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: DECEMBER 31, 2002
[ ] Transition period under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
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Commission file No. 0-30220
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ACTIVE LINK COMMUNICATIONS, INC.
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(Name of Small Business Issuer in Its Charter)
<Table>
Colorado 84-0917382
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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
--- ---
The aggregate market value of the voting stock held as of February 7, 2003 by
non affiliates of the issuer was $2,115,000. As of February 7, 2003 the issuer
had 24,830,404 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)
DECEMBER 31, 2002
(IN THOUSANDS OF DOLLARS)
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<Table>
ASSETS
Current assets:
Cash $ 16
Trade accounts and current portion of notes receivable,
less allowance for doubtful accounts of $520 797
Inventory 834
Prepaid product purchases 122
Prepaid expenses and other current assets 74
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Total current assets 1,843
Property and equipment, net 63
Deposits and other assets 57
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$ 1,963
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 4,798
Revolving lines of credit and other short
term borrowings 811
Current portion of notes payable (including
$293 due to a related party) 5,595
Accrued interest payable 337
Accrued expenses and deposits 1,691
------------
Total current liabilities 13,232
Notes payable - Long term 1,965
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Total liabilities 15,197
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Stockholders' deficit:
Preferred stock, 3,000,000 shares authorized: --
Common stock, no par value, 75,000,000 shares
authorized, shares issued and
outstanding: 24,830,404 1,695
Additional paid-in capital 4,560
Excess of liabilities assumed over assets acquired, net (4,348)
Accumulated deficit (15,141)
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Total stockholders' deficit (13,234)
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$ 1,963
============
</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 DECEMBER 31, 2002 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
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<Table>
<Caption>
For the Three Months Ended December 31,
---------------------------------------
2002 2001
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Revenue:
Equipment sales and service $ 1,874 $ 3,617
Other revenue 1 1
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1,875 3,618
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Costs and expenses:
Cost of equipment sales and service 1,487 2,852
Selling 194 291
General and administrative 1,048 1,484
Depreciation and amortization 27 43
Interest expense 350 128
Debt conversion 445 --
Acquisition costs -- 337
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3,551 5,135
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Income (loss) from continuing operations (1,676) (1,517)
Loss from discontinued operations -- (1,353)
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Net income (loss) $ (1,676) $ (2,870)
============ ============
Income (loss) per common share:
Basic and Diluted
Income (loss) from continuing operations $ (.08) $ (.10)
Loss from discontinued operations -- (.08)
------------ ------------
Net income (loss) $ (.08) $ (.18)
============ ============
Weighted average number of shares outstanding:
Basic and Diluted 21,948,261 15,931,465
============ ============
</Table>
See accompanying notes to consolidated financial statements
4
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
- --------------------------------------------------------------------------------
<Table>
<Caption>
For the Nine Months Ended December 31,
--------------------------------------
2002 2001
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Revenue:
Equipment sales and service $ 6,174 $ 10,539
Other revenue 10 44
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6,184 10,583
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Costs and expenses:
Cost of equipment sales and service 4,912 8,547
Selling 689 909
General and administrative 3,324 2,846
Depreciation and amortization 81 58
Interest expense 2,908 184
Debt conversion 445 --
Acquisition costs -- 337
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12,359 12,881
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Income (loss) from continuing operations (6,175) (2,298)
Loss from discontinued operations -- (1,353)
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Net income (loss) $ (6,175) $ (3,651)
============ ============
Income (loss) per common share:
Basic and Diluted
Income (loss) from continuing operations $ (.29) $ (.19)
Loss from discontinued operations -- (.11)
------------ ------------
Net income (loss) $ (.29) $ (.30)
============ ============
Weighted average number of shares outstanding:
Basic and Diluted 21,132,102 11,957,494
============ ============
</Table>
See accompanying notes to consolidated financial statements
5
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(IN THOUSANDS OF DOLLARS)
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<Table>
<Caption>
2002 2001
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Cash flows from operating activities:
Income (loss) from operations $ (6,175) $ (2,298)
Adjustments to reconcile to net cash used
by operating activities:
Depreciation and amortization 81 58
Provision for losses on accounts and notes receivable 15 95
Warrants and common stock issued for services 177 194
Amortization of debt discount and debt issuance costs 2,062 126
Debt conversion 445 --
Changes in operating assets and liabilities:
Trade accounts and notes receivable 820 1,333
Inventories 12 (101)
Deposits and other assets 479 330
Checks issued in excess of funds on deposit (169) (889)
Trade accounts payable and accrued expenses (22) 1,001
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Net cash used by operating activities (2,275) (151)
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Loss from discontinued operations
Loss from discontinued operations -- (1,353)
Changes in assets and liabilities -- 786
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Net cash used in discontinued operations -- (567)
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Net cash used by total operating activities (2,275) (718)
Cash flow from investing activities:
Capital dispositions/(expenditures) -- 6
Pre acquisition advances to parent -- (189)
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Net cash used by investing activities -- (183)
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</Table>
See accompanying notes to consolidated financial statements
6
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(IN THOUSANDS OF DOLLARS)
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<Table>
<Caption>
2002 2001
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Cash flows from financing activities:
Net borrowings (repayment) under line-of-credit agreement 31 1,170
Proceeds from issuance of convertible debt and other notes 2,556 750
Contribution from shareholder -- 520
Repayment of notes (262) (1,204)
Repayment of capital lease obligations (34) (1)
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Net cash provided by financing activities 2,291 1,235
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Net increase in cash 16 334
Cash at beginning of the period 0 26
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Cash at end of the period $ 16 $ 360
========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 459 $ 128
Non-cash debt discount 937 --
Non-cash conversion of debt into common stock 651 --
Non-cash conversion of accrued interest into common stock 154 --
Business acquisition financed by issuance of common stock -- (4,935)
</Table>
See accompanying notes to consolidated financial statements
7
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 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 nine months ended December
31, 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 $6,175,000 for the nine months ended December
31, 2002 and has a working capital deficit of $11,389,000 as of
December 31, 2002. The working capital deficit includes Subordinated
Convertible Notes of approximately $5,473,000, which are convertible
into the Company's common stock at $.25 per common share. Subsequent to
December 31, 2002 approximately $623,000 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
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 December 31, 2002. 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.
8
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(2) GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
(CONTINUED)
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, subsequent to the merger, the
Company has borrowed funds. During the current reporting period the
company has borrowed funds as follows:
o $966,000 - Funds provided by an investor to allow the
Company to purchase product for resale and other working
capital needs. This brings the aggregate amount borrowed
under a Convertible Promissory Note, due in November 2005,
to $1,816,000. The investor agreed to provide a total of
between $2,000,000 and $3,000,000 to the Company, subject to
arrangements by the Company with its creditors satisfactory
to the investor. The investor became a director of the
Company in November 2002. Subsequent to December 31, 2002
the Company received an additional advance in the amount of
$120,000 against this Convertible Note, bringing the
aggregate balance to $1,936,000.
The Company's liquidity worsened during the quarter ended December 31,
2002. The Company's liquidity has continued to deteriorate in January
and February 2003. The Company was unable to satisfy a large portion of
its most recent payroll obligations as its officers and other key
personnel were not paid as scheduled. All of these persons have agreed
to defer their salaries and are continuing their work for the Company.
The Company has demonstrated its ability to raise capital in the past
and is currently attempting to raise additional funds. A prospective
lender of approximately $1,500,000 to $2,000,000 is currently engaged
in due diligence activities. Due to the substantial payables and
working capital deficit of the Company, management expects that an
arrangement with this prospective lender or any other person providing
funding will require, as a condition to funding, that the Company
obtain from its existing creditors a combination of substantial
reductions, extensions and conversions to equity of the Company's
obligations. The Company has been engaged in efforts to obtain
accommodations from its creditors, which efforts the Company expects to
accelerate during the current quarter. 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.
9
ACTIVE LINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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(3) NOTES PAYABLE
The following describes developments relating to various notes payable
that occurred during the three month period ended December 31, 2002:
An investor has agreed to provide a total of between $2,000,000 and
$3,000,000 in a series of advances. The note is unsecured and carries
an interest rate of 5% per annum. These advances are contingent upon
certain creditors of the Company agreeing to restructure, extending
and/or converting to equity their obligations. This Promissory Note is
convertible into Company stock at an exercise price of $.25 per share.
Additionally, the Company issued to the investor 3,000,000 warrants
exercisable through November 12, 2006 at an exercise price of $.25 per
share. During the quarter ending December 31, 2002 the Company received
advances against this Promissory Note in the amount of $966,000 to fund
purchases of product for resale as well as for other working capital
needs. As of December 31, 2002 the Company has drawn a total of
$1,816,000 in advances against this note. Due to these advances and the
related warrants, the Company recorded an additional $231,000 in
deferred financing charges during the current period. These charges
relate to a beneficial conversion and associated warrants and will be
amortized over the life of the note. The investor became a director of
the Company in November 2002. Subsequent to December 31, 2002 the
Company received an additional advance in the amount of $120,000
against this Convertible Note, bringing the aggregate balance to
$1,936,000.
This investor previously entered into two Promissory Notes with the
Company for $500,000 each. One note was due on September 30, 2002 and
the other on December 27, 2002. Both notes are currently in default.
During the quarter ended December 31, 2002 the Company received
commitments from other note holders to extend the due date to September
30, 2003 on Convertible Notes with principal and accrued interest
totaling $1,242,000. Another $124,000 of convertible notes was extended
to May 2003. Of this $1,366,000 in notes that were extended, one note
holder comprised $1,249,000 of the total. This note holder notified the
Company subsequent to December 31, 2002 that the Company was in default
of amounts due under these notes as the Company did not make the
January 2003 principal and interest payment.
In 2001 the Company borrowed an aggregate of $150,000 from three
individuals and made promissory notes to them secured by accounts
receivable of the Corporation, which notes were due in April 2002. As
consideration for an extension of the maturity date for nine months,
the Company agreed to (i) repricing of the conversion feature to $.25
per share; (ii) repricing the exercise price in warrants issued to them
to $.25 per share; and (iii) issuing an additional 10,000 warrants to
each investor per month exercisable at $.25 per share until the loans
are repaid or converted, but not to exceed 70,000 warrants each. One of
these note holders converted his principal balance plus accrued
interest into stock in December 2002.
10
The Company agreed to reduce the conversion price for the notes issued
in October 2001 for an aggregate of $125,000, and in November 2001 in
the aggregate amount of $200,000 to $.25 per share, it being understood
that of the $200,000 amount, Jim Ciccarelli, a director of the Company,
provided $125,000.
In May 2002 the Company received advances from two investors for
$75,000 and $150,000, respectively. The Company converted these
advances into promissory notes providing for interest at 8% per annum
payable upon maturity on May 23, 2003, and convertible into common
stock at the holder's option at $.25 per share. Additionally, the
Company issued warrants to purchase up to 37,500 shares and 75,000
shares, respectively, of the Company's common stock at $.25 per share
exercisable through May 23, 2006.
The Company received net proceeds of $250,000 from a Promissory Note in
August 2002 secured by the personal residence of the Company's
President. This Note was due October 14, 2002 with a one-time option to
extend 30 days. The Company elected to exercise this extension, however
defaulted on the payment. Due to this default, interest is accruing at
35% per annum. The secured lender has filed legal action to collect on
this note. Management is continuing to seek a final settlement to
resolve this matter.
In April 2002, the Company negotiated a restructuring of existing
amounts payable to its major supplier into a promissory note. During
the quarter ended December 31, 2002 the supplier has agreed with the
Company's request to modify the payment terms on the Company's note.
The new agreement is comprised of a minimum monthly payment and
additional payments based on purchasing incentives. At December 31,
2002 the balance due was $2,025,000.
(4) SUBSEQUENT EVENTS
Subsequent to December 31, 2002 the Company converted debt and accrued
interest of approximately $623,000 into common stock.
In January 2003 the Company was notified of legal action being pursued
by various creditors relating to past due accounts payable and notes
payable. Further details are in the Legal Proceedings section of this
filing.
As previously mentioned, the Company is in default to one note holder
who issued a letter of default subsequent to December 31, 2002. Total
amount due under these notes is $1,249,000.
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
11
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 and nine month periods ended December 31, 2002, the Company
reported net losses of $1,676,000 and $6,175,000 respectively, as compared to a
net loss of $2,870,000 and $3,651,000 for the comparable periods ended December
31, 2001. The net loss for the three months and nine months ended December 31,
2002 include a charge for induced debt conversion of $445,000. This charge is
dictated by accounting rules that stipulate that an expense be recognized when
holders of convertible debt are encouraged to convert their notes into company
stock by virtue of a reduced conversion rate. The basis of this charge is the
fair value of the stock issued upon conversion that exceeds the fair value of
the shares to be issued under the original conversion terms. The net loss for
the three months and nine months ended December 31, 2001 include a loss from
discontinued operations of $1,353,000. The loss from continuing operations for
these two periods was $1,517,000 and $2,298,000 respectively.
Total revenue for the quarter ended December 31, 2002 was $1,875,000 compared to
total revenue of $3,618,000 for the quarter ended December 31, 2001. For the
nine month period ended December 31, 2002, total revenue was $6,184,000 compared
to total revenue of $10,583,000 for the nine month period ended December 31,
2001.
The decrease in sales for both the three month and nine month periods 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 remained flat at 21% for the three months
ended December 31, 2001 compared to the three months ended December 31, 2002.
The gross margin for the nine months ended December 31, 2002 compared to the
nine months ended December 31, 2001 increased from 19% to 21%. The increase in
the fiscal year to date gross margin reflects the impact of positive inventory
adjustments of $116,000 recorded in the first fiscal quarter. The gross margin
percentage adjusted to exclude the impact of the inventory adjustments is 19%
for the nine months ended December 31, 2002 which is flat to the gross margin
for the nine months ended December 31, 2001.
Selling expenses for the three month and nine month periods ended December 31,
2002 were $194,000 and $689,000, respectively. This represents a reduction of
$97,000 and $220,000, respectively from the same two periods of the prior year's
selling expenses of $291,000 and $909,000. The decreases of 33% for the three
month period and 24% for the nine month period
12
were due to a change in the commission program which defers the payment of
commissions based on annual goals and actual results.
General and administrative expenses decreased by $436,000, from $1,484,000 for
the three month period ended December 31, 2001 to $1,048,000 for the same period
for the current fiscal year. In the prior year period the Company recognized
$379,000 representing the present value of future payments on a consulting
contract with the former owner of the operating unit of the Company. Future
consulting services under this contract were deemed to be of little value;
therefore the present value of future payments was expensed. Offsetting this
decrease in general and administrative expenses was an increase in other
consulting expenses during the quarter of $212,000 related to strategic and
investor services.
General and administrative expenses for the nine month period ended December 31,
2002 were $3,324,000 compared to $2,846,000 for the nine month period ended
December 31, 2001. This $478,000 net increase was generated by redundant
expenses related to the transition of the Denver location to Naperville of
$680,000 that has been eliminated. Also included is an increase in Naperville
expenses due to the absorption of the corporate headquarters function including
salaries of $206,000, an increase in legal and accounting fees of $245,000 and
the addition of investment banking related expenses of $91,000. These increases
were offset by the elimination of the one-time charge of $379,000 for the
consulting agreement noted above plus a reduction in other consulting services
of $172,000 and reduced travel and entertainment expenses of $220,000 attained
through cost containment measures.
The loss from continuing operations for the three and nine month periods for the
prior year included expenses of $337,000 representing legal and accounting fees
that were associated with the Company's merger.
Interest expense for the quarter ended December 31, 2002 was $350,000
representing an increase of $222,000 over the same period of the prior year. Of
this increase, $120,000 can be attributed to the amortization of imputed
interest relating to the issuance of convertible debt and related warrants. For
the nine month period ended December 31, 2002 interest expense of $2,908,000
reflects an increase of $2,724,000 over interest expense of $184,000 for the
nine month period ended December 31, 2001. For this nine month period the
increase includes $1,936,000 relating to the increase in the amortization of
imputed interest. The factoring arrangement entered into by Mobility as of
December 31, 2001 and the promissory note with a major supplier account for
$253,000 of this increase.
During the nine months ended December 31, 2002, $2,275,000 of cash was used by
the Company's continuing operations, which compares to $151,000 used in the nine
months ended December 31, 2001. In the nine months ended December 31, 2001 an
additional $567,000 of cash was used for the Company's discontinued operations.
However, as previously indicated the Company had a loss of $6,175,000 during the
nine months ended December 31, 2002 as compared to a loss of $2,298,000 for the
nine months ended December 31, 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 $1,936,000. Cash flows from financing activities in
2002 of $2,291,000 represent additional borrowings of $2,556,000, offset by
$262,000 of repayments on notes.
13
Lack of Working Capital; Need for Additional Financing
The Company's financial statements for the nine months ended December 31, 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 $1,938,000 from
$9,455,000 as of March 31, 2002 to $11,389,000 as of December 31, 2002. The
increase in the working capital deficit was principally caused by the increase
in the issuance of new notes payable of $2,556,000 and the decrease in accounts
receivable of $820,000. The increase related to the issuance of new notes
payable was partially offset by the restructuring of current payables into a
long-term note.
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 December 31, 2002.
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:
During the period ended December 31, 2002 the Company received net
proceeds of $966,000 from advances on a Convertible Promissory Note
provided by an investor. As of February 9, 2003 the Company has drawn
$1,936,000 in advances against this note. This Note is convertible into
Common Stock at $.25 per share. Principal and interest on the note is
due November 2005. Due to advances related to this convertible note, the
Company recorded an additional $231,000 in deferred financing charges
during the period. These charges relate to the beneficial conversion and
associated warrants and will be amortized over the life of the note.
In April 2002, the Company negotiated a restructuring of existing amounts
payable to its major supplier into a promissory note. During the quarter ended
December 31, 2002 the supplier has agreed with the Company's request to modify
the payment terms on the Company's note. The new agreement is comprised of a
minimum monthly payment and additional payments based on purchasing incentives.
At December 31, 2002 the balance due was $2,025,000.
The working capital deficit includes Subordinated Convertible Notes of
approximately $5,096,000, which are convertible into the Company's common stock
at $.25 per common share. Subsequent to December 31, 2002 approximately $623,000
of the convertible debt and accrued interest was converted to common stock.
The lack of available funding impedes the Company's ability to fund additional
product purchases and to expand its business operations. The Company has
$4,798,000 of trade accounts payable which are currently due and payable;
$811,000 of revolving lines of credit that are due and payable as the Company
collects its accounts receivables; $5,599,000 of notes payable, of which
$5,096,000 are convertible into the Company's Common Stock at a price of $.25
per share; and $2,028,000 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.
14
As noted above, the Company's liquidity worsened during the quarter ended
December 31, 2002. The Company's liquidity has continued to deteriorate in
January and February 2003. The Company was unable to satisfy a large portion of
its most recent payroll obligations as its officers and other key personnel were
not paid as scheduled. All of these persons have agreed to defer their salaries
and are continuing their work for the Company. The Company has demonstrated its
ability to raise capital in the past and is currently attempting to raise
additional funds. A prospective lender of approximately $1,500,000 to $2,000,000
is currently engaged in due diligence activities. Due to the substantial
payables and working capital deficit of the Company, management expects that an
arrangement with this prospective lender or any other person providing funding
will require, as a condition to funding, that the Company obtain from its
existing creditors a combination of substantial reductions, extensions and
conversions to equity of the Company's obligations. The Company has been engaged
in efforts to obtain accommodations from its creditors, which efforts the
Company expects to accelerate during the current quarter. 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.
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, 2002.
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
The management of the Company, including the Chief Executive Officer and the
Chief Financial Officer, has conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934 as of a date (the "Evaluation Date") within 90
days prior to the filing date of this report. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures were
effective in ensuring that all material information relating to the Company
required to be filed in the quarterly report has been made known to them in a
timely manner.
(b) CHANGES IN INTERNAL CONTROLS
There have been no significant changes made in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the Evaluation Date.
15
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-QSB for the quarter ended
September 30, 2002, 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
approximately $760,000 in 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 December 6, 2002,
Toshiba filed a Request for Entry of Default. 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.
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.
16
5. Generation Capital Associates v. Mobility Concepts, Inc., et al This matter
is pending in the Circuit Court of the 12th Judicial Circuit in Will County,
Illinois and relates to a claim for non-payment of a promissory note made for
$250,000 in August 2002 and is secured by the personal residence of the
Company's President. This Note was due October 14, 2002 with a one-time option
to extend 30 days. The Company elected to exercise this extension, however
defaulted on the payment. Due to this default, interest is accruing at 35% per
annum. The secured lender has filed a complaint to exercise its rights under
this note.
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, which are currently recorded as a liability 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.
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: February 19, 2003 /s/ Timothy A. Ells
-------------------- --------------------------------------
Timothy A. Ells, President and Chief
Executive Officer
Date: February 19, 2003 /s/ William D. Kelly
-------------------- --------------------------------------
William D. Kelly, Vice President and
Chief Financial Officer
17
CERTIFICATION
The undersigned certifies that:
1. I have reviewed this quarterly report on Form 10-QSB of Active Link
Communications, Inc. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report.
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company's
internal controls; and
18
CERTIFICATION (CONTINUED)
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 19, 2003 By: /s/ Timothy A. Ells
-------------------------------------
Timothy A. Ells
President and Chief Executive Officer
19
CERTIFICATION
The undersigned certifies that:
1. I have reviewed this quarterly report on Form 10-QSB of Active Link
Communications, Inc. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report.
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors (or persons performing the equivalent
functions);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company's
internal controls; and
20
CERTIFICATION (CONTINUED)
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 19, 2003 By: /s/ William D. Kelly
-----------------------------------
William D. Kelly
Chief Financial Officer
21