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 June 30, 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
July 28, 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
June 30, 1999 and December 31, 1998 1
Consolidated Statement of Operations
For the Six Months and Three Months ended
June 30, 1999 and 1998 2
Consolidated Statement of Cash Flows
For the Six Months ended June 30, 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 10
Changes in Securities 10
Defaults Upon Senior Securities 10
Submission of Matters to a Vote of Security Holders 10
Other Information 10
Exhibits and Reports on Form 8-K 11
Signatures 12
* 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)
June 30, December 31,
1999 1998
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 390,573 $ 325,915
Accounts receivable-net 5,153,082 4,317,853
Inventory 3,571,044 3,540,281
Other current assets 117,854 45,577
----------- -----------
Total current assets 9,232,553 8,229,626
Furniture, equipment and leasehold improvements-net 572,314 611,518
Deferred financing costs-net 42,119 43,271
Other assets 38,214 38,214
----------- -----------
Total assets $ 9,885,200 $ 8,922,629
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable $ 1,723,581 $ --
Accounts payable 2,483,725 1,412,616
Accrued expenses 798,460 844,082
Income taxes payable -- 2,860
Deferred revenue 203,459 156,133
Customer deposits 546,073 94,721
Current portion of capital lease obligations 29,169 17,365
----------- -----------
Total current liabilities 5,784,467 2,527,777
Noncurrent liabilities
Bank loan payable -- 2,403,216
Capital lease obligations, less current portion 30,844 23,221
----------- -----------
Total noncurrent liabilities 30,844 2,426,437
----------- -----------
Total liabilities 5,815,311 4,954,214
COMMITMENTS - See notes
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 370,084 327,943
Accumulated deficit (1,529,935) (1,589,268)
----------- -----------
Total stockholders' equity 4,069,889 3,968,415
----------- -----------
Total liabilities and stockholders' equity $ 9,885,200 $ 8,922,629
=========== ===========
See Notes to Consolidated Financial Statements
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ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six months ended Three months ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net revenues $ 9,239,108 $ 5,336,914 $ 5,327,439 $ 3,008,810
Cost of revenues 6,409,718 3,710,921 3,636,609 2,092,265
----------- ----------- ----------- -----------
Gross margin 2,829,390 1,625,993 1,690,830 916,545
Operating expenses:
Selling 1,951,075 1,431,466 1,066,408 743,194
General and administrative 718,386 580,801 411,115 298,109
----------- ----------- ----------- -----------
Total operating expenses 2,669,461 2,012,267 1,477,523 1,041,303
----------- ----------- ----------- -----------
Income (loss) from operations 159,929 (386,274) 213,307 (124,758)
----------- ----------- ----------- -----------
Other (income) expenses
Amortization of deferred financing costs 18,651 2,715 10,784 2,715
Interest income (14,167) (38,520) (5,062) (15,304)
Interest expense 96,112 1,052 42,640 872
----------- ----------- ----------- -----------
Total other (income) expenses, net 100,596 (34,753) 48,362 (11,717)
----------- ----------- -----------
Net income (loss) $ 59,333 $ (351,521) $ 164,945 $ (113,041)
=========== =========== =========== ===========
Per share of common stock:
Basic $ .01 $ (.07) $ .03 $ (.02)
=========== =========== =========== ===========
Diluted $ .01 $ (.07) $ .03 $ (.02)
=========== =========== =========== ===========
Number of shares:
Basic 4,910,000 4,910,000 4,910,000 4,910,000
=========== =========== =========== ===========
Diluted 5,567,300 4,910,000 6,224,600 4,910,000
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
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ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 59,333 $ (351,521)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 159,044 83,099
Non cash compensation 42,141 15,413
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (835,229) (784,546)
Inventory (30,763) (2,439,216)
Advances to Maxbase, Inc. -- 127,080
Other current assets (72,277) 26,286
Other assets -- (6,855)
Accounts payable 1,071,109 437,132
Accrued expenses (45,622) 332,438
Income taxes payable (2,860) (2,453)
Deferred revenue 47,326 --
Customer deposits 451,352 419,365
----------- -----------
Net cash provided by (used in) operating activities 843,554 (2,143,778)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (66,220) (160,589)
----------- -----------
Net cash used in investing activities (66,220) (160,589)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITES
Deferred financing costs (17,500) (43,442)
Proceeds from bank loans 4,055,000 800,000
Payments on bank loans (4,734,635) --
Payments on capital lease obligations (15,541) (2,538)
----------- -----------
Net cash provided by (used in) financing activities (712,676) 754,020
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,658 (1,550,347)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 325,915 2,175,226
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 390,573 $ 624,879
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 96,112 $ 1,052
=========== ===========
Income taxes $ 3,332 $ --
=========== ===========
Acquisition of equipment
Cost of equipment $ 37,747 $ 58,844
Capital lease payable incurred 34,968 51,012
----------- -----------
Cash down payment $ 2,779 $ 7,832
=========== ===========
See Notes to Consolidated Financial Statements
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ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 and six months ended June 30,
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. Incremental shares included in the 1999 diluted computations
were 657,300 and 1,314,600 shares for the six months and three months
ended June 30, 1999, respectively.
Note 3 - Legal Matters
On May 20, 1999 the Company settled the lawsuit with its former
landlord. Under the terms of the settlement, the Company will pay a
total of $120,000. The first payment was made on May 21, 1999 in the
amount of $50,000, the second payment of $35,000 is due on September 1,
1999, and the final payment of $35,000 is due on January 1, 2000.
-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
Six Months Ended June 30, 1999 ("1999 period") Compared to Six Months Ended June
30, 1998 ("1998 period") and Three Months Ended June 30, 1999 Compared to Three
Months Ended June 30, 1998.
NET REVENUES. The Company reported net revenues of $9,239,000 for the 1999
period, an increase of $3,902,000, or 73% over revenues reported for the 1998
period. Net revenues of $5,327,000 for the June 1999 quarter represent an
increase of $2,318,000, or 77%, over revenues reported for the June 1998
quarter. On a sequential basis, June 1999 quarterly revenues increased 36% over
the previous quarter. Both of the Company's divisions have contributed to its
sales growth in 1999.
Voice communications - Sales of voice communications products and services
were $4,542,000 in the 1999 period, a 58% increase over the 1998 period. Sales
for the quarter ended June 30, 1999 were $2,650,000, a 53% increase over the
comparable 1998 quarter. On a sequential basis, June 1999 quarterly revenues
increased 40% over the previous quarter.
-5-
The voice communications division has experienced strong growth in Lucent
product sales as a result of increasing penetration in the commercial
marketplace. There also continues to be strong demand for the Panasonic product
line from the Company's long-standing real estate customers, including Coldwell
Banker, Century 21, ERA, and Weichert Realtors, as well as increased demand
among independently owned real estate offices.
Videoconferencing - Sales of videoconferencing equipment were $4,697,000 in
the 1999 period a 94% increase over the 1998 period. Sales for the quarter ended
June 30, 1999 were $2,677,000, a 112% increase over the comparable 1998 quarter.
On a sequential basis, June 1999 quarterly revenues increased 33% over the
previous quarter. The Company is experiencing an increase in multi-unit sales
and customer reorders and has been receiving a greater number of new customer
inquiries, all of which reflect more effective marketing efforts as well as
continued strong demand for Polycom products.
The Company expects revenue growth in both divisions to continue for the
balance of fiscal 1999 based on existing backlog, pending orders, and an
increasing number of referrals from customers and other sources. Sales to two
customers accounted for 14% and 13% of total revenue, respectively, in the June
1999 period; sales to one customer accounted for 17% of total revenue in the
June 1998 period.
GROSS MARGINS. Gross margins increased in the 1999 period to 31% of net
revenues, as compared to 30% of net revenues in the 1998 period. The increase is
attributable to (i) the availability of more favorable vendor pricing due to
significant unit growth of several product lines and (ii) increases in higher
margin revenue sources such as maintenance contracts and commissions.
SELLING. Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased in the 1999 period to $1,951,000, or
21% of net revenues, as compared to $1,431,000, or 27% of net revenues for the
1998 period. Selling expenses for the quarter ended June 30, 1999 increased to
$1,066,000, or 20% of net revenues, as compared to $743,000 or 25% of net
revenues for the comparable 1998 quarter. The dollar increase was due in part to
higher commissions related to revenue growth, increases in advertising expenses,
and additional depreciation charges related to demonstration equipment. The
decrease in selling expenses as a percentage of total revenues in the 1999
period was the result of fixed selling costs remaining stable during a period of
rising revenues, and an improvement in sales staff productivity.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in the 1999 period to $718,000, or 8% of net revenues, as compared to $581,000,
or 11% of net revenues for the 1998 period. General and administrative expenses
for the quarter ended June 30, 1999 increased to $411,000, or 8% or net
revenues, as compared to $298,000, or 10% of net revenues for the comparable
1998 quarter. The increases in 1999 were attributable to higher compensation
costs associated with new hires and staff raises, and higher legal fees relating
to litigation and
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other corporate matters. In May 1999, the Company settled the lawsuit with its
former landlord. Under the terms of the settlement, the Company will pay a total
of $120,000 in three installments over seven Months. The Company has established
an adequate reserve for the settlement, and accordingly there will be no further
impact on the financial statements as the installments are paid. General and
administrative expenses declined as a percentage of revenue as sales growth
outpaced cost increases. Management expects this trend to continue at least
through the end of fiscal 1999.
OTHER (INCOME) EXPENSES. The principal component of this category, interest
expense, increased to $96,000 in the 1999 period as compared to $1,000 in the
1998 period. The increase reflects the Company's use of its bank credit facility
to fund working capital requirements in 1999. Borrowings in 1998 did not begin
until the end of the second quarter.
INCOME TAXES. The Company has established a valuation allowance to offset
additional tax benefits from net operating loss carryforwards and other deferred
tax assets. For the quarter ended June 30, 1999, the Company reduced the
valuation allowance to offset a tax provision of approximately $50,000 on
quarterly income. Management will continue to evaluate the recoverability of
deferred tax assets and the valuation allowance on a quarterly basis. At such
time as it is determined that it is more likely than not that deferred tax
assets are realizable, the valuation allowance will be further reduced.
NET INCOME (LOSS). The Company reported net income for the June 1999 period
of $59,000, or $.01 per share on a basic and diluted basis, as compared to a net
loss of $352,000, or $(.07) per share for the June 1998 period. Net income for
the quarter ended June 30, 1999 was $165,000, or $.03 per share on a basic and
diluted basis, as compared to a net loss of $113,000, or $(.02) per share for
the comparable 1998 quarter.
Liquidity and Capital Resources
As June 30, 1999, the Company had working capital of $3,448,000, including
$391,000 in cash and cash equivalents. Net cash provided by operating activities
for the 1999 period was $844,000 as compared to net cash used in operations of
$2,144,000 during the 1998 period. Sources of operating cash in 1999 included
net income, depreciation, accounts payable financing and customer prepayments.
Accounts payable increased by $1,071,000 during the 1999 period primarily as a
result of large customer drop shipments towards the end of the second quarter.
Uses of cash included increases in accounts receivable resulting from sales
growth. Inventory levels remained steady during the 1999 period at approximately
$3,500,000.
Investing activities for the 1999 period included purchases of $66,000 for
office and demostration equipment. The Company does not have any material
commitments for capital expenditures.
Financing activities in the 1999 period consisted primarily of proceeds
from and repayments of the Company's $5,000,000 revolving credit line.
Borrowings are based on available accounts receivable and inventory collateral,
and bear interest at the rate of prime plus 1% per annum. The principal balance
outstanding as of June 30, 1999 has been classifed as a current liability due to
the maturity of the two-year credit agreement in May 2000. Management intends to
refinance the credit facility by the maturity date. The Company was in
compliance with all covenants under the credit agreement as of June 30, 1999.
-7-
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.
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
-8-
and implementing programs to address the year 2000 issue. The Company does not
feel that a contingency plan is necessary.
As of June 30, 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.
-9-
Part II
Item 1. Legal Proceedings
On May 20, 1999 the Company settled the lawsuit with its former landlord.
Under the terms of the settlement, the Company will pay a total of $120,000. The
first payment was made on May 21, 1999 in the amount of $50,000, the second
payment of $35,000 is due on September 1, 1999, and the final payment of $35,000
is due on January 1, 2000.
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
(a) The Company's 1999 Annual Meeting of Stockholders (the "Annual
Meeting") was held on May 28, 1999.
(b) The following is a brief description of each matter voted on at the
Annual Meeting:
(1) The Directors named below were elected at the Annual Meeting:
Name Votes For Votes Withheld
---- --------- --------------
Eric Friedman 4,489,211 0
Peter Maluso 4,489,211 0
(2) The ratification of, the selection of, BDO Seidman, LLP as the
Company's independent auditors was approved.
Votes For Votes Against Abstentions Broker Non-Votes
--------- ------------- ----------- ----------------
4,491,811 1,942 200 0
Item 5. Other Information
A duly executed proxy given in connection with the registrant's 2000 Annual
Meeting of Stockholders will confer discretionary authority on the proxies named
therein, or any of them, to vote at such meeting on any matter of which the
Company does not have written notice on or before March 7, 2000, which is
forty-five days prior to the date on which the Company first mailed its proxy
materials for its 1999 Annual Meeting of Stockholders, without advice in the
Company's proxy statement as to the nature of such matter.
-10-
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.
-11-
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: July 28, 1999 By: /s/ Richard Reiss
-------------------------------------
Richard Reiss,
President and Chief Executive Officer
Date: July 28, 1999 By: /s/ Scott Tansey
------------------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
-12-
Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule