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, 1999.
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, 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 4, 1999 was 4,910,000.
Transitional Small Business Disclosure Format:
Yes[ ] No [X]
<PAGE>
ALL COMMUNICATIONS CORPORATION
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements *
Consolidated Balance Sheet
September 30, 1999 and December 31, 1998 1
Consolidated Statement of Operations
For the Nine Months and Three Months ended
September 30, 1999 and 1998 2
Consolidated Statement of Cash Flows
For the Nine Months ended September 30, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
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
* The Balance Sheet at December 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are unaudited.
<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 281,566 $ 325,915
Accounts receivable-net 5,755,777 4,317,853
Inventory 4,840,038 3,540,281
Other current assets 309,032 45,577
------------ ------------
Total current assets 11,186,413 8,229,626
Furniture, equipment and leasehold improvements-net 553,998 611,518
Deferred financing costs-net 29,877 43,271
Other assets 38,214 38,214
------------ ------------
Total assets $ 11,808,502 $ 8,922,629
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable $ 1,968,514 $ --
Accounts payable 3,781,768 1,412,616
Accrued expenses 944,129 844,082
Income taxes payable -- 2,860
Deferred revenue 299,273 156,133
Customer deposits 359,566 94,721
Current portion of capital lease obligations 29,846 17,365
------------ ------------
Total current liabilities 7,383,096 2,527,777
Noncurrent liabilities
Bank loan payable -- 2,403,216
Capital lease obligations, less current portion 25,613 23,221
------------ ------------
Total noncurrent liabilities 25,613 2,426,437
------------ ------------
Total liabilities 7,408,709 4,954,214
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 393,144 327,943
Accumulated deficit (1,223,091) (1,589,268)
------------ ------------
Total stockholders' equity 4,399,793 3,968,415
------------ ------------
Total liabilities and stockholders' equity $ 11,808,502 $ 8,922,629
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 15,908,891 $ 8,445,116 $ 6,669,783 $ 3,108,202
Cost of revenues 10,917,374 5,905,306 4,507,656 2,194,385
------------ ------------ ------------ ------------
Gross margin 4,991,517 2,539,810 2,162,127 913,817
Operating expenses:
Selling 3,318,047 2,275,805 1,366,972 844,339
General and administrative 1,159,772 957,334 441,386 376,533
------------ ------------ ------------ ------------
Total operating expenses 4,477,819 3,233,139 1,808,358 1,220,872
------------ ------------ ------------ ------------
Income (loss) from operations 513,698 (693,329) 353,769 (307,055)
------------ ------------ ------------ ------------
Other (income) expenses
Amortization of deferred financing costs 30,894 11,198 12,243 8,483
Interest income (18,135) (48,729) (3,968) (10,209)
Interest expense 134,762 21,002 38,650 19,950
------------ ------------ ------------ ------------
Total other (income) expenses, net 147,521 (16,529) 46,925 18,224
------------ ------------ ------------
Net income (loss) $ 366,177 $ (676,800) $ 306,844 $ (325,279)
============ ============ ============ ============
Per share of common stock:
Basic $ .07 $ (0.14) $ .06 $ (0.07)
============ ============ ============ ============
Diluted $ .06 $ (0.14) $ .05 $ (0.07)
============ ============ ============ ============
Number of shares:
Basic 4,910,000 4,910,000 4,910,000 4,910,000
============ ============ ============ ============
Diluted 5,771,478 4,910,000 6,179,834 4,910,000
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
ALL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 366,177 $ (676,800)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 241,304 157,841
Loss on disposal of equipment 1,832 3,209
Non cash compensation 65,201 15,413
Increase (decrease) in cash attributable
to changes in assets and liabilities
Accounts receivable (1,437,924) (1,694,967)
Inventory (1,299,757) (3,158,569)
Advances to Maxbase, Inc. -- 127,080
Other current assets (263,455) (37,140)
Other assets -- (6,855)
Accounts payable 2,369,152 1,023,698
Accrued expenses 100,047 308,292
Income taxes payable (2,860) (2,453)
Deferred revenue 143,140 --
Customer deposits 264,845 842,494
------------ ------------
Net cash provided by (used in) operating activities 547,702 (3,098,757)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (119,755) (270,080)
------------ ------------
Net cash used in investing activities (119,755) (270,080)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITES
Deferred financing costs (17,500) (59,723)
Proceeds from bank loans 10,205,000 1,500,000
Payments on bank loans (10,639,702)
Payments on capital lease obligations (20,094) (6,421)
------------ ------------
Net cash provided by (used in) financing activities (472,296) 1,433,856
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (44,349) (1,934,981)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 325,915 2,175,226
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 281,566 $ 240,245
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 134,762 $ 21,002
============ ============
Income taxes $ 3,332 $ --
============ ============
Acquisition of equipment
Cost of equipment $ 37,747 $ 58,844
Capital lease payable incurred 34,968 51,012
------------ ------------
Cash down payment $ 2,779 $ 7,832
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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, 1999 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1999. 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, 1998 as filed with the Securities and Exchange
Commission.
The consolidated financial statements include the accounts of the Company
and AllComm Products Corp. ("APC"), a wholly owned subsidiary. All material
intercompany balances and transactions have been eliminated in
consolidation.
Note 2 - Income (loss) per share
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during
the period.
Diluted net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding plus the
weighted-average number of net shares that would be issued upon exercise of
stock options and warrants using the treasury stock method. Incremental
shares included in the 1999 diluted computations were 861,478 and 1,269,834
shares for the nine months and three months ended September 30, 1999,
respectively.
Note 3 - Legal Matters
On May 20, 1999 the Company settled the lawsuit with its former landlord.
Under the terms of the settlement, the Company will pay a total of
$120,000. The first payment was made on May 21, 1999 in the amount of
$50,000, the second payment of $35,000 was made on September 1, 1999, and
the final payment of $35,000 is due on January 1, 2000. The Company has
established an adequate reserve for the settlement, and accordingly there
will be no further impact on operations as the installments are paid.
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<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
consolidated financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
The statements contained herein, other than historical information, are or may
be deemed to be forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, and involve factors, risks and uncertainties
that may cause the Company's actual results in future periods to differ
materially from such statements. These factors, risks and uncertainties, include
the relatively short operating history of the Company; market acceptance and
availability of new products; the non-binding and nonexclusive nature of
reseller agreements with manufacturers; rapid technological change affecting
products sold by the Company; the impact of competitive products and pricing, as
well as competition from other resellers; possible delays in the shipment of new
products; and the availability of sufficient financial resources to enable the
Company to expand its operations.
Results of Operations
Nine Months Ended September 30, 1999 ("1999 period") Compared to Nine Months
Ended September 30, 1998 ("1998 period") and Three Months Ended September 30,
1999 Compared to Three Months Ended September 30, 1998.
NET REVENUES. The Company reported net revenues of $15,909,000 for the 1999
period, an increase of $7,464,000, or 88% over revenues reported for the 1998
period. Net revenues of $6,670,000 for the September 1999 quarter represent an
increase of $3,562,000, or 115%, over revenues reported for the September 1998
quarter. Both of the Company's divisions have contributed to its sales growth in
1999.
Voice communications - The Company distributes, installs, and services
Lucent, Panasonic and other telecommunications products. Sales in this division
were $7,892,000 in the 1999 period, a 76% increase over the 1998 period. Sales
for the quarter ended September 30, 1999 were $3,350,000, a 116% increase over
the comparable 1998 quarter.
The voice communications division has experienced strong growth in Lucent
equipment sales, particularly to large users in the commercial and healthcare
marketplace. Specifically, sales to one customer accounted for 15% of net
revenues in the 1999 period. Sales of Panasonic equipment continued to show
strong growth in the real estate and small business markets during the quarter.
Panasonic sales to real estate customers accounted for 19% of net revenues in
the 1999 period.
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<PAGE>
Videoconferencing - Sales of videoconferencing equipment were $8,017,000 in
the 1999 period, a 102% increase over the 1998 period. Sales for the quarter
ended September 30, 1999 were $3,320,000, a 114% increase over the comparable
1998 quarter.
The Company is one of the largest distributors and integrators of the
complete line of videoconferencing products manufactured by Polycom. The
videoconferencing division is experiencing significant unit growth particularly
in the government, commercial, healthcare and education markets. In addition to
its success in marketing the Polycom product line, the Company has become a
leader in design and integration of turnkey videoconferencing systems. This
specialty has enabled the Company to build on its commercial customer base to
expand into other markets.
The Company expects revenue growth in both divisions to continue for the
balance of fiscal 1999 based on existing backlog, pending orders, and an
increasing number of referrals from customers and other sources.
GROSS MARGINS. Gross margins increased in the 1999 period to 31% of net
revenues, as compared to 30% of net revenues in the 1998 period. The Company's
gross margins continue to benefit from favorable vendor pricing as unit growth
continues and from the sale of higher margin revenue sources such as maintenance
contracts.
SELLING. Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased in the 1999 period to $3,318,000, or
21% of net revenues, as compared to $2,276,000, or 27% of net revenues for the
1998 period. Selling expenses for the quarter ended September 30, 1999 increased
to $1,367,000, or 21% of net revenues, as compared to $844,000 or 27% of net
revenues for the comparable 1998 quarter. The dollar increase was due in part to
higher commissions related to revenue growth and additional depreciation charges
related to demonstration equipment. The decrease in selling expenses as a
percentage of total revenues in the 1999 period was the result of fixed selling
costs remaining stable during a period of rising revenues, and an improvement in
sales staff productivity.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in the 1999 period to $1,160,000, or 7% of net revenues, as compared to
$957,000, or 11% of net revenues for the 1998 period. General and administrative
expenses for the quarter ended September 30, 1999 increased to $441,000, or 7%
of net revenues, as compared to $377,000, or 12% of net revenues for the
comparable 1998 quarter. The increases in 1999 were attributable to higher
compensation and professional fees relating to litigation and other corporate
matters. General and administrative expenses declined as a percentage of revenue
as sales growth outpaced cost increases. Management expects this trend to
continue at least through the end of fiscal 1999.
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<PAGE>
OTHER (INCOME) EXPENSES. The principal component of this category, interest
expense, increased to $135,000 in the 1999 period as compared to $21,000 in the
1998 period. The increase reflects the Company's use of its bank credit facility
to fund working capital requirements in 1999.
INCOME TAXES. The Company has established a valuation allowance to offset
additional tax benefits from net operating loss carryforwards and other deferred
tax assets. For the quarter ended September 30, 1999, the Company reduced the
valuation allowance to offset a tax provision of approximately $145,000 on
quarterly income. Management will continue to evaluate the recoverability of
deferred tax assets and the valuation allowance on a quarterly basis. At such
time as it is determined that it is more likely than not the deferred tax assets
are realizable, the valuation allowance will be further reduced.
NET INCOME (LOSS). The Company reported net income for the September 1999
period of $366,000, or $.07 and $.06 per share on a basic and diluted basis,
respectively, as compared to a net loss of $677,000, or $(.14) per share on a
basic and diluted basis for the September 1998 period. Net income for the
quarter ended September 30, 1999 was $307,000, or $.06 and $.05 per share on a
basic and diluted basis, respectively, as compared to a net loss of $325,000, or
$(.07) per share on a basic and diluted basis for the comparable 1998 quarter.
Liquidity and Capital Resources
At September 30, 1999, the Company had working capital of $3,803,000,
including $281,000 in cash and cash equivalents. Net cash provided by operating
activities for the 1999 period was $548,000 as compared to net cash used in
operations of $3,099,000 during the 1998 period. Sources of operating cash in
1999 included net income, depreciation, accounts payable financing and customer
prepayments. Accounts payable increased by $2,369,000 during the 1999 period as
the Company purchased inventory late in the third quarter to satisfy sales
demand. Uses of cash included increases in accounts receivable resulting from
sales growth and increases in inventory to capitalize on favorable vendor
pricing.
Investing activities for the 1999 period included purchases of $120,000 for
office and demonstration equipment. The Company does not have any material
commitments for capital expenditures.
Financing activities in the 1999 period consisted primarily of proceeds
from and repayments of the Company's $5,000,000 revolving credit line.
Borrowings are based on available accounts receivable and inventory collateral,
and bear interest at the rate of prime plus 1% per annum. The principal balance
outstanding as of September 30, 1999 has been classified as a current liability
due to the maturity of the two-year credit agreement in May 2000. Management
intends to refinance the credit facility by the maturity date.
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<PAGE>
In May 1999, the Company settled the lawsuit with its former landlord.
Under the terms of the settlement, the Company will pay a total of $120,000 in
three installments over seven months. The Company has established an adequate
reserve for the settlement, and accordingly there will be no further impact on
operations as the installments are paid.
Inflation
Management does not believe inflation had a material adverse effect on the
financial statements for the periods presented.
Year 2000
State of Readiness
In early 1998, management initiated a company-wide program to prepare the
Company's computer systems and applications for the year 2000, as well as to
identify critical third parties which the Company relies upon to operate its
business to assess their readiness for the year 2000. The Company's main
computer applications include MAS90 accounting software and Top Of Mind customer
service software. Individual desktop computers are running on a Windows 95, 98
or NT operating system and include desktop applications such as Microsoft Office
97. The Company uses Dell personal computers on most desktops.
During the third quarter of 1999, the Company installed a Microsoft Windows
NT operating system on its main file server as part of an overall upgrade of our
information systems. Microsoft has stated that the Windows NT operating system
is year 2000 compliant. Dell has indicated that all of the Company's Dell
computers are year 2000 compliant. The Company has also upgraded the MAS90
accounting system and the Top Of Mind customer service software to be year 2000
compliant. The software upgrades to the MAS90 accounting system and the Top Of
Mind customer service software were included as part of the Company's annual
maintenance contracts. The Company has not tested its systems for year 2000
readiness and, presently, does not intend to do so.
The Company recognizes, as critical third parties, major vendors, such as
Lucent, Panasonic, Sony, and Polycom; major customers, such as Cendant and
Universal Health Services, Inc; and other parties such as Landlords and utility
companies.
The Company has received written notice from all of its key vendors, Lucent
Technologies, Sony, Panasonic, and Polycom that all of their products that the
Company sells are currently year 2000 compliant. The Company believes it has no
year 2000 warranty exposure for products already sold.
During the fourth quarter of 1998, the Company mailed a questionnaire to
critical third parties to assess their year 2000 readiness. The questionnaire
addressed issues such as where companies stand in their year 2000 compliance
programs and how their
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<PAGE>
relationship with the Company would be affected by any failure to address year
2000 issues. The responses received indicated that third parties are addressing
and implementing programs to address the year 2000 issue.
Costs of compliance
Costs related to the year 2000 issue incurred to date have been less than
$10,000 and have been expensed as incurred. The Company expects to incur less
than $5,000 related to year 2000 issues in the fourth quarter of 1999.
Risks
Our estimates on costs and potential financial impact are based on
information we have currently. Due to the general uncertainty inherent in the
year 2000 issue, there can be no assurance these estimates will prove accurate
and actual results could differ materially from those currently anticipated.
Factors that could cause actual results to differ include unanticipated
supplier or customer failures; utilities, transportation, or telecommunications
breakdowns; U.S. government failures; and unanticipated failures on our part to
address year 2000-related issues. These failures could have a material adverse
effect on the Company's results of operations, liquidity, and financial
condition.
The Company has evaluated the potential impact of the year 2000 risks and
believes that the most reasonably likely worst case scenario is the interruption
or disruption of receipt of products, supplies, and services from its major
suppliers. Delays in deliveries could result in a significant loss of revenue.
The degree of revenue loss impact would depend on the severity of the
disruption, the time required to correct it, whether the revenue loss was
temporary or permanent, and the degree to which our primary competitors were
also impacted by the disruption.
The Company does not have a contingency plan and does not plan on creating
one.
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<PAGE>
Part II
Item 1. Legal Proceedings
On May 20, 1999 the Company settled the lawsuit with its former landlord.
Under the terms of the settlement, the Company will pay a total of $120,000. The
first payment was made on May 21, 1999 in the amount of $50,000, the second
payment of $35,000 was made on September 1, 1999, and the final payment of
$35,000 is due on January 1, 2000.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
A duly executed proxy given in connection with the registrant's 2000 Annual
Meeting of Stockholders will confer discretionary authority on the proxies named
therein, or any of them, to vote at such meeting on any matter of which the
Company does not have written notice on or before March 7, 2000, which is
forty-five days prior to the date on which the Company first mailed its proxy
materials for its 1999 Annual Meeting of Stockholders, without advice in the
Company's proxy statement as to the nature of such matter.
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K There were no reports on Form 8-K filed during the
period for which this report is filed.
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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 4, 1999 By: /s/ Richard Reiss
--------------------------
Richard Reiss,
President and Chief Executive
Officer
Date: November 4, 1999 By: /s/ Scott Tansey
--------------------------
Scott Tansey
Vice President - Finance
(principal accounting officer)
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<PAGE>
Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<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-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 281,566
<SECURITIES> 0
<RECEIVABLES> 5,930,777
<ALLOWANCES> 175,000
<INVENTORY> 4,840,038
<CURRENT-ASSETS> 11,186,413
<PP&E> 1,083,357
<DEPRECIATION> 529,359
<TOTAL-ASSETS> 11,808,502
<CURRENT-LIABILITIES> 7,383,096
<BONDS> 0
0
0
<COMMON> 5,229,740
<OTHER-SE> (829,947)
<TOTAL-LIABILITY-AND-EQUITY> 11,808,502
<SALES> 15,908,891
<TOTAL-REVENUES> 15,908,891
<CGS> 10,917,374
<TOTAL-COSTS> 15,395,193
<OTHER-EXPENSES> 30,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,762
<INCOME-PRETAX> 366,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 366,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,177
<EPS-BASIC> .07
<EPS-DILUTED> .06
</TABLE>
