SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NO 1-9690
INTERNATIONAL FIBERCOM, INC.
Incorporated in the State of Arizona IRS No. 86-0271282
3410 E. University Drive, Suite 180
Phoenix, AZ 85034
(602) 941-1900
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 report, and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Common Stock without par value 26,271,545 shares issued
and 26,065,855 outstanding at September 30, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. THE FINANCIAL STATEMENTS ARE INCLUDED HEREWITH COMMENCING ON PAGE F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
International FiberCom, Inc. offers a wide variety of services and
equipment to the telecommunications, cable television and other related
industries through the eight wholly-owned subsidiaries in the following
segments:
CONSTRUCTION SERVICES Our Construction Services segment consists of outside
plant and systems integration services. Our outside
plant services specialize in the design, installation
and maintenance of other related services for the
telecommunication and other CATV industries. Our
systems integration services include 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. We
have four subsidiaries in this segment:
o Kleven Communications, Inc. ("Kleven")
o Kleven Communications-CA, Inc. dba Riley
Communications, Inc. ("Riley")
o Concepts in Communications, Inc.
("Concepts")
o General Communications Services, Inc.
("General")
ENGINEERING Our Engineering segment specializes in video, voice
data network development using state of the art,
fiber-optic distribution platforms. At the present
time we have one subsidiary in this segment:
o Compass Communications, Inc. ("Compass")
EQUIPMENT SALES Our Equipment Sales segment subsidiaries purchase,
sell and deal in new and used telecommunications
equipment used in the digital access, switching and
transport systems of leading telecommunications
companies, Regional Bell Operating Companies,
telecommunications hardware resellers and other
Fortune 500 companies. We have three subsidiaries in
this segment:
o Southern Communications Products, Inc.
("Southern")
o Diversitec, Inc. ("Diversitec")
o United Tech, Inc. ("United")
2
<PAGE>
Our strategy is to be a one-stop solution for the telecommunications
marketplace. This strategy involves offering a wide range of engineering,
consulting and maintenance services for fiber-optic and broadband networks and
systems integrated with local area network ("LAN") and wide area network ("WAN")
expertise and capabilities. A LAN is a group of personal computers linked
together in a building or campus to share programs, data, E-mail, peripherals
and other resources. A WAN is a network that covers a large geographic area,
such as a state or country.
We derive a substantial portion of our revenue from contracts that are
accounted for under the percentage of completion method of accounting. Under
this method, revenues are recorded as work progresses on a contract. Overall
gross margin percentages can increase or decrease based upon changes in the
estimated gross margin percentages over the lives of the individual contracts.
Effective September 1, 1998 we acquired United and Diversitec for total
consideration consisting of 1,502,000 and 1,752,000 restricted shares of Common
Stock, respectively. Both acquisitions have been accounted for as
poolings-of-interest.
RESULTS OF OPERATIONS
The comparability of the results of operations for the third quarter of
1998 with the same period in 1997 was significantly impacted by the acquisition
of Southern Communications Products, Inc., ("Southern") as shown in the
Unaudited Pro Forma Consolidated Statement of Operations information contained
in this Report. Therefore, Management's Discussion and Analysis of Financial
Condition and Results of Operations for these periods discusses the operations
in 1998 compared with actual operations in 1997 and the operations in 1998
compared with 1997 pro forma figures as if the Company had owned Southern since
January 1997, which it has not.
Effective October 1997, the Company acquired Compass and effective
September 1998 the Company acquired both United and Diversitec. All of these
acquisitions were accounted for as poolings-of-interest and accordingly, the
consolidated financial statements of the Company for all periods prior to the
acquisition dates have been restated to include the accounts and results of
operations of these companies.
CONTRACT REVENUES. Contract revenues for the third quarter of 1998
increased to $25,685,899 from $13,534,964 for the same period in 1997, an
increase of 90%. This increase in revenues is primarily attributable to the
addition of Southern's and Riley's revenues in the third quarter of 1998, as
well as increased contract activity for Kleven and Concepts.
On a pro forma basis, for the third quarter of 1998, contract revenues
increased 66% from $15,516,871 in 1997 to $25,685,899. This increase is due
primarily to higher levels of revenue generated by Concepts and Kleven,
increased sales by Southern and increased contract activity at Riley.
3
<PAGE>
GROSS PROFIT. The Company's gross profit increased to $8,590,163 for
the third quarter of 1998 compared with $3,835,199 for the same period in 1997
due to the addition of gross profits from the operations of Southern and Riley
and a marked increase in the gross profit margin of Concepts. The Company's
gross profit margin increased from 28% of contract revenues in the third quarter
of 1997 to 33% of contract revenues in the third quarter of 1998, primarily due
to the gross profit margins of Southern and Concepts.
On a pro forma basis, the Company's gross profit for the third quarter
of 1998 was $8,590,163 compared with $5,475,621 for the same period in 1997.
This increase is due primarily to the increase of gross profits for Concepts as
well as the addition of Riley in 1998.
GENERAL AND ADMINISTRATIVE COSTS. The Company's general and
administrative expenses were $4,201,770 for the third quarter of 1998 compared
with $2,303,977 for the same period in 1997, an increase of 82%. This increase
is chiefly due to the addition of the general and administrative expenses of
Southern and Riley, of which a significant portion relates to the amortization
of intangibles resulting from the acquisition of Southern.
On a pro forma basis, general and administrative expenses for the third
quarter of 1998 were $4,201,170, or 16% of revenues, compared with $3,041,047,
or 20% of revenues, for the same period in 1997. The Company has and will
continue to consolidate duplicative administrative functions relating to its
acquired companies to the extent possible. The administrative expenses of the
Company is a result of significant increase in the amortization of intangibles
resulting from the acquisitions of Concepts and Southern.
OTHER INCOME (EXPENSE). The Company's net expense in this category was
$270,082 for the third quarter of 1998 compared with net expense of $209,624 for
the same period in 1997.
On a pro forma basis, other expense was $270,082 in the third quarter
of 1998 as compared with a net expense of $294,864 for the same period in 1997.
The difference is due primarily to an increase in interest income at the parent
level.
PROVISION FOR INCOME TAX BENEFIT (EXPENSE). The Company accrued income
tax expense of $866,835 in the third quarter of 1998 compared to income tax
expense of $90,621 for 1997.
On a pro forma basis the provision for income taxes increased from
$830,361 in the third quarter of 1997 to $866,835 in the same period of 1998 due
to the higher net income before taxes of the Company.
NET INCOME. The Company generated a net income of $2,362,076, or
approximately 9% of revenues, for the third quarter of 1998 compared with net
income of $1,230,977, or 9% of revenues for the same period in 1997. The
increase in net income is primarily a result of increased profit margins at
Concepts, and the addition of the net income of Southern and Riley. The net
income of the Company was impacted significantly due to non-recurring
acquisition costs of $890,000 related to the acquisitions of United and
Diversetic.
On a pro forma basis, the Company's net income increased to $2,362,076
in the third quarter of 1998 compared with a net income of $1,309,349 for the
same period in 1997. Such increase was primarily due to the strong performance
of both Concepts and Southern.
PREFERRED STOCK DIVIDEND. The Company paid dividend of $8,602 on its
Series C Convertible Preferred Stock for the third quarter of 1998 through the
issuance of 1,316 shares of its Common Stock.
4
<PAGE>
BACKLOG. The Company had a backlog of approximately $25.1 million on a
work in process basis as of September 30, 1998. The Company expects such work
orders to be completed by March 1999. Further, the Company has work orders,
which were not started at September 30, 1998, for Cox Communications, Inc., the
State of Tennessee, Nike, Inc., Neilsen Dillingham, TCG, Intregration
Technologies, TCI, and Cablevision, Inc. totaling in excess of $33 million The
Company expects to commence such work during the fourth quarter of 1998 and
substantially complete the same by December 1999.
LIQUIDITY AND CAPITAL RESOURCES
OPERATIONS. The Company has historically financed its operations
through operating cash flow, lines of credit and debt and equity offerings. The
Company's liquidity is impacted, to a large degree, by the nature of billing
provisions under its installation and service contracts. Generally, in the early
periods of contracts, cash expenditures and accrued profits are greater than
allowed billings, while contract completion results in billing previously
unbilled costs and profits.
In the year to date for 1998, the Company used approximately $1,787,000
of net cash from operations. Cash generated from operations of $27,787,000,
includes net income of approximately $8,235,000, depreciation and amortization
of $2,377,000, increase in accounts payable and accrued expense of $4,152,000,
increase in taxes payable of $1,720,000, acquisition fees paid in stock of
150,000 shares, a net increase in billings in excess of costs of $1,153,000, an
increase in trade receivables of $10,514,000, an increase in inventory of
$6,995,000, a decrease in accrued offering costs of $431,000, and an increase in
other current assets of $1,635,000. The net cash used of $1,787,000 from
operations for the nine months ended September 30, 1998 compares to net cash
used from operations of approximately $2,258,000 in the same period 1997.
INVESTING ACTIVITIES. For the nine months ended September 30, 1998 the
Company used approximately $6,120,000 in investing activities. Such amount
consists of the Company's purchase of fixed assets of approximately $4,710,000,
an increase in intangible and other assets of $1,295,000, and an increase in
deferred acquisitions cost of $115,000.
FINANCING ACTIVITIES. In the third quarter of 1998, the Company's
financing activities generated approximately $10,644,000 consisting in part of
an increase in loans and other liabilities payable of approximately $2,561,000,
proceeds from warrant and stock option exercises of $8,891,000 and offset by
treasury stock purchases of $162,000 made under the Company's stock repurchase
program, which was terminated during the third quarter, and subchapter S
corporation shareholder distribution to the former shareholders of Diversitec of
$646,000.
As of September 30, 1998, the Company had four revolving lines of
credit totaling approximately $5,400,000, with an available balance of
approximately $1,600,000. The Company believes that with its current working
capital, funds generated through its operations and available credit balances on
its lines of credit it will have sufficient working capital to address the
anticipated growth of demand and markets for its products and services for the
next 12 to 18 months. The Company may, however, seek to obtain additional
capital through an expanded working capital line of credit at a financial
institution or through additional debt or equity offerings during this time
period. The raising of additional capital in public markets will primarily be
dependent upon prevailing market conditions and the demand for the Company's
products and services.
5
<PAGE>
INFLATION. The Company does not believe that it is significantly
impacted by inflation.
SEASONALITY. The Company's operations are not seasonal in nature.
Like many companies, the Company is currently in the process of
evaluating its computer software, databases and hardware to determine whether or
not modifications will be required to prevent problems related to the year 2000.
These problems, which have been widely reported in the media, could cause
malfunctions in certain software, databases and embedded circuitry with respect
to dates on or after January 1, 2000, unless corrected. At this time, the
Company has not yet determined the cost of evaluating its computer software or
databases or of making any modifications required to correct any "Year 2000"
problems.
FORWARD-LOOKING INFORMATION AND RISKS OF THE BUSINESS.
This Report contains certain forward-looking statements and information
within the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could
adversely impact revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include the
following: the Company's success in obtaining new contracts; the volume and type
of work orders that are received under such contracts; the accuracy of the cost
estimates for the projects; the Company's ability to complete its projects on
time and within budget; levels of, and ability to collect amounts receivable;
availability of trained personnel and utilization of the Company's capacity to
complete work; competition and competitive pressures on pricing; and economic
conditions in the United States and in the region served by the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has no on-going or pending litigation at this time.
Items 2, and 3, are omitted because these Items are inapplicable to this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its 1998 Annual Meeting of Shareholders on July 10,
1998. The following Directors were elected for terms which will expire at the
1999 Annual Meeting of Shareholders: Joseph P. Kealy, Jerry A. Kleven, John F.
Kealy, Richard J. Seminoff, and V. Thompson Brown, Jr.
The shareholders approved the adoption of an amendment to the 1997
Stock Option Plan to increase the number of shares reserved for issuance under
the Plan from 1,200,000 to 3,200,000 shares with 14,232,986 shares voting for,
738,470 shares voting against and 85,226 shares abstaining.
The shareholders also approved the adoption of the Employee Stock
Purchase Plan, under which 2,000,000 shares of Common Stock are reserved for
issuance to eligible employees who purchase stock under the Plan. Shareholders
approved the adoption of this Plan with 14,500,911 shares voting for, 518,151
shares voting against and 37,620 shares abstaining.
6
<PAGE>
Finally, the shareholders ratified the selection of BDO Seidman as the
independent public accountants for the Company's fiscal year ended December 31,
1998, with 14,965,955 shares voting for, 58,535 shares voting against and 32,192
shares abstaining.
ITEM 5. OTHER INFORMATION.
In September, 1998 the Company granted options to purchase 43,000
shares to the directors and officers under the 1997 Stock Option Plan
exerciseable at a price of $5.00 per share through April 2003. The foregoing
grants became effective upon the completion of the United and Diversitec
acquisitions.
7
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalent $ 6,092,249 $ 3,355,875
Accounts receivable
- trade, net of allowance 19,677,439 9,343,488
- unbilled receivables 88,124 180,545
- other 299,732 27,586
Inventory (Note 2) 13,142,429 6,147,801
Prepaid expenses 319,740 119,620
Loan receivable related parties 66,321 52,000
Deferred tax asset 189,606 258,606
Costs and estimated earnings in excess of billings 3,974,759 2,540,278
------------- -------------
Total Current Assets 43,850,399 22,025,799
Property and Equipment, net 8,953,788 5,616,633
Other Assets:
Loans receivable related party 246,327 238,806
Goodwill, net 22,964,502 20,083,941
Covenant not to compete net 332,436 341,689
Other assets 377,149 347,692
Deferred acquisition costs 115,381 --
Debt issue costs, net 82,774 241,192
------------- -------------
24,118,569 21,253,320
------------- -------------
Total Assets $ 76,922,756 $ 48,895,752
============= =============
</TABLE>
F-1
<PAGE>
INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Current Liabilities:
Notes payable - current portion $ 5,143,666 $ 2,209,948
Notes payable - related party 2,045,277 2,965,301
Obligations under capital lease 595,800 192,429
Income taxes payable 1,794,620 123,669
Accounts payable
- trade 7,785,224 4,669,034
- related parties -- 19,610
Accrued offering costs -- 741,139
Accrued expense 2,226,455 1,218,602
Billings in excess of cost estimated earnings 1,371,274 218,585
------------- -------------
Total Current Liabilities 20,962,316 12,358,317
Long-Term Liabilities:
Notes payable-long term 1,571,174 923,381
Notes payable-related party 1,489,401 3,051,326
Obligations under capital lease - long term 850,061 392,135
Deferred income tax payable 143,862 163,862
------------- -------------
Total Long-Term Liabilities 4,054,498 4,530,704
------------- -------------
Total Liabilities 25,016,814 16,889,021
Stockholders' Equity:
Series B 4% convertible preferred stock, no par value;
4,400 authorized; 1518 issued and outstanding at
December 1997, none issued and outstanding at September 1998 -- 1,126,837
Series C 4% convertible preferred stock, no par value;
1,000 authorized, 400 issued and outstanding 306,665 766,662
Common Stock, no par, 100,000,000 shares authorized;
26,271,545 shares issued, 26,065,855 outstanding 48,829,123 32,390,731
Common stock warrants 99,082
Additional paid-in capital 2,862,027 2,862,027
Accumulated deficit 2,971,240 (4,570,591)
------------- -------------
54,969,055 32,674,748
Less: treasury stock 205,690 shares, at cost (3,063,113) (668,017)
------------- -------------
Total Stockholders' Equity 51,905,942 32,006,731
------------- -------------
Total Liabilities and Stockholders' Equity $ 76,922,756 $ 48,895,752
============= =============
</TABLE>
F-2
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997* 1998 1997*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract Revenues $ 25,685,899 $ 13,534,964 $ 71,757,712 $ 41,798,291
Direct Cost of Contract Revenues 17,095,736 9,699,765 47,213,446 29,474,412
------------ ------------ ------------ ------------
Gross Profit 8,590,163 3,835,199 24,544,266 12,323,879
General and Administrative Expenses 4,201,170 2,303,977 12,256,633 6,697,072
------------ ------------ ------------ ------------
Profit from operations 4,388,993 1,531,222 12,287,633 5,626,807
Other Income (Expense):
Interest income 87,417 26,298 153,292 50,395
Interest expense (323,217) (242,238) (710,170) (591,298)
Other income (35,532) (1,243) (84,856) 1,712
Gain on disposal of assets 1,250 7,559 12,460 309,742
------------ ------------ ------------ ------------
(270,082) (209,624) (629,274) (229,449)
------------ ------------ ------------ ------------
Net income before non-recurring acquisition costs 4,118,911 1,321,598 11,658,359 5,397,358
Non-recurring acquisition costs 890,000 -- 890,000 --
------------ ------------ ------------ ------------
Net income after non-recurring acquisition costs
and before income taxes 3,228,911 1,321,598 10,768,359 5,397,358
------------ ------------ ------------ ------------
Provision for tax expense 866,835 90,621 2,533,229 90,460
------------ ------------ ------------ ------------
Net income $ 2,362,076 $ 1,230,977 $ 8,235,130 $ 5,306,898
============ ============ ============ ============
Preferred stock dividend 8,602 35,000 46,887 148,063
------------ ------------ ------------ ------------
Net income attributable to
common stockholders $ 2,353,474 $ 1,195,977 $ 8,188,243 $ 5,158,835
============ ============ ============ ============
Earnings per Share:
Basic earnings per share:
Before non-recurring acquisition
costs (net of tax) $ 0.12 $ 0.10 $ 0.39 $ 0.47
============ ============ ============ ============
After non-recurring acquisition costs $ 0.09 $ 0.10 $ 0.36 $ 0.47
============ ============ ============ ============
Diluted earnings per share (Note 4):
Before non-recurring acquisition
costs (net of tax) $ 0.11 $ 0.06 $ 0.33 $ 0.27
============ ============ ============ ============
After non-recurring acquisition costs $ 0.09 $ 0.06 $ 0.31 $ 0.27
============ ============ ============ ============
Basic weighted average shares outstanding 25,263,581 12,254,785 22,606,672 10,859,305
------------ ------------ ------------ ------------
Diluted weighted average shares
outstanding 27,704,768 19,876,592 26,876,972 19,584,656
------------ ------------ ------------ ------------
</TABLE>
*Includes operations of Compass Communications, Inc. , United Tech, Inc.and
Diversitec, Inc. due to poolings of interest acquisitions.
F-3
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
For The Period Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------------- ------------------------------
Series B Series C Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Stockholder's Equity
December 31, 1997 $ 1,126,837 $ 766,662 16,632,849 $ 32,389,218
Adjustment in connection with
the pooling of interests -- -- 3,254,000 1,513
------------ ------------ ------------ ------------
Stockholder's Equity
December 31, 1997 as restated 1,126,837 766,662 19,886,849 32,390,731
Dividend paid on Series B
Preferred Stock 3,299 18,285
Dividend paid on Series C
Preferred Stock 3,049 20,000
Conversion of Series B
Preferred Stock (1,126,837) 792,046 1,126,837
Interest on Debenture paid in
Common Stock 7,744 46,918
Warrant Exercises 766,453 1,354,378
Conversion of 8% Debentures 480,000 600,000
Stock Option Exercises 2,142,444 2,355,347
Treasury Stock Repurchase (27,000)
Riley Acquisition 28,236 150,000
General Acquisition 17,857 125,000
Shares Purchased Under ESPP 92,707 383,894
Issuance of Reset Shares 300,000 1,948,959
S-Corp shareholder distributions
Net Income for the six month
Period ended June 30, 1998
------------ ------------ ------------ ------------
Stockholder's Equity
June 30, 1998 -- 766,662 24,493,684 40,520,349
Dividend paid on Series C
Preferred Stock 1,316 8,602
Conversion of Series C
Preferred Stock (459,997) 126,316 459,997
Diversitec Finders Fee 25,131 150,000
Dumbauld acquisiotion 41,885 250,000
Warrant Exercises 47,000 387,750
Purchase of unexercised
Public warrants
Exercise of public warrants 1,270,920 6,882,398
Stock option exercises 59,603 170,027
S-Corp Shareholder distributions
Net income
------------ ------------ ------------ ------------
Stockholder's Equity
September 30, 1998 -- $ 306,665 26,065,855 $ 48,829,123
============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Accumulated Paid-In Treasury
Warrants Deficit Capital Stock Totals
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Stockholder's Equity
December 31, 1997 $ 99,082 $ (5,722,837) $ 2,862,027 $ (668,017) $ 30,852,972
Adjustment in connection with
the pooling of interests -- 1,152,246 -- -- 1,153,759
------------ ------------ ------------ ------------ ------------
Stockholder's Equity
December 31, 1997 as restated 99,082 (4,570,591) 2,862,027 (668,017) 32,006,731
Dividend paid on Series B
Preferred Stock (18,285) --
Dividend paid on Series C
Preferred Stock (20,000) --
Conversion of Series B
Preferred Stock --
Interest on Debenture paid in
Common Stock 46,918
Warrant Exercises 1,354,378
Conversion of 8% Debentures 600,000
Stock Option Exercises (2,233,026) 122,321
Treasury Stock Repurchase (162,070) (162,070)
Riley Acquisition 150,000
General Acquisition 125,000
Shares Purchased Under ESPP 383,894
Issuance of Reset Shares 1,948,959
S-Corp shareholder distributions (356,000) (356,000)
Net Income for the six month
Period ended June 30, 1998 5,873,054 5,873,054
------------ ------------ ------------ ------------ ------------
Stockholder's Equity
June 30, 1998 99,082 908,178 2,862,027 (3,063,113) 42,093,185
Dividend paid on Series C
Preferred Stock (8,602) --
Conversion of Series C
Preferred Stock --
Diversitec Finders Fee 150,000
Dumbauld acquisiotion 250,000
Warrant Exercises 387,750
Purchase of unexercised
Public warrants (744) (744)
Exercise of public warrants (98,338) 6,784,060
Stock option exercises 170,027
S-Corp Shareholder distributions (290,412) (290,412)
Net income 2,362,076 2,362,076
------------ ------------ ------------ ------------ ------------
Stockholder's Equity
September 30, 1998 -- $ 2,971,240 $ 2,862,027 $ (3,063,113) $ 51,905,942
============ ============ ============ ============ ============
</TABLE>
F-4
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,235,130 $ 5,306,899
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 2,377,487 723,660
Acquisition fees paid in Common Stock 150,000 --
Increase in contracts receivable (10,513,676) (4,335,850)
Increase in inventory (6,994,628) (2,223,080)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (1,434,481) (1,655,736)
Increase in prepaid expenses (200,120) (135,485)
Increase (decrease) in accounts payable 3,096,580 (931,628)
Increase in accrued expenses 1,054,771 699,980
Increase (decrease) in billings in excess of cost and
estimated earnings on uncompleted contracts 1,152,689 (104,478)
Increase in income taxes payable 1,719,951 --
(Decrease) increase in accrued offering costs (430,816) 398,000
------------ ------------
Net cash used by operating activities (1,787,113) (2,257,718)
Cash flows from investing activities:
Purchase of property and equipment (4,709,896) (1,252,822)
(Increase) decrease in deposits and other assets 107,119 6,236
(Increase) decrease in intangible assets (1,402,095) (1,555,103)
(Increase) decrease in deferred acquisition costs (115,381) 107,504
------------ ------------
Net cash used by investing activities (6,120,253) (2,694,185)
Cash flows from financing activities:
Increase of loans, lease obligations and other
long-term liabilities 2,560,859 3,104,482
Proceeds from warrant and stock option exercises 8,891,363 --
S-Corp shareholder distribution (646,412) (1,177,000)
Treasury stock repurchase (162,070) --
Proceeds from private offerings, net -- 3,189,589
------------ ------------
Net cash provided by financing activities 10,643,740 5,117,071
------------ ------------
Net increase in cash 2,736,374 165,168
Cash, beginning of period 3,355,875 255,553
------------ ------------
Cash, end of period $ 6,092,249 $ 420,721
============ ============
</TABLE>
F-5
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH
OPERATING, INVESTING, AND FINANCING ACTIVITIES
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accrued interest paid in Common Stock $ 46,918 $
Accrued offering costs paid in Common Stock 310,323
Common Stock issued relating to Business Acquisitions 525,000
Convertible debt converted to Common Stock 600,000 202,708
Issuance of additional shares relating to the 1997 private placement 1,948,959
Series A Preferred Stock converted to Common Stock 1,680,997
Series B Preferred Stock converted to Common Stock 1,126,837
Series C Preferred Stock converted to Common Stock 459,997
Preferred Stock dividends paid in Common Stock 46,887 148,063
</TABLE>
F-6
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant accounting policies:
Basis of presentation:
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of
September 30, 1998 and the results of its operations for the three months
ended September 30, 1998. Although management believes that the disclosures
in these financial statements are adequate to make the information
presented not misleading, certain information and footnote disclosures
normally included in financial statements that have been prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities Exchange Commission.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the full
year ending December 31, 1998. The accompanying consolidated financial
statements should be read in conjunction with the more detailed financial
statements, and the related footnotes thereto, filed with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and the
Form SB-2 as filed on February 12, 1998.
Principles of consolidation:
The consolidated financial statements include the financial position,
results of operations and cash flows of International FiberCom, Inc., and
its wholly-owned subsidiaries, Kleven Communications, Inc., Compass
Communications, Inc., Riley Underground Communications, Inc., Southern
Communications Products, Inc., United Tech, Inc., Diversitec, Inc., and
Concepts In Communications, Inc. All material intercompany transactions,
accounts and balances have been eliminated.
F-7
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Inventory:
The components of inventory consist of the following:
September 30, December 31,
1998 1997
------------ ------------
Cabling and equipment $ 1,215,418 $ 681,762
New and secondary market telephone equipment 13,483,013 7,022,041
Less: allowance for obsolete inventory (1,556,002) (1,556,002)
------------ ------------
$ 13,142,429 6,147,801
============ ============
3. Stockholder's Equity:
<TABLE>
<CAPTION>
Diluted Earnings Per Share: Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income available to common stockholders
used in basic EPS $ 2,353,474 $ 1,195,977 $ 8,188,243 $ 5,158,835
Preferred stock dividends 8,602 35,000 46,887 148,063
Interest and financial expense on
convertible debentures 26,764 19,500 130,341 70,688
----------- ----------- ----------- -----------
Income available to common stockholders
after assumed conversions
of diluted securities $ 2,388,840 $ 1,250,477 $ 8,365,471 $ 5,377,586
=========== =========== =========== ===========
Non-recurring acquisition costs, net of tax 560,700 -- 560,700 --
----------- ----------- ----------- -----------
Income available to common stockholders
after dilutive securities and before
before acquisition costs $ 2,949,540 $ 1,250,477 $ 8,926,171 $ 5,377,586
=========== =========== =========== ===========
Diluted weighted average
shares outstanding 27,704,768 19,876,592 26,876,972 19,584,656
----------- ----------- ----------- -----------
Diluted earnings per share before
acquisition costs $ .11 $ 0.06 $ 0.33 $ 0.27
=========== =========== =========== ===========
Diluted earnings per share after
Acquisition costs $ .09 $ 0.06 $ 0.31 $ 0.27
=========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Business Combinations
On September 1, 1998, the Company acquired United Tech, Inc. ("United") and
Diversitec, Inc. ("Diversitec") whereby the Company exchanged 1,502,000 and
1,752,000 shares of common stock for all the common stock of United and
Diversitec, respectively. Both United and Diversitec purchase, sell and
deal in new and used telecommunications equipment utilized in the digital
access, switching and transport systems of telecommunication service
providers on a nationwide basis. Both United and Diversitec were Subchapter
S corporations for federal tax purposes and, accordingly, did not pay U.S.
federal income taxes. United and Diversitec will be included in the
Company's U.S. federal income tax return effective September 1, 1998. The
United and Diversitec acquisitions have been accounted for as poolings of
interest. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of United and Diversitec as though it has
always been a part of the Company.
The results of operations for the separate companies and combined amounts
presented in the consolidated financial statements follow.
Unaudited
Net Net Pro Forma
Sales Income Net Income
---------------------------------------------------------------------------
Nine months ended
September 30, 1998
(unaudited)
IFCI $50,954,893 $ 4,898,692 $ 4,898,692
United 11,628,231 1,541,710 955,860
Diversitec 9,174,588 1,794,728 1,112,731
---------------------------------------------------------------------------
Combined $71,757,712 $ 8,235,130 $ 6,967,283
===========================================================================
Year ended
December 31, 1997
IFCI $36,325,146 $ 2,304,485 $ 2,304,485
United 8,345,581 1,061,641 658,217
Diversitec 12,595,079 3,012,523 1,867,764
---------------------------------------------------------------------------
Combined $57,265,806 $ 6,378,649 $ 4,830,466
===========================================================================
Unauadited pro forma net income reflects adjustments to net income to
record an estimated provision for income taxes assuming Diversitec and
United Tech were tax paying entities.
In connection with the United and Diversitec acquisitions, the Company
recorded a charge to operating expenses of $890,000 ($560,700 after taxes,
or $0.02 per common share) for direct and other acquisition related costs.
Acquisition costs consisted primarily of finder's, attorney's and
accounting fees.
In addition, on September 1, 1998, the Company completed the net asset
purchases of Communications Center and Dumbauld & Associates.
Communications Center, a Phoenix based interconnect company, was purchased
for $530,000 and a $60,000 promissory note. Dumbauld & Associates, a
Phoenix based consulting and engineering firm specializing in the design of
major broadband, fiber-optic networks, was bought for 41,885 shares of
common stock. These two acquisitions have been accounted for as purchases
and, accordingly, the acquired assets and liabilities have been recorded at
their estimated fair values at the date of acquisitions. The operating
results of the acquired companies are included in the Consolidated
Statement of Operations from the acquisition date. The excess of the
purchase prices over the valuation of the net assets acquired are
classified in the Consolidated Balance Sheet as goodwill and are being
amortized on a straight-line basis over 20 years.
F-9
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Segment Information
The Company's operations are classified into four principal reportable
segments that provide different products or services. Separate management
of each segment is required because each business unit is subject to
different marketing, production and technology strategies. Segmented
information is reported in a different manner from the 1997 annual report
to better describe how management currently analyzes its financial
information and to consolidate by division how the Company is marketed to
the general public and its clients.
September 30, 1997 (Three Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 7,265,758 $ 1,735,304 $ 4,533,902 $ 13,534,964
Interest Expense 113,191 64,611 34,436 $ 30,000 242,238
Depreciation and
Amortization 179,391 61,829 -- -- 241,220
Operating Income
(Loss) 727,227 139,310 741,906 (77,221) 1,531,222
Assets 12,495,127 2,675,181 5,117,545 5,130,903 25,418,756
</TABLE>
September 30, 1997 (Nine Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 20,362,396 $ 5,134,617 $ 16,301,278 $ 41,798,291
Interest Expense 275,218 165,356 78,710 $ 72,014 591,298
Depreciation and
Amortization 522,840 200,820 -- -- 723,660
Operating Income
(Loss) 1,642,060 304,105 3,790,600 (109,958) 5,626,807
</TABLE>
F-10
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1998 (Three Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 13,910,647 $ 2,702,886 $ 9,072,366 $ 25,685,899
Interest Expense 125,824 74,727 108,917 $ 13,749 323,217
Depreciation and
Amortization 449,920 (14,979) 269,195 70,359 774,495
Operating Income
(Loss) 1,677,408 74,741 2,941,268 (304,424) 4,388,993
Assets 25,882,577 4,622,172 38,175,482 8,242,525 76,922,756
</TABLE>
September 30, 1998 (Nine Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 33,468,948 $ 6,024,510 $ 32,264,254 $ 71,757,712
Interest Expense 240,244 164,246 256,710 $ 48,970 710,170
Depreciation and
Amortization 1,105,185 229,324 764,081 278,897 2,377,487
Operating Income
(Loss) 2,899,933 (369,608) 10,639,517 (882,209) 12,287,633
</TABLE>
F-11
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Unaudited Pro Forma Condensed Consolidated Financial Statements:
The accompanying consolidated statements of operations include the results
of operations of Southern which the Company acquired effective October
1997.
The following unaudited pro forma condensed consolidated financial
statements for the quarter ended September 30,1997 give effect to the
acquisition of Southern by the Company pursuant to the Agreements 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 of which may be obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the acquisition of Southern. The pro forma entries are
described in the accompanying footnotes to the unaudited pro forma
condensed consolidated statements. The pro forma unaudited condensed
consolidated statements of operations assume that the acquisition took
place on the first day of the period presented.
F-12
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IFC, Inc. Southern Pro Forma
and Communications Pro Forma Consolidated
Subsidiaries Products, Inc. Adjustments Amounts
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Revenues $ 13,534,964 $ 1,981,907 $ 15,516,871
Cost of Contract Revenues 9,699,765 341,485 10,041,250
-------------- -------------- --------------
Gross Profit 3,835,199 1,640,422 5,475,621
General and Administrative Expenses 2,303,977 484,746 252,324(1) 3,041,047
-------------- -------------- --------------
Profits from Operations 1,531,222 1,155,676 2,434,574
Other Income (Expense):
Interest Income 26,298 4,580 30,878
Interest expense (242,238) -- (68,000)(2) (310,238)
Other Income (1,243) -- (1,243)
Gain (loss) on disposal of assets 7,559 (21,820) (14,261)
-------------- -------------- --------------
(209,624) (17,240) (294,864)
Net income before income taxes 1,321,598 1,138,436 2,139,710
-------------- -------------- --------------
Provision for tax expense 90,621 -- 739,740(3) 830,361
-------------- -------------- --------------
Net income 1,230,977 1,138,436 1,309,349
============== ============== ==============
Preferred stock dividend 35,000 -- 35,000
-------------- -------------- --------------
Net income attributable to
common stockholders $ 1,195,977 $ 1,138,436 $ 1,274,349
============== ============== ==============
Basic earnings per share $ .10 $ .07
============== ==============
Fully diluted earnings per share .06 .05
============== ==============
Basic average shares outstanding 12,254,785 17,326,446
Diluted weighted average shares
Outstanding 19,876,592 24,948,253
</TABLE>
1. Amortize goodwill
2. Interest expense
3. Income tax proration for Diversitec, United and Southern
F-13
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
IFC, Inc. Southern Pro Forma
and Communications Pro Forma Consolidated
Subsidiaries Products, Inc. Adjustments Amounts
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Contract Revenues $ 41,798,291 $ 8,486,849 $ 50,285,140
Cost of Contract Revenues 29,474,412 2,755,785 32,230,197
-------------- -------------- --------------
Gross Profit 12,323,879 5,731,064 18,054,943
General and Administrative Expenses 6,697,072 1,191,856 756,970(1) 8,645,898
-------------- -------------- --------------
Profits from Operations 5,626,807 4,539,208 9,409,045
Other Income (Expense):
Interest Income 50,395 40,736 91,131
Interest expense (591,298) (204,000)(2) (795,298)
Other Income 1,712 1,712
Gain (loss) on disposal of assets 309,742 (22,995) 286,747
-------------- -------------- --------------
(229,449) 17,741 (415,708)
Net income before income taxes 5,397,358 4,556,949 8,993,337
-------------- -------------- --------------
Provision for tax expense 90,460 -- 3,309,453(3) 3,399,913
-------------- -------------- --------------
Net income $ 5,306,898 $ 4,556,949 $ 5,593,424
============== ============== ==============
Preferred stock dividend 148,063 -- 148,063
-------------- -------------- --------------
Net income attributable to
common stockholders $ 5,158,835 $ 4,556,949 $ 5,445,361
============== ============== ==============
Basic earnings per share $ .47 $ .34
============== ==============
Fully diluted earnings per share .27 .22
============== ==============
Basic average shares outstanding 10,859,305 15,930,966
Diluted weighted average shares
Outstanding 19,584,656 24,656,317
</TABLE>
1. Amortize goodwill
2. Interest expense
3. Income tax proration for Diversitec, United and Southern
F-14
<PAGE>
ITEM 6.
The Company filed an 8-K report on August 10, 1998 regarding the change
in independent accountants from Semple & Cooper, LLP to BDO Seidman, LLP.
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.
By /s/ Terry Beiriger
-------------------
Terry Beiriger,
Chief Financial Officer
DATED: November 13, 1998
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,092,249
<SECURITIES> 0
<RECEIVABLES> 20,065,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,850,399
<PP&E> 14,255,847
<DEPRECIATION> (5,302,059)
<TOTAL-ASSETS> 76,922,756
<CURRENT-LIABILITIES> 20,962,316
<BONDS> 0
0
306,665
<COMMON> 48,829,123
<OTHER-SE> 2,770,154
<TOTAL-LIABILITY-AND-EQUITY> 76,922,756
<SALES> 71,757,712
<TOTAL-REVENUES> 71,923,464
<CGS> 47,213,446
<TOTAL-COSTS> 60,444,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 710,170
<INCOME-PRETAX> 10,768,359
<INCOME-TAX> 2,533,229
<INCOME-CONTINUING> 8,235,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (46,887)
<NET-INCOME> 8,188,243
<EPS-PRIMARY> .36
<EPS-DILUTED> .31
</TABLE>
