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 June 30, 1998
Commission File Number 0-13898
VERAMARK TECHNOLOGIES, INC., (FORMERLY MOSCOM CORPORATION)
(Exact name of registrant as specified in its charter)
DELAWARE 16-1192368
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
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 June 30,1998.
Common stock, par value $.10 7,590,748 shares
This report consists of 14 pages.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
June 30, 1998 and December 31, 1997
Condensed Statements of Operations -
Three and Six Months
Ended June 30, 1998 and 1997 5
Condensed Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 6
Notes To Condensed Financial Statements 7 - 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12 - 14
<PAGE>
PART I - FINANCIAL INFORMATION
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997*
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents
(Including short-term investments
of $1,487,761 and $757,076
respectively) $ 1,654,354 $ 1,106,944
Investments 1,675,656 2,355,781
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$78,000 and $75,000, respectively)
2,434,578 1,724,047
Inventories 849,887 1,164,797
Prepaid Expenses 98,380 30,582
----------- -----------
Total Current Assets 6,712,855 6,382,151
PROPERTY AND EQUIPMENT 5,745,390 5,293,751
Less Accumulated Depreciation (4,478,017) (4,334,164)
----------- -----------
Property and Equipment (Net) 1,267,373 959,587
OTHER ASSETS:
Purchased Software (Net of
accumulated amortization of $78,556
and $62,876 respectively)
43,103 28,612
Software Development Costs
(Net of accumulated amortization of
$1,227,648 and $767,537 respectively) 3,085,968 3,108,468
Pension Assets 1,158,092 1,158,092
Deposits and Other Assets 340,339 272,617
----------- -----------
Total Other Assets 4,627,502 4,567,789
----------- -----------
TOTAL ASSETS $12,607,730 $11,909,527
=========== ===========
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997*
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 619,465 $ 746,229
Accrued Compensation and Related Taxes 493,486 348,602
Deferred Revenue 2,013,019 1,703,803
Other Accrued Expenses 332,250 425,393
----------- -----------
Total Current Liabilities 3,458,220 3,224,027
Pension Obligation 1,979,113 1,983,348
----------- -----------
Total Liabilities 5,437,333 5,207,375
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
20,000,000 shares authorized; issued and
outstanding, 7,590,748 and 7,549,703, respectively 759,075 754,970
Additional Paid-in Capital 18,881,768 18,701,040
Retained Earnings (12,470,446) (12,753,858)
----------- -----------
Total Stockholders Equity 7,170,397 6,702,152
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,607,730 $11,909,527
=========== ===========
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months Ended
JUNE 30, June 30,
1998 1997 1998 1997
(Unaudited) (UNAUDITED)
<S> <C> <C> <C> <C>
SALES $3,982,773 $3,128,863 $7,587,150 $5,899,922
COSTS AND OPERATING EXPENSES: ---------- ---------- ---------- ----------
Cost of Sales 778,752 1,175,409 1,543,057 1,988,200
Engineering & Software Development 751,851 724,347 1,381,996 1,454,740
Selling, General and Administrative 2,312,163 2,679,746 4,457,553 5,277,985
Other Non-recurring Costs - 2,377,869 - 2,377,869
---------- ---------- ---------- ----------
Total Costs and Operating Expenses 3,842,766 6,957,371 7,382,606 11,098,794
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 140,007 (3,828,508) 204,544 (5,198,872)
INTEREST INCOME 40,333 23,672 78,868 53,347
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 180,340 (3,804,836) 283,412 (5,145,525)
INCOME TAXES - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 180,340 $(3,804,836) $283,412 $(5,145,525)
========== =========== ========== ===========
INCOME (LOSS) PER SHARE
Basic $.02 $(.52) $.03 $(.71)
==== ===== ==== =====
Diluted $.02 $(.52) $.03 $(.71)
==== ===== ==== =====
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Six Months Ended June 30,
1998 1997
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 283,412 $(5,145,525)
---------- ----------
Adjustments to Reconcile Profit or Loss to Net Cash
Provided by Operating Activities
Depreciation and Amortization 619,878 1,306,002
Provision for Losses on Accounts Receivable 2,002 207,500
Provision for Inventory Obsolescence 49,998 281,411
Changes in Assets and Liabilities
Investments 680,125 (888,930)
Accounts Receivable (712,533) 837,777
Inventories 264,912 213,780
Prepaid Expenses (67,798) (20,909)
Purchased Software (30,405) (1,477)
Deposits and Other Assets (67,722) 96,616
Accounts Payable (126,764) (50,046)
Accrued Compensation Related Taxes 144,884 84,163
Other Current Liabilities 216,073 (47,530)
Long Term Liabilities (4,235) 659,576
---------- ----------
Net Adjustments 968,415 2,677,933
---------- ----------
Net Cash Provided (Used) by Operating Activities 1,251,827 (2,467,592)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loss on Disposal of Fixed Assets - 301,919
Additions to Property and Equipment (451,639) (52,688)
Software Development Costs (437,611) (658,422)
---------- ----------
Net Cash Flows Used by Investing Activities: (889,250) (409,191)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sales of Stock 143,384 2,289,518
Exercise of Stock Options and Warrants 50,201 103,062
Stock Retirements (8,752) (76,500)
---------- ----------
Net Cash Flows from Financing Activities 184,833 2,316,080
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 547,410 (560,703)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,106,944 2,025,535
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,654,354 $1,464,832
========== ==========
</TABLE>
<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
Registrant's management, necessary to present fairly the Registrant's
financial position as of June 30, 1998 and the results of its operations
and cash flows for the three and six months ended June 30, 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 and six months ended June 30,
1998 are not necessarily indicative of the results to be expected for a
full year's operation.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements which involve risks
and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
(2) INVENTORIES
The composition of inventories at June 30, 1998 and December 31, 1997
was as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Purchased parts and components $197,131 $ 454,617
Work in process 100,171 120,566
Finished goods 552,585 589,614
-------- ----------
$849,887 $1,164,797
======== ==========
</TABLE>
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment at June 30, 1998,
and December 31, 1997 are:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Machinery and equipment $1,463,850 $1,460,479
Computer hardware and software 2,906,827 2,627,442
Furniture and fixtures 1,064,117 914,085
Leasehold improvements 310,596 291,745
---------- ----------
$5,745,390 $5,293,751
========== ==========
</TABLE>
(4) EARNINGS PER SHARE
Earnings per share has been calculated under SFAS 128, "Earnings Per
Share." Weighted average shares outstanding for the three and six
months ended June 30, 1997 do not include common stock equivalents, as
their effect on earnings per share would be antidilutive.
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
For the second quarter ended June 30, 1998 the Company realized sales of
$3,982,773 representing an increase of 27% over sales achieved for the same
quarter of 1997. For the six month period ended June 30, 1998 sales of
$7,587,150 were 29% higher than the sales of $5,899,922 for the same six
month period of 1997. The higher sales volumes reflect a continued strong
demand for the Company's traditional core call accounting products and
services which increased by 7% over 1997 levels despite the closing of the
Company's European sales offices, and the continued strong sales of INFO/MDR ,
the Company's central office telemanagement system. During the first six
months of 1998 the Company shipped 21 INFO/MDR systems, compared to eight
for the first half of 1997.
The Company is also encouraged by the growing contribution to revenues and
financial results of Verabill, its billing and customer care system. Second
quarter 1998 sales of Verabill increased four-fold over first quarter 1998
sales. The number and size of proposals currently outstanding indicate that
the contribution from Verabill could increase with each future quarter.
For the three and six months ended June 30, 1998, 26% and 29% of Company
revenues respectively were generated from orders previously billed, the value
of which had been deferred pending the performance of certain services. These
services typically include training, installation, custom rate updates, and
maintenance and support, which ultimately may or may not be utilized by
customers. For the same three and six month periods of 1997, deferred
billings accounted for 22% of sales. For the three and six month periods
ended June 30, 1998, 7.5% and 6.6% of sales were previously deferred billings
for services which are not expected to be utilized. The value of the
unrecognized revenues related to these services is carried on the Company's
balance sheet under Liabilities as "deferred revenue."
Gross margin percentages of 80% for both the three and six month periods ended
June 30, 1998 compare with gross margin percentages of 62% and 66% for the same
three and six month periods of 1997. The significant margin improvements
reflect a combination of higher sales volumes, reduced amortization costs, and
lower manufacturing costs due to the continued phasing out of hardware based
products from the overall product mix.
Engineering and software development costs of $1,381,996 for the six months
ended June 30, 1998 were 5% lower than the engineering and software
development costs incurred for the same period of 1997. The table below
summarizes gross expenditures for engineering and development expenses,
amounts capitalized, and net engineering and development expenses for the
three and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross Expenditures for Engineering
& Software Development $958,682 $1,089,511 $1,819,607 $2,113,162
Less Cost Capitalized (206,831) (365,164) (437,611) (658,422)
-------- ---------- ---------- ----------
Net Engineering & Software
Development Expense $751,851 $ 724,347 $1,381,996 $1,454,740
======== ========== ========== ==========
</TABLE>
The reduction in net engineering and development costs continues to reflect
the absence of engineering effort devoted to voice recognition products
marketed and sold by the Company's former Votan subsidiary, closed during the
second quarter of 1997. It is expected that expense levels for engineering
and development efforts for the remaining two quarters of 1998 will exceed the
levels incurred during the same quarters of 1997 due to an increase in
staffing begun late in the third quarter of 1997 to support the Company's
latest telemanagement and billing product offerings.
Selling, general and administrative expenses of $2,312,163 for the three
months ended June 30,1998 were 14% lower than costs incurred for the three
month period ended June 30,1997. Selling, general, and administrative
expenses of $4,457,553 for the six months ended June 30, 1998 were 16% below
the expense level incurred for the same six month period of 1997. Similarly
to the reduced expense levels referred to above for engineering and
development the lower expenses are attributable to the closing of former
subsidiaries as part of the Company's 1997 restructuring plan undertaken
during the second quarter of 1997. The company continues to redirect its
efforts to strengthening its sales, marketing and support groups,
particularly in the area of network product support and implementation.
For the quarter ended June 30, 1998 the Company earned a net profit of
$180,340 or $.02 per share. This profit compared with a net loss of
$3,804,836 or $.52 per share for the same quarter last year. Second quarter
1997 results included a non-recurring charge of $2,377,869 primarily
associated with the restructuring efforts mentioned above.
For the six months ended June 30, 1998 the Company has earned a profit of
$283,412 or $.03 per share versus a net loss of $5,145,525 or $.71 per share
for the same six month period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash on hand plus Investments) of
$3,330,010 at June 30, 1998 compares with total cash positions of $2,869,407
at March 31, 1998 and $3,462,725 at December 31, 1997. The working capital
ratio of 2:1 has remained constant throughout the first six months of 1998.
Accounts receivable of $2,434,578 at June 30, 1998 were only slightly higher
than the $2,449,514 of receivables at March 31, 1998, and approximately
$700,000 higher than at December 31, 1997, mainly due to higher sales volumes.
<PAGE>
Spending on capital equipment during the first half of 1998 of $451,639 was
significantly higher than the capital spending of $52,688 realized during the
first six months of 1997 as the Company continued to upgrade its internal
computer network and communication systems, and update its engineering and
development capabilities.
Total assets at June 30, 1998 of $12,607,730 are 6% higher than the total
assets of $11,909,527 at December 31,1997. Total liabilities of $5,437,333 at
June 30, 1998 rose 4% from the December 31, 1997 level.
The Company maintains 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 Company 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. During the first half of 1998 the company sold 24,700 shares
of common stock to this investor yielding proceeds of $143,384. This agreement
expires June 2, 1999.
The Company also maintains 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 forms of financing 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) Registrant's Condensed Financial Statements for the three and six months
ended June 30, 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)
VERAMARK TECHNOLOGIES, INC.
CALCULATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BASIC
Net Income (Loss) $ 180,340 $(3,804,836) $ 283,412 $(5,145.525)
========== =========== ========== ===========
Weighted Common Shares Outstanding 7,575,444 7,280,931 7,563,157 7,185,016
========== =========== ========== ===========
Income (Loss) Per Common Share $.02 $(.52) $.03 $(.71)
========== =========== ========== ===========
DILUTED
Net Income (Loss) $ 180,340 $(3,804,836) $ 283,412 $(5,145,585)
========== =========== ========== ===========
Weighted Average Shares Outstanding 7,575,444 7,280,931 7,563,157 7,185,016
Additional Dilutive Effect of Stock
Options and Warrants after
Application of Treasury Stock Method 389,745 - 400,340 -
---------- ---------- --------- ---------
Weighted Average Shares Outstanding 7,965,189 7,280,931 7,963,497 7,185,016
========== =========== ========== ===========
Income (Loss) per Common Share and
Common Equivalent Share $.02 $(.52) $.03 $(.71)
========== =========== ========== ===========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERAMARK TECHNOLOGIES, INC.
REGISTRANT
Date: _________________________
_____________________________________
David G. Mazzella
President 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1654354
<SECURITIES> 1675656
<RECEIVABLES> 2512578
<ALLOWANCES> 78000
<INVENTORY> 849887
<CURRENT-ASSETS> 6712855
<PP&E> 5745390
<DEPRECIATION> 4478017
<TOTAL-ASSETS> 12607730
<CURRENT-LIABILITIES> 3458220
<BONDS> 0
0
0
<COMMON> 759075
<OTHER-SE> 6411322
<TOTAL-LIABILITY-AND-EQUITY> 12607730
<SALES> 3982773
<TOTAL-REVENUES> 3982773
<CGS> 778752
<TOTAL-COSTS> 3842766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 180340
<INCOME-TAX> 0
<INCOME-CONTINUING> 180340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180340
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
