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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition Period from ______ to ______.
Commission file number 0-18511
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MOSAIX, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1273645
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6464 185TH AVE. N.E.
REDMOND, WASHINGTON 98052
(Address of principal executive offices) (Zip Code)
(425) 881-7544
(Registrant's telephone number including area code)
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) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Common stock, par value $0.01 per share: 11,933,147 shares
outstanding as of June 30, 1998.
Page 1 of 15 sequentially numbered pages.
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MOSAIX, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIODS ENDED JUNE 30, 1998
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
MOSAIX, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS) JUNE 30, 1998 DEC. 31, 1997
- ---------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $34,119 $36,080
Trade accounts receivable, net 29,474 30,325
Inventories 1,655 2,532
Contracts receivable, net 512 1,555
Other current assets 5,570 4,219
------- -------
Total current assets 71,330 74,711
Furniture, equipment and leasehold improvements, net 7,591 7,449
Capitalized software costs, net 425 930
Other assets 1,033 1,288
------- -------
Total assets $80,379 $84,378
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,367 $ 5,455
Accrued compensation 7,728 8,762
Other accrued expenses 7,171 6,413
Current portion of long-term obligations 294 381
Customer deposits and unearned revenue 10,431 7,443
------- -------
Total current liabilities 28,991 28,454
Long-term liabilities -- 119
------- -------
Total liabilities 28,991 28,573
Shareholders' equity 51,388 55,805
------- -------
Total liabilities and shareholders' equity $80,379 $84,378
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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MOSAIX, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
System sales $ 9,262 $ 11,815 $ 20,920 $ 24,979
Software licenses 3,493 8,075 10,868 13,595
Services and other 11,365 11,784 22,686 23,714
------------- ------------- ------------- -------------
Total revenue 24,120 31,674 54,474 62,288
------------- ------------- ------------- -------------
Cost of revenue:
System sales 3,836 4,635 8,481 9,329
Software licenses 460 657 1,008 1,258
Services and other 7,446 5,995 14,223 12,071
------------- ------------- ------------- -------------
Total cost of revenues 11,742 11,287 23,712 22,658
------------- ------------- ------------- -------------
Gross profit 12,378 20,387 30,762 39,630
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and administrative 11,713 12,062 23,910 24,049
Research and development 3,673 3,913 7,452 7,569
------------- ------------- ------------- -------------
Total operating expenses 15,386 15,975 31,362 31,618
------------- ------------- ------------- -------------
Operating income (loss) (3,008) 4,412 (600) 8,012
Interest and other income, net 370 515 956 957
------------- ------------- ------------- -------------
Income (loss) before income taxes (2,638) 4,927 356 8,969
Income tax expense (benefit) (791) 1,591 107 2,715
------------- ------------- ------------- -------------
Net income (loss) $ (1,847) $ 3,336 $ 249 $ 6,254
============= ============= ============= =============
Net income (loss) per share:
Basic $ (0.15) $ 0.25 $ 0.02 $ 0.47
Diluted $ (0.15) $ 0.24 $ 0.02 $ 0.45
Weighted average common shares outstanding:
Basic 12,100 13,349 12,150 13,302
Diluted 12,100 13,936 12,442 13,889
Comprehensive income:
Net income (loss) $ (1,847) $ 3,336 $ 249 $ 6,254
Foreign currency translation (221) 95 (176) (54)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ (2,068) $ 3,431 $ 73 $ 6,200
============= ============= ============= =============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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MOSAIX, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS) SIX MONTHS ENDED JUNE 30,
- -----------------------------------------------------------------------------------------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 249 $ 6,254
Depreciation and amortization 2,875 3,192
Trade and other receivables 1,894 1,226
Other assets 894 2,382
Accounts payable and accrued liabilities (2,355) (1,337)
Customer deposits and unearned revenue 2,988 (4,269)
------------- -------------
Net cash provided by operating activities 6,545 7,448
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (21,572) (19,958)
Proceeds from maturities of short-term investments 26,952 19,409
Purchases of furniture, equipment and leasehold improvements (2,546) (2,228)
Increase in capitalized software costs -- (255)
Other (545) (272)
------------- -------------
Net cash provided by (used in) investing activities 2,289 (3,304)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,322 679
Collection of shareholder notes receivable 243 248
Repayment of long-term obligations (206) (518)
Common stock repurchased (6,598) (5)
------------- -------------
Net cash provided by (used in) financing activities (5,239) 404
------------- -------------
Effect of exchange rate changes on cash
(176) (54)
------------- -------------
Increase in cash and cash equivalents 3,419 4,494
Cash and cash equivalents, beginning of period 5,532 10,984
------------- -------------
Cash and cash equivalents, end of period 8,951 15,478
Short-term investments 25,168 32,373
------------- -------------
Cash, cash equivalents and short-term investments $ 34,119 $ 47,851
============= =============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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MOSAIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Mosaix, Inc. and its wholly owned subsidiaries, collectively
referred to as the ("Company"). The unaudited interim condensed
consolidated financial statements and related notes thereto have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The accompanying interim condensed
consolidated financial statements and related notes thereto should be read
in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1997.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring items, necessary for a
fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year.
2. NET INCOME (LOSS) PER SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," basic net income (loss) per share is computed
using the weighted average number of common shares outstanding. Diluted net
income (loss) per share is computed using the weighted average number of
common shares plus dilutive common share equivalents outstanding during the
period using the treasury stock method. Common share equivalents consist of
employee stock options. The June 30, 1997 amounts have been restated to
conform with SFAS No. 128.
The following tables reconcile the numerator and the denominator of the
basic and diluted per share computations for net income (loss) per share:
<TABLE>
<CAPTION>
Net Income Weighted Net Income
(Loss) Average Shares (Loss)
(In thousands, except per share data) (Numerator) (Denominator) Per Share
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months ended June 30, 1998:
Basic loss per share $(1,847) 12,100 $(0.15)
Effect of dilutive stock options -- --
------- ------
Diluted loss per share $(1,847) 12,100 $(0.15)
======= ======
Three months ended June 30, 1997:
Basic income per share $ 3,336 13,349 $0.25
Effect of dilutive stock options -- 587
------- ------
Diluted income per share $ 3,336 13,936 $0.24
======= ======
</TABLE>
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<TABLE>
<CAPTION>
Net Income Weighted Net Income
(Loss) Average Shares (Loss)
(In thousands, except per share data) (Numerator) (Denominator) Per Share
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Six months ended June 30, 1998:
Basic income per share $ 249 12,150 $0.02
Effect of dilutive stock options -- 292
------ ------
Diluted income per share $ 249 12,442 $0.02
====== ======
Six months ended June 30, 1997:
Basic income per share $6,254 13,302 $0.47
Effect of dilutive stock options -- 587
------ ------
Diluted income per share $6,254 13,889 $0.45
====== ======
</TABLE>
Options to purchase shares of common stock where the exercise price
exceeded the average market price were excluded from the computations for
1998 and 1997 because they would be anti-dilutive. Anti-dilutive stock
options excluded from the computations are as follows:
<TABLE>
<CAPTION>
Anti-Dilutive Exercise
(In thousands) Options Price
-------------- ------- -----
<S> <C> <C>
Three months ended June 30, 1998 2,143 $11.38 - $19.75
Three months ended June 30, 1997 393 $13.50 - $19.75
Six months ended June 30, 1998 785 $10.88 - $19.75
Six months ended June 30, 1997 410 $12.88 - $19.75
</TABLE>
3. NEW ACCOUNTING STANDARDS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
disclosure of comprehensive income and its components. Comprehensive income
measures all changes in equity of an enterprise that do not result from
transactions with owners. SFAS 130 requires the Company's foreign currency
translation adjustments, which prior to adoption were only reported
separately in shareholders' equity, to be included in the determination of
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
During the second quarter of 1998 and 1997 comprehensive income (loss)
amounted to a loss of $2.1 million and income of $3.4 million,
respectively. Comprehensive income for the six months ended June 30, 1997
and 1998 was $73,000 and $6.2 million, respectively.
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In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS
131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises to report selected information
about operating segments in interim financial reports issued to
stockholders. This Statement is effective for financial statements for
periods beginning after December 15, 1997. The Company will make any
required additional disclosures in its December 31, 1998 annual financial
statements.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform with the current period presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Overview
For the second quarter of 1998, revenue decreased 24% to $24.1 million from
$31.7 million reported in the second quarter of 1997. The Company had a
second quarter 1998 net loss of $1.8 million, or $0.15 diluted loss per
share, compared with net income of $3.3 million, or $0.24 diluted earnings
per share in the second quarter of 1997.
Revenue
Systems sales decreased 22% to $9.3 million in the second quarter of 1998
from $11.8 million in the same period of the prior year. The decrease in
systems sales was primarily due to lower sales of domestic and European
call center systems. The decrease was partially offset by increased call
center system sales in the Asian and Latin America markets.
Software licenses revenue decreased 57% to $3.5 million in the second
quarter of 1998 compared to $8.1 million in the second quarter of 1997. The
decrease in software revenues was primarily due to lower Customer
Relationship Management ("CRM") software license sales and the absence of
significant add-on software license revenues from a single customer as
experienced in the second quarter of 1997. Software licenses revenue
accounted for 14% of total revenue down from 25% in the second quarter of
1997.
Services and other revenue decreased 4% to $11.4 million in the second
quarter of 1998 from $11.8 million in the comparable quarter of 1997. The
decrease was primarily due to the performance of non-billable professional
service work for two early adopters of the Company's CRM solution and the
discontinuance of the Company's sales and business tax collection services
in the second half of 1997. These decreases were partially offset by
increased customer service and maintenance fees.
International revenue decreased to $7.8 million in the second quarter of
1998 from $9.0 million in the same quarter for 1997. The decrease is
primarily the result of weaker European revenues and the absence of
significant add-on software license revenues from a single customer as
compared to the second quarter of 1997. These decreased were offset by
increased call center system sales in Asia and Latin America.
As discussed in the Company's 1997 Annual Report on Form 10-K, the Company
may from time to time experience quarterly fluctuations in revenue due to a
small number of contracts in any one quarter, no material backlog, changes
in customer budgets and general economic conditions.
Gross Margin
Total gross margin declined to approximately 51% of revenue in the second
quarter of 1998 as compared to 64% for the same period in the prior year.
Systems gross margin decreased to 59% in the second quarter of 1998
compared to 61% in the comparable period of the prior year. The decrease
was primarily the result of fewer domestic and European large system
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sales as well as fewer system upgrades, which historically result in higher
gross margins. Software licenses gross margins decreased to 87% from 92% a
year ago. The decrease was primarily a result of fixed costs being
allocated over lower software revenues. Services and other gross margin
declined to 34% from 49% in the comparable period of 1997. As previously
discussed, the decrease is primarily the result of performing non-billable
consulting services for certain customers, and the discontinuance of
business tax collection services.
Selling, General and Administrative
Selling, general and administrative expenses were $11.7 million or 49% of
revenue in the second quarter of 1998, compared to $12.0 million or 38% of
revenue in the comparable period of the prior year. The decrease, in
absolute dollars, of selling, general and administrative expenses was a
result of decreased compensation expenses based on the Company's reduced
revenues and profitability.
Research and Development
Research and development expense was $3.6 million or 15% of revenue in the
second quarter of 1998, compared to $3.9 million or 12% of revenue in the
second quarter of 1997. These spending levels are consistent with the
Company's historic norms. Net capitalized software costs remaining on the
balance sheet continue to decrease, and as of June 30, 1998, were $0.4
million compared to $0.9 million at December 31, 1997. The Company remains
committed to the ongoing development of new products and improvements to
existing products as a key source of future revenue.
Interest and Other Income, Net
Interest and other income, net decreased to $0.4 million in the second
quarter of 1998 from $0.5 million for the same period of 1997. The decrease
is directly attributable to reduced interest earnings due to lower cash,
cash equivalents and short-term investment balances during 1998. The
Company's investment portfolio decreased during the second quarter of 1998
due to the repurchase of 368,000 shares of the Company's common stock for
approximately $4.2 million.
Income Taxes
Consistent with the first quarter income tax expense, the income tax
benefit was recorded at an estimated effective tax rate of 30%. The
estimated effective tax rate for 1998 of 30% as compared to the statutory
rate of 34% is due mainly to the Company's use of net operating loss
carryforwards to reduce taxable income. The utilization of net operating
loss carryforwards and excess credit carryforwards are restricted by
Section 382 of the Internal Revenue Code.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Overview
For the first six months of 1998, revenue decreased 13% to $54.5 million
from $62.3 million reported in the comparable period of 1997. The Company
had net income of $249,000 for the first six months of 1998, or $0.02
diluted earnings per share, compared with net income of $6.3 million, or
$0.45 diluted earnings per share in the same period of the prior year.
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Revenue
Systems sales decreased 16% to $20.9 million in the first six months of
1998 from $25.0 million in the same period of the prior year. The decrease
in systems sales was due to lower sales of domestic and European call
center systems partially offset by increased call center system sales in
the Asian and Latin America markets.
Software licenses revenue decreased 20% to $10.9 million in the first half
of 1998 compared to $13.6 million in the first half of 1997. The decrease
in software revenues was primarily due to lower CRM software license sales
and the absence of significant add-on license revenues as experienced in
1997. Software licenses revenue accounted for 20% of total revenue down
from 22% in the same period of 1997.
Services and other revenue decreased slightly to $22.7 million in the first
six months of 1998 from $23.7 million in the first six months of 1997. The
decrease was primarily due to the performance of non-billable professional
services and the discontinuance of the Company's sales and business tax
collection services in the second half of 1997, which were partially offset
by increased customer service and maintenance fees.
International revenue increased to $17.2 million in the first half of 1998
from $16.1 million in the same period for 1997. The increase is primarily
the result of increased Canadian software license revenues and increased
Asian and Latin American call center system sales. These increases were
partially offset by reduced European software license revenues.
Gross Margin
Total gross margin declined to approximately 56% of revenue in the first
six months of 1998 as compared to 64% for the first six months of 1997.
Systems gross margin decreased to 59% in the first half of 1998 compared to
63% in the comparable period of the prior year. The decrease was primarily
the result of fewer large domestic and European system sales, which tend to
have higher margins, as well as fewer higher margin system upgrades.
Software licenses gross margins of 91% were consistent with the same period
in the prior year. Services and other gross margin declined to 37% from 49%
in the comparable period of the prior year. The decrease is primarily a
result of performing non-billable consulting services for certain customers
and the discontinuance of the Company's business tax collection services.
Selling, General and Administrative
Selling, general and administrative expenses were $23.9 million or 44% of
revenue in the first six months of 1998, compared to $24.0 million or 39%
of revenue in 1997. The decrease in selling, general and administrative
expenses was a result of reduced revenue and profitability-based
compensation expenses.
Research and Development
Research and development expense was $7.5 million or 14% of revenue in the
first half of 1998, compared to $7.6 million or 12% of revenue in the same
period of 1997. The Company remains committed to the ongoing development of
new products and improvements to existing products as a key source of
future revenue.
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Interest and Other Income, Net
Interest and other income was $1.0 million in the first six months of 1998
which is comparable with the same period for 1997. The Company shifted its
investment portfolio holdings to higher yielding taxable securities in
1998, which increased interest income levels over the prior year. During
1998 the Company has repurchased 610,500 shares of the Company's common
stock for approximately $6.6 million, which has reduced the Company's funds
available for investment.
Income Taxes
The effective tax rate for the first six months of 1998 was 30% compared to
the statutory rate of 34%. The lower rate is due mainly to the Company's
anticipated use of net operating loss carryforwards to reduce taxable
income. The utilization of net operating loss carryforwards and excess
credit carryforwards are restricted by Section 382 of the Internal Revenue
Code.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company's combined cash and cash equivalents and short-term investments
were $34.1 million at June 30, 1998 versus $36.1 million at December 31,
1997. The short-term investment portfolio is primarily invested in
corporate debt securities with maturities of one year or less. The
portfolio is diversified among security types and issuers and does not
include any derivative products. At June 30, 1998, the Company's working
capital was $41.3 million compared to $46.3 million at December 31, 1997.
During the first six months of 1998, the Company generated $6.5 million in
cash from operations compared to $7.4 million in the comparable period of
1997. Customer deposits and unearned revenue were $10.8 million at June 30,
1998 versus $7.4 million at December 31, 1997. The increase is primarily
due to annual customer service and maintenance fees being renewed during
the first quarter of 1998. These fees will be amortized to service and
other revenue over the remainder of the year.
In addition to its cash and short-term investment balances, the Company has
available a $10.0 million domestic line of credit to meet cash flow needs.
The line of credit expires on May 31, 1999. Management believes that
existing cash and short-term investments and cash flow from operations,
together with its available credit line, will continue to be sufficient to
meet the Company's commitment to the development of new products and the
improvement of existing products as well as ongoing operating requirements.
In July 1997, the Company's Board of Directors authorized, subject to
certain terms and conditions, the repurchase of up to 1,700,000 shares of
the Company's common stock. In February 1998, the Board of Directors
authorized the repurchase of an additional 1,000,000 shares of the
Company's common stock. During the fist six months of 1998, the Company
repurchased 610,500 shares for approximately $6.6 million. As of June 30,
1998, the Company had repurchased 2,048,000 shares at a total cost of $20.6
million. The Company is authorized to repurchase an additional 650,060
shares under existing authorizations.
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The Company does not currently hedge against changes in foreign currency
exchange rates. The majority of the Company's sales are denominated in US
dollars with customers assuming foreign currency exchange rate risks. The
Company's United Kingdom subsidiary's sales are generally denominated in
British Pounds, which is the functional currency of the UK subsidiary. As
of June 30, 1998 outstanding receivables at the UK subsidiary totaled $6.0
million dollars or 20% of total accounts receivable. Because the Company
invoices certain of its foreign sales in local currency and does not hedge
these transactions, fluctuations in exchange rates could adversely affect
the Company's revenues and costs and could create significant foreign
currency gains and losses.
FORWARD LOOKING STATEMENTS-RISK FACTORS REGARDING FUTURE PERFORMANCE
Certain statements in this Form 10-Q contain "forward-looking" information
(as defined in the Private Securities Litigation Reform Act of 1995) that
involve risks and uncertainties, which may cause the actual results,
performance or achievements of the Company or industry results to be
significantly different from any future results, performance or achievement
expressed or implied by such forward-looking information. Such risks and
uncertainties include among other things: uncertainties relating to
integration of operations, uncertainty of future operating results,
fluctuations in operating results, seasonality, lengthy sales and
implementation cycle, complex service requirements, competition,
technological change and new products, limited source of supply, dependence
on Windows NT and other core Microsoft technologies, lack of product
revenue diversification, international sales, dependence on proprietary
rights, infringement claims, uncertainty of obtaining licenses, risk of
product defects, and governmental regulation. Reference is made to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
filed with the SEC on March 13, 1998 for a more detailed description of
such risks and uncertainties.
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (year 2000) approaches. The
"year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit
year value, 00. The issue is whether computer systems will properly
recognize date sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate erroneous
data or cause system failure.
All of the Company's currently shipping products are year 2000 compliant.
In addition, wherever possible, the Company has made software and hardware
upgrades available to existing customers that will enable such customers to
be year 2000 compliant. The Company does have some customers who have
purchased systems in the past, where a hardware or software upgrade is not
available to allow the customer to become year 2000 compliant. The Company
has, and will continue to offer such customers an opportunity to migrate to
current product versions. It is possible that the Company may incur
additional expense in addressing these migration issues. The Company may
further be made party to litigation seeking damages relating to non-year
2000 compliant products sold in the past. Additionally, there can be no
assurances that the Company's current products do not contain undetected
errors related to year 2000 that may result in material additional cost or
liabilities, the magnitude of which cannot be predicted, which could have a
material adverse effect on the Company.
With regard to the Company's internal processing and operational system,
the Company is substantially complete in installing an enterprise-wide
financial and operational system from a major vendor that is year 2000
compliant. Significant portions of the system are currently operational and
the Company anticipates all critical components of the system will be
operational by December 1998. The Company has capitalized the acquisition
cost of the
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system and third party implementation costs incurred to date and will
continue to do so as the systems is completed. With regard to other
systems, the Company is identifying, reprogramming and testing all systems
for year 2000 compliance. The Company is also endeavoring to seek assurance
from its key vendors that the operations of such vendors will not be
adversely affected by year 2000 problems. While the Company is not aware of
any additional material operational issues or costs associated with
preparing such internal systems for the year 2000, there can be no
assurances that the Company will not experience material adverse effects
from undetected errors or the failure of such systems to be year 2000
compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
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PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings that
arise in the ordinary course of its business. While the
outcome of these proceedings cannot be predicted with
certainty, the Company believes that none of such
proceedings, individually or in the aggregate will have a
material adverse effect on the Company's business or
financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURE
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.
MOSAIX, INC.
(Registrant)
DATE: August 11, 1998 BY: /s/ John J. Flavio
---------------------------------
John J. Flavio
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOSAIX, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
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0
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