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 September 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
Incorporation or Organization) 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 September 30,1998.
Common stock, par value $.10 7,567,248 shares
This report consists of 14 pages.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets - 3 - 4
September 30, 1998 and December 31, 1997
Condensed Statements of Operations - 5
Three and Nine Months Ended
September 30, 1998 and 1997
Condensed Statements of Cash Flows - 6
Nine Months Ended September 30, 1998 and 1997
Notes To Condensed 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 - 14
<PAGE>
PART I - FINANCIAL INFORMATION
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997*
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and Cash Equivalents
(Including short-term investments
of $614,562 and $757,076
respectively) $1,083,658 $1,106,944
Investments 4,002,200 2,355,781
Accounts Receivable, trade (net of
allowance for doubtful accounts of
$99,000 and $75,000, respectively) 1,901,276 1,724,047
Inventories 707,116 1,164,797
Prepaid Expenses 101,833 30,582
------------ ------------
Total Current Assets 7,796,083 6,382,151
PROPERTY AND EQUIPMENT 5,811,675 5,293,751
Less Accumulated Depreciation (4,428,687) (4,334,164)
----------- -----------
Property and Equipment (Net) 1,382,988 959,587
OTHER ASSETS:
Purchased Software (Net of
accumulated amortization of $86,572
and $62,876 respectively) 35,240 28,612
Software Development Costs
(Net of accumulated amortization of
$1,478,630 and $767,537 respectively) 3,151,357 3,108,468
Pension Assets 1,158,092 1,158,092
Deposits and Other Assets 342,723 272,617
----------- -----------
Total Other Assets 4,687,412 4,567,789
----------- -----------
$13,866,483 $11,909,527
TOTAL ASSETS =========== ===========
</TABLE>
See notes to Condensed Financial Statements.
* DERIVED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997*
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $718,403 $746,229
Accrued Compensation and Related Taxes 864,928 348,602
Deferred Revenue 2,279,918 1,703,803
Other Accrued Expenses 577,726 425,393
----------- -----------
Total Current Liabilities 4,440,975 3,224,027
Pension Obligation 2,055,329 1,983,348
----------- -----------
Total Liabilities 6,496,304 5,207,375
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10,
Authorized 20,000,000 shares; issued
7,567,248 and 7,549,703, respectively 759,725 754,970
Additional Paid-in Capital 18,904,243 18,701,040
Retained Earnings (12,167,275) (12,753,858)
Less cost of Treasury Stock (30,000 shares) (126,514) -
----------- -----------
Total Stockholders Equity 7,370,179 6,702,152
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,866,483 $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 Nine Months Ended
SEPTEMBER 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $4,693,706 $3,204,875 $12,280,856 $9,104,797
---------- ---------- ----------- -----------
COSTS AND OPERATING EXPENSES:
Cost of Sales 784,957 692,319 2,328,014 2,680,519
Engineering & Software Development 672,092 418,625 2,054,088 1,873,365
Selling, General and Administrative 2,992,890 2,079,310 7,450,443 7,357,295
Other Non-recurring Costs - - - 2,377,869
---------- ---------- ----------- -----------
Total Costs and Operating Expenses 4,449,939 3,190,254 11,832,545 14,289,048
---------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 243,767 14,621 448,311 (5,184,251)
INTEREST INCOME 59,404 12,625 138,272 65,972
---------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 303,171 27,246 586,583 (5,118,279)
INCOME TAXES - - - -
---------- ---------- ----------- -----------
NET INCOME (LOSS) $303,171 $27,246 $586,583 $(5,118,279)
INCOME (LOSS) PER SHARE ========== ========== =========== ===========
Basic $.04 $.00 $.07 $(.71)
==== ==== ==== =====
Diluted $.04 $.00 $.07 $(.71)
==== ==== ==== =====
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $586,583 $(5,118,279)
Adjustments to Reconcile Net Income (Loss)to Net ---------- -----------
Cash Provided by Operating Activities
Depreciation and Amortization 967,593 1,525,285
Provision for Losses on Accounts Receivable 14,503 211,250
Provision for Inventory Obsolescence 224,997 306,412
Changes in Assets and Liabilities
Investments (1,646,419) (1,083,090)
Accounts Receivable (191,732) 868,633
Inventories 232,684 357,851
Prepaid Expenses (71,251) 7,072
Purchased Software (30,405) (1,858)
Deposits and Other Assets (70,106) 84,769
Accounts Payable (27,826) (484,968)
Accrued Compensation Related Taxes 516,326 (205,864)
Other Current Liabilities 728,448 78,832
Long Term Liabilities 71,981 653,130
---------- -----------
Net Adjustments 718,793 2,317,454
---------- -----------
Net Cash Provided by (Used In) Operating
Activities 1,305,376 (2,800,825)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loss on Disposal of Fixed Assets 2,719 301,919
Additions to Property and Equipment (658,843) (103,160)
Software Development Costs (753,982) (979,107)
---------- -----------
Net Cash Flows Used by Investing Activities: (1,410,106) (780,348)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sales of Stock 143,384 2,278,267
Exercise of Stock Options and Warrants 73,326 167,061
Stock Retirements (8,752) (76,500)
Treasury Stock Purchases (126,514) -
---------- -----------
Net Cash Flows from Financing Activities 81,444 2,368,828
---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (23,286) (1,212,345)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,106,944 2,025,535
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,083,658 $ 813,190
========== ===========
</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 September 30, 1998 and the results of its
operations and cash flows for the three and nine months ended September 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 nine months ended
September 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 September 30, 1998 and December 31,
1997 was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Purchased parts and components $356,903 $ 454,617
Work in process 173,646 120,566
Finished goods 176,567 589,614
-------- ----------
$707,116 $1,164,797
======== ==========
</TABLE>
<PAGE>
(3) PROPERTY AND EQUIPMENT
The major classifications of property and equipment at September 30,
1998, and December 31, 1997 are:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
Machinery and equipment $1,427,065 $1,460,479
Computer hardware and software 3,003,854 2,627,442
Furniture and fixtures 1,064,117 914,085
Leasehold improvements 316,639 291,745
---------- ----------
$5,811,675 $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 nine months ended
September 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
Sales for the three months ended September 30, 1998 of $4,693,706
represented a 46% increase from the $3,204,875 of sales realized for the three
months ended September 30, 1997. Sales for the nine months ended September
30, 1998 of $12,280,856 were 35% higher than the sales of $9,104,797 for the
same nine month period of 1997. The growth in sales for the first three
quarters of 1998 is attributable mainly to a 28% increase in sales of the
Company's core call accounting products and a 111% increase in sales of the
Company's INFO/MDR, its central office telemanagement product, as compared to
the prior year. The Company is also optimistic about the future revenue
contribution expected to be made from its Verabill customer care and billing
product based on current order activity. During the third quarter the Company
received three new Verabill orders, the most significant being from the
Antigua Public Utilities Authority ("APUA"). This order is significantly
larger than the average Verabill order received by the Company to date because
the Company is providing all installation, training, and implementation
services, in addition to licensing the Verabill software. Revenues from this
contract will be recognized over the next two to three quarters as
implementation progresses. No revenue was recognized during the third
quarter.
For both the three and nine months ended September 30, 1998, 27% of
Company revenues were derived 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 nine month periods of 1997, deferred
billings accounted for 17% and 21% of sales, respectively. For the three and
nine month periods ended September 30, 1998, 6% and 7% of sales respectively
were from previously deferred billings for services which are not expected to
be utilized based on historical experience. The value of the unrecognized
revenues related to these services is carried on the Company's balance sheet
under Liabilities as "deferred revenue".
Gross margins of $3,908,749 and $9,952,842 for the three and nine months
ended September 30, 1998 were 56% and 55% higher than the gross margins
realized for the same three and nine month periods of 1997. The higher
margins, while primarily the result of the increased sales volumes, also were
positively impacted by lower direct product costs due to a higher content of
software based product in the sales mix, and lower amortization costs, as a
percentage of sales, associated with previously capitalized development
expenses.
Net engineering and development costs of $672,092 for the three months
ended September 30, 1998 compared with an expense level of $418,625 for the
same quarter of 1997. Net Engineering and development costs of $2,054,088 for
the nine month period ended September 30, 1998 were 10% higher than the 1997
net expense of $1,873,365 for the same nine month period of 1997. The chart
below summarizes gross expenses, amounts capitalized and net engineering
expense for the three and nine month periods ended September 30, 1998 and
1997.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross Expenditures for Engineering
& Software Development $988,463 $739,310 $2,808,070 $2,852,472
Less Cost Capitalized (316,371) (320,685) (753,982) (979,107)
-------- -------- ---------- ----------
Net Engineering & Software
Development Expense $672,092 $418,625 $2,054,088 $1,873,365
======== ======== ========== ==========
</TABLE>
Selling general and administrative expenses of $2,992,890 for the quarter
ended September 30, 1998 increased 44% from the third quarter 1997 expense
level of $2,079,310. This increase reflects the Company's investment in
strengthening its sales, sales support, customer support and product marketing
staffs as planned subsequent to the corporate restructuring undertaken during
the second quarter of 1997. For the nine months ended September 30, 1998
expenses for selling, general and administrative functions were only 1% higher
than the costs for the first nine months of 1997 due to the absence of current
spending for the subsidiaries closed as part of the referenced restructuring.
For the quarter ended September 30, 1998 the Company earned a net profit
of $303,171, or $.04 per share. This compared with a net profit of $27,246 for
the quarter ended September 30, 1997. For the nine month period ended
September 30, 1998 the Company has earned a net profit of $586,583, or $.07
per fully diluted share. This compared with a net loss of $5,118,279, or a
loss of $.71 per share for the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash position (cash on hand plus investments) at
September 30, 1998 of $5,085,858 increased by 53% from the end of the second
quarter of 1998. Inventories of $707,116 are 39% lower than the balance at
December 31, 1997. Accounts receivable of $1,901,276 at September 30, 1998
are 10% higher than the receivables of $1,724,047 at December 31, 1997. Total
assets of $13,866,483 at September 30, 1998 are 16% higher than the December
31, 1997 figure of $11,909,527. Total current liabilities have increased 38%
from December 31, 1997 to $4,440,975 at September 30, 1998, with the increase
primarily due to additions to deferred revenue and an increase in accrued
compensation related to higher employment.
Through the first nine months of 1998 the Company has invested $658,843
in capital assets primarily for upgrading its development capabilities,
strengthening its customer support and service groups, and the implementation
of integrated management information system.
During the third quarter of 1998 the Company repurchased 30,000 shares of
its common stock on the open market at a total cost of $126,514.
<PAGE>
The Company maintains a private equity line of credit agreement with a
single institutional investor. Under the equity line, the Company has the
right to sell to the investor shares of the Company's common stock at a price
equal to 88% of the average bid price of the stock for the subsequent ten
trading days. During the agreement term 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 three quarters of 1998 the Company sold 24,700 shares
of common stock to this investor yielding proceeds of $143,384. Subsequent to
the end of the quarter, the expiration date of this agreement was extended
from June 2, 1999 to August 30, 2000.
The Company also maintains an agreement with a major commercial bank for
a secured demand line of credit agreement for up to $500,000. Subsequent to
the end of the quarter, the bank has agreed to increase this line of credit to
$3,000,000. There have been no borrowings against either the current or
proposed new 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 nine months
ended September 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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
BASIC
Net Income (Loss) $303,171 $27,246 $586,583 $(5,118,279)
========= ========= ========= ===========
Weighted Common Shares Outstanding 7,589,698 7,423,011 7,572,004 7,264,348
========= ========= ========= ===========
Income (Loss) Per Common Share $.04 $.00 $.07 $(.71)
==== ==== ==== =====
DILUTED
Net Income (Loss) $303,171 $27,246 $586,583 $(5,118,279)
========= ========= ========= ===========
Weighted Average Shares Outstanding 7,589,698 7,423,011 7,572,004 7,264,348
Additional Dilutive Effect of Stock
Options and Warrants after
Application of Treasury Stock
Method 379,958 156,200 393,546 -
========= ========= ========= ===========
Weighted Average Shares Outstanding 7,969,656 7,579,211 7,965,550 7,264,348
========= ========= ========= ===========
Income (Loss) per Common Share and
Common Equivalent Share $.04 $.00 $.07 $(.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> SEP-30-1998
<CASH> 1083658
<SECURITIES> 4002200
<RECEIVABLES> 2000276
<ALLOWANCES> 99000
<INVENTORY> 707116
<CURRENT-ASSETS> 7796083
<PP&E> 5811675
<DEPRECIATION> 4428687
<TOTAL-ASSETS> 13866483
<CURRENT-LIABILITIES> 4440975
<BONDS> 0
0
0
<COMMON> 759725
<OTHER-SE> 6610454
<TOTAL-LIABILITY-AND-EQUITY> 13866483
<SALES> 4693706
<TOTAL-REVENUES> 4693706
<CGS> 784957
<TOTAL-COSTS> 4449939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 99000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 303171
<INCOME-TAX> 0
<INCOME-CONTINUING> 303171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303171
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
