EXHIBIT 99.2
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 1-13272
SPECIALTY TELECONSTRUCTORS, INC.
(Name of small business issuer in its charter)
NEVADA 00-0000000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
00000 XXXXX XXX 00 XXXXX
XXXXX XXXXX, XXX XXXXXX 00000
(Address of principal executive offices) (Zip Code)
(000) 000-0000
(Issuer's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,907,590 on October 21, 1997
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
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SPECIALTY TELECONSTRUCTORS, INC.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1997 and
September 30, 1996 (unaudited) 3
Consolidated Statements of Earnings for the three-month
periods ended September 30, 1997 and September 30, 1996
(unaudited) 4
Consolidated Statements of Cash Flows for the three-month
periods ended September 30, 1997 and September 30, 1996
(unaudited) 5
Consolidated Statements of Changes in Stockholders' Equity
for the three-month periods ended September 30, 1997
and September 30, 1996 (unaudited) 6
Notes to the Consolidated Financial Statements as of
September 30, 1997 and September 30, 1996 (unaudited) 6
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 7
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 8
ITEM 2. - CHANGES IN SECURITIES 8
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES 8
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
ITEM 5. - OTHER INFORMATION 8
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 9
2
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Balance Sheets
September 30, 1997 and 1996
(Unaudited)
Assets
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 472,455 $ 2,325,153
Available for sale securities 702,793 292,258
Contracts receivable, net of
allowance for doubtful accounts 11,933,750 8,548,347
Costs and estimated earnings in
excess of xxxxxxxx on
uncompleted contracts 3,953,024 2,411,795
Finished goods inventory 2,836,803 1,157,610
Prepaid income taxes 214,368 62,751
Other 337,078 375,016
----------- -----------
Total current assets 20,450,271 15,172,930
Property and equipment, net 8,168,037 4,188,672
Other assets 1,882,411 246,712
----------- -----------
$30,500,719 $19,608,314
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 3,817,854 $ 2,558,529
Lines of credit 1,430,158 1,137,540
Note payable to stockholder 1,594,000 500,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 537,153 951,428
Accrued expenses 704,049 1,013,594
Current installments of notes payable 573,798 62,711
Current income taxes payable 305,076 92,607
Deferred income taxes 333,814 337,977
----------- -----------
Total current liabilities 9,295,902 6,654,386
Deferred income taxes 90,000 326,907
Notes payable to banks, excluding
current installments 1,732,774 1,538,747
----------- -----------
Total liabilities 11,118,676 8,520,040
----------- -----------
Stockholders' equity:
Common Stock, $0.01 par value 79,050 68,723
Additional paid-in-capital 12,105,061 5,344,298
Retained earnings 7,197,932 5,675,253
----------- -----------
Total stockholders' equity 19,382,043 11,088,274
----------- -----------
$30,500,719 $19,608,314
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Earnings
For the three-month periods ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues earned:
Installation services $11,466,225 $12,181,104
Component sales 1,333,731 1,855,413
----------- -----------
Total revenues earned 12,799,956 14,036,517
----------- -----------
Cost of revenues earned:
Installation services 9,309,024 10,131,436
Component sales 973,679 1,430,367
Total cost of revenues earned 10,282,703 11,561,803
----------- -----------
Gross profit 2,517,253 2,474,714
Selling, general and administrative
expenses 1,210,376 1,358,756
----------- -----------
Earnings from
operations 1,306,877 1,115,958
----------- -----------
Other income (deductions):
Interest income 17,344 40,459
Interest expense (78,695) (63,257)
Other, net 51,471 12,058
----------- -----------
(9,880) (10,740)
----------- -----------
Earnings before income taxes 1,296,997 1,105,218
Income taxes 508,900 242,782
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Net earnings $ 788,097 $ 862,436
=========== ===========
Earnings per common share and
common equivalent shares:
Net earnings $ .10 $ .13
=========== ===========
Weighted average common shares
outstanding 8,081,354 6,881,336
=========== ===========
Pro-forma information:
Net earnings $ 788,097 $ 862,436
Pro-forma adjustment for income
taxes of acquired entity previously
filing as an S Corporation - (205,000)
----------- -----------
Pro-forma net earnings after
adjustment for income taxes of
acquired entity $ 788,097 $ 657,436
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Pro-forma net earnings per
common share and common
equivalent share $ 0.10 $ 0.10
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS, INC.
Consolidated Statements of Cash Flows
For the three-month periods ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 788,097 $ 862,436
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation of property and equipment 415,864 227,914
Amortization of intangibles 48,923 23,739
Changes in certain assets and liabilities:
Available for sale securities 67,057 3,777
Contracts receivable 2,806,729 561,932
Costs and estimated earnings in excess
of xxxxxxxx on uncompleted contracts (1,719,735) (954,791)
Finished goods inventory (172,564) (467,853)
Prepaid income taxes 193,109 -
Other assets (140,108) (240,477)
Trade accounts payable (203,840) (178,940)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (60,786) 708,848
Accrued expenses (86,926) (223,925)
Current income taxes 305,076 (445,416)
Deferred income taxes (50,786) (60,193)
----------- -----------
Net cash provided by operating activities $ 2,190,110 $ (182,949)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment $ (153,995) $ (252,038)
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Net cash used in investing activities $ (153,995) $ (252,038)
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Cash flows from financing activities:
Lines of credit, net $(1,957,752) $ (994,460)
Principal repayment on note payable
to stockholder (406,000) -
Borrowings on notes payable to banks - 585,799
Distributions of prior S Corporation
earnings - (220,000)
Proceeds from sale of common stock 89,679 -
Principal payments on notes payable to banks (279,307) (23,817)
----------- -----------
Net cash used in financing activities $(2,553,380) $ (652,478)
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Net decrease in cash and cash equivalents $ (517,265) $(1,087,465)
Cash and cash equivalents:
Beginning of period $ 989,720 $ 3,412,618
----------- -----------
End of period $ 472,455 $ 4,023,237
=========== ===========
Supplemental disclosure of cash flow
information:
Interest paid $ 36,117 $ 84,363
=========== ===========
Taxes paid $ 78,695 $ 748,693
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
SPECIALTY TELECONSTRUCTORS,INC.
Consolidated Statements of Changes in Stockholders' Equity
For the three-month periods ended September 30, 1996 and 1997
(unaudited)
Common Stock
------------
Additional Retained
Shares Amount Paid-in-capital earnings Total
------ ------ --------------- -------- -----
Balances at
June 30, 1996 6,872,308 $ 68,723 $ 5,344,298 $5,032,817 $10,445,838
Distributions of
prior S Corporation
earnings - $ - $ - $ (220,000) $ (220,000)
Net earnings - $ - $ - $ 862,436 $ 862,436
--------- -------- ----------- ---------- -----------
Balances at
September 30, 1996 6,872,308 $ 68,723 $ 5,344,298 $5,675,253 $11,088,274
========= ======== =========== ========== ===========
Balances at
June 30, 1997 7,876,554 $ 78,765 $12,015,667 $6,409,835 $18,504,267
Issuance of
common stock 28,455 $ 285 $ 89,394 $ - $ 89,679
Net earnings - $ - $ - $ 788,097 $ 788,097
--------- -------- ----------- ---------- -----------
Balances at
September 30, 1997 7,905,009 $ 79,050 $12,105,061 $7,197,932 $19,382,043
========= ======== =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
SPECIALTY TELECONSTRUCTORS, INC.
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
Note 1: Basis of Presentation
The consolidated financial statements and notes thereto at September 30, 1997
and for the three-month periods ended September 30, 1997 and 1996 are unaudited
and are presented in accordance with the requirements of Form 10-QSB and
consequently do not include all disclosures normally required by generally
accepted accounting principles or those normally reflected in the Company's
Annual Report on Form 10-KSB. Accordingly, the consolidated financial statements
and notes thereto contained herein should be read in conjunction with the
consolidated financial statements and notes thereto contained in the Company's
Form 10-KSB for the fiscal year ended June 30, 1997.
The consolidated financial statements and notes thereto at September 30, 1997
and for the three-month periods ended September 30, 1997 and 1996 reflect (i)
the acquisition of Xxxxx & Xxxxxx Construction Co., Inc., an Oklahoma
corporation ("Xxxxx & Xxxxxx") which was effected as of March 31, 1997 through a
merger between Xxxxx & Xxxxxx and a wholly-owned subsidiary of the Company, of
which Xxxxx & Xxxxxx was the surviving corporation, and (i) the acquisition of
Microwave Tower Service, Inc., an Oregon corporation ("MTS") which was effected
as of June 30, 1997 through a merger between MTS and a wholly-owned subsidiary
of the Company, of which MTS was
6
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
the surviving corporation. The acquisitions of Xxxxx & Xxxxxx and MTS were
accounted for as poolings of interests. Accordingly, the consolidated financial
statements and notes thereto at September 30, 1997 for the three-month periods
ended September 30, 1997 and 1996 are presented as if the acquisitions of Xxxxx
& Xxxxxx and MTS had occurred at the beginning of all periods presented.
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings for the three-month
period ended September 30, 1996 to present taxes on the results of operations of
MTS for the three-month period ended September 30, 1996 on the basis that is
required upon their change in tax status from S Corporation to a C Corporation.
This amount, $205,000, is approximately equal to the required Federal and state
income tax provisions that would have been recorded if MTS had not elected S
Corporation status and was subject to and liable for Federal and state income
taxes as a C Corporation prior to its termination of S Corporation status. MTS
terminated its S Corporation status upon merging with a wholly-owned subsidiary
of the Company on June 30, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods. The
results of operations for the three-month period ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
Note 2: Acquisition
As of October 7, 1997, a wholly-owned subsidiary of the Company, purchased
substantially all the assets of Xxxxx Tower Co., Inc., a Florida corporation in
exchange for $449,404 in cash and the delivery of 120,848 newly issued shares of
common stock of the Company. The transaction was accounted for by the Company as
a purchase.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Statements contained in herein that are not historical facts are forward-looking
statements ("forward-looking statements") within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created by those sections. In addition, such forward-looking statements
may be contained in filings made by the Company with the Securities and Exchange
Commission, or press releases or oral statements made from time to time by or
with the approval of an authorized executive officer of the Company. Such
forward-looking statements are necessarily estimates reflecting the best
judgment of the Company's management based upon current information and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to, those set forth
in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1997 under the caption "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Cautionary Statements" and
elsewhere therein and appearing from time to time in filings made by the Company
with the Securities and Exchange Commission. These risks, uncertainties and
other factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any forward-
looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
7
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
Results of Operations
For the Three-Month Periods Ended September 30, 1997 and 1996
Revenues. The Company's revenues for the three-month period ended September 30,
1997, decreased approximately 9% to $12,799,956 from $14,036,517 for the same
three-month period in the prior year. Management believes the decrease in
revenues was due primarily to comparatively lower levels of wireless
infrastructure building and implementation activity in the U.S. during the
three-month period ended September 30, 1997 as compared to the same period last
year.
Gross Profit. Gross profit for the three-month period ended September 30, 1997
increased approximately 2% to $2,517,253 from $2,474,714 for the same three-
month period in the prior year. Gross profit as a percentage of revenue
increased to 20% for the three-month period ended September 30, 1997 from 18%
for the three-month period ended September 30, 1996. Management believes the
increases in gross profit and in gross profit as a percentage of revenue
resulted primarily from improved operating margins realized by the Company's
wireless infrastructure building and implementation services business offset by
somewhat lower levels of wireless infrastructure component sales.
Xxxxxxx, General and Administrative ("SG&A) Expenses. SG&A expenses for the
three-month period ended September 30, 1997 decreased to $1,210,376 from
$1,358,756 for the same three-month period in the prior year. As a percentage
of revenues, SG&A expenses decreased from 10% for the three-month period ended
September 30, 1996 to 9% for the three-month period ended September 30, 1997.
This decrease resulted from the decrease in SG&A expenses as compared to the
same period a year ago and to operational efficiencies realized as a result of
the increase in the Company's revenues.
Net Earnings. Net earnings for the three-month period ended September 30, 1997
increased approximately 20% to $788,097 compared to $657,436 for the same three-
month period in the prior year. As a percentage of revenue, net earnings
increased to 6.2% from 4.7% in the prior year. The increases in net earnings and
in net earnings as a percentage of revenue resulted primarily from improved
operating margins realized by the Company's wireless infrastructure building and
implementation services business offset by somewhat lower levels of wireless
infrastructure component sales and certain non-recurring expenses incurred in
connection with the Company's recent acquisitions.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS.
None.
ITEM 2. - CHANGES IN SECURITIES.
None.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. - OTHER INFORMATION.
None.
8
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
On July 15, 1997, the Company filed a Form 8-K and reported that
it had completed the acquisition of Microwave Tower Service, Inc., an
Oregon corporation ("MTS"), which became a wholly-owned subsidiary of
the Company pursuant to the terms of an Agreement and Plan of Merger
dated as of June 30, 1997 among MTS, each of the stockholders listed
on Exhibit 1 to the Agreement and Plan of Merger, the Company and MTS
Acquisition, Inc., a wholly-owned subsidiary of the Company. A copy of
the Agreement and Plan of Merger was filed as an Exhibit to the 8-K.
On July 30, 1997, the Company filed a Form 8-K and reported that
it had completed the acquisition of substantially all the assets of
Paramount Communication Systems, Inc., a New Jersey corporation
("Paramount") and waived a valuation condition establishing the
purchase price of the assets acquired. A copy of the Asset Purchase
Agreement dated as of May 28, 1997 among Paramount, Xxxxxxx Xxxxxxxxx,
the sole shareholder of Paramount, Specialty Constructors, Inc. and
the Company was filed as an Exhibit to the 8-K.
On September 15, 1997, the Company filed a Form 8-K/A which
amended the 8-K filed on July 15, 1997 by including the audited
financial statements of Microwave Tower Service, Inc. at June 30, 1997
and 1996 for the fiscal years then ended and by incorporating by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended June 30, 1997, the Company's consolidated financial
statements at June 30, 1997 and 1996 and for the fiscal years then
ended which financial statements had been restated to reflect the MTS
merger as if such transaction had taken place at the beginning of all
periods presented, consistent with the accounting treatment for a
pooling-of-interests.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: October 24, 1997
SPECIALTY TELECONSTRUCTORS, INC.
By: /s/XXXXXXX X. XXXXXXXX
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Xxxxxxx X. Xxxxxxxx, Chairman of the
Board, President, Chief Executive
Officer and Treasurer
By: /s/XXXXXX X. XXXXXXXX
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Xxxxxx X. Xxxxxxxx, Chief Accounting
Officer
9
