ISG's year-end financials indicate return to profitability

September 17, 1997

Deal with Imnet is bearing fruit with higher salesCanadian software developer ISG Technologies appears to have overcome any lingering effects from its bitter proxy fight in 1996. The Mississauga, Ontario-based firm posted a $72,000 (U.S.) profit

Deal with Imnet is bearing fruit with higher sales

Canadian software developer ISG Technologies appears to have overcome any lingering effects from its bitter proxy fight in 1996. The Mississauga, Ontario-based firm posted a $72,000 (U.S.) profit for its fiscal fourth quarter (end-June), and ISG executives believe that the company is finally on the road to consistent profitability.

"It could be smooth or bumpy, but we believe that we're in a period of transitioning from losses to profits," said Dr. Michael Greenberg, chairman and CEO.

For its fourth quarter, ISG had revenues of $6.5 million, a gain of 14% over $5.7 million reported for the same period in 1996. The company's $72,000 net profit compares with a loss of $794,000 in the same period of 1996.

ISG reported revenues of $22.2 million for its 1997 fiscal year, a 7% improvement compared with $20.8 million in fiscal 1996. The company reported a loss of $2.3 million for the fiscal year, compared with a loss of $795,000 in 1996, due in large measure to costs related to defending the proxy challenge.

The firm's balance sheet appears healthy, however. Its cash position has grown to $12.2 million, up 28% over $9.5 million last year. Deferred revenue has also increased substantially, climbing to $3.6 million, compared with $650,000 in 1996.

With the strong quarter, ISG looks to have made progress in rebuilding confidence in the company. That confidence was threatened by the proxy challenge, which was launched by a dissident shareholder group that believed that ISG should divest its image-guided surgery business and focus on developing PACS products to be integrated with information systems (SCAN 1/8/97). The shareholder group, Quorum Growth, also sought to reinstate former president and CEO Thomas Cafarella, who was fired in August 1996. After failing to secure enough shareholder support, the group abandoned the effort in late December and sold its stake in ISG.

Ironically, the same image-guided surgery business that Quorum and Cafarella sought to divest is now cited by ISG executives as the fastest growing market in which it participates. ISG, though once the market leader in this segment, has sustained some damage to its position due to the proxy fight, Greenberg said.

"We now believe, however, that the damage has reached its nadir," he said.

ISG has moved to revitalize its focus in this segment through the launch of Surgical Navigation Network, a consortium of medical equipment vendors that intends to market common software developed by ISG. ISG plans to deliver its common software product for SNN by the end of fiscal 1998, Greenberg said.

The company is also experiencing strong growth in its scanner console business, as well as its PACS/hospital information systems segment, Greenberg said. Its PACS software licensing deal with HIS vendor Imnet Systems is already bearing fruit, and Imnet MedVision workstations equipped with ISG software have been shipping since the end of March, he said.

"They're already one of the largest installers of our software in hospitals," Greenberg said.

ISG also rounded out its management team in fiscal 1997. Robert Dietrich takes over as vice president of finance and CFO, joining ISG from telecommunications supplier Mitel. Dietrich joins Max Rutherford, who was named president and COO in June.