FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended December 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 (IRS Employer
incorporation or organization) Identification Number)
3750 Monroe Avenue, Pittsford, NY 14534
(Address of principal executive offices)
(716) 381-6000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act
NONE N/A
(Title of Each Class) (Name of each exchange
on which registered)
Common Stock, $.10 Par Value
(Securities registered pursuant to Section 12 (g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any Amendment to this Form 10-K.
-------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of 15 (d) of the Securities
Exchange 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 requirements for the past 90 days.
YES [ x ] NO [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of January 31, 1997 was $42,960,104.
The number of shares of Common Stock, $.10 par value, outstanding on
January 31, 1997 was 6,936,060.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART I - None
PART II - None
PART III Item 10 Pages 3, 4, and 6 of the Companys
Proxy Statement for the Annual
Meeting of Shareholders to be held
May 22, 1997.
under Election of Directors and
Compliance With Section 16 (a).
Item 11 Pages 5, 6, and 7 of the Companys
Proxy Statement for the Annual
Meeting of Shareholders to be held
May 22, 1997.
under Executive Compensation.
Item 12 The table contained on page 2 and
the information under Election of
Directors on pages 3 through 6 of
the Companys Proxy Statement for
the Annual Meeting of Shareholders
to be held May 22, 1997.
<PAGE>
PART I
Item 1 Business
MOSCOM was incorporated in New York in January 1983 and reincorporated
in Delaware in 1984. MOSCOM has four wholly-owned subsidiaries, MOSCOM
Limited and Global Billing Services, Ltd., formed under the Laws of
England, MOSCOM GmbH, formed under the Laws of Germany, and Votan
Corporation formed as a subsidiary in June 1996 from assets operated as a
division of MOSCOM since 1991.
MOSCOM Corporation produces telecommunications management systems,
telephone company billing systems, and voice verification and recognition
products for users and providers of telecommunications services in the
global market.
MOSCOMs historical core business has been telemanagement products.
MOSCOM telemanagement line includes call accounting systems, telephone
fraud detection systems, and telecommunications asset management systems.
MOSCOM is one of the worlds leading producers of customer premises based
call accounting systems which help control telecommunication expenses.
Since its founding in 1983, MOSCOM has sold over 75,000 of these and
related products in over 60 countries. MOSCOMs call accounting systems are
sold under the brand names of telephone system manufacturers including
Lucent Technologies, Siemens and Philips. They are also sold under the
MOSCOM name through leading resellers of telephone systems, including
Ameritech, Nortel Communications, and Sprint-United.
For the central offices of telephone operating companies, MOSCOM
offers products for management of telecommunications data collected at the
carriers operations center. The patented INFO/MDR system enables telephone
companies to capture comprehensive message detail records (MDR) carried by
the telephone network. The MDR can then be organized into detailed reports
that can be used to enhance special services such as Centrex and virtual
private networks.
MOSCOMS Verabill IS software is a comprehensive rating, billing and
customer service system for small to mid-sized telephone and cellular
companies. Global Billing Services, Ltd., a subsidiary of MOSCOM, operates
a billing and support service bureau in the United Kingdom for providers of
telephone, cellular, and internet access in Europe.
In the voice processing market, MOSCOM produces voice recognition,
speaker verification, voice mail systems and voice processing applications.
MOSCOMs Votan subsidiary is engaged in the development of advanced voice
recognition technology. This technology enables the use of voice commands
(spoken in person or by telephone) to enter or retrieve data and to control
equipment. Votan has also developed voice verification technology which is
used to verify the identity of the speaker. Both technologies have been
applied by MOSCOM in the development of proprietary voice activated
products and are also licensed to value added resellers.
<PAGE>
MOSCOMs products are designed for the global market. During the past
year, 30% of MOSCOMs revenues were derived outside the United States.
MOSCOMs headquarters and manufacturing facility is located in
Pittsford, New York. A software development center is maintained near
Syracuse, New York. European marketing and support are provided through
subsidiaries in England and Germany. Global Billing Services, Ltd. is
based in England. The Votan Corporation subsidiary is based in Pleasanton,
CA.
Telemanagement at the Business Location
MOSCOM is among the worlds leading producer of telemanagement products
which are used by organizations to optimize the usage of their
telecommunications services and equipment, and to control telephone
expenses. Telemanagement products include call accounting systems,
telephone fraud detection products and facilities management systems.
MOSCOMs initial telemanagement product lines were call accounting
systems which connect via cable to a business telephone system (or PBX) to
collect, store, and process information on every outside telephone call
made.
Call accounting systems give businesses easy access to complete
information on telephone usage including the dialed number, calling
extension, call duration, time of day, destination, trunk line and cost of
each call. All of MOSCOMs call accounting products provide this
fundamental information, in graphical summary and detailed report formats,
without monitoring actual phone conversations.
The primary appeal of call accounting systems is that they save money.
Telephone bills, which typically represent the third largest business
expense after payroll and facilities, can be reduced by 10% - 30% through
heightened awareness and management. As a result, the cost of a call
accounting system can generally be recovered in less than one year through
direct expense reduction.
Call accounting systems are purchased and used for many other valuable
reasons as well, including:
* Traffic analysis to determine an optimal number of trunks and best
long distance carrier configuration.
* Allocating telephone expense to specific cost centers or clients based
on actual use.
* Producing revenues by reselling phone services to clients or hotel
guests.
* Detecting fraudulent use of the phone system by hackers and
unauthorized use of company phones for personal calls or 900 numbers.
* Evaluating employee productivity.
MOSCOMs premier call accounting product is the Emerald CAS for Windows
software. Emerald CAS for Windows comes in affordable model sizes ranging
from 25 to 20,000 telephone extensions. A significant feature of Emerald
CAS for Windows not found in predecessor products is the ability to collect
and process data from up to 100 different remote telephone switches (PBXs)
<PAGE>
from one central location. MOSCOMs economical Pollable Storage Unit (PSU)
collects data from the remote PBXs and stores it until polled by a central
Emerald CAS for Windows system. Private label versions of Emerald CAS for
Windows are sold by Lucent Technologies , Siemens and Philips. Emerald CAS
for Windows is designed to be an international product. It supports
worldwide call rating, all world currencies, date schemes and privacy
practices. Most importantly, Emerald CAS for Windows is available in
English, German, Spanish, Italian, Russian and Czech.
MOSCOM also produces call accounting software products based on the
UNIX operating system. These products are marketed very successfully by
Lucent Technologies as an integrated solution with Lucent Technologies
telephone systems and applications.
As a complement to a pure software solution MOSCOM also offers a
proprietary platform for call management. The Abacus call management
system is an economical, self-contained unit about the size of a laptop
computer which includes a full keyboard and large LCD screen. It offers
full call accounting functionality for small to mid-sized customers with up
to 400 extensions. Abacus is designed to appeal to dealers due to its easy
plug and play installation, and to users for its simple one key command
interface and intuitive screen instructions. Abacus is also pollable by
Emerald CAS for Windows to enable use by multi-site organizations. Private
label versions of Abacus are supplied to Siemens in Germany and to Lucent
Technologies in the United States.
PBX fraud detection systems address a problem that is estimated to
exceed $1 billion annually - the theft of telephone service through PBX
hacking. Alert PBX owners use call accounting systems to spot the fraud
and take corrective measures to minimize the loss. MOSCOM offers an
optional HackerTracker module with the Emerald CAS for Windows system to
automate the detection of fraud 24 hours per day and instantly send out
alarms by printed report, audio signal, pager or fax to initiate preventive
measures. The Abacus call management system also provides fraud detection
and notification features to users.
The market for telemanagement products is a highly fragmented one
supplied primarily by small firms selling directly to end users. What sets
MOSCOM apart and enables MOSCOM to maintain a leading worldwide market
share is our distribution relationships with some of the largest sales and
support organizations in the industry. The strength, breadth and quality
of MOSCOMs distribution network is unsurpassed, including Lugent
Technologies, Ameritech, Nortel Communications, and Sprint-United in the
United States, and Siemens, Philips, and Lucent Technologies in
international markets.
Central Office Telemanagement
MOSCOMs INFO/MDR products capture, at the central office, vital
information in the form of Message Detail Records on every call handled by
that particular central office switch. These raw detail records are then
processed into meaningful formats and distributed to a central telephone
company billing processor or to business subscribers.
<PAGE>
INFO/MDR consists of these separate components that operate
synergistically:
1. The INFO Monitor connects directly to the central office switch
via the message detail port to capture and store the call records. At the
INFO Monitor site this information can serve as a management and fault
finding tool.
2. INFO Collector aggregates at a single location call records from
different INFO Monitors or from the telephone companys generating element.
A single INFO collector can serve as many as 500 central offices. The
aggregated information is then available to the phone companys billing
system or transferred to a customers INFO Manager.
3. INFO Manager is a customer premises system based on MOSCOMs
Emerald CAS for Windows call accounting system. It allows the customer to
download call records from an INFO Collector or INFO Monitor in real time
or at scheduled times. The customers reports can be summary or detailed,
statistical or graphical and will include a precise calculation of the cost
of each call.
Telephone companies use INFO/MDR to enhance the appeal of Centrex and
Virtual Private Network service. Centrex allows a customer to utilize the
telephone companys central office switch to route calls to individual
extensions. INFO/MDR gives telephone companies the ability to provide
complete, timely and accurate call detail information to customers,
economically and efficiently. Telephone companies are also using INFO/MDR
to provide message accounting for virtual private networks, another rapidly
growing segment of the telecommunications market. Virtual private networks
utilize customized software design to provide private network functionality
over the common carrier public network.
Telephone companies with multiple INFO/MDR systems installed include
Alltel, Century Telephone, Citizens Utilities, Mercury Communications (in
the UK), Sprint, and Teleport Communications Group.
Billing Products and Services
Deregulation and competition are the most significant forces affecting
the telecommunications industry worldwide. One affect is to significantly
expand demand for products designed for new entrants to the industry.
Another is to drastically change the requirements of established service
providers suddenly facing a dramatically new environment.
MOSCOMs Verabill family of software products is designed for this new
telecommunications world.
Verabill models 1 and 2 provide rating and billing for telephone,
cellular and PCS companies and telephone service resellers. These models
are targeted toward start-up companies with up to 30,000 subscribers.
<PAGE>
In 1996 MOSCOM introduced Verabill IS, a much more comprehensive
billing and operations support system for telecommunications service
providers with up to 400,000 subscribers. Verabill IS is an operations
support system for managing billing, receivables, service and work orders,
and equipment. These functions are fully integrated with a common database
but modular in design to enable customers to select the functionality
required. Verabills client server architecture allows users to easily add
subscriber capacity as demanded. This is a particularly attractive feature
for emerging service providers with rapid expansion plans. Since Verabill
is based on Windows 95 operator training is relatively easy. Computer
hardware costs are also minimal.
Verabill IS is capable of rating and billing telecommunications
services worldwide. Billing formats and schemes can be adjusted quickly by
the users to accommodate new marketing plans or to meet competive
offerings.
The market for Verabill IS is worldwide -- wherever new service
providers are entering the market or existing providers find their billing
and customers care systems inadequate to meet changing market conditions.
To reach this expansive market MOSCOM is forming distribution and marketing
relationships with the leading global providers of switches and support
systems sold to land line and wireless telecommunications companies.
Global Billing Services, Ltd. (GBS) is a wholly-owned subsidiary of
MOSCOM in the United Kingdom that offers telephone, cable, and internet
service providers an outsourcing alternative for billing services. The
services offered by GBS range from simple rating of transaction messages to
complete customer care and customized billing. GBS will appeal to
companies that prefer not to make an investment in licensing software,
purchasing hardware and hiring and training operations and support staffs.
GBS allows service providers to change pricing schemes rapidly and to grow
quickly without concern that their investment in support infrastructure
will become obsolete.
GBS markets its services by means of a direct sales force as well as
through a strategic partnership with Nortel, the largest supplier of
central office switches in the United Kingdom.
Voice Recognition
MOSCOMs subsidiary Votan Corporation is a leading developer of speech
recognition and voice verification technology. Speech recognition
technology enables a device to understand a spoken sound as a word or
phrase. Voice verification technology further enables the device to verify
the identity of the speaker of that spoken word or phrase.
Both technologies utilize patented Votan algorithms to create unique
voice prints of the spoken phrase. These are compared to previously
recorded and stored samples or templates. A suitable match to the template
enables understanding of the phrase or verification of the speaker. Votans
proprietary algorithms, are particularly effective in noisy environments,
whether that noise is the electronic static of a telephone line or the
variable clamor of an airport lobby.
<PAGE>
The primary hardware platform for the Votan voice recognition
technology is the Model 2400 series 4-port voice processing board
introduced by MOSCOM in 1994. The Model 2400, available in both telephone
or microphone input models, operates under Microsoft Windows in standard
personal computers. MOSCOM has used the Model 2400 board as the platform
for two proprietary voice applications: MVM for Windows and Televoice.
MVM for Windows is MOSCOMs voice mail system that is controlled by
voice commands as well as phone key pad tones. MVMs combination of voice
processing and voice recognition technology gives MOSCOM two significant
advantages over traditional voice mail products: (i) it can be entirely
voice controlled and therefore operate without touch tones, and (ii) it
includes voice verification technology to provide superior mail box
security to ensure privacy and to prevent fraud. MOSCOMs target markets
for MVM for Windows are those countries without significant touch tone
usage and proportionately low acceptance of traditional tone controlled
voice mail products. In North America, MVM for Windows will appeal to
international companies whose overseas employees and customers may lack
local touch tone capability. MVM for Windows is available in English,
Spanish, German and Portuguese. For distribution of MVM for Windows MOSCOM
will target leading sellers of PBX systems starting with MOSCOMs existing
extensive network of call accounting distributors.
The TeleVoice system is MOSCOMs platform for developing interactive
telephone information applications that respond to both phone generated
tones and voice commands. It is a highly flexible system which is easily
adapted to different vertical market industries. Callers to a TeleVoice
application can use spoken words to select recorded product or service
announcements from a menu, transfer to an operator or leave a message.
Siemens markets a customized version of TeleVoice in Germany and Austria
under the name Infovoice. Customized Infovoice systems have been developed
for Siemens customers in a wide variety of vertical markets including
travel agencies, real estate firms, auto dealers, and government transport
agencies.
Votans focus is on marketing its voice verification technologies and
products directly to banks and other financial institutions for use in a
variety of applications, including bank teller verification, home banking,
wire transfers, credit cards, smart cards and automatic teller machines
(ATMs). Votans voice verification technologies and products are designed
to enhance the security of financial transactions and improve productivity
by reducing the amount of time required to process a transaction.
Marketing and Sales
MOSCOMs marketing and sales personnel are located at its headquarters
in Pittsford, New York, Pleasanton, California and ten other locations
throught the United States.
Marketing and sales personnel of MOSCOMs subsidiary, MOSCOM Ltd.,
located in Slough, England, market MOSCOMs products in the United Kingdom.
Sales personnel employed by MOSCOM GmbH in Munich, Germany, market the
Companys products throughout continental Europe.
<PAGE>
MOSCOMs marketing and distribution strategy is founded on building
mutually beneficial relationships with companies with large, established
distribution networks for telecommunications and computer products. The
nature of the relationships varies depending on the product and market.
For some, MOSCOM develops and manufactures customized products under a
private label while others purchase and resell MOSCOMs standard products.
MOSCOMs marketing strategy is focused upon telephone switch
manufacturers and sellers and providers of telephone services. A partial
listing of companies using or selling MOSCOM products follows:
PHONE SYSTEM MANUFACTURERS
Alcatel SEL (Germany)
Lucent Technologies, Inc.
Nortel (US and UK)
Philips (Germany)
Siemens (Germany)
TELEPHONE SERVICE PROVIDERS
Ameritech (USA)
Mercury Communications (UK)
Sprint (USA)
Teleport Communications (USA)
Sales to AT&T and Siemens AG accounted for 50% and 15% respectively of
MOSCOMs 1996 revenue.
New Product Development
MOSCOM is currently pursuing several opportunities to expand its
telemanagement product lines and to offer products for related markets.
Software development costs meeting recoverability tests are
capitalized under Statement of Financial Accounting Standard No. 86
effective January 1, 1986. The cost of software capitalized is amortized
on a product-by-product basis over its estimated economic life, or the
ratio of current revenues to current and anticipated revenues from such
software, whichever provides the greater amortization. The Company
periodically records adjustments to write down certain capitalized costs to
their net realizable value.
Backlog
At December 31, 1996 MOSCOM had a backlog of $2,616,812. Backlog as
of December 31, 1995 was $2,589,320. Backlog is not deemed to be a
material indicator of 1997 revenues.
<PAGE>
The Companys policy is to recognize orders only upon receipt of firm
purchase orders.
Competition
The telecommunications management industry is highly competitive and
highly fragmented. The number of domestic suppliers of telemanagement
systems for business users is estimated to exceed 100 companies. The vast
majority of those are regional firms with limited product lines and limited
sales and development resources. Several competitors are established
companies that are able to compete with MOSCOM on a national basis.
There are fewer competitors in the market for telemanagement systems
for regulated telephone companies. However, competition in this market is
expected to increase as the market matures.
A large number of firms have or are developing voice recognition
technology. Success in this market will depend most heavily in technical
performance but also on the ability to apply technology in useful
applications.
Some competing firms have greater name recognition and more financial,
marketing and technological resources than MOSCOM. Competition in the
industry is based on price, product performance, depth of product line and
customer service. MOSCOM believes its products are priced competitively
based upon their performance and functionality. However, MOSCOM does not
strive to be consistently the lowest priced supplier in its markets.
In common with other information industries, the markets into which
the Company sells have recently been characterized by rapid shift toward
the software component of product content and away from the hardware
element. Historically, prices for application software have declined
rapidly in the face of competition. Increased competition for the Companys
Emerald product or softness in demand for its hardware based products
would, if they were to materialize, adversely affect the Companys volume
and profits.
Manufacturing
MOSCOM assembles its products from components purchased from a large
variety of suppliers both domestic and international. Wherever feasible,
the Company secures multiple sources, but in some cases it is not possible.
MOSCOM offers warranty coverage on all products for 90 days or one
year on parts and 90 days on labor. Repair services are offered at the
Pittsford, New York facility, at the U. K. facility in Slough, England, and
by some of the Companys larger customers.
<PAGE>
Employees
As of December 31, 1996, MOSCOM employed 169 full-time personnel,
including 22 based in Europe employed by MOSCOMs subsidiaries, and 14
employed by the Votan division of MOSCOM, located in Pleasanton,
California.
MOSCOMs employees are not represented by any labor unions.
Item 2 Facilities
The Companys principal administrative office and manufacturing
facility is located in a one-story building in Pittsford, New York. MOSCOM
presently leases approximately 51,430 square feet of the building of which
approximately 5,000 square feet is devoted to manufacturing. The initial
term of the lease expires on June 30, 1998.
The Company also leases approximately 3,000 square feet in Pleasanton,
California which houses the Votan subsidiary of MOSCOM. That lease expires
on July 14, 1998.
The Companys subsidiary in the United Kingdom, MOSCOM Limited,
occupies approximately 4,250 square feet in Slough, England pursuant to a
lease which expires on December 31, 1998.
The Companys subsidiary in Germany, MOSCOM GmbH, leases approximately
4,000 square feet in Ismaning, Germany. This lease expires July 31, 1997.
Item 3 Legal Proceedings
The Company is engaged in litigation with a former employee with
respect to termination of employment. The Company believes this action is
unlikely to have a material impact on the Company.
There are no other material pending legal proceedings against the
Company or to which the Company is a party or of which any of its property
is the subject.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 Market for the Registrants Common Stock and Related
Stockholder Matters
MOSCOM Corporations Common Stock, $.10 par value, is traded on the
NASDAQ National Market System (symbol: MSCM). The following quotations
are furnished by NASDAQ for the periods indicated. These quotations
reflect inter-dealer quotations that do not include retail markups,
markdowns or commissions and may not represent actual transactions.
<PAGE>
COMMON STOCK PRICE RANGE
Quarters Ended
March 31 June 30 September 30 December 31
1996 9 7/8 - 7 1/4 16 3/8 - 7 1/2 17 1/8 - 8 1/4 12 5/8 - 6 5/8
1995 11 1/4 - 8 1/8 10 5/8 - 8 1/4 9 1/2 - 6 5/8 8 1/4 - 5 3/4
As of December 31, 1996, there were 643 holders of record of the
Companys Common Stock and approximately 4,000 additional beneficial
holders.
MOSCOM initiated a semi-annual cash dividend during 1990. The Company
paid dividends of $.02 per share during the months of January and July of
each year from 1990 through 1995. The Company paid a dividend of $.02 per
share in January 1996.
Item 6 Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Sales $13,380,862 $17,570,381 $14,260,683 $13,455,810 $12,616,448
Net Income (Loss) $(5,936,096) $881,950 $(387,743) $(3,854,641) $70,992
Net Income (Loss) per
share $(.86) $.13 $(.06) $(.59) $.01
Total Assets $13,604,623 $18,014,394 $16,083,483 $16,535,935 $20,360,770
Long term obligations $1,320,682 $1,126,786 $955,464 $798,703 $967,244
Weighted average shares
outstanding 6,866,154 6,909,874 6,707,449 6,589,130 6,654,080
Cash Dividends paid per
share $.02 $.04 $.04 $.04 $.04
</TABLE>
<PAGE>
Item 7: Managements Discussion and Analysis of Results of Operations and
Financial Condition
Sales of $13,380,862 for the year ended December 31, 1996 were 24%
less than the record sales of $17,570,381 achieved for the year ended
December 31, 1995. The decline in sales resulted from a number of
factors, the most significant being:
a) A 28% reduction in sales to Lucent Technologies, the Companys largest
customer of call management products due in part to a Lucent inventory
reduction program. Sales to Lucent were particularly affected during
the first half of 1996 by their focus on their carve-out from AT&T.
b) Delays in product enhancements to call management software products sold
primarily through the Companys German subsidiary, MOSCOM GmbH. These
enhancements were ultimately released during the fourth quarter of 1996,
and should help to return 1997 revenues from MOSCOM GmbH to
historical levels.
c) Delays in orders the Company had expected during the fourth quarter of
1996 for Verabill IS and INFO/MDR. In both cases those orders are
expected to be received during the first and second quarters of 1997.
Both Verabill IS and INFO/MDR are expected to contribute significantly
to 1997 revenues.
Gross margins for the year ended December 31, 1996 were 70% which was
just slightly less than the gross margin of 71% realized for the year ended
December 31, 1995, and was entirely due to the lower sales volume for 1996.
Gross engineering and development costs for 1996 of $4,859,996 was up
by 49% from the 1995 expense level of $3,267,726. Net engineering and
development costs of $3,197,002 for the year ended December 31, 1996, after
the effects of capitalization were 86% higher than the net engineering and
development costs of $1,716,793 for the year ended December 31, 1995.
The table below presents a comparison of both net and gross
engineering and development expenses, amounts capitalized and amortized,
and the resulting overall impact on the Companys operations for the years
ended December 31, 1996 and 1995.
<PAGE>
1996 1995
Gross Expenditures for engineering and
software development $4,859,996 $3,267,726
Less: Costs capitalized 1,662,994 1,550,933
Net engineering & software development
expense $3,197,002 $1,716,793
Plus: Amounts amortized and charged to
cost of sales 1,756,808 1,207,674
---------- ----------
Total expense recognized for the year $4,953,810 $2,924,467
========== ==========
A significant amount of the increased spending relates to
customization, enhancements, and support effort required by the initial
Verabill IS shipments after product release in July of 1996. It is
expected that these costs will decline during 1997.
Selling, general and administrative expenses of $10,756,381 for the
year ended December 31, 1996 compared with total costs of $9,915,877 for
the year ended December 31, 1995, an increase of 8%. The increased costs
incurred during 1996 reflected the expansion of the Votan Division of the
Company from a research and development facility to an wholly owned subsidiary
with sales, engineering and marketing capability, including non-recurring
charges for recruitment of the Votan management team, in anticipation of a
late third quarter 1996 initial public offering, subsequently withdrawn.
On March 11, 1997, the Companys Votan subsidiary filed a registration
statement on a Form S-1, as amended, with the Securities and Exchange
Commission to sell 1,600,000 of Votans common stock. Upon successful
completion of this offering, the Company will retain approximately 50%
of Votans outstanding common stock (45% if the underwriters over
allotment is exercised in full).
Should the Votan IPO be completed the Company would expect 1997
selling, general and administrative expenses to fall below those levels
realized for the year ended December 31, 1996.
During the third quarter of 1996 the Company recorded other expenses
of $1,560,407, consisting of one time charges for the following:
a) Expenses of $724,845 related to the withdrawal of a prior attempted
initial public offering of Votan stock consisting primarily of legal and
accounting fees, printing costs, and financial advisor fees.
b) 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 expense.
<PAGE>
The net loss for the year ended December 31, 1996 was $5,936,096 or
$.86 per share compared with a net profit of $881,950 or $.13 per share for
the year ended December 31, 1995.
Results of Operations
1995 Compared with 1994
MOSCOM Corporation achieved record sales revenues of $17,570,381 for
the year ended December 31, 1995, an increase of 23% over 1994 sales
$14,260,683. All major markets participated in the overall sales growth
with domestic sales increasing 21% and sales to international markets
increasing by 30%, primarily through MOSCOM GmbH the Companys German
subsidiary.
Sales to the Companys traditional telemanagement markets were
especially strong during 1995, further solidifying our position as the
world leader in that market. OEM sales of Emerald CAS for Windows were
strong through AT&T in the US and Philips in Germany. Late in the year
Siemens also began selling Emerald CAS for Windows in Germany.
During the year the Company made significant progress in the
development of markets for our newer products such as Verabill IS, MVM for
Windows and our Voice Verification applications, all of which are expected
to contribute to 1996 revenues.
For the year ended December 31, 1995 the Company realized a gross
margin percentage of 71%. This compares with gross margin percentages of
65% and 63% for the years ended December 31, 1994 and December 31, 1993
respectively. The improved margins result from a combination of three
separate factors.
1. The continued shift in sales mix toward software based products and
services, and away from hardware based products which are characterized
by higher manufacturing costs.
2. This reduction in hardware based products as a percentage of the sales
mix has also allowed the Company to continue a streamlining of its
manufacturing processes begun late last year, resulting in lower
overhead rates and in turn further lowering unit production costs.
3. A decrease in the amortization of capitalized software as a percentage
of total sales revenue. For 1995 amortization expense equaled 9% of
sales revenue, versus 11% during 1994.
Net engineering and software development expenses for 1995 amounted to
$1,716,793, an increase of 5% over 1994 engineering and development costs
of $1,633,902. Gross expenditures for engineering and development
increased from $3,044,466 for the year ended December 31, 1994 to
$3,267,726 for the year ended December 31, 1995, an increase of 7%.
The following table presents a comparison of both net and gross engineering
and development expenses, amounts capitalized and amortized, and the
resulting impact on the Companys operations for the years ended December
31, 1995 and 1994.
<PAGE>
1995 1994
Gross expenditures for engineering and
software development $3,267,726 $3,044,466
Less: Costs capitalized 1,550,933 1,410,564
---------- ----------
Net engineering & software development
expense $1,716,793 $1,633,902
Plus: Amounts amortized and charged to
cost of sales 1,207,674 1,136,733
---------- ----------
Total expense recognized for the year $2,924,467 $2,770,635
========== ==========
A significant portion of the 1995 development efforts were geared
toward two major product offerings, both of which are expected to begin
generating revenues by mid 1996. They are Verabill IS, a comprehensive
billing and service system capable of handling up to 400,000
subscribers, and TMS, a total facilities and call management system.
Selling, general, and administrative expenses for 1995 were $9,915,877
as compared to $8,153,042 for 1994. As a percentage of total sales revenue
generated, 1995 selling, general and administrative expense amounted to 56%
of total sales, down from 57% in 1994, and 61% for 1993. The largest
portion of the increased spending was attributable to the Companys
formation of its wholly owned subsidiary, Global Billing Services, Ltd.
located in the United Kingdom, a provider of services to the telephone,
cable, and virtual private network markets in the UK.
In addition, selling and marketing costs were impacted by expenses
related to new releases of MVM for Windows, the voice activated voice mail
system, and Verabill, our billing and operations software product for small
to mid-sized telephone and cellular companies.
Interest earned on investments increased from $61,378 for the year
ended December 31, 1994 to $277,913 for the year ended December 31, 1995.
The increase was attributable to a combination of higher balances available
for investment due to the positive cash flow provided by operations and the
rebound in the bond market from 1994s poor showing.
The net income realized for 1995 of $881,950 or $.13 per share
represents an improvement of $1,269,693 from the net loss of $387,743 or a
loss of $.06 per share realized for 1994.
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 Securities and Exchange Commission.
<PAGE>
Liquidity and Capital Resources
Total cash and investments at December 31, 1996 total $2,275,715,
which compared with a total cash and investment position of $5,695,149 at
December 31, 1995. As of December 31, 1996 the Companys working capital
ratio was 2.2 which compared with working capital ratios of 4.6 and 6.0 for
the years ended December 31, 1995 and 1994 respectively.
Inventories of $1,887,808 at December 31, 1996 were 15% higher than
the inventory level of $1,646,941 at December 31, 1995, due to a late year
buildup of the Companys hardware based Abacus call management system, sold
primarily through Lucent Technologies and Siemens. It is anticipated that
inventory levels will be reduced significantly during 1997.
Additions to plant and equipment during 1996 were $450,971 which is
significantly less than the capital additions of $719,945 for the year
ended December 31, 1995.
License fees and purchased software declined from $431,148 at December
31, 1995 to $93,520 at December 31, 1996 due to the writedown of purchased
software included in older products that have been replaced by newer
products, and discussed in the Managements Discussion and Analysis Section
of this report.
Total current liabilities increased from $2,553,023 at December 31,
1995 to $3,584,351 at December 31, 1996 due to amounts outstanding at year
end from the withdrawn public offering of Votan, as well as an increase in
deferred revenues generated from billings to Lucent Technologies for
services to be performed in 1997.
Subsequent to December 31, 1996 two events occurred that materially
affected the Companys liquidity and capital resources. On February 12,
1997 the Company announced that two institutional investors had purchased
281,593 shares of MOSCOM common stock for $1.62 million. The proceeds from
this sale of stock enhances the Companys ability to respond promptly to the
major growth opportunities currently available to the Company. In early
March the Company reached an agreement with a major commercial bank for a
line of credit agreement for up to $500,000. Any amounts borrowed against
the line would be secured by all of the Companys assets. No commitment
fees will be paid as part of the agreement.
Given the Companys working capital position and lack of debt at
December 31, 1996 coupled with the subsequent events discussed above, the
Company believes that it will have sufficient resources to meet its
financial needs over the next twelve months.
<PAGE>
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share. The
statement is effective for fiscal years ending after December 15, 1997.
When adopted, restatement of prior years earnings per share will be
required.
The statement establishes revised standards for computing and presenting
earnings per share, as well as standards for disclosing information about a
companys capital structure. Management does not expect the application to
have a material effect on its financial statements.
Had earnings per share for the year ended December 31, 1996 and 1995 been
computed according to this statement, there would not have been a material
effect on the companys earnings (loss) per share.
<PAGE>
Item 8 Consolidated Financial Statements and Supplementary Data
Required to be Included Herein as Follows:
Page
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20
INDEPENDENT AUDITORS REPORT 21
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets 22 - 23
Consolidated statements of operations 24
Consolidated statements of stockholders equity 25
Consolidated statements of cash flows 26
Notes to consolidated financial statements 27 - 39
Item 9 Disagreements on Accounting and Financial Disclosure
None
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of MOSCOM Corporation
We have audited the accompanying consolidated balance sheet of MOSCOM
Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders equity, and cash flows
for the year then ended. These financial statements and the schedule
referred to below are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements
and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MOSCOM
Corporation and subsidiaries as of December 31, 1996, and the results of
its operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule for the year ended
December 31, 1996, listed in the index at Item 14(a) is presented for
purposes of complying with the Securities and Exchange Commisions rules
and is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth
therein relation the the basic financial statements taken as a whole.
ARTHUR ANDERSON, LLP
Rochester, New York
March 11, 1997
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
of MOSCOM Corporation
Pittsford, New York
We have audited the accompanying consolidated balance sheet of MOSCOM
Corporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, stockholders equity and cash
flows for each of the two years in the period ended December 31, 1995.
Our audits also included the consolidated financial statement schedule
listed in the Index at Item 14(a) for each of the two years in the
period ended December 31, 1995. These financial statements and the
financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
MOSCOM Corporation and subsidiaries as of December 31, 1995, and the
results of their operations and their cash flows for each of the two years
in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule for each of the two years in the period ended
December 31, 1995, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Rochester, New York
February 7, 1996
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes
investments of $1,353,590 and $2,632,286) $ 2,025,535 $ 2,727,340
Investments 250,180 2,967,809
Accounts receivable, trade (net of allowance
for doubtful accounts of $118,000 and $71,000) 3,477,384 4,158,378
Inventories 1,887,808 1,646,941
Prepaid expenses and other current assets 69,719 132,205
------------- ------------
Total current assets 7,710,626 11,632,673
------------- ------------
PLANT AND EQUIPMENT:
Cost 5,655,706 5,372,451
Less accumulated depreciation 4,520,657 4,174,126
------------- ------------
Plant and equipment, net 1,135,049 1,198,325
------------- ------------
OTHER ASSETS:
License fees and purchased software (net
of accumulated amortization of $223,065
and $357,077) 93,520 431,148
Software development costs (net of
accumulated amortization of
$1,531,780 and $2,417,094) 3,145,298 3,239,112
Deposits and other assets 1,520,130 1,513,136
------------- ------------
Total other assets 4,758,948 5,183,396
------------- ------------
TOTAL ASSETS $ 13,604,623 $ 18,014,394
============= ============
</TABLE>
The accompanying notes to the financial statements are an integral part of
these balance sheets.
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,170,508 $ 615,136
Accrued compensation and related taxes 961,155 1,019,234
Other accrued expenses 1,452,688 918,653
------------ ------------
Total current liabilities 3,584,351 2,553,023
------------ ------------
PENSION OBLIGATION 1,320,682 1,126,786
------------ ------------
Total liabilities 4,905,033 3,679,809
------------ ------------
COMMITMENTS
STOCKHOLDERS EQUITY:
Common Stock, par value, $.10; shares
authorized, 20,000,000; issued and
outstanding, 6,934,872 shares and
6,818,654 shares 693,487 681,865
Additional paid-in capital 15,785,850 15,294,653
Retained deficit (7,723,351) (1,650,778)
Cumulative translation adjustment (56,396) 8,845
------------ ------------
Total stockholders equity 8,699,590 14,334,585
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 13,604,623 $ 18,014,394
============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of
these balance sheets.
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
SALES $ 13,380,862 $ 17,570,381 $ 14,260,683
------------ ------------ ------------
COSTS AND OPERATING EXPENSES:
Cost of sales 4,017,224 5,138,674 4,936,761
Engineering and software development 3,197,002 1,716,793 1,633,902
Selling, general and administrative 10,756,381 9,915,877 8,153,042
Other expenses 1,560,407 - -
------------ ------------ ------------
Total costs and operating
expenses 19,531,014 16,771,344 14,723,705
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (6,150,152) 799,037 (463,022)
INTEREST INCOME 214,056 277,913 61,378
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (5,936,096) 1,076,950 (401,644)
INCOME TAX PROVISION (BENEFIT) - 195,000 (13,901)
------------ ------------ ------------
NET INCOME (LOSS) $ (5,936,096) $ 881,950 $ (387,743)
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (.86) $ .13 $ (.06)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 6,866,154 6,909,874 6,707,449
============ ============ ============
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Common Stock Additional Retained Cumulative Total
Shares Par Value Paid-in Earnings Translation Stockholders
Capital (Deficit) Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1994 6,680,781 $668,078 $14,811,533 $(1,739,957) $(68,713) $13,670,941
Exercise of stock options and
warrants 88,120 8,812 282,592 - - 291,404
Stock retirements (25,026) (2,502) (148,193) - - (150,695)
Foreign currency translation
adjustment - - - - 79,966 79,966
Dividends declared on common stock
($.02 per share) - - - (134,152) - (134,152)
Net loss - - - (387,743) - (387,743)
--------- -------- ----------- ----------- -------- -----------
BALANCE - December 31, 1994 6,743,875 674,388 14,945,932 (2,261,852) 11,253 13,369,721
========= ======== =========== ============ ======== ===========
Exercise of stock options and
warrants 86,779 8,677 435,741 - - 444,418
Stock retirements (12,000) (1,200) (87,020) - - (88,220)
Foreign currency translation
adjustment - - - - (2,408) (2,408)
Dividends declared on common stock
($.04 per share) - - - (270,876) - (270,876)
Net income - - - 881,950 - 881,950
--------- -------- ----------- ----------- -------- -----------
BALANCE - December 31, 1995 6,818,654 681,865 15,294,653 (1,650,778) 8,845 14,334,585
========= ======== =========== ============ ======== ===========
Exercise of stock options and
warrants 118,471 11,847 509,347 - - 521,194
Stock retirements (2,253) (225) (18,150) - - (18,375)
Foreign currency translation
adjustment - - - - (65,241) (65,241)
Dividends declared on common stock
($.02 per share) - - - (136,477) - (136,477)
Net loss - - - (5,936,096) - (5,936,096)
--------- -------- ----------- ----------- -------- -----------
BALANCE - December 31, 1996 6,934,872 $693,487 $15,785,850 $(7,723,351) $(56,396) $ 8,699,590
========= ======== =========== ============ ======== ===========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(5,936,096) $ 881,950 $ (387,743)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,657,205 1,947,941 1,890,977
Decrease (increase) in deferred income taxes 90,133 48,936 (6,674)
Provision for bad debts 18,000 (3,811) (23,188)
Provision for inventory obsolescence 168,337 185,250 168,550
Changes in assets and liabilities:
Investments 2,717,629 (1,006,840) 1,395,201
Accounts receivable 662,994 (680,900) (669,449)
Inventories (409,204) 878,037 176,119
Prepaid expenses and other current assets 62,486 106,797 142,129
License fees and purchased software (48,522) (308,091) (224,707)
Deposits and other assets (6,994) (252,389) 15,564
Accounts payable 555,372 104,991 2,177
Accrued compensation and related taxes (58,079) 240,550 110,299
Other accrued expenses 572,557 618,098 (50,126)
----------- ----------- -----------
Net adjustments 6,981,914 1,878,569 2,926,872
Net cash provided by operating activities 1,045,818 2,760,519 2,539,129
----------- ----------- -----------
INVESTING ACTIVITY:
Additions to plant and equipment (450,971) (719,945) (143,128)
Software development costs (1,662,994) (1,550,933) (1,410,564)
----------- ----------- -----------
Net cash used in investing activities (2,113,965) (2,270,878) (1,553,692)
----------- ----------- -----------
FINANCING ACTIVITIES:
Exercise of stock options and warrants 502,819 356,198 140,709
Payment of dividends on common stock (136,477) (270,876) (267,768)
----------- ----------- -----------
Net cash provided by (used in) financing activities 366,342 85,322 (127,059)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (701,805) 574,963 858,378
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,727,340 2,152,377 1,293,999
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,025,535 $ 2,727,340 $ 2,152,377
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
MOSCOM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of MOSCOM Corporation and its wholly-owned subsidiaries, Votan
Corporation, MOSCOM Limited and Global Billing Services Limited
(companies incorporated in England) and Moscom GmbH (a company
incorporated in Germany). All significant intercompany accounts and
transactions have been eliminated. The Company and its subsidiaries
design and manufacture computer products, software and services for the
telecommunications industry. Effective June 26, 1996, the assets,
liabilities and operations of the Votan division were transferred to a
new entity, Votan Corporation, a wholly-owned subsidiary of the
Company.
Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The consolidated financial statements include managements best
estimates of the net realizable value of software development costs.
Accordingly, the Company periodically records adjustments to write down
the carrying value of software development costs to their net
realizable value. The amounts the Company will ultimately realize
could differ materially from the carrying value of the software
development costs. (see Note 10).
Fair value of financial instruments - Statement of Financial Accounting
Standards No. 107 Disclosures about Fair Value of Financial
Instruments, requires disclosures of the fair value of certain
financial instruments. Cash and cash equivalents, investments,
accounts receivable, accounts payable and accrual expenses are
reflected at fair value because of their short-term maturity.
Investments - The Companys investments are classified as trading
securities since the Company intends to buy and sell the securities in
the near term with the objective of generating profits on short-term
differences in price. Such securities are reported at fair value in
the consolidated financial statements and any unrealized holding gains
and losses are included in earnings.
Concentrations of credit risk - Financial instruments which potentially
subject the Company to concentration of credit risk consist principally
of investments and accounts receivable. The Company places its
investments ($1,603,770 and $5,600,095 as of December 31, 1996 and
1995, respectively) with quality financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution.
<PAGE>
The Companys customers are not concentrated in any specific geographic
region, but are concentrated in the telecommunications industry. As of
December 31, 1996 and 1995, one specific customer in this industry
accounted for approximately $1,098,905 and $863,264, respectively, of
the total accounts receivable balance. The Company performs ongoing
credit evaluations of its customers financial conditions but does not
require collateral to support customer receivables. The Company
establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends
and other information.
Inventories are stated at the lower of cost (first-in, first-out) or
market. The Company evaluates the net realizable value of inventory on
hand considering deterioration, obsolescence, replacement costs and
other pertinent factors, and records adjustments as necessary.
Plant and equipment is recorded at cost and depreciated on a straight-
line basis using the following useful lives:
Computer hardware and software 3-5 years
Machinery and equipment 4-7 years
Furniture and fixtures 5-10 years
Leasehold improvements Term of lease
All maintenance and repair costs are charged to operations as incurred.
License fees are being amortized over the periods expected to be
benefited, not exceeding five years.
Software development costs meeting recoverability tests are
capitalized, and amortized on a product-by-product basis over their
economic life, generally three years, or the ratio of current revenues
to current and anticipated revenues from such software, whichever
provides the greater amortization.
Revenue recognition - The Company recognizes revenue from product sales
upon shipment to the customer. Revenues from maintenance and extended
warranty agreements are recognized ratably over the term of the
agreements. The Company also enters into license agreements for
certain of its products. Revenues from such agreements are recognized
based on the terms of the agreements, generally upon the delivery of
the licensed product.
Income taxes are provided on the income earned in the financial
statements. Deferred income taxes are provided to reflect the impact
of temporary differences between the amounts of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. Tax credits are recognized as a
reduction to income taxes in the year the credits are earned.
Net income (loss) per share is based upon the weighted average number
of common shares outstanding during each year assuming exercise of
outstanding stock options and warrants under the treasury stock method
to the extent such options are dilutive.
Consolidated statements of cash flows - The Company considers all
highly liquid investments purchased with a maturity of three months or
less to be cash equivalents.
<PAGE>
Reclassifications - Certain prior year balances have been
reclassified to conform with current year presentation.
Stock-Based Compensation - In October 1995, Statement of Financial
Accounting Standards (SFAS) No. 123. Accounting for Stock-Based
Compensation was issued which sets forth a fair value method of
recognizing stock based compensation expense. As permitted by
SFAS No. 123, the Company intends to continue to measure compensation
for such plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees and will disclose the additional information relative to
issued stock options and pro forma net income and earnings per share,
as if the options granted were expensed at their estimated fair value
at the time of grant. There was no effect on the Companys financial
statements as a result of adopting this statement.
<PAGE>
2. INVENTORIES
The major classifications of inventories as of December 31, 1996 and
1995 are:
1996 1995
Purchased parts and components $ 873,918 $ 1,186,513
Work in process 256,104 324,980
Finished goods 757,786 135,448
----------- ------------
$ 1,887,808 $ 1,646,941
=========== ============
3. PLANT AND EQUIPMENT
The major classifications of plant and equipment as of December 31,
1996 and 1995 are:
1996 1995
Machinery and equipment $ 1,532,876 $ 1,551,899
Computer hardware and software 2,755,519 2,497,945
Furniture and fixtures 1,040,879 1,008,926
Leasehold improvements 326,432 313,681
----------- -----------
$ 5,655,706 $ 5,372,451
=========== ===========
Depreciation expense was approximately $471,000, $474,000 and $398,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
4. ENGINEERING AND SOFTWARE DEVELOPMENT EXPENDITURES
Engineering and software development expenditures incurred during the
years ended December 31, 1996, 1995 and 1994 were recorded as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Engineering and software development
expense included in the consolidated
statements of operations $ 3,197,002 $ 1,716,793 $ 1,633,902
Amounts capitalized and included in
the consolidated balance sheets 1,662,994 1,550,933 1,410,564
----------- ----------- -----------
Total expenditures for engineering
and software development $ 4,859,996 $ 3,267,726 $ 3,044,466
=========== =========== ===========
</TABLE>
<PAGE>
Additionally, the Company recorded amortization of capitalized software
development costs of approximately $1,757,000, $1,208,000, $1,137,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Such amortization is included in cost of sales in the consolidated
statements of operations.
5. BENEFIT PLANS
The Company sponsors an employee incentive savings plan under section
401(K) for all eligible employees. The Companys contributions to the
plan are discretionary and totalled $10,000 in 1995. There were no
contributions in 1996 or 1994.
The Company also sponsors an unfunded Supplemental Executive Retirement
Program, which is a nonqualified plan that provides certain key
employees defined pension benefits. Periodic pension expense for the
years ended December 31, 1996, 1995 and 1994 consists of the following:
1996 1995 1994
Service cost $ 115,021 $ 104,439 $ 100,852
Interest cost 78,875 66,882 55,909
Net amortization and deferral 36,965 36,965 36,965
--------- --------- ---------
Pension expense $ 230,861 $ 208,286 $ 193,726
========= ========= =========
A reconciliation of the pension plans funded status with
amounts recognized in the Companys balance sheets follows:
1996 1995
Actuarial present value of accumulated
benefit obligation $ 1,320,682 $ 1,126,786
=========== ===========
Actuarial present value of projected
benefit obligation $ 1,320,682 $ 1,126,786
Plan assets - -
----------- -----------
Projected benefit obligation in excess of
plan assets 1,320,682 1,126,786
Prior service cost not yet recognized in
net periodic pension cost (408,088) (445,773)
Additional minimum liability 408,088 445,773
----------- -----------
Accrued pension expense $ 1,320,682 $ 1,126,786
=========== ===========
<PAGE>
Included in the deposits and other assets caption in the
consolidated balance sheets as of December 31, 1996 and 1995 is an
intangible asset of $408,088 and $445,773, respectively, related
to the minimum liability adjustment for the unfunded accumulated
benefit obligation.
The discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the
projected benefit obligation were 7% and 3% respectively.
The Company maintains life insurance covering the lives of certain
key employees covered under its Supplemental Executive Retirement
Program with the Company named as beneficiary. The Company
intends to use death benefits as well as loans against the
accumulating cash surrender value of the policies to fund the
pension obligation.
<PAGE>
6. STOCKHOLDERS EQUITY
The Company has reserved 650,000 shares of its Common Stock for
issuance under its 1993 Stock Option Plan, the successor Plan to the
1983 Stock Option Plan. The Plan provides for options which may be
issued as nonqualified or qualified incentive stock options. Options
granted previous to November 30, 1995 are exercisable no sooner than
25% per year beginning one year from the date of grant. Options granted
subsequent to November 30, 1995 are exercisable in increments of 50%.
The first 50% become exercisable 30 months after the date of grant, with
the remaining 50% becoming exercisable 60 months after grant. All options
granted to employees of MOSCOM Corporation have a ten year term and all
options granted to employees of MOSCOM Limited, Global Billing Services,
Ltd. and MOSCOM GmbH have a seven year term.
The Company accounts for its stock-based compensation plans under
APB Opinion No. 25. Accordingly, compensation expense has been recognized
only to the extent the exercise price was below the fair market value at
the time of the grant. Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair value at the grant
dates for awards consistent with the method of SFAS No. 123, the Companys
net income (loss) per share would have been reduced to the pro forma amounts
indicated below:
1996 1995
Net income (loss) As reported $(5,936,096) $881,950
Pro forma $(6,138,533) $817,948
Net income (loss) per common share As reported $(.86) $.13
Pro forma $(.89) $.12
Fully diluted earnings per share are not presented because the
effect is anti-dilutive.
Compensation expense recognized in the statement of operations for the
year ended December 31, 1996 and 1995 was approximately $38,052 and
$45,487 respectively, for options issued at an exercised price below
fair market values at the time of the grant. The SFAS No. 123 method
of accounting has not been applied to options granted prior to
January 1, 1995, so the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
For purposes of the disclosure above, the fair value of each option
grant is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighed-average assumptions
used for grants in 1996 and 1995.
1996 1995
Dividend yield .01% .01%
Expected volatility 51.49% 51.81%
Risk-free interest rate 6.71% 6.88%
Expected life 8 years 8 years
<PAGE>
<TABLE>
A summary of stock option and warrant transactions for the years
ended December 31, 1996, 1995 and 1994 is shown below:
<CAPTION>
1996 1995 1994
SHARES WTD SHARES WTD SHARES WTD
AVERAGE AVERAGE AVERAGE
PRICE PRICE PRICE
<S> <C> <C> <C> <C> <C> <C>
Options
Shares under option, beginning of year 312,340 $ 4.59 341,615 $ 3.81 380,780 $ 3.43
Options granted 57,410 8.22 100,930 7.41 42,020 8.45
Options exercised (106,175) 3.62 (71,177) 2.93 (45,163) 3.62
Options terminated (32,086) 7.55 (59,028) 6.91 (36,022) 5.51
--------- --------- -------
Shares under option, end of year 231,489 5.53 312,340 4.59 341,615 3.81
========= =========
Shares exercisable 134,959 $ 3.88 210,779 $ 3.43 254,459 $ 3.09
========= ========= =======
Weighted average fair value of
options granted $7.69 $6.03 NA
========= ========= =======
Warrants
Warrants outstanding, beginning of
year 88,228 $ 5.58 102,649 $ 5.35 138,383 $ 4.15
Warrants granted 17,999 8.14 1,181 6.88 7,223 9.00
Warrants exercised (12,296) 4.67 (15,602) 4.17 (42,957) 2.09
Warrants expired (1,132) 4.75 - - - -
--------- --------- -------
Warrants Outstanding, end of year 92,799 $ 6.21 88,228 $ 5.58 102,649 $ 5.35
========= ========= =======
</TABLE>
7. SALES INFORMATION
Sales to two customers were approximately $6,669,000 and
$1,943,000, or 50% and 15% of the Companys total sales in 1996.
Sales to these two customers were approximately $9,184,000 and
$2,135,000 or 52% and 12% of the Companys total sales in 1995 and
$7,180,000 and $2,058,000 or 50% and 14% of the Companys total
sales in 1994.
Export sales to unaffiliated customers, primarily in Europe and
South America were approximately $4,031,200, $5,085,000 and
$3,843,000 in 1996, 1995 and 1994, respectively.
<PAGE>
8. INCOME TAXES
<TABLE>
The components of the income (loss) before income taxes for the
years ended December 31, 1996, 1995 and 1994 is presented below:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Domestic (loss) income $(4,467,551) $1,497,163 $73,191
Foreign loss (1,468,545) (420,213) (474,835)
----------- ---------- ---------
$(5,936,096) $1,076,950 $(401,644)
=========== ========== =========
</TABLE>
<TABLE>
The income tax provision (benefit) includes the following:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income tax payable
(refundable):
Federal $(92,369) $128,964 $(9,876)
State 2,236 17,100 1,550
Foreign - - 1,099
-------- -------- ------
(90,133) 146,064 (7,227)
--------- -------- ------
Deferred income tax:
Federal (1,515,585) 275,838 (18,156)
State (205,975) 58,684 (210,127)
Foreign (499,305) (141,557) (215,427)
Increase (decrease) in valuation allowance 2,310,998 (144,029) 437,036
--------- -------- -------
90,133 48,936 (6,674)
--------- -------- -------
$ - $195,000 $(13,901)
========= ======== ========
</TABLE>
<PAGE>
<TABLE>
The income tax (benefit) provision differs from those computed using the
statutory federal tax rate of 34%, due to the following:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tax at statutory federal rate $(2,018,273) $366,163 $(136,559)
Differences between foreign and
U.S. tax rates - (6,497) (51,781)
State taxes, net of federal tax
benefit (136,258) 69,970 (209,104)
Utilization of tax credits - (108,084) (65,000)
(Decrease) increase in valuation
allowance 2,310,998 (144,029) 437,036
Exercise of non-qualified stock options (146,081) - -
Other (10,386) 17,477 11,507
------------ -------- ---------
$ - $195,000 $ (13,901)
============ ======== =========
</TABLE>
The deferred income tax asset (liability) recorded in the consolidated
balance sheets results from differences between financial statement and
tax reporting of income and deductions. A summary of the composition of
the deferred income tax asset (liability) follows:
<TABLE>
<CAPTION>
1996 1995
Domestic Foreign Domestic Foreign
<S> <C> <C> <C> <C>
General business credits $846,267 $ - $743,352 $ -
Net operating losses 1,671,095 1,162,909 288,752 663,836
Deferred compensation 580,096 - 495,758 -
Alternative minimum tax credits 244,034 - 203,421 -
Inventory 147,544 - 112,364 -
Accounts receivable 43,789 - 26,339 -
Capitalized software (1,166,761) - (1,201,562) -
Fixed assets (43,971) - (52,283) 177
Other 15,608 - - (409)
---------- ---------- ---------- -------
2,337,701 1,162,909 616,141 663,604
Valuation allowance (2,337,701) (1,162,909) (526,008) (663,604)
---------- ---------- ---------- -------
Deferred asset (liability) $ - $ - $ 90,133 $ -
========== ========== ========== =========
</TABLE>
The Company has $4,496,000 of federal net operating loss carryforwards
available as of December 31, 1996, of that total, $782,000 is limited
to a utilization of approximately $100,000 annually. The carryforwards
expire in varying amounts in 1998 through 2011. The valuation
allowance has increased by $2,310,998 during the year ended December
31, 1996.
As of December 31, 1996, the Company has approximately $500,000 of net
operating loss carryforwards available to offset future earnings of
Moscom Limited, approximately $1,330,000 of net operating loss
carryforwards to offset future earnings of Moscom GmbH and
approximately $775,000 of net operating loss carryforwards to offset
future earnings of Global Billing Services Limited.
<PAGE>
The Companys tax credit carryforwards as of December 31, 1995 are as
follows
Description Amount Expiration Dates
General business credits $ 773,913 1999 - 2010
New York State investment tax credits 109,627 1997 - 2005
Alternative minimum tax credits 244,034 No expiration date
-----------
$ 1,127,574
===========
Cash paid (received) for income taxes during the years ended
December 31, 1996, 1995 and 1994 totalled $45,000, $61,922
and $(231,885), respectively.
9. COMMITMENTS
Operating Lease Obligations - The Company and its subsidiary lease
their current manufacturing and office facilities and certain equipment
under operating leases which expire at various dates through 1998. The
facility leases provide for extension privileges. Rent expense under
all operating leases (exclusive of real estate taxes and other expenses
payable under the leases) was $734,000, $635,000, and $773,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Minimum lease payments as of December 31, 1996 under operating leases
are as follows:
Year Ending December 31,
1997 $ 729,000
1998 488,000
1999 160,000
----------
Total minimum lease payments $1,377,000
==========
Line of Credit - The Company had 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 was required to 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. The line of credit arrangement was subject to certain
financial covenants relating primarily to the Companys current ratio,
tangible net worth, liabilities to tangible net worth and a limit on
the amount of dividends declared or paid each year. The Company had
satisfied these financial covenants as of December 31, 1995 and 1994.
This agreement was terminated during 1996.
<PAGE>
10. OTHER EXPENSES
During the third quarter of 1996, other expenses of $1,560,407, were
charged to operations consisting of one time charges for the following:
Write-down of capitalized software development
and purchased software costs to net realizable value $ 835,562
Costs of the withdrawn initial public offering of
Votan Corporations common stock 724,845
----------
$1,560,407
11. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share. The
statement is effective for fiscal years ending after December 15, 1997.
When adopted, restatement of prior years earnings per share will be
required.
The statement establishes revised standards for computing and presenting
earnings per share, as well as standards for disclosing information about a
companys capital structure. Management does not expect the application to
have a material effect on its financial statements.
Had earnings per share for the year ended December 31, 1996 and 1995 been
computed according to this statement, there would not have been a material
effect on the companys earnings (loss) per share.
<PAGE>
12. SUBSEQUENT EVENTS
On February 12, 1997, the Company completed a private placement of
281,593 shares of its common stock to two institutional investors for
$1,620,000 and realized proceeds of $1,548,000. The Company also
issued to the same investors, five-year warrants to purchase an
additional 81,000 shares of the Companys common stock at a price of
$8.95 per share.
On March 11, 1997, the Companys Votan subsidiary filed a registration
statement on a Form S-1, as amended, with the Securities and Exchange
Commission to sell 1,600,000 of Votans common stock. Upon successful
completion of this offering, the Company will retain approximately 50%
of Votans outstanding common stock (45% if the underwriters over
allotment is exercised in full).
<PAGE>
PART III
Item 10 Directors and Executive Officers of the Registrant
Information relating to directors of the Company is incorporated
herein by reference to page 3, 4 and 6 of the Companys Proxy Statement for
the Annual Meeting of Shareholders to be held May 22, 1997 {see Election
of Directors and Compliance With Section 16 (a).}
The following lists the names and ages of all executive officers of
the Company, all persons chosen to become executive officers, all positions
and offices with the Company held by such persons, and the business
experience during the past five years of such persons. All officers were
elected or re-elected to their present positions for terms ending on May
22, 1997 and until their respective successors are elected and qualified.
MANAGEMENT
Directors and Executive Officers of the Registrant
The Directors and executive officers of MOSCOM are as follows:
Name Age Position
Albert J. Montevecchio 60 Chairman of the Board,
C.E.O., Director
David G. Mazzella 56 President, C.O.O., Director
Robert L. Boxer 43 Vice President, Secretary
Corporate Counsel
James W. Karr 53 Vice President,
International Sales
Ronald C. Lundy 45 Treasurer
John A. White 58 President, CEO,
Votan Corporation Subsidiary
Paul T. Babarik 55 Vice President, Sales
Victor de Jong 51 Director
John E. Mooney 52 Director
Harvey E. Rhody 57 Director
Fred E. Strauss 69 Director
<PAGE>
All Directors hold office until the next annual meeting of
stockholders, and until their successors are duly elected and qualified.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
Albert J. Montevecchio is a founder of MOSCOM and has been its Chief
Executive Officer and a Director since its incorporation in January 1983.
He was the President of the Company from its founding until February 1997.
He became Chairman of the Board in February 1985. Prior to founding
MOSCOM, he was a director and Executive Vice President of Sykes
Datatronics, Inc. with responsibility for marketing and sales, customer
service and new product planning. Prior to that he held senior technical
positions with Xerox Corporation and General Electric Corporation. He
holds degree in Electrical Engineering (BSEE).
David G. Mazzella, Jr. became President and Chief Operating Officer of
the Company in February 1997. From June 1994 to February 1997, he
engaged in management consulting. From February 1992 to June 1994, he was
the President and CEO of Scotgroup Enterprises, Inc., which was engaged in
the development and sale of telecommunications software equipment and the
sale of paging and cellular telephone services. From 1988 - 1991 Mr.
Mazzella was Vice President of Glenayre Electronics, a manufacturer of
software based telecommunications equipment. He was President and CEO of
Multitone Electronics, Inc., a company engaged in the manufacture, sale
and servicing of telecommunications equipment from 1983 until its
acquisition by Glenayre Electronics in 1988.
Robert L. Boxer became a Vice President of MOSCOM in November 1991.
Prior to that he had been Secretary and Corporate Counsel of MOSCOM since
March 1983. Prior to that he had been Counsel at Sykes Datatronics, Inc.
and an attorney with the firm of Middleton-Wilson.
James W. Karr has been Vice President-International Sales since May 1,
1989. After joining MOSCOM in 1983, he had held various sales management
positions. Prior to that he held sales management positions with Sykes
Datatronics, Inc., Itel Corporation, Honeywell Information Systems, and NCR
Corporation.
Ronald C. Lundy was appointed Treasurer of MOSCOM in July 1993. Since
joining MOSCOM in 1984 he has held a variety of financial management
positions, the most recent having been Corporate Controller since December
of 1992. Prior to that he held various financial positions with Rochester
Instrument Systems from 1974-1983.
John A. White joined the Company as President, Chief Executive Officer
and a director in June 1996. From November 1984 to June 1996, Mr. White
served in various capacities with Siemens, ROLM Communications, a
telecommunications company, including Vice President/General Manager,
Northeast Area and most recently as Vice President, Special Product Sales.
Prior to joining Siemens, ROLM, Mr. White was Vice President of Worldwide
Sales and Marketing of Columbia Data Products, a personal computer
manufacturing company, and held various positions at Xerox Corporation, an
office products company.
<PAGE>
Paul T. Babarik was appointed Vice President of Sales in April 1996.
After joining MOSCOM in 1987 as a Regional Sales Manager he held several
sales management positions, the most recent as Director of AT&T sales from
1989 to 1996. Prior to joining MOSCOM Mr. Babarik was employed by AT&T
from 1977 - 1986 in various sales management positions.
Victor de Jong has been a Director of MOSCOM since May 1984. He is
President of Huntington General Management, Inc., a management consulting
firm and President of Haller Plastics Corp., a plastic injection molding
company and manufacturer of point-of-purchase displays since 1990. Prior
to that, Mr. de Jong was President of Venture Management Associates, an
investment holding company, and its subsidiaries, Golden Metal Products
Corporation and Precise Metal Parts Company, Inc., both engaged in the
fabrication of metal parts. Prior to 1982, Mr. de Jong held various
management positions with McGraw Edison.
John E. Mooney became a Director of MOSCOM in May 1985. He is Chief
Executive Officer of Essex Investment Group and a general partner of Great
Lakes Capital. For the past five years, he has been President of MM&S
Resources, Inc., First Rochester Corporation and First Rochester Capital
Corporation. All of these affiliated companies are engaged in investment
management and financial services.
Harvey E. Rhody has been a Director of MOSCOM since September 1983.
Since March, 1996 he is Interim Director of the Center for Imaging Science
of the Rochester Institute of Technology prior to that he had been
President of RIT Research Corporation since July 1992. Prior to that and
since 1988, he was a Professor of Electrical Engineering and Imaging
Science at the Rochester Institute of Technology and director of
Intelligent Systems Division of RIT Research Corporation.
Fred E. Strauss has been a Director of MOSCOM since September 1983.
In 1990, he retired as Regional President of Manufacturers Hanover Trust
Company in Rochester, New York, a position he held for more than five
years. Mr. Strauss is a member of the Board of Nazareth College Board of
Trustees, an institution of higher learning; member of the Board of Park
Ridge Health Systems, Inc., providers of health care; and Chairman of the
Board of Rochester Community Baseball, Inc., an operator of a minor league
professional baseball team.
<PAGE>
Item 11 Executive Compensation
Information relating to executive compensation is incorporated by
reference on pages 5, 6 and 7 of the Companys Proxy Statement for the
Annual Meeting of Shareholders to be held May 17, 1996. (See Executive
Compensation and Corporate Governance Information.)
Item 12 Security Ownership of Certain Beneficial Owners and Management
Information relating to the security holdings of more than five
percent holders and directors and officers of the Company is incorporated
herein by reference to pages 3 through 6 of the Companys Proxy Statement
for the Annual Meeting of shareholders to be held May 22, 1997.
Item 13 Certain Relationships and Related Transactions
None.
<PAGE>
PART IV
Item 14 Exhibits, Consolidated Financial Statement Schedule and Reports
on Form 8-K
(a) The following document is filed as part of this report:
II. Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are
not applicable.
Individual financial statements of the subsidiaries of the Company
have been omitted as the Company is primarily an operating company and the
subsidiaries included in the consolidated financial statements filed, in
the aggregate, do not have minority equity interest and/or indebtedness to
any person other than the Company in amounts which together (excepting
indebtedness incurred in the ordinary course of business which is not
overdue and matures within one year from the date of its creation, whether
or not evidenced by securities, and indebtedness of the subsidiary which is
collateralized by the Company by guarantee, pledge, assignment or
otherwise) exceed 5 percent of the total assets as shown by the most recent
year-end statement of consolidated financial position. There are no
unconsolidated subsidiaries or 50% or less owned persons accounted for by
the equity method.
(b) Reports on Form 8-K
1. 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.
2. 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.
3. Registrant filed a form 8-K with the Securities and Exchange Commission
on February 18, 1997 that the Company completed the sale of 281,593
shares of its common stock to the institutional investors for a total
consideration of $1,620,000, before associated expenses.
(c) Exhibits (numbered in accordance with item 601 of regulation S-K)
(11.1) Calculation of earnings per share
(22) Subsidiaries of registrant
(22.1) None of the Companys wholly owned subsidiaries would
constitute a significant subsidiary as of
December 31, 1996.
<PAGE>
<TABLE>
MOSCOM CORPORATION AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
Column A Column B Column C Column D Column E
Allowance for Balance At Charged To Accounts Balance at
Doubtful Accounts Beginning Of Costs And Written Off End of Year
Year Expenses (Recovered)
<S> <C> <C> <C> <C>
1996 $ 71,000 $ 18,000 $ 29,000 $ 118,000
1995 $ 105,000 $ (3,811) $ (30,189) $ 71,000
1994 $ 132,000 $ (23,188) $ (3,812) $ 105,000
Provision for Inventory Balance at Charged to Inventory Balance at
Shrinkage & Obsolescence Beginning of Cost of Written End of Year
Year Sales Off
1996 $ 213,590 $ 168,337 $ 87,796 $ 294,131
1995 $ 347,474 $ 185,250 $ 319,134 $ 213,590
1994 $ 208,291 $ 168,550 $ 29,367 $ 347,474
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
----------------------------------------------
Albert J. Montevecchio, Chairman of the Board
CEO
Dated:
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- ------------------------- Chairman of the Board March 24, 1997
Albert J. Montevecchio C.E.O. and Director
- ------------------------- President March 24, 1997
David G. Mazzella Chief Operating Officer
- ------------------------- Director March 24, 1997
Victor de Jong
- ------------------------- Director March 24, 1997
John E. Mooney
- ------------------------- Director March 24, 1997
Harvey E. Rhody
- ------------------------- Director March 24, 1997
Fred E. Strauss
- ------------------------- Treasurer March 24, 1997
Ronald C. Lundy
<PAGE>
<TABLE>
Exhibit 11.1
MOSCOM CORPORATION
and Subsidiaries
Calculation of Earnings per Share
<CAPTION>
Twelve Months Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Primary
Net Earnings (Loss) $(5,936,096) $ 881,950 $ (387,743)
=========== ========== ===========
Average common shares outstanding 6,866,154 6,795,559 6,707,449
Dilutive effect of stock options and
warrants after application of treasury
stock method - 114,315 -
Weighted average shares outstanding 6,866,154 6,909,874 6,707,449
=========== ========== ==========
Earnings (Loss) per common & common
equivalent share $(.86) $.13 $(.06)
=========== ========== ==========
Assuming Full Dilution
Net Earnings (Loss) $(5,936,096) $ 881,950 $ (387,743)
=========== ========== ==========
Weighted average shares outstanding 6,866,154 6,909,874 6,707,449
Additional dilutive effect of stock
options & warrants after application
of treasury stock method - 11,520 -
----------- ---------- ----------
Weighted average shares outstanding 6,866,154 6,921,394 6,707,449
=========== ========== ==========
Earnings (Loss) per common share
assuming full dilution $(.86) $.13 $(.06)
=========== ========== ==========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,025,534
<SECURITIES> 250,180
<RECEIVABLES> 3,595,384
<ALLOWANCES> 118,000
<INVENTORY> 1,887,807
<CURRENT-ASSETS> 7,710,626
<PP&E> 5,655,706
<DEPRECIATION> 4,520,657
<TOTAL-ASSETS> 13,604,623
<CURRENT-LIABILITIES> 3,584,351
<BONDS> 0
0
0
<COMMON> 693,487
<OTHER-SE> 8,006,103
<TOTAL-LIABILITY-AND-EQUITY> 13,604,623
<SALES> 13,380,862
<TOTAL-REVENUES> 13,380,862
<CGS> 4,017,224
<TOTAL-COSTS> 17,970,607
<OTHER-EXPENSES> 1,560,407
<LOSS-PROVISION> 118,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,936,096)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,150,152)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,936,096)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
