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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File No. 1-9690
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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
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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
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this Form.___
Issuer's revenues for its fiscal year: $36,325,146
As of March 31, 1998, the number of shares of Common Stock outstanding was
17,209,967 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 $78,352,488.
Exhibit Index............................................................Page 27
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PART I
ITEM 1. BUSINESS.
International FiberCom, Inc., (the "Company") offers diversified
services and products to the telecommunications, cable television ("CATV") and
other industries. The Company provides installation, construction, consulting,
design, engineering and systems integration services to the owners of broadband,
fiber-optic networks. The Company also sells and distributes new and used
telecommunications equipment, including digital computer boards widely used in
the nation's telephone systems, to telecommunications companies and hardware
resellers, Regional Bell Operating Companies ("RBOCS") and other Fortune 500
companies.
The Company's strategy is to be a one-stop solution for the
telecommunications marketplace, offering a wide range of engineering, consulting
and maintenance services for broadband, fiber-optic networks with local area
network ("LAN") and wide area network ("WAN").
In 1997 the Company implemented this strategy through acquisitions of
businesses that complemented and enhanced its services, products and customer
base. At the beginning of 1997 the Company had one operating subsidiary, Kleven
Communications, Inc. ("Kleven"), a Phoenix-based company specializing in the
design, installation and maintenance of fiber-optic and other cable services for
the telecommunication and CATV industries. During 1997 the Company completed
three strategic acquisitions that resulted in a significant increase in its
revenues and net income.
Effective January 1997 the Company acquired Concepts in Communication,
Inc. ("Concepts") for total consideration of $4.6 million in cash and 115,833
restricted shares of Common Stock valued at $200,000. 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.
Effective October 1997 the Company acquired the assets and business of
Southern Communications Products, Inc. ("Southern") for total consideration of
$21.4 million, consisting of $12 million in cash, 2,231,661 restricted shares of
Common Stock valued at $6.2 million and a $3.2 million promissory note. Southern
purchases, sells and deals in new and used telecommunications equipment utilized
in the digital access, switching and transport systems of telecommunication
service providers on a nationwide basis. Also effective October 1997, the
Company acquired Compass Communications, Inc. ("Compass") for total
consideration approximately of $2.0 million consisting of 470,588 shares of
Common Stock. Compass is an Atlanta-based company specializing in video, voice
and data network development using state of the art, fiber-optic distribution
platforms. In 1997 the Company operated in Arizona, California, Tennessee,
Florida and Georgia.
Effective April 1998 the Company purchased the assets of Riley
Underground Communications, Inc. ("Riley") for cash and restricted shares of
Common Stock. Riley, which is based in California, builds and maintains
broadbased fiber-optic and other networks for major cable,
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telephone and other telecommunications companies. The purchase agreement
provides for a price of up to $2.5 million, payable in an initial installment
based upon a percentage of the current book value of Riley, with additional
installments computed on a percentage of Riley's pretax earnings over the next
three years. Payments may be in cash or, at the Company's election, up to 50% in
restricted shares of the Company's Common Stock.
Overview of Markets and Industries
The Telecommunications/CATV Industries. Through the application of
fiber-optic technology, the telecommunications and CATV industries plan to
deliver interactive voice, data and video services to consumers over a network
of fiber-optic cable systems which has been called the "information
superhighway." Telecommunications and CATV companies are moving to provide
services which are expected to dramatically change basic functions of telephones
and CATV in the home as well as in business. Such planned services include basic
telephone, video conferencing, movies-on-demand, pay-per-view events, concerts,
interactive shopping and billing, games, classes, and high speed Internet
access.
Fiber-optics. The capabilities of fiber-optic cable based systems,
along with computers, digitized data transmission and sophisticated television
set-top boxes, will make these services possible. Fiber-optic technology is
based upon the transmission of laser light through transparent fibers of glass
or plastic. One strand of fiber is approximately 125 microns in diameter, which
is thinner than a human hair. Optical fibers can carry laser light over
distances ranging from a few inches to more than 100 miles with little signal
strength loss (1% over 78 miles). Optical fibers can be used individually or in
bundles with over 100 fiber strands bundled into a cable similar to standard
copper telephone cables. A one-half inch cable can carry up to 130 fiber
strands, although most cables used are not this large. Most of the cables
currently used hold about 20 strands, which can simultaneously provide
500-channel TV, telephone calls and high speed data transmission.
Optical fibers are composed of a 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. Fiber-optic
cables have little or no signal attenuation, much longer cable run distances,
less susceptibility to noise and no susceptibility to transient voltages or
impulses, such as lightning strikes. Further, a fiber-optic cable can transmit
data at speeds of 40 billion bits per second compared with 1.5 million bits per
second for copper cables.
Demand for Fiber-Optics. The demand for services requiring the
transmission of voice, video and vast amounts of data at high speeds is driving
the construction of high speed, high volume networks. These parallel and
interconnected networks have been called the "information superhighway."
Fiber-optics has become not only a viable alternative to copper wiring, but also
a necessity for any system being designed to handle future data traffic. The
National Cable Television Association has noted the necessity of rebuilding the
nation's cable systems with fiber-optic cable.
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Major companies such as Bell Atlantic Corp., MCI Communications Corp. ("MCI"),
TeleCommunications, Inc. ("TCI") and Cox have announced capital expenditure
programs to upgrade their networks for the information superhighway, including
installation of fiber-optic cable. These and other 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.
The Company believes it is well positioned to help service the expected
demand from these capital expenditure plans. The Company's future growth and
success is dependent in large part upon continued investment by its customers in
telecommunications plant and equipment. The customers may, however, postpone,
delay or cancel their expansion and expenditure plans for a myriad of reasons,
over which the Company and its management have no control.
The Systems Integration Industry. In a relatively short period,
computer networks have evolved from simple connections between desktop
workstations to complex links between multiple computer servers, work stations,
main frame computers and peripheral devices connecting buildings, campuses and
even cities. The shift from a computer room housing many computers and main
frames to personal computer based networks has changed the emphasis from main
frame to personal computers configured in complicated network systems, including
LANs and multi-locational WANs. The source of an organization's informational
productivity is now the network rather than the computer with its ability to
process multiple tasks simultaneously and transport information wherever it is
needed.
Systems integration is the design, installation and maintenance of
these complicated LANs and multi-locational WANs. The backbone of any LAN or WAN
is cable, network hardware and software and the related data delivery system
rather than the computers connected to the system. This backbone is referred to
in the industry as a "structured cabling system." Such systems are designed to
be adaptable and provide sufficient capacity for multiple applications,
including both voice and data transmission.
Over the past five years there has been an increasing demand from
tenants in the market for commercial office 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 all new office buildings are expected to 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.
Services and Products of the Company
Fiber Optic Cable and CATV Services
The Company acquired Kleven in August 1994. Kleven designs, installs
and maintains fiber- optic based networks for the telecommunications and CATV
market. Jerry A. Kleven, the president
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of Kleven entered into a five-year employment agreement at the time of the
purchase. Kleven has served the telecommunications and cable industries since
1977, when it began installing CATV networks in California. In 1980 Kleven
commenced CATV work in Arizona and began to install fiber-optic cable in 1982.
In the 1980s Kleven added aerial capabilities, as well as
cable-splicing and other expertise. 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 and retrofits existing systems.
In its retrofit service, Kleven upgrades existing cable, installs new equipment
and generally upgrades the existing system to meet future demands. Retrofit and
CATV installation work generally provides a higher profit margin than other
utility installations, such as water, sewer and irrigation systems, because of
the specialized skill and care involved in such work. Kleven is now a full
service organization, providing underground systems and aerial cable
installations serving the telephone and CATV industries and municipal
governments and public and private utilities throughout Arizona. Customers of
Kleven include, or have included, Cox, the City of Phoenix and US West.
The Company acquired Riley in April 1998. Riley, which is based in
California, was founded in 1989 and performs the same general services for its
customers that Kleven does. Riley's revenues in 1997 were approximately $4.0
million. Its customers include TCI and Comcast, Inc.
Systems Integration Services and Products
The Company acquired Concepts effective January 1997. In connection
with the acquisition, Concepts entered into two-year employment agreements with
six key employees. Concepts was formed in 1983 with the divesture of the Bell
Systems. Concepts initially planned to subcontract work from South Central Bell,
AT&T and other major corporations, such as IBM and BCE. By 1986, its plan had
shifted to marketing system integration services directly to major end users in
Tennessee and surrounding states. This shift in strategy brought it growth,
while many of its competitors continued to provide only subcontracting services.
The capabilities of Concepts increased as opportunities arose and Concepts
eventually established itself as a leader in the design and installation of
structured cable systems in Tennessee.
In 1990, Concepts expanded its market focus to become a full service
system integrator offering LAN/WAN hardware, network operating systems, file
servers and workstations in addition to structured cable design and
installation. Its past customer relationships allowed Concepts to transition to
this expanded, full service role. Representative customers of Concepts include,
or have included, the State of Tennessee, Nissan Motor Co., Nike Corp., Auto-
zone and Columbia/HCA Healthcare Corp.
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Network Design and Engineering
The Company acquired Compass effective October 1997. Compass, formed in
February 1994, is a consulting and engineering firm specializing in the design
of major broadband, fiber-optic networks. In connection with the acquisition,
the Company caused its Compass subsidiary to enter in to three-year employment
agreements with six key employees. Compass designs hybrid fiber-optic/coaxial
cable broadband distribution networks for CATV and telephone companies using
computer automated design and geographic information software. Such systems
provide video, voice, data and information services and are essentially the same
type of systems that Kleven builds for its customers.
Compass also offers "land based development," a service in which
Compass maps, verifies and documents existing network installations. This
service frequently requires conversion of existing documentation into a data
based oriented system using geographic information software. These platforms
allow network operators an efficient and effective way to relate customer base,
demographics and existing networks and equipment in a single system. For new or
planned networks, Compass also offers field inventory planning and project
support, an arduous, pre-engineering effort of collecting and recording all of
the information necessary to plan, design, market and manage a broadband network
capable of delivering a wide range of interactive services. Compass also
provides other services, including construction oversight, existing network
evaluation, broadband system design, network plant testing and training.
Representative customers of Compass include, or have included, US West, Time
Warner, Motorola, Media One and Australia's Optus Vision.
Telecommunications Products
The Company purchased Southern effective October 1997. In connection
with the acquisition, the Company caused its Southern subsidiary to enter into
three-year employment agreements with seven key employees.
Southern was founded in 1986 and originally focused on recycling
computer circuit boards purchased primarily from Bell South. It soon became
apparent that the market for these used, but operable, circuit boards was far
more lucrative than solely the recovery of precious metals from them. The
telecommunications market for used circuit boards and other products was growing
because of the increasing demand for telecommunications services. Southern,
along with its competitors, helped to develop and supply the market for used
digital access, switching and transport systems to telephone companies on a
nationwide basis. Southern has concentrated on trading in used and new plug-in
computer boards and other products, selling to and buying from most of the major
telecommunications companies and suppliers in order to help meet this demand.
Digital access systems are line systems between a telephone company's central
office and each customer. A switching system effects call connection and
routing. A transport system includes products that carry signals throughout the
network.
Southern purchases equipment from most of the domestic telephone
companies and equipment manufacturers, including AT&T, Lucent Technologies,
Nortel, Tellabs, DSC, Alcatel, Fujitsu and ADC. Much of this equipment is
purchased used and Southern will on occasion acquire an entire central office
installation that is being dismantled and replaced. In addition, Southern
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purchases spare parts or technically outdated inventory, both new and used, in
bulk from telephone companies and equipment manufacturers. Southern sells over
150 types of equipment with unit prices from approximately $10 to $20,000. These
products enable providers, such as local exchanges, long distance and cellular
telecommunications companies to offer data, voice and other services to their
subscribers.
In 1998 Southern plans to offer entire systems, fully loaded with
appropriate technology and wired for immediate installation. It believes that
these systems will allow a higher margin than for switches sold individually.
Southern usually prices its computer boards and other products well
below that of comparable new technology. Frequently these used products have
only relatively small differences in performance compared to a new product.
Southern has developed the ability to locate and acquire products that have been
discontinued by manufacturers at a reasonable cost. It maintains an extensive
inventory of products and is able to ship products to its customers on an
overnight basis in most cases. Southern maintains an ISO 9000 quality control
certification, an industry standard, and uses its proprietary inventory software
system to track detailed information on product by type of item, sales, prices
quoted and other relevant market information. Southern's customers include, or
have included, Bell Atlantic, Ameritech, Bell South, US West, Lucent
Technologies, AT&T, Telcor and Diversitech.
Customers
While each of the Company's subsidiaries operates in a different niche
in the telecommunications industry, the subsidiaries have a number of customers
in common. Major customers of the Company in 1997 included Cox, with 18% of
total revenues, US West/Media One with 11%, and Gambro HealthCare with 5%. No
other customer of the Company accounted for 5% or more of total revenues in
1997.
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. Kleven usually receives payment on its contracts
within 30 to 45 days of invoicing and, accordingly, must finance receivables and
work-in-progress during that period. Under its typical installation contracts,
Concepts supplies the expertise, equipment, labor and sometimes the materials
and required hardware. Concepts' work is usually performed under fixed price
contracts.
Compass performs its work under a variety of contract, purchase orders,
standing relationships and working arrangements. Compass has entered into
indefinite master contracts with major systems operators for the services
specified in such contracts. Specific projects are undertaken under these
contracts in response to purchase orders, change orders, revised standards and
work orders. Compass also performs services for certain long-standing clients
under work orders without governing master contracts. In all cases, contracts
and work orders are terminable at will, and are expandable at will, by the
customer consistent with its network needs. Compass has also entered
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into standing so-called "strategic alliances" with equipment vendors under which
it is either recommended or specified to equipment customers as the system
design vendor.
Competition
The market for the products and services that the Company offers is
highly competitive. The Company believes that the factors for its success
include quality, technical capability, reliability, price, promptness of
performance and warranty protection. There are numerous regional and local firms
that currently compete, or are capable of competing with the Company. Most of
the Company's competitor's have greater financial, human and other resources
than the Company.
While Kleven competes primarily against regional firms, some of its
competitors have a national presence. Its competitors include Fischel Companies,
Burnup & Sims, Inc. and Henkel & McCoy. Nearly all of Kleven's business is
subject to a competitive bid process.
Concepts competes on a regional basis with Pomeroy Computer Resources,
Anixter International and Unisys. The principal competitors of Compass are a
number of local or regional entities.
Southern has five major competitors in the United States: CTDI,
Hightech Products, Diversitech, World Access and Telmar Distributing Co. Several
of these competitors are larger and have greater resources than Southern.
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. Concepts, through certain of its
officers/employees, maintains licenses in certain jurisdictions requiring
general and specialty contractor licenses, including Tennessee and Alabama.
The services performed on behalf of clients by Compass do not usually
require any special licenses or formal designer certification. However, Compass
is registered in the State of Georgia to provide engineering services. Compass
also employs a licensed Georgia Professional Engineer who has public health and
safety compliance responsibilities for all of its design operations. Several
Compass offices hold contractor licenses in various states.
Insurance and Bonds
Kleven maintains liability insurance for claims arising from its
business. The policy has a limit of $10.0 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 $10.0 million.
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Concepts maintains liability insurance for claims arising from its
business. The policy has a limit of $4.0 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 $2.0 million.
Bonding is not usually required to perform the contract services
provided in Compass' operations. Compass is not normally required to post bonds
by customers or by any government agencies. Compass maintains general liability
coverage with a policy limit of $1.0 million and with excess umbrella coverage
at a limit of $5.0 million. Southern carries a general liability policy with a
limit of $2.0 million and a products liability insurance with a limit of $1.0
million.
Backlog Orders and Work-in-Progress
The Company had a backlog of approximately $7.3 million, on a work in
process basis, as of December 31, 1997. All such work orders are expected to be
completed by June 1998.
Suppliers
The Company does not depend upon any single supplier. Because it has
multiple sources of supply, the Company has not experienced difficulties in
obtaining adequate sources of supply and adequate alternatives to satisfy its
customers. The Company does not have formal purchase contracts for its supplies,
but instead generally purchases such items under individual purchase orders.
Employees
As of December 31, 1997 the Company had approximately 475 full-time
employees, including six executive officers at the Company or subsidiary level,
and 65 engineers and technicians.
Warranties
Kleven provides a warranty of its workmanship for periods from one to
two years, depending on the requirements of its customers. Concepts provides a
warranty of its workmanship for a period of one to five years, depending on
customers' requirements.
While most of the equipment Southern sells is under warranty from the
original manufacturer, competition requires Southern to provide its own warranty
of one-year on all equipment sold to telephone companies and six-months on
equipment sold to resellers. Southern identifies equipment it has sold by bar
code warranty labels.
Compass has no written warranties covering any of its work. In
practice, however, Compass warrants its design services to be free from error,
intra-network incompatibility or design defect
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indefinitely. From a practical standpoint, its warranty responsibility is
usually met upon completion of construction and testing of the network to which
its designs apply.
ITEM 2. DESCRIPTION OF PROPERTY
The Company 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.
Southern operates its business from an office/warehouse building of
approximately 28,000 square feet including 24,000 square feet of office space.
The building is located on approximately 3.4 acres of land. In addition,
Southern owns a warehouse consisting of approximately 33,000 square feet located
on five acres of land approximately eight miles from Southern's
office/warehouse.
ITEM 3. LEGAL PROCEEDINGS
The Company 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 its business.
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 fourth quarter of 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 is listed on the Nasdaq SmallCap Market, the
Boston Stock Exchange ("BSE") and the Philadelphia Stock Exchange ("PHLX"). The
following table sets forth, for the fiscal periods shown, representative closing
prices in dollars per share as reported by Nasdaq.
Year Ended December 31, 1996 Low High
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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
Year Ended December 31, 1997
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First Quarter $ .94 $ 1.88
Second Quarter 1.41 2.44
Third Quarter 2.28 5.41
Fourth Quarter 4.41 7.91
The number of beneficial holders of the Common Stock of the Company as
of the close of business on December 31, 1997 was approximately 1,400.
Dividend Policy
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. The Company may pay dividends
on the outstanding shares of Series B Convertible Preferred Stock (the "Series B
Preferred") and Series C Convertible Preferred Stock (the "Series C Preferred")
in cash or shares of Common Stock, at its option. The Company has paid all such
dividends in shares of Common Stock. The Company has not declared or paid cash
dividends on its Common Stock and does not anticipate that it will pay such
dividends in the fore seeable 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
Board of Directors and will depend, among other factors, upon the Company's
earnings, financial condition and cash requirements, and any other factors the
Board of Directors may deem relevant.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
International FiberCom, Inc., (the "Company") offers diversified
services and products to the telecommunications, cable television ("CATV") and
other industries. The Company provides installation, construction, consulting,
design, engineering and systems integration services to the owners of broadband,
fiber-optic networks. The Company also sells and distributes new and used
telecommunications equipment, including digital computer boards widely used in
the nation's telephone systems, to telecommunications companies and hardware
resellers, Regional Bell Operating Companies ("RBOCS") and other Fortune 500
companies.
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 historical operating results for 1997 and 1996
was significantly impacted by the acquisitions of Concepts and Southern, as
explained in the Unaudited Pro Forma Condensed Consolidated Statements of
Operations information contained in the Consolidated Financial Statements that
are a part of this Report. Therefore, Item 6, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," for these periods
includes tables setting forth the pro forma results of operations for 1997 and
1996 that assume the Company owned Concepts and Southern for all of 1997 and
1996, when in fact, the Company completed the acquisitions in January and
October of 1997, respectively.
The following selected financial information is derived from the
Financial Statements of the Company which have been audited by Semple & Cooper,
independent accountants, for the years ended December 31, 1996 and 1997. Such
selected financial information should be read in conjunction with the Company's
financial statements and related notes set forth in Item 7 herein.
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Selected Financial Information
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------------------------------
Unaudited
Actual Pro Forma
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1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 36,325,146 $ 19,195,069 $ 44,811,995 $ 49,187,495
Cost of Revenues 25,905,137 15,833,378 28,660,922 30,927,599
Gross Profit 10,420,009 3,361,691 16,151,073 18,259,896
General and Administrative Expenses 8,574,173 4,484,600 10,456,029 9,872,922
Goodwill Impairment -0- 2,677,490 -0- 2,677,490
Other Income (Expense) 79,143 115,815 (107,116) (270,118)
Benefit (Provision) for Income Taxes 346,319 (135,457) (1,476,461) (2,175,750)
Discontinued Operations Gain (Loss) 33,187 (68,577) 33,187 (68,577)
Net Income (Loss) $ 2,304,485 $ (3,888,618) $ 4,144,654 $ 3,195,039
</TABLE>
1997 Compared to 1996 (See "Selected Financial Information" Table above.)
Actual Results of Operations
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The Company's revenue increased 89% in 1997, attributable primarily to
the acquisition activity. Because the Company's operating statements were so
dramatically affected by these acquisitions, results of operations are analyzed
only on a pro-forma basis, where new subsidiaries are reflected as if their
operating results had been included in the Company's results for all of the
periods presented.
Pro Forma
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The pro forma results of operations assume that the Company owned
Southern and Concepts for all of 1996 and 1997, and include pro forma
adjustments for amortization of goodwill, adjustment of interest expenses and
revision of the benefit for income taxes to make the periods comparable.
Revenues. Consolidated revenues of the Company declined $4,375,500 to
$44,811,995 in 1997 from $49,187,495 in 1996, a 9% decrease. The major reason
for the overall decrease was Southern's loss in 1997 of its sole source supply
contract with Southern Bell, which caused Southern's revenue to decrease
$5,041,203 from 1996 to 1997. The Kleven and Concepts subsidiaries showed modest
revenue growth from 1996 to 1997, increasing a total of $935,924. The revenues
of Compass decreased slightly over the comparable periods.
Gross Profit. The Company had a consolidated gross profit of
$16,151,073 for 1997 compared with a gross profit of $18,259,896 in 1996, a
decrease of $2,108,283, or 12%. Of this decrease, $3,889,304 is attributable to
Southern, which is primarily due to the loss of its contract as a sole supplier
to Southern Bell. Kleven's gross profit increased markedly over 1996, rising
$2,110,387, or 273%. This was primarily due to better job cost management, field
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productivity and pricing. Increased competitive pricing pressure caused the
gross profit of Compass to decline by approximately $678,369 from 1996 to 1997,
a decrease of 26%. Gross profit of Concepts grew slightly, $342,962, or 9%,
which was in proportion with its revenue increase. Its margins in 1997 remained
about the same as in 1996.
General and Administrative Expenses. The Company's general and
administrative expenses increased from $9,872,922 in 1996 to $10,456,029 in
1997. This increase was due primarily to pooling costs, expensed in the merger
of Compass, increases in compensation given to certain key managers in new
subsidiaries and the increases in administrative and accounting expense costs
associated with public reporting requirements.
Goodwill Impairment. The Company determined to write-off in 1996 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 Income. The pro forma consolidated net income in 1997 was
$4,144,654 compared with 3,195,039 in 1996. This 30% increase is primarily due
to the lower effective provision for federal and state income tax in 1997. Book
taxes in 1997 reflect the utilization of net operating loss carryovers of the
parent company, reducing the effective provision rate to 26% in 1997 as compared
with a 40% tax rate reflected in the 1996 pro-forma results.
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 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 1997, the Company generated approximately $236,000 of cash from
operations. The positive cash flow from operations in 1997 arose from the
consolidated net income from operations of approximately $2.3 million in
addition to non-cash expenditures of approximately $1.6 million for depreciation
and amortization. These positive cash flows were used to fund an increase in
accounts receivable of approximately $1.4 million, additional inventory of
approximately $500,000, net costs in excess of billings of approximately
$900,000, accrued expenses and trade accounts payable of approximately $235,000,
and to pay accumulated dividends and other expenses of approximately $665,000.
The positive cash flow of $236,000 from operations in 1997 compares to a
negative cash flow from operations of approximately $1,276,000 in 1996.
Investing Activities. For the year ended December 31, 1997 the Company
used approximately $12.1 million in investing activities. These were comprised
the Company's purchase of fixed assets of approximately $526,000, payment for a
business acquisition of $12.0 million, and payment of related acquisition costs
of $285,000. These were offset by proceeds from the sale of fixed assets of
- 14 -
<PAGE>
approximately $355,000 and cash acquired in an acquisition of $363,000. In 1996
the Company's investing activities consisted of the acquisition of $723,000 of
equipment.
Financing Activities. In 1997 the Company's financing activities
generated cash of approximately $14.8 million. In addition, the Company received
approximately $14.2 million, net of costs, from the sale of Common Stock, and
approximately $4.4 million, net of costs, from the sale of Series B Preferred
and Series C Preferred. The Company used approximately $3.7 million to reduce
net dept and capital lease obligations. In 1996 the Company generated
approximately $2.0 million from financing activities, which arose primarily from
the sale of equity.
The acquisition of Concepts for $4.8 million was financed through the
sale of $1.5 million of 8% Convertible Subordinated Debentures and $3.5 million
of Series B Preferred. The Debentures were subsequently converted into 720,000
shares of common stock.
The Company issued 470,588 restricted shares of Common Stock in
connection with its acquisition of Compass under a pooling of interests
effective October 1997. The purchase of Southern effective October 1, 1997
required the issuance of approximately 5,081,661 restricted shares of Common
Stock. Of these shares, 2,231,661 shares were issued directly to the seller of
Southern with the balance of 2,850,000 shares sold in private placement to
provide capital. Of these shares, 2,700,000 shares were issued subject to an
agreement under which the stock may be repurchased by the Company at prices
ranging from $5.25 to $6.00 per share, subject to certain conditions. The
Company repurchased 25,000 shares at a price of $6.00 per share during the first
quarter of 1998 under this repurchase right.
Under the stock purchase agreement the investors were entitled to
additional shares based upon a formula relating to the market price of the
Company's Common Stock during three repricing periods beginning on the effective
date of the Company's registration statement on February 12, 1998 covering the
shares and ending 60 days later. The Company estimates that it may issue
approximately 360,000 additional shares of Common Stock under this repricing
formula.
In October 1997 the Company sold 1,000 shares of Series C Preferred for
$1,000,000 and issued $1,000,000 of 5.5% Convertible Subordinated Debentures.
As of December 31, 1997, the Company has two revolving lines of credit
totaling approximately $1.7 million, with an available balance of approximately
$600,000. The Company believes that with its current working capital, funds
generated through its operations and the available credit balance 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.
- 15 -
<PAGE>
Inflation and Seasonality
The Company does not believe that it is significantly impacted by
inflation. The Company's operations are not seasonal in nature.
Forward-looking Information
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 accounts 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.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and schedules are included herewith commencing
on page F-1.
ITEM 8. 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.
- 16 -
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to directors
and executive officers of the Company with the year in which each director's
term expires in parentheses.
Name Age Position with Company and Tenure
- ---------------------- ----- --------------------------------------------
Joseph P. Kealy 47 Chairman of the Board of Directors, Director
since 1990 and President since 1993. (1998)
Jerry A. Kleven 43 Director since 1995. (1998)
John F. Kealy 52 Director since 1990. (1998)
Richard J. Seminoff 49 Director since 1995. (1998)
Terry W. Beiriger 46 Principal Financial Officer since 1990,
Secretary since 1995 and Treasurer since
1996.
V. Thompson Brown, Jr. 34 Director since 1997. (1998)
Douglas N. Kimball 43 Chief Operating Officer since 1998.
- ------------------
Directors hold office until the next annual meeting of shareholders and
until their successors are elected and qualified or until their prior
resignation. The terms of the executive officers are continuous, subject to the
authority of the Board.
Joseph P. Kealy is the Chairman and President of the Company and he has
served in these capacities since May 1994 and 1987, respectively. He has been a
director of the Company since September 1990. Mr. Kealy was president of
International Environmental Corporation ("IEC"), a former wholly-owned
subsidiary of the Company, from its inception in 1987 until his resignation in
March 1995 in connection with the sale of IEC. Mr. Kealy has been involved in
the construction business for 26 years in both field and management capacities.
For 16 years prior to joining the Company Mr. Kealy was the Arizona manager for
a construction company. He attended college in Hastings, Nebraska and at
Northern Arizona University.
Jerry A. Kleven is the President of Kleven. He has been involved in the
underground construction industry since 1971. Mr. Kleven is a member of various
underground construction organizations in the United States, including the
National Underground Contracting Association. He has worked in all phases of
Kleven's business, including systems analysis, construction methodology and
final estimate pricing.
- 17 -
<PAGE>
John F. Kealy has been a director of the Company since September 1990.
Mr. Kealy was the Executive Vice President and Secretary of the Company until
March 1995 when he resigned in connection with his acquisition of IEC in January
1995. He served as Chairman of the Company from September 1990 to May 1994. John
F. Kealy formed IEC with his brother, Joseph P. Kealy, in 1987. Mr. Kealy has
been involved in the construction business for 29 years in both field and
management capacities. He became a construction manager in 1967 and ran
construction company offices in Hastings, Nebraska, Farmington, New Mexico and
Phoenix Arizona from 1974 to 1989. Mr. Kealy attended Notre Dame University and
graduated from Arizona State University in 1967 with a Bachelor of Science in
Construction Management.
Richard J. Seminoff has been a Vice President at Semco Enterprises,
Inc., which is in the metal processing business, since May 1995. From April 1991
to April 1995, he has served as president of Amos, Lovitt, Touche & Seminoff, an
insurance agency in Phoenix, Arizona, since April 1, 1991. From 1979 to March
1991, he was employed by the Lasher Cowie Insurance Agency, Inc.
("Lasher-Cowie") one of the largest regional insurance agencies headquartered in
Phoenix, Arizona and he was the president of such agency from 1984 to March
1991. Lasher-Cowie became a part of Hilb, Rogal and Hamilton Company, a publicly
owned company. Mr. Seminoff resigned as president of this agency in March 1991.
Terry W. Beiriger is the principal financial officer, controller,
Treasurer and Secretary of the Company. Mr. Beiriger has served as the principal
financial officer and controller of the Company since September 1990, as
Treasurer since July 1996 and as secretary since March 1995. He became involved
in the construction business in 1979 when he joined Kealy Construction Company,
which was owned by Joseph P. Kealy and John F. Kealy, as its controller. From
1974 to 1979, he was employed as a U.S. Internal Revenue Service agent
specializing in the audits of medium-sized corporations. Mr. Beiriger graduated
from Hastings College in Nebraska in 1974 with a Bachelor of Science in Business
Administration.
V. Thompson Brown, Jr. joined Concepts in 1986 and is its President.
From November 1987 until he became president of Concepts subsidiary in 1997 Mr.
Brown had been the Operations Manager for Concepts. In that capacity he was
responsible for project administration, materials management and bid and sales
supervision. Mr. Brown graduated from Vanderbilt University with a Bachelor of
Science in Engineering in 1984.
Douglas N. Kimball, CPA joined the Company in late 1997 and became its
Chief Operating Officer in early 1998. From 1995 until joining the Company he
held various executive officer positions at American Environmental Network,
Inc., most recently as the Vice President, Operations. Prior to that he was a
self-employed consultant in the Metro-NY area. From 1987-1989 he served as the
Treasurer, Vice President Finance and Chief Financial Officer of Mayor's
Jewelers, Inc. in Coral Gables, Florida. Mr. Kimball has also served as the
Executive Vice President and as a director of American Trade and Finance Corp.,
a Boston based venture firm; as the Vice President, Finance, Secretary and
Treasurer of Enseco Incorporated, a public environmental company; and as an
audit manager for the Boston Office of Touche Ross & Co. Mr. Kimball graduated
with a liberal arts degree from Dartmouth College in 1976 and earned as MS in
accounting from Northeastern University in 1978.
- 18 -
<PAGE>
Directors currently receive no cash compensation for their services in
that capacity. Reasonable out-of-pocket expenses may be reimbursed to directors
in connection with attendance at meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
During the last year Messrs. Beiriger, Brown, Kleven and John Kealy
each failed to file one report on Form 4 in a timely fashion, each of which
should have contained disclosure regarding one transaction. All of such
transactions have subsequently been reported on Form 5.
ITEM 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------
Annual Securities
Name and Principal Compensation/ Underlying All Other
Positions Year Salary & Bonus Options(#)(4) Compensation (3)
- ------------------------- ------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Joseph P. Kealy 1997 $146,680 740,000 $9,600
President and Chairman of
the Board 1996 117,092 165,000 9,600
1995 96,936 9,600
Terry W. Beiriger 1997 76,997 170,000 9,600
Principal Financial
Officer, Secretary and 1996 75,154 65,000 9,600
Treasurer
1995 71,922 9,600
Jerry A. Kleven 1997 146,060 120,000 10,000
Executive Vice President
and Director 1996 150,000 70,000 10,000
1995 150,000 10,000
V. Thompson Brown, Jr. 1997 190,879(2) 70,000
Director
1996 78,843
1995 75,158
</TABLE>
(1) In August 1994 the Company entered in to a five-year employment
agreements with Joseph P. Kealy, Jerry A. Kleven and Terry W. Beiriger
providing for an annual base salary of $150,000 for Messrs. Kealy and
Kleven and, as subsequently amended, $80,000 for Mr.
Beiriger.
(2) Of the total compensation payed to Mr. Brown during 1997, $70,000 is
attributable to forgiveness of a loan made by Concepts to Mr. Brown
prior to the Company's acquisition of Concepts.
(3) The amounts set forth in this column are the automobile allowances
received by the persons in the table under the respective employment
agreements.
(4) The exercise prices of all stock options granted were at least equal to
the fair market values of the Company's Common Stock on the dates of
the agreement.
- 19 -
<PAGE>
Stock Option and Restricted Stock Plans
Stock Option Plans. The Company adopted the 1997 Stock Option Plan
("1997 Plan") in July 1997. Under the 1997 Plan, 1,200,000 shares of Common
Stock of the Company are reserved for issuance. The Plan authorizes the Company
to grant to key employees and directors of the Company (i) incentive stock
options to purchase shares of Common Stock and (ii) non-qualified stock options
to purchase shares of Common Stock.
The Company adopted the 1994 Incentive Stock Option Plan (the "1994
Plan," together with the 1997 Plan, the "Option Plans") in May 1994. Under the
Plan, 441,707 shares of Common Stock are reserved for issuance. The 1994 Plan
authorizes the Company to grant to key employees of the Company (i) incentive
stock options to purchase shares of Common Stock and (ii) non-qualified stock
options to purchase shares of Common Stock. As of December 31, 1997 all of the
options available under the Option Plans had been granted.
The objectives of the Option Plans are to provide incentives to key
employees, and also to directors in the case of the 1997 Plan to achieve
financial results aimed at increasing shareholder value and attracting talented
individuals to the Company. The Compensation Committee formed by the Board is
comprised of non-employee directors who will administer the Plan and make
initial determinations and recommendations to the Board as to the persons to
whom options will be granted and the amount, terms, conditions and restrictions
of such awards. Although the Option Plans do not specify what portion of the
shares may be awarded in the form of incentive stock options or non-statutory
options, a greater number of incentive stock options were awarded under the
Option Plans. Incentive stock options awarded to employees of the Company are
qualified stock options under the Internal Revenue Code. Further, the Option
Plans are stock option plans meeting the requirements of Rule 16b-3 ("Rule
16b-3") promulgated under the Securities and Exchange Act of 1934, as amended
("Exchange Act"). Persons eligible to be granted incentive stock options under
the Option Plans are those employees of the Company whose performance, in the
judgment of the Compensation Committee, can have significant effect on the
success of the Company.
The Option Plans are administered by the Compensation Committee, which
has the authority to interpret its provisions, to establish and amend rules for
its administration, to make recommendations to the Board as to the types and
amounts of awards to be made pursuant to the Option Plans, subject to the
respective Plan's limitations.
Incentive stock options may be granted under the Plans for terms of up
to ten years and at exercise prices at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, except that incentive stock
options granted to any person who owns, immediately after such grant, stock
possessing more than 10% of the combined voting power of all classes of the
Company's stock or of any parent or subsidiary corporation must have an exercise
price at least equal to 110% of the fair market value of the Common Stock on the
date of grant. Non-statutory stock options will have exercise prices as
determined by the Compensation Committee or the Board. The aggregate fair market
value, determined as of the time an incentive stock option is granted, of the
Common Stock with respect to which incentive stock options are exercisable by an
employee for the first time during any calendar year, shall not exceed $100,000.
There is no aggregate dollar
- 20 -
<PAGE>
limitation on the amount of non-statutory stock options which may be exercisable
for the first time by an optionee during any calendar year. Payment of the
exercise price for any option may be in cash, by withheld shares which upon
exercise of an option having a fair market value at the time the option is
exercised equal to the option price (plus applicable withholding tax) or in the
form of shares of the Company's Common Stock. Any option granted under the
Option Plans will expire at the time fixed by the Committee, which will not be
more than ten years after the date it is granted or, in the case of any person
who owns more than 10% of the combined voting power of all classes of the
Company's stock or of any subsidiary corporation, not more than five years after
the date of grant. The Compensation Committee may also specify when all or part
of an option becomes exercisable, but in the absence of such specification, the
option will ordinarily be exercisable in whole or part at any time during its
term. Subject to the foregoing, the Compensation Committee may accelerate the
exercisability of any option in its discretion.
Any employee receiving a grant must remain continuously employed by the
Company for a period of twelve months after the date of the grant, as a
condition to the exercise of the option. In addition, optionees who are
directors or executive officers of the Company may not exercise any portion of
an option within six months of the date of grant.
Options granted under the Option Plans are not assignable. Incentive
Stock Options may be exercised only while the optionee is employed by the
Company or within twelve months after termination by reason of death, within
twelve months after the date of disability, or within three months after
termination for any other reason.
Tax Consequences Respecting Options Under the Plans. An employee or
director will not recognize income on the awarding of incentive stock options
and nonstatutory options under the Option Plans. An optionee will recognize
ordinary income as the result of the exercise of a nonstatutory stock option in
the amount of the excess of the fair market value of the stock on the day of
exercise over the option exercise price. Exercise of an option with previously
owned stock is not a taxable disposition of such stock.
An employee will not recognize income on the exercise of an incentive
stock option, unless the option exercise price is paid with stock acquired on
the exercise of an incentive stock option and the following holding period for
such stock has not been satisfied. He will recognize long-term capital gain or
loss on a sale of the shares acquired on exercise, provided the shares acquired
are not sold or otherwise disposed of before the earlier of: (i) two years from
the date of award of the option or (ii) one year from the date of exercise. If
the shares are not held for the required period of time, the employee will
recognize ordinary income to the extent the fair market value of the stock at
the time the option is exercised exceeds the option price, but limited to the
gain recognized on sale. The balance of any such gain will be a short-term
capital gain.
An employee generally must include in alternative minimum taxable
income the amount by which the price he paid for an incentive stock option is
exceeded by the option's fair market value at the time his rights to the stock
are freely transferrable or are not subject to a substantial risk of forfeiture.
- 21 -
<PAGE>
The Company and its subsidiaries will be entitled to deductions for
federal income tax purposes as a result of the exercise of a nonstatutory option
and the disqualifying sale or disposition of incentive stock options in the year
and the amount that the employee recognizes ordinary income as a result of such
disqualifying disposition.
Options granted under the Option Plans are not assignable. Options may
be exercised only while the optionee is employed by the Company or within twelve
months after termination by reason of death, within twelve months after the date
of disability, or within ten days after termination for any other reason.
The Company may assist optionees in paying the exercise price of
options granted under the 1994 Plan by either the extension of a loan by the
Company for payment by the optionee of the exercise price in installments, or a
guarantee by the Company of a loan obtained by the optionee from a third party.
The terms of any loan, installment payments or guarantees, including the
interest rate and terms of repayment and collateral requirements, if any, shall
be determined by the Board of Directors in its sole discretion.
Restricted Stock Plans. The Company adopted the 1997 Restricted Stock
Plan ("1997 Restricted Stock Plan") in July 1997. Under the Restricted Stock
Plan, shares of Common Stock of the Company are reserved, in such amounts as
determined by the Board, for issuance as part of the total shares reserved under
the Plan described above. The 1997 Restricted Stock Plan authorizes the grant of
shares of Common Stock to key employees, consultants, researchers and to members
of the Board. The 1997 Restricted Stock Plan is administered by the Board or a
committee of the Board, which determines the persons to whom shares of Common
Stock will be granted and the terms of such share grants. As of the date hereof,
no shares have been granted under the Restricted Stock Plan.
The Company adopted the 1994 Restricted Stock Plan ("1994 Restricted
Stock Plan") in May 1994. Under the 1994 Restricted Stock Plan, shares of Common
Stock of the Company are reserved, in such amounts as determined by the Board of
Directors, for issuance as part of the total shares reserved under the 1994 Plan
described above. The 1994 Restricted Stock Plan authorizes the grant of shares
of Common Stock to key employees, consultants, researchers and to members of the
Advisory Board. The 1994 Restricted Stock Plan is administered by the Board of
Directors or a committee of the Board, which determines the persons to whom
shares of Common Stock will be granted and the terms of such share grants.
- 22 -
<PAGE>
Option Grants in 1997
The following executive officers were granted stock options under and
outside of the Option Plans by the Company in Fiscal 1997 in recognition of
their past contributions to the Company. In each case, the option price was in
excess of the fair market value of the Common Stock on the date of grant.
<TABLE>
<CAPTION>
Percentage of Total
No. of Shares Shares for which
Underlying Options Granted to Exercise
Name Options Granted Employees (1) Price Expiration Date
- ----------------- --------------- ------------------- -------- ---------------
<S> <C> <C> <C> <C>
Joseph P. Kealy 400,000 (2) 66.4 $ 3.00 August 14, 2004
300,000 (3) .9375 May 1, 2002
40,000 (3) 1.47 April 1, 2002
Jerry Kleven 100,000 (3) 10.8 .9375 May 1, 2002
20,000 (3) 1.47 April 1, 2002
Terry W. Beiriger 50,000 (2) 15.2 3.00 August 14, 2004
100,000 (3) .9375 May 1, 2002
20,000 (3) 1.47 April 1, 2002
</TABLE>
- -------------------
(1) Percentages represent total percentages for fiscal 1997 including all
grants under and outside of the Option Plans listed for each person.
(2) Options became exercisable on December 1, 1997.
(3) Options became exercisable on July 21, 1997.
- 23 -
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 31, 1998 with
respect to the number of shares of Common Stock of the Company beneficially
owned by individual directors, by all directors and officers of the Company as a
group, and by persons known by the Company to own more than 5% of the Company's
Common Stock. The Company has no other class of voting stock outstanding.
Name of Beneficial Number Percent of
Owner and Address of Shares (1) Common Stock Owned
- --------------------------------------- ------------- ------------------
Joseph P. Kealy 1,137,086 (2) 6.28
3615 S. 28th Street
Phoenix, Arizona 85040
John F. Kealy 246,711 (3) 1.43
520 South 52nd Street
Tempe, Arizona 85281
Jerry A. Kleven 246,874 (4) 1.42
3615 S. 28th Street
Phoenix, Arizona 85040
Terry W. Beiriger 246,206 (5) 1.41
3615 S. 28th Street
Phoenix, Arizona 85040
Richard J. Seminoff 75,000 (6) *
5050 North 40th Street
Suite 220
Phoenix, Arizona 85018
V. Thompson Brown, Jr. 79,222 (7) *
5714 Charlotte Avenue
Nashville, Tennessee 37209
Wallace E. Sapp 2,346,661 (8) 13.47
Edna M. Sapp
1940 Highway 71 So.
Marianna, Florida 32446
Liviakis Financial Communications, Inc. 1,650,000 (9) 8.75
2420 "K" Street
Suite 220
Sacramento, California 95816
All directors and 2,031,099 10.84
officers as a group
(six persons)
- ---------------------
* Less than 1%
- 24 -
<PAGE>
(1) The shareholder listed has sole voting and investment power with
respect to the shares listed.
(2) Includes options to purchase 905,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998.
(3) Includes options to purchase 55,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998. John Kealy disclaims beneficial ownership of an
additional 1,500 shares owned by his immediate family.
(4) Includes options to purchase 190,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998.
(5) Includes options to purchase 235,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998. Terry Beiriger disclaims beneficial ownership of an
additional 9,450 shares owned by his immediate family.
(6) Includes options to purchase 75,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998.
(7) Includes options to purchase 70,000 shares of Common Stock.
(8) Includes options to purchase 215,000 shares of Common Stock which are
presently exercisable, or which will be exercisable within 60 days of
March 31, 1998. Wallace E. Sapp and Edna M. Sapp hold such shares
jointly with right of survivorship. Wallace E. Sapp and Edna M. Sapp
were the sole shareholders of the former Southern Communications
Products, Inc., a Florida corporation. The Company purchased all or
substantially all of the assets of such company in December 1997.
Wallace E. Sapp remains an employee of the Company's subsidiary, SCP.
(9) Represents options to purchase 1,650,000 shares of Common Stock granted
to Liviakis which are presently exercisable. Excludes options to
purchase 550,000 shares of Common Stock granted to Robert Prag over
which Liviakis disclaims beneficial ownership. Liviakis performs
financial consulting services for the Company pursuant to a consulting
agreement effective as of November 5, 1996. Such consulting agreement
was extended in December 1997 through June 30, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commencing in 1989 the Company advanced funds to Wings Limited
Partnership ("Wings"), the partners of which included Joseph P. Kealy, John F.
Kealy and Joseph W. Zerbib, a former principal shareholder of the Company. In
1993, these persons and their spouses assumed the Wing's obligation by executing
a promissory note in the principal amount of $396,732, plus accrued interest.
Such individuals secured the note by pledging 267,000 shares of their Common
Stock to the Company. In June 1996, Mr. Zerbib paid $108,035 representing his
pro-rata share of the principal and accrued interest on the note. Upon such
payment the Company released him and his spouse
- 25 -
<PAGE>
from their obligations under the note and 107,000 shares of Common Stock that
they had pledged to secure the note. The total principal and accrued interest
due as of December 31, 1997 was $166,108, and the maturity date of the note has
been extended to December 31, 1998.
At December 31, 1994 Jerry A. Kleven, Brad J. Kleven and Ronald Abeyta
owed the Company $81,656, $108,400 and $68,634, respectively, as a result of
advances made by the Company to such individuals in fiscal 1994. The advances
were represented by secured promissory notes bearing interest at 7% per annum,
which notes were due and payable in full on or before December 31, 1995. Also,
at December 31, 1994 International FiberCon, Inc., a California corporation
("FiberCon"), in which Jerry A. Kleven, Brad J. Kleven and Ronald Abeyta owned a
majority interest, owed the Company $210,000 as the result of advances made by
the Company to FiberCon. These individuals personally guaranteed FiberCon's
payment of the promissory note. In 1995 FiberCon failed to make the required
payments on the note. As a result, the Company requested payment from the
guarantors under their respective guarantees of the note. Jerry A. Kleven paid
the sum of $100,000 toward his note to the Company and his pro rata portion of
the guarantee of the FiberCon note in 1995. The remaining balance due of $63,497
was consolidated into a new note on December 31, 1995. The Company had received
no payment from either Brad Kleven or Ronald Abeyta, who resigned as officers of
the Company in 1996, on their respective notes or guarantees under the FiberCon
note as of June 1996 and therefore filed suit against each of such individuals
demanding full payment of the principal and accrued interest on the notes and
for attorney's fees in connection with the suit. On January 15, 1998, the
Company entered into a settlement agreement and mutual release with Brad Kleven
and Ronald Abeyta whereby all claims and counterclaims were dismissed by all
parties. As a part of such agreement both such individuals agreed to five-year
non-compete arrangements with the Company. As such, the receivables balance was
converted to covenants not to compete and amortized over a five-year period.
- 26 -
<PAGE>
PART IV
ITEM 13. 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>
Exhibit
Number Description Reference
- -------------- -------------------------------------------------------------------- ---------------
<S> <C> <C>
2.1 Stock Purchase Agreement between the Registrant and Concepts (1)
in Communication, Inc. dated as of October 31, 1996.
2.2 Stock Purchase Agreement between the Registrant and Compass (2)
Communications, Inc. dated as of October 1, 1997
2.3 Asset Purchase and Sale Agreement between the Registrant, SCP (2)
Acquisition Corp., Southern Communications Products, Inc.,
Wallace E. Sapp and Edna M. Sapp, dated as of August 25, 1997.
3.1 Restated Articles of Incorporation of Registrant dated October 21, (3)
1981
3.2 Amendment to Articles of Incorporation of Registrant dated April (3)
18, 1986
3.3 Amendment to Articles of Incorporation of Registrant dated May (3)
20, 1987
3.4 Amendment to Articles of Incorporation of Registrant dated (3)
February 4, 1988
3.5 Amendment to Articles of Incorporation of Registrant dated (3)
August 15, 1991
3.6 Amendment to Articles of Incorporation of Registrant dated June (3)
3, 1994
3.7 Amended, Revised, and Restated Bylaws of Registrant (3)
4.1 Form of Common Stock Certificate (3)
4.2 Statement pursuant toss.10-602 of the Arizona Corporate Code for (4)
Series A Convertible Preferred Stock
4.3 Statement pursuant toss.10-602 of the Arizona Corporate Code for (4)
Series B Convertible Preferred Stock
10.1 1997 Stock Option Plan (5)
10.2 1997 Restricted Stock Plan (5)
</TABLE>
- 27 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- -------------- -------------------------------------------------------------------- ---------------
<S> <C> <C>
10.3 1994 Incentive Stock Option Plan (6)
10.4 1994 Restricted Stock Plan (6)
21.1 List of Subsidiaries of the Registrant *
23.1 Consent of Semple & Cooper *
27.1 Financial Data Schedule *
</TABLE>
-------------
* Filed herewith
(1) Filed with Current Report on Form 8-K dated February 13, 1997.
(2) Filed with Current Report on Form 8-K dated December 1, 1997.
(3) Filed with Registration Statement on Form SB-2, No. 33-79730, which
became effective August 12, 1994.
(4) Filed with Registration Statement on Form SB-2, No. 333-45465, which
became effective February 12, 1998.
(5) Filed with 1997 Notice and Proxy Statement, dated June 25, 1997.
(6) Filed with report on Form 10-KSB for the year ended December 31, 1996.
(b) Current Reports on Form 8-K
The Company filed two reports on Form 8-K during the last quarter of
the fiscal year ended December 31, 1997. The following table contains
information with respect to these filings:
Financial
Statements Date of Event
Item(s) Reported Filed Reported
- ----------------------------------------- -------------- -----------------
Sale of equity securities pursuant to Not Required October 23, 1997
Regulation S
Acquisition of Southern Communications No* December 1, 1997
Products, Inc. and Compass
Communications, Inc. and Sale of equity
securities pursuant to Regulation S
* Required financial statements were filed with the Company's
registration statement on Form SB-2, No. 333-45465, which became
effective February 12, 1998.
- 28 -
<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: April 15, 1998 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.
Signature and Title Date
- ------------------- ----
/s/ Joseph P. Kealy April 15, 1998
- ---------------------------------------------------
Joseph P. Kealy, Chairman of the Board,
President, Principal Executive Officer and Director
/s/ Terry W. Beiriger April 15, 1998
- ---------------------------------------------------
Terry W. Beiriger, Principal Financial Officer,
Controller, Treasurer and Secretary
/s/ John F. Kealy April 15, 1998
- ---------------------------------------------------
John F. Kealy, Director
/s/ Jerry A. Kleven April 15, 1998
- ---------------------------------------------------
Jerry A. Kleven, Director
/s/ Richard J. Seminoff April 15, 1998
- ---------------------------------------------------
Richard J. Seminoff, Director
/s/ V. Thompson Brown, Jr. April 15, 1998
- ---------------------------------------------------
V. Thompson Brown, Jr., Director
- 29 -
<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, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the years ended December 31, 1997 and 1996. 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 consolidated 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, 1997, and the results of its
operations, changes in stockholders' equity, and its cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
Semple & Cooper, LLP
Certified Public Accountants
March 13, 1998
F-1
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 2) $ 2,990,575
Accounts receivable (Notes 1 and 4)
- trade, net of allowance for doubtful accounts 7,988,380
- unbilled 180,545
- other 27,586
Inventory, net (Notes 1 and 6) 2,563,509
Prepaid expenses 119,620
Costs and estimated earnings in
excess of billings on
uncompleted contracts (Notes 1 and 7) 2,540,278
Deferred tax asset (Notes 1 and 13) 258,606
-----------
Total Current Assets 16,669,099
-----------
Property and Equipment, net
(Notes 1, 8, 9 and 10) 5,573,568
-----------
Other Assets:
Loans receivable from related parties
(Note 5) 238,806
Goodwill, net (Note 1) 20,083,941
Other assets 347,142
Covenant not to compete, net (Note 5) 341,689
Debt issue costs, net (Note 5) 241,192
-----------
21,252,770
-----------
Total Assets $43,495,437
===========
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, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable
- current portion (Note 9) $ 1,493,945
- related party (Note 5) 1,754,674
Obligations under capital leases
- current portion (Note 10) 192,429
Accounts payable
- trade 2,598,707
- related parties (Note 5) 19,610
Accrued expenses 1,093,686
Accrued offering cost 741,139
Billings in excess of costs and
estimated earnings on uncompleted
contracts (Note 1 and 7) 218,585
Income tax payable (Notes 1 and 13) 123,669
------------
Total Current Liabilities 8,236,444
------------
Long-Term Liabilities:
Notes payable
- long-term portion (Note 9) 798,698
- related party (Note 5) 3,051,326
Obligations under capital leases
- long-term (Note 10) 392,135
Deferred income tax payable (Notes 1 and 13) 163,862
------------
4,406,021
------------
Total Liabilities 12,642,465
------------
Commitments and Contingencies (Note 11) --
Stockholders' Equity: (Note 12)
Series B, 4% convertible preferred stock, no par
value; 4,400 shares authorized; 1,518 shares
issued and outstanding 1,126,837
Series C, 4% convertible preferred stock, no par
value; 1,000 shares authorized, issued and outstanding 766,662
Common stock, no par value; 100,000,000
shares authorized; 16,632,849 shares issued,
16,454,159 shares outstanding 32,389,218
Common stock warrants 99,082
Additional paid-in capital 2,862,027
Accumulated deficit (5,722,837)
------------
31,520,989
Less: treasury stock, 178,690 shares, at cost (668,017)
------------
Total Stockholders' Equity 30,852,972
------------
Total Liabilities and Stockholders' Equity $ 43,495,437
============
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, 1997 and 1996
1997 1996
---- ----
Revenues $ 36,325,146 $ 19,195,069
Cost of Revenues (25,905,137) (15,833,378)
------------ ------------
Gross Profit 10,420,009 3,361,691
General and Administrative Expenses (8,574,173) (4,484,600)
Goodwill Impairment (Note 1) -- (2,677,490)
------------ ------------
Income (Loss) from Operations 1,845,836 (3,800,399)
------------ ------------
Other Income (Expense):
Interest income 34,812 49,086
Interest expense (234,119) (141)
Other income 91,971 16,089
Gain on sale of fixed assets 186,479 50,781
------------ ------------
79,143 115,815
------------ ------------
Net Income (Loss) before Income Taxes 1,924,979 (3,684,584)
Benefit (Provision) for Income Taxes (Note 13) 346,319 (135,457)
------------ ------------
Income (Loss) from Continuing Operations 2,271,298 (3,820,041)
------------ ------------
Discontinued Operations:
Loss from operations of discontinued segment,
net of tax effect (72,618) (68,577)
Gain on disposal of discontinued segment,
net of tax effect 105,805 --
------------ ------------
33,187 (68,577)
------------ ------------
Net Income (Loss) 2,304,485 (3,888,618)
Preferred Stock Dividends (173,447) (171,303)
------------ ------------
Net Income (Loss) Attributable to Common
Stockholders $ 2,131,038 $ (4,059,921)
============ ============
Basic Earnings (Loss) per Share: (Notes 1 and 12)
Continuing operations $ .25 $ (.65)
Discontinued operations -- (.01)
------------ ------------
Net Income (Loss) $ .25 $ (.66)
============ ============
Diluted Earnings (Loss) per Share:
Continuing operations $ .16 $ (.65)
Discontinued operations -- (.01)
------------ ------------
Net Income (Loss) $ .16 $ (.66)
============ ============
Weighted Average Shares Outstanding:
Basic 8,457,024 6,187,188
============ ============
Diluted 15,325,836 6,187,188
============ ============
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, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common
--------------- ------------ Stock Accumulated
Series A Series B Series C Shares Issued Amount Warrants Deficit
-------- -------- -------- ------------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity, January 1, 1996,
as previously reported $2,296,382 $ - $ - 4,417,072 $7,274,929 $ 99,082 $(3,699,918)
Adjustment in connection with pooling
of interests - - - 470,588 4,071 - 113,464
---------- ---------- ---------- ---------- ----------- ---------- ----------
Stockholders' Equity, January 1, 1996,
as restated 2,296,382 - - 4,887,660 7,279,000 99,082 (3,586,454)
Issuance of 550 shares of Series A,
preferred, net of costs 493,559 - - - - - -
Conversion of 1,328 shares of Series A,
preferred to common stock (1,108,944) - - 1,821,257 1,108,944 - -
Issuance of preferred stock dividend - - - 155,470 171,303 - (171,303)
Cash dividends - pooled company - - - - - - (207,500)
Options issued for services - - - - - - -
Net loss, 1996 - - - - - - (3,888,618)
---------- ---------- ---------- ---------- ----------- ---------- -----------
Stockholders' Equity, December 31, 1996 1,680,997 - - 6,864,387 8,559,247 99,082 (7,853,875)
Issuance of 3,500 shares of Series B
preferred, net of costs - 2,706,302 - - - - -
Issuance of common stock for payment of
debt - - - 123,212 253,207 - -
Conversion of 1,972 shares of Series A
preferred to common stock (1,680,997) - - 2,126,463 1,680,997 - -
Issuance of common stock in private
placements, net of costs - - - 2,850,000 11,605,513 - -
Issuance of options and warrants for
services rendered - - - - - - -
Conversion of 1,982 Series B
preferred to common stock - (1,579,465) - 1,323,242 1,579,465 - -
Issuance of common stock to acquire
Southern Communications Products, Inc. - - - 2,231,661 6,200,000 - -
Issuance of 1,000 shares of Series C
preferred stock, net of costs - - 766,662 - - - -
Conversion of 8% convertible
debentures - - - 720,000 900,000 - -
Exercise of employee stock options - - - 30,145 37,413 - -
Issuance of common stock under Employee
Stock Purchase Plan - - - 104,036 280,929 - -
Issuance of common stock, miscellaneous - - - 187,456 1,119,000 - -
Issuance of preferred stock dividend - - - 72,247 173,447 - (173,447)
Net income 1997 - - - - - - 2,304,485
---------- ---------- ---------- ---------- ----------- ---------- ----------
Stockholders' Equity, December 31, 1997 $ - $1,126,837 $ 766,662 16,632,849 $32,389,218 $ 99,082 $(5,722,837)
========== ========== ========== ========== =========== ========== ===========
<CAPTION>
Additional
Paid-in Treasury
Capital Stock
------- -----
<S> <C> <C>
Stockholders' Equity, January 1, 1996,
as previously reported $ 352,073 $ (668,017)
Adjustment in connection with pooling
of interests 386,574 -
---------- ----------
Stockholders' Equity, January 1, 1996,
as restated 738,647 (668,017)
Issuance of 550 shares of Series A,
preferred, net of costs - -
Conversion of 1,328 shares of Series A,
preferred to common stock - -
Issuance of preferred stock dividend - -
Cash dividends - pooled company - -
Options issued for services 110,000 -
Net loss, 1996 - -
---------- -----------
Stockholders' Equity, December 31, 1996 848,647 (668,017)
Issuance of 3,500 shares of Series B
preferred, net of costs - -
Issuance of common stock for payment of
debt - -
Conversion of 1,972 shares of Series A
preferred to common stock - -
Issuance of common stock in private
placements, net of costs - -
Issuance of options and warrants for
services rendered 2,013,380 -
Conversion of 1,982 Series B
preferred to common stock - -
Issuance of common stock to acquire
Southern Communications Products, Inc. - -
Issuance of 1,000 shares of Series C
preferred stock, net of costs - -
Conversion of 8% convertible
debentures - -
Exercise of employee stock options - -
Issuance of common stock under Employee
Stock Purchase Plan - -
Issuance of common stock, miscellaneous - -
Issuance of preferred stock dividend - -
Net income 1997 - -
---------- ----------
Stockholders' Equity, December 31, 1997 $2,862,027 $ (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, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash flows from operating activities:
Cash received from customers $34,175,088 $18,561,206
Cash paid to suppliers and employees (33,741,810) (19,807,900)
Interest paid (114,193) (44,810)
Interest received 16,342 35,340
Income taxes paid (99,461) (19,719)
----------- -----------
Net cash provided (used) by
operating activities 235,966 (1,275,883)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (525,800) (648,269)
Disbursements for loans - related
parties (4,684) -
Disbursements for deferred acquisition
costs (284,525) (124,367)
Collection of loans to related parties - 117,294
Proceeds from sale of fixed assets 354,854 104,205
Payments for investment in subsidiary - (171,797)
Cash acquired in acquisitions 362,969 -
Payments for purchase of Southern
Communications Products, Inc. (12,000,000) -
----------- -----------
Net cash provided (used) by
investing activities (12,097,186) (722,934)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 7,146,176 4,172,722
Proceeds from notes payable - related parties 1,000,000 -
Repayment of notes payable (8,608,025) (4,737,100)
Repayment of notes payable - related parties (3,097,292) -
Repayment of loans from stockholder - (54,000)
Repayment of obligations under capital
leases (167,379) (197,036)
Proceeds from sale of common stock 14,218,343 -
Proceeds from sale of preferred stock 4,356,000 493,559
Payment of dividends - (77,500)
Collection of stock subscriptions
receivable - 2,373,500
----------- -----------
Net cash provided (used) by
financing activities 14,847,823 1,974,145
----------- -----------
Net increase (decrease) in cash and
cash equivalents 2,986,603 (24,672)
Cash and cash equivalents at beginning
of year 3,972 28,644
----------- -----------
Cash and cash equivalents at end
of year $ 2,990,575 $ 3,972
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-6
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss) $ 2,304,485 $(3,888,618)
----------- -----------
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided (Used) by Operating Activities:
Depreciation and amortization 1,632,343 968,784
Gain on sale of fixed assets (200,919) (50,781)
Loss on sale of fixed assets 14,440 -
Legal fees included in goodwill (32,151) -
Non-cash transactions related to sale of subsidiary 126,797 -
Common stock issued for debt 50,499 -
Stock issued for services rendered 69,270 -
Interest added to principal of notes
receivable from related parties (18,470) (13,746)
Impairment of goodwill - 2,677,490
Issuance of common stock for payment on
employee loans - 60
Changes in Assets and Liabilities:
Accounts receivable
- trade (1,356,527) (638,675)
- unbilled 16,270 (196,815)
- other 3,573 25,354
Inventory (492,208) -
Prepaid expenses (19,878) 9,698
Deferred tax asset (706,032) 79,257
Costs and estimated earnings
in excess of billings
on uncompleted contracts (666,375) (29,514)
Other assets (123,180) 82,717
Bank overdraft - (57,751)
Accounts payable
- trade (330,769) 97,919
- related parties (5,000) (27,511)
Accrued expenses 97,320 (409,405)
Accrued dividends (185,203) -
Deferred income tax payable 226,385 -
Income tax payable 55,867 10,481
Billings in excess of costs
and estimated earnings on
uncompleted contracts (224,571) 85,173
----------- -----------
(2,068,519) 2,612,735
----------- -----------
Net Cash Provided (Used) by
Operating Activities $ 235,966 $(1,275,883)
=========== ===========
</TABLE>
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 holding corporation for five (5)
subsidiaries, Kleven Construction, Inc. ("Kleven"), Concepts in
Communications, Incorporated ("Concepts"), Southern Communications
Products, Inc. ("Southern"), Compass Communications, Inc. ("Compass"),
and Trans Sierra Communications, Inc. ("Trans Sierra"). The holding
company was duly formed and organized under the laws of the State of
Arizona on December 29, 1972.
Kleven is a Phoenix-based company specializing in the design,
installation and maintenance of fiber-optic and other cabling systems
for the telecommunications and cable television industries. Kleven's
primary business focus is to service the telecommunications and cable
television industries throughout the southwestern United States and into
Mexico. Kleven has been a wholly-owned subsidiary of the Company since
approximately 1994.
Trans Sierra is a California based company formed by the Company in
August, 1997, for the purpose of establishing a service presence in the
telecommunications and cable television industries in California. As of
the date of this report, Trans Sierra has had no material operating
activity.
The other three subsidiaries were all acquired in 1997.
Acquisitions:
Concepts in Communications, Incorporated:
On January 1, 1997, the Company acquired Concepts, a privately-held
Nashville, Tennessee based company, with 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
throughout the United States. The transaction was accounted for as a
purchase. The purchase price of $4,800,000 was funded through the
sale of $3,500,000 of Series B preferred stock and $1,500,000 from
the issuance of convertible debentures. The purchase price exceeded
the fair value of the net assets acquired by approximately
$2,200,000 of goodwill, which is being amortized on a straight-line
basis over fifteen years. The results of operations of Concepts are
included in the accompanying financial statements from the date of
acquisition.
Southern Communications Products, Inc.:
On October 1, 1997, the Company, through its wholly-owned subsidiary
SCP Acquisition Corp., acquired substantially all of the assets of
Southern, based in northwest Florida. Southern sells surplus new and
used telephone equipment to telephone service providers and other
vendors throughout the United States. The transaction was accounted
for as a purchase. The purchase price of $21,400,000 was funded
through the sale of $13,500,000 of common stock, issuance of
$6,200,000 of common stock to the former owner, and the issuance of
note payable in the amount of $3,200,000. The purchase price
exceeded the fair value of the net assets acquired by approximately
$17,900,000 of goodwill, which is being amortized on the
straight-line basis over twenty years. The results of operations of
Southern are included in the accompanying financial statements from
the date of acquisition. F-8
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Nature of Operations and Use
of Estimates:
Acquisitions: (Continued)
Compass Communications, Inc.:
In October, 1997, the Company completed a merger with Compass by
exchanging 470,588 shares of its common stock for all of the issued
and outstanding common stock of Compass. The merger constituted a
tax-free reorganization and has been accounted for as a pooling of
interests. Accordingly, the consolidated financial statements have
been restated to include the results of Compass for all periods
presented. Compass is a contract provider of network planning
services to the telecommunications industry. The principal source of
Compass's revenues are derived from developing and supporting
computerized mapping of broadband design systems around the globe.
There were no transactions between Compass and the Company prior to
combination, and certain reclassifications were made to the Compass
financial statements to conform to the Company's presentations. The
results of operations for the separate companies and the combined
amounts presented in the consolidated financial statement are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues
International Fibercom and Subsidiaries $29,589,061 $12,161,263
Compass 6,736,085 7,033,806
----------- -----------
Combined $36,325,146 $19,195,069
=========== ===========
Net Income (Loss) Attributable to Common
Stockholders
International Fibercom and Subsidiaries 2,021,397 (4,221,115)
Compass 109,641 161,194
----------- -----------
Combined $ 2,131,038 $(4,059,921)
=========== ===========
</TABLE>
Principles of Consolidation:
The consolidated financial statements at December 31, 1996 include the
accounts of the Company and its wholly-owned subsidiaries, Kleven and
Compass. The consolidated financial statements at December 31, 1997
include the accounts of the Company and its wholly-owned subsidiaries,
Kleven, Concepts, Southern, Compass and Trans Sierra. All significant
intercompany transactions, accounts and balances have been eliminated.
Discontinued Operations:
In May, 1997, Compass entered into an agreement to dispose of its
interest in its wholly-owned subsidiary, Phoneworx, Inc. Phoneworx, Inc.
was established in 1996 and has not had any material operations or
assets prior to the sale. The operations of Phoneworx, Inc. are shown as
discontinued operations for the years ended December 31, 1997 and 1996.
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.
Significant estimates are used when accounting for the percentage of
completion and the estimated gross profit on jobs in progress, allowance
for doubtful accounts, inventory reserves, depreciation and
amortization, accruals, taxes, contingencies, goodwill, etc., which are
discussed in the respective notes to the consolidated financial
statements.
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)
Revenue and Cost Recognition:
Contracting Income:
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.
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.
Telecommunication Equipment Sales:
Sales from telecommunication equipment, as well as any other related
services, are recognized on the accrual basis of accounting.
Cash and Cash Equivalents:
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, as well as standard trade receivables.
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, 1997 allowances have been established for potentially
uncollectible accounts receivable in the amount of $234,821.
Inventory:
Inventories are stated at the lower of cost, first-in, first-out method,
or market, and consists of new and used telephone equipment and cable
and electronic supplies. The Company periodically reviews its inventory
and makes a provision for damaged or obsolete inventory, if necessary.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets utilizing straight-line
and accelerated methods. Leasehold improvements are amortized over their
estimated useful lives or the remaining lease term, whichever is
shorter. The estimated useful lives are as follows:
Software 7 years
Building 28-40 years
Tools and equipment 5-7 years
Vehicles 3-5 years
Furniture and fixtures 7-40 years
Office equipment 5-7 years
Leasehold improvement 5-40 years
F-10
<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: (Continued)
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, 1997 and 1996, depreciation expense was
$1,195,385 and $850,350, 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, 1997 and 1996.
Goodwill:
Goodwill represents the excess of the purchase price over the fair value
of Concepts' and Southerns' net assets acquired. Goodwill is being
amortized ratably over 15-20 years. The carrying value of goodwill will
be reviewed periodically by the Company and impairments, if any, will be
recognized when expected future operating cash flows derived from
goodwill are less than its carrying value.
During the year ended December 31, 1996, goodwill of $2,677,490, which
arose in connection with the acquisition of Kleven was written off as it
was deemed to have no continuing value due to recurring operating
losses. Amortization expense charged to operations for the years ended
December 31, 1997 and 1996, was $358,412 and $118,125, respectively.
Income Taxes:
The Company reports deferred taxes on an asset and libility approach.
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.
Stock-Based Compensation:
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and the
related interpretations in accounting for its employee stock options.
Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (Statement
No. 123).
Earnings Per Share:
Basic earnings per share include no dilution and is computed by dividing
income available to common stockholders by the weighted average number
of shares outstanding for the period.
Diluted earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would
be outstanding assuming conversion of the convertible preferred stock
and convertible debentures and exercise of dilutive stock options and
warrants, all of which are considered to be common stock equivalents.
The number of shares that would be issued from the exercise of stock
options has been reduced by the number of shares that could have been
purchased from the proceeds at the average market price of the Company's
stock. Net income has been adjusted for dividends on the convertible
preferred stock and interest expense (net of tax) on the convertible
debt.
F-11
<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)
New Accounting Pronouncements:
During the year ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128). This pronouncement provides a different method of calculating
earnings per share than was required by APB 15, Earnings per Share. The
earnings per share for the year ended December 31, 1996 were restated to
give effect to this pronouncement.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15,
1997. Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. The
Company does not expect adoption of SFAS No. 130 to have a material
effect, if any, on its financial position or results of operations.
During the year ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information", (SFAS No. 131). SFAS No. 131
requires that public companies report certain information about
operating segments, products, services and geographical areas in which
they operate and their major customers.
2. Concentrations:
The Company maintains cash balances at various financial institutions.
Deposits not to exceed $100,000 at the financial institution are insured
by the Federal Deposit Insurance Corporation. As of December 31, 1997,
the Company had approximately $2,575,514 of uninsured cash.
3. Fair Value of Financial Instruments:
Estimated fair values of the Company's financial instruments (all of
which are held for non-trading purposes), are as follows:
December 31, 1997
-----------------
Carrying
Amount Fair Value
------ ----------
Cash and cash equivalents $2,990,575 $2,990,575
Long-term debt 1,190,833 1,190,833
The carrying amount approximates fair value of cash and short-term
instruments. The fair value of long-term debt is based on current rates
at which the Company could borrow funds with similar remaining
maturities. The fair value of loans receivable and notes payable from
related parties cannot be determined due to its related party nature.
F-12
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Accounts Receivable - Trade:
At December 31, 1997, accounts receivable - trade consist of the
following:
Contracts in progress $3,956,269
Contracts in progress - retention 45,001
Completed contracts 2,875,521
Completed contracts - retention 215,881
Non-contract related accounts receivable 1,130,529
----------
8,223,201
Less: allowance for doubtful accounts (234,821)
----------
$7,988,380
==========
5. Related Party Transactions:
Accounts Receivable - Trade:
As of December 31, 1997, accounts receivable - trade includes $137,986
due from a related entity.
Loans Receivable from Related Parties:
At December 31, 1997, loans receivable from related parties consist of
the following:
6.5% loans receivable from corporate stock-
holders, due on demand; secured by the Company's
common stock. $ 166,108
7.0% loan receivable from a corporate stock-
holder, with sixty (60) monthly payments of
$791, including principal and interest, due
in full April 1, 2000; unsecured. 72,698
----------
$ 238,806
==========
Based upon the opinion of management of the Company, the above
receivables have been classified as long-term in the accompanying
financial statements.
Covenant Not To Compete:
During the year ended December 31, 1997, the Company commenced
litigation to collect on loans receivable from two former officers of
Kleven. The officers filed a counterclaim alleging wrongful termination.
As part of a litigation settlement, the two former officers entered into
a covenant not to compete with the Company, in which the balance on
their advances were converted into covenants not to compete for a five
year period. No amortization expense was taken during the year ended
December 31, 1997, as the settlement was reached near year end.
Accounts Payable - Related Parties:
Accounts payable - related parties consist of amounts owed to an officer
of the Company and to a related entity.
F-13
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Related Party Transactions: (Continued)
Notes Payable - Related Parties:
At December 31, 1997, notes payable - related parties consist of the
following:
Non-interest bearing note payable to a corporate
stockholder, due on demand. $ 6,000
8.0% convertible debenture to RBB Bank and affiliates,
convertible at $1.25 per share through February 10, 1998,
at which time the debentures and any accrued interest are
due in full. 600,000
8.5% note payable to a principal stockholder of the
Company who is an officer of Southern, $500,000 payment
of principal and interest due February, 1998, followed
by 36 monthly principal and interest payments of $86,663,
due in full February, 2001. 3,200,000
5.5% convertible debenture to RBB Bank and affiliates,
convertible at $5.475 per share on or after January 27,
1998 through April 27, 1999, at which time the debentures
and any accrued interest are due in full. 1,000,000
----------
4,806,000
Less: current portion (1,754,674)
----------
$3,051,326
==========
A schedule of future minimum principal payments due on notes payable -
related parties outstanding, is as follows:
December 31, Amount
------------ ------
1998 $1,754,674
1999 1,900,130
2000 979,693
2001 171,503
----------
$4,806,000
==========
Debt Issue Costs:
In addition, the Company incurred costs in connection with the
aforementioned notes payable - related parties. These costs are
capitalized and amortized ratably over the life of the debt. For the
year ended December 31, 1997, amortization expense of these costs was
$20,736.
6. Inventory:
At December 31, 1997, inventory consists of the following:
Cabling and equipment $ 681,762
New and used telephone equipment 3,437,749
Less: allowance for obsolete inventory (1,556,002)
----------
$2,563,509
==========
F-14
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Contracts in Progress:
At December 31, 1997, 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 $5,117,128
Profit earned to date 1,822,444
----------
6,939,572
Less: billings to date (4,617,879)
----------
$2,321,693
==========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $2,540,278
Billings in excess of costs
and estimated earnings on
uncompleted contracts (218,585)
----------
$2,321,693
==========
8. Property and Equipment:
At December 31, 1997, property and equipment consists of the following:
Construction equipment $5,714,838
Building and land 1,790,493
Furniture and fixtures 542,358
Vehicles 974,300
Office equipment 272,478
Leasehold improvements 298,729
Software 206,336
-----------
9,799,532
Less: accumulated depreciation (4,225,964)
-----------
$5,573,568
===========
9. Notes Payable:
At December 31, 1997, notes payable consist of the following:
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. $ 266,246
6.9% to 14.5% notes payable to financial institutions
with monthly principal and interest payments from
$252 to $10,433, due in full through November, 2001;
collateralized by equipment and personal guarantees. 963,157
F-15
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Notes Payable: (Continued)
Note payable to First Tennessee Bank on a
$800,000 revolving line of credit, interest
only payable monthly at prime plus 1%, due
June 1, 1998; collateralized by accounts
receivable and inventory. 633,339
Note payable to Emergent Financial Company on a
$850,000 revolving line of credit, interest
payable at maturity at prime plus 2.5%, due
June 2, 1998; collateralized by all assets. 429,901
----------
2,292,643
Less: current portion of notes payable (1,493,945)
----------
$ 798,698
==========
A schedule of future minimum principal payments due on notes payable
outstanding, is as follows:
December 31,
------------
1998 $1,493,945
1999 297,236
2000 161,604
2001 96,980
2002 7,252
Subsequent 235,626
----------
$2,292,643
==========
10. Obligations Under Capital Leases:
At December 31, 1997, the Company was the lessee of construction and
office equipment, with an original cost of $946,092, under capital lease
agreements expiring through December, 2000.
Minimum future lease payments under the capital leases for each of the
next three (3) years, are as follows:
Year Ending
-----------
1998 $ 255,563
1999 216,672
2000 236,786
----------
Total minimum lease payments 709,021
Less: amount representing interest (124,457)
----------
Present value of net minimum lease payments 584,564
Less: current maturities of capital lease obligations (192,429)
----------
$ 392,135
==========
F-16
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Commitments and Contingencies:
Operating Leases:
The Company leases its various Tennessee facilities under
non-cancellable operating leases, expiring through February, 2006. In
addition, 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 non-cancellable operating lease
agreements are as follows:
Year Ending
-----------
1998 $ 529,272
1999 491,676
2000 497,638
2001 233,642
2002 240,157
Subsequent 753,080
----------
$2,745,465
==========
For the years ended December 31, 1997 and 1996, total rent expense
approximated $414,703 and $415,682, respectively.
Employment Contracts:
The Company has entered into various employment contracts with six (6)
officers of the Company and/or its subsidiaries through August, 1999.
They 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, 1997 and 1996, the total minimum commitment was $934,950.
Litigation:
The Company had filed suit against two (2) 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 had
filed a countersuit against the Company alleging certain counterclaims.
In December, 1997, the Company and the former officers entered into a
settlement agreement and mutual release whereby all claims of the
Company and all counterclaims of such stockholders were dismissed. As a
part of such agreement, the stockholders agreed to three year
non-compete arrangements with the Company. As such, the receivables
balance was converted to a covenant not-to-compete and will be amortized
over a five year period.
12. Stockholders' Equity:
Preferred Stock:
The Series A 9% 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.
F-17
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stockholders' Equity: (Continued)
Preferred Stock: (Continued)
The Series B 4% preferred are convertible into common stock at a price
equal to the lower of the Average Stock Price on the date of each
monthly subscription installment 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" means (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 such average of the daily prices is below $3.00 per share or
(ii) 75% of the average of such daily prices if the average is above
$3.00 per share. For a one year period after issuance of the series B
preferred, the series B conversion Price floor will be the lower of $.75
or 50% of the Average Stock Price. There will be no floor on the series
B conversion price if the Company fails to achieve certain gross profits
in any two consecutive quarters. The Company may redeem the series B
preferred, in whole or in part, commencing 60 days after issuance at
150% of the purchase price of $1,000 per share.
The Series C 4% preferred shares are convertible into common stock at a
price of $6.48375 per share. Additional shares may be issuable upon
conversion based upon certain conditions. For a one year period after
the issuance of the Series C preferred, the floor on the conversion
price will be $3.42 per share. Dividends are payable on the Series C
preferred at the rate of 4% per annum in shares of common stock or cash,
at the option of the Company on a quarterly basis.
Common Stock:
The Company has entered into an agreement where by it can repurchase
2,700,000 shares of common stock at prices ranging from $5.25 to $6.00
per share
Employee Stock Options and Restricted Stock Plans:
During 1997, the Company adopted an Employee Stock Purchase Plan (the
"Plan") for all employees meeting certain eligibility criteria. Under
the plan, eligible employees may purchase shares of the Company's common
stock, subject to certain limitations, at 85% of its market value.
Purchases are limited to 15% of an employee's eligible compensation, up
to a maximum of $25,000 per year. An aggregate of 2,000,000 shares of
the Company's common stock are authorized and available for sale to
eligible employees. During the year ended December 31, 1997, 104,036
shares were issued to employees under the Plan.
On January 7, 1997, the Board of Directors approved the 1997
International Fibercom, Inc. Stock Option Plan. 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 Board. Under the above Plans, 1,200,000
shares of common stock are reserved for issuance.
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.
As of December 31, 1997, all of the above options have been granted. In
addition, the Company has issued $1,275,661 options to employees and
directors, not pursuant to any authorized plan.
F-18
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stockholders' Equity: (Continued)
Employee Stock Options and Restricted Stock Plans: (Continued)
Following is a summary of the status of the stock option plans for
employees and directors during the years ended December 31, 1997 and
1996:
Weighted
Average
Number Exercise
of Options Price
---------- -----
Outstanding at December 31, 1995 40,000 $ 3.50
Granted in 1996 1,052,000 1.02
---------- ------
1,092,000 1.11
Outstanding at December 31, 1996
Granted in 1997 1,825,368 2.14
Exercised in 1997 (30,145) (1.24)
---------- ------
Outstanding at December 31, 1997 2,887,223 $ 1.76
========== ======
Weighted
Average
Remaining
Exercise Number Contractual
Price of Options Life
----- ---------- ----
$ .94 - $1.47 1,929,355 5.1
3.00 - 3.50 932,868 4.5
4.43 25,000 5.0
---------
2,887,223
=========
All of the above options are currently exercisable.
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, 1997 and 1996. 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 (loss) and earnings (loss) per share for the years ended
December 31, 1997 and 1996, would have been reduced to the proforma
amounts presented below:
December 31, December 31,
1997 1996
---- ----
Net income (loss):
As reported $2,131,038 $(4,059,921)
Pro forma 288,268 (4,120,840)
Basic earnings (loss) per share:
As reported $ .25 $ (.66)
Pro forma .03 (.67)
Diluted earnings (loss) per share:
As reported .16 (.66)
Pro forma .04 (.67)
F-19
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stockholders' Equity: (Continued)
Employee Stock Options and Restricted Stock Plans: (Continued)
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 1997 and 1996, expected life
of options of 1-2 years, expected volatility of 72%, 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 1997 and 1996 approximated
$1.01 and $.06, respectively.
Non-Employee Stock Options and Warrants:
The Company issued 1,302,480 warrants in connection with its 1994 public
offering. Such Public Warrants are exercisable to purchase one share of
common stock at $5.50 until June 5, 1998. The warrants may be redeemed
by the Company upon 30 days written notice at $.10 per warrant, provided
that the closing bid quotations of the common stock have averaged at
least $8.10 per share for any 20 consecutive trading days ending on the
third day prior to the day on which the Company gives notice. As of
December 31, 1997, none of the warrants have been exercised.
The Company also issued 378,443 series A warrants in connection with the
Company's 1996 private placement of series A preferred. The series A
warrants are exercisable to purchase 378,443 shares of common stock at a
price of $.82 per share. The series A warrants are exercisable until
May, 2001. As of December 31, 1997, none of the warrants have been
exercised.
In connection with its 1994 public offering of shares of common stock
and warrants, the Company also sold to the underwriter of such offering,
at nominal consideration, Underwriter's warrants exercisable to purchase
120,000 shares of common stock at $8.10 per share of common stock and
120,000 Underwriter's underlying warrants at $.15 per Underwriter's
underlying warrant, for a total of 240,000 shares. The Underwriter's
underlying warrants are exercisable at a price of $7.15 per share and
will expire August 11, 1999. The Underwriter's warrants were exercisable
commencing August 12, 1995 and continuing for four years thereafter. As
of December 31, 1997, none of the warrants have been exercised.
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 150,000 shares of the Company's common stock for a
period of three (3) years. There are 75,000 warrants exercisable at two
dollars ($2) per share, and 75,000 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, 1997, none
of the warrants had been exercised.
In connection with its 1997 private placement of series B preferred, the
Company issued 700,000 series B warrants. The series B warrants are
exercisable to purchase one share of common stock at varying exercise
prices depending on the tranche. The exercise price for warrants issued
with Tranche 1 is $2.25 per share and are exercisable until March, 2002,
the exercise price for warrants issued with Tranche 2 is $2.50 per share
and are exercisable until April, 2002, and the exercise price for
Warrants issued with Tranche 3 is $3.00 per share and are exercisable
until May, 2002. As of December 31, 1997, none of the warrants have been
exercised.
F-20
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stockholders' Equity: (Continued)
Non-Employee Stock Options and Warrants: (Continued)
In connection with its 1997 private placements of common stock, the
Company issued 200,000 warrants and 300,000 stock options to the
placement agent and a consultant, respectively. The exercise price for
the warrants is $7.50 per share and are exercisable until November,
2002. The exercise price for the options is $6.00 and are exercisable
commencing January, 1998 until January, 2002. As of December 31, 1997,
none of the warrants or options had been exercised.
In connection with its 1997 private placement of Series C preferred, the
Company issued 67,000 warrants to the placement agent. The exercise
price for the warrants is $7.50 and are exercisable until October, 2002.
In connection with its January, 1997 acquisition of Concepts, the
Company issued 50,000 warrants to outside parties. 10,000 warrants have
an exercise price of $.94 and are exercisable until January, 1999.
40,000 warrants have an exercise price of $1.75 and are exercisable
until February, 1999.
In 1997, the Company issued 280,000 warrants and 30,000 options to a
vendor for services rendered. 250,000 and 30,000 warrants have an
exercise price of $1.47 and are exercisable until April, 2003 and April,
2002, respectively. The exercise price for the options is $.94 and are
exercisable until May, 2002.
Following is a summary of the status of non-employee stock options and
warrants during the years ended December 31, 1997 and 1996:
Number Weighted
of Options Average
and Exercise
Warrants Price
Outstanding at December 31, 1995 1,422,480 $5.72
Granted in 1996 2,578,443 1.29
--------- -----
Outstanding at December 31, 1996 4,000,923 2.87
Granted in 1997 1,627,000 3.78
--------- -----
Outstanding at December 31, 1997 5,627,923 $3.13
========= =====
Earnings Per Share:
For the years ended December 31, 1997 and 1996, the following data shows
amounts used in computing earnings (losses) per share and the effect on
income (loss) and the weighted average number of shares of dilutive
potential common stock.
1997 1996
---- ----
Income from continuing operations $2,271,298 $(3,820,041)
Loss from discontinued operations (72,618) (68,577)
Gain on sale of discontinued operations 105,805 -
---------- -----------
Net income (loss) 2,304,485 (3,888,618)
Preferred stock dividends (173,447) (171,303)
---------- -----------
Net income (loss) attributable to
common stockholders $2,131,038 $(4,059,921)
========== ===========
F-21
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Stockholders' Equity: (Continued)
Earnings Per Share: (Continued)
<TABLE>
<S> <C> <C>
Basic Earnings (Loss) per Share:
--------------------------------
Weighted average number of shares outstanding 8,457,024 6,187,188
========== ==========
Earnings per share - continuing operations $ .27 $ (.62)
Loss per share - discontinued operations (.01) (.01)
Earnings per share - sale of discontinued
operations .01 -
---------- ----------
Earnings (loss) per share .27 (.63)
Loss per share - preferred stock dividend (.02) (.03)
---------- ----------
Earnings (loss) per share attributable
to common stockholders $ .25 $ (.66)
========== ==========
Diluted Earnings (Loss) Per Share:
----------------------------------
Income available to common stockholders
used in basic EPS $2,131,038
Preferred stock dividend 173,447
Interest on convertible debentures 99,582
----------
Income available to common stockholders after
assumed conversions of dilutive securities $2,404,067
==========
Weighted average number of shares outstanding 8,457,024
Effect of dilutive securities:
Stock options and warrants 3,192,845
Convertible preferred stock 2,426,652
Convertible debentures 1,249,315
----------
Common stock including assumed conversions 15,325,836
==========
Earnings per share - continuing operations $ .16
Loss per share - discontinued operations (.01)
Earnings per share - sale of discontinued operations .01
----------
Earnings per share $ .16
==========
</TABLE>
Options on 969,868 shares of common stock were not included in computing
diluted EPS because their effects were anti-dilutive.
F-22
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Income Taxes and Deferred Income Taxes:
The benefit (provision) for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current $ (143,809) $ -
Deferred 490,128 (135,457)
---------- ----------
Benefit (provision) for income taxes $ 346,319 $ (135,457)
========== ==========
As of December 31, 1997, the components of deferred income taxes are as follows:
Current Deferred Tax Assets (Liabilities):
Revenue recognition $ (346,406)
Net operating loss carryforwards 444,025
Allowance for doubtful accounts 89,232
Other 71,755
-----------
Net Current Deferred Tax Asset $ 258,606
===========
Long-term Deferred Tax Assets (Liabilities):
Net operating loss carryforwards $ 172,846
Depreciation and amortization (336,708)
-----------
Net Long-term Deferred Tax Liability $ (163,862)
===========
At December 31, 1997, the Company had federal and state net operating
loss carryforwards in the approximate amount of $1,500,000 available to
offset future federal and state taxable income primarily through
December 31, 2011. Due to the acquisition of Compass, approximately
$500,000 of the net operating loss carryforwards are restricted in their
usage.
The income tax on earnings differed from the federal statutory rate as follows:
Computed at the expected statutory rate $ (675,000)
Utilization of net operating losses 1,100,000
Amortization of goodwill not deductible (45,000)
State taxes (80,000)
Other 46,319
-----------
Effective rate $ 346,319
===========
</TABLE>
14. Employee Benefit Plans:
Three (3) of the Company's subsidiaries maintain a 401K profit sharing
plan covering substantially all full-time employees. Under the terms of
each plan, the employees may elect to contribute up to fifteen percent
(15%) of their salary to the plan. Each plan provides for a matching
contribution by the subsidiaries based upon a percentage of the
participant's annual contribution. Profit sharing plan contributions
amounted to $28,991 and $11,939 in 1997 and 1996, respectively.
F-23
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Major Customers:
For the year ended December 31, 1997, the Company had one (1) major
customer representing 22% of revenues. At December 31, 1997, the amount
due from the customer included in accounts receivable was $2,173,000.
For the year ended December 31, 1996, the Company had one (1) major
customer representing 29% of revenues. At December 31, 1996, the amount
due from the customer included in accounts receivable was $774,833.
16. Statements of Cash Flows:
Non-Cash Investing and Financing Activities:
During the year ended December 31, 1997, 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:
Added accrued interest to the principal balance of a loan receivable
related party in the amount of $18,470.
Issued common stock for payment of notes payable - related parties,
preferred dividend, legal fees, and accrued interest payable in the
amounts of $1,102,708, $173,447, $89,270, and $50,499, respectively.
Financed portion of acquisition of Concepts with a note payable
related party in the amount of $4,800,000. Legal fees in the amount
of $32,151 relating to the acquisition were paid by Concepts. The
Company also issued common stock and stock warrants relating to the
acquisition of Concepts in the amounts of $65,000 and $34,100,
respectively.
Reclassified deferred acquisition costs in the amount of $238,169 to
goodwill.
Issued stock options and warrants for common stock offering costs,
Series B preferred stock offering costs, debt issue costs, and
Series C preferred stock offering costs in the amounts of 1,326,000,
$434,600, $74,705, and $74,705, respectively.
Issued common stock for services rendered in the amount of $69,270.
Converted Series A and Series B preferred stock in the amounts of
$1,680,997 and $1,579,465, respectively, to common stock.
Acquisition of fixed assets was financed through the issuance of
capital lease obligations in the amount of $226,483 and notes
payable in the amount of $603,640.
Forgave a loan receivable in the amount of $341,689 in exchange for
a covenant not to compete agreement.
Financed the acquisition of Southern through the issuance of notes
payable - related party in the amount of $3,200,000.
Included in the gain on disposal of subsidiary are the forgiveness
of loans receivable in the amount of $175,000, investment in
discontinued operations in the amount of $171,847, acquisition of
fixed assets in the amount of $65,000, and the cancellation of
common stock in the amount of $50.
F-24
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Statements of Cash Flows: (Continued)
Non-Cash Investing and Financing Activities: (Continued)
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 11).
Issuance of 65,000 shares of common stock in consideration for
forgiveness of dividends payable amounting to $130,000.
17. Subsequent Events:
On April 9, 1998, the Company purchased the assets of Riley Underground
Communications, Inc. for $2,500,000 in cash and restricted stock of the
Company.
Subsequent to year end, 378,443 common stock options were exercised
generating approximately $310,000 in proceeds.
18. 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.
<TABLE>
<CAPTION>
1997
Kleven Compass Concepts Southern Other Total
------ ------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,383,025 $6,736,085 $15,140,538 $ 2,037,998 $ 27,500 $36,325,146
Interest
expense* 199,458 38,826 36,813 22,667 135,813 433,577
Depreciation
and
amorti-
zation 670,159 310,809 200,336 240,540 210,489 1,632,343
Operating income
(loss) 819,096 169,234 395,528 890,953 (428,975) 1,845,836
Assets 7,844,795 2,585,274 5,492,973 22,970,281 4,602,114 43,495,437
</TABLE>
F-25
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Segment Information: (Continued)
1996
<TABLE>
<CAPTION>
Kleven Compass Concepts Southern Other Total
------ ------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues $12,161,263 $7,033,806 $ - $ - $ - $19,195,069
Interest
expense* 238,456 - - - 141 238,597
Depreciation
and
amorti-
zation 676,849 173,810 - - 118,125 968,784
Operating income
(loss) (1,061,771) 365,228 - - (3,103,856) (3,800,399)
</TABLE>
*Interest expense for Kleven is included in cost of revenue in the
accompanying consolidated financial statements.
The caption "Other" comprises various corporate expenses and
eliminations, footnote No. 1 contains a description of each of the above
business segments.
F-26
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Unaudited Pro forma Condensed Consolidated Financial Statements:
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions in 1997 of both Southern and
Concepts pursuant to the Purchase Agreements between the parties. They
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 purchases 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 acquisitions of Southern and Concepts. 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.
In addition, in October, 1997, the Company completed a merger with
Compass, which has been accounted for as a pooling of interests.
Accordingly, the historical consolidated financial statements have been
restated to include the results of Compass for all periods presented.
Acquisitions:
Concepts in Communications, Incorporated:
On January 1, 1997, the Company acquired Concepts, a privately-held
Nashville, Tennessee based company, which also has operations in Memphis
and Knoxville. The transaction was accounted for as a purchase. The
purchase price of $4,800,000 was funded through the sale of $3,500,000
of Series B preferred stock and $1,500,000 from the issuance of
convertible debentures. The purchase price exceeded the fair value of
the net assets acquired by approximately $2,200,000, which is being
amortized on a straight-line basis over fifteen years. The results of
operations of Southern are included in the accompanying historical
financial statements from the date of acquisition.
Southern Communications Products, Inc.:
On October 1, 1997, the Company, through its wholly-owned subsidiary
Southern Acquisition Corp., acquired substantially all of the assets of
Southern. The transaction was accounted for as a purchase. The purchase
price of $21,400,000 was funded through the sale of $13,500,000 of
common stock, issuance of $6,200,000 of common stock to the former
owner, and the issuance of note payable in the amount of $3,200,000. The
purchase price exceeded the fair value of the net assets acquired by
approximately $17,900,000, which is being amortized on a straight-line
basis over twenty years. The results of operations of Southern are
included in the accompanying historical financial statements from the
date of acquisition.
F-27
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Year Ended December 31, 1996
Proforma Consolidated Financial Statements:
The following represents proforma condensed consolidated statements of
operations for the year ended December 31, 1996, assuming the acquisitions of
Concepts and Southern were consummated as of January 1, 1996.
<TABLE>
<CAPTION>
International
FiberCom, Concepts In Southern Proforma
Inc. and Communications, Communications Proforma Consolidated
Subsidiaries(1) Incorporated Products, Inc. Adjustments Amounts
--------------- ------------ -------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues $19,195,069 $14,426,376 $15,566,050 $49,187,495
Cost of Revenues (15,833,378) (10,610,612) (4,483,609) (30,927,599)
----------- ----------- ----------- -----------
Gross Profit 3,361,691 3,815,764 11,082,441 18,259,896
General and Administrative
Expenses (4,484,600) (2,931,202) (1,552,120) $ (905,000)(2) (9,872,922)
Goodwill Impairment (2,677,490) - - (2,677,490)
----------- ----------- ----------- -----------
Income (Loss) from Operations (3,800,399) 884,562 9,530,321 5,709,484
Other Income (Expense): 115,815 (57,400) 47,467 (376,000)(3) (270,118)
----------- ----------- ----------- -----------
Net Income (Loss) before
Benefit for Income Taxes (3,684,584) 827,162 9,577,788 5,439,366
Benefit (Provision) for
Income Taxes (135,457) (324,066) (3,831,115) 2,114,888 (4) (2,175,750)
----------- ----------- ----------- -----------
Net Income (Loss) from
Continuing Operations (3,820,041) 503,096 5,746,673 3,263,616
Discontinued Operations (68,577) - - (68,577)
----------- ----------- ----------- -----------
Net Income (Loss) (3,888,618) 503,096 5,746,673 3,195,039
Preferred Stock Dividends (171,303) - - (132,000)(3) (303,303)
----------- ----------- ----------- -----------
Net Income (Loss) Attribu-
table to Common
Stockholders $(4,059,921) $ 503,096 $ 5,746,673 $ 2,891,736
=========== =========== =========== ===========
Earnings (Loss) per Share
Basic $ (0.66) $ .26
=========== ===========
Diluted N/A $ .22
=========== ===========
Weighted Average Number of
Shares Outstanding(5)
Basic 6,187,188 11,118,849
=========== ===========
Diluted N/A 15,235,515
=========== ===========
</TABLE>
(1) Includes the activity of Compass, acquired in a pooling of interests
acquisition.
(2) To amortize goodwill in connection with the purchase of Southern and
Concepts on a straight-line basis over approximately twenty years.
(3) To record interest on the convertible subordinated debentures, the note
payable, and the dividend on the preferred stock issued to fund the
acquisitions.
(4) To revise the provision for income taxes based on the foregoing proforma
results of operations.
(5) Restated to comply with FAS 128, and include stock issued/sold in the
acquisitions.
F-28
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For The Year Ended December 31, 1997
Proforma Consolidated Financial Statements:
The following represents proforma condensed statements of operations for the
year ended December 31, 1997, assuming the acquisition of Southern was
consummated as of January 1, 1997. Concepts is already included as of January 1,
1997.
<TABLE>
<CAPTION>
International
FiberCom, Southern Proforma
Inc. and Communications, Proforma Consolidated
Subsidiaries Products, Inc.(3) Adjustments Amounts
------------ ----------------- ----------- -------
<S> <C> <C> <C> <C>
Revenues $36,325,146 $ 8,486,849 $44,811,995
Cost of Revenues (25,905,137) (2,755,785) (28,660,922)
----------- ----------- -----------
Gross Profit 10,420,009 5,731,064 16,151,073
General and Administrative Expenses (8,574,173) (1,191,856) $ (690,000)(1) (10,456,029)
----------- ----------- -----------
Income from Operations 1,845,836 4,539,208 5,695,044
Other Income (Expense) 79,143 17,741 (204,000)(2) (107,116)
----------- ----------- -----------
Net Income before Income Taxes 1,924,979 4,556,949 5,587,928
Benefit (Provision) for Income Taxes 346,319 (1,822,780) (1,476,461)
----------- ----------- -----------
Net Income from Continuing Operations 2,271,298 2,734,169 4,111,467
Discontinued Operations, net 33,187 - 33,187
----------- ----------- -----------
Net Income 2,304,485 2,734,169 4,144,654
Preferred Stock Dividends (173,447) - (173,447)
----------- ----------- -----------
Net Income Attributable to
Common Stockholders $ 2,131,038 $ 2,734,169 $ 3,971,207
=========== =========== ===========
Basic Earnings per Share:
Continuing operations $ .25 $ .31
Discontinued operations - -
----------- -----------
Net Income $ .25 $ .31
=========== ===========
Diluted Earnings per Share:
Continuing operations $ .16 $ .22
Discontinued operations - -
----------- -----------
Net Income $ .16 $ .22
=========== ===========
Weighted Average Shares Outstanding:
Basic 8,457,024 12,931,742
=========== ===========
Diluted 15,325,836 19,800,554
=========== ===========
</TABLE>
(1) To amortize goodwill in connection with the purchase of Southern on a
straight-line basis over twenty years.
(2) To record interest on the convertible subordinated debentures issued to
fund the acquisition.
(3) Represents activity for the period from January 1, 1997 through September
30, 1997, the date of the acquisition.
F-29
EXHIBIT 21.1
Kleven Construction, Inc.
d/b/a Kleven Communications
Concepts in Communications, Inc.
Southern Communications Products, Inc.
Compass Communications, Inc.
Trans Sierra Communications, Inc.
d/b/a Riley Underground Communications, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,990,575
<SECURITIES> 0
<RECEIVABLES> 8,196,511
<ALLOWANCES> 234,821
<INVENTORY> 2,563,509
<CURRENT-ASSETS> 16,669,099
<PP&E> 5,573,568
<DEPRECIATION> 4,225,964
<TOTAL-ASSETS> 43,495,437
<CURRENT-LIABILITIES> 8,236,444
<BONDS> 0
0
1,893,499
<COMMON> 32,389,218
<OTHER-SE> 3,429,745
<TOTAL-LIABILITY-AND-EQUITY> 43,495,437
<SALES> 36,325,146
<TOTAL-REVENUES> 36,325,146
<CGS> 25,905,137
<TOTAL-COSTS> 34,479,310
<OTHER-EXPENSES> (79,143)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,119
<INCOME-PRETAX> 1,924,979
<INCOME-TAX> (346,319)
<INCOME-CONTINUING> 2,271,298
<DISCONTINUED> (33,187)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,304,485
<EPS-PRIMARY> .25
<EPS-DILUTED> .16
</TABLE>
