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UNITED STATES
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, 2001
[ ] 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 No. 0-30220
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ACTIVE LINK COMMUNICATIONS, INC.
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(Name of Small Business Issuer in Its Charter)
<Table>
Colorado 84-0917382
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
7388 S. Revere Parkway, Suite 1000, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
</Table>
(303) 721-8200
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Issuer's Telephone Number, Including Area Code
Communications World International, Inc.
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(Former name of Issuer)
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
--- ---
As of August 31, 2001, the issuer had 10,366,167 shares of its no par value
Common Stock issued and outstanding.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JULY 31, 2001
(IN THOUSANDS OF DOLLARS)
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<Table>
ASSETS
Current assets:
Trade accounts and current portion of notes receivable, less allowance for
doubtful accounts of $221 $ 2,407
Costs and estimated earnings in excess of billings on uncompleted contracts 1,794
Inventory 1,508
Prepaid expenses 390
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Total current assets 6,099
Property and equipment, net 462
Deposits and other assets 195
Intangible assets, net 1,795
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$ 8,551
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks issued in excess of funds on deposit $ 155
Trade accounts payable 3,795
Revolving line of credit 1,781
Current portion of notes payable 484
Current portion of capital lease obligations 44
Billings in excess of costs and estimated earnings on uncompleted contracts 127
Accrued expenses 1,560
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Total current liabilities 7,946
Capital lease obligations 45
Accrued Interest 202
Notes payable (including $463 due to related parties) 3,127
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Total liabilities 11,320
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Stockholders' deficit:
Preferred stock, 3,000,000 shares authorized: --
Common stock, no par value, 75,000,000 shares authorized,
shares issued and outstanding: 10,366,167 11,557
Additional paid-in capital 1,192
Accumulated deficit (15,518)
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Total stockholders' deficit (2,769)
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$ 8,551
========
</Table>
See accompanying notes to consolidated financial statements
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 2001 AND 2000
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
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<Table>
<Caption>
For the Three Months Ended July 31,
-----------------------------------
2001 2000
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Revenue:
Direct equipment sales and service $ 4,727 $ 3,535
Other revenue 10 16
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4,737 3,551
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Costs and expenses:
Cost of direct equipment sales and service 3,499 2,534
Selling 503 376
General and administrative 869 758
Depreciation and amortization 132 83
Interest expense 192 189
Permanent impairment of goodwill 3,500 --
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8,695 3,940
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Loss from continuing operations before income taxes (3,958) (389)
Income tax benefit 93 8
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Loss from continuing operations (3,865) (381)
Discontinued operations
Income from discontinued operations, net of income
tax expense of $5 in 2001 and $8 in 2000 30 44
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Loss before extraordinary item (3,835) (337)
Extraordinary item - gain on restructuring of an
account, payable net of income tax expense of $88 165 --
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Net (loss) $ (3,670) $ (337)
============ ============
Loss per common share:
Basic and Diluted
Loss from continuing operations $ (.37) $ (.05)
Income from discontinued operations -- .01
Extraordinary item .02 --
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Net loss $ (.35) $ (.04)
============ ============
Weighted average number of shares outstanding:
Basic and Diluted 10,380,297 8,354,957
============ ============
</Table>
See accompanying notes to consolidated financial statements
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 2001 AND 2000
(IN THOUSANDS OF DOLLARS)
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<Table>
<Caption>
2001 2000
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Cash flows from operating activities:
Loss from continuing operations $ (3,700) $ (381)
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization 132 83
Amortization of debt discount and debt issuance costs 53 66
Provision for losses on accounts and notes receivable 18 21
Loss on impairment of goodwill 3,500 --
Gain on restructuring of accounts payable (254) --
Changes in operating assets and liabilities:
Trade accounts and notes receivable (294) (115)
Inventories (105) 143
Deposits and other assets (276) 46
Trade accounts payable and accrued expenses 702 (381)
Costs and estimated earnings in excess of billings on
uncompleted contracts (569) --
Billings in excess of costs and estimated earnings on
uncompleted contracts 71 --
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Net cash used by continuing operations (722) (518)
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Income from discontinued operations
Income from discontinued operations 30 44
Changes in assets and liabilities 189 20
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Net cash provided by discontinued operations 219 64
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Net cash used in total operating activities (503) (454)
Cash flows from investing activities:
Capital expenditures (7) (20)
Proceeds from sale of assets 10 --
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Net cash used by investing activities (3) (20)
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Cash flows from financing activities:
Net borrowings under line-of-credit agreement 229 546
Exercise warrants -- 84
Repayment of notes and contract payable (20) (140)
Repayment of capital lease obligations (12) (7)
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Net cash provided by financing activities 197 483
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Net increase (decrease) in cash (303) 9
Cash at beginning of the period 148 44
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Cash at end of the period $ (155) $ 53
======== ========
</Table>
See accompanying notes to consolidated financial statements
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
FOR THE THREE MONTHS ENDED JULY 31, 2001 AND 2000
(IN THOUSANDS OF DOLLARS)
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<Table>
<Caption>
2001 2000
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Supplemental disclosures of cash flow information:
Interest paid $ 71 $ 57
</Table>
See accompanying notes to consolidated financial statements
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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(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, 2001 and for the two years then ended included in the
Company's report on Form 10-KSB. 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) GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
The Company's financial statements for the three months ended July 31,
2001 have been prepared on a going concern basis, which contemplates
the realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company has
historically reported net losses, including reporting a loss from
continuing operations and before extraordinary gain of $3,865,000 for
the three months ended July 31, 2001 and has a working capital deficit
of $1,847,000 as of July 31, 2001. 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 at July
31, 2001. The lack of available funding impedes the Company's ability
to fund additional equipment purchases and to expand its business
operations. Furthermore, the Company's major vendor has notified the
Company it will only sell to the Company on a cash basis.
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(2) GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
(CONTINUED)
To address its cash flow concerns, the Company sold convertible notes
and restricted common stock during fiscal 2001. These proceeds were
used to fund operations of the Company. In January 2001, the Company
started making reductions in general and administrative costs that
resulted in a reduction of approximately $80,000 of expenses per month
by April 30, 2001. However, even with the reduction of expenses, the
Company still expects continued losses and cash to be used in operating
activities from the Company's current operations during fiscal 2002.
The Company currently has a definitive merger agreement with an entity
in the Chicago, Illinois area that is contingent upon certain events
occurring, including the Company raising $1,000,000 in debt/equity
financing. Management believes that the merger should increase revenues
and cash flows in the future. Management expects that if the merger is
successful that the Company will exit its existing telecom business. If
the merger is ultimately unsuccessful, management of the Company
believes additional curtailment in existing operations will be
necessary, including the sale of one or more of its divisions, to fund
the operations of the Company during fiscal 2002. As a result of
management's plans described above, the Company recorded a $3,500,000
impairment of its goodwill during the quarter ended July 31, 2001.
Additional impairment of goodwill may be necessary in the future
depending on the final outcome of management's plans to sell or curtail
the Company's operations.
Management cannot provide assurance that the Company will ultimately
achieve profitable operations or be cash positive, complete the merger
discussed above or raise additional debt and/or equity capital.
However, based on its prior demonstrated ability to raise capital,
management believes that the Company's capital resources will be
adequate to continue operating and maintain its business strategy
during fiscal 2002. However, if the Company is unable to raise
additional capital in the near future, due to the Company's liquidity
problems, management expects that the Company will need to curtail
operations, liquidate assets, seek additional capital on less favorable
terms and/or pursue other remedial measures. These financial statements
do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern.
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(3) BUSINESS DISPOSITION
In July 2001, the Company and Toshiba American Information Systems,
Inc. (TAIS), the primary vendor for the Company's franchise operation,
agreed to terminate the agreement by which the Company was authorized
to sell TAIS products to the Company's franchise network. As a result
of this action by TAIS, the Company determined that it could no longer
provide products to the franchise network of 54 franchisees in a cost
competitive manner and was therefore discontinuing all franchise
operations. Current and prior operations related to the franchise
operations are reflected as discontinued operations.
(4) ACCOUNTS PAYABLE RESTRUCTURING
In July 2001, in conjunction with the termination of the franchise
program the Company negotiated a restructuring of existing amounts
payable into a long-term note. The vendor, TAIS, will forgive $300,000
of the amounts payable, the Company will pay $20,000 per month with no
interest for the first twelve (12) months and $20,000 per month plus
interest at 6.75% per annum for the remaining term of the note. In
addition, the Company will accelerate the payment of the note, if in
the future, the Company receives cash for any sale of existing business
units. The Company recognized a $253,000 gain on debt restructure,
which represents the difference between the payable to vendor before
restructure and the future principal and interest payments on the
restructured payable.
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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, as discussed in the
Company's report on Form 10-KSB for the year ended April 30, 2001. 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 period ended July 31, 2001, Active Link Communications, Inc.
("Active Link" or the "Company") reported net losses of $3,670,000 as compared
to a net loss of $337,000 for the comparable period ended July 31, 2000. The net
loss for July 31, 2001 includes a loss of $3,500,000 for the impairment of
goodwill and a $253,000 gain on the restructuring of accounts payable. Total
revenue for the quarter ended July 31, 2001 was $4,737,000 compared to total
revenue of $3,551,000 for the quarter ended July 31, 2000.
The increase in revenue from direct equipment sales and service was $1,192,000
for the three month period ended July 31, 2001, compared to the same time period
from the prior year. The gross margin percentage on direct equipment sales and
service declined approximately 2% from 28% for the three months ended July 31,
2000 to 26% for the three months ended July 31, 2001. The increase in sales is a
result of an increase in large PBX switch installations in the Dallas and
Houston markets of approximately $603,000 and an increase in cable installation
in the Denver market as a result of the acquisition of Applications Consultants,
Inc. ("APCON") in October 2000 of approximately $808,000. The decrease in gross
margin reflects an increase in product costs as a result of the Company's poor
cash position. The Company is not able to purchase product at the most
advantageous price.
The increase in selling expenses was $127,000 for the three month periods ended
July 31, 2001, compared to the same time period from the prior year. This
increase was due to increased commissions on higher sales volume and a larger
sales force in Company operations.
The increase in general and administrative expenses was $111,000 for the three
month period ended July 31, 2001, compared to the same time period from the
prior year. This increase is due primarily to the acquisition of APCON. General
and administrative expenses were 18% of total revenue for the three months ended
July 31, 2001 as compared to 21% of revenue for the three months ended July 31,
2000.
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Lack of Working Capital; Need for Additional Financing
The Company's financial statements for the three months ended July 31, 2001 have
been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of
business. The Company's working capital deficit decreased by $662,000 from
$2,509,000 as of April 30, 2001 to $1,847,000 as of July 31, 2001. The entire
decrease is the result of a restructuring of accounts payable of approximately
$1,107,000. Active Link's operations have historically been adversely affected
by a lack of working capital. Active Link uses a line of credit from a finance
company, which is limited to the extent of available collateral. Active Link's
line of credit is fully utilized to the extent of available collateral at July
31, 2001. The lack of available funding impedes Active Link's ability to fund
additional equipment purchases and to expand its business operations. Active
Link periodically seeks additional capital, but has no firm commitments from any
source and there can be no assurance Active Link will be able to fulfill its
capital needs in the future. Moreover, due to Active Link'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 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. The registration statement was not
declared effective by April 30, 2000, and as a result the institutional
investors have the right to accelerate the maturity date of their notes to six
months from the date of exercise of the acceleration right. If the institutional
investors exercise the right to accelerate the maturity of their notes Active
Link 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. Active
Link is also restricted in its ability to prepay these notes.
In January 2000, Active Link entered into a new revolving line of credit
agreement with a finance company. The revolving line of credit permits Active
Link 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. In October
2000 the revolving line of credit was increased to $2,850,000 subject to the
original collateral limitations. The revolving line of credit is collateralized
by substantially all of the assets of Active Link. At July 31, 2001, $1,781,000
was outstanding under the line of credit.
As a result of the acquisition of APCON in October 2000 and an increase in large
telephone installation projects by the Company's Texas operations, the Company
has experienced an increase in receivables, for project work that is still in
process, that cannot be used as collateral for the Company's line of credit and
an increase in project costs for which cash deposits have not been received.
Receivables which cannot be used as collateral were $105,000 at July 31, 2001,
and costs and estimated earnings in excess of billings for contracts in process
at July 31, 2001 was $1,794,000.
In June 2001 Active Link entered into an agreement for a merger with Mobility
Concepts, Inc. ("Mobility"). Mobility provides mobile computing solutions to
Fortune 500 companies nationally. Mobility's products and services include
solution design, project management, hardware, installation and support.
Mobility has its headquarters in Naperville, Illinois and sales offices
nationally. The Company believes that the merger with Mobility will provide new
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avenues of growth for the combined companies and improve the Company's ability
to raise additional working capital. Completion of the merger is subject to
several conditions, including completion of audited financial statements of
Mobility and the availability of additional financing of $1,000,000. An
institutional investor has provided the Company with a proposal for the
financing and is conducting its due diligence review. The Company hopes to
complete the merger in September 2001. Management expects that if the merger is
successful that the Company will exit its existing telecom business.
In July 2001, in conjunction with the termination of the franchise program to
sell TAIS products, the Company negotiated a restructuring of existing amounts
payable into a long-term note. TAIS will forgive $300,000 of the amounts
payable, the Company will pay $20,000 per month with no interest for the first
twelve (12) months and $20,000 per month plus interest at 6.75% per annum for
the remaining term of the note. In addition, the Company will accelerate the
payment of the note, if in the future, the Company receives cash for any sale of
existing business units.
In January 2001, the Company started making reductions in general and
administrative costs that resulted in a reduction of approximately $80,000 of
expenses per month by April 30, 2001. However, even with the reduction of
expenses, the Company still expects continued losses and cash to be used in
operating activities from the Company's current operations during fiscal 2002.
Management cannot provide assurance that the Company will ultimately achieve
profitable operations or be cash positive, complete the merger discussed above
or raise additional debt and/or equity capital. However, based on its prior
demonstrated ability to raise capital, management believes that the Company's
capital resources will be adequate to continue operating and maintain its
business strategy during fiscal 2002. However, if the Company is unable to raise
additional capital in the near future, due to the Company's liquidity problems,
management expects that the Company will need to curtail operations, liquidate
assets, seek additional capital on less favorable terms and/or pursue other
remedial measures. The Company's financial statements in this Report do not
include any adjustments relating to the recoverability and classification of
assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
None
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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.
ACTIVE LINK COMMUNICATIONS, INC.
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(Registrant)
Date: September 14, 2001 /s/ James M. Ciccarelli
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James M. Ciccarelli, Chief Executive Officer
Date: September 14, 2001 /s/ David E. Welch
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David E. Welch, Chief Financial Officer
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