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: JUNE 30, 2002
[ ] 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
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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.)
1840 Centre Point Drive, Naperville, IL 60563
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(Address of principal executive offices) (Zip Code)
</Table>
(630) 955-9755
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Issuer's Telephone Number, Including Area Code
7388 S. Revere Parkway, Suite 1000, Englewood, Colorado 80112
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(Former Address 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
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The aggregate market value of the voting stock held as of August 9, 2002 by non
affiliates of the issuer was $1,955,000. As of August 9, 2002 the issuer had
20,659,497 shares of its no par value Common Stock issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2002
(IN THOUSANDS OF DOLLARS)
<Table>
ASSETS
Current assets:
Cash $ 15
Trade accounts and current portion of notes receivable, less allowance for
doubtful accounts of $485 951
Inventory 614
Prepaid product purchases 323
Prepaid expenses and other current assets 204
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Total current assets 2,107
Property and equipment, net 119
Deposits and other assets 70
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$ 2,296
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 4,392
Revolving lines of credit and other short term borrowings 876
Current portion of notes payable (including $226 due to a related party) 5,723
Accrued interest payable 475
Accrued expenses and deposits 1,768
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Total current liabilities 13,234
Notes payable (including $56 due to a related party) 440
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Total liabilities 13,674
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Stockholders' deficit:
Preferred stock, 3,000,000 shares authorized: --
Common stock, no par value, 75,000,000 shares authorized,
shares issued and outstanding: 20,659,497 268
Additional paid-in capital 3,606
Excess of liabilities assumed over assets acquired, net (4,348)
Accumulated deficit (10,904)
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Total stockholders' deficit (11,378)
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$ 2,296
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</Table>
See accompanying notes to consolidated financial statements
3
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
<Table>
<Caption>
For the Three Months Ended June 30,
-----------------------------------
2002 2001
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Revenue:
Equipment sales and service $ 2,508 $ 3,804
Other revenue 3 13
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2,511 3,817
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Costs and expenses:
Cost of equipment sales and service 1,908 3,110
Selling 295 345
General and administrative 915 863
Depreciation and amortization 26 8
Interest expense 1,306 31
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4,450 4,357
Net income (loss) $ (1,939) $ (540)
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Income (loss) per common share:
Basic and Diluted
Net income (loss) $ (.09) $ (.05)
============ ============
Weighted average number of shares outstanding:
Basic and Diluted 20,659,497 9,959,651
============ ============
</Table>
See accompanying notes to consolidated financial statements
4
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(IN THOUSANDS OF DOLLARS)
<Table>
<Caption>
2002 2001
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Cash flows from operating activities:
Income (loss) from operations $ (1,939) $ (540)
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization 26 8
Amortization of debt discount and debt issuance costs 994 --
Changes in operating assets and liabilities:
Trade accounts and notes receivable 681 988
Inventories 232 (38)
Deposits and other assets 134 5
Checks issued in excess of funds on deposit (169) (889)
Trade accounts payable and accrued expenses (296) 45
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Net cash used by operating activities (337) (421)
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Cash flow from investing activities:
Proceeds from (advances) to shareholder -- (35)
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Net cash used by investing activities -- (35)
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Cash flows from financing activities:
Net borrowings (repayment) under line-of-credit agreement 97 (10)
Proceeds from issuance of convertible debt and other notes 514 --
Repayment of notes (225) --
Repayment of capital lease obligations (34) --
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Net cash provided by (used in) financing activities 352 (10)
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Net increase (decrease) in cash 15 (466)
Cash at beginning of the period 0 26
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Cash at end of the period $ 15 $ (440)
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 57 $ 31
Non-cash debt discount 249 --
</Table>
See accompanying notes to consolidated financial statements
5
ACTIVE LINK COMMUNICATIONS, 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 that, 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
March 31, 2002 as filed 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 June 30,
2002 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
operations of $1,939,000 for the three months ended June 30, 2002 and
has a working capital deficit of $11,127,000 as of June 30, 2002. The
working capital deficit includes Subordinated Convertible Notes and
accrued interest of approximately $3,645,000 due between September 30
and October 31, 2002, which is convertible into the Company's common
stock from $.25 to $.75 per common share. The Company is not generating
sufficient cash flow from operations to fund operations or to repay
obligations as they become due.
The Company's operations have historically been adversely affected by a
lack of working capital. The Company uses lines of credit from a
lending institution, which are limited to the extent of available
collateral. The Company's lines of credit are fully utilized to the
extent of available collateral at June 30, 2002. Additionally, the
Company is currently in default under the payment terms on many of its
other notes, including a note with a telecommunications vendor
associated with the Company's discontinued operations. Furthermore, the
Company's major product vendor, for its continuing operations, has
notified the Company it will only sell to the Company on a cash basis.
During this reporting period the Company reached an agreement with the
vendor to restructure amounts owed the vendor as described in Note 4.
The President/CEO and major shareholder of the Company has personally
guaranteed payment of the obligation. The lack of available funding
impedes the Company's ability to fund additional product purchases and
to expand its business operations.
6
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
(2) GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
(CONTINUED)
To address its cash flow concerns, subsequent to the merger, the
Company borrowed funds as follows:
o $500,000 Due in May 2002, secured by certain assets
of the former voice communications operations
(currently in default)
o $200,000 Due in April 2002, unsecured, issued to the
Company's Chairman of the Board and two shareholders
(currently in default)
o $500,000 Due in September 2002, unsecured,
convertible
o $500,000 Due in December, 2002, unsecured,
convertible
o $225,000 Advance provided by a stockholder to allow
the Company to purchase product for resale
o $76,966 Advance provided by a stockholder to allow
the Company to purchase product for resale
Management cannot provide assurance that the Company will ultimately
achieve profitable operations or be cash positive or raise necessary
additional debt and/or equity capital. However, the Company has
demonstrated its ability to raise capital. Management believes that if
the Company can obtain additional funding, the Company will have
adequate capital resources to continue operating and maintain its
business strategy during fiscal 2003. The Company is currently
attempting to raise between $3,000,000 and $5,000,000 in private
placements of its common stock and convertible debentures. If
substantial losses continue and/or the Company is unable to raise
additional capital, liquidity problems could cause the Company to
curtail operations, liquidate assets, seek additional capital on less
favorable terms and/or pursue other such actions that could adversely
affect future operations. 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.
(3) FINANCING AGREEMENT
In December 2001 the Company entered into a financing agreement with a
finance company to provide a revolving loan facility. The agreement
permits the Company to sell with recourse trade accounts receivable up
to $3,000,000, is due on demand and is subject to certain collateral
limitations and covenants primarily related to borrowing issuances.
Interest, at the rate of approximately 26% per annum, is due upon final
settlement of each purchased invoice. The agreement is collateralized
by substantially all of the assets of the Company. The agreement was
automatically renewed in June 2002 for an additional six month period.
At June 30, 2002, the Company had outstanding borrowings of $374,000.
7
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
(3) FINANCING AGREEMENT (CONTINUED)
Subsequent to the current period, the Company entered into a purchase
order financing program with the same finance company that handles the
revolving loan facility. Under this program, the finance company
advances funds directly to suppliers to purchase product. Upon shipment
of the product to the end customer the resulting invoice is sold to the
finance company under the existing financing arrangement. The proceeds
from this transaction are applied to outstanding amounts due under the
purchase order program.
(4) NOTES PAYABLE
In April 2002, the Company negotiated a restructuring of existing
amounts payable to its major supplier into a promissory note. The
Company paid $500,000 in June 2002 and will pay $100,000 per month for
twelve (12) months, with a balloon payment of $500,000 due in December
2002 and a final balloon payment due in June 2003. Interest will accrue
at 6.0% per annum and will be paid with the final balloon payment. At
June 30, 2002 the balance due was $2,111,871.
During the period ended June 30, 2002 the Company received net proceeds
of $500,000 from a Convertible Promissory Note. The note holder is
entitled to reimbursement of interest incurred on a note from her bank.
This Note is convertible into Common Stock at $.25 per share. Principal
and interest on the note is due December 27, 2002.
Due to this new convertible note, and to the renegotiation of the due
date on another $500,000 convertible note, the Company recorded an
additional $249,000 in deferred financing charges during the period.
These charges relate to the beneficial conversion due to a reduced
conversion price and will be amortized over the life of the notes.
(5) DISCONTINUED OPERATIONS
Active Link Communications, Inc. ("Active Link") has undergone a
strategic realignment of its business model into the mobile computing
industry through its merger with Mobility Concepts, Inc. ("Mobility").
The Company has completed this realignment during the current reporting
period with the disposal of its voice communications unit, located in
Houston and Dallas/Ft. Worth metropolitan areas. The disposal was
completed after certain key complimentary technical skills were
transferred to the new operation. As a result, the operations of
Mobility are now the only remaining operations of the Company. At the
date of the merger between Active Link and Mobility, the Company
estimated it would incur $700,000 of losses on its discontinued
operations through the estimated disposal date (March 31, 2002). As a
result, the Company accrued this estimated loss from the future
discontinued operations on the merger date. Additionally, as a result
of management's review of the realizability of goodwill related to the
remaining voice operations, the Company recorded a $716,000 impairment
of its goodwill during the quarter ended December 31, 2001.
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, as discussed in the
Company's report on Form 10-KSB for the year ended March 31, 2002. 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 and Cash Flows
For the three month period ended June 30, 2002, the Company reported net losses
of $1,939,000, as compared to a net loss of $540,000 for the comparable period
ended June 30, 2001. Total revenue for the quarter ended June 30, 2002 was
$2,511,000 compared to total revenue of $3,817,000 for the quarter ended June
30, 2001.
The decrease in sales for the three month period was predominately caused by
supplier requirements to prepay product purchases, thereby limiting sales based
upon available capital. Also, the implementation of several major customer
projects was delayed. The gross margin percentage on direct equipment sales and
service increased from 18% to 24% for the three months ended June 30, 2001 to
the three months ended June 30, 2002. The increase in gross margin for the
quarter reflects the impact of positive inventory adjustments of $116,000. The
gross margin percentage adjusted to exclude the impact of the inventory
adjustments increased slightly from 18% for the three months ended June 30, 2001
to 19% for the three months ended June 30, 2002.
Selling expenses for the three month period ended June 30, 2002 were $295,000,
representing a reduction of $50,000 from the same quarter of the prior year's
selling expenses of $345,000. This decrease of 14.5% was due to the reduction in
commissions directly resulting from the lower revenues for the current period.
The increase in general and administrative expenses was $52,000, an increase
from $863,000 for the three month period ended June 30, 2001 to $915,000 for the
same period for the current fiscal year. The increase includes redundant
corporate staff and related expenses in Denver of $160,000. These costs are
being phased out with the transition of corporate headquarters to the Naperville
location and will be predominately eliminated by the end of the next quarter. In
preparation for the transition of corporate headquarters subsequent to the
merger, salaries in Naperville increased $106,000 for the three months ended
June 30, 2002 compared to the same period of the prior fiscal year. Offsetting
these increases, the Company did not incur merger
9
related legal, accounting and travel expenses of $163,000 compared to the same
quarter of the prior fiscal year. Additionally, consulting expenses of $55,000
were incurred during the quarter ending June 30, 2001 that were not incurred
during the current period. These expenses were comprised of services provided by
a consultant developing a pen-based computing solution for the sports statistics
market as well as consulting services paid to the former owner of Mobility.
Interest expense for the quarter ended June 30, 2002 increased by $1,275,000
over the same period of the prior year. Of this increase, $994,000 can be
attributed to the amortization of imputed interest relating to the issuance of
convertible debt and related warrants. The factoring arrangement entered into by
Mobility as of December 31, 2001 and the aforementioned promissory note with a
major supplier account for $115,000 of the increase.
During the three months ended June 30, 2002, the Company used $337,000 of cash
used by operations, which compares to $421,000 used in the three months ended
June 30, 2001. However, as previously indicated the Company had a loss of
$1,939,000 during the three months ended June 30, 2002 as compared to a loss of
$540,000 for the three months ended June 30, 2001. The major difference between
cash used in operations and the net loss during 2002 was the amortization of
debt discounts and debt issuance costs of $994,000. Cash flows from financing
activities in 2002 of $352,000 represent additional borrowings of $514,000,
offset by $225,000 of repayments on notes.
Lack of Working Capital; Need for Additional Financing
The Company's financial statements for the three months ended June 30, 2002 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 increased by $1,672,000 from
$9,455,000 as of March 31, 2002 to $11,127,000 as of June 30, 2002. The increase
in the working capital deficit was principally caused by the increase in the
issuance of new notes payable of $1,103,000 and the decrease in accounts
receivable and inventory of $913,000.
The Company's operations have historically been adversely affected by a lack of
working capital. The Company uses lines of credit from a finance company, which
are limited to the extent of available collateral. The Company's lines of credit
are fully utilized to the extent of available collateral at June 30, 2002.
Additionally, the Company is currently in default under the payment terms of a
note with a telecommunications vendor associated with the Company's discontinued
operations. The Company reached an agreement with its major supplier to
restructure the payment of $2.6 million of trade payables. In the meantime, the
Company continues to purchase product from the supplier on a prepayment basis.
The Company entered into an agreement with its existing line of credit lender to
advance funds on the purchase of product. Under this arrangement, the lender
prepays product purchases directly to the supplier, with the eventual invoice to
the end customer used to secure the repayment of the advance.
In order to obtain additional cash the Company engaged in the following finance
activities during the period:
During the period ended June 30, 2002 the Company received net proceeds
of $500,000 from a Convertible Promissory Note. The note holder is
entitled to reimbursement of interest incurred on a note from her bank.
This Note is convertible into Common Stock at $.25 per share. Principal
and interest on the note is due December 27, 2002.
10
Due to this additional convertible note, and to the renegotiation of the due
date on another $500,000 convertible note, the Company recorded an additional
$249,000 in deferred financing charges during the period. These charges relate
to the beneficial conversion due to a reduced conversion price and will be
amortized over the life of the notes.
The lack of available funding impedes the Company's ability to fund additional
product purchases and to expand its business operations. The Company has
$4,392,000 of trade accounts payable which are currently due and payable;
$876,000 of revolving lines of credit that are due and payable as the Company
collects its accounts receivables; $5,723,000 of notes payable, of which
$3,645,000 that are due between September 30 and October 31, 2002 and are
convertible into the Company's Common Stock at a price from $.25 to $.75 per
share; and $2,243,000 of other liabilities that will be due and payable within
one year. The Company is currently seeking additional capital, but there can be
no assurance that the Company will be able to fulfill its capital needs in the
future. Moreover, due to 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.
Management cannot provide assurance that the Company will ultimately achieve
profitable operations or be cash flow positive, or raise additional debt and/or
equity capital. However, the Company has demonstrated its ability to raise
capital. Management believes that if the Company can obtain additional funding,
the Company will have adequate capital resources to continue operating and
maintain its business strategy during fiscal 2003. 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of its business. Some seek payment of past due amounts owed by
the Company while some of the actions seek damages and the Company is unable to
estimate the magnitude of its exposure at this time. No claim in any pending
action exceeds 10% of the Company's current assets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
Form 8-K filed on June 12, 2002 reporting, under item 5, that Mobility Concepts
reached agreement with its largest supplier, Fujitsu Personal Systems, Inc., to
restructure $2.6 million of trade payables.
11
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: August 15, 2002 /s/ Timothy Ells
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Timothy Ells, President and Chief
Executive Officer
Date: August 15, 2002 /s/ William D. Kelly
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William D. Kelly, Vice President and
Chief Financial Officer
12