FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996
Commission File Number 0-13898
MOSCOM Corporation
(Exact name of registrant as specified in its charter)
Delaware 16-1192368
(State or other jurisdiction of Incorporation (IRS Employer
or Organization) Identification Number)
3750 Monroe Avenue, Pittsford, NY 14534
(Address of principal executive offices) (Zip Code)
(716) 381-6000
(Registrants telephone number, including area code)
N.A.
(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 or 15 (d) of the Securities
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 requirement for the past 90 days.
YES [XX] NO [ ]
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of June 30, 1996.
Common stock, par value $.10 6,869,324 shares
This report consists of 13 pages.
<PAGE>
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - 3 - 4
June 30, 1996 and December 31, 1995
Consolidated Statements of Operations - 5
Three and Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows - 6
Six Months Ended June 30, 1996 and 1995
Notes To Consolidated Financial Statements 7 - 8
Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations 9 - 10
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11 - 13
<PAGE>
PART I - FINANCIAL INFORMATION
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995*
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents
(Including Short-term
investments of $713,756 and
$2,632,286 respectively) $ 920,477 $ 2,727,340
Short-term Investments 3,205,733 2,967,809
Accounts Receivable, trade (net
of allowance for doubtful
accounts of $85,000 and
$71,000, respectively) 3,215,372 4,158,378
Inventories (Note 2) 1,443,803 1,646,941
Prepaid Expenses 182,356 132,205
---------- ----------
Total Current Assets 8,967,741 11,632,673
PLANT AND EQUIPMENT (Note 3): 5,377,479 5,372,451
Less Accumulated Depreciation (4,283,192) (4,174,126)
---------- ----------
Plant and Equipment (Net) 1,094,287 1,198,325
OTHER ASSETS:
License Fees and Purchased
Software (Net of accumulated
amortization of $259,046 and
$357,077 respectively) 350,784 431,148
Capitalized Software
Development Costs (Net of
accumulated amortization of
$1,757,462 and $2,417,094
respectively) 3,896,879 3,239,112
Deposits and Other Assets 1,480,858 1,513,136
---------- ----------
Total Other Assets 5,728,521 5,183,396
---------- ----------
TOTAL ASSETS $ 15,790,549 $ 18,014,394
========== ==========
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995*
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 552,591 $ 615,136
Accrued Compensation and Related Taxes 929,384 1,019,234
Other Accrued Expenses 574,503 918,653
--------- ---------
Total Current Liabilities 2,056,478 2,553,023
Other Long-Term Liabilities 1,244,284 1,126,786
--------- ---------
3,300,762 3,679,809
STOCKHOLDERS EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized; issued and
outstanding, 6,869,324 and 6,818,654,
respectively 686,933 681,865
Additional Paid-in Capital 15,501,675 15,294,653
Retained Earnings (3,625,061) (1,650,778)
Cumulative Translation Adjustment (73,760) 8,845
---------- ----------
12,489,787 14,334,585
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $15,790,549 $18,014,394
========== ==========
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
<TABLE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(Unaudited)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 3,347,859 $ 4,323,763 $ 6,152,139 $ 8,734,292
---------- ---------- ---------- ----------
COSTS AND OPERATING EXPENSES:
Cost of Sales 904,206 1,280,367 1,858,865 2,596,813
Engineering & Software
Development 564,241 435,865 1,167,826 875,812
Selling, General and
Administrative 2,567,993 2,380,639 5,174,078 4,717,123
---------- ---------- ---------- ----------
Total Costs and
Operating Expenses 4,036,440 4,096,871 8,200,769 8,189,748
---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS (688,581) 226,892 (2,048,630) 544,544
INTEREST INCOME 38,178 68,750 126,824 104,146
INCOME (LOSS) BEFORE INCOME (650,403) 295,642 (1,921,806) 648,690
TAXES
INCOME TAXES - 49,000 (84,000) 99,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (650,403) $ 246,642 $(1,837,806) $ 549,690
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $(.10) $.04 $(.27) $.08
---- --- ---- ---
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,837,806) $ 549,690
--------- ---------
Adjustments to Reconcile Income (Loss)
to Net Cash Provided by Operating
Activities
Depreciation and Amortization 914,064 1,019,692
Provision for Losses on Accounts
Receivable 12,000 12,000
Provision for Inventory Obsolescence 100,002 81,750
Changes in Assets and Liabilities
Short Term Investments (237,924) 504,957
Accounts Receivable 931,006 (1,388,277)
Inventories 103,136 404,731
Prepaid Expenses (50,151) 39,973
License Fees (27,863) (160,823)
Software Development Costs (1,186,822) (563,991)
Other Assets 32,278 (100,770)
Accounts Payable (62,545) 5,059
Other Liabilities 117,498 105,000
Other Current Liabilities (516,605) 652,750
--------- ---------
Net Adjustments 128,074 612,051
--------- ---------
Net Cash Provided (Used) by Operating
Activities (1,709,732) 1,161,741
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (172,744) (419,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (136,477) (134,939)
Exercise of Stock Options and
Warrants 219,715 212,426
Stock Retirements (7,625) (15,584)
Net Cash Flows from Financing
Activities 75,613 61,903
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,806,863) 804,220
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,727,340 2,152,377
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 920,477 $ 2,956,597
========= ==========
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying unaudited consolidated financial statements
include all adjustments of a normal and recurring nature which are, in
the opinion of Registrants management, necessary to present fairly
Registrants financial position as of June 30, 1996, the results of its
operations for the three and six months ended June 30, 1996 and June
30, 1995 and cash flows for the six months ended June 30, 1996 and
June 30, 1995. All significant intercompany accounts and transactions
have been eliminated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in
the Annual Report for the fiscal year ended December 31, 1995.
Management believes that the procedures followed in preparing
these consolidated financial statements are reasonable under the
circumstances, but the accuracy of the amounts in the financial
statements are in some respect dependent upon facts that will exist,
and procedures that will be accomplished by Registrant later in the
fiscal year.
The results of operations for the three and six months ended June
30, 1996 are not necessarily indicative of the results to be expected
for a full years operation.
Except for the historical information contained herein, the
matters discussed in this report are forward-looking statements which
involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors
affecting the Companys operations, markets, products, services and
prices, and other factors discussed in the Companys filings with the
Securities and Exchange Commission.
(2) INVENTORIES
The composition of inventories at June 30, 1996 and December 31,
1995 was as follows:
June 30 December 31
1996 1995
Purchased parts and components $1,024,165 $1,186,513
Work in process 295,305 324,980
Finished goods 124,333 135,448
---------- ----------
$1,443,803 $1,646,941
========== ==========
<PAGE>
(3) PLANT AND EQUIPMENT
The major classifications of plant and equipment at June 30,
1996, and December 31, 1995 are:
June 30 December 31
1996 1995
Machinery and equipment $1,513,577 $1,551,899
Computer hardware and
software 2,557,876 2,497,945
Furniture and fixtures 992,701 1,008,926
Leasehold improvements 313,325 313,681
---------- ----------
$5,377,479 $5,372,451
========== ==========
(4) Weighted average shares outstanding for the three and six months
ended June 30, 1996 do not include common stock equivalents, as
their effect on earnings per share would be anti-dilutive.
<PAGE>
Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Sales for the three months ended June 30, 1996 of $3,347,859
declined by 23% from sales of $4,323,763 for the three months ended
June 30, 1995. Sales for the six months ended June 30, 1996 of
$6,152,139 were 30% less than sales of $8,734,292 for the six months
ended June 30, 1995.
The reduced sales levels primarily reflect lower shipments of the
Companys core business call accounting products to Lucent Technologies
and Siemens. While second quarter 1996 sales levels from both Lucent
and Siemens increased from the levels realized during the first
quarter of 1996, both remain below their historic levels. Second
quarter 1996 sales of call accounting products to other domestic
distributors and to new customers, particularly in South America grew
substantially over levels realized during the first quarter of 1996,
and are anticipated to continue to grow through the second half of
1996.
The Company made its first shipment of Verabill IS, its billing
and operations support system for telephone and wireless companies
late in the second quarter to the Albanian Mobile Communication
Company in Tirana, Albania through Alcatel SEL of Germany. The
Company expects to install several additional Verabill systems over
the balance of the year.
Gross margins of 73% and 70% for the three and six months ended
June 30, 1996 compared with a gross margin percentage of 70% for both
the three and six month periods ended June 30, 1995, with slightly
lower direct product costs being offset by higher software
amoritization costs, as a percentage of total sales.
As illustrated in the table below the Company experienced
substantial increases in expenditures for engineering and development
costs for both the three and six months ended June 30, 1996 as
compared with the respective periods of 1995. Gross spending for the
six months ended June 30, 1996 increased by 64% over 1995 levels while
net spending after the effect of capitalization of certain development
costs increased by 33% for the six months ended June 30, 1996 over the
six months ended June 30, 1995. The Company expects that expenditures
for engineering and development costs during the second half of 1996
will continue to significantly exceed the expense levels realized
during 1995.
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Gross Expenditures for
Engineering & Software
Development $ 1,267,175 $ 750,212 $ 2,354,648 $ 1,439,803
Less: Costs Capitalized (702,934) (314,347) (1,186,822) (563,991)
----------- --------- ------------ -----------
Net Engineering & Software
Development Expense $ 564,241 $ 435,865 $ 1,167,826 $ 875,812
=========== ========= =========== ===========
<PAGE>
Selling, general and administrative expenses of $2,567,993 for
the three months ended June 30, 1996 rose 8% from the expense level
for the first three months of 1995 of $2,380,639. For the six months
ended June 30, 1996 selling, general and administrative costs of
$5,174,078 were 10% higher than the expenses of $4,717,123 for the
first six months of 1995. The increased spending levels represent
higher than anticipated selling and administrative expenses incurred
by the Companys foreign subsidiaries MOSCOM GmbH, MOSCOM Ltd. and
Global Billing Services, LTD. Current expense levels for selling,
general and administrative costs are expected to run at similar rates
throughout the end of 1996.
Interest income earned on the investment of excess funds amounted
to $126,824 for the first six months of 1996 from $104,146 for the
first six months of 1995, mainly due to higher average balances
available for investment during the first half of 1996.
The Company realized a net loss of $650,403 or $.10 per share for
the quarter ended June 30, 1996, compared to a net profit of $246,642
or .04 per share for the second quarter of 1996. For the six months
ended June 30, 1996 the Company incurred a net loss of $1,837,806 or
$.27 per share, contrasted with a net profit of $549,690 or $.08 per
share for the six months ended June 30, 1995.
Liquidity and Capital Resources
The Companys cash and investment position at June 30, 1996 was
$4,126,210. This compared with total cash and investment balance of
$5,695,149 at December 31, 1995 and $4,412,609 at June 30, 1995.
Working capital ratios for those same periods were 4.3, 4.6 and 5.0
respectively.
Inventories continued to be reduced during the second quarter of
1996 with the June 30, 1996 balance of $1,443,803 comparing with
$1,646,941 at December 31, 1995 and $2,337,747 at June 30, 1995.
Current liabilities declined from $2,553,023 at December 31, 1995
to $2,056,478 at June 30, 1996, mainly as a result of a decrease in
deferred revenues associated with training and installation services.
The Company continues to maintain an unsecured revolving line of
credit arrangement with a commercial bank for a maximum of $3,000,000
at an interest rate of the lower of the banks prime rate of interest
or the banks offered rate of interest. The Company must pay a loan
commitment fee of 1/4% per annum of the difference between the maximum
amount available under the line less loans outstanding at the end of
each quarter. This credit agreement expires January 31, 1997.
Given its strong financial condition, the Company believes that
it will have sufficient resources from existing cash reserves and
credit agreements to meet its financial needs over the next twelve
months.
<PAGE>
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(1) Registrants Consolidated Financial Statements for the three and six
months ended June 30, 1996 and 1995 are set forth in Part I, Item 1
of this Quarterly Report on Form 10-Q.
(2) Calculation of earnings per share.
(3) Reports on Form 8-K
(a) Registrant filed a form 8K/A with the Securities and Exchange
Commission on March 5, 1996, the purpose of which was to change
the registrants certifying accountants from Deloitte and Touche
LLP to Arthur Andersen LLP effective March 29, 1996.
(b) Registrant filed a form 8-K with the Securities and Exchange
Commission on June 28, 1996 announcing that its Votan Corporation
subsidiary filed a Registration Statement on Form S-1 relating to
the initial public offering of 2,750,000 shares of common stock.
<PAGE>
<TABLE>
Exhibit A: (2)
MOSCOM CORPORATION
and Subsidiary
Calculations of Earnings Per Share
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary
Net Income (Loss) $ (650,403) $ 246,642 $(1,837,806) $ 549,690
----------- ----------- ---------- -----------
Weighted Common Shares 6,861,335 6,786,405 6,846,293 6,775,975
Outstanding
Dilutive Effect of Stock
Options After Application
of Treasury Stock Method - 175,819 - 181,793
--------- --------- --------- ---------
Weighted Average Shares
Outstanding 6,861,335 6,962,224 6,846,293 6,957,768
========= ========= ========= =========
Income (Loss) Per Common
and Common Equivalent Share $(.10) $.04 $(.27) $.08
===== ==== ===== ====
Assuming Full Dilution
Net Income (Loss) $ (650,403) $ 246,642 $(1,837,806) $ 549,690
=========== =========== =========== =========
Weighted Average Shares
Outstanding 6,861,335 6,962,224 6,846,293 6,957,768
Additional Dilutive Effect
of Stock Options and
Warrants after Application
of Treasury Stock Method - - - -
--------- --------- --------- ---------
Weighted Average Shares
Outstanding 6,861,335 6,962,224 6,846,293 6,957,768
========= ========= ========= =========
Income (Loss) per Common
Share Assuming Full Dilution $(.10) $.04 $(.27) $.08
===== ==== ===== ====
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MOSCOM CORPORATION
REGISTRANT
Date: _________________________
_____________________________________
Albert J. Montevecchio, Chairman of the Board
President and CEO
Date: _________________________
_____________________________________
Ronald C. Lundy
Treasurer (Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 920,477
<SECURITIES> 3,205,733
<RECEIVABLES> 3,215,372
<ALLOWANCES> 85,000
<INVENTORY> 1,443,803
<CURRENT-ASSETS> 8,967,741
<PP&E> 5,377,479
<DEPRECIATION> 4,283,192
<TOTAL-ASSETS> 15,790,549
<CURRENT-LIABILITIES> 2,056,478
<BONDS> 0
0
0
<COMMON> 696,933
<OTHER-SE> 11,802,854
<TOTAL-LIABILITY-AND-EQUITY> 15,790,549
<SALES> 3,347,859
<TOTAL-REVENUES> 3,347,859
<CGS> 904,206
<TOTAL-COSTS> 4,036,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 85,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (650,403)
<INCOME-TAX> 0
<INCOME-CONTINUING> (688,581)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (650,403)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
