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Have been looking at this one - price has been steadily moving up recently. The growth in quarterly revenue is attractive. All Communications Corp. Symbol: ACUC Current price: $1 5/8 52 week high/low: $2.00 / $.375 Company contact: Richard Reiss, Chmn./CEO/Pres. Address: 225 Long Avenue, P.O. Box 794 Hillside, NJ 07205 Phone: (973) 282-2000 Employees: 25 Shares outstanding: 4.91 million Float: 1.9 million Insider Ownership: 61% Market cap: $5.37 million Book value: $4.1 million or ~$1.20 Long-term debt: $1.5 million Year-end: Dec 31 IPO 5/97, 805K Units (2 shares Common + 2 Warrants) @ $7 by Monroe Parker Business Summary All Communications Corp. sells, installs and services voice, dataconferencing and videoconferencing communications systems for commercial and institutional customers. For the nine months ended 9/30/98, revenues rose 58% to $8.4 million. Net loss rose 83% to $677 thousand. Revenues reflect increased sales of voice communications products and services. Higher loss reflects a lower gross profit margin, additions in sales personnel and higher commission based videoconferencing sales. REVENUE by Quarter 1996 1st 641 2nd 1086 3rd 928 4th 1230 1997 1st 1624 2nd 1840 3rd 1871 4th 1590 1998 1st 2328 2nd 3009 3rd 3108 4th ? 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, 1998 ("1998 period") Compared to Nine Months Ended September 30, 1997 ("1997 period") and Three Months Ended September 30, 1998 Compared to Three Months Ended September 30, 1997. Net revenues. Operating revenues for the 1998 period totaled $8,445,000, a record level for a nine-month period, representing a 58% increase over the revenues of $5,334,000 reported for the 1997 period. Operating revenues for the three month period ended September 30, 1998 totaled $3,108,000, representing a 66% increase over the revenues of $1,871,000 reported for the three month period ended September 30, 1997. Sales of voice communications products and services increased in the 1998 period by 66% to $4,474,000 over comparable 1997 revenues of $2,702,000 and for the three months ended September 30, 1998 by 45% to $1,547,000 over comparable 1997 revenues of $1,068,000. Revenues in the 1998 period were derived primarily from the sale of Lucent Technologies, Inc. (Lucent) and Panasonic telecommunications systems and software packages. Revenues in the 1997 period were derived primarily from the sale of Panasonic systems. Sales under the Company's Preferred Vendor Agreement with Cendant Corporation accounted for 17% and 16% of net revenues for the 1998 and 1997 nine-month periods, and 14% and 22% for the three-month periods, respectively. In 1998, the Company established significant customer relationships with Weichert Realtors for Panasonic telecommunications systems and Universal Health Services, Inc., for Lucent and Sony products. Weichert Realtors accounted for 8% and Universal Health Services accounted for 9% of net revenues for the 1998 period. The Company anticipates continued growth in the voice communications division, during the fourth quarter of 1998, due in part to increased revenue generated by the Structured Cable division and the Company's relationship with Weichert Realtors and Universal Health Services, Inc. Sales of videoconferencing equipment increased in the 1998 period by $1,339,000 or 51% to $3,971,000 as compared to $2,632,000 for the 1997 period, and by $751,000 or 94% to $1,553,000 for the three month period ended September 30, 1998 as compared to $802,000 for the comparable 1997 three month period. The Company increased its videoconferencing customer base in the 1998 period through the introduction of lower cost videoconferencing systems manufactured by Polycom. The increase in videoconferencing systems sold has more than offset the reduction in the average selling price. The Company anticipates continued growth in the videoconferencing division during the fourth quarter of 1998, due in part to lower cost systems becoming more affordable to a larger group of customers. Cost of revenues. Cost of revenues in the 1998 period was $5,905,000 or 70% of net revenues, as compared to $3,695,000 or 69% of net revenues in the 1997 period. Cost of revenues for the three-month period ending September 30, 1998 was $2,194,000 or 71% of net revenues, as compared to $1,324,000 or 71% of net revenues for the comparable 1997 three-month period. Cost of revenues consists primarily of net product, direct labor, insurance, warranty, and depreciation costs. The percentage increase in the 1998 period is related to higher fixed direct labor costs and changes in the mix of product revenues to lower margin more competitive products. The Company expects cost of revenues to remain constant during the fourth quarter of 1998. Selling. Selling expenses, which include sales salaries, commissions, sales overhead, and marketing costs, increased to $2,276,000, or 27% of net revenues in the 1998 period, as compared to $1,065,000 or 20% of net revenues in the 1997 period. During the three-month period ended September 30, 1998, selling expenses increased to $844,000, or 27% of net revenues as compared to $458,000, or 24% of net revenues for the comparable 1997 three-month period. The dollar increase was due in part to the costs of maintaining a new sales office in New York City, establishing a Structured Cable division, as well as higher commission-based videoconferencing sales. The Company expects selling costs to increase as it continues to expand its New York City office, its structured cable division, as well as, invest in product marketing to build its revenue base. During the 1998 period, the Company hired ten additional sales personnel. General and administrative. General and administrative expenses increased to $957,000 or 11% of net revenues in the 1998 period, as compared to $701,000 or 13% of net revenues in the 1997 period. During the three-month period ended September 30, 1998, general and administrative expenses increased to $377,000 or 12% of net revenues as compared to $283,000 or 15% of net revenues for the comparable 1997 three-month period. The Company expects general and administrative costs to decrease, as a percentage of sales, as revenue growth continues. The Company also expects general and administrative costs, reflected in dollars, to increase as administrative staff is added to manage expanded operations. Income taxes. The Company reported income tax benefits in the 1997 periods as a result of net operating loss carrybacks that will be used to obtain refunds of taxes paid in previous periods. Net loss. Increased costs associated with expanded operations have more than offset continued increases in net revenues. The Company reported a net loss of $677,000 or $.14 per share in the 1998 period, compared to a net loss of $370,000, or $.09 per share in the 1997 period. For the three-months ended September 30, 1998, the Company reported a net loss of $325,000 or $.07 per share compared to a net loss of $95,000 or $.02 per share for the comparable 1997 three-month period. Liquidity and Capital Resources At September 30, 1998, the Company had working capital of $4,904,000, including $240,000 in cash and cash equivalents. Net cash used by operating activities for the 1998 period was $3,100,000 as compared to $1,011,000 for the 1997 period. Uses of cash in the 1998 period, including increases in accounts receivable due to record revenue growth, and higher inventory levels, more than offset noncash charges of $176,000, as well as increases in current liabilities. During the quarter ended September 30, 1998, the Company received additional stocking orders of Polycom videoconferencing units. The Company continues to stock significant inventories of selected products to maintain favorable vendor pricing and to ensure product availability to meet sales projections. Inventories also include approximately $430,000 of MaxShare 2 units. The Company has recently identified performance problems with the MaxShare 2 product in certain applications, and believes that MaxBase, Inc., the supplier of MaxShare 2, has a contractual obligation to correct any technical defects in the product. Pending resolution of this matter, the Company has ceased ordering product under its purchase commitment, and has also suspended shipments to distribution partners. On July 16, 1998, MaxBase, Inc. filed a Complaint against the Company and APC for breach of contract, misrepresentations and unfair trade practices. The Company believes the claims by MaxBase are without merit and intends to fully defend the suit and assert its rights under the agreement. See "Legal Proceedings". Investing activities for the 1998 period included purchases of $270,000 for building improvements, office furniture, and equipment. The categories with the largest increase include computer systems that are necessary to ensure year 2000 compliance, demonstration equipment used to sell both videoconferencing and voice communications equipment, and loaner equipment used to satisfy warranty and maintenance requirements. Cash flows from financing activities provided net cash of $1,434,000. In May 1998, the Company closed on a $5,000,000 working capital credit facility with an asset-based lender. Loan availability is based on 75% of eligible accounts receivable, as defined, and 50% of eligible finished goods inventory, with a cap of $1,200,000 on inventory financing. Outstanding borrowings bear interest at the lender's base rate plus 1% per annum, payable monthly, and are collateralized by a lien on accounts receivable, inventories, and intangible assets. The credit facility will have an initial term of two years, with annual renewals thereafter subject to the lender's review. During the 1998 period, the Company borrowed $1,500,000 on its working capital credit facility to help finance the increase in accounts receivable and inventory. The Company does not have any material commitments for capital expenditures. Management believes that the Company has the capital resources and liquidity necessary to meet all of its obligations for the next twelve months, based on current operating levels. Inflation Management does not believe inflation had a material adverse effect on the financial statements for the periods presented. Year 2000 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 system includes a Novell operating system running on a Dell file server. 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 operating system and include desktop applications such as Microsoft Office 97. The Company recognizes, as critical third parties, major vendors, such as Lucent, Panasonic, Sony, and Polycom; major customers, such as Cendant, Weichert Realtors, and Universal Health Services, Inc; and other parties such as Landlords and utility companies. The Company has received confirmation from an independent outside consultant that the Novell operating system that runs the Company's file server is year 2000 compliant. The Company has also purchased the software to upgrade the MAS90 accounting system to be year 2000 compliant and will install the software during the fourth quarter of 1998. The supplier of the Top Of Mind customer service software has informed the Company that an upgrade will be available during the fourth quarter of 1998 that will make the software year 2000 compliant. The Company will install this upgrade during the first quarter of 1999. 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. The Company is preparing a questionnaire to send to critical third parties, during the fourth quarter of 1998, to assess their year 2000 readiness. The questionnaire will seek to determine where companies stand in their year 2000 compliance program and how their relationship with the Company may be affected by any failure to address year 2000 issues. Issues that may arise in a worst case scenario include, but are not limited to, the ability of vendors to supply product and the ability of the Company's major customers to process and pay invoices when due. The Company will review the responses during the first half of 1999 and will consider preparing a contingency plan if the Comany deems it advisable. The Company has incurred internal payroll costs and software costs to address year 2000 issues. The costs incurred to date have not been material and the Company does not expect any additional costs to be material to the Company's operations or financial condition. Recently Issued Accounting Pronouncements In 1998, the Company adopted the provisions of SFAS 130, "Reporting Comprehensive Income", which promulgates standards for the reporting and display of comprehensive income and its components. There were no items of comprehensive income to report in any of the periods presented. The Company has also adopted SFAS 131, "Disclosures About Segments of an Enterprise and Related Information", which requires disclosure of reportable operating segments. The Company will address the segment information requirements of SFAS 131 in its annual report for the year ended December 31, 1998. | ||||||||||||||
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