications such as insurance, transportation,
financial service, manufacturing, banking and brokerage companies.
The Company's PC to Mainframe Connectivity products consist of 3270
emulation products which are Disk Operating System ("DOS") and Microsoft Windows
based software and microcomputer boards (with extensive firmware) that reside in
an IBM or IBM compatible PC, and enable the PC to communicate, access and
transfer data through Systems Network Architecture ("SNA") to IBM or IBM
compatible mainframes. The Company sells single user and LAN gateway versions of
all its products. LAN gateways allow multiple PC users, attached directly to
Token-Ring, Ethernet and other LANs, to access SNA networks through one shared
link.
The Company markets its PC to Mainframe Connectivity products to selected
niche markets: OEMs, Application Program Interface ("API") and strategic
end-user market segments of the Windows and DOS Connectivity markets. The
Company's connectivity market share and revenues have been declining over the
past three years and are expected to continue to decline.
During the past several years, the Company has undertaken several projects
where it has designed, developed and manufactured custom communications products
for IBM. Pursuant to its principal agreement with IBM, the Company furnishes
engineering, manufacturing, and assembly services for the manufacture of LAN
bridge products in accordance with IBM specifications, and upon receipt of
purchase orders for the products. The LAN bridge products were upgraded during
fiscal 1994 and shipping of the new family of LAN bridge products commenced in
January 1994. The new family of products, while priced lower, has more features
and options, and offers significantly higher performance than the earlier bridge
products. The principal agreement with IBM, amended in December 1993, has been
extended until December 1996.
Under the terms of a second agreement, the Company provides development and
support services to IBM for a custom product. IBM launched this product in the
United States and Canada in July 1994. The product is currently being launched
in a number of European and Asian countries. In fiscal 1995, the Company
received royalty payments from IBM on sales of this product to end-customers.
Fiscal 1995 sales to IBM accounted for approximately 83% of the Company's
revenues. Since IBM considers product sales and market data confidential, the
company has very little ability to anticipate future demands. The Company is
highly dependent on sales to IBM and expects that quarterly and annual results
could be volatile due to its dependence on this dominant customer. IBM may
terminate
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its agreements with the Company upon 30 days' notice without a significant
penalty. Upon termination of the agreements, the Company has continuing
obligations to provide certain products and technical support for a period of
years, at a price then to be negotiated.
SERVICE
In the network connectivity business, the Company offers a 90-day warranty
and post-warranty support programs. Hardware products are typically serviced on
a factory repair basis. Software support is usually handled by phone
consultation or, less often, by an on-site visit by a systems engineer.
MANUFACTURING
The Company's products are assembled at its San Jose, California facility,
where test, quality assurance and material control activities are performed. The
Company has the capacity to increase its output without further expansion of its
physical plant and warehousing facilities.
Electronic and mechanical components, subassemblies and supplies are bought
from many independent suppliers. Although most components, subassemblies and
supplies are bought from single vendors, management believes that, with a few
exceptions, at least one alternative source of supply is available at comparable
cost for each component in its product lines. A few components are consigned by
IBM and there is no alternative source of supply for these components.
MARKETING
In the PC to Mainframe Connectivity market, the Company sells to end-users,
independent software vendors, OEMs, and through a small network of resellers.
Export sales in fiscal 1993, 1994 and 1995 represent 1%, 2% and 1%,
respectively, of total net sales. Export sales are shipments to locations
outside the United States, primarily Western Europe and Canada. These sales are
subject to certain controls and restrictions, but the Company has not
experienced any material difficulties related to these sales.
BACKLOG
As of the end of fiscal 1994 and 1995, the Company's backlog was
approximately $2,601,000 and $3,358,000, respectively. Of the July 29, 1995
backlog, $3,311,000 consists of orders from IBM and $47,000 of orders for
PC-Connectivity products. The Company anticipates that all of its current
backlog will be filled within the 1996 fiscal year.
RESEARCH AND DEVELOPMENT
Net research and development expenses totaled $2,533,000 (21% of net sales)
in fiscal 1993, $1,429,000 (17% of net sales) in fiscal 1994, and $1,595,000
(13% of net sales) in fiscal 1995. These amounts are net of software development
costs capitalized in accordance with SFAS No. 86 and of funded development
costs. In fiscal 1993 and 1994, capitalized software development costs totaled
$733,000 and $455,000, respectively. There was no capitalization of software
development costs in 1995. The amount of funded development costs totaled
$903,000, $549,000, and $637,000, respectively, for fiscal 1993, 1994 and 1995.
The amortization of capitalized software development costs charged to cost of
sales in fiscal 1993 and 1995 were $692,000 and $310,000, respectively. In
fiscal 1994, there was no amortization of capitalized software development costs
because there were no capitalized software projects available for general
release.
In the fourth quarter of fiscal 1993, capitalized software development costs
associated with the Company's PC-Connectivity products of $1,454,000 were
written off as part of its restructuring program, as further discussed in Notes
1 and 2 of Notes to Consolidated Financial Statements. As of July 30, 1994 and
July 29, 1995, there were no unamortized capitalized software development costs
related to the PC to Mainframe Connectivity business included in the Company's
Consolidated Balance Sheets.
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The Company had 12 full-time employees engaged in research and development
activities as of July 29, 1995. Its research and development efforts are
expended on the enhancement of existing products and for the development of new
products in order to meet rapidly changing customer requirements.
Significant expenditures include the following:
- Adaptation/portation/new code generation for new operating systems at the
PC and network operating system level.
- Development of OEM products to customer specifications.
- Improved reliability of existing products through extensive in-house
testing of products. The Company has a full in-house test facility
including a mainframe with extensive testing software, multiple LANs with
multiple PCs, local attach, token ring attach, and remote dial-in
capability, a mainframe emulator, protocol analyzers, IBM controllers,
terminals and printers and many other test tools which it uses to simulate
customers' complex multivendor, multiproduct environments.
The Company believes that research and development is a key element in its
ability to compete in the PC to Mainframe Connectivity and OEM markets and will,
accordingly, continue to make investments in new product development and
maintenance of product reliability.
COMPETITION
The PC to Mainframe Connectivity market is highly competitive and is
characterized by rapid advances in technology which frequently result in the
introduction of new products with improved performance characteristics, thereby
subjecting the Company's products to the risk of technological obsolescence. The
Company's ability to compete is dependent on several factors, including:
reliability, product performance, quality, features, distribution channels, name
awareness, customer support, product development capabilities, and the ability
to meet delivery schedules. It competes, directly or indirectly, with a broad
range of companies, many of whom have significantly greater financial and other
resources. In addition, the Company is only competing for a limited and
declining segment of the PC-Connectivity market, which is in itself declining.
Many companies compete in the PC to Mainframe Connectivity market, including
IBM, Attachmate Corporation, Eicon Group, Inc., Network Software Associates
Inc., Wall Data Incorporated, and Novell Inc. Products and policies of these
companies can adversely affect the Company's competitive position. A large
number of the Company's products interact with IBM equipment and support IBM
protocols. Thus, the development of new protocols, equipment or communications
systems by IBM could adversely affect its PC to Mainframe Connectivity
competitiveness.
PATENTS, TRADEMARKS AND LICENSES
The Company principally relies on its technological and engineering
resources to develop its business in an industry where technology changes very
fast. It does, however, consider the use of trademarks, copyrights and license
agreements as a means to protect its proprietary technology and, therefore, it
intends to seek and maintain protection where appropriate.
The Company holds one United States patent expiring in the year 2000 and one
Canadian patent expiring in the year 2001. These patents cover an apparatus for
interconnecting data communications and data terminal equipment which is no
longer an integral part of its product architecture. It also has several
trademark registrations, including "ICOT" and "OmniPATH" and has copyrights in
its software and related documentation, including product manuals.
The Company is a licensee under three OEM software source code licenses that
are used in connection with the development, maintenance, enhancement, and
support of various PC to Mainframe Connectivity products. These licenses pertain
to peripheral products which the Company
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remarkets to complement or add features to its core product line. The loss of
any one license would not have a material effect on revenues. At least one, and
usually several, alternative sources are available for the equivalent technology
represented by these licenses.
EMPLOYEES
As of July 29, 1995, the Company had 34 full-time employees, of whom 11 were
engaged in manufacturing, 12 were engaged in research and development, 2 were
engaged in marketing and sales and 9 held general and administrative positions.
All employees are based in the United States. None of its employees is subject
to a collective bargaining agreement, and there have been no work stoppages due
to labor difficulties. The Company believes that its employee relations are
satisfactory.
ITEM 2. PROPERTIES
The Company's headquarters and manufacturing facility is located in San
Jose, California. In May 1994, a mutual release of the rental obligation
expiring on December 1, 1995 was executed for this two-story building consisting
of approximately 47,500 square feet. Concurrently, a new lease was signed for
only a single-story premise of approximately 23,300 square feet of this
building. This new lease expires on July 23, 1999.
The leased facility located at Meadow Vista, California, consisting of
approximately 3,000 square feet, is used for research and development. The lease
on this building expires on February 29, 1996.
In addition, the Company has a lease for approximately 21,000 square feet of
space in Natick, Massachusetts. This lease was assumed in connection with an
acquisition in January 1988 and expires on December 31, 1995. This space is no
longer being used by the Company and related rent and operating cost obligations
net of future sublease income are fully reserved through the end of the lease
period. As of July 29, 1995, all of the excess space at this facility was
subleased for the remaining term of the lease.
The Company's wholly-owned subsidiary, ICOT International Limited, now
dormant, leases approximately a 6,400 square foot building located in Wokingham,
England. During the fourth quarter of fiscal 1993, in line with the Company's
restructuring of its PC to Mainframe Connectivity business, ICOT International
Limited closed its operations in the United Kingdom. The lease on this facility
expires on September 29, 2010. During the fiscal year, the Company subleased
this facility through September 1997. Income from this sublease is less than its
rental obligation. The Company has recorded a liability of $294,000 to cover
partial rental obligations related to this facility net of anticipated future
sublease income.
The Company believes that its current facilities are adequate to conduct
current operations, and that its facilities are adequate for the operations of
the Company.
ITEM 3. LEGAL PROCEEDINGS
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 management, the outcome of this litigation will not
have a material adverse effect on its financial position or its results of
operations. The Company is not involved in any other litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has one class of stock outstanding, its common stock, which has
a par value of $.20 per share.
The Company's common stock is traded on the Nasdaq National Market under the
symbol "ICOT". The following table sets forth the range of high and low sales
prices for the periods indicated, as reported by the Nasdaq National Market.
These prices do not include retail markups, markdowns, or commissions.
<TABLE>
<CAPTION>
FISCAL 1995 LOW HIGH
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First Quarter............................................................... $ 0.88 $ 1.25
Second Quarter.............................................................. 0.63 1.06
Third Quarter............................................................... 0.69 1.56
Fourth Quarter.............................................................. 1.13 3.38
<CAPTION>
FISCAL 1994 LOW HIGH
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<S> <C> <C>
First Quarter............................................................... $ 0.94 $ 1.38
Second Quarter.............................................................. 1.06 1.50
Third Quarter............................................................... 1.13 2.13
Fourth Quarter.............................................................. 0.75 1.38
</TABLE>
On July 29, 1995, the Company had approximately 1,775 stockholders of
record. The Company has not paid cash dividends on its common stock and its
present policy is not to do so.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data has been derived from the
Company's audited consolidated financial statements. The historical financial
data should be read in conjunction with the Company's consolidated financial
statements and notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
JULY 27, JULY 25, JULY 31, JULY 30, JULY 29,
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Net Sales............................................ $ 15,630 $ 26,324 $ 12,307 $ 8,236 $ 12,040
Income (loss) before provision for income taxes...... $ (660) $ 3,398 $ (5,963) $ 530 $ 1,933
Provision for income taxes........................... 265 -- 27 97
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Net income (loss).................................... $ (660) $ 3,133 $ (5,963) $ 503 $ 1,836
--------- --------- --------- --------- ---------
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Net income (loss) per share.......................... $ (.05) $ .23 $ (.46) $ .04 $ .16
--------- --------- --------- --------- ---------
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SELECTED BALANCE SHEET DATA:
Current assets....................................... $ 16,985 $ 17,695 $ 11,188 $ 9,463 $ 7,793
Current liabilities.................................. 4,748 4,042 2,598 2,171 1,591
Working capital...................................... 12,237 13,653 8,590 7,292 6,202
Total assets......................................... 18,997 21,101 12,936 11,391 12,111
Long-term liabilities................................ 2,132 1,566 1,099 428 294
Stockholder's equity................................. 12,117 15,493 9,239 8,792 10,226
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
During fiscal 1993, the Company implemented a strategic restructuring
program. To achieve a more focused product and marketing strategy, it decided to
market its PC to Mainframe Connectivity products only to OEMs, API and strategic
End User market segments of the Windows and DOS
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Connectivity markets. As a result of this change in product and marketing
strategy, the Company streamlined and downsized its operations by reducing its
workforce, consolidating certain facilities, disposing of excess equipment and
writing off capitalized software development costs. These costs are reflected in
the Company's consolidated statements of operations as a restructuring charge in
fiscal 1993 and are further discussed in Notes 1 and 2 of the Notes to
Consolidated Financial Statements.
On August 4, 1995, ICOT and Amati Communications Corporation ("Amati"), a
privately held Mountain View, California based company, signed an amended
agreement to merge, the "Merger Agreement", subject to the approval of the
stockholders of both companies. Amati is a development stage company that
develops telecommunication transmission products utilizing Discrete Multi-tone
Technology to provide high speed digital video, voice and data transmission over
unconditioned copper wire or coaxial cable. The merger is expected to be
completed in November 1995. The terms of the merger agreement are further
discussed in Note 11 of Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of net sales:
<TABLE>
<CAPTION>
JULY 31, JULY 30, JULY 29,
1993 1994 1995
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Net Sales.................................................................. 100% 100% 100%
Cost of Sales.............................................................. 62 54 56
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Gross margin............................................................. 38 46 44
Operating Expenses:
Research and development................................................. 21 17 13
Marketing and sales...................................................... 27 11 7
General and administrative............................................... 17 14 10
Restructuring charge..................................................... 23 -- --
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Total operating expenses............................................... 88 42 30
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Income (loss) from operations............................................ (50) 4 14
Other Income............................................................... 2 2 2
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Income (loss) before provision for income taxes............................ (48) 6 16
Provision for income taxes............................................... -- -- 1
----- ----- -----
Net Income (Loss).......................................................... (48)% 6% 15%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR 1995 VS. FISCAL YEAR 1994
Total net sales in fiscal 1995 increased 46% to $12,040,000 compared to
sales of $8,236,000 in fiscal 1994. The increase is a result of shipments to the
Company's largest OEM customer, IBM, of products introduced into the market in
fiscal 1994. In addition, royalty revenues were recognized in fiscal 1995 from
another new product developed by the Company and released by IBM in July 1994.
Revenues from IBM accounted for 83% of the Company's revenue in fiscal 1995,
compared with 65% in fiscal 1994, due to royalties and the introduction of new
products. Sales to IBM are uncertain due to its transition to new products.
Shipments to IBM are determined only by IBM and can result in revenue
fluctuations. IBM can cancel its agreement with the Company at any time without
penalty upon 30 days' notice. IBM continues to account for a substantial portion
of the Company's revenues and, consequently, its business continues to be
volatile due to its dependence on a dominant customer. Because IBM has the
exclusive responsibility for marketing and selling of the products that the
Company develops for IBM, its profitability can be significantly affected by
IBM's success in the marketplace.
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PC to Mainframe Connectivity sales of $2,109,000 in fiscal 1995 represent a
decline of 26% from
$2,857,000, when compared with the same period of the prior fiscal year due to
decreased royalties received from an OEM customer and to a general decline in
the Company's connectivity market share.
Gross margins as a percent of sales were 44% in fiscal 1995 compared with
46% for the same period of fiscal 1994. The decrease in margins was primarily
attributable to product mix resulting from shipment of new products with lower
margins in the current fiscal year. Amortization of capitalized software costs
charged to cost of sales were $310,000 in fiscal 1995. There was no amortization
expense in the comparable period of the prior fiscal year.
Net research and development expenses increased to $1,595,000 (13% of sales)
in fiscal 1995 compared to $1,429,000 (17% of sales) in fiscal 1994. Research
and development expenses are net of software development costs capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86 and
of funded development costs. During fiscal 1995 there was no capitalization of
software development costs, resulting in higher expenses for the year. Software
development costs capitalized in the prior fiscal year were $455,000. Funded
development costs for fiscal 1995 were $637,000 compared with $549,000 in the
comparable period 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 decreased to $861,000 (7% of sales) in fiscal
1995 compared to $884,000 (11% of sales) in fiscal 1994, due to a reduction in
sales staff and related office expenses.
General and administrative expenses increased to $1,229,000 (10% of sales)
in fiscal 1995 as compared to $1,177,000 (14% of sales) in fiscal 1994, with the
addition of corporate planning and development personnel.
Interest income increased to $301,000 in fiscal 1995 compared to $233,000 in
the same period of fiscal 1994. This increase is primarily due to higher
interest yields on short-term investments and likewise includes interest of
$50,000 on secured promissory notes receivable from Amati.
The provision for income taxes in fiscal 1995 was $97,000 compared to
$27,000 in fiscal 1994. This provision was a result of net operating profit
after benefit of Federal net operating loss carryforwards. Fiscal 1995 and 1994
tax provisions were required for Federal alternative minimum tax and California
state taxes due to limitations on the use of California's loss carryforwards.
FISCAL YEAR 1994 VS. FISCAL YEAR 1993
Total net sales in fiscal 1994 decreased 33% to $8,236,000 from $12,307,000
in fiscal 1993. The sales decline resulted primarily from a decrease in
shipments of OEM products to the Company's largest customer, IBM. Sales to IBM
accounted for 65% of the Company's revenue in fiscal 1994 compared to 62% in
fiscal 1993. Sales to IBM are uncertain due to its transition to new products.
Shipments to IBM are determined only by IBM and can result in revenue
fluctuations. IBM can cancel its agreement with the Company at any time without
penalty upon 30 days' notice. In fiscal 1994, the Company completed the
development of the next generation of LAN products which IBM launched into the
market. In addition, IBM also released another new product in July 1994 which
was developed by the Company. Future sales volumes are likely to fluctuate due
to changes resulting from the development of new products and/or manufacturing
agreements under contract with IBM.
PC to Mainframe Connectivity sales in fiscal 1994 were $2,857,000 compared
to sales of $4,632,000 in fiscal 1993. The prior fiscal year's sales included a
single large order received in the second fiscal quarter.
Gross margin as a percent of sales increased to 46% in fiscal 1994 from 38%
in fiscal 1993. Improved margins were primarily attributable to product mix and
favorable manufacturing variances that have resulted from downsizing of
operations. Furthermore, since all capitalized software costs
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related to the PC Connectivity business of $1,454,000 were written off in the
prior year in connection with the Company's restructuring, there was no
amortization expense charged to cost of sales in the 1994 fiscal period. The
amortization of these costs charged to costs of sales was $692,000 in fiscal
1993.
Net research and development expense decreased to $1,429,000 (17% of sales)
in fiscal 1994 from $2,533,000 (21% of sales) in fiscal 1993. The decrease in
research and development costs resulted primarily from reduced staffing,
consulting, recruiting and relocation expenses associated with the
PC-Connectivity business which is now focused on a new market sub-segment.
Research and development expenses are net of software development costs
capitalized in accordance with SFAS No. 86 and of funded development costs. In
fiscal 1994 and 1993, capitalized software costs totaled $455,000 and $733,000,
respectively, and funded development costs totaled $549,000 and $903,000,
respectively. During the 1994 fiscal year, there was no amortization of
capitalized software development costs. In the fourth quarter of fiscal 1993,
all capitalized software development costs associated with the Company's
PC-Connectivity products of $1,454,000 were written off as part of its
restructuring program, as further discussed in Notes 1 and 2 of the Notes to
Consolidated Financial Statements.
Marketing and sales expenses in fiscal 1994 decreased to $884,000 (11% of
sales) from $3,365,000 (27% of sales) in fiscal 1993. Expenses were higher in
fiscal 1993 due to a larger staff of marketing and sales personnel, the
Company's participation at trade shows, media advertising and sales promotion
for the OmniPATH for Windows product. The late fiscal 1993 restructuring of the
Company's business resulted in significant reductions in marketing and sales
expense levels.
General and administrative expenses decreased to $1,177,000 (14% of sales)
in fiscal 1994, from $2,137,000 (17% of sales) in fiscal 1993. Staff reductions,
combined with reduced legal, audit and professional fees contributed to lower
spending levels. In line with the change in business focus, $1,417,000 was
included in the restructuring charge in fiscal 1993 to provide for employee
termination costs, excess equipment and idle facilities, as further discussed in
Note 1 of the Notes to Consolidated Financial Statements.
Interest income decreased in fiscal 1994 by $58,000 due to a lower
investment base, offset by higher interest rates on short-term investments.
The provision for income taxes in fiscal 1994 of $27,000 was the result of
net operating profit after benefit of Federal net operating loss carryforwards.
Fiscal 1994 tax provisions were required for Federal alternative minimum tax and
California state taxes due to California's deferral of loss carryforwards. There
was no provision for income taxes in fiscal 1993 due to losses incurred. In
February 1992, the Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." The Company adopted the provisions of SFAS No.
109 in fiscal year 1994. The adoption of SFAS No. 109 did not have a material
impact on the prior year or current year financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and short term investments of $3,491,000 as of July 29,
1995 compared to $6,037,000 as of July 30, 1994. The decrease was primarily a
result of loans to Amati as discussed below.
Cash provided by operating activities of $1,239,000 resulted primarily from
$1,836,000 net operating profit realized during the year, offset by a decrease
in accrued expenses and liabilities.
Cash used for investing activities of $334,000 resulted primarily from the
liquidation of $8,829,000 of short-term investments upon their maturity, offset
by the purchase of $5,862,000 of short-term investments and $3,240,000 of
acquisition costs and advances to Amati. There were no capitalized software
costs in the current fiscal year. In fiscal 1994, $455,000 was used for
capitalization of internal software development costs. The Company has no
material commitments for capital expenditures.
8
<PAGE>
Cash used for financing activities in fiscal 1995 of $484,000 was primarily
due to the Company's repurchase of 537,000 shares of its Common Stock for
$564,000 and payments of capital lease equipment of $82,000, offset by proceeds
from the exercise of stock options of $162,000. The stock repurchases have been
discontinued and the Company does not expect to continue to repurchase any
additional Common Stock.
Currently, the Company does not have a bank line of credit. Establishment of
a credit line is under way following a review of cash requirements for the
combined business operations with Amati after the merger.
Under the terms of the Merger Agreement with Amati, upon consummation of the
merger on a fully diluted basis, the shareholders, warrants and option holders
of Amati will acquire approximately 35% of the fully diluted shares of the
Company. Following the merger, options covering an additional 1,616,411 shares
of the Company's Common Stock will be issued to key employees of Amati. Amati is
a development stage company, and the combined company is not expected to operate
profitably in the foreseeable future.
Pursuant to the Merger Agreement with Amati, the Company agreed to lend
Amati up to $5,000,000 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"). On August 4, 1995, the outstanding
principal and interest due on the New Amati Note was approximately $3,022,800.
The Company anticipates that following the merger with Amati, available cash
reserves and funds from operations, 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 after the merger with Amati, the
Company will seek additional funding through collaborative agreements or through
public or private sale of securities prior to the commercialization of Amati
products.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ICOT Corporation:
We have audited the accompanying consolidated balance sheets of ICOT
Corporation (a Delaware corporation) and subsidiaries as of July 29, 1995 and
July 30, 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended July 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ICOT Corporation and
subsidiaries as of July 29, 1995 and July 30, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
July 29, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
August 24, 1995
10
<PAGE>
ICOT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 30, JULY 29,
1994 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................................ $ 645 $ 1,066
Short-term investments................................................................... 5,392 2,425
Accounts receivable, less allowance of $25 in 1994 and $21 in 1995....................... 1,405 1,933
Inventories:
Finished goods......................................................................... 64 1
Work in process........................................................................ 477 711
Purchased parts........................................................................ 854 715
--------- ---------
1,395 1,427
Other current assets..................................................................... 626 942
--------- ---------
Total current assets................................................................... 9,463 7,793
Equipment and Leasehold Improvements, at cost:
Machinery and equipment.................................................................. 2,784 2,772
Furniture and fixtures................................................................... 221 188
Leasehold improvements................................................................... 537 505
--------- ---------
3,542 3,465
Less: Accumulated depreciation and amortization............................................ (2,609) (2,879)
--------- ---------
Equipment and leasehold improvements, net................................................ 933 586
Amati advances and acquisition costs....................................................... -- 3,240
Other assets............................................................................... 995 492
--------- ---------
Total Assets......................................................................... $ 11,391 $ 12,111
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capitalized lease obligations...................................... $ 82 $ 10
Trade accounts payable................................................................... 265 612
Accrued expenses......................................................................... 1,824 969
--------- ---------
Total current liabilities.............................................................. 2,171 1,591
Long-term Liabilities:
Capitalized lease obligations, less current maturities................................... 10 --
Obligations under lease commitments...................................................... 418 294
--------- ---------
Total long-term liabilities............................................................ 428 294
Commitments (Note 8)
Stockholders' Equity:
Preferred stock-par value $100 per share, Authorized -- 5,000 shares
Outstanding -- none..................................................................... -- --
Common stock-par value $.20 per share
Authorized -- 20,000,000 shares
Outstanding -- 11,956,189 shares in 1994 and 11,569,077 shares in 1995.................. 2,391 2,314
Additional paid-in capital............................................................... 33,649 33,324
Accumulated deficit...................................................................... (27,248) (25,412)
--------- ---------
Total stockholders' equity............................................................. 8,792 10,226
--------- ---------
Total Liabilities and Stockholders' Equity............................................. $ 11,391 $ 12,111
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
11
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED
-------------------------------
JULY 31, JULY 30, JULY 29,
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Sales...................................................................... $ 12,307 $ 8,236 $ 12,040
Cost of Sales.................................................................. 7,622 4,428 6,716
--------- --------- ---------
Gross margin................................................................. 4,685 3,808 5,324
Operating Expenses:
Research and development..................................................... 2,533 1,429 1,595
Marketing and sales.......................................................... 3,365 884 861
General and administrative................................................... 2,137 1,177 1,229
Restructuring charge......................................................... 2,871 -- --
--------- --------- ---------
Total operating expenses................................................... 10,906 3,490 3,685
Income (loss) from operations................................................ (6,221) 318 1,639
Other Income (Expense):
Interest income.............................................................. 291 233 301
Interest expense............................................................. (33) (21) (7)
--------- --------- ---------
Total other income......................................................... 258 212 294
--------- --------- ---------
Income (loss) before provision for income taxes................................ (5,963) 530 1,933
Provision for income taxes................................................... -- 27 97
--------- --------- ---------
Net Income (Loss).............................................................. $ (5,963) $ 503 $ 1,836
--------- --------- ---------
--------- --------- ---------
Net Income (Loss) Per Share.................................................... $ (.46) $ .04 $ .16
--------- --------- ---------
--------- --------- ---------
Weighted Average Number of Common Shares and Common Share Equivalents.......... 12,897 12,319 11,491
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN ACCUMULATED
FOR THE THREE YEARS ENDED JULY 29, 1995 SHARES AMOUNT CAPITAL DEFICIT TOTAL
- - -------------------------------------------------------- --------- --------- --------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, July 25, 1992.................................. 12,927 $ 2,585 $ 34,696 $ (21,788) $ 15,493
Exercise of employee stock options.................... 68 14 42 -- 56
Stock repurchase...................................... (256) (51) (296) -- (347)
Net loss.............................................. -- -- -- (5,963) (5,963)
--------- --------- --------- ------------ ---------
Balance, July 31, 1993.................................. 12,739 2,548 34,442 (27,751) 9,239
Exercise of employee stock options.................... 76 15 50 -- 65
Stock repurchase...................................... (859) (172) (843) -- (1,015)
Net income............................................ -- -- -- 503 503
--------- --------- --------- ------------ ---------
Balance, July 30, 1994.................................. 11,956 2,391 33,649 (27,248) 8,792
Exercise of employee stock options.................... 150 30 132 -- 162
Stock repurchase...................................... (537) (107) (457) -- (564)
Net income............................................ -- -- -- 1,836 1,836
--------- --------- --------- ------------ ---------
Balance, July 29, 1995.................................. 11,569 $ 2,314 $ 33,324 $ (25,412) $ 10,226
--------- --------- --------- ------------ ---------
--------- --------- --------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
ICOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED
--------------------------------
JULY 31, JULY 30, JULY 29,
1993 1994 1995
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................................. $ (5,963) $ 503 $ 1,836
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization............................................. 1,162 400 678
Provision for bad debts................................................... 30 -- --
Loss on retirement of capital equipment................................... 126 126 41
Restructuring charge...................................................... 2,871 -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable................................ 1,186 (439) (528)
Decrease (increase) in inventories........................................ 1,252 (535) (33)
Increase in other assets.................................................. (53) (64) (316)
Decrease in accounts payable & accrued expenses........................... (2,522) (407) (315)
Decrease in other long-term liabilities................................... (749) (584) (124)
--------- ---------- ---------
Total adjustments....................................................... 3,303 (1,503) (597)
--------- ---------- ---------
Net cash provided by (used for) operating activities.......................... (2,660) (1,000) 1,239
--------- ---------- ---------
Cash Flows from Investing Activities:
Advances to Amati/Acquisition costs......................................... -- -- (3,240)
Capital expenditures........................................................ (319) (251) (61)
Purchased/capitalized software development costs............................ (733) (455) --
Purchase of short-time investments.......................................... -- (14,207) (5,862)
Proceeds from maturity of investments....................................... -- 8,815 8,829
--------- ---------- ---------
Net cash used for investing activities........................................ (1,052) (6,098) (334)
--------- ---------- ---------
Cash Flows from Financing Activities:
Proceeds from the exercise of stock options................................. 56 65 162
Payments on capital lease obligations....................................... (89) (107) (82)
Stock repurchase............................................................ (347) (1,015) (564)
--------- ---------- ---------
Net cash used for financing activities........................................ (380) (1,057) (484)
--------- ---------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents.......................... (4,092) (8,155) 421
Cash and Cash Equivalents at Beginning of Period.............................. 12,892 8,800 645
--------- ---------- ---------
Cash and Cash Equivalents at End of Period.................................... $ 8,800 $ 645 $ 1,066
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
14
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 29, 1995
NOTE 1 OPERATIONS OF THE COMPANY
BUSINESS
ICOT Corporation (the "Company") operates in a single industry segment for
which it develops manufactures, markets and services network connectivity
products for sales primarily to Original Equipment Manufacturers ("OEM"). The
Company's products are mainly used by large companies with mainframes and
significant personal computer network applications such as insurance,
transportation, financial service, manufacturing, banking and brokerage
companies.
RESTRUCTURING CHARGE
During fiscal 1993, the Company implemented a strategic restructuring
program. To achieve a more focused product and marketing strategy, the Company
decided to market its PC to Mainframe Connectivity products only to OEMs, API
and strategic End User market segments of the Windows and DOS Connectivity
markets. As a result of this change in product and marketing strategy, the
Company streamlined and downsized its operations by reducing its workforce,
consolidating certain facilities, disposing of excess equipment and writing off
capitalized software development costs. These costs are reflected in the
Company's Consolidated Statements of Operations as a restructuring charge of
$2,871,000 in fiscal 1993.
A summary of the restructuring charge is presented below (in thousands):
<TABLE>
<S> <C>
Write-off of capitalized software development costs...................... $ 1,454
Reduction in workforce................................................... 798
Disposition of excess equipment.......................................... 316
Closing of excess facility............................................... 303
---------
Total restructuring charge............................................. $ 2,871
---------
---------
</TABLE>
RECLASSIFICATION
Prior years' amounts in the Consolidated Financial Statements have been
reclassified where necessary to conform to fiscal 1995 presentation.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of ICOT
Corporation (the "Company") and its wholly-owned subsidiary, ICOT International,
Ltd. All significant intercompany accounts and transactions have been
eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and include materials, labor and manufacturing overhead. Inventory is valued at
currently adjusted standards which approximate actual costs on a first-in,
first-out basis.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Machinery and equipment............ 5 years
Furniture and fixtures............. 5 years
Leasehold improvements............. Shorter of lease terms or useful life
</TABLE>
15
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86 ("SFAS 86"). The
capitalization of these costs begins when technological feasibility of the
related product has been achieved, which has been defined as the point in time
that the Company has developed a beta version of the software product.
Capitalization ends when the product is available for general release to
customers. Amortization is computed on an individual product basis and is the
greater of (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for that product or (b) the
straight-line method over the estimated economic life of the product. Currently
the Company is using an estimated economic life of three years for all
capitalized software costs.
During fiscal 1995 there was no capitalization of software development cost
as the criteria for capitalization had not been met. During fiscal 1994, the
Company capitalized total software costs of $455,000 and there was no
amortization of capitalized software development costs because none of the
capitalized software projects were available for general release. In fiscal 1993
and 1995, the amortization of capitalized software development costs charged to
cost of sales were $692,000 and $310,000, respectively.
In the fourth quarter of fiscal 1993, all capitalized software development
costs associated with the Company's PC-Connectivity products of $1,454,000 were
written off as part of the Company's restructuring program.
Capitalized software development costs related to its OEM market business,
shown in other assets in the accompanying Consolidated Balance Sheets, were
$995,000 and $492,000 for fiscal 1994 and 1995 respectively.
ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
JULY 30, JULY 29,
1994 1995
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accrued employee compensation................................... $ 333 $ 350
Deferred income................................................. 401 192
Facilities reserve.............................................. 299 126
Restructuring reserve........................................... 530 --
Other........................................................... 261 301
--------- -----
$ 1,824 $ 969
--------- -----
--------- -----
</TABLE>
The portion of the restructuring and facilities reserve that will not be
paid within the next twelve months is included in long-term liabilities as
obligations under lease commitments in the amount of $418,000 and $294,000 for
fiscal year 1994 and 1995, respectively.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company adopted the provisions of this statement in fiscal year 1994. The
adoption of this statement did not have a material impact on the financial
statements.
16
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues from software and engineering development services are
recognized as the Company performs the services in accordance with contract
terms. Revenues from maintenance and extended warranty agreements are recognized
ratably over the term of the agreement. The Company also licenses products to
OEMs and recognizes royalties as specified in the license agreement when
shipment of the licensed product by the OEM is reported to the Company. Service
maintenance, warranty and royalty revenues each accounted for less than 10% of
the Company's total revenues.
The Company recognizes revenue in accordance with the American Institute of
Certified Public Accountants' Statement of Position ("SOP") 91-1, "Software
Revenue Recognition." The SOP requires, among other things, that the sales value
of post contract customer support which is included as part of an initial
warranty period, must be deferred and amortized over the warranty period.
Deferred revenues related to post contract customer support were $63,000 and
$68,000 for fiscal years 1994 and 1995, respectively. These costs are included
in accrued expenses in the Company's Consolidated Balance Sheets.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For purposes of the Statements of Cash Flows, cash and cash equivalents are
defined as cash in banks and highly liquid investments with original maturity
dates of three months or less.
Cash paid for interest was $33,000, $21,000, and $7,000 for the fiscal years
1993, 1994 and 1995, respectively. Cash paid for income taxes was $17,000,
$34,000, and $20,000 for fiscal years 1993, 1994 and 1995, respectively.
ADOPTION OF SFAS NO. 115
On July 31, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with SFAS No. 115, the
Company has classified all of its marketable debt securities as
held-to-maturity, and has accounted for these investments at amortized cost.
Accordingly, no adjustment for unrealized holding gains or losses has been
reflected in the Company's financial statements. At July 29, 1995, the Company's
held-to-maturity securities consisted of treasury bills with contractual
maturities of less than twelve months and the carrying amount of these
investments approximated market value. Adoption of SFAS 115 did not have a
material impact on the Company's financial position or results of operations.
FUNDED DEVELOPMENT AGREEMENTS
The Company has entered into certain funded development arrangements with
IBM. These arrangement typically provide funding to the Company to develop on a
best efforts basis certain products or product enhancements which IBM is
interested in reselling to its customers. Under these arrangements the Company
retains the rights to manufacture the developed products and IBM purchases the
manufactured products from the Company for distribution to their customers. The
arrangements typically include a minimum purchase commitment by IBM if the
development is successful. Costs under these agreements are deferred until the
related development revenues are recognized. Revenues under these agreements are
generally recognized when certain contractual milestones are met. Total revenues
recognized and expenses incurred under these agreements were $834,000, $555,000
and $276,000 in fiscal 1993, 1994 and 1995, respectively.
17
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
NOTE 3 BUSINESS SEGMENT AND MAJOR CUSTOMERS
The Company operates a one-segment business in which it designs,
manufactures and markets data communications equipment and provides technical
support and maintenance services related thereto. Sales to IBM as a percent of
net sales were 62%, 65% and 83% in fiscal 1993, 1994 and 1995, respectively. The
Company has a concentration of accounts receivable with IBM of $1,700,000 as of
July 29, 1995. Export sales in terms of net sales accounted for 1%, 2% and 1% in
fiscal 1993, 1994 and 1995, respectively. Export sales are shipments to
locations outside the United States, primarily to Western Europe and Canada.
NOTE 4 CAPITALIZED LEASE OBLIGATIONS
Future minimum lease payments under capitalized lease obligations were as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- - ----------------------------------- JULY 29, 1995
--------------
(IN THOUSANDS)
<S> <C>
1996............................... $11
Less: Amounts representing interest
(9% - 18%)........................ (1)
---
Present value of new minimum lease
payments.......................... $10
---
---
</TABLE>
Machinery and equipment at July 29, 1995 included approximately $62,000 of
equipment under capital leases. Accumulated depreciation for such equipment
approximated $52,000 at July 29, 1995. The Company has no material commitments
for capital expenditures as of July 29, 1995.
NOTE 5 STOCK OPTION PLANS
The Company has three employees' and one non-employee Directors' stock
option plans. The option price in each plan may not be less than 100% of the
fair market value of the stock on the date of grant. Employee stock options
generally become exercisable at the rate of 25% after six months from the date
of grant and 25% per year thereafter, at the discretion of the Board of
Directors.
An Incentive Stock Option Plan and a Supplemental Stock Option Plan were
adopted by the Company in 1981. Total shares authorized under the Incentive
Stock Option Plan and the Supplemental Stock Option Plan were 875,000 shares and
1,025,000 shares, respectively. As of July 29, 1995, options for 457,125 shares
have been granted and were exercisable, and there are no options available for
future grant under these plans. Both plans expired in October 1991. The options
that have been granted under these plans expire ten years after grant.
The Company adopted a 1990 Stock Option Plan on September 14, 1990, approved
by the stockholders on December 14, 1990. There are 900,000 shares authorized
under the 1990 Stock Option Plan. As of July 29, 1995, options for 484,300
shares have been granted, 213,550 shares were exercisable and 393,200 shares
were available for future grant under this plan. The maximum term of options
granted under the plan is ten years.
The Company adopted a 1990 Non-Employee Directors' Stock Option Plan for
395,000 shares on September 14, 1990, approved by the stockholders on December
14, 1990. On the date the plan was adopted, each non-employee Director was
granted 25,000 shares of common stock of the Company. Each person who is elected
for the first time to be a non-employee Director will automatically be granted
an option to purchase 25,000 shares of the Company's common stock. The options
for 25,000 shares are immediately exercisable. On December 2, 1993, the plan was
amended to reflect a decrease in the plan of 150,000 shares leaving 245,000
shares reserved for grant under this plan. As of July 29, 1995, options for
97,500 shares have been granted, 67,500 shares were exercisable and 90,000
shares were available for future grants under this plan.
18
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
On September 1 of each year commencing September 1, 1991, an option to
purchase 10,000 shares of the Company's common stock shall automatically be
granted to each non-employee Director. The options for 10,000 shares become
exercisable at the rate of 25% after six months from the date of grant and 25%
per year at the end of every subsequent one year period. The options will expire
ten years after grant.
Stock option activity under these plans was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ---------------
<S> <C> <C>
Balance, July 25, 1992................................................... 1,446,100
Granted.................................................................. 613,500 $1.13 - $2.13
Exercised................................................................ (67,950) $0.31 - $1.00
Canceled................................................................. (586,175) $0.31 - $3.75
-----------
Balance, July 31, 1993................................................... 1,405,475
Granted.................................................................. 20,000 $1.13 - $1.13
Exercised................................................................ (76,250) $0.75 - $1.06
Canceled................................................................. (253,950) $1.00 - $3.25
-----------
Balance, July 30, 1994................................................... 1,095,275
Granted.................................................................. 160,000 $1.19 - $2.03
Exercised................................................................ (150,250) $0.75 - $1.53
Canceled................................................................. (66,100) $0.75 - $1.88
-----------
Balance, July 29, 1995................................................... 1,038,925
-----------
-----------
</TABLE>
On July 29, 1995, there were 1,038,925 shares of common stock reserved for
options outstanding and 483,200 shares of common stock reserved for future
grants under all stock option plans.
NOTE 6 INCOME TAXES
As of July 29, 1995, the Company's tax net operating loss carryforwards for
federal tax purposes were approximately $21,900,000. The 1986 Tax Reform Act
contains provisions which limit the amount of net operating loss carryforwards
which may be utilized in any given fiscal year when a significant change in
ownership interest occurs. These carryforwards expire in various amounts through
fiscal 2010.
The Company has an additional $2,234,000 of net operating loss carryforwards
which were acquired in connection with a fiscal 1988 acquisition. The change in
ownership of the company acquired will affect the availability and timing of the
amount of prior losses to be used to offset taxable income in future years.
These carryforwards expire in various amounts through the year 2005.
The United States Tax Reform Act of 1986 contains provisions that may limit
the net operating loss carryforwards and research and development credits
available to be used in any given year should certain events occur, including a
significant change in ownership. Management of the Company believes, however,
that such a limitation will not have a significant impact on the overall
utilization of its net operating loss carryforwards.
As of July 29, 1995, the Company also has available net operating loss
carryforwards of approximately $3,807,000 to offset future California state
taxable income. These carryforwards expire in various amounts through the years
1995-2000. The Company also has certain tax credit carryforwards of $1,189,000
which expire in various amounts through the year 2009.
19
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
There was no significant provision or benefit for income taxes in fiscal
1993 due to losses incurred. The provision for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 29,
1994 1995
----------- ---------
<S> <C> <C>
Income before provision for income taxes:
Domestic................................................................ $ 530 $ 1,933
Foreign................................................................. -- --
----- ---------
Income before provision for income taxes.............................. $ 530 $ 1,933
----- ---------
----- ---------
Provision for income taxes:
Current federal......................................................... $ 11 $ 39
Current state........................................................... 16 58
----- ---------
Total provision for income taxes...................................... $ 27 $ 97
----- ---------
----- ---------
</TABLE>
The provision for income taxes differs from the amounts obtained by applying
the Federal statutory rate to income before taxes as follows (in thousands)
<TABLE>
<CAPTION>
JULY 30, JULY 29,
1994 1995
----------- -----------
<S> <C> <C>
Statutory federal income tax rate.......................................... 34% 34%
State income tax rate, net of federal benefit.............................. 7 7
Previous losses not benefited.............................................. (36) (36)
----- -----
Income tax rate.......................................................... 5% 5%
----- -----
----- -----
</TABLE>
The major components of the net deferred tax asset are as follows (in
thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 29,
1994 1995
---------- ---------
<S> <C> <C>
Deferred tax assets:
Cumulative temporary differences.................................... $ 379 $ 471
Tax credits......................................................... 1,192 1,189
Net operating loss.................................................. 8,426 7,662
Restructure reserve................................................. 507 199
---------- ---------
Total assets...................................................... 10,504 9,521
Valuation allowance................................................. (10,117) (9,179)
---------- ---------
Net deferred income tax asset....................................... 387 342
Deferred tax liabilities:
Capitalized software expenditures................................... 387 342
---------- ---------
Total liabilities................................................. 387 342
---------- ---------
Total net deferred tax assets......................................... $ 0 $ 0
---------- ---------
---------- ---------
</TABLE>
NOTE 7 NET INCOME (LOSS) PER SHARE
Net income (loss) 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. No common stock equivalents have been included
in 1993 because the effect would be to decrease the loss per share.
20
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
NOTE 8 LEASE COMMITMENTS
At July 29, 1995, approximate future minimum rental commitments under all
noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- - ------------------------------------------------------------------------------------
<S> <C>
1996................................................................................ $ 514
1997................................................................................ 273
1998................................................................................ 273
1999................................................................................ 273
2000................................................................................ 80
Thereafter.......................................................................... 815
---------
2,228
Less: Sublease income............................................................... (116)
---------
$ 2,112
---------
---------
</TABLE>
Total rent expense for all operating leases amounted to approximately
$1,308,000, $1,128,000, and $1,038,000 in fiscal 1993, 1994 and 1995,
respectively. Rent expense in fiscal 1993, 1994 and 1995 is before sublease
income of $183,000, $231,000, and $297,000.
The Company's corporate headquarters is located in San Jose, California. In
May 1994, a mutual release of the rental obligation expiring on December 1, 1995
was executed for this two-story building consisting of approximately 47,500
square feet. Concurrently, a new lease was signed for only a single-story
premise of approximately 23,300 square feet of this building. This lease expires
on July 23, 1999.
The Company has a lease obligation on a research and development facility of
approximately 3,000 square feet located in Meadow Vista, California. This lease
expires on February 29, 1996.
The Company has a lease obligation through December 31, 1995 on a facility
in Natick, Massachusetts consisting of approximately 21,000 square feet. The
lease obligation on this facility was assumed in connection with a prior
business acquisition. Subsequently, due to consolidation of operations in
connection with the Company's restructuring program in fiscal 1993, this
location has become excess to the Company's current and anticipated future
requirements. As of July 29, 1995, all of the excess space at this facility was
subleased through the end of the lease period. Accordingly, the Company has
accrued all future rental obligations net of sublease income for the remaining
term of the lease.
The Company has a lease obligation through September 29, 2010 for its
wholly-owned subsidiary in the United Kingdom, now dormant, on a building of
approximately 6,400 square feet located in Wokingham, England. In line with the
Company's restructuring program, ICOT International Limited closed its
operations in the fourth quarter of fiscal 1993. During the first quarter of
fiscal 1995, the Company subleased this facility for a portion of the lease
term. This sublease expires September 1997. Accordingly, the Company has accrued
$294,000 to cover partial rental obligations related to this facility, net of
anticipated future sublease income.
NOTE 9 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
21
<PAGE>
ICOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JULY 29, 1995
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 litigation.
NOTE 10 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly information is for the years ended July 30, 1994 and July 29,
1995.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
OCTOBER 30, JANUARY 29, APRIL 30, JULY 30,
FISCAL 1994 1993 1994 1994 1994
- - --------------------------------------------------------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales................................................ $ 1,955 $ 2,012 $ 1,870 $ 2,400
Gross Profit............................................. 904 1,085 888 931
Net Income............................................... $ 47 $ 122 $ 157 $ 177
Net Income Per Share..................................... $ 0.00 $ 0.01 $ 0.01 $ 0.01
<CAPTION>
QUARTER ENDED
------------------------------------------------
OCTOBER 29, JANUARY 28, APRIL 29, JULY 29,
FISCAL 1995 1994 1995 1995 1995
- - --------------------------------------------------------- ----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales................................................ $ 3,063 $ 2,638 $ 3,036 $ 3,303
Gross Profit............................................. 1,315 1,192 1,169 1,648
Net Income............................................... $ 212 $ 307 $ 441 $ 876
Net Income Per Share..................................... $ 0.02 $ 0.03 $ 0.04 $ 0.07
</TABLE>
NOTE 11 ACQUISITION OF AMATI
On August 4, 1995, the Company signed an amended agreement (the "Merger
Agreement") to merge with Amati Communications Corporation ("Amati"), a
privately held Mountain View, California based company, subject to the approval
of the stockholders of both companies. Amati is a development stage company that
develops telecommunications transmission products utilizing Discrete Multi-tone
Technology to provide high speed digital video, voice and data transmission over
unconditioned copper wire or coaxial cable. The merger is expected to be
completed in November 1995. Under the terms of the Merger Agreement, after the
merger, the shareholders, warrant and option holders of Amati will acquire
shares, warrants and options totaling 35% of the fully diluted shares of ICOT.
Pursuant to the Merger Agreement, ICOT agreed to lend Amati $5,000,000
secured by Amati's assets due and payable on November 30, 1995. The outstanding
aggregate principal and interest due under the Amati Senior Secured Notes as of
July 29, 1995 was $3,022,800. Interest under the note accrues at 7.91% on the
first $750,000 of the principal amount and at 9% on the remaining $2,221,900 of
the principal balance.
The acquisition will be accounted for by the purchase method of accounting,
and accordingly, the purchase price will be allocated to the assets acquired and
the specific liabilities assumed based on the estimated fair values at the date
of acquisition.
22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers and Directors of the Company during the fiscal year
and their ages as of the date of filing of the Form 10-K Registration Statement
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Arnold N. Silverman 56 Chairman of the Board
Donald L. Lucas 65 Director
William D. Witter 65 Director
Aamer Latif 38 President, Chief Executive Officer, Chief Financial Officer
David J. Bivolcic 38 Senior Vice President
Teresita O. Medel 48 Treasurer, Secretary, and Controller
</TABLE>
Mr. Silverman served as the Company's President and Chief Executive Officer
from 1979 until July 1989 and as Chairman of the Board from 1979 until July
1995. He is also a director of Business Objects, S.A.
Mr. Lucas, a venture capitalist, has been a Director of the Company since
1968. He is also a director of Cadence Design Systems, Inc., Delphi Information
Systems, Inc., Kahler Corporation, Oracle Corp., Macromedia, Inc., Quantum
Health Resources, Inc., Racotek, Inc., Transcend Services, Inc., and Tricord
Systems, Inc.
Mr. Witter has been a Director of the Company since 1968. He has been
President of the William D. Witter, Inc. Investment Counseling Firm since its
inception in 1977. He is also a director of Transnational Industries, Inc.
Mr. Latif was elected President, Chief Executive Officer, Chief Financial
Officer and a Director of the Company in May 1993; he was elected Chairman in
July 1995. Prior to 1993 Mr. Latif served in various executive positions with
the Company since 1980, most recently as Vice President, Engineering.
Mr. Bivolcic was elected Senior Vice President of the Company in May 1993.
Prior to that, he served as Vice President, Operations since December 1989.
Ms. Medel was elected Secretary of the Company in December 1994. She has
served as Treasurer and Controller of the Company since July 1993. Prior to
1993, she had served as the Company's Accounting Manager since 1979.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
other Executive Officers of the Company whose salary and bonus exceeded
$100,000, certain information concerning compensation paid during the fiscal
years ended July 31, 1993, July 30, 1994 and July 29, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- -----------------
NAME AND SALARY BONUS *OPTIONS/SAR'S ALL OTHER
PRINCIPAL POSITION YEAR ($) EARNED ($) (#) COMPENSATION ($)
- - ---------------------------------------------- --------- --------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Aamer Latif 1995 163,750 114,000 198(1)
President, CEO, CFO 1994 150,000 75,000 198(1)
1993 127,357 140,000 198(1)
Arnold N. Silverman 1995 127,500 100,000 1,350(2)
Chairman of the Board 1994 112,085 7,350(2)
1993 128,000 20,000 6,864(2)
David J. Bivolcic 1995 132,006 57,000 198(1)
Senior Vice President 1994 120,000 50,000 198(1)
1993 109,687 60,000 198(1)
Teresita O. Medel 1995 86,131 25,000 425(1)
Treasurer, Secretary and Controller 1994 80,258 25,000 2,372(1)(3)
1993 74,478 15,000 334(1)
</TABLE>
- - ------------------------
* During fiscal year 1994, no options were granted to the executive officers
named in the Summary Compensation Table.
(1) Payments made by the Company for premiums on life insurance policies for
Messrs. Latif and Bivolcic and Ms. Medel.
(2) Payments made by the Company for premiums on life insurance policy for Mr.
Silverman. Fiscal 1994 and 1993 includes $6,000 to cover the cost of income
tax return preparation. This benefit, however, has been discontinued. Mr.
Silverman resigned as Chairman of the Board in July, 1995.
(3) Includes $2,000 awarded to Ms. Medel for 15 years of service. Ms. Medel was
elected Treasurer in July 1993.
The following table sets forth information with respect to the options
granted to the executive officers named in the Summary Compensation Table during
the fiscal year ended July 29, 1995.
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN FISCAL PRICE EXPIRATION
NAME GRANTED (#) YEAR ($/SH) DATE
- - --------------------------------------------------------- ------------- ------------------- ---------- ------------
<S> <C> <C> <C> <C>
Aamer Latif.............................................. 0 0% $0
Arnold N. Silverman...................................... 100,000(1) 71 2.03 7-24-2005
David J. Bivolcic........................................ 0 0 0
Teresita O. Medel........................................ 0 0 0
</TABLE>
- - ------------------------
(1) Exercisable four months from date of grant. The options were granted at fair
market value on the date of grant.
24
<PAGE>
The following table sets forth certain information regarding options
exercised during the last fiscal year and held at the end of such year by the
Executive Officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
FISCAL YEAR 1995
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED OPTIONS AT FY-END (#) FY-END ($) EXERCISABLE/
ON EXERCISE (#) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
----------------- ----------------------- -----------------------
<S> <C> <C> <C>
Aamer Latif...................................... 0 205,500/60,000 401,475/118,700
Arnold N. Silverman.............................. 0 167,500/105,000 368,925/130,600
David J. Bivolcic................................ 0 85,500/25,000 149,325/51,000
Teresita O. Medel................................ 0 19,750/8,750 40,750/18,050
</TABLE>
On July 29, 1995, the closing price for the Company's common stock as
reported on Nasdaq National Market was $3.25.
BOARD COMPENSATION
Each director who was not also an officer or employee of the Company
received a fee of $2,000 per quarter in fiscal 1995. In addition, each such
director received a fee of $2,000 for each Board meeting attended and $2,000 for
each Audit Committee meeting attended during fiscal 1995. The Company has a
policy of reimbursing directors for reasonable travel and related expenses
incurred in attending Board and Committee meetings. Donald L. Lucas, a director
of the Company, did not receive any of the aforementioned payments; however, Mr.
Lucas in fiscal 1995 received $21,600 in consulting fees for services rendered
to the Company.
Directors who are not employees of the Company or an affiliate of the
Company are eligible to participate in the Company's 1990 Non-Employee
Directors' Stock Option Plan. Pursuant to such plan, during fiscal 1995, each
non-employee Director received an option for 10,000 shares on September 1, 1994
at an exercise price of $1.13 per share. Grants are automatically made annually
under this plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Information Concerning ICOT -- Security Ownership of
Certain Beneficial Owners and Management" appearing in the Registrant's
Amendment No. 3 Form S-4 Registration Statement (No. 33-62023) filed October 16,
1995 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Information concerning ICOT -- Certain Relationships
and Related Transactions" appearing in the Registrant's Amendment No. 3 Form S-4
Registration Statement (No. 33-62023) filed October 16, 1995 is incorporated
herein by reference.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements are included in Part II,
Item 8:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants............................................. 10
Consolidated Balance Sheets as of July 30, 1994 and July 29, 1995.................... 11
Consolidated Statements of Operations for the Three Years Ended July 29, 1995........ 12
Consolidated Statements of Stockholders' Equity for the Three Years Ended July 29,
1995................................................................................ 13
Consolidated Statements of Cash Flows for the Three Years Ended July 29, 1995........ 14
Notes to Consolidated Financial Statements........................................... 15-22
</TABLE>
(2) INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts....................... 28
</TABLE>
All other schedules called for under Regulation S-X are omitted because they
are not applicable, not required, or required information is immaterial or is
shown in the financial statements or notes thereto.
(3) INDEX TO EXHIBITS
See section (c).
(b) Reports on Form 8-K
None.
(c) Index to Exhibits
<TABLE>
<C> <S> <C>
3.1 Restated Certification of Incorporation filed with the Delaware Incorporated by
Secretary of State of November 17, 1989 is filed as Exhibit 3.1 to Reference
Registrant's Form 10-K Annual Report for its fiscal year ended July
28, 1990.
3.2 By-Laws as amended through July 21, 1989 are filed as Exhibit Incorporated by
3(iii) to Registrant's Form 10-K Annual Report for its fiscal year Reference
ended July 29, 1989.
10.1* 1981 Incentive Stock Option Plan as amended through October 12, Incorporated by
1987, is filed as Exhibit 10(iii) to Registrant's Form 10-K Annual Reference
Report for its fiscal year ended August 1, 1987.
10.2* 1981 Supplemental Stock Option Plan as amended through October 12, Incorporated by
1987, is filed as Exhibit 10(iv) to Registrant's Form 10-K Annual Reference
Report for its fiscal year ended August 1, 1987.
10.3 Lease date August 27, 1985 between Registrant and Zanker/North Incorporated by
Pointe Associates with respect to Registrant's facilities at 3801 Reference
Zanker Road, San Jose, California is filed as Exhibit 10(xiii) to
Registrant's Form 10-K Annual Report for its fiscal year ended
August 3, 1985.
10.4* 1985 Director's Stock Option Plan as amended through December 11, Incorporated by
1987 is filed as Exhibit 28 to Registrant's Form S-8 Registration Reference
Statement File No. 33-21103.
</TABLE>
26
<PAGE>
<TABLE>
<C> <S> <C>
10.5 Lease amendment dated September 19, 1990 between Registrant and Incorporated by
Zanker/North Pointe Associates with respect to Registrant's Reference
facilities at 3801 Zanker Road, San Jose, California is filed as
Exhibit 10.6 to Registrant's Form 10-K Annual Report for its fiscal
year ended July 28, 1990.
10.6* 1990 Stock Option Plan adopted September 14, 1990 is filed as Incorporated by
Exhibit 10.8 to Registrant's Form 10-K Annual Report for its fiscal Reference
year ended July 28, 1990.
10.7* 1990 Non-Employee Directors' Stock Option Plan adopted September Incorporated by
14, 1990 is filed as Exhibit 10.9 to Registrant's Form 10-K Annual Reference
Report for its fiscal year ended July 28, 1990.
10.8 Manufacturing Agreement dated October 9, 1989 between Registrant Incorporated by
and International Business Machines Corporation is filed as Exhibit Reference
10.9 to Registrant's Form 10-K Annual Report for its fiscal year
ended July 27, 1991 as amended.
10.9 Lease dated February 10, 1994 between Registrant and Zanker/North Incorporated by
Pointe Associates with respect to Registrant's facilities at 3801 Reference
Zanker, San Jose, California is filed as Exhibit 10.9 to
Registrant's Form 10-K Annual Report for its fiscal year ended July
30, 1994.
10.10 Security Agreement between Registrant and Amati Communications Incorporated by
Corporation dated May 15, 1995 is filed as Exhibit 10.10 to Reference
Registrant's Form S-4 Registration Statement (No. 33-62023) filed
on August 23, 1995.
10.11 Amendment No. 1 to Security Agreement between Registrant and Amati Incorporated by
Communications Corporation dated August 4, 1995 is filed as Exhibit Reference
10.11 to Registrant's Form S-4 Registration Statement (No.
33-62023) filed on August 23, 1995.
10.12 Senior Secured Promissory Note of Amati Communications Corporation Incorporated by
dated August 4, 1995 in the principal amount of $5,000,000 is filed Reference
as Exhibit 10.12 to Registrant's Form S-4 Registration Statement
(No. 33-62023) filed on August 23, 1995.
10.13 Stock Purchase Warrant of Amati Communications Corporation dated Incorporated by
August 4, 1995 is filed as Exhibit 10.13 to Registrant's Form S-4 Reference
Registration Statement (No. 33-62023) filed on August 23, 1995.
10.14 The Amended and Restated Agreement and Plan of Reorganization and Incorporated by
Merger among Registrant, Amati Communications Corporation and IA Reference
Acquisition Corporation, dated August 3, 1995 and the Amendment
thereto dated October 6, 1995 are filed as Exhibit 2.1 to the
Registrant's Amendment No. 3 Form S-4 Registration Statement (No.
33-62023) filed on October 16, 1995.
21.1 A list of Registrant's subsidiaries is filed as Exhibit 22.1 to Incorporated by
Registrant's Form 10-K Annual Report for the fiscal year ended July Reference
25, 1992.
23.1 Consent of Independent Public Accounts is filed as Exhibit 23.1
hereto.
24.0 Power of Attorney. See Page 30
27.0 Financial Data Schedule is filed as Exhibit 27 hereto.
</TABLE>
The exhibits not filed herewith were previously filed by reference with the
Commission as indicated and are hereby incorporated.
- - ------------------------
* Management Contracts or Compensatory Plans.
27
<PAGE>
SCHEDULE II
ICOT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS & OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- - ----------------------------------------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended July 31, 1993..................... $ 34 $ 30 $ (29) $ (3)(1) $ 32
Year ended July 30, 1994..................... $ 32 $ -- $ -- $ (7)(1) $ 25
Year ended July 29, 1995..................... $ 25 $ -- $ -- $ (4)(1) $ 21
ACCRUED RESTRUCTURING CHARGE:
Year ended July 31, 1993..................... $ -- $ 2,871 $ -- $ (1,490)(2) $ 1,381
Year ended July 30, 1994..................... $ 1,381 $ -- $ -- $ (540)(2) $ 841
Year ended July 29, 1995..................... $ 841 $ -- $ -- $ (547)(2) $ 294
</TABLE>
- - ------------------------
(1) Uncollectible accounts written off
(2) Usage
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements of ICOT Corporation included in this Form 10-K, and
have issued our report thereon dated August 24, 1995. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is presented for purposes of
complying with the Securities and Exchange Commissions rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respect the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
San Jose, California
August 24, 1995
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on October 20, 1995.
ICOT Corporation By: /s/ AAMER LATIF
------------------------------------------
Aamer Latif
CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF
EXECUTIVE OFFICER, AND CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arnold Silverman and Aamer Latif, or either of
them, with the power of substitution, his attorney in fact, to sign any
amendments to this Registration Statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ ARNOLD N. SILVERMAN
------------------------------------------- Director October 20, 1995
Arnold N. Silverman
/s/ DONALD L. LUCAS
------------------------------------------- Director October 20, 1995
Donald L. Lucas
/s/ WILLIAM D. WITTER
------------------------------------------- Director October 20, 1995
William D. Witter
/s/ AAMER LATIF
------------------------------------------- Chairman of the Board, President, October 20, 1995
Aamer Latif Chief Executive Officer, Chief
Financial Officer (Principal
Executive Officer) (Principal
Financial Officer)
/s/ TERRY O. MEDEL
------------------------------------------- Treasurer, Secretary and Corporate October 20, 1995
Terry O. Medel Controller (Principal Accounting
Officer)
</TABLE>
30
<PAGE>
CORPORATE DATA SHEET
ICOT CORPORATION
3801 Zanker Road
P.O. Box 5143
San Jose, California 95150-5143
Telephone: (408) 433-3300
Facsimile: (408) 433-0260
BOARD OF DIRECTORS
Aamer Latif Donald L. Lucas
CHAIRMAN OF THE BOARD DIRECTOR
Arnold N. Silverman William D. Witter
DIRECTOR DIRECTOR
OFFICERS
Aamer Latif David J. Bivolcic
PRESIDENT, CHIEF EXECUTIVE OFFICER, SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Terry O. Medel
TREASURER, SECRETARY, CONTROLLER
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholders Services
50 California Street
San Francisco, CA 94111
GENERAL COUNSEL
Heller, Ehrman, White & McAuliffe
San Francisco and Palo Alto, California
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 2-76324, 2-88042, 2-94922, 33-2525, 33-21102
and No. 33-41465 on Form S-8.
ARTHUR ANDERSEN LLP
San Jose, California
October 26, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> JUL-29-1995
<CASH> 3491
<SECURITIES> 0
<RECEIVABLES> 1954
<ALLOWANCES> 21
<INVENTORY> 1427
<CURRENT-ASSETS> 7793
<PP&E> 3465
<DEPRECIATION> 2879
<TOTAL-ASSETS> 12111
<CURRENT-LIABILITIES> 1591
<BONDS> 0
<COMMON> 2314
0
0
<OTHER-SE> 7912
<TOTAL-LIABILITY-AND-EQUITY> 12111
<SALES> 12040
<TOTAL-REVENUES> 12040
<CGS> 6716
<TOTAL-COSTS> 6716
<OTHER-EXPENSES> 3685
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 1933
<INCOME-TAX> 97
<INCOME-CONTINUING> 1836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1836
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
