SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File No. 1-9690
INTERNATIONAL FIBERCOM, INC.
(Exact name of Registrant as specified in its charter)
Arizona 86-0271282
(State of Incorporation) (IRS Employer Identification No.)
3615 S. 28th Street
Phoenix, Arizona 85040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 941-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of each exchange on which registered
Common Stock, No Par Value Boston Stock Exchange, Inc. and
Philadelphia Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act : None
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
Check if there is no disclosure of delinquent filings in this Form and no
disclosure will be contained in the definitive Proxy Statement incorporated by
reference in Part III of this Form 10-KSB. X
Issuer's revenues for its fiscal year: $12,161,263
As of April 14, 1997, the number of shares of Common Stock outstanding was
6,393,799 and the aggregate market value of the Common Stock (based on the
closing price on that date) held by non-affiliates of the Registrant was
approximately $9,219,008
Documents Incorporated By Reference
Portions of the Registrant's definitive Proxy Statement for its forthcoming
Annual Meeting of Shareholders are incorporated herein by reference into Part
III of this Report.
Exhibit Index................................................. Page 13
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PART I
ITEM 1. BUSINESS.
General Summary
International FiberCom, Inc. (the "Company") is a Phoenix-based public
holding company with two operating subsidiaries, Kleven Construction, Inc.
("Kleven") and Concepts in Communication, Inc. (Concepts). Kleven is a
Phoenix-based company specializing in the design, installation and maintenance
of fiber-optic and other cable service for the telecommunication and cable
television ("CATV") industries. In 1996 Kleven operated in Arizona and
California. Concepts is a Nashville-based company specializing in systems
integration services including design, engineering, installation and maintenance
of structured cable systems, network hardware and software, workstation
peripherals and intercommunications systems, primarily within commercial,
industrial and government facilities. In 1996 Concepts operated only in
Tennessee.
The Telecommunications/CATV Industries
Through the new application of fiber-optic technology, the
telecommunications industry plans to deliver interactive voice, data and video
services to consumers in a network package which has been called the
"information superhighway." Telecommunications and CATV companies are moving to
provide services which are expected to change dramatically basic functions of
telephones and cable CATV in the home as well as in business. Such planned
services include telephone, video conferencing, movies-on-demand, pay-per-view
events, concerts, and interactive shopping and billing, games, classes, data and
other programs.
Fiber-optics. The capabilities of the fiber-optic cable based systems,
along with computers, digitized data transmission and sophisticated television
set-top boxes, will make these services possible. Fiber-optics is based upon the
transmission of light through transparent fibers of glass or plastic. Such
optical fibers can carry light over distances ranging from a few inches to more
than 100 miles with little signal strength loss (1% over 78 miles). One strand
of fiber is approximately 125 microns in diameter, which is thinner than a human
hair. Optical fibers can work individually or in bundles with over 100 fiber
strands bundled into a cable that looks like standard copper cables hanging
above the street. A half-inch cable can carry up to 130 fiber strands, although
most cables used are not of this size. A majority of cables hold about 20
strands, which is enough to provide 500-channel TV, telephone calls and data
transmission.
Optical fibers have an extremely pure core of glass or plastic
surrounded by a covering called a cladding. In fiber-optic communication
systems, special lasers transmit binary messages by flashing on and off at
extremely high speeds. The messages then travel through the optical fibers to
interpreting devices which convert the binary signals back into the form of the
original signal. Fiber-optic communication systems have a number of features
which make them superior to systems using traditional copper cables. For
instance, fiber optic cables have little or no signal attenuation, much longer
cable run distances, less susceptibility to noise, no susceptibility to
transient voltages or impulses such as lightning strikes and higher data
transmission speeds (1.5 million bits per second vs. 40 billion bits per
second).
Continuous changes in technology make the upgrading of systems from
copper to fiber-optic cable an on-going process. The Company believes that other
primary uses of fiber-optic cable will be on major freeways and possibly
interstate highway systems, providing up-to-date information on accidents,
weather, traffic and other pertinent information and also in structured cable
systems, internal network hardware and intercommunications systems within
commercial, industrial and government facilities. Kleven has installed a highway
monitoring system in California and Concepts has installed numerous facility
cable systems.
Demand for Fiber-Optics. The push to build the information superhighway
has created a demand for installation of high speed data transmission networks,
which are the means by which the data will be transmitted. Because of the
ever-increasing need for faster transmission networks, fiber optics has become
not only a viable alternative to copper wiring but a necessity for any system
being designed to handle future data traffic. In 1994
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the National Cable Television Association estimated that the cost of wiring
United States cities coast-to-coast with fiber-optic cable will be approximately
$20 billion. Such Association also estimated that more than 75% of all cable
systems currently in use will have to be rebuilt over the next ten years.
Telecommunications companies such as Bell Atlantic Corp., MCI Communications
Corp. ("MCI") and Cox Communications, Inc. ("Cox") have announced capital
expenditure programs to upgrade their networks for the "information super
highway," including installation of fiber-optic cable. For example, in 1995 Cox
announced a $100 million capital expenditure program to install fiber-optic
cable and make other CATV system improvements in the Phoenix metropolitan area
and began implementing the program in 1996. Cox is the third largest CATV
company in the United States as measured by the number of subscribers, with
approximately 3.1 million subscribers.
Such companies also need to replace much of the existing coaxial cable
with state-of-the-art fiber-optics, including other upgrades, in order to remain
competitive. As a result of capital expenditure plans such as these, Kleven
believes that it is well positioned to help service the demand with its
experience, expertise and reputation in the industry. No assurances can be
given, however, that Kleven will be successful in expanding its business as
planned, that announced capital expenditure programs of Kleven's current and
prospective customers will ever occur, or that Kleven will obtain any of the
business from such capital expenditures.
Kleven Construction, Inc.
In August 1994, the Company acquired all the issued and outstanding
common stock of Kleven for the sum of $3 million and issued 127,334 shares of
the restricted shares of Common Stock of the Company valued at $600,000. In
connection with the acquisition, the Company caused Kleven to enter into a
five-year employment agreement with Jerry Kleven, who is the principal operating
officer of Kleven. Kleven has served the telecommunication and cable industries
since 1977, when it began installing CATV in California. In 1980 Kleven
commenced its CATV work in Arizona and eventually established itself as a full
service organization, providing underground systems and aerial cable
installations serving the telephone industry and municipal governments and
public and private utilities throughout Arizona. Kleven began to install
fiber-optic cable in 1982.
In the 1980s Kleven added aerial capabilities, as well as
cable-splicing and other expertise, in order to become a full service entity for
the industry. As a result of its underground and aerial capabilities, Kleven has
been able to expand its base of business with telephone companies such as US
West and CATV companies such as Cox. In connection with its telephone services,
Kleven installs and maintains underground cable and conduit, aerial lines,
manholes and telephone equipment for US West in Arizona.
Kleven installs new fiber-optic systems as well as retrofits existing
systems. In its retrofit service, Kleven upgrades existing cable with new
equipment and underground or aerial cable which is compatible with existing
equipment and other fiber-optic installations. Kleven has completed thousands of
miles of trenching and cable placement in Arizona and California. Fiber-optic
design and installation services require extreme care and the latest
technological equipment, as well as the specialized skills which Kleven has
developed.
Kleven was one of the pioneers in the rocksaw method of cable
installation, which allows it to complete projects quickly with attractive
profit margins. With the increase in fiber-optic and retrofit telecommunications
and CATV installation work, Kleven believes that its gross profit margins will
increase substantially, because such work has a higher profit margin than the
installation of utilities, such as water, sewer and irrigation systems. Kleven
plans, given sufficient capital, to concentrate most of its efforts on
fiber-optic and other cable installation, both aerial and underground, for the
telecommunications and CATV industries.
Customers. Kleven's customers include, or have included, US West,
United Cable Television, Cox and the cities of Phoenix and Scottsdale, Arizona
and Union City and Anaheim, California and Times Mirror in San Diego County,
California. In fiscal 1996, Kleven's three largest customers were Cox
Communications, the City of Phoenix and Robkeal, Ltd., comprising approximately
54%, 22% and 16% of total revenues, respectively. In 1995 Kleven expanded its
operations into California and performed substantial services for AT&T, which
was the general contractor for PacTel in San Diego County. From July 1995 to
mid-February 1996 the
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Company provided fiber-optic and other cable installation services to AT&T for
PacTel based on work orders received under a unit price contract with AT&T. As a
result of its discussions with AT&T, the Company expected to book revenues of
approximately $9 million through 1996 on the project. On four separate occasions
during the first four months of the project, the engineering changed and new
contract prices were negotiated. By mid-February 1996 AT&T stopped work on the
project and the Company ceased receiving work orders. The reason for cessation
of work on the job became clear in early April 1996 when it was announced that
PacTel and SBC Communications, Inc. ("SBC") had agreed to a $16.7 billion
merger.
Kleven also has extensive background in the installation of all types
of utilities, including water, sewer, storm drainage, steel casings, specialty
boring and other state-of-the-art utility services, for governments,
municipalities, such as the city of Phoenix, and public and private utilities in
Arizona, such as SRP. Kleven installed utilities and telecommunications systems
in a residential housing subdivision in the Phoenix metropolitan area. As a
result of unexpected cost overruns on the job, the Company plans no further
immediate activity in such line of work.
Contracts. Under its typical CATV installation contract Kleven supplies
the expertise, equipment and labor and the customer supplies nearly all
materials, such as the fiber-optic cable and conduit. The work is generally
performed under fixed unit price contracts. Because Kleven's work is labor
intensive, it will require significant increases in machinery and manpower in
order to expand its business as described in this Prospectus. With respect to
the machinery and equipment, Kleven will require funds to make lease deposits or
purchase new equipment, including specialty trucks and splicing equipment. The
expected increase in volume will require significant additional personnel which,
in turn, will require a large amount of working capital to meet the expanded
payrolls. Kleven typically receives payment on its contracts within 30 to 45
days of invoicing and, accordingly, must be able to finance the receivables and
work-in-progress for such period.
Competition. The market for the telecommunications and CATV services
Kleven offers is highly competitive and Kleven believes that the factors for its
success include quality, technical capability, reliability, price and promptness
of performance. In California, Kleven's competition includes the Fishel
Companies, Hankel & McCoy and Burnup & Sims, Inc., the last of which is a large,
publicly held corporation. In Arizona, Kleven competes against Fishel and Hankel
& McCoy in cable installations and against such companies as Pauley Construction
and Beecroft Trenching in the installation of telephone and power lines. All of
such competitors are privately held, but have either regional or national scopes
of operations. Kleven competes with Pulice Construction, Pearson Construction,
Shiya-Stephans, Lundell Construction and Western Sun Construction in the
installation of water, sewer, storm and irrigation systems in Arizona. Although
most companies in this field tend to operate in a limited geographical area, a
number of competitors may bid on a particular project without regard to
location. Kleven has operated on a regional basis and is not aware of any
competitors which could be considered dominant in the industry on a national
basis.
Kleven also provides services to utilities and, more recently, to
Arizona homebuilders. The major competitive factor for utility service work is
price, and a substantial portion of the work performed is awarded on the basis
of competitive bids. There are numerous competitors qualified to perform the
same services which Kleven provides in this area.
Licenses. Kleven, through one of its officers, holds licenses in
certain jurisdictions requiring general and specialty contractor licenses.
Kleven is licensed and/or certified in Arizona and California.
Insurance and Bonds. Kleven maintains liability insurance for claims
arising from its business. The policy has a limit of $10 million in the
aggregate and insures against both property damage and personal injury. The
policy is written on an "occurrence" basis which provides coverage for insured
risks that occur during the policy period, irrespective of when a claim is made.
Higher policy limits are sometimes purchased for individual projects when
required contractually. Kleven has performance and payment bonding capability of
$10 million.
Backlog Orders and Work-in-Progress. The Company had a backlog of
approximately $2 million, on a work in process basis, as of March 31, 1997. All
such work orders are expected to be completed by the end of
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the third quarter of 1997. The Company also had an additional $2 million in work
orders yet to be started at March 31, 1997.
Employees. As of March 31, 1997 Kleven had approximately 200 full-time
employees in its Arizona and California operations, including five executive
officers, ten field supervisors and three technicians.
Warranties. Kleven provides a warranty of its workmanship for a period
of one to two years, depending on the requirements of its customers.
Litigation. Kleven is not involved as a party to any legal proceeding
other than various claims and lawsuits arising in the normal course of its
business none of which, in the opinion of the Company's management, are
individually or collectively material to Kleven's business.
Concepts in Communications, Inc.
Systems Integration. In a relatively short period, computer networks
have evolved from simple connections between desktop workstations to
mission-critical information systems. Many companies have installed local area
networks (LAN's) and wide area networks (WAN's) in an attempt to integrate more
fully the capabilities and information of their computers and personnel. This
shift from minicomputer based systems and mainframes to network based computing
has shifted the emphasis from the physical system used for an organization's
computing to the network system that connects the organization's computers. It
is no longer the computer that is the source of an organization's informational
productivity but rather the network, with its ability to transport information
wherever it is needed. Systems integration involves the design, installation and
maintenance of such networked systems, including LAN's and WAN's.
Systems integration primarily involves the design, installation and
maintenance of structured cabling systems, network hardware and software, and
intercommunication systems. A structured cabling system is a cabling network
designed to be adaptable, to avoid bottlenecks, and to have the capacity to
handle many times the data traffic expected in the immediate future. The object
of a structured cabling system is to provide cabling media that will provide
sufficient capacity for any application being run on the system, whether it be
voice transmission, data transmission or otherwise. Network hardware and
software and intercommunication systems are an extension of the structured
cabling system design.
Demand for Systems Integration. Over the past five years there has been
an increasing demand from tenants in the market for office or commercial space
and from government entities for advanced telecommunications and computer
cabling. A primary concern for such tenants and government entities is usually
that a structured cable system be in place prior to or as a condition to
occupancy. Because of the flexibility of such a system, neither the landlord nor
the prospective tenant need worry about the ability of the system to adapt to
the tenants needs and requirements thus reducing the worry of system
obsolescence. For these reasons, a large majority of new office buildings will
be built with a structured cabling system in place and, as older office
buildings are refurbished, structured cabling systems will take the place of
older communications systems.
Concepts in Communication, Inc.
Effective in January 1997, the Company acquired all the issued and
outstanding common stock of Concepts for the sum of approximately $4.8 million.
In connection with the acquisition, the Company caused Concepts to enter into a
two-year employment agreements with six key employees.
Concepts was formed in 1983 upon the divesture of Bell Systems. The
initial goal of the Concepts was to subcontract work from the local Bell
operating company, South Central Bell, AT&T and other major corporations, such
as IBM and BCE. By 1986, the initial goal of the Company had shifted to direct
marketing to major end users in Tennessee and surrounding states. Such shift in
strategy brought significant growth versus the competition who remained
primarily in the subcontracting role, providing labor only. Material and labor
sales
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brought significant additional revenues and direct marketing to major customers
established Concepts' name as the leader in structured cable systems in
Tennessee.
In 1990, Concepts expanded its market focus to become a full service
system integrator. At that time Concepts began to offer LAN/WAN hardware,
network operating systems, file servers and workstations. Customer relations
built in past operations contributed to Concepts successful entry into this new
market.
Customers. Concepts customers include, or have included, Nissan Motor
Co., Kimberly Clark Corp., Nike Corp., Columbia/HCA Healthcare Corp., Autozone,
The Trane Co., Caterpillar Financial Services, Ingram Micro, the State of
Tennessee, Vanderbilt University Medical Center and St. Thomas Hospital. In
fiscal 1996, Concepts' largest customer, the State of Tennessee, accounted for
approximately 15% of its revenues.
Contracts. Under its typical installation contracts, Concepts supplies
the expertise, equipment, labor and sometimes the materials. Concepts also will
provide hardware in a specific system installation.
Competition. Concepts competes on a regional basis with Pomeroy
Computer Resources, Anixter International and Unisys.
Licenses. Concepts, through certain of its officers/employees, licenses
in certain jurisdictions requiring general and specialty contractor licenses.
Concepts is licensed and/or certified in Tennessee and Alabama.
Insurance and Bonds. Concepts maintains liability insurance for claims
arising from its business. The policy has a limit of $4 million in the aggregate
and insures both property damage and personal injury. The policy is written on
an "occurrence" basis, which provides coverage for insured risks that occur
during the policy period, irrespective of when a claim is made. Concepts has
performance and payment bond capability of $2 million.
Backlog Orders and Work-in-Progress. Concepts had a backlog of
approximately $2.1 million, on a work in process basis, as of March 31, 1997.
All such work orders are expected to be completed by July 1997.
Employees. As of March 31, 1997 Concepts had approximately 200
full-time employees in its Tennessee operations, including 10 executive
officers, 11 supervisors and 150 technicians.
Warranties. Concepts provides a warranty of its workmanship for a
period of one to five years, depending on the requirements of its customers.
Litigation. Concepts is not involved as a party to any legal proceeding
other than various claims and lawsuits arising in the normal course of its
business none of which, in the opinion of the Company's management, are
individually or collectively material to Concept's business.
ITEM 2. PROPERTIES.
Kleven owns an office building of approximately 9,600 square feet
located at 3615 South 28th Street, in Phoenix. Concepts does not own any real
property.
ITEM 3. LEGAL PROCEEDINGS.
In 1994 the Company settled a lawsuit in which it was the plaintiff
against Midwest Steel, Inc. of Phoenix ("Midwest Steel") concerning two projects
in Texas. Midwest Steel was the general contractor and the Company was a
subcontractor for Union Carbide in Brownsville, Texas and FMC in Houston, Texas.
The Company's completed portion of the Union Carbide contract was $632,046, of
which $358,834 was unpaid at the time of withdrawal from work on the project in
1991. The Company's completed portion of the FMC contract was $141,796, of which
$110,640 was unpaid at the time of withdrawal from work on the project. Under
the
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settlement Midwest Stock has been paying the Company the sum of $310,000 plus
interest at the rate of prime plus 1% payable on a quarterly basis. Payments are
scheduled through 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to security holders through the solicitation of
proxies or otherwise during the fiscal year covered by this Form 10-KSB Report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was traded in the over-the-counter market
through the NASDAQ National Market System until May 1985 and was formally
removed from NASDAQ on July 15, 1985. From such date until August 18, 1994, the
Company's Common Stock has been traded by market makers outside of the NASDAQ
system. On August 18, 1994, the Company's Common Stock became listed on NASDAQ
and the Boston Stock Exchange ("BSE"). The figures take into account a
one-for-ten reverse stock split the Company effected on June 5, 1994.
The following table sets forth, for the fiscal periods shown,
representative high and low bid prices in dollars per share as reported by
market makers in the Company's Common Stock and by the BSE and NASDAQ since
August 18, 1994 and the PHLX prior to such date.
Year Ended December 31, 1994 Low High
- ---------------------------- --- ----
First Quarter $1.60 $2.50
Second Quarter $4.25 $5.50
Third Quarter $3.75 $5.50
Fourth Quarter $4.25 $5.375
Year Ended December 31, 1995
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First Quarter $2.87 $5.50
Second Quarter $2.00 $3.12
Third Quarter $1.38 $3.19
Fourth Quarter $1.00 $2.44
Year Ended December 31, 1996
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First Quarter $1.13 $2.25
Second Quarter $.88 $2.00
Third Quarter $.77 $1.88
Fourth Quarter $.94 $1.38
The number of beneficial holders of the Common Stock of the Company as
of the close of business on March 31, 1997 was approximately 1,650.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors of the Company. The Company has paid
dividends on its Series A Convertible Preferred Stock in shares of Common Stock
and will pay dividends of 4% on its Series B Convertible Preferred Stock in cash
or shares of Common Stock, at its option. The Company has not, however, declared
or paid cash dividends on its Common Stock and does not anticipate that it will
pay such dividends in the foreseeable future. Rather, the Company intends to
apply any earnings to the expansion and development of its business. Any payment
of future dividends on the Common Stock and the amount thereof will be
determined by the Company's Board of Directors and will depend, among other
factors, upon the Company's earnings, financial condition and cash requirements,
and any other factors the Company's Board of Directors may deem relevant.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the Financial
Statements of the Company which have been audited by Semple & Cooper,
independent accountants, for the years ended December 31, 1995 and 1996. Such
selected financial data should be read in conjunction with the Company's
financial statements and related notes set forth in Item 14 herein.
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------
Actual Pro Forma
--------------------------- ------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract Revenues $12,161,263 $12,050,075 $26,587,639 $23,673,291
Cost of Contract Revenues 11,387,705 11,801,757 21,998,318 19,755,212
Gross Profits 773,558 248,318 4,589,321 3,918,079
General and Administrative Expenses (2,261,694) (2,455,110) (5,301,399) (5,617,893)
Goodwill Impairment (2,677,490) -0- (2,677,490) -0-
Other Income/Expense 115,815 195,546 (61,585) 24,949
Benefit (Provision) for Income Taxes -0- 210,815 -0- 210,815
Net Income (Loss) (4,049,811) (2,188,383) (3,451,153) (1,464,050)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
The Company, through its wholly-owned subsidiaries, Kleven and
Concepts, specializes in the design, installation and maintenance of
fiber-optics and other cable service for the telecommunication, CATV and power
industries and in the installation and maintenance of structured cabling systems
and network hardware, software and communication systems integration.
The Company derives a substantial portion of its revenue from contracts
that are accounted for under the percentage completion method of accounting.
Under this method, revenues are recorded as work progresses on a contract so
that revenue, less costs incurred to date, yield the percentage of gross margin
estimated for each contract. Overall gross margin percentages can increase or
decrease based upon changes in estimated gross margin percentages over the lives
of individual contracts.
Results of Operations
The comparability of the results for 1996 and 1995 were significantly
impacted by the acquisition of Concepts, as explained in the Unaudited Pro Forma
Consolidated Statements of Operations information contained in the Financial
Statements which are a part of this Report. Therefore, Item 6, "Selected
Financial Data," and this Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for these periods include tables
which set forth the pro forma results of operations for 1996 which assume that
the Company owned Concepts for all of 1996, when in fact, the Company completed
such acquisition in January 1997.
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1996 Compared to 1995. (See Tables in Item 6, "Selected Financial Data" above)
Actual
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Contract Revenues. Contract revenues of the Company increased to
$12,161,263 in 1996, from $12,050,075 in 1995, a .9% increase. Approximately 54%
of total revenues was attributable to the installation of fiber-optic and
telecommunications systems for Cox Communications and US West, and 46% to
electrical, water and sewer installation and other construction.
Gross Profit. The Company had a gross profit of $773,557 in 1996
compared to a gross profit of $248,318 in 1995, an increase of 311%. The
Company's increase in gross profit margins was due to improved margins on
contracts with its customers over 1995. Kleven's margins would have been higher
had it not incurred a loss of approximately $700,000 on an approximate $2
million contract in 1996 for utility and telecommunications work in a
residential subdivision development. The Company incurred these cost overruns
because of the insolvency of a major subcontractor and delays due to
communication difficulties with the area's utility provider. The Company does
not plan to undertake further activity of this type in 1997. In addition,
margins would have been better had the Company been able to renegotiate its
contracts with Cox in 1996, which it has done for fiscal 1997. Such new
contracts contain better pricing than those in 1996. Gross Profits also improved
because the Company avoided the major losses on contracts which occurred in 1995
with AT&T, Vision Por Cable Telecab S.A. de C.V., and the general contractor for
a project for the city of Anaheim, California.
General and Administrative Expenses. The Company's general and
administrative expenses decreased to $2,261,694 in 1996 from $2,2455,110 in
1995, an 8% decrease, chiefly due to a reduction in the salaries of management
and administrative personnel.
Provision for Doubtful Accounts. The Company's provision for doubtful
accounts in 1995 was $387,952 while there is no such provision in 1996. This
provision resulted from the Company's inability to collect development costs and
progress billings in such amounts on various projects with the government of
Romania, the Romanian Ministries of Transport and Communications and the Credit
Bank of Romania. The Company elected to write off this receivable because of the
lack of payments in 1995.
Goodwill Impairment. The Company determined to write-off the remaining
goodwill from its purchase of Kleven as a one-time, non-cash charge because of
the operating losses Kleven incurred in 1995 and 1996. The Company had been
amortizing this goodwill at the rate of $120,000 per year.
Net Loss. The Company's net loss increased to $4,221,115, or $.74 per
share, from $2,188,383, or $.50 per share, in 1995. The loss, without taking
into account payment of the dividend on the Series A Convertible Preferred Stock
and the goodwill impairment, was reduced $1,372,322, or $.24 per share, compared
with $2,188,383, or $.50 per share, in 1995, again reflecting the increase in
gross profit margins and reduction of general and administrative expenses.
Pro Forma
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The foregoing pro forma results of operations assume that the Company
owned Concepts for all of 1995 and 1996, which was not the case, and include pro
forma adjustments for impairment of goodwill, adjustment of interest expenses
and revision of the benefit for income taxes to make the periods comparable.
Contract Revenues. Contract revenues of the Company increased from
$23,673,291 in 1995 to $26,587,639, a 12.3% increase. The increase is due to an
increase in Concepts revenues, primarily in its sales of engineered systems,
including security systems, hardware sales and installation and integrated
systems.
Gross Profit. The Company had a gross profit of $4,589,321 for 1996
compared with a gross profit of $3,918,079 in 1995. The Company's increase in
gross profit is due to improved gross profit margins of Kleven, as disclosed
above. Kleven's profit margin increased from 2.1% in 1995 to 6.4% in 1996.
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Gross profit margins for Concepts decreased from 31.6% in 1995 to 26.4%
in 1996. This decrease is primarily attributable to the lower margins earned on
the sales of hardware and software for integrated systems. Concepts plans to
emphasize installation and long term maintenance services in 1997 to offset
higher hardware sales, which have historically had lower profit margins.
General and Administrative Expenses. The Company's general and
administrative expenses decreased from $5,617,893 in 1995 to $5,301,399 in 1996.
This decrease is due primarily to reduction of management and administrative
personnel by Kleven of approximately $481,000. The general and administrative
expenses of Concepts in 1996 were about the same as in 1995.
Goodwill Impairment. The Company determined to write-off the remaining
goodwill from its purchase of Kleven as a one-time, non-cash charge because of
the operating losses Kleven incurred in 1995 and 1996. The Company was
amortizing this goodwill at the rate of $120,000 per year.
Net Income (Loss). The net loss in 1996 was $3,754,456 compared with a
loss of $1,596,050 in 1995. Without the Series B Preferred dividend and
write-off of goodwill, the loss in 1996 was $773,510 compared with $1,464,050 in
1995, reflecting improved profit margins in Kleven and a reduction in general
and administrative expenses of Kleven in 1996. Concepts' net income decreased
from $593,812 in 1995 to $503,096 in 1996, chiefly as a result of lower gross
profit margins resulting from the increased sale of hardware over maintenance
and installation services and increased general and administrative expenses due
to an expansion of Concepts' sale force.
Future Expectations
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934. Such statements involve certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statements. Certain factors which may cause such a difference
include, but are not limited to, the following: the impact of increased
competition from competitors with significant financial resources and market
share; unforeseen difficulties in integrating acquired businesses; and the
amount and rate of growth in general and administrative expenses associated with
building a strengthened corporate infrastructure to support operations.
Liquidity and Capital Resources
The Company's liquidity is impacted by the nature of billing provisions
under its contracts. Generally, in the early period of contracts, cash
expenditures and accrued profits are greater than allowed billings, while
contract completion results in billing previously unfilled costs and profits. In
1996 the Company funded its operations short-term debt under a $500,000 bank
line of credit. As a result of significant operating losses incurred in 1995,
such line of credit did not provide sufficient working capital for the Company
to finance its operations and the Company made several private placements of
securities to enhance its capital.
In the fourth quarter of 1995 the Company commenced a private placement
of shares of its Series A Convertible Preferred Stock ("Series A Preferred
Stock") to investors outside the United States. In January, February and May
1996 the Company completed the funding of the offering by closing the sale of
3,300 shares of Series A Preferred at a price of $1,000 per share, or $2,750,000
in total. Subject to certain conditions and limitations, such Series A Preferred
is convertible into Common Stock at a price equal to a thirty percent (30%)
discount from the lower of the average closing bid price of the Common Stock for
the three consecutive trading days prior to (i) the date of subscription for the
Series A Preferred or (ii) the date of conversion of the Series A Preferred into
Common Stock. Such conversion prices for the Series A Preferred on the dates of
subscription were $.81662 per share for the first 1,000 shares sold in January
1996, $1.50 per share for 1,750 shares sold in February 1996 and $1.10 for 550
shares sold in May 1996. Also in May 1996, the holders converted 1,328 shares of
Series A Preferred into 1,821,257 shares of Common Stock, leaving a balance of
1,972 shares of Series A Preferred. The net proceeds of the offering of the
Series A Preferred, after applicable commissions and offering expenses, were
approximately $2,789,941. The Company applied the net proceeds to pay
outstanding payables,
- 11 -
<PAGE>
reduce debt, purchase new equipment for fiber-optic installation, expand the
Company's operations in Arizona and provide additional working capital.
On February 13, 1997, the Company closed the purchase of Concepts for
$4,800,000, which the Company is obtaining through the sale of 8% Convertible
Subordinated Debentures ("Debentures") and Series B Convertible Preferred Stock
("Series B Preferred") in exempt transactions under Regulation D under the
Securities Act of 1933, as amended ("Act"). The Company sold $1,500,000
principal amount of the Debentures, which are due and payable in full on
February 10, 1998 and are convertible into Common Stock commencing October 11,
1997, at a price of $1.25 per share. The Series B Preferred is being issued in
four tranches of $1,100,000 each on or before the 15th day of March, April, May
and June 1997. The Preferred Stock is convertible into Common Stock at a price
("Conversion Price") equal to the lower of the Average Stock Price on the date
of each monthly subscription or the Discounted Average Stock Price on the date
of conversion. The "Average Stock Price" is the average of the daily closing bid
prices of the Common Stock for the five consecutive trading days immediately
preceding the relevant date. The "Discounted Average Stock Price" is (i) 70% of
the average of the daily closing bid prices of the Common Stock for the five
consecutive trading days immediately preceding the date of conversion into
Common Stock if the average of the daily bid price is at or below $3.00 per
share or (ii) 75% of the average of such daily closing bid prices if the average
is above $3.00 per share. For a one-year period after the issuance of the
Preferred Stock, the floor on the Conversion Price of the Common Stock will be
the lower of $.75 per share or 50% of the Average Stock Price. There will be no
floor on the Conversion Price if the Company fails to achieve certain levels of
gross profit on a quarterly basis. Dividends will be payable on the Preferred
Stock if the Company fails to achieve certain levels of gross profit on a
quarterly basis. Dividends will be payable on the Preferred Stock at the rate of
4% per annum, payable in shares of Common Stock or cash, at the option of the
Company, on a quarterly basis. The Preferred Stock is redeemable on or after 60
days after issuance, in whole or in part, at 150% of the purchase price of the
Preferred Stock plus all accrued but unpaid dividends.
The Company also committed to issue 220,000 Common Stock Purchase
Warrants for each of the four tranches upon the funding of each tranche of the
Preferred Stock. The maximum exercise prices range from $2.25 to $3.00 per share
for the Warrants. The Company has committed to file registration statements
respecting the Debentures and the Series B Preferred. The Company plans to apply
approximately $600,000 of the proceeds of the offering for working capital.
Additionally, the Company is seeking an expanded line of credit. The Company
believes that the working capital provided by its 1997 private placement, along
with expected internally generated working capital from the operation of the
business of Kleven and Concepts, will satisfy its anticipated growth for the
next 12 months.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements and schedules are included herewith commencing
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no disagreement on accounting and financial disclosure
with the Company's accountants within the two years prior to the date of the
most recent financial statements requiring disclosure under this item and any
accountants' reports on the financial statements of the Company for the past two
years has contained no adverse opinion and no disclaimer of opinion and was not
qualified as to uncertainty, audit scope or accounting principles.
PART III
As indicated in the following table, the information required to be
presented in Part III of this report is hereby incorporated by reference from
the Company's definitive Proxy Statement for its 1997 Annual Meeting of
- 12 -
<PAGE>
Stockholders to be prepared in accordance with Schedule 14A and filed with the
Securities and Exchange Commission within 120 days of the end of the fiscal year
covered by this report:
Material in Proxy Statement for 1997 Annual Meeting
which is incorporated herein by reference
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Item No. Item Caption Proxy Statement Caption
- --------------- ---------------------------------------------- -----------------------------------
<S> <C> <C>
9 Directors, Executive Officers, Promoters and "Directors and Executive Officers"
Control Persons, Compliance with 16(a) of
the Exchange Act.
10 Executive Compensation "Executive Compensation"
11 Security Ownership of Certain Beneficial "Security Ownership of Principal
Owners and Management Stockholder's and Management"
12 Certain Relationships and Related "Certain Transactions"
Transactions
</TABLE>
PART IV
ITEM 10. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-B.
<TABLE>
<CAPTION>
No. Description Note
- ---------- ----------------------------------------------------------------------------------- --------
<S> <C> <C>
3.i.1 Restated Articles of Incorporation of Registrant, dated October 21, 1981 (1)
3.i.2 Amendment to Articles of Incorporation of Registrant, dated April 18, 1986 (1)
3.i.3 Amendment to Articles of Incorporation of Registrant, dated May 20, 1987 (1)
3.i.4 Amendment to Articles of Incorporation of Registrant, dated February 4, 1988. (1)
3.i.5 Amendment to Articles of Incorporation of Registrant, dated August 15, 1991. (1)
3.i.6 Amendment to Articles of Incorporation of Registrant dated June 3, 1994. (1)
3.ii Amended, revised and restated Bylaws of the Registrant (1)
4.1 Form of Common Stock Certificate (1)
10.1 1994 Incentive Stock Option Plan (1)
10.2 1994 Restricted Stock Plan (1)
10.3 Stock Purchase Agreement between Registrant and Kleven Construction, Inc. (1)
dated January 17, 1994
10.4 Stock Purchase Agreement between Registrant and Concepts in Communications, (2)
Inc. dated January 17, 1997.
11.1 Statement re: computation of earnings per share *
21.1 Subsidiaries of the Registrant *
</TABLE>
- 13 -
<PAGE>
- ------------
* Filed herewith
(1) Filed with Registration No. 33-79730, dated June 3, 1994
(2) Filed with Report on Form 8-K, dated March 10, 1997
(b) Current Reports on Form 8-K
The Company filed no reports on Form 8-K during the last quarter of the
fiscal year ended December 31, 1996.
- 14 -
<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.
INTERNATIONAL FIBERCOM, INC.
Dated: June 17, 1997 By /s/ Joseph P. Kealy
-------------------------------------
Joseph P. Kealy, Chairman of the Board,
President and Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
- ------------------- ----
<S> <C>
/s/ Joseph P. Kealy June 17, 1997
- ----------------------------------------------------------------------- -------
Joseph P. Kealy, Chairman of the Board,
President, Principal Executive Officer and Director
/s/ Terry Beiriger June 17, 1997
- ----------------------------------------------------------------------- -------
Terry Beiriger, Principal Financial Officer,
Controller, Treasurer and Secretary
/s/ John F. Kealy June 17, 1997
- ----------------------------------------------------------------------- -------
John F. Kealy, Director
/s/ Edwin L. King June 17, 1997
- ----------------------------------------------------------------------- -------
Edwin L. King, Director
/s/ Jerry Kleven June 17, 1997
- ----------------------------------------------------------------------- -------
Jerry Kleven, Director
/s/ Richard J. Seminoff June 17, 1997
- ----------------------------------------------------------------------- -------
Richard J. Seminoff, Director
</TABLE>
- 16 -
<PAGE>
INTERNATIONAL FIBERCOM, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended
December 31, 1996 and 1995
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
To The Stockholders and Board of Directors of
International FiberCom, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of International
FiberCom, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years ended December 31, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International
FiberCom, Inc. and Subsidiaries as of December 31, 1996, and the results of its
operations, changes in stockholders' equity, and its cash flows for the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
Semple & Cooper, P.L.C.
Certified Public Accountants
April 7, 1997
F-1
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) $ 3,972
Accounts receivable
- trade, net of allowance for doubtful accounts
(Notes 1, 2, 3 and 7) 2,458,477
- unbilled 196,815
- other 27,769
Prepaid expenses 37,912
Costs and estimated earnings in
excess of billings on
uncompleted contracts (Notes 1 and 4) 249,546
----------
Total Current Assets 2,974,491
----------
Property and Equipment, net (Notes 1, 5, 7 and 8) 2,899,055
----------
Other Assets:
Accounts receivable - long-term (Notes 1 and 2) 88,478
Loans receivable from related parties
(Note 3) 562,025
Deferred costs 234,367
Mortgage closing costs, net (Note 1) 6,034
Investment in limited partnership (Note 6) 28,781
Refundable deposits 9,480
----------
929,165
----------
Total Assets $6,802,711
==========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-2
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable
- current portion (Note 7) $ 1,014,986
- related party (Note 3) 6,000
Obligations under capital leases
- current portion (Note 8) 110,355
Accounts payable
- trade 1,965,837
- related parties (Note 3) 24,610
Accrued expenses 358,585
Billings in excess of costs and
estimated earnings on uncompleted
contracts (Note 1 and 4) 185,119
-----------
Total Current Liabilities 3,665,492
-----------
Long-Term Liabilities:
Notes payable - long-term (Note 7) 544,833
Obligations under capital leases
- long-term (Note 8) 384,108
-----------
928,941
-----------
Commitments and Contingencies (Note 9) --
Stockholders' Equity: (Note 10)
Series A 9% convertible preferred stock, no par value;
10,000,000 shares authorized, 1,972 shares issued
and outstanding 1,680,997
Common stock, no par value; 100,000,000 shares
authorized; 6,572,489 shares issued, 6,393,799
shares outstanding 8,555,176
Common stock warrants 99,082
Additional paid-in capital 462,073
Accumulated deficit (7,921,033)
-----------
2,876,295
Less: treasury stock, 178,690 shares, at cost (668,017)
-----------
Total Stockholders' Equity 2,208,278
-----------
Total Liabilities and Stockholders' Equity $ 6,802,711
===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-3
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1996 and 1995
1996 1995
---- ----
Contract Revenues $ 12,161,263 $ 12,050,075
Cost of Contract Revenues (11,387,706) (11,801,757)
------------ ------------
Gross Profit 773,557 248,318
General and Administrative Expenses (2,261,694) (2,455,110)
Goodwill Impairment (Note 1) (2,677,490) --
Provision for Doubtful Accounts (Note 12) -- (387,952)
------------ ------------
Loss from Operations (4,165,627) (2,594,744)
------------ ------------
Other Income (Expense):
Interest income 49,086 26,229
Interest expense (141) (2,936)
Other income 16,089 102,768
Gain on sale of fixed assets 50,781 69,485
------------ ------------
115,815 195,546
------------ ------------
Net Loss before Income Taxes (4,049,812) (2,399,198)
Income Taxes -- 210,815
------------ ------------
Net Loss (4,049,812) (2,188,383)
Preferred Stock Dividends (Note 10) (171,303) --
------------ ------------
Net Loss Attributable to Common Stockholders $ (4,221,115) $ (2,188,383)
============ ============
Net Loss per Share $ (.74) $ (.50)
============ ============
Weighted Average Shares Outstanding 5,716,600 4,417,072
============ ============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-4
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Common Additional
Preferred ------------------------ Stock Accumulated Paid-in Treasury
Stock Shares Issued Amount Warrants Deficit Capital Stock
----- ------------- ------ -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity,
December 31, 1994 $ -- 4,417,072 $ 7,274,929 $ 99,082 $(1,511,535) $ 352,073 $ (668,017)
Issuance of 2,750 shares
of Series A 9% convertible
preferred, net of costs 2,296,382 -- -- -- -- -- --
Net Loss, 1995 -- -- -- -- (2,188,383) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Stockholders' Equity,
December 31, 1995 2,296,382 4,417,072 7,274,929 99,082 (3,699,918) 352,073 (668,017)
Issuance of 550 shares
of Series A 9% convertible
preferred stock, net of
costs 493,559 -- -- -- -- -- --
Conversion of 1,328 shares of
Series A 9% convertible
preferred stock to
common stock (1,108,944) 1,821,257 1,108,944 -- -- -- --
Issuance of preferred stock
dividend -- 155,470 171,303 -- (171,303) -- --
Options issued for
services -- -- -- -- -- 110,000 --
Net Loss, 1996 -- -- -- -- (4,049,812) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Stockholders' Equity,
December 31, 1996 $ 1,680,997 6,393,799 $ 8,555,176 $ 99,082 $(7,921,033) $ 462,073 $ (668,017)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-5
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $ 12,190,485 $ 12,928,576
Cash paid to suppliers and employees (13,379,188) (12,618,292)
Interest paid (141) (249,488)
Interest received 35,340 17,075
Income tax refunds received 26,000 192,565
------------ ------------
Net cash provided (used) by operating
activities (1,127,504) 270,436
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (145,605) (215,228)
Loans to related parties -- (3,236)
Disbursements for deferred acquisition costs (124,367) --
Collection of loans to related parties 117,294 100,000
Proceeds from sale of fixed assets 104,205 138,976
Payments for investment in limited partnership (4,240) (4,240)
------------ ------------
Net cash provided (used) by investing
activities (52,713) 16,272
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable -- 370,308
Repayment of notes payable (1,525,491) (685,307)
Repayment of loans from stockholder (54,000) (12,000)
Repayment of obligations under capital leases (112,128) (37,438)
Proceeds from sale of preferred stock 493,559 --
Collection of stock subscriptions receivable 2,373,500 --
------------ ------------
Net cash used by financing
activities 1,175,440 (364,437)
------------ ------------
Net decrease in cash and cash equivalents (4,777) (77,729)
Cash and cash equivalents at beginning of year 8,749 86,478
------------ ------------
Cash and cash equivalents at end of year $ 3,972 $ 8,749
============ ============
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-6
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31, 1996 and 1995
1996 1995
---- ----
Reconciliation of Net Loss to Net Cash
Provided (Used) by Operating Activities:
Net Loss $(4,049,812) $(2,188,383)
----------- -----------
Adjustments to Reconcile Net Loss to Net
Cash Provided (Used) by Operating Activities:
Depreciation and amortization 794,974 665,142
Gain on sale of fixed assets (50,781) (69,485)
Interest added to principal of loans
receivable from related parties (13,746) (46,885)
Accrued stock offering expenses -- (77,118)
Impairment of goodwill 2,677,490 --
Changes in Assets and Liabilities:
Accounts receivable
- trade (20,829) 1,102,501
- unbilled (196,815) --
- other 17,931 (11,700)
Inventory -- 132,000
Income tax refund receivable 26,000 192,565
Prepaid expenses 9,698 (19,985)
Accrued interest receivable -- 37,731
Costs and estimated earnings
in excess of billings
on uncompleted contracts 201,957 (111,973)
Accounts receivable - long-term 67,087 60,859
Refundable deposits 3,970 3,325
Bank overdraft (57,751) (122,239)
Accounts payable
- trade 179,838 141,373
- related parties (27,511) (131)
Accrued expenses (588,145) 620,497
Deferred income taxes
- current -- (146,146)
- long-term -- (64,669)
Billings in excess of costs
and estimated earnings on
uncompleted contracts (101,059) 173,157
----------- -----------
2,922,308 2,458,819
----------- -----------
Net Cash Provided (Used) by Operating Activities $(1,127,504) $ 270,436
=========== ===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-7
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates:
Nature of Corporation:
International FiberCom, Inc. is a Corporation which has been duly formed
and organized under the laws of the State of Arizona. The Corporation,
which was originally named Miller Investments, Inc., was approved by the
State of Arizona on December 29, 1972. Since inception, the Company has
changed its name as follows:
Date of Change Name
-------------- ----
October, 1978 Miller Education & Communications Corporation
October, 1981 Miller Technology & Communications Corporation
May, 1987 Hospitality Capital Corporation
September, 1991 International Environmental Holdings,Inc.
June, 1994 International FiberCom, Inc.
In September, 1990, the Corporation acquired one hundred percent (100%)
of the outstanding common stock of International Environmental Corp.
On December 31, 1994, the Company adopted a formal plan to sell
International Environmental Corp. to a stockholder of International
FiberCom, Inc. in exchange for 158,154 shares of International FiberCom,
Inc.'s common stock, valued at $514,000. The stock is shown as treasury
stock in the Company's equity section at December 31, 1996.
On August 25, 1994, the Company acquired one hundred percent (100%) of
the issued and outstanding common stock of Kleven Construction, Inc.
Kleven Construction, Inc. is a Phoenix-based company specializing in the
design, installation and maintenance of fiber-optic and other cable for
the telecommunications and cable television industries. Through the
acquisition of Kleven Construction, Inc., the Company changed its
primary business focus to servicing the telecommunications and cable
television industries throughout the southwestern United States and into
Mexico.
The length of the Company's contracts vary, but are typically less than
one (1) year. Therefore, assets and liabilities are classified as
current and non-current, based on a one (1) year operating cycle.
F-8
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates: (Continued)
Principles of Consolidation:
The consolidated financial statements at December 31, 1996 include the
accounts of the Company and its wholly-owned subsidiary, Kleven
Construction, Inc. All significant intercompany transactions, accounts
and balances have been eliminated.
Pervasiveness of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue and Cost Recognition:
Revenues from fixed-price and modified fixed-price construction
contracts are recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to the estimated
total costs for each contract.
Contract costs include, amongst other things, direct labor, field labor,
subcontracting, direct materials, direct overhead, and interest costs
incurred as a result of contracting activity. Selling, general, and
administrative costs are charged to expense as incurred. Project losses
are provided for in their entirety in the period in which such losses
are determined, without reference to the percentage-of-completion. As
contracts can extend over one or more accounting periods, revisions in
costs and estimated earnings during the course of the work are reflected
during the accounting period in which the facts that require such
revisions become known.
Cash and Cash Equivalents:
Cash and cash equivalents are considered to be all highly liquid
investments purchased with an initial maturity of three (3) months or
less.
Accounts Receivable - Trade:
Accounts receivable - trade represent the amounts billed but uncollected
on completed construction contracts and construction contracts in
progress.
The Company follows the allowance method of recognizing uncollectible
accounts receivable. The allowance method recognizes bad debt expense
based on a review of the individual accounts outstanding, and the
Company's prior history of uncollectible accounts receivable. At
December 31, 1996, an allowance has been established for potentially
uncollectible accounts receivable in the amount of $69,153.
F-9
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates: (Continued)
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
for on the straight-line and accelerated methods over the estimated
useful lives of the assets. The estimated useful lives are as follows:
construction equipment and vehicles, 7 years; building, 31 years, and
office furniture and equipment, 5 to 7 years. Maintenance and repairs
that neither materially add to the value of the property nor appreciably
prolong its life are charged to expense as incurred. Betterments or
renewals are capitalized when incurred. For the years ended December 31,
1996 and 1995, depreciation expense was $676,540 and $546,708,
respectively.
The Company's capital lease agreements are recorded at the lower of the
present value of the minimum lease payments, or the fair market value of
the assets. The assets are being depreciated over the lesser of their
estimated productive lives, or their lease term. Depreciation of the
assets under the capital leases is included in depreciation expense, as
noted above, for the years ended December 31, 1996 and 1995.
Goodwill:
During the year ended December 31, 1996, goodwill of $2,677,490, which
arose in connection with the acquisition of Kleven Construction, Inc.
was written off as it was deemed to have no continuing value due to
recurring operating losses. Amortization expense charged to operations
for each of the years ended December 31, 1996 and 1995, was $118,125.
Mortgage Closing Costs:
Mortgage closing costs are being amortized ratably over a 25 year
period. Amortization expense for the years ended December 31, 1996 and
1995 was approximately $300 per year. Accumulated amortization as of
December 31, 1996 is $1,702.
Income Taxes:
For financial and tax accounting purposes, the Company reports income
and expenses based on the percentage-of-completion method of accounting
for long-term construction contracts.
Deferred income taxes arise from timing differences resulting from
revenues and expenses reported for financial accounting and tax
reporting purposes in different periods. Deferred income taxes represent
the estimated tax liability on additional depreciation expense reported
based upon accelerated tax depreciation methods, and timing differences
in the utilization of net operating losses.
F-10
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies: (Continued)
Earnings Per Share:
The computation of earnings per share is based on the weighted average
number of shares outstanding for each period. Fully diluted earnings per
share are not presented as they are anti-dilutive.
New Accounting Pronouncements:
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) establishes a fair value method
of accounting for stock-based compensation plans and for transactions in
which an entity acquires goods or services from non-employees in
exchange for equity instruments. The Company adopted this accounting
standard on January 1, 1996. SFAS 123 encourages, but does not require
companies to record compensation cost for stock-based employee
compensation. The Company has chosen to continue to account for
stock-based compensation utilizing the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly, compensation cost for stock options
is measured as the excess, if any, of the fair market price of the
Company's stock at the date of grant over the amount an employee must
pay to acquire the stock.
2. Accounts Receivable - Trade:
At December 31, 1996, accounts receivable - trade consist of the
following:
Contracts in progress $ 731,818
Contracts in progress - retention 115,621
Completed contracts 1,708,517
Completed contracts - retention 60,152
----------
2,616,108
Less: allowance for doubtful accounts (69,153)
----------
2,546,955
Less: long-term receivable (88,478)
----------
$2,458,477
==========
The long-term receivable arose from a litigation settlement on a
contract dispute, and is being paid on installments through October,
1999.
F-11
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Related Party Transactions:
Accounts Receivable - Trade:
As of December 31, 1996, accounts receivable - trade includes 137,986
due from a related entity.
Loans Receivable from Related Parties:
At December 31, 1996, loans receivable from related parties consist of
the following:
6.5% loan receivable from a corporate stockholder,
due in full December 31, 1997; secured by the
Company's common stock. $ 75,140
6.5% loan receivable from a corporate stockholder,
due in full December 31, 1997; secured by the
Company's common stock. 77,254
7.0% loan receivable from a corporate stockholder,
with sixty (60) monthly payments of $3,198, including
principal and interest, due in full April 1, 2000;
unsecured. (See Note 9) 192,126
7.0% loan receivable from a corporate stockholder,
with sixty (60) monthly payments of $791, including
principal and interest, due in full April 1, 2000;
unsecured. 67,942
7.0% loan receivable from a corporate stockholder,
with sixty (60) monthly payments of $2,577, including
principal and interest, due in full April 1, 2000;
unsecured. ( See Note 9) 149,563
----------
$ 562,025
==========
Based upon the opinion of the management of the company, the above
receivables have been classified as long-term in the accompanying
financial statements.
Accounts Payable - Related Parties:
Accounts payable - related parties consist of amounts owed to an officer
of the Company and to a related entity.
Notes Payable - Related Party:
At December 31, 1996, notes payable - related party consists of a $6,000
non-interest bearing note payable to a corporate stockholder, due on
demand; unsecured.
F-12
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Contracts in Progress:
At December 31, 1996, costs and estimated earnings in excess of billings
and billings in excess of costs and estimated earnings on uncompleted
contracts consist of the following:
Costs incurred on uncompleted contracts $1,536,120
Profit earned to date 299,123
----------
1,835,243
Less: billings to date (1,770,816)
----------
$ 64,427
==========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 249,546
Billings in excess of costs and estimated
earnings on uncompleted contracts (185,119)
----------
$ 64,427
==========
5. Property and Equipment:
At December 31, 1996, property and equipment consists of the following:
Building and land $ 373,201
Furniture and fixtures 192,423
Construction vehicles 296,083
Construction equipment 4,315,676
Leasehold improvements 54,812
----------
5,232,195
Less: accumulated depreciation (2,333,140)
----------
$2,899,055
==========
6. Investment in Limited Partnership:
The Company has a 12.475% ownership interest as a limited partner in the
Rio Verde Ranch Partnership. The partnership's sole activity is the
acquisition and sale of a parcel of raw land which is presently listed
for sale. Prior to the sale of the land, the Company will have future
annual funding requirements of approximately $4,000 per year due on
March 1 of each year through 1998. At December 31, 1996, the partnership
investment at cost, which management believes approximates market, was
$28,781.
F-13
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Notes Payable:
At December 31, 1996, notes payable consist of the following:
Note payable to Wells Fargo Bank on a $1,500,000 revolving
line of credit, interest only payable monthly at Wells
Fargo Bank's base rate plus 3%, due March 1, 1997;
collateralized by trade accounts receivable, property and
equipment, and personal guarantees by the Company's
officers. The effective interest rate was 11.75% at
December 31, 1996. $ 578,000
Mortgage note payable to Bank of America, interest at
prime plus 2.5%, payable in variable monthly
installments, including principal and interest, due
July 15, 2016; collateralized by a Deed of Trust. The
effective interest rate was 11% at December 31, 1996. 270,975
7.4% note payable to Wells Fargo Bank in monthly
installments of $16,513, including principal and
interest, due in full on March 1, 1997;
collateralized by equipment. 66,838
7.38% note payable to Wells Fargo Bank in monthly
installments of $1,165, including principal and
interest, due in full on February 1, 1997;
collateralized by equipment. 3,725
7.94% note payable to Wells Fargo Bank in monthly
installments of $4,435, including principal and interest,
due in full on April 15, 1997; collateralized by
equipment. 17,385
8.44% note payable to Wells Fargo Bank in monthly
installments of $1,491, including principal and interest,
due in full on May 31, 1997; collateralized by
equipment. 8,877
9.23% note payable to Wells Fargo Bank in monthly
installments of $4,816, including principal and interest,
due in full on August 1, 1997; collateralized by equipment. 37,402
9.23% note payable to Wells Fargo Bank in monthly
installments of $1,471, including principal and interest,
due in full on May 1, 1998; collateralized by equipment. 14,200
10.95% note payable to CIT in monthly installments of
$2,512, including principal and interest, due in full
on February 5, 1997; collateralized by equipment. 3,418
Note payable to the City of Phoenix in monthly principal
installments of $2,334 plus interest at 6.9%, until paid
in full; collateralized by land and building. 10,081
F-14
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Notes Payable: (Continued)
8.5% note payable to KDC Financial in monthly
installments of $2,911, including principal and interest,
due in full on May 1, 1998; collateralized by equipment. 46,464
7.9% note payable to Case Credit Corp. in monthly
installments of $2,684, including principal and interest,
due in full on May 1, 1998; collateralized by equipment and
a personal guarantee from an officer of the Company. 22,531
10% note payable to Clark Credit Corp. in monthly
installments of $10,433, including principal and interest,
due in full on September 22, 1998; collateralized by equipment
and a personal guarantee from an officer of the Company. 208,851
14.5% note payable to Clark Credit Corp. in monthly
installments of $252, including principal and interest,
due in full on October 22, 1998; collateralized by equipment
and a personal guarantee from an officer of the Company. 4,873
10.5% note payable to Case Credit Corp. in monthly
installments of $6,093, including principal and interest,
due in full on October 16, 1999; collateralized by
equipment. 179,095
8.5% note payable to Atlas Copco in monthly
installments of $1,823, including principal and interest,
due in full on December 1, 1999; collateralized by
equipment. 57,750
7.5% note payable to Associates Commercial Corp. in
monthly installments of $1,934, including principal
and interest, due in full on April 15, 1998;
collateralized by equipment. 29,354
----------
1,559,819
Less: current portion of notes payable (1,014,986)
----------
$ 544,833
==========
F-15
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Notes Payable: (Continued)
A schedule of future minimum principal payments due on notes payable
outstanding at December 31, 1996, is as follows:
Year Ending
December 31, Amount
------------ ------
1997 $1,014,986
1998 208,765
1999 80,864
2000 5,826
2001 6,500
Subsequent 242,878
----------
$1,559,819
==========
8. Obligations Under Capital Leases:
At December 31, 1996, the Company was the lessee of construction and
office equipment, with an original cost of $741,604, under capital lease
agreements expiring through December, 2000.
Minimum future lease payments under the capital leases as of December
31, 1996, for each of the next four (4) years, are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 151,579
1998 123,890
1999 123,890
2000 203,160
----------
Total minimum lease payments 602,519
Less: amount representing interest (108,056)
----------
Present value of net minimum lease payments 494,463
Less: current maturities of capital lease
obligations (110,355)
----------
$ 384,108
==========
F-16
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments and Contingencies:
Operating Leases:
The Company leases vehicles and office equipment under operating lease
agreements, with terms of two (2) to four (4) years. Future minimum
lease payments under long-term operating lease agreements at December
31, 1996, are as follows:
Year Ended
December 31, Amount
------------ ------
1997 $ 132,665
1998 34,474
----------
$ 167,139
==========
For the years ended December 31, 1996 and 1995, total rent expense
approximated $246,186 and $226,972, respectively.
Employment Contracts:
The Company has entered into employment contracts with three (3)
officers through August, 1999, which provide for a minimum annual salary
and automobile allowance. In addition, one (1) of the agreements
contains incentives based on the Company's attainment of specified
levels of sales and earnings. As of December 31, 1996, the total
commitment was $1,074,150.
Litigation:
The Company has filed suit against two stockholders and former officers
of the Company to collect on unpaid promissory notes owed to the
Company. The two stockholders and former officers of the Company have
filed a countersuit against the Company alleging certain counter-claims.
In the opinion of legal counsel, no estimate can be made as to the time
or the amount of the ultimate recovery. In addition, the Company
believes the countersuit is without merit and intends to vigorously
defend its position.
The Company is a defendant in a lawsuit filed by a utility company
alleging that the Company caused damage to its property. Outside counsel
has advised the Company that a favorable outcome is unlikely.
Accordingly, a provision for a loss in the amount of $30,000 has been
charged to operations in the accompanying financial statements for the
year ending December 31, 1996.
10. Stockholders' Equity:
Preferred Stock:
As of December 31, 1996, the Company has 1,972 shares of Series A 9%
convertible preferred stock issued and outstanding. The preferred shares
are convertible into common shares at a price equal to a thirty percent
(30%) discount from the lower of the average closing bid price of the
common stock for the three (3) consecutive trading days prior to (i) the
date of subscription of the preferred stock or (ii) the date of the
conversion of the preferred stock.
During the year ended December 31, 1996, 1,328 shares of the Series A 9%
convertible preferred stock was converted into 1,821,257 shares of
common stock. In addition, the Company granted a nine percent (9%)
dividend on the preferred stock on a quarterly basis. The dividend was
paid through the issuance of a cumulative total of 155,470 shares of
common stock.
F-17
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stockholders' Equity: (Continued)
Stock Options, Warrants and Restricted Stock Plans:
On January 7, 1997, the Board of Directors approved the 1997
International FiberCom, Inc. Stock Option Plan, which is subject to
shareholder approval. The Plan authorizes the Company to grant incentive
stock options and non-qualified stock options to key employees of the
Company. In addition, the Company has adopted the 1997 Restricted Stock
Plan. This Plan authorizes the granting of restricted shares of common
stock to key employees, consultants, researchers, and members of the
Advisory Board. Under the above Plans, 1,200,000 shares of common stock
are reserved for issuance. The Company issued 500,000 stock options and
90,000 non-qualified stock options under the 1997 International
FiberCom, Inc. Stock Option Plan. The options were granted in
recognition of services provided in 1996, and were given retroactive
application in the accompanying financial statements. The options are
exercisable at $.9375 per share and expire in May, 2002. None of the
options have been exercised.
During the year ended December 31, 1994, the Company adopted the 1994
Incentive Stock Option Plan and the 1994 Restricted Stock Plan. The
Plans authorized the granting of restricted shares of common stock and
common stock options to key employees, consultants, researchers, and
members of the Advisory Board. Under the above Plans, 441,707 shares of
common stock were reserved for issuance. During the year ended December
31, 1996, the Company issued 363,000 incentive stock options exercisable
at $1.125 per share, expiring in May, 2006. None of the options have
been exercised. In addition, during the year ended December 31, 1994,
the Company had previously issued 21,760 shares of restricted common
stock under the Plans.
During the year ended December 31, 1996, the Company issued 100,000
non-qualified stock options exercisable at $1.125 per share, expiring in
2006. None of the options have been exercised.
All stock options issued to employees have an exercise price not less
than the fair market value of the Company's common stock on the date of
grant. In accordance with accounting for such options utilizing the
intrinsic value method, there is no related compensation expense
recorded in the Company's financial statements for the years ended
December 31, 1996 and 1995. Had compensation cost for stock-based
compensation been determined based on the fair value of the options at
the grant dates consistent with the method of SFAS 123, the Company's
net income and earnings per share for the years ended December 31, 1996
and 1995, would have been reduced to the proforma amounts presented
below:
F-18
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stockholders' Equity: (Continued)
Stock Options, Warrants and Restricted Stock Plans: (Continued)
1996 1995
---- ----
Net loss as reported $(4,221,115) $(2,188,393)
Proforma (4,282,034) (2,192,671)
Net loss per share as reported $ (.74) $ (.50)
Proforma (.75) (.50)
The fair value of option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following
weighted average assumptions for grants in 1996 and 1995, expected life
of options of 1-3 years, expected volatility of 70%, risk-free interest
rates of 8.0%, and a 0% dividend yield. The weighted average fair value
at date of grant for options granted during 1996 and 1995 approximated
$.06 and $.11, respectively.
On November 5, 1996, the Company entered into a twenty-five (25) month
consulting agreement to assist the Company with investor communications
and relations. In consideration of the Agreement, the Company granted
its consultant a four (4) year option to purchase 1,900,000 shares of
the Company's common stock, exercisable at $1.12 per share, which
equalled the market price at the grant date. The Company has determined
that the value of the services to be received under this agreement is
$105,000, which is being amortized over the term of the agreement. The
options become exercisable on January 1, 1998.
In June, 1996, the Company entered into an agreement with a securities
broker-dealer to provide its services to seek potential acquisitions. In
consideration for the agreement, the Company granted the broker-dealer
warrants to purchase 300,000 shares of the Company's common stock for a
period of three (3) years. There are 150,000 warrants exercisable at two
dollars ($2) per share, and 150,000 warrants exercisable at four dollars
($4) per share, with a weighted average exercise price of three dollars
($3) per share. The Company has determined that the value of the
services to be received under this agreement is $5,000, which is being
amortized over the term of the agreement. As of December 31, 1996, none
of the warrants had been exercised.
11. Income Taxes and Deferred Income Taxes:
There is no provision for income taxes payable for tax reporting
purposes due to net operating losses for the years ended December 31,
1996 and 1995.
F-19
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Income Taxes and Deferred Income Taxes: (Continued)
As of December 31, 1996, the components of deferred income taxes, are as
follows:
Long-Term
Depreciation $ (280,000)
Benefit of net operating loss
carryforward 1,500,000
-----------
1,220,000
Less: valuation allowance (1,220,000)
-----------
Total Deferred Taxes $ -
===========
The Company has established a valuation allowance equal to the full
amount of the deferred tax asset, as a result of its recent operating
losses.
At December 31, 1996, the Company had federal and state net operating
loss carryforwards in the approximate amount of $4,300,000 available to
offset future federal and state taxable income primarily through
December 31, 2011.
12. Provision for Doubtful Accounts:
Included in the provision for doubtful accounts expense in the amount of
$387,952 for the year ended December 31, 1995, is approximately $350,000
which the Company incurred for development costs and progress billings
on various projects with the Government of Romania, Ministries of
Transport and Communications, and the Credit Bank of Romania. It is
management's belief that this relationship, which is primarily for
fiber-optic engineering and installation with Romania, will eventually
be realized. However, the receivable has been written off as of December
31, 1995 due to the lack of financial performance over the last year on
the part of the Government of Romania.
13. Major Customers:
For the year ended December 31, 1996, the Company had three (3) major
customers representing 45%, 12%, and 10% of revenues, respectively. At
December 31, 1996, the amount due from the three (3) customers included
in accounts receivable was $1,186,713.
For the year ended December 31, 1995, the Company had five (5) major
customers representing 24%, 15%, 13%, 12%, and 11% of revenues,
respectively.
F-20
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Statements of Cash Flows:
Non-Cash Investing and Financing Activities:
During the year ended December 31, 1996, the Company recognized
investing and financing activities that affected its assets,
liabilities, and stockholders' equity, but did not result in cash
receipts or payments.
These non-cash activities are as follows:
Financed the purchase of construction equipment in the amount of
$288,138, through the issuance of notes payable.
Goodwill was written off in the amount of $2,677,490.
Converted 1,328 shares of preferred stock in the amount of
$1,108,744 into 1,821,257 shares of common stock.
Issued 155,470 shares of common stock valued at $171,303, as a
preferred stock dividend.
Accrued interest on loans receivable from related parties, in the
amount of $13,746, was added to the principal balance.
Issued common stock options and warrants for services rendered in
the cumulative amount of $110,000 (See Note 10).
During the year ended December 31, 1995, the Company recognized
investing and financing activities that affected its assets and
liabilities, but did not result in cash receipts or payments. These
non-cash activities are as follows:
Financed the purchase of construction and office equipment in the
amount of $1,080,627, through the issuance of notes payable and
capital leases.
Issued 2,750 shares of preferred stock for a $2,373,500
subscription receivable, and accrued costs in relation to the
offering of $77,118.
Accrued interest on loans receivable from related parties, in the
amount of $46,855, was added to the principal balance.
F-21
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Subsequent Events:
Acquisition:
Effective January 1, 1997, the Company acquired one hundred percent
(100%) of the common stock of Concepts in Communications, Incorporated
for $4,800,000. The Company obtained the funds to complete the
acquisition from the proceeds of a Private Placement of $1,500,000 of
eight percent (8%) convertible subordinated debentures, and $4,400,000
from shares of Series B 9% convertible preferred stock (See Note 16).
F-22
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Unaudited Proforma Condensed Consolidated Financial Statements:
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisition by International FiberCom, Inc. of Concepts In
Communications, Incorporated pursuant to the Purchase Agreement between the
parties, and are based on the estimates and assumptions set forth herein and in
the notes to such statements. This pro forma information has been prepared
utilizing the historical financial statements and notes thereto, which are
incorporated by reference herein. The pro forma financial data does not purport
to be indicative of the results which actually would have been obtained had the
purchase been effected on the dates indicated or of the results which may be
obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the acquisition of Concepts In Communications, Incorporated. The
pro forma entries are described in the accompanying footnotes to the unaudited
pro forma condensed consolidated financial statements. The pro forma unaudited
condensed consolidated statements of operations assume the acquisition took
place on the first day of the period presented, while the unaudited proforma
condensed combined balance sheet assumes the acquisition took place on the
balance sheet date.
Acquisition:
In January, 1997, International FiberCom, Inc., agreed to acquire Concepts in
Communications, Incorporated, a privately-held Nashville, Tennessee based
company which also has operations in Memphis and Knoxville. Concepts in
Communications, Incorporated provides systems integration services including
design, engineering, installation and maintenance of structured cabled systems,
network hardware and software, work station peripherals and intercommunication
systems, primarily within commercial, industrial and governmental facilities.
Under the terms of the agreement, the Company acquired all of the issued and
outstanding common stock of Concepts In Communications, Incorporated for
$4,800,000.
F-23
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARY
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
December 31, 1996
Proforma Financial Information:
The following represents a proforma condensed consolidated balance sheet as of
December 31, 1996, assuming the Company's acquisition of Concepts In
Communications, Incorporated was consummated as of that date.
<TABLE>
<CAPTION>
ASSETS
International
FiberCom, Concepts In Proforma
Inc. and Communications, Proforma Consolidated
Subsidiary Incorporated Adjustments Amounts
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 3,972 $ 56,608 $ 60,580
Accounts receivable 2,683,061 2,644,209 5,327,270
Inventory - 462,973 462,973
Other current assets 37,912 61,830 99,742
Costs and estimated earnings
in excess of uncompleted
contracts 249,546 1,392,886 1,642,432
----------- ----------- -----------
Total Current Assets 2,974,491 4,618,506 7,592,997
Property and Equipment, Net 2,899,055 473,767 3,372,822
Loans Receivable from Related Parties 562,025 70,000 632,025
Other Assets, Net 367,140 39,921 1,906,345 (1) 1,910,245
(403,161) (2)
----------- ----------- -----------
Total Assets $ 6,802,711 $ 5,202,194 $13,508,089
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt - current portion $ 1,131,341 $ 629,921 $ 1,761,262
Accounts payable 1,990,447 741,583 2,732,030
Accrued expenses 358,585 377,822 736,407
Income taxes payable
- current - 57,321 57,321
- deferred - 403,161 (403,161) (2) -
Billings in excess of costs
and estimated earnings on
uncompleted contracts 185,119 71,805 256,924
----------- ----------- -----------
Total Current Liabilities 3,665,492 2,281,613 5,543,944
Long-Term Liabilities:
Long-term debt 928,941 - 1,500,000 (1) 2,428,941
Deferred compensation - 26,926 26,926
Stockholders' Equity 2,208,278 2,893,655 3,300,000 (1) 5,508,278
(2,893,655) (1)
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 6,802,711 $ 5,202,194 $13,508,089
=========== =========== ===========
</TABLE>
(1) Record the issuance of convertible subordinated debentures and preferred
stock for the acquisition of Concepts In Communications, Incorporated.
(2) Reclassify deferred income taxes payable.
F-24
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARY
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Year Ended December 31, 1996
Proforma Consolidated Financial Statements:
The following represents proforma condensed statements of operations for the
year ended December 31, 1996, assuming the acquisition of Concepts In
Communications, Incorporated was consummated as of January 1, 1996.
<TABLE>
<CAPTION>
International
FiberCom, Concepts In Proforma
Inc. and Communications, Proforma Consolidated
Subsidiary Incorporated Adjustments Amounts
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Contract Revenues $12,161,263 $14,426,376 $26,587,639
Cost of Contract Revenues (11,387,706) (10,610,612) (21,998,318)
----------- ----------- -----------
Gross Profit 773,557 3,815,764 4,589,321
General and Administrative Expenses (2,261,694) (2,931,202) (108,503) (1) (5,301,399)
Goodwill Impairment (2,677,490) - (2,677,490)
----------- ----------- -----------
Income (Loss) from Operations (4,165,627) 884,562 (3,389,568)
Other Income (Expense): 115,815 (57,400) (120,000) (3) (61,585)
----------- ----------- -----------
Net Income (Loss) before Benefit
for Income Taxes (4,049,812) 827,162 (3,451,153)
Benefit (Provision) for Income Taxes - (324,066) 324,066 (2) -
----------- ----------- -----------
Net Income (Loss) (4,049,812) 503,096 (3,451,153)
Preferred Stock Dividends (171,303) - (132,000) (3) (303,303)
----------- ----------- -----------
Net Income (Loss) Attributable to
Common Stockholders $(4,221,115) $ 503,096 $(3,754,456)
=========== =========== ===========
Earnings (Loss) per Share $ (0.74) $ (0.66)
=========== ===========
Weighted Average Number of Shares
Outstanding 5,716,600 5,716,600
=========== ===========
</TABLE>
(1) To amortize goodwill in connection with the purchase of Concepts In
Communications, Incorporated on a straight-line basis over fifteen years.
(2) To revise the provision for income taxes based on the foregoing proforma
results of operations.
(3) To record interest on the convertible subordinated debentures and the
dividend on the preferred stock issued to fund the acquisition.
F-25
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARY
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Year Ended December 31, 1995
Proforma Consolidated Financial Statements:
The following represents proforma condensed statements of operations for the
year ended December 31, 1995, assuming the acquisition of Concepts In
Communications, was consummated as of January 1, 1995.
<TABLE>
<CAPTION>
International
FiberCom, Concepts In Proforma
Inc. and Communications, Proforma Consolidated
Subsidiary Incorporated Adjustments Amounts
---------- ------------ ----------- -------
<S> <C> <C> <C> <C>
Contract Revenues $12,050,075 $11,623,216 $23,673,291
Cost of Contract Revenues (11,801,757) (7,953,455) (19,755,212)
----------- ----------- -----------
Gross Profit 248,318 3,669,761 3,918,079
General and Administrative Expenses (2,843,062) (2,666,328) (108,503) (1) (5,617,893)
----------- ----------- -----------
Income (Loss) from Operations (2,594,744) 1,003,433 (1,699,814)
Other Income (Expense): 195,546 (50,597) (120,000) (3) 24,949
----------- ----------- -----------
Net Income (Loss) before Benefit
for Income Taxes (2,399,198) 952,836 (1,674,865)
Benefit (Provision) for Income Taxes 210,815 (359,024) 359,024 (2) 210,815
----------- ----------- -----------
Net Income (Loss) (2,188,383) 593,812 (1,464,050)
Preferred Stock Dividends - - (132,000) (3) (132,000)
----------- ----------- -----------
Net Income (Loss) Attributable to
Common Stockholders $(2,188,383) $ 593,812 $(1,596,050)
=========== =========== ===========
Earnings (Loss) per Share $ (0.50) $ (0.36)
=========== ===========
Weighted Average Number of Shares
Outstanding 4,417,072 4,417,072
=========== ===========
</TABLE>
(1) To amortize goodwill in connection with the purchase of Concepts In
Communications, Incorporated on a straight-line basis over fifteen years.
(2) To revise the provision for income taxes based on the foregoing proforma
results of operations.
(3) To record interest on the convertible subordinated debentures and the
dividend on the preferred stock issued to fund the acquisition.
F-26
EXHIBIT 11.1
International Fibercom, Inc. and Subsidiaries
Computation of Earnings Per Share
Years Ended
-----------
December 31,
------------
1996 1995
---- ----
Weighted average shares outstanding (1) 5,716,600 4,417,072
========================
(1) Earnings per share are based upon the weighted average number of shares
outstanding for each of the respective years. Fully diluted earnings per
share are not presented as they are anti-dilutive.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Company has two operating subsidiaries which operate only under the
names listed. The subsidiaries are:
1. Kleven Construction, Inc., an Arizona corporation; and
2. Concepts in Communication, Incorporated, a Tennessee Corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3792
<SECURITIES> 0
<RECEIVABLES> 2840692
<ALLOWANCES> 69153
<INVENTORY> 0
<CURRENT-ASSETS> 2974491
<PP&E> 5232195
<DEPRECIATION> 2333140
<TOTAL-ASSETS> 6802711
<CURRENT-LIABILITIES> 3665492
<BONDS> 0
0
1680997
<COMMON> 8555176
<OTHER-SE> (8027895)
<TOTAL-LIABILITY-AND-EQUITY> 6802711
<SALES> 12161263
<TOTAL-REVENUES> 12161263
<CGS> 11387706
<TOTAL-COSTS> 4939184
<OTHER-EXPENSES> 115815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141
<INCOME-PRETAX> (4221115)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4221115)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4221115)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> 0
</TABLE>
