<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 000-27900
ISOCOR(R)
(Exact name of Registrant as specified in its charter)
California 95-4310259
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3420 Ocean Park Blvd., Santa Monica, CA 90405
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (310) 581-8100
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 of 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 the past 90 days.
Yes X No
----- -----
9,296,708 Shares of Common Stock of the Registrant
were outstanding as of September 30, 1996
<PAGE> 2
ISOCOR
INDEX TO FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
ISOCOR
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $13,317 $ 5,880
Marketable securities 12,475
Trade accounts receivable
Customer, net 9,634 8,201
Related party 221 344
Other current assets 1,865 1,629
------- -------
Total current assets 37,512 16,054
Investments, net - 638
Property and equipment, net 2,948 2,434
Other assets 306 368
------- -------
Total assets $40,766 $19,494
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 769 $ 1,051
Other accrued expenses 3,677 3,114
Deferred revenues 2,252 1,440
Product development obligation 531 510
Other current liabilities 348 286
------- -------
Total current liabilities 7,577 6,401
Product development obligation 78 315
Other long term liabilities 191 291
------- -------
Total liabilities 7,846 7,007
Commitments
Shareholders' equity
Redeemable convertible preferred stock, series A,
(liquidation preference $4,688) authorized, issued and
outstanding, 1,875,000 shares at December 31, 1995 - 4,846
Redeemable convertible preferred stock, series B,
(liquidation preference $7,388) authorized 2,066,673 shares,
issued and outstanding, 2,066,655 shares at December 31, 1995 - 8,341
Redeemable convertible preferred stock, series C,
(liquidation preference $3,750) authorized 2,060,000 shares,
issued and outstanding, 857,142 shares at December 31, 1995 - 4,450
Redeemable convertible preferred stock, series D,
(liquidation preference $3,000) authorized 300,000 shares,
issued and outstanding, 150,000 shares at December 31, 1995 - 653
Common stock, authorized 10,000,000 shares,
issued and outstanding 9,296,708 and 1,661,967
shares at September 30, 1996 and December 31, 1995 39,034 601
Notes receivable (26) (45)
Accumulated deficit (5,889) (6,163)
Deferred compensation (224) (280)
Foreign currency translation adjustment 25 84
------- -------
Total shareholders' equity 32,920 12,487
------- -------
Total liabilities and shareholders' equity $40,766 $19,494
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
ISOCOR
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Products:
Customer $5,185 $4,133 $15,310 $11,642
Related parties 28 120 459 131
Services:
Customer 1,175 893 3,545 1,852
Related parties 25 17 74 39
------ ------ ------- -------
Total revenues 6,413 5,163 19,388 13,664
Cost of revenues:
Products 517 563 2,066 1,814
Services 601 416 1,757 938
------ ------ ------- -------
Total cost of revenues 1,118 979 3,823 2,752
------ ------ ------- -------
Gross profit 5,295 4,184 15,565 10,912
------ ------ ------- -------
Operating expenses:
Engineering 2,318 2,028 6,689 5,508
Sales and marketing 2,261 1,818 7,167 4,986
Administration 634 487 1,889 1,444
Agency grants (117) (208) (373) (694)
------ ------ ------- -------
Total operating expenses 5,096 4,125 15,372 11,244
------ ------ ------- -------
Operating income (loss) 199 59 193 (332)
Acquisition costs 182 182
(Income) loss from currency fluctuations (15) 62 49 (72)
Interest income (326) (31) (687) (105)
------ ------ ------- -------
Income (loss) before income taxes and
minority interest 358 28 649 (155)
Provision for income taxes 95 (45) 375 131
------ ------ ------- -------
Income (loss) before minority interest 263 73 274 (286)
------ ------ ------- -------
Minority interest (26) -- -- --
------ ------ ------- -------
Net income (loss) $ 289 $ 73 $ 274 $ (286)
====== ====== ======== =======
Net income (loss) per share $ 0.03 $ 0.01 $ 0.03 $ (0.11)
====== ====== ======== =======
Shares used in per share calculation 10,452 7,318 7,947 2,650
====== ====== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
ISOCOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 274 $ (286)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 975 803
Amortization of deferred compensation 56 -
Deferred rent (16) 52
(Increase)/decrease in:
Accounts receivable (1,308) (1,460)
Other current assets (157) (587)
Other assets (15) (60)
Increase/(decrease) in:
Accounts payable (286) (48)
Other accrued expenses 635 (230)
Deferred revenues 806 462
Other current liabilities 94 280
Product development obligation (216) 0
Long term liabilities (78) (26)
-------- -------
Net cash provided (used) by operating activities 764 (1,100)
-------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,458) (1,413)
Purchase of marketable securities (12,474) -
Sale of minority interest in non-consolidated subsidiary 547 -
-------- -------
Net cash provided (used) by investing activities (13,385) (1,413)
-------- -------
Cash flows from financing activities:
Proceeds from the sale of stock, net 20,153 13
-------- -------
Net cash provided by financing activities 20,153 13
-------- -------
Effect of exchange rate changes on cash (95) (229)
-------- -------
Net increase (decrease) in cash 7,437 (2,729)
Cash and cash equivalents, beginning of year 5,880 5,281
-------- -------
Cash and cash equivalents, end of period $ 13,317 $ 2,552
======== =======
Supplemental schedule of non-cash financing activities:
Common stock issued to shareholders in exchange
for notes receivable, net - $ 11
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by ISOCOR
(the "Company"), pursuant to the regulations of the U.S. Securities and
Exchange Commission. In the opinion of management, the financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the consolidated financial position at September
30, 1996 and the consolidated statements of operations and cash flows for the
three and nine month periods ended September 30, 1996 and September 30, 1995.
These interim statements do not include all of the disclosures required by
generally accepted accounting principles for annual statements.
The statements of operations and cash flows for the 1996 interim periods are
not necessarily indicative of results to be expected for the full year.
These consolidated financial statements should be read in conjunction with the
financial statements included in the Company's Registration Statement No.
333-606 on Form S-1, as of December 31, 1995, as filed with the Securities and
Exchange Commission on March 14, 1996. Unless otherwise indicated, all
information herein has been restated to reflect the Company's 1 for 2.5 reverse
stock split, which was effected on January 26, 1996.
Concentration of credit risk
At September 30, 1996 the Company had balances held in U.S. banks of
approximately $11,377,000 which exceeded federally insured limits.
Marketable Securities
The Company invests excess cash in a diversified portfolio consisting of a
variety of securities including commercial paper, corporate notes and U.S.
Government Obligations all with maturities of one year or less. All of the
Company's marketable securities have been classified as "available-for-sale"
securities and are reported at fair value based on quoted market prices as
required by Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities."
Intangibles
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed," it is the Company's policy to review and evaluate periodically
whether there has been a permanent impairment in the value of intangibles and
other long-lived assets. Factors considered in the valuation include current
operating results, trends and anticipated undiscounted cash flows. The
intangible asset related to the 1995 acquisition of a sales and distribution
company located in Europe is being amortized using the straight line method
over an estimated useful life of five years and is included in "Other assets"
in the accompanying consolidated financial statements as of September 30, 1996,
net of accumulated amortization of $61,000.
2. INITIAL PUBLIC OFFERING
In March, 1996 the Company completed the public offering and sale of 2,300,000
shares of its common stock at $9 per share resulting in net proceeds to the
Company after offering costs, underwriting discounts and commissions of
approximately $18,379,000. The Company's shares are traded on the Nasdaq
National Market System under the symbol "ICOR."
6
<PAGE> 7
ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
3. ACQUISITION
Pursuant to the Stock Purchase Agreement dated August 29, 1996 by and among
ISOCOR B.V., a wholly owned subsidiary of the Company, NetCS
Informationstechnik GmbH, a corporation organized under the laws of the Federal
Republic of Germany ("NetCS") and the stockholders of NetCS, (the "Purchase
Agreement"), the Company acquired (the "Acquisition") all of the outstanding
quota interests (shares) in NetCS in exchange for an aggregate of 475,000
shares of its Common Stock. NetCS is a distributor, integrator and developer of
communication software products for the UNIX arena. NetCS has particular
expertise in the area of ISDN and Internet based communications subsystems
including Internet extensions to wireless messaging systems. As a result of the
Acquisition, NetCS has become a wholly owned subsidiary of ISOCOR B.V. and, in
turn, the Company.
The Acquisition has been accounted for under "pooling of interests" accounting
treatment, and therefore, as required by Accounting Principles Board Statement
No. 16, all financial statements herein have been restated as though the
Acquisition had been effected for all periods presented. Therefore the
Consolidated Statements of Operations in this filing include the operations of
NetCS for the three and nine months ended September 30, 1995 and 1996 and the
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996
include the financial position of NetCS at those respective dates. A
reconciliation of the Company's previously reported revenue and earnings to
those earnings shown in this filing is provided below.
<TABLE>
<CAPTION>
(dollars in thousands)
Revenues Earnings (Loss)
-------- ---------------
<S> <C> <C>
1995
----
ISOCOR only, six months ended June 30, 1995 $ 6,619 $(298)
NetCS only, six months ended June 30, 1995 1,882 (61)
------- -----
Combined company six months ended June 30, 1995 $ 8,501 $(359)
Combined company three months ended September 30, 1995 5,163 73
------- -----
Combined company nine months ended September 30, 1995 $13,664 $(286)
======= =====
1996
----
ISOCOR only, six months ended June 30, 1996 $10,354 $ (49)
NetCS only, six months ended June 30, 1996 2,621 34
------- -----
Combined company six months ended June 30, 1996 $12,975 $ (15)
Combined company three months ended September 30, 1996 6,413 289
------- -----
Combined company nine months ended September 30, 1996 $19,388 $ 274
======= =====
</TABLE>
7
<PAGE> 8
ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
4. MARKETABLE SECURITIES
Marketable securities at book value, which approximates fair value, as of
September 30, 1996 were (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Commercial paper . . . . . . . . . . . . . . . . $ 2,102
Corporate notes . . . . . . . . . . . . . . . . . 6,021
Foreign Government obligations . . . . . . . . . 1,356
U.S. Government obligations . . . . . . . . . . . 2,996
-------
$12,475
=======
</TABLE>
5. ACCOUNTS RECEIVABLE
Customer trade accounts receivable, net of allowances as of September 30, 1996
and December 31, 1995 were (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Accounts receivable . . . . . . . . . . . . . . . $10,803 $8,787
Less: Allowance for doubtful accounts, returns
and price protection . . . . . . . . . . . . . . (1,169) (586)
------- ------
$ 9,634 $8,201
======= ======
</TABLE>
6. OTHER ACCRUED EXPENSES
Other accrued expenses include (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Salaries and related expenses . . . . . . . . . . $1,037 $ 819
Royalties . . . . . . . . . . . . . . . . . . . . 571 336
Commissions . . . . . . . . . . . . . . . . . . . 293 455
Corporate and Sales Taxes . . . . . . . . . . . . 464 714
Other . . . . . . . . . . . . . . . . . . . . . . 1,312 790
------ ------
$3,677 $3,114
====== ======
</TABLE>
8
<PAGE> 9
ISOCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
7. INCOME TAXES
The source of income (loss) before income taxes for the three and nine months
ended September 30, 1996 and 1995 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
United States $(420) $(568) $(1,389) $(1,189)
Foreign 778 596 2,038 1,034
----- ----- ------- -------
Income (loss) before
income taxes and
minority interest $ 358 $ 28 $ 649 $ (155)
===== ===== ======= =======
</TABLE>
On an interim basis, the Company provides for income taxes using its estimated
effective tax rate for the year for foreign and domestic source income. As of
September 30, 1996, no net operating loss carryforwards remain in foreign
jurisdictions. The taxes provided relate primarily to foreign source income.
8. PER SHARE INFORMATION
Net income (loss) per common share is computed using the weighted average
number of shares of Common Stock and common equivalent shares outstanding.
Common equivalent shares related to stock options, warrants and Preferred Stock
are excluded from the computation when their effect is antidilutive, except
that, pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares, issued at prices below the
public offering price during the 12 months immediately preceding the initial
filing date have been included in the calculations as if they were outstanding
for the 1995 periods presented, using the treasury stock method.
All of the 475,000 common shares of the company issued to effect the business
combination with NetCS have been treated as outstanding for all periods
presented for the computation of the weighted average number of shares
outstanding as required for "pooling of interests" accounting treatment.
9. RELATED PARTY TRANSACTIONS
Included in revenues for the three months ended September 30, 1996 and 1995 was
approximately $26,000 and $129,000 respectively relating to product sales and
software maintenance agreements with an affiliate of a shareholder. Revenues
from this same affiliate for the nine months ended September 30, 1996 and 1995
were approximately $292,000 and $155,000 respectively. Included in Accounts
Receivable as of September 30, 1996 was $149,000 relating to this affiliate.
Included in revenues for the three months ended September 30, 1996 and 1995 was
approximately $27,000 and $8,000 respectively, relating to software license and
maintenance agreements with a shareholder. Revenues from this shareholder for
the nine months ended September 30, 1996 and 1995 were approximately $241,000
and $15,000 respectively. Included in Accounts Receivable as of September 30,
1996 was $72,000 relating to this affiliate.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains forward-looking statements. The
Company wishes to alert readers that the factors set forth in the section
entitled "Risk Factors" in the Company's Prospectus dated March 14, 1996, which
was filed with the U.S. Securities and Exchange Commission in connection with
its Registration Statement on Form S-1 (No. 333-606) on March 13, 1996 could in
the future affect, and in the past have affected, the Company's results. The
Company's results for future quarters could differ materially from those
expressed in any forward looking statements made by or on behalf of the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues. Total revenues were $6,413,000 and $5,163,000 for the three
months ended September 30, 1996 and 1995, respectively, representing an
increase in 1996 of 24% over the same period one year ago. Revenues from
domestic sources accounted for approximately 27% and 22% of total revenues in
the three months ended September 30, 1996 and 1995, respectively. This
increase in the percentage of revenues from domestic sources is due to an
increased Company focus on that marketplace, and a single large sale to a
customer in the telecommunications industry for in excess of $650,000 during
the three months ended September 30, 1996. The Company's European revenues
accounted for 94% and 89% of the Company's international revenues in the three
months ended September 30, 1996, and 1995 respectively.
Product revenues were $5,213,000 and $4,253,000 for the three months
ended September 30, 1996 and 1995, respectively. The 23% increase from 1995 to
1996 was mainly due to increased volumes of the Company's products sold.
Service revenues were $1,200,000 and $910,000 for the three months
ended September 30, 1996 and 1995, respectively. The 32% increase from 1995 to
1996 resulted primarily from increased volumes of training and installation,
and increased software support and update service fees both increases relating
to the Company's increased product sales.
Cost of Revenues. Cost of product revenues consists primarily of
hardware purchased from third party vendors, costs of media duplication,
manuals and packaging materials, and third party royalties relating to licensed
technology. The decrease in cost of product revenues as a percent of product
revenues between the three months ended September 30, 1996 and the same period
of 1995, was primarily due to the continuing shift in sales toward products
containing little or no technology owned by third parties, resulting in lower
royalties paid.
Cost of service revenues consists primarily of personnel-related costs
of providing software support and update, training and installation, and custom
engineering services. The increase in cost of service revenues as a percentage
of service revenues between the three months ended September 30, 1996 and the
same period of 1995, resulted primarily from custom localization work performed
by subcontractors in the 1996 quarter.
Gross Profit. Gross profit was $5,295,000 and $4,184,000 for the
three months ended September 30, 1996 and 1995, respectively, representing
82.6% and 81.0% of revenues for those same periods, respectively.
Gross profit from product sales was $4,696,000 and $3,690,000 for the
three months ended September 30, 1996 and 1995, respectively, representing
90.1% and 86.8% of product sales for those same periods, respectively.
10
<PAGE> 11
Gross profit from services was $599,000 and $494,000 the three months
ended September 30, 1996 and 1995, representing 49.9% and 54.3% of services
revenues for those same periods, respectively.
Engineering. Engineering expenses were $2,318,000 and $2,028,000 for
the three months ended September 30, 1996 and 1995, respectively, representing
36.1% and 39.3% of revenues for those same periods, respectively. The absolute
increase in engineering expenses resulted principally from labor related
expenses arising from increased numbers of engineering personnel, which grew
from 108 at September 30, 1995 to 148 at September 30, 1996.
Sales and Marketing. Sales and marketing expenses were $2,261,000 and
$1,818,000 for the three months ended September 30, 1996 and 1995,
respectively, representing 35.3% and 35.2% of revenues for those same periods,
respectively. The absolute increase in sales and marketing expenses resulted
principally from labor related expenses arising from increased levels of
personnel.
Administration. Administration expenses were $634,000 and $487,000
for the three months ended September 30, 1996 and 1995, respectively,
representing 9.9% and 9.4% of revenues for those same periods, respectively.
The absolute increase resulted from the hiring of additional personnel in
connection with continued growth in the Company's business, and the costs
associated with being a public company.
Agency Grants. Agency grants have been received from two sources.
Under an incentive program designed to induce organizations to locate and
conduct business in Ireland, the Industrial Development Authority of Ireland
makes grants that are based predominately upon the number of new jobs created
by the Company there. The amount of grants in any given period will therefore
vary based upon the number of jobs created and the timing of receipt of grant
aid payments and will continue to fluctuate on a quarterly basis. The Economic
and Technological Finance Authority - Berlin makes grants to promote research
and development in small and medium sized German-owned companies located in
Berlin. The grants are paid quarterly based upon actual development costs
including salaries, and depend upon the work being carried out in Berlin. As
of August 31, 1996, the company is no longer eligible to receive these grants
in Germany.
Acquisition Costs. Acquisition costs were $182,000 for the three
months ended September 30, 1996 representing the direct costs, primarily legal
and accounting, of acquiring NetCS Informationstechnik GmbH, which were
required to be to be expensed as incurred under the "pooling of interests"
accounting methodology.
(Income) loss from currency fluctuations. (Income) loss from currency
fluctuations was ($15,000) and $62,000 for the three months ending September
30, 1996 and 1995, respectively. The fluctuation during these periods resulted
from changes in foreign currency exchange rates.
Interest income. Interest income was $326,000 for the three months
ended September 30, 1996 as compared with $31,000 in the same period in 1995.
The increase resulted primarily from interest earned on the investment of cash
received in the company's initial public offering which was completed in March
of 1996.
Income Tax Provision (Benefit). The income tax provision was $95,000
on pre-tax income of $358,000 for the three months ended September 30, 1996,
which resulted from taxes on the Company's profitable foreign operations. For
the three months ended September 30, 1995, the income tax benefit of ($45,000)
related primarily to losses sustained in Germany.
11
<PAGE> 12
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues. Total revenues were $19,388,000 and $13,664,000 for the
nine months ended September 30, 1996 and 1995, respectively, representing an
increase in 1996 of 42% over the same period one year ago. Revenues from
international sources accounted for approximately 77% and 83% of total revenues
in the nine months ended September 30, 1996 and 1995, respectively. This
decrease in the percentage of revenues from international sources is primarily
due both to an increased Company focus on the domestic marketplace in the 1996
period including a single large sale in excess of $650,000 to a customer in the
telecommunications industry, offset by the impact of a single sale in Asia in
excess of $1.3 million during the nine months ended September 30, 1995. The
Company's European revenues accounted for 90% and 76% of the Company's
international revenues in the nine months ended September 30, 1996, and 1995
respectively. This increase was primarily due to the previously mentioned
single sale in Asia during 1995.
Product revenues were $15,769,000 and $11,773,000 for the nine months
ended September 30, 1996 and 1995, respectively. The 34% increase from 1995 to
1996 was mainly due to increased volumes of the Company's products sold.
Service revenues were $3,619,000 and $1,891,000 for the nine months
ended September 30, 1996 and 1995, respectively. The 91% increase from 1995 to
1996 resulted primarily from increased software support and update service fees
relating to the Company's increased product sales, and increased amounts of
training and installation.
Cost of Revenues. Cost of product revenues consists primarily of
hardware purchased from third party vendors, costs of media duplication,
manuals and packaging materials, and third party royalties relating to licensed
technology. The decrease in cost of product revenues as a percent of product
revenues between the nine months ended September 30, 1996 and the same period
of 1995, was primarily due to the continuing shift in sales toward products
containing little or no technology owned by third parties, resulting in lower
royalties paid to third parties.
Cost of service revenues consists primarily of personnel-related costs
of providing software support and update, training and installation, and custom
engineering services and was approximately flat as a percent of service
revenues, as a percent of service revenues between the nine months ended
September 30, 1996 and the same period of 1995.
Gross Profit. Gross profit was $15,565,000 and $10,912,000 for the
nine months ended September 30, 1996 and 1995, respectively, representing 80.3%
and 79.9% of revenues for those same periods, respectively.
Gross profit from product sales was $13,703,000 and $9,959,000 for the
nine months ended September 30, 1996 and 1995, respectively, representing 86.9%
and 84.6% of product sales for those same periods, respectively.
Gross profit from services was $1,862,000 and $953,000 the nine months
ended September 30, 1996 and 1995 respectively, representing 51.5% and 50.4% of
services revenues for those same periods.
Engineering. Engineering expenses were $6,689,000 and $5,508,000 for
the nine months ended September 30, 1996 and 1995, respectively, representing
34.5% and 40.3% of revenues for those same periods, respectively. The absolute
increase in engineering expenses resulted principally from increased levels of
engineering personnel from an average of 92 for the nine months ended September
30, 1995 to an average of 132 for the nine months ended September 30, 1996.
12
<PAGE> 13
Sales and Marketing. Sales and marketing expenses were $7,167,000 and
$4,986,000 for the nine months ended September 30, 1996 and 1995, respectively,
representing approximately 37% of revenues in those same periods. The absolute
increase resulted primarily from increased labor expenses resulting from growth
in the Company's sales, support and marketing organizations where headcount
increased from an average of 45 for the nine months ended September 30, 1995 to
an average of 77 for the nine months ended September 30, 1996.
Administration. Administration expenses were $1,889,000 and
$1,444,000 for the nine months ended September 30, 1996 and 1995, respectively,
representing 9.7% and 10.6% of revenues for each of those periods,
respectively. The absolute dollar increase resulted from the hiring of
additional personnel in connection with continued growth in the Company's
business, and the costs associated with being a public company.
Agency Grants. The Industrial Development Authority of Ireland makes
grants under an incentive program designed to induce organizations to locate
and conduct business in Ireland, based predominately upon the number of new
jobs created by the Company there. The amount of grants in any given period
will therefore vary based upon the number of jobs created and the timing of
receipt of grant aid payments and will continue to fluctuate on a quarterly
basis. The Economic and Technological Finance Authority - Berlin makes grants
to promote research and development in small and medium sized German owned
companies located in Berlin. The grants are paid quarterly based upon actual
development costs including salaries, and depend upon the work being carried
out in Berlin. As of August 31, 1996, the company is no longer eligible to
receive these grants in Germany.
Acquisition Costs. Acquisition costs were $182,000 for the nine
months ended September 30, 1996, representing the direct costs, primarily legal
and accounting, of acquiring NetCS Informationstechnik GmbH.
(Income) loss from currency fluctuations. (Income) loss from currency
fluctuations was $49,000 and ($72,000) for the nine months ended September 30,
1996 and 1995, respectively. The fluctuation during these periods primarily
resulted from changes in foreign currency exchange rates.
Interest income. Interest income was $687,000 for the nine months
ended September 30, 1996 as compared with $105,000 in the same period in 1995.
The increase resulted primarily from interest earned on the investment of cash
received in the company's initial public offering which was completed in March
of 1996.
Income Tax Provision. The income tax provision was $375,000 on a
pre-tax profit of $649,000 for the nine months ended September 30, 1996, which
resulted from taxes on the Company's profitable foreign operations. For the
nine months ended September 30, 1995, the income tax provision of $131,000
consisted primarily of taxes of $286,000 withheld by a foreign government in
connection with a single large sale in Asia made from the United States,
partially offset by tax benefits related to losses sustained in Germany.
LIQUIDITY AND CAPITAL RESOURCES
During March, 1996 the Company completed a public offering and sale of
2,300,000 shares (including the over-allotment option) of its Common Stock at
$9 per share, resulting in net proceeds to the Company after offering costs of
approximately $18,379,000. The Company received an additional $1,500,000 from
Intel Corporation and an additional $288,000 from Thomson-CSF Ventures as a
result of the sale and issuance of 166,667 and 39,942 shares of common stock,
respectively.
13
<PAGE> 14
As of September 30, 1996, total accounts receivable, net was
$9,855,000 versus $8,545,000 at December 31, 1995. The Company typically
generates a large percentage of its quarterly revenue during the last few weeks
of the quarter, which when coupled with increased sales levels and payment
terms in excess of 90 days on some of the larger sales, has given rise to an
increase in the accounts receivable balance at September 30, 1996. Certain of
the Company's larger sales have longer payment terms, thus slowing the cash
flow cycle, and the Company expects that future large sales will follow the
same pattern. The Company does not believe these longer payment terms are
likely to have a material adverse effect on the collectibility of the related
receivables.
As of September 30, 1996, the Company had a balance of approximately
$13,317,000 in cash and cash equivalents, and a balance of $12,475,000 in
marketable securities. The Company believes that its existing capital
resources will be adequate to finance the Company's operations and capital
expenditures through at least the end of 1997.
14
<PAGE> 15
PART II Other Information
Item 4. - Submission of Matters to a Vote of Security Holders
The Company submitted a definitive proxy statement to its shareholders
of record as of September 17, 1996 announcing a special meeting to be held on
October 22, 1996 for the purpose of approving an increase in the number shares
of common stock available for grant under the Company's 1992 Stock Option Plan
by 500,000, to 2,300,000. Such meeting was held on October 22, 1996 and the
matter was approved by the shareholders as follows:
For: 5,098,845
Against 320,452
Abstain 6,600
Outstanding as of record date 9,277,077
Item 6. - Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly
Report on Form 10-Q:
4.1 - The Company's 1992 Stock Option Plan, as amended.
11.1 - Statement of Computation Shares Used in Per Share
Computation.
27.1 - Financial Data Schedule.
(b) During the third quarter of 1996, the Company filed the
following report on Form 8-K
Current report on Form 8-K dated August 29, 1996 (filed
September 12, 1996) reporting the Company's acquisition of
NetCS Informationstechnik GmbH.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10Q to be signed on its
behalf by Janine M. Bushman, thereunto duly authorized to sign on behalf of the
registrant and as the principal financial officer thereof.
ISOCOR
Date: November 12, 1996 By: /s/ JANINE M. BUSHMAN
----------------------------------------
Janine M. Bushman, Vice President,
Finance and Administration, and Chief
Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits Page
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
4.1 The Company's 1992 Stock Option Plan, as amended . . . . . . . . . . . . . . .
11.1 Statement of Computation Shares Used in Per Share Computation . . . . . . . .
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 1
Exhibit 4.1
ISOCOR
1992 STOCK OPTION PLAN
AS AMENDED OCTOBER, 1996
1. Purposes of the Plan. The purposes of this Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or non-statutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to paragraph (a) of Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the
Board of Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means ISOCOR, a California corporation.
(g) "Consultant" means any person, including an advisor,
who is engaged by the Company or any Parent or Subsidiary to render consulting
services and is compensated for such services, and any director of the Company
whether compensated for such services or not, provided that if and in the event
the Company registers any class of any equity security pursuant to the Exchange
Act, the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the
Company.
(h) "Continuous Status as an Employee" means the absence
of any interruption or termination of the employment relationship by the
Company or any Subsidiary. Continuous Status as an Employee shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Board, provided that such
leave is for a period of not more than ninety (90) days, unless reemployment
upon the expiration of such leave is guaranteed by contract or statute, or
unless provided otherwise pursuant to Company policy adopted from time to time;
or (iv) in the case of transfers between locations of the Company or between
the Company, its Subsidiaries or its successor.
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
1
<PAGE> 2
(j) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including without
limitation the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported, as quoted on such system or exchange, or the exchange with
the greatest volume of trading in Common Stock) for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "Named Executive" means (any individual who, on the
last day of the Company's fiscal year, is the chief executive officer of the
Company (or is acting in such capacity) or among the four highest compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(n) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the
Plan.
(p) "Optioned Stock" means the Common Stock subject to an
Option.
(q) "Optionee" means an Employee or Consultant who
receives an Option.
(r) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1992 Stock Option Plan.
(t) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
2
<PAGE> 3
3. Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of shares that may be
optioned and sold under the Plan is 2,300,000 shares of Common Stock. The
shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares that were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator.
(i) Multiple Administrative Bodies. If permitted
by Rule 16b-3, and by the legal requirements relating to the administration of
incentive stock option plans, if any, of applicable securities laws and the
Code (collectively, the "Applicable Laws"), the Plan may (but need not) be
administered by different administrative bodies with respect to directors,
officers who are not directors and Employees who are neither directors nor
officers.
(ii) Administration with respect to Directors and
Officers. With respect to grants of Options to Employees or Consultants who
are also officers or directors of the Company, the Plan shall be administered
by (A) the Board, if the Board may administer the Plan in compliance with Rule
16b-3 as it applies to a plan intended to qualify thereunder as a discretionary
plan and Section 162(m) of the Code as it applies so as to qualify grants of
Options to Named Executives as performance-based compensation, or (B) a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted in such a manner as to permit the Plan to comply with Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary plan,
to qualify grants of Options to Named Executives as performance-based
compensation under Section 162(m) of the Code and otherwise so as to satisfy
the Applicable Laws.
(iii) Administration with respect to Other Persons.
With respect to grants of Options to Employees or Consultants who are neither
directors nor officers of the Company, the Plan shall be administered by (A)
the Board or (B) a Committee designated by the Board, which Committee shall be
constituted in such a manner as to satisfy the Applicable Laws.
(iv) General. If a Committee has been appointed
pursuant to subsection (ii) or (iii) of this Section 4(a), such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused)
and remove all members of a Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (ii), to the extent permitted by Rule
16b-3 as it applies to a plan intended to qualify thereunder as a discretionary
plan, and to the extent required under Section 162(m) of the Code to qualify
grants of Options to Named Executives as performance-based compensation.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and in the case of a Committee, the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(k) of the Plan;
3
<PAGE> 4
(ii) to select the Consultants and Employees to
whom Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent
Options are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder (including, but not limited to, the share price and
any restriction or limitation);
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section
10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option shall have declined
since the date the Option was granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final
and binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option may, if he
or she is otherwise eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with an Optionee's right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company as described in Section 19 of
4
<PAGE> 5
the Plan. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof or such shorter term as
may be provided in the Option Agreement. However, in the case of an Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as
provided in Section 13 of this Plan, the maximum number of shares which may be
subject to Options granted to any one employee under this Plan for any fiscal
year of the Company shall be 750,000.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time
of the grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant.
(B) granted to a person, who, at the
time of grant of such Option is a Named Executive of the Company, the per share
exercise price shall be no less than 100% of the Fair Market Value on the date
of grant.
(C) granted to any person other than
those persons described in subsections (ii) (A) and (B) above, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) Permissible Consideration. The consideration to be
paid for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Administrator (and, in the case
of an Incentive Stock Option, shall be determined at the time of grant) and
may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other
Shares that (x) in the case of Shares acquired upon exercise of an Option,
have been owned by the Optionee for more than six
5
<PAGE> 6
months on the date of surrender, and (y) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
such Option shall be exercised, (5) authorization from the Company to retain
from the total number of Shares as to which the Option is exercised that number
of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the exercise price, (7) delivery
of a subscription agreement for the Shares that irrevocably obligates the
option holder to take and pay for the Shares not more than twelve months after
the date of delivery of the subscription agreement, (8) any combination of
the foregoing methods of payment, or (9) such other consideration and method
of payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept,
the Board shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or
cause to be issued) such stock certificate promptly upon exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of
termination of an Optionee's consulting relationship or Continuous Status as an
Employee with the Company, such Optionee may, but only within three (3) months
(or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option and not exceeding three (3) months) after the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to ,exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
6
<PAGE> 7
(c) Disability of Optionee. Notwithstanding the
provisions of Section 10(b) above, in the event of termination of an Optionee's
consulting relationship or Continuous Status as an Employee as a result of his
or her total and permanent disability (within the meaning of Section 22(e)(3)
of the Code), Optionee may, but only within twelve (12) months from the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that the Optionee was
not entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(f) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
12. Stock Withholding to Satisfy Withholding Tax Obligation. At
the discretion of the Administrator. Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option, which tax liability is subject to tax
withholding under applicable tax laws, and the Optionee is obligated to pay the
Company an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the
applicable Tax Date;
(b) once made, the election shall be irrevocable as to
the particular Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator;
7
<PAGE> 8
(d) if the Optionee is subject to Section 16 of the
Exchange Act, the election must comply with the applicable provisions of Rule
16b-3 and shall be subject to such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but, such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Option, and the number of shares of Common Stock
that have been authorized for issuance under the Plan but as to which no
Options have yet been granted or that have been returned to the Plan upon
cancellation or expiration of an Option, the maximum number of shares of Common
Stock for which Options may be granted to any employee under Section 8 of the
Plan and the price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason
8
<PAGE> 9
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an Option.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option may be assumed or an
equivalent option may be substituted by such successor corporation or a parent
or subsidiary of such successor corporation. If the successor corporation does
not agree to assume the Option or substitute an equivalent option, the Board
shall notify the Optionee at least fifteen (15) days prior to the consummation
of the transaction. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such
transaction.
14. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, the following revisions or amendments shall require
approval of the shareholders of the Company in the manner described in Section
19 of the Plan:
(i) any increase in the number of Shares subject
to the Plan, other than an adjustment under Section 13 of the
Plan;
(ii) any change in the designation of the class of
persons eligible to be granted Options;
(iii) any change in the limitation on grants to
employees as described in Section 8 of the Plan or other
changes which would require shareholder approval to qualify
options granted hereunder as performance-based compensation
under Section 162(m) of the Code; or
(iv) any revision or amendment requiring
shareholder approval in order to preserve the qualification of
the Plan under Rule 16b-3.
(b) Shareholder Approval. If any amendment requiring
shareholder approval under Section 16(a) of the Plan is made subsequent to the
first registration of any class of equity securities by the Company under
Section 12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 19 of the Plan.
(c) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
9
<PAGE> 10
16. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
18. Agreements. Options shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
19. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve (12) months before or after
the date the Plan is adopted. Such shareholder approval shall be obtained in
the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Shares are listed.
(b) In the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the
Plan itself or of any amendment thereto is solicited at any time otherwise than
in the manner described in Section 19(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the later
of (1) the first registration of any class of equity securities of the Company
under Section 12 of the Exchange Act or (2) the granting of an Option hereunder
to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to
vote for the Plan substantially the same information that would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
10
<PAGE> 11
(ii) file with, or mail for filing to, the
Securities and Exchange Commission four copies of the written information
referred to in subsection (i) hereof not later than the date on which such
information is first sent or given to shareholders.
20. Information to Optionees. The Company shall provide to each
Optionee and individual who acquired shares pursuant to the exercise of an
option, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information that are
provided to all shareholders of the Company.
11
<PAGE> 1
Exhibit 11.1
ISOCOR
STATEMENT OF COMPUTATION OF SHARES USED IN PER SHARE COMPUTATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Computation of shares used
in net income (loss) per share:
Weighted average common shares outstanding . . . 9,271 1,651 6,789 1,664
Common equivalent shares attributable to
stock options (treasury stock method) . . . . 1,181 485 1,158 173
Common equivalent shares attributable
to redeemable preferred stock . . . . . . . . - 5,182 - 813
------ ----- ----- -----
Shares used in per share calculation . . . . . . . . 10,452 7,318 7,947 2,650
====== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS IN THE PERIOD ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,317
<SECURITIES> 12,475
<RECEIVABLES> 10,803
<ALLOWANCES> 1,169
<INVENTORY> 0
<CURRENT-ASSETS> 37,512
<PP&E> 6,357
<DEPRECIATION> 3,409
<TOTAL-ASSETS> 40,766
<CURRENT-LIABILITIES> 7,577
<BONDS> 0
0
0
<COMMON> 39,034
<OTHER-SE> (6,114)
<TOTAL-LIABILITY-AND-EQUITY> 40,766
<SALES> 19,388
<TOTAL-REVENUES> 19,388
<CGS> 2,066
<TOTAL-COSTS> 3,823
<OTHER-EXPENSES> 15,372
<LOSS-PROVISION> 142
<INTEREST-EXPENSE> (687)
<INCOME-PRETAX> 649
<INCOME-TAX> 136
<INCOME-CONTINUING> 274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
