<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 APRIL 30, 1996
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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
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(Exact name of registrant as specified in its charter)
COLORADO 84-1095516
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State or other jurisdiction of (I.R.S. EmployerIdentification
incorporation or organization 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 April 30, 1996, 2,400,686 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
April 30, 1996 and January 31, 1996
Condensed Statements of Operations 4
Three months ended April 30, 1996 & 1995
Condensed Statements of Cash Flows 5
Three months ended April 30, 1996 & 1995
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>
April 30, January 31,
1996 1996
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $266,000 $473,000
Receivables:
Trade, net of allowance $2,297,000 $2,757,000
Other $361,000 $400,000
Inventory $1,182,000 $1,398,000
Prepaid expenses and other $377,000 $397,000
------------ ------------
Total current assets $4,483,000 $5,425,000
FURNITURE AND EQUIPMENT, NET $1,900,000 $1,943,000
OTHER ASSETS: $69,000 $82,000
TOTAL ASSETS $6,452,000 $7,450,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $1,100,000 $1,000,000
Accounts payable $1,656,000 $2,523,000
Unearned income $672,000 $662,000
Accrued expenses and other $304,000 $348,000
------------ ------------
Total current liabilities $3,732,000 $4,533,000
STOCKHOLDERS' EQUITY:
Common stock, no par value $5,202,000 $5,202,000
Stockholders' notes ($35,000) ($35,000)
Accumulated deficit ($2,447,000) ($2,250,000)
------------ ------------
Total stockholders' equity $2,720,000 $2,917,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,452,000 $7,450,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to these condensed financial statements
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended April 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES:
Equipment $1,258,000 $2,607,000
Data communication services $2,356,000 $2,110,000
------------- -------------
$3,614,000 $4,717,000
COST OF SALES ($2,548,000) ($3,248,000)
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GROSS MARGIN $1,066,000 $1,469,000
OPERATING EXPENSES:
Selling $493,000 $524,000
General and administrative $734,000 $676,000
Software development & maintenance $36,000 $133,000
Equity in loss of joint venture $0 $39,000
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$1,263,000 $1,372,000
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INCOME BEFORE INCOME TAXES ($197,000) $97,000
INCOME TAX EXPENSE $0 $0
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NET INCOME (LOSS) ($197,000) $97,000
NET INCOME PER COMMON SHARE $ (0.08) $ 0.04
------------- -------------
------------- -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,397,000 2,521,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to these condensed financial statements
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended April 30,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($197,000) $97,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 188,000 149,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables- Net 499,000 (660,000)
Inventory 216,000 (219,000)
Prepaid expenses and other 33,000 74,000
Increase (decrease) in:
Accounts payable (867,000) 140,000
Unearned income 10,000 15,000
Accrued expenses (44,000) 98,000
------------ ------------
Net cash (used in) provided by operating activities (162,000) (306,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Software development costs - (100,000)
Capital expenditures (145,000) (118,000)
Purchase of Marketable securities - (2,000)
------------ ------------
Net cash used in investing activities (145,000) (220,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 100,000 765,000
Repayment of debt - (550,000)
Proceeds from notes receivable - 2,000
Purchase of treasury stock - (2,000)
------------ ------------
Net cash provided by (used in) financing activities 100,000 215,000
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INCREASE (DECREASE) IN CASH (207,000) (311,000)
CASH, beginning of period 473,000 572,000
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CASH, end of period $266,000 $261,000
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------------ ------------
</TABLE>
See accompanying notes to these condensed financial statements.
<PAGE>
INTERNET COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1996
(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, 1996. The
financial data for the interim periods may not necessarily be indicative of
results to be expected for the year.
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 as of April 30, 1996 remained unchanged (1.20) when compared
to January 31, 1996 (1.20), and working capital decreased by $141,000 for the
period from January 31, 1996 to April 30, 1996. The Company's cash and cash
equivalents at April 30, 1996 were $266,000 compared to $473,000 at January 31,
1996. Trade accounts receivable decreased $460,000 at April 30, 1996, when
compared to January 31, 1996 primarily due to collection efforts by Company
personnel. Inventory balances decreased $216,000 compared to January 31, 1996
due to decreased vendor lead time, stock rotation to vendors and improved
customer delivery time. During the three months ending April 30, 1996 the
Company purchased $ 145,000 of capital assets used primarily in technological
services.
The Company increased its use of its line of credit during the first quarter of
fiscal 1997. The balance drawn on at April 30, 1996 was $1,100,000 an increase
of $100,000 from January 31, 1996. The total credit facility is $1,750,000 of
which $450,000 is held as collateral for a performance bond on a significant
customer contract. During the first quarter ending April 30, 1996, the Company
was in violation of loan agreement covenants. However, the lender has waived
those violations and extended the line of credit to June 30, 1996. It is
management's opinion that the Company has adequate working capital and bank
credit to fund its on-going operations. Accounts Payable decreased $867,000
when compared to January 31, 1996. This primarily resulted from payment to
vendors with cash generated through operations.
On May 29,1996, the Company entered into a stock exchange agreement with
Interwest Group, Inc. (Group), under which the Company proposes to acquire all
of the issued and outstanding common stock of Interwest Communications C. S.
Corporation in exchange for 2,306,541 shares of the Company's common stock. The
share exchange agreement is subject to shareholder approval. In connection with
this agreement, Group advanced the Company $900,000 in the form of a promissory
note due December 31, 1996. If not paid when due, the Note is convertible into
common stock at $3.00 per share.
7
<PAGE>
RESULTS OF OPERATIONS:
For the three months ended April 30, 1996, the Company reported revenues of
$3.6 million respectively, resulting in net losses of $197,000 respectively,
compared to revenues of $4.7 million with net income of $97,000 for the three
months ended April 30, 1995.
Sales for the three months ended April 30, 1996, decreased 23% compared to the
same periods in 1995. The decrease in sales for the three months of fiscal 1997
was primarily the result of reduced equipment sales generated from the
Company's resale sales channel, partially offset by an increase in data
communication service sales of 12% when compared to the same period last year.
Gross margin as a percentage of sales was 29.5% for the three months ending
April 30, 1996, compared to 31.2% for the same periods of fiscal 1996. The
decrease in gross margin percentage during the three months ended April 30, 1996
when compared to the same period last year was the result of lower margin
equipment sales. 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 (13.6%) for the
three months ended April 30, 1996 compared to the same periods of fiscal 1996
(11.1%). The increase is the result of greater sales force compensation per
revenue dollar for data communication service sales vs equipment sales.
General and Administrative expenses increased $58,000 for the three month
period ending April 30, 1996 when compared to the same periods in fiscal 1996.
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.
Software development & maintenance expense decreased $97,000 during the quarter
ending April 30, 1996 when compared to the same period last year. The decrease
is the result of the Company's de-emphasis of software development. See related
discussion in form 10-KSB dated January 31, 1996.
8
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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
Subsequent to the quarter ended April 30, 1996, the Company filed Form 8K dated
May 14, 1996.
ITEM 6. EXHIBITS AND 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
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Thomas C. Galley, President
Date: June 12, 1996
By: /s/ Benjamin T. Kelly
-----------------------------------------
Benjamin T. Kelly, Chief Financial Officer
and Treasurer
Date: June 12, 1996
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 266,000
<SECURITIES> 0
<RECEIVABLES> 2,791,000
<ALLOWANCES> 133,000
<INVENTORY> 1,182,000
<CURRENT-ASSETS> 4,483,000
<PP&E> 4,220,707
<DEPRECIATION> (2,321,411)
<TOTAL-ASSETS> 6,452,000
<CURRENT-LIABILITIES> 3,732,000
<BONDS> 0
0
0
<COMMON> 5,202,000
<OTHER-SE> (2,482,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,452,000
<SALES> 3,614,000
<TOTAL-REVENUES> 3,614,000
<CGS> 2,548,000
<TOTAL-COSTS> 3,811,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,867
<INCOME-PRETAX> (197,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (197,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,000)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
