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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    ---------

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997           Commission File No. 1-9690

                                 ---------------

                          INTERNATIONAL FIBERCOM, INC.
             (Exact name of Registrant as specified in its charter)

                Arizona                             86-0271282
        (State of Incorporation)          (IRS Employer Identification No.)

          3615 S. 28th Street
           Phoenix, Arizona                            85040
(Address of principal executive offices)             (Zip Code)

       Registrant's telephone number, including area code: (602) 941-1900

           Securities registered pursuant to Section 12(b) of the Act:

             Title of Class            Name of each exchange on which registered
             --------------            -----------------------------------------
       Common Stock, No Par Value           Boston Stock Exchange, Inc. and
                                           Philadelphia Stock Exchange, Inc.

        Securities registered pursuant to Section 12(g) of the Act : None

                                -----------------

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
                                 -----      -----

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B in this Form.___

               Issuer's revenues for its fiscal year: $36,325,146

As of March 31,  1998,  the  number of shares of Common  Stock  outstanding  was
17,209,967  and the  aggregate  market  value of the Common  Stock (based on the
closing  price  on that  date)  held by  non-affiliates  of the  Registrant  was
approximately $78,352,488.


Exhibit Index............................................................Page 27
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<PAGE>
                                     PART I

ITEM 1. BUSINESS.

         International  FiberCom,   Inc.,  (the  "Company")  offers  diversified
services and products to the  telecommunications,  cable television ("CATV") and
other industries. The Company provides installation,  construction,  consulting,
design, engineering and systems integration services to the owners of broadband,
fiber-optic  networks.  The  Company  also  sells and  distributes  new and used
telecommunications  equipment,  including digital computer boards widely used in
the nation's telephone  systems,  to  telecommunications  companies and hardware
resellers,  Regional Bell  Operating  Companies  ("RBOCS") and other Fortune 500
companies.

         The  Company's   strategy  is  to  be  a  one-stop   solution  for  the
telecommunications marketplace, offering a wide range of engineering, consulting
and  maintenance  services for broadband,  fiber-optic  networks with local area
network ("LAN") and wide area network ("WAN").

         In 1997 the Company  implemented this strategy through  acquisitions of
businesses that  complemented  and enhanced its services,  products and customer
base. At the beginning of 1997 the Company had one operating subsidiary,  Kleven
Communications,  Inc.  ("Kleven"),  a Phoenix-based  company specializing in the
design, installation and maintenance of fiber-optic and other cable services for
the  telecommunication  and CATV industries.  During 1997 the Company  completed
three  strategic  acquisitions  that resulted in a  significant  increase in its
revenues and net income.

         Effective  January 1997 the Company acquired Concepts in Communication,
Inc.  ("Concepts")  for total  consideration of $4.6 million in cash and 115,833
restricted   shares  of  Common  Stock   valued  at  $200,000.   Concepts  is  a
Nashville-based company specializing in systems integration services,  including
design,  engineering,  installation and maintenance of structured cable systems,
network hardware and software,  workstation  peripherals and intercommunications
systems, primarily within commercial, industrial and government facilities.

         Effective  October 1997 the Company acquired the assets and business of
Southern  Communications  Products, Inc. ("Southern") for total consideration of
$21.4 million, consisting of $12 million in cash, 2,231,661 restricted shares of
Common Stock valued at $6.2 million and a $3.2 million promissory note. Southern
purchases, sells and deals in new and used telecommunications equipment utilized
in the digital  access,  switching  and transport  systems of  telecommunication
service  providers on a nationwide  basis.  Also  effective  October  1997,  the
Company   acquired   Compass   Communications,   Inc.   ("Compass")   for  total
consideration  approximately  of $2.0 million  consisting  of 470,588  shares of
Common Stock.  Compass is an Atlanta-based  company specializing in video, voice
and data network  development using state of the art,  fiber-optic  distribution
platforms.  In 1997 the  Company  operated in  Arizona,  California,  Tennessee,
Florida and Georgia.

         Effective  April  1998  the  Company  purchased  the  assets  of  Riley
Underground  Communications,  Inc.  ("Riley") for cash and restricted  shares of
Common  Stock.  Riley,  which is  based  in  California,  builds  and  maintains
broadbased fiber-optic and other networks for major cable,
                                      - 2 -
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telephone  and  other  telecommunications   companies.  The  purchase  agreement
provides for a price of up to $2.5  million,  payable in an initial  installment
based upon a  percentage  of the current  book value of Riley,  with  additional
installments  computed on a percentage of Riley's pretax  earnings over the next
three years. Payments may be in cash or, at the Company's election, up to 50% in
restricted shares of the Company's Common Stock.

Overview of Markets and Industries

         The  Telecommunications/CATV  Industries.  Through the  application  of
fiber-optic  technology,  the  telecommunications  and CATV  industries  plan to
deliver  interactive  voice, data and video services to consumers over a network
of   fiber-optic   cable  systems   which  has  been  called  the   "information
superhighway."  Telecommunications  and CATV  companies  are  moving to  provide
services which are expected to dramatically change basic functions of telephones
and CATV in the home as well as in business. Such planned services include basic
telephone, video conferencing, movies-on-demand,  pay-per-view events, concerts,
interactive  shopping  and  billing,  games,  classes,  and high speed  Internet
access.

         Fiber-optics.  The  capabilities  of  fiber-optic  cable based systems,
along with computers,  digitized data transmission and sophisticated  television
set-top boxes,  will make these  services  possible.  Fiber-optic  technology is
based upon the transmission of laser light through  transparent  fibers of glass
or plastic. One strand of fiber is approximately 125 microns in diameter,  which
is  thinner  than a human  hair.  Optical  fibers  can carry  laser  light  over
distances  ranging  from a few inches to more than 100 miles with little  signal
strength loss (1% over 78 miles).  Optical fibers can be used individually or in
bundles with over 100 fiber  strands  bundled  into a cable  similar to standard
copper  telephone  cables.  A  one-half  inch  cable  can  carry up to 130 fiber
strands,  although  most  cables  used are not this  large.  Most of the  cables
currently  used  hold  about  20  strands,   which  can  simultaneously  provide
500-channel TV, telephone calls and high speed data transmission.

         Optical  fibers  are  composed  of a pure  core  of  glass  or  plastic
surrounded  by a  covering  called  a  cladding.  In  fiber-optic  communication
systems,  special  lasers  transmit  binary  messages  by flashing on and off at
extremely  high speeds.  The messages then travel  through the optical fibers to
interpreting  devices which convert the binary signals back into the form of the
original  signal.  Fiber-optic  communication  systems have a number of features
which make them superior to systems using traditional copper cables. Fiber-optic
cables have little or no signal  attenuation,  much longer cable run  distances,
less  susceptibility  to noise and no  susceptibility  to transient  voltages or
impulses,  such as lightning strikes.  Further, a fiber-optic cable can transmit
data at speeds of 40 billion bits per second  compared with 1.5 million bits per
second for copper cables.

         Demand  for  Fiber-Optics.   The  demand  for  services  requiring  the
transmission of voice,  video and vast amounts of data at high speeds is driving
the  construction  of high  speed,  high volume  networks.  These  parallel  and
interconnected  networks  have  been  called  the  "information   superhighway."
Fiber-optics has become not only a viable alternative to copper wiring, but also
a necessity for any system being  designed to handle  future data  traffic.  The
National Cable Television  Association has noted the necessity of rebuilding the
nation's cable systems with fiber-optic cable.
                                      - 3 -
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Major companies such as Bell Atlantic Corp., MCI Communications  Corp.  ("MCI"),
TeleCommunications,  Inc.  ("TCI") and Cox have  announced  capital  expenditure
programs to upgrade their networks for the information  superhighway,  including
installation  of  fiber-optic  cable.  These  and other  companies  also need to
replace much of the existing coaxial cable with  state-of-the-art  fiber-optics,
including other upgrades, in order to remain competitive.

         The Company believes it is well positioned to help service the expected
demand from these capital  expenditure  plans.  The Company's  future growth and
success is dependent in large part upon continued investment by its customers in
telecommunications  plant and equipment.  The customers may, however,  postpone,
delay or cancel their expansion and  expenditure  plans for a myriad of reasons,
over which the Company and its management have no control.

         The  Systems  Integration  Industry.  In  a  relatively  short  period,
computer  networks  have  evolved  from  simple   connections   between  desktop
workstations to complex links between multiple computer servers,  work stations,
main frame computers and peripheral devices connecting  buildings,  campuses and
even cities.  The shift from a computer  room housing  many  computers  and main
frames to personal  computer  based  networks has changed the emphasis from main
frame to personal computers configured in complicated network systems, including
LANs and  multi-locational  WANs. The source of an organization's  informational
productivity  is now the network  rather than the  computer  with its ability to
process multiple tasks  simultaneously and transport  information wherever it is
needed.

         Systems  integration  is the design,  installation  and  maintenance of
these complicated LANs and multi-locational WANs. The backbone of any LAN or WAN
is cable,  network  hardware and software and the related data  delivery  system
rather than the computers  connected to the system. This backbone is referred to
in the industry as a "structured  cabling  system." Such systems are designed to
be  adaptable  and  provide  sufficient  capacity  for  multiple   applications,
including both voice and data transmission.

         Over the past five  years  there  has been an  increasing  demand  from
tenants in the market for commercial  office space and from government  entities
for advanced telecommunications and computer cabling. A primary concern for such
tenants and government  entities is usually that a structured cable system be in
place prior to or as a condition to  occupancy.  Because of the  flexibility  of
such a system,  neither the landlord nor the prospective tenant need worry about
the ability of the system to adapt to the tenants' needs and  requirements  thus
reducing the worry of system  obsolescence.  For these reasons, a large majority
of all new office  buildings are expected to be built with a structured  cabling
system in place and,  as older  office  buildings  are  refurbished,  structured
cabling systems will take the place of older communications systems.

Services and Products of the Company

Fiber Optic Cable and CATV Services

         The Company  acquired Kleven in August 1994.  Kleven designs,  installs
and maintains  fiber- optic based networks for the  telecommunications  and CATV
market. Jerry A. Kleven, the president
                                      - 4 -
<PAGE>
of Kleven  entered  into a  five-year  employment  agreement  at the time of the
purchase.  Kleven has served the  telecommunications  and cable industries since
1977,  when it began  installing  CATV  networks in  California.  In 1980 Kleven
commenced CATV work in Arizona and began to install fiber-optic cable in 1982.

         In  the  1980s   Kleven   added   aerial   capabilities,   as  well  as
cable-splicing  and other  expertise.  As a result of its underground and aerial
capabilities, Kleven has been able to expand its base of business with telephone
companies such as US West and CATV companies such as Cox. In connection with its
telephone services, Kleven installs and maintains underground cable and conduit,
aerial lines, manholes and telephone equipment for US West in Arizona.

         Kleven installs new fiber-optic systems and retrofits existing systems.
In its retrofit service,  Kleven upgrades existing cable, installs new equipment
and generally upgrades the existing system to meet future demands.  Retrofit and
CATV  installation  work  generally  provides a higher  profit margin than other
utility installations,  such as water, sewer and irrigation systems,  because of
the  specialized  skill and care  involved  in such  work.  Kleven is now a full
service   organization,   providing   underground   systems  and  aerial   cable
installations   serving  the  telephone  and  CATV   industries   and  municipal
governments and public and private utilities  throughout  Arizona.  Customers of
Kleven include, or have included, Cox, the City of Phoenix and US West.

         The  Company  acquired  Riley in April 1998.  Riley,  which is based in
California,  was founded in 1989 and performs the same general  services for its
customers that Kleven does.  Riley's  revenues in 1997 were  approximately  $4.0
million. Its customers include TCI and Comcast, Inc.

Systems Integration Services and Products

         The Company  acquired  Concepts  effective  January 1997. In connection
with the acquisition,  Concepts entered into two-year employment agreements with
six key  employees.  Concepts was formed in 1983 with the  divesture of the Bell
Systems. Concepts initially planned to subcontract work from South Central Bell,
AT&T and other major  corporations,  such as IBM and BCE. By 1986,  its plan had
shifted to marketing system integration  services directly to major end users in
Tennessee  and  surrounding  states.  This shift in strategy  brought it growth,
while many of its competitors continued to provide only subcontracting services.
The  capabilities  of Concepts  increased  as  opportunities  arose and Concepts
eventually  established  itself as a leader in the  design and  installation  of
structured cable systems in Tennessee.

         In 1990,  Concepts  expanded  its market focus to become a full service
system integrator  offering LAN/WAN hardware,  network operating  systems,  file
servers  and   workstations   in  addition  to   structured   cable  design  and
installation.  Its past customer relationships allowed Concepts to transition to
this expanded, full service role.  Representative customers of Concepts include,
or have included,  the State of Tennessee,  Nissan Motor Co., Nike Corp.,  Auto-
zone and Columbia/HCA Healthcare Corp. 
                                     - 5 -
<PAGE>
Network Design and Engineering

         The Company acquired Compass effective October 1997. Compass, formed in
February 1994, is a consulting and engineering  firm  specializing in the design
of major broadband,  fiber-optic  networks.  In connection with the acquisition,
the Company caused its Compass  subsidiary to enter in to three-year  employment
agreements with six key employees.  Compass  designs hybrid  fiber-optic/coaxial
cable  broadband  distribution  networks for CATV and telephone  companies using
computer  automated  design and geographic  information  software.  Such systems
provide video, voice, data and information services and are essentially the same
type of systems that Kleven builds for its customers.

         Compass  also  offers  "land  based  development,"  a service  in which
Compass  maps,  verifies and  documents  existing  network  installations.  This
service  frequently  requires  conversion of existing  documentation into a data
based oriented system using  geographic  information  software.  These platforms
allow network  operators an efficient and effective way to relate customer base,
demographics and existing networks and equipment in a single system.  For new or
planned  networks,  Compass  also offers  field  inventory  planning and project
support, an arduous,  pre-engineering  effort of collecting and recording all of
the information necessary to plan, design, market and manage a broadband network
capable  of  delivering  a wide  range of  interactive  services.  Compass  also
provides other services,  including  construction  oversight,  existing  network
evaluation,  broadband  system  design,  network  plant  testing  and  training.
Representative  customers of Compass  include,  or have included,  US West, Time
Warner, Motorola, Media One and Australia's Optus Vision.

Telecommunications Products

         The Company  purchased  Southern  effective October 1997. In connection
with the acquisition,  the Company caused its Southern  subsidiary to enter into
three-year employment agreements with seven key employees.

         Southern  was  founded  in 1986 and  originally  focused  on  recycling
computer  circuit boards  purchased  primarily  from Bell South.  It soon became
apparent that the market for these used,  but operable,  circuit  boards was far
more  lucrative  than  solely the  recovery of  precious  metals from them.  The
telecommunications market for used circuit boards and other products was growing
because of the  increasing  demand for  telecommunications  services.  Southern,
along with its  competitors,  helped to  develop  and supply the market for used
digital  access,  switching  and transport  systems to telephone  companies on a
nationwide  basis.  Southern has concentrated on trading in used and new plug-in
computer boards and other products, selling to and buying from most of the major
telecommunications  companies  and  suppliers in order to help meet this demand.
Digital access systems are line systems  between a telephone  company's  central
office and each  customer.  A  switching  system  effects  call  connection  and
routing.  A transport system includes products that carry signals throughout the
network.

         Southern  purchases  equipment  from  most  of the  domestic  telephone
companies and equipment  manufacturers,  including  AT&T,  Lucent  Technologies,
Nortel,  Tellabs,  DSC,  Alcatel,  Fujitsu and ADC.  Much of this  equipment  is
purchased  used and Southern will on occasion  acquire an entire  central office
installation that is being dismantled and replaced. In addition, Southern
                                      - 6 -
<PAGE>
purchases spare parts or technically  outdated inventory,  both new and used, in
bulk from telephone companies and equipment  manufacturers.  Southern sells over
150 types of equipment with unit prices from approximately $10 to $20,000. These
products enable providers,  such as local exchanges,  long distance and cellular
telecommunications  companies to offer data,  voice and other  services to their
subscribers.

         In 1998  Southern  plans to offer  entire  systems,  fully  loaded with
appropriate  technology and wired for immediate  installation.  It believes that
these systems will allow a higher margin than for switches sold individually.

         Southern  usually  prices its computer  boards and other  products well
below that of comparable  new  technology.  Frequently  these used products have
only  relatively  small  differences in  performance  compared to a new product.
Southern has developed the ability to locate and acquire products that have been
discontinued by  manufacturers  at a reasonable  cost. It maintains an extensive
inventory  of  products  and is able to ship  products  to its  customers  on an
overnight  basis in most cases.  Southern  maintains an ISO 9000 quality control
certification, an industry standard, and uses its proprietary inventory software
system to track detailed  information on product by type of item, sales,  prices
quoted and other relevant market information.  Southern's  customers include, or
have  included,   Bell  Atlantic,   Ameritech,   Bell  South,  US  West,  Lucent
Technologies, AT&T, Telcor and Diversitech.

Customers

         While each of the Company's  subsidiaries operates in a different niche
in the telecommunications  industry, the subsidiaries have a number of customers
in common.  Major  customers of the Company in 1997  included  Cox,  with 18% of
total  revenues,  US West/Media One with 11%, and Gambro  HealthCare with 5%. No
other  customer of the  Company  accounted  for 5% or more of total  revenues in
1997.

Contracts

         Under its  typical  CATV  installation  contract  Kleven  supplies  the
expertise,  equipment and labor and the customer  supplies nearly all materials,
such as the fiber-optic cable and conduit. The work is generally performed under
fixed unit price  contracts.  Kleven usually  receives  payment on its contracts
within 30 to 45 days of invoicing and, accordingly, must finance receivables and
work-in-progress  during that period. Under its typical installation  contracts,
Concepts  supplies the expertise,  equipment,  labor and sometimes the materials
and required  hardware.  Concepts' work is usually  performed  under fixed price
contracts.

         Compass performs its work under a variety of contract, purchase orders,
standing  relationships  and working  arrangements.  Compass  has  entered  into
indefinite  master  contracts  with major  systems  operators  for the  services
specified  in such  contracts.  Specific  projects  are  undertaken  under these
contracts in response to purchase orders,  change orders,  revised standards and
work orders.  Compass also performs services for certain  long-standing  clients
under work orders without  governing master contracts.  In all cases,  contracts
and work orders are  terminable  at will,  and are  expandable  at will,  by the
customer consistent with its network needs. Compass has also entered
                                      - 7 -
<PAGE>
into standing so-called "strategic alliances" with equipment vendors under which
it is either  recommended  or  specified  to  equipment  customers as the system
design vendor.

Competition

         The market for the  products and  services  that the Company  offers is
highly  competitive.  The  Company  believes  that the  factors  for its success
include  quality,  technical  capability,   reliability,  price,  promptness  of
performance and warranty protection. There are numerous regional and local firms
that currently  compete,  or are capable of competing with the Company.  Most of
the Company's  competitor's  have greater  financial,  human and other resources
than the Company.

         While Kleven competes  primarily  against  regional firms,  some of its
competitors have a national presence. Its competitors include Fischel Companies,
Burnup & Sims,  Inc.  and Henkel & McCoy.  Nearly all of  Kleven's  business  is
subject to a competitive bid process.

         Concepts competes on a regional basis with Pomeroy Computer  Resources,
Anixter  International  and Unisys.  The principal  competitors of Compass are a
number of local or regional entities.

         Southern  has  five  major  competitors  in the  United  States:  CTDI,
Hightech Products, Diversitech, World Access and Telmar Distributing Co. Several
of these competitors are larger and have greater resources than Southern.

Licenses

         Kleven,  through  one  of  its  officers,  holds  licenses  in  certain
jurisdictions  requiring general and specialty  contractor  licenses.  Kleven is
licensed  and/or  certified  in  Arizona.   Concepts,  through  certain  of  its
officers/employees,   maintains  licenses  in  certain  jurisdictions  requiring
general and specialty contractor licenses, including Tennessee and Alabama.

         The  services  performed on behalf of clients by Compass do not usually
require any special licenses or formal designer certification.  However, Compass
is registered in the State of Georgia to provide engineering  services.  Compass
also employs a licensed Georgia Professional  Engineer who has public health and
safety compliance  responsibilities  for all of its design  operations.  Several
Compass offices hold contractor licenses in various states.

Insurance and Bonds

         Kleven  maintains  liability  insurance  for  claims  arising  from its
business.  The policy has a limit of $10.0  million in the aggregate and insures
against both property  damage and personal  injury.  The policy is written on an
"occurrence"  basis, which provides coverage for insured risks that occur during
the policy period,  irrespective  of when a claim is made.  Higher policy limits
are sometimes  purchased for  individual  projects when required  contractually.
Kleven has performance and payment bonding capability of $10.0 million.
                                      - 8 -
<PAGE>
         Concepts  maintains  liability  insurance  for claims  arising from its
business.  The policy has a limit of $4.0 million in the  aggregate  and insures
both  property  damage  and  personal  injury.  The  policy  is  written  on  an
"occurrence"  basis, which provides coverage for insured risks that occur during
the  policy  period,  irrespective  of  when  a  claim  is  made.  Concepts  has
performance and payment bond capability of $2.0 million.

         Bonding is not  usually  required  to  perform  the  contract  services
provided in Compass' operations.  Compass is not normally required to post bonds
by customers or by any government agencies.  Compass maintains general liability
coverage with a policy limit of $1.0 million and with excess  umbrella  coverage
at a limit of $5.0 million.  Southern carries a general  liability policy with a
limit of $2.0 million and a products  liability  insurance  with a limit of $1.0
million.

Backlog Orders and Work-in-Progress

         The Company had a backlog of approximately  $7.3 million,  on a work in
process basis,  as of December 31, 1997. All such work orders are expected to be
completed by June 1998.

Suppliers

         The Company  does not depend upon any single  supplier.  Because it has
multiple  sources of supply,  the Company has not  experienced  difficulties  in
obtaining  adequate  sources of supply and adequate  alternatives to satisfy its
customers. The Company does not have formal purchase contracts for its supplies,
but instead generally purchases such items under individual purchase orders.

Employees

         As of December  31, 1997 the Company had  approximately  475  full-time
employees,  including six executive officers at the Company or subsidiary level,
and 65 engineers and technicians.

Warranties

         Kleven  provides a warranty of its  workmanship for periods from one to
two years,  depending on the requirements of its customers.  Concepts provides a
warranty  of its  workmanship  for a period of one to five years,  depending  on
customers' requirements.

         While most of the equipment  Southern  sells is under warranty from the
original manufacturer, competition requires Southern to provide its own warranty
of one-year on all  equipment  sold to telephone  companies  and  six-months  on
equipment sold to resellers.  Southern  identifies  equipment it has sold by bar
code warranty labels.

         Compass  has  no  written  warranties  covering  any of  its  work.  In
practice,  however,  Compass warrants its design services to be free from error,
intra-network incompatibility or design defect
                                      - 9 -
<PAGE>
indefinitely.  From a  practical  standpoint,  its  warranty  responsibility  is
usually met upon completion of construction  and testing of the network to which
its designs apply.

ITEM 2. DESCRIPTION OF PROPERTY

         The Company owns an office building of approximately  9,600 square feet
located at 3615 South 28th Street,  in Phoenix.  Concepts  does not own any real
property.

         Southern  operates its business  from an  office/warehouse  building of
approximately  28,000 square feet including  24,000 square feet of office space.
The  building  is  located  on  approximately  3.4 acres of land.  In  addition,
Southern owns a warehouse consisting of approximately 33,000 square feet located
on  five   acres   of   land   approximately   eight   miles   from   Southern's
office/warehouse.

ITEM 3. LEGAL PROCEEDINGS

         The Company is not  involved as a party to any legal  proceeding  other
than various  claims and lawsuits  arising in the normal  course of its business
none of which, in the opinion of the Company's  management,  are individually or
collectively material to its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matter was submitted to security holders through the solicitation of
proxies or  otherwise  during the fourth  quarter of the fiscal year  covered by
this Form 10-KSB Report.
                                     - 10 -
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The Company's Common Stock is listed on the Nasdaq SmallCap Market, the
Boston Stock Exchange ("BSE") and the Philadelphia Stock Exchange ("PHLX").  The
following table sets forth, for the fiscal periods shown, representative closing
prices in dollars per share as reported by Nasdaq.


Year Ended December 31, 1996                           Low          High
----------------------------                           ---          ----

         First Quarter                              $   1.13      $   2.25
         Second Quarter                                  .88          2.00
         Third Quarter                                   .77          1.88
         Fourth Quarter                                  .94          1.38

Year Ended December 31, 1997
----------------------------

         First Quarter                              $    .94      $   1.88
         Second Quarter                                 1.41          2.44
         Third Quarter                                  2.28          5.41
         Fourth Quarter                                 4.41          7.91

         The number of beneficial  holders of the Common Stock of the Company as
of the close of business on December 31, 1997 was approximately 1,400.

Dividend Policy

         Holders of Common Stock are  entitled to receive such  dividends as may
be declared by the Company's  Board of Directors.  The Company may pay dividends
on the outstanding shares of Series B Convertible Preferred Stock (the "Series B
Preferred") and Series C Convertible  Preferred Stock (the "Series C Preferred")
in cash or shares of Common Stock, at its option.  The Company has paid all such
dividends in shares of Common  Stock.  The Company has not declared or paid cash
dividends  on its  Common  Stock and does not  anticipate  that it will pay such
dividends in the fore seeable future.  Rather,  the Company intends to apply any
earnings to the expansion and development of its business. Any payment of future
dividends on the Common Stock and the amount  thereof will be  determined by the
Board of Directors  and will depend,  among other  factors,  upon the  Company's
earnings,  financial condition and cash requirements,  and any other factors the
Board of Directors may deem relevant.
                                     - 11 -
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

General

         International  FiberCom,   Inc.,  (the  "Company")  offers  diversified
services and products to the  telecommunications,  cable television ("CATV") and
other industries. The Company provides installation,  construction,  consulting,
design, engineering and systems integration services to the owners of broadband,
fiber-optic  networks.  The  Company  also  sells and  distributes  new and used
telecommunications  equipment,  including digital computer boards widely used in
the nation's telephone  systems,  to  telecommunications  companies and hardware
resellers,  Regional Bell  Operating  Companies  ("RBOCS") and other Fortune 500
companies.

         The Company derives a substantial portion of its revenue from contracts
that are accounted for under the  percentage  completion  method of  accounting.
Under this method,  revenues are  recorded as work  progresses  on a contract so
that revenue,  less costs incurred to date, yield the percentage of gross margin
estimated for each contract.  Overall gross margin  percentages  can increase or
decrease based upon changes in estimated gross margin percentages over the lives
of individual contracts.

Results of Operations

         The comparability of the historical operating results for 1997 and 1996
was  significantly  impacted by the  acquisitions  of Concepts and Southern,  as
explained  in the  Unaudited  Pro Forma  Condensed  Consolidated  Statements  of
Operations  information contained in the Consolidated  Financial Statements that
are a part of this  Report.  Therefore,  Item 6,  "Management's  Discussion  and
Analysis of Financial  Condition and Results of  Operations,"  for these periods
includes  tables  setting forth the pro forma results of operations for 1997 and
1996 that assume the Company  owned  Concepts  and  Southern for all of 1997 and
1996,  when in fact,  the  Company  completed  the  acquisitions  in January and
October of 1997, respectively.

         The  following  selected  financial  information  is  derived  from the
Financial  Statements of the Company which have been audited by Semple & Cooper,
independent  accountants,  for the years ended December 31, 1996 and 1997.  Such
selected financial  information should be read in conjunction with the Company's
financial statements and related notes set forth in Item 7 herein.
                                     - 12 -
<PAGE>
                         Selected Financial Information

<TABLE>
<CAPTION>
                                                           Years Ended December 31
                                   --------------------------------------------------------------------
                                                                                Unaudited
                                                  Actual                        Pro Forma
                                       ----------------------------    ----------------------------
                                           1997            1996            1997            1996
                                           ----            ----            ----            ----

<S>                                    <C>             <C>             <C>             <C>         
Revenues                               $ 36,325,146    $ 19,195,069    $ 44,811,995    $ 49,187,495

Cost of Revenues                         25,905,137      15,833,378      28,660,922      30,927,599

Gross Profit                             10,420,009       3,361,691      16,151,073      18,259,896

General and Administrative Expenses       8,574,173       4,484,600      10,456,029       9,872,922

Goodwill Impairment                             -0-       2,677,490             -0-       2,677,490

Other Income (Expense)                       79,143         115,815        (107,116)       (270,118)

Benefit (Provision) for Income Taxes        346,319        (135,457)     (1,476,461)     (2,175,750)

Discontinued Operations Gain (Loss)          33,187         (68,577)         33,187         (68,577)

Net Income (Loss)                      $  2,304,485    $ (3,888,618)   $  4,144,654    $  3,195,039
</TABLE>

1997 Compared to 1996 (See "Selected Financial Information" Table above.)

Actual Results of Operations
----------------------------

         The Company's revenue increased 89% in 1997,  attributable primarily to
the acquisition  activity.  Because the Company's  operating  statements were so
dramatically affected by these acquisitions,  results of operations are analyzed
only on a pro-forma  basis,  where new  subsidiaries  are  reflected as if their
operating  results  had been  included in the  Company's  results for all of the
periods presented.

Pro Forma
---------

         The pro forma  results of  operations  assume  that the  Company  owned
Southern  and  Concepts  for  all of  1996  and  1997,  and  include  pro  forma
adjustments for  amortization of goodwill,  adjustment of interest  expenses and
revision of the benefit for income taxes to make the periods comparable.

         Revenues.  Consolidated  revenues of the Company declined $4,375,500 to
$44,811,995 in 1997 from  $49,187,495  in 1996, a 9% decrease.  The major reason
for the overall  decrease was Southern's  loss in 1997 of its sole source supply
contract  with  Southern  Bell,  which  caused  Southern's  revenue to  decrease
$5,041,203 from 1996 to 1997. The Kleven and Concepts subsidiaries showed modest
revenue growth from 1996 to 1997,  increasing a total of $935,924.  The revenues
of Compass decreased slightly over the comparable periods.

         Gross  Profit.   The  Company  had  a  consolidated   gross  profit  of
$16,151,073  for 1997  compared  with a gross profit of  $18,259,896  in 1996, a
decrease of $2,108,283, or 12%. Of this decrease,  $3,889,304 is attributable to
Southern,  which is primarily due to the loss of its contract as a sole supplier
to Southern Bell.  Kleven's gross profit  increased  markedly over 1996,  rising
$2,110,387, or 273%. This was primarily due to better job cost management, field
                                     - 13 -
<PAGE>
productivity  and pricing.  Increased  competitive  pricing  pressure caused the
gross profit of Compass to decline by approximately  $678,369 from 1996 to 1997,
a decrease of 26%.  Gross profit of Concepts  grew  slightly,  $342,962,  or 9%,
which was in proportion with its revenue increase.  Its margins in 1997 remained
about the same as in 1996.

         General  and  Administrative   Expenses.   The  Company's  general  and
administrative  expenses  increased  from  $9,872,922 in 1996 to  $10,456,029 in
1997.  This increase was due primarily to pooling costs,  expensed in the merger
of Compass,  increases  in  compensation  given to certain  key  managers in new
subsidiaries and the increases in  administrative  and accounting  expense costs
associated with public reporting requirements.

         Goodwill  Impairment.  The Company  determined to write-off in 1996 the
remaining  goodwill from its purchase of Kleven as a one-time,  non-cash  charge
because of the operating  losses Kleven  incurred in 1995 and 1996.  The Company
had been amortizing this goodwill at the rate of $120,000 per year.

         Net  Income.  The  pro  forma  consolidated  net  income  in  1997  was
$4,144,654  compared with 3,195,039 in 1996.  This 30% increase is primarily due
to the lower effective  provision for federal and state income tax in 1997. Book
taxes in 1997 reflect the  utilization of net operating  loss  carryovers of the
parent company, reducing the effective provision rate to 26% in 1997 as compared
with a 40% tax rate reflected in the 1996 pro-forma results.

Liquidity and Capital Resources

         Operations.  The  Company  has  historically  financed  its  operations
through operating cash flow, lines of credit and debt and equity offerings.  The
Company's  liquidity is impacted,  to a large  degree,  by the nature of billing
provisions  under its contracts.  Generally,  in the early periods of contracts,
cash expenditures and accrued profits are greater than allowed  billings,  while
contract completion results in billing previously unbilled costs and profits.

         In 1997,  the  Company  generated  approximately  $236,000 of cash from
operations.  The  positive  cash flow from  operations  in 1997  arose  from the
consolidated  net  income  from  operations  of  approximately  $2.3  million in
addition to non-cash expenditures of approximately $1.6 million for depreciation
and  amortization.  These  positive  cash flows were used to fund an increase in
accounts  receivable  of  approximately  $1.4 million,  additional  inventory of
approximately  $500,000,  net  costs in  excess  of  billings  of  approximately
$900,000, accrued expenses and trade accounts payable of approximately $235,000,
and to pay accumulated  dividends and other expenses of approximately  $665,000.
The  positive  cash flow of  $236,000  from  operations  in 1997  compares  to a
negative cash flow from operations of approximately $1,276,000 in 1996.

         Investing Activities.  For the year ended December 31, 1997 the Company
used approximately $12.1 million in investing  activities.  These were comprised
the Company's purchase of fixed assets of approximately $526,000,  payment for a
business  acquisition of $12.0 million, and payment of related acquisition costs
of $285,000. These were offset by proceeds from the sale of fixed assets of
                                     - 14 -
<PAGE>
approximately  $355,000 and cash acquired in an acquisition of $363,000. In 1996
the Company's investing  activities  consisted of the acquisition of $723,000 of
equipment.

         Financing  Activities.  In  1997  the  Company's  financing  activities
generated cash of approximately $14.8 million. In addition, the Company received
approximately  $14.2 million,  net of costs,  from the sale of Common Stock, and
approximately  $4.4 million,  net of costs,  from the sale of Series B Preferred
and Series C Preferred.  The Company used  approximately  $3.7 million to reduce
net  dept  and  capital  lease  obligations.   In  1996  the  Company  generated
approximately $2.0 million from financing activities, which arose primarily from
the sale of equity.

         The  acquisition of Concepts for $4.8 million was financed  through the
sale of $1.5 million of 8% Convertible  Subordinated Debentures and $3.5 million
of Series B Preferred.  The Debentures were subsequently  converted into 720,000
shares of common stock.

         The  Company  issued  470,588  restricted  shares  of  Common  Stock in
connection  with  its  acquisition  of  Compass  under a  pooling  of  interests
effective  October  1997.  The  purchase of Southern  effective  October 1, 1997
required the issuance of  approximately  5,081,661  restricted  shares of Common
Stock. Of these shares,  2,231,661  shares were issued directly to the seller of
Southern  with the  balance of  2,850,000  shares sold in private  placement  to
provide  capital.  Of these shares,  2,700,000  shares were issued subject to an
agreement  under  which the stock may be  repurchased  by the  Company at prices
ranging  from $5.25 to $6.00 per  share,  subject  to  certain  conditions.  The
Company repurchased 25,000 shares at a price of $6.00 per share during the first
quarter of 1998 under this repurchase right.

         Under the stock  purchase  agreement  the  investors  were  entitled to
additional  shares  based upon a formula  relating  to the  market  price of the
Company's Common Stock during three repricing periods beginning on the effective
date of the Company's  registration  statement on February 12, 1998 covering the
shares  and  ending  60 days  later.  The  Company  estimates  that it may issue
approximately  360,000  additional  shares of Common Stock under this  repricing
formula.

         In October 1997 the Company sold 1,000 shares of Series C Preferred for
$1,000,000 and issued $1,000,000 of 5.5% Convertible Subordinated Debentures.

         As of December 31, 1997, the Company has two revolving  lines of credit
totaling  approximately $1.7 million, with an available balance of approximately
$600,000.  The Company  believes that with its current  working  capital,  funds
generated  through its operations and the available  credit balance on its lines
of credit it will have  sufficient  working  capital to address the  anticipated
growth of demand and markets for its products and services for the next 12 to 18
months.  The Company may, however,  seek to obtain additional capital through an
expanded  working  capital line of credit at a financial  institution or through
additional  debt or equity  offerings  during this time  period.  The raising of
additional capital in public markets will primarily be dependent upon prevailing
market conditions and the demand for the Company's products and services.
                                     - 15 -
<PAGE>
Inflation and Seasonality

         The  Company  does not  believe  that it is  significantly  impacted by
inflation. The Company's operations are not seasonal in nature.

Forward-looking Information

         This Report contains certain forward-looking statements and information
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities  Exchange Act of 1934. The cautionary  statements made in this
Report  should  be read  as  being  applicable  to all  related  forward-looking
statements wherever they appear in this Report.  Forward-looking  statements, by
their very nature, include risks and uncertainties.  Accordingly,  the Company's
actual  results could differ  materially  from those  discussed  herein.  A wide
variety of factors  could  cause or  contribute  to such  differences  and could
adversely impact  revenues,  profitability,  cash flows and capital needs.  Such
factors,  many of which are  beyond  the  control of the  Company,  include  the
following: the Company's success in obtaining new contracts; the volume and type
of work orders that are received under such contracts;  the accuracy of the cost
estimates  for the projects;  the Company's  ability to complete its projects on
time and within budget;  levels of, and ability to, collect accounts receivable;
availability of trained  personnel and utilization of the Company's  capacity to
complete work;  competition and competitive  pressures on pricing;  and economic
conditions in the United States and in the region served by the Company.

ITEM 7. FINANCIAL STATEMENTS.

         The financial statements and schedules are included herewith commencing
on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         There has been no disagreement  on accounting and financial  disclosure
with the  Company's  accountants  within the two years  prior to the date of the
most recent financial  statements  requiring  disclosure under this item and any
accountants' reports on the financial statements of the Company for the past two
years has contained no adverse  opinion and no disclaimer of opinion and was not
qualified as to uncertainty, audit scope or accounting principles.
                                     - 16 -
<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

         The following sets forth certain  information with respect to directors
and  executive  officers of the Company  with the year in which each  director's
term expires in parentheses.


         Name               Age          Position with Company and Tenure
----------------------     -----    --------------------------------------------
Joseph P. Kealy             47      Chairman of the Board of Directors, Director
                                    since 1990 and President since 1993.  (1998)

Jerry A. Kleven             43      Director since 1995.  (1998)

John F. Kealy               52      Director since 1990. (1998)

Richard J. Seminoff         49      Director since 1995.  (1998)

Terry W. Beiriger           46      Principal Financial Officer since 1990,
                                    Secretary since 1995 and Treasurer since
                                    1996.

V. Thompson Brown, Jr.      34      Director since 1997. (1998)

Douglas N. Kimball          43      Chief Operating Officer since 1998.

------------------

         Directors hold office until the next annual meeting of shareholders and
until  their   successors  are  elected  and  qualified  or  until  their  prior
resignation. The terms of the executive officers are continuous,  subject to the
authority of the Board.

         Joseph P. Kealy is the Chairman and President of the Company and he has
served in these capacities since May 1994 and 1987, respectively.  He has been a
director of the  Company  since  September  1990.  Mr.  Kealy was  president  of
International   Environmental   Corporation   ("IEC"),  a  former   wholly-owned
subsidiary of the Company,  from its inception in 1987 until his  resignation in
March 1995 in  connection  with the sale of IEC. Mr. Kealy has been  involved in
the construction business for 26 years in both field and management  capacities.
For 16 years prior to joining the Company Mr. Kealy was the Arizona  manager for
a  construction  company.  He  attended  college in  Hastings,  Nebraska  and at
Northern Arizona University.

         Jerry A. Kleven is the President of Kleven. He has been involved in the
underground  construction industry since 1971. Mr. Kleven is a member of various
underground  construction  organizations  in the United  States,  including  the
National  Underground  Contracting  Association.  He has worked in all phases of
Kleven's  business,  including  systems analysis,  construction  methodology and
final estimate pricing.
                                     - 17 -
<PAGE>
         John F. Kealy has been a director of the Company since  September 1990.
Mr. Kealy was the  Executive  Vice  President and Secretary of the Company until
March 1995 when he resigned in connection with his acquisition of IEC in January
1995. He served as Chairman of the Company from September 1990 to May 1994. John
F. Kealy formed IEC with his brother,  Joseph P. Kealy,  in 1987.  Mr. Kealy has
been  involved  in the  construction  business  for 29 years in both  field  and
management  capacities.  He  became  a  construction  manager  in  1967  and ran
construction company offices in Hastings,  Nebraska,  Farmington, New Mexico and
Phoenix  Arizona from 1974 to 1989. Mr. Kealy attended Notre Dame University and
graduated  from Arizona  State  University in 1967 with a Bachelor of Science in
Construction Management.

         Richard J.  Seminoff has been a Vice  President  at Semco  Enterprises,
Inc., which is in the metal processing business, since May 1995. From April 1991
to April 1995, he has served as president of Amos, Lovitt, Touche & Seminoff, an
insurance  agency in Phoenix,  Arizona,  since April 1, 1991. From 1979 to March
1991,   he  was   employed  by  the  Lasher   Cowie   Insurance   Agency,   Inc.
("Lasher-Cowie") one of the largest regional insurance agencies headquartered in
Phoenix,  Arizona  and he was the  president  of such  agency from 1984 to March
1991. Lasher-Cowie became a part of Hilb, Rogal and Hamilton Company, a publicly
owned company. Mr. Seminoff resigned as president of this agency in March 1991.

         Terry W.  Beiriger  is the  principal  financial  officer,  controller,
Treasurer and Secretary of the Company. Mr. Beiriger has served as the principal
financial  officer  and  controller  of the Company  since  September  1990,  as
Treasurer  since July 1996 and as secretary since March 1995. He became involved
in the construction  business in 1979 when he joined Kealy Construction Company,
which was owned by Joseph P. Kealy and John F. Kealy,  as its  controller.  From
1974  to  1979,  he  was  employed  as a U.S.  Internal  Revenue  Service  agent
specializing in the audits of medium-sized corporations.  Mr. Beiriger graduated
from Hastings College in Nebraska in 1974 with a Bachelor of Science in Business
Administration.

         V. Thompson  Brown,  Jr. joined  Concepts in 1986 and is its President.
From November 1987 until he became president of Concepts  subsidiary in 1997 Mr.
Brown had been the  Operations  Manager for  Concepts.  In that  capacity he was
responsible for project  administration,  materials management and bid and sales
supervision.  Mr. Brown graduated from Vanderbilt  University with a Bachelor of
Science in Engineering in 1984.

         Douglas N. Kimball,  CPA joined the Company in late 1997 and became its
Chief  Operating  Officer in early 1998.  From 1995 until joining the Company he
held various  executive  officer  positions at American  Environmental  Network,
Inc.,  most recently as the Vice President,  Operations.  Prior to that he was a
self-employed  consultant in the Metro-NY area.  From 1987-1989 he served as the
Treasurer,  Vice  President  Finance  and Chief  Financial  Officer  of  Mayor's
Jewelers,  Inc. in Coral  Gables,  Florida.  Mr.  Kimball has also served as the
Executive  Vice President and as a director of American Trade and Finance Corp.,
a Boston based  venture  firm;  as the Vice  President,  Finance,  Secretary and
Treasurer of Enseco  Incorporated,  a public  environmental  company;  and as an
audit manager for the Boston Office of Touche Ross & Co. Mr.  Kimball  graduated
with a liberal  arts degree from  Dartmouth  College in 1976 and earned as MS in
accounting from Northeastern University in 1978.
                                     - 18 -
<PAGE>
         Directors  currently receive no cash compensation for their services in
that capacity.  Reasonable out-of-pocket expenses may be reimbursed to directors
in connection with attendance at meetings.

Section 16(a) Beneficial Ownership Reporting Compliance

         During the last year  Messrs.  Beiriger,  Brown,  Kleven and John Kealy
each  failed  to file one  report on Form 4 in a timely  fashion,  each of which
should  have  contained  disclosure  regarding  one  transaction.  All  of  such
transactions have subsequently been reported on Form 5.

ITEM 10. EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>
                                                          Long Term    
                                                         Compensation  
                                                            Awards        
                                                            ------  
                                          Annual          Securities    
Name and Principal                     Compensation/      Underlying          All Other
Positions                     Year    Salary & Bonus     Options(#)(4)     Compensation (3)
-------------------------    ------   --------------     ------------     ----------------

<S>                           <C>        <C>                <C>               <C>   
Joseph P. Kealy               1997       $146,680           740,000           $9,600
President and Chairman of
the Board                     1996        117,092           165,000            9,600 
                                                                                     
                              1995         96,936                              9,600 

Terry W. Beiriger             1997         76,997           170,000            9,600
Principal Financial
Officer,  Secretary and       1996         75,154            65,000            9,600
Treasurer                                                                            
                              1995         71,922                              9,600

Jerry A. Kleven               1997        146,060           120,000           10,000
Executive Vice President
and Director                  1996        150,000            70,000           10,000
                                                                                      
                              1995        150,000                             10,000

V. Thompson Brown, Jr.        1997        190,879(2)         70,000
Director
                              1996         78,843

                              1995         75,158
</TABLE>

(1)      In  August  1994  the  Company  entered  in to a  five-year  employment
         agreements with Joseph P. Kealy,  Jerry A. Kleven and Terry W. Beiriger
         providing  for an annual base salary of $150,000 for Messrs.  Kealy and
         Kleven and, as subsequently amended, $80,000 for Mr.
         Beiriger.

(2)      Of the total  compensation  payed to Mr. Brown during 1997,  $70,000 is
         attributable  to  forgiveness  of a loan made by Concepts to Mr.  Brown
         prior to the Company's acquisition of Concepts.

(3)      The  amounts  set forth in this  column are the  automobile  allowances
         received by the persons in the table  under the  respective  employment
         agreements.

(4)      The exercise prices of all stock options granted were at least equal to
         the fair market  values of the  Company's  Common Stock on the dates of
         the agreement.
                                     - 19 -
<PAGE>
Stock Option and Restricted Stock Plans

         Stock  Option  Plans.  The Company  adopted the 1997 Stock  Option Plan
("1997  Plan") in July  1997.  Under the 1997 Plan,  1,200,000  shares of Common
Stock of the Company are reserved for issuance.  The Plan authorizes the Company
to grant to key  employees  and  directors  of the Company (i)  incentive  stock
options to purchase shares of Common Stock and (ii) non-qualified  stock options
to purchase shares of Common Stock.

         The Company  adopted the 1994  Incentive  Stock  Option Plan (the "1994
Plan," together with the 1997 Plan, the "Option  Plans") in May 1994.  Under the
Plan,  441,707  shares of Common Stock are reserved for issuance.  The 1994 Plan
authorizes  the Company to grant to key  employees of the Company (i)  incentive
stock options to purchase  shares of Common Stock and (ii)  non-qualified  stock
options to purchase  shares of Common Stock.  As of December 31, 1997 all of the
options available under the Option Plans had been granted.

         The  objectives  of the Option Plans are to provide  incentives  to key
employees,  and  also to  directors  in the  case of the  1997  Plan to  achieve
financial results aimed at increasing  shareholder value and attracting talented
individuals to the Company.  The  Compensation  Committee formed by the Board is
comprised  of  non-employee  directors  who  will  administer  the Plan and make
initial  determinations  and  recommendations  to the Board as to the persons to
whom options will be granted and the amount, terms,  conditions and restrictions
of such  awards.  Although  the Option  Plans do not specify what portion of the
shares may be awarded in the form of incentive  stock  options or  non-statutory
options,  a greater  number of incentive  stock  options were awarded  under the
Option Plans.  Incentive  stock options  awarded to employees of the Company are
qualified  stock options under the Internal  Revenue Code.  Further,  the Option
Plans are stock  option  plans  meeting the  requirements  of Rule 16b-3  ("Rule
16b-3")  promulgated  under the  Securities and Exchange Act of 1934, as amended
("Exchange  Act").  Persons eligible to be granted incentive stock options under
the Option Plans are those  employees of the Company whose  performance,  in the
judgment  of the  Compensation  Committee,  can have  significant  effect on the
success of the Company.

         The Option Plans are administered by the Compensation Committee,  which
has the authority to interpret its provisions,  to establish and amend rules for
its  administration,  to make  recommendations  to the Board as to the types and
amounts  of awards to be made  pursuant  to the  Option  Plans,  subject  to the
respective Plan's limitations.

         Incentive  stock options may be granted under the Plans for terms of up
to ten years and at  exercise  prices at least  equal to 100% of the fair market
value of the Common Stock as of the date of grant,  except that incentive  stock
options  granted to any person who owns,  immediately  after such  grant,  stock
possessing  more than 10% of the  combined  voting  power of all  classes of the
Company's stock or of any parent or subsidiary corporation must have an exercise
price at least equal to 110% of the fair market value of the Common Stock on the
date of  grant.  Non-statutory  stock  options  will  have  exercise  prices  as
determined by the Compensation Committee or the Board. The aggregate fair market
value,  determined as of the time an incentive  stock option is granted,  of the
Common Stock with respect to which incentive stock options are exercisable by an
employee for the first time during any calendar year, shall not exceed $100,000.
There is no aggregate dollar
                                     - 20 -
<PAGE>
limitation on the amount of non-statutory stock options which may be exercisable
for the first time by an  optionee  during  any  calendar  year.  Payment of the
exercise  price for any option may be in cash,  by  withheld  shares  which upon
exercise  of an  option  having a fair  market  value at the time the  option is
exercised equal to the option price (plus applicable  withholding tax) or in the
form of shares of the  Company's  Common  Stock.  Any option  granted  under the
Option Plans will expire at the time fixed by the  Committee,  which will not be
more than ten years  after the date it is granted  or, in the case of any person
who owns  more  than 10% of the  combined  voting  power of all  classes  of the
Company's stock or of any subsidiary corporation, not more than five years after
the date of grant. The Compensation  Committee may also specify when all or part
of an option becomes exercisable, but in the absence of such specification,  the
option will  ordinarily be  exercisable  in whole or part at any time during its
term.  Subject to the foregoing,  the Compensation  Committee may accelerate the
exercisability of any option in its discretion.

         Any employee receiving a grant must remain continuously employed by the
Company  for a  period  of  twelve  months  after  the date of the  grant,  as a
condition  to the  exercise  of the  option.  In  addition,  optionees  who  are
directors or  executive  officers of the Company may not exercise any portion of
an option within six months of the date of grant.

         Options  granted under the Option Plans are not  assignable.  Incentive
Stock  Options  may be  exercised  only while the  optionee  is  employed by the
Company or within twelve  months after  termination  by reason of death,  within
twelve  months  after the date of  disability,  or  within  three  months  after
termination for any other reason.

         Tax  Consequences  Respecting  Options Under the Plans.  An employee or
director  will not recognize  income on the awarding of incentive  stock options
and  nonstatutory  options  under the Option Plans.  An optionee will  recognize
ordinary income as the result of the exercise of a nonstatutory  stock option in
the  amount of the  excess of the fair  market  value of the stock on the day of
exercise over the option exercise  price.  Exercise of an option with previously
owned stock is not a taxable disposition of such stock.

         An employee will not  recognize  income on the exercise of an incentive
stock option,  unless the option  exercise  price is paid with stock acquired on
the exercise of an incentive  stock option and the following  holding period for
such stock has not been satisfied.  He will recognize  long-term capital gain or
loss on a sale of the shares acquired on exercise,  provided the shares acquired
are not sold or otherwise  disposed of before the earlier of: (i) two years from
the date of award of the option or (ii) one year from the date of  exercise.  If
the shares  are not held for the  required  period of time,  the  employee  will
recognize  ordinary  income to the extent the fair market  value of the stock at
the time the option is exercised  exceeds the option  price,  but limited to the
gain  recognized  on sale.  The  balance  of any such gain will be a  short-term
capital gain.

         An employee  generally  must  include in  alternative  minimum  taxable
income the amount by which the price he paid for an  incentive  stock  option is
exceeded by the  option's  fair market value at the time his rights to the stock
are freely transferrable or are not subject to a substantial risk of forfeiture.
                                     - 21 -
<PAGE>
         The Company and its  subsidiaries  will be entitled to  deductions  for
federal income tax purposes as a result of the exercise of a nonstatutory option
and the disqualifying sale or disposition of incentive stock options in the year
and the amount that the employee  recognizes ordinary income as a result of such
disqualifying disposition.

         Options granted under the Option Plans are not assignable.  Options may
be exercised only while the optionee is employed by the Company or within twelve
months after termination by reason of death, within twelve months after the date
of disability, or within ten days after termination for any other reason.

         The  Company  may  assist  optionees  in paying the  exercise  price of
options  granted  under the 1994 Plan by either the  extension  of a loan by the
Company for payment by the optionee of the exercise price in installments,  or a
guarantee by the Company of a loan  obtained by the optionee from a third party.
The  terms of any  loan,  installment  payments  or  guarantees,  including  the
interest rate and terms of repayment and collateral requirements,  if any, shall
be determined by the Board of Directors in its sole discretion.

         Restricted  Stock Plans.  The Company adopted the 1997 Restricted Stock
Plan ("1997  Restricted  Stock Plan") in July 1997.  Under the Restricted  Stock
Plan,  shares of Common  Stock of the Company are  reserved,  in such amounts as
determined by the Board, for issuance as part of the total shares reserved under
the Plan described above. The 1997 Restricted Stock Plan authorizes the grant of
shares of Common Stock to key employees, consultants, researchers and to members
of the Board.  The 1997 Restricted  Stock Plan is administered by the Board or a
committee of the Board,  which  determines  the persons to whom shares of Common
Stock will be granted and the terms of such share grants. As of the date hereof,
no shares have been granted under the Restricted Stock Plan.

         The Company  adopted the 1994 Restricted  Stock Plan ("1994  Restricted
Stock Plan") in May 1994. Under the 1994 Restricted Stock Plan, shares of Common
Stock of the Company are reserved, in such amounts as determined by the Board of
Directors, for issuance as part of the total shares reserved under the 1994 Plan
described  above.  The 1994 Restricted Stock Plan authorizes the grant of shares
of Common Stock to key employees, consultants, researchers and to members of the
Advisory Board.  The 1994 Restricted  Stock Plan is administered by the Board of
Directors  or a committee  of the Board,  which  determines  the persons to whom
shares of Common Stock will be granted and the terms of such share grants.
                                     - 22 -
<PAGE>
Option Grants in 1997

         The following  executive  officers were granted stock options under and
outside of the Option  Plans by the  Company in Fiscal  1997 in  recognition  of
their past  contributions to the Company.  In each case, the option price was in
excess of the fair market value of the Common Stock on the date of grant.

<TABLE>
<CAPTION>
                                          Percentage of Total
                       No. of Shares       Shares for which
                         Underlying       Options Granted to      Exercise
     Name             Options Granted       Employees (1)           Price      Expiration Date
-----------------     ---------------     -------------------     --------     ---------------
<S>                      <C>                    <C>               <C>          <C>
Joseph P. Kealy          400,000 (2)            66.4              $ 3.00       August 14, 2004
                         300,000 (3)                                 .9375        May  1, 2002
                          40,000 (3)                                1.47        April  1, 2002

Jerry Kleven             100,000 (3)            10.8                 .9375        May  1, 2002
                          20,000 (3)                                1.47        April  1, 2002

Terry W. Beiriger         50,000 (2)            15.2                3.00       August 14, 2004
                         100,000 (3)                                 .9375        May  1, 2002
                          20,000 (3)                                1.47        April  1, 2002
</TABLE>
-------------------

(1)      Percentages  represent total  percentages for fiscal 1997 including all
         grants under and outside of the Option Plans listed for each person.

(2)      Options became exercisable on December 1, 1997.

(3)      Options became exercisable on July 21, 1997.
                                     - 23 -
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth  information,  as of March 31, 1998 with
respect  to the  number of shares of Common  Stock of the  Company  beneficially
owned by individual directors, by all directors and officers of the Company as a
group,  and by persons known by the Company to own more than 5% of the Company's
Common Stock. The Company has no other class of voting stock outstanding.


          Name of Beneficial                   Number             Percent of
          Owner and Address                 of Shares (1)     Common Stock Owned
---------------------------------------     -------------     ------------------
Joseph P. Kealy                             1,137,086 (2)            6.28
3615 S. 28th Street
Phoenix, Arizona  85040

John F. Kealy                                 246,711 (3)            1.43
520 South 52nd Street
Tempe, Arizona  85281

Jerry A. Kleven                               246,874 (4)            1.42
3615 S. 28th Street
Phoenix, Arizona  85040

Terry W. Beiriger                             246,206 (5)            1.41
3615 S. 28th Street
Phoenix, Arizona  85040

Richard J. Seminoff                            75,000 (6)             *
5050 North 40th Street
Suite 220
Phoenix, Arizona  85018

V. Thompson Brown, Jr.                         79,222 (7)             *
5714 Charlotte Avenue
Nashville, Tennessee 37209

Wallace E. Sapp                             2,346,661 (8)           13.47
Edna M. Sapp
1940 Highway 71 So.
Marianna, Florida 32446

Liviakis Financial Communications, Inc.     1,650,000 (9)            8.75
2420 "K" Street
Suite 220
Sacramento, California  95816

All directors and                               2,031,099           10.84
officers as a group
(six persons)

---------------------
* Less than 1%

                                     - 24 -
<PAGE>
(1)      The  shareholder  listed  has sole  voting  and  investment  power with
         respect to the shares listed.

(2)      Includes  options to purchase  905,000 shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March 31, 1998.

(3)      Includes  options to purchase  55,000  shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March  31,  1998.  John  Kealy  disclaims  beneficial  ownership  of an
         additional 1,500 shares owned by his immediate family.

(4)      Includes  options to purchase  190,000 shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March 31, 1998.

(5)      Includes  options to purchase  235,000 shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March 31, 1998.  Terry Beiriger  disclaims  beneficial  ownership of an
         additional 9,450 shares owned by his immediate family.

(6)      Includes  options to purchase  75,000  shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March 31, 1998.

(7)      Includes options to purchase 70,000 shares of Common Stock.

(8)      Includes  options to purchase  215,000 shares of Common Stock which are
         presently  exercisable,  or which will be exercisable within 60 days of
         March 31,  1998.  Wallace  E.  Sapp and Edna M.  Sapp hold such  shares
         jointly  with right of  survivorship.  Wallace E. Sapp and Edna M. Sapp
         were  the  sole  shareholders  of the  former  Southern  Communications
         Products,  Inc., a Florida  corporation.  The Company  purchased all or
         substantially  all of the  assets of such  company  in  December  1997.
         Wallace E. Sapp remains an employee of the Company's subsidiary, SCP.

(9)      Represents options to purchase 1,650,000 shares of Common Stock granted
         to  Liviakis  which are  presently  exercisable.  Excludes  options  to
         purchase  550,000  shares of Common  Stock  granted to Robert Prag over
         which  Liviakis  disclaims  beneficial  ownership.   Liviakis  performs
         financial  consulting services for the Company pursuant to a consulting
         agreement  effective as of November 5, 1996. Such consulting  agreement
         was extended in December 1997 through June 30, 1998.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Commencing  in  1989  the  Company  advanced  funds  to  Wings  Limited
Partnership  ("Wings"),  the partners of which included Joseph P. Kealy, John F.
Kealy and Joseph W. Zerbib,  a former principal  shareholder of the Company.  In
1993, these persons and their spouses assumed the Wing's obligation by executing
a promissory note in the principal  amount of $396,732,  plus accrued  interest.
Such  individuals  secured the note by pledging  267,000  shares of their Common
Stock to the Company.  In June 1996, Mr. Zerbib paid $108,035  representing  his
pro-rata  share of the  principal  and accrued  interest on the note.  Upon such
payment the Company released him and his spouse
                                     - 25 -
<PAGE>
from their  obligations  under the note and 107,000  shares of Common Stock that
they had pledged to secure the note.  The total  principal and accrued  interest
due as of December 31, 1997 was $166,108,  and the maturity date of the note has
been extended to December 31, 1998.

         At December 31, 1994 Jerry A. Kleven,  Brad J. Kleven and Ronald Abeyta
owed the Company  $81,656,  $108,400 and $68,634,  respectively,  as a result of
advances made by the Company to such  individuals  in fiscal 1994.  The advances
were  represented by secured  promissory notes bearing interest at 7% per annum,
which notes were due and payable in full on or before  December 31, 1995.  Also,
at December 31, 1994  International  FiberCon,  Inc.,  a California  corporation
("FiberCon"), in which Jerry A. Kleven, Brad J. Kleven and Ronald Abeyta owned a
majority  interest,  owed the Company $210,000 as the result of advances made by
the Company to FiberCon.  These  individuals  personally  guaranteed  FiberCon's
payment of the  promissory  note. In 1995  FiberCon  failed to make the required
payments  on the note.  As a result,  the  Company  requested  payment  from the
guarantors under their  respective  guarantees of the note. Jerry A. Kleven paid
the sum of $100,000  toward his note to the Company and his pro rata  portion of
the guarantee of the FiberCon note in 1995. The remaining balance due of $63,497
was consolidated  into a new note on December 31, 1995. The Company had received
no payment from either Brad Kleven or Ronald Abeyta, who resigned as officers of
the Company in 1996, on their  respective notes or guarantees under the FiberCon
note as of June 1996 and therefore  filed suit against each of such  individuals
demanding  full payment of the principal  and accrued  interest on the notes and
for  attorney's  fees in  connection  with the suit.  On January 15,  1998,  the
Company entered into a settlement  agreement and mutual release with Brad Kleven
and Ronald Abeyta  whereby all claims and  counterclaims  were  dismissed by all
parties.  As a part of such agreement both such individuals  agreed to five-year
non-compete  arrangements with the Company. As such, the receivables balance was
converted to covenants not to compete and amortized over a five-year period.
                                     - 26 -
<PAGE>
                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits

         The  following  Exhibits  are filed  herewith  pursuant  to Rule 601 of
Regulation S-B.

<TABLE>
<CAPTION>
   Exhibit
    Number                                    Description                                      Reference
--------------     --------------------------------------------------------------------     ---------------
<S>                <C>                                                                            <C>
     2.1           Stock Purchase Agreement between the Registrant and Concepts                   (1)
                   in Communication, Inc. dated as of October 31, 1996.

     2.2           Stock Purchase Agreement between the Registrant and Compass                    (2)
                   Communications, Inc. dated as of October 1, 1997

     2.3           Asset Purchase and Sale Agreement between the Registrant, SCP                  (2)
                   Acquisition Corp., Southern Communications Products, Inc.,
                   Wallace E. Sapp and Edna M. Sapp, dated as of August 25, 1997.

     3.1           Restated Articles of Incorporation of Registrant dated October 21,             (3)
                   1981

     3.2           Amendment to Articles of Incorporation of Registrant dated April               (3)
                   18, 1986

     3.3           Amendment to Articles of Incorporation of Registrant dated May                 (3)
                   20, 1987

     3.4           Amendment to Articles of Incorporation of Registrant dated                     (3)
                   February 4, 1988

     3.5           Amendment to Articles of Incorporation of Registrant dated                     (3)
                   August 15, 1991

     3.6           Amendment to Articles of Incorporation of Registrant dated June                (3)
                   3, 1994

     3.7           Amended, Revised, and Restated Bylaws of Registrant                            (3)

     4.1           Form of Common Stock Certificate                                               (3)

     4.2           Statement pursuant toss.10-602 of the Arizona Corporate Code for               (4)
                   Series A Convertible Preferred Stock

     4.3           Statement pursuant toss.10-602 of the Arizona Corporate Code for               (4)
                   Series B Convertible Preferred Stock

     10.1          1997 Stock Option Plan                                                         (5)

     10.2          1997 Restricted Stock Plan                                                     (5)
</TABLE>
                                     - 27 -
<PAGE>
<TABLE>
<CAPTION>
   Exhibit
    Number                                    Description                                      Reference
--------------     --------------------------------------------------------------------     ---------------
<S>                <C>                                                                            <C>
     10.3          1994 Incentive Stock Option Plan                                               (6)

     10.4          1994 Restricted Stock Plan                                                     (6)

     21.1          List of Subsidiaries of the Registrant                                          *

     23.1          Consent of Semple & Cooper                                                      *

     27.1          Financial Data Schedule                                                         *
</TABLE>
  -------------

  *      Filed herewith

  (1)    Filed with Current Report on Form 8-K dated February 13, 1997.
  (2)    Filed with Current Report on Form 8-K dated December 1, 1997.
  (3)    Filed with  Registration  Statement on Form SB-2, No.  33-79730,  which
         became effective August 12, 1994.
  (4)    Filed with Registration  Statement on Form SB-2, No.  333-45465,  which
         became effective February 12, 1998.
  (5)    Filed with 1997 Notice and Proxy  Statement,  dated June 25, 1997.  
  (6)    Filed with report on Form 10-KSB for the year ended December 31, 1996.

         (b)  Current Reports on Form 8-K

         The Company  filed two  reports on Form 8-K during the last  quarter of
the  fiscal  year  ended  December  31,  1997.  The  following   table  contains
information with respect to these filings:

                                               Financial
                                               Statements        Date of Event
          Item(s) Reported                       Filed             Reported
-----------------------------------------    --------------    -----------------
Sale of equity securities pursuant to         Not Required      October 23, 1997
Regulation S

Acquisition of Southern Communications             No*          December 1, 1997
Products, Inc. and Compass
Communications, Inc. and Sale of equity
securities pursuant to Regulation S

*        Required   financial   statements   were  filed   with  the   Company's
         registration  statement  on Form  SB-2,  No.  333-45465,  which  became
         effective February 12, 1998.
                                     - 28 -
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     INTERNATIONAL FIBERCOM, INC.



Dated:   April 15, 1998              By /s/ Joseph P. Kealy
                                       -----------------------------------------
                                       Joseph P. Kealy, Chairman of the Board,
                                       President and Principal Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature and Title                                                   Date
-------------------                                                   ----


/s/ Joseph P. Kealy                                              April 15, 1998
---------------------------------------------------
Joseph P. Kealy, Chairman of the Board,
President, Principal Executive Officer and Director


/s/ Terry W. Beiriger                                            April 15, 1998
---------------------------------------------------
Terry W. Beiriger, Principal Financial Officer,
Controller, Treasurer and Secretary


/s/ John F. Kealy                                                April 15, 1998
---------------------------------------------------
John F. Kealy, Director


/s/ Jerry A. Kleven                                              April 15, 1998
---------------------------------------------------
Jerry A. Kleven, Director


/s/ Richard J. Seminoff                                          April 15, 1998
---------------------------------------------------
Richard J. Seminoff, Director


/s/ V. Thompson Brown, Jr.                                       April 15, 1998
---------------------------------------------------
V. Thompson Brown, Jr., Director
                                     - 29 -
<PAGE>
                         INDEPENDENT ACCOUNTANTS' REPORT
                         -------------------------------



To The Stockholders and Board of Directors of
International FiberCom, Inc. and Subsidiaries


We have audited the  accompanying  consolidated  balance sheet of  International
FiberCom,  Inc.  and  Subsidiaries  as of  December  31,  1997,  and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows  for the years  ended  December  31,  1997 and  1996.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated financial statement  presentation.  We believe our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  International
FiberCom,  Inc. and Subsidiaries as of December 31, 1997, and the results of its
operations,  changes in stockholders'  equity,  and its cash flows for the years
ended  December  31,  1997 and  1996,  in  conformity  with  generally  accepted
accounting principles.


Semple & Cooper, LLP
Certified Public Accountants

March 13, 1998
                                       F-1
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                December 31, 1997

                                     ASSETS

Current Assets:
   Cash and cash equivalents (Notes 1 and 2)                         $ 2,990,575
   Accounts receivable (Notes 1 and 4)
     - trade, net of allowance for doubtful accounts                   7,988,380
     - unbilled                                                          180,545
     - other                                                              27,586
   Inventory, net (Notes 1 and 6)                                      2,563,509
   Prepaid expenses                                                      119,620
   Costs and estimated earnings in
     excess of billings on
       uncompleted contracts (Notes 1 and 7)                           2,540,278
   Deferred tax asset (Notes 1 and 13)                                   258,606
                                                                     -----------

        Total Current Assets                                          16,669,099
                                                                     -----------


Property and Equipment, net
  (Notes 1, 8, 9 and 10)                                               5,573,568
                                                                     -----------


Other Assets:
   Loans receivable from related parties
     (Note 5)                                                            238,806
   Goodwill, net (Note 1)                                             20,083,941
   Other assets                                                          347,142
   Covenant not to compete, net (Note 5)                                 341,689
   Debt issue costs, net (Note 5)                                        241,192
                                                                     -----------

                                                                      21,252,770
                                                                     -----------

        Total Assets                                                 $43,495,437
                                                                     ===========
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-2
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEET (Continued)
                                December 31, 1997

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Notes payable
     - current portion (Note 9)                                    $  1,493,945
     - related party (Note 5)                                         1,754,674
   Obligations under capital leases
     - current portion (Note 10)                                        192,429
   Accounts payable
     - trade                                                          2,598,707
     - related parties (Note 5)                                          19,610
   Accrued expenses                                                   1,093,686
   Accrued offering cost                                                741,139
   Billings in excess of costs and
     estimated earnings on uncompleted
       contracts (Note 1 and 7)                                         218,585
   Income tax payable (Notes 1 and 13)                                  123,669
                                                                   ------------

        Total Current Liabilities                                     8,236,444
                                                                   ------------
Long-Term Liabilities:
   Notes payable
     - long-term portion (Note 9)                                       798,698
     - related party (Note 5)                                         3,051,326
   Obligations under capital leases
     - long-term (Note 10)                                              392,135
   Deferred income tax payable (Notes 1 and 13)                         163,862
                                                                   ------------

                                                                      4,406,021
                                                                   ------------

        Total Liabilities                                            12,642,465
                                                                   ------------

Commitments and Contingencies (Note 11)                                    --

Stockholders' Equity: (Note 12)
   Series B, 4% convertible preferred stock, no par
     value; 4,400 shares authorized; 1,518 shares
     issued and outstanding                                           1,126,837
   Series C, 4% convertible preferred stock, no par
     value; 1,000 shares authorized, issued and outstanding             766,662
   Common stock, no par value; 100,000,000
     shares authorized; 16,632,849 shares issued,
     16,454,159 shares outstanding                                   32,389,218
   Common stock warrants                                                 99,082
   Additional paid-in capital                                         2,862,027
   Accumulated deficit                                               (5,722,837)
                                                                   ------------
                                                                     31,520,989
   Less: treasury stock, 178,690 shares, at cost                       (668,017)
                                                                   ------------

        Total Stockholders' Equity                                   30,852,972
                                                                   ------------

        Total Liabilities and Stockholders' Equity                 $ 43,495,437
                                                                   ============
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-3
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For The Years Ended December 31, 1997 and 1996

                                                        1997           1996
                                                        ----           ----

Revenues                                            $ 36,325,146   $ 19,195,069

Cost of Revenues                                     (25,905,137)   (15,833,378)
                                                    ------------   ------------
Gross Profit                                          10,420,009      3,361,691

General and Administrative Expenses                   (8,574,173)    (4,484,600)

Goodwill Impairment (Note 1)                                --       (2,677,490)
                                                    ------------   ------------
Income (Loss) from Operations                          1,845,836     (3,800,399)
                                                    ------------   ------------
Other Income (Expense):
   Interest income                                        34,812         49,086
   Interest expense                                     (234,119)          (141)
   Other income                                           91,971         16,089
   Gain on sale of fixed assets                          186,479         50,781
                                                    ------------   ------------
                                                          79,143        115,815
                                                    ------------   ------------
Net Income (Loss) before Income Taxes                  1,924,979     (3,684,584)

Benefit (Provision) for Income Taxes (Note 13)           346,319       (135,457)
                                                    ------------   ------------
Income (Loss) from Continuing Operations               2,271,298     (3,820,041)
                                                    ------------   ------------
Discontinued Operations:
   Loss from operations of discontinued segment,
     net of tax effect                                   (72,618)       (68,577)
   Gain on disposal of discontinued segment,
     net of tax effect                                   105,805           --
                                                    ------------   ------------
                                                          33,187        (68,577)
                                                    ------------   ------------
Net Income (Loss)                                      2,304,485     (3,888,618)

Preferred Stock Dividends                               (173,447)      (171,303)
                                                    ------------   ------------
Net Income (Loss) Attributable to Common
  Stockholders                                      $  2,131,038   $ (4,059,921)
                                                    ============   ============
Basic Earnings (Loss) per Share: (Notes 1 and 12)
   Continuing operations                            $        .25   $       (.65)
   Discontinued operations                                  --             (.01)
                                                    ------------   ------------
   Net Income (Loss)                                $        .25   $       (.66)
                                                    ============   ============
Diluted Earnings (Loss) per Share:
   Continuing operations                            $        .16   $       (.65)
   Discontinued operations                                  --             (.01)
                                                    ------------   ------------
   Net Income (Loss)                                $        .16   $       (.66)
                                                    ============   ============
Weighted Average Shares Outstanding:
   Basic                                               8,457,024      6,187,188
                                                    ============   ============

   Diluted                                            15,325,836      6,187,188
                                                    ============   ============
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-4
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
                                                      Preferred Stock                Common Stock            Common
                                                      ---------------                ------------             Stock    Accumulated 
                                            Series A     Series B    Series C   Shares Issued    Amount      Warrants    Deficit   
                                            --------     --------    --------   -------------    ------      --------    -------   
<S>                                         <C>         <C>         <C>            <C>          <C>         <C>        <C>         
Stockholders' Equity, January 1, 1996,
  as previously reported                    $2,296,382  $     -     $    -         4,417,072    $7,274,929  $   99,082 $(3,699,918)
Adjustment in connection with pooling
  of interests                                    -           -          -           470,588         4,071        -        113,464 
                                            ----------  ----------  ----------    ----------   -----------  ----------  ---------- 
Stockholders' Equity, January 1, 1996,
  as restated                                2,296,382        -          -         4,887,660     7,279,000      99,082  (3,586,454)
Issuance of 550 shares of Series A,
  preferred, net of costs                      493,559        -          -              -             -           -            -   
Conversion of 1,328 shares of Series A,
  preferred to common stock                 (1,108,944)       -          -         1,821,257     1,108,944        -            -   
Issuance of preferred stock dividend              -           -          -           155,470       171,303        -       (171,303)
Cash dividends - pooled company                   -           -          -              -             -           -       (207,500)
Options issued for services                       -           -          -              -             -           -            -   
Net loss, 1996                                    -           -          -              -             -           -     (3,888,618)
                                            ----------  ----------  ----------    ----------   -----------  ----------  -----------
Stockholders' Equity, December 31, 1996      1,680,997        -          -         6,864,387     8,559,247      99,082  (7,853,875)

Issuance of 3,500 shares of Series B
  preferred, net of costs                         -      2,706,302       -              -             -           -            -   
Issuance of common stock for payment of
  debt                                            -           -          -           123,212       253,207        -            -   
Conversion of 1,972 shares of Series A
  preferred to common stock                 (1,680,997)       -          -         2,126,463     1,680,997        -            -   
Issuance of common stock in private
  placements, net of costs                        -           -          -         2,850,000    11,605,513        -            -   
Issuance of options and warrants for
  services rendered                               -           -          -              -             -           -            -   
Conversion of 1,982 Series B
  preferred to common stock                       -     (1,579,465)      -         1,323,242     1,579,465        -            -   
Issuance of common stock to acquire
  Southern Communications Products, Inc.          -           -          -         2,231,661     6,200,000        -            -   
Issuance of 1,000 shares of Series C
  preferred stock, net of costs                   -           -       766,662           -             -           -            -   
Conversion of 8% convertible 
  debentures                                      -           -          -           720,000       900,000        -            -
Exercise of employee stock options                -           -          -            30,145        37,413        -            -   
Issuance of common stock under Employee
  Stock Purchase Plan                             -           -          -           104,036       280,929        -            -   
Issuance of common stock, miscellaneous           -           -          -           187,456     1,119,000        -            -   
Issuance of preferred stock dividend              -           -          -            72,247       173,447        -       (173,447)
Net income 1997                                   -           -          -              -             -           -      2,304,485 
                                            ----------  ----------  ----------   ----------    -----------  ----------  ---------- 

Stockholders' Equity, December 31, 1997     $     -     $1,126,837  $  766,662   16,632,849    $32,389,218  $   99,082 $(5,722,837)
                                            ==========  ==========  ==========   ==========    ===========  ==========  ===========

<CAPTION>
                                              Additional                 
                                                Paid-in      Treasury    
                                                Capital       Stock      
                                                -------       -----      
<S>                                            <C>         <C>           
Stockholders' Equity, January 1, 1996,                                   
  as previously reported                       $  352,073  $  (668,017)  
Adjustment in connection with pooling                                    
  of interests                                    386,574         -      
                                               ----------   ----------   
Stockholders' Equity, January 1, 1996,                                   
  as restated                                     738,647     (668,017)  
Issuance of 550 shares of Series A,                                      
  preferred, net of costs                             -            -     
Conversion of 1,328 shares of Series A,                                  
  preferred to common stock                           -            -     
Issuance of preferred stock dividend                  -            -     
Cash dividends - pooled company                       -            -     
Options issued for services                       110,000          -     
Net loss, 1996                                        -            -     
                                               ----------  -----------   
Stockholders' Equity, December 31, 1996           848,647     (668,017)  
                                                                         
Issuance of 3,500 shares of Series B                                     
  preferred, net of costs                             -            -     
Issuance of common stock for payment of                                  
  debt                                                -            -     
Conversion of 1,972 shares of Series A                                   
  preferred to common stock                           -            -     
Issuance of common stock in private                                      
  placements, net of costs                            -            -     
Issuance of options and warrants for                                     
  services rendered                             2,013,380          -     
Conversion of 1,982 Series B                                             
  preferred to common stock                           -            -     
Issuance of common stock to acquire                                      
  Southern Communications Products, Inc.              -            -     
Issuance of 1,000 shares of Series C                                     
  preferred stock, net of costs                       -            -     
Conversion of 8% convertible
  debentures                                          -            -
Exercise of employee stock options                    -            -     
Issuance of common stock under Employee                                  
  Stock Purchase Plan                                 -            -     
Issuance of common stock, miscellaneous               -            -     
Issuance of preferred stock dividend                  -            -     
Net income 1997                                       -            -     
                                               ----------   ----------   
                                                                         
Stockholders' Equity, December 31, 1997        $2,862,027   $ (668,017)  
                                               ==========   ==========   
</TABLE>
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-5
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
                                                                                      1997                    1996
                                                                                      ----                    ----
<S>                                                                                <C>                    <C>        
Increase (Decrease) in Cash and Cash Equivalents:

Cash flows from operating activities:
    Cash received from customers                                                   $34,175,088            $18,561,206
    Cash paid to suppliers and employees                                           (33,741,810)           (19,807,900)
    Interest paid                                                                     (114,193)               (44,810)
    Interest received                                                                   16,342                 35,340
    Income taxes paid                                                                  (99,461)               (19,719)
                                                                                   -----------            -----------
        Net cash provided (used) by
          operating activities                                                         235,966             (1,275,883)
                                                                                   -----------            -----------

Cash flows from investing activities:
   Purchase of fixed assets                                                           (525,800)              (648,269)
   Disbursements for loans - related
     parties                                                                            (4,684)                  -
   Disbursements for deferred acquisition
     costs                                                                            (284,525)              (124,367)
   Collection of loans to related parties                                                 -                   117,294
   Proceeds from sale of fixed assets                                                  354,854                104,205
   Payments for investment in subsidiary                                                  -                  (171,797)
   Cash acquired in acquisitions                                                       362,969                   -
   Payments for purchase of Southern
     Communications Products, Inc.                                                 (12,000,000)                  -
                                                                                   -----------            -----------
        Net cash provided (used) by
          investing activities                                                     (12,097,186)              (722,934)
                                                                                   -----------            -----------

Cash flows from financing activities:
   Proceeds from notes payable                                                       7,146,176              4,172,722
   Proceeds from notes payable - related parties                                     1,000,000                   -
   Repayment of notes payable                                                       (8,608,025)            (4,737,100)
   Repayment of notes payable - related parties                                     (3,097,292)                  -
   Repayment of loans from stockholder                                                    -                   (54,000)
   Repayment of obligations under capital
     leases                                                                           (167,379)              (197,036)
   Proceeds from sale of common stock                                               14,218,343                   -
   Proceeds from sale of preferred stock                                             4,356,000                493,559
   Payment of dividends                                                                   -                   (77,500)
   Collection of stock subscriptions
     receivable                                                                           -                 2,373,500
                                                                                   -----------            -----------
        Net cash provided (used) by
          financing activities                                                      14,847,823              1,974,145
                                                                                   -----------            -----------
Net increase (decrease) in cash and
  cash equivalents                                                                   2,986,603                (24,672)

Cash and cash equivalents at beginning
  of year                                                                                3,972                 28,644
                                                                                   -----------            -----------
Cash and cash equivalents at end
  of year                                                                          $ 2,990,575            $     3,972
                                                                                   ===========            ===========
</TABLE>
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-6
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
                 For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
                                                                                       1997                   1996
                                                                                       ----                   ----
<S>                                                                                <C>                    <C>         
Reconciliation of Net Income (Loss) to  Net Cash
  Provided (Used) by Operating Activities:

Net Income (Loss)                                                                  $ 2,304,485            $(3,888,618)
                                                                                   -----------            -----------

Adjustments to Reconcile Net Income (Loss) to Net
  Cash Provided (Used) by Operating Activities:
    Depreciation and amortization                                                    1,632,343                968,784
    Gain on sale of fixed assets                                                      (200,919)               (50,781)
    Loss on sale of fixed assets                                                        14,440                   -
    Legal fees included in goodwill                                                    (32,151)                  -
    Non-cash transactions related to sale of subsidiary                                126,797                   -
    Common stock issued for debt                                                        50,499                   -
    Stock issued for services rendered                                                  69,270                   -
    Interest added to principal of notes
      receivable from related parties                                                  (18,470)               (13,746)
    Impairment of goodwill                                                                -                 2,677,490
    Issuance of common stock for payment on
      employee loans                                                                      -                        60

Changes in Assets and Liabilities:
    Accounts receivable
      - trade                                                                       (1,356,527)              (638,675)
      - unbilled                                                                        16,270               (196,815)
      - other                                                                            3,573                 25,354
    Inventory                                                                         (492,208)                  -
    Prepaid expenses                                                                   (19,878)                 9,698
    Deferred tax asset                                                                (706,032)                79,257
    Costs and estimated earnings
      in excess of billings
        on uncompleted contracts                                                      (666,375)               (29,514)
    Other assets                                                                      (123,180)                82,717
    Bank overdraft                                                                        -                   (57,751)
    Accounts payable
      - trade                                                                         (330,769)                97,919
      - related parties                                                                 (5,000)               (27,511)
    Accrued expenses                                                                    97,320               (409,405)
    Accrued dividends                                                                 (185,203)                  -
    Deferred income tax payable                                                        226,385                   -
    Income tax payable                                                                  55,867                 10,481
    Billings in excess of costs
      and estimated earnings on
        uncompleted contracts                                                         (224,571)                85,173
                                                                                   -----------            -----------

                                                                                    (2,068,519)             2,612,735
                                                                                   -----------            -----------
Net Cash Provided (Used) by
  Operating Activities                                                             $   235,966            $(1,275,883)
                                                                                   ===========            ===========
</TABLE>
                   The Accompanying Notes are an Integral Part
                    of the Consolidated Financial Statements
                                       F-7
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      Summary of Significant Accounting Policies, Nature of Operations and Use
        of Estimates:

        Nature of Corporation:

        International  FiberCom,  Inc.  is a  holding  corporation  for five (5)
        subsidiaries,   Kleven  Construction,   Inc.  ("Kleven"),   Concepts  in
        Communications,   Incorporated  ("Concepts"),   Southern  Communications
        Products, Inc. ("Southern"),  Compass Communications,  Inc. ("Compass"),
        and Trans Sierra  Communications,  Inc.  ("Trans  Sierra").  The holding
        company  was duly  formed and  organized  under the laws of the State of
        Arizona on December 29, 1972.

        Kleven  is  a   Phoenix-based   company   specializing  in  the  design,
        installation  and  maintenance of fiber-optic  and other cabling systems
        for the  telecommunications  and cable television  industries.  Kleven's
        primary  business focus is to service the  telecommunications  and cable
        television industries throughout the southwestern United States and into
        Mexico.  Kleven has been a wholly-owned  subsidiary of the Company since
        approximately 1994.

        Trans  Sierra is a  California  based  company  formed by the Company in
        August,  1997, for the purpose of establishing a service presence in the
        telecommunications and cable television industries in California.  As of
        the date of this  report,  Trans  Sierra has had no  material  operating
        activity.

        The other three subsidiaries were all acquired in 1997.

        Acquisitions:

        Concepts in Communications, Incorporated:

            On January 1, 1997, the Company acquired Concepts,  a privately-held
            Nashville,  Tennessee based company,  with operations in Memphis and
            Knoxville. Concepts in Communications, Incorporated provides systems
            integration services including design, engineering, installation and
            maintenance  of  structured  cabled  systems,  network  hardware and
            software,  work station peripherals and intercommunication  systems,
            primarily within commercial,  industrial and governmental facilities
            throughout the United States. The transaction was accounted for as a
            purchase.  The purchase  price of $4,800,000  was funded through the
            sale of $3,500,000 of Series B preferred  stock and $1,500,000  from
            the issuance of convertible debentures.  The purchase price exceeded
            the  fair  value  of  the  net  assets  acquired  by   approximately
            $2,200,000 of goodwill,  which is being amortized on a straight-line
            basis over fifteen years.  The results of operations of Concepts are
            included in the accompanying  financial  statements from the date of
            acquisition.

        Southern Communications Products, Inc.:

            On October 1, 1997, the Company, through its wholly-owned subsidiary
            SCP Acquisition Corp.,  acquired  substantially all of the assets of
            Southern, based in northwest Florida. Southern sells surplus new and
            used telephone  equipment to telephone  service  providers and other
            vendors  throughout the United States. The transaction was accounted
            for as a purchase.  The  purchase  price of  $21,400,000  was funded
            through  the  sale of  $13,500,000  of  common  stock,  issuance  of
            $6,200,000 of common stock to the former owner,  and the issuance of
            note  payable  in the  amount  of  $3,200,000.  The  purchase  price
            exceeded the fair value of the net assets acquired by  approximately
            $17,900,000   of   goodwill,   which  is  being   amortized  on  the
            straight-line  basis over twenty years. The results of operations of
            Southern are included in the accompanying  financial statements from
            the date of acquisition. F-8
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      Summary of Significant Accounting Policies, Nature of Operations and Use
        of Estimates:

        Acquisitions: (Continued)

        Compass Communications, Inc.:

            In October,  1997,  the Company  completed a merger with  Compass by
            exchanging  470,588 shares of its common stock for all of the issued
            and outstanding  common stock of Compass.  The merger  constituted a
            tax-free  reorganization  and has been accounted for as a pooling of
            interests.  Accordingly,  the consolidated financial statements have
            been  restated  to include  the  results of Compass  for all periods
            presented.  Compass  is a  contract  provider  of  network  planning
            services to the telecommunications industry. The principal source of
            Compass's  revenues  are  derived  from  developing  and  supporting
            computerized mapping of broadband design systems around the globe.

        There were no  transactions  between  Compass and the  Company  prior to
        combination,  and  certain  reclassifications  were made to the  Compass
        financial  statements  to conform to the  Company's  presentations.  The
        results  of  operations  for the  separate  companies  and the  combined
        amounts  presented  in  the  consolidated  financial  statement  are  as
        follows:
<TABLE>
<CAPTION>
                                                                 1997                   1996
                                                                 ----                   ----
<S>                                                          <C>                    <C>        
           Revenues
               International Fibercom and Subsidiaries       $29,589,061            $12,161,263
               Compass                                         6,736,085              7,033,806
                                                             -----------            -----------
               Combined                                      $36,325,146            $19,195,069
                                                             ===========            ===========
           Net Income (Loss) Attributable to Common
               Stockholders
               International Fibercom and Subsidiaries         2,021,397             (4,221,115)
               Compass                                           109,641                161,194
                                                             -----------            -----------
               Combined                                      $ 2,131,038            $(4,059,921)
                                                             ===========            ===========
</TABLE>

        Principles of Consolidation:

        The consolidated  financial  statements at December 31, 1996 include the
        accounts of the Company and its  wholly-owned  subsidiaries,  Kleven and
        Compass.  The  consolidated  financial  statements  at December 31, 1997
        include the accounts of the Company and its  wholly-owned  subsidiaries,
        Kleven,  Concepts,  Southern,  Compass and Trans Sierra. All significant
        intercompany transactions, accounts and balances have been eliminated.

        Discontinued Operations:

        In May,  1997,  Compass  entered  into an  agreement  to  dispose of its
        interest in its wholly-owned subsidiary, Phoneworx, Inc. Phoneworx, Inc.
        was  established  in 1996  and has not had any  material  operations  or
        assets prior to the sale. The operations of Phoneworx, Inc. are shown as
        discontinued operations for the years ended December 31, 1997 and 1996.

        Pervasiveness of Estimates:

        The  preparation  of financial  statements in conformity  with generally
        accepted accounting principles requires management to make estimates and
        assumptions  that affect the reported  amounts of assets and liabilities
        and disclosure of contingent  assets and  liabilities at the date of the
        financial  statements and the reported  amounts of revenues and expenses
        during the  reporting  period.  Actual  results  could differ from those
        estimates.

        Significant  estimates are used when  accounting  for the  percentage of
        completion and the estimated gross profit on jobs in progress, allowance
        for   doubtful   accounts,   inventory   reserves,    depreciation   and
        amortization, accruals, taxes, contingencies,  goodwill, etc., which are
        discussed  in  the  respective  notes  to  the  consolidated   financial
        statements. 
                                      F-9
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.      Summary of Significant Accounting Policies, Nature of Operations and Use
        of Estimates: (Continued)

        Revenue and Cost Recognition:

        Contracting Income:

        Revenues  from   fixed-price  and  modified   fixed-price   construction
        contracts  are  recognized  on  the   percentage-of-completion   method,
        measured by the  percentage  of costs  incurred to date to the estimated
        total costs for each contract.

        Contract costs include, amongst other things, direct labor, field labor,
        subcontracting,  direct materials,  direct overhead,  and interest costs
        incurred as a result of  contracting  activity.  Selling,  general,  and
        administrative costs are charged to expense as incurred.  Project losses
        are  provided  for in their  entirety in the period in which such losses
        are determined,  without reference to the  percentage-of-completion.  As
        contracts can extend over one or more accounting  periods,  revisions in
        costs and estimated earnings during the course of the work are reflected
        during  the  accounting  period  in which the facts  that  require  such
        revisions become known.

        The length of the Company's  contracts vary, but are typically less than
        one (1) year.  Therefore,  assets  and  liabilities  are  classified  as
        current and non-current, based on a one (1) year operating cycle.

        Telecommunication Equipment Sales:

        Sales from  telecommunication  equipment,  as well as any other  related
        services, are recognized on the accrual basis of accounting.

        Cash and Cash Equivalents:

        Cash  equivalents  are  considered to be all highly  liquid  investments
        purchased with an initial maturity of three (3) months or less.

        Accounts Receivable - Trade:

        Accounts receivable - trade represent the amounts billed but uncollected
        on  completed  construction  contracts  and  construction  contracts  in
        progress, as well as standard trade receivables.

        The Company  follows the allowance  method of recognizing  uncollectible
        accounts  receivable.  The allowance method  recognizes bad debt expense
        based  on a  review  of the  individual  accounts  outstanding,  and the
        Company's  prior  history  of  uncollectible  accounts  receivable.   At
        December  31, 1997  allowances  have been  established  for  potentially
        uncollectible accounts receivable in the amount of $234,821.

        Inventory:

        Inventories are stated at the lower of cost, first-in, first-out method,
        or market,  and consists of new and used  telephone  equipment and cable
        and electronic supplies.  The Company periodically reviews its inventory
        and makes a provision for damaged or obsolete inventory, if necessary.

        Property and Equipment:

        Property and  equipment are recorded at cost.  Depreciation  is provided
        over the estimated  useful lives of the assets  utilizing  straight-line
        and accelerated methods. Leasehold improvements are amortized over their
        estimated  useful  lives  or the  remaining  lease  term,  whichever  is
        shorter. The estimated useful lives are as follows:

                       Software                                       7 years
                       Building                                   28-40 years
                       Tools and equipment                          5-7 years
                       Vehicles                                     3-5 years
                       Furniture and fixtures                      7-40 years
                       Office equipment                             5-7 years
                       Leasehold improvement                       5-40 years
                                      F-10
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.      Summary of Significant Accounting Policies, Nature of Operations and Use
        of Estimates: (Continued)

        Property and Equipment: (Continued)

        Maintenance and repairs that neither  materially add to the value of the
        property  nor  appreciably  prolong  its life are  charged to expense as
        incurred. Betterments or renewals are capitalized when incurred. For the
        years  ended  December  31,  1997 and  1996,  depreciation  expense  was
        $1,195,385 and $850,350, respectively.

        The Company's  capital lease agreements are recorded at the lower of the
        present value of the minimum lease payments, or the fair market value of
        the assets.  The assets are being  depreciated  over the lesser of their
        estimated  productive  lives,  or their lease term.  Depreciation of the
        assets under the capital leases is included in depreciation  expense, as
        noted above, for the years ended December 31, 1997 and 1996.

        Goodwill:

        Goodwill represents the excess of the purchase price over the fair value
        of  Concepts'  and  Southerns'  net assets  acquired.  Goodwill is being
        amortized  ratably over 15-20 years. The carrying value of goodwill will
        be reviewed periodically by the Company and impairments, if any, will be
        recognized  when  expected  future  operating  cash flows  derived  from
        goodwill are less than its carrying value.

        During the year ended December 31, 1996,  goodwill of $2,677,490,  which
        arose in connection with the acquisition of Kleven was written off as it
        was  deemed  to have no  continuing  value  due to  recurring  operating
        losses.  Amortization  expense charged to operations for the years ended
        December 31, 1997 and 1996, was $358,412 and $118,125, respectively.

        Income Taxes:

        The Company  reports  deferred taxes on an asset and libility  approach.
        Deferred  income  taxes arise from  timing  differences  resulting  from
        revenues  and  expenses  reported  for  financial   accounting  and  tax
        reporting purposes in different periods. Deferred income taxes represent
        the estimated tax liability on additional  depreciation expense reported
        based upon accelerated tax depreciation  methods, and timing differences
        in the utilization of net operating losses.

        Stock-Based Compensation:

        The Company has elected to follow  Accounting  Principles  Board Opinion
        No.  25,  Accounting  for  Stock  Issued to  Employees  (APB 25) and the
        related  interpretations  in accounting  for its employee stock options.
        Under APB 25,  because  the  exercise  price of employee  stock  options
        equals the market price of the underlying stock on the date of grant, no
        compensation   expense  is   recorded.   The  Company  has  adopted  the
        disclosure-only   provisions   of  Statement  of  Financial   Accounting
        Standards No. 123,  Accounting for Stock-Based  Compensation  (Statement
        No. 123).

        Earnings Per Share:

        Basic earnings per share include no dilution and is computed by dividing
        income  available to common  stockholders by the weighted average number
        of shares outstanding for the period.

        Diluted  earnings per share  amounts are computed  based on the weighted
        average number of shares actually outstanding plus the shares that would
        be outstanding  assuming  conversion of the convertible  preferred stock
        and  convertible  debentures  and exercise of dilutive stock options and
        warrants,  all of which are  considered to be common stock  equivalents.
        The number of shares  that would be issued  from the  exercise  of stock
        options  has been  reduced by the number of shares  that could have been
        purchased from the proceeds at the average market price of the Company's
        stock.  Net income has been  adjusted for  dividends on the  convertible
        preferred  stock and interest  expense  (net of tax) on the  convertible
        debt.
                                      F-11
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.      Summary of Significant Accounting Policies, Nature of Operations and Use
        of Estimates: (Continued)

        New Accounting Pronouncements:

        During the year ended December 31, 1997, the Company  adopted  Statement
        of Financial  Accounting  Standards No. 128,  "Earnings per Share" (SFAS
        No. 128). This pronouncement  provides a different method of calculating
        earnings per share than was required by APB 15, Earnings per Share.  The
        earnings per share for the year ended December 31, 1996 were restated to
        give  effect  to this  pronouncement.

        Statement  of  Financial   Accounting   Standards  No.  130,  "Reporting
        Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
        financial  statements  with fiscal years  beginning  after  December 15,
        1997.  Earlier  application  is  permitted.  SFAS  No.  130  establishes
        standards  for  reporting  and display of  comprehensive  income and its
        components in a full set of general-purpose  financial  statements.  The
        Company  does not  expect  adoption  of SFAS No.  130 to have a material
        effect, if any, on its financial position or results of operations.

        During the year ended December 31, 1997, the Company  adopted  Statement
        of Financial Accounting  Standards No. 131,  "Disclosures about Segments
        of an Enterprise and Related Information",  (SFAS No. 131). SFAS No. 131
        requires  that  public  companies  report  certain   information   about
        operating segments,  products,  services and geographical areas in which
        they operate and their major customers.

2.      Concentrations:

        The Company maintains cash balances at various  financial  institutions.
        Deposits not to exceed $100,000 at the financial institution are insured
        by the Federal Deposit Insurance  Corporation.  As of December 31, 1997,
        the Company had approximately $2,575,514 of uninsured cash.

3.      Fair Value of Financial Instruments:

        Estimated  fair values of the Company's  financial  instruments  (all of
        which are held for non-trading purposes), are as follows:

                                                   December 31, 1997
                                                   -----------------

                                               Carrying
                                                Amount         Fair Value
                                                ------         ----------

        Cash and cash equivalents             $2,990,575       $2,990,575
        Long-term debt                         1,190,833        1,190,833

        The  carrying  amount  approximates  fair  value of cash and  short-term
        instruments.  The fair value of long-term debt is based on current rates
        at  which  the  Company  could  borrow  funds  with  similar   remaining
        maturities.  The fair value of loans  receivable  and notes payable from
        related parties cannot be determined due to its related party nature.
                                      F-12
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.      Accounts Receivable - Trade:

        At  December  31,  1997,  accounts  receivable  - trade  consist  of the
following:

             Contracts in progress                                  $3,956,269
             Contracts in progress - retention                          45,001
             Completed contracts                                     2,875,521
             Completed contracts - retention                           215,881
             Non-contract related accounts receivable                1,130,529
                                                                    ----------
                                                                     8,223,201
             Less: allowance for doubtful accounts                    (234,821)
                                                                    ----------

                                                                    $7,988,380
                                                                    ==========
5.      Related Party Transactions:

        Accounts Receivable - Trade:

        As of December 31, 1997,  accounts  receivable - trade includes $137,986
        due from a related entity.

        Loans Receivable from Related Parties:

        At December 31, 1997,  loans  receivable from related parties consist of
        the following:

        6.5% loans receivable from corporate stock-
        holders, due on demand; secured by the Company's
        common stock.                                               $  166,108

        7.0% loan receivable from a corporate stock-
        holder, with sixty (60) monthly payments of 
        $791, including principal and interest, due
        in full April 1, 2000; unsecured.                               72,698
                                                                    ----------

                                                                    $  238,806
                                                                    ==========

        Based  upon  the  opinion  of  management  of  the  Company,  the  above
        receivables  have  been  classified  as  long-term  in the  accompanying
        financial statements.

        Covenant Not To Compete:

        During  the  year  ended  December  31,  1997,  the  Company   commenced
        litigation to collect on loans  receivable  from two former  officers of
        Kleven. The officers filed a counterclaim alleging wrongful termination.
        As part of a litigation settlement, the two former officers entered into
        a covenant  not to compete  with the  Company,  in which the  balance on
        their  advances were  converted into covenants not to compete for a five
        year  period.  No  amortization  expense was taken during the year ended
        December 31, 1997, as the settlement was reached near year end.

        Accounts Payable - Related Parties:

        Accounts payable - related parties consist of amounts owed to an officer
        of the Company and to a related entity.
                                      F-13
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.      Related Party Transactions: (Continued)

        Notes Payable - Related Parties:

        At December 31, 1997,  notes  payable - related  parties  consist of the
        following:

        Non-interest bearing note payable to a corporate
        stockholder, due on demand.                                 $    6,000

        8.0% convertible debenture to RBB Bank and affiliates,  
        convertible at $1.25 per share through February 10, 1998, 
        at which time the debentures and any accrued interest are
        due in full.                                                   600,000

        8.5% note payable to a principal stockholder of the 
        Company who is an officer of Southern, $500,000 payment 
        of principal and interest due February, 1998, followed 
        by 36 monthly principal and interest payments of $86,663,
        due in full February, 2001.                                  3,200,000

        5.5% convertible debenture to RBB Bank and affiliates,  
        convertible at $5.475 per share on or after January 27, 
        1998 through April 27, 1999, at which time the debentures
        and any accrued interest are due in full.                    1,000,000
                                                                    ----------
                                                                     4,806,000
        Less: current portion                                       (1,754,674)
                                                                    ----------

                                                                    $3,051,326
                                                                    ==========

        A schedule of future minimum  principal  payments due on notes payable -
        related parties outstanding, is as follows:

                         December 31,                             Amount
                         ------------                             ------

                            1998                              $1,754,674
                            1999                               1,900,130
                            2000                                 979,693
                            2001                                 171,503
                                                              ----------

                                                              $4,806,000
                                                              ==========

        Debt Issue Costs:

        In  addition,   the  Company  incurred  costs  in  connection  with  the
        aforementioned  notes  payable  -  related  parties.   These  costs  are
        capitalized  and  amortized  ratably over the life of the debt.  For the
        year ended  December 31, 1997,  amortization  expense of these costs was
        $20,736.

6.      Inventory:

        At December 31, 1997, inventory consists of the following:

             Cabling and equipment                                   $  681,762
             New and used telephone equipment                         3,437,749
             Less: allowance for obsolete inventory                  (1,556,002)
                                                                     ----------

                                                                     $2,563,509
                                                                     ==========
                                      F-14
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.      Contracts in Progress:

        At December 31, 1997, costs and estimated earnings in excess of billings
        and billings in excess of costs and  estimated  earnings on  uncompleted
        contracts consist of the following:

             Costs incurred on uncompleted contracts                 $5,117,128
             Profit earned to date                                    1,822,444
                                                                     ----------
                                                                      6,939,572
             Less: billings to date                                  (4,617,879)
                                                                     ----------

                                                                     $2,321,693
                                                                     ==========

        Included in the accompanying balance sheet under the following captions:

             Costs and estimated earnings
               in excess of billings on
               uncompleted contracts                                 $2,540,278

             Billings in excess of costs
               and estimated earnings on
               uncompleted contracts                                   (218,585)
                                                                     ----------

                                                                     $2,321,693
                                                                     ==========
8.      Property and Equipment:

        At December 31, 1997, property and equipment consists of the following:

              Construction equipment                                 $5,714,838
              Building and land                                       1,790,493
              Furniture and fixtures                                    542,358
              Vehicles                                                  974,300
              Office equipment                                          272,478
              Leasehold improvements                                    298,729
              Software                                                  206,336
                                                                     -----------
                                                                      9,799,532
          Less: accumulated depreciation                             (4,225,964)
                                                                     -----------

                                                                     $5,573,568
                                                                     ===========

9.      Notes Payable:

        At December 31, 1997, notes payable consist of the following:

        Mortgage note payable to Bank of America,  
        interest at prime plus 2.5%, payable in  
        variable monthly installments, including  
        principal and interest, due July 15, 2016;
        collateralized by a Deed of Trust.                           $  266,246

        6.9% to 14.5% notes payable to financial institutions  
        with monthly principal and interest payments from  
        $252 to $10,433, due in full through November, 2001;
        collateralized by equipment and personal guarantees.            963,157
                                      F-15
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.      Notes Payable: (Continued)

        Note payable to First Tennessee Bank on a 
        $800,000 revolving line of credit, interest  
        only payable monthly at prime plus 1%, due 
        June 1, 1998; collateralized by accounts
        receivable and inventory.                                       633,339

        Note payable to Emergent Financial Company on a 
        $850,000 revolving line of credit, interest 
        payable at maturity at prime plus 2.5%, due
        June 2, 1998; collateralized by all assets.                     429,901
                                                                     ----------
                                                                      2,292,643
        Less: current portion of notes payable                       (1,493,945)
                                                                     ----------

                                                                     $  798,698
                                                                     ==========

        A schedule of future  minimum  principal  payments due on notes  payable
        outstanding, is as follows:

                  December 31,
                  ------------

                     1998                      $1,493,945
                     1999                         297,236
                     2000                         161,604
                     2001                          96,980
                     2002                           7,252
                  Subsequent                      235,626
                                               ----------

                                               $2,292,643
                                               ==========

10.     Obligations Under Capital Leases:

        At December 31,  1997,  the Company was the lessee of  construction  and
        office equipment, with an original cost of $946,092, under capital lease
        agreements expiring through December, 2000.

        Minimum  future lease  payments under the capital leases for each of the
        next three (3) years, are as follows:

                 Year Ending
                 -----------

                     1998                                          $  255,563
                     1999                                             216,672
                     2000                                             236,786
                                                                   ----------
        Total minimum lease payments                                  709,021

        Less: amount representing interest                           (124,457)
                                                                   ----------
        Present value of net minimum lease payments                   584,564

        Less: current maturities of capital lease obligations        (192,429)
                                                                   ----------

                                                                   $  392,135
                                                                   ==========
                                      F-16
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.     Commitments and Contingencies:

        Operating Leases:

        The   Company   leases   its   various   Tennessee    facilities   under
        non-cancellable  operating leases,  expiring through February,  2006. In
        addition,  the  Company  leases  vehicles  and  office  equipment  under
        operating  lease  agreements,  with  terms of two (2) to four (4) years.
        Future  minimum lease  payments under  non-cancellable  operating  lease
        agreements are as follows:

                 Year Ending
                 -----------

                     1998                          $  529,272
                     1999                             491,676
                     2000                             497,638
                     2001                             233,642
                     2002                             240,157
                  Subsequent                          753,080
                                                   ----------

                                                   $2,745,465
                                                   ==========

        For the years  ended  December  31,  1997 and 1996,  total rent  expense
        approximated $414,703 and $415,682, respectively.

        Employment Contracts:

        The Company has entered into various  employment  contracts with six (6)
        officers of the Company and/or its  subsidiaries  through August,  1999.
        They provide for a minimum  annual salary and automobile  allowance.  In
        addition,  one (1) of the agreements  contains  incentives  based on the
        Company's  attainment of specified  levels of sales and earnings.  As of
        December 31, 1997 and 1996, the total minimum commitment was $934,950.

        Litigation:

        The  Company  had filed suit  against  two (2)  stockholders  and former
        officers  of the Company to collect on unpaid  promissory  notes owed to
        the Company. The two stockholders and former officers of the Company had
        filed a countersuit against the Company alleging certain  counterclaims.
        In December,  1997, the Company and the former  officers  entered into a
        settlement  agreement  and  mutual  release  whereby  all  claims of the
        Company and all counterclaims of such stockholders were dismissed.  As a
        part  of  such  agreement,   the  stockholders   agreed  to  three  year
        non-compete  arrangements  with the Company.  As such,  the  receivables
        balance was converted to a covenant not-to-compete and will be amortized
        over a five year period.

12.     Stockholders' Equity:

        Preferred Stock:

        The Series A 9% preferred shares are convertible into common shares at a
        price equal to a thirty  percent  (30%)  discount  from the lower of the
        average  closing  bid  price  of the  common  stock  for the  three  (3)
        consecutive  trading days prior to (i) the date of  subscription  of the
        preferred  stock  or (ii) the date of the  conversion  of the  preferred
        stock.
                                      F-17
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.     Stockholders' Equity: (Continued)

        Preferred Stock: (Continued)

        The Series B 4% preferred are  convertible  into common stock at a price
        equal  to the  lower  of the  Average  Stock  Price  on the date of each
        monthly  subscription  installment or the Discounted Average Stock Price
        on the date of  conversion.  The "Average Stock Price" is the average of
        the  daily  closing  bid  prices  of  the  common  stock  for  the  five
        consecutive  trading days  immediately  preceding the relevant date. The
        "Discounted  Average  Stock  Price"  means (i) 70% of the average of the
        daily  closing bid prices of the common  stock for the five  consecutive
        trading days  immediately  preceding the date of conversion  into common
        stock if such  average of the daily  prices is below  $3.00 per share or
        (ii) 75% of the  average  of such daily  prices if the  average is above
        $3.00 per share.  For a one year period  after  issuance of the series B
        preferred, the series B conversion Price floor will be the lower of $.75
        or 50% of the Average Stock Price.  There will be no floor on the series
        B conversion price if the Company fails to achieve certain gross profits
        in any two  consecutive  quarters.  The  Company may redeem the series B
        preferred,  in whole or in part,  commencing  60 days after  issuance at
        150% of the purchase price of $1,000 per share.

        The Series C 4% preferred  shares are convertible into common stock at a
        price of $6.48375  per share.  Additional  shares may be  issuable  upon
        conversion  based upon certain  conditions.  For a one year period after
        the  issuance  of the Series C  preferred,  the floor on the  conversion
        price will be $3.42 per  share.  Dividends  are  payable on the Series C
        preferred at the rate of 4% per annum in shares of common stock or cash,
        at the option of the Company on a quarterly basis.

        Common Stock:

        The Company has entered  into an  agreement  where by it can  repurchase
        2,700,000  shares of common stock at prices  ranging from $5.25 to $6.00
        per share

        Employee Stock Options and Restricted Stock Plans:

        During 1997,  the Company  adopted an Employee  Stock Purchase Plan (the
        "Plan") for all employees meeting certain  eligibility  criteria.  Under
        the plan, eligible employees may purchase shares of the Company's common
        stock,  subject to  certain  limitations,  at 85% of its  market  value.
        Purchases are limited to 15% of an employee's eligible compensation,  up
        to a maximum of $25,000 per year.  An aggregate  of 2,000,000  shares of
        the  Company's  common stock are  authorized  and  available for sale to
        eligible  employees.  During the year ended  December 31, 1997,  104,036
        shares were issued to employees under the Plan.

        On  January  7,  1997,   the  Board  of  Directors   approved  the  1997
        International  Fibercom, Inc. Stock Option Plan. The Plan authorizes the
        Company to grant incentive stock options and non-qualified stock options
        to key  employees of the Company.  In addition,  the Company has adopted
        the 1997  Restricted  Stock Plan.  This Plan  authorizes the granting of
        restricted  shares  of  common  stock  to  key  employees,  consultants,
        researchers,  and members of the Board. Under the above Plans, 1,200,000
        shares of common stock are reserved for issuance.

        During the year ended  December 31, 1994,  the Company  adopted the 1994
        Incentive  Stock  Option Plan and the 1994  Restricted  Stock Plan.  The
        Plans  authorized the granting of restricted  shares of common stock and
        common stock options to key  employees,  consultants,  researchers,  and
        members of the Advisory Board. Under the above Plans,  441,707 shares of
        common stock were reserved for issuance.

        As of December 31, 1997, all of the above options have been granted.  In
        addition,  the Company has issued  $1,275,661  options to employees  and
        directors, not pursuant to any authorized plan.
                                      F-18
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.     Stockholders' Equity: (Continued)

        Employee Stock Options and Restricted Stock Plans: (Continued)

        Following  is a summary  of the  status of the  stock  option  plans for
        employees  and  directors  during the years ended  December 31, 1997 and
        1996:

                                                                      Weighted
                                                                       Average
                                                       Number         Exercise
                                                     of Options        Price
                                                     ----------        -----

        Outstanding at December 31, 1995                 40,000       $ 3.50
        Granted in 1996                               1,052,000         1.02
                                                     ----------       ------
                                                      1,092,000         1.11
        Outstanding at December 31, 1996
        Granted in 1997                               1,825,368         2.14
        Exercised in 1997                               (30,145)       (1.24)
                                                     ----------       ------

        Outstanding at December 31, 1997              2,887,223       $ 1.76
                                                     ==========       ======

                                                                 Weighted
                                                                  Average
                                                                 Remaining
                         Exercise               Number          Contractual
                          Price               of Options           Life
                          -----               ----------           ----

                         $  .94 - $1.47       1,929,355             5.1
                           3.00 -  3.50         932,868             4.5
                           4.43                  25,000             5.0
                                              ---------

                                              2,887,223
                                              =========

        All of the above options are currently exercisable.

        All stock options  issued to employees  have an exercise  price not less
        than the fair market value of the Company's  common stock on the date of
        grant.  In accordance  with  accounting  for such options  utilizing the
        intrinsic  value  method,  there  is  no  related  compensation  expense
        recorded  in the  Company's  financial  statements  for the years  ended
        December  31,  1997 and  1996.  Had  compensation  cost for  stock-based
        compensation  been determined  based on the fair value of the options at
        the grant dates  consistent  with the method of SFAS 123, the  Company's
        net income  (loss)  and  earnings  (loss) per share for the years  ended
        December  31,  1997 and 1996,  would have been  reduced to the  proforma
        amounts presented below:
                                                   December 31,    December 31,
                                                       1997            1996
                                                       ----            ----
        Net income (loss):
          As reported                              $2,131,038      $(4,059,921)
          Pro forma                                   288,268       (4,120,840)

        Basic earnings (loss) per share:
          As reported                              $      .25      $      (.66)
          Pro forma                                       .03             (.67)

        Diluted earnings (loss) per share:
          As reported                                     .16             (.66)
          Pro forma                                       .04             (.67)
                                      F-19
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.     Stockholders' Equity: (Continued)

        Employee Stock Options and Restricted Stock Plans: (Continued)

        The fair  value of option  grants is  estimated  as of the date of grant
        utilizing  the  Black-Scholes  option-pricing  model with the  following
        weighted average  assumptions for grants in 1997 and 1996, expected life
        of options of 1-2 years,  expected volatility of 72%, risk-free interest
        rates of 8.0%, and a 0% dividend yield.  The weighted average fair value
        at date of grant for options  granted during 1997 and 1996  approximated
        $1.01 and $.06, respectively.

        Non-Employee Stock Options and Warrants:

        The Company issued 1,302,480 warrants in connection with its 1994 public
        offering.  Such Public Warrants are exercisable to purchase one share of
        common  stock at $5.50 until June 5, 1998.  The warrants may be redeemed
        by the Company upon 30 days written notice at $.10 per warrant, provided
        that the closing bid  quotations  of the common  stock have  averaged at
        least $8.10 per share for any 20 consecutive  trading days ending on the
        third day  prior to the day on which the  Company  gives  notice.  As of
        December 31, 1997, none of the warrants have been exercised.

        The Company also issued 378,443 series A warrants in connection with the
        Company's  1996 private  placement  of series A preferred.  The series A
        warrants are exercisable to purchase 378,443 shares of common stock at a
        price of $.82 per share.  The series A warrants  are  exercisable  until
        May,  2001.  As of December  31, 1997,  none of the  warrants  have been
        exercised.

        In  connection  with its 1994 public  offering of shares of common stock
        and warrants, the Company also sold to the underwriter of such offering,
        at nominal consideration, Underwriter's warrants exercisable to purchase
        120,000  shares of common  stock at $8.10 per share of common  stock and
        120,000  Underwriter's  underlying  warrants  at $.15 per  Underwriter's
        underlying  warrant,  for a total of 240,000 shares.  The  Underwriter's
        underlying  warrants are  exercisable  at a price of $7.15 per share and
        will expire August 11, 1999. The Underwriter's warrants were exercisable
        commencing August 12, 1995 and continuing for four years thereafter.  As
        of December 31, 1997, none of the warrants have been exercised.

        On November 5, 1996, the Company  entered into a twenty-five  (25) month
        consulting agreement to assist the Company with investor  communications
        and relations.  In consideration  of the Agreement,  the Company granted
        its  consultant a four (4) year option to purchase  1,900,000  shares of
        the  Company's  common  stock,  exercisable  at $1.12 per  share,  which
        equalled the market price at the grant date.  The Company has determined
        that the value of the  services to be received  under this  agreement is
        $105,000,  which is being amortized over the term of the agreement.  The
        options become exercisable on January 1, 1998.

        In June,  1996, the Company  entered into an agreement with a securities
        broker-dealer to provide its services to seek potential acquisitions. In
        consideration  for the agreement,  the Company granted the broker-dealer
        warrants to purchase  150,000 shares of the Company's common stock for a
        period of three (3) years. There are 75,000 warrants  exercisable at two
        dollars ($2) per share, and 75,000 warrants  exercisable at four dollars
        ($4) per share,  with a weighted average exercise price of three dollars
        ($3) per  share.  The  Company  has  determined  that  the  value of the
        services to be received under this  agreement is $5,000,  which is being
        amortized over the term of the agreement.  As of December 31, 1997, none
        of the warrants had been exercised.

        In connection with its 1997 private placement of series B preferred, the
        Company  issued  700,000  series B warrants.  The series B warrants  are
        exercisable  to purchase one share of common  stock at varying  exercise
        prices depending on the tranche.  The exercise price for warrants issued
        with Tranche 1 is $2.25 per share and are exercisable until March, 2002,
        the exercise price for warrants issued with Tranche 2 is $2.50 per share
        and are  exercisable  until  April,  2002,  and the  exercise  price for
        Warrants  issued with  Tranche 3 is $3.00 per share and are  exercisable
        until May, 2002. As of December 31, 1997, none of the warrants have been
        exercised.
                                      F-20
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.     Stockholders' Equity: (Continued)

        Non-Employee Stock Options and Warrants: (Continued)

        In connection  with its 1997 private  placements  of common  stock,  the
        Company  issued  200,000  warrants  and  300,000  stock  options  to the
        placement agent and a consultant,  respectively.  The exercise price for
        the  warrants  is $7.50 per share and are  exercisable  until  November,
        2002.  The exercise  price for the options is $6.00 and are  exercisable
        commencing January,  1998 until January,  2002. As of December 31, 1997,
        none of the warrants or options had been exercised.

        In connection with its 1997 private placement of Series C preferred, the
        Company  issued  67,000  warrants to the placement  agent.  The exercise
        price for the warrants is $7.50 and are exercisable until October, 2002.

        In  connection  with its January,  1997  acquisition  of  Concepts,  the
        Company issued 50,000 warrants to outside parties.  10,000 warrants have
        an  exercise  price of $.94 and are  exercisable  until  January,  1999.
        40,000  warrants  have an  exercise  price of $1.75 and are  exercisable
        until February, 1999.

        In 1997,  the Company  issued  280,000  warrants and 30,000 options to a
        vendor  for  services  rendered.  250,000  and 30,000  warrants  have an
        exercise price of $1.47 and are exercisable until April, 2003 and April,
        2002,  respectively.  The exercise price for the options is $.94 and are
        exercisable until May, 2002.

        Following is a summary of the status of  non-employee  stock options and
        warrants during the years ended December 31, 1997 and 1996:

                                                    Number           Weighted
                                                   of Options        Average
                                                      and            Exercise
                                                   Warrants           Price

        Outstanding at December 31, 1995           1,422,480         $5.72
        Granted in 1996                            2,578,443          1.29
                                                   ---------         -----
        Outstanding at December 31, 1996           4,000,923          2.87
        Granted in 1997                            1,627,000          3.78
                                                   ---------         -----

        Outstanding at December 31, 1997           5,627,923         $3.13
                                                   =========         =====

        Earnings Per Share:

        For the years ended December 31, 1997 and 1996, the following data shows
        amounts used in computing  earnings (losses) per share and the effect on
        income  (loss) and the  weighted  average  number of shares of  dilutive
        potential common stock.

                                                       1997            1996
                                                       ----            ----

        Income from continuing operations           $2,271,298     $(3,820,041)
        Loss from discontinued operations              (72,618)        (68,577)
        Gain on sale of discontinued operations        105,805            -
                                                    ----------     -----------
           Net income (loss)                         2,304,485      (3,888,618)
        Preferred stock dividends                     (173,447)       (171,303)
                                                    ----------     -----------
           Net income (loss) attributable to
             common stockholders                    $2,131,038     $(4,059,921)
                                                    ==========     ===========
                                      F-21
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.     Stockholders' Equity: (Continued)

        Earnings Per Share: (Continued)

<TABLE>
<S>                                                              <C>            <C>        
        Basic Earnings (Loss) per Share:
        --------------------------------
        Weighted average number of shares outstanding             8,457,024      6,187,188
                                                                 ==========     ==========
           Earnings per share - continuing operations            $      .27     $     (.62)
           Loss per share - discontinued operations                    (.01)          (.01)
           Earnings per share - sale of discontinued
             operations                                                 .01            -
                                                                 ----------     ----------
           Earnings (loss) per share                                    .27           (.63)
           Loss per share - preferred stock dividend                   (.02)          (.03)
                                                                 ----------     ----------
              Earnings (loss) per share attributable
                to common stockholders                           $      .25     $     (.66)
                                                                 ==========     ==========

        Diluted Earnings (Loss) Per Share:
        ----------------------------------

           Income available to common stockholders
             used in basic EPS                                   $2,131,038
           Preferred stock dividend                                 173,447
           Interest on convertible debentures                        99,582
                                                                 ----------
              Income available to common stockholders after
                assumed conversions of dilutive securities       $2,404,067
                                                                 ==========

        Weighted average number of shares outstanding             8,457,024

        Effect of dilutive securities:
           Stock options and warrants                             3,192,845
           Convertible preferred stock                            2,426,652
           Convertible debentures                                 1,249,315
                                                                 ----------
        Common stock including assumed conversions               15,325,836
                                                                 ==========


           Earnings per share - continuing operations            $      .16
           Loss per share - discontinued operations                    (.01)
           Earnings per share - sale of discontinued operations         .01
                                                                 ----------

           Earnings per share                                    $      .16
                                                                 ==========
</TABLE>
        Options on 969,868 shares of common stock were not included in computing
        diluted EPS because their effects were anti-dilutive.
                                      F-22
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.     Income Taxes and Deferred Income Taxes:

        The benefit (provision) for income taxes consists of:
<TABLE>
<CAPTION>
                                                                                               1997                 1996
                                                                                               ----                 ----
<S>                                                                                         <C>                  <C>    
             Current                                                                        $ (143,809)          $     -
             Deferred                                                                          490,128             (135,457)
                                                                                            ----------           ----------

             Benefit (provision) for income taxes                                           $  346,319           $ (135,457)
                                                                                            ==========           ==========

        As of December 31, 1997, the components of deferred  income taxes are as follows:

             Current Deferred Tax Assets (Liabilities):
                Revenue recognition                                                                              $  (346,406)
                Net operating loss carryforwards                                                                     444,025
                Allowance for doubtful accounts                                                                       89,232
                Other                                                                                                 71,755
                                                                                                                 -----------

             Net Current Deferred Tax Asset                                                                      $   258,606
                                                                                                                 ===========

             Long-term Deferred Tax Assets (Liabilities):
                Net operating loss carryforwards                                                                 $   172,846
                Depreciation and amortization                                                                       (336,708)
                                                                                                                 -----------

             Net Long-term Deferred Tax Liability                                                                $  (163,862)
                                                                                                                 ===========

        At December  31, 1997,  the Company had federal and state net  operating
        loss carryforwards in the approximate amount of $1,500,000  available to
        offset  future  federal  and  state  taxable  income  primarily  through
        December  31, 2011.  Due to the  acquisition  of Compass,  approximately
        $500,000 of the net operating loss carryforwards are restricted in their
        usage.

        The income tax on earnings  differed from the federal  statutory rate as follows:

             Computed at the expected statutory rate                                                             $  (675,000)

             Utilization of net operating losses                                                                   1,100,000
             Amortization of goodwill not deductible                                                                 (45,000)
             State taxes                                                                                             (80,000)
             Other                                                                                                    46,319
                                                                                                                 -----------

             Effective rate                                                                                      $   346,319
                                                                                                                 ===========
</TABLE>
14.     Employee Benefit Plans:

        Three (3) of the Company's  subsidiaries  maintain a 401K profit sharing
        plan covering substantially all full-time employees.  Under the terms of
        each plan,  the employees may elect to contribute up to fifteen  percent
        (15%) of their  salary to the plan.  Each plan  provides  for a matching
        contribution  by  the  subsidiaries  based  upon  a  percentage  of  the
        participant's  annual  contribution.  Profit sharing plan  contributions
        amounted to $28,991 and $11,939 in 1997 and 1996, respectively.
                                      F-23
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15.     Major Customers:

        For the year ended  December  31,  1997,  the  Company had one (1) major
        customer  representing 22% of revenues. At December 31, 1997, the amount
        due from the customer included in accounts receivable was $2,173,000.

        For the year ended  December  31,  1996,  the  Company had one (1) major
        customer  representing 29% of revenues. At December 31, 1996, the amount
        due from the customer included in accounts receivable was $774,833.

16.     Statements of Cash Flows:

        Non-Cash Investing and Financing Activities:

        During  the  year  ended  December  31,  1997,  the  Company  recognized
        investing   and   financing   activities   that   affected  its  assets,
        liabilities,  and  stockholders'  equity,  but  did not  result  in cash
        receipts or payments. These non-cash activities are as follows:

            Added accrued interest to the principal balance of a loan receivable
            related party in the amount of $18,470.

            Issued common stock for payment of notes payable - related  parties,
            preferred dividend,  legal fees, and accrued interest payable in the
            amounts of $1,102,708, $173,447, $89,270, and $50,499, respectively.

            Financed  portion of  acquisition  of Concepts  with a note  payable
            related party in the amount of $4,800,000.  Legal fees in the amount
            of $32,151  relating to the acquisition  were paid by Concepts.  The
            Company also issued common stock and stock warrants  relating to the
            acquisition  of  Concepts  in the  amounts of $65,000  and  $34,100,
            respectively.

            Reclassified deferred acquisition costs in the amount of $238,169 to
            goodwill.

            Issued stock options and warrants for common stock  offering  costs,
            Series B preferred  stock  offering  costs,  debt issue  costs,  and
            Series C preferred stock offering costs in the amounts of 1,326,000,
            $434,600, $74,705, and $74,705, respectively.

            Issued common stock for services rendered in the amount of $69,270.

            Converted  Series A and Series B  preferred  stock in the amounts of
            $1,680,997 and $1,579,465, respectively, to common stock.

            Acquisition  of fixed  assets was  financed  through the issuance of
            capital  lease  obligations  in the  amount  of  $226,483  and notes
            payable in the amount of $603,640.

            Forgave a loan  receivable in the amount of $341,689 in exchange for
            a covenant not to compete agreement.

            Financed the  acquisition of Southern  through the issuance of notes
            payable - related party in the amount of $3,200,000.

            Included in the gain on disposal of subsidiary  are the  forgiveness
            of  loans  receivable  in the  amount  of  $175,000,  investment  in
            discontinued  operations in the amount of $171,847,  acquisition  of
            fixed  assets in the  amount of  $65,000,  and the  cancellation  of
            common stock in the amount of $50.
                                      F-24
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16.     Statements of Cash Flows: (Continued)

        Non-Cash Investing and Financing Activities: (Continued)

        During  the  year  ended  December  31,  1996,  the  Company  recognized
        investing   and   financing   activities   that   affected  its  assets,
        liabilities,  and  stockholders'  equity,  but  did not  result  in cash
        receipts or payments. These non-cash activities are as follows:

            Financed  the  purchase of  construction  equipment in the amount of
            $288,138, through the issuance of notes payable.

            Goodwill was written off in the amount of $2,677,490.

            Converted   1,328  shares  of  preferred  stock  in  the  amount  of
            $1,108,744 into 1,821,257 shares of common stock.

            Issued  155,470  shares of common  stock  valued at  $171,303,  as a
            preferred stock dividend.

            Accrued interest on loans  receivable from related  parties,  in the
            amount of $13,746 was added to the principal balance.

            Issued  common stock  options and warrants for services  rendered in
            the cumulative amount of $110,000 (See Note 11).

            Issuance  of  65,000  shares of common  stock in  consideration  for
            forgiveness of dividends payable amounting to $130,000.

17.     Subsequent Events:

        On April 9, 1998, the Company  purchased the assets of Riley Underground
        Communications,  Inc. for $2,500,000 in cash and restricted stock of the
        Company.

        Subsequent  to year end,  378,443  common stock  options were  exercised
        generating approximately $310,000 in proceeds.

18.     Segment Information:

        The Company's  operations are classified into four principal  reportable
        segments  that  provide   different   products  or  services.   Separate
        management  of each segment is required  because each  business  unit is
        subject to different marketing, production and technology strategies.
<TABLE>
<CAPTION>
        1997
                               Kleven           Compass           Concepts         Southern             Other           Total
                               ------           -------           --------         --------             -----           -----
<S>                          <C>              <C>               <C>              <C>               <C>               <C>        
        Revenues             $12,383,025      $6,736,085        $15,140,538      $ 2,037,998       $    27,500       $36,325,146
        Interest
          expense*               199,458          38,826             36,813           22,667           135,813           433,577
        Depreciation
          and
          amorti-
          zation                 670,159         310,809            200,336          240,540           210,489         1,632,343
        Operating income
          (loss)                 819,096         169,234            395,528          890,953          (428,975)        1,845,836
        Assets                 7,844,795       2,585,274          5,492,973       22,970,281         4,602,114        43,495,437
</TABLE>
                                      F-25
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18.     Segment Information: (Continued)

        1996
<TABLE>
<CAPTION>
                               Kleven           Compass           Concepts         Southern             Other           Total
                               ------           -------           --------         --------             -----           -----
<S>                          <C>              <C>               <C>              <C>               <C>               <C>     
        Revenues             $12,161,263      $7,033,806         $     -          $     -          $      -          $19,195,069
        Interest
          expense*               238,456            -                  -                -                  141           238,597
        Depreciation
          and
          amorti-
          zation                 676,849         173,810               -                -              118,125           968,784
        Operating income
          (loss)              (1,061,771)        365,228               -                -           (3,103,856)       (3,800,399)
</TABLE>

        *Interest  expense  for  Kleven is  included  in cost of  revenue in the
         accompanying consolidated financial statements.

        The  caption   "Other"   comprises   various   corporate   expenses  and
        eliminations, footnote No. 1 contains a description of each of the above
        business segments.
                                      F-26
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19.     Unaudited Pro forma Condensed Consolidated Financial Statements:

        The  following  unaudited  pro forma  condensed  consolidated  financial
        statements give effect to the  acquisitions in 1997 of both Southern and
        Concepts pursuant to the Purchase  Agreements between the parties.  They
        are based on the estimates and  assumptions  set forth herein and in the
        notes to such statements.  This pro forma  information has been prepared
        utilizing the historical financial  statements and notes thereto,  which
        are incorporated by reference herein.  The pro forma financial data does
        not purport to be indicative of the results  which  actually  would have
        been obtained had the purchases been effected on the dates  indicated or
        of the results which may be obtained in the future.

        The pro forma  financial  information is based on the purchase method of
        accounting for the acquisitions of Southern and Concepts.  The pro forma
        entries are described in the accompanying footnotes to the unaudited pro
        forma  condensed  consolidated  financial  statements.   The  pro  forma
        unaudited  condensed  consolidated  statements of operations  assume the
        acquisition took place on the first day of the period presented.

        In  addition,  in October,  1997,  the  Company  completed a merger with
        Compass,  which  has  been  accounted  for as a  pooling  of  interests.
        Accordingly,  the historical consolidated financial statements have been
        restated to include the results of Compass for all periods presented.

        Acquisitions:

        Concepts in Communications, Incorporated:

        On January 1, 1997,  the Company  acquired  Concepts,  a  privately-held
        Nashville, Tennessee based company, which also has operations in Memphis
        and  Knoxville.  The  transaction  was accounted for as a purchase.  The
        purchase  price of $4,800,000  was funded through the sale of $3,500,000
        of  Series  B  preferred  stock  and  $1,500,000  from the  issuance  of
        convertible  debentures.  The purchase  price exceeded the fair value of
        the net assets  acquired  by  approximately  $2,200,000,  which is being
        amortized on a  straight-line  basis over fifteen years.  The results of
        operations  of  Southern  are  included in the  accompanying  historical
        financial statements from the date of acquisition.

        Southern Communications Products, Inc.:

        On October 1, 1997,  the Company,  through its  wholly-owned  subsidiary
        Southern Acquisition Corp., acquired  substantially all of the assets of
        Southern.  The transaction was accounted for as a purchase. The purchase
        price of  $21,400,000  was funded  through  the sale of  $13,500,000  of
        common  stock,  issuance  of  $6,200,000  of common  stock to the former
        owner, and the issuance of note payable in the amount of $3,200,000. The
        purchase  price  exceeded  the fair value of the net assets  acquired by
        approximately  $17,900,000,  which is being amortized on a straight-line
        basis over twenty  years.  The  results of  operations  of Southern  are
        included in the accompanying  historical  financial  statements from the
        date of acquisition.
                                      F-27
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
      PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                      For The Year Ended December 31, 1996

Proforma Consolidated Financial Statements:

The  following   represents  proforma  condensed   consolidated   statements  of
operations for the year ended December 31, 1996,  assuming the  acquisitions  of
Concepts and Southern were consummated as of January 1, 1996.
<TABLE>
<CAPTION>
                                International
                                  FiberCom,         Concepts In          Southern                              Proforma
                                  Inc. and         Communications,     Communications     Proforma           Consolidated
                                 Subsidiaries(1)    Incorporated       Products, Inc.     Adjustments          Amounts
                                 ---------------    ------------       --------------     -----------          -------
<S>                             <C>                <C>                 <C>                <C>               <C>
Revenues                        $19,195,069        $14,426,376         $15,566,050                           $49,187,495

Cost of Revenues                (15,833,378)       (10,610,612)         (4,483,609)                          (30,927,599)
                                -----------        -----------         -----------                           -----------
Gross Profit                      3,361,691          3,815,764          11,082,441                            18,259,896

General and Administrative
  Expenses                       (4,484,600)        (2,931,202)         (1,552,120)       $  (905,000)(2)     (9,872,922)

Goodwill Impairment              (2,677,490)              -                   -                               (2,677,490)
                                -----------        -----------         -----------                           -----------

Income (Loss) from Operations    (3,800,399)           884,562           9,530,321                             5,709,484

Other Income (Expense):             115,815            (57,400)             47,467           (376,000)(3)       (270,118)
                                -----------        -----------         -----------                           -----------
Net Income (Loss) before
  Benefit for Income Taxes       (3,684,584)           827,162           9,577,788                             5,439,366

Benefit (Provision) for
  Income Taxes                     (135,457)          (324,066)         (3,831,115)         2,114,888 (4)     (2,175,750)
                                -----------        -----------         -----------                           -----------
Net Income (Loss) from
  Continuing Operations          (3,820,041)           503,096           5,746,673                             3,263,616

Discontinued Operations             (68,577)              -                   -                                  (68,577)
                                -----------        -----------         -----------                           -----------

Net Income (Loss)                (3,888,618)           503,096           5,746,673                             3,195,039

Preferred Stock Dividends          (171,303)              -                   -              (132,000)(3)       (303,303)
                                -----------        -----------         -----------                           -----------
Net Income (Loss) Attribu-
  table to Common
  Stockholders                  $(4,059,921)       $   503,096         $ 5,746,673                           $ 2,891,736
                                ===========        ===========         ===========                           ===========
Earnings (Loss) per Share
   Basic                        $     (0.66)                                                                 $       .26
                                ===========                                                                  ===========
   Diluted                           N/A                                                                     $       .22
                                ===========                                                                  ===========
Weighted Average Number of
   Shares Outstanding(5)
   Basic                          6,187,188                                                                   11,118,849
                                ===========                                                                  ===========

   Diluted                           N/A                                                                      15,235,515
                                ===========                                                                  ===========
</TABLE>


(1)  Includes  the  activity  of  Compass,  acquired  in a pooling of  interests
     acquisition.

(2)  To  amortize  goodwill in  connection  with the  purchase  of Southern  and
     Concepts on a straight-line basis over approximately twenty years.

(3)  To record interest on the  convertible  subordinated  debentures,  the note
     payable,  and the  dividend  on the  preferred  stock  issued  to fund  the
     acquisitions.

(4)  To revise the provision  for income taxes based on the  foregoing  proforma
     results of operations.

(5)  Restated  to comply  with FAS 128,  and include  stock  issued/sold  in the
     acquisitions.
                                      F-28
<PAGE>
                  INTERNATIONAL FIBERCOM, INC. AND SUBSIDIARIES
      PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                      For The Year Ended December 31, 1997

Proforma Consolidated Financial Statements:

The following  represents  proforma  condensed  statements of operations for the
year  ended  December  31,  1997,  assuming  the  acquisition  of  Southern  was
consummated as of January 1, 1997. Concepts is already included as of January 1,
1997.
<TABLE>
<CAPTION>
                                                    International
                                                      FiberCom,             Southern                                 Proforma
                                                      Inc. and           Communications,        Proforma           Consolidated
                                                     Subsidiaries        Products, Inc.(3)    Adjustments            Amounts
                                                     ------------        -----------------    -----------            -------
<S>                                                <C>                  <C>                 <C>                  <C>         
Revenues                                            $36,325,146          $ 8,486,849                               $44,811,995

Cost of Revenues                                    (25,905,137)          (2,755,785)                              (28,660,922)
                                                    -----------          -----------                               -----------
Gross Profit                                         10,420,009            5,731,064                                16,151,073

General and Administrative Expenses                  (8,574,173)          (1,191,856)         $  (690,000)(1)      (10,456,029)
                                                    -----------          -----------                               -----------

Income from Operations                                1,845,836            4,539,208                                 5,695,044

Other Income (Expense)                                   79,143               17,741             (204,000)(2)         (107,116)
                                                    -----------          -----------                               -----------
Net Income before Income Taxes                        1,924,979            4,556,949                                 5,587,928

Benefit (Provision) for Income Taxes                    346,319           (1,822,780)                               (1,476,461)
                                                    -----------          -----------                               -----------
Net Income from Continuing Operations                 2,271,298            2,734,169                                 4,111,467

Discontinued Operations, net                             33,187                 -                                       33,187
                                                    -----------          -----------                               -----------
Net Income                                            2,304,485            2,734,169                                 4,144,654

Preferred Stock Dividends                              (173,447)                -                                     (173,447)
                                                    -----------          -----------                               -----------
Net Income Attributable to
  Common Stockholders                               $ 2,131,038          $ 2,734,169                               $ 3,971,207
                                                    ===========          ===========                               ===========

Basic Earnings per Share:
   Continuing operations                            $       .25                                                    $       .31
   Discontinued operations                                 -                                                              -
                                                    -----------                                                    -----------

   Net Income                                       $       .25                                                    $       .31
                                                    ===========                                                    ===========
Diluted Earnings per Share:
   Continuing operations                            $       .16                                                    $       .22
   Discontinued operations                                 -                                                              -
                                                    -----------                                                    -----------

   Net Income                                       $       .16                                                    $       .22
                                                    ===========                                                    ===========

Weighted Average Shares Outstanding:
   Basic                                              8,457,024                                                     12,931,742
                                                    ===========                                                    ===========

   Diluted                                           15,325,836                                                     19,800,554
                                                    ===========                                                    ===========
</TABLE>



(1)  To  amortize  goodwill  in  connection  with the  purchase of Southern on a
     straight-line basis over twenty years.

(2)  To record interest on the  convertible  subordinated  debentures  issued to
     fund the acquisition.

(3)  Represents  activity for the period from January 1, 1997 through  September
     30, 1997, the date of the acquisition.
                                      F-29