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: June 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 August 10, 1999): 12,131,559
Transitional Small Business Disclosure Format:
Yes No X
---- ----
TELECOMM INDUSTRIES CORP. AND SUBSIDIARY
<PAGE>
INDEX
PART I-FINANCIAL INFORMATION Page No.
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets-
June 30, 1999 (unaudited) and
December 31, 1998 (audited) 4
Consolidated Statements of Operations-
three and six months ended June 30, 1999
and 1998 (unaudited) 5
Consolidated Statements of Cash Flow-
six months ended June 30, 1999 and
1998 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II-OTHER INFORMATION
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
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Accounts receivable , net $ 3,652,308 $ 5,041,578
Inventories 2,056,929 1,583,879
Prepaid income taxes 45,147 45,147
Prepaid expenses 158,939 118,499
Employee advances 14,600 67,769
------------ ------------
Total current assets 5,927,923 6,856,872
------------ ------------
Property and equipment, net 1,474,554 1,609,874
Other assets:
Accounts receivable, long-term portion 4,517,770 4,102,589
Intangibles and other assets, net 3,560,644 3,670,572
------------ ------------
Total assets $ 15,480,891 $ 16,239,907
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 350,699 $ 453,208
Line of credit 1,744,745 1,030,377
Current portion of long-term debt 838,412 733,389
Accounts payable 950,875 1,612,261
Accrued payroll and related expenses 229,612 310,012
Accrued commissions and bonus 104,430 631,492
Accrued contractor fees 75,857 98,311
Customer deposits 593,019 219,841
Deferred income taxes 108,594 108,594
Income taxes payable 141,107 141,107
Other accrued expenses 290,106 615,961
Deferred revenue 155,503 --
------------ ------------
Total current liabilities 5,582,959 5,954,553
------------ ------------
Long-term debt, less current portion 5,593,148 6,066,715
Deferred revenue 24,054 8,961
Deferred income taxes 470,109 441,709
------------ ------------
Total liabilities 11,670,270 12,471,938
------------ ------------
Stockholders' equity:
Common stock $.01 par value:
authorized 20,000,000 shares: issued 12,650,746
and outstanding 12,121,559, at June 30, 1999 and
December 31, 1998 126,508 126,508
Additional paid-in capital 3,957,172 3,957,172
Treasury stock, 529,187 shares at cost (317,512) (317,512)
Retained earnings 44,453 1,801
------------ ------------
Total stockholders' equity 3,810,621 3,767,969
------------ ------------
Total liabilities and stockholders' equity $ 15,480,891 $ 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 six months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Network service revenue $ 2,712,924 $ 2,620,708 $ 4,969,711 $ 5,116,466
Equipment sales and service revenue 1,920,086 3,829,637 3,474,310 6,557,576
Long distance and other revenue 74,269 229,693 188,016 494,133
------------ ------------ ------------ ------------
Net revenues 4,707,279 6,680,038 8,632,037 12,168,175
------------ ------------ ------------ ------------
Commissions, contractor fees, and related expenses 3,049 48,660 5,347 85,761
Equipment sales and service costs 1,691,983 3,244,623 3,330,030 5,514,072
Long distance and other costs 275 35,714 906 102,092
------------ ------------ ------------ ------------
Net cost of commissions, contractor fees,
and related expenses 1,695,307 3,328,997 3,336,283 5,701,925
------------ ------------ ------------ ------------
Selling, general and administrative expenses 2,563,324 3,076,734 4,908,055 5,757,696
------------ ------------ ------------ ------------
Operating income 448,648 274,307 387,699 708,554
Other income (expense):
Gain on disposal of assets -- 892 2,129 1,642
Interest expense (166,156) (132,960) (318,776) (203,168)
------------ ------------ ------------ ------------
(166,156) (132,068) (316,647) (201,526)
------------ ------------ ------------ ------------
Income from operations before income tax expense 282,492 142,239 71,052 507,028
Income tax expense 113,000 55,814 28,400 201,660
------------ ------------ ------------ ------------
Net income $ 169,492 $ 86,425 $ 42,652 $ 305,368
============ ============ ============ ============
Net income per common share:
Basic $ 0.01 $ 0.01 $ -- $ 0.03
============ ============ ============ ============
Diluted $ 0.01 $ 0.01 $ -- $ 0.02
============ ============ ============ ============
Average number of common shares outstanding:
Basic 12,121,559 12,091,833 12,121,559 12,091,833
============ ============ ============ ============
Diluted 12,771,559 13,141,833 12,771,559 13,141,833
============ ============ ============ ============
</TABLE>
See notes to unaudited consolidated financial statements
5
<PAGE>
Telecomm Industries Corp. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,652 $ 305,368
Adjustments to reconcile net income to net cash
provided by (used) in operating activities:
Depreciation and amortization 321,979 307,596
Deferred revenue (82,522) 574
Deferred income taxes 28,400 197,900
Reserve for bad debt 30,000 (17,156)
(Gain) on sale of property and equipment (2,129) 1,642
Changes in assets and liabilities:
Accounts receivable - trade 1,359,270 (647,216)
Accounts receivable - long term portion (415,181) (1,121,229)
Inventories (473,050) (729,484)
Prepaid income taxes -- (3,588)
Prepaid expenses (40,440) 8,653
Employee advances 53,169 43,785
Accounts payable - trade (661,386) 1,115,248
Accrued payroll and related expenses (80,400) (88,240)
Accrued commissions and bonus (527,062) (257,798)
Accrued contractor fees (22,454) (66,635)
Customer deposits 373,178 57,240
Income taxes payable -- 370
Other accrued expenses (325,855) (67,954)
Deferred Revenue 253,118 --
----------- -----------
Total adjustments (211,365) (1,266,292)
----------- -----------
Net cash (used in) operating activities (168,713) (960,924)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (76,731) (284,458)
Proceeds from sale of property and equipment 2,129 --
Proceeds from stockholders' receivables -- 18,878
Purchase acquisitions, net of cash acquired -- (10,000)
----------- -----------
Net cash (used in) investing activities (74,602) (275,580)
----------- -----------
Cash flows from financing activities:
Payments on long-term debt (368,544) (230,440)
Proceeds from issuance of long-term debt -- 1,019,140
Net borrowings under line of credit 714,368 436,316
Cash Overdraft (102,509) --
----------- -----------
Net cash provided by financing activities 243,315 1,225,016
----------- -----------
Net increase in cash -- (11,488)
Cash and cash equivalents at beginning of period -- 97,779
----------- -----------
Cash and cash equivalents at end of period $ -- $ 86,291
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 318,776 $ 157,380
=========== ===========
Cash paid for income taxes $ -- $ 7,500
=========== ===========
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 June 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.
Reconciliation of Numerators and Denominators of the Basic
and Diluted EPS Computations
<TABLE>
<CAPTION>
For the three month period ended June 30, 1999
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- -----------
<S> <C>
Net Income $ 169,492
Basic EPS:
Income available to common stockholders;
weighted average common stock outstanding 169,492 12,121,559 $ .01
Effect of dilutive securities options 650,000
---------- ------------- -----------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 169,492 12,771,559 $ .01
========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
For the three month period ended June 30, 1998
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- -----------
<S> <C>
Net income $ 86,425
Basic EPS:
Income available to common stockholders;
Weighted average common stock outstanding 86,425 12,091,833 $ .01
Effect of dilutive securities options 1,050,000
---------- ------------- -----------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 86,425 13,141,833 $ .01
========== ============= ===========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
For the six month period ended June 30, 1999
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- -----------
<S> <C>
Net Income $ 42,652
Basic EPS:
Income available to common stockholders;
Weighted average common stock outstanding 42,652 12,121,559 $ -
Effect of dilutive securities options 650,000
---------- ------------- -----------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 42,652 12,771,559 $ -
========== ============= ===========
</TABLE>
<TABLE>
<CAPTION>
For the six month period ended June 30, 1998
----------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
---------- ------------- -----------
<S> <C>
Net income $ 305,368
Basic EPS:
Income available to common stockholders;
Weighted average common stock outstanding 305,368 12,091,833 $ .03
Effect of dilutive securities options 1,050,000
---------- ------------- -----------
Diluted EPS:
Income available to stockholders of common
shares and common stock equivalents $ 305,368 13,141,833 $ .02
========== ============= ===========
</TABLE>
3. Subsequent Events - On July 15, 1999 the Shareholders of the Company
voted to approve three proposals. The first was an affirmative vote to
elect management's slate for the board of directors consisting of James
M. Lowery, Raymond W. Sheets, Jr., Steven W. Smith, Paul J.
Satterthwaite and David L. Gruber. The second affirmative vote ratified
the creation of the wholly owned subsidiary, NetVision.Com, Inc. The
third voted proposal ratified the creation of the NetVision Stock
Option and Award Plan.
James M. Lowery stepped down as Chief Executive Officer of the Company
in order to concentrate his efforts on the strategic direction of the
Company, and focus on the same in his role as Chairman, effective July
15, 1999.
The board of directors named Paul J. Satterthwaite as President and
Chief Executive Officer on July 15, 1999. Mr. Satterthwaite previously
served the Company as a director, secretary and vice-president, and
joined the Company in August 1997 upon the acquisition by the Company
of Unitel, Inc.
Mr. Gruber was named Secretary to the Company on July 15, 1999. Mr.
Gruber continues to serve the Company as a public markets and investor
relations consultant, as he has since May 1997.
8
<PAGE>
The board of directors named Nicholas Bacon to the position Vice
President and General Counsel on July 15, 1999. Mr. Bacon was also
named Assistant Secretary of the Company on the same date. Mr. Bacon
has served the Company in his role as General Counsel since March 1,
1998. He is an attorney licensed to practice law in the State of
Indiana and has been so admitted since 1993.
Mark Travi became Vice President and Chief Financial Officer on July
15, 1999. Mr. Travi has been the Company's Chief Financial Officer
since joining the Company in July 1998.
4. Reclassification - Certain reclassifications have been made to the1998
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,
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.
9
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 vs. THREE MONTHS ENDED JUNE 30, OF 1998
The Company's net revenues decreased 30% to $4.7 million for the three
months ended June 30, 1999 from $6.7 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
June 30, 1999 June 30, 1998
<S> <C> <C>
Sales of equipment and related services 41% 57%
Sales of network services 57% 39%
Long distance and other services 2% 4%
</TABLE>
Net revenues from equipment sales and related services decreased 50% to
$1.9 million during the three months ended June 30, 1999 from $3.8 million in
the three months ended June 30,1998. Of the $1.9 million for the quarter, $1.3
million relates to voice equipment sales and services and $ .6 million relates
to data equipment sales and services.
Net revenues from network services sales increased 4% to $2.7 million
in the three months ended June 30, 1999 from $2.6 million in the comparable
period for 1998. Of the $2.7 million for the quarter, $.9 million related to
voice network services and $1.8 million related to data network and services.
Net cost of commissions, contractor fees and related expenses decreased
$1.6 million to $1.7 million in the three months ended June 30, 1999, a 48%
decrease from such expenses of $3.3 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 36%
during the three months ended June 30, 1999 from 50% during the comparable
period of 1998. This decrease is primarily due to the shift in the allocation of
lower margin revenues from equipment sales and related services to high margin
network service revenues during the three months ended June 30, 1999.
Selling, general and administrative expenses ("SG&A") decreased $.5
million to $2.6 million in the three months ended June 30, 1999, a 17% decrease
from SG&A expenses of $3.1 million in the comparable 1998 period. As a
percentage of net revenues, these expenses increased to 54% during the three
months ended June 30,1999, from 46% during the three months ended June 30,1998.
This increase is primarily a result of a decline in sales along with the
Company's continuing efforts to consolidate and streamline operations.
In the three months ended June 30, 1999, interest expense increased by
$33,200 or 25%, to $166,200 from $133,000 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 $140,300 to
$282,500 in the three months ended June 30, 1999, an increase of 99% from
$142,200 in the comparable 1998 period, primarily for the reasons stated above.
The provision for income taxes increased by $57,200 to $113,000 in the
three months ended June 30, 1999, compared to $55,800 in the three months ended
June 30,1998, due to increased earnings.
As a result of the foregoing, the net income for the three months ended
June 30, 1999 was $169,500, an increase of 49% from the net income for the three
months ended June 30,1998 of $86,400.
10
<PAGE>
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.
SIX MONTHS ENDED JUNE 30, 1999 vs. SIX MONTHS ENDED JUNE 30, 1998
The Company's net revenues decreased 30% to $8.6 million for the six
months ending June 30, 1999 from $12.2 million in the comparable 1998 period.
Net revenues from equipment sales and related services decreased 46% to $3.5
million for the six months ending June 30, 1999 (of which $2.5 million related
to voice equipment and $1.0 million related to data network services), from $6.6
million for the six months ended June 30, 1998. Net revenues from network
services sales decreased 2% to $5.0 million for the six months ending June 30,
1999 (of which $2.1 million related to voice network services and $2.9 million
related to data network and services), from $5.1 million in the comparable
period for 1998. The decline in net revenues for the six months ending June 30,
1999 are 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>
Six months ended Six months ended
June 30,1999 June 30,1998
<S> <C> <C>
Sales of equipment and related services 40% 54%
Sales of network services 58% 42%
Long distance and other services 2% 4%
</TABLE>
Net cost of commissions, contractor fees and related expenses decreased
$2.4 million to $3.3 million for the six months ended June 30, 1999, a 42%
decrease from such expenses of $5.7 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 six months
ended June 30, 1999. As a percentage of net revenues, these expenses decreased
to 39% during the six months ended June 30, 1999 from 47% 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 $.8
million to $4.9 million for the six months ended June 30, 1999, a 14% decrease
from SG&A expenses of $5.7 million in the comparable 1998 period. As a
percentage of net revenues, these expenses decreased to 57% during the six
months ended June 30, 1999, from 47% during the six months ended June 30, 1998,
primarily as a result of decreased sales to support the corporate
infrastructure.
In the six months ended June 30, 1999, interest expense increased by
$115,600, or 57%, to $318,800 from $203,200 in the comparable 1998 period,
primarily because of 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
$436,000 to $71,000 for the six months ended June 30, 1999, a decrease of 86%
from $507,000 in the comparable 1998 period, primarily for the reasons stated
above.
The provision for income taxes decreased by $173,300 to $28,400 for the
six months ended June 30, 1999, compared to $201,700 for the comparable 1998
period, due to decreased earnings.
As a result of the foregoing, net income for the six months ended June
30, 1999 was $42,700, a decrease of 86%, from the net income for the six months
ended June 30, 1998 of $305,400.
11
<PAGE>
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 used by operating activities was $.2 million for the six
months ended June 30, 1999 compared to net cash used in operating activities of
$1.0 million for the comparable period in 1998. The change was primarily due to
a decrease of $1.4 million in trade accounts receivable in the six months ended
June 30, 1999 compared to a $.6 million increase in the comparable 1998 period
and a $.5 million increase in inventory for the six months ended June 30, 1999
compared to a $.7 million increase in the comparable 1998 period. Customer
deposits increased $.4 million for the six months ended June 30, 1999 compared
to a $57,000 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 $.7 million, accrued commissions and bonus of $.5 million and other
accrued expenses of $.3 million in the six months ended June 30, 1999 as
compared to an increase in accounts payable of $1.1 million and a decrease in
accrued commissions and bonus of $.3 million for the comparable 1998 period.
Net cash used in investing activities was $.1 million for the six
months ended June 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 $.2 million for the six
months ended June 30, 1999 compared to net cash provided by financing activities
in the amount of $1.2 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. The Company continues to
consider various alternatives to maximize stockholder value created by the
Subsidiary.
12
<PAGE>
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;
o the effects of the proposed 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.
13
<PAGE>
A. EXHIBITS
27. Financial Data Schedule
B. REPORTS ON FORM 8-K
Form 8-K filed July 27, 1999
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: August 13, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDING JUNE 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
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,652,308
<ALLOWANCES> 0
<INVENTORY> 2,056,929
<CURRENT-ASSETS> 5,927,923
<PP&E> 2,492,632
<DEPRECIATION> 1,018,078
<TOTAL-ASSETS> 15,480,891
<CURRENT-LIABILITIES> 5,582,959
<BONDS> 5,593,148
0
0
<COMMON> 126,508
<OTHER-SE> 3,684,113
<TOTAL-LIABILITY-AND-EQUITY> 15,480,891
<SALES> 3,474,310
<TOTAL-REVENUES> 8,632,037
<CGS> 3,330,030
<TOTAL-COSTS> 3,336,283
<OTHER-EXPENSES> 4,905,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 318,776
<INCOME-PRETAX> 71,052
<INCOME-TAX> 28,400
<INCOME-CONTINUING> 42,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,652
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
