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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A-4
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of earliest event reported: July 2, 1998
(Amending Form 8-K/A-3 filed on May 30, 2000, which
amended Form 8-K/A-2 filed on October 2, 1998, which amended
Form 8-K/A filed on August 3, 1998, which amended
Form 8-K filed on July 16, 1998)
ABLE TELCOM HOLDING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 0-21986 65-0013218
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) 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)
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ABLE TELCOM HOLDING CORP.
FORM 8-K/A-3
CURRENT REPORT
EXPLANATORY NOTE
Able Telcom Holding Corp. ("Registrant" or "Company") is amending its Form
8-K/A-3 filed on May 30, 2000 (date of report July 2, 1998) (i) to include
the restated financial statements of MFS Network Technologies and related
restated Pro Forma Financial Information which is included in Item 7 herein.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 2, 1998, the Company acquired all of the outstanding common
stock of MFS Network Technologies, Inc. ("MFSNT") from MFS
Communications Company, Inc. ("MFSCC"), a subsidiary of WorldCom, Inc.
("WorldCom"). The transaction was structured as a merger of a
newly-organized, wholly-owned subsidiary of the Registrant with MFSNT,
in which the subsidiary was the surviving corporation (the "Merger").
Under the terms of the Agreement and Plan of Merger dated April 26,
1998, as amended (the "Plan of Merger"), the purchase price was equal
to the shareholders' equity of MFSNT as of March 31, 1998, subject to
certain adjustments, including adding back the cumulative advance by
MFSCC (or its affiliates) to MFSNT, plus $10.0 million. The purchase
price at that time was projected to be approximately $101.4 million,
plus Company stock options, as described more fully below.
On September 9, 1998, the Registrant and WorldCom Network Services,
Inc. ("WorldCom Network"), a wholly owned subsidiary of WorldCom, as
assignee from MFSCC, entered into an agreement amending various terms
of the Merger (the "September Agreement"). The September Agreement,
among other things, finalized the cash portion of the purchase price of
MFSNT at approximately $58.8 million (which was determined by
negotiation among the parties without reference to the original
purchase price formula). The cash portion of the purchase price is
subject to additional amounts payable as contingent consideration on
December 29, 2000 which relate to the resolution of certain
pre-acquisition contingencies for pending litigation, claims,
assessments and losses on certain projects. Additionally, the general
terms and conditions of the grant of stock options (as previously
granted pursuant to the Plan of Merger) and a phantom stock award or
other equity participation award to be granted was also addressed, as
described more fully below.
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Part of the cash portion of the purchase price was paid from available
cash and the Company's line of credit. Additionally, a portion was paid
with the net proceeds from a private offering (the "Offering") which
closed on June 30, 1998 (the "Closing Date") of (i) 4,000 shares of the
Company's Series B Convertible Preferred Stock, par value $0.10
("Series B Preferred Stock"), which bear annual dividends of 4%, and
(ii) warrants to purchase up to an aggregate of 1,000,000 shares of the
Company's common stock at $19.80 per share for a period of five years
from the date of grant.
Net proceeds from the Offering totaled $18.1 million which were used to
pay a portion of the purchase price, as well as other costs associated
with the Merger totaling approximately $4.6 million. In general, each
share of Series B Preferred Stock is convertible into shares of the
Company's common stock, commencing on June 30, 1998, at 97% of the
lesser of the (i) average of the low trading prices for any three days
during the twenty-two (22) trading days immediately preceding the
conversion date, or (ii) the low trading price on the day immediately
preceding the conversion date, subject to a minimum equal to 95% of
such conversion price. The conversion amount of each share of Series B
Preferred Stock is equal to $5,000 plus any unpaid dividends thereon.
Unless waived by a holder on not less than 61 days prior written
notice, no holder may convert an amount which would result in such
holder's and its affiliates beneficial ownership exceeding 4.99% of the
then outstanding common stock of the Company.
The holders of the Series B Preferred Stock and the Warrants (the
"Series B Securities") are entitled to certain registration rights to
register the common stock underlying the Series B Securities pursuant
to the Securities Act of 1933, as amended. In the event that such
underlying common stock is not registered with the Securities and
Exchange Commission by late October 1998, is not listed with the
securities exchange and/or markets on which the common stock is then
listed, within a definitive period of time, or various other covenants
are not complied with, then certain penalties may be incurred to
certain or all of the holders of the Series B Preferred Stock and/or
Warrants, including, among other things, a reduction in the conversion
and/or exercise price of the applicable securities and/or additional
monetary payments. Unless waived, the Company expects to have
difficulty in timely complying with certain of its obligations relating
to the Series B Securities, including accomplishing the filing of a
registration statement of the Series B Securities by late October.
Additionally, under certain circumstances, including if the
registration statement that includes the shares of common stock
underlying the Series B Securities is not declared effective within 180
days of the Closing Date, or the Company is delisted under certain
circumstances from any securities exchange, or any representation or
warranty by the Company to holders was not true and correct, then the
holders of the Series B Securities, in whole or in part, have the
option to require the Company to redeem their securities at premium
prices. Although the Company intends to use its best efforts to comply
with all provisions of its documents with the holders of the Series B
Securities, the failure of which would provide such redemption right
exercise, there can be no assurance that it will be able to do so, in
part, because certain of such matters are dependent upon the efforts or
approval of others (such as the Securities and Exchange Commission with
respect to the effectiveness of the aforementioned registration
statement). To the extent the holders of the Series B Securities become
entitled to exercise a redemption right and seek to require the
redemption of their shares, such exercise could materially increase the
cash requirements of the Company, could result in a default under the
terms of its Senior credit facility and, to the extent replacement
financing is not available on commercially reasonable terms (if at
all), would likely have a material adverse impact on the Company.
Furthermore, so long as any Series B Security is outstanding, the
Company is prohibited from declaring or paying any dividends (other
than to holders of Series B Preferred Stock) or purchasing any equity
security of the Company.
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As part of the September Agreement, the promissory note previously
issued to MFSCC in connection with the Merger in the principal amount
of $86.4 million will be replaced by a new promissory note between the
Registrant and WorldCom Network in the principal amount of $30.0
million (the "New Note"). The New Note matures on December 15, 2000
(the "Maturity Date") and bears interest at 11.5% annually, payable
quarterly as of September 1, 1998. The principal amount of the New Note
is to be prepaid by applying a portion of certain fees (i) due to the
Registrant by WorldCom and (ii) received by the Registrant in
connection with the lease and installation of certain conduit projects.
The New Note may be repaid in part or in full without penalty.
Pursuant to the Merger, the Company granted options to WorldCom to
purchase up to 2,000,000 shares of common stock of the Company
commencing July 2, 1998 and ending six months after the payment of the
initial promissory note, as amended by the September Agreement to
extend the exercise period. The exercise price per share is $7.00,
except that the holder may elect to exercise the option, in whole or in
part, on a "cashless" basis under which the holder will receive shares
of common stock with a market value equal to the difference between the
common stock's then market value and $7.00, subject to a 1,817,941
share limitation. MFSCC will be entitled to designate a representative
to serve on the Company's Board of Directors as long as MFSCC retains
shares of common stock aggregating at least 5.0% of the then
outstanding shares. Furthermore, pursuant to the September Agreement,
the Registrant agreed to issue to WorldCom Network a phantom stock
award or other equity participation award relating to 600,000 shares of
the Company's common stock, payable in cash, stock or a combination
thereof at the Company's option and which is exercisable with respect
to the following three days: July 2, 1999, July 2, 2000, or July 2,
2001. WorldCom will be entitled to receive any appreciation of the
common stock over a base price of $5-3/32 per share, but not more than
$30-3/32 per share.
The September Agreement also modified certain other provisions
including, among other things, (i) extending the term of the stock
pledge agreement (whereby the stock of MFSNT was pledged as security
for certain of the Registrant's obligations to WorldCom), (ii)
indemnifying WorldCom Network and its affiliates from litigation
matters, exclusive of certain litigation matters arising out of MFSNT's
operations, and (iii) executing mutual releases between the parties.
The final terms and conditions of the September Agreement, including
the provisions thereof relating to a grant of a phantom stock award or
other equity participation award, are expected to be more fully set
forth in certain additional agreements in the near future and may be
modified to conform with other agreements of the Company and various
third parties or require a consent or waiver from such third parties
(including its senior lender.) There can be no assurance, however, that
the Company will be able to so modify or conform the terms of the
September Agreement or obtain appropriate waivers or consents. The
failure to do so could have a material adverse effect on the financial
condition of the Company.
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ABLE TELCOM HOLDING CORP.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements, pro forma financial information and exhibits
are filed as part of this Form 8-K/A-3:
(A) FINANCIAL STATEMENTS
Financial Statements of the Network Technologies Division of MFS
Network Technologies, Inc. (as restated).
Report of Independent Public Accountants
Balance Sheets as of July 2, 1998 (unaudited) and December 31,
1997 and 1996 (audited)
Statement of Operations for the Six Month Periods Ended July 2,
1998 (unaudited) and June 30, 1997 (unaudited) and for the
Years Ended December 31, 1997, 1996, and 1995 (audited)
Statement of Cash Flows for the Six Month Periods Ended July 2,
1998 (unaudited) and June 30, 1997 (unaudited), and for the
Years ended December 31, 1997, 1996, and 1995 (audited)
Notes to Financial Statements
(B) PRO FORMA FINANCIAL INFORMATION
Pro forma Combined Statements of Operations (unaudited) for the Twelve
Months ended October 31, 1997
Pro forma Combined Statements of Operations (unaudited) for the Nine
Months ended July 31, 1998
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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)
June 7, 2000 /S/ Billy V. Ray
------------------------------------
Billy V. Ray
Chief Executive Officer
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MFS Network Technologies, Inc.:
We have audited the accompanying balance sheets of the Network Technologies
Division of MFS Network Technologies, Inc. as of December 31, 1997 (restated
- - see Note 10) and 1996, and the related statements of operations and cash
flows for the years ended December 31, 1997 (restated - see Note 10), 1996
and 1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Network Technologies
Division of MFS Network Technologies, Inc. as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years ended December
31, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
June 16, 1998 (except with
respect to the matter discussed
in Note 10, as to which the
date is June 7, 2000)
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NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
BALANCE SHEETS--JULY 2, 1998, DECEMBER 31, 1997 AND 1996
RESTATED
--------------------------------
JULY 2, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(UNAUDITED) (AUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,902 $ -- $ 300,000
Accounts receivable-
Affiliated entities 19,829,355 40,649,818 10,698,656
Third party 38,948,038 20,194,721 23,159,965
Costs and earnings in excess of billings on
uncompleted contracts-
Affiliated entities 11,893,461 19,068,875 9,535,530
Third party 75,456,486 119,018,440 85,008,166
Other current assets 523,736 2,898,233 395,394
------------ ------------ ------------
Total current assets 146,656,978 201,830,087 129,097,711
PROPERTY AND EQUIPMENT, net 5,727,302 6,133,214 4,654,412
NETWORK ASSETS HELD FOR SALE 28,044,000 21,110,000 --
RESTRICTED ASSETS 347,481 746,245 984,869
OTHER NONCURRENT ASSETS, net 128,850 380,257 341,244
------------ ------------ ------------
Total assets $180,904,611 $230,199,803 $135,078,236
============ ============ ============
LIABILITIES, CONTRIBUTIONS AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 13,732,569 $ 25,259,641 $ 15,304,269
Accrued costs and billings in excess of revenue
on uncompleted contracts-
Affiliated entities 8,041,172 12,360,457 4,426,092
Third party 48,537,638 42,545,113 39,825,275
Reserves for losses on uncompleted contracts 39,900,000 12,610,000 --
Accrued compensation 1,464,551 836,131 598,405
Other current liabilities 600,118 647,146 68,530
------------ ------------ ------------
Total current liabilities 112,276,048 94,258,488 60,222,571
PROPERTY TAXES PAYABLE 22,000,000 18,390,000 --
ADVANCES FROM MFS NETWORK TECHNOLOGIES, INC. 119,388,930 142,967,895 76,648,131
COMMITMENTS AND CONTINGENCIES (Note 7)
CONTRIBUTIONS AND ACCUMULATED DEFICIT:
Contributions from MFS Network
Technologies, Inc. 11,755,694 11,755,694 11,755,694
Accumulated deficit (84,516,061) (37,172,274) (13,548,160)
------------ ------------ ------------
Total contributions and accumulated
deficit (72,760,367) (25,416,580) (1,792,466)
------------ ------------ ------------
Total liabilities, contributions and
accumulated deficit $180,904,611 $230,199,803 $135,078,236
============ ============ ============
The accompanying notes are an integral part of these balance sheets.
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NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
SIX-MONTHS
ENDED YEARS ENDED
----------------------------- DECEMBER 31,
RESTATED --------------------------------------------
JULY 2, JUNE 30, RESTATED
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
REVENUE:
Affiliated entities $ 36,703,005 $ 34,077,636 $100,901,819 $ 56,237,902 $112,692,674
Third party 63,826,308 108,011,172 264,015,450 165,867,327 61,145,581
------------ ------------ ------------ ------------ ------------
Total revenue 100,529,313 142,088,808 364,917,269 222,105,229 173,838,255
COST OF REVENUES 136,075,030 136,294,198 363,452,515 206,225,389 155,826,296
------------ ------------ ------------ ------------ ------------
(35,545,717) 5,794,610 1,464,754 15,879,840 18,011,959
OPERATING EXPENSES 11,813,772 14,830,436 25,066,129 23,754,195 22,806,053
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (47,359,489) (9,035,826) (23,601,375) (7,874,355) (4,794,094)
OTHER INCOME (EXPENSE), net 15,701 (10,706) (22,739) (101,630) 231,355
------------ ------------ ------------ ------------ ------------
NET LOSS $(47,343,788) $ (9,046,532) $(23,624,114) $ (7,975,985) $ (4,562,739)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements.
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NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
SIX-MONTHS
ENDED YEARS ENDED
------------------------------ DECEMBER 31,
RESTATED ---------------------------------------------
JULY 2, JUNE 30, RESTATED
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(47,343,788) $ (9,046,532) $(23,624,114) $ (7,975,985) $ (4,562,739)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities-
Depreciation and amortization 1,358,000 1,342,345 2,684,691 1,869,993 1,628,908
Reserves for losses on uncompleted
contracts 27,290,000 -- 12,610,000 -- --
Increase in property tax payable 3,610,000 -- 18,390,000 -- --
Changes in assets and liabilities-
Accounts receivable and other
assets 4,693,050 (2,546,525) (29,488,757) (4,522,767) (10,046,771)
Accounts payable and other
liabilities (11,527,072) 798,920 10,771,714 4,939,109 5,246,045
Costs and earnings in excess
of billings on uncompleted
contracts 50,737,368 (16,712,465) (43,543,619) (35,611,529) (18,594,198)
Accrued costs and billings
in excess of revenue on
uncompleted contracts 1,673,240 9,702,293 10,654,203 21,885,223 (3,201,681)
Construction of network assets
held for sale (6,934,000) -- (21,110,000) -- --
Restricted assets 398,764 238,624 238,624 (280,191) (207,332)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 23,955,562 (16,223,340) (62,417,258) (19,696,147) (29,737,768)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of network and equipment (952,000) (2,492,812) (4,163,493) (2,068,478) (2,192,752)
Additions to deferred costs and other 581,392 100,162 (39,013) (11,764) 13,236
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (370,696) (2,392,650) (4,202,506) (2,080,242) (2,179,516)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (repayments) from MFS Network
Technologies, Inc. (23,578,964) 18,494,835 66,319,764 22,076,389 31,894,895
------------ ------------ ------------ ------------ ------------
Net cash from provided by (used in)
financing activities (23,578,964) 18,494,835 66,319,764 22,076,389 31,894,895
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,902 (121,155) (300,000) 300,000 (22,389)
CASH AND CASH EQUIVALENTS, beginning
of period -- 300,000 300,000 -- 22,389
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 5,902 $ 178,845 $ -- $ 300,000 $ --
============ ============ ============ ============ ============
The accompanying notes are an integral part of these statements.
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NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION:
The financial statements include the accounts of the following entities:
Network Technologies Division of MFS Network Technologies, Inc. (NT)
MFS Transportation Systems, Inc. (TSI)
MFS TransTech, Inc. (TT)
MFS Network Technologies of the District of Columbia, Inc. (DC)
Collectively, these entities are known as the Division. NT, TSI and DC are
wholly owned by MFS Network Technologies, Inc. (MFSNT). TSI owns 85 percent of
TT. The basis of the 15% minority interest has been reduced to zero due to TT's
significant losses for the periods ended July 2, 1998, June 30, 1997, December
31, 1997, 1996 and 1995. As of January 1, 1995, MFSNT was a wholly owned
subsidiary of MFS Communications Company, Inc. (MFSCC). During 1995, MFSCC
completed a restructuring in which it contributed its subsidiaries to MFSNT.
This transaction has been accounted for at historical cost in a manner similar
to the pooling of interest method. During 1996, MFSCC became a wholly owned
subsidiary of WorldCom, Inc. (WorldCom). All significant accounts and
transactions by and between the entities included in the Division have been
eliminated.
The Division operates as a systems integrator and project developer for
large-scale, facilities-based communications networks and Intelligent
Transportation Systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING FOR CONSTRUCTION CONTRACTS
The Division uses the percentage of completion method of accounting to account
for revenues and costs, measured by the percentage of budget completed to date
to the total budget. Provision is made for the entire amount of future estimated
determinable losses on contracts in progress; claims for additional contract
compensation, however, are not reflected in the accounts until the year in which
such claims are allowed. Revisions in cost and profit estimates
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during the course of the work are reflected in the accounting period in which
the facts which require the revision become known. It is possible that cost and
profit estimates will be revised in the near term.
In accordance with industry practice, amounts realizable and payable under
contracts which may extend beyond one year are included in current assets and
liabilities.
Substantially all of the Division's revenue from affiliates is from cost
reimbursable contracts. Revenues from those contracts are recognized on the
basis of costs incurred during the period, plus the overhead fee earned.
The Division has entered into two related agreements with a significant
customer. One contract relates to construction services and the other contract
relates to materials purchasing whereby the Division purchases certain materials
for the customer and passes those through at cost. The materials contract was
entered into in conjunction with the construction contract, therefore, the costs
associated with materials are shown as contract costs and revenue is recognized
to the extent of those costs. The revenues and related costs were $36.1 million,
$40.0 million, $57.3 million, $0 for the periods ended June 30, 1997, December
31, 1997, 1996 and 1995, respectively. These amounts are included in the
accompanying financial statements as construction revenues and cost of revenues.
Credit risk is minimal with public (government) owners since the Division
ascertains that funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public contracts are subject
to termination at the election of the government. However, in the event of
termination, the Division is entitled to receive the contract price on completed
work and reimbursement of costs, plus a reasonable profit, on uncompleted work.
Credit risk with private owners is minimized because of statutory mechanics
liens, which give the Division high priority in the event of lien foreclosures
following financial difficulties of private owners.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation on leasehold improvements is
provided by the straight-line method over estimated useful lives ranging from 10
to 31.5 years, and depreciation on all other fixed assets is provided on
accelerated methods over the estimated useful lives of the respective assets
ranging from 3 to 8 years. Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts, and
any gain or loss is recognized.
INCOME TAXES
The Division is included in the combined income tax returns of WorldCom for the
years ended December 31, 1997 and 1996, and in the combined income tax return of
MFSCC for the year ended December 31, 1995. There is no tax sharing agreement
between the Division and WorldCom or MFSCC, respectively; therefore,
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the Division calculates its tax provision on a separate-entity basis. The
accompanying financial statements do not reflect a tax benefit since it is more
likely than not that the deferred tax asset will not be realized.
RESTRICTED ASSETS
Restricted assets consist of government securities held for owners in lieu of
retainage. These government securities are carried at cost which approximates
fair market value.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Division considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
3. ACCOUNTS RECEIVABLE:
Accounts receivable includes retainage which has been billed but is not due
until after the services are rendered and accepted by the customer. Retainage
totaled $4.5 million, $5.0 million and $2.8 million at July 2, 1998, December
31, 1997 and 1996, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
December 31,
-------------------------
JULY 2, 1998 1997 1996
------------ ----------- -----------
Furniture, fixtures and office equipment $ 6,817,519 $ 6,059,631 $ 4,336,901
Vehicles 4,556,658 4,436,769 2,821,138
Leasehold improvements 1,066,251 1,042,972 1,056,620
Testing and construction equipment 865,062 754,992 829,013
Other 517,768 723,068 423,261
----------- ----------- -----------
13,823,258 13,017,432 9,466,933
Less- Accumulated depreciation (8,095,956) (6,884,218) (4,812,521)
----------- ----------- -----------
$ 5,727,302 $ 6,133,214 $ 4,654,412
=========== =========== ===========
5. LEASES:
The Division is leasing premises under various noncancellable operating leases
which, in addition to rental payments, require payments for insurance,
maintenance, property taxes and other executory costs related to the leases.
Certain leases provide for adjustments in lease cost based upon adjustments in
the Consumer Price Index and increases in the landlord's management costs. The
lease agreements have various expiration dates and renewal options through 2003.
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Future minimum payments by year and in the aggregate, under the noncancellable
operating leases with initial or remaining terms of one year or more consisted
of the following at July 2, 1998 and December 31, 1997:
JULY 2, 1998 DECEMBER 31, 1997
------------ -----------------
1998 $ 798,822 $1,714,000
1999 1,259,651 1,176,000
2000 503,836 504,000
2001 436,000 436,000
2002 436,000 436,000
Thereafter 109,000 109,000
Rent expense related to noncancellable operating leases for the periods ended
July 2, 1998, June 30, 1997, December 31, 1997, 1996 and 1995, respectively, was
approximately $860,800, $896,700, $1,800,000, $1,429,700 and $862,000.
6. RELATED-PARTY TRANSACTIONS:
Employees of the Division are eligible to participate in the WorldCom employee
benefit plans.
WorldCom manages and performs the treasury functions for the Division.
WorldCom's intention is to support the Division until such time that the
Division can generate sufficient cash flows to fund its operations.
7. COMMITMENT AND CONTINGENCIES:
The Division is subject to a number of lawsuits and claims for various amounts
which arise out of the normal course of its business. In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Division's financial position or results of operations.
The Division has an agreement with the minority stockholders of TT, under which
the Division obtains permanent exclusive and permanent nonexclusive licenses for
certain toll system patents for an aggregate license fee of $6,000,000 to be
paid in installments through February 1999. At July 2, 1998 and December 31,
1997, the remaining installment payments totalled $333,000 and $1,083,000,
respectively. The Division paid approximately $750,000, $1,417,000, $1,000,000
and $1,000,000 under this agreement during the periods ended July 2, 1998,
December 31, 1997, 1996 and 1995, respectively.
8. SIGNIFICANT CUSTOMERS:
A significant portion of the Company's business, excluding affiliated entities,
was derived from three major customers in 1997, two major customers in 1996 and
two major customers in 1995. Revenues from these customers totaled approximately
$224.6 million, $89.6 million and $39.4 million, or 61%, 40% and 23% of revenues
in years ended December 31, 1997, 1996 and 1995, respectively.
9. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Division incurred and recognized during the
period ended July 2, 1998, approximately $25 million of losses on four contracts
that were in process as of year-end. Division management represented that these
losses were not anticipated at December 31, 1997, and related to matters and
events occurring subsequent thereto. As a result, the losses were not reflected
in the 1997 financial statements prepared by the Division.
In July 1998, Able Telcom Holding Corp. (Able) executed an agreement with
WorldCom to acquire the Division for the net book value of the Division at
March 31, 1998, as defined in the agreement, plus $10 million. Able subsequently
negotiated a significant reduction in the purchase price. The accompanying
financial statements of the Division for both the year ended December 31, 1997,
and the period ended July 2, 1998, have been restated by Able to reflect the
adjustments described in Note 10 which, in the opinion of Able's management,
are necessary to have those financial statements be in accordance with generally
accepted accounting principles.
10. RESTATEMENT OF FINANCIAL STATEMENTS:
Able closed the acquisition of the Division on July 2, 1998, with the
stipulation that it could continue its due diligence assessment and could reopen
negotiation of the purchase price. In September 1998, the cash and notes portion
of the purchase price was reduced from the previously estimated amount of $101.4
million to $58.8 million. The adjusted price paid, including consideration
delivered to the seller in the form of Able equity instruments valued at $4.1
million, was approximately $24.9 million less than the net assets reflected on
the Division's July 2, 1998, unaudited balance sheet.
On November 10, 1999, Able met with the Staff of the Securities and Exchange
Commission. One of the issues discussed with the Staff was the need to restate
the pre-acquisition financial statements of the Division. These financial
statements had been prepared by the predecessor owner. The Staff informed Able
that it had a responsibility to restate the financial statements, if necessary,
to be in accordance with what Able believed represented generally accepted
accounting principles. The potential restatement involved the preacquisition
audited financial statements of the Division for the year ended December 31,
1997, and the unaudited financial statements for the period from January 1, 1998
through July 2, 1998.
As part of the preparation and audit of the October 31, 1999 financial
statements of Able, Able initiated a review of the preacquisition financial
statements of the Division. Management of Able has determined that certain
adjustments to the preacquisition financial statements of the Division for
the year ended December 31, 1997 and the period from January 1, 1998 through
July 2, 1998 are appropriate. The adjustments prepared by Able and reflected in
the accompanying restated financial statements of the Division are described in
more detail below. The adjustments include the correction of accounting errors
discovered during the 1999 audit process and amounts identified in Able's review
of the preacquisition financial statements of the Division and are based on
facts and circumstances that existed at the time those financial statements
were prepared.
The effects of the restatements on the previously filed financial statements of
the Division included in prior Able filings is shown below (in thousands):
12/31/97 7/2/98
-------- --------
Net loss - as previously reported $ (8,317) $(21,515)
Record additional "reserves for losses on
uncompleted contracts"(1) -- (28,200)
Record loss accruals in 1997(2) (5,293) 5,293
Record subcontractors' claims accrual in 1997(3) (4,306) 4,306
Adjust receivables for discounted amount and based
on percent complete(4) (4,417) (560)
Record legal costs in period incurred(5) (1,000) (400)
Record write-down of conduit network assets held
for sale(6) -- (6,559)
Record adjustments related to the NYSTA contract(7) (291) 291
-------- --------
Net loss - as adjusted $(23,624) $(47,344)
(1) Able has restated loss reserves on the Division's July 2, 1998, unaudited
balance sheet to equal the finalized amount of the loss reserves recognized
by Able in purchase accounting and confirmed by post acquisition activity in
completing loss jobs.
(2) Able reviewed evidence that two electronic toll collection jobs were
forecast to generate losses on completion of as much $13.1 million and
$5.3 million, respectively, as of December 31, 1997. However, through
December 31, 1997, losses recognized were only approximately $13.2 million
for the two jobs. Additional losses were not accrued, apparently because
the Division believed the losses would be mitigated through change orders,
claims and additional revenues generated through those jobs. Those potential
additional revenues were not realized. The guidance for consideration of
unpriced change-orders and contractor claims is provided in paragraphs 62
and 65 of SOP 81-1. Able has restated the loss reserves to accrue for those
unrecognized losses at December 31, 1997. It is Able's policy to not
consider additional revenues that might result from change-orders or claims
until the change-order is approved and signed.
(3) The claims relate to work performed by subcontractors to the Division on
certain jobs. Most of the work performed by these subcontractors occurred
in 1997. These claims were filed in 1997 or prior to July 2, 1998. Because
these claims relate to work performed in 1997 and the claims originated in
1997, Able has restated the Division's financial statements to accrue, at
December 31, 1997, the amounts that such claims have been, or are expected
to be settled.
(4) Able determined that the Division had included in unbilled receivables
(costs and profits in excess of billings) the gross amount of future user
fees to be received over twenty years from two users of the NYSTA network
(see Note 8 to the financial statements included in the Able's 1999 Form
10-K). The fees are payable in installments and should have been recorded
at their discounted present value. Consequently, Able recorded an
adjustment to reallocate the purchase price to recognize a discount on
these long-term receivables. The discounted (at 10%) present value of these
long-term receivables was approximately $3.8 million at October 31, 1999.
Able believes this was an accounting error as reflected in the financial
statements of the Division as of and for the year ended December 31, 1997.
Therefore, Able has restated the financial statements of the Division to
reflect the correction of this error at December 31, 1997.
(5) Able has also restated its own operating results for the first three
quarters of fiscal 1999 (see Note 22 to the financial statements included in
Able's 1999 Form 10-K). The restatement included adjustments for costs to
operate the New Jersey Consortium Violation Processing Center that were
determined to have been improperly deferred. It was determined that
approximately $1.4 million of those costs were incurred before the
acquisition of the Division and should have been expensed in the pre-
acquisition financial statements of the Division. The $1.4 million was for
legal fees and other pre-contract costs related to the award of the contract
to the Division. Able has restated the financial statements of the Division
to expense these costs when incurred in 1997 or early 1998.
(6) The financial statements prepared by the Division reflected NYSTA conduit
network constructed by the Division and held for sale at approximately
$34.6 million. This adjustment reduces the carrying value of that asset to
the approximate net amount realized by Able on its subsequent sale.
(7) This amount is the net effect of adjustments related to the NYSTA contract
to more appropriately value, as of December 31, 1997, the conduit network
held for sale, the related accrual for property taxes, and the reserve for
loss on that contract.
The following entries summarize the effects of the above restatement adjustments
on the previously reported balance sheets of the Division as of December 31,
1997, and July 2, 1998:
December 31, 1997
- -----------------
Network assets $21,110
Accumulated deficit 15,307
Reserves for Losses on Uncompleted Contracts 12,610
Property taxes payable 18,390
Costs and earnings in excess of billings on uncompleted contracts 5,417
July 2, 1998 (unaudited)
- ------------------------
Network assets $28,044
Accumulated deficit 41,136
Reserves for Losses on Uncompleted Contracts 39,900
Property taxes payable 22,000
Costs and earnings in excess of billings on uncompleted contracts 7,280
15
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1998
7/31/98
ABLE 3/31/98 -5 MOS
HISTORICAL PATTON PRO FORMA
(RESTATED) HISTORICAL ADJUSTMENTS SUB TOTAL
---------- ---------- ----------- ---------
Revenues $ 115,125 $ 9,339 -- $ 124,464
Costs of revenues 90,222 8,825 -- 99,047
General and administrative 14,703 889 -- 15,592
Depreciation and amortization 4,865 501 12 (A) 5,378
---------- ---------- ----------- ---------
Total costs and expenses 109,790 10,215 12 120,017
---------- ---------- ----------- ---------
Income (loss) from operations 5,335 (876) (12) 4,447
Other (income) expense, net:
Interest expense 2,092 574 (57)(B) 2,609
Interest and dividend income -- -- -- --
Other (income) expense 1,046 (366) 78 (C) 758
---------- ---------- ----------- ---------
Total other (income) expense, net 3,138 208 21 3,367
Minority interest 610 -- -- 610
---------- ---------- ----------- ---------
Income (loss) before income taxes 1,587 (1,084) (33) 470
Income tax expense (benefit) 857 (142) (13)(D) 702
---------- ---------- ----------- ---------
Net income (loss) 730 (942) (20) (232)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 8,158 -- -- 8,158
---------- ---------- ----------- ---------
Net income (loss) applicable to common stock $ (7,428) $ (942) $ (20) $ (8,390)
========== ========== =========== =========
Earnings per common share - basic $ (0.77)
Earnings per common share - diluted $ (0.77)
Basic weighted average shares 9,660,921
Diluted weighted average shares 9,660,921
11/1/97-
6/30/98
MFSNT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMPANY
(RESTATED) (RESTATED) (RESTATED)
---------- ----------- ----------
Revenues $162,085 -- $ 286,549
Costs of revenues 193,010 -- 292,057
General and administrative 11,939 -- 27,531
Depreciation and amortization 2,146 $ 877 (F) 8,401
---------- ----------- -----------
Total Costs and Expenses 207,095 877 327,989
---------- ----------- -----------
Income (loss) from operations (45,010) (877) (41,440)
Other (income) expense, net:
Interest expense -- 3,421 (E) 6,030
Interest and dividend income (15) -- (15)
Other (income) expense 6 -- 764
---------- ----------- -----------
Total other (income) expense, net (9) 3,421 6,779
Minority interest -- -- 610
---------- ----------- -----------
Income (loss) before income taxes (45,001) (4,298) (48,829)
Income tax expense (benefit) -- (702)(G) --
---------- ----------- -----------
Net income (loss) (45,001) (3,596) (48,829)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock -- 533 (E) 8,691
---------- ----------- -----------
Net income (loss) applicable to common stock $ (45,001) $ (4,129) $ (57,520)
========== =========== ===========
Earnings per common share - basic $ (5.95)
Earnings per common share - diluted $ (5.95)
Basic weighted average shares 9,660,921
Diluted weighted average shares 9,660,921
16
NOTES:
(A)
Incremental depreciation of $12,000 attributable to property, plant and
equipment acquired from Patton and recorded at fair value.
(B)
Elimination of the amortization of debt discount of $57,000 for Patton related
to debt repaid by Able.
(C)
Elimination of $78,000 in amortization of deferred financing costs related to
debt repaid by Able, offset by the amortization of goodwill related to the
acquisition of Patton.
(D)
Income tax benefit of $13,000 resulting from pro forma adjustments A, B, and C
based on a rate of 38%.
(E)
Assumes the Company financed the cash purchase price of MFSNT of $63.4 million
($67.5 million less equity valued at $4.1 million) in the following ways (in
thousands):
Net Proceeds
________________________________________________________________________________
Series B Preferred Stock (1) $18,110
WorldCom Note (2) 30,000
Secured Credit Facility (3) 15,290
________________________________________________________________________________
$63,400
________________________________________________________________________________
(1) Assumes the $20.0 million Series B Preferred Stock was issued for net
proceeds of $18.1 million on November 1, 1996, resulting in pro forma
adjustments thru July 2, 1998, for dividends at 4 percent or $533,000.
A beneficial conversion charge of $7.9 million related to the issuance
of the Series B Preferred Stock was recognized at the date of issue and
is reflected in the historical financial statements of the Company for
the nine months ended July 2, 1998.
(2) Assumes the 11.5 percent $30.0 million WorldCom Note was issued for net
proceeds of $30.0 million on November 1, 1997, resulting in a pro forma
adjustment for the period from January 1, 1998 to July 2, 1998, to
interest expense of $2.3 million.
(3) Assumes the remainder of the cash purchase price of $15.3 million was
financed through the Company's Secured Credit Facility with a stated
interest rate of 9.5 percent and an estimated effective interest rate
of 11.0 percent, resulting in a pro forma adjustment for the period
from January 1, 1998 to July 2, 1998, to interest expense of $1.1
million.
(F)
The MFSNT goodwill of $26.3 million is being amortized over 20-years resulting
in annual amortization expense of $1.3 million. The pro forma adjustment for
the period from January 1, 1998 to July 2, 1998 is approximately $0.9 million.
(G)
As a result of significant pro forma losses, a pro forma adjustment is necessary
to eliminate income tax expense.
17
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
10/31/97 10/31/97
ABLE PATTON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
---------- ---------- -----------
Revenues $ 86,334 $30,456 --
Costs of revenues 68,181 26,375 --
General and administrative 8,781 2,415 --
Depreciation and amortization 4,532 1,246 63 (K)
---------- ---------- -----------
Total Costs and Expenses 81,494 30,036 63
---------- ---------- -----------
Income (loss) from operations 4,840 420 (63)
Other expenses (income):
Interest expense 1,565 775 (129) (L)
Interest and dividend income (449) -- --
Other (income) expense (153) (172) 187 (M)
---------- ---------- -----------
Total other expense, net 963 603 58
Minority interest 292 6 --
---------- ---------- -----------
Income (loss) before income taxes 3,585 (189) (121)
Income tax expense (benefit) 727 135 (46) (N)
---------- ---------- -----------
Net income (loss) 2,858 (324) (75)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 1,526 -- --
---------- ---------- -----------
Net income (loss) applicable to common stock $ 1,332 $ (324) $ (75)
========== ========== ===========
Earnings per common share - basic $ 0.16
Earnings per common share - diluted $ 0.16
Basic weighted average shares 8,504,972
Diluted weighted average shares 8,504,972
12/31/97
MFSNT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMPANY
SUB TOTAL (RESTATED) (RESTATED) (RESTATED)
--------- ---------- ----------- ----------
Revenues $ 116,790 $364,917 -- $ 481,707
Costs of revenues 94,556 363,452 -- 458,008
General and administrative 11,196 22,381 -- 33,577
Depreciation and amortization 5,841 2,685 1,315 (P) 9,841
--------- -------- ----------- ---------
Total Costs and Expenses 111,593 388,518 1,315 501,426
--------- -------- ----------- ---------
Income (loss) from operations 5,197 (23,601) (1,315) (19,719)
Other expenses (income):
Interest expense 2,211 -- 5,132 (O) 7,343
Interest and dividend income (449) -- -- (449)
Other (income) expense (138) 23 -- (115)
--------- -------- ----------- ---------
Total other expense, net 1,624 23 5,132 6,779
Minority interest 298 -- -- 298
--------- -------- ----------- ---------
Income (loss) before income taxes 3,275 (23,624) (6,447) (26,796)
Income tax expense (benefit) 816 -- (816) (Q) --
--------- -------- ----------- ---------
Net income (loss) 2,459 (23,624) (5,631) (26,796)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 1,526 -- 8,709 (O) 10,235
--------- -------- ----------- ---------
Net income (loss) applicable to common stock $ 933 $(23,624) $ (14,340) $ (37,031)
========= ======== =========== =========
Earnings per common share - basic $ (4.35)
Earnings per common share - diluted $ (4.35)
Basic weighted average shares 8,504,972
Diluted weighted average shares 8,504,972
18
NOTES:
(K)
Incremental depreciation of $63,000 attributable to recording property, plant
and equipment acquired from Patton and recorded at fair value.
(L)
Elimination of the amortization of debt discount of $129,000 for Patton that
related to debt repaid by Able.
(M)
Elimination of $187,000 in amortization of deferred financing costs related to
debt repaid by Able, offset by the amortization of goodwill related to the
acquisition of Patton.
(N)
Income tax benefit of $46,000 resulting from proforma adjustments K, L, and M
based on a rate of 38%.
(O)
Assumes the Company financed the cash purchase price of MFSNT of $63.4
million ($67.5 million less equity valued at $4.1 million) in the following ways
(in thousands):
Net Proceeds
- -------------------------------------------------------------------------------
Series B Preferred Stock (1) $18,110
WorldCom Note (2) 30,000
Secured Credit Facility (3) 15,290
- -------------------------------------------------------------------------------
$63,400
- -------------------------------------------------------------------------------
(1) Assumes the $20.0 million Series B Preferred Stock was issued for net
proceeds of $18.1 million on November 1, 1996, resulting in pro forma
adjustments during fiscal year 1997 for dividends at 4 percent or
$800,000 and a beneficial conversion charge of $7.9 million recognized at
the date of issue.
(2) Assumes the 11.5 percent $30.0 million WorldCom Note was issued for net
proceeds of $30.0 million on November 1, 1996, resulting in a pro forma
adjustment during fiscal year 1997 to interest expense of $3.5 million.
(3) Assumes the remainder of the cash purchase price of $15.3 million was
financed through the Company's Secured Credit Facility with a stated
interest rate of 9.5 percent and an estimated effective interest rate of
11.0 percent, resulting in a pro forma adjustment during fiscal year 1997
to interest expense of $1.7 million.
(P)
The MFSNT goodwill of $26.3 million is being amortized over 20-years resulting
in annual amortization expense of $1.3 million.
(Q)
As a result of significant pro forma losses, a pro forma adjustment is necessary
to eliminate income tax expense.
19
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On April 1, 1998, the Company purchased all of the outstanding common stock of
Patton Management Corporation ("Patton") for a total purchase price of
approximately $4.0 million. The acquisition was accounted for using the
purchase method of accounting. Goodwill of approximately $4.3 million (as
adjusted) was recorded and is being amortized on a straight-line basis over 20
years. The results of operations of Patton have been included in the Company's
consolidated statements of operations since the date of acquisition.
On July 2, 1998, the Company acquired the Network Technologies Division of MFS
Network Technologies, Inc. ("MFSNT") from a subsidiary of WorldCom, Inc. The
acquisition was accounted for as a purchase and the operations of MFSNT have
been included in the consolidated financial statements of the Company
prospectively from the date of acquisition.
As described in Item 2. of this Form 8-K/A-3, the purchase price for MFSNT
included the following consideration (in millions):
Contract price $58.8
Transaction related costs 4.6
WorldCom Option 3.5
WorldCom Phantom Stock Awards 0.6
- -----------------------------------------------------------------------------
Total purchase prices $67.5
- -----------------------------------------------------------------------------
The Company's consolidated balance sheet as of October 31, 1998, reflected the
preliminary allocation of the purchase price to the assets acquired and the
liabilities assumed based on initial estimates of their fair values. During the
year ended October 31, 1999, (see Note 5 to the financial statements included in
Able's 1999 Form 10-K) the Company obtained the information needed to complete
its valuation and finalized the allocation as set forth below (in millions):
As
Previously Final
Reported Adjustments Allocation
---------- ----------- ----------
Accounts receivable $47.0 $(1.4) $45.6
Costs and profits in excess of billings on
uncompleted contracts 93.7 (5.0) 88.7
Assets held for sale 38.8 -- 38.8
Prepaid expenses 1.0 -- 1.0
Property 5.7 -- 5.7
Goodwill 16.5 9.8 26.3
Accounts payable (13.7) (0.5) (14.2)
Billings in excess of costs on uncompleted
contracts and accrued job costs incurred (56.6) -- (56.6)
Reserves for losses on uncompleted
contracts (40.5) 0.6 (39.9)
Accrued restructuring costs (2.0) 0.3 (1.7)
Property taxes payable (15.0) -- (15.0)
Other accrued liabilities (7.4) (3.8) (11.2)
- -------------------------------------------------------------------------------
Total allocated purchase price $ 67.5 $ -- $ 67.5
- -------------------------------------------------------------------------------
The accompanying restated pro forma combined statements of operations include
pro forma adjustments that are based on the final allocation of the MFSNT
purchase price.
The accompanying restated pro forma combined statements of operations have been
prepared assuming the purchase of MFSNT and Patton occurred as of November 1,
1996. As described in footnote 10 to the restated historical financial
statements of MFSNT included in this Form 8-K/A-3, those financial statements
have been restated by the Company. The related amounts for MFSNT included in
the pro forma combined financial statements included herein have likewise been
restated as indicated below:
Eight-Months Ended Year Ended
6/30/98 MFSNT Historical 12/31/97 MFSNT Historical
----------------------------------- -----------------------------------
Previously Previously
reported Adjustments Adjusted reported Adjustments Adjusted
---------- ----------- -------- ---------- ----------- --------
Revenues 162,645 (560) 162,085 369,334 (4,417) 364,917
Costs of Revenues 168,141 24,869 193,010 353,562 9,890 363,452
General and Administrative 11,539 400 11,939 21,381 1,000 22,381
Depreciation and amortization 2,146 0 2,146 2,685 0 2,685
---------- ----------- -------- ---------- ----------- --------
Total Costs and Expenses 181,826 25,269 207,095 377,628 10,890 388,518
---------- ----------- -------- ---------- ----------- --------
Income (loss) from operations (19,181) (25,829) (45,010) (8,294) (15,307) (23,601)
Other (income) expense, net
Interest Expense -- 0 -- -- 0 --
Interest and dividend income (15) 0 (15) -- 0 --
Other (income) expense 6 0 6 23 0 23
---------- ----------- -------- ---------- ----------- --------
Total other (income) expense, net (9) 0 (9) 23 0 23
Minority interest -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Income (loss) before income taxes (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
Income tax expense (benefit) -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Net income (loss) (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Net income (loss) applicable to common stock (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
---------- ----------- -------- ---------- ----------- --------