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, 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 [X] No [ ]
The number of shares outstanding of the registrant's Common Stock as of
August 6, 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 Sheet
June 30, 1997 and December 31, 1996 1
Statement of Operations
For the Six Months and Three Months ended
June 30, 1997 and 1996 2
Statement of Cash Flows
For the Six Months ended June 30, 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 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, 1996 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
ALL COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
---- ----
ASSETS
Current assets
Cash $ 3,490,047 $ 645,614
Accounts receivable-net 1,631,388 681,411
Inventory 513,451 497,353
Deferred income taxes 18,971 9,119
Other current assets 79,316 11,595
----------- -----------
Total current assets 5,733,173 1,845,092
Furniture, equipment and leasehold improvements-net 289,065 128,984
Deferred financing costs - 390,406
Deferred stock offering costs - 32,500
Other assets 55,216 61,410
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Total assets $ 6,077,454 $ 2,458,392
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable $ - $ 447,071
Current portion of long-term debt - 21,250
Accounts payable 408,071 505,319
Accrued expenses 231,857 108,259
Income taxes payable 31,967 -
Customer deposits 43,967 14,943
----------- -----------
Total current liabilities 715,862 1,096,842
Noncurrent liabilities
12% Convertible Subordinated Notes payable - 750,000
Long-term debt, less current portion - 51,354
Deferred income taxes 26,094 14,798
----------- -----------
Total noncurrent liabilities 26,094 816,152
----------- -----------
Total liabilities 741,956 1,912,994
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 and 3,000,000 shares issued and outstanding, respectively 5,229,740 90,000
Additional paid-in capital 300,070 375,000
Retained earnings (Accumulated deficit) (194,312) 80,398
----------- -----------
Total stockholders' equity 5,335,498 545,398
----------- -----------
Total liabilities and stockholders' equity $ 6,077,454 $ 2,458,392
----------- -----------
----------- -----------
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Net revenues $ 3,463,762 $ 1,726,829 $ 1,839,906 $ 1,086,241
Cost of revenues 2,370,587 1,153,923 1,241,073 686,591
----------- ----------- ----------- -----------
Gross margin 1,093,175 572,906 598,833 399,650
Operating expenses:
Selling 600,461 330,536 318,819 198,576
General and administrative 424,325 253,334 244,396 135,262
----------- ----------- ----------- -----------
Total operating expenses 1,024,786 583,870 563,215 333,838
----------- ----------- ----------- -----------
Income (loss) from operations 68,389 (10,964) 35,618 65,812
----------- ----------- ----------- -----------
Other (income) expenses
Amortization of deferred financing costs 315,406 - 315,406 -
Interest income (37,952) - (32,469) -
Interest expense 27,779 8,840 15,757 4,241
----------- ----------- ----------- -----------
Total other (income) expenses 305,233 8,840 298,694 4,241
----------- ----------- ----------- -----------
Income (loss) before income taxes (236,844) (19,804) (263,076) 61,571
Provision for income taxes 37,866 - 25,182 -
----------- ----------- ----------- -----------
Net income (loss) $ (274,710) $ (19,804) $ (288,258) $ 61,571
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per common and common equivalent $ (0.07) $ (0.01) $ (0.01) $ 0.03
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common and common equivalent
shares outstanding 3,692,071 1,910,714 4,337,000 1,910,714
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (274,710) $ (19,804)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 341,131 12,676
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (949,977) (13,526)
Inventory (16,098) (102,812)
Other current assets (67,721) (16,982)
Accounts payable (97,248) (34,602)
Accrued expenses 123,598 114,176
Income taxes payable 31,967 (18,008)
Deferred income taxes 1,444 -
Customer deposits 29,024 (900)
----------- -----------
Net cash used by operating activities (878,590) (79,782)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (185,808) (47,221)
Decrease in other assets 6,194 -
----------- -----------
Net cash used by investing activities (179,614) (47,221)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering 5,635,070 -
Deferred stock offering costs (1,062,760) -
Repayment of subordinated convertible note (150,000) -
Proceeds from bank loans 125,000 97,269
Payments on bank loans (644,673) (3,397)
----------- -----------
Net cash provided (used) by financing activities 3,902,637 93,872
----------- -----------
DECREASE IN CASH 2,844,433 (33,131)
CASH AT BEGINNING OF PERIOD 645,614 153,906
----------- -----------
CASH AT END OF PERIOD $ 3,490,047 $ 120,775
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 27,779 $ 4,599
----------- -----------
----------- -----------
Income taxes $ 1,910 $ 18,008
----------- -----------
----------- -----------
Supplemental disclosures of non-cash financing activities
Conversion of subordinated promissory notes to capital $ 600,000 $ -
Reclassification of deferred financing costs to paid-in capital $ 75,000 $ -
See Notes to Financial Statements.
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ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 six months ended June 30, 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 (loss) per share
Income (loss) 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 - 12% Convertible Subordinated Notes Payable
Upon the effective date of the initial public offering, a total of $600,000
principal amount of convertible subordinated notes were converted into
300,000 Bridge Units. The Bridge Units consist of one share of Common
Stock and one Common Stock Purchase Warrant. The Bridge Units and
underlying securities may not be sold prior to two years from the effective
date of the offering, during the first year, unconditionally, and during
the second year, without the prior consent of the Underwriter.
-4-
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
Note 5 - 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.
-5-
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
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.
Results of Operations
Six Months Ended June 30, 1997 ("1997 period") Compared to Six Months Ended June
30, 1996 ("1996 period")
Net revenues. The Company's revenues consist primarily of sales of
Panasonic digital telephone and voice processing systems, and Sony
videoconferencing products. Operating revenues for the 1997 period totalled
$3,463,762, a record level for a six-month period, representing a 101% increase
over the revenues of $1,726,829 reported for the 1996 period. Sales were higher
in both the telephone and video categories, with video showing the greatest
gains. Sales of telephone and voice processing equipment increased in the 1997
period by 24% to $1,633,981 over comparable 1996 revenues of $1,314,489. 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 13% and 34% of net revenues for the
1997 and 1996 periods, respectively.
Sales of videoconferencing systems increased in the 1997 period by $1,445,540,
or 378% to $1,827,495 as compared to $381,955 for the 1996 period 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, as well as at its new headquarters
in Hillside, New Jersey. The Company has also added nine sales personnel in the
video and telephone divisions since the 1996 period.
Cost of Revenues. Cost of revenues in the 1997 period was $2,370,587, or
68% of net revenues, as compared to $1,153,923, or 67% of net revenues in the
1996 period. Cost of revenues consists primarily of net product, installation
and training costs.
-6-
Gross margins. Gross margins increased to $1,093,175, or 32% of net
revenues in the 1997 period, as compared to $572,906, or 33% of net revenues in
the 1996 period. Margins are expected to fluctuate in a narrow range, depending
on such factors as sales volume, the mix of product revenues, and changes in
fixed costs during a given period.
Selling. Selling expenses, which include sales salaries, commissions,
sales overhead, and marketing costs, increased to $600,461, or 18% of net
revenues in the 1997 period, as compared to $330,536, or 19% of net revenues in
the 1996 period. The dollar increase was due in part to higher salaries and
commission-based compensation resulting from additions in sales personnel in
1997 and higher videoconferencing sales. New employment agreements providing
for higher sales executive compensation also commenced in 1997.
General and administrative. General and administrative expenses
increased to $424,325, or 12% of net revenues in the 1997 period, as compared
to $253,334, or 15% of net revenues in the 1996 period. The dollar increase
is attributable primarily to higher salaries and related costs associated
with the increase in administrative staff necessary to manage expanded
operations, as well as to higher occupancy costs and other administrative
overhead. 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 income from operations of
$68,389, or $.02 per share in the 1997 period, as compared to an operating loss
of $10,964, or $.01 per share in the 1996 period.
Other (income) expenses. This category includes a non-recurring accounting
charge of $315,406 representing financing costs associated with subordinated
promissory notes payable. A total of $600,000 principal amount of the notes was
converted to 300,000 shares of common stock in May 1997; the balance of $150,000
was repaid.
Income taxes. The provision for income taxes was $37,866 in the 1997
period, due to the nondeductibility of certain financing costs and operating
expenses incurred primarily in the second quarter.
Net loss. As a result of the above factors, the Company reported a net
loss of $274,710, or $.07 per share in the 1997 period, compared to a net loss
of $19,804, or $.01 per share in the 1996 period.
Liquidity and Capital Resources
At June 30, 1997, the Company had working capital of $5,017,000, including
$3,490,000 in cash. 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. 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.
-7-
Net cash used by operating activities for the 1997 period was $878,000.
Increases in accounts receivable due to record revenue growth, and the net loss
reported for the period more than offset noncash charges of $341,000 for
depreciation and financing costs.
Investing activities for the 1997 period included purchases of $185,000 for
building improvements, office furniture and equipment. In July 1997, the
Company moved to its expanded office and warehouse facility in Hillside, New
Jersey. The Company is occupying the facility under a five-year lease at a base
rent of $64,000. The lease contains a five-year renewal option.
Cash flows from financing activities provided net cash of $3,902,000. Included
in this amount are the net proceeds from the public offering. During the second
quarter of 1997, the Company repaid $150,000 principal amount of subordinated
promissory notes. The Company also repaid the balance of its bank term loan and
outstanding borrowings under its credit line totalling $645,000.
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 for the next twelve months, based on
current operating levels.
-8-
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
-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: August 11, 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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