SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934. For the quarterly period ended January 31,
1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934.
For the transition period from ______________ to _____________.
Commission File Number: 0-21986
ABLE TELCOM HOLDING CORP.
(exact name of registrant as specified in its charter)
Florida 65-0013218
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1601 Forum Place, Suite 1110, 33401
West Palm Beach, Florida (Zip Code)
(address of principal executive offices)
(561) 688-0400
(Registrant's telephone number, including area code)
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__
As of March 23, 1998, there were 9,364,824 shares, par value $.001 per
share, of the Registrant's Common Stock outstanding.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Page Number
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
January 31, 1998 and October 31, 1997 3
Condensed Consolidated Statements of Operations -
Three months ended January 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash
Flows - Three months ended January 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements -
January 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
</TABLE>
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
January 31, October 31,
1998 1997
------------- -------------
(unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 3,971,821 $ 6,229,602
Investments ... ...
Accounts receivable, net 15,314,102 13,399,327
Inventories 1,156,152 1,257,218
Costs and profits in excess of billings on
uncompleted contracts 4,774,002 5,614,813
Prepaid expenses and other 858,162 508,591
Deferred income taxes ... ...
------------- -------------
Total current assets 26,074,239 27,009,551
Property and equipment, net 15,133,388 13,113,638
Other assets:
Deferred income taxes 1,323,960 981,976
Goodwill, net 8,200,422 8,341,064
Other 1,378,451 899,765
------------- -------------
Total other assets 10,902,833 10,222,805
------------- -------------
Total assets $52,110,460 $50,345,994
============= =============
</TABLE>
Note: The balance sheet at October 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
<TABLE>
<S> <C> <C>
January 31, October 31,
1998 1997
------------- -------------
(unaudited) (Note)
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 4,025,479 $ 3,154,428
Notes payable - shareholders ... 875,000
Accounts payable and accrued liabilities 8,822,978 8,418,323
Billings in excess of costs and profits on
uncompleted contracts 667,212 291,165
Customer Deposits 102,709 229,721
------------- -------------
Total current liabilities 13,618,378 12,968,637
Long-term debt, excluding current portion 15,622,982 14,139,567
Other liabilities 1,277,866 1,277,866
------------- -------------
Total liabilities 30,519,226 28,386,070
Minority Interest 111,081 ...
Convertible, redeemable preferred stock,
$.10 par value, authorized 1,000,000
shares; 442 and 995 shares issued and
outstanding at January 31, 1998 and
October 31, 1997, respectively 3,343,500 6,713,314
Shareholders' equity:
Common stock, $.001 par value,
authorized 25,000,000 shares;
9,090,154 and 8,337,201 shares
issued and outstanding at January
31, 1998 and October 31, 1997,
respectively 9,090 8,579
Additional paid-in capital 18,809,605 15,095,863
Retained earnings (deficit) (682,042) 142,168
------------- -------------
Total shareholders' equity 18,136,653 15,246,610
------------- -------------
Total liabilities and shareholders' equity $52,110,460 $50,345,994
============= =============
</TABLE>
Note: The balance sheet at October 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months
ended January 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $ 22,267,800 $ 18,326,139
------------ ------------
Costs and expenses:
Costs of revenues 19,010,379 14,274,962
General and administrative 2,896,294 1,910,110
Depreciation and amortization 1,152,489 998,967
Charges and
transaction/translation losses
related to Latin American (15,429) ...
operations
------------ ------------
Total costs and expenses 23,043,733 17,184,039
------------ ------------
Income (loss) from operations (775,933) 1,142,100
------------ ------------
Other expense (income):
Interest expense 275,611 379,902
Interest and dividend income (73,602) (96,509)
Other (125,679) 8,789
------------ ------------
Total other expense (income) 76,330 292,182
------------ ------------
Income (loss) before income taxes
and minority (852,263) 849,918
interest
Income tax expense (benefit) (341,984) 344,679
------------ ------------
Income (loss) before minority
interest (510,279) 505,239
Minority interest 159,971 ...
------------ ------------
Net income (loss) (670,250) 505,239
Preferred stock dividends 49,187 35,333
Discount attributable to
beneficial conversion
privilege of preferred stock 104,773 133,000
------------ ------------
Income (loss) applicable to common
stock $ (824,210) $ 336,906
============ ============
Income (loss) per common share:
Basic (See Note 2) $ (.09) $ .04
============ ============
Diluted (See Note 2) $ (.09) $ .04
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
January 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash from operations $ (514,477) $1,543,564
Investing Activities:
Purchase of property and equipment (3,075,774) (646,713)
Cash acquired in acquisitions ... 403,617
Cash paid in acquisitions ... (3,000,000)
Sale of Investments ... 22,944
----------- ----------
Net cash used by investing activities (3,075,774) (3,220,152)
----------- ----------
Financing Activities:
Payments on long-term debt (7,817,013) (87,741)
Proceeds from debt to finance acquisitions ... (6,256,136)
Proceeds from long-term debt 10,419,130 3,000,000
Original discount on subordinated debt (175,000) ...
Net proceeds from preferred stock offering ... 2,177,800
(Repayments) proceeds from notes payable -
shareholders (949,333) 5,664,148
Proceeds from the exercise of stock options 62,990 (250,000)
Dividends Paid (49,570) ...
Distributions to minority interests (159,971) ...
Other 1,237 ...
----------- ----------
Net cash provided by financing activities 1,332,470 4,248,071
----------- ----------
Increase (decrease) in cash and cash equivalents $ (2,257,781) $ 2,571,483
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
January 31, 1998
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required for complete
financial statements. In the opinion of management, all adjustments
necessary for a fair presentation of the results for the interim periods
presented have been included. Such adjustments consist of normal recurring
accruals and those adjustments recorded to reflect the impact of currency
devaluations on the Company's operations in Venezuela during fiscal years
1998 and 1997.
These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used
in the preparation of the Company's Annual Report on Form 10-K for the
year ended October 31, 1997. Operating results for the three months ended
January 31, 1998 are not necessarily indicative of the results that may be
expected for the year ended October 31, 1998.
The accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's 1997 Annual Report on Form 10-K.
Certain items in the condensed consolidated financial statements for the
interim periods ended January 31, 1997 have been reclassified to conform
with the current presentation.
2. Acquisition
On December 2, 1996, the Company, through a wholly owned subsidiary,
acquired all the outstanding common stock of Dial Communications, Inc.
("Dial"). As consideration, the Company paid $3,000,000 in cash, issued
108,489 shares of common stock and issued an $892,000 promissory note. The
acquisition was accounted for using the purchase method of accounting and
approximately $1,500,000 of goodwill was recorded which will be amortized
over 20 years. The results of operations of Dial have been included since
the date of acquisition. The cash component of the purchase was funded in
part from the Company's line of credit and the remainder through a
$1,900,000 Term Loan from a bank. On July 15, 1997 this initial debt was
repaid with a $2,982,000 Term Note.
<PAGE>
Notes to Condensed Consolidated Financial Statements (Continued)
January 31, 1998
The pro forma unaudited results of operations for the three months ended
January 31, 1998 and 1997, assuming consummation of the purchase at the
beginning of the respective periods, are as follows:
<TABLE>
<CAPTION>
For the three months
ended January 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $22,267,800 $19,163,658
Net income (loss) $ (670,250) $ 528,402
Net income (loss) per
common share and common
equivalent share $ (.08) $ .06
</TABLE>
The unaudited pro forma information does not purport to be indicative of
the results of operations which would have resulted had the acquisition
been consummated at the date assumed.
3. Borrowings
On June 1, 1997 the Company entered into a $6,000,000 Line of Credit
Facility (the "Line of Credit'). The Line of Credit is payable on March 1,
1998 with interest payable monthly and contains covenants which require,
among other conditions, that the Company maintain certain tangible net
worth, working capital and debt service coverage. The Line of Credit is
collateralized by all real and personal property of the Company. The
proceeds of the Line of Credit were used to repay existing debt, purchase
assets and for working capital needs.
Effective January 6, 1998 the Company issued $10,000,000 principal amount
of unsecured subordinated debt and detachable warrants to purchase 409,505
shares of common stock at a price of $8.25 per share. The subordinated
debt accrues interest at 12% payable semi-annually in arrears. Equal
principal payments are due in January 2004 and 2005 giving the notes an
average life of 6.5 years. The subordinated debt agreement contains
covenants which require, among other conditions, that the Company maintain
certain tangible net worth, minimum fixed charge coverage and limitations
on total debt. The proceeds were used for current working capital needs,
to pay off existing debt and to provide liquidity to finance growth and
certain expenditures, including acquisitions, associated with the
Company's overall strategic plan.
In conjunction with the subordinated debt issue, the Company has obtained
and signed a commitment letter with a financial institution for a
$30,000,000 three year senior secured revolving credit facility (the
"Credit Facility") with a $2,000,000 sub-limit for the issuance of standby
letter(s) of credit. The Credit Facility will allow the Company to select
an interest rate based on the prime rate or on LIBOR (1, 2, 3 or 6
months), in each case plus an applicable margin, with respect to each draw
it makes thereunder. Interest will be payable monthly in arrears on base
rate advances and at the expiration of each interest period for LIBOR
advances.
Notes to Condensed Consolidated Financial Statements (Continued)
The Credit Facility will contain certain covenants which require, among
other conditions, that the Company maintain certain tangible net worth,
minimum fixed charge coverage and limitations on total debt, and will be
secured by a perfected first priority security interest on all tangible
assets of the Company. The proceeds of the Credit Facility will be used to
finance working capital requirements and for other general corporate
purposes, including acquisitions and equipment capital expenditures
associated with the Company's overall strategic plan. The Company is
currently negotiating an extension of the due date of the existing Line of
Credit until the new Credit Facility is in place.
The classification of debt in the consolidated balance sheet reflects the
effects of the above mentioned financing transactions.
4. Preferred Stock
Effective December 20, 1996, the Company completed a private placement of
1,000 shares of $.10 par value, Series A Convertible Preferred Stock (the
"Preferred Stock") and warrants to purchase 200,000 shares of the
Company's common stock at $9.82 per share. Gross proceeds from the
offering totaled $6,000,000. Each share of Preferred Stock is convertible
into shares of the Company's common stock after April 30, 1997 at the
lesser of $9.82 per share or at a discount (increasing to a maximum of 20%
for conversions after December 20, 1997) of the average closing bid price
of a share of common stock for three days preceding the date of
conversion. The Company is recognizing the discount attributable to the
beneficial conversion privilege of approximately $1,300,000 by accreting
the amount from the date of issuance through December 20, 1997 as an
adjustment of net income attributable to common shareholders. Such
adjustment totaled $104,773 for the first quarter ended January 31, 1998.
This accretion adjustment, which also represents the amount needed to
accrete to the redemption value of the Preferred Stock for the period
ended January 31, 1998, was recorded as a charge to accumulated deficit
and accompanying credit to the Preferred Stock. The Preferred Stock
accrues dividends at an annual rate of 5%, payable quarterly in arrears in
cash or through a dividend of additional shares of Preferred Stock. The
warrants are exercisable during the four year period commencing on the
first anniversary of the private placement, provided that for each share
of Preferred Stock which is converted prior the one year anniversary of
the placement, warrants to purchase 200 shares of common stock are
forfeited.
During the quarter ended January 31, 1998, 553 shares of Preferred Stock
were converted into an aggregate of 499,301 shares of common stock and
106,800 warrants were forfeited. On January 31, 1998, there were 92,200
warrants outstanding. Upon the occurrence of certain events the Company
may be required to redeem the Preferred Stock at a price equal to the
liquidation preference, plus any accrued and unpaid dividends, plus an
amount determined by formula. Proceeds from the private placement were
used to repay certain debt outstanding at October 31, 1996, including a
$1,869,050 note payable to the sellers of H.C. Connell, Inc. ("Connell")
acquired by the Company on December 8, 1995, a $250,000 note payable to a
director, and $2,015,895 due the former principals of Georgia Electric
Company ("GEC"), representing undistributed S corporation profits existing
at the date of acquisition of GEC.
Notes to Condensed Consolidated Financial Statements (Continued)
5. Stock Option Plan
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based
Compensation", which was effective for the Company beginning November 1,
1996. SFAS No. 123 requires expanded disclosures of stock based
compensation arrangements with employees and encourages compensation cost
to be measured based on the fair value of the equity instrument. Under
SFAS No. 123, companies are permitted to continue to apply Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees", which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company has elected to
continue to apply APB Opinion No. 25, and related Interpretations in
accounting for its employee stock options because the alternative fair
value accounting provided for under SFAS No. 123 requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, to the extent the exercise price of the Company's
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized. The following is
the pro forma effect on net income and earnings per share as if the
Company had adopted the expense recognition requirement of SFAS No. 123.
<TABLE>
<CAPTION>
Quarter ended January 31,
1998 1997
---- ----
<S> <C> <C>
Proforma net
income (loss) $ (698,026) $ 505,239
Proforma earnings
(loss) Per share
Primary (.10) (.06)
Fully diluted (.10) (.06)
</TABLE>
Under the Company's 1995 Stock Option Plan, up to 550,000 shares of the
Company's common stock are available for issuance pursuant to the grant of
stock options.
Notes to Condensed Consolidated Financial Statements (Continued)
6. Industry and Geographic Area Segment Information
The Company currently operates primarily in two industry segments:
telecommunication network services and traffic management systems and
devices. Traffic management operations are conducted in the United States
while telecommunication network services are conducted both in the United
States and Latin America (mainly in Venezuela and Brazil). Revenues,
(loss) income from operations, identifiable assets, capital expenditures
and depreciation and amortization pertaining to the industries and
geographic areas in which the Company operates are presented below.
<TABLE>
<CAPTION>
For the three months ended January 31,
<S> <C> <C> <C>
Industry Segments 1998 1997 1996
---- ---- ----
Revenues:
Traffic management operations $ 10,781,327 $ 10,000,229 $ 5,812,978
Telecommunication network
services 11,486,473 8,325,910 5,765,398
------------ ------------ -------------
Total $ 22,267,800 $ 18,326,139 $ 11,578,375
============ =========== ============
Income (loss) from operations:
Traffic management operations $ 92,052 $ 629,022 $ (85,183)
Telecommunication network
services (944,315) 220,896 (951,123)
------------ ------------ -------------
Total $ (852,263) $ 849,918 $ 1,036,306
============ =========== ============
Identifiable Assets:
Traffic management operations $ 28,515,840 $ 25,140,056 $ 20,196,358
Telecommunication network
services 23,594,620 19,914,934 16,260,705
------------ ------------ -------------
Total $ 52,110,460 $ 45,054,990 $ 36,457,063
============ =========== ============
Capital Expenditures:
Traffic management operations $ 421,072 $ 394,445 $ 274,097
Telecommunication network
services 1,404,702 252,268 182,731
------------ ------------ -------------
Total $ 1,825,774 $ 646,713 $ 456,828
============ =========== ============
Depreciation and amortization:
Traffic management operations $ 467,038 $ 385,024 $ 260,016
Telecommunication network
services 685,451 613,943 303,342
------------ ------------ -------------
Total $ 1,152,489 $ 998,967 $ 563,358
============ =========== ============
Geographic Areas
Revenues:
United States $ 20,981,423 $ 17,642,816 $ 10,331,702
Latin America 1,286,377 683,323 1,246,673
------------ ------------ -------------
Total $ 22,267,800 $ 18,326,139 $ 11,578,375
============ =========== ============
Income (loss) from operations:
United States $ (941,036) $ 936,017 $ (114,121)
Latin America 88,773 (86,099) (922,185)
------------ ------------ -------------
Total $ (852,263) $ 849,918 $ (1,036,306)
============ =========== ============
Identifiable Assets:
United States $ 48,982,031 $ 42,333,448 $ 30,943,500
Latin America 3,128,429 2,721,542 5,513,563
------------ ------------ -------------
Total $ 52,110,460 $ 45,054,990 $ 36,457,063
============ =========== ============
</TABLE>
7. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which
changes the method of calculating earnings per share and was effective for
the Company in the quarter ended January 31, 1998. All periods presented
has been restated in accordance with the provisions of SFAS No. 128.
The following is a reconciliation of the numerators and denominators
of the
basic and diluted per share computation as required by SFAS No. 128.
<TABLE>
<CAPTION>
For the three months ended,
------------------------------------
January 31, 1998 January 31, 1997
<S> <C> <C>
Net income available to
common stockholders
(numerator) $ (824,210) $ 336,906
Weighted-average number
of common shares
(denominator) 8,759,300 8,252,318
Earnings per common
share - basic (0.09) 0.04
Weighted-average number
of common shares 8,759,300 8,252,318
(denominator)
Common stock
equivalents arising
from stock options 66,062 186,956
Total shares
(denominator) 8,825,362 8,439,274
Earnings per common
share - diluted (0.09) 0.04
</TABLE>
Notes to Condensed Consolidated Financial Statements (Continued)
8. Litigation
In July 1997, the Company terminated the employment of William J.
Mercurio, the Company's former Chief Executive Officer and Chief Financial
Officer. On July 31, 1997, Mr. Mercurio filed a lawsuit in Palm Beach
County Circuit Court naming the Company as a defendant and alleging that
the Company breached an employment agreement and a stock option agreement
to which he and the Company were parties. The complaint seeks damages and
specific performance under the employment agreement and stock option
agreement. The Company intends vigorously to defend itself and prove that
its actions in terminating Mr. Mercurio's employment were proper and
justified under the terms of his employment agreement.
Additionally, the Company is party from time to time to various legal
proceedings. In the opinion of management, none of these proceedings are
expected to have a material impact on the Company's financial position or
results of operations.
9. Other Subsequent Events
In November 1997, the Company signed a definitive agreement with COMSAT
RSI JEFA Wireless Systems ("JEFA") to acquire (the "JEFA Acquisition")
certain assets and assume certain liabilities of JEFA's intelligent
traffic systems and wireless infrastructure and services business. On
February 25, 1998, the transaction was completed and the Company acquired
assets valued at approximately $12 million and assumed existing contracts
with remaining revenue of approximately $20 million.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the three months ended January 31, 1998
and 1997. This information should be read in conjunction with the Company's
condensed consolidated financial statements appearing elsewhere in this
document. Except for historical information contained herein, the matters
discussed below contain forward looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets and
profitability.
Results of Operations
The following table sets forth, for the periods indicated, selected elements of
the Company's condensed consolidated statements of operations as a percentage of
its revenues.
<TABLE>
<CAPTION>
For the three months ended
January 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues 100% 100.00%
-------------- --------------
Cost of revenues 85.4% 78.0%
General and administrative 13.0% 10.4%
Depreciation and amortization 5.2% 5.5%
Charges and
transaction/translation
losses relating to Latin
American operations (.1)% 0.0%
Income (loss) from operations (3.5)% 6.2%
Interest expense and other .3% 2.1%
Net income (loss) (3.6%) 2.8%
</TABLE>
The Company reported a net loss for the first quarter ended January 31, 1998,
before a reduction for the non-cash charge for the discounted conversion of the
Company's convertible preferred stock (the accretive dividend) issued in
December of 1996, of ($719,437) or ($.08) per share compared to net income of
$469,906 or $.06 per share for the same period in 1997. These amounts are after
a deduction for preferred stock dividends paid of $49,187 in the quarter ended
January 31, 1998, and $35,333 for the quarter ended January 31, 1997. The
reportable income was further reduced by the accretive dividend charge totaling
$104,773 for the three months ended January 31, 1998, and $133,000 for the same
period in the prior year.
Revenues for the quarter ended January 31, 1998 increased $3,941,661 to
$22,267,800 compared to revenues of $18,326,139 for the same period in 1997. The
acquisition of Dial Communications, Inc. ("Dial") in December 1996 accounted for
approximately $1,004,230 of the increase for the three month period ended
January 31, 1998. The remaining increases in revenue for the first quarter were
generated from increased demand for services from the Company's other
subsidiaries.
Cost of revenues increased during the first quarter to 85.4% of revenues from
78.00% of revenues for the same period in 1997. This is primarily a reflection
of the impact on labor productivity and cost increase incurred due to the
inclement weather experienced in the quarter ended January 31, 1998 and its
impact on estimates of cost to complete on existing contracts. These cost
increases are largely due to the decreased productivity levels being experienced
due to the existing ground conditions.
General and administrative expense during the quarter ended January 31, 1998
increased $986,184 from $1,910,110 in 1997 to $2,896,294 in 1998. Approximately
$318,191 of the increase in general and administrative expenses for the quarter
ended January 31, 1998 is attributable to the assimilation of the Dial
acquisition. The remaining increase in general and administrative expenses
resulted from the infrastructure growth relating to the business expansion
experienced in fiscal year 1997.
The decrease in interest expense during the quarter ending January 31, 1998
reflects the change in cash management associated with use of the revolving line
of credit and the payment of term debt.
Depreciation and amortization expense increased $153,522 for the quarter ended
January 31, 1998 from the corresponding period in 1997. The Dial acquisition
represents approximately $80,000 of the total increase for the quarter. The
remaining increase resulted from the continuing improvement and updating of the
Company's equipment.
Other income and expense for the quarter ended January 31, 1998 includes a
recapture of $100,495 associated with the settlement of litigation cost
previously expensed.
Income tax expense (benefit) for the quarters ended January 31, 1998 and 1997
differ from the amounts that would result from applying federal and state
statutory tax rates to pre-tax income (loss) primarily due to nondeductible
goodwill, losses from foreign operations and the recalculation of other deferred
tax items from prior years based on current facts and circumstances.
Liquidity and Capital Resources
Cash and cash equivalents were $3,971,821 at January 31, 1998 compared to
$5,838,644 at October 31, 1997. The decrease in cash during the first three
months of 1998 primarily resulted from the repayment of indebtedness and the
$1,250,000 acquisition cost of real property in connection with the settlement
of litigation.
Effective January 6, 1998, the Company issued $10 million principal amount of
12% Senior Subordinated Notes due January 6, 2005 (the "Notes") with detachable
warrants to purchase 409,505 shares of common stock at a price of $8.25 per
share. Interest under the Notes is payable semi-annually in arrears. Equal
principal payments are due in January 2004 and 2005 giving the Notes an average
life of 6.5 years. The agreement pursuant to which the Notes were issued
contains covenants which require, among other conditions, that the Company
maintain certain tangible net worth, minimum fixed charge coverage and
limitations on total debt, and which limit the Company's ability to pay
dividends and make certain other payments, make investments and sell assets or
subsidiaries. The proceeds from issuance of the Notes were used for current
working capital needs, to pay off existing debt and to provide liquidity to
finance growth and certain expenditures, including acquisitions, associated with
the Company's overall strategic plan.
In addition to the Notes, the Company currently has outstanding $7,499,245 of
secured indebtedness, including a $6 million line of credit which became payable
on March 1, 1998. The Company has obtained an extension of the maturity date of
the line of credit pending completion of negotiations with the lender for
additional financing. The Company requires additional financing to satisfy the
line of credit and to fund capital expenditures and operating requirements in
connection with the growth of its businesses. Further, the Company requires
additional financing to pursue acquisitions, a component of its business
strategy.
Accordingly, the Company has been in negotiations with its secured lender
regarding additional financing and during February, 1998, signed a commitment
letter pursuant to which up to $30 million of secured revolving credit (the
"Credit Facility") would be made available to the Company for a term of three
years. The Company expects that the Credit Facility will allow it to select an
interest rate based on the prime rate or on LIBOR (1, 2, 3 or 6 months), in each
case plus an applicable margin, with respect to each draw it makes under the
Facility. The Credit Facility will be secured by a first lien on all of the
Company's real property and tangible assets, and will contain covenants which
will, among other things, require the Company to maintain a certain net worth
and fixed charge coverage and place limitations on the amount of total debt and
additional indebtedness which the Company may incur, the Company's ability to
pay dividends or make certain other payments, and the Company's ability to make
investments and sell assets.
The Company currently intends to limit the total available financing under the
Credit Facility to $25 million, and plans to use the proceeds of borrowings
under the Credit Facility to refinance its existing secured indebtedness
(including its $6 million line of credit), to finance working capital
requirements of existing and acquired businesses, to fund acquisitions and
capital expenditures and for other general corporate purposes. Upon completion
of the Credit Facility financing on the terms generally described above and as
otherwise currently contemplated by the Company, the Company expects that its
cash on hand and available borrowing capacity under the Credit Facility will be
sufficient to fund its capital requirements for the next twelve months. There
can be no assurance, however, that the Company will not experience adverse
operating results or other factors which could materially increase its cash
requirements.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Effective as of January 6, 1998, the Company issued $10 million principal amount
of 12% Senior Subordinated Notes due January 5, 2005 and warrants (the
"Warrants") to purchase 409,505 shares of its common stock at an exercise price
of $8.25 per share. The Warrants become exercisable on January 6, 1999 and
expire on January 6, 2003. The Warrants were issued to John Hancock Mutual Life
Insurance Company (266,178 shares), Signature 1A (Cayman), Ltd. (122,852
shares), and John Hancock Variable Life Insurance Company (20,475 shares). While
the Warrants were issued together with the Notes for aggregate consideration
equal to the face amount of the Notes, the Company booked an original issue
discount on the Notes of $175,000 relating to the issuance of the Warrants,
which the parties agreed represented the fair market value of the Warrants. The
Warrants were issued without registration under the Securities Act of 1933 in
reliance upon the exemption contained in Section 4(2) thereof for transactions
not involving a public offering.
On December 3, 1997, the Company issued 165,122 shares of common stock to CS
First Boston Corp. upon conversion of 184 shares ($1,104,000 aggregate
liquidation preference) of the Company's outstanding Series A Convertible
Preferred Stock. On December 3, 1997, the Company issued 314,092 shares of
common stock to Silverton International Fund Limited upon conversion of 350
shares ($2,100,000 aggregate liquidation preference) of the Series A Convertible
Preferred Stock. On January 21, 1998, the Company issued 20,087 shares of common
stock to Proprietary Convertible Investment Group, Inc., an affiliate of CS
First Boston, upon conversion of 19 shares ($114,000 aggregate liquidation
preference) of the Series A Convertible Preferred Stock. The Company received no
additional consideration in connection with such conversions.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Description
2.1 Asset Purchase Agreement, dated November 26, 1997, among Able
Telcom Holding
Corp., Georgia Electric Company, Transportation Safety Contractors,
Inc., COMSAT RSI
Acquisition, Inc. and COMSAT Corporation (1)
3.1 Articles of Incorporation (as amended) (2) (3)
3.2 Bylaws (as amended) (2)
4.2 Specimen Common Stock Certificate (2)
4.3 Specimen Series A Preferred Stock Certificate (4)
4.4 Form of Warrant issued to purchasers of Series A Preferred
Stock (3)
10.25 Securities Purchase Agreements, dated as of January 6, 1998,
between Able Telcom
Holding Corp. and each of the Purchasers named therein (5)
(1) Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated
February 25, 1998, and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1
(Reg. No. 33-65854), declared effective by the Commission on
February 26, 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated December 20, 1996, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the
fiscal year ended October 31, 1996, and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the Fiscal year ended October 31, 1997, and
incorporated herein by reference.
b) Reports on Form 8-K
No Reports on Form 8-K were filed during the period.
SIGNATURES
Pursuant to the requirements 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.
ABLE TELCOM HOLDING CORP.
March 23, 1998 By: /S/ Frazier L. Gaines
_______________________________
Frazier L. Gaines
President and Chief Executive
Officer
EXHIBIT INDEX
Exhibit No. Description
2.1 Asset Purchase Agreement, dated November 26, 1997, among
Able Telcom Holding Corp., Georgia Electric Company,
Transportation Safety Contractors,
Inc., COMSAT RSI
Acquisition, Inc. and COMSAT Corporation (1)
3.1 Articles of Incorporation (as amended) (2) (3)
3.2 Bylaws (as amended) (2)
4.2 Specimen Common Stock Certificate (2)
4.3 Specimen Series A Preferred Stock Certificate (4)
4.4 Form of Warrant issued to purchasers of Series A Preferred
Stock (3)
10.25 Securities Purchase Agreements, dated as of January 6,
1998,
between Able Telcom
Holding Corp. and each of the Purchasers named therein (5)
(1) Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated
February 25, 1998, and incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Registration
Statement on Form S-1
(Reg. No. 33-65854), declared effective by the Commission on
February 26, 1994, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Current Report on
Form 8-K, dated
December 20, 1996, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the
fiscal year ended October 31, 1996, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the
fiscal year ended October 31, 1997, and incorporated herein
by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ABLE TELCOM HOLDING CORP. FOR THE QUARTER ENDED
JANUARY
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,971,821
<SECURITIES> 0
<RECEIVABLES> 15,314,102
<ALLOWANCES> 0
<INVENTORY> 1,156,152
<CURRENT-ASSETS> 26,074,239
<PP&E> 15,133,388
<DEPRECIATION> 1,056,024
<TOTAL-ASSETS> 52,110,460
<CURRENT-LIABILITIES> 13,618,378
<BONDS> 0
0
3,343,500
<COMMON> 9,090
<OTHER-SE> 18,127,563
<TOTAL-LIABILITY-AND-EQUITY> 52,110,460
<SALES> 0
<TOTAL-REVENUES> 22,267,800
<CGS> 0
<TOTAL-COSTS> 29,010,379
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 375,611
<INCOME-PRETAX> (852,263)
<INCOME-TAX> (341,984)
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