SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 31, 1999.
or
/ / Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number 1-12937
ALL COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
New Jersey 22-3124655
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
225 Long Avenue, P.O. Box 794, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
973-282-2000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No[ ]
The number of shares outstanding of the registrant's Common Stock as of May
12, 1999 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes[ ] No [X]
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 1
Consolidated Statement of Operations
For the Three Months ended
March 31, 1999 and 1998 2
Consolidated Statement of Cash Flows
For the Three Months ended March 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II. OTHER INFORMATION
Legal Proceedings 9
Changes in Securities 9
Defaults Upon Senior Securities 9
Submission of Matters to a Vote of Security Holders 9
Other Information 9
Exhibits and Reports on Form 8-K 9
Signatures 10
* The Balance Sheet at December 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
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ASSETS
Current assets
Cash and cash equivalents $ 919,648 $ 325,915
Accounts receivable-net 3,948,648 4,317,853
Inventory 3,581,772 3,540,281
Other current assets 33,262 45,577
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Total current assets 8,483,330 8,229,626
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Furniture, equipment and leasehold improvements-net 606,121 611,518
Deferred financing costs 35,403 43,271
Other assets 38,214 38,214
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Total assets $ 9,163,068 $ 8,922,629
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations $ 28,175 $ 17,365
Accounts payable 1,883,330 1,412,616
Accrued expenses 729,022 844,082
Income taxes payable -- 2,860
Deferred revenue 172,557 156,133
Customer deposits 16,364 94,721
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Total current liabilities 2,829,448 2,527,777
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Noncurrent liabilities
Bank loan payable 2,408,216 2,403,216
Capital lease obligations, less current portion 38,520 23,221
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Total noncurrent liabilities 2,446,736 2,426,437
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Total liabilities 5,276,184 4,954,214
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
1,000,000 shares authorized, none issued or outstanding -- --
Common Stock, no par value; 100,000,000 authorized;
4,910,000 shares issued and outstanding 5,229,740 5,229,740
Additional paid-in capital 352,024 327,943
Accumulated deficit (1,694,880) (1,589,268)
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Total stockholders' equity 3,886,884 3,968,415
----------- -----------
Total liabilities and stockholders' equity $ 9,163,068 $ 8,922,629
=========== ===========
See Notes to Consolidated Financial Statements
-1-
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
1999 1998
----------- -----------
Net revenues $ 3,911,669 $ 2,328,104
Cost of revenues 2,773,109 1,618,656
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Gross margin 1,138,560 709,448
Operating expenses:
Selling 884,667 688,272
General and administrative 307,271 282,692
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Total operating expenses 1,191,938 970,964
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Loss from operations (53,378) (261,516)
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Other (income) expenses
Amortization of deferred financing costs 7,867 --
Interest income (9,105) (23,216)
Interest expense 53,472 180
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Total other expenses, net 52,234 (23,036)
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Net loss (105,612) (238,480)
=========== ===========
Net loss per share:
Basic and diluted $ (0.02) $ (0.05)
=========== ===========
Weighted average shares outstanding 4,910,000 4,910,000
=========== ===========
See Notes to Consolidated Financial Statements
-2-
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (105,612) $ (238,480)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 77,982 36,354
Non cash compensation 24,081 12,009
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable 369,205 (382,975)
Inventory (41,491) (389,419)
Advances to Maxbase, Inc. -- 127,080
Other current assets 12,315 (95,290)
Other assets -- 1,062
Accounts payable 470,714 (183,791)
Accrued expenses (115,060) 169,120
Income taxes payable (2,860) (2,453)
Deferred revenue 16,424 --
Customer deposits (78,357) 166,306
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Net cash provided (used) by operating activities 627,341 (780,477)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (29,750) (43,878)
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Net cash used by investing activities (29,750) (43,878)
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CASH FLOWS FROM FINANCING ACTIVITES
Deferred financing costs -- (27,500)
Proceeds from bank loans 5,000 --
Payments on capital lease obligations (8,858) (418)
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Net cash used by financing activities (3,858) (27,918)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 593,733 (852,273)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 325,915 2,175,226
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 919,648 $ 1,322,953
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 53,472 $ 180
=========== ===========
Income taxes $ 3,332 $ --
=========== ===========
Acquisition of equipment
Cost of equipment $ 37,747 $ 19,615
Capital lease payable incurred 34,968 17,004
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Cash down payment $ 2,779 $ 2,611
=========== ===========
See Notes to Consolidated Financial Statements
-3-
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
MARCH 31, 1999
Note 1 - Basis of Presentation
The accompanying financial statements of All Communications Corporation
("the Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and
with Item 310(b) of Regulation SB. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. For further information, refer to
the financial statements and footnotes thereto included in the
Company's Annual Report for the fiscal year ended December 31, 1998 as
filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the
Company and AllComm Products Corp. ("APC"), a wholly owned subsidiary.
All material intercompany balances and transactions have been
eliminated in consolidation.
Note 2 - Income (loss) per share
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Basic net income (loss) per share is calculated by dividing net
income (loss) by the weighted-average number of common shares
outstanding during the period.
Diluted net income per share is calculated by dividing net income by
the weighted-average number of common shares outstanding plus the
weighted-average number of net shares that would be issued upon
exercise of stock options and warrants using the treasury stock method.
Common stock options and warrants have not been included in any of the
per share computations because their inclusion would be anti-dilutive.
-4-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
The statements contained herein, other than historical information, are or may
be deemed to be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from such statements. These factors, risks and uncertainties, include
the relatively short operating history of the Company; market acceptance and
availability of new products; the non-binding and nonexclusive nature of
reseller agreements with manufacturers; rapid technological change affecting
products sold by the Company; the impact of competitive products and pricing, as
well as competition from other resellers; possible delays in the shipment of new
products; and the availability of sufficient financial resources to enable the
Company to expand its operations.
Results of Operations
Three Months Ended March 31, 1999 ("1999 period") Compared to Three Months Ended
March 31, 1998 ("1998 period").
NET REVENUES. Net revenues increased in the 1999 period by $1,584,000, or
68%, to $3,912,000, as compared to $2,328,000 for the 1998 period. The Company
experienced higher sales in both the voice communications and videoconferencing
categories.
Voice communications - Sales of voice communications products and services
increased in the 1999 period by $753,000, or 66%, to $1,892,000, as compared to
$1,139,000 for the 1998 period. Revenues in both the 1999 and 1998 periods were
derived primarily from the sale of Lucent and Panasonic telecommunications
systems and software packages.
During the 1999 period, sales to one customer, Weichert Realtors
(Weichert), accounted for approximately $581,000, or 15% of total sales. Sales
to Weichert increased by $389,000, or 203%, compared to sales of $192,000 for
the 1998 period. Sales under the Company's preferred Vendor Agreement with
Cendant Corporation increased in the 1999 period by $102,000, or 29%, to
$451,000, as compared to $349,000 for the 1998 period. Sales to Cendant, as a
percentage of net revenues, accounted for 12% and 15% for the 1999 and 1998
periods, respectively.
-5-
Videoconferencing - Sales of videoconferencing equipment increased in the
1999 period by $862,000, or 74%, to $2,020,000, as compared to $1,158,000 for
the 1998 period. Revenues in the 1999 period were derived primarily from the
sale of Polycom and Sony products. Revenues in the 1998 period were derived
primarily from the sale of Sony products. Revenue growth in the 1999 period was
due to the ongoing addition of new customers, as well as continuing sales to our
existing customer base.
GROSS MARGINS. Gross margin dollars increased in the 1999 period by
$430,000, or 61%, to $1,139,000 or 29% of net revenues, as compared to $709,000,
or 30% of net revenues for the 1998 period. The reduction in the gross margin
percentage is a direct result of increased price competition within the
videoconferencing industry. The Company intends to increase the sale of higher
margin peripheral items to maintain and improve the Company's historical gross
margin levels
SELLING. Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased in the 1999 period by $197,000, or 29%,
to $885,000, or 23% of net revenues, as compared to $688,000, or 30% of net
revenues for the 1998 period. The dollar increase was due in part to increases
in commissions related to increases in net revenues, expanded marketing efforts,
and depreciation charges related to demonstration equipment. This dollar
increase was partially offset by the reduction in sales staff of 6 persons. The
percentage decrease was the result of fixed operating costs remaining stable
while net revenues increased.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in the 1999 period by $24,000, or 8%, to $307,000, or 8% of net revenues, as
compared to $283,000, or 12% of net revenues for the 1998 period. The dollar
increase related to increases in individual salaries was partially offset by
reductions in administrative overhead. The Company reduced its general and
administrative staff by 4 persons during the 1999 period. The Company expects
general and administrative costs to decrease, as a percentage of revenues, as
revenue growth continues.
OTHER (INCOME) EXPENSES. In the 1999 period, this category included $8,000
of amortization of deferred financing costs related to the Company's working
capital credit facility. The Company also reported interest income of $9,000 and
$23,000 in the 1999 period and 1998 period, respectively, and interest expense
of $54,000 and $200 in the 1999 period and 1998 period, respectively. The
reduction in interest income and the increase in interest expense are the direct
result of the reduction in cash balances and increases in bank borrowings to
fund operations and continued growth.
NET LOSS. The Company reported a net loss of $106,000 or $.02 per share in
the 1999 period, compared to a net loss of $239,000, or $.05 per share in the
1998 period. The reduction in the Company's net loss is the result of revenues
growing at a faster rate than related costs.
-6-
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $5,654,000, including
$920,000 in cash and cash equivalents.
Net cash provided by operating activities for the 1999 period was $627,000
as compared to uses of cash of $782,000 for the 1998 period. Sources of cash in
the 1999 period, including reductions in accounts receivable and increases in
accounts payable due to favorable credit terms, more than offset decreases in
accrued expenses and customer deposits.
Investing activities for the 1999 period included purchases of $30,000 for
office furniture, demonstration equipment and computer hardware.
Financing activities in the 1999 period included payments on capital lease
obligations of $9,000 and proceeds from bank loans of $5,000.
The Company does not have any material commitments for capital
expenditures.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
Year 2000
In early 1998, Management initiated a company-wide program to prepare the
Company's computer systems and applications for the year 2000, as well as to
identify critical third parties which the Company relies upon to operate its
business to assess their readiness for the year 2000. The Company's primary
computer network includes a Novell operating system running on a Dell File
Server. The Company's main computer applications include MAS90 accounting
software and Top Of Mind customer service software. Individual desktop computers
are running on a Windows 95, 98 or NT operating system and include desktop
applications such as Microsoft Office 97. The Company uses Dell personal
computers on most desktops.
The Company has received confirmation from an independent outside
consultant that the Novell operating system that runs the Company's file server
is year 2000 compliant. Dell has indicated that all of the Company's Dell
computers are year 2000 compliant. The Company has also upgraded the MAS90
accounting system and the Top Of Mind customer service software to be year 2000
compliant. The software upgrades to the MAS90 accounting system and the Top Of
Mind customer service software were included as part of the Company's annual
maintenance contracts. The Company has not tested its systems for year 2000
readiness and, presently, does not intend to do so.
-7-
The Company recognizes, as critical third parties, major vendors, such as
Lucent, Panasonic, Sony, and Polycom; major customers, such as Cendant and
Universal Health Services, Inc; and other parties such as Landlords and utility
companies.
The Company has received written notice from all of its key vendors, Lucent
Technologies, Sony, Panasonic, and Polycom that all of their products that the
Company sells are currently year 2000 compliant. The Company believes it has no
year 2000 warranty exposure for products already sold.
During the fourth quarter of 1998, the Company mailed a questionnaire to
critical third parties to assess their year 2000 readiness. The questionnaire
addressed issues such as where companies stand in their year 2000 compliance
programs and how their relationship with the Company would be affected by any
failure to address year 2000 issues. The responses received indicated that third
parties are addressing and implementing programs to address the year 2000 issue.
The Company does not feel that a contingency plan is necessary.
As of March 31, 1999, the Company had not incurred any expenditures
relating to the year 2000 issue. The Company does not expect any additional
cost, if any, to be material to the Company's operations or financial condition.
-8-
Part II
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period for which
this report is filed.
-9-
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, thereunto duly authorized.
ALL COMMUNICATIONS CORPORATION
Registrant
Date: May 12, 1999 By: /s/ Richard Reiss
-------------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: May 12, 1999 By: /s/ Scott Tansey
-------------------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
-10-
Exhibit Index
Exhibit No. Description
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27 Financial Data Schedule