U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
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[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: JULY 31, 1996
[ ] Transition period under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For THE TRANSITION PERIOD FROM TO
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Commission file number: 0-13652
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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)
6025 South Quebec, Suite 300, Englewood, Colorado 80111
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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 August 16, 1996, the issuer had 1,546,038 shares of its no par value
Common Stock issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
For the three months ended July 31, 1996, Communications World International,
Inc. ("CommWorld" or the "Company") reported net income of $31,354 compared to a
net loss of $215,845 for the three months ended July 31, 1995. Total revenue for
the quarter ended July 31, 1996 was $3,742,820, an increase of $473,253 or
14.5%, compared to total revenue for the quarter ended July 31, 1995 of
$3,269,567. The gross margin percentage on total revenue was 35.6% for the
quarter ended July 31, 1996 compared to 29% for the quarter ended July 31, 1995.
The increase in the gross margin percentage is attributable to the higher
percentage of direct equipment and service sales in the quarter ended July 31,
1996. These sales have higher profit margins than the equipment sales to
franchises. Net income before depreciation and amortization was $135,191 for
the quarter ended July 31, 1996 compared to a loss of $122,203 for the quarter
ended July 31, 1995.
Revenue from direct equipment and service sales for the three months ended July
31, 1996 was $2,079,261, an increase of $701,670 or 51% from the three months
ended July 31, 1995. The gross margin on this revenue increased from $640,894 to
$1,008,936, an increase of 57%. The gross margin percentage on this revenue
increased from 46.5% for the quarter ended July 31, 1995 to 48.5 % for the
quarter ended July 31, 1996. The increase in gross margin percentage is
primarily due to a higher portion of the product mix coming from the products on
which the Company receives its highest discounts.
Revenue from equipment and related service sales to franchises decreased for the
quarter ended July 31, 1996 by $267, 378. The decrease was offset by an increase
in the gross margin on this revenue from 11.5% for the quarter ended July 31,
1995 to 12.5% for the quarter ended July 31, 1996. The decrease in gross margin
on this revenue was $16,796.
Effective August 1, 1995, the Company acquired Communications World of Columbia,
Inc. ("CWC") and Alpha Communications and Technology, Inc. ("CWT") d.b.a.
CommWorld of Northern Virginia. The two companies were previously franchises of
the Company and were merged into CommWorld National Capitol Area, Inc. ("CWNC"),
a wholly owned subsidiary of the Company. The results of operations of CWNC have
been included in the consolidated results of operations beginning August 1,
1995. For the quarter ended July 31, 1996, CWNC had gross revenue of $414,000
which produced a gross margin of $186,000.
General and administrative expenses for the quarter ended July 31, 1996
increased from the quarter ended July 31, 1995 by $88,587. The increase is
attributable to the expenses of CWNC. Management continues to look for
opportunities to consolidate operations and reduce general and administrative
expenses related to the operations of the subsidiaries.
Depreciation and amortization expense increased by $10,195 in the three months
ended July 31, 1996 as compared to the three months ended July 31, 1995 due
primarily to amortization relating to the CWNC acquisition. Interest expense
increased $13,591 for the quarter ended July 31, 1996 as compared to the quarter
ended July 31 ,1995 due to the increased levels of sales which required the
support of increased levels of borrowings under the Company's line of credit.
The provision for doubtful accounts was $27,000 for the quarter ended July 31,
1996 as compared to $15,000 for the quarter ended July 31, 1995. The increase
reflects the higher sales volume.
The Company incurred operating losses for the years ended April 30, 1996 and
1995 and in prior periods. The Company's operating losses were financed
principally by the Company's major supplier. Management plans to improve its
cash flow by increasing revenue, both from national accounts and Company-owned
outlets, improving gross profit margins and containing general and
administrative expenses, in addition to attempting to obtain additional debt or
equity financing.
The Company believes that it has sufficient financial resources available to
meet its short-term working capital needs. The ability of the Company to
continue as a going concern is dependent upon the realization of management's
plans. There can be no assurance that the Company will be able to successfully
implement its plans and therefore finance its operations over the longer term.
The accompanying interim consolidated financial statements have been prepared
assuming the Company will continue as a going concern. These unaudited interim
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
July 31, 1996 and 1995
(Unaudited)
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The accompanying interim consolidated financial statements are those of
Communications World International, Inc. (the "Company" or "CommWorld") and its
subsidiaries, CommWorld of Phoenix, Inc., CommWorld of Seattle, Inc., Digital
Telecom, Inc. and CommWorld National Capitol Area, Inc. All significant
intercompany balances and transactions have been eliminated.
These unaudited interim consolidated financial statements reflect, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation. The accounting policies followed
by the Company are set forth in Note 1 to the Company's consolidated financial
statements included in the Company's April 30, 1996 Form 10-KSB filing.
Operating results for the three months ended July 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending April 30,
1997.
The Company adopted Financial Accounting Standards Board ("FASB") Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, effective the beginning of the current quarter. Based
on current circumstances, the effect of the adoption was not material.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation issued
to employees. The Statement allows for a fair value based method of accounting
for employee stock options and similar equity instruments. However, for
companies that continue to account for stock-based compensation arrangements
under Opinion No. 25, Statement No. 123 requires disclosure of the pro forma
effect on net income and earnings per share of its fair value based accounting
for those arrangements. The Company has elected not to adopt the recognition and
measurement provisions of the Statement; however, the required disclosures will
be provided for its fiscal year ended April 30, 1997.
1. LIQUIDITY
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The Company incurred operating losses for the years ended April 30, 1996 and
1995 and in prior periods. The Company's operating losses were financed
principally by the Company's major supplier. Management plans to improve its
cash flow by increasing revenue, both from national accounts and Company-owned
outlets, improving gross profit margins and containing general and
administrative expenses, in addition to attempting to obtain additional debt or
equity financing.
The Company believes that it has sufficient financial resources available to
meet its short-term working capital needs. The ability of the Company to
continue as a going concern is dependent upon the realization of management's
plans. There can be no assurance that the Company will be able to successfully
implement its plans and therefore finance its operations over the longer term.
The accompanying unaudited interim consolidated financial statements have been
prepared assuming the Company will continue as a going concern. These unaudited
interim consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEET
JULY 31, 1996
(UNAUDITED)
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ASSETS
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Current assets:
Cash $ 10,542
Trade accounts and current portion
of notes receivable, less allowance
for doubtful accounts of $ 208,723 2,479,357
Inventories 774,015
Prepaid expenses 56,403
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Total current assets 3,320,317
Property and equipment, net 465,567
Deposits and other assets 29,380
Notes receivable 71,442
Intangible assets, net 1,240,337
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$ 5,127,043
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Trade accounts payable $ 1,642,836
Revolving line of credit 615,716
Current portion of notes payable,
including amounts due to related
parties of $84,570 $ 391,240
Accrued expenses 212,356
Current portion of capital lease
obligations 8,674
Deposits and other current
liabilities 174,500
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Total current liabilities 3,045,322
Capital lease obligations and deferred
revenue 77,063
Notes payable, including amounts due
to related parties of $ 299,338 1,405,930
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Total liabilities 4,528,315
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Stockholders' equity:
Preferred stock, cumulative,
convertible. $1.00 par value,
3,000,000 shares authorized,
Series B - 80,088 issued and
outstanding, Series C - 426,678
issued and outstanding 506,767
Common stock, no par value,
2,000,000 shares authorized,
1,546,038 shares issued and
outstanding 4,141,012
Additional paid-in capital 452,884
Accumulated deficit (4,501,935)
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Total stockholders' equity 598,728
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Commitments and contingencies
$ 5,127,043
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See accompanying notes to interim consolidated financial statements.
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
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1996 1995
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Revenue:
Initial franchise fees $ 12,500 $ 32,500
Equipment and related service revenue 1,477,881 1,745,259
Royalty fees 52,295 45,939
Direct equipment and service sales 2,079,261 1,377,591
Other revenue 120,883 68,278
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Total revenue 3,742,820 3,269,567
Costs and expenses:
Cost of equipment and related
service revenue 1,293,867 1,544,449
Cost of direct equipment and
service sales 1,070,325 736,697
Cost of other revenue 46,641 39,638
Selling 218,741 207,109
General and administrative 874,926 786,339
Depreciation and Amortization 103,837 93,642
Interest Expense 76,129 62,538
Provision for bad debts 27,000 15,000
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Total costs and expenses 3,711,466 3,485,412
Net income (loss) 31,354 (215,845)
Cumulative dividend on preferred stock 10,219 8,099
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Net income (loss) applicable to
common stock $ 21,135 $ (223,944)
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Weighted average number of common
shares outstanding 1,546,038 1,404,598
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Income (loss) per common share $.01 $(.16)
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See accompanying notes to interim consolidated financial statements.
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
(UNAUDITED)
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1996 1995
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Cash flows from operating activities:
Net income (loss) $ 31,354 $(215,845)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 103,837 93,642
Provision for bad debts on
accounts and notes receivable 27,000 15,000
Changes in operating assets
and liabilities:
Trade accounts and notes
receivable (606,830) (336,905)
Inventories 33,869 38,051
Other current assets (23,334) 79,696
Deposits and other assets (1,691) (38,376)
Trade accounts payable 402,517 132,502
Accrued expenses and
other liabilities 108,359 161,644
Net cash provided by operating --------- ---------
activities 75,081 (70,591)
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Cash flows used in investing
activities - capital expenditures (12,375) (49,264)
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Cash flows from financing activities:
Net change in notes payable (75,969) 186,803
Net change in revolving line of
credit (73,344) (127,219)
Repayment of capital lease
obligations (6,599) (15,632)
Net cash provided by --------- ---------
(used in) financing
activities (155,912) 43,952
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Decrease in cash (93,206) (75,903)
Cash at beginning of period 103,748 68,998
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Cash at end of period $ 10,542 $ (6,905)
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Supplemental disclosures of cash flow
information:
Interest paid $ 76,129 $ 62,538
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Noncash transactions-purchase of
equipment under capital leases $-------- $ 67,117
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See accompanying notes to interim consolidated financial statements.
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: August 22, 1996 /s/ Richard D, Olson
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Richard D. Olson, President, Chief
Executive Officer
Date: August 22, 1996 /s/ Scott E. Harris
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Scott E. Harris, Executive Vice President,
Chief Financial Officer