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 June 30, 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
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(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)
2041 Pioneer Court, Suite 204
San Mateo, California 94403
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 375-8188
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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 July 31, 2001 5,724,212 shares
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PAGE 1 of 18
AT COMM CORPORATION
INDEX
Page No.
--------
PART I Financial Information
Item 1.
Condensed Consolidated Balance Sheets (unaudited)
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations (unaudited)
Six Months ended June 30, 2001 and June 30, 2000 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Six Months ended June 30, 2001 and June 30, 2000 5-6
Notes to Condensed Consolidated Financial Statements 7-11
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
PART II Other Information
Item 3.
Defaults upon Senior Securities 20
Item 6.
Exhibits and Reports on Form 8-K 20
Signatures 21
PAGE 2
AT COMM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2001 2000
------------ ------------
Assets
Current assets:
Cash & cash equivalents $ 186,789 $ 8,259,487
Accounts receivable, net of allowance for doubtful accounts of $376,840
and $184,369 as of June 30, 2001 and December 31, 2000, respectively 492,430 1,706,308
Inventories 678,963 2,236,403
Prepaid expenses and other assets 226,473 534,532
------------ ------------
Total current assets 1,584,655 12,736,730
Property, equipment and software, net 1,013,056 4,794,137
Deposits & other assets 2,000 283,025
------------ ------------
Total Assets $ 2,599,711 $ 17,813,892
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 1,964,243 $ 47,834
Accrued expenses 2,081,853 4,248,363
Restructuring related accruals 1,215,956 --
Accrued compensation 40,935 984,278
Purchase deposits 4,308 4,308
Deferred revenue 1,156,649 1,510,615
Notes Payable 48,593 --
Capital lease 16,292 16,941
------------ ------------
Total current liabilities 6,528,829 6,812,339
Notes Payable 157,129 --
Capital lease - net of current portion 9,945 7,622
------------ ------------
Total Liabilities 6,695,903 6,819,961
------------ ------------
Minority interest 69,258 78,337
Stockholders' equity (deficit)
Convertible preferred stock, $0.01 par value; 10,000,000 shares authorized;
1,128,053 and 1,416,803 shares issued and outstanding as of June 30, 2001
and December 31, 2000, respectively; aggregate liquidation preference of
$19,753,295 and $25,334,545 as of June 30, 2001 and December 31, 2000,
respectively 11,281 14,168
Common stock, $.01 par, 50,000,000 shares authorized, 5,724,212 and 5,420,659
shares issued and outstanding as of June 30, 2001 and December 31, 2000
respectively 57,242 54,206
Additional paid-in capital 47,535,193 47,554,336
Deferred stock-based compensation -- (107,513)
Accumulated other comprehensive loss (373,929) (292,899)
Accumulated deficit (51,395,237) (36,306,704)
------------ ------------
Total stockholders' equity (deficit) (4,165,450) 10,915,594
------------ ------------
Total Liabilities and Stockholder's (Deficit) $ 2,599,711 $ 17,813,892
============ ============
See accompanying notes to condensed consolidated financial statements.
PAGE 3
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 984,008 1,221,616 2,540,531 2,486,150
------------ ------------ ------------ ------------
Product costs 2,836,174 584,216 3,716,108 1,243,835
Research and development 1,322,048 3,426,905 4,315,412 6,588,689
Marketing and sales 583,437 1,336,308 2,423,078 2,128,284
General, administrative and other 947,378 1,221,663 2,558,545 2,137,782
Restructuring & asset impairment
charges 4,641,441 -- 4,641,441 --
------------ ------------ ------------ ------------
10,330,478 6,569,092 17,654,584 12,098,590
------------ ------------ ------------ ------------
Loss from operations (9,346,470) (5,347,476) (15,114,053) (9,612,440)
Other income (expense), net (27,445) 220,142 46,522 482,117
------------ ------------ ------------ ------------
Loss before income taxes (9,373,915) (5,127,334) (15,067,531) (9,130,323)
Income taxes 8,400 5,015 21,000 10,030
------------ ------------ ------------ ------------
Net loss (9,382,315) (5,132,349) (15,088,531) (9,140,353)
Preferred stock beneficial conversion
rights -- -- -- 5,482,500
------------ ------------ ------------ ------------
Net loss applicable to common
stockholders $ (9,382,315) (5,132,349) (15,088,531) (14,622,853)
============ ============ ============ ============
Per Share Information:
Basic and diluted loss per share $ (1.70) (1.15) (2.75) (3.66)
============ ============ ============ ============
Number of shares used in the basic and diluted
per share computation 5,530,397 4,453,344 5,492,223 3,998,027
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
PAGE 4
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $(15,088,531) (9,140,353)
Adjustments to reconcile net loss to net
Cash used in operations
Depreciation 745,748 299,235
Inventory write-off 2,179,978 --
Amortization of stock-based compensation 29,474 116,522
Minority interest in net loss (9,079) (9,415)
Foreign currency translation adjustments (81,030) (74,481)
Fixed assets impairments 3,756,908 --
Change in operating assets and liabilities:
Accounts receivable 1,213,878 419,213
Notes receivables -- (2,104)
Inventories (622,538) (712,333)
Prepaid expenses, deposits and other assets 589,084 (185,369)
Accounts payable and accrued expenses 22,512 2,618,277
Purchase deposits -- (7,224)
Deferred revenue (383,966) 31,878
------------ ------------
Net cash used in operations (7,672,427) (6,646,154)
------------ ------------
Cash flows from investing activities-
acquisition of property, equipment and purchased software (666,712) (2,400,857)
Cash from financing activities:
Repayment of capital lease obligation 1,674 (6,127)
Proceeds from borrowings 205,722 (3,445)
Proceeds from sale of common stock 59,045 234,065
Proceeds from sale of preferred stock and warrants for
common stock -- 12,868,217
------------ ------------
Net cash provided by financing activities 266,441 13,092,710
------------ ------------
Net increase (decrease) in cash & cash equivalents (8,072,698) 4,045,699
Beginning cash and cash equivalents 8,259,487 7,844,328
------------ ------------
Ending cash and cash equivalents $ 186,789 11,890,027
============ ============
See accompanying notes to condensed consolidated financial statements.
PAGE 5
AT COMM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
2001 2000
---------- ----------
Supplemental cash flow information:
Interest paid $ 8,371 $ 1,674
Income taxes 5,175 16,950
Noncash investing and financing activities
Shares issued in exchange for warrants -- 50
========== ==========
Shares issued on stock option exercise in
exchange for surrender of common stock -- 29,319
========== ==========
Conversion of preferred stock to common stock 2,888 19,315
========== ==========
Deferred compensation additions -- 208,067
========== ==========
Beneficial conversion rights in connection
with issuance of preferred stock $ -- $5,482,500
========== ==========
See accompanying notes to condensed consolidated financial statements.
PAGE 6
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, 2000.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8, to the
financial statements, the Company has been unable to obtain the funding
necessary to complete development and marketing of its new product line, Town
Square. The Company has suspended the Town Square project and has restructured
its operation to focus on its telemanagement software business. As of June 30,
2001, the Company has a net working capital deficit of $4.9 million, and a net
stockholders' deficit of $4.1 million that raised substantial doubt about its
ability to continue as a going concern. On August 15, 2001, management of the
Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code in the United States Bankruptcy Court for the Northern District of
California, San Francisco Division (see Note 9). The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty or the bankruptcy petition.
Subsequent to the bankruptcy filing, the Company will present its financial
information in accordance with Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code".
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 Securities Exchange
Commission (SEC) Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB No. 101). 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
PAGE 7
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
revenue recognition criteria similar to SOP 97-2.
The Company's revenue from system sales is generally recognized when evidence of
the arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collection is probable. At Comm accrues related product return reserves and
warranty at the time of sale. A limited warranty is provided on At Comm products
for a period of approximately twelve months.
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 are stated at the lower of first-in, first-out cost or market. As of
June 30, 2001 and December 31, 2000, inventories consist of the following:
2001 2000
---------- ----------
Purchased parts and components $ 378,063 $1,637,465
Work in process 31,144 15,846
Finished goods 269,756 583,092
---------- ----------
$ 678,963 $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 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 June 30, 2001 are
warrants to acquire 59,000 shares of common stock, 1,128,053 shares of preferred
stock which are generally convertible to common stock on a one-to-one basis, and
515,216 shares associated with outstanding stock options. Excluded from the
computation of diluted loss per share for June 30, 2000 are warrants to acquire
34,000 shares of common stock, 816,500 shares of preferred stock
PAGE 8
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
which are generally convertible to common stock on a one-to-one basis, and
985,181 shares associated with outstanding stock options.
NOTE 5: COMPREHENSIVE LOSS
Total comprehensive loss was $9,434,052 and $5,149,990 for the three months
ended June 30, 2001 and June 30, 2000, respectively. For the six months ended
June 30, 2001 and June 30, 2000 the total comprehensive loss was $15,169,561 and
$9,234,478. 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 6: SEGMENT AND GEOGRAPHIC REPORTING
The Company had two reporting segments: telephone management products, and the
development of a new product line that addresses the combined telecom and
datacom markets. Development of the new product line was suspended during the
second quarter of 2001 and did not generate any significant revenue in 2001 or
2000. The two segments were aggregated because of similarities in their
long-term economic characteristics, the nature of the product, the production
process, type of customer, and methods of distribution. Additionally, there were
no unallocated corporate expenses in 2001 and 2000.
The revenues for At Comm products are as follows:
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Telephone management
products 393,603 678,357 1,714,854 1,399,950
Service & support 590,405 543,259 825,677 1,086,200
--------- --------- --------- ---------
Total revenue 984,008 1,221,616 2,540,531 2,486,150
========= ========= ========= =========
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 and six
months ending June 30, 2001 and June 30, 2000.
NOTE 7: NEW ACCOUNTING PRONOUNCEMENTS
Recent Financial Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business
PAGE 9
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
combinations completed after June 30, 2001. SFAS No. 141 also specifies
conditions intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. SFAS No. 142
specifies that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with determinable useful lives be amortized over their useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121. The Company is required to adopt the provisions of
SFAS No. 141 for any future business combination. SFAS No. 142 is effective for
the Company on January 1, 2002, and its adoption is not expected to have a
significant impact on the Company's financial condition or results of operations
until such time when significant goodwill or intangible assets are recorded by
the Company.
NOTE 8: RESTRUCTURING & DELISTING
On April 30, 2001, the Company suspended development and marketing of its new
product line, Town Square, because it was unable to obtain the financing
necessary to continue. Although the Company will continue to pursue funding to
resume the project, it was necessary to consider other extraordinary measures to
preserve corporate assets. As a result, the Company announced plans to refocus
efforts entirely on its telemanagement software business and also took steps to
restructure its operations towards this effort. These plans included reducing
discretionary spending, capital expenditures and workforce. The Company has
eliminated approximately 150 positions that affected all locations and all
departments and recorded total restructuring costs at $4,641,441. Total
restructuring accruals were approximately $1,216,000 in restructuring accruals
during the quarter ended June 30, 2001. The accruals are related to the
termination of leases and related office closure costs in the amount of
$1,076,000 and approximately $140,000 in employee termination and severance
charges.
In addition, the Company recorded approximately $3,757,000 in asset impairment
charges related to the write-off of property and equipment of Town Square
projects. Additional writeoffs related to Town Square were approximately
$2,180,000 in inventory included in product costs and approximately $120,000 in
accounts receivable included in general and administrative costs.
The Company continues to develop and implement their restructuring plans. Any
future adjustments to these accruals will be included in operating expenses in
accordance with EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). Estimates of the costs to complete their
restructuring plans are preliminary, and adjustments to the estimates are
expected.
On June 27, 2001, the Company's stock was delisted due to non-payment of
required Nasdaq funds. As a result, an investor would likely find the stock
significantly more difficult to sell.
PAGE 10
AT COMM CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: SUBSEQUENT EVENTS
On August 15, 2001 the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California, San Francisco Division. Under Chapter 11, the
Company retains control of its assets and is authorized to operate its business
as a debtor-in-possession while being subject to the jurisdiction of the
Bankruptcy Court. In addition, certain claims against the Company in existence
prior to the filing of the petition for relief are stayed. The Bankruptcy Code
provides for the formation of a creditors' committee. The Company has plans to
form a creditors' committee and, in accordance with the provisions of the
Bankruptcy Code, creditors will have the right to be heard on all matters that
come before the Bankruptcy Court. The Company has approximately $1.6 million in
total current assets and $6.7 million in total liabilities as of June 30, 2001,
however, there is no assurance that other claims will not arise resulting from
any vendor disputes or from a determination by the court. The Company expects
that there will be additional claims. As such, the Company has not finalized its
restructuring plans as of June 30, 2001, and any costs to complete its
restructuring plans are preliminary and adjustments to those estimates are
expected.
PAGE 11
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.
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 risk factors set below 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
On April 30, 2001, the Company suspended development and marketing of its new
product line, Town Square, because it was unable to obtain the financing
necessary to continue. Although the Company will continue to pursue funding to
resume the project, it was necessary to consider other extraordinary measures to
preserve corporate assets. As a result, the Company announced plans to refocus
efforts entirely on its telemanagement software business and also took steps to
restructure its operations towards this effort. These plans included reducing
discretionary spending, capital expenditures and workforce. The Company has
eliminated approximately 150 positions that affected all locations and all
departments and recorded total restructuring costs at $4,641,441. Total
restructuring accruals were approximately $1,216,000 in restructuring accruals
during the quarter ended June 30, 2001. The accruals are related to the
termination of leases and related office closure costs in the amount of
$1,076,000 and approximately $140,000 in employee termination and severance
charges.
Second Quarter 2001 vs. 2000
Revenue for the three months ended June 30, 2001 was $ 984,008, a decrease of
19% or $237,608 versus the $ 1,221,616 recorded during the three months ended
June 30, 2000. The decrease in revenue is attributed to a lower demand for
telephone management products in the first quarter of 2001.
Total operating expenses for the three months ended June 30, 2001 were
$10,330,478, an increase of 57% or $3,761,386 versus $6,569,092 of operating
expenses incurred during the three months ended June 30, 2000. The increase is
primarily due to $4,641,441 in total restructuring costs and $2,179,978 in
inventory write-offs related to the restructuring.
Total product costs as a percentage of revenue increased to 385% in the second
quarter of 2001 from 48% in the second quarter in 2000 primarily due to the
increase in inventory write offs in the amount of approximately $2,180,000
related to the suspension of the Town Square product.
Research and development expenses decreased by 61% or $2,104,857 to $1,322,048
in the second quarter of 2001 compared to $3,426,905 in the second quarter of
2000. Marketing and sales decreased in the second quarter of 2001 by 56% or
$752,871 to $583,437 compared to
PAGE 12
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
$1,336,308 in the second quarter of 2000. Additionally, general, administrative,
and other decreased by 22% or $274,285 to $947,378 from $1,221,663. The Company
attributes its decrease in expenses to the suspension of its new product, and to
the decrease in administrative, research and development, and marketing and
sales activities necessary to support it.
Other income decreased by $247,587 from the second quarter of 2001 primarily due
to a reduction in income earned on cash equivalent investments of $300 in the
second quarter of 2001 versus $220,142 earned in the second quarter of 2000.
The Company lost $9,346,470 from operations during the second quarter of 2001
and reported a net loss after taxes of $9,382,315 versus a loss of $5,347,476
from operations and a net loss after taxes of $5,132,349 in the comparable
quarter of 2000. The Company attributes this increase in loss primarily to
restructuring costs.
Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000
Revenue for the six months ended June 30, 2001 was $2,540,531, an increase of 2%
versus the $2,486,150 recorded during the six months ended June 30, 2000. The
$54,381 increase in revenue is attributable to higher demand for software
products in the first half of 2001 versus the first half of 2000.
Total operating expenses for the six months ended June 30, 2000 were
$17,654,584, an increase of 46% or $5,555,994 versus the $12,098,590 of
operating expenses incurred during the six months ended June 30, 1999. Total
product costs as a percentage of revenue increased to 146% in the first half of
2001 from 50% in the first half in 2000, primarily due to the increase in
inventory write offs in the amount of approximately $2,180,000 related to the
suspension of the Town Square product.
Research and development expenses decreased by 35% or $2,273,277 to $4,315,412
in the first half of 2001 compared to $6,588,689 in the first half of 2000 due
to decreased investment in new product development. Marketing, sales expenses in
the first half of 2001 increased by 14% or $294,794 to $2,423,078 compared to
$2,128,284 in the first half of 2000. Additionally, general, administrative, and
other increased by 20% or $420,763 to $2,558,545 from $2,137,782. The Company
attributes its increase in these expenses to not curtailing the suspension of
its new product, and to the decrease in activities necessary to support it,
until April 30, 2001.
Other income decreased by $435,595 from the first half of 2001 primarily due to
income earned on cash equivalent investments of only $58,673 in the first six
months of 2000 versus $417,282 earned in the first six months of 2000.
Liquidity and Capital
On April 30, 2001, the Company suspended development and marketing of its new
product line, Town Square, because it was unable to obtain the financing
necessary to continue. The Company will continue to pursue funding to resume the
project, however, there is currently no
PAGE 13
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
agreement in place with any source of financing, and there can be no assurance
that the Company will be able to raise additional funds or that such funds will
be available on acceptable terms.
The Company announced plans to refocus efforts entirely on its telemanagement
software business and took steps to restructure its operations towards this
effort. Although these plans included reducing discretionary spending, capital
expenditures and workforce, the Company cannot be assured that it will continue
as a going concern.
The Company has eliminated approximately 150 positions that affected all
locations and recorded approximately $1,216,000 in restructuring accruals during
the quarter ended June 30, 2001. The accruals are primarily related to the
termination of leases, related office closure costs and employee termination and
severance charges.
The Company also recorded approximately $3,757,000 in asset impairment charges
related to the write-off of property and equipment of Town Square projects.
Additional write offs related to Town Square were approximately $2,180,000 in
inventory included in product costs and approximately $120,000 in accounts
receivable included in general and administrative costs.
As of June 30, 2001, the Company held cash and cash equivalents totaling
$186,789 and had a negative working capital of ($4,944,174) versus cash
equivalents of $8,259,487 and a positive working capital of $5,924,391 at
December 31, 2000 due to lack of funding. Current liabilities of the Company,
totaling $6.5 million exceeded its current assets, totaling $1.6 million. During
the six months ended June 30, 2001, capital equipment procurements have totaled
$667,000 compared to capital equipment procurements of $2,400,857. The decrease
in these procurements is a result of the suspension of Town Square.
On August 15, 2001 the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California, San Francisco Division. Under Chapter 11, the
Company retains control of its assets and is authorized to operate its business
as a debtor-in-possession while being subject to the jurisdiction of the
Bankruptcy Court. In addition, certain claims against the Company in existence
prior to the filing of the petition for relief are stayed. The Bankruptcy Code
provides for the formation of a creditors' committee. The Company has plans to
form a creditors' committee and, in accordance with the provisions of the
Bankruptcy Code, creditors will have the right to be heard on all matters that
come before the Bankruptcy Court. The Company has approximately $4,046,000 of
accounts payable and accrued expenses as of June 30, 2001, however, there is no
assurance that other claims will not arise resulting from any vendor disputes or
from a determination by the court. The Company expects that there will be
additional claims. As such, the Company has not finalized its restructuring
plans as of June 30, 2001, and any costs to complete its restructuring plans are
preliminary and adjustments to those estimates are expected.
PAGE 14
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Our revenues are declining and may be substantially lower in 2001 as we change
our business model.
On April 30, 2001, we announced plans to refocus efforts entirely on our
telemanagement software business and took steps to restructure our operations
towards this effort. Although these plans included reducing discretionary
spending, capital expenditures and workforce, we cannot be assured that we will
survive as a going concern.
Additionally, there can be no assurance that we will generate substantial
revenues under our new business model and our revenues may decline in the
current fiscal year in comparison to our revenues in preceding fiscal years.
Due to lack of funding, lack of staff and general economic declines, we may not
adequately adjust our operating expense to reflect the reduction in revenue and
cash.
As we change our business model, we must reduce our operating expenses relative
to the possible declines in revenue and reduction in cash. We anticipate that
these expenses will continue to exceed our revenues for at least fiscal year
2001 and possibly thereafter. As a result, we expect our operating expenses, as
well as planned capital expenditures, to continue to constitute a material use
of our cash resources. In addition, we may require cash resources to fund
acquisitions or investments in complementary businesses, technologies or product
lines and ongoing activities.
PAGE 15
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On August 15, 2001 the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of California, San Francisco Division. Under Chapter 11, the
Company retains control of its assets and is authorized to operate its business
as a debtor-in-possession while being subject to the jurisdiction of the
Bankruptcy Court. However, the Chapter 11 process is complex and we cannot be
assured of a positive result. The potential remains that our efforts to
reorganize under Chapter 11 may ultimately be unsuccessful, resulting in a
liquidation of our assets.
Although under Chapter 11, claims in existence prior to the filing of the
petition for relief are stayed, we cannot be assured that there are no other
pending claims. Although we have plans to form a creditors' committee in
accordance with the provisions of the Bankruptcy Code, creditors will have the
right to be heard on all matters that come before the Bankruptcy Court. We have
approximately $1.6 million in total current assets and $6.7 million in total
liabilities as of June 30, 2001. There is no assurance that other claims will
not arise resulting from any vendor disputes or from the determination by the
court. We expect that there will be additional claims. As such , we have not
finalized our restructuring plans as of June 30, 2001, and any costs to complete
our restructuring plans are preliminary and adjustments to those estimates are
expected.
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 prior to quarter end, the market
for Town Square may be further reduced if we do not raise additional funds to
continue the project.
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 beyond our control.
Factors that could affect our revenue include:
o variations in the timing of orders and shipments of our
products;
o general economic declines and confidence in stock prices in
general;
o variations in the size of the orders for our products;
o changes to our corporate structure or operations resulting
from the Chapter 11 process;
o new product introductions by our competitors;
o and delays in introducing new products.
PAGE 16
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 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. Although there are
plans to refocus our business to telemangement products, it cannot be assured
that we will be able to produce a competitive product.
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. Our
PAGE 17
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
customers may hold negative perceptions of the Chapter 11 process and choose to
utilize products from providers perceived to be more solvent or better
positioned financially. 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 customers, our revenues may decrease and
our business may suffer. Two customers accounted for 19% of our revenue during
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 six months
ended, a relationship was terminated with one of our major customers. Revenues
are expected to be less in fiscal year 2001 than 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. The Chapter 11 process may affect our ability to enter
into new arrangements or expand existing arrangements with channel distribution
partners. Our inability to generate revenue from our sales offices and channel
distribution partners may harm our business, financial condition and results of
operations.
During 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 and our potentially limited ability to provide flexible terms or
financing to new or existing customers due to the Chapter 11 process, could have
a material adverse effect on our business, consolidated results of operations,
and financial condition.
PAGE 18
AT COMM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our ability to develop and market our products is dependent on our relationship
with our suppliers and vendors. Due to the Chapter 11 process, we may have
limited flexibility in the terms we can accept from our suppliers and vendors.
Our suppliers and vendors may choose to no longer conduct business with us, or
may require us to conduct business on terms unacceptable to us. Any such change
in terms, or loss of a supplier or vendor without adequate replacement, could
have a material adverse effect on our business, consolidated results of
operations, 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.
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.
During 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 continue to move our inventory as quickly as we had prior to the
suspension.
PAGE 19
PART 11-OTHER INFORMATION
AT COMM CORPORATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
We have future lease commitments through 2007 and have currently accrued
approximately $965K related to the Burlingame and Manchester lease. We are
currently in default of payment terms at these locations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
On June 26, 2001 the Company reported that as of the opening of business on June
27, 2001, the Company's stock would be delisted from quotation on the Nasdaq
Stock Market due to non-payment of required Nasdaq fees. It's shares will be
eligible to be traded on the OTC Bulletin Board(R).
PAGE 20
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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: August 20, 2001 /s/ William H. Welling
-------------------------------------
William H. Welling, Chairman/CEO
(Duly Authorized Officer)
PAGE 21