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, 1997
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, PO Box 794, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
201-282-2000
(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 [ ] No[X]
The number of shares outstanding of the registrant's Common Stock as of May
28, 1997 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements *
Balance Sheets December 31, 1996 and March 31, 1997 1
Statements of Income (Loss)
For the Three Months ended March 31, 1997 and 1996 2
Statements of Cash Flows
For the Three Months ended March 31, 1997 and 1996 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Legal Proceedings 8
Changes in Securities 8
Defaults Upon Senior Securities 8
Submission of Matters to a Vote of Security Holders 8
Other Information 8
Exhibits and Reports on Form 8-K 8
Signatures 9
* The Balance Sheet at December 31, 1996 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
ALL COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 99,702 $ 645,614
Accounts receivable (net of allowance for doubtful
accounts of $25,000 and $25,000, respectively) 1,242,381 681,411
Inventory 577,642 497,353
Deferred income taxes 10,456 9,119
Other current assets 41,480 11,595
---------- ----------
Total current assets 1,971,661 1,845,092
Furniture, equipment and leasehold improvements-net 214,667 128,984
Deferred financing costs 390,406 390,406
Deferred stock offering costs 231,967 32,500
Other assets 12,845 61,410
---------- ----------
Total assets $ 2,821,546 $ 2,458,392
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable $ 447,071 $ 447,071
Current portion of long-term debt 21,250 21,250
Accounts payable 660,016 505,319
Accrued expenses 284,811 108,259
Customer deposits 31,816 14,943
---------- ----------
Total current liabilities 1,444,964 1,096,842
Noncurrent liabilities
12% Convertible Subordinated Notes payable 750,000 750,000
Long-term debt, less current portion 46,042 51,354
Deferred income taxes 21,594 14,798
---------- ----------
Total noncurrent liabilities 817,636 816,152
---------- ----------
Total liabilities 2,262,600 1,912,994
COMMITMENTS AND CONTINGENCIES - 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;
3,000,000 issued and outstanding 90,000 90,000
Additional paid-in capital 375,000 375,000
Retained earnings 93,946 80,398
---------- ----------
Total stockholders' equity 558,946 545,398
---------- ----------
Total liabilities and stockholders' equity $ 2,821,546 $ 2,458,392
---------- ----------
---------- ----------
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three months ended
March 31,
1997 1996
---- ----
Net revenues $ 1,623,856 $ 640,588
Cost of revenues 1,129,514 467,332
---------- ---------
Gross margin 494,342 173,256
Operating expenses:
Selling 281,642 131,960
General and administrative 179,929 118,072
---------- ---------
Total operating expenses 461,571 250,032
---------- ---------
Income (loss) from operations 32,771 (76,776)
---------- ---------
Other (income) expenses
Interest income (5,483) -
Interest expense 12,022 4,599
---------- ---------
Total other (income) expenses 6,539 4,599
---------- ---------
Income (loss) before income taxes 26,232 (81,375)
Provision for income taxes 12,684 -
---------- ---------
Net income $ 13,548 $ (81,375)
---------- ---------
---------- ---------
Net income per common and common equivalent share $ 0.01 $ (0.04)
---------- ---------
Weighted average common and common equivalent
shares outstanding 3,160,714 1,910,714
---------- ---------
---------- ---------
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 13,548 $ [81,375]
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 11,266 5,014
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (560,970) 67,065
Inventory (80,289) (43,389)
Other current assets (26,384) 6,481
Accounts payable 154,697 (78,386)
Accrued expenses 176,552 20,603
Income taxes payable (3,501) (18,008)
Deferred income taxes 5,459 -
Customer deposits 16,873 31,276
---------- ---------
Net cash used by operating activities (292,749) (90,719)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (96,949) (30,449)
Decrease in other assets 48,565 -
---------- ---------
Net cash used by investing activities (48,384) (30,449)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred stock offering costs (199,467) -
Payments on long-term debt (5,312) -
Proceeds from bank loans - 30,000
Payments on bank loans - (3,989)
---------- ---------
Net cash provided (used) by financing activities (204,779) 26,011
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (545,912) (95,157)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 645,614 153,906
---------- ---------
CASH AT END OF PERIOD $ 99,702 $ 58,749
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 12,022 $ 4,599
---------- ---------
---------- ---------
Income taxes $ 1,288 $ 18,008
---------- ---------
---------- ---------
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
Notes to Financial Statements
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, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. For further information, refer to the financial statements and
footnotes thereto included in the Company's Registration Statement on Form
SB-2 (No. 333-21069) as filed with the Securities and Exchange Commission.
Note 2 - Income per share
Income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. In accordance
with SEC rules, shares issuable upon the conversion of the 12% Subordinated
Convertible Notes Payable have been included in the calculation of common
and common equivalent shares outstanding for all periods presented using
the treasury stock method.
Note 3 - Initial Public Offering
In May 1997, the Company completed an initial public offering of 805,000
Units of its Common Stock and Class A Common Stock Purchase Warrants,
realizing net proceeds of approximately $4,500,000 after stock offering
costs.
Note 4 - Other Matters
New Reseller Agreement
In February 1997, the Company entered into a non-exclusive agreement with
Sprint North Supply ("SNS"), the recently designated exclusive distributor
of Sony videoconferencing products. Under the agreement, SNS will sell
Sony videoconferencing equipment to the Company on terms which are more
favorable than those on which the Company purchased equipment under the
Sony reseller agreement. The agreement expires on January 31, 1998, but
may be terminated by either party upon 60 days' written notice.
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ALL COMMUNICATIONS CORPORATION
Notes to Financial Statements
Amended Employment Agreement
In March and April 1997, the Company's board of directors approved changes
to the 1997 employment agreement with the Company's president. The
amendment provides for an extension of the agreement for an additional year
to six years; a reduction in annual salary to $133,000, $170,000 and
$205,000 in the first, second and third years, respectively, and a minimum
annual base salary of $205,000 in years four through six; and the issuance
of 750,000 nonqualified stock options at an exercise price of $5.00 per
share.
New Lease
In March 1997, the Company entered into a new five-year lease for the use
of office and warehouse space. The lease provides for annual base rent of
$63,680 plus a proportionate share of operating expenses, and includes a
five year renewal option. The lease will commence on the earlier of the
date on which the construction of the premises is completed, or the Company
occupies the facility. The building is owned by an entity in which a
member of the Company's board of directors is a part owner. The Company
believes that the lease reflects a fair rental value for the property.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's 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.
Results of Operations
Three Months Ended March 31, 1997 ("1997 quarter") Compared to Three Months
Ended March 31, 1996 ("1996 quarter")
Net revenues. The Company's revenues consist primarily of sales of
Panasonic digital telephone and voice processing systems, and Sony
videoconferencing products. Operating revenue for the 1997 quarter was
$1,623,856, an increase of $983,268, or 153% over the revenues of $640,588
reported for the 1996 quarter. Sales of telephone and voice processing
equipment increased in 1997 by 25% to $690,694 over 1996 quarterly revenue of
$550,509. The increase was due in part to the hiring of additional sales
personnel. In addition, the Company entered into an exclusive dealership
arrangement with Coldwell Banker Corporation ("CBC") in January 1996 to sell
Panasonic telecommunications systems to CBC's corporate-owned offices. In
December 1996, this agreement was superseded by the signing of a non-exclusive
four-year Preferred Vendor Agreement with the new owner of the Coldwell Banker
brand, HFS Incorporated ("HFS"), to provide Panasonic products to the HFS-owned
brands, Century 21, ERA, and Coldwell Banker real estate brokerage franchise
systems. Sales under these agreements accounted for 8% and 40% of net revenues
for the 1997 and 1996 quarters, respectively.
Sales of videoconferencing systems increased in the 1997 quarter by
$857,795 to $930,877 as compared to $73,082 for the 1996 quarter and $1,039,026
for all of fiscal 1996. The Company's videoconferencing sales effort increased
significantly in 1996 due to the hiring of a vice president in charge of sales
and marketing for the videoconferencing division. The Company currently has
videoconferencing demonstration facilities in New York City, Washington D.C. and
the Philadelphia area and has added seven sales personnel in the video and
telephone divisions since the 1996 quarter.
Cost of Revenues. Cost of revenues in the 1997 quarter was $1,129,514, or
70% of net revenues, as compared to $467,322, or 73% of net revenues in the
1996 quarter. Cost of revenues consists primarily of net product, installation
and customer training costs. Higher margin sales in 1997 offset increases in
salaries and related costs to account for the improvement over the 1996
quarter.
Gross margins. Gross margins increased to $494,342, or 30% of net revenues
in the 1997 quarter, as compared to $173,256, or 27% in the 1996 quarter.
However, 1997 gross margins decreased from the 36% reported for all of fiscal
1996 due primarily to higher fixed compensation costs.
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Selling. Selling expenses, which include sales salaries, commissions,
sales overhead, and marketing costs, increased to $281,642, or 17% of net
revenues in the 1997 quarter, as compared to $131, 960, or 21% of net revenues
in the 1996 quarter. The increase was due in part to higher salaries and
commission-based compensation resulting from additions in sales personnel in
1997. New employment agreements, providing for higher sales executive
compensation, also commenced in 1997.
General and administrative. General and administrative expenses increased
to $179,929, or 11% of net revenues in the 1997 quarter, as compared to
$118,072, or 18% of net revenues in the 1996 quarter. The dollar increase is
attributable primarily to higher salaries and related costs associated with an
increase in administrative staff. The percentage decrease is due to the more
rapid growth rate of gross margin dollars as compared to overhead costs.
As a result of the above, the Company reported net income of $13,548, or
$.01 per share in the 1997 quarter, compared to a net loss of $81,375, or $.04
per share in the 1996 quarter.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of $526,697, including
$99,702 in cash. Net cash used by operating activities for the 1997 quarter was
$292,749. Increases in accounts receivable due to record revenue growth, as
well as small increases in inventory levels and prepaid expenses, more than
offset cash flows provided by net income, depreciation and higher accounts
payable and accrued expense levels.
Net cash used by investing activities for the 1997 quarter was $48,384, as
purchases of furniture and equipment totaling $96,949 offset decreases in other
assets.
Net cash used by financing activities for the 1997 quarter was $204,779. The
Company incurred additional stock offering costs of $199,467 in connection with
its initial public offering. In May 1997, the Company completed the offering of
805,000 Units of its Common Stock and Class A Common Stock Purchase Warrants,
realizing net proceeds of approximately $4,500,000 after stock offering costs.
The Company repaid $150,000 of convertible note principal with the proceeds.
The balance of the notes ($600,000) was converted into 300,000 Bridge Units,
each unit consisting of one share of Common Stock and one Class A Common
Stock Purchase Warrant. Funds from the offering will be used for the relocation
and expansion of the Company's facilities, the hiring of new employees, the
purchase of additional inventory, and other working capital needs.
The Company does not have any material commitments for capital expenditures.
Management believes that the Company has the capital resources and liquidity
necessary to meet all of its obligations during 1997, based on current operating
levels.
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PART II
Item 1. Legal Proceedings
Not Applicable
Item 2. Change in Securities
Not Applicable
Item 3. Default 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
Exhibits
Exhibit 27. Financial Data Schedule
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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 30, 1997 By: /s/ Richard Reiss
-----------------
Richard Reiss,
President and Chief Executive
Officer (and duly authorized
to sign on behalf of the Registrant)
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