<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 December 31, 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 Identification No.)
Incorporation or Organization)
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 3,961,496
(Title of Each Class) (Number of Shares Outstanding at
January 31, 1998)
AMENDMENT NO. 1
The undersigned registrant hereby files this Amendment No. 1 to reflect
the following changes 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) reclassification of timing error in revenue
recognition; (ii) adjustment of the effective tax rate; and (iii)
reclassification of network buildout in process to property, plant and
equipment.
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at December 31, 1997 and
June 30, 1997 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 14
2
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
ASSETS
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents 3,345,312 7,659,983
Accounts receivable
Trade, less allowance for doubtful accounts of $140,613
and $100,936 respectively 6,342,127 5,710,344
Affiliate 30,344 67,074
Other 239,298 116,020
Notes receivable-trade, current portion 0 0
Inventory 1,022,927 1,856,617
Costs and estimated earnings in excess of billings on
uncompleted contracts 0 242,862
Deferred tax asset-current 107,750 242,317
Prepaid expenses and deposits 447,067 388,272
-----------------------------
Total current assets 11,534,825 16,283,489
Property, plant and equipment 20,387,102 14,281,182
Accumulated depreciation (6,039,032) (5,164,829)
-----------------------------
Net property, plant and equipment 14,348,070 9,116,353
Investment in unconsolidated subsidiary 0 428,374
Notes receivable-trade, noncurrent portion 0 0
Other assets 400,681 233,527
-----------------------------
Total assets 26,283,576 26,061,743
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable-current portion 6,035,069 963,595
Trade accounts payable and accrued expenses 3,626,519 5,436,445
Customer deposits 171,972 23,365
Federal income taxes payable 264,964 0
Deferred revenue-current portion 14,667 53,480
Billings in excess of costs and estimated earnings on
uncompleted contracts 92,022 85,553
-----------------------------
Total current liabilities 10,205,213 6,562,438
-----------------------------
Long-term liabilities:
Notes payable, noncurrent portion 3,588,308 7,692,332
Deferred revenue, noncurrent portion 0 0
Deferred income taxes 323,913 413,071
-----------------------------
Total long-term liabilities 3,912,221 8,105,403
-----------------------------
Total liabilities 14,117,434 14,667,841
Stockholders' equity:
Common stock, $.01 par value; 100,000,000 authorized, issued
and outstanding 3,754,230 and 3,677,816 shares at December 31,
1997 and June 30, 1997, respectively 37,542 36,778
Preferred stock, $.01 par value; 10,000,000 authorized, no
shares issued and outstanding at December 31, 1997 and
June 30, 1997, respectively
Additional paid-in capital 7,601,589 7,251,600
Retained earnings 4,527,011 4,105,524
-----------------------------
Total stockholders' equity 12,166,142 11,393,902
-----------------------------
Total liabilities and stockholders' equity 26,283,576 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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
Telecom and carrier 6,018,532 4,945,364 10,764,584 9,528,296
Land mobile 591,242 897,434 1,198,057 1,420,571
Product resales 0 2,895,143 0 4,695,225
--------------------------------------------------------
Total sales 6,609,774 8,737,941 11,962,641 15,644,092
Cost of sales-exclusive of items shown
separately below (3,622,120) (3,631,105) (6,556,544 ) (7,004,414)
Cost of sale-product resales 0 (3,001,575) 0 (4,680,001)
--------------------------------------------------------
Gross profit 2,987,654 2,105,261 5,406,097 3,959,677
Selling expenses 431,658 274,300 792,667 494,702
General and administrative expenses 1,546,144 1,047,873 2,838,057 2,240,224
Depreciation and amortization 514,338 342,649 981,733 635,415
--------------------------------------------------------
Income from operations 495,514 440,439 795,639 589,336
Other income (and expense)
Interest income 60,129 8,123 130,024 17,764
Interest expense (168,168) (131,976) (347,844) (231,490)
Equity in earnings (loss) of unconsolidated
subsidiary 0 (7,379) 0 776
Gain (loss) from sale of assets (1,984) 4,704 110,168 18,148
Other 0 0 0 28
--------------------------------------------------------
Total other income (expense) (110,024) (126,528) (107,653) (194,774)
--------------------------------------------------------
Income before taxes 385,491 313,911 685,987 394,562
--------------------------------------------------------
Income tax expense 169,269 134,154 264,500 134,154
Net Income 216,122 179,757 421,487 260,408
--------------------------------------------------------
--------------------------------------------------------
Basic net income per share .06 .08 .11 .12
--------------------------------------------------------
--------------------------------------------------------
Diluted net income per share .05 .08 .11 .11
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
SIX MONTHS ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income 421,487 260,408
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 981,733 635,415
Gain from sale of KSG (66,266) 0
Gain from sale of assets (9,240) (18,148)
Deferred income taxes 45,409 34,509
Equity in earnings (loss) of unconsolidated subsidiary (34,662) (776)
Changes in operating assets and liabilities:
Accounts receivable (718,331) 468,269
Inventory (101,544) (868,242)
Costs and estimated earnings in excess of billings 242,862 52,410
Prepaid expenses and deposits (58,795) (232,870)
Deferred offering costs 0 (95,334)
Other assets (205,805) (56,096)
Trade accounts payable and accrued expenses (1,809,926) (34,128)
Customer deposits 148,607 (274,894)
Deferred revenue (38,813) 378,151
Billings in excess of costs and estimated earnings 6,469 86,609
Federal income taxes payable 264,964 (1,643)
------------------------------
Net cash provided (used) by operating activities 931,851 333,640
------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,254,425) (2,431,532)
Proceeds from disposal of property, plant and equipment 24,140 28,776
Investments in unconsolidated subsidiary 529,262 (50,000)
------------------------------
Net cash used in investing activities (4,701,023) (2,452,756)
------------------------------
Cash flows from financing activities:
Proceeds from debt 14,280,634 2,684,377
Debt payments (13,331,275) (654,706)
Proceeds from issuance of common stock 350,752 9,997
------------------------------
Net cash provided by financing activities 1,318,203 2,039,668
------------------------------
Net decrease in cash for period (4,314,671) (79,448)
Cash and cash equivalents at beginning of period 7,659,983 360,930
------------------------------
Cash and cash equivalents at end of period $ 3,345,312 $ 281,482
------------------------------
------------------------------
</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 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 included in its June 30, 1997 Form 10-K), 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 December 31, 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>
DECEMBER 31,
1997 JUNE 30, 1997
------------ -------------
<S> <C> <C>
Material 1,005 $413
Work In-Process 18 1,444
-------------------------------------
Total 1,023 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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) 216 180 421 260
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 3,753 2,234 3,737 2,234
Effect of dilutive securities:
Employee stock options 226 72 181 72
--------------------------------------------
Denominator for diluted earnings per share 3,979 2,306 3,918 2,306
Basic earnings per share .06 .08 .11 .12
Diluted earnings per share .05 .08 .11 .11
</TABLE>
6
<PAGE>
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 telecommunications systems. The Company operates 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, in total, 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
7
<PAGE>
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 its
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 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.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
TOTAL SALES. Total sales decreased $2.1 million or 24.1% to $6.6
million for the three months ended December 31, 1997 from $8.7 million for
the three months ended December 31, 1996. This decline was comprised of an
increase of $1.1 million or 22.4% in the Company's telecom and carrier
services, a decrease of $306,000 or 34.1% in the Company's land mobile
services and a decrease of $2.9 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 from the continued expansion of the Company's ODDS services.
The decrease in Land Mobile resulted from decreased product and project
sales. The product resales were substantially completed in fiscal 1997.
GROSS MARGIN. Gross profit increased $882,000 or 41.9% to $3.0 million
for the three months ended December 31, 1997 from $2.1 million for the three
months ended December 31, 1996, representing gross margins of 45.2% and
24.1%, respectively. The increase in margin was due in principal part to the
completion of the product resale to a single customer in May 1997, which had
lower margins, and from changes in the Company's sales mix to higher margin
services. Excluding product resales, gross profit for the three months ended
December 31, 1996 would have been approximately $2.2 million representing a
gross margin of 37.9%.
SELLING EXPENSES. Selling expenses increased $157,000 or 57.3% to
$432,000 for the three months ended December 31, 1997 from $274,000 for the
three months ended December 31, 1996. Selling expenses as a percentage of
total sales increased to 6.4% from 3.1% during these respective periods. The
increase in selling expenses resulted from the addition of sales personnel,
increased advertising, and from increases in travel expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $498,000 or 47.6% to $1.5 million for the three months
ended December 31, 1997 from $1.0 million for the three months ended December
31, 1996. As a percentage of total sales, general and administrative
expenses increased to 23.1% for the three months ended December 31, 1997 from
12.0% for the three months ended December 31, 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 was also comprised of
increases in telephone expense, insurance expense, rent expense, and legal
expenses.
8
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$172,000 or 50.1% to $514,000 for the three months ended December 31, 1997
from $343,00 in the three months ended December 31, 1996. This increase was
attributable to the acquisition of an additional $6.2 million of property,
plant and equipment, comprised of $4.8 million in equipment for satellite,
microwave and other equipment, $1.0 million for computers, furniture and
fixtures, service vehicles and test equipment and $335,000 for buildings and
improvements.
NET INTEREST EXPENSE. Net interest expense decreased $16,000 or 12.9%
to $108,000 for the three months ended December 31, 1997 from $124,000 for
the three months ended December 31, 1996. The Company's borrowings increased
to $9.6 million for the three months ended December 31, 1997 from $6.0
million for the three months ended December 31, 1996. The increase in
borrowings was used to fund acquisitions of property, plant and equipment.
In addition, the Company had cash investments of $3.3 million at December 31,
1997 which generated $60,000 of interest income for the quarter.
OTHER INCOME, NET. Other income for the three months ended December 31,
1997 was comprised of gains on asset dispositions. Other income for the
three months ended December 31, 1996 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 $35,000 or
26.1% to $169,000 for the three months ended December 31, 1997 from $134,000
for the three months ended December 31, 1996 which represents an effective
tax rate of 43.9% and 42.7% for each period, respectively.
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
TOTAL SALES. Total sales decreased $3.7 million or 23.7% to $11.9
million for the six months ended December 31, 1997 from $15.6 million for the
six months ended December 31, 1996. This decrease was comprised of an
increase of $1.2 million or 12.9% in the Company's telecom and carrier
services, a decrease of $223,000 or 14.2% in the Company's land mobile
services and a decrease of $4.7 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 decrease in Land Mobile resulted from a decrease in
product and project sales. The product resales were substantially completed
in fiscal 1997.
GROSS MARGIN. Gross profit increased $1.4 million or 35.6% to $5.4
million for the six months ended December 31, 1997 from $4.0 million for the
six months ended December 31, 1996, representing gross margins of 45.1% and
25.3%, respectively. The increase in margin was due in principal part to the
completion of the product resale to a single customer in May 1997, which had
lower margins, and from changes in the Company's sales mix to higher margin
services. Excluding product resales, gross profit for the six months ended
December 31, 1996 would have been approximately $3.9 million representing a
gross margin of 35.8%.
SELLING EXPENSES. Selling expenses increased $298,000 or 60.2% to
$793,000 for the six months ended December 31, 1997 from $495,000 for the six
months ended December 31, 1996. 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 $598,000 or 26.7% to $2.8 million for the six months ended
December 31, 1997 from $2.2 million for the six months ended December 31,
1996. 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
$346,000 or 54.5% to $987,000 for the six months ended December 31, 1997 from
$635,000 in the six months ended December 31, 1996. This increase was
primarily for infrastructure and network expansion.
9
<PAGE>
NET INTEREST EXPENSE. Net interest expense increased $4,000 or 1.9% to
$218,000 for the six months ended December 31, 1997 from $214,000 for the six
months ended December 31, 1996. The increase was comprised of an increase in
interest expense of $116,000 to $348,000 from $232,000 for the comparable six
month period last year. This increase was offset by an increase in interest
income of $112,000 to $130,000 from $18,000 for the same six month period
last year.
OTHER INCOME, NET. Other income for the six months ended December 31,
1997 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 six months ended December 31, 1996
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 $130,000 or
96.9% to $265,000 for the six months ended December 31, 1997 from $134,000
for the six months ended December 31, 1996 which represents an effective tax
rate of 38.6% and 34% for each period, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1997, the Company generated
$932,000 of cash in operating activities, borrowed an additional net amount
of $949,359 from credit facilities, and received $351,000 from the sale and
issuance of Common Stock. The Company invested $5.2 million in property and
equipment (net of proceeds of $24,000 from certain dispositions of assets)
and reduced its investment in an unconsolidated subsidiary by $529,262
through disposition. The increase in property, plant 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 $4.3 million to a balance of $3.3
million at December 31, 1997.
The Company's working capital was $1.3 million at December 31, 1997.
Accounts receivable increased $631,783 from $5.7 million at June 30, 1997 to
$6.3 million at December 31, 1997, while inventory decreased from $1.9
million at June 30, 1997 to $1.0 million at December 31, 1997. Accounts
payable and accrued expenses decreased from $5.4 million at June 30, 1997 to
$3.6 million at December 31, 1997. In addition, the current portion of notes
payable increased from $964,000 at June 30, 1997 to $6.0 million at December
31, 1997, while deferred revenue and customer deposits increased from $77,000
at June 30, 1997 to $187,000 at December 31, 1997. 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 to 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 $900,000 available under the Working Capital Loan
at December 31, 1997 and $5.0 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.
10
<PAGE>
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 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.
11
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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
the Company's 10-Q for the 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.
- -------------------------
+ Amended and filed herewith.
12
<PAGE>
(b) Reports on Form 8-K
Current report on Form 8-K dated as of October 2, 1997, and filed
October 7, 1997, regarding the sale of the Company's interest in Kenwood
System Group.
13
<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 13, 1998 By: /s/ Richard H. Roberson
--------------------------------------
Richard H. Roberson
Chief Financial Officer and Director
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,345
<SECURITIES> 0
<RECEIVABLES> 6,612
<ALLOWANCES> 141
<INVENTORY> 1,022
<CURRENT-ASSETS> 11,534
<PP&E> 20,387
<DEPRECIATION> 6,039
<TOTAL-ASSETS> 26,284
<CURRENT-LIABILITIES> 10,205
<BONDS> 3,588
0
0
<COMMON> 38
<OTHER-SE> 12,166
<TOTAL-LIABILITY-AND-EQUITY> 26,284
<SALES> 0
<TOTAL-REVENUES> 11,963
<CGS> 6,559
<TOTAL-COSTS> 11,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> 686
<INCOME-TAX> 265
<INCOME-CONTINUING> 421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
