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 March 31, 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
May 10, 1998 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements *
Balance Sheet
March 31, 1998 and December 31, 1997........................... 1
Statement of Operations
For the Three Months ended March 31, 1998 and 1997............ 2
Statement of Cash Flows
For the Three Months ended March 31, 1998 and 1997............. 3
Notes to Financial Statements........................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 6
PART II. OTHER INFORMATION
Legal Proceedings................................................................... 9
Changes in Securities and Use of Proceeds........................................... 9
Defaults Upon Senior Securities..................................................... 9
Submission of Matters to a Vote of Security Holders................................. 9
Other Information................................................................... 9
Exhibits and Reports on Form 8-K.................................................... 9
Signatures.......................................................................... 10
* 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)
March 31, December 31,
1998 1997
---------------- -----------------
ASSETS
Current assets
Cash..................................................... $1,322,953 $2,175,226
Accounts receivable-net.................................. 2,424,325 2,041,350
Inventory................................................ 1,487,302 1,097,883
Advances to Maxbase, Inc. ............................... -- 127,080
Other current assets..................................... 191,508 96,218
---------------- -----------------
Total current assets..................................... 5,426,088 5,537,757
Furniture, equipment and leasehold improvements-net............ 463,018 438,490
Deferred financing costs....................................... 27,500 --
Other assets................................................... 30,297 31,359
---------------- -----------------
Total assets............................................. $5,946,903 $6,007,606
---------------- -----------------
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease payable................. $ 5,377 $ --
Accounts payable......................................... 725,994 909,785
Accrued expenses......................................... 493,012 323,892
Income taxes payable..................................... 2,453
Customer deposits........................................ 203,358 37,052
---------------- -----------------
Total current liabilities................................ 1,427,741 1,273,182
Noncurrent liabilities
Capital lease payable, less current portion.............. 11,209 --
Deferred income taxes.................................... -- --
---------------- -----------------
Total noncurrent liabilities............................. 11,209 --
---------------- -----------------
Total liabilities........................................ 1,438,950 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..................................... 328,620 316,611
Retained earnings (Accumulated deficit)........................ (1,050,407) (811,927)
---------------- ----------------
Total stockholders' equity............................... 4,507,953 4,734,424
---------------- ----------------
Total liabilities and stockholders' equity............... $5,946,903 $6,007,606
---------------- ----------------
---------------- ----------------
See Notes to Consolidated Financial Statements
1
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
----------------------------------
1998 1997
----------------- --------------
Net revenues................................................... $2,328,104 $1,623,856
Cost of revenues............................................... 1,618,656 1,129,514
----------------- --------------
Gross margin................................................... 709,448 494,342
Operating expenses:
Selling.................................................... 688,272 281,642
General and administrative................................. 282,692 179,929
----------------- --------------
Total operating expenses....................................... 970,964 461,571
----------------- --------------
Income (loss) from operations.................................. (261,516) 32,771
----------------- --------------
Other (income) expenses
Interest income............................................ (23,216) (5,483)
Interest expense........................................... 180 12,022
----------------- --------------
Total other (income) expenses.................................. (23,036) 6,539
----------------------------------
Income (loss) before taxes..................................... (238,480) 26,232
Provision for income taxes..................................... -- 12,684
----------------- --------------
Net income (loss).............................................. $ (238,480) $ 13,548
----------------- --------------
----------------- --------------
Net income (loss) per common and common equivalent share:
Basic........................................ $ (0.05) $ 0.01
----------------- --------------
----------------- --------------
Diluted...................................... $ (0.05) $ 0.01
----------------- --------------
----------------- --------------
Weighted average common and common equivalent
shares outstanding 4,910,000 3,128,571
----------------- --------------
----------------- --------------
See Notes to Consolidated Financial Statements
2
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
---------------------------------
1998 1997
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................ $ (238,480) $ 13,548
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization............................................. 36,354 11,266
Non cash compensation..................................................... 12,009 --
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable.................................................... (382,975) (560,970)
Inventory.............................................................. (389,419) (80,289)
Other current assets................................................... (95,290) (26,384)
Advances to Maxbase, Inc. ............................................. 127,080 -
Accounts payable....................................................... (183,791) 154,697
Accrued expenses....................................................... 169,120 176,552
Income taxes payable................................................... (2,453) (3,501)
Deferred income taxes.................................................. -- 5,459
Customer Deposits...................................................... 166,306 16,873
-------------- ------------
Net cash used by operating activities...................................... (781,539) (292,749)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements................. (43,878) (96,949)
Decrease (increase) in other assets.......................................... 1,062 48,565
-------------- ------------
Net cash used by investing activities...................................... (42,816) (48,384)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITES
Deferred financing costs..................................................... (27,500) --
Deferred stock offering costs................................................ -- (199,467)
Payments on long-term debt................................................... -- (5,312)
Payments on capital lease obligations........................................ (418) --
-------------- ------------
Net cash provided by financing activities.................................. (27,918) (204,779)
-------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................. (852,273) (545,912)
CASH AND CASH EQUIVALENTS , BEGINNING OF PERIOD................................... 2,175,226 645,614
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................................... $1,322,953 $ 99,702
-------------- ------------
-------------- ------------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest.................................................................. $ 180 $ 12,022
-------------- ------------
-------------- ------------
Income taxes.............................................................. $ -- $ 1,288
-------------- ------------
-------------- ------------
Acquisition of equipment
Cost of equipment......................................................... $ 19,615 $ --
Capital lease payable incurred............................................ 17,004 --
-------------- ------------
Cash down payment......................................................... $ 2,611 $ --
-------------- ------------
-------------- ------------
See Notes to Consolidated Financial Statements
3
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
Note 1 - Basis of Presentation
The accompanying consolidated 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
months ended March 31, 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"). 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 (4,910,000 and 3,128,571 shares in 1998
and 1997, respectively).
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, all of which were issued subsequent
to March 31, 1997, have not been included in the 1998 per share
computation because their inclusion would be anti-dilutive.
4
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
Note 3 - Agreement with Maxbase, Inc
In September 1997, the Company entered into an exclusive distribution
agreement (the "Agreement") with Maxbase, Inc., the manufacturer of
"Maxshare 2", a patented bandwidth on demand line sharing device. The
Company has agreed to purchase a minimum of 10,000 units of Maxshare 2
over a two-year period, with a 2,500-unit commitment in the first year.
The Agreement further grants the Company an option to purchase all the
assets of Maxbase, Inc. for a cash price of $2,000,000, plus $70 for
every unit under the 10,000 unit minimum that the Company has not
purchased at the time it exercises the option. As of March 31, 1998 the
Company has purchased 2,000 units at an average price of $205. Based on
current production costs, the Company's minimum purchase requirements
for the balance of 1998 and for the fiscal 1999 are expected to be
approximately $102,500 and $1,537,000, respectively.
Note 4 - Proposed Bank Financing
Bank Financing
In May 1998, the Company closed on a $5,000,000 working capital credit
facility with an asset-based lender. Loan availability will be 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 will bear interest at the lender's
base rate plus 1% per annum, payable monthly, and will be
collateralized by a lien on accounts receivable, inventories, and
intangible assets. The Company will be subject to certain financial
covenants relating to minimum net worth, maximum leverage and minimum
profitability. The commitment also provides for the payment of various
fees, including a $30,000 closing fee as well as ongoing servicing and
renewal fees. The credit facility will have an initial term of two
years, with annual renewals thereafter subject to the lender's review.
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 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 it operations.
Results of Operations
Three Months Ended March 31, 1998 ("1998 quarter") Compared to Three Months
Ended March 31, 1997 ("1997 quarter").
Net revenues. Operating revenues for the 1998 quarter totaled
$2,328,104, a record level for a three-month period, representing a 43% increase
over the revenues of $1,623,856 reported for the 1997 quarter. Sales of voice
communications products and services increased in the 1998 quarter by $448,530
or 65% to $1,139,224 over comparable 1997 revenues of $690,694. Revenues in both
the 1998 and 1997 periods were derived primarily from the sale of Panasonic
systems. Sales under the Company's Preferred Vendor Agreement with Cendant
Corporation accounted for 15% and 8% of net revenues for the 1998 and 1997
periods, respectively. The Company anticipates continued growth in the voice
communications division for the balance of fiscal 1998 due in part to sales
expected to be generated under the Company's recent distribution agreement with
Lucent Technologies, Inc. The agreement covers Lucent's telecommunications
systems and software packages.
Sales of videoconferencing systems increased in the 1998 quarter by
$226,835 or 24% to $1,157,712 over comparable 1997 revenues of $930,877. The
Company expects sales of Polycom's ViewStation 384 model to fuel growth in the
videoconferencing division commencing in the second quarter of 1998.
Cost of revenues. Cost of revenues in the 1998 quarter was $1,618,656
or 70% of net revenues, as compared to $1,129,514 or 70% of net revenues in the
1997 quarter. Cost of revenues consists primarily of net product, direct labor,
insurance, and depreciation costs.
6
Gross margins. Gross margins increased to $709,448, or 30% of net
revenues in the 1998 quarter, as compared to $494,342, or 30% of net revenues in
the 1997 quarter. Margins are expected to fluctuate in a narrow range, depending
on such factors as sales volume, the mix of product revenues, and changes in
fixed costs during a given period.
Selling. Selling expenses, which include sales salaries, commissions,
sales overhead, and marketing costs, increased to $688,272, or 30% of net
revenues in the 1998 quarter, as compared to $281,642 or 17% of net revenues in
the 1997 quarter. The dollar increase was due in part to higher salaries
resulting from additions in sales personnel in late 1997 and 1998 and higher
commission-based videoconferencing sales. The Company expects selling costs to
increase as it continues to expand its sales staff and invest in product
marketing to build its revenue base. The Company hired four additional sales
personnel in the first quarter of 1998.
General and administrative. General and administrative expenses
increased to $282,692 or 12% of net revenues in the 1998 quarter, as compared to
$179,929 or 11% of net revenues in the 1997 quarter. The dollar increase is
attributable primarily to higher salaries and related costs associated with the
increase in administrative staff necessary to manage expanded operations, to
higher occupancy costs and other administrative overhead, as well as to costs
incurred as a result of being a public reporting company.
Net loss. The Company reported a net loss of $238,480, or $.05 per
share, in the 1998 quarter, compared to net income of $13,548, or $.01 per
share, in the 1997 quarter.
Liquidity and Capital Resources
At March 31, 1998, the Company had working capital of $3,998,347,
including $1,322,953 in cash.
Net cash used by operating activities for the 1998 quarter was $781,539
as compared to $292,749 for the 1997 quarter. Uses of cash in the 1998 period,
including increases in accounts receivable due to record revenue growth, and
higher inventory levels to maintain favorable pricing, more than offset noncash
charges of $48,363, as well as increases in current liabilities.
Investing activities for the 1998 quarter included purchases of $43,878
for building improvements, office furniture and equipment.
7
Net cash used by financing activities for the 1998 quarter was $27,918.
In May 1998, the Company closed on a $5,000,000 working capital credit facility
with an asset-based lender. Loan availability will be 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 will
bear interest at the lender's base rate plus 1% per annum, payable monthly, and
will be collateralized by a lien on accounts receivable, inventories, and
intangible assets. The Company will be subject to certain financial covenants
relating to minimum net worth, maximum leverage, and minimum profitability. The
commitment also provides for the payment of various fees, including a $30,000
closing fee as well as ongoing servicing and renewal fees. The credit facility
will have an initial term of two years, with annual renewals thereafter subject
to the lender's review. As of March 31, 1998 the Company has incurred costs
associated with the financing of $27,500.
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
Management has initiated a company-wide program to prepare the
Company's computer systems and applications for the year 2000, as well as
identify critical third parties, which the Company relies upon to operate its
business to assess their readiness for the year 2000. The Company expects to
incur internal payroll costs as well as consulting costs and other expenses that
it deems necessary to prepare the company's systems for the year 2000.
Management cannot presently estimate the cost of this program; however, such
costs are not currently expected to be material to the Company's operations or
financial condition. There can be no assurance that the systems of other
companies which the Company's systems rely upon will be timely converted, or
that such failure to convert by another company would not have a material
adverse effect on the Company's systems and results of operations.
8
Part II
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
The Company's initial public offering of its Common Stock and Common
Stock Purchase Warrants commenced on April 28, 1997. All securities offered
were sold. The net proceeds of the offering to the Company were $4,539,740.
From the effective date of the registration statement through March 31, 1998,
a reasonable estimate of the utilization of the net proceeds of the offering
is as follows:
Use of proceeds Amount
- -------------------------------------------------------------- -------------------
Purchase of furniture, equipment and leasehold improvements $442,712
Repayment of indebtedness 822,870
Marketing 205,089
Telephone and videoconferencing inventory 989,949
Leasing new corporate headquarters 78,234
Hiring additional employees 918,682
Working Capital 1,082,204
===================
Total $4,539,740
===================
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
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.
9
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: May 12, 1998 By: /s/ Richard Reiss
------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: May 12, 1998 By: /s/ Scott Tansey
------------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
10
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule