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 March 31, 2001 ;
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 April 30, 2001, excluding
convertible preferred stock of 1,378,053 5,468,601 shares
- --------------------------------------------------------------------------------
AT COMM CORPORATION
INDEX
Page No.
PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited)
March 31, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations (unaudited)
Three Months ended March 31, 2001 and March 31, 2000 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months ended March 31, 2001 and March 31, 2000 5-6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
PART II Other Information
Item 3.
Default Upon Senior Securities 19
Item 6.
Exhibits and Reports on Form 8-K 19
Signatures 20
PAGE 2
AT COMM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
2001 2000
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 1,846,704 $ 8,259,487
Accounts receivable, net of allowance for doubtful accounts of $198,832 and
$184,369 as of March 31, 2001 and December 31, 2000, respectively 531,432 1,706,308
Inventories 2,203,567 2,236,403
Prepaid expenses and other assets 381,091 534,532
------------ ------------
Total current assets 4,962,794 12,736,730
Property, equipment and purchased software, net 4,846,018 4,794,137
Deposits and other assets 372,114 283,025
------------ ------------
Total Assets $ 10,180,926 $ 17,813,892
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 368,917 $ 47,834
Accrued expenses 2,112,357 4,248,363
Accrued compensation 965,348 984,278
Purchase deposits 4,308 4,308
Deferred revenue 1,160,458 1,510,615
Capital lease 17,410 16,941
Notes Payable 47,164 --
------------ ------------
Total current liabilities 4,675,962 6,812,339
Capital lease - net of current portion 3,075 7,622
Notes Payable - net of current portion 168,143 --
------------ ------------
Total Liabilities 4,847,180 6,819,961
------------ ------------
Minority interest 73,015 78,337
Stockholders' equity
Convertible preferred stock, $0.01 par value; 10,000,000
shares authorized; 1,378,053 and 1,416,803 shares issued and
outstanding as of March 31, 2001 and December 31, 2000, respectively; aggregate 13,781 14,168
liquidation preference of $24,753,295 and $25,334,545 as of March 31, 2001
and December 31, 2000, respectively
Common stock, $.01 par value; 50,000,000 shares authorized 5,468,601
and 5,420,659 shares issued and outstanding as of March 31, 2001 and
December 31, 2000 respectively 54,686 54,206
Additional paid-in capital 47,613,288 47,554,336
Deferred stock-based compensation (85,911) (107,513)
Accumulated other comprehensive loss (322,193) (292,899)
Accumulated deficit (42,012,920) (36,306,704)
------------ ------------
Total Stockholders' Equity 5,260,731 10,915,594
------------ ------------
Total Liabilities and Stockholder's Equity $ 10,180,926 $ 17,813,892
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
PAGE 3
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
----------- ------------
Revenues $ 1,556,523 1,264,534
----------- ------------
Product costs 879,934 659,620
Research and development 2,993,364 3,161,784
Sales and marketing 1,839,641 1,010,868
General and administrative 1,611,167 697,227
----------- ------------
7,324,106 5,529,499
----------- ------------
Loss from operations (5,767,583) (4,264,965)
Other income, net 73,967 261,976
----------- ------------
Loss before income taxes (5,693,616) (4,002,989)
Income taxes 12,600 5,015
----------- ------------
Net loss (5,706,216) (4,008,004)
Preferred stock beneficial conversion
Rights -- 5,482,500
----------- ------------
Net loss applicable to common stockholders $(5,706,216) (9,490,504)
=========== ============
Per Share Information:
Basic and diluted net loss per share $ (1.05) (2.68)
=========== ============
Number of shares used in basic and diluted per
share computations 5,453,624 3,542,710
=========== ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
PAGE 4
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
------------- -------------
Cash flows from operating activities:
Net loss $ (5,706,216) $ (4,008,004)
Adjustments to reconcile net loss to net
Cash used in operations
Depreciation 442,006 149,161
Amortization of stock-based compensation 21,602 2,234
Minority interest in net loss (5,034) (3,374)
Foreign currency translation adjustments (42,928) (65,906)
Change in operating assets and liabilities:
Accounts receivable, net 1,174,877 315,212
Inventories 32,836 (29,131)
Prepaid expenses, deposits and other assets 64,352 (224,365)
Accounts payable and accrued expenses (1,833,855) 807,877
Purchase deposits -- (1,341)
Deferred revenue (350,157) 17,958
------------ ------------
Net cash used in operating activities (6,202,517) (3,039,679)
------------ ------------
Cash flows used in investing activities-
acquisition of property, equipment and purchased software (493,887) (822,001)
Cash flows from financing activities:
Repayment of capital lease obligations (4,078) (3,834)
Proceeds from borrowings 215,307 (3,461)
Proceeds from sale of common stock, net 59,046 28,090
Proceeds from sale of preferred stock and warrants for common -- 12,889,662
stock
------------ ------------
Net cash provided by financing activities 270,275 12,910,457
------------ ------------
Effect of exchange rate changes on cash 13,346 10,594
------------ ------------
Net (decrease) increase in cash and cash equivalents (6,412,783) 9,059,371
Beginning cash and cash equivalents 8,259,487 7,844,328
------------ ------------
Ending cash and cash equivalents $ 1,846,704 $ 16,903,699
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
PAGE 5
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
2001 2000
---------- ----------
Supplemental cash flow information:
Interest paid $ 7,534 $ 837
Income taxes -- 7,450
Noncash investing and financing activities:
Conversion of preferred stock to common stock 388 2,000
========== ==========
Shares issued on stock option exercise in exchange for
surrender of common stock -- 29,319
========== ==========
Beneficial conversion rights in connection
with issuance of preferred stock $ -- $5,482,500
========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
PAGE 6
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 : BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of At
Comm Corporation and subsidiaries ("At Comm" or the "Company") have been
prepared in conformity with accounting principles generally accepted in the
United States of America. However, certain information or footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). In the opinion of management, the condensed
consolidated financial statements reflect all adjustments considered necessary
for a fair presentation of the consolidated financial position, operating
results and cash flows for the periods presented. The results of operations for
the interim periods presented are not necessarily indicative of the results that
may be expected for the full fiscal year or in any future period. This quarterly
report on Form 10-QSB should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2000, included in the Company's 2000 Annual Report on Form 10-KSB filed with
the SEC.
NOTE 2 : REVENUE RECOGNITION AND DEFERRED REVENUE
The Company derives its revenue from sales of integrated voice and data
communication systems, telephone management systems, call accounting systems and
related customer maintenance and support, which is primarily technical support
and general upgrades. System sales are generally made through VARs (Value Added
Resellers). The Company also provides services through its rate tariff table
subscriptions.
The Company recognizes revenue in accordance with American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, "Software
Revenue Recognition", as amended by SOP 98-9, and the SEC Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB No. 101),
which was adopted in the fourth quarter of 2000. The application of SAB No. 101
did not have a material adverse effect on the business, results of operations,
or financial condition of At Comm Corporation. SOP 97-2, as amended, specifies
that in order to recognize revenue on sales of software systems, evidence of an
arrangement must exist, delivery must have occurred, the fee must be fixed or
determinable, and collection must be probable. SOP 97-2 also requires revenue
earned on software arrangements involving multiple elements to be allocated to
each element based on the relative fair values of the elements. Fair value must
be specific to the vendor and can generally be established only if an element is
sold separately. SAB 101 includes similar revenue recognition as that provided
in SOP 97-2.
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. At Comm accrues related product return warranty and
reserves at the time of sale. A limited warranty is provided on At Comm products
for a period of approximately twelve months.
During the quarter ended March 31, 2001, the Company satisfied obligations
related to a Telemanagement product upgrade for certain customers. The Company
recognized approximately $493,000 in product revenue related to the satisfaction
of this upgrade obligation.
PAGE 7
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 : INVENTORIES
Inventories have been stated at the lower of first-in, first-out cost or market.
As of March 31, 2001 and December 31, 2000, inventories consist of the
following:
2001 2000
------------ ------------
Purchased parts and components $1,662,675 $1,637,465
Work in process 18,063 15,846
Finished goods 522,829 583,092
------------ ------------
$2,203,567 $2,236,403
============ ============
NOTE 4: EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net 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 anti-dilutive. In addition, certain options and
warrants are considered anti-dilutive because the options' exercise price is
above the average market price per share during the period. Anti-dilutive
preferred shares and warrants are not included in the computation of diluted
earnings per share.
Excluded from the computation of diluted loss per share for March 31, 2001 are
warrants to acquire 59,000 shares of common stock, 1,378,053 shares of preferred
stock which are generally convertible to common stock on a one-to-one basis, and
1,052,773 shares associated with outstanding stock options. Excluded from the
computation of diluted loss per share for March 31, 2000 are warrants to acquire
40,000 shares of common stock, 2,547,989 shares of preferred stock which are
generally convertible to common stock on a one-to-one basis, and 927,182 shares
associated with outstanding stock options.
NOTE 5: COMPREHENSIVE LOSS
Total comprehensive loss was $5,735,509 and $4,084,488 for the three months
ended March 31, 2001 and March 31, 2000, 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.
PAGE 8
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: 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 2001 or 2000 (see Note 8). 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 2001 and 2000.
The revenues for At Comm products are as follows:
Three months ended March 31,
2001 2000
------------ ------------
Telephone management products $1,060,252 $ 721,593
Service & support 496,271 542,941
------------ ------------
Total revenue $1,556,523 $1,264,534
============ ============
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 ended
March 31, 2001 and 2000.
NOTE 7: RECENT ACCOUNTING PRONOUNCEMENTS
Recent Financial 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, as amended by SFAS Nos. 137 and 138, 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 implemented SFAS No. 133 during its fiscal year 2001.
The adoption of SFAS No. 133 did not have a material effect on the Company's
consolidated financial statements.
NOTE 8: SUBSEQUENT EVENTS
On April 30, 2001, the Company suspended further development and marketing of
its Town Square product line because it was unable to obtain the financing
necessary to continue. The suspension resulted in the elimination of 150
positions that affected all locations. The Company expects to incur
approximately $100,000 in employee related expenses as a direct result of
eliminating these positions.
PAGE 9
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has in excess of $4,000,000 of inventory, fixed and other assets
that are directly related to its Town Square project. The Company is currently
pursuing additional financing. If the Company is unable to raise funds to
restart the project, these assets will be liquidated to raise capital. There is
no assurance that the Company will be able to sell these assets, and if a
buyer(s) is found, such sale would most likely be consummated at a discount to
book value.
Included in our accounts receivable balance at March 31, 2001 is approximately
$160,000 of balances related to Town Square product sales. The collection of
these receivables could be at risk if the Company is unable to resume the Town
Square project.
The Company has approximately $2,500,000 of accounts payable and accrued
expenses as of March 31, 2001 and is currently in default of payment terms with
many of its vendors. There is no assurance that the Company's vendors will be
willing to renegotiate payment terms or that it will generate enough funds
through continuing operations or the liquidation of assets to satisfy its debt.
The Company has future lease commitments of approximately $5,560,000 through
2007. The Company is currently in default of payment terms at its locations in
Burlingame and Manchester. If the Company is unable to raise funds to resume the
Town Square project, it will attempt to sublet the majority of the office space
currently under lease. There are no assurances that the Company will be able to
find tenants to sublease the office space or if current sublease rates would be
sufficient to pay the Company's existing commitments.
PAGE 10
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 13 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.
Forward-looking statements can be identified 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 affected At Comm's financial position and operating results
during the periods included in the accompanying condensed consolidated financial
statements.
Results of Operations
First Quarter 2001 vs. 2000
Revenue for the three months ended March 31, 2001 was $ 1,556,523, an increase
of 23% or $291,989 versus the $ 1,264,534 recorded during the three months ended
March 31, 2000. The increase in revenue is primarily attributed to product
upgrades and recognition of deferred revenue in the first quarter of 2001.
During the quarter ended March 31, 2001, the Company satisfied obligations
related to a Telemanagement product upgrade for certain customers. The Company
recognized approximately $493,000 in product revenue related to the satisfaction
of this upgrade obligation.
Total operating expenses for the three months ended March 31, 2001 were
$7,324,106, an increase of 32% or $1,794,607 versus $5,529,499 of operating
expenses incurred during the three months ended March 31, 2001. Total product
costs as a percentage of revenue increased to 57% in the first quarter of 2001
from 52% in the first quarter in 2000, primarily due to variations in product
mix and increased labor costs.
Research and development expenses slightly decreased by 5% or $168,420 to
$2,993,364 in the first quarter of 2001 compared to $3,161,784 in the first
quarter of 2000.
Marketing and sales increased in the first quarter of 2001 by 82% or $828,773 to
$1,839,641 compared to $1,010,868 in the first quarter of 2000. Additionally,
general, administrative, and other increased by 131% or $913,940 to $1,611,167
from $697,227. These increases in expenditure are primarily associated with new
product business development activities.
PAGE 11
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other income decreased by $188,009 from the first quarter of 2000 primarily due
to a reduction in income earned on cash equivalent investments of $58,968 in the
first quarter of 2001 versus $196,907 earned in the first quarter of 2000. The
decrease in cash equivalent investments was due to the liquidation of these
assets to pay for expenditures related to new product business development
activities.
The Company lost $5,767,583 from operations during the first quarter of 2001 and
reported a net loss after taxes of $5,706,216 versus a loss of $4,002,989 from
operations and a net loss after taxes of $4,008,004 in the comparable quarter of
2000. The Company attributes this primarily to increased marketing and sales
expenses associated with its new product in addition to administrative
activities necessary to support this effort.
Liquidity and Capital
As of March 31, 2001, the Company held cash and cash equivalents totaling
$1,846,704 and had a working capital of $286,832 versus cash equivalents of
$8,259,487 and working capital of $5,924,391 at December 31, 2000. During the
three months ended March 31, 2001, capital equipment procurements have totaled
$493,887.
As of March 31, 2001, we had an accumulated deficit of approximately $42.0
million. Since 1997, we have financed a significant research and development
project primarily through private equity placements. The total amount of equity
raised to date through a series of private placements was approximately $41.9
million. Efforts are currently underway to secure new financing to enable us to
meet our obligations and execute our business plan. However, there is currently
no agreement in place with any source of financing, and there can be no
assurance that we will be able to raise additional funds or that such funds will
be available on acceptable terms. Funds raised through future equity financing
will likely be substantially dilutive to our current shareholders. Lack of
additional funds will materially affect us and our business.
On April 30, 2001, we suspended further development and marketing of our Town
Square product line, because we have been unable to obtain the financing
necessary to continue the project. The suspension resulted in the elimination of
150 positions that affected all locations. The Company expects to incur
approximately $100,000 in employee related expenses as a direct result of
eliminating these positions.
The Company has in excess of $4,000,000 of inventory, fixed and other assets
that are directly related to our Town Square project. If we are unable to raise
funds to restart the project, these assets will be liquidated to raise capital.
There is no assurance that we will be able to sell these assets and, if a
buyer(s) is found, such sales would most likely be consummated at a discount to
book value.
PAGE 12
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Included in our accounts receivable balance at March 31, 2001 is approximately
$160,000 of balances related to Town Square product sales. The collection of
these receivables could be at risk if we are unable to restart the Town Square
project.
As of March 31, 2001, we have approximately $2,500,000 of accounts payable and
accrued expenses and are in default of payment terms with many of our vendors.
There is no assurance that our vendors will be willing to renegotiate payment
terms with us or that we can generate enough funds through the liquidation of
assets to satisfy our debt.
We have future lease commitments of approximately $5,560,000 through 2007. We
are currently in default of payment terms at our locations in Burlingame and
Manchester. If we are unable to raise funds to resume the Town Square project,
we will attempt to sublet the majority of the office space currently under
lease. There are no assurances that we will be able to find tenants to sublet
this office space or if current sublease rates would be sufficient to pay our
existing commitments.
Certain Risk Factors Which May Impact Future Operating Results and Market Price
of Stock
We operate in a rapidly changing environment that involves a number of risks,
some of which are beyond our control. The following discussion highlights some
of these risks and the possible impact of these factors on future consolidated
results of operations and the market price of our stock.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors known, involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of a number of factors,
including but not limited to those discussed below. Forward-looking information
we provide should be evaluated in the context of these factors.
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, our Town Square Communications System, that addresses the
combined telephone and data markets. Although we have received, since 1997,
approximately $41.9 million in funding for this development effort, we will
require substantial additional funding before the new product line returns a
profit. The additional funding would be used for marketing, continued
engineering, sales, working capital, and to fund research and development
activities.
Additionally, the holders of Series B and Series C Convertible Preferred Stock
have certain liquidation preferences. It is likely that as a condition for
investing, any new investors may require the Series B and Series C stockholders
to either eliminate these preferences or subordinate these preferences to those
of the new investors.
On April 30, 2001, the Town Square development was suspended due to significant
uncertainties
PAGE 13
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
and delays in securing the additional funding needed. The suspension resulted in
the elimination of 150 positions that affected all locations. If we are unable
to raise additional funds, the Company will liquidate assets to pay debt and
consolidate office space to reduce costs. There are no assurances that we will
be successful in our efforts in liquidating our assets and reducing costs.
Additionally, if we do raise the additional funds, we cannot be certain that the
new product line will become profitable. Moreover, the introduction of the new
product line may result in a new group of competitors.
We may not be able to pay our vendors if we are unable to raise additional
capital. As of March 31, 2001, we have approximately $2,500,000 of accounts
payable and accrued expenses and are in default of payment terms with many of
our vendors. There is no assurance that our vendors will be willing to
renegotiate payment terms with us or that we can generate enough funds through
the liquidation of assets to satisfy our debts.
We cannot assure you that a market for our Town Square Communications 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 Communications System product
line as an acceptable, low-cost alternative to traditional voice and
data network systems.
Due to suspension of our Town Square project subsequent to quarter end, the
market for Town Square may be further reduced if we do not raise additional
funds to continue the project. It could also be likely that a market for Town
Square may never develop.
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; and
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:
PAGE 14
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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;
o our ability to raise funding and the effect of the issuance of new
securities if we are successful.
In addition, our stock is commonly described as "thinly traded stock" because
our average daily trading volume (approximately 6,000 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.
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. MDR Switchview, 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 MDR
Switchview and ISI-Infortext, which are privately held, have revenues that are
at least twice as large as our revenues. Nortel Networks Corporation, a public
company, reported 2000 fiscal year revenues of approximately $30 billion. Avaya,
Inc, 3Com Corporation, Toshiba Corporation, and Nortel Networks Corporation are
our major competitors in our Town Square Communications Systems product line.
All four are public companies with reported 2000 fiscal year revenues of
approximately $8 billion, $4 billion, $54 billion, and $30 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
PAGE 15
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
have a material adverse effect on our business, consolidated results of
operations, and financial condition.
If we lose the business of our largest customers, our revenues may decrease and
our business may suffer. Two customers accounted for 19% of our revenue during
fiscal year 2000, and the same two customers accounted for 23% of our revenue
during fiscal year 1999. The loss or serious reduction in business from these
customers could have a material adverse effect on our business, consolidated
results of operations, and financial condition in future periods. During the
quarter, a relationship was terminated with one of our major customers. Revenues
are expected to be less in fiscal year 2001 than fiscal year 2000 revenues from
this customer.
If we lose our ability to sell our products through our network of value-added
resellers (VARs), our revenues may decrease and our business may suffer. We sell
our products primarily through our network of authorized VARs. Like other
companies that sell products through a network of authorized VARs, our ability
to effectively distribute our products depends in part upon the financial and
business conditions of our distribution network, which is outside of our
control. The loss of or a significant reduction in business with any one of our
major VARs could have a material adverse effect on our business, consolidated
results of operations, and financial condition.
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 to 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.
Subsequent to quarter end, staff was significantly reduced due to the suspension
of the Town Square development. As a result of this reduction in staff, we may
not be able to expand our sales and distribution channels as quickly as we had
prior to the suspension.
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
companies, will depend on deriving a substantial portion of our revenues from
sales of our products to new customers as well as upgrades and support 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.
PAGE 16
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Subsequent to quarter end, we suspended further development and marketing of our
product line, Town Square because we have been unable to obtain the financing
necessary to continue the project. The suspension resulted in eliminating 150
positions that affected all locations. Efforts will be concentrated on obtaining
funds to resume the Town Square product line, as well as maintain relationships
with current customers in our Telemanagement line.
Thus revenues may decrease and our business may suffer due to the effects of a
smaller staff, delays related to the suspension, and/or the failure to obtain
funds. Additionally, we cannot be assured that we can concentrate on obtaining
new customers as well as support our existing customers.
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.
If we encounter delays or difficulties in developing our products, our revenue
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.
Subsequent to quarter end, we suspended further development and marketing of our
product line, Town Square because we have been unable to obtain the financing
necessary to continue the project. The suspension resulted in eliminating 150
positions that affected all locations. Efforts will be concentrated on obtaining
funds to resume the Town Square product line, as well as maintain relationships
with current customers in our Telemanagement line. Thus revenues may decrease
and our business may suffer due to the effects of a smaller staff, delays
related to the suspension, and/or the failure to obtain funds. Additionally, we
cannot be assured that we can concentrate on obtaining new customers as well as
support our existing customers.
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
PAGE 17
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Subsequent to quarter end, staff was significantly reduced due to the suspension
of the Town Square product line. If we do not receive additional funding to
continue the Town Square product line, we may be forced to liquidate inventory.
There is no assurance that we will be able to sell our inventory and if a
buyer(s) is found, we would most likely have to sell at a significant discount
to book value.
PAGE 18
PART 11-OTHER INFORMATION
AT COMM CORPORATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
We have future lease commitments of approximately $5,560,000 through 2007. We
are currently in default of payment terms at our locations in Burlingame and
Manchester. If we are unable to raise funds to resume the Town Square project,
we will attempt to sublet the majority of the office space currently under
lease. There are no assurances that we will be able to find tenants to sublet
this office space or if current sublease rates would be sufficient to pay our
existing commitments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
NONE
PAGE 19
********************************************************************************
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: May 15, 2001
/s/ William H. Welling
-----------------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
Date: May 15, 2001 /s/ Melanie D. Johnson
-----------------------------------------
Melanie D. Johnson, VP Finance/CFO/Secretary
(Duly Authorized Officer)
PAGE 20