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, 1998
Commission File Number 0-13898
MOSCOM Corporation
(Exact name of registrant as specified in its charter)
Delaware 16-1192368
(State or other jurisdiction of Incorporation (IRS Employer
or Organization) Identification Number)
3750 Monroe Avenue, Pittsford, NY 14534
(Address of principal executive offices) (Zip Code)
(716) 381-6000
(Registrants telephone number, including area code)
N.A.
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirement for the past 90 days.
YES XX NO
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of March 31, 1998.
Common stock, par value $.10 7,554,703 shares
This report consists of 14 pages.
<PAGE>
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
March 31, 1998 and December 31, 1997
Condensed Statements of Operations - 5
Three Months Ended March 31, 1998 and 1997
Condensed Statements of Cash Flows - 6
Three Months Ended March 31, 1998 and 1997
Notes To Condensed Financial Statements 7 - 8
Item 2 Managements Discussion and Analysis of 9 - 11
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12 - 14
<PAGE>
PART I - FINANCIAL INFORMATION
MOSCOM CORPORATION
CONDENSED BALANCE SHEETS
March 31, December 31,
1998 1997*
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents
(Including short-term investments
of $1,195,366 and $757,076
respectively) $ 1,140,449 $ 1,106,944
Investments 1,728,958 2,355,781
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$83,000 and $75,000,respectively) 2,449,514 1,724,047
Inventories 919,679 1,164,797
Prepaid Expenses 38,415 30,582
----------- -----------
Total Current Assets 6,277,015 6,382,151
PROPERTY AND EQUIPMENT 5,470,849 5,293,751
Less Accumulated Depreciation (4,400,255) (4,334,164)
----------- -----------
Property and Equipment (Net) 1,070,594 959,587
OTHER ASSETS:
Purchased Software (Net
of accumulated amortization
of $70,561 and $62,876
respectively) 20,692 28,612
Software Development Costs
(Net of accumulated
amortization of
$976,666 and $767,537
respectively) 3,130,120 3,108,468
Pension Assets 1,158,092 1,158,092
Deposits and Other Assets 280,499 272,617
----------- -----------
Total Other Assets 4,589,403 4,567,789
----------- -----------
TOTAL ASSETS $11,937,012 $11,909,527
=========== ===========
See notes to Condensed Financial Statements.
* Derived from Audited Financial Statement
<PAGE>
MOSCOM CORPORATION
CONDENSED BALANCE SHEETS
March 31, December 31,
1998 1997*
(Unaudited)
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 540,830 $ 746,229
Accrued Compensation and Related Taxes 418,084 348,602
Deferred Revenue 1,870,416 1,703,803
Other Accrued Expenses 306,710 425,393
----------- -----------
Total Current Liabilities 3,136,040 3,224,027
Pension Obligation 1,982,898 1,983,348
----------- -----------
Total Liabilities 5,118,938 5,207,375
STOCKHOLDERS EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized; issued
and outstanding, 7,554,703 and
7,549,703, respectively 755,470 754,970
Additional Paid-in Capital 18,713,390 18,701,040
Retained Earnings (12,650,786) (12,753,858)
----------- -----------
Total Stockholders Equity 6,818,074 6,702,152
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $11,937,012 $11,909,527
=========== ===========
See notes to Condensed Financial Statements.
* Derived from Audited Financial Statements
<PAGE>
MOSCOM CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
(Unaudited)
1998 1997
SALES $ 3,604,377 $ 2,771,059
COSTS AND OPERATING EXPENSES:
Cost of Sales 764,305 812,791
Engineering & Software Development 630,145 730,393
Selling, General and Administrative 2,145,390 2,598,239
----------- -----------
Total Costs and Operating Expenses 3,539,840 4,141,423
----------- -----------
INCOME (LOSS) FROM OPERATIONS 64,537 (1,370,364)
INTEREST INCOME 38,535 29,675
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 103,072 (1,340,689)
INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ 103,072 $(1,340,689)
=========== ===========
INCOME (LOSS) PER SHARE
Basic $.01 $(.19)
==== =====
Diluted $.01 $(.19)
==== =====
See notes to Condensed Financial Statements.
<PAGE>
MOSCOM CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 103,072 $(1,340,689)
Adjustments to Reconcile Loss to Net
Cash Provided by Operating Activities
Depreciation and Amortization 283,139 384,517
Provision for Losses on Accounts Receivable 12,501 3,750
Provision for Inventory Obsolescence 24,999 25,000
Changes in Assets and Liabilities
Investments 626,823 (1,657,217)
Accounts Receivable (737,968) 570,386
Inventories 220,119 119,359
Prepaid Expenses (7,833) (96,727)
Purchased Software - (1,078)
Deposits and Other Assets (7,882) 12,060
Accounts Payable (205,399) (481,780)
Accrued Compensation Related Taxes 69,482 75,000
Other Current Liabilities 47,930 (331,996)
Long Term Liabilities (450) 55,000
---------- -----------
Net Adjustments 325,461 (1,323,726)
---------- -----------
Net Cash Provided (Used) by Operating
Activities 428,533 (2,664,415)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property and Equipment (177,098) (43,164)
Software Development Costs (230,780) (293,258)
---------- -----------
Net Cash Flows Used by Investing Activities: (407,878) (336,422)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sales of Stock - 1,540,768
Exercise of Stock Options and Warrants 12,850 39,310
Stock Retirements - (21,498)
---------- -----------
Net Cash Flows from Financing Activities 12,850 1,558,580
---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 33,505 (1,442,257)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 1,106,944 2,025,535
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,140,449 $ 583,278
========== ===========
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) GENERAL
The accompanying unaudited financial statements include all
adjustments of a normal and recurring nature which are, in the opinion of
Registrants management, necessary to present fairly the Registrants
financial position as of March 31, 1998 and the results of its operations
and cash flows for the three months ended March 31, 1998 and 1997.
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 condensed
financial statements should be read in conjunction with the financial
statements and related notes contained in the Annual Report for the fiscal
year ended December 31, 1997.
The results of operations for the three months ended March 31, 1998
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, 1998 and December 31, 1997
was as follows:
March 31, December 31,
1998 1997
Purchased parts and components $ 347,270 $ 454,617
Work in process 105,243 120,566
Finished goods 467,166 589,614
---------- ----------
$ 919,679 $1,164,797
========== ==========
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment at March 31, 1998,
and December 31, 1997 are:
March 31, December 31,
1998 1997
Machinery and equipment $1,460,479 $1,460,479
Computer hardware and software 2,751,853 2,627,442
Furniture and fixtures 947,921 914,085
Leasehold improvements 310,596 291,745
---------- ----------
$5,470,849 $5,293,751
(4) EARNINGS PER SHARE
Earnings per share has been calculated under SFAS 128, Earnings Per
Share. Weighted average shares outstanding for the three months ended
March 31, 1997 do not include common stock equivalents, as their
effect on earnings per share would be antidilutive.
<PAGE>
Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Sales for the first quarter ended March 31, 1998 of $3,604,377
represented an increase of 30% from the sales of $2,771,059 for the three
months ended March 31, 1997. The increased sales were primarily the result
of strong demand for the Companys core call accounting products which grew
by 27% over the sales realized during the first quarter of 1997. Sales of
the Companys INFO/MDR product were also strong during the first quarter of
1998 with 11 new systems being shipped.
In addition, sales to international markets by U.S. based personnel
increased five-fold over prior year levels, largely offsetting the negative
impact on sales resulting from the closure of the Companys European based
subsidiaries during the second quarter of 1997.
The Companys newest network product, TMS, was released in late January
of 1998 for distribution by Lucent Technologies. Though first quarter
sales of TMS were relatively modest, the order rate and quote activity have
been encouraging and TMS is expected to begin to contribute significantly
to revenues in subsequent quarters.
The gross margin of 79% achieved for the first three months of 1998
represents a significant increase from the gross margin of 71% attained for
the three months ended March 31, 1997. The increased gross margin
percentage arises from the higher sales volume achieved during the first
three months of 1998 versus the same period of 1997, thereby reducing costs
as a percentage of sales, and the high content of software based call
accounting products in the sales mix, which typically carry favorable
margins.
Engineering and developments costs, net of capitalized software costs
decreased from $730,393 for the three months ended March 31, 1997 to
$630,145 for the same three month period of 1998. The following table
summarizes gross expenditures for engineering and development expenses,
amounts capitalized, and net engineering expenses incurred for the three
months ended March 31, 1998 and 1997.
Three Months Ended
March 31, March 31,
1998 1997
Gross Expenditures for Engineering &
Software Development $ 860,925 $1,023,651
Less: Costs Capitalized (230,780) (293,258)
---------- ----------
Net Engineering & Software
Development Expense $ 630,145 $ 730,393
========== ==========
<PAGE>
The reduction in gross spending for engineering and development
reflects the absence of engineering effort formerly devoted to voice
recognition products marketed and sold by the Companys former Votan
subsidiary, closed during the second quarter of 1997. Engineering and
development expenditures on continuing product lines were similar to the
levels experienced during the first three months of 1997.
Selling, general and administrative expenses of $2,145,390 incurred
for the quarter ended March 31, 1998 decreased 17% from the $2,598,239 of
selling, general and administrative expense incurred for the quarter ended
March 31, 1997. The reduced expense level reflects the savings associated
with the closing of the Companys European and Votan subsidiaries closed in
conjunction with the Companys second quarter 1997 restructuring plan.
During the first quarter of 1997 the Company incurred approximately
$884,000 of selling, general and administrative expense at those former
locations. Beginning in the third quarter of 1997 and continuing through
the first quarter of 1998 the Company has redirected a portion of those
savings to strengthen its marketing, sales, and support staffs,
particularly in the area of network product support and implementation.
The Company expects to continue this process throughout the balance of
1998.
For the three months ended March 31, 1998 the Company earned a profit
of $103,072 or $.01 per share. This compared with a net loss incurred of
$1,340,689 or $.19 per share for the three months ended March 31, 1997.
Liquidity and Capital Resources
The Companys total cash position (cash on hand plus investments) at
March 31, 1998 was $2,869,407. This compares with total cash positions of
$3,462,725 at December 31, 1997 and $2,490,675 at March 31, 1997.
Accounts receivable increased from $1,724,047 at December 31, 1997 to
$2,449,514 at March 31, 1998 largely due to higher sales volumes and the
timing of the receipt of certain receivables expected in March,
subsequently received in April.
Inventories continued to decline as expected, from $1,164,797 at
December 31, 1997 to $919,679 at March 31, 1998. This decline in
inventories, which has been long term in nature, continues to reflect the
increasingly higher percentage of software based products in the total
sales mix, thereby reducing the requirement to carry large levels of
hardware components and supplies.
Capital expenditures during the first quarter of 1998 were $177,098
versus $43,164 during the first quarter of 1998, and were largely related
to the implementation of a company-wide integrated Management Information
System currently in the installation phase. The addition of this system
will allow the Company to phase out a number of stand alone operating
systems utilized throughout the Company thereby increasing efficiency and
productivity.
<PAGE>
Other assets, consisting primarily of the unamortized value of
capitalized software costs remained relatively unchanged from year end
figures growing by less than 1% to $4,589,403.
Total current liabilities declined from $3,224,027 at December 31,
1997 to $3,136,040 at March 31, 1998, a decrease of 3%, with trade accounts
payable declining by just over $205,000. This reduction was partially
offset by an approximate $167,000 increase in deferred revenues
representing the value of services to be provided to customers in future
quarters. These deferred revenues consist primarily of installation,
training and maintenance charges.
During 1997, the Company entered into a private equity line of credit
agreement with a single institutional investor. Under the equity line for
a period of two years, the Company has the right to sell to the investor
shares of the Companys Common Stock at a price equal to 88% of the average
bid price of the stock for the subsequent ten trading days. During the two
year period the Company may sell up to $6 million of common stock to the
investor with no more than $500,000 in any single month. There were no
transactions under this equity line of credit agreement during the first
quarter of 1998. During 1997 the Company sold 501,934 shares of common
stock to this investor yielding net proceeds of $2,480,017. This agreement
expires June 2, 1999.
The Company continues to maintain an agreement with a major commercial
bank for a secured line of credit agreement for up to $500,000. There have
been no borrowings against this agreement.
The Company believes that it has sufficient working capital and access
to alternative financing, if required, to meet its financial commitments
and support anticipated growth over the next twelve months.
<PAGE>
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(1) Registrants Condensed Financial Statements for the three months ended
March 31, 1998 and 1997 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
Calculations of Earnings Per Share
Three Months Ended
March 31,
1998 1997
Basic
Net Income (Loss) $ 103,072 $(1,340,689)
========== ===========
Weighted Common Shares Outstanding 7,550,870 7,089,101
========== ===========
Income (Loss) Per Common Share $.01 $(.19)
==== =====
Diluted
Net Income (Loss) $ 103,072 $(1,340,689)
========== ===========
Weighted Average Shares Outstanding 7,550,870 7,089,101
Additional Dilutive Effect of Stock
Options and Warrants after Application
of Treasury Stock Method 410,935 -
---------- -----------
Weighted Average Shares Outstanding 7,961,805 7,089,101
========== ===========
Income (Loss) per Common Share
and Common Equivalent Share $.01 $(.19)
==== =====
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOSCOM CORPORATION
REGISTRANT
Date: May 12, 1998
_________________________
_____________________________________
David G. Mazzella
President and CEO
Date: May 12, 1998
_________________________
_____________________________________
Ronald C. Lundy
Treasurer (Chief Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,140,449
<SECURITIES> 1,728,958
<RECEIVABLES> 2,532,514
<ALLOWANCES> 83,000
<INVENTORY> 919,679
<CURRENT-ASSETS> 6,277,015
<PP&E> 5,470,849
<DEPRECIATION> 4,440,255
<TOTAL-ASSETS> 11,937,012
<CURRENT-LIABILITIES> 3,136,040
<BONDS> 0
0
0
<COMMON> 755,470
<OTHER-SE> 6,062,604
<TOTAL-LIABILITY-AND-EQUITY> 11,937,012
<SALES> 3,604,377
<TOTAL-REVENUES> 3,604,377
<CGS> 764,305
<TOTAL-COSTS> 3,539,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 103,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 103,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,072
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
