<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1997.
or
/ / Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission file number 1-12937
ALL COMMUNICATIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
New Jersey 22-3124655
(State or other Jurisdiction of I.R.S. Employer Number
Incorporation or Organization)
225 Long Avenue, P.O. Box 794, Hillside, New Jersey 07205
(Address of Principal Executive Offices)
973-282-2000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No[ ]
The number of shares outstanding of the registrant's common Stock as of
November 10, 1997 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes[ ] No [X]
<PAGE>
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
<TABLE>
<C> <S> <C>
Item 1. Financial Statements *
Balance Sheet
September 30, 1997 and December 31, 1996 1
Statement of Operations
For the Nine Months and Three Months ended
September 30, 1997 and 1996 2
Statement of Cash Flows
For the Nine Months ended September 30, 1997 and 1996 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Legal Proceedings 10
Changes in Securities 10
Defaults Upon Senior Securities 10
Submission of Matters to a Vote of Security Holders 10
Other Information 10
Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
* The Balance Sheet at December 31, 1996 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
<PAGE>
ALL COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash......................................... $3,242,483 $ 645,614
Accounts receivable-net...................... 2,021,451 681,411
Inventory.................................... 844,723 497,353
Deferred income taxes........................ 30,431 9,119
Other current assets......................... 126,428 11,595
----------- -----------
Total current assets......................... 6,265,516 1,845,092
Furniture, equipment and leasehold
improvements-net.............................. 371,089 128,984
Deferred financing costs........................ -- 390,406
Deferred stock offering costs................... -- 32,500
Other assets.................................... 61,278 61,410
----------- -----------
Total assets................................. $6,697,883 $2,458,392
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable............................ $ -- $ 447,071
Current portion of long-term debt............ -- 21,250
Accounts payable............................. 1,094,754 505,319
Accrued expenses............................. 300,791 108,259
Customer deposits............................ 38,275 14,943
----------- -----------
Total current liabilities.................... 1,433,820 1,096,842
Noncurrent liabilities
12% Convertible Subordinated Notes payable... -- 750,000
Long-term debt, less current portion......... -- 51,354
Deferred income taxes........................ 23,737 14,798
----------- -----------
Total noncurrent liabilities................. 23,737 816,152
----------- -----------
Total liabilities............................ 1,457,557 1,912,994
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 and 3,000,000 shares
issued and outstanding, respectively......... 5,229,740 90,000
Additional paid-in capital...................... 300,070 375,000
Retained earnings (Accumulated deficit)......... (289,484) 80,398
----------- -----------
Total stockholders' equity................... 5,240,326 545,398
----------- -----------
Total liabilities and stockholders' equity... $6,697,883 $2,458,392
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statments
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<PAGE>
ALL COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues.................................. 5,334,380 2,654,999 1,870,618 928,170
Cost of revenues.............................. 3,694,713 1,760,775 1,324,126 606,852
---------- ---------- ---------- ----------
Gross margin.................................. 1,639,667 894,224 546,492 321,318
Operating expenses:
Selling.................................... 1,065,030 487,636 458,006 155,299
General and administrative................. 700,674 385,503 282,912 133,970
---------- ---------- ---------- ----------
Total operating expenses...................... 1,765,704 873,139 740,918 289,269
---------- ---------- ---------- ----------
Income (loss) from operations................. (126,037) 21,085 (194,426) 32,049
---------- ---------- ---------- ----------
Other (income) expenses
Amortization of deferred financing costs... 315,406 -- -- --
Interest income............................ (82,854) -- (44,902) --
Interest expense........................... 27,779 16,707 -- 7,867
---------- ---------- ---------- ----------
Total other (income) expenses................. 260,331 16,707 (44,902) 7,867
---------- ---------- ---------- ----------
Income (loss) before taxes.................... (386,368) 4,378 (149,524) 24,182
Provision for income taxes.................... (16,485) 1,000 (54,342) 1,000
---------- ---------- ---------- ----------
Net income (loss)............................. (369,883) 3,378 (95,182) 23,182
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common and
common equivalent share.................... (.09) -- (.02) .01
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding.............. 4,217,464 1,910,714 4,910,000 1,910,714
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements
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<PAGE>
ALL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................ $ (369,883) $ 3,378
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization.............................. 368,224 21,402
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable...................................... (1,340,041) (230,651)
Inventory................................................ (347,370) (257,767)
Other current assets..................................... (114,833) (45,563)
Accounts payable......................................... 589,435 188,587
Accrued expenses......................................... 192,532 94,300
Income taxes payable..................................... -- (4,421)
Deferred income taxes.................................... (12,373) --
Customer Deposits........................................ 23,332 (15,777)
------------ ----------
Net cash used by operating activities....................... (1,010,977) (246,512)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements. (294,923) (47,224)
Decrease (increase) in other assets.......................... 132 (2,500)
------------ ----------
Net cash used by investing activities....................... (294,791) (49,724)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from public offering................................ 5,635,070 --
Deferred stock offering costs................................ (1,062,760) --
Repayment of subordinated convertible note................... (150,000) --
Proceeds from bank loans..................................... 125,000 360,000
Payments on bank loans....................................... (644,673) (21,440)
------------ ----------
Net cash provided by financing activities................... 3,902,637 338,560
------------ ----------
INCREASE IN CASH............................................... 2,596,869 42,324
CASH AT BEGINNING OF PERIOD.................................... 645,614 153,906
------------ ----------
CASH AT END OF PERIOD.......................................... $ 3,242,483 $ 196,230
------------ ----------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest................................................... $ 27,779 $ 16,707
------------ ----------
Income taxes............................................... $ 1,910 $ 25,424
------------ ----------
Supplemental disclosures of non-cash financing activities
Conversion of subordinated promissory notes to capital....... $ 600,000 $ --
------------ ----------
Reclassification of deferred financing costs to
paid-in capital.............................................. $ 75,000 $ --
------------ ----------
</TABLE>
See Notes to Financial Statements
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<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Note 1 - Basis of Presentation
The accompanying financial statements of All Communications Corporation
("the Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Item
310(b) of Regulation SB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the three and nine months ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. For further information, refer to the financial statements and
footnotes thereto included in the Company's Registration Statement on Form
SB-2 (No. 333-21069) as filed with the Securities and Exchange Commission.
Note 2 - Income (loss) per share
Income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. In
accordance with SEC rules, shares issuable upon the conversion of the 12%
Subordinated Convertible Notes Payable have been included in the calculation
of common and common equivalent shares outstanding for all periods presented
using the treasury stock method.
Note 3 - Initial Public Offering
In May 1997, the Company completed an initial public offering of 805,000
Units of its Common Stock and Class A Common Stock Purchase Warrants,
realizing net proceeds of approximately $4,500,000 after stock offering
costs.
Note 4 - 12% Convertible Subordinated Notes Payable
Upon the effective date of the initial public offering, a total of $600,000
principal amount of the convertible subordinated notes were converted into
300,000 Bridge Units. The Bridge Units consist of one share of common Stock
and one Common Stock Purchase Warrant. The Bridge Units and underlying
securities may not be sold prior to two years from the effective date of
the offering, during the first year, unconditionally, and during the second
year, without the prior consent of the Underwriter. Upon repayment of the
notes in May 1997, the Company charged off related financing costs of
$315,406.
-4-
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Note 5 - 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.
-5-
<PAGE>
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
financial statements and the notes thereto.
The statements contained herein, other than historical information, are or
may be deemed to be forward-looking statements and involve known 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, but are not limited to, the Company's ability to
consummate future mergers and acquisitions, the Company's ability to
introduce additional product lines successfully, and the Company's ability to
manage its business effectively in a rapidly changing environment.
Results of Operations
Nine Months Ended September 30, 1997 ("1997 period") Compared to Nine Months
Ended September 30, 1996 ("1996 period") and Three Months Ended September 30,
1997 Compared to Three Months Ended September 30, 1996.
Net revenues. The Company's revenues consist primarily of sales of
Panasonic digital telephone and voice processing systems, and Sony
videoconferencing products. Operating revenues for the 1997 period totaled
$5,334,380, a record level for a nine-month period, representing a 101% increase
over the revenues of $2,654,999 reported for the 1996 period. Operating
revenues for the three month period ended September 30, 1997 totaled $1,870,618,
representing a 102% increase over the revenues of $928,170 reported for the
three month period ended September 30, 1996. Sales were higher in both the
telephone and video categories, with video showing the greatest gains.
Sales of telephone and voice processing equipment increased in the 1997
period by 32% to $2,702,289 over comparable 1996 revenues of $2,047,005 and
for the three months ended September 30, 1997 by 45% to $1,068,308 over
comparable 1996 revenues of $732,516. The increase was due in part to
increased marketing efforts, including the hiring of additional sales
personnel. In addition, the Company entered into an exclusive dealership
arrangement with Coldwell Banker Corporation ("CBC") in January 1996 to sell
Panasonic telecommunications systems to CBC's corporate-owned offices. In
December 1996, this agreement was superseded by the signing of a
non-exclusive four-year Preferred Vendor Agreement with the new owner of the
Coldwell Banker brand, HFS Incorporated ("HFS"), to provide Panasonic
products to the HFS-owned brands: Century 21, ERA, and Coldwell Banker real
estate brokerage franchise systems. Sales under these agreements accounted
for 16% and 32% of net revenues for the 1997 and 1996 nine-month periods, and
22% and 29% for the three month periods, respectively.
-6-
<PAGE>
Sales of videoconferencing systems increased in the 1997 period by $2,059,762
or 360% to $2,632,091 as compared to $572,329 for the 1996 period, and by
$609,936 or 317% to $802,310 for the three month period ended September 30,
1997 as compared to $192,374 for the comparable 1996 three month period. The
increase is due in part to an increase in the Company's sales and marketing
efforts. Greater marketing efforts by Sony worldwide have helped increase the
Company's U.S. sales of Sony videoconferencing products. The Company
currently has videoconferencing demonstration facilities in New York City;
Washington, D.C.; Wayne and Philadelphia, Pennsylvania; and Santa Clara,
California, as well as at its headquarters in Hillside, New Jersey.
The Company has also added seven sales personnel in the video and telephone
divisions in 1997.
Cost of revenues. Cost of revenues in the 1997 period was $3,694,713 or
69% of net revenues, as compared to $1,760,775 or 66% of net revenues in the
1996 period. Cost of revenues for the three month period ending September
30, 1997 was $1,324,126 or 71% of net revenues, as compared to $606,852 or
65% of net revenues for the comparable 1996 three month period. Cost of
revenues consists primarily of net product, installation labor, and training
costs.
Gross margins. Gross margins increased to $1,639,667, or 31% of net
revenues in the 1997 period, as compared to $894,224, or 34% of net revenues
in the 1996 period. Gross margins for the three month period ending
September 30, 1997 increased to $546,492, or 29% of net revenues as compared
to $321,318 or 35% of net revenues for the comparable 1996 three month
period. 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. The Company has also added three
installation personnel in the video and telephone divisions in 1997.
Selling. Selling expenses, which include sales salaries, commissions,
sales overhead, and marketing costs, increased to $1,065,030, or 20% of net
revenues in the 1997 period, as compared to $487,636 or 18% of net revenues
in the 1996 period. During the three month period ended September 30, 1997
selling expenses increased to $458,006, or 24% or net revenues as compared to
$155,299, or 17% or net revenues for the comparable 1996 period. The dollar
increase was due in part to higher salaries resulting from additions in sales
personnel in 1997 and higher commission-based videoconferencing sales. New
employment agreements providing for increased compensation for sales
executives also commenced in 1997. 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.
General and administrative. General and administrative expenses
increased to $700,674 or 13% of net revenues in the 1997 period, as compared
to $385,503 or 15% of net revenues in the 1996 period. During the three
month period ended September 30, 1997, general and administrative expenses
increased to $282,912 or 15% or net revenues
-7-
<PAGE>
as compared to $133,970 or 14 % of net revenues for the comparable 1996 three
month period. 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.
Other (income) expenses. This category includes a non-recurring
accounting charge of $315,406 representing financing costs associated with
the 12% subordinated promissory notes payable. A total of $600,000 principal
amount of the notes was converted to 300,000 shares of common stock in May
1997; the balance of $150,000 was repaid.
Income Taxes. The income tax benefit of $16,485 in the 1997 period was
less than the amount computed using statutory tax rates, due primarily to the
nondeductibility for income tax purposes of certain financing costs incurred
in the second quarter.
Net loss. The Company reported a net loss of $369,883 or $.09 per share
in the 1997 period, compared to net income of $3,378, or less than $.01 per
share in the 1996 period. The net loss reported for the 1997 period includes
a non-recurring accounting charge of $315,406, or $.07 per share. For the
three months ended September 30, 1997 the Company reported a net loss of
$95,182 or $.02 per share compared to net income of $23,182 or $.01 per share
for the comparable 1996 three month period.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $4,832,000,
including $3,242,000 in cash. In May 1997, the Company completed an initial
public offering of 805,000 Units of its Common Stock and Class A Common Stock
Purchase Warrants, realizing net proceeds of approximately $4,500,000 after
stock offering costs. A portion of the offering proceeds was used for the
relocation and expansion of the company's facilities, the hiring of new
employees, the purchase of additional inventory, and other working capital
needs.
Net cash used by operating activities for the 1997 period was $1,010,977 as
compared to $246,512 for the 1996 period. Uses of cash in the 1997 period,
including increases in accounts receivable due to record revenue growth, and
higher inventory levels to maintain favorable pricing, more than offset
sources of cash, including noncash charges of $368,224 for depreciation and
financing costs, as well as increases in current liabilities.
Investing activities for the 1997 period included purchases of $294,923 for
building improvements, office furniture and equipment. In July 1997, the
Company moved to its expanded office and warehouse facility in Hillside, New
Jersey. The Company is occupying the facility under a five-year lease at a
base annual rent of $64,000. The lease contains a five-year renewal option.
Cash flows from financing activities provided net cash of $3,902,000.
Included in this amount are the net proceeds from the public offering.
During the second quarter of 1997,
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<PAGE>
the Company repaid $150,000 principal amount of subordinated promissory
notes. The Company also repaid the balance of its bank term loan and
outstanding borrowings under its credit line totaling $645,000.
On September 10, 1997, the Company entered into an agreement (the
"Agreement") with Maxbase, Inc., the manufacturer of "Maxshare 2", a patented
bandwidth on demand line sharing device. Under the terms of the Agreement,
the Company will act as the exclusive distributor of Maxshare 2 in the United
States and such other countries where Maxbase's patent for the Maxshare 2
technology may become effective. The Company has further 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 grants the Company an
option to purchase all the assets of Maxbase for $2,000,000 in cash plus $70
for every unit under the original 10,000 unit minimum that the company has
not purchased at the time it exercises the option.
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.
-9-
<PAGE>
Part II
<TABLE>
<C> <S>
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
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) The registrant filed Form 8-K dated September 17, 1997
under Item 5 thereof.
</TABLE>
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<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALL COMMUNICATIONS CORPORATION
Registrant
Date: November 12, 1997 By: /s/ Richard Reiss
-------------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: November 12, 1997 By: /s/ Scott Tansey
-------------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
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<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements accompanying the filings of Form 10-QSB and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,242,483
<SECURITIES> 0
<RECEIVABLES> 2,081,451
<ALLOWANCES> 60,000
<INVENTORY> 844,723
<CURRENT-ASSETS> 6,265,516
<PP&E> 460,864
<DEPRECIATION> 89,775
<TOTAL-ASSETS> 6,697,883
<CURRENT-LIABILITIES> 1,433,820
<BONDS> 0
0
0
<COMMON> 5,229,740
<OTHER-SE> 10,586
<TOTAL-LIABILITY-AND-EQUITY> 6,697,883
<SALES> 5,334,380
<TOTAL-REVENUES> 5,334,380
<CGS> 3,694,713
<TOTAL-COSTS> 5,460,417
<OTHER-EXPENSES> 232,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,779
<INCOME-PRETAX> (386,368)
<INCOME-TAX> (16,485)
<INCOME-CONTINUING> (369,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (369,883)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
