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 September 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
(Registrant's 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 issuer's
classes of common stock, as of September 30, 1996.
Common stock, par value $.10 6,881,680 shares
This report consists of 13 pages.
<PAGE>
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - 3 - 4
September 30, 1996 and December 31, 1995
Consolidated Statements of Operations - 5
Three and Nine Months Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows - 6
Nine Months Ended September 30, 1996 and 1995
Notes To Consolidated Financial Statements 7 - 8
Item 2 Management's Discussion and Analysis of 9 - 11
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12 - 14
<PAGE>
PART I - FINANCIAL INFORMATION
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995*
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents
(Including Short-term investments
of $765,398 and $2,632,286
respectively) $ 692,620 $ 2,727,340
Short-term Investments 1,918,777 2,967,809
Accounts Receivable, trade
(net of allowance for doubtful
accounts of $86,000 and $71,000
respectively) 3,898,173 4,158,378
Inventories (Note 2) 1,743,483 1,646,941
Prepaid Expenses 135,269 132,205
----------- -----------
Total Current Assets 8,388,322 11,632,673
PLANT AND EQUIPMENT (Note 3): 5,550,470 5,372,451
Less Accumulated Depreciation (4,400,553) (4,174,126)
----------- -----------
Plant and Equipment (Net) 1,149,917 1,198,325
OTHER ASSETS:
License Fees and Purchased Software
(Net of accumulated
amortization of $211,485 and
$357,077 respectively) 90,575 431,148
Capitalized Software
Development Costs (Net of
accumulated amortization of
$1,224,315 and $2,417,094
respectively) 3,123,522 3,239,112
Deposits and Other Assets 1,481,918 1,513,136
----------- -----------
Total Other Assets 4,696,015 5,183,396
----------- -----------
TOTAL ASSETS $14,234,254 $18,014,394
=========== ===========
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995*
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,228,782 $ 615,136
Accrued Compensation and Related Taxes 1,231,322 1,019,234
Other Accrued Expenses 1,035,758 918,653
----------- -----------
Total Current Liabilities 3,495,862 2,553,023
Other Long-Term Liabilities 1,303,033 1,126,786
----------- -----------
4,798,895 3,679,809
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized;
issued and outstanding,
6,881,680 and 6,818,654, respectively 688,168 681,865
Additional Paid-in Capital 15,556,495 15,294,653
Retained Earnings (6,742,122) (1,650,778)
Cumulative Translation Adjustment (67,182) 8,845
----------- -----------
9,435,359 14,334,585
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $14,234,254 $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 Nine Months Ended
September 30, September 30,
(Unaudited)
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 4,055,118 $ 3,834,017 $ 10,207,257 $ 12,568,309
------------ ------------ ------------ ------------
COSTS AND OPERATING EXPENSES:
Cost of Sales 1,313,685 938,655 3,172,550 3,535,468
Engineering & Software 1,251,126 409,835 2,418,952 1,285,647
Development
Selling, General and 3,099,727 2,586,083 8,273,805 7,303,206
Administrative ------------ ------------ ------------ ------------
Total Costs and Operating 5,664,538 3,934,573 13,865,307 12,124,321
Expenses ------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,609,420) (100,556) (3,658,050) 443,988
INTEREST INCOME 52,766 82,548 179,590 186,694
OTHER EXPENSES (Note 5) 1,560,407 - 1,560,407 -
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES (3,117,061) (18,008) (5,038,867) 630,682
INCOME TAXES - - (84,000) 99,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (3,117,061) $ (18,008) $ (4,954,867) $ 531,682
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ (.45) $ .00 $ (.72) $ .08
============ ============ ============ ============
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1996 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(4,954,867) $ 531,682
----------- -----------
Adjustments to Reconcile Income (Loss)
to Net Cash Provided by Operating
Activities
Depreciation and Amortization 2,254,841 1,514,037
Provision for Losses on Accounts
Receivable 18,000 18,000
Provision for Inventory Obsolescence 225,003 133,500
Changes in Assets and Liabilities
Short Term Investments 1,049,032 (102,513)
Accounts Receivable 242,205 (339,774)
Inventories (321,545) 356,317
Prepaid Expenses (3,064) 39,362
License Fees (32,809) (239,605)
Software Development Costs (1,371,724) (961,408)
Other Assets 31,218 (106,483)
Accounts Payable 613,646 (115,952)
Other Liabilities 176,247 157,500
Other Current Liabilities 253,164 798,158
----------- -----------
Net Adjustments 3,134,214 1,151,139
----------- -----------
Net Cash Provided (Used) by Operating
Activities (1,820,653) 1,682,821
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (345,735) (558,039)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (136,477) (270,877)
Exercise of Stock Options and Warrants 275,771 375,122
Stock Retirements (7,626) (57,920)
----------- -----------
Net Cash Flows from Financing Activities 131,668 46,325
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,034,720) 1,171,107
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,727,340 2,152,377
----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 692,620 $ 3,323,484
=========== ===========
<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 Registrant's management, necessary to present fairly
Registrant's financial position as of September 30, 1996, the results
of its operations for the three and nine months ended September 30,
1996 and 1995 and cash flows for the nine months ended September 30,
1996 and 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 nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for a full year's 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 September 30, 1996 and December
31, 1995 was as follows:
September 30, December 31,
1996 1995
Purchased parts and components $ 612,584 $1,186,513
Work in process 333,959 324,980
Finished goods 796,940 135,448
---------- ----------
$1,743,483 $1,646,941
========== ==========
<PAGE>
(3) PLANT AND EQUIPMENT
The major classifications of plant and equipment at September 30,
1996, and December 31, 1995 are:
September 30, December 31,
1996 1995
Machinery and equipment $1,526,413 $1,551,899
Computer hardware and software 2,678,085 2,497,945
Furniture and fixtures 1,025,914 1,008,926
Leasehold improvements 320,058 313,681
---------- ----------
$5,550,470 $5,372,451
========== ==========
(4) CALCULATION OF WEIGHTED AVERAGE SHARES
Weighted average shares outstanding for the three and nine months
ended September 30, 1996 and the three months ended September 30,
1995 do not include common stock equivalents, as their effect on
earnings per share would be anti-dilutive.
(5) OTHER EXPENSES
The Company recorded Other Expenses for the three months ended
September 30, 1996 in the amount of $1,560,407, consisting of one
time charges for the following:
(a) Expenses of $724,825 related to the withdrawn initial public
offering of Votan stock.
(b) A charge of $835,582 for the write-off of certain licensed
and capitalized software. The charges relate primarily to
older software products that have been replaced by newer
products. By taking this charge, the Companys capitalized
software as it appears on the balance sheet will be more
closely related to projected revenues.
<PAGE>
Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Sales for the third quarter ended September 30, 1996 of
$4,055,118 were 6% higher than the sales of $3,834,017 for the third
quarter of 1995, and 21% higher than the sales of $3,347,859 generated
during the second quarter of 1996 and represented the highest level of
sales for any third quarter in the Companys history, traditionally
the weakest quarter of the year.
The increased sales result from strong gains in the call
accounting market, particularly with Lucent Technologies, and a
significant increase in shipment of the Companys INFO/MDR products,
to both the domestic and international market.
While not yet contributing significantly to revenues, market
reaction to the Companys Verabill IS product released late in the
second quarter has been extremely encouraging. MOSCOM has been
approached by three leading switch vendors regarding cooperative
marketing agreements for Verabill, which are currently being actively
pursued. These potential partnerships would augment our existing
relationships on Verabill, with Alcatel SEL, Lucent Technologies, and
ORGA Kartensysteme, GmbH.
The gross margin percentage for the three months ended September
30, 1996 of 68% was significantly lower than the 76% gross margin for
the three months ended September 30, 1995, which represented the
highest quarterly margin realized in the Companys history. The drop
in margin was due to the combination of a less favorable product mix,
as well as higher amortization costs related to capitalized software.
The gross margin for the nine months ended September 30, 1996 of 69%
compared with a gross margin percentage of 72% for the nine months
ended September 30, 1995. This decrease was entirely due to
amortization costs increasing to 12% of sales during the 1996 versus
9% of sales for the first nine months of 1995, largely due to the
lower sales volume.
As expected and highlighted in earlier reports, 1996 expenditures
for engineering and development costs on both a gross and net of
capitalization basis continued to far exceed the expense levels
realized for the same three and nine month periods of 1995, as
illustrated by the following table:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Gross Expenditures for
Engineering & Software
Development $1,436,028 $ 807,252 $3,790,676 $2,247,055
Less: Costs Capitalized (184,902) (397,417) (1,371,724) (961,408)
---------- ---------- ---------- ----------
Net Engineering & Software
Development Expense $1,251,126 $ 409,835 $2,418,952 $1,285,647
========== ========== ========== ==========
<PAGE>
The single largest component of the increased engineering and
development costs relate to Verabill IS, the Companys new billing and
operations support system for telephone and wireless companies.
During the first six months of 1996 the Company invested heavily in
the products final development phase leading to product release and
initial shipment of the base product in June of this year. During the
third quarter of 1996 additional effort has been invested in the
completion of additional Verabill models and enhancements.
The Company expects that the gross expense levels for engineering
and development will begin to decline beginning in the fourth quarter
of 1996.
Selling, general and administrative expenses of $3,099,727 for
the three months ended September 30, 1996 were 20% higher than the
$2,586,083 of selling, general and administrative expenses incurred
during the three months ended September 30, 1995. Selling, general
and administrative costs of $8,273,805 for the nine months ended
September 30, 1996 compared with similar expenses of $7,303,206 for
the same nine month period of 1995, an increase of 13%. While the
Company has experienced increased sales and administrative costs at
its foreign subsidiaries, MOSCOM Ltd, Global Billing Services, and
MOSCOM GmbH, during the first nine months of 1996 versus the first
nine months of 1995, the increase for the three months ended September
30, 1996 was attributable to the expenses associated with the planned
expansion of the Votan division from a research and development
facility to an independent entity, with sales and marketing capability
, including non recurring charges for the recruitment of the Votan
management team.
The Company recorded a one time expense of $1,560,407 during the
quarter ended September 30, 1996 consisting of the following items:
1. Costs associated with the withdrawn Votan initial public offering
of $724,845, consisting primarily of legal and accounting fees,
printing costs, and financial advisor fees.
2. A writedown of capitalized software and certain purchased
software of $835,562. The charges relate primarily to older software
products that have been or will be replaced by newer products. By
taking this charge the Companys balance sheet will more closely
correlate with projected future revenues, and reduce future
amortization expenses.
After the effect of the other expenses referred to above, the
Company recognized a net loss of $3,117,061 or $0.45 per share for the
quarter ended September 30, 1996. For the nine months ended September
30, 1996 the Company has realized a net loss of $4,954,867 or $0.72
per share. For the respective three and nine month periods of 1995
the Company had a net loss of $18,008 ($.00 per share) and a net
profit of $531,682 ($.08 per share).
Liquidity and Capital Resources
As of September 30, 1996 the Company had total cash and
investment resources of $2,611,397, which compared with cash and an
investment balance of $5,695,149 at December 31, 1995.
<PAGE>
Working capital ratios at September 30, 1996, December 31, 1995
and September 30, 1995 were 2.4, 4.6 and 4.8 respectively.
The charge taken to purchased software and capitalized software
reduced those balances from $350,784 and $3,896,879 at June 30, 1996
to $90,575 and $3,123,522 respectively at September 30, 1996.
Current liabilities increased from $2,056,478 at June 30, 1996 to
$3,495,862 at September 30, 1996 largely due to the costs incurred in
connection with the withdrawn Votan initial public offering. Current
liabilities at December 31, 1995 were $2,553,023.
Through September 30, 1996 the Company had maintained an
unsecured revolving line of credit arrangement with a commercial bank
for a maximum of $3,000,000. As a result of the loss incurred for
the three months ended September 30, 1996 a financial covenant in
the Companys line of credit agreement was violated. Subsequently,
effective November 14, 1996 the agreement was terminated.
Given the Companys strong working capital position at September
30, 1996, the Company believes that it will have sufficient resources
from existing cash reserves and other current assets 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
nine months ended September 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 Nine Months Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary
Net Income (Loss) $(3,117,061) $ (18,008) $(4,954,867) $ 531,682
=========== =========== =========== ===========
Weighted Common Shares
Outstanding 6,873,584 6,809,706 6,855,383 6,787,219
Dilutive Effect of Stock
Options After Application
of Treasury Stock Method - - - 121,195
----------- ----------- ----------- -----------
Weighted Average Shares
Outstanding 6,873,584 6,809,706 6,855,383 6,908,414
=========== =========== =========== ===========
Income (Loss) Per Common
and Common Equivalent Share $ (.45) $ .00 $ (.72) $ .08
----------- ----------- ----------- -----------
Assuming Full Dilution
Net Income (Loss) $(3,117,061) $ (18,008) $(4,954,867) $ 531,682
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 6,873,584 6,809,706 6,855,383 6,908,414
Additional Dilutive Effect
of Stock Options and
Warrants after Application
of Treasury Stock Method - - - -
----------- ----------- ----------- -----------
Weighted Average Shares
Outstanding 6,873,584 6,809,706 6,855,383 6,908,414
=========== =========== =========== ===========
Income (Loss) per Common
Share Assuming Full Dilution $ (.45) $ .00 $ (.72) $ .08
=========== =========== =========== ===========
</TABLE>
<PAGE>
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: November 14, 1996_____________
/Signature/_________________________________
Albert J. Montevecchio, Chairman of the Board
President and CEO
Date: November 14, 1996_____________
/Signature/_________________________________
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> SEP-30-1996
<CASH> 692,620
<SECURITIES> 1,918,777
<RECEIVABLES> 3,898,173
<ALLOWANCES> 86,000
<INVENTORY> 1,743,483
<CURRENT-ASSETS> 8,388,322
<PP&E> 5,550,470
<DEPRECIATION> 4,400,553
<TOTAL-ASSETS> 14,234,254
<CURRENT-LIABILITIES> 3,495,862
<BONDS> 0
0
0
<COMMON> 688,168
<OTHER-SE> 8,747,191
<TOTAL-LIABILITY-AND-EQUITY> 14,234,254
<SALES> 4,055,118
<TOTAL-REVENUES> 4,055,118
<CGS> 1,313,685
<TOTAL-COSTS> 5,664,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 86,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,117,061)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,609,420)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,560,407)
<CHANGES> 0
<NET-INCOME> (3,117,061)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
