<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
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 3,754,230
(Title of Each Class) (Number of Shares Outstanding at
October 31, 1997)
AMENDMENT NO. 1
The undersigned registrant hereby files this Amendment No. 1 to reflect
the following change to the financial statements previously filed resulting
from an audit of the registrant's financial statements for the six months
ended December 31, 1997: (i) a reclassification of network buildout in
process to property, plant and equipment and (ii) a reclassification of gain
from sale of investment in unconsolidated subsidiary and equity in earnings
of unconsolidated subsidiary from gain from sale of assets.
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Balance Sheets at September 30, 1997 and June 30, 1997 3
Consolidated Statements of Operations for the Three Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
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IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1997 1997
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................... $ 4,650,365 $ 7,659,983
Accounts receivable
Trade, less allowance for doubtful accounts of
$118,588 and $100,936 respectively ........... 5,555,838 5,710,344
Affiliate ...................................... 56,972 67,074
Other .......................................... 128,956 116,020
Notes receivable-trade, current portion ........ -- --
Inventory ...................................... 1,022,239 1,856,617
Costs and estimated earnings in excess of
billings on uncompleted contracts ............ 182,179 242,862
Deferred tax asset-current ..................... 242,317 242,317
Prepaid expenses and deposits .................. 500,287 388,272
-------------------------
Total current assets ........................... 12,339,153 16,283,489
Property, plant and equipment .................. 17,628,656 14,281,182
Accumulated depreciation ....................... (5,568,184) (5,164,829)
Net property, plant and equipment .............. 12,060,472 9,116,353
Investment in unconsolidated subsidiary ........ -- 428,374
Notes receivable-trade, noncurrent portion ..... -- --
Other assets ................................... 306,422 233,527
-------------------------
Total assets ................................... $24,706,047 $26,061,743
-------------------------
-------------------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Notes payable-current portion ................. $ 1,504,610 $ 963,595
Trade accounts payable and accrued expenses ... 3,554,402 5,436,445
Customer deposits ............................. 23,365 23,365
Federal income taxes payable .................. 95,695 --
Deferred revenue-current portion .............. 27,628 53,480
Billings in excess of costs and estimated
earnings on uncompleted contracts ........... -- 85,553
-------------------------
Total current liabilities ..................... 5,205,700 6,562,438
Notes payable, noncurrent portion ............. 7,185,238 7,692,332
Deferred revenue, noncurrent portion .......... -- --
Deferred income taxes ......................... 413,071 413,071
-------------------------
Total liabilities ............................. 12,804,009 14,667,841
Stockholders equity:
Common stock, $.01 par value; 100,000,000
authorized; 3,740,311 and 3,677,816 shares
issued and outstanding, respectively ....... 37,403 36,778
Preferred stock, $.01 par value; 10,000,000
authorized, no shares issued and
outstanding ............................... -- --
Additional paid-in capital .................... 7,553,845 7,251,600
Retained earnings ............................. 4,310,790 4,105,524
-------------------------
Total stockholders equity .................... 11,902,038 11,393,902
Commitments and contingencies
Total liabilities and stockholders equity ..... $24,706,047 $26,061,743
-------------------------
-------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
September 30, 1997 and 1996
1997 1996
---- ----
<S> <C> <C>
Sales:
Telecom and carrier ......................... $ 4,746,052 $ 4,582,932
Land mobile ................................. 606,815 523,137
Product resales ............................. -- 1,800,082
----------- -----------
Total sales ....................... 5,352,867 6,906,151
Cost of sales-exclusive of items shown
separately below .......................... (2,934,424) (3,373,309)
Cost of sale-product resales ................ -- (1,678,426)
----------- -----------
Gross profit ................................ 2,418,443 1,854,416
Selling expenses ............................ 361,009 220,402
General and administrative expenses ......... 1,291,913 1,192,351
Depreciation and amortization ............... 467,395 292,766
----------- -----------
Income from operations ...................... 298,126 148,897
----------- -----------
Other income (and expense)
Interest income ............................. 69,895 9,641
Interest expense ............................ (179,676) (99,514)
Gain from sale of investment in
unconsolidated subsidiary.................. 66,266 --
Equity in earnings of unconsolidated
subsidiary ................................ 34,662 8,155
Gain from sale of assets .................... 11,224 13,444
Total other income (expense) ................ 2,371 (68,274)
----------- -----------
Income before taxes ......................... 300,497 80,623
Income tax expense .......................... 95,231 27,500
----------- -----------
Net income .................................. $ 205,266 $ 53,123
----------- -----------
----------- -----------
Net income per share ........................ $ 0.06 $ 0.02
Weighted average shares outstanding ......... 3,719,932 2,232,967
</TABLE>
See accompanying notes to consolidated financial statements.
4
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IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 207,324 $ 53,123
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 467,395 292,765
Gain from sale of assets (112,152) (13,424)
Deferred income taxes - -
Equity in earnings (loss) of unconsolidated
subsidiary - (8,155)
Changes in operating assets and liabilities:
Accounts receivable 151,672 1,356,830
Inventory 834,378 (907,782)
Costs and estimated earnings in excess
of billings 60,683
Prepaid expenses and deposits (112,015) (28,946)
Other assets (72,895) (84,986)
Trade accounts payable and accrued
expenses (1,882,043) (527,392)
Customer deposits - (197,477)
Deferred revenue 25,852 (28,029)
Billings in excess of costs and
estimated earnings 85,553 -
Federal income taxes payable (95,695) (15,500)
---------------------------
Net cash used in operating
activities (441,943) (108,973)
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,347,474) (1,226,176)
Proceeds from disposal of property,
plant and equipment 14,633 10,805
Proceeds from notes receivable - 74,945
Investments in unconsolidated subsidiary 428,374 (50,000)
---------------------------
Net cash used in investing
activities (2,904,467) (1,190,426)
Cash flows from financing activities:
Proceeds from debt 1,684,952 10,110,046
Debt payments (1,651,030) (8,539,194)
Proceeds from issuance of common stock 302,870 -
---------------------------
Net cash provided by financing
activities 336,792 1,570,852
Net increase (decrease) in cash for period (3,009,618) 271,453
Cash and cash equivalents at beginning of
period 7,659,983 360,930
Cash and cash equivalents at end of period $ 4,650,365 $ 632,383
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest $ 179,676 $ 99,514
---------------------------
---------------------------
Cash paid during the year for income $ - $ -
taxes
---------------------------
---------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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IWL COMMUNICATIONS, INCORPORATED
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying condensed consolidated financial statements, 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 September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending June 30, 1998.
2. Inventories
Inventories consist of the following (in Thousands):
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------ -------------
<S> <C> <C>
Material $ 551 $ 413
Work In-Process 471 1,444
------- -------
Total 1,022 1,857
</TABLE>
3. Restatement of Amounts Previously Reported
Subsequent to reporting its operations for the three months ended September
30, 1997, the Company discovered the following misclassifications. The
Company reclassified (i) the network buildout in process to property, plant
and equipment from inventory, and (ii) gain from sale of investment in
unconsolidated subsidiary and equity in earnings of unconsolidated susidiary
from gain from sale of assets.
The following table reflects the amounts previously reported in the September
30, 1997 Form 10-Q, reclassifications required and final amounts in the
September 30, 1997 financial statements:
<TABLE>
<CAPTION>
Previously
Reported Reclassification Adjusted
Consolidated Statements of Operations ---------- ---------------- ----------
- -------------------------------------
<S> <C> <C> <C>
Gain from sale of assets 112,152 (100,928)(a) 11,224
Gain from sale of investment in unconsolidated
subsidiary -- 66,266 (a) 66,266
Equity in earnings of unconsolidated
subsidiary -- 34,662 (a) 34,662
Consolidated Balance Sheets
- --------------------------
Inventory 3,599,483 (2,577,244)(b) 1,022,239
Total current assets 14,916,397 (2,577,244) 12,339,153
Property, plant and equipment 15,051,412 2,577,244(b) 17,628,656
Consolidated Statement of Cash Flows
- ------------------------------------
Net cash used in operating activities (3,019,187) 2,577,244 (441,943)
Net cash used in investing activities (327,223) (2,577,244) (2,904,467)
</TABLE>
(a) To reclassify gain from sale of investment in unconsolidated subsidiary
and equity in earnings of unconsolidated subsidiary from gain from sale of
assets.
(b) To reclassify $2,577,244 to property, plant and equipment from inventory
for the network buildout under construction.
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.
FORWARD LOOKING INFORMATION
Certain information contained herein contains forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995)
regarding future events or the future financial performance of the Company,
and are subject to a number of risks and other factors which could cause the
actual results of the Company to differ materially from those contained in
and anticipated by the forward-looking statements. Among such factors are:
industry concentration and the Company's dependence on major customers,
competition, risks associated with international operations and entry into
new markets, government regulation, variability in operating results, general
business and economic conditions; customer acceptance of and demand for the
Company's new products, the Company's overall ability to design, test, and
introduce new products on a timely basis, reliance on third parties and other
telecommunication carriers, the Company's ability to manage change,
dependence on key personnel, dependence on information systems and changes in
technology, and possible service interruptions. The forward-looking
statements contained herein are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise. Accordingly, any
forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. Forward-looking
statements contained herein include, but are not limited to, forecasts,
projections and statements relating to inflation, future acquisitions and
anticipated capital expenditures. All forecasts and projections in this
report are based on management's current expectations of the Company's near
term results, based on current information available pertaining to the
Company, including the aforementioned risk factors. Actual results could
differ materially.
OVERVIEW
The Company's total sales are derived from the provision of a variety of
services, including telecom and carrier services, land mobile services and
product resales. Telecom and carrier services include the resale of long
distance telecommunications services, the provision of private leased lines,
the resale of equipment and the provision of related services to furnish and
install
6
<PAGE>
telecommunications systems. The Company recently installed a tandem switch
at its facility in Houston, Texas to provide services as a switch-based long
distance carrier and is currently completing the installation of its Gulf
Coast regional network. Land mobile services consist of the rental, sale,
service and maintenance of two-way radio communications systems.
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, did not contribute in a material
manner to the Company's total sales in the quarter ended September 30, 1997
and 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.
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.
7
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total sales represented by certain items included in the Company's
Consolidated Statements of Income.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
<S> <C> <C>
1996 1997
SALES: ---- ----
Telecom and carrier.. . . . . . . . . . . . 66.4% 88.7%
Land mobile . . . . . . . . . . . . . . . . 7.5 11.3
Product resales . . . . . . . . . . . . . . 26.1 0
------ -------
Total sales . . . . . . . . . . . . . . . 100.0 100.0
Cost of sales. . . . . . . . . . . . . . . . . 48.8 54.8
Cost of sale-product resales . . . . . . . . . 24.3 0
Gross margin . . . . . . . . . . . . . . . . . 26.9 45.2
Selling expenses . . . . . . . . . . . . . . . 3.2 6.7
General and administrative expenses. . . . . . 17.3 24.1
Depreciation and amortization. . . . . . . . . 4.2 8.8
------ -------
Total operating expenses . . . . . . . . . . . 24.7 39.5
------ -------
Income from operations . . . . . . . . . . . . 2.2 5.6
Net interest expense . . . . . . . . . . . . . 1.3 2.0
Other income, net . . . . . . . . . . . . . . 0.3 2.0
------ -------
Income before income taxes . . . . . . . . . . 1.2 5.6
Income tax expense . . . . . . . . . . . . . . .4 1.8
------ -------
Net income . . . . . . . . . . . . . . . . . . .8% 3.8%
------ -------
------ -------
</TABLE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
TOTAL SALES. Total sales decreased $1.5 million or 22.5% to $5.4 million
for the three months ended September 30, 1997 from $6.9 million for the three
months ended September 30, 1996. This decrease was comprised of an increase
of $163,000 or 3.6% in the Company's telecom and carrier services, an
increase of $84,000 or 16.0% in the Company's land mobile services and a
decrease of $1.8 million or 100% in product resales to a single customer.
The increase in telecom and carrier revenues 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 Land Mobile resulted from increased marketing. The
product resales were substantially completed in fiscal 1997.
GROSS PROFIT. Gross profit increased $564,000 or 30.4% to $2.4 million
for the three months ended September 30, 1997 from $1.9 million for the three
months ended September 30, 1996, representing gross margins of 45.2% and
26.9%, 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 sales mix to higher margin services. Excluding
product resales, gross profit for the three months ended September 30, 1996
would have been approximately $1.7 million representing a gross margin of
34.0%.
SELLING EXPENSES. Selling expenses increased $141,000 or 64.1% to
$361,000 for the three months ended September 30, 1997 from $220,000 for the
three months ended September 30, 1996. Selling expenses as a percentage of
total sales increased to 6.7% from 3.2% 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 $100,000 or 8.3% to $1.3 million for the three months ended
September 30, 1997 from $1.2 million for the three months ended September 30,
1996. As a percentage of total sales, general and administrative expenses
increased to 24.1% for the three months ended September 30, 1997 from 17.3%
for the three months ended September 30, 1996. The increase in general and
administrative expenses as a percentage of sales was primarily due to the
decline in product resales 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, rent expense and
legal expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$175,000 or 59.7% to $467,000 for the three months ended September 30, 1997
from $293,000 in the three months ended September 30, 1996. This increase
was
8
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primarily attributable to the acquisition of an additional $4.6 million of
property, plant and equipment, comprised of $3.8 million in equipment for
satellite, microwave and other equipment, $507,000 for computers, furniture
and fixtures, service vehicles and test equipment and $292,000 for buildings
and improvements.
NET INTEREST EXPENSE. Net interest expense increased $20,000 or 22.2% to
$110,000 for the three months ended September 30, 1997 from $90,000 for the
three months ended September 30, 1996. The Company's borrowings increased to
$8.7 million for the three months ended September 30, 1997 from $5.5 million
for the three months ended September 30, 1996. The increase in borrowings was
used to fund acquisitions of property, plant and equipment.
OTHER INCOME, NET. Other income for the three months ended September 30,
1997 included the gain of $66,000 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 three months ended September 30,
1996 and 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 $68,000 or 247%
to $95,000 for the three months ended September 30, 1997 from $27,500 for the
three months ended September 30, 1996 which represents an effective tax rate
of 31.6% and 34.1% for each period, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1997, the Company used $442,000
of cash in operating activities, borrowed an additional net amount of
$34,000 from credit facilities, and received $303,000 from the sale and
issuance of Common Stock. The Company invested $3.3 million in property and
equipment (net of proceeds of $15,000 from certain dispositions of assets)
and reduced its investment in an unconsolidated subsidiary by $428,324
through disposition. These activities decreased the Company's cash balance by
$3.0 million to a balance of $4.7 million at September 30, 1997.
The Company's working capital declined to $7.1 million at September 30,
1997 from $9.7 million at June 30, 1997. Accounts receivable decreased
$155,000 from $5.7 million at June 30, 1996 to $5.6 million at September 30,
1997, while inventory decreased from $1.9 million at June 30, 1997 to $1.0
million at September 30, 1997. In addition, the current portion of notes
payable increased from $964,000 at June 30, 1996 to $1.5 million at September
30, 1997, while deferred revenue and customer deposits decreased from $77,000
at June 30, 1997 to $51,000 at September 30, 1997.
The Company recently completed three credit facilities with a new lender
to refinance its prior credit facility, 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. Proceeds of the Working Capital Loan were used
initially to extinguish the Company's then-existing revolving credit facility
with Marine Midland Business Loans, Inc., which required a prepayment penalty
payable by the Company in the amount of 1% of the maximum amount of the
Marine Midland line of credit facility. 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 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% (2.50% in
the case of the Guidance Line). 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 and for
the Guidance Loan will be due 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
9
<PAGE>
(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 entered into an agreement in December 1996 to acquire
microwave radios from a customer. The purchase price for the radios was $1.1
million, of which $25,000 was paid by the Company upon execution of the
agreement, $225,000 was paid on April 1, 1997, and the balance due is
evidenced by a note payable by the Company. The balance will be carried in a
note payable to the customer bearing interest at 6.75% with monthly principal
and interest payments to begin in July 1997, with a final payment of
principal and interest to be made in June 2007.
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.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." As a result of this
statement, the Company began to provide additional disclosures related to its
stock-based compensation plans in its fiscal 1997 financial statements.
Adoption of SFAS No. 123 did not have a material effect on the Company's
financial position or results of operations. The Financial Accounting
Standards Board issued SFAS No. 128 "Earnings Per Share" in February 1997,
which will not have a material effect on the Company's calculation of primary
and fully diluted earnings per share.
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 systems 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 adverse effect on the Company.
10
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<C> <S>
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 (incorporated by
reference from Exhibit 3.3 to the Company's Registration
Statement on Form S-1 filed March 5, 1997, as amended,
File No. 333-22801).
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.
(b) Reports on Form 8-K
None.
</TABLE>
- --------------
+ Amended and filed herewith.
11
<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: June 18, 1998 By: /s/ Richard H. Roberson
--------------------------
Richard H. Roberson
Chief Financial Officer and Director
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,650
<SECURITIES> 0
<RECEIVABLES> 5,742
<ALLOWANCES> 119
<INVENTORY> 1,022
<CURRENT-ASSETS> 12,339
<PP&E> 17,629
<DEPRECIATION> 5,568
<TOTAL-ASSETS> 24,706
<CURRENT-LIABILITIES> 5,206
<BONDS> 7,185
0
0
<COMMON> 37
<OTHER-SE> 11,865
<TOTAL-LIABILITY-AND-EQUITY> 24,706
<SALES> 0
<TOTAL-REVENUES> 5,353
<CGS> 2,934
<TOTAL-COSTS> 5,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> 300
<INCOME-TAX> 95
<INCOME-CONTINUING> 205
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 205
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
