SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended September 30, 1998.
or
|_| Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number 1-12937
ALL COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
New Jersey 22-3124655
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
225 Long Avenue, P.O. Box 794, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
973-282-2000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 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 number of shares outstanding of the registrant's Common Stock as of
November 13, 1998 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes |_| No |X|
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997 1
Consolidated Statement of Operations
For the Nine Months and Three Months ended
September 30, 1998 and 1997 2
Consolidated Statement of Cash Flows
For the Nine Months ended September 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Legal Proceedings 11
Changes in Securities 11
Defaults Upon Senior Securities 11
Submission of Matters to a Vote of Security Holders 11
Other Information 11
Exhibits and Reports on Form 8-K 11
Signatures 12
* The Balance Sheet at December 31, 1997 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1998 1997
ASSETS
Current assets
Cash and cash equivalents $ 240,245 $ 2,175,226
Accounts receivable-net 3,736,317 2,041,350
Inventory 4,256,452 1,097,883
Advances to Maxbase, Inc. -- 127,080
Other current assets 133,358 96,218
----------- -----------
Total current assets 8,366,372 5,537,757
Furniture, equipment and leasehold improvements-net 609,730 438,490
Deferred financing costs 48,525 --
Other assets 38,214 31,359
----------- -----------
Total assets $ 9,062,841 $ 6,007,606
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease payable $ 16,826 $ --
Accounts payable 1,933,483 909,785
Accrued expenses 632,184 323,892
Customer deposits 879,546 37,052
Income taxes payable -- 2,453
----------- -----------
Total current liabilities 3,462,039 1,273,182
Noncurrent liabilities
Bank loan payable 1,500,000 --
Capital lease payable, less current portion 27,765 --
----------- -----------
Total noncurrent liabilities 1,527,765 --
----------- -----------
Total liabilities 4,989,804 1,273,182
COMMITMENTS - See notes
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
1,000,000 shares authorized, none issued or outstanding -- --
Common Stock, no par value; 100,000,000 authorized;
4,910,000 shares issued and outstanding 5,229,740 5,229,740
Additional paid-in capital 332,024 316,611
Accumulated deficit (1,488,727) (811,927)
----------- -----------
Total stockholders' equity 4,073,037 4,734,424
----------- -----------
Total liabilities and stockholders' equity $ 9,062,841 $ 6,007,606
=========== ===========
See Notes to Consolidated Financial Statements
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ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net revenues $ 8,445,116 $ 5,334,380 $ 3,108,202 $ 1,870,618
Cost of revenues 5,905,306 3,694,713 2,194,385 1,324,126
----------- ----------- ----------- -----------
Gross margin 2,539,810 1,639,667 913,817 546,492
Operating expenses:
Selling 2,275,805 1,065,030 844,339 458,006
General and administrative 957,334 700,674 376,533 282,912
----------- ----------- ----------- -----------
Total operating expenses 3,233,139 1,765,704 1,220,872 740,918
----------- ----------- ----------- -----------
Loss from operations (693,329) (126,037) (307,055) (194,426)
----------- ----------- ----------- -----------
Other (income) expenses
Amortization of deferred financing costs 11,198 315,406 8,483 --
Interest income (48,729) (82,854) (10,209) (44,902)
Interest expense 21,002 27,779 19,950 --
----------- ----------- ----------- -----------
Total other (income) expenses (16,529) 260,331 18,224 (44,902)
----------- ----------- ----------- -----------
Loss before income taxes (676,800) (386,368) (325,279) (149,524)
Income tax benefit -- (16,485) -- (54,342)
----------- ----------- ----------- -----------
Net loss $ (676,800) $ (369,883) $ (325,279) $ (95,182)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.14) $ (0.09) $ (0.07) $ (0.02)
=========== =========== =========== ===========
Weighted average common shares outstanding
for basic and diluted computation 4,910,000 4,217,464 4,910,000 4,910,000
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
-2-
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (676,800) $ (369,883)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 157,841 368,224
Loss on disposal of equipment 3,209 --
Non cash compensation 15,413 --
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (1,694,967) (1,340,041)
Inventory (3,158,569) (347,370)
Advances to Maxbase, Inc. 127,080 --
Other current assets (37,140) (114,833)
Accounts payable 1,023,698 589,435
Accrued expenses 308,292 192,532
Income taxes payable (2,453) --
Deferred income taxes -- (12,373)
Customer deposits 842,494 23,332
----------- -----------
Net cash used by operating activities (3,091,902) (1,010,977)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (270,080) (294,923)
Decrease (increase) in other assets (6,855) 132
----------- -----------
Net cash used by investing activities (276,935) (294,791)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from public offering -- 5,635,070
Deferred stock offering costs -- (1,062,760)
Deferred financing costs (59,723) --
Repayment of subordinated convertible note -- (150,000)
Proceeds from bank loans 1,500,000 125,000
Payments on capital lease obligations (6,421) --
Payments on bank loans -- (644,673)
----------- -----------
Net cash provided by financing activities 1,433,856 3,902,637
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,934,981) 2,596,869
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,175,226 645,614
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 240,245 $ 3,242,483
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 21,002 $ 27,779
=========== ===========
Income taxes $ -- $ 1,910
=========== ===========
Acquisition of equipment
Cost of equipment $ 58,844 $ --
Capital lease payable incurred 51,012 --
----------- -----------
Cash down payment $ 7,832 $ --
=========== ===========
Supplemental disclosures of non-cash financing activities
Conversion of subordinated promissory notes to capital $ -- $ 600,000
=========== ===========
Reclassification of deferred financing costs to paid-in capital $ -- $ 75,000
=========== ===========
See Notes to Consolidated Financial Statements
-3-
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 1998
Note 1 - Basis of Presentation
The accompanying financial statements of All Communications Corporation
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Item
310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report
for the fiscal year ended December 31, 1997 as filed with the Securities
and Exchange Commission.
The consolidated financial statements include the accounts of the Company
and AllComm Products Corp. ("APC"), a wholly owned subsidiary. All
material intercompany balances and transactions have been eliminated in
consolidation.
Note 2 - Income (loss) per share
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted-average number of common shares outstanding during
the period.
Diluted net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding plus the
weighted-average number of net shares that would be issued upon exercise
of stock options and warrants using the treasury stock method. Common
stock options and warrants have not been included in any of the per share
computations because their inclusion would be anti-dilutive.
Note 3 - Recently Issued Accounting Pronouncements
In 1998, the Company adopted the provisions of SFAS 130, "Reporting
Comprehensive Income", which promulgates standards for the reporting and
display of comprehensive income and its components. There were no items of
comprehensive income to report in any of the periods presented.
The Company has also adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information", which requires disclosure of
reportable operating segments. The Company will address the segment
information requirements of SFAS 131 in its annual report for the year
ended December 31, 1998.
-4-
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 1998
Note 4 - Legal Matters
On July 16, 1998, MaxBase, Inc. (MaxBase) filed a Complaint against the
Company and APC in the Superior Court of New Jersey, Law Division, in
Bergen County. The Complaint alleges that the Company breached its
agreement with MaxBase by failing to meet the required minimum purchase
obligations thereunder. The Complaint further alleges misrepresentation
and unfair trade practices, and seeks unspecified monetary damages as well
as punitive and treble damages. The Complaint also seeks to enjoin the
Company from enforcing any rights the Company has under the agreement. The
Company believes the claims by MaxBase are without merit and intends to
fully defend the suit and assert its rights under the agreement.
-5-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future
The statements contained herein, other than historical information, are or may
be deemed to be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from such statements. These factors, risks and uncertainties, include
the relatively short operating history of the Company; market acceptance and
availability of new products; the non-binding and nonexclusive nature of
reseller agreements with manufacturers; rapid technological change affecting
products sold by the Company; the impact of competitive products and pricing, as
well as competition from other resellers; possible delays in the shipment of new
products; and the availability of sufficient financial resources to enable the
Company to expand its operations.
Results of Operations
Nine Months Ended September 30, 1998 ("1998 period") Compared to Nine Months
Ended September 30, 1997 ("1997 period") and Three Months Ended September 30,
1998 Compared to Three Months Ended September 30, 1997.
Net revenues. Operating revenues for the 1998 period totaled $8,445,000, a
record level for a nine-month period, representing a 58% increase over the
revenues of $5,334,000 reported for the 1997 period. Operating revenues for the
three month period ended September 30, 1998 totaled $3,108,000, representing a
66% increase over the revenues of $1,871,000 reported for the three month period
ended September 30, 1997.
Sales of voice communications products and services increased in the 1998
period by 66% to $4,474,000 over comparable 1997 revenues of $2,702,000 and for
the three months ended September 30, 1998 by 45% to $1,547,000 over comparable
1997 revenues of $1,068,000. Revenues in the 1998 period were derived primarily
from the sale of Lucent Technologies, Inc. (Lucent) and Panasonic
telecommunications systems and software packages. Revenues in the 1997 period
were derived primarily from the sale of Panasonic systems. Sales under the
Company's Preferred Vendor Agreement with Cendant Corporation accounted for 17%
and 16% of net revenues for the 1998 and 1997 nine-month periods, and 14% and
22% for the three-month periods, respectively.
In 1998, the Company established significant customer relationships with
Weichert Realtors for Panasonic telecommunications systems and Universal Health
Services, Inc., for Lucent and Sony products. Weichert Realtors accounted for 8%
and Universal Health Services accounted for 9% of net revenues for the 1998
period. The Company anticipates continued growth in the voice communications
division, during the
-6-
fourth quarter of 1998, due in part to increased revenue generated by the
Structured Cable division and the Company's relationship with Weichert Realtors
and Universal Health Services, Inc.
Sales of videoconferencing equipment increased in the 1998 period by
$1,339,000 or 51% to $3,971,000 as compared to $2,632,000 for the 1997 period,
and by $751,000 or 94% to $1,553,000 for the three month period ended September
30, 1998 as compared to $802,000 for the comparable 1997 three month period. The
Company increased its videoconferencing customer base in the 1998 period through
the introduction of lower cost videoconferencing systems manufactured by
Polycom. The increase in videoconferencing systems sold has more than offset the
reduction in the average selling price. The Company anticipates continued growth
in the videoconferencing division during the fourth quarter of 1998, due in
part to lower cost systems becoming more affordable to a larger group of
customers.
Cost of revenues. Cost of revenues in the 1998 period was $5,905,000 or
70% of net revenues, as compared to $3,695,000 or 69% of net revenues in the
1997 period. Cost of revenues for the three-month period ending September 30,
1998 was $2,194,000 or 71% of net revenues, as compared to $1,324,000 or 71% of
net revenues for the comparable 1997 three-month period. Cost of revenues
consists primarily of net product, direct labor, insurance, warranty, and
depreciation costs. The percentage increase in the 1998 period is related to
higher fixed direct labor costs and changes in the mix of product revenues to
lower margin more competitive products. The Company expects cost of revenues
to remain constant during the fourth quarter of 1998.
Selling. Selling expenses, which include sales salaries, commissions,
sales overhead, and marketing costs, increased to $2,276,000, or 27% of net
revenues in the 1998 period, as compared to $1,065,000 or 20% of net revenues in
the 1997 period. During the three-month period ended September 30, 1998, selling
expenses increased to $844,000, or 27% of net revenues as compared to $458,000,
or 24% of net revenues for the comparable 1997 three-month period. The dollar
increase was due in part to the costs of maintaining a new sales office in New
York City, establishing a Structured Cable division, as well as higher
commission-based videoconferencing sales. The Company expects selling costs to
increase as it continues to expand its New York City office, its structured
cable division, as well as, invest in product marketing to build its revenue
base. During the 1998 period, the Company hired ten additional sales personnel.
General and administrative. General and administrative expenses increased
to $957,000 or 11% of net revenues in the 1998 period, as compared to $701,000
or 13% of net revenues in the 1997 period. During the three-month period ended
September 30, 1998, general and administrative expenses increased to $377,000 or
12% of net revenues as compared to $283,000 or 15% of net revenues for the
comparable 1997 three-month period. The Company expects general and
administrative costs to decrease, as a percentage of sales, as revenue growth
continues. The Company also expects general and administrative costs, reflected
in dollars, to increase as administrative staff is added to manage expanded
operations.
-7-
Income taxes. The Company reported income tax benefits in the 1997 periods
as a result of net operating loss carrybacks that will be used to obtain refunds
of taxes paid in previous periods.
Net loss. Increased costs associated with expanded operations have more
than offset continued increases in net revenues. The Company reported a net loss
of $677,000 or $.14 per share in the 1998 period, compared to a net loss of
$370,000, or $.09 per share in the 1997 period. For the three-months ended
September 30, 1998, the Company reported a net loss of $325,000 or $.07 per
share compared to a net loss of $95,000 or $.02 per share for the comparable
1997 three-month period.
Liquidity and Capital Resources
At September 30, 1998, the Company had working capital of $4,904,000,
including $240,000 in cash and cash equivalents.
Net cash used by operating activities for the 1998 period was $3,100,000
as compared to $1,011,000 for the 1997 period. Uses of cash in the 1998 period,
including increases in accounts receivable due to record revenue growth, and
higher inventory levels, more than offset noncash charges of $176,000, as well
as increases in current liabilities.
During the quarter ended September 30, 1998, the Company received
additional stocking orders of Polycom videoconferencing units. The Company
continues to stock significant inventories of selected products to maintain
favorable vendor pricing and to ensure product availability to meet sales
projections. Inventories also include approximately $430,000 of MaxShare 2
units. The Company has recently identified performance problems with the
MaxShare 2 product in certain applications, and believes that MaxBase, Inc., the
supplier of MaxShare 2, has a contractual obligation to correct any technical
defects in the product. Pending resolution of this matter, the Company has
ceased ordering product under its purchase commitment, and has also suspended
shipments to distribution partners. On July 16, 1998, MaxBase, Inc. filed a
Complaint against the Company and APC for breach of contract, misrepresentations
and unfair trade practices. The Company believes the claims by MaxBase are
without merit and intends to fully defend the suit and assert its rights under
the agreement. See "Legal Proceedings".
Investing activities for the 1998 period included purchases of $270,000
for building improvements, office furniture, and equipment. The categories with
the largest increase include computer systems that are necessary to ensure year
2000 compliance, demonstration equipment used to sell both videoconferencing and
voice communications equipment, and loaner equipment used to satisfy warranty
and maintenance requirements.
-8-
Cash flows from financing activities provided net cash of $1,434,000. In
May 1998, the Company closed on a $5,000,000 working capital credit facility
with an asset-based lender. Loan availability is based on 75% of eligible
accounts receivable, as defined, and 50% of eligible finished goods inventory,
with a cap of $1,200,000 on inventory financing. Outstanding borrowings bear
interest at the lender's base rate plus 1% per annum, payable monthly, and are
collateralized by a lien on accounts receivable, inventories, and intangible
assets. The credit facility will have an initial term of two years, with annual
renewals thereafter subject to the lender's review. During the 1998 period, the
Company borrowed $1,500,000 on its working capital credit facility to help
finance the increase in accounts receivable and inventory.
The Company does not have any material commitments for capital
expenditures. Management believes that the Company has the capital resources and
liquidity necessary to meet all of its obligations for the next twelve months,
based on current operating levels.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
Year 2000
In early 1998, Management initiated a company-wide program to prepare the
Company's computer systems and applications for the year 2000, as well as to
identify critical third parties which the Company relies upon to operate its
business to assess their readiness for the year 2000. The Company's main
computer system includes a Novell operating system running on a Dell file
server. The Company's main computer applications include MAS90 accounting
software and Top Of Mind customer service software. Individual desktop computers
are running on a Windows 95 operating system and include desktop applications
such as Microsoft Office 97. The Company recognizes, as critical third parties,
major vendors, such as Lucent, Panasonic, Sony, and Polycom; major customers,
such as Cendant, Weichert Realtors, and Universal Health Services, Inc; and
other parties such as Landlords and utility companies.
The Company has received confirmation from an independent outside
consultant that the Novell operating system that runs the Company's file server
is year 2000 compliant. The Company has also purchased the software to upgrade
the MAS90 accounting system to be year 2000 compliant and will install the
software during the fourth quarter of 1998. The supplier of the Top Of Mind
customer service software has informed the Company that an upgrade will be
available during the fourth quarter of 1998 that will make the software year
2000 compliant. The Company will install this upgrade during the first quarter
of 1999.
-9-
The Company has received written notice from all of its key vendors,
Lucent Technologies, Sony, Panasonic, and Polycom, that all of their products
that the Company sells are currently year 2000 compliant. The Company believes
it has no year 2000 warranty exposure for products already sold.
The Company is preparing a questionnaire to send to critical third
parties, during the fourth quarter of 1998, to assess their year 2000 readiness.
The questionnaire will seek to determine where companies stand in their year
2000 compliance program and how their relationship with the Company may be
affected by any failure to address year 2000 issues. Issues that may arise in a
worst case scenario include, but are not limited to, the ability of vendors to
supply product and the ability of the Company's major customers to process and
pay invoices when due. The Company will review the responses during the first
half of 1999 and will consider preparing a contingency plan if the Comany deems
it advisable.
The Company has incurred internal payroll costs and software costs to
address year 2000 issues. The costs incurred to date have not been material and
the Company does not expect any additional costs to be material to the Company's
operations or financial condition.
Recently Issued Accounting Pronouncements
In 1998, the Company adopted the provisions of SFAS 130, "Reporting
Comprehensive Income", which promulgates standards for the reporting and display
of comprehensive income and its components. There were no items of comprehensive
income to report in any of the periods presented.
The Company has also adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information", which requires disclosure of reportable
operating segments. The Company will address the segment information
requirements of SFAS 131 in its annual report for the year ended December 31,
1998.
-10-
Part II
Item 1. Legal Proceedings
On July 16, 1998, MaxBase, Inc. filed a Complaint against the Company and
APC in the Superior Court of New Jersey, Law Division, in Bergen County. The
Complaint alleges that the Company breached its agreement with MaxBase by
failing to meet the required minimum purchase obligations thereunder. The
Complaint further alleges misrepresentation and unfair trade practices by the
Company. The Complaint seeks unspecified monetary damages as well as punitive
and treble damages. The Complaint also seeks to enjoin the Company from
enforcing any rights the Company has under the agreement. The Company believes
the claims by MaxBase are without merit and intends to fully defend the suit and
assert its rights under the agreement.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
(a) A duly executed proxy given in connection with the Company's 1999
Annual Meeting of Stockholders will confer discretionary authority
on the proxies named therein, or any of them, to vote at such
meeting on any matter of which the Company does not have written
notice on or before March 31, 1999, which is forty-five days prior
to the calendar date on which the Company first mailed the proxy
materials for its 1998 Annual Meeting of Stockholders, without
advice in the Company's proxy statement as to the nature of such
matter
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period for which
this report is filed.
-11-
Signatures
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ALL COMMUNICATIONS CORPORATION
Registrant
Date: November 13, 1998 By: /s/ Richard Reiss
---------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: November 13, 1998 By: /s/ Scott Tansey
---------------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
-12-
Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule