10QSB 1 a10qsb033103.txt 033103QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 [ ] 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: 333-06966 IMMECOR CORPORATION (Name of small business issuer in its charter) California 68-0324628 (State or jurisdiction of incorporation or (I.R.S. Employer Identification No.) Organization) 3636 North Laughlin Rd. Bldg 150 Santa Rosa California, 95403-1027 (Address of principal executive offices) (707) 636-2550 (Issuer's Telephone Number) Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, Without Par Value Check whether the issuer (1)filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] (APPLICABLE ONLY TO CORPORATE ISSUERS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 5,806,528 shares of common stock as of March 31, 2004. Transitional Small Business Disclosure Format Yes [ ] No [X] IMMECOR CORPORATION INDEX TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Balance sheets at March 31, 2004 (unaudited) and June 30, 2003 Statements of operations for the three and nine months ended March 31, 2004 and 2003 (unaudited) Statements of cash flows for the nine months ended March 31, 2004 and 2003 (unaudited) Notes to condensed financial statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II OTHER INFORMATION Item 1. Legal proceedings Item 2. Changes in securities Item 3. Defaults upon senior securities Item 4. Submission of matters to a vote of security holders Item 5. Other information Item 6. Exhibits and Reports on Form 8-K FORWARD LOOKING STATEMENTS Immecor Corporation (the "Company") cautions readers that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 10-QSB or that are otherwise made by or on behalf of the Company. For this purpose, any statements contained in the Form 10-QSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "expect", "believe", "anticipate", "intend", "could", "estimate", or "continue" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. Factors that may affect the Company's results include, but are not limited to, the Company's limited history of profitability, its dependence on a limited number of customers and key personnel, its possible need for additional financing and its dependence on certain industries. The Company is also subject to other risks detailed herein or detailed from time to time in the Company's filings with the Securities and Exchange Commission. IMMECOR CORPORATION Balance Sheets ASSETS
March 31, June 30, 2004 2003 (Unaudited) Current assets: Cash $ 378,857 $ 493,057 Accounts receivable (Less allowance for doubtful accounts of $12,945 and $22,000) 1,475,911 785,029 Inventories 2,143,141 1,458,828 Notes receivable - current 6,611 29,116 Prepaid and other assets 396,102 158,096 Recoverable Taxes 73,353 Deferred income taxes -- 29,012 Total current assets 4,400,622 3,026,491 Equipment and improvements, net 160,722 236,372 Notes receivable 85,215 124,998 Recoverable taxes 7,946 -- Total assets $ 4,654,505 $ 3,387,861 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ 754,229 $ 351,064 Accounts payable 974,778 453,894 Accrued liabilities 214,582 101,298 Total current liabilities 1,944,589 906,256 Deferred income taxes 110,204 96,027 Total liabilities 2,054,793 1,002,283 Stockholders' Equity: Common stock, no par value, 50,000,000 shares authorized; 5,806,128 shares issued and outstanding $ 288,855 $ 288,855 Retained earnings 2,311,857 2,096,723 Total stockholders' equity 2,600,712 2,285,578 Total liabilities and stockholders' equity $ 4,654,505 $ 3,387,861
See accompanying notes to financial statements IMMECOR CORPORATION Statements of Operations
For the three months For the nine months ended March 31, ended March 31, 2004 2003 2004 2003 (Unaudited) (Unaudited) Net sales $ 3,016,486 $ 1,804,412 $ 7,622,521 $ 6,191,451 Cost of sales 2,247,321 1,232,333 5,145,006 4,463,343 Gross profit 769,165 572,079 2,477,515 1,728,108 Sales and marketing 55,870 52,124 103,110 178,204 Research and development 17,066 3,238 279,604 105,906 General and administrative 786,043 469,393 1,884,032 1,242,094 Operating income (loss) (89,814) 47,324 210,769 201,904 Other (income) expense Interest expense 22,340 10,783 61,371 31,025 Interest (income) income (587) (2,746) (3,276) (8,656) Other (income) expense 5,317 (242) (3,975) (220) (Loss) income before income taxes (116,884) 39,485 156,649 179,755 Income tax expense (benefit) (42,825) 0 (58,484) 118,224 Net (loss) income $ (74,059) $ 39,485 $ 215,133 $ 61,531 Net (loss) income per share - basic and diluted $(0.01) $0.006 $0.04 $0.01 Weighted average shares used in computing net income (loss) per share, basic and diluted 5,806,528 5,806,128 5,806,528 5,806,128
See accompanying notes to financial statements IMMECOR CORPORATION Statements of Cash Flows
For the nine months ended March 31, 2004 2003 (Unaudited) Cash flows from operating activities: Net (loss) income $ 215,133 61,531 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 81,824 92,477 Deferred income taxes 43,189 -- Reserve for inventories (10,000) -- Changes in operating assets and liabilities: Accounts receivable (690,882) (157,172) Income tax recoverable 65,407 -- Inventories (674,313) 82,944 Prepaid and other assets (238,006) (5,098) Accounts payable 520,884 136,378 Accrued liabilities 113,284 (192,477) Income taxes payable -- (39,455) Net cash (used in) provided by operating activities (573,480) (20,871) Cash flows from investing activities: Purchase of property and equipment (6,174) -- Purchase of certificate of deposit - 16,705 Proceeds from notes receivable 64,310 - Increase in notes receivable (2,022) (82,837) Net cash provided by (used in) investing activities 56,114 (66,132) Cash flows from financing activities: Net borrowings (repayments) from line of credit 403,165 111,066 Borrowings from note payable -- - Repayments on note payable -- (34,250) Net cash provided by financing activities 403,165 76,816 Net change in cash (114,201) (10,187) Cash balance, beginning of period 493,057 482,855 Cash balance, end of period $ 378,857 $ 472,668
See accompanying notes to financial statements IMMECOR CORPORATION NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1: Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim financial statements included in this Form 10-QSB have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The results of operations for any interim period are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 2003 as filed with the Securities and Exchange Commission. The unaudited financial statements presented herein as of and for the three and nine months ended March 31, 2004 and March 31, 2003 reflect, in the opinion of management, all material adjustments consisting only of normal recurring adjustments necessary for a fair presentation of the financial position, results of operations and cash flow for the interim periods. The financial data and other information disclosed in these notes to the financial statements related to these periods are unaudited. The balance sheet data at June 30, 2003 is derived from the audited financial statements included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 2003. Net Income (Loss) Per Share Basic earnings (loss) per share amounts are computed using the weighted average number of common stock shares outstanding in each period. There are no potentially dilutive securities. Reclassifications The Company has a reclassified amount of $279,261 from accounts payable to prepaid expenses due to a research and development project where the account was prepaid. The adjustment was previously recorded during the quarter ended December 31, 2003. Such reclassifications have been presented for the nine months ended March 31, 2004. The Company also reclassified an amount of $119,255 from prepaid commissions to salaries for sales personnel. The adjustment was recorded for the quarter end March 31, 2004 and has been presented for the nine months ended March 31, 2004. Note 2: Sales to One Major Customer A material part of the Company's business is dependent upon sales to major customers, the loss of which would have a material adverse effect on the Company's financial position and results of operation and cash flows. One customer accounted for 66% and 60% of total sales for the three months ended March 31, 2004, and 2003, respectively. One customer accounted for 67% and 69% of total sales in the nine months ended March 31, 2004 and 2003, respectively. Note 3: Line of Credit The Company has a $1,000,000 line of credit, which expires May 20, 2004. Advances under the line of credit cannot exceed 80% of eligible accounts receivable and is collateralized by all accounts receivable, inventory and equipment. The Company's majority shareholder also personally guarantees the line of credit. The available borrowing base on the line of credit as of March 31, 2004 was approximately $44,945. Note 4: Income Taxes The effective income tax rates for the nine months ended March 31, 2004 and 2003 are based on the federal statutory income tax rate, increased for the effect of state income taxes, and decreased by the effect of nondeductible expenses and other temporary differences. Note 5: Recent Accounting Pronouncements In December 2003, the FASB issued SFAS No. 132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS No.132R"). This standard prescribes employers' disclosures about pension plans and other postretirement benefits plans, but does not change the measurement of recognition of those plans. SFAS No. 132R retains and revises the disclosure requirements contained in the original standard. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit pension plans and other postretirement benefit plans. For public companies, SFAS No. 132R is generally effective for fiscal years ending after December 15, 2003. The Company has adopted the provisions of this statement and it has no material impact on our financial statement. The Financial Accounting Standards Board ("FASB") issued FASB Interpretation No.("FIN") 46, "Consolidation of Variable Interest Entities" in January 2003. This interpretation provides guidance on the identification of, and financial reporting for, variable interest entities. Variable interest entities are entities that lack the characteristics of a controlling financial interest or lack sufficient equity to finance its activities without additional subordinated financial support. FIN 46 requires a company to consolidate a variable interest entity if that company is obligated to absorb the majority of the entity's expected losses or entitled to receive the majority of the entity's residual returns, or both. FIN 46 is applicable immediately to variable interest entities created after January 31, 2003. For all variable interest entities created prior to February 1, 2003, FIN 46 is applicable to periods beginning after December 15, 2003. We do not have investments in variable interest entities and do not have any variable interest entities, as defined by FIN 46; as a result, there is no impact on our financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not materially impact our financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 is effective for instruments entered into or modified after May 31, 2003 and is otherwise effective for our first quarter of fiscal year 2004. The adoption of SFAS No. 150 will not have a significant impact on our results of operations and financial position. Note 5: Related Party Transactions The Company purchases custom cables and sub assembly work from a vendor that is related to a shareholder and officer of the company. Purchases amounted to $36,061 and $52,852 for nine months ended March 31, 2004 and 2003. Purchases provide the Company with the ability to procure product timely and competitively. RESULTS OF OPERATIONS FOR THE Three and Nine Months ended March 31, 2004 and 2003 Net Sales Net sales increased by $1,212,074 or 67% from $1,804,412 for the three months ended March 31, 2003 to $3,016,486 for the three months ended March 31, 2004 and net sales increased by $1,431,070 or 23% from $6,191,451 for the nine months ended March 31, 2003 to $7,622,521 for the nine months ended March 31, 2004 respectively. The increase in sales is primarily due to new customers and an increase in demand for technology related products. The Company does acknowledge that future increase in sales will depend on its ability to market to new customers and the overall strength of the economy. The year 2004 revenues are in line with management's expectations and the Company's historical trends prior to 2000. Gross Profit Gross profits increased from $572,079 for the three months ended March 31, 2003 to $769,165 for the three months ended March 31, 2004. As a percentage of net sales, gross profits decreased from 32% for the three months ended March 31, 2003 to 25% for the three months ended March 31, 2004. The decrease in gross profit as a percentage of net sales was primarily due to sales of off the shelf components and or products to new customers versus custom build hardware during the three-month period ended March 31, 2004. Gross profits increased from $1,728,108 for the nine months ended March 31, 2003 to $2,477,515 for the nine months ended March 31, 2004. As a percentage of net sales, gross profits increased from 28% for the nine months ended March 31, 2003 to 33% for the nine months ended for March 31, 2004. The increase in gross profit as a percentage of sales was primarily due to a new generation of custom built products for new and existing customers released in the first and second quarter of 2004. The Company acknowledges that pricing pressures due to the competitive market, changes in sales volume, and changes in customer demand may adversely impact gross profits in upcoming quarters. Selling, General and Administrative Expenses Sales and marketing expenses increased $3,746 from $52,124 for the three months ended March 31, 2003 to $55,870 for the three months ended March 31, 2004. The increase in expenses is primarily due to an increase in marketing expenses associated to visiting new customers during the three-month period ended March 31, 2004. Sales and marketing expenses decreased $75,094 from $178,204 for the nine months ended March 31, 2003 to $103,110 for the nine months ended March 31, 2004. The decrease is primarily due to the accounting for prepaid commissions. General and administrative expenses increased $316,650 from $469,393 for the three-month period ended March 31, 2003 to $786,043 for the three-month period ended March 31, 2004. General and administrative expenses increased $641,938 from $1,242,094 for the nine-month period ended March 31, 2003 to $1,884,032 for the nine-month period ended March 31, 2004. The increase in expenses are primarily due to an increase in insurance costs, attorney fees, reclassification of commissions, increase in rents and an increase in staff. Research and development expense for the three months ended March 31, 2003 and March 31, 2004 was approximately $3,238 and $17,066, respectively. Research and development expense for the nine months ended March 31, 2003 and March 31, 2004 was approximately $178,204 and $103,109, respectively. The Company expenses all of research and development costs as they are incurred. The Company expects to continue to invest in system design, and other research and development initiatives. Research and development expenses consist of payroll and related expenses for certification, fabrication, and cost of materials for prototyping and testing units. Income Taxes The Company uses the liability method in accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that some or all of a deferred tax asset may not be realized. Income tax benefit (provision)is comprised of the taxes receivable (payable)for the net change during the period in deferred tax assets and liabilities. Liquidity and Capital Resources On March 31, 2004 and 2003 the Company had net working capital of $2,456,033 and $2,120,235 respectively. The increase in working capital from 2003 to 2004 is primarily due to an increase in accounts receivable, inventory, and prepaid assets. The Company had net cash used in operating activities of $(20,871) for the nine months ended March 31, 2003 compared to net cash used in operating activities of $(573,479) for the nine months ended March 31, 2004. The $(554,005) difference is primarily due to the increase in accounts receivable, prepaid expenses, and inventory for the nine months ended March 31, 2004. The Company had net cash used in investing activities of $(66,132) for the nine months ended March 31, 2003 compared to net cash provided by investing activities of $56,114 for the nine months ended March 31, 2004. The $122,246 difference relates primarily to proceeds from notes receivable during the nine months ended March 31, 2004. The Company had net cash provided by financing activities of $76,816 for the nine months ended March 31, 2003 compared to net cash provided by financing activities of $403,165 for the nine months ended March 31, 2004. The $326,349 difference relates primarily to an increase in borrowings on line of credit as a result of extended trade terms to customers due to the slow economy for the nine months ended March 31, 2004 as compared to the prior period. As of March 31, 2004, the Company was in compliance with all of its covenants, financial or otherwise. At present, management believes that future cash flows from operations and its existing institutional financing will be sufficient to fund all of the Company's cash requirements for the remaining three months of 2004. There were no substantial commitments for purchase orders outside the normal purchase orders used to secure product as of March 31, 2004. PART II. OTHER INFORMATION Item 1. Legal Proceedings In October 2002, the Company received a lawsuit from R.G. Technical for approximately $63,000, stating that the R.G. Technical had a contractual agreement with Immecor for services performed on behalf of Genex, a vendor to Immecor. The Company received a non-binding arbitration award in its favor, but is requesting that the lawsuit be dismissed and if the lawsuit is not dismissed, the Company will proceed with full legal action against R.G. Technical for malicious prosecution. A preliminary trial hearing date is scheduled for May of 2004. On February 19, 2004, the Company received a dismissal of all allegations by a former employee who was seeking damages relating to a sex and pregnancy discrimination complaint. The Company disputed the claim and won a victory when the plaintiff dismissed all charges with prejudice. On March 30, 2004 the Company received a lawsuit from a former employee seeking damages relating to a wrongful termination, harassment and disability discrimination complaint. The Company disputes the lawsuit and believes that there is no basis for the lawsuit, and that the Company is requesting the matter to be dismissed. There were no other legal proceedings pending against the Company during the period ending March 31, 2004. Item 2. Changes in Securities There were no changes in rights of securities holders during the period ending March 31, 2004. Item 3. Defaults upon Senior Securities There were no defaults upon senior securities during the period ending March 31, 2004. Item 4. Submission of Matters to a Vote of Security-Holders There were no matters submitted to the vote of securities holders during the period ending March 31, 2004. Item 5. Other Information There were no major contracts signed during the period ending March 31, 2004. Item 6. Exhibits and Reports on Form 8-K There were no exhibits or Form 8-K filed during the period ended March 31, 2004. SIGNATURES In accordance with Section 13 or 15 (d) of the Exchange Act and Certification Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CERTIFICATION I, Wil Lindgren, certify that: 1. I have reviewed this report on Form 10-QSB of Immecor Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 31, 2004 By: /s/ Wil Lindgren ------------------------------------------- Wil Lindgren, CFO CERTIFICATION I, Heinot Hintereder, certify that: 1. I have reviewed this report on Form 10-QSB of Immecor Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: May 31, 2004 By: /s/ Heinot H. Hintereder ------------------------------------------- Heinot H. Hintereder, CEO