DEATHWATCH:Able/MFS Admit Broke, MCI-WorldCom Sued

Sirit, the major west coast supplier of electronic toll equipment, has an April trial date against Able, but with the future of that company in doubt, Sirit has lodged a similar set of claims against MCIWC and against Rick Weidinger, one of its then principals in the MCIWC-Able sale of MFS. Weidinger is no longer with MCIWC, apparently fired by the telecom giant for the MFS ‘sale’ fiasco.

Meanwhile the SEC continues an investigation of Able’s accounts, reports and other corporate behaviors.

On Feb 14 Able said that its auditors Arthur Andersen report “uncertainties regarding the company’s ability to continue as a going concern.” It continues to make substantial losses, has borrowed to the maximum allowable under its existing senior credit facility, and is in default of related covenants.

The auditors said of Able: “The lender has the right to demand payment and the company (Able) has insufficient liquidity to pay such amounts, if called. The company has not yet been successful in obtaining alternative financing and my have insufficient liquidity to fund its continuing operations. Consequently, there is substantial doubt about the company’s ability to continue as a going concern.”

Able however disagrees with its auditors!

Able president Billy Ray said in a conference call with analysts that the “going concern” notice simply reflects the fact that Able has not finalized a new financing regarding a “new revolver” – a reference apparently not to a gun for the CEO to shoot himself with, but to a new revolving line of credit. This is intended to retire the company’s existing debt and provide more capital for operations.

Ray said: “the Company believes that we will be successful in completing the financing transaction shortly and, while we have to address the concerns raised by the inclusion of the going concern paragraph in our financial statement opinion, we believe that the Company will be successful in bringing this situation to a conclusion shortly.”

The Able exec said that the company had $15m in cash on hand and was continuing operations.

Bottomless, Topless, Soon Unclothed

He said this about the financing problem: “Since the acquisition of MFSNT in July of 1998 we have operated a $400m company on a fully drawn $35m line of credit. The issues that arose from the acquisition, such as the litigation, SEC review, bottomless characteristics of the Series B stock, change in management, change in attorneys and auditors, and the fact that the operating units of MFSNT started from a zero cash balance position have made the attempts to refinance our existing line difficult.

Tolling work within MFS in the year to 9/30/99 grossed $39.8m for losses of $10.7m, the company reported, and the overall group lost $36.8m on revenues of $418m.

Vance Cartee head of transp services is quoted: ‘We continue to meet our contractual milestones under our major contracts, New Jersey Consortium, ATCAS (Caltrans Bay area bridges) and E470 (Denver). Since recently receiving conditional phase I acceptance from ATCAS, we are aggressively pursuing phase II completion and additional work beyond the scope of the original contract. We are very optimistic that we will receive final E470 acceptance in the very near future.”

Contractual milestones, being met?

ATCAS was supposed to operational at Carquinez bridge by mid-96 and at the other bridges in the Bay area a year later. A Caltrans spokesman told us he does not know what is meant by a “conditional phase 1 acceptance” and that the only new development with MFS is an agreement that it proceed to install physical plant at bridges in anticipation of getting the electronic toll system on the Carquinez bridge working: “We are going to need this stuff regardless of what kind of an electronic toll system goes in.”

He says there has been no acceptance of the system on the Carquinez bridge: “They are still working at it. Our bottom line is that the toll system must do four things: correctly identify the vehicle, assess the proper toll, collect the toll, and account for all the traffic and the money. It cannot do those things yet, but we are confident they will get there.”

In Denver E-470 officials say they would like to reach a settlement with prime contractor Platte River Constructors over sub MFS’s failure to deliver a fully operational electronic toll system as specified in the contract. The violations processing system has never worked, they said, and for many of the other deficiencies, they have done ‘work-arounds’ with the help of the toll operations contractor, a PB sub. There are many other smaller items to be fixed. They say almost no MFS personnel are around and over the past year they have had to be relentlessly hunted down to do required work. Even the smallest jobs take months, they complain.

Cardboard Cameras

In New Jersey officials say cheap cameras supplied by MFS do not seem up to generating the required proportion of license plate reads of violators, and that the company apparently does not have the credit standing to do business with higher quality camera suppliers. Violations processing at the Secaucus NJ center is operating with a handful of daytime employees, so small is the flow of pictures. An official said that it is intended when fully functioning to have some tens of employees working shifts, including weekends.

In Richmond VA at the Metropolitan Auth (RMA) toll road there is still a long punch list of items to be resolved by MFS, mostly at the back office end. RMA says they are some time away still from doing system acceptance tests. Again they say the front end is doing well – although there was an embarrassment at a two toll lane ramp plaza where an electrician had switched a pair of wires and a vehicle in one lane garnering a valid read generated a green light for the adjacent lane, and the other way around! Major work remaining is to have the toll management system generate the reports specified.

The SEC investigation, Able says, relates to “certain accounting and other disclosures” made by the company in acquiring MFS. Previous 10-K or annual reports may have to be further amended. Following SEC questioning of its handling of losses on service contracts it revised three quarters of results. Other disagreements with the SEC are about financial treatment of claims against an Alaskan company Kanas, another losing operation.

Able said it has not been able to have any annual meeting, as legally required, because of the SEC’s review of its notice for a meeting.

The latest report reveals that Able negotiated a $42m reduction in the purchase price of MFS from MCIWC after the financial close of July 98 in order to compensate it for projected losses on contracts. Able has an ongoing argument with NY State Thruway (NYSTA) over payments due to NYSTA in sharing of revenues of a fiber-optic conduit system installed along the Thruway.

Able/MFS people say that their efforts to find new investors, which have been talked about throughout 1999, were stymied by pending legal claims against the company including a $100m+ case by Sirit due to go to trial April 10. That case has grown more threatening to Able/MFS in the discovery process with former top officers blaming one another for misstatements. Now Sirit has brought MCIWC and Rick Weidinger, its former agent in the MFS sale into the case which alleges a “complex corporate fraud.”

It says that Weidinger, in breach of agreements with Sirit, used Sirit due diligence documents to help Able “steal” MFS from a deal with Sirit which was said to be 98% to 99% complete. Tortious interference, conspiracy, and breaches of covenant of good faith and fair dealing are charged.

Another potentially costly settlement, not mentioned in any of the Able/MFS reporting is with American Traffic Systems, MFS’ original violations systems sub for the huge NJ contract. That potential $20m case is in arbitration.

Adesta

Meanwhile MFS announced Feb 3 it is changing its name to Adesta and that it has a new president, Stacy Jenkins. Jenkins, of whom no bio is given is quoted in the press release: “Over the last 12 years, we developed a reputation at MFSNT for providing innovative, high value solutions meeting our customers’ communications needs and desires. Going forward, we are confident that the Adesta name will be held in similar high regard with our many business partners.”

The new chief says Adesta has been launched “at a very exciting time in the development of our business.” Exciting indeed. (Contact MFS 856 235 5252, Sirit 905 940 4404)