-----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, VS6M/ofPoFUX9m/F9cxx87hpiKfQOSI8EaR7S1Hsxp4xLIbDBBaCG5zq3Bjo2Qg2 HjSiEB9mryC8Z983QuC7Xg== 0000950147-98-000925.txt : 19981118 0000950147-98-000925.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950147-98-000925 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL FIBERCOM INC CENTRAL INDEX KEY: 0000924632 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 860271282 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13278 FILM NUMBER: 98749700 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 10QSB 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1998 COMMISSION FILE NO 1-9690 INTERNATIONAL FIBERCOM, INC. Incorporated in the State of Arizona IRS No. 86-0271282 3410 E. University Drive, Suite 180 Phoenix, AZ 85034 (602) 941-1900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Common Stock without par value 26,271,545 shares issued and 26,065,855 outstanding at September 30, 1998 PART I - FINANCIAL INFORMATION ITEM 1. THE FINANCIAL STATEMENTS ARE INCLUDED HEREWITH COMMENCING ON PAGE F-1. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL International FiberCom, Inc. offers a wide variety of services and equipment to the telecommunications, cable television and other related industries through the eight wholly-owned subsidiaries in the following segments: CONSTRUCTION SERVICES Our Construction Services segment consists of outside plant and systems integration services. Our outside plant services specialize in the design, installation and maintenance of other related services for the telecommunication and other CATV industries. Our systems integration services include design, engineering, installation and maintenance of structured cable systems, network hardware and software, workstation peripherals and intercommunications systems, primarily within commercial, industrial and government facilities. We have four subsidiaries in this segment: o Kleven Communications, Inc. ("Kleven") o Kleven Communications-CA, Inc. dba Riley Communications, Inc. ("Riley") o Concepts in Communications, Inc. ("Concepts") o General Communications Services, Inc. ("General") ENGINEERING Our Engineering segment specializes in video, voice data network development using state of the art, fiber-optic distribution platforms. At the present time we have one subsidiary in this segment: o Compass Communications, Inc. ("Compass") EQUIPMENT SALES Our Equipment Sales segment subsidiaries purchase, sell and deal in new and used telecommunications equipment used in the digital access, switching and transport systems of leading telecommunications companies, Regional Bell Operating Companies, telecommunications hardware resellers and other Fortune 500 companies. We have three subsidiaries in this segment: o Southern Communications Products, Inc. ("Southern") o Diversitec, Inc. ("Diversitec") o United Tech, Inc. ("United") 2 Our strategy is to be a one-stop solution for the telecommunications marketplace. This strategy involves offering a wide range of engineering, consulting and maintenance services for fiber-optic and broadband networks and systems integrated with local area network ("LAN") and wide area network ("WAN") expertise and capabilities. A LAN is a group of personal computers linked together in a building or campus to share programs, data, E-mail, peripherals and other resources. A WAN is a network that covers a large geographic area, such as a state or country. We derive a substantial portion of our revenue from contracts that are accounted for under the percentage of completion method of accounting. Under this method, revenues are recorded as work progresses on a contract. Overall gross margin percentages can increase or decrease based upon changes in the estimated gross margin percentages over the lives of the individual contracts. Effective September 1, 1998 we acquired United and Diversitec for total consideration consisting of 1,502,000 and 1,752,000 restricted shares of Common Stock, respectively. Both acquisitions have been accounted for as poolings-of-interest. RESULTS OF OPERATIONS The comparability of the results of operations for the third quarter of 1998 with the same period in 1997 was significantly impacted by the acquisition of Southern Communications Products, Inc., ("Southern") as shown in the Unaudited Pro Forma Consolidated Statement of Operations information contained in this Report. Therefore, Management's Discussion and Analysis of Financial Condition and Results of Operations for these periods discusses the operations in 1998 compared with actual operations in 1997 and the operations in 1998 compared with 1997 pro forma figures as if the Company had owned Southern since January 1997, which it has not. Effective October 1997, the Company acquired Compass and effective September 1998 the Company acquired both United and Diversitec. All of these acquisitions were accounted for as poolings-of-interest and accordingly, the consolidated financial statements of the Company for all periods prior to the acquisition dates have been restated to include the accounts and results of operations of these companies. CONTRACT REVENUES. Contract revenues for the third quarter of 1998 increased to $25,685,899 from $13,534,964 for the same period in 1997, an increase of 90%. This increase in revenues is primarily attributable to the addition of Southern's and Riley's revenues in the third quarter of 1998, as well as increased contract activity for Kleven and Concepts. On a pro forma basis, for the third quarter of 1998, contract revenues increased 66% from $15,516,871 in 1997 to $25,685,899. This increase is due primarily to higher levels of revenue generated by Concepts and Kleven, increased sales by Southern and increased contract activity at Riley. 3 GROSS PROFIT. The Company's gross profit increased to $8,590,163 for the third quarter of 1998 compared with $3,835,199 for the same period in 1997 due to the addition of gross profits from the operations of Southern and Riley and a marked increase in the gross profit margin of Concepts. The Company's gross profit margin increased from 28% of contract revenues in the third quarter of 1997 to 33% of contract revenues in the third quarter of 1998, primarily due to the gross profit margins of Southern and Concepts. On a pro forma basis, the Company's gross profit for the third quarter of 1998 was $8,590,163 compared with $5,475,621 for the same period in 1997. This increase is due primarily to the increase of gross profits for Concepts as well as the addition of Riley in 1998. GENERAL AND ADMINISTRATIVE COSTS. The Company's general and administrative expenses were $4,201,770 for the third quarter of 1998 compared with $2,303,977 for the same period in 1997, an increase of 82%. This increase is chiefly due to the addition of the general and administrative expenses of Southern and Riley, of which a significant portion relates to the amortization of intangibles resulting from the acquisition of Southern. On a pro forma basis, general and administrative expenses for the third quarter of 1998 were $4,201,170, or 16% of revenues, compared with $3,041,047, or 20% of revenues, for the same period in 1997. The Company has and will continue to consolidate duplicative administrative functions relating to its acquired companies to the extent possible. The administrative expenses of the Company is a result of significant increase in the amortization of intangibles resulting from the acquisitions of Concepts and Southern. OTHER INCOME (EXPENSE). The Company's net expense in this category was $270,082 for the third quarter of 1998 compared with net expense of $209,624 for the same period in 1997. On a pro forma basis, other expense was $270,082 in the third quarter of 1998 as compared with a net expense of $294,864 for the same period in 1997. The difference is due primarily to an increase in interest income at the parent level. PROVISION FOR INCOME TAX BENEFIT (EXPENSE). The Company accrued income tax expense of $866,835 in the third quarter of 1998 compared to income tax expense of $90,621 for 1997. On a pro forma basis the provision for income taxes increased from $830,361 in the third quarter of 1997 to $866,835 in the same period of 1998 due to the higher net income before taxes of the Company. NET INCOME. The Company generated a net income of $2,362,076, or approximately 9% of revenues, for the third quarter of 1998 compared with net income of $1,230,977, or 9% of revenues for the same period in 1997. The increase in net income is primarily a result of increased profit margins at Concepts, and the addition of the net income of Southern and Riley. The net income of the Company was impacted significantly due to non-recurring acquisition costs of $890,000 related to the acquisitions of United and Diversetic. On a pro forma basis, the Company's net income increased to $2,362,076 in the third quarter of 1998 compared with a net income of $1,309,349 for the same period in 1997. Such increase was primarily due to the strong performance of both Concepts and Southern. PREFERRED STOCK DIVIDEND. The Company paid dividend of $8,602 on its Series C Convertible Preferred Stock for the third quarter of 1998 through the issuance of 1,316 shares of its Common Stock. 4 BACKLOG. The Company had a backlog of approximately $25.1 million on a work in process basis as of September 30, 1998. The Company expects such work orders to be completed by March 1999. Further, the Company has work orders, which were not started at September 30, 1998, for Cox Communications, Inc., the State of Tennessee, Nike, Inc., Neilsen Dillingham, TCG, Intregration Technologies, TCI, and Cablevision, Inc. totaling in excess of $33 million The Company expects to commence such work during the fourth quarter of 1998 and substantially complete the same by December 1999. LIQUIDITY AND CAPITAL RESOURCES OPERATIONS. The Company has historically financed its operations through operating cash flow, lines of credit and debt and equity offerings. The Company's liquidity is impacted, to a large degree, by the nature of billing provisions under its installation and service contracts. Generally, in the early periods of contracts, cash expenditures and accrued profits are greater than allowed billings, while contract completion results in billing previously unbilled costs and profits. In the year to date for 1998, the Company used approximately $1,787,000 of net cash from operations. Cash generated from operations of $27,787,000, includes net income of approximately $8,235,000, depreciation and amortization of $2,377,000, increase in accounts payable and accrued expense of $4,152,000, increase in taxes payable of $1,720,000, acquisition fees paid in stock of 150,000 shares, a net increase in billings in excess of costs of $1,153,000, an increase in trade receivables of $10,514,000, an increase in inventory of $6,995,000, a decrease in accrued offering costs of $431,000, and an increase in other current assets of $1,635,000. The net cash used of $1,787,000 from operations for the nine months ended September 30, 1998 compares to net cash used from operations of approximately $2,258,000 in the same period 1997. INVESTING ACTIVITIES. For the nine months ended September 30, 1998 the Company used approximately $6,120,000 in investing activities. Such amount consists of the Company's purchase of fixed assets of approximately $4,710,000, an increase in intangible and other assets of $1,295,000, and an increase in deferred acquisitions cost of $115,000. FINANCING ACTIVITIES. In the third quarter of 1998, the Company's financing activities generated approximately $10,644,000 consisting in part of an increase in loans and other liabilities payable of approximately $2,561,000, proceeds from warrant and stock option exercises of $8,891,000 and offset by treasury stock purchases of $162,000 made under the Company's stock repurchase program, which was terminated during the third quarter, and subchapter S corporation shareholder distribution to the former shareholders of Diversitec of $646,000. As of September 30, 1998, the Company had four revolving lines of credit totaling approximately $5,400,000, with an available balance of approximately $1,600,000. The Company believes that with its current working capital, funds generated through its operations and available credit balances on its lines of credit it will have sufficient working capital to address the anticipated growth of demand and markets for its products and services for the next 12 to 18 months. The Company may, however, seek to obtain additional capital through an expanded working capital line of credit at a financial institution or through additional debt or equity offerings during this time period. The raising of additional capital in public markets will primarily be dependent upon prevailing market conditions and the demand for the Company's products and services. 5 INFLATION. The Company does not believe that it is significantly impacted by inflation. SEASONALITY. The Company's operations are not seasonal in nature. Like many companies, the Company is currently in the process of evaluating its computer software, databases and hardware to determine whether or not modifications will be required to prevent problems related to the year 2000. These problems, which have been widely reported in the media, could cause malfunctions in certain software, databases and embedded circuitry with respect to dates on or after January 1, 2000, unless corrected. At this time, the Company has not yet determined the cost of evaluating its computer software or databases or of making any modifications required to correct any "Year 2000" problems. FORWARD-LOOKING INFORMATION AND RISKS OF THE BUSINESS. This Report contains certain forward-looking statements and information within the meaning of section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The cautionary statements made in this Report should be read as being applicable to all related forward-looking statements wherever they appear in this report. Forward-looking statements, by their very nature, include risks and uncertainties. Accordingly, the Company's actual results could differ materially from those discussed herein. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. Such factors, many of which are beyond the control of the Company, include the following: the Company's success in obtaining new contracts; the volume and type of work orders that are received under such contracts; the accuracy of the cost estimates for the projects; the Company's ability to complete its projects on time and within budget; levels of, and ability to collect amounts receivable; availability of trained personnel and utilization of the Company's capacity to complete work; competition and competitive pressures on pricing; and economic conditions in the United States and in the region served by the Company. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company has no on-going or pending litigation at this time. Items 2, and 3, are omitted because these Items are inapplicable to this Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its 1998 Annual Meeting of Shareholders on July 10, 1998. The following Directors were elected for terms which will expire at the 1999 Annual Meeting of Shareholders: Joseph P. Kealy, Jerry A. Kleven, John F. Kealy, Richard J. Seminoff, and V. Thompson Brown, Jr. The shareholders approved the adoption of an amendment to the 1997 Stock Option Plan to increase the number of shares reserved for issuance under the Plan from 1,200,000 to 3,200,000 shares with 14,232,986 shares voting for, 738,470 shares voting against and 85,226 shares abstaining. The shareholders also approved the adoption of the Employee Stock Purchase Plan, under which 2,000,000 shares of Common Stock are reserved for issuance to eligible employees who purchase stock under the Plan. Shareholders approved the adoption of this Plan with 14,500,911 shares voting for, 518,151 shares voting against and 37,620 shares abstaining. 6 Finally, the shareholders ratified the selection of BDO Seidman as the independent public accountants for the Company's fiscal year ended December 31, 1998, with 14,965,955 shares voting for, 58,535 shares voting against and 32,192 shares abstaining. ITEM 5. OTHER INFORMATION. In September, 1998 the Company granted options to purchase 43,000 shares to the directors and officers under the 1997 Stock Option Plan exerciseable at a price of $5.00 per share through April 2003. The foregoing grants became effective upon the completion of the United and Diversitec acquisitions. 7 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
ASSETS (Unaudited) September 30, December 31, 1998 1997 ------------- ------------- Current Assets: Cash and cash equivalent $ 6,092,249 $ 3,355,875 Accounts receivable - trade, net of allowance 19,677,439 9,343,488 - unbilled receivables 88,124 180,545 - other 299,732 27,586 Inventory (Note 2) 13,142,429 6,147,801 Prepaid expenses 319,740 119,620 Loan receivable related parties 66,321 52,000 Deferred tax asset 189,606 258,606 Costs and estimated earnings in excess of billings 3,974,759 2,540,278 ------------- ------------- Total Current Assets 43,850,399 22,025,799 Property and Equipment, net 8,953,788 5,616,633 Other Assets: Loans receivable related party 246,327 238,806 Goodwill, net 22,964,502 20,083,941 Covenant not to compete net 332,436 341,689 Other assets 377,149 347,692 Deferred acquisition costs 115,381 -- Debt issue costs, net 82,774 241,192 ------------- ------------- 24,118,569 21,253,320 ------------- ------------- Total Assets $ 76,922,756 $ 48,895,752 ============= =============
F-1 INTERNATIONAL FIBERCOM, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) September 30, December 31, 1998 1997 ------------- ------------- Current Liabilities: Notes payable - current portion $ 5,143,666 $ 2,209,948 Notes payable - related party 2,045,277 2,965,301 Obligations under capital lease 595,800 192,429 Income taxes payable 1,794,620 123,669 Accounts payable - trade 7,785,224 4,669,034 - related parties -- 19,610 Accrued offering costs -- 741,139 Accrued expense 2,226,455 1,218,602 Billings in excess of cost estimated earnings 1,371,274 218,585 ------------- ------------- Total Current Liabilities 20,962,316 12,358,317 Long-Term Liabilities: Notes payable-long term 1,571,174 923,381 Notes payable-related party 1,489,401 3,051,326 Obligations under capital lease - long term 850,061 392,135 Deferred income tax payable 143,862 163,862 ------------- ------------- Total Long-Term Liabilities 4,054,498 4,530,704 ------------- ------------- Total Liabilities 25,016,814 16,889,021 Stockholders' Equity: Series B 4% convertible preferred stock, no par value; 4,400 authorized; 1518 issued and outstanding at December 1997, none issued and outstanding at September 1998 -- 1,126,837 Series C 4% convertible preferred stock, no par value; 1,000 authorized, 400 issued and outstanding 306,665 766,662 Common Stock, no par, 100,000,000 shares authorized; 26,271,545 shares issued, 26,065,855 outstanding 48,829,123 32,390,731 Common stock warrants 99,082 Additional paid-in capital 2,862,027 2,862,027 Accumulated deficit 2,971,240 (4,570,591) ------------- ------------- 54,969,055 32,674,748 Less: treasury stock 205,690 shares, at cost (3,063,113) (668,017) ------------- ------------- Total Stockholders' Equity 51,905,942 32,006,731 ------------- ------------- Total Liabilities and Stockholders' Equity $ 76,922,756 $ 48,895,752 ============= =============
F-2 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997* 1998 1997* ------------ ------------ ------------ ------------ Contract Revenues $ 25,685,899 $ 13,534,964 $ 71,757,712 $ 41,798,291 Direct Cost of Contract Revenues 17,095,736 9,699,765 47,213,446 29,474,412 ------------ ------------ ------------ ------------ Gross Profit 8,590,163 3,835,199 24,544,266 12,323,879 General and Administrative Expenses 4,201,170 2,303,977 12,256,633 6,697,072 ------------ ------------ ------------ ------------ Profit from operations 4,388,993 1,531,222 12,287,633 5,626,807 Other Income (Expense): Interest income 87,417 26,298 153,292 50,395 Interest expense (323,217) (242,238) (710,170) (591,298) Other income (35,532) (1,243) (84,856) 1,712 Gain on disposal of assets 1,250 7,559 12,460 309,742 ------------ ------------ ------------ ------------ (270,082) (209,624) (629,274) (229,449) ------------ ------------ ------------ ------------ Net income before non-recurring acquisition costs 4,118,911 1,321,598 11,658,359 5,397,358 Non-recurring acquisition costs 890,000 -- 890,000 -- ------------ ------------ ------------ ------------ Net income after non-recurring acquisition costs and before income taxes 3,228,911 1,321,598 10,768,359 5,397,358 ------------ ------------ ------------ ------------ Provision for tax expense 866,835 90,621 2,533,229 90,460 ------------ ------------ ------------ ------------ Net income $ 2,362,076 $ 1,230,977 $ 8,235,130 $ 5,306,898 ============ ============ ============ ============ Preferred stock dividend 8,602 35,000 46,887 148,063 ------------ ------------ ------------ ------------ Net income attributable to common stockholders $ 2,353,474 $ 1,195,977 $ 8,188,243 $ 5,158,835 ============ ============ ============ ============ Earnings per Share: Basic earnings per share: Before non-recurring acquisition costs (net of tax) $ 0.12 $ 0.10 $ 0.39 $ 0.47 ============ ============ ============ ============ After non-recurring acquisition costs $ 0.09 $ 0.10 $ 0.36 $ 0.47 ============ ============ ============ ============ Diluted earnings per share (Note 4): Before non-recurring acquisition costs (net of tax) $ 0.11 $ 0.06 $ 0.33 $ 0.27 ============ ============ ============ ============ After non-recurring acquisition costs $ 0.09 $ 0.06 $ 0.31 $ 0.27 ============ ============ ============ ============ Basic weighted average shares outstanding 25,263,581 12,254,785 22,606,672 10,859,305 ------------ ------------ ------------ ------------ Diluted weighted average shares outstanding 27,704,768 19,876,592 26,876,972 19,584,656 ------------ ------------ ------------ ------------
*Includes operations of Compass Communications, Inc. , United Tech, Inc.and Diversitec, Inc. due to poolings of interest acquisitions. F-3 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY For The Period Ended September 30, 1998 (Unaudited)
Preferred Stock Common Stock ---------------------------- ------------------------------ Series B Series C Shares Amount ------------ ------------ ------------ ------------ Stockholder's Equity December 31, 1997 $ 1,126,837 $ 766,662 16,632,849 $ 32,389,218 Adjustment in connection with the pooling of interests -- -- 3,254,000 1,513 ------------ ------------ ------------ ------------ Stockholder's Equity December 31, 1997 as restated 1,126,837 766,662 19,886,849 32,390,731 Dividend paid on Series B Preferred Stock 3,299 18,285 Dividend paid on Series C Preferred Stock 3,049 20,000 Conversion of Series B Preferred Stock (1,126,837) 792,046 1,126,837 Interest on Debenture paid in Common Stock 7,744 46,918 Warrant Exercises 766,453 1,354,378 Conversion of 8% Debentures 480,000 600,000 Stock Option Exercises 2,142,444 2,355,347 Treasury Stock Repurchase (27,000) Riley Acquisition 28,236 150,000 General Acquisition 17,857 125,000 Shares Purchased Under ESPP 92,707 383,894 Issuance of Reset Shares 300,000 1,948,959 S-Corp shareholder distributions Net Income for the six month Period ended June 30, 1998 ------------ ------------ ------------ ------------ Stockholder's Equity June 30, 1998 -- 766,662 24,493,684 40,520,349 Dividend paid on Series C Preferred Stock 1,316 8,602 Conversion of Series C Preferred Stock (459,997) 126,316 459,997 Diversitec Finders Fee 25,131 150,000 Dumbauld acquisiotion 41,885 250,000 Warrant Exercises 47,000 387,750 Purchase of unexercised Public warrants Exercise of public warrants 1,270,920 6,882,398 Stock option exercises 59,603 170,027 S-Corp Shareholder distributions Net income ------------ ------------ ------------ ------------ Stockholder's Equity September 30, 1998 -- $ 306,665 26,065,855 $ 48,829,123 ============ ============ ============ ============
Additional Accumulated Paid-In Treasury Warrants Deficit Capital Stock Totals ------------ ------------ ------------ ------------ ------------ Stockholder's Equity December 31, 1997 $ 99,082 $ (5,722,837) $ 2,862,027 $ (668,017) $ 30,852,972 Adjustment in connection with the pooling of interests -- 1,152,246 -- -- 1,153,759 ------------ ------------ ------------ ------------ ------------ Stockholder's Equity December 31, 1997 as restated 99,082 (4,570,591) 2,862,027 (668,017) 32,006,731 Dividend paid on Series B Preferred Stock (18,285) -- Dividend paid on Series C Preferred Stock (20,000) -- Conversion of Series B Preferred Stock -- Interest on Debenture paid in Common Stock 46,918 Warrant Exercises 1,354,378 Conversion of 8% Debentures 600,000 Stock Option Exercises (2,233,026) 122,321 Treasury Stock Repurchase (162,070) (162,070) Riley Acquisition 150,000 General Acquisition 125,000 Shares Purchased Under ESPP 383,894 Issuance of Reset Shares 1,948,959 S-Corp shareholder distributions (356,000) (356,000) Net Income for the six month Period ended June 30, 1998 5,873,054 5,873,054 ------------ ------------ ------------ ------------ ------------ Stockholder's Equity June 30, 1998 99,082 908,178 2,862,027 (3,063,113) 42,093,185 Dividend paid on Series C Preferred Stock (8,602) -- Conversion of Series C Preferred Stock -- Diversitec Finders Fee 150,000 Dumbauld acquisiotion 250,000 Warrant Exercises 387,750 Purchase of unexercised Public warrants (744) (744) Exercise of public warrants (98,338) 6,784,060 Stock option exercises 170,027 S-Corp Shareholder distributions (290,412) (290,412) Net income 2,362,076 2,362,076 ------------ ------------ ------------ ------------ ------------ Stockholder's Equity September 30, 1998 -- $ 2,971,240 $ 2,862,027 $ (3,063,113) $ 51,905,942 ============ ============ ============ ============ ============
F-4 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ------------ ------------ Cash flows from operating activities: Net income $ 8,235,130 $ 5,306,899 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 2,377,487 723,660 Acquisition fees paid in Common Stock 150,000 -- Increase in contracts receivable (10,513,676) (4,335,850) Increase in inventory (6,994,628) (2,223,080) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (1,434,481) (1,655,736) Increase in prepaid expenses (200,120) (135,485) Increase (decrease) in accounts payable 3,096,580 (931,628) Increase in accrued expenses 1,054,771 699,980 Increase (decrease) in billings in excess of cost and estimated earnings on uncompleted contracts 1,152,689 (104,478) Increase in income taxes payable 1,719,951 -- (Decrease) increase in accrued offering costs (430,816) 398,000 ------------ ------------ Net cash used by operating activities (1,787,113) (2,257,718) Cash flows from investing activities: Purchase of property and equipment (4,709,896) (1,252,822) (Increase) decrease in deposits and other assets 107,119 6,236 (Increase) decrease in intangible assets (1,402,095) (1,555,103) (Increase) decrease in deferred acquisition costs (115,381) 107,504 ------------ ------------ Net cash used by investing activities (6,120,253) (2,694,185) Cash flows from financing activities: Increase of loans, lease obligations and other long-term liabilities 2,560,859 3,104,482 Proceeds from warrant and stock option exercises 8,891,363 -- S-Corp shareholder distribution (646,412) (1,177,000) Treasury stock repurchase (162,070) -- Proceeds from private offerings, net -- 3,189,589 ------------ ------------ Net cash provided by financing activities 10,643,740 5,117,071 ------------ ------------ Net increase in cash 2,736,374 165,168 Cash, beginning of period 3,355,875 255,553 ------------ ------------ Cash, end of period $ 6,092,249 $ 420,721 ============ ============
F-5 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING, AND FINANCING ACTIVITIES (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997 ---------- ---------- Accrued interest paid in Common Stock $ 46,918 $ Accrued offering costs paid in Common Stock 310,323 Common Stock issued relating to Business Acquisitions 525,000 Convertible debt converted to Common Stock 600,000 202,708 Issuance of additional shares relating to the 1997 private placement 1,948,959 Series A Preferred Stock converted to Common Stock 1,680,997 Series B Preferred Stock converted to Common Stock 1,126,837 Series C Preferred Stock converted to Common Stock 459,997 Preferred Stock dividends paid in Common Stock 46,887 148,063
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 September 30, 1998 and the results of its operations for the three months ended September 30, 1998. Although management believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities Exchange Commission. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1998. The accompanying consolidated financial statements should be read in conjunction with the more detailed financial statements, and the related footnotes thereto, filed with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997 and the Form SB-2 as filed on February 12, 1998. Principles of consolidation: The consolidated financial statements include the financial position, results of operations and cash flows of International FiberCom, Inc., and its wholly-owned subsidiaries, Kleven Communications, Inc., Compass Communications, Inc., Riley Underground Communications, Inc., Southern Communications Products, Inc., United Tech, Inc., Diversitec, Inc., and Concepts In Communications, Inc. All material intercompany transactions, accounts and balances have been eliminated. F-7 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 2. Inventory: The components of inventory consist of the following: September 30, December 31, 1998 1997 ------------ ------------ Cabling and equipment $ 1,215,418 $ 681,762 New and secondary market telephone equipment 13,483,013 7,022,041 Less: allowance for obsolete inventory (1,556,002) (1,556,002) ------------ ------------ $ 13,142,429 6,147,801 ============ ============ 3. Stockholder's Equity:
Diluted Earnings Per Share: Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Income available to common stockholders used in basic EPS $ 2,353,474 $ 1,195,977 $ 8,188,243 $ 5,158,835 Preferred stock dividends 8,602 35,000 46,887 148,063 Interest and financial expense on convertible debentures 26,764 19,500 130,341 70,688 ----------- ----------- ----------- ----------- Income available to common stockholders after assumed conversions of diluted securities $ 2,388,840 $ 1,250,477 $ 8,365,471 $ 5,377,586 =========== =========== =========== =========== Non-recurring acquisition costs, net of tax 560,700 -- 560,700 -- ----------- ----------- ----------- ----------- Income available to common stockholders after dilutive securities and before before acquisition costs $ 2,949,540 $ 1,250,477 $ 8,926,171 $ 5,377,586 =========== =========== =========== =========== Diluted weighted average shares outstanding 27,704,768 19,876,592 26,876,972 19,584,656 ----------- ----------- ----------- ----------- Diluted earnings per share before acquisition costs $ .11 $ 0.06 $ 0.33 $ 0.27 =========== =========== =========== =========== Diluted earnings per share after Acquisition costs $ .09 $ 0.06 $ 0.31 $ 0.27 =========== =========== =========== ===========
F-8 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4. Business Combinations On September 1, 1998, the Company acquired United Tech, Inc. ("United") and Diversitec, Inc. ("Diversitec") whereby the Company exchanged 1,502,000 and 1,752,000 shares of common stock for all the common stock of United and Diversitec, respectively. Both United and Diversitec purchase, sell and deal in new and used telecommunications equipment utilized in the digital access, switching and transport systems of telecommunication service providers on a nationwide basis. Both United and Diversitec were Subchapter S corporations for federal tax purposes and, accordingly, did not pay U.S. federal income taxes. United and Diversitec will be included in the Company's U.S. federal income tax return effective September 1, 1998. The United and Diversitec acquisitions have been accounted for as poolings of interest. Accordingly, all prior period consolidated financial statements presented have been restated to include the combined results of operations, financial position and cash flows of United and Diversitec as though it has always been a part of the Company. The results of operations for the separate companies and combined amounts presented in the consolidated financial statements follow. Unaudited Net Net Pro Forma Sales Income Net Income --------------------------------------------------------------------------- Nine months ended September 30, 1998 (unaudited) IFCI $50,954,893 $ 4,898,692 $ 4,898,692 United 11,628,231 1,541,710 955,860 Diversitec 9,174,588 1,794,728 1,112,731 --------------------------------------------------------------------------- Combined $71,757,712 $ 8,235,130 $ 6,967,283 =========================================================================== Year ended December 31, 1997 IFCI $36,325,146 $ 2,304,485 $ 2,304,485 United 8,345,581 1,061,641 658,217 Diversitec 12,595,079 3,012,523 1,867,764 --------------------------------------------------------------------------- Combined $57,265,806 $ 6,378,649 $ 4,830,466 =========================================================================== Unauadited pro forma net income reflects adjustments to net income to record an estimated provision for income taxes assuming Diversitec and United Tech were tax paying entities. In connection with the United and Diversitec acquisitions, the Company recorded a charge to operating expenses of $890,000 ($560,700 after taxes, or $0.02 per common share) for direct and other acquisition related costs. Acquisition costs consisted primarily of finder's, attorney's and accounting fees. In addition, on September 1, 1998, the Company completed the net asset purchases of Communications Center and Dumbauld & Associates. Communications Center, a Phoenix based interconnect company, was purchased for $530,000 and a $60,000 promissory note. Dumbauld & Associates, a Phoenix based consulting and engineering firm specializing in the design of major broadband, fiber-optic networks, was bought for 41,885 shares of common stock. These two acquisitions have been accounted for as purchases and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisitions. The operating results of the acquired companies are included in the Consolidated Statement of Operations from the acquisition date. The excess of the purchase prices over the valuation of the net assets acquired are classified in the Consolidated Balance Sheet as goodwill and are being amortized on a straight-line basis over 20 years. F-9 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Segment Information The Company's operations are classified into four principal reportable segments that provide different products or services. Separate management of each segment is required because each business unit is subject to different marketing, production and technology strategies. Segmented information is reported in a different manner from the 1997 annual report to better describe how management currently analyzes its financial information and to consolidate by division how the Company is marketed to the general public and its clients. September 30, 1997 (Three Month Period Ending)
Construction Equipment Services Engineering Sales Other Total ------------ ------------ ------------ ------------ ------------ Revenues $ 7,265,758 $ 1,735,304 $ 4,533,902 $ 13,534,964 Interest Expense 113,191 64,611 34,436 $ 30,000 242,238 Depreciation and Amortization 179,391 61,829 -- -- 241,220 Operating Income (Loss) 727,227 139,310 741,906 (77,221) 1,531,222 Assets 12,495,127 2,675,181 5,117,545 5,130,903 25,418,756
September 30, 1997 (Nine Month Period Ending)
Construction Equipment Services Engineering Sales Other Total ------------ ------------ ------------ ------------ ------------ Revenues $ 20,362,396 $ 5,134,617 $ 16,301,278 $ 41,798,291 Interest Expense 275,218 165,356 78,710 $ 72,014 591,298 Depreciation and Amortization 522,840 200,820 -- -- 723,660 Operating Income (Loss) 1,642,060 304,105 3,790,600 (109,958) 5,626,807
F-10 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 30, 1998 (Three Month Period Ending)
Construction Equipment Services Engineering Sales Other Total ------------ ------------ ------------ ------------ ------------ Revenues $ 13,910,647 $ 2,702,886 $ 9,072,366 $ 25,685,899 Interest Expense 125,824 74,727 108,917 $ 13,749 323,217 Depreciation and Amortization 449,920 (14,979) 269,195 70,359 774,495 Operating Income (Loss) 1,677,408 74,741 2,941,268 (304,424) 4,388,993 Assets 25,882,577 4,622,172 38,175,482 8,242,525 76,922,756
September 30, 1998 (Nine Month Period Ending)
Construction Equipment Services Engineering Sales Other Total ------------ ------------ ------------ ------------ ------------ Revenues $ 33,468,948 $ 6,024,510 $ 32,264,254 $ 71,757,712 Interest Expense 240,244 164,246 256,710 $ 48,970 710,170 Depreciation and Amortization 1,105,185 229,324 764,081 278,897 2,377,487 Operating Income (Loss) 2,899,933 (369,608) 10,639,517 (882,209) 12,287,633
F-11 INTERNATIONAL FIBERCOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 6. Unaudited Pro Forma Condensed Consolidated Financial Statements: The accompanying consolidated statements of operations include the results of operations of Southern which the Company acquired effective October 1997. The following unaudited pro forma condensed consolidated financial statements for the quarter ended September 30,1997 give effect to the acquisition of Southern by the Company pursuant to the Agreements between the parties, and are based on the estimates and assumptions set forth herein and in the notes to such statements. This pro forma information has been prepared utilizing the historical financial statements and notes thereto, which are incorporated by reference herein. The pro forma financial data does not purport to be indicative of the results which actually would have been obtained had the purchase been effected on the dates indicated or of the results of which may be obtained in the future. The pro forma financial information is based on the purchase method of accounting for the acquisition of Southern. The pro forma entries are described in the accompanying footnotes to the unaudited pro forma condensed consolidated statements. The pro forma unaudited condensed consolidated statements of operations assume that the acquisition took place on the first day of the period presented. F-12 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
IFC, Inc. Southern Pro Forma and Communications Pro Forma Consolidated Subsidiaries Products, Inc. Adjustments Amounts -------------- -------------- -------------- -------------- Contract Revenues $ 13,534,964 $ 1,981,907 $ 15,516,871 Cost of Contract Revenues 9,699,765 341,485 10,041,250 -------------- -------------- -------------- Gross Profit 3,835,199 1,640,422 5,475,621 General and Administrative Expenses 2,303,977 484,746 252,324(1) 3,041,047 -------------- -------------- -------------- Profits from Operations 1,531,222 1,155,676 2,434,574 Other Income (Expense): Interest Income 26,298 4,580 30,878 Interest expense (242,238) -- (68,000)(2) (310,238) Other Income (1,243) -- (1,243) Gain (loss) on disposal of assets 7,559 (21,820) (14,261) -------------- -------------- -------------- (209,624) (17,240) (294,864) Net income before income taxes 1,321,598 1,138,436 2,139,710 -------------- -------------- -------------- Provision for tax expense 90,621 -- 739,740(3) 830,361 -------------- -------------- -------------- Net income 1,230,977 1,138,436 1,309,349 ============== ============== ============== Preferred stock dividend 35,000 -- 35,000 -------------- -------------- -------------- Net income attributable to common stockholders $ 1,195,977 $ 1,138,436 $ 1,274,349 ============== ============== ============== Basic earnings per share $ .10 $ .07 ============== ============== Fully diluted earnings per share .06 .05 ============== ============== Basic average shares outstanding 12,254,785 17,326,446 Diluted weighted average shares Outstanding 19,876,592 24,948,253
1. Amortize goodwill 2. Interest expense 3. Income tax proration for Diversitec, United and Southern F-13 INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
IFC, Inc. Southern Pro Forma and Communications Pro Forma Consolidated Subsidiaries Products, Inc. Adjustments Amounts -------------- -------------- -------------- -------------- Contract Revenues $ 41,798,291 $ 8,486,849 $ 50,285,140 Cost of Contract Revenues 29,474,412 2,755,785 32,230,197 -------------- -------------- -------------- Gross Profit 12,323,879 5,731,064 18,054,943 General and Administrative Expenses 6,697,072 1,191,856 756,970(1) 8,645,898 -------------- -------------- -------------- Profits from Operations 5,626,807 4,539,208 9,409,045 Other Income (Expense): Interest Income 50,395 40,736 91,131 Interest expense (591,298) (204,000)(2) (795,298) Other Income 1,712 1,712 Gain (loss) on disposal of assets 309,742 (22,995) 286,747 -------------- -------------- -------------- (229,449) 17,741 (415,708) Net income before income taxes 5,397,358 4,556,949 8,993,337 -------------- -------------- -------------- Provision for tax expense 90,460 -- 3,309,453(3) 3,399,913 -------------- -------------- -------------- Net income $ 5,306,898 $ 4,556,949 $ 5,593,424 ============== ============== ============== Preferred stock dividend 148,063 -- 148,063 -------------- -------------- -------------- Net income attributable to common stockholders $ 5,158,835 $ 4,556,949 $ 5,445,361 ============== ============== ============== Basic earnings per share $ .47 $ .34 ============== ============== Fully diluted earnings per share .27 .22 ============== ============== Basic average shares outstanding 10,859,305 15,930,966 Diluted weighted average shares Outstanding 19,584,656 24,656,317
1. Amortize goodwill 2. Interest expense 3. Income tax proration for Diversitec, United and Southern F-14 ITEM 6. The Company filed an 8-K report on August 10, 1998 regarding the change in independent accountants from Semple & Cooper, LLP to BDO Seidman, LLP. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL FIBERCOM, INC. By /s/ Terry Beiriger ------------------- Terry Beiriger, Chief Financial Officer DATED: November 13, 1998 22 EX-27 2 FDS --
5 1 U.S. DOLLARS 9-MOS DEC-30-1998 JAN-01-1998 SEP-30-1998 1 6,092,249 0 20,065,295 0 0 43,850,399 14,255,847 (5,302,059) 76,922,756 20,962,316 0 0 306,665 48,829,123 2,770,154 76,922,756 71,757,712 71,923,464 47,213,446 60,444,935 0 0 710,170 10,768,359 2,533,229 8,235,130 0 0 (46,887) 8,188,243 .36 .31
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