-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pz+O9xI8V07cmThJug+uCefBWzahi1QRGjVxszcFOgwxFTetNVhWPqL88MVcW1P6 Op9dQVZAA7rjpa9/X2U6GQ== 0000950147-99-000438.txt : 19990511 0000950147-99-000438.hdr.sgml : 19990511 ACCESSION NUMBER: 0000950147-99-000438 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL FIBERCOM INC CENTRAL INDEX KEY: 0000924632 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 860271282 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13278 FILM NUMBER: 99615006 BUSINESS ADDRESS: STREET 1: 3410 E UNIVERSITY STREET 2: SUITE 180 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6029411900 MAIL ADDRESS: STREET 1: 3410 E UNIVERSITY STREET 2: SUITE 180 CITY: PHOENIX STATE: AZ ZIP: 85034 10-Q 1 QUARTERLY PERIOD ENDED MARCH 31, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 COMMISSION FILE NO 1-9690 INTERNATIONAL FIBERCOM, INC. Incorporated in the State of Arizona IRS No. 86-0271282 3410 E. University Drive, Suite 180 Phoenix, AZ 85034 (602) 941-1900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Common Stock without par value 27,393,483 shares issued and 27,187,794 outstanding at March 31, 1999 INDEX INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Consolidated balance sheets - March 31, 1999 and December 31, 1998 Consolidated statements of operations - Three months ended March 31, 1999 and 1998 (audited) Consolidated statements of cash flows - Three months ended March 31, 1999 and 1998 Notes to consolidated financial statements - March 31, 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURE 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 W. Beiriger ---------------------------------- Terry W. Beiriger, Chief Financial Officer DATED: May 10, 1999 ------------------- i INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1999 1998 ----------- ----------- (Unaudited) Current Assets: Cash and cash equivalents $ 4,262,511 $ 4,789,547 Accounts receivable - trade, net of allowance 20,005,474 21,860,773 - other 595,442 741,269 Costs and estimated earnings in excess of billings on uncompleted contracts 7,664,731 5,191,428 Inventory, net of allowance (Note 2) 17,028,195 16,946,143 Prepaid expenses 335,023 262,426 Deferred tax asset 863,000 863,000 ----------- ----------- Total Current Assets 50,754,376 50,654,586 Property and Equipment, net 12,788,504 10,042,072 Other Assets: Loans receivable related party 242,481 220,200 Goodwill, net 27,239,962 22,855,531 Covenant not to compete, net 293,767 313,101 Other assets 349,089 348,551 Deferred acquisition costs 300,000 125,000 Debt issue costs, net 92,923 55,348 ----------- ----------- 28,518,222 23,917,731 ----------- ----------- Total Assets $92,061,102 $84,614,389 =========== =========== See notes to consolidated financial statements. F-1 INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31, 1999 1998 ----------- ----------- (Unaudited) Current Liabilities: Notes payable - current portion $11,431,541 $ 6,410,568 Notes payable - related party 1,016,791 2,029,287 Obligations under capital lease - current portion 773,753 515,386 Accounts payable 5,975,971 9,464,558 Accrued expenses 2,515,850 2,252,307 Billings in excess of cost and estimated earnings on uncompleted contracts 557,623 449,205 Income taxes payable 2,377,912 3,036,621 ----------- ----------- Total Current Liabilities 24,649,441 24,157,932 Long-Term Liabilities: Notes payable-long term 1,835,429 2,117,522 Notes payable-related party 913,996 1,151,196 Obligations under capital lease - long term 2,950,070 807,590 Deferred income tax payable 838,079 822,327 ----------- ----------- Total Long-Term Liabilities 6,537,574 4,898,635 ----------- ----------- Total Liabilities 31,187,015 29,056,567 Stockholders' Equity: Series C 4% convertible preferred stock, no par value 1,000 shares authorized, 400 shares issued and outstanding -- 306,665 Common Stock, no par value, 100,000,000 shares authorized; 27,393,483 shares issued and 27,187,794 shares outstanding at March 31, 1999; 26,271,545 shares issued and 26,065,855 shares outstanding at December 31, 1998 50,756,451 47,361,495 Additional paid-in capital 2,581,149 2,581,149 Retained Earnings 8,366,574 6,138,600 ----------- ----------- 61,704,174 56,387,909 Less: treasury stock 205,689 shares, at cost 830,087 830,087 ----------- ----------- Total Stockholders' Equity 60,874,087 55,557,822 ----------- ----------- Total Liabilities and Stockholders' Equity $92,061,102 $84,614,389 =========== ===========
See notes to consolidated financial statements. F-2 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31 ----------------------------- 1999 1998 ------------ ------------ (Unaudited) Net sales $ 27,865,337 $ 21,667,979 Cost of sales 19,402,778 14,505,050 ------------ ------------ Gross profit 8,462,559 7,162,929 General and administrative expenses 4,461,491 3,506,449 ------------ ------------ Income from operations 4,001,068 3,656,480 Other income (expense): Interest income 38,421 31,784 Interest expense (392,626) (148,082) Other income 7,414 6,421 Gain on disposal of assets 6,931 8,734 ------------ ------------ (339,860) (101,143) ------------ ------------ Income before provision for income taxes 3,661,208 3,555,337 Provision for income taxes 1,429,234 631,628 ------------ ------------ Net income 2,231,974 2,923,709 Preferred stock dividend 4,000 22,910 ------------ ------------ Net income attributable to common stockholders before proforma provision for income taxes $ 2,227,974 $ 2,900,799 ============ ============ Proforma provision for income taxes (Note 3) -- 790,507 ------------ ------------ Net income attributable to common stockholders after proforma provision for income taxes $ 2,227,974 $ 2,110,292 ============ ============ Proforma earnings per common share (Note 4): Basic $ .08 $ .10 Diluted $ .08 $ .08 Earnings per common share: Basic $ .08 $ .14 Diluted $ .08 $ .11 Shares used in computing earnings per share: Basic 26,976,948 20,331,540 Diluted 29,081,368 25,834,105 See notes to consolidated financial statements. F-3 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1999 AND YEAR ENDED DECEMBER 31, 1998
Preferred Stock Common Stock --------------------------- ----------------------------- Series B Series C Shares Amount ----------- ----------- ------------- ------------- Stockholders' Equity, January 1, 1998 $1,126,837 $766,662 19,886,849 $32,390,731 Series B preferred stock conversion 792,046 1,126,837 Series C preferred stock conversion (1,126,837) (459,997) 126,316 459,997 Conversion of 5.5% convertible debentures 480,000 600,000 Accrued Interest paid in stock 7,744 46,948 Public warrants exercises 1,288,930 6,981,453 Non-Employee option/warrant exercises 2,682,632 2,013,393 Employee stock option exercises 788,745 392,150 Common shares purchased under ESPP 139,876 678,305 Riley acquisition 28,236 150,000 General acquisition 17,857 125,000 Dumbauld acquisition 41,885 250,000 Diversitec finders fee 25,131 150,000 Treasury stock repurchase Issuance of repricing shares 300,000 1,948,959 S-Corporation shareholder distribution Preferred stock dividends 7,771 47,722 Net income ----------- ----------- ------------- ------------- Stockholders' Equity, December 31, 1998 -- $306,665 26,614,018 $47,361,495 Series C preferred stock conversion (306,665) 79,840 306,665 AeroComm acquisition 304,908 2,134,350 Non-employee option/warrant exercises 263,800 689,944 Employee stock option exercises 130,325 259,997 Preferred stock dividends 592 4,000 Net income =========== =========== ============= ============= Stockholders' Equity, March 31, 1999 -- -- 27,393,483 $50,756,451 =========== =========== ============= =============
Additional Retained Paid-In Treasury Earnings Capital Stock Totals ------------ ----------- --------- ----------- Stockholders' Equity, January 1, 1998 $(4,570,591) $2,961,109 $(668,017) $32,006,731 Series B preferred stock conversion - Series C preferred stock conversion - Conversion of 5.5% convertible debentures 600,000 Accrued Interest paid in stock 46,948 Public warrants exercises (379,960) 6,601,493 Non-Employee option/warrant exercises 2,013,393 Employee stock option exercises 392,150 Common shares purchased under ESPP 678,305 Riley acquisition 150,000 General acquisition 125,000 Dumbauld acquisition 250,000 Diversitec finders fee 150,000 Treasury stock repurchase (162,070) (162,070) Issuance of repricing shares 1,948,959 S-Corporation shareholder distribution (646,410) (646,410) Preferred stock dividends (47,722) - Net income 11,403,323 11,403,323 ------------ ---------- --------- ----------- Stockholders' Equity, December 31, 1998 $ 6,138,600 $2,581,149 $(830,087) $55,557,822 Series C preferred stock conversion -- AeroComm acquisition 2,134,350 Non-employee option/warrant exercises 689,944 Employee stock option exercises 259,997 Preferred stock dividends (4,000) -- Net income 2,231,974 2,231,974 ----------- ---------- --------- ----------- Stockholders' Equity, March 31, 1999 $ 8,366,574 $2,581,149 $(830,087) $60,874,087 =========== ========== ========= ===========
See accompanying notes to consolidated financial statements. F-4 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31 ---------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income $ 2,231,974 $ 2,923,709 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 976,831 627,938 Decrease (increase) in receivables 2,105,865 (1,985,193) Increase in inventory (82,052) (278,585) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (2,473,303) (187,667) Increase in prepaid expenses (72,597) (55,080) Decrease in accounts payable (3,488,587) (1,097,227) Increase (decrease) in accrued expenses 263,543 (170,678) Increase in billings in excess of cost and estimated earnings on uncompleted contracts 108,418 510,563 Increase (decrease) in income taxes payable (642,957) 555,384 ----------- ----------- Net cash provided (used) by operating activities (1,072,865) 843,164 Cash flows from investing activities: Purchase of property and equipment (3,415,598) (344,127) Increase in deposits and other assets (127,558) (611,540) Increase in intangible assets (2,575,987) (285,971) Increase in deferred acquisition costs (175,000) -- ----------- ----------- Net cash used by investing activities (6,294,143) (1,241,638) Cash flows from financing activities: Net increase (decrease) of loans, lease obligations and other long-term liabilities 5,890,031 (937,666) Proceeds from warrant and stock option exercises 949,941 711,982 S-Corp shareholder distribution -- (210,654) Treasury stock repurchase -- (150,000) ----------- ----------- Net cash provided (used) by financing activities 6,839,972 (586,338) ----------- ----------- Net decrease in cash and cash equivalents (527,036) (984,812) Cash and cash equivalents, beginning of period 4,789,547 3,355,875 ----------- ----------- Cash and cash equivalents, end of period $ 4,262,511 $ 2,371,063 =========== ===========
F-5 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL CASH FLOW DISCLOSURES (UNAUDITED) Three Months Ended March 31 --------------------------- 1999 1998 ------------- --------- Non-Cash Transactions: Accrued interest paid in Common Stock $ -- $ 46,948 Common Stock issued relating to Business Acquisitions 2,134,350 -- Convertible debt converted to Common Stock -- 600,000 Series B Preferred Stock converted to Common Stock -- 168,502 Series C Preferred Stock converted to Common Stock 306,665 -- Preferred Stock dividends paid in Common Stock 4,000 22,910 F-6 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 March 31, 1999 and the results of its operations for the three months ended March 31, 1999. 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 three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1999. 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, 1998. 2. Inventory: The components of inventory consist of the following: March 31, December 31, 1999 1998 ------------ ------------ New and used telephone equipment $ 18,058,255 $ 18,058,880 Cabling and equipment 839,745 847,433 Raw Materials 90,365 -- ------------ ------------ 18,988,365 18,906,313 Less: allowance for obsolete inventory (1,960,170) (1,960,170) ------------ ------------ $ 17,028,195 16,946,143 ============ ============ 3. On September 1, 1998, the Company acquired United Tech, Inc. ("United") and Diversitec, Inc. ("Diversitec") under the rules of poolings of interest accounting whereby the Company exchanged shares of Common Stock for all the shares of stock of United and Diversitec. As such, all prior period consolidated financial statements presented have been restated to include the combined results of operations, financial position and cash flows of United and Diversitec as though they have always been a part of the Company. In addition, both United and Diversitec were Subchapter S Corporations for federal tax purposes and, accordingly, did not pay U.S. federal income taxes up to the acquisition date. Therefore, a proforma provision for income taxes is recorded for the period up to the acquisition date as if both companies were C Corporation tax reporting entities since inception. F-7 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Stockholders' Equity:
Three Months Ended March 31 --------------------------- 1999 1998 ----------- ----------- Proforma Numerator: Proforma Numerator for basic earnings per share - net income attributable to common stockholders after proforma provision for income taxes $ 2,227,974 $ 2,110,292 Interest expense and finance expense on convertible debt 25,116 39,540 Preferred stock dividends 4,000 22,910 ----------- ----------- Proforma Numerator for diluted earnings per share - adjusted net income attributable to common stockholders plus assumed conversions $ 2,257,090 $ 2,172,742 =========== =========== Numerator: Numerator for basic earnings per share - net income attributable to common stockholders before proforma provision for income taxes $ 2,227,974 $ 2,900,799 Interest expense and finance expense on convertible debt 25,116 39,540 Preferred stock dividends 4,000 22,910 ----------- ----------- Numerator for diluted earnings per share - adjusted net income attributable to common stockholders plus assumed conversions $ 2,257,090 $ 2,963,249 =========== =========== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 26,976,948 20,331,540 Effect of dilutive securities: Convertible preferred stock 44,381 961,932 Dilutive options 1,877,391 4,181,985 Convertible debt 182,648 358,648 ----------- ----------- Dilutive potential common shares 2,104,420 5,502,565 Denominator for diluted earnings per share - adjusted weighted-average shares outstanding and assumed conversions 29,081,368 25,834,105 =========== =========== Proforma earnings per common share: Basic $ .08 $ .10 =========== =========== Diluted $ .08 $ .08 =========== =========== Earnings per common share Basic $ .08 $ .14 =========== =========== Diluted $ .08 $ .11 =========== ===========
F-8 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Segment Information The Company's operations are classified into five principal reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, production and technology strategies. Segmented information is reported in a different manner from the 1998 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. March 31, 1999 (Three Month Period Ending)
Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----------- Revenues $ 9,498,505 $5,755,876 $ 4,134,708 $ 7,551,161 $ 925,087 $27,865,337 Gross Profit 2,163,923 1,659,787 1,628,811 2,485,791 524,247 8,462,559 Interest Expense 128,609 25,895 94,383 143,414 325 392,626 Depreciation and Amortization 484,515 52,173 129,124 302,519 8,500 976,831 Operating Income 1,239,593 596,924 543,494 1,203,067 417,990 4,001,068 Assets 23,859,684 9,708,380 7,661,731 44,626,018 6,205,289 92,061,102 March 31, 1998 (Three Month Period Ending) Infrastructure Systems Equipment Development Integration Engineering Distribution Wireless Total ----------- ----------- ----------- ------------ -------- ----------- Revenues $ 2,714,165 $5,699,025 $ 1,569,756 $11,685,033 $ -- $21,667,979 Gross Profit 348,426 1,414,228 422,347 4,977,928 -- 7,162,929 Interest Expense 49,088 10,849 12,688 75,457 -- 148,082 Depreciation and Amortization 201,311 35,296 137,104 254,227 -- 627,938 Operating Income (Loss) (137,374) 629,574 (87,558) 3,251,838 -- 3,656,480 Assets 8,388,625 7,222,294 3,449,917 31,921,329 -- 50,982,165
F-9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL International FiberCom, Inc. offers a wide variety of services and equipment to the telecommunications, cable television and other related industries through ten wholly-owned subsidiaries. Unless the context requires otherwise, all references to "we", "our" or "us" refer to International FiberCom, Inc. and its subsidiaries. Our subsidiaries are separated into the following five principal business segments: INFRASTRUCTURE DEVELOPMENT Our Infrastructure Development segment designs, installs and maintains fiber-optic cable networks for cable television and telephone companies, also known as "outside plant development". We have three subsidiaries in this segment: * Kleven Communications, Inc. ("Kleven") * Kleven Communications - CA, Inc. ("Kleven-CA") * All Star Telecom, Inc. ("All Star") SYSTEMS INTEGRATION Our Systems Integration segment designs, installs and maintains structured cable systems, network hardware, software, workstations and related peripherals, primarily within commercial, industrial and government facilities. We have one subsidiaries in this segment: * Concepts in Communications, Inc. ("Concepts") ENGINEERING Our Engineering segment specializes in the design of fiber-optic video, voice and data networks for cable television and telephone companies. This segment also provides project management, construction management, consulting services and staffing. We have two subsidiaries in this segment: * Compass Communications, Inc. ("Compass") * IFC Staffing, Inc. ("IFC Staffing") EQUIPMENT DISTRIBUTION Our Equipment Distribution segment subsidiaries purchase, sell and deal in new and used telecommunications equipment used in the digital access, switching and transport systems of telephone companies, and other Fortune 500 companies. We have three subsidiaries in this segment: * Southern Communications Products, Inc. ("Southern") * Diversitec, Inc. ("Diversitec") * United Tech, Inc. ("United Tech") 10 WIRELESS Our Wireless segment manufactures and installs specialized wireless telecommunications equipment used to enhance radio frequency transmission and reception in tunnels, subways and other confined environments. * AeroComm, Inc. ("AeroComm") Our strategy is to be a one-stop solution for the telecommunications marketplace. This strategy involves offering a wide range of engineering, consulting and maintenance services for fiber-optic and broadband networks and systems integrated with local area network ("WAN") expertise and capabilities. A LAN is a group of personal computers linked together in a building or campus to share programs, data, E-mail, peripherals and other resources. A WAN is a network that covers a large geographic area, such as a state or country. We derive a substantial portion of our revenue from contracts that are accounted for under the percentage of completion method of accounting. Under this method, revenues are recorded as work progresses on a contract. Overall gross margin percentages can increase or decrease based upon changes in the estimated gross margin percentages over the lives of the individual contracts. In January 1999, we acquired all of the outstanding equity securities of AeroComm for approximately $5 million paid with $2.9 million in cash and 304,907 shares of restricted common stock. The acquisition is being accounted for as a purchase. In February 1999, we entered into a two-year credit agreement with a syndication of commercial banks. Under the agreement, we have the ability to borrow, on a revolving credit basis, an aggregate of $30 million based on our available borrowing capacity. Borrowings under this agreement will bear interest at either LIBOR plus 2% or prime rate at our discretion. In March we took advances under the credit agreement to pay off outstanding balances under various credit agreements. In connection with the $30 million credit agreement, we also entered into a $5 million lease financing agreement. In April 1999, we purchased all of the outstanding equity securities of All Star. All Star specializes in the engineering, development and maintenance of telecommunications infrastructure systems, including cellular, for the CATV, LEC and CLEC industries. The purchase agreement calls for an initial payment of $3.85 million in cash and the issuance of 592,857 restricted shares of common stock for a total of approximately $8 million. Additional contingent payments (up to $13.5 million) may be payable if All Star meets certain pretax targets over the next 3 years. Future contingent payments may be in cash or common stock, except that over 40% of all proceeds must be paid in stock. The acquisition will be accounted for as a purchase. RESULTS OF OPERATIONS NET SALES. Net sales for the first quarter of 1999 increased to $27,865,337 from $21,667,979 for the same period in 1998, an increase of 29%. This increase in sales is primarily attributable to the increase in contract activity in the infrastructure development and engineering segments as well as the addition of AeroComm's revenue in the first quarter. Infrastructure development and engineering segment revenues increased by over $9 million from the comparable quarter of 1998 to overcome a reduction in revenues in the equipment distribution segment of approximately $4 million. Refer to Note 5 of the financial statements (page F-9) for further breakdown by segment. 11 GROSS PROFIT. The Company's gross profit increased to $8,462,559 for the first quarter of 1999 compared with $7,162,929 for the same period in 1998. The increase was a result of significant growth in the infrastructure development and engineering segments, as well as the addition of profits from our wireless division as compared to the 1998 quarter. Such increases offset the reduction in the profit of the equipment distribution segment of approximately $2.5 million. GENERAL AND ADMINISTRATIVE COSTS. The Company's general and administrative expenses were $4,461,491 for the first quarter of 1999 compared with $3,506,449 for the same period in 1998. As a percentage of net sales, the general and administrative expenses remained constant at 16% on a quarter to quarter comparison. OTHER INCOME (EXPENSE). The Company's net expense in this category was $339,860 for the first quarter of 1999 compared with $101,113 for the same period in 1998. This increase is primarily attributable to higher borrowing activity for the acquisitions of AeroComm in 1999, and Communications Center, Inc., General Communications, Inc., and Riley Communications, Inc. in 1998. All four of the above transactions were in part cash purchases. The increase in net expenses is also partially attributable to increased interest expenses under equipment financing arrangements as a result of substantial equipment purchases in the infrastructure development segment to meet increased demand for that segment's services. PROVISION FOR INCOME TAX BENEFIT (EXPENSE). The Company accrued income tax expense of $1,429,234 in the first quarter of 1999 compared to income tax expense of $631,628 for 1998. On a pro forma basis the provision for income taxes increased from $1,422,135 in the first quarter of 1998 to $1,429,234 in the same period of 1999. The pro forma tax adjustment is stated to reflect the acquisitions of Diversitec and United Tech as explained in Note 3 of the financial statements. NET INCOME. The Company generated net income of $2,231,974, or approximately 8% of revenues, for the first quarter of 1999 compared with net income of $2,110,292, after pro forma tax adjustments, or 10% of revenues, for the same period in 1998. PREFERRED STOCK DIVIDEND. The Company paid a dividend of $4,000 on its Series C Convertible Preferred Stock for the first quarter of 1999 through the issuance of 592 shares of its Common Stock. BACKLOG. The Company had a backlog of approximately $32.0 million on a work in process basis as of March 31, 1999. The Company expects such work orders to be completed by December 1999. Further, the Company has work orders, which were not started at March 31, 1999, for Cox Communications, Inc., the State of Tennessee, Nike, Inc., Neilsen Dillingham, TCG, Intregration Technologies, TCI, and AT&T totaling in excess of $30 million. The Company expects to commence such work during the second quarter of 1999 and substantially complete it by December 1999. 12 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 related accrued profits. For the year to date, the Company used approximately $1,072,865 of net cash from operations. Cash generated from operations of $5,686,631 includes net income of approximately $2,231,974, depreciation and amortization of $976,831, a decrease in receivables of $2,105,865, an increase in accrued expenses of $263,543 and an increase in overbillings of $108,418. Cash expended for operations of $6,759,496 includes an increase in inventory of $82,052, an increase in underbillings of $2,473,303, and increase in prepaid expense of $72,597, a decrease in accounts payable of $3,488,587 and a decrease in income taxes payable of $642,957. INVESTING ACTIVITIES. For the three months ended March 31, 1999 the Company used approximately $6,294,143 in investing activities. Such amount consists of the Company's purchase of fixed assets of approximately $3,415,598, an increase in intangible and other assets of $2,703,545, and an increase in deferred acquisition costs of $175,000. FINANCING ACTIVITIES. In the first quarter of 1999, the Company's financing activities generated approximately $6,839,972 consisting in part of an increase in loans and other liabilities payable of approximately $5,890,031, and proceeds from warrant and stock option exercises of $949,941. As of March 31, 1999, the Company had a revolving line of credit with Bank One and other participating institutions totaling approximately $30 million, with an available balance of approximately $20.5 million. 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 AND SEASONALITY. The Company does not believe that it is significantly impacted by inflation. The Company's operations are not seasonal in nature. 13 YEAR 2000 COMPLIANCE The Company has reviewed its computer systems to identify those areas that could be adversely affected by Y2K software failures. The Company has converted approximately 80% of its information systems to be Y2K compliant. The compliance effort to date has cost of approximately $140,000 and approximately $60,000 is budgeted to complete the remaining required systems' compliance efforts. Although the Company expects that any future expenditures made in connection with Y2K conversions will not be material, there can be no assurance in this regard. The Company believes that some of its customers, particularly local exchange and long distance carriers and cable system operators may be impacted by the Y2K problem, which then may affect the Company. Currently, the Company cannot predict the effect that Y2K problems may have on companies with whom it transacts business and there cannot be any assurance that these problems will not materially and adversely affect the Company's financial condition, cash flow or results of operations. As a result of this uncertainty, the Company is formulating a contingency plan to address the possible effects of problems encountered as a result of Y2K issues. 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 amounts receivable; availability of trained personnel and utilization of the Company's capacity to complete work; the Company's ability to complete proposed acquisitions and, upon their completion, to integrate the acquisitions into its organization and manage its growth; competition and competitive pressures on pricing; and economic conditions in the United States and in the regions served by the Company. 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is not involved as a party to any legal proceeding other than various claims and lawsuits arising in the ordinary course of its business, none of which, in the opinion of the Company's management, is material, either on an individual or a collective basis. ITEMS 2, 3 , 4, 5 AND 6 ARE OMITTED BECAUSE THESE ITEMS ARE INAPPLICABLE TO THIS REPORT. 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS DEC-30-1999 JAN-01-1999 MAR-30-1999 1 4,262,511 0 20,600,916 0 17,028,195 50,754,376 18,941,739 (6,153,235) 92,061,102 24,649,441 0 0 0 50,756,451 10,117,636 92,061,102 27,865,337 27,918,103 19,402,778 23,864,269 0 0 392,626 3,661,208 1,429,234 2,231,974 0 0 (4,000) 2,227,974 .08 .08
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