<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT
OF 1934
For the quarterly period ended APRIL 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period form _____________ to _____________
Commission file number 0-19578
INTERNET COMMUNICATIONS CORPORATION
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-1095516
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7100 E. BELLEVIEW AVENUE, SUITE 201, GREENWOOD VILLAGE, COLORADO 80111
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(Address of principal executive offices)
(303) 770-7600
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 MAY 22, 1997, 5,375,806 SHARES OF COMMON STOCK, NO PAR VALUE, WERE
OUTSTANDING
Page 1 of 10 pages.
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INTERNET COMMUNICATIONS CORPORATION
INDEX
PAGE
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Form 10-Q SB Cover Page 1
Index Page 2
Part I Condensed Consolidated Balance Sheets 3
April 30, 1997 and January 31, 1997
Condensed Consolidated Statements of Operations 4
Three months ended April 30, 1997 & 1996
Condensed Consolidated Statements of Cash Flows 5
Three months ended April 30, 1997 & 1996
Notes to Condensed Consolidated 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
Security Holders 9
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 CONSOLIDATED BALANCE SHEETS
April 30, January 31,
1997 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 978,000 $ 571,000
Trade receivables, net of allowance 6,360,000 7,509,000
Inventory 3,675,000 2,294,000
Prepaid expenses and other 635,000 702,000
Costs and estimated earnings in excess of billings
on uncompleted contracts 614,000 711,000
----------- -----------
Total current assets 12,262,000 11,787,000
EQUIPMENT, net 2,096,000 2,233,000
OTHER ASSETS:
Goodwill, net 3,338,000 3,398,000
Spares inventory 429,000 412,000
Other, net 920,000 987,000
----------- -----------
TOTAL ASSETS $19,045,000 $18,817,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 179,000 $ 279,000
Accounts payable 3,597,000 3,316,000
Unearned income and deposits 898,000 937,000
Accrued expenses and other 1,611,000 846,000
----------- -----------
Total current liabilities 6,285,000 5,378,000
NOTES PAYABLE 2,714,000 5,596,000
DEFERRED REVENUE 157,000 161,000
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES 277,000 277,000
STOCKHOLDERS' EQUITY:
Common stock, no par value 13,665,000 10,815,000
Stockholders' notes (35,000) (35,000)
Accumulated deficit (4,018,000) (3,375,000)
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Total stockholders' equity 9,612,000 7,405,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,045,000 $18,817,000
----------- -----------
----------- -----------
See accompanying notes to these condensed financial statements
3
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INTERNET COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended April 30,
1997 1996
(Unaudited) (Unaudited)
NET SALES:
Equipment and installation $ 6,050,000 $ 1,258,000
Services 3,269,000 2,356,000
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9,319,000 3,614,000
COST OF SALES (6,492,000) (2,548,000)
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GROSS MARGIN 2,827,000 1,066,000
OPERATING EXPENSES:
Selling 1,599,000 493,000
General and administrative 1,726,000 693,000
Interest expense, net 145,000 41,000
Other - 36,000
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3,470,000 1,263,000
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LOSS BEFORE INCOME TAXES (643,000) (197,000)
INCOME TAX EXPENSE - -
----------- -----------
NET LOSS $ (643,000) $ (197,000)
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----------- -----------
NET LOSS PER COMMON SHARE $ (.14) $ (.08)
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,756,000 2,397,000
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See accompanying notes to these condensed financial statements
4
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INTERNET COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended April 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($643,000) ($197,000)
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 404,000 188,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables- net 1,149,000 499,000
Inventory (1,381,000) 216,000
Prepaid expenses and other 76,000 33,000
Increase (decrease) in:
Accounts payable 282,000 (867,000)
Unearned income 53,000 10,000
Accrued expenses 765,000 (44,000)
--------- ---------
Net cash provided by (used in) operating activities 705,000 (162,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (166,000) (145,000)
--------- ---------
Net cash used in investing activities (166,000) (145,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 3,000,000 -
Expenses from sale of common stock (150,000) -
Repayment of debt (2,982,000) -
Proceeds from debt - 100,000
--------- ---------
Net cash provided by (used in)
financing activities (132,000) 100,000
--------- ---------
INCREASE (DECREASE) IN CASH 407,000 (207,000)
CASH, beginning of period 571,000 473,000
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CASH, end of period $978,000 $266,000
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--------- ---------
</TABLE>
See accompanying notes to these condensed financial statements.
5
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INTERNET COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
(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-KSB for the fiscal year ended January 31, 1997. The
financial data for the interim periods may not necessarily be indicative of
results to be expected for the year.
6
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INTERNET COMMUNICATIONS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This 10-QSB contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements include statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical
facts. The forward-looking statements in this 10-QSB are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements.
With regard to the Company, the most important factors include, but are not
limited to, the following:
- Changing technology.
- Competition.
- Possible future government regulation.
- Competition for talented employees.
- Company's ability to fund future operations.
- Resolution of unbilled receivable claims.
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 financial condition of the company improved significantly as a result of a
private placement transaction which occurred just prior to the end of the
quarter. In exchange for $3,000,000, the Company issued to its largest
shareholder 631,579 share of common stock and 63,158 warrants to purchase
common stock at $5.70 per share exercisable for a period of five (5) years.
Additionally, the Company agreed to a revised borrowing agreement with its
lending institution which included lowering the credit availability from $6.0
million to $5.0 million and setting new financial performance covenants. At
the same time the lending institution waived the violation of financial
performance covenants that existed as of January 31, 1997. The net proceeds
from the private placement transaction were used to pay down the line of credit
and the balance of the line at the end of the first quarter was $2,472,000
compared to $5,322,000 at January 31, 1997.
As at April 30, 1997, the Company's cash balance increased by $407,000 from
January 31, 1997. For the same period the current ratio decreased from 2.19 to
1.95 while working capital decreased by $432,000. Other than the transactions
described above, there were no other significant trends, events or
uncertainties which would have a material impact on the Company's liquidity.
7
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The Company incurred capital expenditures of $166,000 during the quarter ended
April 30, 1997. There are no material commitments for capital expenditures and
the Company continues to maintain tight controls over its capital purchases.
RESULTS OF OPERATIONS:
During the fiscal year ending January 31, 1997, the Company acquired Interwest
Communications C.S. Corporation and its subsidiaries (Interwest). The results
of operations of Interwest for the first quarter period ending April 30, 1997
are included in the operations of the Company, but are not included for the
comparative period in the prior year. The following discussion will disclose
the effect of the Company's acquisition on its financial performance.
For the three months ended April 30, 1997, sales increased by $5,705,000 or
158%. The acquisition of Interwest accounted for $5,183,000 of the increase.
Internet (on a stand-alone basis) increased sales by 14% over the same period
in the prior year. The prior year sales were lower as a result of the
elimination of the resale sales channel. The loss of sales from that channel
was made up in the current quarterly period by an increase in equipment sales
of $586,000.
Gross margin in the current year was 30.3% of sales as compared to 29.5% in the
prior year. The Interwest gross margin, although slightly lower than the
Internet gross margin on a stand-alone basis, did not significantly impact the
gross margin performance as a percentage of sales.
Selling expenses increased by $1,106,000, or 224%, for the three month period
ending April 30, 1997. Selling expenses as a percentage of revenue were higher
in the current period (17.1%) as compared to the comparable period in the prior
year (13.6%). Both Interwest and Internet (on a stand-alone basis) contributed
to the higher selling expenses, primarily due to the increase in sales staff
and higher fixed costs for increased salaries.
For the three months ended April 30, 1997, general and administrative costs
increased by $1,033,000 or 149% over the prior year. However, these expenses
as a percentage of sales were lower in the current period (18.5%) than in the
same period for the prior year (19.2%). The Interwest portion of general and
administrative expenses in the current quarterly period is not known since many
of these expenses are rolled together when the companies merged. However, it
is obvious that the Company is still incurring higher general and
administrative expenses than may be necessary in the future while it is in the
process of consolidating the operations of the two companies.
Interest expense increased by $104,000 due to the increased use of the line of
credit as compared to the same period in the prior year.
8
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INTERNET COMMUNICATIONS CORPORATION
PART II
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
On April 29, 1997, in exchange for $3,000,000, the company issued to
Interwest Group, Inc. 631,579 shares of common stock and 63,158 warrants to
purchase common stock at $5.70 per share exercisable for a period of five
(5) years. This private placement transaction qualified for exemption from
registration under section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
Subsequent to the quarter ended April 30, 1997, the Company filed Form 8-K/A
dated May 27, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
9
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNET COMMUNICATIONS CORPORATION
-----------------------------------
(Registrant)
Date: June 13, 1997 By: /s/ Thomas C. Galley
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Thomas C. Galley, President
Date: June 13, 1997 By: /s/ Paul W. Greiving
------------------------------------
Paul W. Greiving, Chief Financial
Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 978,000
<SECURITIES> 0
<RECEIVABLES> 6,595,000
<ALLOWANCES> 235,000
<INVENTORY> 3,675,000
<CURRENT-ASSETS> 12,262,000
<PP&E> 5,473,000
<DEPRECIATION> 3,377,000
<TOTAL-ASSETS> 19,045,000
<CURRENT-LIABILITIES> 6,285,000
<BONDS> 0
0
0
<COMMON> 13,665,000
<OTHER-SE> (4,053,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,045,000
<SALES> 9,319,000
<TOTAL-REVENUES> 9,319,000
<CGS> 6,492,000
<TOTAL-COSTS> 9,817,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,000
<INCOME-PRETAX> (643,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (643,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643,000)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
