United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
{X} Quarterly Report PuRsuant to Section 13 OR 15(d) of the Securities Exchange
ACT OF 1934
For the quarterly period ended: September 30, 1999
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______________ to________________.
Commission File No. 0-4410
TELECOMM INDUSTRIES CORP.
-------------------------
(Exact name of Issuer as specified in its charter)
DELAWARE 34-1765902
(State of Incorporation) (I.R.S. Employer Identification No.)
1743 Quincy Ave.
Naperville, Illinois 60540
(Address of principal executive offices)
630-369-7111
(Issuer's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common equity, as the latest practical date: common stock, $0.01 par
value: (as of November 9, 1999): 12,131,559
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
TELECOMM INDUSTRIES CORP. AND SUBSIDIARY
INDEX
PART I-FINANCIAL INFORMATION Page No.
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998 4
Consolidated Statements of Operations-
three and nine months ended September 30, 1999
and 1998 5
Consolidated Statements of Cash Flow-
nine months ended September 30, 1999 and
1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The Registrant's Consolidated Financial Statements follow this page.
3
<PAGE>
Telecomm Industries Corp. and Subsidiary
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Accounts receivable , net $ 4,767,591 $ 5,041,578
Inventories 1,848,361 1,583,879
Prepaid income taxes 45,147 45,147
Prepaid expenses 417,784 118,499
Employee advances 21,450 67,769
------------ ------------
Total current assets 7,100,333 6,856,872
------------ ------------
Property and equipment, net 1,369,496 1,609,874
Other assets:
Accounts receivable, long-term portion 4,408,536 4,102,589
Intangibles and other assets, net 3,502,896 3,670,572
------------ ------------
Total assets $ 16,381,261 $ 16,239,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 232,961 $ 453,208
Line of credit 1,875,376 1,030,377
Current portion of long-term debt 829,947 733,389
Accounts payable 1,301,933 1,612,261
Accrued payroll and related expenses 352,547 310,012
Accrued commissions and bonus 166,180 631,492
Accrued contractor fees 7,138 98,311
Customer deposits 590,401 219,841
Deferred income taxes 108,594 108,594
Income taxes payable 141,107 141,107
Other accrued expenses 403,363 615,961
Deferred revenue 119,971 --
------------ ------------
Total current liabilities 6,129,518 5,954,553
------------ ------------
Long-term debt, less current portion 5,386,593 6,066,715
Deferred revenue 24,334 8,961
Deferred income taxes 690,409 441,709
------------ ------------
Total liabilities 12,230,854 12,471,938
------------ ------------
Stockholders' equity:
Common stock $.01 par value:
authorized 20,000,000 shares:
issued 12,660,746 and 12,650,746;
outstanding 12,131,559 and 12,121,559
at September 30, 1999 and
December 31, 1998, respectively 126,608 126,508
Additional paid-in capital 3,966,447 3,957,172
Treasury stock, 529,187 shares at cost (317,512) (317,512)
Retained earnings 374,864 1,801
------------ ------------
Total stockholders' equity 4,150,407 3,767,969
------------ ------------
Total liabilities and
stockholders' equity $ 16,381,261 $ 16,239,907
============ ============
</TABLE>
See notes to unaudited consolidated financial statements
4
<PAGE>
Telecomm Industries Corp. and Subsidiary
Consolidated Statements of Operations (Unaudited)
For the three and nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Network service revenue $ 2,160,234 $ 2,512,585 $ 7,129,945 $ 7,629,051
Equipment sales and service revenue 3,161,863 3,431,788 6,636,173 9,989,364
Long distance and other revenue 142,769 165,823 330,785 659,956
------------ ------------ ------------ ------------
5,464,866 6,110,196 14,096,903 18,278,371
------------ ------------ ------------ ------------
Commissions, contractor fees,
and related expenses 2,779 48,546 8,126 134,307
Equipment sales and service costs 2,331,538 2,614,176 5,661,568 8,128,248
Long distance and other costs 246 9,181 1,152 111,273
------------ ------------ ------------ ------------
Net cost of commissions, contractor fees,
and related expenses 2,334,563 2,671,903 5,670,846 8,373,828
------------ ------------ ------------ ------------
Selling, general and administrative expenses 2,403,121 3,060,688 7,311,176 8,818,384
------------ ------------ ------------ ------------
Operating income 727,182 377,605 1,114,881 1,086,159
Other income (expense):
Gain on disposal of assets -- 2,280 2,129 3,922
Interest expense (176,471) (166,642) (495,247) (369,810)
------------ ------------ ------------ ------------
(176,471) (164,362) (493,118) (365,888)
------------ ------------ ------------ ------------
Income from operations before income tax expense 550,711 213,243 621,763 720,271
Income tax expense 220,300 89,085 248,700 290,745
------------ ------------ ------------ ------------
Net income $ 330,411 $ 124,158 $ 373,063 $ 429,526
============ ============ ============ ============
Net income per common share:
Basic $ .03 $ .01 $ .03 $ .04
============ ============ ============ ============
Diluted $ .03 $ .01 $ .03 $ .03
============ ============ ============ ============
Average number of common shares outstanding:
Basic 12,128,624 12,091,833 12,123,940 12,091,833
============ ============ ============ ============
Diluted 12,743,624 13,131,833 12,738,940 13,131,833
============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE>
Telecomm Industries
Corp. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 373,063 $ 429,526
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 484,553 456,957
Deferred revenue (214,232) 574
Deferred income taxes 248,700 283,199
Reserve for bad debt 45,060 --
(Gain) on sale of property and equipment (2,129) (3,922)
Changes in assets and liabilities:
Accounts receivable - trade 228,927 (2,102,886)
Accounts receivable - long-term portion (305,947) (494,452)
Inventories (264,482) (793,119)
Prepaid income taxes -- (3,588)
Prepaid expenses (299,285) (57,386)
Employee advances 46,319 75,948
Accounts payable - trade (310,328) 1,190,092
Accrued payroll and related expenses 42,535 (43,214)
Accrued commissions and bonus (465,312) (299,123)
Accrued contractor fees (91,173) (58,330)
Customer deposits 370,560 54,046
Income taxes payable -- 4,634
Other accrued expenses (212,598) 206,422
Deferred revenue 349,576 --
----------- -----------
Total adjustments (349,256) (1,584,148)
----------- -----------
Net cash provided by (used in) operating activities 23,807 (1,154,622)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (76,499) (293,822)
Proceeds from sale of property and equipment 2,129 3,922
Proceeds from stockholders' receivables -- 48,878
Purchase acquisitions, net of cash acquired -- (10,000)
----------- -----------
Net cash (used in) investing activities (74,370) (251,022)
----------- -----------
Cash flows from financing activities:
Payments on long-term debt (583,564) (315,498)
Proceeds from issuance of long-term debt -- 1,150,000
Net borrowings under line of credit 844,999 591,468
Cash overdraft (220,247) --
Proceeds from exercise of stock options 9,375 --
----------- -----------
Net cash provided by financing activities 50,563 1,425,970
----------- -----------
Net increase in cash -- 20,326
Cash and cash equivalents at beginning of period -- 97,779
----------- -----------
Cash and cash equivalents at end of period $ -- $ 118,105
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 462,254 $ 336,447
=========== ===========
Cash paid for income taxes $ -- $ 7,546
=========== ===========
Non-cash investing and financing activities:
Common stock issued for purchase acquisitions $ -- $ 420,000
=========== ===========
Notes issued for purchase acquisitions $ -- $ 20,000
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements
6
<PAGE>
TELECOMM INDUSTRIES CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Management Representation - The accompanying consolidated interim financial
statements of Telecomm Industries Corp. ("Telecomm" or the "Company") have
been prepared without audit and do not include all of the information and
note disclosures required by generally accepted accounting principles. The
statements reflect all adjustments that are, in the opinion of management,
necessary to present fairly the financial position of the Company as of
September 30, 1999, and the results of its operations for the quarter then
ended. These adjustments are of a normal and recurring nature. Therefore,
the accompanying consolidated interim financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Form 10-KSB of the Company for the year ended December 31,
1998.
2. Earnings Per Share - Computations of basic and diluted earnings per share
of common stock have been made in accordance with the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). The Company was required to adopt
the provisions of SFAS No. 128 beginning with the year ended December 31,
1997. All prior and interim period earnings per share amounts have been
restated accordingly. All securities that have an anti-dilutive effect on
earnings per share have been excluded from such computations.
<TABLE>
<CAPTION>
Reconciliation of Numerators and Denominators of the Basic
and Diluted EPS Computations
For the three month period ended September 30, 1999
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------- --------------- ------------------
<S> <C>
Net Income $ 330,411
Basic EPS:
Income available to common stockholders;
weighted average common stock outstanding 330,411 12,128,624 $ .03
Effect of dilutive securities options 615,000
---------------- --------------- ------------------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 330,411 12,743,624 $ .03
================ =============== ==================
For the three month period ended September 30, 1998
-----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------------- --------------- ------------------
Net income $ 124,158
Basic EPS:
Income available to common stockholders;
weighted average common stock outstanding 124,158 12,091,833 $ .01
Effect of dilutive securities options 1,040,000
---------------- --------------- ------------------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 124,158 13,131,833 $ .01
================ =============== ==================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
For the nine month period ended September 30, 1999
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- -------------------
<S> <C>
Net Income $ 373,063
Basic EPS:
Income available to common stockholders;
weighted average common stock outstanding 373,063 12,123,940 $ .03
Effect of dilutive securities options 615,000
------------- --------------- -------------------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 373,063 12,738,940 $ .03
============= =============== ===================
For the nine month period ended September 30, 1998
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- -------------------
Net income $ 429,526
Basic EPS:
Income available to common stockholders;
Weighted average common stock 429,526 12,091,833 $ .04
outstanding
Effect of dilutive securities options 1,040,000
------------- --------------- -------------------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 429,526 13,131,833 $ .03
============= =============== ===================
</TABLE>
3. Reclassification - Certain reclassifications have been made to the 1998
consolidated financial statements to conform to the 1999 method of
presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
Telecomm is one of the nation's largest Regional Bell Operating Company
("RBOC") distributors. As such, Telecomm sells voice, data, cellular, video, and
telephone information network solutions to business customers throughout its
five-state region. Telecomm has sales personnel in Illinois, Indiana, Wisconsin,
Ohio and Kentucky. Ameritech and BellSouth are Telecomm's primary RBOC partners.
The voice services offered by these RBOCs include Centrex, Centrex-ISDN,
8
<PAGE>
Multiserve, Intra-LATA usage plans, audio-conferencing and voice mail. Data
services include DS0, DS1, DS3, Synchronet, Frame Relay, Sonet, ATM, ISDN and
ISDN Prime.
In addition to RBOC services, Telecomm represents numerous
manufacturers of voice and data equipment. Telecomm markets, installs and
maintains telecommunications equipment manufactured by such globally recognized
companies as Nortel (Northern Telecom), NEC, Lucent, Toshiba, and Comdial.
Companies who purchase data equipment from a manufacturer, add value to
the equipment through technical expertise and additional software, and then
resell these solutions to their customers, are called Value Added Resellers
(VARs). The original manufacturers in Telecomm's product line include Microsoft,
Ascend, Intel, Adtran, Cisco, Amdahl and Citrix. These manufacturers are
recognized throughout the industry for providing high quality products and
innovative software. Telecomm's value added services include network
consultation, design, installation, maintenance and repair services.
All of Telecomm's product lines are complementary. The traditional
separation of voice and data communications and transmission is no longer valid.
Much of the voice transmitted over public and private networks is now dispatched
as digital packets utilizing the same protocols as data communications. In fact,
several of the products Telecomm markets will switch both voice and data.
Year 2000 Technology
Based upon a review by management, the Company has completed its
Year-2000 compliance requirements on all of its major internal systems through
software upgrades. The Company expects these upgrades to enable the systems to
properly process transactions relating to the year 2000 and beyond. The Company
has assessed third party issues to determine what impact, if any, they will have
on the Company's operations with respect to the Year 2000 issues.
All of Telecomm's major vendors have indicated that they are currently
Year 2000 compliant or will be by December 1999. However, the Company will
continue to evaluate whether additional corrective action will be necessary to
address Year 2000 issues.
THREE MONTHS ENDED SEPTEMBER 30, 1999 vs. THREE MONTHS ENDED SEPTEMBER 30, 1998
The Company's net revenues decreased 10% to $5.5 million for the three
months ended September 30, 1999 from $6.1 million in the comparable 1998 period.
The decrease can be attributed, in part, by the reorganization of the Sales
department and increased competition in the marketplace.
A comparison of the periods with respect to allocation of total net
revenues is as follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Sales of equipment and related services 58% 56%
Sales of network services 39% 42%
Long distance and other services 3% 2%
</TABLE>
Net revenues from equipment sales and related services decreased 6% to
$ 3.2 million during the three months ended September 30, 1999 from $3.4 million
in the three months ended September 30, 1998. Of the $3.2 million for the
quarter, $2.2 million relates to voice equipment sales and services and $ 1.0
million relates to data equipment sales and services.
9
<PAGE>
Net revenues from network services sales decreased 12% to $2.2 million
in the three months ended September 30, 1999 from $2.5 million in the comparable
period for 1998. Of the $2.2 million for the quarter, $1.0 million related to
voice network services and $1.2 million related to data network and services.
Net cost of commissions, contractor fees and related expenses decreased
$.4 million to $2.3 million in the three months ended September 30, 1999, a 15%
decrease from such expenses of $2.7 million in the comparable period of 1998.
The decrease was primarily due to the reduction in equipment sales and related
services. As a percentage of net revenues, these expenses decreased to 42%
during the three months ended September 30, 1999 from 44% during the comparable
period of 1998. This decrease is primarily due to the Company's focus on higher
margins on equipment sales and related services during the three months ended
September 30, 1999.
Selling, general and administrative expenses ("SG&A") decreased $.7
million to $2.4 million in the three months ended September 30, 1999, a 23%
decrease from SG&A expenses of $3.1 million in the comparable 1998 period. As a
percentage of net revenues, these expenses decreased to 44% during the three
months ended September 30, 1999, from 51% during the three months ended
September 30, 1998. This decrease is primarily a result of the decline in sales
along with the Company's continuing efforts to consolidate and streamline
operations.
In the three months ended September 30, 1999, interest expense
increased by $9,900 or 6%, to $176,500 from $166,600 in the comparable 1998
period. The increase in interest expense was primarily a result of increased
borrowings under the Company's credit facility in order to support the working
capital needs of equipment sales and long-term receivables.
Income from operations before income taxes increased by $337,500 to
$550,700 in the three months ended September 30, 1999, an increase of 158% from
$213,200 in the comparable 1998 period, primarily for the reasons stated above.
The provision for income taxes increased by $131,200 to $220,300 in the
three months ended September 30, 1999, compared to $89,100 in the three months
ended September 30, 1998, due to increased earnings.
As a result of the foregoing, the net income for the three months ended
September 30, 1999 was $330,400, an increase of 166% from the net income for the
three months ended September 30, 1998 of $124,200.
NINE MONTHS ENDED SEPTEMBER 30, 1999 vs. NINE MONTHS ENDED SEPTEMBER 30, 1998
The Company's net revenues decreased 23% to $14.1 million for the nine
months ending September 30, 1999 from $18.3 million in the comparable 1998
period. Net revenues from equipment sales and related services decreased 34% to
$6.6 million for the nine months ending September 30, 1999 (of which $4.9
million related to voice equipment and $1.7 million related to data equipment
sales and services), from $10.0 million for the nine months ended September 30,
1998. Net revenues from network services sales decreased 7% to $7.1 million for
the nine months ending September 30, 1999 (of which $2.8 million related to
voice network services and $4.3 million related to data network services), from
$7.6 million in the comparable period for 1998. The decline in net revenues for
the nine months ending September 30, 1999 is primarily due to the reorganization
of the Sales department and increased competition within the marketplace.
A comparison of the periods with respect to allocation of total net
revenues is as follows:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30,1999 September 30,1998
<S> <C> <C>
Sales of equipment and related services 47% 55%
Sales of network services 51% 43%
Long distance and other services 2% 2%
</TABLE>
10
<PAGE>
Net cost of commissions, contractor fees and related expenses decreased
$2.7 million to $5.7 million for the nine months ended September 30, 1999, a 32%
decrease from such expenses of $8.4 million in the comparable period of 1998.
The decrease was primarily due to the reduction of equipment sales and service
revenues, which require higher labor and equipment costs, in the nine months
ended September 30, 1999. As a percentage of net revenues, these expenses
decreased to 40% during the nine months ended September 30, 1999 from 46% during
the comparable period of 1998. This decrease is primarily due to increased
network service revenues as a percentage of total revenue, which maintain higher
margins.
Selling, general and administrative expenses ("SG&A") decreased $1.5
million to $7.3 million for the nine months ended September 30, 1999, a 17%
decrease from SG&A expenses of $8.8 million in the comparable 1998 period. As a
percentage of net revenues, these expenses increased to 52% during the nine
months ended September 30, 1999, from 48% during the nine months ended September
30, 1998, primarily as a result of decreased sales to support the corporate
infrastructure. As a percentage of gross margin, these expenses decreased to 87%
during the nine months ended September 30, 1999, from 89% during the nine months
ended September 30, 1998.
In the nine months ended September 30, 1999, interest expense increased
by $125,400, or 34%, to $495,200 from $369,800 in the comparable 1998 period,
primarily due to increased borrowings by the Company under its line of credit
facility to supply additional working capital to support the increase in long
term receivables and inventory.
Income from continuing operations before income taxes decreased by
$98,500 to $621,800 for the nine months ended September 30, 1999, a decrease of
14% from $720,300 in the comparable 1998 period, primarily for the reasons
stated above.
The provision for income taxes decreased by $42,000 to $248,700 for the
nine months ended September 30, 1999, compared to $290,700 for the comparable
1998 period, due to decreased earnings.
As a result of the foregoing, net income for the nine months ended
September 30, 1999 was $373,100, a decrease of 13%, from the net income for the
nine months ended September 30, 1998 of $429,500.
During the end of last year and the beginning of 1999, Telecomm
underwent major changes to consolidate and centralize the Company's operations
and redefine the information technology and accounting departments that
negatively impacted the short-term profitability. Management believes that these
changes have enabled the company to effectively manage its corporate
infrastructure and introduce new technology to its customer base.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund the internal
growth of long-term network service receivables, voice and data hardware sales,
the infrastructure to support and monitor the increased sales volume, and new
acquisitions.
Net cash provided by operating activities was $23,800 for the nine
months ended September 30, 1999 compared to net cash used in operating
activities of $1.2 million for the comparable period in 1998. The change was
primarily due to a decrease of $.2 million in trade accounts receivable in the
nine months ended September 30, 1999 compared to a $2.1 million increase in the
comparable 1998 period and a $.3 million increase in inventory for the nine
months ended September 30, 1999 compared to a $.8 million increase in the
comparable 1998 period. Customer deposits increased $.4 million for the nine
months ended September 30, 1999 compared to a $54,000 increase in the comparable
1998 period. These changes are attributable to the Company's increased emphasis
on collection of receivables and strict credit policies.
The net operating cash provided was offset by decreases in accounts
payable of $.3 million, accrued commissions and bonus of $.5 million and other
accrued expenses of $.2 million in the nine months ended September 30, 1999 as
compared to an increase in accounts payable of $1.2 million, an increase of $.2
million in other accrued expenses and a decrease in accrued commissions and
bonus of $.3 million for the comparable 1998 period.
11
<PAGE>
Net cash used in investing activities was $.1 million for the nine
months ended September 30, 1999 compared to $.3 million for the comparable 1998
period. The use of cash for investing activities was primarily attributable to
the purchase of property and equipment. This is consistent with 1998, except the
company used cash of $10,000 for an acquisition in 1998.
Net cash provided by financing activities was $51,000 for the nine
months ended September 30, 1999 compared to net cash provided by financing
activities in the amount of $1.4 million in the comparable 1998 period. The cash
provided is attributable to the increase in short-term borrowings from the line
of credit. In 1998, the net cash provided by financing activities was due to the
increase in short-term borrowings and a net increase in long-term debt.
The change in the commission payment structure by Ameritech, which was
implemented in June 1996, and Ameritech's continuing implementation of a new
billing and customer record system, lengthen the collection period of
receivables, adversely affecting the Company's working capital and cash flow.
In 1999, Ameritech, under the new payment structure, increased the
percentage of compensation at the time of installation and simplified its
payment approach using standard flat rates on voice and usage products.
Management of Telecomm believes that cash flow will continue to be affected as
long as the existing Ameritech commission payment structure remains, however,
the changes for 1999, as indicated above, will enhance working capital by
reducing the delay in collection. Furthermore, the growing annuity stream of the
Ameritech long-term receivables should begin to help offset this situation in
future years.
Because of the Company's emphasis on equipment sales and related
services, an increase in inventory and trade credit is expected. Trade credit
arises from the willingness of the Company's creditors to grant payment terms
for inventory purchases. Although the Company has obtained favorable payment
terms on its trade credit from its vendors, there is no assurance that the
Company will be able to obtain such terms in the future.
The Company currently maintains an available credit line facility that
is subject to certain restrictive and financial covenants. The Company is
currently in compliance with those covenants. In addition, the Company may also
seek to obtain alternate sources of funding, including additional debt or equity
financing as the Company continues to grow. There is no assurance that the
Company will obtain such additional funds or, that if obtained, such financing
will be on terms favorable to the Company.
In February 1999, the Company created NetVision.Com, a wholly-owned
subsidiary whose primary purpose is to create alliances and consider
acquisitions of ISPs. Since its inception, NetVision.Com has executed letters of
intent to purchase eleven ISPs and related companies. On August 16, 1999 the
Company entered into a definitive agreement with Aye.net, LLC, an Indiana
Limited Liability Company that currently provides Internet service to
approximately 2,300 subscribers. On August 18, 1999 the Company entered into a
definitive agreement with Blue River Networking Services, Inc., an Indiana
Corporation that currently provides Internet service to approximately 2,000
subscribers. Both agreements set forth a proposed merger between the acquisition
target and NetVision.Com.
The Company continues to pursue and develop the opportunities
associated with NetVision.Com Inc., as described in greater detail in the
Company's Form 10-KSB for the fiscal year ended December 31, 1998 and Proxy
Statement for the 1999 Annual Meeting of Stockholders that was held on July 15,
1999.The Company continues to consider various alternatives to maximize
stockholder value created by the Subsidiary.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical
facts are forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statements. These risks and uncertainties
include, but are not limited to:
o the dependence of the Company on one principal supplier, Ameritech, for a
significant portion of its revenues;
12
<PAGE>
o the effects of the acquisition of Ameritech by Southwestern Bell
Communications;
o changes in Ameritech's commission payment plan and its billing and record
system, adversely affecting the Company's working capital and long-term
accounts receivable;
o changes in Ameritech's Distributor Agreement;
o the ability of the Company to collect any and all amounts due and payable
from Ameritech, including but not limited to, outstanding and future up
front commissions and outstanding and future residual payments;
o fluctuations in quarterly revenues and earnings of the Company depending on
when Ameritech objective attainment targets are met;
o the ability of the Company to obtain additional financing to support its
growth;
o changes arising from greater competition in local telephone service
attributable to passage of the Telecommunications Act of 1996;
o the introduction of competitors into the market including but not limited
to competitors with financial and other reserves significantly greater than
those of Telecomm;
o the ability of the Company to integrate the operations of recent
acquisitions into the Company;
o the availability of other acquisitions and the integration of the
operations of those acquisitions, if completed, into the Company, and the
availability of financing for such acquisitions;
o the ability of Telecomm to continue to grow its sales force internally and
to expand its product mix more toward the hardware business, particularly
in light of the increased competition in the telecommunication markets in
which Telecomm operates;
o the loss or inability to attract key personnel;
o the ability of the Company to secure a reasonably high percentage of its
outstanding accounts receivable;
o and, general economic conditions, and other risk factors discussed herein.
In addition, any of the risks detailed above may have an impact on the
Company's ability to obtain additional working capital funds under its current
credit facility. An investor or potential investor in the Company must consider
these risks.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of Stockholders of the Company was held on July 15,
1999.
1. The stockholders voted to elect five Class I Directors to serve for a
one-year term expiring at the Annual Meeting of Stockholders in 2000,
with the following vote:
Name For Abstain
---- ---- -------
James M. Lowery 7,721,699 1,973,430
Raymond W. Sheets, Jr. 9,035,934 659,195
Steven W. Smith 9,036,934 658,195
Paul Satterthwaite 9,015,534 679,595
David L. Gruber 8,877,198 817,931
2. The Stockholders also voted to ratify the creation of the wholly-owned
subsidiary NetVision.Com Inc., with the following vote:
Authority
For Against Abstain Withheld
--- ------- ------- --------
5,845,620 409,121 307,975 3,132,413
3. The Stockholders also voted to ratify the creation of the NetVision.Com
Inc. 1999 Stock Option and Award Plan, with the following vote:
Authority
For Against Abstain Withheld
--- ------- ------- --------
5,673,956 431,555 424,576 3,165,042
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27. Financial Data Schedule
B. REPORTS ON FORM 8-K
Form 8-K filed July 27, 1999
14
<PAGE>
SIGNATURES
- ----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELECOMM INDUSTRIES CORP.
By: /s/ Paul J. Satterthwaite
----------------------------
Paul J. Satterthwaite,
President and CEO
And: /s/ Mark A. Travi
----------------------------
Mark Travi,
Chief Financial and
Accounting Officer
Date: November 15, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDING SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFRENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000087888
<NAME> TELECOMM INDUSTRIES CORP.
<MULTIPLIER> 1
<CURRENCY> DOLLARS
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<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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