UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period September 30, 2000;
------------------
or
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file #0-15797
--------
AT COMM CORPORATION
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-3824750
--------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
577 Airport Blvd, Suite 700,
Burlingame, California 94010
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 375-8188
--------------------------------------------------------------------------------
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 Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports). Yes X No
--- ---
(2) Has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Issuer's number of common shares
outstanding at October 31, 2000 5,417,549 shares
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
AT COMM CORPORATION
INDEX
Page No.
--------
<S> <C>
PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited)
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations (unaudited) Three
Months ended September 30, 2000 and 1999 and
Nine Months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30, 2000 and 1999 5-6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
PAGE 2
<PAGE>
<TABLE>
AT COMM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Assets:
Current Assets
Cash and cash equivalents $ 4,956,770 7,844,328
Accounts receivable, net of allowance
for doubtful accounts of $156,359 in 2000
and $123,433 in 1999. 524,511 892,816
Inventories 2,751,397 384,370
Prepaid expenses and other assets 329,932 146,198
------------ ------------
Total current assets 8,562,610 9,267,712
Property, equipment and software, net 4,405,779 1,828,108
Notes receivable -- 100,000
Deposits and other assets 517,937 342,060
------------ ------------
Total Assets $ 13,486,326 11,537,880
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 836,377 297,959
Accrued expenses 2,936,646 594,341
Accrued compensation 898,005 395,289
Purchase deposits 31,950 34,330
Deferred revenue 1,594,787 1,536,161
Notes payable -- 3,444
Capital lease 16,528 15,335
------------ ------------
Total current liabilities $ 6,314,293 2,876,859
Capital lease - net of current portion 11,837 22,990
Minority interest 90,596 105,913
Stockholders' equity
Preferred stock, $0.01 par value; 10,000,000 shares 8,165 21,030
authorized; 816,500 and 2,102,989 shares issued and
outstanding as of September 30, 2000 and December
31, 1999, respectively
Common stock, $.01 par, 50,000,000 shares authorized, 54,175 34,039
5,417,549 and 3,403,914 shares issued and outstanding
as of September 30, 2000 and December 31,1999,
respectively
Additional paid-in capital 38,582,023 25,238,941
Deferred compensation (183,467) (5,066)
Accumulated other comprehensive loss (354,262) (165,703)
Accumulated deficit (31,037,034) (16,591,123)
------------ ------------
Total stockholders' equity 7,069,600 8,532,118
Total liabilities and stockholders' equity $ 13,486,326 11,537,880
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
PAGE 3
<PAGE>
<TABLE>
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,197,775 1,345,593 3,683,926 4,034,598
----------- ----------- ----------- -----------
Product costs 753,051 608,915 2,027,886 1,773,971
Research and development 3,213,689 2,291,306 9,802,378 5,564,170
Marketing, sales, general and 2,734,097 989,598 6,969,165 2,751,051
administrative
----------- ----------- ----------- -----------
6,700,837 3,889,819 18,799,429 10,089,192
----------- ----------- ----------- -----------
Loss from operations (5,503,062) (2,544,226) (15,115,503) (6,054,594)
Other income, net 230,074 83,348 712,192 234,438
----------- ----------- ----------- -----------
Loss before income taxes (5,272,988) (2,460,878) (14,403,311) (5,820,156)
Income taxes 32,570 3,516 42,600 8,927
----------- ----------- ----------- -----------
Net loss (5,305,558) (2,464,394) (14,445,911) (5,829,083)
Preferred stock beneficial conversion rights -- -- 5,482,500 --
----------- ----------- ----------- -----------
Net loss applicable to common stockholders $(5,305,558) (2,464,394) (19,928,411) (5,829,083)
=========== =========== =========== ===========
Per Share Information:
Loss per share $ (0.98) (0.73) (4.45) (1.78)
=========== =========== =========== ===========
Number of shares used in basic per share
computation 5,417,117 3,391,139 4,474,510 3,277,358
=========== =========== =========== ===========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
PAGE 4
<PAGE>
<TABLE>
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,445,911) (5,829,083)
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation 765,558 412,315
Amortization of deferred compensation 205,056 2,400
Minority interest in net loss (15,025) (10,601)
Foreign exchange gain (157,977) (36,339)
Change in operating assets and liabilities:
Accounts receivable, net 460,956 10,780
Inventories (2,367,028) 46,919
Prepaids, deposits and other assets (386,474) (154,227)
Accounts payable and accrued expenses 3,213,147 31,890
Purchase deposits (2,380) 449
Deferred revenue 58,626 349,144
------------ ------------
Net cash used in operations (12,671,452) (5,176,353)
------------ ------------
Cash flows from investing activities:
Acquisition of property, equipment and software (3,345,173) (793,068)
Cash from financing activities:
Repayment of capital lease obligation (9,961) (6,192)
Repayment of borrowings (3,445) (29,271)
Proceeds from sale of common stock 284,279 169,814
Proceeds from sale of preferred stock 12,858,008 --
------------ ------------
Net cash provided by financing activities 13,128,881 134,351
------------ ------------
Effect of exchange rate changes on cash 186 14,196
------------ ------------
Net decrease in cash and cash equivalents (2,887,558) (5,820,874)
Beginning cash and cash equivalents 7,844,328 8,272,251
------------ ------------
Ending cash and cash equivalents $ 4,956,770 2,451,377
============ ============
(continued)
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
PAGE 5
<PAGE>
<TABLE>
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended September 30,
2000 1999
---------- ----------
<S> <C> <C>
Supplemental cash flow information:
Interest paid $ 2,791 3,469
========== ==========
Income taxes paid 16,950 12,093
========== ==========
Noncash investing and financing activities:
Shares issued in exchange for warrants 50 21,655
========== ==========
Assets acquired under capital leases -- 47,993
========== ==========
Shares issued on stock option exercise in
exchange for surrender of common stock 29,319 32,805
========== ==========
Conversion of preferred stock to common stock 19,315 1,500
========== ==========
Deferred compensation additions 383,457 --
========== ==========
Beneficial conversion rights in connection
with issuance of preferred stock $5,482,500 --
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
PAGE 6
<PAGE>
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 : BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the fiscal
year. In the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. For further information, refer to
the consolidated financial statements and footnotes thereto, included in the
Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission
for the year ended December 31, 1999.
NOTE 2 : REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue from product sales is recognized when evidence of the arrangement
exists, delivery has occurred, the fee is fixed or determinable, and collection
is probable. The Company provides reserves for estimated returns of product
sales and accrues for the estimated costs of providing customer support when
deemed necessary.
Revenue related to customer support and rate tariff table subscriptions is
deferred and recognized ratably over the period of the agreements. Support and
rate tariff table subscriptions entitle a customer to receive future releases
and enhancements of the related software products and/or to receive the current
local and long distance provider tariff rates for their call accounting systems
for the subscription period.
NOTE 3 : INVENTORIES
Inventories have been stated at the lower of first-in, first-out cost or market.
As of September 30, 2000 and December 31, 1999, inventories consist of the
following:
2000 1999
--------------- -------------
Purchased parts and components $2,215,915 $172,677
Work in process 16,002 74,745
Finished goods 519,480 136,948
--------------- -------------
$2,751,397 $384,370
=============== =============
NOTE 4 : BANK LINE OF CREDIT
The Company maintained a $1,000,000 line of credit collateralized by eligible
accounts receivable. This line of credit expired in May 2000 and was not renewed
by the Company. The Company will negotiate new terms with the bank when deemed
necessary.
PAGE 7
<PAGE>
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income or loss by
weighted average common shares outstanding during the period. Diluted earnings
per share reflects the net incremental shares that would be issued if preferred
stock were converted to common stock, outstanding warrants were exercised, and
dilutive outstanding stock options were exercised, using the treasury stock
method.
In the case of a net loss, it is assumed that no incremental shares would be
issued because they would be antidilutive. In addition, certain options and
warrants are considered antidilutive because the options' exercise price is
above the average market price per share during the period. Antidilutive shares
are not included in the computation of diluted earnings per share.
Excluded from the computation of diluted loss per share for September 30, 2000
are warrants to acquire 34,000 shares of common stock, 816,500 shares of
preferred stock which are generally convertible to common stock on a one-to-one
basis, and 1,075,804 shares associated with outstanding stock options. Excluded
from the computation of diluted loss per share for September 30, 1999 are
warrants to acquire 40,000 shares of common stock, 1,727,989 shares of preferred
stock which are generally convertible to common stock on a one-to-one basis, and
807,877 shares associated with outstanding stock options.
NOTE 6: COMPREHENSIVE INCOME
Total comprehensive loss was $5,399,993 and $2,492,766 for the three months
ended September 30, 2000 and September 30, 1999, respectively. For the nine
months ended September 30, 2000 and September 30, 1999, the total comprehensive
loss was $14,634,470 and $5,883,315, respectively. The difference between net
loss and comprehensive loss is the result of translation of the operations of
the Company's foreign subsidiary, which has a local functional currency.
NOTE 7: SEGMENT AND GEOGRAPHIC REPORTING
The Company has two reporting segments: telephone management products, and the
development of a new product line that addresses the combined telecom and
datacom markets. The new product line did not generate any significant revenue
in 1999 or 2000. The two segments have been aggregated because their long-term
economic characteristics will be similar. The nature of the product, the
production process, type of customer, and methods of distribution will also be
similar. Additionally, there were no unallocated corporate expenses in 2000 and
1999.
<TABLE>
The revenues for At Comm products are as follows:
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
--------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Telephone management
products 737,176 837,278 2,137,126 2,528,638
Service & support 460,600 508,315 1,546,800 1,505,960
--------------- --------------- -------------- -------------
Total revenue 1,197,775 1,345,593 3,683,926 4,034,598
=============== =============== ============== =============
</TABLE>
PAGE 8
<PAGE>
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company's assets are primarily located in the United States and are not
allocated to any specific segment. The Company does not measure the performance
of its segments based on any asset-based metrics; therefore, segment information
is not provided for assets.
The Company has not separately reported segment information on a geographic
basis, as international sales have not been material for the three months and
nine months ending September 30, 2000 and September 30, 1999.
NOTE 8: NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative financial
instruments and hedging activities and requires the Company to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
them at fair value. Gains and losses resulting from changes in fair value would
be accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting. The Company will be required to
implement SFAS No. 133 for its fiscal year 2001. The Company does not expect
that the adoption of SFAS No. 133 will have a material effect on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements", as amended by SAB Nos. 101A and 101B, which provides guidance on
the recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC; however, SAB 101 does not change existing literature on
revenue recognition. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In June 2000, the SEC issued SAB No. 101B that delayed the
implementation of SAB 101. The Company must adopt SAB 101 no later than the
fourth quarter of fiscal 2000. The Company believes its current revenue
recognition policy is in compliance with this guidance.
In March 2000, the FASB issued FASB Interpretation (FIN) No. 44, Accounting for
Certain Transactions Involving Stock Compensation. FIN 44 addresses
inconsistencies in accounting for stock-based compensation that arise from
implementation of APB Opinion No. 25, Accounting for Stock Issued to Employees.
The Company adopted FIN 44 in the quarter beginning on July 1, 2000. There was
no material impact on the Company's consolidated financial statements as a
result of adopting FIN 44.
PAGE 9
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This 10-QSB, including, but not limited to the section on page 12
discussing risk factors, as well as the information incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of many factors, including the risk factors set forth below. Words such
as "we" or "our" refer to the Company.
You can identify such forward-looking statements by noting the use of
forward-looking terms such as "believes," "expects," "plans," "estimates" and
other similar words. Certain risks, uncertainties or assumptions that are
difficult to predict may affect such statements. The following risk factors and
other cautionary statements could cause our actual operating results to differ
materially from those expressed in any forward-looking statement. We caution you
to keep in mind the following risk factors and other cautionary statements and
to refrain from placing undue reliance on any forward-looking statements, which
speak only as of the date of this document.
The following is management's discussion and analysis of certain significant
factors which have effected At Comm's financial position and operating results
during the periods included in the accompanying condensed consolidated financial
statements.
Results of Operations
Third Quarter 2000 vs. 1999
Revenue for the three months ended September 30, 2000 was $ 1,197,775, a
decrease of 11% or $147,818 versus the $1,345,593 recorded during the three
months ended September 30, 1999. The decrease in revenue is attributed to lower
demand for telephone management products in the third quarter of 2000.
Total operating expenses for the three months ended September 30, 2000 were
$6,700,837, an increase of 72% or $2,811,018 versus $3,889,819 of operating
expenses incurred during the three months ended September 30, 1999. Total
product costs as a percentage of revenue increased to 63% in the third quarter
of 2000 from 45% in the third quarter in 1999, primarily due to variations in
product mix and increased labor costs.
Research and development expenses increased by 40% or $922,383 to $3,213,689 in
the third quarter of 2000 compared to $2,291,306 in the third quarter of 1999
due to an increased investment in new product development. The Company expects
quarterly research and development spending to exceed 1999 levels throughout
2000.
Marketing, sales and general and administrative expenses in the third quarter of
2000 increased by 176% or $1,744,499 to $2,734,097 compared to $989,598 in the
third quarter of 1999, primarily due to an increase in marketing and sales
expenditures associated with new product business development.
PAGE 10
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other income increased by $146,726 from the third quarter of 2000 primarily due
to income earned on cash equivalent investments of $139,573 in the third quarter
of 2000 versus $48,153 earned in the third quarter of 1999. The increase in cash
equivalent investments was a result of proceeds received from the Company's
Series B financing.
The Company lost $5,503,062 from operations during the third quarter of 2000 and
reported a net loss after taxes of $5,305,558 versus a loss of $2,544,226 from
operations and a net loss after taxes of $2,464,394 in the comparable quarter of
1999. The Company attributes this primarily to increased research and
development expenses associated with its new product development in addition to
administrative and marketing expenses necessary to support this effort.
Nine Months 2000 vs. 1999
Revenue for the nine months ended September 30, 2000 was $3,683,926, a decrease
of 9% versus the $4,034,598 recorded during the nine months ended September 30,
1999. The $350,672 decrease in revenue is attributable to lower demand for
software products in the nine months of 2000 versus the nine months of 1999.
Total operating expenses for the nine months ended September 30, 2000 were
$18,799,429, an increase of 86% or $8,710,237 versus $10,089,192 of operating
expenses incurred during the nine months ended September 30, 1999. Total product
costs as a percentage of revenue increased to 55% in the nine months of 2000
from 44% in the first nine months in 1999, primarily due to variations in
product mix.
Research and development expenses increased by 76% or $4,238,208 to $9,802,378
in the first nine months of 2000 compared to $5,564,170 in the nine months of
1999 due to increased investment in new product development.
Marketing, sales and general and administrative expenses in the first nine
months of 1999 increased by 153% or $4,218,114 to $6,969,165 compared to
$2,751,051 in the nine months of 1999, primarily due to an increase in marketing
expenditures associated with new product business development.
Other income increased by $477,754 from the first nine months of 2000 primarily
due to income earned on cash equivalent investments of $556,856 in the first
nine months of 2000 versus $200,148 earned in the first nine months of 1999. The
increase in cash equivalent investments was a result of proceeds received from
the Company's Series B financing.
Liquidity and Capital
At September 30, 2000, the Company held cash and cash equivalents totaling
$4,956,770 and had working capital of $2,248,317 versus cash equivalents of
$7,844,328 and working capital of $6,390,853 at December 31, 1999. The Company
anticipates investing in excess of $4,000,000 in capital equipment during 2000,
consisting primarily of computer hardware and software and testing equipment.
During the nine months ended September 30, 2000, capital equipment procurements
have totaled $3,345,173.
PAGE 11
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company maintained a $1,000,000 line of credit collateralized by eligible
accounts receivable. This line of credit expired in May 2000 and was not renewed
by the Company. The Company will negotiate new terms with the bank when deemed
necessary.
On February 7, 2000, the Company raised approximately $12,900,000 through the
issuance of Series B preferred stock that was sold to Flanders Language Valley
and other private investors. A total of 645,000 shares of Series B preferred
stock were sold at a purchase price of $20.00 per share. This was the final
closing of a $20,400,000 sale of 1,020,000 shares of Series B preferred stock.
The closing was completed on the same terms as the first closing following an
amendment to the Stock Purchase and Investor Rights Agreement dated December 30,
1999. The purchase price of the Series B Preferred Stock was less than the
prevailing market price of the Company's common stock resulting in a beneficial
conversion feature of $5,482,500, which is reflected in the condensed
consolidated statement of operations for the quarter ending March 31, 2000 in
the determination of loss applicable to common shareholders.
Inventories increased significantly during fiscal 2000. The increase reflected
purchased parts and components to support the Company's new product line.
Inventory management remains an area of focus as the Company balances the need
to maintain strategic inventory levels to ensure competitive lead times with the
risk of inventory obsolescence due to rapidly changing technology and customer
requirements.
Additionally, in connection with the Company's new product line, the Company
committed to fund @Comm Flanders N.V., a 94.9% owned subsidiary, with
approximately $450,000 in 2000. The actual amount of funding provided by the
Company will depend on the business needs of @Comm Flanders and can be modified
by a vote of the Board of Directors.
Certain Risk Factors Which May Impact Future Operating Results and Market Price
of Stock
An investment in our common stock involves a high degree of risk including those
described below. You should consider carefully these risk factors and the other
information in evaluating the business, financial condition and results of
operation and prospects of the company.
Differing sales cycles may cause our operating revenues to fluctuate, which may
lower our stock price.
Our quarterly revenues are likely to fluctuate significantly in the future due
to a number of factors that affect telecommunications management companies, many
of which are outside our control. Factors that could affect our revenue include:
o variations in the timing of orders and shipments of our products;
o variations in the size of the orders for our products;
o new product introductions by our competitors;
PAGE 12
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
o delays in introducing new products.
Our stock price may be volatile and you may not be able to sell the shares at or
above the price you paid to purchase them.
The trading price of our common stock may be highly volatile and could fluctuate
in response to a variety of factors that affect telecommunications management
companies, including the following:
o actual or anticipated variations in quarterly operating results;
o announcements of technological innovations;
o new products or services offered by us or by our competitors;
o additions or departures of key personnel;
o changes in financial estimates by securities analysts;
o conditions or trends in the telecommunications industry;
o changes in the economic performance and/or market valuations of the
telecommunications industry;
o changes in the economic performance and/or market valuations of other
companies in the telecommunications industry;
o volatility generally associated with technology stocks; and
o other broader market trends unrelated to our operating performance.
In addition, our stock is commonly described as "thinly traded stock" because
our average daily trading volume (approximately 3,000 shares) is very low in
comparison to other publicly traded companies. The price of a thinly traded
stock like ours may fluctuate sharply whenever the volume of trades exceeds the
average volume. The dollar amount of the trades that would trigger those
fluctuations is low in comparison to the dollar amount that would trigger
similar fluctuations in the stock price of companies with a higher average
trading volume.
If we do not keep pace with rapid technological change, we may not be able to
produce new products and remain competitive.
The software industry is characterized by rapid technological change as well as
changes in customer requirements and preferences. In order to remain competitive
in this industry, we must quickly respond to such changes, including the
enhancement and upgrading of existing products and the introduction of new
products. We believe that our future results will depend largely upon our
ability to offer products that compete favorably with respect to price,
reliability, performance, range of useful features, continuing product
enhancements, reputation and training.
PAGE 13
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We cannot assure you that a market for our Town Square Communication System
product line will develop.
Although we believe that our Town Square family of products and services, which
combine voice, data, and Internet communications services, will provide our
small and medium enterprise and branch office customers with a cost-effective,
adaptable solution to their telecommunications needs, we cannot assure you that
a market for our equipment and services will develop. Among the factors which
may impede market acceptance of our equipment and services are:
o pricing competition from our competitors;
o quality and reliability of our Town Square hardware and software;
o possible advances in technology by our competitors; and
o consumer awareness of our Town Square Communication System product line as
an acceptable, low-cost alternative to traditional voice and data network
systems.
Most of our competitors have more resources than we do, which may harm our
ability to compete effectively with them.
Most of our competitors, as well as many potential competitors, have
substantially greater financial, marketing and technology resources than we do.
Telco Research, ISI-Infortext and Nortel Networks Corporation are our major
competitors in our Xiox Telemanagement Systems product line. Based on industry
sources, we believe that both Peregrine Telco and ISI-Infortext have revenues
that are at least twice as large as our revenues. Nortel Networks Corporation, a
public company, reported 1999 fiscal year revenues of approximately $21 billion.
Cisco Systems, 3Com Corporation, Lucent Technologies and Nortel Networks
Corporation are our major competitors in our Town Square Communications Systems
product line. All four are public companies with reported 1999 fiscal year
revenues of approximately $12 billion, $6 billion, $38 billion, and $21 billion
respectively. In each case, we believe our competitors have marketing and
technological resources commensurate with their revenues. We cannot be certain
that we will be able to compete successfully against either current or potential
competitors or that competition will not have a material adverse effect on our
business, consolidated results of operations and financial condition.
If we lose the business of our largest customer, our revenues may decrease and
our business may suffer.
One of our customers accounted for 12% of our revenue during fiscal year 1999.
The loss or serious reduction in business from this customer could have a
material adverse effect on our business, consolidated results of operations and
financial condition in future periods.
If we lose our ability to sell our products through our network of dealers, our
revenues may decrease and our business may suffer.
We sell our products primarily through our network of authorized dealers. Like
other companies that sell products through a network of authorized dealers, our
ability to effectively distribute our products depends in part upon the
financial and business condition of our distribution network, which is outside
of our control. The loss of or a significant reduction in business with any one
of
PAGE 14
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
our major dealers could have a material adverse effect on our business,
consolidated results of operations and financial condition in future periods.
We may not be able to expand our sales and distribution channels, which would
harm our ability to generate revenue.
We believe that our future success is dependent upon our ability to continue to
expand our sales force and establish successful relationships with a variety of
international and domestic carriers, local competitive access carriers, data and
voice communication VARs, and selected PC manufacturers. If we are not able to
increase our direct sales staff and channel distribution partners, we will not
be able expand our business. We cannot be certain that we will be able to reach
agreement with additional channel distribution partners on a timely basis or at
all, or that these channel distribution partners will devote adequate resources
to marketing, selling and supporting our products. Our inability to generate
revenue from our sales offices and channel distribution partners may harm our
business, financial condition and results of operations.
If we do not increase our sales, our revenues may decrease and our business may
suffer.
Our future success, like the success of other telecommunications management
companies, will depend on deriving a substantial portion of our revenues from
sales of telephone management products to new customers as well as updates and
rate table renewals to existing customers. As a result, any factor adversely
affecting these sales, including market acceptance, product performance and
reliability, reputation, price competition and competing products, as well as
general economic and market conditions, could have a material adverse effect on
our business, consolidated results of operations and financial condition.
Our future ability to generate sales may depend on the interoperability of our
equipment with those of other vendors.
Our open, standards-based Town Square system is designed to interface with
support applications and devices from third party vendors in order to allow our
customers to take advantage of newer technology and support additional users
without the need to replace the entire system. If third party applications and
devices are not interoperable with our Town Square system, our customers may
seek other communications network solutions that can provide product
interoperability. This could seriously harm our business and financial
condition.
If our software products contain errors or defects, our revenues may decrease
and our business may suffer.
The software products we offer, like many software products, are internally
complex and, despite extensive testing and quality control, may contain errors
or defects ("bugs"), especially when first introduced. Defects or errors could
result in corrective releases to our software products, damage to our
reputation, loss of revenues, an increase in product returns, claims for
damages, or lack of market acceptance of our products, any of which could have a
material and adverse effect on our business, consolidated results of operations
and financial condition.
PAGE 15
<PAGE>
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
If we encounter delays or difficulties in developing our products, our revenues
may decrease and our business may suffer.
Delays or difficulties in the execution of product development may occur within
any telecommunications management company, including At Comm. These delays or
difficulties may result in the cancellation of planned development projects and
could have a material and adverse effect on our business, consolidated results
of operations and financial condition.
If we do not receive additional funding for our new product line, our business
may be adversely affected.
In 1997, we began a significant development effort on a new product line
addressing the combined telephony and data markets. Although we received since
1997 approximately $32.9 million in funding for this development effort, we will
require additional funding before the new product line returns a profit. The
additional funding will be used for marketing, continued engineering, sales,
working capital, and to fund research and development activities. We cannot be
certain that we will be able to obtain the additional required funding, or that
the new product line will become profitable. Moreover, the introduction of the
new product line may result in a new group of competitors.
If we do not manage our inventory levels to minimize excess inventory, we may
incur additional costs and our business may be adversely affected.
Inventories increased significantly during fiscal 2000. The increase reflected
purchased parts and components to support our new product line. Inventory
management remains an area of focus as we balance the need to maintain strategic
inventory levels to ensure competitive lead times with the risk of inventory
obsolescence due to rapidly changing technology and customer requirements.
PAGE 16
<PAGE>
PART 11-OTHER INFORMATION
AT COMM CORPORATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
NONE
PAGE 17
<PAGE>
********************************************************************************
AT COMM CORPORATION
SIGNATURES
In accordance with 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 duly authorized officers of the registrant.
AT COMM CORPORATION
Registrant
Date: November 14, 2000
/s/ William H. Welling
--------------------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
Date: November 14, 2000
/s/ Melanie D. Johnson
--------------------------------------------
Melanie D. Johnson, VP Finance/CFO/Secretary
(Duly Authorized Officer)
PAGE 18
