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, 2003
[ ] 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.
--------------------------------
(Name of Small Business Issuer in Its Charter)
Colorado 84-0917382
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1840 Centre Point Drive, Naperville, IL 60563
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 955-9755
----------------------------------------------
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
--- ---
The aggregate market value of the voting stock held as of July 30, 2003 by non
affiliates of the issuer was $1,210,000. As of July 30, 2003 the issuer had
27,525,597 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, 2003
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
ASSETS
Current assets:
Cash $ 35
Trade accounts and current portion of notes receivable, less allowance for
doubtful accounts of $492 387
Inventory 289
Prepaid product purchases 43
Prepaid expenses and other current assets 39
--------
Total current assets 793
Property and equipment, net 20
Deposits and other assets 15
--------
$ 828
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 4,829
Revolving lines of credit and other short term borrowings 268
Current portion of notes payable (including $1,726 due to a related party) 4,521
Accrued interest payable 418
Accrued expenses and deposits 2,013
--------
Total current liabilities 12,049
Notes payable - Long term (including $1,936 due to a related party) 3,326
--------
Total liabilities 15,375
--------
Stockholders' deficit:
Preferred stock, 3,000,000 shares authorized: --
Common stock, no par value, 75,000,000 shares authorized,
shares issued and outstanding: 27,401,464 2,599
Additional paid-in capital 4,590
Excess of liabilities assumed over assets acquired, net (4,348)
Accumulated deficit (17,388)
--------
Total stockholders' deficit (14,547)
--------
$ 828
========
</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, 2003 AND 2002
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
- --------------------------------------------------------------------------------
<Table>
<Caption>
For the Three Months Ended June 30,
------------------------------------
2003 2002
---------------- ----------------
Revenue From:
Direct equipment $ 399 $ 2,102
Service sales 22 406
---------------- ----------------
$ 421 $ 2,508
---------------- ----------------
Costs and expenses:
Cost of direct equipment 331 1,708
Cost of service sales 36 200
Selling 105 295
General and administrative 475 915
Depreciation and amortization 1 26
---------------- ----------------
948 3,144
---------------- ----------------
Loss from operations (527) (636)
OTHER INCOME (EXPENSE)
Interest expense (230) (1,306)
Interest and other income 76 3
---------------- ----------------
Other expense, net (154) (1,303)
---------------- ----------------
Net loss $ (681) $ (1,939)
================ ================
Loss per common share:
Basic and Diluted
Loss from operations $ (.02) $ (.03)
Other expense, net -- (.06)
---------------- ----------------
Net Loss $ (.02) $ (.09)
================ ================
Weighted average number of shares outstanding:
Basic and Diluted 27,457,392 20,659,497
================ ================
</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, 2003 AND 2002
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
2003 2002
------- -------
Cash flows from operating activities:
Loss from operations $ (681) $(1,939)
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization 1 26
Provision for losses on accounts and notes receivable 12 --
Amortization of debt discount and debt issuance costs 81 994
Changes in operating assets and liabilities:
Trade accounts and notes receivable (39) 681
Inventories 199 232
Deposits and other assets (42) 134
Checks issued in excess of funds on deposit -- (169)
Trade accounts payable and accrued expenses 249 (296)
------- -------
Net cash used by operating activities (220) (337)
------- -------
Cash flow from investing activities -- --
Cash flows from financing activities:
Net borrowings (repayment) under line-of-credit agreement (55) 97
Proceeds from issuance of convertible debt and other notes 387 514
Repayment of notes (97) (225)
Repayment of capital lease obligations -- (34)
------- -------
Net cash provided by financing activities 235 352
------- -------
Net increase in cash 15 15
Cash at beginning of the period 20 0
------- -------
Cash at end of the period $ 35 $ 15
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 19 $ 57
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, 2003 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,
2003 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 $681,000 for the three months ended June 30, 2003 and has
a working capital deficit of $11,256,000 as of June 30, 2003. The
working capital deficit includes Subordinated Convertible Notes of
approximately $3,057,000, which are convertible into the Company's
common stock at $.25 per common share. During the quarter ended June
30, 2003 $31,000 of the convertible debt and accrued interest was
converted to common stock. 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
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, 2003. The Company was unable
to satisfy $132,000 of its payroll obligations during the reporting
period, as its employees were not paid as scheduled. This brings total
unpaid payroll obligations to employees to approximately $443,000.
Additionally, the Company is currently in default under the payment
terms on many notes made by it and is subject to various lawsuits for
non-payment.
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)
Furthermore, the Company's major product vendor, for its continuing
operations will only sell to the Company on a cash basis. 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 conduct its business operations.
To address its cash flow concerns the Company has borrowed funds.
During the quarter ended June 30, 2003 the company has borrowed funds
as follows:
o $337,000 - Borrowed from Integrated Mobile Solutions, LLC
(IMS), the note is due in June 2005 and secured by the
Company's assets. Subsequent to June 30, 2003 the Company
received an additional advance in the amount of $3,000 against
this Note, bringing the aggregate balance to $340,000.
o $50,000 - Additional advances borrowed from the Company's
President. Coupled with a previous advance of $250,000 these
advances were converted into a $300,000 note.
The Company has implemented a survival plan consisting of three key
elements: (1) reduction of expenses (2) creditor arrangements, and (3)
additional financing. The Company believes there is a potentially
significant market for its products and services if the Company were
able to operate with adequate working capital and without extreme
liquidity constraints. The Company believes that if all three elements
of the survival plan are implemented successfully the Company can
survive with the potential to grow and operate profitably.
Due to continued liquidity problems, the Company terminated the
majority of its employees in May 2003. As part of the funding
arrangement with IMS, essential employees were contracted by IMS as
independent contractors to continue to provide services to the
Company's customers. The Company used funds made available through the
loan with IMS to pay for these services. It is the Company's intent to
hire back essential employees upon finalization of additional funding.
During the past several months, the Company has been negotiating
creditor discounts, extended payment terms and debt to equity
conversions. Although many creditors have agreed to discounts,
discussions continue with several large creditors and remain unsettled.
The third part of the Company's strategy is to obtain additional
financing. As noted, IMS has provided $340,000 in bridge financing to
the Company. IMS has also informed the Company that if arrangements are
made with the Company's creditors satisfactory to IMS and there are no
material adverse changes to the Company's operations, IMS will attempt
to raise additional financing to enable IMS to invest in the Company's
securities. It is the intention of both the Company and IMS that IMS
invest up to $2.0 million in the
7
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
(2) GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
(CONTINUED)
Company through the purchase of the Company's common stock based upon a
50% discount on the then current market price, with a floor of $.04 per
share. Much of this investment may come in the form of a note that
would automatically convert into common stock upon approval of the
Company's shareholders of an increase in the authorized shares of the
Company's stock. IMS does not have substantial funds and may not be
able to fund the intended purchase.
If the Company does not receive substantial creditor concessions and
additional funding, the Company is unlikely to be able to continue
operations. Accordingly, there is a substantial doubt about its ability
to continue as a going concern. 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.
(3) STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been
recognized. Had compensation costs for these option plans been
determined based on the fair value at the grant date for options
granted for the three months ended June 30, 2003 and June 30, 2002,
consistent with the provisions of SFAS 123, the Company's net loss and
net loss per share applicable to common stock for those periods would
have been the pro forma amounts indicated below:
<Table>
<Caption>
(In thousands, except for For the Three Months For the Three Months
share information) Ended June 30, 2003 Ended June 30, 2002
- ------------------------- -------------------- --------------------
Net loss applicable to common stock -
as reported $ (681) $ (1,939)
Add: Stock based compensation included in
reported Net income (loss) -- --
Deduct: Stock based compensation
under SFAS 123 (46) (50)
------------ ------------
Net loss applicable to common stock -
pro forma $ (727) $ (1,989)
============ ============
Loss per common share -
as reported $ (.02) $ (.09)
Loss per common share - stock based
compensation under SFAS 123 (.01) (.01)
------------ ------------
Loss per common share -
pro forma $ (.03) $ (.10)
============ ============
</Table>
8
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
- --------------------------------------------------------------------------------
(3) STOCK-BASED COMPENSATION (CONTINUED)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
<Table>
<Caption>
2003 2002
---------- ---------
Risk-fee interest 3% 4-5%
Expected life 5 years 5 years
Expected volatility 126-127% 114-125%
Expected dividend $0 $0
</Table>
(4) NOTES PAYABLE
The following describes developments relating to various notes payable
that occurred during the three month period ended June 30, 2003:
As described in Note (2), the Company received a loan from IMS. The
loan matures on June 19, 2005 and is payable with interest at 3% per
annum. The Company has received net proceeds of $337,000 as of June 30,
2003. Subsequent to June 30, 2003 the Company received an additional
advance in the amount of $3,000 against this Note, bringing the
aggregate balance to $340,000.
In August 2002 the Company received net proceeds of $250,000 from a
short-term Note secured by the personal residence of the Company's
President. The Company defaulted on the Note. To cure the default on
this note, the Company's President agreed to personally pay-off the
principal and accrued interest in March 2003 and the Company agreed to
repay its President. During the quarter ending June 30, 2003 the
Company received an additional $50,000 in proceeds from the Company's
President. The Company converted these advances into a note for
$300,000 in August 2003. This note matures in August 2004, carries an
interest rate of 6% and is convertible into common stock at a price of
$.25 per share. Additionally, the Company issued warrants to purchase
up to 300,000 shares of the Company's common stock at $.25 per share
with an expiration date of August 2009.
(5) SUBSEQUENT EVENTS
As noted in Note (2), the Company and IMS confirmed their intention
that IMS invest up to $2.0 million in the Company through the purchase
of the Company's common stock based upon a 50% discount on the then
current market price, with a floor of $.04 per share. Additionally,
Tamara Ells resigned as the President/CEO of Mobility Concepts, Inc and
assumed the role of President for IMS.
9
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;
continued forbearance of, and arrangements with, creditors; 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 30, 2003. 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, 2003, the Company reported a net loss
of $681,000, as compared to a net loss of $1,939,000 for the comparable period
ended June 30, 2002. The loss from operations for these two periods was $527,000
and $636,000 respectively.
Total revenue for the quarter ended June 30, 2003 was $421,000 compared to total
revenue of $2,508,000 for the quarter ended June 30, 2002.
The decrease in sales for the three month period continues to be 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
dropped slightly from 19% for the three months ended June 30, 2002 to 17% for
the three months ended June 30, 2003. The higher gross margin for the prior year
quarter reflects the impact of positive inventory adjustments of $116,000
recorded in that quarter. The gross margin percentage on direct equipment
adjusted to exclude the impact of the inventory adjustments is 13% for the three
months ended June 30, 2002.
Selling expenses for the three month period ended June 30, 2003 were $105,000.
This represents a reduction of $190,000 from the same period of the prior year's
selling expenses of $295,000. The 64% decrease for the three month period was
due to the drastic reduction in revenues, which eliminated the payment of sales
commissions, coupled with the reduction in the sales staff.
General and administrative expenses decreased by $440,000, from $915,000 for the
three month period ended June 30, 2002 to $475,000 for the same period for the
current fiscal year. The primary factor in the significant reduction in general
and administrative expenses is the substantial cutback in salaries and staffing
levels. The transition of the Company's corporate headquarters from Denver to
Naperville during the quarter ended June 30, 2002 created some
10
overlap in office salaries and expenses. The elimination of these expenses for
the quarter ended June 30, 2003 removed $103,000 in general and administrative
expense. Additionally, aggressive reduction of staff during the current fiscal
year period resulted in a reduction of salaries and related expenses of
approximately $445,000. Offsetting these decreases in general and administrative
expenses was an increase in outside service expense related to the use of third
party contract labor in the amount of $42,000 for the quarter ended June 30,
2003. There was also an increase in financing fees from quarter ended June 30,
2002 to quarter ended June 30, 2003 of $19,000 reflecting charges for minimum
fee requirements associated with the Company's credit facility.
Interest expense for the quarter ended June 30, 2003 was $230,000 compared to
$1,306,000 for the quarter ended June 30, 2002 representing a decrease of
$1,076,000. Of this decrease, $994,000 can be attributed to the amortization of
imputed interest relating to the issuance of convertible debt and related
warrants that was recorded in the prior year quarter. The renegotiated terms on
the promissory note with a major supplier resulted in a reduction in the
interest rate that generated a decrease in interest expense of $80,000 for the
current quarter compared to the prior year quarter.
During the three months ended June 30, 2003, $220,000 of cash was used by the
Company's operations, which compares to $337,000 used in the three months ended
June 30, 2002. However, as previously indicated the Company had a loss of
$681,000 during the three months ended June 30, 2003 as compared to a loss of
$1,939,000 for the three months ended June 30, 2002. The major difference
between cash used in operations and the net loss during 2003 was the
amortization of debt discounts and debt issuance costs of $994,000 in the
quarter ended June 30, 2002 compared to $81,000 in the quarter ended June 30,
2003. Additionally, accounts receivable for the quarter ended June 30, 2003
increased by $39,000 compared to a decrease of $681,000 for the quarter ended
June 30, 2002. Sources of cash provided by operating activities for this three
month period include a decrease in inventory as a result of a credit for
returned product of $157,000. The increase in accounts payable and accrued
expenses of $249,000 is net of a reclassification of a trade payable of $67,000
that was converted into a note payable. The increase in accounts payable and
accrued expenses was predominately comprised of accrued payroll and accrued
interest. Cash flows from financing activities in 2003 of $235,000 represent
additional borrowings of $387,000, offset by $97,000 of repayments on notes.
Lack of Working Capital; Need for Additional Financing
The Company's financial statements for the three months ended June 30, 2003 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 $689,000 from
$10,567,000 as of March 31, 2003 to $11,256,000 as of June 30, 2003. The
increase in the working capital deficit was principally caused by the increase
in the issuance of new notes payable of $387,000, the decrease in inventory of
$187,000 resulting from product returns and the increase in accrued liabilities
of $132,000 relating to accrued salaries.
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, 2003. The
Company was unable to satisfy $132,000 of its payroll obligations during the
reporting period, as its employees were not paid as scheduled. This brings
11
total unpaid payroll obligations to employees to approximately $443,000.
Additionally, the Company is currently in default under the payment terms on
many notes made by it and is subject to various lawsuits for non-payment.
In order to obtain additional cash the Company engaged in the following finance
activities during the period:
In June 2003, the Company closed on a loan with IMS that is secured by
the Company's assets. The loan matures on June 19, 2005 and is payable
with interest at 3% per annum. The Company has received net proceeds of
$337,000 as of June 30, 2003. Subsequent to June 30, 2003 the Company
received an additional advance in the amount of $3,000 against this
Note, bringing the aggregate balance to $340,000.
During the quarter ended June 30, 2003 the Company received an
additional $50,000 in proceeds from the Company's President in addition
to a previous advance of $250,000. The Company converted these advances
into a note for $300,000 in August 2003.
The working capital deficit includes Subordinated Convertible Notes of
approximately $3,057,000, which are convertible into the Company's common stock
at $.25 per common share.
The lack of available funding impedes the Company's ability to fund additional
product purchases and to expand its business operations. The Company has
$4,829,000 of trade accounts payable which are currently due and payable;
$268,000 of revolving lines of credit that are due and payable as the Company
collects its accounts receivables; $7,847,000 of notes payable, of which
$4,993,000 are convertible into the Company's Common Stock at a price of $.25
per share; and $2,431,000 of other liabilities that will be due and payable
within one year.
The Company has implemented a survival plan consisting of three key elements:
(1) reduction of expenses (2) creditor arrangements, and (3) additional
financing. Based on the Company's belief in the potential market for its
products and services, the Company believes that if all three elements are
implemented successfully, that the Company can survive and has the potential to
grow and operate profitably. The Company entered a relationship with Integrated
Mobile Solutions, Inc. (IMS) whereby IMS provided the Company with a loan to
continue minimal operations. Due to continued liquidity problems, the Company
terminated the majority of its employees. As part of the funding arrangement
with IMS, essential employees were contracted by IMS as independent contractors
to continue to provide services to the Company's customers. The Company used
funds made available through the loan with IMS to pay for these services. It is
the Company's intent to hire back essential employees upon finalization of
additional funding.
During the past several months, the Company has been negotiating creditor
discounts, extended payment terms and debt to equity conversions. Although many
creditors have agreed to discounts, discussions continue with several large
creditors and remain unsettled.
The third part of the Company's strategy is to obtain additional financing.
During the quarter ended June 30, 2003, Integrated Mobile Solutions, LLC
("IMS"), a recently formed entity, loaned the Company $337,000 in bridge
financing. The loan is secured by substantially all of the Company's assets. IMS
has also informed the Company that if arrangements are made with the Company's
creditors satisfactory to IMS and there are no material adverse changes to the
Company's operations, IMS will attempt to raise additional financing to enable
IMS to invest in the Company's securities. It is the intention of both the
Company and IMS that IMS invest up to $2.0 million in the Company through the
purchase of the Company's common stock based upon a
12
50% discount on the then current market price, with a floor of $.04 per share.
Much of this investment may come in the form of a note that would automatically
convert into common stock upon approval of the Company's shareholders of an
increase in the authorized shares of the Company's stock. IMS does not have
substantial funds and may not be able to fund the intended purchase.
If the Company does not receive substantial creditor concessions and additional
funding, the Company is unlikely to be able to continue operations. Accordingly,
there is a substantial doubt about its ability to continue as a going concern.
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.
Critical Accounting Policies and Estimates
Significant accounting policies and estimates used in the preparation of these
consolidated condensed financial statements were previously disclosed in the
Company's report on Form 10-KSB filed for the fiscal year ended March 31, 2003.
The Company follows the same accounting policies in preparation of interim
reports. Additionally, there were estimates made related to litigation claims.
The Company has made its best estimate as to what is appropriate, though these
estimates may change in the future.
ITEM 3. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we evaluated, under the
supervision and with the participation of our chief executive officer and the
chief financial officer, the effectiveness of the design and operation of our
disclosure controls and procedures. Based on this evaluation, our chief
executive officer and the chief financial officer have concluded that our
disclosure controls and procedures were effective as of the end of the period
covered by this report.
(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in internal control over financial reporting that
occurred during the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in the following significant legal
proceedings:
1. Toshiba America Information System, Inc. v. Active Link Communications, Inc.,
et al. As previously reported in the report on Form 10-KSB for the year ended
March 31, 2003, this matter is pending in Orange County Superior Court in
California. Toshiba filed suit on September 23, 2002, alleging that the Company
breached a settlement agreement and promissory note. Toshiba is seeking payments
due under the note, in addition to twenty-five percent (25%) of net proceeds
from any sale of business units sold by the Company. Toshiba is also seeking
interest and costs. On March 3, 2003, Toshiba was granted a Default Judgment in
the amount of $777,000. On March 27, 2003, Toshiba served a Notice of Filing of
Foreign Judgment, by which Toshiba, as a judgment creditor, filed the Agreed
Judgment in the District Court for Arapahoe County in Colorado. The Company
continues to seek to negotiate a settlement of this action.
2. WKB Value Partners, L.P. v. Active Link Communications, Inc. This matter is
pending in the District Court for Arapahoe County, Colorado. WKB Value Partners
filed suit on September 10, 2002, for Forcible Entry and Detainer, based on the
Company's continued possession of leased premises in Englewood, Colorado,
without payment of rent. The parties stipulated to an Order giving the landlord
possession and agreeing to pay rent, plus attorney fees, totaling $54,731.55.
WKB Value Partners subsequently filed an Amended Complaint, seeking further
damages for termination of the lease and a Motion for Entry of Default and
Default Judgment, seeking total damages of $311,906.21. The Company also
continues to seek to negotiate a settlement of this action.
3. Southwestern Battery Corporation, Inc. v. Active Link Communications, Inc.
This matter is pending in the District Court for the 95th Judicial District in
Dallas County, Texas. Southwestern Battery brought suit for payments owed for
goods and/or services provided to the Company. On September 20, 2002, the
parties entered into an Agreed Judgment in favor of Southwestern Battery for the
amount of $70,000. On January 10, 2003, Southwestern Battery served a Notice of
Filing of Foreign Judgment, by which Southwestern Battery, as a judgment
creditor, filed the Agreed Judgment in the District Court for Arapahoe County,
Colorado. The Company also continues to negotiate a settlement of this action.
4. PC Solutions, Inc. v. PC Solutions of Illinois, Inc. This matter is pending
in the Circuit Court of the 18th Judicial Circuit in DuPage County, Illinois,
and pertains to a claim for damages for breach of a consulting agreement with
the former owner of Mobility Concepts (f/k/a PC Solutions of Illinois, Inc.).
This individual previously filed for bankruptcy and payments were being made to
the receiver. The receiver requested and was granted a default judgment in
January 2003 in the amount of $332,000 plus interest for past due and future
payments. Management is actively negotiating a revised payment plan.
14
The Company is subject to other 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As described in Notes (2) and (4) to the financial statements in Part I, Item 1,
the Company made notes to lenders during the quarter ended June 30, 2003. The
lenders are sophisticated investors who were provided information regarding the
Company. The Company relied upon Section 4(2) of the Securities Act in
connection with these private transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
31. Section 302 Certifications
32. Section 906 Certifications
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.
----------------------------------------------
(Registrant)
Date: August 15, 2003 /s/ Timothy A. Ells
--------------- ----------------------------------------------
Timothy A. Ells, President and Chief
Executive Officer
Date: August 15, 2003 /s/ William D. Kelly
--------------- ----------------------------------------------
William D. Kelly, Vice President and
Chief Financial Officer
15
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
31. Section 302 Certifications
32. Section 906 Certifications
</Table>
16