SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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Form 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended June 30, 1998 Commission File No 1-9690
INTERNATIONAL FIBERCOM, INC.
Incorporated in the State of Arizona IRS No. 86-0271282
3615 S. 28th Street
Phoenix, AZ 85040
(602) 941-1900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
CommonStock without par value 21,239,684 shares issued
and 21,033,994 outstanding at June 30, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. The financial statements are included herewith commencing on page F-1.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
International FiberCom, Inc., (the "Company") offers diversified
telecommunications services and products to the telecommunications, cable
television ("CATV") and other industries through its five wholly-owned
subsidiaries. The Company provides a wide range of engineering, consulting and
broadband network systems design, installation of structured cable and
fiber-optic networks, complete telecommunications systems integration services,
and sells and distributes new and secondary market telecommunications equipment
to leading telecommunications companies, Regional Bell Operating Companies
("RBOCS"), telecommunications hardware resellers and other Fortune 500
companies.
The Company derives a substantial portion of its revenue from contracts
that are accounted for under the percentage of completion method of accounting.
Under this method, revenues are recorded as work progresses on a contract.
Overall gross margin percentages can increase or decrease based upon changes in
the estimated gross margin percentages over the lives of the individual
contracts.
Business. In the second quarter of 1998, the Company continued to
follow its strategy of becoming a one-stop solution for the telecommunications
marketplace, offering a wide range of engineering, consulting and maintenance
service for broadband, fiber-optic networks with local area network ("LAN") and
wide area network ("WAN"). In 1997 and 1998, the Company has implemented this
strategy through acquisitions of businesses that have complemented and enhanced
its services, products and customer base.
Effective April 1998 the Company purchased the assets of Riley
Underground Communications, Inc. ("Riley") for cash and restricted shares of
Common Stock and bought General Communications, Inc., ("General") for 17,857
shares of Common Stock effective June 1, 1998. Riley, which is based in
California, builds and maintains broad based fiber-optic and other networks for
major cable, telephone and other telecommunications companies. The Company has
announced its intention to acquire two additional telecommunications companies
with revenues of $18,000,000 and $12,600,000 respectively subject to completion
of due diligence inspections, negotiations and definitive agreements. There can
be no assurance that the Company will complete the aforementioned acquisitions.
Results of Operations
The comparability of the results of operations for the second quarter
of 1998 with the same period in 1997 was significantly impacted by the
acquisition of Southern Communications Products, Inc., ("Southern") and Riley as
shown in the Unaudited Pro Forma Consolidated Statement of Operations
information contained in this Report. Therefore, Management's Discussion and
Analysis of Financial Condition and Results of Operations for these periods
discusses the operations in 1998 compared with actual operations in 1997 and the
operations in 1998 compared with 1997 pro forma figures as if the Company had
owned Southern and Riley since January 1997, which it has not. Both comparisons
include the operations of Compass Communications, Inc. ("Compass") for 1997 and
1998, which was accounted for as a pooling of interests completed effective
October 1997.
2
<PAGE>
Contract Revenues. Contract revenues for the second quarter of 1998
increased to $18,052,395 from $8,110,394 for the same period in 1997, an
increase of 123%. This increase in revenues is primarily attributable to the
addition of Southern's and Riley's revenues in the second quarter of 1998.
On a pro forma basis, for the second quarter of 1998, contract revenues
increased 46% from $12,354,364 in 1997 to $18,052,395. This increase is due
primarily to higher levels of revenue generated by Concepts, principally from
national customers such as Gambro Healthcare and Nike, Inc., increased sales by
Southern, and increased contract activity by Riley.
Gross Profit. The Company's gross profit increased to $6,204,361 for
the second quarter of 1998 compared with $2,169,791 for the same period in 1997
due to the addition of gross profits from the operation of Southern and Riley
and a marked increase in the gross profit margin of Concepts. The Company's
gross profit margin increased from 27% of contract revenues in the second
quarter of 1997 to 34% of contract revenues in the second quarter of 1998,
primarily due to the gross profit margins of Southern and Concepts.
On a pro forma basis, the Company's gross profit for the second quarter
of 1998 was $6,204,361 compared with $4,177,145 for the same period in 1997. The
improved gross profits of Concepts and the increase of Southern's gross profits
overcame a weak quarter for both Kleven and Compass. Kleven's revenues and gross
profits declined from the second quarter of 1997 because of a decline in work
from Cox Communications during the second quarter of 1998. The Company's gross
margin was 34% for both quarters.
General and Administrative Costs. The Company's general and
administrative expenses were $3,159,266 for the second quarter of 1998 compared
with $1,559,406 for the same period in 1997, an increase of 102%. This increase
is chiefly due to the addition of the general and administrative expenses of
Southern and Riley, a significant portion of which relates to the amortization
of intangibles resulting from the acquisition of Southern.
On a pro forma basis, general and administrative expenses for the
second quarter of 1998 were $3,159,266, or 18% of revenues, compared with
$2,267,218, or 18% of revenues, for the same period in 1997. The Company has and
will continue to consolidate duplicative administrative functions relating to
its acquired companies to the extent possible. The administrative expenses of
the Company increased because of significant amounts for amortization of
intangibles resulting from the acquisitions of Concepts and Southern.
Other Income (Expense). The Company's net expense in this category was
$78,213 for the second quarter of 1998 compared with net expense of $95,223 for
the same period in 1997.
On a pro forma basis, other expense was $78,213 in the second quarter
of 1998 as compared with a net expense of $183,001 for the same period in 1997.
The difference is due primarily to a decrease in interest expenses of Kleven
because of debt reduction and reduction of interest expense of the Company due
to convertible debt conversion.
Provision for Income Tax Benefit (Expense). The Company accrued income
tax expense of $1,034,766 in the second quarter of 1998. No income tax expense
was accrued in 1997 because of net operating loss carryovers of the Company and
Kleven from 1996 and prior years.
On a pro forma basis the provision for income taxes increased from
$621,991 in the second quarter of 1997 to $1,034,766 in the same period of 1998
due to the higher net income before taxes of the Company.
3
<PAGE>
Net Income. The Company generated a net income of $1,932,116, or
approximately 11% of revenues, for the second quarter of 1998 compared with net
income of $515,322, or 6% of revenues for the same period in 1997. This is
primarily a result of increased profit margins at Concepts and the addition of
Southern and Riley.
On a pro forma basis, the Company's net income increased to $1,932,116
in the second quarter of 1998 compared with a net income of $1,104,935 for the
same period in 1997. Such increase was primarily due to the strong performance
of both Concepts and Southern.
Preferred Stock Dividend. The Company paid dividend of $10,000 on its
Series C Convertible Preferred Stock for the second quarter of 1998 through the
issuance of 1,124 shares of its Common Stock.
Backlog. The Company had a backlog of approximately $6,050,000 on a
work in process basis as of June 30, 1998. The Company expects such work orders
to be completed by September 1998. Further, the Company has work orders, which
were not started at June 30, 1998, for Cox Communications, Inc., the State of
Tennessee, City of Phoenix, Nike, Inc., Neilsen Dillingham, TCG, Intregration
Technologies, TCI, Cablevision, Inc., and Adelphia Communications. These work
orders total in excess of $30,800,000. The Company expects to commence such work
during the third quarter of 1998 and substantially complete the same by December
1998.
Liquidity and Capital Resources
Operations. The Company has historically financed its operations
through operating cash flow, lines of credit and debt and equity offerings. The
Company's liquidity is impacted, to a large degree, by the nature of billing
provisions under its installation and service contracts. Generally, in the early
periods of contracts, cash expenditures and accrued profits are greater than
allowed billings, while contract completion results in billing previously
unbilled costs and profits.
In the year to date for 1998, the Company used approximately $283,000
of net cash from operations. Cash generated from operations of $8,376,000, which
includes net income of approximately $3,122,000, depreciation and amortization
of $1,622,000, increase in accounts payable and accrued expense of $2,410,000,
increase in taxes payable of $911,000 and the net increase in billings in excess
of costs of $311,000, were used primarily for an increase in trade receivables
of $4,260,000, an increase in inventory of $3,793,000 due to the higher sales
activity of Concepts and Southern, decrease in accrued offering costs of
$431,000, and an increase in other current assets of $175,000. The net cash used
of $283,000 from operations in the year to date 1998 compares to a negative cash
flow from operations of approximately $1,971,000 in the same period 1997.
Investing Activities. For the year to date of 1998 the Company in part
used approximately $3,896,000 in investing activities. These were comprised of
the Company's purchase of fixed assets of approximately $2,986,000, an increase
in intangible assets and other assets of $717,000, and an increase in deferred
acquisitions cost of $193,000.
Financing Activities. In the second quarter of 1998, the Company's
financing activities generated approximately $2,539,000 consisting in part of an
increase in loans and other liabilities payable of approximately $1,151,000,
proceeds from warrant and stock option exercises of $1,550,000 and offset by
treasury stock purchases of $162,000 made under the Company's stock repurchase
program, which was terminated during the second quarter. The Company has called
for redemption its 1,302,480 public Common Stock purchase warrants. Such
warrants are exerciseable at $5.50 per share through August 18, 1998, after such
date the Company will redeem any unexercised warrants at $.10 per warrant.
4
<PAGE>
As of June 30, 1998, the Company had three revolving lines of credit
totaling approximately $2,600,000, with an available balance of approximately
$1,100,000. The Company believes that with its current working capital, funds
generated through its operations and available credit balances on its lines of
credit it will have sufficient working capital to address the anticipated growth
of demand and markets for its products and services for the next 12 to 18
months. The Company may, however, seek to obtain additional capital through an
expanded working capital line of credit at a financial institution or through
additional debt or equity offerings during this time period. The raising of
additional capital in public markets will primarily be dependent upon prevailing
market conditions and the demand for the Company's products and services.
Inflation. The Company does not believe that it is significantly
impacted by inflation.
Seasonality. The Company's operations are not seasonal in nature.
Year 2000 issues. Like many companies, the Company is currently in the
process of evaluating its computer software, databases and hardware to determine
whether or not modifications will be required to prevent problems related to the
year 2000. These problems, which have been widely reported in the media, could
cause malfunctions in certain software, databases and embedded circuitry with
respect to dates on or after January 1, 2000, unless corrected. At this time,
the Company has not yet determined the cost of evaluating its computer software
or databases or of making any modifications required to correct any "Year 2000"
problems.
Forward-looking Information and Risks of the Business.
This Report contains certain forward-looking statements and information
within the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The cautionary statements made in this
Report should be read as being applicable to all related forward-looking
statements wherever they appear in this report. Forward-looking statements, by
their very nature, include risks and uncertainties. Accordingly, the Company's
actual results could differ materially from those discussed herein. A wide
variety of factors could cause or contribute to such differences and could be
adversely impact on revenues, profitability, cash flows and capital needs. Such
factors, many of which are beyond the control of the Company, include the
following: the Company's success in obtaining new contracts; the volume and type
of work orders that are received under such contracts; the accuracy of the cost
estimates for the projects; the Company's ability to complete its projects on
time and within budget; levels of, and ability to collect amounts receivable;
availability of trained personnel and utilization of the Company's capacity to
complete work; competition and competitive pressures on pricing; and economic
conditions in the United States and in the region served by the Company.
Part II - Other Information
Item 1. Legal Proceedings.
The Company has no on-going or pending litigation at this time.
Items 2, and 3, are omitted because these Items are inapplicable to this Report.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its 1998 Annual Meeting of Shareholders on July 10,
1998. The following Directors were elected for terms which will expire at the
1999 Annual Meeting of Shareholders: Joseph P. Kealy, Jerry A. Kleven, John F.
Kealy, Richard J. Seminoff, and V. Thompson Brown, Jr.
The shareholders approved the adoption of an amendment to the 1997
Stock Option Plan to increase the number of shares reserved for issuance under
the Plan from 1,200,000 to 3,200,000 shares with 14,232,986 shares voting for,
738,470 shares voting against and 85,226 shares abstaining.
5
<PAGE>
The shareholders also approved the adoption of the Employee Stock
Purchase Plan, under which 2,000,000 shares of Common Stock are reserved for
issuance to eligible employees who purchase stock under the Plan. Shareholders
approved the adoption of this Plan with 14,500,911 shares voting for, 518,151
shares voting against and 37,620 shares abstaining.
Finally, the shareholders ratified the selection of BDO Seidman as the
independent public accountants for the Company's fiscal year ended December 31,
1998, with 14,965,955 shares voting for, 58,535 shares voting against and 32,192
shares abstaining.
Item 5. Other Information.
In April, 1998 the Company granted options to purchase 113,000 shares
to its employees under the 1997 Stock Option Plan exerciseable at a price of
$5.00 per share through April 2003. The Company also granted options to purchase
180,000 shares at the same price and on the same terms to the directors and
officers under the Plan. The foregoing grants became effective upon the approval
of the amendment to the Plan at the 1998 Annual Meeting of the Shareholders. In
addition, the Company granted 44,000 non-qualified options to a third party with
an exercise price of $1.74 per share with a two-year term in connection with an
acquisition.
6
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
June 30, December 31,
1998 1997
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<S> <C> <C>
Current Assets:
Cash and cash equivalent $ 1,349,672 $ 2,990,575
Accounts receivable
- trade, net of allowance 12,102,335 7,988,380
- unbilled receivables 288,007 180,545
- other 66,362 27,586
Inventory 6,356,602 2,563,509
Prepaid expenses 125,809 119,620
Loan receivable related parties 101,820 0
Deferred tax asset 189,606 258,606
Costs and estimated earnings in excess of billings 2,709,375 2,540,278
----------- -----------
Total Current Assets 23,289,588 16,669,099
Property and Equipment, net 7,452,907 5,573,568
Other Assets:
Loans receivable related party 240,268 238,806
Goodwill, net 22,543,351 20,083,941
Covenant not to compete net 351,770 341,689
Other assets 331,816 347,142
Deferred acquisition costs 192,624 0
Debt issue costs, net 110,199 241,192
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23,770,028 21,252,770
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Total Assets $54,512,523 $43,495,437
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</TABLE>
F-1
<PAGE>
INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Current Liabilities:
Notes payable - current portion $ 2,740,333 $ 1,493,945
Notes payable - related party 137,000 1,754,674
Obligations under capital lease 506,806 192,429
Income taxes payable 985,435 123,669
Accounts payable
- trade 4,478,142 2,598,707
- related parties 24,207 19,610
Accrued offering costs -- 741,139
Accrued expense 1,572,464 1,093,686
Billings in excess of cost estimated earnings 529,971 218,585
------------ ------------
Total Current Liabilities 10,974,358 8,236,444
Long-Term Liabilities:
Notes payable-long term 3,973,335 798,698
Notes payable-related party 243,000 3,051,326
Obligations under capital lease - long term 633,363 392,135
Deferred income tax payable 143,862 163,862
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Total Long-Term Liabilities 4,993,560 4,406,021
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Total Liabilities 15,967,918 12,642,465
Stockholders' Equity:
Series B 4% convertible preferred stock, no par value;
4,400 authorized; 1518 issued and outstanding at
December 1997, none issued and outstanding at June 1998 -- 1,126,837
Series C 4% convertible preferred stock, no par value;
1,000 authorized, issued and outstanding 766,662 766,662
Common Stock, no par, 100,000,000 shares authorized;
21,239,684 shares issued, 21,033,994 outstanding 40,518,836 32,389,218
Common stock warrants 99,082 99,082
Additional paid-in capital 2,862,027 2,862,027
Accumulated deficit (2,638,889) (5,722,837)
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41,607,718 31,520,989
Less: treasury stock 205,690 shares, at cost (3,063,113) (668,017)
------------ ------------
Total Stockholders' Equity 38,544,605 30,852,972
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Total Liabilities and Stockholders' Equity $ 54,512,523 $ 43,495,437
============ ============
</TABLE>
F-2
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997* 1998 1997*
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<S> <C> <C> <C> <C>
Contract Revenues $ 18,052,395 $ 8,110,394 $ 30,928,477 $ 16,495,951
Direct Cost of Contract Revenues 11,848,034 5,940,603 20,370,446 12,613,550
------------ ------------ ------------ ------------
Gross Profit 6,204,361 2,169,791 10,558,031 3,882,401
General and Administrative Expenses 3,159,266 1,559,406 5,605,144 2,790,551
------------ ------------ ------------ ------------
Profit from operations 3,045,095 610,385 4,952,887 1,091,850
Other Income (Expense):
Interest income 34,752 22,742 58,367 22,747
Interest expense (139,299) (128,233) (263,260) (221,939)
Other income 24,194 552 29,425 2,955
Gain on disposal of assets 2,140 9,716 11,208 174,378
------------ ------------ ------------ ------------
(78,213) (95,223) (164,260) (21,859)
------------ ------------ ------------ ------------
Net income before income taxes 2,966,882 515,162 4,788,627 1,069,991
------------ ------------ ------------ ------------
Provision for tax benefit (expense) (1,034,766) 160 (1,666,394) 160
------------ ------------ ------------ ------------
Net income $ 1,932,116 $ 515,322 $ 3,122,233 $ 1,070,151
============ ============ ============ ============
Preferred stock dividend (15,375) (67,837) (38,285) (113,063)
------------ ------------ ------------ ------------
Net income attributable to
common stockholders $ 1,916,741 $ 447,485 $ 3,083,948 $ 957,088
============ ============ ============ ============
Earnings per Share:
Basic earnings per share $ 0.10 $ 0.06 $ 0.17 $ 0.14
============ ============ ============ ============
Diluted earnings per share (Note 4) $ 0.09 $ 0.04 $ 0.14 $ 0.07
============ ============ ============ ============
Basic weighted average shares outstanding 19,131,382 6,934,053 18,102,201 6,899,220
------------ ------------ ------------ ------------
Diluted weighted average shares
outstanding 23,567,998 14,621,799 23,124,075 14,521,004
------------ ------------ ------------ ------------
</TABLE>
*Includes operations of Compass Communications, Inc. due to a pooling of
interests acquisition.
F-3
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For The Period Ended March 31, 1998 and June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ------------------------
Series B Series C Shares Amount Warrants
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Stockholders' Equity
December 31, 1997 $1,126,837 $ 766,662 16,632,849 $32,389,218 $ 99,082
Dividend paid on Series B
Preferred Stock 2,486 12,910
Dividend paid on Series C
Preferred Stock 1,925 10,000
Conversion of Series B
Preferred Stock (168,502) 134,563 168,502
Interest on Debenture paid
in Common Stock 7,744 46,918
Warrant Exercises 295,000 645,000
Conversion of 8%
Debentures 480,000 600,000
Stock Option Exercises 86,466 91,002
Treasury Stock Repurchase (25,000)
Earnings for the Quarter
----------- ----------- ---------- ----------- ---------
Stockholders' Equity
March 31, 1998 958,335 766,662 17,616,033 33,963,550 99,082
Dividend paid on Series B
Preferred Stock 813 5,375
Dividend paid on Series C
Preferred Stock 1,124 10,000
Riley Acquisition 28,236 150,000
General Acquisition 17,857 125,000
Conversion of Series B
Preferred Stock (958,335) 657,483 958,335
Warrant Exercises 471,453 709,378
Shares Purchased Under
ESPP 92,707 383,894
Issuance of additional
Shares under 1997 Private
Placement 300,000 1,948,959
Stock Option Exercises 2,055,978 2,264,345
Treasury Stock Repurchase (2,000)
Earnings for the Quarter
----------- ----------- ---------- ----------- ---------
Stockholders' Equity
June 30, 1998 -- $ 766,662 21,239,684 $40,518,836 $ 99,082
=========== =========== ========== =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Accumulated Paid-In Treasury
Deficit Capital Stock Totals
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Stockholders' Equity
December 31, 1997 $(5,722.837) $ 2,862,027 $ (668,017) $30,852,972
Dividend paid on Series B
Preferred Stock (12,910)
Dividend paid on Series C
Preferred Stock (10,000)
Conversion of Series B
Preferred Stock
Interest on Debenture paid
in Common Stock 46,918
Warrant Exercises 645,000
Conversion of 8%
Debentures 600,000
Stock Option Exercises (23,989) 67,013
Treasury Stock Repurchase (150,000) (150,000)
Earnings for the Quarter 1,190,117 1,190,117
----------- ----------- ----------- ----------
Stockholders' Equity
March 31, 1998 (4,555,630) 2,862,027 (842,006) 33,252,020
Dividend paid on Series B
Preferred Stock (5,375)
Dividend paid on Series C
Preferred Stock (10,000)
Riley Acquisition 150,000
General Acquisition 125,000
Conversion of Series B
Preferred Stock
Warrant Exercises 709,378
Shares Purchased Under
ESPP 383,894
Issuance of additional
Shares under 1997 Private
Placement 1,948,959
Stock Option Exercises (2,209,037) 55,308
Treasury Stock Repurchase (12,070) (12,070)
Earnings for the Quarter 1,932,116 1,932,116
----------- ----------- ----------- -----------
Stockholders' Equity
June 30, 1998 $(2,638,889) $ 2,862,027 $(3,063,113) $38,544,605
=========== =========== =========== ===========
</TABLE>
F-4
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,122,233 $ 957,088
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 1,622,020 583,681
Increase in contracts receivable (4,260,193) (2,578,220)
Increase in inventory (3,793,093) (514,590)
Increase in costs and estimated earnings in
excess of billings on uncompleted contracts (169,097) (1,933,445)
Increase in prepaid expenses (6,189) (129,473)
Increase in accounts payable 1,884,032 841,395
Increase in accrued expenses 525,696 166,485
Increase in billings in excess of cost and
estimated earnings on uncompleted contracts 311,386 218,118
Increase in income taxes payable 910,766 --
(Decrease) increase in accrued offering costs (430,816) 418,000
----------- -----------
Net cash used by operating activities (283,255) (1,970,961)
Cash flows from investing activities:
Purchase of property and equipment (2,986,485) (1,003,971)
(Increase) decrease in deposits and other assets 43,037 (27,705)
(Increase) decrease in intangible assets (760,406) (1,586,487)
(Increase) decrease in deferred acquisition costs (192,624) 120,959
----------- -----------
Net cash provided (uses) by investing activities (3,896,478) (2,497,204)
Cash flows from financing activities:
Increase of loans, lease obligations and other
long-term liabilities 1,150,630 188,444
Proceeds from warrant and stock option exercises 1,550,270 --
Treasury stock repurchase (162,070) --
Proceeds from private offering, net -- 4,605,360
----------- -----------
Net cash provided by financing activities 2,538,830 4,793,804
----------- -----------
Net (decrease) increase in cash (1,640,903) 325,639
Cash, beginning of period 2,990,575 3,972
----------- -----------
Cash, end of period $ 1,349,672 $ 329,611
=========== ===========
</TABLE>
F-5
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH
OPERATING, INVESTING, AND FINANCING ACTIVITIES
(Unaudited)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accrued interest paid in Common Stock $ 46,918 $ --
Accrued offering costs paid in Common Stock 310,323 --
Common Stock issued relating to Business Acquisitions 275,000 --
Convertible debt converted to Common Stock 600,000 --
Issuance of additional shares relating to the 1997 private placement 1,948,959 --
Series B Preferred Stock converted to Common Stock 1,126,837 --
Dividends on Series C Preferred Stock paid in Common Stock 38,285 113,063
</TABLE>
F-6
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Significant accounting policies:
Basis of presentation:
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30,
1998 and the results of its operations for the three months ended June 30,
1998. Although management believes that the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements that have been prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities Exchange Commission.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 1998. The accompanying consolidated financial
statements should be read in conjunction with the more detailed financial
statements, and the related footnotes thereto, filed with the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and the
Form SB-2 as filed on February 12, 1998.
Effective April 1998 the Company purchased the assets of Riley Underground
Communications, Inc. ("Riley") for cash and restricted shares of Common
Stock and bought General Communications, Inc., ("General") for 17,857
shares of Common Stock effective June 1, 1998. Riley, which is based in
California, builds and maintains broad based fiber-optic and other networks
for major cable, telephone and other telecommunications companies. The
Company has announced its intention to acquire two additional
telecommunications companies with revenues of $18,000,000 and $12,600,000
respectively subject to completion of due diligence inspections,
negotiations and definitive agreements. There can be no assurance that the
Company will complete the aforementioned acquisitions.
Principles of consolidation:
The consolidated financial statements include the financial position,
results of operations and cash flows of International FiberCom, Inc., and
its wholly-owned subsidiaries, Kleven Communications, Inc., Compass
Communications, Inc., Riley Underground Communications, Inc., Southern
Communications Products, Inc. and Concepts In Communications, Inc. All
material intercompany transactions, accounts and balances have been
eliminated.
F-7
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Inventory:
Inventory consists of the following at June 30, 1998:
Cabling and equipment $ 978,907
New and secondary market telephone equipment 6,933,697
Less: allowance for obsolete inventory (1,556,002)
-------------
$ 6,356,602
=============
3. Stockholders' Equity:
<TABLE>
<CAPTION>
Diluted Earnings Per Share: Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income available to common stockholders
used in basic EPS $ 1,916,741 $ 447,485 $ 3,083,948 $ 957,088
Preferred stock dividends 15,375 67,837 38,285 113,063
Interest and financial expense on
convertible debentures 103,577 19,500 103,577 -
------------- ------------ ------------- -------------
Income available to common stockholders
after assumed conversions
of diluted securities $ 2,035,693 $ 534,822 $ 3,225,810 $ 1,070,151
============= ============ ============= =============
Diluted weighted average
shares outstanding 23,567,998 14,621,799 23,124,075 14,521,004
Diluted earnings per share $ 0.09 $ 0.04 $ 0.14 $ 0.07
============= ============ ============= =============
</TABLE>
F-8
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Segment Information
The Company's operations are classified into four principal reportable
segments that provided different products or services. Separate management
of each segment is required because each business unit is subject to
different marketing, production and technology strategies. Segmented
information is reported in a different manner from the 1997 annual report
to better describe how management currently analyzes its financial
information and to consolidate by division how the Company is marketed to
the general public and its clients.
June 30, 1997 (Three Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
-------- ----------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 6,578,503 $ 1,531,891 - - $ 8,110,394
Interest Expense 88,929 9,257 - $ 30,047 128,233
Depreciation and
Amortization 207,557 66,335 - - 273,892
Operating Income
(Loss) 515,273 76,352 - 18,760 610,385
Assets 12,116,356 2,121,745 - 1,902,249 16,140,350
</TABLE>
June 30, 1997 (Six Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
-------- ----------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 13,096,638 $ 3,399,313 - - $ 16,495,951
Interest Expense 162,028 17,897 - $ 42,014 221,939
Depreciation and
Amortization 417,122 130,335 - - 547,457
Operating Income
(Loss) 914,834 209,753 - (32,737) 1,091,850
</TABLE>
F-9
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998 (Three Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
-------- ----------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 11,145,110 $ 1,745,020 $ 5,162,265 - $ 18,052,395
Interest Expense 61,842 4,908 55,468 $ 17,081 139,299
Depreciation and
Amortization 448,421 113,200 251,793 181,037 994,451
Operating Income
(Loss) 639,086 (434,563) 3,325,628 (485,056) 3,045,095
Assets 17,919,648 3,348,478 29,867,799 3,376,598 54,512,523
</TABLE>
June 30, 1998 (Six Month Period Ending)
<TABLE>
<CAPTION>
Construction Equipment
Services Engineering Sales Other Total
-------- ----------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 19,558,300 $ 3,314,776 $ 8,055,401 - $ 30,928,477
Interest Expense 114,420 16,038 97,581 $ 35,221 263,260
Depreciation and
Amortization 674,307 244,300 494,876 208,537 1,622,020
Operating Income
(Loss) 1,143,777 (524,677) 4,911,574 (577,787) 4,952,887
</TABLE>
F-10
<PAGE>
INTERNATIONAL FIBERCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Unaudited Pro Forma Condensed Consolidated Financial Statements:
The accompanying consolidated statements of operations include the results
of operations of Southern Communications Products, Inc. ("Southern") which
the Company acquired effective October 1997 and Riley Underground
Communications, Inc. ("Riley") which the Company acquired in April 1998.
The following unaudited pro forma condensed consolidated financial
statements for the quarter ended June 30,1997 give effect to the
acquisition of Southern and Riley by the Company pursuant to the Agreements
between the parties, and are based on the estimates and assumptions set
forth herein and in the notes to such statements. This pro forma
information has been prepared utilizing the historical financial statements
and notes thereto, which are incorporated by reference herein. The pro
forma financial data does not purport to be indicative of the results which
actually would have been obtained had the purchase been effected on the
dates indicated or of the results of which may be obtained in the future.
The pro forma financial information is based on the purchase method of
accounting for the acquisition of Southern and Riley. The pro forma entries
are described in the accompanying footnotes to the unaudited pro forma
condensed consolidated statements. The pro forma unaudited condensed
consolidated statements of operations assume that the acquisition took
place on the first day of the period presented.
F-11
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30,1997
<TABLE>
<CAPTION>
IFC, Inc. Southern Riley Pro Forma
and Communications Underground Pro Forma Consolidated
Subsidiaries Products, Inc. Comm., Inc. Adjustments Amounts
------------ -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Contract Revenues $ 8,110,394 $ 3,255,082 $ 988,888 $ 12,354,364
Cost of Contract Revenues 5,940,603 1,352,195 884,421 8,177,219
------------ ------------- ------------- --------------
Gross Profit 2,169,791 1,902,887 104,467 4,177,145
General and Administrative Expenses 1,559,406 360,512 116,860 $ 230,440(1) 2,267,218
------------ ------------- ------------- --------------
Profits from Operations 610,385 1,542,375 (12,393) 1,909,927
Other Income (Expense):
Interest Income 22,742 13,002 - 35,744
Interest expense (128,233) - (32,780) (229,013)
Other Income 552 - - 552
Gain on disposal of assets 9,716 - - 9,716
------------ ------------- ------------- --------------
(95,223) 13,002 (32,780) (68,000)(2) (183,001)
------------ ------------- ------------- --------------
Net income before income taxes 515,162 1,555,377 (45,173) 1,726,926
============ ============= ============= ==============
Provision for tax benefit (expense) 160 - - (622,151)(3) (621,991)
------------ ------------- ------------- ==============
Net income $ 515,322 $ 1,555,377 $ (45,173) $ 1,104,935
============ ============= ============= ==============
Preferred stock dividend (67,837) - - (67,837)
------------ ------------- ------------- --------------
Net income attributable to
common stockholders $ 447,485 $ 1,555,377 $ (45,173) $ 1,037,098
============ ============= ============= ==============
Basic earnings per share $ 0.06 $ 0.09
============ ==============
Fully diluted earnings per share 0.03 0.05
============ ==============
Basic average shares outstanding 6,934,053 12,033,950
Diluted weighted average shares
Outstanding 14,621,799 19,721,696
</TABLE>
(1.) Amortize goodwill
(2.) Interest expense
(3.) Income tax proration
F-12
<PAGE>
INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30,1997
<TABLE>
<CAPTION>
IFC, Inc. Southern Riley Pro Forma
and Communications Underground Pro Forma Consolidated
Subsidiaries Products, Inc. Comm., Inc. Adjustments Amounts
------------ -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract Revenues $ 16,495,951 $ 6,504,942 $ 1,977,776 $ 24,978,669
Cost of Contract Revenues 12,613,550 2,414,300 1,768,842 16,796,692
------------ ------------- ------------- --------------
Gross Profit 3,882,401 4,090,642 208,934 8,181,977
General and Administrative Expenses 2,790,551 707,110 233,719 $ 460,879(1) 4,192,259
------------ ------------- ------------- --------------
Profits from Operations 1,091,850 3,383,532 (24,785) 3,989,718
Other Income (Expense):
Interest Income 22,747 36,156 - 58,903
Interest expense (221,939) - (65,560) (136,000)(2) (423,499)
Other Income 2,955 - - 2,955
Gain on disposal of assets 174,378 (1,175) - 173,203
------------- -------------- ------------- --------------
(21,859) 34,981 (65,560) (188,438)
------------- -------------- ------------- --------------
Net income before income taxes 1,069,991 3,418,513 (90,345) 3,801,280
============= ============== ============= ==============
Provision for tax benefit (expense) 160 - - (1,367,405)(3) (1,367,245)
------------- -------------- ------------- --------------
Net income 1,070,151 3.418,513 (90,345) 2,434,035
============= ============== ============= ==============
Preferred stock dividend (113,063) - - (113,063)
------------- -------------- ------------- --------------
Net income attributable to
common stockholders $ 957,088 $ 3,418,513 $ (90,345) $ 2,320,972
============= ============== ============= ==============
Basic earnings per share $ 0.14 $ 0.19
============= ==============
Fully diluted earnings per share 0.07 0.12
============= ==============
Basic average shares outstanding 6,899,220 11,999,117
Diluted weighted average shares
Outstanding 14,521,004 19,620,901
</TABLE>
(1.) Amortize goodwill
(2.) Interest expense
(3.) Income tax proration
F-13
<PAGE>
ITEM 6.
The Company filed no Reports on Form 8-K during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL FIBERCOM, INC.
By /s/ Terry Beiriger
----------------------------
Terry Beiriger,
Chief Financial Officer
DATED: August 14, 1998
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,349,672
<SECURITIES> 0
<RECEIVABLES> 12,456,704
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,289,588
<PP&E> 11,831,478
<DEPRECIATION> (4,378,571)
<TOTAL-ASSETS> 54,512,523
<CURRENT-LIABILITIES> 10,974,358
<BONDS> 0
0
766,662
<COMMON> 40,518,836
<OTHER-SE> (2,740,893)
<TOTAL-LIABILITY-AND-EQUITY> 54,512,523
<SALES> 30,928,477
<TOTAL-REVENUES> 31,027,477
<CGS> 20,370,446
<TOTAL-COSTS> 25,975,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263,260
<INCOME-PRETAX> 4,788,627
<INCOME-TAX> 1,666,394
<INCOME-CONTINUING> 3,122,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (38,285)
<NET-INCOME> 3,083,948
<EPS-PRIMARY> .17
<EPS-DILUTED> .14
</TABLE>
