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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: OCTOBER 31, 2000
[ ] 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)
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)
(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
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As of November 30, 2000, the issuer had 10,649,500 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)
OCTOBER 31, 2000
(IN THOUSANDS OF DOLLARS)
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ASSETS
Current assets:
Cash $ 161
Trade accounts and current portion of notes receivable, less allowance for
doubtful accounts of $268 3,538
Inventory 447
Prepaid expenses 110
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Total current assets 4,256
Property and equipment, net 550
Deposits and other assets 264
Deferred tax asset 22
Intangible assets, net 5,923
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$ 11,015
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,628
Revolving line of credit 1,853
Current portion of notes payable 326
Current portion of capital lease obligations 32
Accrued expenses 1,010
Deferred tax liability 32
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Total current liabilities 5,881
Capital lease obligations 96
Accrued Interest 129
Notes payable (including $880 due to related parties) 2,644
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Total liabilities 8,750
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Stockholders' equity:
Preferred stock, 3,000,000 shares authorized:
Common stock, no par value, 75,000,000 shares authorized,
shares issued and outstanding: 10,649,500 11,962
Additional paid-in capital 1,192
Accumulated deficit (10,889)
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Total stockholders' equity 2,265
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$ 11,015
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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 OCTOBER 31, 2000 AND 1999
(IN THOUSANDS OF DOLLARS EXCEPT EARNINGS PER SHARE DATA)
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For the Three Months Ended October 31,
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2000 1999
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Revenue:
Franchise equipment sales $ 1,202 $ 1,283
Direct equipment sales and service 3,438 2,030
Royalty fees 24 41
Other revenue 21 105
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Total revenue 4,685 3,459
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Costs and expenses:
Cost of franchise equipment sales 1,092 1,160
Cost of direct equipment sales and service 2,527 1,346
Selling 409 238
General and administrative 988 807
Depreciation and amortization 96 53
Interest expense 200 67
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Total cost and expenses 5,312 3,671
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Net (loss) $ (627) $ (212)
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Loss per common share:
Basic and Diluted $ (.07) $ (.03)
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Weighted average number of shares outstanding:
Basic and Diluted 9,258,617 6,767,229
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See accompanying notes to consolidated financial statements
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999
(IN THOUSANDS OF DOLLARS EXCEPT EARNINGS PER SHARE DATA)
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For the Six Months Ended October 31,
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2000 1999
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Revenue:
Franchise equipment sales $ 2,237 $ 2,622
Direct equipment sales and service 6,973 4,134
Royalty fees 62 81
Other revenue 41 123
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Total revenue 9,313 6,960
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Costs and expenses:
Cost of franchise equipment sales 2,023 2,383
Cost of direct equipment sales and service 5,061 2,674
Selling 785 499
General and administrative 1,840 1,500
Depreciation and amortization 179 104
Interest expense 389 124
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Total cost and expenses 10,277 7,284
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Net (loss) $ (964) $ (324)
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Loss per common share:
Basic and Diluted $ (.11) $ (.05)
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Weighted average number of shares outstanding:
Basic and Diluted 8,806,325 6,734,900
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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 SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999
(IN THOUSANDS OF DOLLARS)
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For the Six Months Ended October 31,
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2000 1999
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Cash flows from operating activities:
Net loss $ (964) $ (324)
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization 179 104
Amortization of debt discount and debt issuance costs 132 --
Provision for losses on accounts and notes receivable 51 62
Changes in operating assets and liabilities:
Trade accounts and notes receivable 287 (1,013)
Inventories 26 16
Prepaid expenses 43 (59)
Deposits and other assets 123 (97)
Deferred taxes 10 --
Trade accounts payable (780) 329
Accrued expenses (120) (11)
Other liabilities -- 60
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Net cash used by operating activities (1,013) (933)
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Cash flows from investing activities:
Cash acquired from acquisition 108 --
Acquisitions (31) (1,559)
Capital expenditures (34) (108)
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Net cash provided by investing activities 41 (1,667)
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Cash flows from financing activities:
Net borrowings under line-of-credit agreement 510 396
Sale of Common Stock 258 507
Sale of warrants -- 11
Exercise of warrants 129 --
Exercise of options 50 --
Issuance of convertible debt 375 1,362
Notes payable -- 631
Repayment of notes and contract payable (202) (194)
Repayment of capital lease obligations (31) (10)
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Net cash provided by financing activities 1,089 2,703
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Net increase in cash 117 103
Cash at beginning of the period 44 57
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Cash at end of the period $ 161 $ 160
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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 SIX MONTHS ENDED OCTOBER 31, 2000 AND 1999
(IN THOUSANDS OF DOLLARS)
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2000 1999
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Supplemental disclosures of cash flow information:
Interest paid $ 203 $ 124
Non-cash investing activities:
Capital acquisitions financed by leases 87 --
Business acquisitions financed by:
Issuance of common stock 2,625 492
Non-cash financing activities:
Conversion of note payable to common stock 53 15
Conversion of preferred stock to common stock 10 --
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, 2000 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) ACQUISITIONS
During the six months ended October 31, 2000 the Company completed one
acquisition. The purchase price for this company resulted in an increase in
the excess of purchase price over tangible assets of approximately
$2,600,000. The acquisition was made by the issuance of common stock.
Common stock was issued at the average quoted market price within five
business days of the closing of the sale. A total of 1,750,000 shares of
common stock were issued at the total market price of $2,625,000.
(3) SALE OF COMMON STOCK
During the six months ended October 31, 2000, the Company received net
proceeds of approximately $260,000 from the sale of common stock.
(4) CONVERTIBLE DEBT OFFERING
During the six months ended October 31, 2000, the Company received net
proceeds of approximately $375,000 from the sale of Subordinated
Convertible Notes to two institutional investors. Each Note is convertible
into Common Stock at $1.50 per share which may be lowered under certain
circumstances. Interest is payable monthly at 8%. The notes are due
September 30, 2002.
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(5) SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
131 Disclosures About Segments of an Enterprise and Related Information,
effective May 1, 1998. Reportable segments are based on products and
services, geography, legal structure, management structure, and any other
method in which management disaggregates a company. Based on the management
approach model, the Company has determined its business operations are
classified into two principal reporting segments. Separate management of
each segment is required because each business unit is subject to different
marketing, sales, and implementation strategies.
Reportable Segments at October 31, 2000 and for
the three months then ended
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1 2 All Other Total
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External revenue $ 3,438 $ 1,226 $ -- $ 4,664
Interest and other revenue -- -- 21 21
Depreciation and amortization 96 -- -- 96
Net income (loss) (98) 34 (563) (627)
Assets 10,459 556 -- 11,015
Reportable Segments at October 31, 1999 and for
the three months then ended
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1 2 All Other Total
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External revenue $ 2,030 $ 1,324 $ -- $ 3,354
Interest and other revenue -- -- 105 105
Depreciation and amortization 53 -- -- 53
Net income (loss) 63 57 (332) (212)
Assets 6,469 723 -- 7,192
Reportable Segments at October 31, 2000 and for
the six months then ended
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1 2 All Other Total
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External revenue $ 6,973 $ 2,299 $ -- $ 9,272
Interest and other revenue -- -- 41 41
Depreciation and amortization 179 -- -- 179
Net income (loss) 156 86 (1,206) (964)
Assets 10,459 556 -- 11,015
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ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(5) SEGMENT INFORMATION (CONTINUED)
Reportable Segments at October 31, 1999 and for
the six months then ended
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1 2 All Other Total
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External revenue $ 4,134 $ 2,703 $ -- $ 6,837
Interest and other revenue -- -- 123 123
Depreciation and amortization 104 -- -- 104
Net income (loss) 225 121 (670) (324)
Assets 6,469 723 -- 7,192
Reportable Segment 1, the Company-owned segment, derives its revenues from
the sales, service and installation of telephone systems to small and
medium sized enterprises with single, multi-state and national locations.
Segment 2, the Company's franchise program segment, derives its revenues
from sales of equipment to franchisees and franchise fees.
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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, 2000. 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 and six month periods ended October 31, 2000, Active Link
Communications, Inc. ("Active Link" or the "Company") reported net losses of
$627,000 and $964,000, respectively, as compared to net losses of $212,000 and
$324,000 for the comparable periods ended October 31, 1999. Total revenue for
the quarter ended October 31, 2000 was $4,685,000 compared to total revenue of
$3,459,000 for the quarter ended October 31, 1999. For the six month period
ended October 31, 2000, total revenue was $9,313,000 compared to total revenue
of $6,960,000 for the six month period ended October 31, 1999.
Franchise Segment
The sales of the franchise segment in the current three month and six month
periods ended October 31, 2000 have declined by approximately $80,000 and
$385,000 compared to the same time periods from the prior year. The gross margin
percentages on franchise equipment sales in the current three month and six
month periods ended October 31, 2000 have remained relatively stable as compared
to the same periods from the prior year. Management does not expect future sales
of the franchise segment to materially increase or decrease during the next
twelve months.
Company Owned Segment
The increase in revenue from direct equipment sales and service was $1,408,000
and $2,839,000 for the three month and six month periods ended October 31, 2000,
respectively, compared to the same time periods from the prior year. The gross
margin percentage on direct equipment sales and service declined approximately
8% from 34% for the six months ended October 31, 1999 to 26 % for the three
months ended October 31, 2000. The gross margin percentage on direct equipment
sales and service declined approximately 8% from 35% for the three months ended
October 31, 1999 to 27 % for the six months ended October 31, 2000. The increase
in sales reflects the Company's strategy to grow by acquisition in the Southwest
United States. Sales for the three and six months ended October 31, 2000,
include one acquisition in the Denver (completed October 1999) and one
acquisition in the Houston market (completed March 2000). A second acquisition
in Denver was completed at the end of September 2000 and one month of its
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operations is included for the reporting periods. The decrease in gross margin
reflects an increase in lower margin service business versus higher margin
equipment installation and sales in the Company's national account operations.
The decrease in equipment installation and sales in the Company's national
account operations is the result of reduced sales to the Company's largest
national account customer. In addition, lower than expected sales in the Dallas
and Houston markets resulted in lower utilization rates for technical employees
which adversely affected gross margins.
The increase in selling expenses was $171,000 and $286,000 for the three month
and six month periods ended October 31, 2000, respectively, compared to the same
time periods from the prior year. This increase was due to increased commissions
on higher sales volume and a larger sales force in company owned operations.
The increase in general and administrative expenses was $181,000 and $340,000
for the three and six month periods ended October 31, 2000, respectively,
compared to the same time periods from the prior year. This increase is due to
the increased number of locations where the Company conducts operations, which
is primarily due to the acquisitions described above. Major increases over the
same three and six month periods from the prior year were office rent increases
of approximately $37,000 and $77,000, salaries and wages of administrative
personnel increases of approximately $79,000 and $124,000 and telephone expense
increases of approximately $24,000 and $42,000. General and administrative
expenses were 21% of total revenue for the three months ended October 31, 2000
as compared to 23% of revenue for the three months ended October 31, 1999.
General and administrative expenses were 20% of total revenue for the six months
ended October 31, 2000 as compared to 22% of revenue for the six months ended
October 31, 1999.
The increase in interest expenses was $133,000 and $265,000 for the three month
and six month periods ended October 31, 2000, compared to the same time period
from the prior year. The increase includes $66,000 and $132,000 of amortization
of debt discount and debt issuance costs for the three and six months ended
October 31, 2000, respectively. The remainder of the increase reflects interest
on acquisition notes and higher borrowings under a line of credit.
Lack of Working Capital; Need for Additional Financing
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. The lack of
available funding impedes the Company's ability to fund additional equipment
purchases and to expand its business operations. The Company had a working
capital deficit of approximately $1,605,000 at October 31, 2000. The Company
expects to continue its efforts to obtain additional capital. The Company has no
firm commitments from any source and there can be no assurance the Company will
obtain substantial capital. Moreover, due to the 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.
Cash flow used by operations totaled $1,343,000 for the six months ended October
31, 2000 versus a use of $933,000 for the same time period from the prior year.
The use in 2000 resulted primarily from the consolidated operating loss, an
increase in trade accounts receivable and a reduction of trade accounts payable.
Cash provided by financing activities for the six months ended October 31, 2000
were $1,447,000 versus $2,703,000 for the same time period from the prior year.
The proceeds in 2000 were primarily from borrowings under the Company's
line-of-credit agreement and the proceed from an
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issuance of convertible debt. The proceeds in 1999 were primarily from the
proceeds of a convertible debt offering and the sales of common stock.
In October 1999 the Company completed an offer of Units of Subordinated
Convertible Notes, due September 30, 2002, and Common Stock Purchase Warrants.
Each Unit consists of a $50,000 Note and 20,000 Warrants for a purchase price of
$50,400. The Note is convertible into Common Stock at $1.50 per share which may
be lowered under certain circumstances. Each Warrant is exercisable at $.40 per
share until September 30, 2004. The Company received net proceeds of
approximately $1,362,000 from the sale of these units. As of October 31, 2000
the Company has received $129,000 in net proceeds from the exercise of these
Warrants.
In November 1999, additional net proceeds of approximately $722,000 were
received from the sale of Subordinated Convertible Notes, due September 30,
2002, 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 Company has not filed a registration statement
and 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; however, the earlier to occur of the date the registration statement is
declared effective by the Securities and Exchange Commission or October 31,
2001, the right of acceleration terminates. If the institutional investors
exercise the right to accelerate the maturity of their notes the Company 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. The Company is also
restricted in its ability to prepay these notes. In October 2000, the Company
sold $375,000 of Subordinated Convertible Notes, due September 30, 2002, to
these institutional investors with provisions similar to the notes issued in
November 1999.
In September 2000, the Company completed an offering of 300,000 shares of Common
Stock at $1.00. The Company received net proceeds of $258,000 from this
offering.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
Form 8-K filed on October 18, 2000 reporting, under item 2, the acquisition of
Application Consultants, Inc.
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: December 14, 2000 /s/ James M. Ciccarelli
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James M. Ciccarelli, Chief Executive Officer
Date: December 14, 2000 /s/ David E. Welch
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David E. Welch, Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule