<PAGE> 1
UNITED STATES
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 APRIL 30, 2000
OR
[ ] 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 OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 HOLCOMB WOODS PARKWAY
SUITE 440
ROSWELL, GEORGIA 30076
----------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 993-1570
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
--------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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 May 31, 2000, there were 16,308,582 shares, par value $.001 per share, of
the Registrant's Common Stock outstanding.
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ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 30, 2000
(Unaudited) and October 31, 1999....................................................... 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three and six months ended April 30, 2000 and 1999............................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for six months ended April 30, 2000 and 1999........................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited).......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 31
PART II. OTHER INFORMATION
Items 1, 4 and 5 - Not Applicable
Item 2. Changes in Securities and Use of Proceeds........................................................ 32
Item 3. Defaults Upon Senior Securities.................................................................. 34
Item 6. Exhibits and Reports on Form 8-K................................................................. 34
SIGNATURES......................................................................................................... 41
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
April 30, 2000 1999 (1)
--------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Currents Assets:
Cash and cash equivalents ....................................................... $ 11,441 $ 16,568
Accounts receivable, including retainage of $18,809 and $16,158 and net of
allowances for bad debts of $3,323 and $3,514 at April 30, 2000 and
October 31, 1999, respectively ............................................. 104,326 73,645
Costs and profits in excess of billings on uncompleted contracts ................ 56,841 69,977
Prepaid expenses and other current assets ....................................... 9,332 5,853
---------- ----------
Total current assets .................................................... 181,940 166,043
Property and equipment:
Land and buildings .............................................................. 3,801 3,801
Equipment, furniture and fixtures ............................................... 47,642 43,989
---------- ----------
51,443 47,790
Less - Accumulated depreciation ................................................. (22,854) (19,987)
---------- ----------
Property and equipment, net ..................................................... 28,589 27,803
Other assets:
Goodwill, net of accumulated amortization of $5,208 and $4,078 at April
30, 2000 and October 31, 1999, respectively ................................ 40,485 41,222
Networks under construction ..................................................... 39,848 1,831
Investment in Kanas ............................................................. -- 12,159
Other non-current assets ........................................................ 12,989 12,975
---------- ----------
Total other assets ..................................................... 93,322 68,187
---------- ----------
Total assets .................................................................... $ 303,851 $ 262,033
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt ............................................... $ 41,043 $ 35,754
Accounts payable and accrued liabilities including retainage of $18,737
and $11,618 at April 30, 2000 and October 31, 1999, respectively ........... 117,120 66,617
Accruals for incurred job costs ................................................. 49,444 45,593
Advance from WorldCom ........................................................... 32,000 --
Reserves for losses on uncompleted contracts .................................... 30,605 8,620
Billings in excess of costs and profits on uncompleted contracts ................ 9,387 6,478
Notes payable to shareholders and employees ..................................... 607 --
Stock appreciation rights payable ............................................... -- 3,710
---------- ----------
Total current liabilities ............................................... 280,206 166,772
Long-term debt, non-current portion ............................................. 732 30,618
Advance from WorldCom ........................................................... -- 32,000
Property tax payable, non-current portion ....................................... 16,661 15,468
Long-term deferred revenues ..................................................... 11,073 --
Other non-current liabilities and minority interest ............................. 301 422
---------- ----------
Total liabilities ...................................................... 308,973 245,280
Commitments and contingencies
Series B Preferred Stock, $.10 par value; stated at aggregate accumulated
redemption value at October 31, 1999; 779 shares issued and outstanding at
October 31, 1999 ................................................................ -- 16,322
Series C Preferred Stock, $.10 par value; aggregate liquidation value of $15,000
plus accumulated dividends of $208; 5,000 shares issued and outstanding at
April 30, 2000 .................................................................. 13,665 --
---------- ----------
Shareholders' Equity (Deficit):
Common stock, $.001 par value, authorized 25,000,000 shares; 16,008,215 and
11,891,338 shares issued and outstanding, respectively ........................ 16 12
Additional paid-in capital ...................................................... 74,213 38,290
Senior Note Warrants ............................................................ 1,244 1,244
Series B Preferred Stock Warrants ............................................... 3,948 2,735
Series C Preferred Stock Warrants ............................................... 1,097 --
WorldCom Phantom Stock .......................................................... 606 606
Retained deficit ................................................................ (99,911) (42,456)
---------- ----------
Total shareholders' equity (deficit) ................................... (18,787) 431
========== ==========
Total liabilities and shareholders' equity (deficit) ............................ $ 303,851 $ 262,033
========== ==========
</TABLE>
(1) The balance sheet at October 31, 1999 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 notes to condensed consolidated financial statements.
3
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ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
April 30 April 30
--------------------------- --------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
(Restated)(1) (Restated)(1)
<S> <C> <C> <C> <C>
Revenue:
Construction and maintenance ......................................... $ 131,826 $ 88,008 $ 238,741 $ 181,088
Conduit sale ......................................................... -- 35,721 -- 35,721
------------ ------------ ------------ ------------
Total revenue ........................................................ 131,826 123,729 238,741 216,809
Costs and expenses:
Construction and maintenance ......................................... 144,641 77,560 247,167 155,656
Costs of conduit sale ................................................ -- 34,673 -- 34,673
General and administrative expense ................................... 17,642 8,681 29,609 18,367
Impairment of intangible assets ...................................... -- 2,465 -- 2,465
Depreciation and amortization expense ................................ 2,825 3,207 5,633 5,984
------------ ------------ ------------ ------------
Total costs and expenses ............................................. 165,108 126,586 282,409 217,145
------------ ------------ ------------ ------------
Loss from operations .................................................... (33,282) (2,857) (43,668) (336)
Other income (expense):
Interest expense ..................................................... (1,516) (2,210) (3,965) (4,688)
Change in value of stock appreciation rights ......................... -- 7,230 3,710 1,896
Equity in losses/impairment of investment in Kansas .................. (11,875) -- (12,184) --
Other ................................................................ 44 (551) 368 (554)
------------ ------------ ------------ ------------
Total other income (expense) ......................................... (13,347) 4,469 (12,071) (3,346)
------------ ------------ ------------ ------------
Income (loss) before income taxes, minority interest and
extraordinary item ................................................... (46,629) 1,612 (55,739) (3,682)
Provision for (benefit from) income taxes ............................... (296) 15 -- (35)
------------ ------------ ------------ ------------
Income (loss) before minority interest and extraordinary item ........... (46,333) 1,597 (55,739) (3,647)
Minority interest ....................................................... 122 125 50 199
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ................................. (46,455) 1,472 (55,789) (3,846)
Extraordinary loss on early extinguishment of debt ...................... -- (3,067) -- (3,067)
------------ ------------ ------------ ------------
Net loss ................................................................ (46,455) (1,595) (55,789) (6,913)
Increase in default redemption value of Series B Preferred Stock ........ -- -- (1,404) --
Redemption of 2,785 shares of Series B Preferred Stock .................. -- (4,323) -- (4,323)
Modification of exercise price of Series B Preferred Stock Warrants ..... -- (1,894) -- (1,894)
Modification of conversion price of Series B Preferred Stock ............ -- (6,430) -- (6,430)
Series C Preferred Stock dividends and accretion ........................ (262) -- (262) --
Series B Preferred Stock dividends ...................................... -- (64) -- (244)
------------ ------------ ------------ ------------
Loss applicable to common stock ......................................... $ (46,717) $ (14,306) $ (57,455) $ (19,804)
============ ============ ============ ============
Weighted average shares outstanding:
Basic ................................................................... 15,966,215 11,717,244 14,339,220 11,709,839
Diluted ................................................................. 15,966,215 11,717,244 14,339,220 11,709,839
Loss applicable to common stock per share:
Basic:
Loss before minority interest and extraordinary item .................... (2.93) (0.96) (4.01) (1.43)
Extraordinary loss on early extinguishment of debt ...................... -- (0.26) -- (0.26)
Loss applicable to common stock ......................................... (2.93) (1.22) (4.01) (1.69)
Diluted:
Loss before minority interest and extraordinary item .................... (2.93) (0.96) (4.01) (1.43)
Extraordinary loss on early extinguishment of debt ...................... -- (0.26) -- (0.26)
Loss applicable to common stock ......................................... (2.93) (1.22) (4.01) (1.69)
</TABLE>
(1) The fiscal 1999 unaudited amounts have been adjusted from amounts
previously reported by the Company in quarterly filings with the
Securities and Exchange Commission. Refer to Note 4, "Quarterly
Financial Data."
See notes to condensed consolidated financial statements.
4
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ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six Months Ended April 30,
----------------------------------
2000 1999
------------ -------------
Restated (1)
<S> <C> <C>
Cash provided by (used in) operating activities .......................................... $ (3,627) $ 17,645
Cash flows from Investing Activities:
Capital expenditures, net ........................................................... (5,396) (1,646)
Cash acquired from acquisition of businesses ........................................ 122 --
---------- ----------
Net cash used in investing activities ........................................... (5,274) (1,646)
Cash flows from Financing Activities:
Repayments of long-term debt and other borrowings ................................... (291) (31,232)
Proceeds from the issuance of long-term debt and other borrowings ................... -- 32,163
Redemption of Series B Preferred Stock .............................................. (11,601) --
Proceeds from the issuance of preferred stock and warrants, net ..................... 14,400 (92)
Proceeds from the exercise of stock options ......................................... 1,102 330
Dividends paid on preferred stock ................................................... -- (244)
Other ............................................................................... 164 34
---------- ----------
Net cash provided by financing activities ........................................... 3,774 959
---------- ----------
Change in cash and cash equivalents ...................................................... (5,127) 16,958
Cash and cash equivalents, beginning of period ........................................... 16,568 13,544
---------- ----------
Cash and cash equivalents, end of period ................................................. $ 11,441 $ 30,502
========== ==========
Supplemental disclosures:
Increases in goodwill resulting from acquisition of SASCO/SES ....................... 392 --
Common stock issued in conjunction with the acquisition of SASCO/SES ................ 739 --
Conversion of WorldCom debt to common stock ......................................... 25,544 --
Contribution of interest payable to WorldCom ........................................ 3,483 --
Increase in default redemption value of Series B Preferred Stock .................... 1,404 --
Warrants issued to financial advisor for Series C Preferred Stock offering .......... 313 --
Common stock issued to redeem Series B Preferred Stock .............................. 4,911 --
Warrants issued to redeem Series B Preferred Stock .................................. 1,213 --
Valuation of stock appreciation rights .............................................. 3,710 1,896
Common stock issued or accrued in conjunction with GEC earnout provisions ........... 205 4,595
Common stock issued in exchange for note payable to director ........................ -- 828
Modification of conversion price of Series B Preferred Stock ........................ -- 6,430
Modification of exercise price of Series B Preferred Stock Warrants ................. -- 1,894
Compensation recognized on deferred compensation plans .............................. -- 710
</TABLE>
(1) The fiscal 1999 unaudited amounts have been adjusted from amounts
previously reported by the Company in quarterly filings with the
Securities and Exchange Commission. Refer to Note 4, "Quarterly
Financial Data."
See notes to condensed consolidated financial statements.
5
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ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management of Able Telcom Holding Corp. ("Able" or the
"Company"), the unaudited condensed consolidated financial statements furnished
herein include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results of operations for the interim
periods presented. These interim results of operations are not necessarily
indicative of results for the entire year. The condensed consolidated financial
statements contained herein should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's 1999 Annual
Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements are
prepared on an accrual basis and include the accounts of the Company and all its
subsidiaries. A substantial portion of consolidated total assets, liabilities
and revenues are generated by one subsidiary of the Company, Adesta
Communications, Inc. ("Adesta"), formerly MFS Network Technologies, Inc.
All material intercompany accounts and transactions have been eliminated.
Certain items in the condensed consolidated financial statements for the three
and six months ended April 30, 1999, and as of October 31, 1999, have been
reclassified to conform with the current presentation.
2. GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The following
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
(1) The Company has negative working capital of $98.3 million and a
shareholders' deficit of $18.8 million as of April 30, 2000.
(2) The Company incurred losses from operations of $43.7 million, net losses of
$55.8 million, and losses applicable to common stock of $57.5 million
during the six months ended April 30, 2000. The Company also incurred
losses from operations of $1.9 million, net losses of $18.1 million, and
losses applicable to common stock of $36.8 million during the fiscal year
ended October 31, 1999.
(3) The Company has borrowed the maximum available under its existing Credit
Facility and is in default of the related covenants. The Credit Facility
lenders have the right to demand payment and the Company has insufficient
liquidity to pay such amounts, if called. The Company has not yet been
successful in obtaining alternative financing and may have insufficient
liquidity to fund its continuing operations.
(4) As discussed in Note 9, "Reserves for Losses on Uncompleted Contracts" and
Note 16, "Segment Information", reserves for losses on uncompleted
contracts at April 30, 2000, totaled $30.6 million, including a $24.4
million increase during the six months ended April 30, 2000 related
primarily to the New Jersey Consortium contract. Funding of these expected
losses will have a material adverse effect on the Company's future
liquidity.
(5) Some of the Company's construction contracts require payment of liquidated
damages if certain milestones are not achieved on schedule. Lack of
sufficient liquidity to pay vendors and subcontractors for those contracts
on a timely basis could result in delays and significant additional
obligations to the Company that are currently not anticipated or reflected
in the Company's consolidated financial statements.
(6) As discussed in Note 11, "Contingencies," the Company is the defendant in
various legal matters that individually or in aggregate could have a
material adverse effect on the Company's financial position. Subsequent to
April 30, 2000, a significant judgement was awarded by a jury against the
Company in favor of
6
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SIRIT Technologies, Inc. ("SIRIT") Pending the outcome of subsequent
motions to the court and potential appeals of the judgement, the
accompanying unaudited condensed consolidated financial statements do not
reflect any liability that may ultimately result from the SIRIT litigation.
(7) The Company has been involved in discussions with NASDAQ regarding the
Company's ability to meet certain minimum listing requirements, including
minimum net equity. Failure of the Company to meet such requirements or
present a plan approved by NASDAQ to meet such requirements could result in
delisting of the Company's common stock by NASDAQ. As discussed in Note 12,
"Preferred Stock," delisting by NASDAQ is an event of default under certain
of the Company's non-registered securities that may require the Company to
pay punitive interest and/or redeem such securities at punitive liquidation
values. The Company has insufficient liquidity to redeem such securities if
required to do so.
The accompanying condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts, including goodwill, or the amount and classification of liabilities
that might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent upon its
ability to (a) generate sufficient cash flow to meet its obligations on a timely
basis, (b) obtain additional financing as may be required, and (c) ultimately
sustain profitability.
In response to these conditions, Management has consummated the following over
the past 12 months:
(1) As part of the Company's ongoing efforts to align strategically the
profitable portions of its business and as a result of significant turnover
and the deterioration of underlying contracts, the Company closed Dial
Communications, Inc. ("Dial") and Able Integrated Systems, Inc. ("AIS")
during the fiscal year ended October 31, 1999, which together used cash
flows from operations of approximately $7.4 million and $3.8 million during
the fiscal years ended October 31, 1999 and 1998.
(2) As discussed in Note 10, "Debt," approximately $25.5 million of the
Company's indebtedness to WorldCom was converted to common stock of the
Company during January 2000.
(3) As discussed in Note 12, "Preferred Stock," approximately $6.1 million of
the accrued redemption value of the Company's Series B Preferred Stock was
paid by issuing common stock and warrants of the Company during the quarter
ended April 30, 2000. Concurrently, the remaining Series B Preferred Stock
redemption obligation of approximately $10.9 million was paid with cash
funded through the issuance of $15.0 million of Series C Preferred Stock.
(4) As discussed in Note 16, "Segment Information," the Company executed a
comprehensive amendment to the New Jersey Consortium Contracts in June
2000.
(5) As discussed in Note 11, "Contingencies," the Company has filed with the
court a motion for remittitur and judgement with regard to the SIRIT
judgement pleading both that SIRIT did not prove essential elements of its
claims and that the punitive damage awards were excessive. Additionally,
the Company is prepared to file the appropriate appeals to have the verdict
set aside.
Management's ongoing plans to deal with these conditions are as follows:
(1) The Company is allocating its resources to meet its current contractual
commitments, particularly those commitments that could result in
contractual default and liquidated damages.
(2) With regard to certain jobs, specifically Loss Jobs, the Company continues
to negotiate significant change orders for out-of-scope and other work that
the Company has previously completed. Such change orders are not reflected
in the condensed consolidated financial statements.
(3) The Company continues with its efforts to raise replacement or additional
financing which include ongoing discussions with current investors,
third-party investors and the Credit Facility lenders.
7
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3. REVIEW BY THE SECURITIES AND EXCHANGE COMMISSION
The Company has worked, over approximately the past year, with the staff of the
Securities and Exchange Commission ("SEC") to resolve certain issues relating to
accounting and other disclosures made by the Company in connection with the
acquisition of Adesta from WorldCom effective July 2, 1998. As a result of the
SEC's review, the following events have taken place:
(1) The Company has restated the preacquisition financial statements of
Adesta (formerly known as MFS Network Technologies, Inc. or MFSNT). The
restatement included the financial statements of MFSNT as of and for
the year ended December 31, 1997 and as of and for the period ended
July 2, 1998. See the Company's Form 8-K/A-4 that has been filed with
the SEC.
(2) The Company's 1998 Form 10-K/A-2 has been filed with the SEC to include
certain additional disclosures and to include changes required to the
"Pro Forma Financial Information" relating to the acquisition of MFSNT.
(3) The Company has also filed Forms 10-Q/A for the quarters ended January
31, 1999, April 30, 1999 and July 31, 1999. The financial statements
for the quarters were restated as disclosed in the Company's 1999 Form
10-K and certain additional disclosures in the notes to the financial
statements were added. The Company's 1999 Form 10-K/A has also been
filed to incorporate additional disclosures requested by the SEC staff.
The Company has received verbal acceptance from the SEC regarding resolution of
the accounting and disclosure issues related to the acquisition of Adesta.
However, the SEC has reserved the right to review the Company's Form 10-K/A for
1999 and the Form 10-Q for the quarter ended January 31, 2000.
The Company has also resubmitted its Notice of Annual Meeting, Proxy Statement
and Proxy (collectively the "Proxy") for the years ended October 31, 1999 and
1998. As of the date of filing this Form 10-Q report, the SEC had not completed
its review of the Proxy. Able has not been able to hold a shareholders' meeting
since April 1998 and shareholder approval of certain proposals included in the
Proxy is necessary to avoid punitive provisions relating to the Company's
preferred stock as described in Note 12, "Preferred Stock." Able expects to
schedule and hold a shareholders' meeting as soon as practicable after receiving
clearance of its Proxy from the SEC.
4. QUARTERLY FINANCIAL DATA
The quarterly unaudited amounts for the three and six months ended April 30,
1999, have been adjusted from amounts originally reported by the Company in its
quarterly filings with the Securities and Exchange Commission. The adjustments
relate to accounting errors discovered subsequent to October 31, 1999. Their
nature and effects on the results of operations for the three and six months
ended April 30, 1999, are summarized below (in thousands, except per share
data):
<TABLE>
<CAPTION>
As Reported Adjustments Adjusted
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Three Months Ended April 30, 1999:
Revenues $ 124,481 $ (752) $ 123,729
Operating income (loss) 536 (3,393) (2,857)
Net income (loss) 41 (1,636) (1,595)
Loss applicable to common stock (15,151) 845 (14,306)
Loss applicable to common stock per share (1.29) 0.07 (1.22)
For the Six Months Ended April 30, 1999:
Revenues $ 216,258 $ 551 $ 216,809
Operating income (loss) 5,899 (6,235) (336)
Net loss (540) (6,373) (6,913)
Loss applicable to common stock (15,912) (3,892) (19,804)
Loss applicable to common stock per share (1.35) (0.34) (1.69)
-------------------------------------------------------------------------------------------------
</TABLE>
8
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<TABLE>
<CAPTION>
Net income (loss) Applicable to
Net Income (loss) for the Common Stock for the Months
Months Ended April 30, 1999 Ended April 30, 1999
--------------------------------------------------------------------------------------------------------------------
Three Six Three Six
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amounts previously reported $ 41 $ (540) $(15,151) $(15,912)
Adjustments:
WorldCom SAR obligation (1) 821 (1,085) 821 (1,085)
Improperly deferred costs (2) (2,382) (3,145) (2,382) (3,145)
Costs improperly charged against reserves (3) 623 491 623 491
Prior year accrual adjustment (4) -- (957) -- (957)
Equipment impairment loss (5) (1,146) (1,146) (1,146) (1,146)
Tax effects of all adjustments 807 689 807 689
Series B redemption and modification (6) -- -- 2,481 2,481
Other adjustments (7) (18) (643) (18) (643)
Long-term service contracts adjustments (8) (341) (577) (341) (577)
--------------------------------------------------------------------------------------------------------------------
Total adjustments (1,636) (6,373) 845 (3,892)
--------------------------------------------------------------------------------------------------------------------
Restated amounts $ (1,595) $ (6,913) $(14,306) $(19,804)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The obligation under the WorldCom SARs was calculated using a Black-Scholes
option-pricing model. The obligation should have been accounted for at
"intrinsic value" determined as the difference between the closing price of
the Company's common stock on the balance sheet date and the strike price
of $7.00.
(2) The Company deferred certain costs relating to its operation of the
Violation Processing Center for the New Jersey Consortium that should have
been expensed as incurred.
(3) Indirect costs were not consistently allocated to Transportation Services
Group jobs. In addition, costs were charged against reserves for Loss Jobs
that were not related to those jobs.
(4) A prior year consolidating adjustment to reduce accrued expenses was
inappropriately not reversed in the preparation of the 1999 consolidations.
(5) An impairment loss for certain equipment for one of the Company's
subsidiaries should have been recognized in the second quarter of fiscal
1999.
(6) The February 1999 redemption of Series B Preferred Stock and the
modification of the terms of the then remaining Series B shares was not
correctly determined.
(7) Other adjustments made as a result of the year-end audit affected the
previously reported quarterly amounts as shown.
(8) These adjustments recognize losses on long-term service contracts as
incurred as discussed more fully in the following paragraph.
LONG-TERM SERVICE CONTRACTS
During the three months ended July 31, 1999, an accrual of $8.4 million was made
with an offsetting increase to goodwill for projected losses on long-term
service contracts assumed as part of the acquisition of Adesta for operation and
maintenance of fiber networks. The contracts extend for fifteen to twenty years.
Performance under these agreements, which were predominately executed in 1996
and 1997, began during fiscal 1999. The Company subsequently determined that the
costs to perform under these contracts are expected to be greater than amounts
presently expected to be billable to network users under firm contractual
commitments. The appropriate accounting treatment for long-term service
contracts of this nature is not clearly defined, particularly when the contracts
have been assumed as part of a purchase business combination. The Company
subsequently determined that such losses
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<PAGE> 10
cannot be reasonably estimated due to potential changes in various assumptions.
Consequently, the Company has determined the appropriate accounting for these
obligations is to record any such losses in the periods in which the losses are
incurred. In March 2000, the SEC informed the Company that it would not object
to the conclusion that such revised accounting is appropriate under generally
accepted accounting principles. The Company has restated its quarterly results
for the first, second and third quarters of 1999 to reflect these losses as
incurred and to reverse the additional $8.4 million accrued for these
obligations.
5. ACQUISITIONS
SASCO/SES
On November 5, 1999, the Company acquired all of the outstanding common stock of
Southern Aluminum & Steel Corporation ("SASCO") along with Specialty Electronic
Systems, Inc. ("SES"). SASCO has operations in Birmingham, Cape Canaveral and
Atlanta and has 40 years' experience in surveillance systems, signalization,
Intelligent Transportation Systems ("ITS") and roadway lighting. It provides
expertise in design, installation, and project implementation of advanced
highway communication networks. SES is a systems/integration company in the ITS
market, having designed, fabricated, installed and integrated ITS systems in 11
states from the East Coast to Ohio and Texas.
Consideration for SASCO and SES was 75,000 shares of common stock with a value
of approximately $0.7 million. In addition to the initial consideration, the
Company has provided an earn-out provision to the prior shareholders whereby
additional consideration will be given based on certain performance
measurements. The additional consideration can be earned over a four-year
period. The Company has recorded this transaction using the purchase method of
accounting. The pro forma effect on consolidated results of operations, from the
acquisition of SASCO and SES, is not material.
The earn-out consideration for year one (ending October 31, 2000) shall be
converted into the Company's common stock by dividing the earn-out consideration
by $8. The earn-out consideration for year two through year four shall be
converted into the Company's common stock by dividing the earn-out consideration
by the 52-week average of the closing market price of the Company's common stock
for each respective year.
The consideration shall be paid in shares of the Company's common stock.
However, the cumulative shares issued (initial and earn-out) may never exceed
19.9 percent of the total Company common stock issued and outstanding. Should
the 19.9 percent threshold be reached, any additional consideration earned will
be paid in cash or promissory notes with interest calculated at a market rate,
as mutually agreed upon by the Company and the former shareholders, at the time
of payment.
As of April 30, 2000, the Company has outstanding approximately $0.6 million of
debt to former shareholders of SASCO and SES. Such amounts are reflected in the
accompanying condensed consolidated balance sheet as "Notes Payable to
Shareholders and Employees" and bear interest at 10 percent per annum.
6. ASSUMPTION OF COMSAT CONTRACTS
On February 25, 1998, Georgia Electric Company ("GEC") assumed obligations to
complete 12 contracts (the `COMSAT Contracts') with the Texas Department of
Transportation from CRSI Acquisition, Inc., a subsidiary of COMSAT Corporation
("COMSAT"). The COMSAT Contracts were for the installation of intelligent
traffic management systems and the design and construction of wireless
communication networks. In exchange for assuming the obligations to perform
under the COMSAT Contracts, GEC received consideration from COMSAT of
approximately $15.0 million and assumed existing payables of approximately $2.6
million.
On February 25, 1998, the date when GEC assumed the COMSAT contracts, the
remaining amounts billable to the customers for these contracts totaled $17.0
million. The estimated costs to complete these contracts for COMSAT was from
$17.0 million to $27.3 million. GEC made the following entry to reflect the
assumption of the COMSAT contracts (amounts in thousands):
10
<PAGE> 11
<TABLE>
<S> <C>
Consideration received:
Cash $ 4,663
Accounts receivable 3,754
Equipment and other assets 6,548
-------------------------------------------------------------------------------------------------
Subtotal 14,965
Accounts payable assumed (2,549)
-------------------------------------------------------------------------------------------------
Deferred revenue (net amount received from COMSAT to complete the contracts) $(12,416)
-------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of revenues and costs associated with the COMSAT
contracts for the periods ended April 30, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
Three Six
Months Months
----------------------------------------------------------------------------------------
<S> <C> <C>
Billings on the COMSAT contracts (1) $3,251 $5,556
Deferred revenue recognized 1,032 2,531
----------------------------------------------------------------------------------------
4,283 8,087
Direct contract costs 2,048 5,115
----------------------------------------------------------------------------------------
Gross margin from COMSAT contracts $2,235 $2,972
----------------------------------------------------------------------------------------
</TABLE>
(1) Billings on the COMSAT contracts include approved change order revenues
associated with these contracts but not anticipated when GEC assumed such
contracts.
All of the COMSAT Contracts were substantially complete as of October 31, 1999.
The revenues, cost of revenues and gross margins are non-recurring and are not
generally indicative of returns the Company expects to achieve on future
contracts.
7. NETWORKS UNDER CONSTRUCTION
Networks under construction at April 30, 2000, and October 31, 1999, consisted
primarily of telecommunication infrastructure projects (the "CDOT Network") on
rights-of-way leased for 20 years, with renewal rights, from the Colorado
Department of Transportation ("CDOT"). The duct capacity varies along the CDOT
Network and is being constructed, marketed and sold or leased by Adesta under
long-term user (irrevocable rights of use) agreements. In addition to long-term
user agreements, the Company may execute fiber installation and long-term
maintenance contracts with the CDOT Network users.
As of April 30, 2000, there are three primary segments of the CDOT Network: (i)
the I-70 corridor from Denver, Colorado to Salt Lake City, Utah ("I-70 West");
(ii) I-70 corridor from Denver, Colorado to the Kansas border ("I-70 East"); and
(iii) the Denver, Colorado metro loop ("Denver Metro Loop"). The status of these
CDOT Network segments at April 30, 2000, was as follows:
<TABLE>
<CAPTION>
Long-Term Percent Percent of Total
Construction Costs Deferred Revenues Complete Capacity Leased
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I-70 West $17,448 $ -- 18 --
I-70 East 4,643 3,335 99 18
Denver Metro Loop 15,037 5,901 28 50
Other 2,720 1,837 45 45
----------------------------------------------------------------------------------------------------
$39,848 $11,073
----------------------------------------------------------------------------------------------------
</TABLE>
Adesta and an independent telecommunications company ("the Co-owner") will
jointly own the I-70 West network. Future plans include extension of the network
to Salt Lake City, Utah. Adesta and the Co-owner will separately own one conduit
each. The other six conduits will be jointly owned by the parties. Initially,
one of the jointly-owned conduits will include fiber optic cable. Adesta and the
Co-owner will separately own 36 fibers each, 72 fibers will be jointly-owned,
and all rights to 24 fibers ("the CDOT fiber") will be transferred to CDOT as
11
<PAGE> 12
consideration for the right-of-way along I-70. The right-of-way is for an
initial term of 20 years, with a 20-year renewal option.
Generally, Adesta and the Co-owner will share the costs of the network equally.
Adesta is accounting for this project as a "cost-sharing" agreement and the
Co-owner's share of network costs is not being recognized as revenues by Adesta.
The Co-owner has agreed to pay Adesta a percentage of the costs for constructing
the network which Adesta is recognizing as fee revenue as the construction takes
place. Fees earned of $1.8 million and $1.8 million were recognized for the
three and six months ended April 30, 2000, respectively.
Adesta and the Co-owner will jointly market the capacity of the network. Adesta
plans to enter into fiber installation agreements with users that contract for
use of the network. No installation agreements have been signed for this network
as of April 30, 2000. The accounting policies for revenues and costs applicable
to installation agreements will be based on the terms of the individual
agreements. FASB Interpretation No. 43, "Real Estate Sales" ("FIN 43"), issued
in June 1999, broadens the definition of real estate to include some or all
elements of fiber optic networks. Among other requirements, FIN 43 effectively
requires title to transfer to the user for up-front revenue recognition to be
appropriate.
Adesta and the Co-owner will jointly share the costs of maintaining the CDOT
fibers. Sharing of revenues and costs of maintenance for other users is to be
negotiated. Adesta plans to account for its share of the maintenance revenues
and costs as the revenues are earned and as the costs are incurred.
User fees received by Adesta through April 30, 2000, have been deferred.
Generally, the Company expects to recognize revenue from the user agreements
ratably over the lives of the agreements, while the cost of the CDOT network,
including the cost assigned to the capacity provided to CDOT as consideration
for the use of the rights-of-way, will be depreciated over the expected useful
life of the network. As of April 30, 2000, no revenues, except for the fees of
$1.8 million discussed above, or direct costs of construction associated with
the CDOT Network have been recognized in determining the results of operations.
8. INVESTMENT IN KANAS (HELD FOR SALE)
An equity interest in Kanas was acquired in the Adesta Acquisition, and has been
held for sale since that time. The original carrying value of the Company's
interest in Kanas, which was assigned in purchase accounting, represents the net
proceeds originally expected to be received from the sale of Kanas stock and was
based, in part, on active negotiations with potential buyers.
Until March 2000, the Company was a 25% owner of Kanas, with the remaining 75
percent owned by native corporations of Alaska. Kanas was established by its
shareholders with a $100,000 total equity contribution ($25,000 per shareholder)
to construct a telecommunications network along the Alaskan Pipeline system
between Prudhoe Bay, Alaska, and Valdez, Alaska (the "Alyeska Network"). Adesta
had been contracted by Kanas to build the fiber optic network which cost in
excess of $83.0 million and was funded by Kanas through a credit agreement that
is guaranteed by WorldCom.
While Kanas provided Adesta with notice of substantial completion in December
1998, the owner of the Alyeska Network has yet to give Kanas final acceptance of
the system and significant outstanding claims exist among the parties. Reserves
were provided in purchase accounting for estimated amounts payable by the
Company to complete the project and to settle outstanding claims against Adesta.
While Adesta had outstanding claims of at least $15.8 million against Alyeska
for work it believed was outside the scope of the contract, no accounting
recognition was given to these claims because of the uncertainty of resolution
favorable to the Company.
Kanas owns and is responsible for maintaining the Alyeska Network. Kanas
contracted with Adesta to operate and maintain the Alyeska Network for 15 years,
beginning in December 1998. Through April 30, 2000, service contract revenues
were insufficient to cover related costs. In March 2000, the service contract
was terminated and the Company was released from further responsibilities and
obligations related to that arrangement.
At the date of the acquisition of Adesta, the Company anticipated a near-term
sale of its interest in Kanas. Accordingly, the estimated amount expected to be
realized on sale was allocated to this investment in purchase
12
<PAGE> 13
accounting and, in accordance with the guidance of EITF Issue 87-11, "Allocation
of Purchase Price to Assets to be Sold," the equity method of accounting was not
employed. However, the timing of any sale of this interest by the Company became
uncertain. Consequently, effective one year from the date of acquisition, the
Company began to apply equity method accounting to this investment based on the
guidance of EITF Issue 90-06, "Accounting for Certain Events Not Addressed in
EITF 87-11 Relating to an Acquired Operating Unit to be Sold."
Through January 31, 2000, the Company recorded equity in losses of Kanas and
amortized the difference between the carrying value of the Kanas investment and
its equity in the net assets of Kanas over 19 years which was the remaining
goodwill life related to the acquisition of Adesta. The amount of loss the
Company recorded during the six months ended April 30, 2000, against the
carrying value of the asset was approximately $0.2 million, while the associated
amortization of the difference in carrying value was approximately $0.2 million.
WorldCom was and continues to be the guarantor of the payment obligations of
Kanas under its credit agreement. In conjunction with the acquisition of Adesta,
the Company agreed to indemnify WorldCom under its guarantee. The debt under the
Kanas credit agreement at October 31, 1999 was approximately $87.5 million which
was payable in full on September 15, 2000.
The Company learned on February 25, 2000 that, on February 24, 2000, Alyeska
declared Kanas to be in default under the terms of their contract. Alyeska
asserted that Kanas did not have the right to cure the default and notified
Kanas that the contract was terminated. Adesta did not receive any notice of
default from Kanas nor did it receive any request regarding the indemnification
agreement with WorldCom.
During March 2000, Kanas sold newly-issued shares to WorldCom that reduced the
25% equity interest of Adesta and each of the three other original shareholders
of Kanas to 5%. The equity infusion resulted in an implied value of the
Company's residual 5% interest in Kanas of less than $100,000.
During May 2000, Kanas and Adesta executed an agreement that provides the
following:
(1) Adesta remains liable for any and all claims that Kanas or third parties
(including, without limitation, Alyeska and subcontractors) may have
against Adesta arising out of the services performed by Adesta for Kanas.
(2) As consideration for Adesta's transfer of assets provided in item (3)
below, Adesta has no payment obligation in respect of damages, loss,
liability or expense, exclusive of the fees and expenses of Adesta's own
attorneys and other professional fees (collectively the "Losses") arising
from alleged defects in the Alyeska Network, unless and until the aggregate
amount of such Losses incurred by Kanas exceeds $18.0 million.
(3) As consideration for Kanas' release of Adesta in accordance with item (2)
above, Adesta (i) transferred to Kanas its rights to $15.8 million of
claims against Aleyska; and (ii) transferred inventory and equipment with a
book value of approximately $0.3 million to Kanas.
(4) As additional consideration, the Company was released from its
indemnification related to WorldCom's guarantee of the Kanas credit
facility and WorldCom forgave $3.5 million of accrued interest due on the
WorldCom Note (see Note 10, "Debt"). Because of WorldCom's ownership
interest in the Company, the forgiveness of interest was credited to equity
as a contribution to capital.
As a result of the events described above, during the three months ended April
30, 2000, the Company (i) recognized an impairment of its interest in Kanas of
approximately $11.9 million, equal to its carrying amount; (ii) recorded a loss
of $0.3 million related to the transfer of inventory and equipment and (iii)
wrote-off approximately $0.4 million of receivables from Kanas that will not be
collected.
13
<PAGE> 14
RESERVES FOR LOSSES ON UNCOMPLETED CONTRACTS
The following is a summary of the reserves for losses on uncompleted contracts
(amounts in thousands):
<TABLE>
<CAPTION>
Network Services Group Transportation Services Group Total
---------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of fiscal year $ 5,703 $ 8,029 $ 2,917 $ 17,361 $ 8,620 $ 25,390
Additions (1) 141 -- 4,744 -- 4,885 --
Amount utilized (393) (1,231) (961) (6,068) (1,354) (7,299)
---------------------------------------------------------------------------------------------------------------------
Balance, January 31 5,451 6,798 6,700 11,293 12,151 18,091
Additions (1) 627 -- 18,885 1,858 19,512 1,858
Amount utilized (53) (1,250) (1,005) (1,044) (1,058) (2,294)
---------------------------------------------------------------------------------------------------------------------
Balance, April 30 $ 6,025 $ 5,548 $ 24,580 $ 12,107 $ 30,605 $ 17,655
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Additions during the three and six months ended April 30, 2000, related
primarily to the New Jersey Consortium Contracts. Additions and amounts
utilized exclude previously unprojected losses incurred during each period
(refer to Note 16, "Segment Information").
10. DEBT
CREDIT FACILITY
On June 11, 1998, the Company obtained a $35.0 million three-year senior secured
revolving credit facility ("Credit Facility") with a $5.0 million sub-limit for
the issuance of standby letter(s) of credit. The Credit Facility allows the
Company to select an interest rate based upon the prime rate or on a short-term
LIBOR, in each case plus an applicable margin, with respect to each draw the
Company makes thereunder. Interest is payable monthly in arrears on base rate
advances and at the expiration of each interest period for LIBOR advances. The
Credit Facility contains certain financial covenants that require, among other
conditions, that the Company maintain certain minimum ratios, minimum fixed
charge coverage, and interest coverage, as well as limitations on total debt and
dividends to shareholders. The Credit Facility is secured by a perfected first
priority security interest on all tangible assets of the Company and a pledge of
the shares of stock of each of the Company's subsidiaries operating in the
United States. On June 30, 1998, the Credit Facility was amended to include (i)
the Company's acquisition of Adesta and the related financing of such
transaction, (ii) changes in financial covenants related thereto, and (iii)
other amendments relating to investments, pledging and intercompany matters.
At April 30, 2000 and October 31, 1999, the Company is in default of certain
provisions of the Credit Facility. As such, the Credit Facility is immediately
callable by the holder and is therefore classified as a current liability in the
accompanying consolidated balance sheets. During the default period, the Company
is required to pay a default penalty of two percent per annum over the contract
rate on all outstanding balances and is required to make interest payments
monthly.
WORLDCOM NOTE
On January 11, 2000, the Company entered into an agreement with WorldCom whereby
WorldCom converted approximately $25.5 million of its $30.0 million WorldCom
Note into 3,050,000 shares of the Company's Common Stock. The conversion was
based on the January 8, 2000 closing price of the Company's Common Stock at
$8.375 per share. The remainder of the original WorldCom Note, approximately
$4.5 million, was converted into an amended and restated 11.5 percent
subordinated promissory note due February 2001. As described in Note 8,
"Investment in Kanas (Held for Sale),' and Note 10, "Debt," WorldCom agreed in
May 2000 to forgive approximately $3.5 million of accrued interest on the
WorldCom Note, which was recorded by the Company as a credit to paid in capital.
14
<PAGE> 15
WORLDCOM ADVANCE
In February 1999, WorldCom advanced the Company $32 million ("WorldCom Advance")
as an advance against amounts otherwise payable by WorldCom under the WorldCom
Master Services Agreement. The WorldCom Advance is subordinate to the Credit
Facility, bears no interest, and includes a stated repayment date of November
30, 2000. However, payments under the WorldCom Advance were further subordinated
to liabilities associated with certain construction projects that are now
expected to be completed in March 2001. Consequently, the implied maturity date
is currently March 2001 and the WorldCom Advance is presented in the
accompanying balance sheet as of April 30, 2000 as a current liability.
OTHER DEBT
The following is a summary of other debt as of April 30, 2000 (in thousands):
<TABLE>
<S> <C>
Revolving line of credit; aggregate commitment amount of $1.3 million; priced at
1 percent above the bank's floating prime rate; secured by the assets of
SASCO and guaranteed by the former shareholders of SASCO $1,000
Revolving line of credit; aggregate commitment amount of $0.5 million; priced at
1 percent above the bank's floating prime rate; secured by the assets of
SES and guaranteed by SASCO
459
Other term debt 256
---------------------------------------------------------------------------------------------------------------------
Total SASCO and SES debt 1,715
Credit Facility 35,000
Remaining balance of WorldCom Note 4,456
Capital lease obligations 604
---------------------------------------------------------------------------------------------------------------------
41,775
Less current portion 41,043
---------------------------------------------------------------------------------------------------------------------
Long-term debt $732
---------------------------------------------------------------------------------------------------------------------
</TABLE>
11. CONTINGENCIES
LITIGATION
SIRIT TECHNOLOGIES, INC. VERSUS ABLE TELCOM HOLDING CORP. AND THOMAS M. DAVIDSON
- In 1998, SIRIT filed a lawsuit in the United States District Court for the
Southern District of Florida, against the Company and Thomas M. Davidson (a
former director of the Company). SIRIT asserted claims against the Company for
tortuous interference, fraudulent inducement, negligent misrepresentation and
breach of contract in connection with the Company's agreement to purchase the
shares of Adesta and seeks injunctive relief and compensatory damages in excess
of $100.0 million. The Company agreed to indemnify Thomas M. Davidson related to
any loss suffered by him in this matter.
On May 16, 2000, a jury awarded SIRIT the amount of $1.2 million in compensatory
damages. In addition, punitive damages were assessed against Able in the amount
of $30.0 million and $1.3 million against Thomas M. Davidson. The Company has
submitted a "motion for remittitur and judgement as a matter of law" to the
court and plans to appeal the judgement, if not altered or amended by the court
as requested in the remittitur. Among other things, the motion asserts that
Sirit failed to prove essential elements of its claims and further, that Florida
law limits punitive damages to three times compensatory damages. On the same
date, Sirit moved for a new trial on the issue of compensatory damages. The
court has scheduled June 19, 2000, for hearing the post-trial motions and has
stayed execution of the judgement through June 20, 2000. The accompanying
unaudited condensed consolidated financial statements do not reflect any
liability that may ultimately result from this litigation.
SHIPPING FINANCIAL SERVICES CORP. VERSUS ABLE TELCOM HOLDING CORP. AND CERTAIN
COMPANY OFFICERS - In 1998, Shipping Financial Services Corp. ("SFSC") filed a
lawsuit in the United States District Court for the Southern District of Florida
against the Company, and certain of its officers. SFSC asserts claims under the
federal securities laws against the Company and four of its officers that the
defendants allegedly
15
<PAGE> 16
caused the Company to falsely represent and mislead the public with respect to
two acquisitions, COMSAT and Adesta, and the ongoing financial condition of the
Company as a result of the acquisitions and the related financing of those
acquisitions. SFSC seeks certification as a class action on behalf of itself and
all others similarly situated and seeks unspecified damages and attorneys' fees.
BAYPORT PIPELINE, INC. VERSUS ADESTA COMMUNICATIONS, INC. - In 1997, Bayport
Pipeline, Inc. ("Bayport") filed a lawsuit against Adesta seeking a declaratory
judgment concerning the rights and obligations of Bayport and Adesta under a
Subcontract Agreement that was entered into on May 1, 1997 related to the NYSTA
contract. The matter was referred to arbitration in January 1999. The total
amount sought was not less than $5.5 million and subsequent to October 31, 1999,
was increased to $19 million.
On February 24, 2000, the independent arbitrator ruled that Adesta owed Bayport
$4.1 million, which is consistent with amounts previously accrued by the
Company. The Company has appealed the award in Federal District Court (Northern
District of Texas) and is subject to statutory interest from the date of the
award in the event the award is not overturned.
U.S. PUBLIC TECHNOLOGIES, INC. VERSUS ADESTA COMMUNICATIONS, INC. - In 1997,
U.S. Public Technologies, Inc. ("USPT") filed a lawsuit in the United States
District Court for the Southern District of California, (San Diego), against
Adesta for breach of contract, breach of an alleged implied covenant of good
faith and fair dealing, tortuous interference, violation of the California
Unfair Competition Act, promissory estoppel and unjust enrichment in connection
with a Teaming Agreement between Adesta and USPT concerning the Consortium
Regional Electronic Toll Collection Implementation Program in the state of New
Jersey. In this lawsuit, USPT seeks actual damages in excess of $8.5 million and
unspecified exemplary damages. On April 4, 2000, the magistrate judge extended
the discovery deadline until May 31, 2000, set July 14, 2000, as the deadline
for Adesta to file its expert report, and set the pretrial for October 2, 2000.
NEWBERRY ALASKA, INC. VERSUS ADESTA COMMUNICATIONS, INC. - In 1999, Newbery
Alaska, Inc. ("Newbery") filed a demand for arbitration seeking approximately
$3.8 million. This dispute arises out of Newbery's subcontract with Adesta
related to the fiber optic network constructed by Adesta for Kanas. Newbery's
claims are for the balance of the subcontract, including retainage and disputed
claims for extras based on alleged deficiencies in the plans and specifications
and various other alleged constructive change orders. In June 2000, the
arbitrator awarded Newberry $2.7 million plus fees of approximately $0.3 million
and interest on the award of 8 percent until payment to Newberry is made.
Interest on the award through June 2000, totals approximately $0.3 million. The
Company is challenging the arbitrators award in Federal District Court (Alaska)
and intends to appeal the ruling, if necessary. The amount of the award, fees
and interest is not materially different than amounts previously accrued by the
Company.
ALPHATECH, INC. VERSUS ADESTA COMMUNICATIONS, INC. AND ADESTA TRANSPORTATION,
INC. - In 1998, Alphatech, Inc. ("Alphatech") filed a lawsuit in the U.S.
District Court in Massachusetts. This suit alleges ten counts, including breach
of Teaming Agreements on the E-470 project and the New Jersey Regional
Consortium project, breach of implied duty of good faith and fair dealing on
both projects, misappropriation of trade secrets, deceit, violation of
Massachusetts General Laws Chapter 93A, promissory estoppel, quantum meruit, and
unjust enrichment. Alphatech's claim is for $15 million. A hearing for a summary
judgment is scheduled in the summer of 2000.
T.A.M.E. CONSTRUCTION, INC. VERSUS GENERAL ELECTRIC COMPANY - In 1998, T.A.M.E.
Construction, Inc. ("TAME") sued for breach of contract, promissory estoppel,
discrimination and defamation related to certain contracts performed by GEC.
TAME alleges that it was wrongfully terminated as a subcontractor. TAME claims
contract damages in the amount of $250,000, punitive damages for discrimination
of $1,000,000 and defamation damages of an additional $1,000,000. GEC has moved
for summary judgment. This matter is not set for trial.
OTHER LITIGATION AND CLAIMS - The Company is subject to a number of shareholder
and other lawsuits and claims for various amounts that arise out of the normal
course of its business. The Company intends to vigorously defend itself in these
matters. The disposition of all pending lawsuits and claims is not determinable
and may have a material adverse effect on the Company's financial position.
16
<PAGE> 17
CONTRACTS - The Company has and will continue to execute various construction
and other contracts which may require the Company to, among other items,
maintain specific financial parameters, meet specific milestones and post
adequate collateral generally in the form of performance bonds. Failure by the
Company to meet its obligations under these contracts may result in the loss of
the contracts and subject the Company to litigation and various claims,
including liquidated damages. WorldCom continues to provide performance bonds on
certain contracts acquired in the acquisition of Adesta.
12. PREFERRED STOCK
REDEMPTION OF SERIES B CONVERTIBLE PREFERRED STOCK - On February 4, 2000, the
Company reacquired and retired the remaining Series B Stock outstanding. The
Series B Stock was originally issued to and held by two groups of accredited
investors, the RoseGlen group and the Palladin group. The exchange/redemption
transaction is summarized as follows:
<TABLE>
<CAPTION>
RoseGlen Group Palladin Group Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Series B Shares retired 375 404 779
Cash paid by Company (in thousands) $5,032 $5,819 $10,851
Common shares issued 500,000 (a) 301,787 801,787
Exchange Warrants issued 100,000 shares 100,000 shares 200,000 shares
Exercise price per share (b) $10.127 $10.127 $10.127
Special Exchange Warrants issued None 66,246 shares 66,246 shares
Exercise price per share (c) n/a $.01 $.01
</TABLE>
(a) Additional shares may be issuable to the Palladin group if the average
price of the Company's common stock for the 100 trading days after February
4, 2000 (June 27, 2000) is less than $7.79 per share. The average price is
to be calculated using the 50 low trading prices for each pair of two
consecutive trading days. However, the average price so calculated for this
purpose may not be less than $4.00. Assuming the $4.00 minimum price
applied, the maximum additional shares issuable would be determined as
follows (total value in thousands):
<TABLE>
<CAPTION>
Shares Share Price Total Value
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares issued 301,787
Shares underlying Special Exchange Warrants 66,246
---------------------------------------------------------------------------------------------------------------
Total shares 368,033 $7.79 $2,867
---------------------------------------------------------------------------------------------------------------
Lowest average price (same total value) 716,744 $4.00 $2,867
---------------------------------------------------------------------------------------------------------------
Incremental shares issuable to Palladin group 348,711
---------------------------------------------------------------------------------------------------------------
</TABLE>
If the incremental shares cannot be issued because of failure to obtain
shareholder approval, the holders may require the Company to pay them cash
equal to the number of incremental shares so calculated times $12.125.
(b) May be exercised on a "cashless" basis. Exercisable through February 3,
2005, as extended by 1.5 days for every day between October 31, 2000 and
February 3, 2005 that a registration statement covering the underlying
shares is not effective.
(c) May be exercised on a "cashless" basis. Exercise period is for 30 days
beginning with the date the average price discussed in (a) above is
determined.
The RoseGlen group also continues to hold Initial Warrants for the purchase of
370,000 shares of common stock that were issued as part of the Series B offering
in June 1998. The exercise price of the Initial Warrants is $13.25 per share
(refer to Note 14, "Preferred Stock," to the Consolidated Financial Statements
included in the Company's Form 10-K for the year ended October 31, 1999), but
they may be exercised on a "cashless" basis. The Initial Warrants are
exercisable through June 30, 2003, as extended by 1.5 days for every day between
December 27, 1998 and June 30, 2003 that a registration statement covering the
underlying shares is not effective.
A charge to loss applicable to common stock was made for the quarter ended
January 31, 2000, determined as follows (amounts in thousands):
17
<PAGE> 18
<TABLE>
<S> <C>
Cost to redeem the Series B Stock -
Cash paid to Series B Shareholders $ 10,851
Value of 801,787 shares of common stock issued 4,912
Black Scholes value of warrants to purchase 266,246 common shares 1,213
Fees paid to financial advisors 750
-------------------------------------------------------------------------------------------------------------------
Total cost of redemption 17,726
Accumulated default redemption value recorded through October 31, 1999 (16,322)
-------------------------------------------------------------------------------------------------------------------
Increase in default redemption value recognized during the six months ended April 30, 2000 $ 1,404
-------------------------------------------------------------------------------------------------------------------
</TABLE>
If the 500,000 common shares issued to the RoseGlen group and the 100,000 shares
issuable under their Exchange Warrants are not registered and listed with Nasdaq
by May 4, 2000, then the Company must pay the holders 3% of the aggregate market
value of those shares for each 30-day period thereafter until the shares are
listed.
If the Company fails to pay any default payments when due, the holders may
require the Company to purchase their common stock and warrant shares on demand
at a price equal to 130% of the fair market value of such shares and, if not
exercised, reduce the then exercise price by 30%. Further, if the registration
statement is not effective by October 31, 2000, the exercise price of the
Exchange Warrants will be reduced by 1% for the first 30-day period after
October 31, 2000, and an additional 1.5% for each additional 30-day period
thereafter until it is effective.
THE SERIES C OFFERING - On February 4, 2000, the Company issued 5,000 shares of
Series C Convertible Preferred Stock ("Series C Stock") and warrants exercisable
for 200,000 shares of common stock ("Series C Warrants") for aggregate
consideration of $15.0 million. Approximately $10.9 million of the proceeds was
used to redeem the Series B Stock, approximately $1.0 million was used to pay
transaction costs, and the remainder was used for working capital. The net
consideration was allocated to the Series C Stock and the Series C Warrants as
follows (in thousands)
<TABLE>
<CAPTION>
Series C Stock Series C Warrants Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross proceeds $ 14,165 $ 835 $ 15,000
Cash paid to financial advisor (567) (33) (600)
Warrants issued to financial advisor (296) (17) (313)
-----------------------------------------------------------------------------------------
Net consideration $ 13,302 $ 785 $ 14,087
-----------------------------------------------------------------------------------------
</TABLE>
The Series C Warrants and the financial advisor warrants were valued using a
Black Scholes model. The Series C Stock net valuation of $13.3 million will be
accreted to the initial Liquidation Value of $15 million over five years until
maturity as a charge against income available to common shareholders.
Transaction costs included $1.7 million of fees to financial advisors. These
fees consisted of $0.8 million in cash related to redemption of the Series B
Stock, $0.6 million in cash related to the Series C offering, and the fair value
of warrants for the purchase of 75,000 shares of common stock, with terms the
same or similar to the terms of the Series C Exchange Warrants, issued to the
financial advisors.
The individual holders may convert the Series C Stock to common stock at any
time. However, generally, a holder and its affiliates may own not more than
4.99% of all outstanding common shares. That limitation may be increased to
9.99% under certain circumstances. If any Series C Stock remains outstanding and
not converted to common stock by February 4, 2005, subject to extensions of 1.5
days for each day after October 31, 2000 the registration statement described
below is not effective, then all such Series C Stock will automatically convert
to common shares at the conversion price then in effect.
Through September 30, 2000, the Series C investors may purchase additional
Series C Stock for an aggregate of $15.0 million, at $3,000 per share, having
the rights, designations and preferences then in effect for the Series C Stock.
The September 30 date may be extended if the registration statement is not
effective when required.
REGISTRATION RIGHTS - The Series C holders and the former Series B holders have
registration rights with respect to the following Registerable Securities:
18
<PAGE> 19
- the shares of common stock underlying the Series C Stock and the Series C
Warrants, and
- 801,787 common shares and Exchange Warrants for the purchase of 266,246
common shares issued to the Series B holders for cancellation of the
remaining Series B Stock. The rights also extend to additional common
shares that may become issuable to the Palladin group as previously
described.
If a registration statement for the Registerable Securities is not effective by
October 31, 2000:
- the Conversion Price of the Series C Stock will be reduced by 10% on
November 1, 2000 and further reduced by an additional 1% on the last day of
each successive 30-day period thereafter until the registration statement
has been declared effective, and
- the exercise period for the Series C Warrants will be extended by 1.5 times
the number of days after October 31, 2000 that the registration statement
is not effective.
LIQUIDATION VALUE AND CONVERSION PRICE - The Series C Shares have a preference
in liquidation equal to the Liquidation Value. The Liquidation Value is equal to
the stated value of $3,000 per share plus unpaid default interest through the
date of determination, plus any accrued dividends. Dividends are cumulative and
accrue daily at 5.9% per annum on the stated value of $3,000 per share. The
Series C shares may be converted to common stock at any time based on the
Liquidation Value divided by the conversion price then in effect. The initial
conversion price is $9.35. However, starting on August 4, 2000, and then on the
fourth day of the month at the end of each following six month period (Reset
Dates) the conversion price may be reduced to equal:
- the average closing bid price of the common stock for the ten consecutive
trading days preceding the applicable Reset Date; however, the conversion
price will never be increased from the conversion price then in effect, and
- if any recalculation results in a conversion price of less than $4.00,
generally, the conversion price will thereafter be $4.00; however as noted
above, the conversion price may be further reduced if the registration
statement is not declared effective when required.
The conversion price may also be further adjusted if at any time prior to
February 4, 2001, the Company issues common stock or common stock equivalents
for a sales, exercise or conversion price less than the Series C conversion
price then in effect. The conversion price will be reduced, but never increased,
to equal the reduced price. This provision does not apply to employee stock
options, nor does it apply to securities that may be issued as consideration for
strategic acquisitions or alliances, if those shares are issued at or above the
market price of the Company's common stock at the time they are issued.
MANDATORY REDEMPTION - The holders of the Registerable Securities may require
the Company to redeem their shares in the event of a Triggering Event or a Major
Transaction. A Triggering Event will have occurred upon any of the following:
- if the registration statement is not declared effective on or prior to
October 31, 2000;
- after declared effective, if the effectiveness of the registration
statement lapses for any reason or is unavailable for more than five
consecutive days or ten days in any calendar year; and
- delisting or suspension from listing of the Company's common stock from
Nasdaq for a period of five consecutive days or for an aggregate of at
least ten days in any 365-day period.
A Major Transaction would include:
- a merger or business combination in which the voting power of the Company's
shareholders in the surviving entity or entities is insufficient to elect a
majority of the Board of Directors;
- the sale or transfer of all or substantially all of the Company's assets;
or
19
<PAGE> 20
- a purchase, tender or exchange offer made to and accepted by the holders of
more than 30% of the Company's outstanding shares of common stock.
The redemption price for the Series C Stock and other Registerable Securities
would be as follows:
<TABLE>
<CAPTION>
Series C Stock Other Registerable Securities
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Triggering event Greater of 120% of Liquidation Premium Redemption Price (defined below)
Valueor the Conversion Benefit
Major transaction 120% of Liquidation Value No specific provisions exist
</TABLE>
The Conversion Benefit is equal to the product of:
- the number of shares of common stock issuable on conversion, and
- the greater of the closing bid price on the trading day immediately
preceding the Triggering Event, or the closing bid price on the date the
holder requests redemption.
In addition to the right of redemption, simultaneous with or after a Triggering
Event occurs, the Company may be required to pay in cash to each holder default
interest equal to 3% of the Liquidation Value of the Series C Stock for each
subsequent 30-day period until redeemed. Such interest not paid timely will
increase the Liquidation Value of the Series C Stock.
PREMIUM REDEMPTION PRICE - If the Company fails to pay any default payment or
honor any penalty or similar amounts when due, the holders may require the
Company to purchase, within five days of demand, all or a portion of the Series
C Stock or other registerable securities they hold at the Premium Redemption
Price. That price is to be the greater of (i) 1.2 times the product of the
number of equivalent common shares to be redeemed and the conversion price, or
(ii) the Conversion Benefit.
Mandatory redemption at 120% of Liquidation Value is also provided if conversion
by a holder of any Series C Stock for common shares could result in the Company
being delisted from the Nasdaq National Market for issuing in excess of 20% of
the Company's outstanding common stock without shareholder approval. The
Company's proxy statement will include a proposal to obtain such shareholder
approval.
RESTRICTIONS IMPOSED BY THE SERIES C STOCK - Holders of Series C Stock have no
voting rights, except as required by law. However, the Series C holders may
impose significant restrictions on certain activities of the Company.
So long as at least 20% of the Series C Stock or Warrants remain outstanding,
the Company can not declare or pay any dividends or make any distributions to
holders of common stock, or purchase or acquire for value, directly or
indirectly, any of the Company's equity securities.
Until 90 days after the registration statement has been declared effective,
neither the Company, nor any of its subsidiaries, may issue any equity
securities, except for currently outstanding convertible securities, shares
issued under the stock option plan, and other options to employees.
Further, unless agreed to by the Series C holders, prior to February 4, 2001, or
such additional time if the registration statement is not effective by October
31, 2000, the Company may not issue or grant any convertible securities for
which the rate of conversion is not fixed, or any option, warrant or other right
to purchase Company securities for which exercise is contingent upon, or whose
price is determined with respect to, the market price of the common stock.
SERIES C INVESTORS' RIGHT OF FIRST REFUSAL - The Company agreed not to sell or
issue any securities, other than in connection with an employee stock purchase
or similar plan or an acquisition of another company, unless first offered to
the Series C investors. This right does not apply to (i) transactions between
the Company and WorldCom, and certain pre-existing investment discussions, (ii)
strategic investments in the Company or in any of
20
<PAGE> 21
its subsidiaries by an industry joint venture partner, industry supplier, or one
or more of their customers, or (iii) a public or private secondary offering for
net proceeds of at least $20.0 million.
THE SERIES C WARRANTS - The Series C Warrants are exercisable through February
3, 2005, subject to extension of 1.5 days for every day after October 31, 2000
the registration statement is not effective. However, exercisability is limited
if any holder and its affiliates would own more than 4.99% of the outstanding
shares of Common Stock. However, that restriction may be waived by the holder up
to 9.99%.
The exercise price is initially $10.75 per share. The exercise price and number
of common shares issuable upon exercise of the Series C Warrants are subject to
proportional adjustments in the event of stock splits, stock dividends, and
similar transactions that would effect the holders' proportionate interest in
the Company. In addition, except for previously existing securities, if at any
time prior to February 4, 2001, the Company issues common stock or convertible
securities at a purchase or conversion price per share less than the greater of
(i) the exercise price or, (ii) the fair market value of the common stock at the
time, then the exercise price will be reduced concurrently by applying a
prescribed formula intended to compensate the holders for the dilution resulting
from such issuance.
FUTURE PRICED SECURITIES - The Series C Stock and the Series C Warrants are
"future-priced securities" in that the total number of common shares actually
issuable cannot be presently determined because the conversion rate and the
exercise price are subject to change, depending on whether certain future events
do or do not occur. It is possible that the Series C securities could result in
issuance of more than 20% of the outstanding common shares to the Series C
investors, which would require shareholder approval in accordance with Rule
4460(i)(1)(C) of the NASD. Consequently, the Company will submit a proposal to
its shareholders to request such approval.
If Shareholder approval is not obtained, the Company believes that the holders
of the Series C securities may be entitled to require the Company to redeem all
of the shares of the Series C Stock for an aggregate redemption price of at
least $18.3 million as of April 30, 2000. Such amount will increase at the rate
of 120 percent of dividends and default interest, if any, that accumulate with
respect to the Series C Stock. The Company may also be required to redeem
approximately 1,150,000 common shares or more, and warrants for the purchase of
approximately 466,000 shares, that may be held by the RoseGlenn and Palladin
groups for amounts not presently determinable. Payment of any redemption amounts
would materially and adversely affect the Company's liquidity because of the
short time frame to pay for such redemption (five business days upon a
Triggering Event).
In addition, depending on the number of shares of Series C Stock to be redeemed,
such redemption could severely diminish the Company's existing cash, working
capital and availability under a credit facility. Payment upon demand for
redemption would also result in default of one or more of the Company's other
obligations, including its obligations to senior lenders under the Credit
Facility. Such defaults would have a material adverse impact on the Company's
business, financial condition, results of operations and cash flow.
Shareholder approval, however, would not negate other Triggering Events,
including the obligation to have the registration statement declared effective
by October 31, 2000. Even if shareholder approval is obtained, the Company could
still be in default of other obligations described above, resulting in
additional monetary penalties as well as redemption of the Registerable
Securities at the Premium Redemption Price.
13. SHAREHOLDERS' EQUITY
The following is a summary of the activity in shareholders' equity (deficit)
during the six months ended April 30, 2000 (in thousands):
21
<PAGE> 22
<TABLE>
<CAPTION>
Series B Series C
Additional Senior Preferred Preferred WorldCom
Common Paid-in Note Stock Stock Phantom Retained
Stock Capital Warrants Warrants Warrants Stock Deficit Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 1, 1999 $12 $38,290 $1,244 $2,735 $ -- $606 $(42,456) $ 431
Issuance of common stock for
acquisition of SASCO -- 739 -- -- -- -- -- 739
Conversion of WorldCom Debt 3 25,541 -- -- -- -- -- 25,544
Increase in default redemption
value of Series B Preferred -- -- -- -- -- -- (1,404) (1,404)
Stock
Redemption of Series B Preferred 1 4,910 -- -- -- -- -- 4,911
Stock
Issuance of Series B Preferred -- -- -- 1,213 -- -- -- 1,213
Warrants
Issuance of Series C Preferred -- -- -- -- 1,097 -- -- 1,097
Warrants
Contribution of interest payable
from WorldCom -- 3,483 -- -- -- -- -- 3,483
Exercise of stock options and -- 1,250 -- -- -- -- -- 1,250
other
Accretion and dividends on
Series C Preferred Stock -- -- -- -- -- -- (262) (262)
Net loss -- -- -- -- -- -- (55,789) (55,789)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 2000 $16 $74,213 $1,244 $3,948 $1,097 $606 $(99,911) $(18,787)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The difference between the Company's weighted basic average shares outstanding
and diluted shares outstanding is due to the dilutive effect of stock options
and convertible securities. There are no significant differences in the
numerators for the Company's computations of basic and diluted earnings per
share for any period presented. The effect of securities that could dilute basic
earnings per share would be antidilutive for all periods presented. The Company
has potentially dilutive securities that could have a dilutive effect in the
future. Those securities and their potentially dilutive effects are as follows
(dilutive shares in thousands):
<TABLE>
<CAPTION>
Potentially
Dilutive Average
Shares Strike Price
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Potentially dilutive securities outstanding at April 30, 2000:
Series C Preferred Stock (1) 3,750 $ 4.00
WorldCom Options (subject to shareholder approval) 2,000 7.00
Employee stock options (subject to shareholder approval) (2) 2,146 6.07
Employee stock options (621,000 vested) 841 6.56
Senior Subordinated Note Warrants 410 8.25
Series B Preferred Stock Warrants 370 13.25
Additional shares that may be issuable to the Palladin group 348 --
GEC Earnout (shares issued May 4, 2000) 205 --
Exchange Warrants issued to redeem Series B Preferred Stock (refer to Note 12,
"Preferred Stock") 200 10.13
Series C Preferred Stock Warrants (refer to Note 12, "Preferred Stock") 200 10.75
Warrants issued to financial advisors related to the Series C Preferred Stock
(refer to Note 12, "Preferred Stock") 75 10.75
Special Exchange Warrants issued to redeem Series B Preferred Stock Warrants 66 0.01
Series A Preferred Stock Warrants 62 9.82
Employee stock grants (subject to shareholder approval) 50 --
---------------------------------------------------------------------------------------------------------------------------
Subtotal outstanding at April 30, 2000 10,723 5.73
---------------------------------------------------------------------------------------------------------------------------
Potentially dilutive securities issued subsequent to April 30, 2000:
Employee stock options (subject to shareholder approval) (3) 250 2.54
Stock offered to settle litigation 25 --
---------------------------------------------------------------------------------------------------------------------------
Subtotal granted subsequent to April 30, 2000 275 2.31
---------------------------------------------------------------------------------------------------------------------------
Total 10,998 $ 5.64
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes a conversion price of $4.00, or the contractual floor, that may be
subject to further reduction as described in Note 12, "Preferred Stock."
Through September 30, 2000 (as may be extended), the Series C Investors may
purchase additional Series C Stock for $15 million, the effect of which
would double the number of potentially dilutive shares shown for this item
in the above table.
(2) In February 2000 the Company granted options to purchase a total of 525,000
to three new employees of the Company. The options, if approved by
shareholders, will vest as follows: 125,000 as of February 1, 2000; 200,000
on February 1, 2001; and 200,000 on February 1, 2002 with the exercise
prices being $6.00, $8.50 and $9.00 respectively. These options will expire
on February 1, 2004.
22
<PAGE> 23
(3) In May 2000, options were granted to two new employees of the Company. The
options, if approved by shareholders, will vest immediately with exercise
prices ranging from $2.44 to $2.69. These options will expire in May 2010.
In connection with the acquisition of Adesta, the Company granted to WorldCom
rights to receive upon satisfaction of certain conditions, including shareholder
approval, phantom stock awards for up to 700,000 shares of common stock, payable
in cash, stock, or a combination of both at the Company's option.
The Company is committed to issue shares of common stock as contingent
consideration earned by the sellers of Georgia Electric Company through 2001.
Common stock issued to date as contingent consideration earned for the years
ended October 31, 1998 and 1997 was 628,398 shares and 204,448 shares,
respectively. Contingent consideration earned for the year ended October 31,
1999, amounted to $1.8 million and was accrued at October 31, 1999, in accounts
payable and accrued liabilities. Approximately 205,000 shares were issued in May
2000. The Company has made a similar commitment related to the acquisition of
SASCO and SES (refer to Note 5, "Acquisitions"). The number of shares that may
be issued as earn-out consideration under these commitments in the future is not
presently determinable.
The Company has executed an equity swap agreement with 186K.NET. Either the
Company or 186K.NET can exercise the swap at any time from July 2000 to July
2003. Upon exercise, the Company has committed to issue shares of its common
stock to 186K.NET in exchange for common shares of 186K.NET of equivalent value
at the date of exercise. The value of the shares to be issued and received is to
be determined by the lower of 10% of the increase in the fair market value of
the Company or of 186K.NET from July 1999 to the date of exercise. 186K.NET is a
privately-owned start-up company that provides data and communications
facilities consulting services.
14. FINANCIAL ADVISORY SERVICES
The Company incurred approximately $1.5 million in financial advisory fees to
two related firms, L. Dolcenea, Inc. and Platinum Advisory Services, Inc. during
the six months ended April 30, 2000. Those fees were for the following services
(in thousands):
<TABLE>
<CAPTION>
Paid Prior to Accrued at
April 30, 2000 April 30, 2000 Total Incurred
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series B Conversion (refer to Note 12, "Preferred Stock") $ 750 $-- $ 750
Series C Issuance (refer to Note 12, "Preferred Stock") 600 -- 600
Fair value of warrants issued related to Series C offering 313 -- 313
Compensation for settlement of past common stock warrant
disputes 300 50 350
-------------------------------------------------------------------------------------------------------------------
$1,963 $ 50 $2,013
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain of these fees were paid during the fiscal year ended October 31, 1999.
The Company may be committed to pay these advisors additional amounts related to
future transactions for which the advisors may claim compensation.
15. SUPPLEMENTAL COMPENSATION ARRANGEMENTS
On March 31, 2000, the Board of Directors approved supplemental compensation
arrangements for six members of management in addition to the compensation
provided for in their employment agreements. Upon a change of control or the
termination of each individual's employment without cause, the aggregate minimum
amount payable to these individuals would be $4,750,000. The payments would be
based on units equivalent to shares of Company common stock. A total of 475,000
units were granted. The minimum payment is based on $10.00 per unit, but if
greater, would be based on the per share value of a change in control
transaction or the prior day closing price of the Company's common stock in the
event of termination without cause. The plan also includes 175,000 units
reserved for future executives of the Company but not yet granted.
23
<PAGE> 24
The employment contracts of two new executives hired in May 2000 provide for
full payment of the three-year compensation without mitigation. Salaries of
these individuals were set at an aggregate amount of $550,000 per year.
16. SEGMENT INFORMATION
The Company manages and analyzes the operations of the Company in four separate
groups, Network Services Group, Transportation Services Group, Construction
Group and Communications Development Group. The Company has established the
Networks Development Group, which had no significant income or expenses during
the three and six months ended April 30, 2000.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended April 30, Ended April 30,
--------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers:
Network Services $ 72,369 $ 86,420 $ 134,923 $ 134,942
Transportation Services 29,699 29,201 46,129 40,902
Construction 28,221 7,151 55,337 39,009
Communication Development (International) 1,537 957 2,352 1,956
--------------------------------------------------------------------------------------------------------------------
$ 131,826 $ 123,729 $ 238,741 $ 216,809
--------------------------------------------------------------------------------------------------------------------
Income (loss) from operations:
Network Services $ (551) $ 7,601 $ 4,499 $ 11,277
Transportation Services (32,665) (5,915) (45,723) (4,493)
Construction 777 (2,244) (885) (2,258)
Communication Development (International) 13 13 (183) (152)
Unallocated Corporate Overhead (856) (2,312) (1,376) (4,710)
--------------------------------------------------------------------------------------------------------------------
$ (33,282) $ (2,857) $ (43,668) $ (336)
--------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Network Services $ 185,617 $ 151,939 $ 185,617 $ 151,939
Transportation Services 38,685 47,918 38,685 47,918
Construction 72,314 63,865 72,314 63,865
Communication Development (International) 3,270 3,468 3,270 3,468
Corporate 3,965 5,678 3,965 5,678
--------------------------------------------------------------------------------------------------------------------
$ 303,851 $ 272,868 $ 303,851 $ 272,868
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company derives a significant portion of its revenues from a few large
customers. Those customers and their revenues for the three and six months ended
April 30, 2000, are as follows:
<TABLE>
<CAPTION>
For the Months Ended April 30, 2000
----------------------------------------------------------------------------------------------------
Customer Operating Group Three Six
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WorldCom Network Services $29,506 $55,368
New Jersey Consortium Transportation and Network Services 25,716 44,294
Florida Power Corp. Construction 4,589 8,525
Cooper Tire Company Construction 3,727 7,277
</TABLE>
Adesta is party to multiple contracts with the New Jersey Consortium ("New
Jersey Consortium Contracts") which includes the New Jersey Turnpike Authority,
New Jersey Highway Authority, Port Authority of New York and New Jersey, South
Jersey Transportation Authority, and the State of Delaware Department of
Transportation. The New Jersey Consortium Contracts generally provide for Adesta
to (i) construct a fully integrated electronic toll collection ("ETC") system;
(ii) maintain the related Customer Service Center ("CSC") and Violations
Processing Center ("VPC") for periods of up to 10 years; and (iii) construct and
maintain a supporting fiber optic network. The estimated future gross revenues
from the New Jersey Consortium Contracts are projected to be at least $167
million,
24
<PAGE> 25
including estimated minimum revenues of $51.4 million for VPC operations and
$40.0 million for fiber network operations and maintenance billable over the
duration of the agreements.
During the three months ended January 31, 2000, the Company determined through
its ongoing analyses of the ETC construction segment of the New Jersey
Consortium Contracts (i.e., excluding the VPC and fiber network construction and
long-term service contracts) that costs to be incurred were expected to exceed
amounts billable by approximately $7.7 million. The change from October 31,
1999, related primarily to changes in estimated costs associated with changing
design specifications and certain near-term milestones. The loss recognized in
the January quarter was approximately $8.2 million, including costs incurred in
the quarter, reversal of previously recognized profit, and a loss reserve
accrual of $4.7 million for the remaining projected loss.
During the three months ended April 30, 2000, the Company continued negotiation
of a comprehensive amendment that was executed on June 1, 2000. While the scope
of work for the remainder of the project was clarified, significant concessions
were made by the Company to arrive at resolution and estimated losses for the
construction portion of the contract were revised to $35.3 million, resulting in
a loss for the quarter of $27.6 million. The remaining loss expected to be
incurred in completing the contract and accrued at April 30, 2000 was $17.1
million.
The loss was partially attributable to vagaries in the original contract
language that made it extremely difficult for the Company to meet performance
criteria and targeted completion deadlines, resulting in penalties and costs in
excess of original estimates. In addition, the Company was forced to engage
subcontractors on a time and materials or cost-plus basis and experienced
significant overruns in an attempt to meet its contractual obligations. The June
2000 amendment reduced the scope of the contract, provided previously undefined
benchmarks, provided a revised and extended schedule for completion of the
project and resolved various claims between the parties. At the same time, the
Company negotiated a revised agreement with its primary subcontractor,
comprising the majority of remaining contract costs, from time and materials to
a fixed price. While these agreements reduced the uncertainty of some of the
remaining costs on the project, they also eliminated the opportunity to recover
certain previously incurred costs.
The revised schedule includes several significant milestone dates. If not met,
the Consortium will have the right to terminate the contracts, including the VPC
and fiber maintenance contracts. If terminated, the Company would lose the
opportunity to earn potential future profits from these long-term service
contracts.
The Company expects to incur significant additional amounts to complete the
construction of the CDOT Networks. Failure of the Company to execute sufficient
user agreements for the CDOT Networks could have a material adverse effect on
the carrying value of the Company's investment.
At April 30, 2000, the Company had billed and unbilled receivables of $26.1
million and $14.4 million, respectively, related to WorldCom and $15.1 million
and $15.8 million, respectively, related to the New Jersey Consortium.
The loss of the New Jersey Consortium, WorldCom or any other major customers
could have a material adverse effect on the Company's business, financial
condition and results of operations.
17. FINANCING COMMITMENT
On March 15, 2000, the Company received financing commitments from investors
which would have allowed the Company to repay its existing Credit Facility of
$35 million through new financing of approximately $56 million. The transaction
would have provided for funding of an initial $35 million for certain current
and future Network and Right-of Way development projects.
The Company understands that, as a result of certain unrelated activities and
the uncertainties created by the SIRIT verdict, one of the major investors does
not expect to proceed with the proposed financing. Consequently, the timing of
any such investment is presently uncertain.
The Company continues with its efforts to raise replacement or additional
financing which include ongoing discussions with current investors, third-party
investors and the Credit Facility lenders.
25
<PAGE> 26
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 and six months ended April
30, 2000 and 1999. 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 risk and
uncertainties, including but not limited to economic, governmental and
technological factors affecting the Company's operations, markets and
profitability.
OVERVIEW
The Company's unaudited operating results reflect the unaudited operating
results of SASCO and SES only from the respective dates of acquisition. Combined
selected financial information of SASCO and SES during the three and six months
ended April 30, 2000 were as follows:
<TABLE>
<CAPTION>
For the Months Ended April 30, 2000
-----------------------------------------------------------------------------------------------
Three Six
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 6,273 $ 11,020
Costs of revenues 4,854 9,500
General and administrative expenses 514 1,032
Depreciation and amortization 28 59
Other expense 39 82
-----------------------------------------------------------------------------------------------
Net income $ 838 $ 347
-----------------------------------------------------------------------------------------------
</TABLE>
Refer to Note 6, "Assumption of COMSAT Contracts," to the accompanying condensed
consolidated financial statements for a discussion and summary of contracts
assumed from the Texas Department of Transportation during the fiscal year ended
October 31, 1998. All of the COMSAT Contracts were substantially complete as of
October 31, 1999. The revenues, cost of revenues and gross margins were
non-recurring and are not generally indicative of returns the Company expects to
achieve on future contracts.
The following table sets forth selected elements of the Company's condensed
consolidated statements of operations as a percentage of its revenues:
<TABLE>
<CAPTION>
For the Three Month Ended April 30, For the Six Months Ended April 30,
--------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Construction and maintenance 100.0% 71.1% 100.0% 83.5%
Conduit sales -- 28.9 -- 16.5
--------------------------------------------------------------------------------------------------------------
100.0 100.0 100.0 100.0
Costs and expenses:
Construction and maintenance 109.7 62.7 103.5 71.8
Costs of conduit -- 28.0 -- 16.0
General and administrative
expense 13.4 7.0 12.4 8.5
Impairment of intangible assets -- 2.0 -- 1.1
Depreciation and amortization 2.1 2.6 2.4 2.8
--------------------------------------------------------------------------------------------------------------
Loss from operations (25.2) (2.3) (18.3) (0.2)
Other expenses, net (10.0) 1.0 (5.1) (3.0)
--------------------------------------------------------------------------------------------------------------
Net loss (35.2) (1.3) (23.4) (3.2)
Loss applicable to common stock (35.4) (11.6) (24.1) (9.1)
--------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 27
RESULTS OF OPERATIONS
REVENUES
Construction and Maintenance - Construction and maintenance revenues were $131.8
million for the three months ended April 30, 2000, compared to $88.0 million for
the same three month period of fiscal 1999 an increase of $43.8 million or 49.8
percent. Construction and maintenance revenues were $238.7 million for the six
months ended April 30, 2000, compared to $181.1 million for the same six month
period of fiscal 1999 an increase of $57.6 million or 31.8 percent.
Substantially all of the increase is due to increased revenues from the WorldCom
Master Services Agreement and the New Jersey Consortium Contracts.
The Company's estimated backlog at May 30, 2000, was as follows (in thousands):
<TABLE>
<CAPTION>
Operations and
Construction Maintenance
Organizational Group Contracts Contracts Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Network Services $376,000 $111,000 $487,000
Transportation Services 110,000 110,000 220,000
Construction 138,000 29,000 167,000
-----------------------------------------------------------------------------------------------
$624,000 $250,000 $874,000
-----------------------------------------------------------------------------------------------
</TABLE>
The Company expects to complete approximately 40% of the total backlog within
the next twelve months. Due to the nature of the Company's contractual
commitments, in many instances its customers do not commit to the volume of
services to be purchased under a contract but, rather, commit the Company to
perform these services if requested by the customer and commit to obtain these
services from it if they are not performed internally. Many of the contracts are
multi-year agreements, ranging from less than one year to 20 years. The Company
includes the full amount of services projected to be performed over the lives of
the contract in backlog due to its historical relationships with its customers
and experience in procurements of this nature. Contract backlog of $500 million
is under performance bonds and the Company may be subject to liquidated damages
for failure to perform in a timely manner. The Company's backlog may fluctuate
and does not necessarily indicate the amount of future sales. A substantial
amount of the order backlog can be canceled at any time without penalty, except,
in some cases, the Company can recover actual committed costs and profit on work
performed up to the date of cancellation. Cancellations of pending purchase
orders or termination or reductions of purchase orders in progress from its
customers could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, there can be no
assurance as to customers' requirements during a particular period or that such
estimates at any point in time are accurate.
As a result of the Company's consolidated financial condition, there can be no
assurances the Company can obtain the bonding necessary to bid on and accept new
projects.
Conduit Sales - Sales of conduit during the three months ended April 30, 1999,
related to sales of capacity in the NYSTA Network and generated revenues, costs
of conduit and margins of $35.7 million, $34.7 million and $1.0 million. There
were no comparable sales during the six months ended April 30, 2000. However,
during that period the Company expended $39.8 million for "networks under
construction" that it expects to sell or lease in future period. Refer to Note
7, "Networks Under Construction," to the accompanying condensed consolidated
financial statements for a further discussion of these projects.
COSTS AND EXPENSES
Construction and Maintenance - Construction and maintenance costs were $144.6
million for the three months ended April 30, 2000, compared to $77.6 million for
the same three month period of fiscal 1999, an increase of $67.0 million or 86.5
percent. Construction and maintenance costs were $247.2 million for the six
months ended April 30, 2000, compared to $155.7 million for the same three month
period of fiscal 1999, an increase of $91.5 million or 58.8 percent.
27
<PAGE> 28
The Company's construction and maintenance margins were (9.7) percent and (3.5)
percent for the three and six months ended April 30, 2000, respectively,
compared to 11.9 percent and 14.0 percent during the comparable periods of
fiscal 1999. As discussed and summarized in Note 16, "Segment Information" to
the accompanying condensed consolidated financial statement, the negative
construction and maintenance margins during fiscal 2000 and the substantial
reduction in such margins from fiscal 1999 related primarily to current and
future losses recorded on the New Jersey Consortium Contracts.
General and Administrative - General and administrative expenses were $17.6
million for the three months ended April 30, 2000, compared to $8.7 million for
the same three month period of fiscal 1999 an increase of $8.9 million or 102.3
percent. General and administrative expenses were $29.6 million for the six
months ended April 30, 2000, compared to $18.4 million for the same six month
period of fiscal 1999, an increase of $11.2 million or 60.9 percent. The
increase in general and administrative expense during the three and six months
ended April 30, 2000, compared to the same period of fiscal 1999 related primary
to increased professional fees associated with the SIRIT litigation (refer to
Note 11, "Contingencies," to the accompanying condensed consolidated financial
statements), increased financial advisory fees (refer to Note 14, "Financial
Advisory Services," to the accompanying condensed consolidated financial
statements) and higher overall executive compensation.
OTHER INCOME (EXPENSE)
Other income (expense), consisted of the following (dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended April 30,
--------------------------------------------------------------------------------------------------------------------
2000 1999 $Change %Change
--------------------------------------------------------------------------------------------------------------------
Interest expense $ (1,516) $ (2,210) $ 694 31.4%
Change in value of stock appreciation rights -- 7,230 7,230 100.0
Equity in losses/impairment of investment in Kanas (11,875) -- (11,875) --
Benefit from (provision for) income taxes 296 (15) 311 2,073.0
Minority interest (122) (125) (3) (2.4)
Extraordinary loss on the early
extinguishment of debt -- (3,067) (3,067) (100.0)
Other, net 44 (551) 595 108.0
<CAPTION>
For the Six Months Ended April 30,
-------------------------------------------------------------------------------------------------------------------
2000 1999 $Change %Change
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest expense $ (3,965) $ (4,688) $ 723 15.4%
Change in value of stock appreciation rights 3,710 1,896 1,814 95.7
Equity in losses/impairment of investment in Kanas (12,184) -- (12,184) --
Benefit from (provision for) income taxes -- 35 (35) (100.0)
Minority interest (50) (199) 149 74.9
Extraordinary loss on the early extinguishment of debt -- (3,067) 3,067 100.0
Other, net 368 (554) 922 166.4
</TABLE>
Interest Expense - The decrease in interest expense during fiscal 2000 compared
to fiscal 1999 is primarily attributable to the lower outstanding balance due
WorldCom resulting from the WorldCom Debt to Equity Conversion. During the three
months ended April 30, 2000, the Company had $35.0 million outstanding under its
Credit Facility and $4.5 million outstanding under the WorldCom Note with an
interest rate of 11.5 percent and $19.2 million outstanding under property taxes
payable that is net of imputed interest at 15 percent per annum.
The $32.0 million outstanding under the WorldCom Advance is non-interest
bearing.
Stock Appreciation Rights - The change in the value of the stock appreciation
rights is a non-cash item related to the value of amounts potentially owed to
WorldCom under the existing WorldCom stock appreciation rights (WorldCom SARs).
Management expects the conversion of WorldCom SARs into options for the
Company's common stock at the Company's next shareholders' meeting and will not
result in a cash charge to the Company.
28
<PAGE> 29
The value of the WorldCom SARs will be increased or decreased based on the
intrinsic value of the WorldCom SARs utilizing the price of the Company's common
stock at each reporting date until the WorldCom SARs are converted to options or
exercised by WorldCom.
Equity in Losses/Impairment of Investment in Kanas - As reflected in Note 8,
"Investment in Kanas (Held for Sale)," in the accompanying condensed
consolidated financial statements, the Company wrote off its investment in Kanas
during the three months ended April 30, 2000.
Extraordinary Loss on the Early Extinguishment of Debt - During the three months
ended April 30, 1999, the Company purchased all of its outstanding Senior
Subordinated Notes with an outstanding principal balance of $10.0 million
resulting in an extraordinary loss from the early extinguishment of debt of $3.1
million. The Senior Subordinated Notes were purchased with proceeds from the
WorldCom Advance.
LOSS APPLICABLE TO COMMON STOCK
Loss applicable to common stock was $46.7 million for the three months ended
April 30, 2000, compared to $14.3 million for the same three month period of
fiscal 1999 an increase of $32.4 million or 226.6 percent. During the three
months ended April 30, 2000, the Company recorded approximately $0.3 million of
dividends and accretion related to the Series C Preferred Stock.
Loss applicable to common stock was $57.5 million for the six months ended April
30, 2000, compared to $19.8 million for the same six month period of fiscal
1999, an increase of $37.7 million or 190.1 percent. During the six months ended
April 30, 2000, the Company recorded approximately $1.4 million related to the
increase in default redemption value of the Series B Preferred Stock and
approximately $0.3 million of dividends and accretion related to the Series C
Preferred Stock.
Loss applicable to common stock for the six months ended April 30, 1999, was
adversely affected by charges of $12.6 million related to the February 1999
partial redemption and modification of the Series B Preferred Stock and related
warrants.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $11.4 million at April 30, 2000 compared to $16.6
million at October 31, 1999. The decrease in cash and cash equivalents of $5.1
million during the six months ended April 30, 2000 resulted from cash from
financing activities of $3.8 million, offset by cash used in operating and
investing activities of $3.6 million and $5.3 million, respectively.
CASH FROM OPERATING ACTIVITIES
Cash used in operating activities during the six months ended April 30, 2000 of
$3.6 million consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Net loss $(55,789)
Adjustments to reconcile net loss to net cash used in operating
activities, net of effects of acquisitions:
Depreciation and amortization 5,632
Equity in loss/impairment of Kanas 12,159
Change in value of stock appreciation rights (3,710)
Accretion of property tax payable 1,144
----------------------------------------------------------------------------------------------
(40,564)
Changes in assets and liabilities, net of effects
from acquisitions:
Increase in accounts receivable (24,251)
Decrease in costs and profits in excess of billings
on uncompleted contracts 13,136
Increase in other current assets (2,797)
Increase in networks under construction (38,017)
Increase in accounts payable and other current liabilities 55,882
Increase in reserves for losses on uncompleted contracts 21,985
Increase in long-term deferred revenues 11,073
Other, net (74)
----------------------------------------------------------------------------------------------
Cash used in operating activities $ (3,627)
----------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
As discussed in Note 7, "Networks Under Construction," to the accompanying
unaudited condensed consolidated financial statements, the $38.0 million
increase in networks under construction related predominately to the ongoing
construction of the CDOT Network. The Company expects to incur significant
additional amounts to complete the construction of the CDOT Networks. Failure of
the Company to execute sufficient user agreements for the CDOT Networks could
have a material adverse effect on the carrying value of the Company's
investment.
Cash flows from operations during the six months ended April 30, 2000, were
adversely effected by cash payments of $2.4 million related to Loss Jobs that
were charged to reserves for losses on uncompleted contracts. As discussed in
Note 9, "Reserves for Losses on Uncompleted Contracts," to the accompanying
unaudited condensed consolidated financial statements, reserves for losses on
uncompleted contracts at April 30, 2000, totaled $30.6 million, including $24.4
million of additions during the six months ended April 30, 2000, related
primarily to the New Jersey Consortium. Funding of these expected losses will
require cash resources not presently available to the Company.
CASH FROM INVESTING ACTIVITIES
Cash used in investing activities during the six months ended April 30, 2000, of
$5.3 million is due to net capital expenditures of approximately $5.4 million
required to support increased operations and replacement of existing equipment
offset by cash acquired in the acquisition of SASCO and SES of approximately
$0.1 million.
CASH FROM FINANCING ACTIVITIES
Cash provided by financing activities during the six months ended April 30, 2000
of $3.8 million is due primarily to proceeds from the issuance of the Series C
Preferred Stock and exercise of stock options of $14.4 million and $1.1 million,
respectively, offset by the redemption of the Series B Preferred Stock and
payments of debt of $11.6 million and $0.3 million, respectively.
As discussed in Note 10, "Debt," to the accompanying unaudited condensed
consolidated financial statements, the Company entered into an agreement with
WorldCom during the six months ended April 30, 2000, whereby WorldCom agreed to
convert approximately $25.5 million of its $30.0 million WorldCom Note into
3,050,000 shares of the Company's Common Stock. The conversion was based on the
January 8, 2000 closing price of the Company's Common Stock at $8.375 per share.
The remainder of the original WorldCom Note, approximately $4.5 million, was
converted into an amended and restated 11.5 percent subordinated promissory note
due February 2001.
EFFECT ON FUTURE LIQUIDITY OF CERTAIN CONTRACTS ACQUIRED FROM ADESTA
The Company has recorded reserves for losses on certain contracts assumed in the
Adesta Acquisition that are expected to use cash from operations of
approximately $30.6 million over the next two fiscal years. The Company also
assumed in the Adesta Acquisition certain obligations to perform under long-term
service contracts for the operation and maintenance of fiber networks.
Performance under these agreements, which were predominantly executed by Adesta
in 1996 and 1997, began during fiscal 1999. The Company subsequently determined
that the costs to perform under these contracts are expected to be greater than
amounts presently expected to be billable to network users under firm
contractual commitments. The Company has also subsequently determined that such
losses over the contract terms (up to 20 years) cannot be reasonably estimated
due to potential changes in various assumptions. Increases in management's
estimates of costs to complete the Loss Jobs and to service the maintenance
contracts, without an offsetting increase in revenues, could have a material
adverse effect on the Company's consolidated statement of condition and
liquidity. In March 2000, the Company's obligations and responsibilities with
respect to the Kanas operations and maintenance agreement were terminated.
30
<PAGE> 31
FUTURE LIQUIDITY
As described in Note 2, "Going Concern," to the accompanying condensed
consolidated financial statements, there is substantial doubt about the
Company's ability to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to (a) generate sufficient cash
flow to meet its obligations on a timely basis, (b) obtain additional financing
as may be required, and (c) ultimately sustain profitability. Management's plans
in regard to these matters are discussed in Note 2, "Going Concern," to the
accompanying condensed consolidated financial statements.
In addition, there can be no assurance that the Company will not experience
adverse operating results or other factors which could materially increase its
cash requirements or adversely affect its liquidity position.
CAUTIONARY STATEMENTS
Certain of the information contained herein may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, as the same may be amended from time to time ("the Act") and in
releases made by the Securities and Exchange Commission ("SEC") from time to
time. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements expressed or implied by such forward-looking statements. The
words "estimate," "believes," "project," "intend," "expect" and similar
expressions when used in connection with the Company, are intended to identify
forward-looking statements. Any such forward-looking statements are based on
various factors and derived utilizing numerous important assumptions and other
important factors that could cause actual results to differ materially from
those on the forward-looking statements. These cautionary statements are being
made pursuant to the Act, with the intention of obtaining benefits of the "Safe
Harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to those set forth below.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to: (i) risks associated with leverage, including
cost increases due to rising interest rates: (ii) risks associated with the
Company's ability to continue its strategy of growth through acquisitions; (iii)
risks associated with the Company's ability to successfully integrate all of its
recent acquisitions: (iv) the Company's ability to make effective acquisitions
in the future and to successfully integrate newly acquired businesses into
existing operations and the risks associated with such newly acquired
businesses; (v) changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws, occupational, health and safety laws:
(vi) access to foreign markets together with foreign economic conditions,
including currency fluctuations; (vii) the effect of, or changes in, general
economic conditions; (viii) economic uncertainty in Venezuela; (ix) weather
conditions that are adverse to the specific businesses of the Company, and (x)
the outcome of litigation, claims and assessments involving the Company.
Other factors and assumptions not identified above may also be involved in the
derivation of forward- looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on debt
obligations that impact the fair value of these obligations. The Company's
policy is to manage interest rates through a combination of fixed and variable
rate debt. Currently, the Company does not use derivative financial instruments
to manage its interest rate risk. The table below provides information about the
Company's risk exposure associated with changing interest rates (amounts in
thousands):
31
<PAGE> 32
<TABLE>
<CAPTION>
Expected Maturity During the Fiscal Year Ended October 31,
-----------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Variable rate debt:
Amount $35,531 -- -- -- -- --
Average interest rate 11.45% -- -- -- -- --
Fixed rate debt:
Amount $ 603 $ 4,777 $ 75 $ 19 $ 19 $ 19
Average interest rate 9.00% 11.10% 9.00% 9.00% 9.00% 9.00%
Total:
Amount $36,134 $ 4,777 $ 75 $ 19 $ 19 $ 19
Average 11.06% 11.10% 9.00% 9.00% 9.00% 9.00%
</TABLE>
The above presentation does not reflect the $32.0 million WorldCom Advance
(refer to Note 10, "Debt" to the accompanying condensed consolidated financial
statements) that bears no interest and is subordinate to the Credit Facility.
Payments under the WorldCom Advance were further subordinated to liabilities
associated with certain construction projects that are expected to be completed
during fiscal 2001. Additionally, the above presentation does not reflect the
present value of future property taxes payable (over a period of 20 years). On
the April 30, 2000, condensed consolidated balance sheet, the long-term portion
of this liability totaled $16.6 and is reflected as "Property Taxes Payable,"
while the current portion totaled $2.5 million and is reflected in "Accounts
Payable and Accrued Liabilities."
As of April 30, 2000, the Company is in default of certain provisions of the
Credit Facility as described in Note 10, "Debt" to the accompanying financial
statements. As such, the Credit Facility is immediately callable by the holder
and is therefore classified as a current maturity (fiscal year 2000) in the
above expected maturity schedule. During the default period, the Company is
required to pay a default penalty of two percent per annum on all outstanding
balances.
The fair value of the Company's debt approximates its carrying value.
Although the Company conducts business in foreign countries, the international
operations were not material to the Company's consolidated financial position,
results of operations or cash flows as of October 31, 1999. Additionally,
foreign currency transaction gains and losses were not material to the Company's
results of operations for the six months ended April 30, 2000 and 1999.
Accordingly, the Company was not subject to material foreign currency exchange
rate risk from the effects that exchange rate movements of foreign currencies
would have on the Company's future costs or on future cash flows it would
receive from its foreign subsidiaries. To date, the Company has not entered into
any significant foreign currency forward exchange contracts or other derivative
financial instruments to hedge the effects of adverse fluctuations in foreign
currency exchange rates.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 12, 1998, the Company granted options to purchase 150,000 shares of
the Company's common stock, par value $0.001 per share ("Common Stock") to two
employees of the Company. The options were granted pursuant to the Company's
1995 Stock Option Plan, as amended (the "Plan"), are non-qualified, vested over
three years, are exercisable at $7.125 per share, and expire on July 8, 2000. In
addition, on November 12, 1998, the Company granted options to purchase 350,000
shares of Common Stock to employees of the Company's subsidiaries acquired in
connection with the Adesta acquisition. The options were granted outside the
Plan.
On December 23, 1998, the Company granted options to purchase 12,500 shares of
Common Stock to employees of the Company. The options were granted pursuant to
the Plan, are qualified, vested immediately, are exercisable at $5.75 per share,
and expire on December 31, 2004.
On December 31, 1998, in order to maintain compliance with the Plan, as amended,
the Board of Directors rescinded certain of the stock option grants made during
the fiscal year ended October 31, 1998, or 530,000 options under the Plan and
310,000 options outside the Plan. Ambiguities and compliance issues included, in
certain instances, (i) granting options that had been granted inside the Plan
where there were not a sufficient number of shares available, (ii) granting
options at below market prices to nonemployee directors within the Plan,
contrary to
32
<PAGE> 33
terms of the Plan, (iii) not specifying whether the grants were issued inside or
outside the Plan (iv) not specifying the exercise period for the options granted
or (v) issuing options outside the Plan which could be considered contrary to
the terms of certain financing documents. These options, which vested
immediately, were reissued at the fair market value ($5.75 per share), as
defined by the Plan, on December 31, 1998, certain of the expiration dates of
the options were shortened. In addition, the Company rescinded and reissued the
350,000 options outside the Plan and the 150,000 options pursuant to the Plan
described above on December 31, 1998 and reissued at $5.75 per share for the
reasons described above. These options vested immediately and expire on November
12, 2004 (outside the Plan) and December 31, 2004 (pursuant to the Plan). All
options granted outside the Plan are subject to shareholder approval.
On December 31, 1998, the Company granted options to purchase 1,050,000 shares
of Common Stock to employees of the Company's subsidiaries acquired in
connection with the Adesta acquisition. The options were granted outside the
Plan, are non-qualified, vest over three years, are exercisable at $5.75 per
share, and expire on November 12, 2004. All options granted outside the plan are
subject to shareholder approval.
On December 31, 1998, the Company granted options to purchase 40,000 shares of
Common Stock to an employee of the Company. The options were granted outside the
Plan, are non-qualified, 20,000 of which vested on January 1, 1999, 10,000 vest
on December 31, 1999 and 10,000 vest on December 31, 2000, are exercisable at
$5.75 per share, and expire on the earlier of September 19, 2005 or two years
after the date of the employee's termination.
On December 31, 1998, the Company granted options to purchase 180,000 shares of
Common Stock to three employees of the Company. The options were granted
pursuant to the Plan, are non-qualified, vested immediately, are exercisable at
$5.75 per share, and expire on December 31, 2001.
On February 17, 1999, 2,785 shares of non-voting Series B Convertible Preferred
Stock, $0.10 par value ("Series B Preferred Stock") were purchased by the
Company for approximately $18.9 million and retired. In connection with the
purchase of the 78% of the Series B Preferred Stock, the Company agreed to
certain modifications in the conversion price of the related warrants. The
existing Series B Preferred Stock conversion price for the remaining shares was
modified from 97% of market value, as defined in the agreements, to a fixed
amount of approximately $3.50 per share for 404 of the remaining 779 shares. The
conversion price of (i) warrants to purchase a total of 370,000 shares of the
Company's common stock was reduced to $13.25 per share and (ii) warrants to
purchase a total of 630,000 shares of common stock was reduced to $13.50 per
share. On May 7, 1999, the warrants to purchase the 630,000 shares of common
stock were purchased by the Company for $3.00 per share.
On February 19, 1999, 628,398 shares were issued to the former owners, or their
assignees, of Georgia Electric Corporation ("GEC") pursuant to the earn-out
provision of the acquisition agreement whereby the Company purchased all of the
outstanding stock of GEC.
Effective April 1, 1999, the Company granted to an employee options to purchase
100,000 shares of Common Stock. The options were granted outside the Plan, are
non-qualified, 75,000 vested immediately with the remaining 25,000 vesting on
June 21, 2000, are exercisable at $6.375 per share, and expire at the earlier of
September 19, 2005 or two years from the date of the employee's termination.
Effective April 1, 1999, the Company granted a consultant options to purchase
40,000 shares of Common Stock. The options were granted outside the Plan, are
non-qualified, 20,000 of which vested immediately, 10,000 vest on April 1, 2000,
and 10,000 vest on April 1, 2001, are exercisable at $6.375 per share, and
expire two years from the date of expiration of the consulting agreement or any
extensions or renewals thereof. All options granted outside the Plan are subject
to shareholder approval.
On April 30, 1999, the Company granted to an employee a restricted stock award
of 50,000 shares of Common Stock.
On April 30, 1999, the Company converted a payable to a Director of the Company
in the amount of $0.8 million into 118,286 shares of Common Stock based upon a
conversion rate equal to the fair market value of the Company's common stock on
the date of conversion, or $7.00 per share.
In February 2000 the Company granted options to purchase a total of 525,000 to
three new employees of the
33
<PAGE> 34
Company. The options, if approved by shareholders, will vest as follows: 125,000
as of February 1, 2000; 200,000 on February 1, 2001; and 200,000 on February 1,
2002 with the exercise price being $6.00, $8.50 and $9.00 respectively. Said
options will expire on February 1, 2004.
In May 2000, 250,000 options were granted to two new employees of the Company.
The options, if approved by shareholders, will vest immediately with exercise
prices ranging from $2.44 to $2.69. These options will expire in May 2010.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At April 30, 2000, the Company has borrowed the maximum available under its
existing Credit Facility and is in technical default of certain provisions of
the Credit Facility. As such, the Credit Facility is immediately callable by the
holder and is therefore classified as a current liability in the accompanying
April 30, 2000, consolidated balance sheet. During the default period, the
Company is required to pay a default penalty of two percent per annum on all
outstanding balances. In the event that the lender demands payment, the Company
has insufficient liquidity to pay such amounts.
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 Acquisitions, Inc. and COMSAT Corporation
(1)
2.2 Indemnification Agreement, dated February 25, 1998, among Able Telcom
Holding Corp., Georgia Electric Company, Transportation Safety
Contractors, Inc., COMSAT RSI Acquisitions, Inc. and COMSAT Corporation
(1)
2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able Telcom
Holding Corp., James P Patton, Rick Boyle and Claiborne K. McLemore III
(2)
2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able Telcom
Holding Corp., James P. Patton, Rick Boyle and Claiborne K. McLemore
III (2)
2.5 Agreement and Plan of Merger by an among MFS Acquisition Corp., Able
Telcom Holding Corp., MFS Network Technologies, Inc. and MFS
Communications Company, Inc. dated as of April 22, 1998 (9)
2.5.1 Amendment to Agreement and Plan of Merger among MFS Acquisition Corp.,
Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS
Communications Company, Inc. dated as of July 2, 1998 (10)
2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan of
Merger among MFS Acquisition Corp., Able Telcom Holding Corp., MFS
Network Technologies, Inc. and MFS Communications Company, Inc. (11)
2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom
Holding Corp. dated as of September 9, 1998 (13)
2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able Telcom
Holding Corp. dated January 26, 1999 (12)
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<PAGE> 35
2.5.1.4 Termination, Assignment and Indemnification Agreement between Kanas
Telecom, Inc. and Adesta Communications, Inc., dated May 5, 2000
(exhibits omitted)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998 to MFS
Communications Company, Inc. (10)
2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp., and WorldCom
Network Services, Inc. dated as of September 1, 1998 (12)
2.5.2.2 Amended and Restated 11.5% Subordinated Promissory Note between Able
Telcom Holding Corp. and WorldCom Network Services, Inc. dated as of
January 11, 2000.
2.5.2.3 WorldCom Conversion of Debt to Equity dated January 11, 2000
2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom Holding
Corp. in favor of WorldCom, Inc. (10)
2.5.4 Master Services Agreement between WorldCom Network Services, Inc. and
MFS Network Technologies, Inc. dated as of July 2, 1998 (exhibits
omitted) (11)
2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among Able
Telcom Holding Corp., WorldCom Inc., MFS Communications Company, Inc.,
MFS Intelenet, Inc., MFS Datanet, Inc., MFS Telcom, Inc. and MFS
Communications, Ltd. (schedule omitted) (10)
2.5.6 License Agreement between MFS Communications Company, Inc. and Able
Telcom Holding Corp. dated as of July 2, 1998 (10)
2.5.7 Modification to Stock Option Agreement between the Company and
WorldCom, Inc. dated January 8, 1999 (12)
2.5.8 Agreement to Enter into Stock Appreciation Rights Agreement between the
Company and WorldCom, Inc. dated January 8, 1999 (12)
2.5.9 Financing Agreement between WorldCom Network Services, Inc. and Able
Telcom Holding Corp. dated February 16, 1999 (12)
2.5.9.1 Amendment and Restatement of Financing Agreement by and between
WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated
April 1, 1999 (16)
2.5.10 Agreement dated March 15, 1999 by and between Able Telcom Holding Corp.
and WorldCom Network Services, Inc. (16)
2.5.14 Letter Agreement dated January 11, 2000 related to WorldCom Conversion
of Certain Debt into Equity (17)
2.6 Teaming Agreement dated July 7, 1999 by and between Able Telcom Holding
Corp. and 186K.Net, Co. (17)
2.7 Agreement and Plan of Merger by and among Able Telcom Holding Corp.,
SES Acquisition Corp., and Specialty Electronics Systems, Inc. and the
Shareholders dated as of November 5, 1999 (17)
2.7.1 Schedule 2.6(a)-SASCO relating to the Agreement and Plan of Merger by
and among Able Telcom Holding Corp., SES Acquisition Corp., and
Specialty Electronics Systems, Inc. and the Shareholders dated as of
November 5, 1999 (17)
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<PAGE> 36
2.7.2 Schedule 2.6(a)-SES relating to the Agreement and Plan of Merger by and
among Able Telcom Holding Corp., SES Acquisition Corp., and Specialty
Electronics Systems, Inc. and the Shareholders dated as of November 5,
1999 (17)
2.7.3 Stock Purchase Agreement by and among Able Telcom Holding Corp.,
Southern Aluminum & Steel Corporation and the Shareholders dated
November 5, 1999 (17)
2.7.4 Registration Rights Agreement associated with the Stock Purchase
Agreement by and among Able Telcom Holding Corp., Southern Aluminum &
Steel Corporation and the Shareholders dated November 5, 1999 (17)
2.7.5 Employment Agreement with Donald G. Garner dated November 5, 1999 (17)
2.7.5.1 Non-Competition Agreement with Donald G. Garner dated November 5, 1999
(17)
2.7.6 Employment Agreement with C. Michael Hoover dated November 5, 1999 (17)
2.7.6.1 Non-Competition Agreement with C. Michael Hoover dated November 5, 1999
(17)
2.7.7 Employment Agreement with Jesse R. Joyner dated November 5, 1999 (17)
2.7.7.1 Non-Competition with Jesse R. Joyner dated November 5, 1999 (17)
3.1 Articles of Incorporation of Able Telcom Holding Corp., as amended (3)
(4)
3.1.1 Articles of Amendment to the Articles of Incorporation of Able Telcom
Holding Corp. (13)
3.1.2 Articles of Amendment to the Articles of Incorporation of Able Telcom
Holding Corp. dated January 25, 2000 (17)
3.2 Bylaws of Able Telcom Holding Corp., as amended (3)
4.2 Specimen Common Stock Certificate (3)
4.3 Specimen Series A Preferred Stock Certificate (6)
4.3.1 Specimen Series B Preferred Stock Certificate (17)
4.3.2 Specimen Series C Preferred Stock Certificate (17)
4.4 Form of Warrant issued to Credit Suisse, First Boston and Silverton
International Fund Limited (4)
4.6 Able Telcom Holding Corp. 1995 Stock Option Plan (13)
4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan, dated
April 24, 1998 (13)
4.8 Series B Convertible Preferred Stock Purchase Agreement (13)
4.9 Registration Rights Agreement for Series B Convertible Preferred Stock
Purchase Agreement and 350,000 Warrants (13)
4.10 Registration Rights Agreement for 650,000 Warrants associated with
Series B Convertible Preferred Stock Purchase Agreement (13)
4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in connection
with Series B Convertible Preferred Stock Purchase Agreement (13)
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<PAGE> 37
4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in connection
with Series B Convertible Preferred Stock Purchase Agreement (13)
4.13 Preferred Stock Purchase Agreement by and among Able Telcom Holding
Corp., RGC International Investors, LDC, and Cotton Communications,
Inc. dated February 17, 1999 (12)
4.14 Warrant Amendment between Able Telcom Holding Corp., and Purchasers (as
defined) dated February 7, 1999 (12)
4.15 Securities Purchase Agreement by and between the Sellers (as defined)
and Cotton Communications, Inc. dated February 17, 1999 (12)
4.15.1 Letter Agreement dated February 17, 1999 from Cotton Communications,
Inc. to John Hancock Mutual Life Insurance Company (17)
4.15.2 Letter Agreement dated February 17, 1999 from Cotton Communications,
Inc. to Able Telcom Holding Corp. (17)
4.15.3 Termination Agreement dated March 22, 1999 by and between Able Telcom
Holding Corp. and Cotton Communication, Inc. (17)
4.16 Series B Convertible Preferred Stock Exchange Agreement by and between
Able Telcom Holding Corp. and the Palladin Group dated February 4, 2000
(17)
4.16.3 Letter Agreement dated February 17, 1999 from the Palladin Group to
Able Telcom Holding Corp. (17)
4.16.4 Letter dated March 19, 1999 from Able Telcom Holding Corp. to the
Palladin Group associated with the termination of Financing Agreement
dated February 17, 1999 (17)
4.17 Form of First Common Stock Purchase Warrants in connection with Series
B Convertible Preferred Stock Exchange Agreement with the Palladin
Group (17)
4.18 Form of Second Common Stock Purchase Warrants in connection with Series
B Convertible Preferred Stock Exchange Agreement with the Palladin
Group (17)
4.19 Series B Convertible Preferred Stock Exchange Agreement by and between
Able Telcom Holding Corp. and the RoseGlen Group dated February 4, 2000
(17)
4.20 Form of Common Stock Purchase Warrants in connection with Series B
Convertible Preferred Stock Exchange Agreement with the RoseGlen Group
(17)
4.21 Registration Rights Agreement associated with Series B Convertible
Preferred Stock Exchange Agreement (17)
4.22 Series C Convertible Preferred Stock Purchase Agreement (17)
4.23 Form of Common Stock Purchase Warrants in connection with Series C
Convertible Preferred Stock Purchase Agreement (17)
4.24 Registration Rights Agreement associated with Series C Convertible
Preferred Stock Purchase Agreement (17)
10.15 Stock Purchase Agreement between Able Telcom Holding Corp., Traffic
Management Group, Inc., Georgia Electric Company, Gerry W. Hall and J.
Barry Hall (5)
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<PAGE> 38
10.16 Stock Purchase Agreement between Able Telcom Holding Corp.,
Telecommunications Services Group, Inc., Dial Communications, Inc.,
William E. Newton and Sybil C. Newton (8)
10.17 Promissory Note of Able Telcom Holding Corp. Payable to William E.
Newton and Sybil C. Newton (8)
10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp.,
Traffic Management Group, Inc., Georgia Electric Company, Gerry W. Hall
and J. Barry Hall (5)
10.25 Securities Purchase Agreements, dated as of January 6, 1998, between
Able Telcom Holding Corp. and each of the Purchasers named therein (6)
10.25.1 Letter Agreement dated July 2, 1998 related to Securities Purchase
Agreements dated as of January 6, 1998 (13)
10.26 Senior Secured Revolving Credit Agreement dated as of April 6, 1998,
between Able Telcom Holding Corp. and Suntrust Bank, South Florida,
N.A. and Bank of America, FSB (9)
10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank, N.A. and
The Several Lenders from Time to Time Parties Hereto dated as of June
11, 1998 (exhibits and schedules omitted) (13)
10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998 (13)
10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom Holding
Corp. NationsBank N.A., and the Several Lenders from Time to Time
Parties thereto, dated as of June 30, 1998 (13)
10.32.1 Amendment and Amended and Restated Limited Waiver to June 11, 1998
Credit Agreement among Able Telcom Holding Corp., NationsBank N.A., and
the Several Lenders from Time to Time Parties thereto, dated as of June
30, 1998 (14)
10.33 Employment Agreement with Billy V Ray, Jr., dated October 1, 1998 (12)
10.33.1 Employment Agreement with Billy V. Ray, Jr., dated February 21, 2000
(18)
10.35 Financial Advisor and Placement Engagement Letter, dated April 3, 1998,
between Washington Equity Partners and Able Telcom Holding Corp. (14)
10.36 Employment Agreement with G. Vance Cartee, dated January 4, 1999 (12)
10.37 Employment Agreement with Edward Pollock, dated January 1, 1999 (12)
10.38 Employment Agreement with Frazier L. Gaines, dated November 12, 1998
(12)
10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 (12)
10.41 Financing Agreement between Able Telcom Holding Corp. and Cotton
Communications, Inc. dated February 17, 1999 (without exhibits) (12)
10.41.1 Termination Agreement between Able Telcom Holding Corp. and Cotton
Communications, Inc. dated March 22, 1999 (14)
10.42 11.5% Non-Recourse Promissory Note between Cotton Communications, Inc.
and Able Telcom Holding Corp. dated February 17, 1999 (12)
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<PAGE> 39
10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and Cotton
Communications, Inc. dated February 17, 1999 (12)
10.44 Employment Agreement with Michael Arp, dated January 1, 1999 (14)
10.45 Consulting Agreement and Employment Agreement with James E. Brands,
dated March 15, 1999 (14)
10.46 Employment Agreement with Michael Summers, dated May 31, 1999 (16)
10.47 Employment Agreement with Thomas Montgomery, dated February 21, 2000
(18)
10.48 Employment Agreement with Charles Maynard, dated February 21, 2000 (18)
10.49 Employment Agreement with Philip Kernan, dated February 21, 2000 (18)
10.50 Employment Agreement with Edwin D. Johnson, dated May 3, 2000
10.51 Employment Agreement with Michael Brenner, dated May 3, 2000
11 Computation of Per Share Earnings (7)
16.1 Letter regarding change in certifying accountants (15)
21 Subsidiaries of Able Telcom Holding Corp. (17)
23.1 Consent of Ernst & Young LLP (18)
23.2 Consent of Arthur Andersen LLP (18)
27 Financial Data Schedule
--------------
(1) Incorporated by reference from an exhibit to the Company's Current
Report Form 8-K (File No. 0-21986), as filed March 12, 1998, as amended
April 14, 1998.
(2) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed April 14, 1998.
(3) Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-65854), as declared effective by the
Commission on February 26, 1994.
(4) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed December 31, 1996.
(5) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed October 25, 1996.
(6) Incorporated by reference from an exhibit to the Company's Annual
Report on Form 10-K (File No. 0-21986) for the fiscal year ended
October 31, 1997, as filed February 13, 1998, as amended March 20,
1998.
(7) Incorporated by reference from Note 5 to the Condensed Consolidated
Financial Statements (Unaudited) filed herewith.
(8) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed December 13, 1996, as
amended February 11, 1997.
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<PAGE> 40
(9) Incorporated by reference from an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30,
1998, as filed June 14, 1998.
(10) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed July 16, 1998, as
amended August 31, 1998, as further amended October 2, 1998, and as
further amended May 30, 2000.
(11) Incorporated by reference from an exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed August 3, 1998.
(12) Incorporated by reference from an exhibit to the Company's Annual
Report on Form 10-K (File No. 0-21986), for the fiscal year ended
October 31, 1998, as filed February 24, 1999, as amended March 1, 1999,
as further amended May 26, 2000.
(13) Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31,
1998, as filed September 21, 1998, as amended October 13, 1998.
(14) Incorporated by reference to an exhibit to the Company's Form S-1 (File
No. 333-65991), as filed October 22,1998, as amended April 8, 1999.
(15) Incorporated by reference from an Exhibit to the Company's Current
Report on Form 8-K (File No. 0-21986), as filed September 14, 1998.
(16) Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30,
1999, as filed June 14, 1999, as amended May 26, 2000.
(17) Incorporated by reference to an exhibit to the Company's Annual Report
on Form 10-K (File No. 0- 21986), for the fiscal year ended October 31,
1999, as filed February 22, 2000, as amended May 26, 2000.
(18) Incorporated by reference to an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986) for the quarter ended January
31, 2000, as filed April 12, 2000.
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities and 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.
(REGISTRANT)
<TABLE>
<CAPTION>
Signatures Title Date Signed
---------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ BILLY V. RAY, JR. Chief Executive Officer and Director June 19, 2000
------------------------
Billy V. Ray, Jr.
/s/ THOMAS W. MONTGOMERY Executive Vice President of Finance June 19, 2000
------------------------
Thomas W. Montgomery
</TABLE>
41
