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, 1997
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, 1997.
Common stock, par value $.10 7,219,967 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, 1997 and December 31, 1996
Consolidated Statements of Operations - 5
Three Months Ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows - 6
Three Months Ended March 31, 1997 and 1996
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 1997 1996*
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents
(Including Short-term investments
of $197,801 and $1,353,590
respectively) $ 583,278 $ 2,025,535
Investments 1,907,397 250,180
Accounts Receivable, trade (net of
allowance for doubtful accounts
of $122,000 and $118,000,
respectively) 2,903,248 3,477,384
Inventories 1,743,449 1,887,808
Prepaid Expenses 166,446 69,719
----------- -----------
Total Current Assets 7,303,818 7,710,626
PLANT AND EQUIPMENT 5,698,870 5,655,706
Less Accumulated Depreciation (4,613,570) (4,520,657)
----------- -----------
Plant and Equipment (Net) 1,085,300 1,135,049
OTHER ASSETS:
License fees and purchased software
(Net of accumulated amortization
of $244,777 and $223,065
respectively) 72,487 93,520
Software Development Costs
(Net of accumulated
amortization of $1,801,273
and $1,531,780 respectively) 3,169,063 3,145,298
Deposits and Other Assets 1,508,070 1,520,130
----------- -----------
Total Other Assets 4,749,620 4,758,948
----------- -----------
TOTAL ASSETS $13,138,738 $13,604,623
=========== ===========
See notes to Consolidated Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, December
1997 31,
(Unaudited) 1996*
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 688,728 $ 1,170,508
Accrued Compensation and Related Taxes 898,707 961,155
Other Accrued Expenses 1,352,359 1,452,688
----------- -----------
Total Current Liabilities 2,939,794 3,584,351
Pension Obligation 1,395,682 1,320,682
----------- -----------
4,335,476 4,905,033
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized; issued
and outstanding, 7,219,967
and 6,934,872, respectively 721,997 693,487
Additional Paid-in Capital 17,315,920 15,785,850
Retained Earnings (9,064,040) (7,723,351)
Cumulative Translation Adjustment (170,615) (56,396)
----------- -----------
8,803,262 8,699,590
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $13,138,738 $13,604,623
=========== ===========
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)
1997 1996
SALES $ 2,771,059 $ 2,804,280
----------- -----------
COSTS AND OPERATING EXPENSES:
Cost of Sales 812,791 954,659
Engineering & Software Development 730,393 603,585
Selling, General and Administrative 2,598,239 2,606,085
----------- -----------
Total Costs and Operating Expenses 4,141,423 4,164,329
----------- -----------
LOSS FROM OPERATIONS (1,370,364) (1,360,049)
INTEREST INCOME 29,675 88,646
----------- -----------
LOSS BEFORE INCOME TAXES (1,340,689) (1,271,403)
INCOME TAXES
- (84,000)
----------- -----------
NET LOSS $(1,340,689) $(1,187,403)
============ ============
LOSS PER SHARE $(.19) $(.17)
============ ============
See notes to Consolidated Financial Statements.
<PAGE>
MOSCOM CORPORATION
And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1997 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,340,689) $(1,187,403)
----------- -----------
Adjustments to Reconcile Loss to Net Cash
Provided by Operating Activities
Depreciation and Amortization 384,517 466,847
Provision for Losses on Accounts
Receivable 3,750 6,000
Provision for Inventory Obsolescence 25,000 50,001
Changes in Assets and Liabilities
Short Term Investments (1,657,217) 259,724
Accounts Receivable 570,386 1,108,473
Inventories 119,359 62,358
Prepaid Expenses (96,727) (8,113)
License Fees (1,078) (7,700)
Other Assets 12,060 13,664
Accounts Payable (481,780) (98,372)
Other Liabilities 75,000 58,749
Other Current Liabilities (276,996) (495,487)
----------- -----------
Net Adjustments (1,323,726) 1,416,144
----------- -----------
Net Cash Provided (Used) by Operating
Activities (2,664,415) 228,741
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (43,164) (88,558)
Software Development Costs (293,258) (438,888)
----------- -----------
Net Cash Flows from Investing Activities: (336,422) (572,446)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Stock 1,540,768 -
Dividends Paid - (136,477)
Exercise of Stock Options and Warrants 39,310 138,000
Stock Retirements (21,498) ( 7,625)
----------- -----------
Net Cash Flows from Financing Activities 1,558,580 (6,102)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,442,257) (349,807)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 2,025,535 2,727,340
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 583,278 $ 2,377,533
=========== ===========
<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, 1997 and the results
of its operations and cash flows for the three months ended March 31,
1997 and 1996. 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, 1996.
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,
1997 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, 1997 and December 31,
1996 was as follows:
March 31, December 31,
1997 1996
Purchased parts and
components $ 830,069 $ 873,918
Work in process 166,164 256,104
Finished goods 747,216 757,786
---------- ----------
$1,743,449 $1,887,808
========== ==========
<PAGE>
(3) PLANT AND EQUIPMENT
The major classifications of plant and equipment at March 31,
1997, and December 31, 1996 are:
March 31, December 31,
1997 1996
Machinery and equipment 1,759,921 $1,532,876
Computer hardware and
software 2,572,003 2,755,519
Furniture and fixtures 1,043,307 1,040,879
Leasehold improvements 323,639 326,432
---------- ----------
$5,698,870 $5,655,706
========== ==========
(4) EARNINGS PER SHARE
Weighted average shares outstanding for the three months ended
March 31, 1997 and 1996 do not include common stock equivalents,
as their effect on earnings per share would be anti-dilutive. In
February 1997, Statement of Financial Accounting Standards NO
128(SFAS No. 128), Earnings per Share, was issued, superseding
APB Opinion 15, Earnings per Share (Opinion 15). This
statement specifies the computation, presentation and disclosure
requirements for earnings per share (EPS) for companies with
publicly held common stock or potential common stock. This
statement replaces the reporting of primary EPS with basic EPS
and changes the computation of fully diluted EPS with dilutive
EPS which uses its average share price for the period, rather
than the more dilutive greater of the average share price or end-
of-period share price required by Opinion 15. The Company will
be required to adopt SFAS No. 128 on a prospective basis at
December 31, 1997. The Company believes the effect of adoption
will not be material.
(5) SUBSEQUENT EVENT
On May 6, 1997, the Company announced that it has withdrawn the
initial public offering of its Votan subsidiary. The decision was
reached following indications from the underwriter that the offering
could not be successfully completed. The company has decided to close
down Votans California facility as continuing to fund Votans operation
can no longer be justified. Sales efforts with respect to voice
recognition and verification products will continue through existing
distribution channels while management evaluates its options with
regards to this technology. The principal assets of the Votan
subsidiary consist primarily of inventory and capitalized software
development costs. Management is evaluating the utilization of these
assets in its future operations and accordingly, has not yet determined
the impact, if any, of adjusting these assets to their net realizable
value. Expenses associated with the withdrawn offering of approximately
$250,000 will be charged against income in the second quarter.
<PAGE>
Item 2 Managements Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Sales for the three months ended March 31, 1997 were $2,771,059,
a decrease of 1% from the sales of $2,804,280 realized for the three
months ended March 31, 1996. Domestic sales rose slightly from the
first quarter 1996 levels, with sales to Lucent Technologies
increasing 5% over first quarter 1996 levels. This gain in domestic
sales was offset by a decline in foreign sales, primarily through the
companys German Subsidiary whose sales fell by 27% from first quarter
1996 levels.
Gross margin for the quarter ended March 31, 1997 amounted to 71%
of sales, compared with a gross margin of 66% of sales the quarter
ended March 31, 1996. The improved margin reflects lower amortization
costs, related to capitalized and purchased software during the first
quarter of 1997 versus the first quarter of 1996.
Gross expenditures for engineering and software development were
reduced by 6% from $1,087,473 for the three months ended March 31, 1996
to $1,023,651 for the three months ended March 31, 1997. However,
as a result of a reduction in the amount of engineering and
development costs capitalized, net expense charged against income for
the quarter ended March 31, 1997 of $730,393 represented an increase
of 21% over net engineering and development expense incurred for the
same three month period of 1996.
The table below summarizes gross expenditures for engineering and
development, amounts capitalized, and net engineering expenses
incurred for the three months ended March 31, 1997 and 1996.
Three Months Ended
March 31
1997 1996
Gross Expenditures for Engineering &
Software Development $1,023,651 $1,087,473
Less: Costs capitalized (293,258) (483,888)
---------- ----------
Net Engineering & Software
development expense $ 730,393 $ 603,585
========== ==========
Expenses for selling, general and administrative functions of
$2,598,239 for the three months that ended March 31, 1997 were
basically unchanged in total from the expense level of $2,606,085 for
the same three month period of 1996. This decrease in expense was
achieved despite the higher expenses associated with the companys
Votan Division, formed during the second quarter of 1996. These
higher costs were substantially offset by a reduction in the selling
and administrative costs attributable to staffing reductions at the
Companys German subsidiary.
As of the date of this report the company is exploring further
reductions in its three European subsidiaries in an effort to further
reduce its operating expenses going forward.
<PAGE>
The net loss of $1,340,689 or $0.19 per share for the quarter
ended March 31, 1997 compared with a net loss of $1,187,403 or $0.17
per share for the quarter ended March 31, 1996.
Liquidity and Capital Resources
The Companys cash position (cash plus investments) at March 31,
1997 was $2,490,675. This compared with a total cash position of
$2,275,715 at December 31, 1996 and $5,085,618 at March 31, 1996.
Current ratios for the periods ended March 31, 1997, December 31, 1996
and March 31, 1996 were 2.5, 2.2 and 4.9 respectively.
During the first quarter of 1997 the company completed a private
placement of 281,593 shares of its common stock to two institutional
investors for $1,620,000, yielding net proceeds of $1,540,768.
Total assets of $13,138,738 at March 31, 1997 were down 3% total
assets of $13,604,623 at December 31, 1996 mainly as a result of
reductions in accounts receivable.
Total liabilities of $4,335,476 of March 31, 1997 compared with
total liabilities of $4,905,033 at December 31 1996 primarily as a
result of an approximate $482,000 decline in trade payables.
During the first quarter the Company finalized 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 the companys assets. There were no borrowings against this
agreement during the first quarter of 1997.
The company believes that sufficient capital resources are
available 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, 1997 and 1996 are set forth in Part I, Item 1 of
this Quarterly Report on Form 10-Q.
(2) Calculation of earnings per share.
<PAGE>
Exhibit A: (2)
MOSCOM CORPORATION
and Subsidiary
Calculations of Earnings Per Share
Three Months Ended
March 31,
1997 1996
Primary
Net Loss $(1,340,689) $(1,187,403)
=========== ===========
Weighted Common Shares Outstanding 7,089,101 6,831,250
Dilutive Effect of Stock
Options After Application of
Treasury Stock Method - -
----------- -----------
Weighted Average Shares
Outstanding 7,089,101 6,831,250
=========== ===========
Loss Per Common and Common
Equivalent Share $(.19) $(.17)
=========== ===========
Assuming Full Dilution
Net Loss $(1,340,689) $(1,187,403)
=========== ===========
Weighted Average Shares
Outstanding 7,089,101 6,831,250
Additional Dilutive Effect of
Stock Options and Warrants
after Application of Treasury
Stock Method - -
----------- -----------
Weighted Average Shares
Outstanding 7,089,101 6,831,250
=========== ===========
Loss per Common Share Assuming
Full Dilution $(.19) $(.17)
=========== ===========
<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: _________________________
_____________________________________________
Albert J. Montevecchio
Chairman of the Board and CEO
Date: _________________________
_____________________________________________
Ronald C. Lundy
Treasurer (Chief Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 583278
<SECURITIES> 1907397
<RECEIVABLES> 2781248
<ALLOWANCES> 122000
<INVENTORY> 1743449
<CURRENT-ASSETS> 7303818
<PP&E> 5698870
<DEPRECIATION> 4613570
<TOTAL-ASSETS> 13138738
<CURRENT-LIABILITIES> 2939794
<BONDS> 0
0
0
<COMMON> 721997
<OTHER-SE> 8081265
<TOTAL-LIABILITY-AND-EQUITY> 13138738
<SALES> 2771059
<TOTAL-REVENUES> 2771059
<CGS> 812791
<TOTAL-COSTS> 4141423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 122000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1340689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1370364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1340689)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
