<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-22293
IWL COMMUNICATIONS, INCORPORATED
(Exact name of registrant as specified in its charter)
TEXAS 76-0043882
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 482-0289
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 [ ]
COMMON STOCK, $0.01 PAR VALUE [3,975,607]
(Title of Each Class) (Number of Shares Outstanding at April 30, 1998)
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
<TABLE>
PAGE
NUMBER
------
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at March 31,
1998 and June 30, 1997 3
Consolidated Statements of Operations for the Three
Months and Nine Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
ASSETS MARCH 31, 1998 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 719,906 $ 7,659,983
Accounts receivable:
Trade, less allowance for doubtful accounts of
$157,293 and $100,936, respectively 7,590,388 5,710,344
Affiliate 68,816 67,074
Other 395,996 116,020
Inventory 998,036 1,856,617
Costs and estimated earnings in excess of billings on
uncompleted contracts 0 242,862
Deferred tax asset - current 242,317 242,317
Prepaid expenses and deposits 924,068 388,272
----------- -----------
Total current assets 10,939,527 16,283,489
----------- -----------
Property, plant and equipment 23,243,370 14,281,182
Accumulated depreciation (6,573,100) (5,164,829)
----------- -----------
Net property, plant and equipment 16,670,270 9,116,353
----------- -----------
Investment in unconsolidated subsidiary 0 428,374
Goodwill 1,944,384 0
Accumulated amoritization (31,269) 0
----------- -----------
Goodwill net of accumulated amoritization 1,913,115 0
Other assets 310,637 233,527
----------- -----------
Total assets $29,833,549 $26,061,743
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion $ 6,354,081 $ 963,595
Trade accounts payable and accrued expenses 3,974,432 5,436,445
Customer deposits 360,347 23,365
Federal income tax payable 489,814 0
Deferred revenue - current portion 15,549 53,480
Billings in excess of costs and estimated earnings
on uncompleted contracts 143,592 85,553
----------- -----------
Total current liabilities 11,337,815 6,562,438
----------- -----------
Notes payable, noncurrent portion 3,947,862 7,692,332
Deferred income taxes 413,071 413,071
----------- -----------
Total long-term liabilities 4,360,933 8,105,403
----------- -----------
Total liabillities 15,698,748 14,667,841
----------- -----------
Stockholders equity:
Common stock, $.01 par value. 100,000,000
authorized, issued and outstanding 3,968,607
and 3,677,816 shares in 1998 and 1997,
respectively 39,686 36,778
Additional paid-in capital 9,172,572 7,251,600
Retained earnings 4,917,597 4,105,524
Translation adjustment 4,946 0
----------- -----------
Total stockholders' equity 14,134,801 11,393,902
----------- -----------
Total liabilities and stockholders' equity $29,833,549 $26,061,743
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Sales:
Telecommunications Services $2,803,708 $2,297,732 7,957,915 $ 5,943,503
Project/Other Revenue 5,250,809 3,160,810 12,059,243 10,463,906
Product resales 0 2,506,455 0 7,201,680
---------- ---------- ----------- -----------
Total sales 8,054,517 7,964,997 20,017,158 23,609,089
Cost of sales (exclusive of items
shown separately below) 4,421,099 3,737,643 10,977,643 10,742,057
Cost of sales - product resales 0 1,935,985 0 6,615,786
---------- ---------- ----------- -----------
Gross profit 3,633,418 2,291,369 9,039,515 6,251,246
Selling expenses 446,294 337,306 1,238,961 831,908
General and administrative expenses 1,741,051 1,273,686 4,579,109 3,513,910
Depreciation and amortization 647,330 347,185 1,629,063 982,600
---------- ---------- ----------- -----------
Income from operations 798,743 333,192 1,592,382 922,828
---------- ---------- ----------- -----------
Other income (expense):
Net Interest (expense) (154,596) (124,655) (372,416) (338,381)
Other income (expense) 548 113,841 110,716 132,793
---------- ---------- ----------- -----------
Total other income (expense) (154,048) (10,814) (261,700) (205,588)
---------- ---------- ----------- -----------
Income before income taxes 644,695 322,378 1,330,682 717,240
Income tax expense 254,109 94,531 518,609 228,685
---------- ---------- ----------- -----------
Net income $ 390,586 $ 227,847 812,073 488,555
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income per share
Basic $ 0.10 $ 0.10 $ 0.21 $ 0.22
Diluted $ 0.09 $ 0.10 $ 0.20 $ 0.21
Weighted average shares outstanding
Basic 3,912,490 2,233,846 3,794,392 2,233,846
Diluted 4,198,922 2,297,526 4,162,785 2,297,256
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
NINE MONTHS ENDED MARCH 31,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 812,073 $ 488,355
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,629,063 982,600
Gain on sale of KSG (66,226) --
Gain from sale of assets (9,828) (64,699)
Deferred income taxes -- 57,943
Equity in earnings (loss) of unconsolidated subsidiary (34,662) (68,094)
Changes in operating assets and liabilities:
Accounts receivable (2,161,761) 1,027,748
Inventory 858,582 (1,233,373)
Costs and estimated earnings in excess of billings 242,862 (57,065)
Prepaid expenses and deposits (535,796) (240,101)
Other assets (77,110) (66,914)
Trade accounts payable and accrued expenses (1,462,014) 324,606
Customer deposits 336,982 (286,854)
Deferred revenue (37,931) (93,086)
Billings in excess of costs and estimated earnings 58,039 84,767
Federal income taxes payable 489,814 (20,191)
------------ -----------
Net cash provided (used) by operating activities 42,087 835,642
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (9,026,074) (3,481,281)
Proceeds from disposal of property, plant and equipment 97,440 88,901
Proceeds from notes receivable -- 191,906
Purchase of ICEL (609,822) --
Investments in unconsolidated subsidiary 529,262 (50,000)
------------ -----------
Net cash used in investing activities (9,009,194) (3,250,474)
------------ -----------
Cash flows from financing activities:
Proceeds from debt 18,557,861 3,471,080
Debt payments (16,911,845) (952,216)
Deferred offering costs -- (134,825)
Proceeds from issuance of common stock 376,068 9,997
------------ -----------
Net cash provided by financing activities 2,022,084 2,394,036
------------ -----------
Effect of exchange rate on cash and equivalents 4,946 --
Net decrease in cash for period (6,940,077) (20,796)
Cash and cash equivalents at beginning of period 7,659,983 360,930
------------ -----------
Cash and cash equivalents at end of period $ 719,906 $ 340,134
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statement, which should be
read in conjunction with the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, are unaudited (except for the June 30, 1997 consolidated
balance sheet, which was derived from the Company's audited financial
statements), but have been prepared in accordance with generally accepted
accounting principles for interim financial information. 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 only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire
fiscal year.
2. Inventories
Inventories consist of the following (in Thousands):
<TABLE>
MARCH 31, 1998 JUNE 30, 1997
-------------- -------------
<S> <C> <C>
Material 549 $ 413
Work In-Process 449 1,444
-------------------------------
Total 998 1,857
</TABLE>
3. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings Per Share". Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earning per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) 391 228 812 488
Denominator:
Denominator for basic earnings per share - weighted-
average shares outstanding 3,912 2,234 3,794 2,234
Effect of dilutive securities:
Employee stock options 286 64 368 63
-----------------------------------
Denominator for diluted earnings per share 4,198 2,298 4,162 2,297
Basic earnings per share .10 .10 .21 .22
Diluted earnings per share .09 .10 .20 .21
</TABLE>
4. Acquisitions
In January, the Company completed the acquisition of Integrated
Communications and Engineering, Ltd. (ICEL), a communications systems
integrator and maintenance provider in Aberdeen, Scotland. The Company
paid a total purchase price of approximately $2.5 million comprised of
$382,000 in cash and 207,266 shares of the Company's common stock.
6
<PAGE>
The acquisition was accounted for as a purchase and was effective as of
January 1, 1998, therefore, the statement of operations for the three
months ended March 31, 1998 reflects the operations of ICEL. The goodwill
resulting from the acquisition is being amortized over 7 and 20 years.
5. Comprehensive Income
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
requires classification of items of other comprehensive income by nature in
a financial statement and a breakout of the accumulated balance of other
comprehensive income separately from retained earnings and additional paid
in capital in the equity section of a statement of financial position.
Reporting comprehensive income provides a measure of all changes in equity
that result from recognized transactions and other economic events of the
period other than transactions with owners in their capacity as owners.
Adoption of this statement did not have a material effect on the Company's
consolidated financial position or results of operation because there are
no material differences between net income and comprehensive income in the
Company's circumstances.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Company's 1997 Annual Report on Form 10-K. The Company believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the following
quarterly information. Quarterly operating results have varied significantly
in the past and can be expected to vary in the future. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year.
OVERVIEW
The Company's total revenues are derived from the provision of a variety
of services, including telecommunications services, project and other
revenue. Telecommunications services include the resale of long distance
telecommunications services, the provision of private leased lines, and lease
or rental of telecommunications systems connected with the provision of
telecommunications services. Project and other services consist of the
performance of telecommunications projects involving the engineering and
integration of telecommunications systems and the sales, service and
maintenance of telecommunications equipment.
In connection with product resales, the Company serves as the exclusive
manufacturer's representative of Alcatel products to the U.S. oil and gas
industry. In fiscal 1996 and 1997, the Company provided services to Shell
Offshore Services Company, which included the resale of a significant amount
of Alcatel products. For the years ended June 30, 1996 and 1997, Shell
purchased from the Company approximately $10.6 million and $7.6 million of
Alcatel products and other equipment and hardware, representing approximately
38.0% and 25.2%, respectively, of total sales during such periods. Although
profitable, the sale of Alcatel products to Shell significantly reduced the
Company's gross margin in these periods. The Shell project was substantially
completed in fiscal 1997 and, therefore, is not expected to contribute in a
material manner to the Company's total sales in future periods.
The Company was founded in 1981 as a contract supplier of communications
technology installation and equipment leasing services, and over the ensuing
years broadened the scope of its service offerings to include microwave,
two-way radio and related wireless services and technologies for an expanded
customer base, primarily comprised of major oil and gas companies operating
in the Gulf of Mexico region. During this period, the Company began to
provide an increasing variety of services to its oil and gas customers in
other remote and underdeveloped regions around the world, including
communications services for special projects with critical timing and other
extreme or unusual challenges.
To support its international expansion, in 1994 the Company began
providing telecommunications services and network support inside the former
Soviet Union to United States oil and gas customers. As the Company expanded
its service offerings and developed greater infrastructure, it commenced
service as a switchless reseller of long distance services in the United
States in 1994. The Company is continuing to expand its network through a
recently-acquired tandem switch and the installation of fiber optic cable and
microwave radios in targeted service areas. In connection with such
expansion, the Company has also received CLEC status in Texas and has applied
for CLEC status in Louisiana.
7
<PAGE>
While annual growth rates of the Company's total sales since 1992 have
ranged from 6.3% to 76.0%, the Company's quarterly operating results have
varied significantly in the past, and can be expected to vary in the future.
These fluctuations in operating results generally are caused by a number of
factors, including changes in the Company's services and product mix, levels
of product resales, adverse weather conditions in customer locations, the
degree to which the Company encounters competition in its existing or target
markets, general economic conditions, the volume and timing of orders
received during the period, sales and marketing expenses related to entering
new markets, the timing of new product or service introductions by the
Company or its competitors and changes in billing rates by the Company or its
competitors.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUES. Total revenues increased $90,000 or 1.1% to $8.1
million for the three months ended March 31, 1998 from $8.0 million for the
three months ended March 31, 1997. This increase was comprised of an
increase of $506,000 or 22.2% in the Company's telecommunications services,
an increase of $2.1 million or 65.6% in the Company's project and other
services revenue and a decrease of $2.5 million or 100% in product resales to
a single customer. The increase in telecommunications services was largely
attributable to increased traffic on the Company's telecom network in the
Gulf of Mexico from the continued expansion of the Company's ODDS services.
The increase in projects and other revenue resulted from increased sales of
telecommunications equipment and related services. The product resale to a
single customer were substantially completed in May 1997.
GROSS MARGIN. Gross profit increased $1.3 million or 56.5% to $3.6
million for the three months ended March 31, 1998 from $2.3 million for the
three months ended March 31, 1997, representing gross margins of 45.1% and
28.8%, respectively. The increase in margin was due in principal part to the
completion of the product resale to a single customer in May 1997 and from
increased demand for higher margin services. Excluding product resales,
gross profit for the three months ended March 31, 1997 would have been
approximately $1.7 million representing a gross margin of 31.5%.
SELLING EXPENSES. Selling expenses increased $109,000 or 32.3% to
$446,000 for the three months ended March 31, 1998 from $337,000 for the
three months ended March 31, 1997. Selling expenses as a percentage of total
revenues increased to 5.5% from 4.2% during these respective periods. The
increase in selling expenses resulted from the addition of sales personnel
and from increases in travel and advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $467,000 or 35.9% to $1.7 million for the three months
ended March 31, 1998 from $1.3 million for the three months ended March 31,
1997. As a percentage of total revenues, general and administrative expenses
increased to 21.6% for the three months ended March 31, 1998 from 16.0% for
the three months ended March 31, 1997. The increase in general and
administrative expenses as a percentage of sales was primarily due to the
decline in product resale overall. The increases in the dollar amount of
general and administrative expenses over these periods were due in principal
part to increased telephone expense, insurance expense, provision for bad
debts, rent expense, and legal expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$300,000 or 86.5% to $647,000 for the three months ended March 31, 1998 from
$337,000 for the three months ended March 31, 1997. This increase was
primarily attributable to the acquisition of an additional $10.7 million of
property, plant and equipment, comprised of $9.5 million in satellite,
microwave and other telecommunications equipment, $1.1 million for computers,
furniture and fixtures, service vehicles and test equipment and $127,000 for
building and improvements.
NET INTEREST EXPENSE. Net interest expenses increased $30,000 or 24.0%
to $155,000 for the three months ended March 31, 1998 from $125,000 for the
three months ended March 31, 1997. The Company's borrowings increased to
$10.3 million for the three months ended March 31, 1998 from $7.3 million for
the three months ended March 31, 1997. The increase in borrowings was used
to fund acquisitions of property, plant and equipment.
OTHER INCOME, NET. Other income for the three months ended March 31,
1998 included the Company's 50% ownership interest in the earnings of Kenwood
Systems Group as well as certain other asset dispositions.
INCOME TAX EXPENSE. Provision for income taxes increased $160,000 or
168.4% to $254,000 for the three months ended March 31, 1998 from $95,000 for
the three months ended March 31, 1997 which represents an effective tax rate
of 39.4% and 29.3% for each period, respectively.
8
<PAGE>
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUES. Total revenues decreased $3.6 million or 15.3% to $20.0
million for the nine months ended March 31, 1998 from $23.6 million for the
nine months ended March 31, 1997. This decrease was comprised of an increase
of $2.0 million or 33.9% in the Company's telecommunications services, an
increase of $1.6 million or 15.2% in the Company's projects and other
revenues and a decrease of $7.2 million or 100% in product resales to a
single customer. The increase in telecommunications services was largely
attributable to increased traffic on the Company's telecom network in the
Gulf of Mexico and the continued expansion of the Company's ODDS services in
the Gulf of Mexico. The increase in project and other revenues resulted from
an increase in sales of telecommunications equipment and related services.
The product resales were substantially completed in May 1997.
GROSS MARGIN. Gross profit increased $2.8 million or 45.2% to $9.0
million for the nine months ended March 31, 1998 from $6.2 million for the
nine months ended March 31, 1997, representing gross margins of 45.2% and
26.5%, respectively. The increase in margin was due in principal part to the
completion of the product resale to a single customer in May 1997 and from
changes in the Company's revenues mix to higher margin services. Excluding
product resales, gross profit for the nine months ended March 31, 1997 would
have been approximately $5.7 million representing a gross margin of 34.5%.
SELLING EXPENSES. Selling expenses increased $407,000 or 48.9% to $1.2
million for the nine months ended March 31, 1998 from $832,000 for the nine
months ended March 31, 1997. The increase in selling expenses resulted from
increased salary expenses related to the addition of sales personnel and from
increases in travel and advertising expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1.1 million or 31.4% to $4.6 million for the nine months
ended March 31, 1998 from $3.5 million for the nine months ended March 31,
1997. The increase in the dollar amount of general and administrative
expenses over these periods were due in principal part to increases in
salaries and personnel cost, and due to increases in telephone, insurance,
rent, and legal expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$646,000 or 65.5% to $1.6 million for the nine months ended March 31, 1998
from $983,000 for the nine months ended March 31, 1997. This increase was
the result primarily from increases in property, plant and equipment for
infrastructure and network expansion.
NET INTEREST EXPENSE. Net interest expense increased $34,000 or 10.1%
to $372,416 for the nine months ended March 31, 1998 from $338,000 for the
nine months ended March 31, 1997. The increase was comprised of an increase
in interest expense of $172,000 to $534,000 from $362,000 for the comparable
nine month period last year. This increase was offset by an increase in
interest income of $138,000 to $162,000 from $24,000 for the same nine month
period last year.
OTHER INCOME, NET. Other income for the nine months ended March 31,
1998 included the gain of $101,000 resulting from the disposition of the
Company's 50% ownership in Kenwood Systems Group as well as certain other
asset dispositions. Other income for the nine months ended March 31, 1997
included the Company's 50% ownership interest in the earnings of Kenwood
Systems Group as well as certain other asset dispositions.
INCOME TAX EXPENSE. Provision for income taxes increased $290,000 or
126.6% to $518,000 for the nine months ended March 31, 1998 from $229,000 for
the nine months ended March 31, 1997 which represents an effective tax rate
of 39.0% and 31.9% for each period, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 1998, the Company generated
$42,000 of cash in operating activities, borrowed an additional net amount of
$1.6 million from credit facilities, and received $376,000 from the sale and
issuance of Common Stock. The Company invested $8.9 million in property and
equipment (net of proceeds of $97,000 from certain dispositions of assets)
and reduced its investment in an unconsolidated subsidiary by $529,262
through disposition. The Company also expended $610,000 to acquire
Integrated Communications and Engineering, LTD. in January, 1998. The
increase in property, plan and equipment reflects the Company's work in
progress in relation to the deployment of the Company's ODDS program and the
development of its Gulf Coast Network. These activities decreased the
Company's cash balance by $6.9 million to a balance of $720,000 at March 31,
1998.
The Company's working capital was ($400,000) at March 31, 1998.
Accounts receivable increased $1.9 million from $5.7 million at June 30,
1997 to $7.6 million at March 31, 1998, while inventory decreased from $1.9
million at June 30, 1997 to $1.0 million at March 31, 1998. Accounts payable
and accrued expenses decreased from $5.4 million at June 30, 1997 to $4.0
million at March 31, 1998. In addition, the current portion of notes payable
increased from $964,000 at June 30, 1997 to
9
<PAGE>
$6.4 million at March 31, 1998, while deferred revenue and customer deposits
increased from $77,000 at June 30, 1997 to $376,000 at March 31, 1998. The
increase in current portion of notes payable reflects the reclassification of
the Company's working capital loan which will be due October 31, 1998.
The Company has three credit facilities with Bank One, Texas, N.A., its
primary lender, to provide working capital and finance equipment to be leased
by the Company to its customers. In May 1997, the Company entered into a
commitment to obtain a secured revolving line of credit (the "Working Capital
Loan"), a secured guidance line of credit (the "Guidance Line"), and a term
facility (the "Term Loan") from Bank One, Texas, N.A. The Working Capital
Loan and Guidance Line were finalized as of August 1, 1997, and the Term Loan
was finalized as of August 28, 1997.
The maximum amount of the Working Capital Loan is $5.0 million subject
to a borrowing base based on accounts receivables and inventory. The
proceeds of the Working Capital Loan are to be used for working capital needs
and general corporate purposes. The maximum amount of the Guidance Line is
$5.0 million, which will be used to finance the Company's purchase and
subsequent lease of telecommunications equipment. The Term Loan and the
Working Capital Loan are collateralized by substantially all of the personal
property of the Company. The Guidance Line is secured specifically by the
equipment purchased with the proceeds thereof and by an assignment of the
leases of such equipment, as well as the other personal property of the
Company. The Company had approximately $1.2 million available under the Work
Capital Loan at March 31, 1998 and $4.0 million available under the Guidance
Line. The Guidance Line is reduced by the term load created as the leased
equipment is deployed. The interest rate on each facility is, at the
Company's option, Bank One's base rate or 30, 60 or 90 day adjusted LIBOR
plus 2.40%. The interest rate will be subject to downward adjustment in
certain circumstances as specified in the credit agreement. The entire
unpaid principal balance and accrued but unpaid interest for the Working
Capital Loan will be due on October 31, 1998. The Guidance Line expires on
May 1, 1998. The Term Loan matures on September 1, 2001.
Borrowing availability under the Working Capital Loan is based upon
eligible accounts receivable and inventory, and a fee equal to 0.25% will be
charged on any unused portion of the Working Capital Loan. In addition,
fundings under the Guidance Line will only be permitted with respect to
communications equipment and installation pursuant to leases which (a) have a
term of not more than 60 months or the estimated useful life of the leased
equipment, (b) have been assigned to the lender as collateral for the Loans
and (c) have as lessees companies formed and with principal offices in the
United States. The Loans will be collateralized by substantially all of the
Company's assets. The Company is able to reduce the commitment under the
Working Capital Loan and is able to make voluntary prepayments on the
Guidance Line without prepayment penalty. The Loans are cross-defaulted and
cross-collateralized. The credit agreement prohibits the payment of dividends
without prior approval of the lender and requires the Company to maintain
certain covenants and financial ratios including working capital and net
worth ratios. The credit agreement also prohibits certain changes in the
Company's basic business or in its Chief Executive Officer, Chief Financial
Officer and President positions, without prior lender approval.
The Company anticipates that, based on current plans and assumptions
relating to its operations, its financial resources and equipment financing
arrangements will be sufficient to fund the Company's growth and operations
through the end of its fiscal year ending June 30, 1998. The Company
believes that its capital needs at the end of such period will continue to be
significant and, therefore, the Company will continue to seek additional
sources of capital. Further, in the event the Company's plans or assumptions
change or prove to be inaccurate, or if the Company consummates any unplanned
acquisitions of businesses or assets, the Company may be required to seek
additional sources of capital sooner than currently anticipated. Sources of
additional capital may include public and private equity and debt financings,
sales of nonstrategic assets and other financing arrangements.
CONTINGENCIES
The Company is party to ordinary litigation incidental to its business,
none of which is expected to have a material adverse effect on the results of
operations, financial position or liquidity of the Company.
YEAR 2000
As the year 2000 approaches, the Company recognizes the need to ensure
its operations will not be adversely impacted by Year 2000 computer software
failures. The Company is addressing this issue to ensure the availability
and integrity of its financial systems and the reliability of its operational
systems. The Company has established processes for evaluating and managing
the risks and costs associated with this problem. The Company has and will
continue to make certain investments in its software system and applications
to ensure the Company is Year 2000 compliant. The financial impact to the
Company has not yet been fully determined, however, such impact is not
anticipated to have a material
10
<PAGE>
adverse effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
11
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to this item is incorporated herein from Part I.
Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies).
Item 2. Changes in Securities and Use of Proceeds
On June 12, 1997 (the "Effective Date"), the Company's Registration
Statement on Form S-1 (Registration No. 333-22801) relating to its initial
public offering (the "IPO") was declared effective and the offering of up to
1,667,500 shares of the Company's Common Stock covered by such Registration
Statement commenced. The IPO was managed by Cruttenden Roth Incorporated, as
the representative (the "Representative") of the several underwriters (the
"Underwriters") of the IPO. Of the shares of Common Stock sold by the
Company, 1,450,000 shares were sold in June 1997 and 62,495 shares (which
were subject to an overallotment option granted by the Company to the
Underwriters) were sold in July 1997. From the Effective Date of the IPO
until March 31, 1998, total expenses of approximately $1,775,097 were
incurred for the Company's account in connection with the 1,512,495 shares of
Common Stock sold in the IPO, which expenses consisted of: (i) $635,000
representing underwriting discounts and commissions paid to the Underwriters;
(ii) $272,000 representing a nonaccountable expense allowance paid to the
Representative; and (iii) other offering expenses, including without
limitation, attorney's fees, accountants' fees, printing costs and filing
fees, of approximately $868,097. None of such expense payments were direct
or indirect payments to directors or officers of the Company or their
associates or to persons owning 10 percent or more of any class of equity
securities of the Company or to affiliates of the Company. The net offering
proceeds of 1,512,495 shares sold by the Company in the IPO, after deducting
such total expenses, was approximately $7.3 million through March 31, 1998.
The Company had expended $4.8 million on infrastructure, property and
equipment, retired debit of $667,000, and used $533,000 for working capital
support.
Information pertaining to working capital restrictions and other
limitations upon the payment of dividends is incorporated herein from Part I.
Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference from Exhibit 3.1 to the Company's
Registration Statement on Form S-1 filed March 5, 1997, as
amended, File No. 333-22801).
3.2 Amended and Restated Bylaws of the Company, as amended by the
Amendment to Amended and Restated Bylaws for the Company
dated November 7, 1997 (incorporated by reference from
Exhibit 3.2 to period ending December 31, 1997 filed
February 17, 1998, File No. 0-22293).
4.1 Specimen certificate for the Common Stock of the Company (incorporated
by reference from Exhibit 4.1 to the Company's Registration
Statement on Form S-1 filed March 5, 1997, as amended, File No.
333-22801).
+27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
Current report on Form 8-K dated as of January 29, 1998, and filed
February 6, 1998, regarding the acquisition of Integrated Communications
and Engineering Limited.
Current report on Form 8-K dated as of February 16, 1998, and filed
March 3, 1998, regarding the Agreement and Plan of Merger and Plan of
Exchange.
- ----------------------
+ Filed herewith.
12
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
Pursuant to 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.
IWL COMMUNICATIONS, INCORPORATED
Date: May 15, 1998 By: /s/ Richard H. Roberson
------------------------------------
Richard H. Roberson
Chief Financial Officer and Director
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED MARCH 31, 1997 AND THE YEAR ENDED JUNE 30, 1997 AND FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENT FOR THE THREE MONTHS
ENDED SEPT. 30, 1997 AND NINE MONTHS ENDED MARCH 31, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998 JUN-30-1997 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1997 JUL-01-1996 JUL-01-1996
<PERIOD-END> MAR-31-1998 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 720 4,650 7,660 340
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,055 5,742 5,893 4,634
<ALLOWANCES> 157 119 101 53
<INVENTORY> 998 3,599 1,857 2,085
<CURRENT-ASSETS> 10,940 14,916 16,283 7,716
<PP&E> 23,243 15,051 14,281 12,527
<DEPRECIATION> 6,573 5,568 5,165 4,761
<TOTAL-ASSETS> 29,834 24,706 26,062 16,318
<CURRENT-LIABILITIES> 11,338 5,206 6,562 5,732
<BONDS> 3,947 7,185 7,692 6,151
0 0 0 0
0 0 0 0
<COMMON> 40 37 37 22
<OTHER-SE> 14,095 11,865 11,571 4,175
<TOTAL-LIABILITY-AND-EQUITY> 29,834 24,706 26,062 16,318
<SALES> 0 0 0 0
<TOTAL-REVENUES> 20,017 5,353 30,342 23,609
<CGS> 10,978 2,934 21,736 17,358
<TOTAL-COSTS> 18,425 5,055 28,985 22,686
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 534 180 534 362
<INCOME-PRETAX> 645 300 972 717
<INCOME-TAX> 254 95 283 229
<INCOME-CONTINUING> 391 205 689 488
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 391 205 689 488
<EPS-PRIMARY> .10 .06 .30 22
<EPS-DILUTED> .09 .05 .29 21
</TABLE>
