UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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: January 31, 2000
[ ] Transition period under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _____________.
Commission file No. 0-30220
_______________________________________________
COMMUNICATIONS WORLD INTERNATIONAL, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-0917382
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7315 S. Revere Parkway, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
(303) 721-8200
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Issuer's Telephone Number, Including Area Code
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 ____
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As of January 31, 2000 the issuer had 7,628,668 shares of its no par value
Common Stock issued and outstanding.
Part I
Financial Information
Item 1. Financial Statements
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Unaudited)
January 31, 2000
(In Thousands of Dollars)
________________________________________________________________________________
ASSETS
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Current assets:
Cash $ 200
Trade accounts and current portion of notes receivable, less allowance for
doubtful accounts of $239 1,799
Inventory 386
Prepaid expenses 80
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Total current assets 2,465
Property and equipment, net 371
Deposits and other assets 182
Intangible assets, net 3,197
Deferred tax asset 1,045
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$ 7,260
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Trade accounts payable $ 1,343
Revolving line of credit 1,007
Current portion of notes payable 682
Accrued expenses 462
Deposits and other current liabilities 67
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Total current liabilities 3,561
Capital lease obligations and deferred revenue 30
Notes payable (including $857 due to related parties) 2,914
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Total liabilities 6,505
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Stockholders' equity:
Preferred stock, 3,000,000 shares authorized:
Series C (cumulative) - 50,000 shares issued and outstanding, 50
Series F (cumulative) - 30,000 shares issued and outstanding 30
Common stock, no par value, 25,000,000 shares authorized,
shares issued and outstanding; 7,628,668 8,119
Additional paid-in capital 569
Accumulated deficit (8,013)
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Total stockholders' equity 755
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$ 7,260
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See accompanying notes to consolidated financial statements
2
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended January 31, 2000 and 1999
(In Thousands of Dollars except Earnings Per Share data)
________________________________________________________________________________
For the Three Months Ended January 31,
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2000 1999
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Revenue:
Franchise equipment sales $1,328 $1,153
Direct equipment sales and service 2,654 688
Royalty fees 30 43
Other revenue 66 23
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Total revenue 4,078 1,907
Costs and expenses:
Cost of franchise equipment sales 1,219 1,029
Cost of direct equipment sales and service 1,856 459
Selling 274 122
General and administrative 885 580
Cost of expired letters of intent - 33
Depreciation and amortization 77 42
Interest expense 133 58
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Total cost and expenses 4,444 2,323
(Loss) from operations before income taxes (366) (416)
Income tax benefit - -
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(Loss) from continuing operations (366) (416)
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Discontinued operations, net of income taxes:
Loss from operations of subsidiaries sold - (18)
Loss on sale of subsidiaries - (396)
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Loss from discontinued operations - (414)
Net (loss) $ (366) $ (830)
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Earning per share:
Basic:
Loss from continuing operations $ (.05) $ (.21)
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Net (loss) $ (.05) $ (.43)
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Fully diluted:
Loss from continuing operations $ (.05) $ (.21)
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Net (loss) $ (.05) $ (.43)
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See accompanying notes to consolidated financial statements
3
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended January 31, 2000 and 1999
(In Thousands of Dollars except Earnings Per Share data)
________________________________________________________________________________
For the Nine Months Ended January 31,
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2000 1999
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Revenue:
Franchise equipment sales $ 3,950 $ 4,069
Direct equipment sales and service 6,789 2,482
Royalty fees 111 148
Other revenue 189 56
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Total revenue 11,039 6,755
Costs and expenses:
Cost of franchise equipment sales 3,602 3,610
Cost of direct equipment sales and service 4,530 1,567
Selling 774 275
General and administrative 2,385 1,765
Executive officer severance compensation - 138
Cost of expired letters of intent - 78
Depreciation and amortization 181 150
Interest expense 258 193
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Total cost and expenses 11,730 7,776
(Loss) from operations before income taxes (691) (1,021)
Income tax benefit - -
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(Loss) from continuing operations (691) (1,021)
Discontinued operations, net of income taxes:
Loss from operations of subsidiaries sold - (33)
Loss on sale of subsidiaries - (396)
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Loss from discontinued operations - (429)
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Net (loss) $ (691) $(1,450)
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Earning per share:
Basic:
(Loss) from continuing operations $ (.10) $ (.53)
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Net (loss) $ (.10) $ (.75)
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Fully diluted:
(Loss) from continuing operations $ (.10) $ (.53)
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Net (loss) $ (.10) $ (.75)
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See accompanying notes to consolidated financial statements
4
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended January 31, 2000 and 1999
(In Thousands of Dollars)
________________________________________________________________________________
For the Nine Months Ended January 31,
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2000 1999
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Cash flows from operating activities:
Net (loss) $ (691) $(1,450)
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization 181 150
Provision for losses on accounts and notes receivable 101 34
Intangible write off - discontinued operations - 259
Changes in operating assets and liabilities:
Trade accounts and notes receivable (445) 573
Inventories (54) 150
Prepaid expenses (72) (23)
Deposits and other assets (141) 2
Notes receivable (44) -
Trade accounts payable (474) (126)
Accrued expenses 107 (185)
Other liabilities 47 (56)
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Net cash (used) by operating activities (1,485) (672)
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Cash flows from investing activities:
Acquisitions (1,636) (64)
Capital expenditures (219) (22)
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Net cash used by investing activities (1,855) (86)
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Cash flows from financing activities:
Net borrowings under line-of-credit agreement 510 (961)
Sale of Common Stock 507 310
Sale of warrants 18 -
Net proceeds from sale of Preferred Stock - 1,759
Redemption of Preferred Stock 16 -
Notes payable 2,756 -
Repayment of notes and contract payable (308) (294)
Repayment of capital lease obligations (16) (15)
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Net cash provided by financing activities 3,483 799
Net increase (decrease) in cash 143 41
Cash at beginning of the period 57 14
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Cash at end of the period $ 200 $ 55
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See accompanying notes to consolidated financial statements
5
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited) - continued
For the Nine Months Ended January 31, 2000 and 1999
(In Thousands of Dollars)
________________________________________________________________________________
2000 1999
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Supplemental disclosures of cash flow information:
Interest paid $ 164 $ 192
Non-cash investing activities:
Sale of operating subsidiaries:
Exchange of preferred stock as consideration $ 372
Note receivable taken as partial consideration $ 25
Business acquisitions financed by :
Issuance of common stock $ 492
Conversion of preferred stock to common stock $ 491
Conversion of notes payable to common stock $ 15
See accompanying notes to consolidated financial statements
6
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
________________________________________________________________________________
(1) Basis of Presentation
The consolidated condensed interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes the disclosures are adequate to make information presented
not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these consolidated condensed financial statements be read in conjunction
with the financial statements and notes thereto, at April 30, 1999 and for
the two years then ended included in the Company's report on Form 10-SB/A.
The Company follows the same accounting policies in preparation of interim
reports.
Results of operations for the interim periods are not necessarily
indicative of annual results.
(2) Acquisitions
During the nine months ended January 31, 2000, the Company completed the
acquisitions of two companies. The excess of purchase price over tangible
assets in these two acquisitions was approximately $1,559,000. The
acquisitions were made with a combination of cash, issuance of common stock
and notes. Common stock was issued at the quoted market price within five
business days of the closing of the sale. A total of 442,050 shares of
common stock were issued at the total market price of $492,123. Notes were
issued in the aggregate principal amount of $509,500 at an interest rate of
7% per annum with various maturities through 2003.
(3) Convertible Debt Offerings
During the nine months ended January 31, 2000, the Company received net
proceeds of approximately $1,362,000 from the sale of Units of Subordinated
Convertible Notes and Common Stock Purchase Warrants. Each Unit consisted
of a $50,000 Note and 20,000 Warrants for a purchase price of $50,400.
Each Note is convertible into Common Stock at $1.50 per share which may be
lowered under certain circumstances. Each Warrant is exercisable at $.40
per share until September 30, 2004.
7
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
________________________________________________________________________________
(3) Convertible Debt Offerings (continued)
In November 1999, additional net proceeds of approximately $722,000 were
received from the sale of Notes and Warrants to two institutional
investors. The terms of these transactions were similar to the Unit
offering, with certain exceptions. The Company agreed to register the
common stock which may be received upon conversion of these notes, and that
if the registration statement is not declared effective by April 30, 2000,
the institutional investors have the right to accelerate the maturity date
of their notes to nine months from the date of exercise of the acceleration
right. If the institutional investors exercise the right to accelerate the
maturity of their notes, the Company will redeem their Warrants at $.02 per
Warrant. The exercise price for these warrants is $.60, instead of the
$.40 exercise price in the Units. The Company is also restricted in its
ability to prepay these notes.
(4) Revolving Line of Credit
In January 2000 the Company entered into a new revolving line of credit
agreement with a finance company. The revolving line of credit permits the
Company to borrow up to $2,000,000 subject to certain collateral
limitations. Interest, at the rate of prime plus 3.5% per annum, is due
monthly. The revolving line of credit is collaterallized by substantially
all of the assets of the Company.
8
Item 2. Management's Discussion and Analysis or Plan of Operations
Statements herein, other than historical fact, may be deemed forward-looking.
These statements may be accompanied by words such as "believe," "estimate,"
"project," "expect," "anticipate," or "predict," that convey the uncertainty of
future events or outcomes. These statements are based on assumptions that the
Company believes are reasonable; however, many factors could cause the Company's
actual results in the future to differ materially from the forward-looking
statements made herein and in any other documents or oral presentations made by,
or on behalf of, the Company. Important factors which could cause actual
results to differ materially from those in forward-looking statements, include,
among others, the ability to obtain additional financing, which is not assured;
price and product competition by foreign and domestic competitors, including new
entrants; rapid technological developments and changes; the Company's
relationship with its suppliers and suppliers' ability to provide products on a
timely basis; the achievement of lower costs and expenses; reliance on large
customers; the Company's ability to attract acquisition candidates and to
successfully integrate acquisitions into the Company's business; interest rate
fluctuations and other general economic conditions. In light of the assumptions
and uncertainties inherent in forward-looking information, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the plans of the Company will be realized.
Results of Operations
For the three month and nine month periods ended January 31, 2000,
Communications World International, Inc. ("CommWorld" or the "Company") reported
net losses from continuing operations of $366,000 and $691,000, respectively, as
compared to net losses of $416,000 and $1,021,000 for the comparable periods
ended January 31, 1999. Total revenue for the quarter ended January 31, 2000
was $4,078,000 compared to total revenue of $1,907,000 for the quarter ended
January 31, 1999. For the nine month period ended January 31, 2000, total
revenue was $11,039,000 compared to total revenue of $6,755,000 for the nine
month period ended January 31, 1999. During the nine months ended January 31,
2000, the Company completed two acquisitions. One acquisition was completed on
September 30, 1999, and the other acquisition was completed on October 29, 1999.
Results of operations for these two acquisitions have been included in the
Company's Consolidated Statements of Operations since the respective date of
acquisition.
Franchise Segment
The sales of the franchise segment in the three month and nine month periods
ended January 31, 2000, remained relatively stable as compared to the same time
periods from the prior year. The gross margin percentage on franchise equipment
sales was approximately 8% for the three month and 9% for the nine month periods
ended January 31, 2000 as compared to gross margins of approximately 11% for the
same periods in the prior year. The prior year gross margins were improved by a
discount of $127,000 related to an agreement with Toshiba America Information
Systems, Inc., ("TAIS") the Company's principal supplier, to treat as non
interest bearing a note payable to TAIS in the amount of $1,086,000. Exclusive
of the $127,000 discount, the gross margins from franchise equipment sales would
have resulted in a decrease in gross margin of $8,000 the nine month period
ended January 31, 1999. Management does not expect future sales of the
franchise segment to materially increase over present levels.
9
Company Owned Segment
The increase in revenue from direct equipment sales and service was $1,966,000
and $4,307,000 for the three month and nine month periods ended January 31,
2000, respectively, compared to the same time periods from the prior year. The
gross margin percentage on direct equipment sales and service declined
approximately 4% from 37% for the nine months ended January 31, 1999 to 33 % for
the nine months ended January 31, 2000. Gross margins for the three month
periods ending January 31, 1999 compared to the same periods of the prior year
declined 3% from 33% to 30%. The decrease in gross margin reflects an increase
in less profitable service business versus higher margin equipment installation
and sales in the Company's national account operations. The decrease in
equipment installation and sales in the Company's national account operations is
the result of reduced activity with the Company's largest national account
customer. The increase in sales reflects the Company's strategy to grow by
acquisition in the Southwest United States. Sales for the three and nine months
ended include two acquisitions in the Dallas (completed in March and September
1999) and two acquisitions in the Denver (completed in April and October 1999)
markets. During the three month and nine month periods ended January 31, 1999
the operations of three subsidiaries were disposed of and were not included in
the respective periods' operations.
The increase in selling expenses was $81,000 and $279,000 for the three month
and nine month periods ended January 31, 2000, respectively, compared to the
same time periods from the prior year after giving effect to $71,000 and
$220,000 of selling expenses for the prior year comparable periods included in
loss from operations sold. This net increase was due to increased commissions
on higher sales volume and a larger sales force in company owned operations.
In June of 1998, the Company entered into a letter of intent to merge with
Interconnect Acquisition Corporation ("IAC"), a privately-held company. The
merger was completed January 28, 1999. In connection with the merger, the
Company effected management changes, including the election of Jim Ciccarelli as
Chief Executive Officer and a director of the Company and Lionel Brown as
President of the Company. Included in the loss for the nine months ended
January 31, 1999 is officer severance compensation of $138,000 related to two
executive officers who are no longer with the Company.
In conjunction with the merger with IAC, the Company is pursuing several
acquisition targets. Costs associated with these potential acquisitions are
deferred and either capitalized as part of the cost of acquisition or are
expensed at the time that it is determined that the acquisition will not be
completed. Included in the loss for the nine months ended January 31, 1999 are
$78,000 of costs associated with expired letters of intent.
The increase in general and administrative expenses was $221,000 and $176,000
for the three month and nine month periods ended January 31, 2000, respectively,
compared to the same time periods from the prior year after giving effect to
$84,000 and $444,000 of general and administrative expenses for the prior year
comparable periods included in loss from operations sold. This net increase is
due to the increased number of locations where the Company conducts operations
and on the resulting higher volume of Company activity. Additionally, executive
compensation increased by approximately $48,000 and $93,000 for the three and
nine month periods ended January 31, 2000, respectively, compared to the same
time periods from the prior year.
10
Lack of Working Capital; Need for Additional Financing
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The Company's operations have historically been adversely affected by a lack of
working capital. The Company uses a line of credit from a lending institution,
which is limited to the extent of available collateral. The Company's line of
credit is fully utilized to the extent of available collateral. The lack of
available funding impedes the Company's ability to fund additional equipment
purchases and to expand its business operations. Although the Company's working
capital deficit has been reduced by approximately $600,000 at January 31, 2000
as compared to its position at April 30, 1999, the Company expects to continue
its efforts to obtain additional capital. The Company has no firm commitments
from any source and there can be no assurance the Company will obtain the
necessary capital. Moreover, due to the Company's poor liquidity and operating
results and the absence of a NASDAQ listing for its Common Stock, the cost of
obtaining additional capital is expected to be significant.
In May 1999, the Company completed an offering of 13,807.5 Units with each Unit
consisting of one share of Series H Preferred Stock and warrants to purchase 40
shares of common stock at $3.00 per share through March 31, 2004. The Company
received $2,761,500 in gross proceeds from this offering. All of the shares of
Series H Preferred Stock have been converted into an aggregate of 2,761,500
shares of common stock.
In October 1999 the Company completed an offer of Units of Subordinated
Convertible Notes and Common Stock Purchase Warrants. Each Unit consists of a
$50,000 Note and 20,000 Warrants for a purchase price of $50,400. The Note is
convertible into Common Stock at $1.50 per share which may be lowered under
certain circumstances. Each Warrant is exercisable at $.40 per share until
September 30, 2004. The Company received net proceeds of approximately
$1,362,000 from the sale of these units.
In November 1999, additional net proceeds of approximately $722,000 were
received from the sale of Notes and Warrants to two institutional investors.
The terms of these transactions were similar to the Unit offering, with certain
exceptions. The Company agreed to register the common stock which may be
received upon conversion of these notes, and that if the registration statement
is not declared effective by April 30, 2000, the institutional investors have
the right to accelerate the maturity date of their notes to nine months from the
date of exercise of the acceleration right. If the institutional investors
exercise the right to accelerate the maturity of their notes the Company will
redeem their Warrants at $.02 per Warrant. The exercise price for these
warrants is $.60, instead of the $.40 exercise price in the Units. The Company
is also restricted in its ability to prepay these notes.
In January 2000, the Company entered into a new revolving line of credit
agreement with a finance company. The revolving line of credit permits the
Company to borrow up to $2,000,000 subject to certain collateral limitations.
Interest, at the rate of prime plus 3.5% per annum, is due monthly. The
revolving line of credit is collaterallized by substantially all of the assets
of the Company.
11
Part II
Other Information
Item 5. Other Information.
On March 10, 2000, the Company entered into an agreement for a business
combination with Business Products, Inc. ("BPI"). BPI provides advanced data
technology services. It is headquartered in Denver, and has offices in Seattle
and Salt Lake City. BPI is privately held by Michael G. St. John and members of
his family. It is contemplated that, in connection with the merger, the St.
Johns will receive an aggregate of 12,600,000 shares of the Company's common
stock and warrants to purchase an additional 3,000,000 shares at $1.50 per share
if certain benchmarks are satisfied.
The merger is subject to approval of the Company's shareholders as well as
obtaining various approvals, and customary closing conditions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. General Credit and Security Agreement dated January 29, 2000, with SPECTURM
Commercial Services.
(b) Reports on Form 8-K
Form 8-K filed on November 8, 1999, reporting the purchase of certain assets and
assumption of certain liabilities of West-Tech Communications Corp.
Form 8-K/A filed on January 7, 2000, reporting the historical financial
information and pro forma financial information for the purchase of certain
assets and assumption of certain liabilities of West-Tech Communications Corp.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Communications World International, Inc.
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(Registrant)
Date: March 13, 2000 /s/ James M. Ciccarelli
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James M. Ciccarelli, Chief Executive Officer
Date: March 13, 2000 /s/ David E. Welch
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David E. Welch, Chief Financial Officer
12