LEXENT INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2003.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-31105

Lexent Inc.

(Exact name of registrant as specified in its charter)


Delaware		13-3990223
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Three New York Plaza New York, New York (Address of principal executive offices)		10004 (Zip Code)

Registrant’s telephone number, including area code:

212-981-0700

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Securities Exchange Act of 1934) Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common Stock, $.001 par value, 42,266,522 shares outstanding as of August 5, 2003.

TABLE OF CONTENTS


TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
	Item 1. Financial Statements
LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
302 CERTIFICATION: CEO
302 CERTIFICATION: COO
906 CERTIFICATION: CEO AND COO

LEXENT INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page No.

PART I.	Financial Information		2
Item 1.	Financial Statements		2
	Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002		2
	Condensed Consolidated Statements of Operations (unaudited) for the Three Months and Six Months Ended June 30, 2003 and June 30, 2002		3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2003 and June 30, 2002		4
	Notes to Condensed Consolidated Financial Statements (unaudited)		5-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		18
Item 4.	Controls and Procedures		18
PART II.	Other Information		19
Item 1.	Legal Proceedings		19
Item 5.	Other Information		19-20
Item 6.	Exhibits and Reports on Form 8-K		21
	Signatures		22
	Certifications		23-25

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


			June 30,			December 31,
			2003			2002

			(Unaudited)

			(Dollars in thousands, except
			per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents		$	39,850		$	28,109
	Certificate of deposit (restricted cash)			2,009			2,012
	Available-for-sale investments			34,973			44,302
	Receivables, net			23,361			28,311
	Prepaid expenses and other current assets			1,800			2,048
	Income taxes receivable			—			14,750

		Total current assets		101,993			119,532
Property and equipment, net				3,515			4,033
Other assets				834			880

		Total assets	$	106,342		$	124,445

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	2,606		$	7,494
	Accrued expenses and other liabilities			7,020			6,229
	Restructure reserve			2,773			4,023
	Billings in excess of costs and estimated earnings on uncompleted projects			2,437			1,837
	Provision for contract losses			1,696			3,472
	Subordinated note payable to stockholder			1,187			1,582
	Equipment and capital lease obligations			137			451

		Total current liabilities		17,856			25,088
Subordinated note payable to stockholder				—			396
Accrued liabilities — noncurrent				900			600
Restructure reserve — noncurrent				5,875			6,566
Equipment and capital lease obligations				14			70

		Total liabilities		24,645			32,720

Commitments and contingencies
Stockholders’ equity:
	Common stock, $.001 par value, 120,000,000 shares authorized, 42,244,959 and 42,168,396 shares outstanding at June 30, 2003 and December 31, 2002, respectively			42			42
	Additional paid-in capital			156,058			156,035
	Deferred stock-based compensation			(957	)		(2,126	)
	Accumulated other comprehensive income			—			105
	Accumulated deficit			(73,446	)		(62,331	)

		Total stockholders’ equity		81,697			91,725

		Total liabilities and stockholders’ equity	$	106,342		$	124,445

See accompanying notes to condensed consolidated financial statements.

LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



			For the Three Months						For the Six Months
			Ended June 30,						Ended June 30,

			2003			2002			2003			2002


			(Unaudited)
			(Dollars in thousands, except per share amounts)
Revenues			$	20,867		$	33,152		$	41,212		$	64,465
Cost of revenues				21,352			31,373			43,881			60,808

	Gross margin			(485	)		1,779			(2,669	)		3,657

Operating expenses:
	General and administrative expenses			3,879			4,085			6,733			8,517
	Depreciation and amortization			479			1,233			992			2,522
	Non-cash stock-based compensation*			478			760			1,159			1,781
	Restructuring charges			—			—			—			1,441

		Total operating expenses		4,836			6,078			8,884			14,261

Loss from operations				(5,321	)		(4,299	)		(11,553	)		(10,604	)
Other income and expense:
	Interest expense			27			65			61			141
	Interest income			(256	)		(337	)		(515	)		(696	)
	Other (income) expense, net			11			40			(40	)		1,448

		Total other (income) expense, net		(218	)		(232	)		(494	)		893

Loss before income taxes				(5,103	)		(4,067	)		(11,059	)		(11,497	)
Provision for (benefit from) income taxes				18			(1,614	)		56			(2,315	)

	Net loss		$	(5,121	)	$	(2,453	)	$	(11,115	)	$	(9,182	)

Net loss per share:
	Basic and diluted		$	(0.12	)	$	(0.06	)	$	(0.26	)	$	(0.22	)

Weighted average common shares outstanding:
	Basic			42,245			41,832			42,220			41,766

	Diluted			**			**			**			**

* Substantially these amounts would have been classified as general and administrative expenses.

** Anti-dilutive, therefore, not presented.

See accompanying notes to condensed consolidated financial statements.

LEXENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



			For the Six Months
			Ended June 30,

			2003			2002


			(Unaudited)
			(Dollars in thousands)
Cash flows from operating activities:
Net loss			$	(11,115	)	$	(9,182	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Restructuring charges			—			1,441
	Depreciation and amortization			992			2,522
	Provision for uncollectible accounts			(100	)		426
	Loss on investment/disposition of assets			—			1,448
	Provision for deferred taxes			—			2,160
	Provision for contract losses			(1,776	)		—
	Non-cash stock-based compensation			1,159			1,781
Changes in working capital items:
	Receivables			5,051			6,271
	Income taxes receivable			14,750			—
	Prepaid expenses and other current assets			248			(1,315	)
	Other assets			46			432
	Accounts payable			(4,888	)		2,359
	Accrued liabilities			(738	)		(5,290	)
	Income taxes payable and prepaid taxes			—			(2,805	)
	Billings in excess of costs and estimated earnings on uncompleted projects			600			1,062

		Net cash provided by operating activities		4,229			1,310

Cash flows from investing activities:
	Capital expenditures			(596	)		(705	)
	Proceeds from renewal of certificate of deposit			22			—
	Proceeds from sale of property and equipment			—			28
	Proceeds from sale of available-for-sale investments			9,224			3,422

		Net cash provided by investing activities		8,650			2,745

Cash flows from financing activities:
	Proceeds from exercise of stock options and stock purchase plan			23			434
	Repayments of subordinated note payable to stockholder			(791	)		(791	)
	Repayments of equipment loans and capital leases			(370	)		(948	)

		Net cash used in financing activities		(1,138	)		(1,305	)

Net increase in cash and cash equivalents				11,741			2,750
Cash and cash equivalents at beginning of period				28,109			75,839

Cash and cash equivalents at end of period			$	39,850		$	78,589

Supplemental cash flow information:
Cash paid for:
	Interest		$	66		$	153
	Income taxes		$	75		$	138
Supplemental disclosures of non-cash investing and financing activities
	Reduction in deferred stock-based compensation		$	9		$	3,658

See accompanying notes to condensed consolidated financial statements.

LEXENT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003

(Unaudited)

The condensed consolidated financial statements of Lexent Inc. and Subsidiaries (the “Company”) included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The condensed consolidated financial statements of the Company reflect, in the opinion of management, all adjustments necessary to present fairly the financial position of the Company at June 30, 2003 and the results of its operations and cash flows for the periods ended June 30, 2003 and June 30, 2002. All adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the annual financial statements and notes thereto for the year ended December 31, 2002. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2003.

Certain amounts in the prior period have been reclassified to conform with the current year presentation.

The Company received a letter, dated March 3, 2003, from the Nasdaq Stock Market notifying the Company that, as a result of the resignations of its independent directors, Lexent did not meet the independent director and audit committee requirements for continued listing on the Nasdaq National Market.

Because Lexent was not able to regain compliance with the independent director and audit committee requirements for continued listing on the Nasdaq Stock Market, the Nasdaq Listing Qualifications Panel made a determination to delist Lexent’s common stock from the Nasdaq National Market effective with the opening of business on June 26, 2003. As of such date, Lexent’s common stock began trading on the OTC Bulletin Board under the same symbol, “LXNT”.

1. Net Loss Per Share

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution of other securities by including in the weighted average number of common shares outstanding for each period the dilutive effect of stock options and shares issuable under the employee stock purchase plan. Details of the calculations are as follows:



	Three Months Ended							Six Months Ended
	June 30,							June 30,

	2003			2002				2003			2002


	(In thousands, except per share amounts)
Net loss per share — basic:
Net loss	$	(5,121	)	$	(2,453	)		$	(11,115	)	$	(9,182	)

Weighted average shares — basic		42,245			41,832				42,220			41,766

Net loss per share — basic	$	(0.12	)	$	(0.06	)	</

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	*	Substantially these amounts would have been classified as general and administrative expenses.