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 March 31, 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 March 31, 1996.
Common stock, par value $.10 6,855,366 shares
This report consists of 14 pages.
<PAGE>
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - 3, 4
March 31, 1996 and December 31, 1995
Consolidated Statements of Operations - 5
Three Months Ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows - 6
Three Months Ended March 31, 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 - 13
<PAGE>
PART I - FINANCIAL INFORMATION
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995*
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents Including
Short-term investments of $2,022,694
and $2,632,286 respectively) $ 2,377,533 $ 2,727,340
Short-term Investments 2,708,085 2,967,809
Accounts Receivable, trade (net of
allowance for doubtful accounts
of $79,000 and $71,000, respectively) 3,043,905 4,158,378
Inventories (Note 2) 1,534,582 1,646,941
Prepaid Expenses 140,318 132,205
------------ ------------
Total Current Assets 9,804,423 11,632,673
PLANT AND EQUIPMENT (Note 3): 5,293,293 5,372,451
Less Accumulated Depreciation (4,161,583) (4,174,126)
------------ ------------
Plant and Equipment (Net) 1,131,710 1,198,325
OTHER ASSETS:
License Fees and Purchased Software
(Net of accumulated amortization
of $223,800 and $357,077 respectively) 395,428 431,148
Capitalized Software
Development Costs (Net of accumulated
amortization of accumulated $1,456,745
and $2,417,094 respectively) 3,454,746 3,239,112
Deposits and Other Assets 1,499,472 1,513,136
------------ ------------
Total Other Assets 5,349,646 5,183,396
------------ ------------
TOTAL ASSETS $ 16,285,779 $ 18,014,394
============ ============
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995*
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 516,764 $ 615,136
Accrued Compensation and Related Taxes 820,316 1,019,234
Other Accrued Expenses 669,242 918,653
------------ ------------
Total Current Liabilities 2,006,322 2,553,023
Other Long-Term Liabilities 1,185,535 1,126,786
------------ ------------
3,191,857 3,679,809
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized; issued and
outstanding, 6,855,366 and 6,818,654,
respectively 685,537 681,865
Additional Paid-in Capital 15,421,356 15,294,653
Retained Earnings (2,974,658) (1,650,778)
Cumulative Translation Adjustment (38,313) 8,845
------------ ------------
13,093,922 14,334,585
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 16,285,779 $ 18,014,394
EQUITY ============ ============
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
(Unaudited)
1996 1995
SALES $ 2,804,280 $ 4,410,529
------------ ------------
COSTS AND OPERATING EXPENSES:
Cost of Sales 954,659 1,316,446
Engineering & Software 603,585 439,947
Development Selling, General and
Administrative 2,606,085 2,336,484
------------ ------------
Total Costs and Operating Expenses 4,164,329 4,092,877
------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,360,049) 317,652
INTEREST INCOME 88,646 35,396
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,271,403) 353,048
INCOME TAXES (84,000) 50,000
------------ ------------
NET INCOME (LOSS) $ (1,187,403) $ 303,048
============ ============
NET INCOME (LOSS) PER SHARE $(.17) $.04
============ ============
See notes to Consolidated Financial Statements.
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1996 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,187,403) $ 303,048
------------ ------------
Adjustments to Reconcile Income (Loss)
to Net Cash Provided by Operating
Activities
Depreciation and Amortization 466,847 518,835
Provision for Losses on Accounts
Receivable 6,000 6,000
Provision for Inventory Obsolescence 50,001 30,000
Changes in Assets and Liabilities
Short Term Investments 259,724 402,862
Accounts Receivable 1,108,473 (1,075,652)
Inventories 62,358 86,540
Prepaid Expenses (8,113) 8,445
License Fees (7,700) (43,388)
Software Development Costs (483,888) (249,644)
Other Assets 13,664 (60,984)
Accounts Payable (98,372) 49,003
Other Liabilities 58,749 52,500
Other Current Liabilities (495,487) 101,963
------------ ------------
Net Adjustments 932,256 (173,520)
------------ ------------
Net Cash Provided (Used) by Operating
Activities (255,147) 129,528
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (88,558) (219,861)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends Paid (136,477) (134,939)
Exercise of Stock Options and Warrants 138,000 165,125
Stock Retirements (7,625) (15,584)
------------ ------------
Net Cash Flows from Financing Activities (6,102) 14,602
------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (349,807) (75,731)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,727,340 2,152,377
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 2,377,533 $ 2,076,646
============ ============
<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 March 31, 1996 and the results
of its operations and cash flows for the three months ended March 31,
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 months ended March 31,
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 March 31, 1996 and December 31,
1995 was as follows:
March 31 December 31
1996 1995
Purchased parts and components $ 1,020,522 $ 1,186,513
Work in process 353,898 324,980
Finished goods 160,162 135,448
------------ ------------
$ 1,534,582 $ 1,646,941
============ ============
<PAGE>
(3) PLANT AND EQUIPMENT
The major classifications of plant and equipment at March 31,
1996, and December 31, 1995 are:
March 31 December 31
1996 1995
Machinery and equipment $ 1,511,552 $ 1,551,899
Computer hardware and
software 2,477,705 2,497,945
Furniture and fixtures 991,152 1,008,926
Leasehold improvements 312,884 313,681
------------ ------------
$ 5,293,293 $ 5,372,451
============ ============
(4) Weighted average shares outstanding for the three months ended
March 31, 1996 does 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 first quarter ended March 31, 1996 were $2,804,280,
a decline of 36% from sales of $4,410,529 for the first quarter of
1995. Several factors contributed to the lower sales figure, the most
significant being the separation from AT&T of Lucent Technologies, now
MOSCOMs largest customer. Sales to Lucent have been temporarily
affected by their focus on the reorganization, coupled with an
internal inventory reduction program. In addition we have received
indications from several of our largest distributors, including
Lucent, that they have experienced a drop in sales of telephone
systems (PBXs). Historically, the Companys sales of call accounting
systems closely parallel PBX sales.
Despite the disappointing sales level achieved for the first
quarter of 1996, there were a number of positive developments during
the quarter that should favorably influence results for the balance of
1996. Among them are:
- - The purchase of MOSCOMs voice verification product by Chemical
Bank (now Chase Bank) for use in a second phase trial. Those systems
have been installed and are operational at two Chase branches in New
York City. Success in this trial could lead to substantial additional
orders from Chase this year.
- - MOSCOMs MVM for Windows voice activated voice mail system was
introduced in Spanish and Portuguese. The reception was extremely
favorable and the reaction of target distribution channels in South
America quicker than we had expected. Siemens has agreed to market
MVM for Windows in Argentina and Lucent Technologies is now marketing
it in Brazil. Opportunities with both companies in several other
South American countries are being pursued. These marketing
activities have also led to initial orders for Emerald CAS for Windows
and Abacus call accounting systems from Lucent Technologies and
Siemens in Argentina and Chile.
- - MOSCOM has received our first orders through Alcatel for the
Verabill IS system in anticipation of its release to customers in
July.
- - MOSCOM signed a distribution agreement with ORGA Kartensysteme of
Germany for worldwide distribution of Verabill IS. Shipments under
that contract are expected to begin in the third quarter.
The Companys gross margin percentage of 66% for the first
quarter of 1996 compared with a gross margin percentage of 70% for the
first quarter of 1995. The lower margin percentage is due entirely to
the reduced sales volume, with amortization expense associated with
capitalized development costs and license fees, which are relatively
fixed, accounting for 13% of first quarter 1996 sales, versus just 8%
of first quarter 1995 sales.
As shown in the following table the Companys expenditures for
Engineering and Software development expenses for the quarter ended
March 31, 1996 were significantly higher than those realized during
the first quarter of 1995. Gross spending rose 58%, while net
spending after the capitalization of project spending was up 37% over
the same period a year ago.
<PAGE>
Three Months Ended
March 31
1996 1995
Gross Expenditures for Engineering &
Software Development $1,087,473 $ 689,591
Less: Costs capitalized (483,888) (249,644)
---------- ----------
Net Engineering & Software development
expense $ 603,585 $ 439,947
========== ==========
Development Costs Amortized (included
in Cost of Sales) $ 292,761 $ 304,787
========== ==========
The increased spending and capitalization levels reflect a
concentrated effort on several major development projects now entering
the final stages of development, and scheduled for early third quarter
release.
Selling, general and administrative expenses of $2,606,085 for
the first quarter ended March 31, 1996 compared with an expense level
of $2,336,484 for the same period last year. The increased spending
was attributable to increased staffing levels in the Companys foreign
operations, mainly Global Billing Services Ltd. located in England and
MOSCOM GmbH, located in Germany.
Interest income earned during the first quarter of 1996 of
$88,646 increased from $35,396 for the first quarter of 1995, due to
higher cash balances available for investment as well as more
favorable market conditions, especially in the bond market, than those
experienced in the first quarter of 1995.
The net loss of $1,187,403, or $.17 per share for the first
quarter of 1996, compared with a net profit of $303,048 or $.04 per
share for the first quarter of 1995.
Liquidity and Capital Resources
The Companys cash and investment position at March 31, 1996 was
$5,085,618, versus a cash and investment position of $3,634,753 at
March 31, 1995, an increase of 40%. The working capital ratio of 4.9
at March 31, 1996 compares with ratios of 4.6 and 5.9 at December 31,
1995 and March 31, 1995 respectively.
The March 31 inventory level of $1,534,582 at the end of the
first quarter has been reduced by 41% from the inventory level of
$2,593,688 at March 31, 1995, and is expected to increase by another
10-20% throughout 1996.
Capital spending for the first quarter of 1996 was $88,558
consisting primarily of computer equipment and accessories. The
reported value of property and equipment has been reduced during the
first quarter of 1996 due to a write-off of approximately $168,000 of
fully depreciated equipment, thus having no impact on first quarter
operating results.
<PAGE>
Current liabilities were reduced by $546,701 during the first
quarter to $2,006,322 at March 31, due to reductions in both accrued
payroll expenses, and deferred revenue associated with maintenance
contracts 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, 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 From 8-K
(1) Registrants Consolidated Financial Statements for the three months
ended March 31, 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.
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.
<PAGE>
Exhibit A: (2)
MOSCOM CORPORATION
and Subsidiary
Calculations of Earnings Per Share
Three Months Ended
March 31,
Primary 1996 1995
Net Income (Loss) $ (1,187,403) $ 303,048
============ ============
Weighted Common Shares
Outstanding 6,831,250 6,765,545
Dilutive Effect of Stock
Options After Application of
Treasury Stock Method - 187,766
------------ ------------
Weighted Average Shares
Outstanding 6,831,250 6,953,311
============ ============
Income (Loss) Per Common and
Common Equivalent Share $(.17) $.04
============ ============
Assuming Full Dilution
Net Income (Loss) $ (1,187,403) $ 303,048
============ ============
Weighted Average Shares 6,831,250 6,953,311
Outstanding
Additional Dilutive Effect of
Stock Options and Warrants
after Application of Treasury
Stock Method - -
------------ ------------
Weighted Average Shares
Outstanding 6,831,250 6,953,311
============ ============
Income (Loss) per Common
Share Assuming Full
Dilution $(.17) $.04
============ ============
<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: May 14, 1996
_____________________________________
Albert J. Montevecchio, Chairman of the Board
President and CEO
Date: May 14, 1996
_____________________________________
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> MAR-31-1996
<CASH> 2,377,533
<SECURITIES> 2,708,085
<RECEIVABLES> 3,043,905
<ALLOWANCES> 79,000
<INVENTORY> 1,534,582
<CURRENT-ASSETS> 9,804,423
<PP&E> 5,293,293
<DEPRECIATION> 4,161,583
<TOTAL-ASSETS> 16,285,779
<CURRENT-LIABILITIES> 2,006,322
<BONDS> 0
0
0
<COMMON> 685,537
<OTHER-SE> 12,408,385
<TOTAL-LIABILITY-AND-EQUITY> 16,285,779
<SALES> 2,804,280
<TOTAL-REVENUES> 2,804,280
<CGS> 954,659
<TOTAL-COSTS> 4,164,329
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 79,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,271,403)
<INCOME-TAX> (84,000)
<INCOME-CONTINUING> (1,360,049)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,187,403)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
