<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission file number 0-19578
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INTERNET COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
COLORADO 84-1095516
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
7100 E. BELLEVIEW AVENUE, SUITE 201, GREENWOOD VILLAGE, COLORADO 80111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 770-7600
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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. [X] Yes [ ] No
At October 31, 1995, 2,390,686 shares of Common Stock, no par value were
outstanding
Page 1 of 10 pages.
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INTERNET COMMUNICATIONS CORPORATION
INDEX
PAGE
----
Form 10-Q SB Cover Page 1
Index Page 2
Part I Condensed Balance Sheets 3
October 31, 1995 and January 31, 1995
Condensed Statements of Operations 4
Three & nine months ended October 31, 1995 & 1994
Condensed Statements of Cash Flows 5
nine months ended October 31, 1995 & 1994
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of Financial 7 - 8
Condition and Results of Operations
Part II Other Information
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of 9
Securities Holders
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signature Page 10
2
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INTERNET COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, January 31,
ASSETS 1995 1995
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 593,000 $ 572,000
Marketable securities - 157,000
Receivables:
Trade, net of allowance 3,012,000 2,807,000
Other 441,000 404,000
Inventory 1,203,000 738,000
Investment in sales-type leases 69,000 96,000
Prepaid expenses and other 293,000 489,000
---------- ----------
Total current assets 5,611,000 5,263,000
FURNITURE AND EQUIPMENT 3,916,000 3,187,000
Less accumulated depreciation and amortization (1,951,000) (1,609,000)
---------- ----------
1,965,000 1,578,000
OTHER ASSETS:
Investment in sales-type leases, net of current portion 80,000 118,000
Software development costs, net - 50,000
Other 150,000 55,000
---------- ----------
230,000 223,000
TOTAL ASSETS $7,806,000 $7,064,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $1,100,000 $ 350,000
Accounts payable 2,263,000 2,028,000
Unearned income 648,000 537,000
Accrued expenses and other 433,000 296,000
---------- ----------
Total current liabilities 4,444,000 3,211,000
STOCKHOLDERS' EQUITY:
Common stock, no par value 5,484,000 5,474,000
Treasury stock, at cost (294,000) (292,000)
Stockholders' notes (35,000) (56,000)
Accumulated Deficit (1,793,000) (1,273,000)
---------- ----------
Total stockholders' equity 3,362,000 3,853,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,806,000 $7,064,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to these condensed financial statements.
3
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months ended October 31, For the three months ended October 31,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES
Equipment $7,998,000 $7,441,000 $2,385,000 $2,612,000
Data communication services 6,390,000 5,014,000 2,152,000 1,747,000
----------- ----------- ---------- ----------
14,388,000 12,455,000 4,537,000 4,359,000
COST OF SALES (10,381,000) (8,881,000) (3,572,000) (3,063,000)
----------- ----------- ---------- ----------
GROSS MARGIN 4,007,000 3,574,000 965,000 1,296,000
OPERATING EXPENSES:
Selling 1,668,000 1,326,000 556,000 460,000
General and administrative 2,343,000 1,862,000 867,000 605,000
Software 643,000 296,000 339,000 108,000
----------- ----------- ---------- ----------
4,654,000 3,484,000 1,762,000 1,173,000
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (647,000) 90,000 (797,000) 123,000
INCOME TAX (EXPENSE) BENEFIT 127,000 (35,000) 127,000 (47,000)
----------- ----------- ---------- ----------
NET INCOME (LOSS) ($520,000) $55,000 ($670,000) $76,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE
Primary ($0.22) $0.02 ($0.28) $0.03
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 2,390,686 2,464,000 2,390,686 2,387,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to these condensed financial statements.
4
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended October 31,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($520,000) $55,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 462,000 411,000
Impairment of software development 150,000 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables- Net (111,000) (1,090,000)
Income Taxes (131,000) 60,000
Inventory (465,000) (477,000)
Investment in sales type leases 65,000 24,000
Prepaid expenses and other 148,000 (124,000)
Increase (decrease) in:
Accounts payable 355,000 812,000
Unearned income 111,000 63,000
Accrued expenses 137,000 (96,000)
---------- ----------
Net cash (used in) provided by operating activities 201,000 (362,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs (100,000) (532,000)
Capital expenditures (849,000) (572,000)
Payment for other assets - (30,000)
Purchase of Joint Venture (167,000) -
Purchase of Marketable securities - (156,000)
Sales of marketable securities 157,000 107,000
---------- ----------
Net cash used in investing activities (959,000) (1,183,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 3,365,000 1,925,000
Repayment of debt (2,615,000) (1,525,000)
Proceeds from notes receivable 21,000 45,000
Purchase of treasury stock (2,000) (236,000)
Proceeds from sale of stock, net 10,000 952,000
---------- ----------
Net cash provided by (used in) financing activities 779,000 1,161,000
---------- ----------
INCREASE (DECREASE) IN CASH 21,000 (384,000)
CASH, beginning of period 572,000 715,000
---------- ----------
CASH, end of period $593,000 $331,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to these condensed financial statements.
5
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The financial statements included herein have been prepared by
Internet Communications Corporation (Internet or the Company),
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments
which are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures
normally included in the financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are
adequate to make the information presented not misleading;
however, it is suggested that these financial statements be
read in conjunction with the financial statements and the
notes thereto which are incorporated by reference in the
Company's Annual Report on Form 10-K SB for the fiscal year
ended January 31, 1995. The financial data for the interim
periods may not necessarily be indicative of results to be
expected for the year.
NOTE 2 -- SOFTWARE DEVELOPMENT EXPENSE:
During the quarter ending October 31, 1995, the Company
re-evaluated the net realizability of its capitalized
software. It is was determined that due to technology changes
in the market place, the projected revenue for its software
product were substantially less than previously estimated. The
related capitalized costs were in excess of the anticipated
future profits from the sale of the product. As a result,
management elected to write-off the unamortized balance of
$150,000 of capitalized software in accordance with Financial
Accounting Standard No. 86.
6
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of
certain significant factors which have affected the Company's
financial condition and results of operations during the
periods included in the accompanying condensed financial
statements.
FINANCIAL CONDITION
The current ratio has decreased from 1.64 to 1.26, and working
capital decreased by $885,000 for the period from January 31,
1995 to October 31, 1995. The Company's cash and cash
equivalents at October 31, 1995 were $593,000 compared to
$572,000 at January 31, 1995, while marketable securities were
zero compared to $157,000 at January 31, 1995. Trade accounts
receivable increased $205,000 at October 31, 1995, when
compared to January 31, 1995 primarily due to final phase
completion on large networks occurring in the latter part of
the third quarter. Inventory balances increased compared to
January 31, 1995 due to increased vendor lead times and in
preparation for equipment sales scheduled for delivery in the
fourth quarter. During the nine month ending October 31, 1995
the Company purchased $ 849,000 and retired $120,000 of fully
depreciated capital assets used primarily in technological
services. During the quarter ending October 31, 1995, the
Company expensed $150,000 of software development costs based
on the evaluation by management of its future realizable value
(see NOTE 2).
The Company has a total credit facility of $2,000,000 of which
$1,550,000 is available for general use and $450,000 secures a
performance bond relating to a significant customer network sale.
As of October 31, 1995, the outstanding balance was $1,100,000,
exclusive of the performance bond element, as compared to an
outstanding balance of $350,000 as of January 31, 1995. The
increase in the credit facility was used to support an overall
increased level of business activity. A new credit facility
agreement with an expiration of June 30, 1996 has been negotiated
with the same lender. This facility consists of a general use
line-of-credit of $1,300,000 and a $450,000 facility to support
the performance bond which will expire upon the release of the
bond which is expected in the fourth quarter. The Company
believes that this will provide adequate available credit, with
existing cash reserves, to fund company operations.
During the three months ended October 31, 1995, the Company
repaid $165,000 loaned to the Company during the second
quarter of fiscal 1995 from its Chief Executive Officer at the
market rate of interest.
7
<PAGE>
RESULTS OF OPERATIONS:
For the nine and three months ended October 31, 1995, the
Company reported revenues of $14.4 million and $4.5 million
respectively, resulting in net losses of $520,000 and $670,000
respectively, compared to revenues of $12.5 million and $4.4
million with net income of $55,000 and $76,000 for the nine
and three months ended October 31, 1994.
Sales for the nine and three months ended October 31, 1995,
increased 16% and 3% compared to the same periods in 1994. The
growth in sales for the nine months of fiscal 1995 was the
result of continued strong demand for the data communication
products and services provided by the Company. Sales for the
three months ending October 31, 1995 were adversely impacted
due to customers delaying shipment of product originally
scheduled for the end of the third quarter 1995 to the forth
quarter 1995. Gross margin as a percentage of sales was 27.9%
and 21.3% for the nine and three months ending October 31,
1995, compared to 28.7% and 29.7% for the same periods of
fiscal 1994. The decrease in gross margin percentage during
the three months ended October 31, 1995 when compared to the
three months ended October 31, 1994 was the result of lower
margin equipment sales and increased costs to provide data
communication services. The Company's gross margin percentage
can vary significantly from period to period due to changes in
the relative mix of equipment and service sales.
Selling expense as a percentage of revenues increased slightly
(12%) for the nine and three months ended October 31, 1995
compared to the same periods of fiscal 1994 (11%). The
increase is primarily due to sales force compensation which
relates to the gross margin performance of the Company.
General and Administrative expenses increased $481,000 and
$262,000 for the nine and three month periods ending October
31, 1995 when compared to the same periods in fiscal 1994.
These operating expense increases reflect the inclusion of
operating expenses of former Internet-Inacom operations
acquired on June 1, 1995, expansion of office facilities and
general increase in expenses due to higher anticipated revenue
activity.
During the quarter ending October 31, 1995 the Company
re-evaluated the net realizability of its capitalized
software. At that time it was determined the projected market
for its software was substantially lower than previously
anticipated. This has resulted in a write-off of $150,000 of
costs, a substantial portion of which ($100,000) had been
capitalized during the first quarter of 1995 (see NOTE 2).
The Company recognized a income tax refund as a result of net
operating loss carry back available to the Company
8
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
PART II
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITIES HOLDERS
NONE
ITEM 5. OTHER INFORMATION
During the quarter ended October 31, 1995, the Company ended
acquisition discussions disclosed on Form 8K filed June 1,
1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibit is attached hereto:
EXHIBIT
NO. TITLE OF DOCUMENT
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27 Financial Data Schedule
(b) Current Reports on Form 8-K.
None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTERNET COMMUNICATIONS CORPORATION
By: /s/ Thomas C. Galley
______________________________________________
Thomas C. Galley, President
Date: December 12, 1995
By: /s/ Benjamin T. Kelly
______________________________________________
Benjamin T. Kelly, Chief Financial Officer
and Treasurer
Date: December 12, 1995
10
<PAGE>
EXHIBIT INDEX
Exhibit
NO. TITLE OF DOCUMENT
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27 Financial Data Schedule
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 593000
<SECURITIES> 0
<RECEIVABLES> 3119000
<ALLOWANCES> (155000)
<INVENTORY> 1203000
<CURRENT-ASSETS> 5611000
<PP&E> 3916000
<DEPRECIATION> (1951000)
<TOTAL-ASSETS> 7806000
<CURRENT-LIABILITIES> 4444000
<BONDS> 0
<COMMON> 5190000
0
0
<OTHER-SE> (1828000)
<TOTAL-LIABILITY-AND-EQUITY> 7806000
<SALES> 7998000
<TOTAL-REVENUES> 14388000
<CGS> 8617000
<TOTAL-COSTS> 10381000
<OTHER-EXPENSES> 4461000
<LOSS-PROVISION> 111000
<INTEREST-EXPENSE> 81000
<INCOME-PRETAX> (647000)
<INCOME-TAX> 127000
<INCOME-CONTINUING> (520000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520000)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> 0
</TABLE>
