SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997 COMMISSION FILE NO. 1-10682
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PAGE AMERICA GROUP, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-2865787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125 STATE STREET, SUITE 100, HACKENSACK, NEW JERSEY 07601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 342-6676
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(Former address, if changed since last report) (Zip Code)
Indicate by check mark whether 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 twelve months (or for such shorter period of time that the
Registrant was required to file such reports), and (2) has been subject to such
filings for the past ninety days.
Yes X No
As of April 30, 1997, there were outstanding 16,025,087 shares of Registrant's
common stock.
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<CAPTION>
PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 208 $ 290
Accounts receivable,
net of allowance for doubtful accounts
of $273 and $278 809 899
Prepaid expenses and other current assets 559 672
--------- ---------
Total current assets 1,576 1,861
EQUIPMENT
Pagers 6,327 6,510
Radio Common Carrier equipment 13,359 13,282
Office equipment 3,943 3,939
Leasehold improvements 614 614
Building and land 64 64
---------- ---------
24,307 24,409
Less accumulated depreciation and amortization (19,218) (19,027)
--------- ---------
5,089 5,382
OTHER ASSETS
Certificates of authority, net of accumulated
amortization of $3,972 and $3,821 20,225 20,363
Customer lists, net of accumulated amortization
$8,645 and $8,537 3,123 3,232
Other intangibles, net of accumulated amortization
$3,541 and $3,472 8,151 8,220
Deposits and other non-current assets 547 503
--------- ---------
32,046 32,318
-------- --------
$38,711 $39,561
======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
March 31, December 31,
1997 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $52,100 $51,814
Accounts payable 1,275 1,620
Accrued expenses and other liabilities 3,188 2,187
Preferred dividends payable 3,580 2,864
Customer deposits 232 249
Advance billings 1,592 1,536
---------- ---------
Total current liabilities 61,967 60,270
LONG-TERM DEBT, less current maturities 40 37
SHAREHOLDERS' EQUITY (DEFICIT)
Series One Convertible Preferred Stock, 10% cumulative $.01 par value,
authorized--310,000 shares; issued and outstanding -- 286,361 shares;
liquidation value --
$105 per share 30,068 30,068
Common stock--$.10 par value, authorized--100,000,000
shares, issued and outstanding--16,037,095 shares 1,604 1,604
Paid-in capital 53,501 53,501
Accumulated Deficit (108,469) (105,919)
---------- ----------
(23,296) (20,746)
--------- ---------
$ 38,711 $ 39,561
========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
----------- --------
<S> <C> <C>
Service revenues $4,443 $5,285
Sales revenues 324 510
----------- ----------
Total revenues 4,767 5,795
Operating expenses:
Cost of service 458 530
Cost of sales 205 344
Selling 900 1,103
General and administrative 1,478 1,772
Technical 778 909
Depreciation 834 928
Amortization of intangibles 328 376
----------- ----------
4,981 5,962
---------- ----------
Operating loss (214) (167)
Interest expense (1,510) (1,644)
Other expenses:
Amortization of deferred costs (3) (27)
Other (107) (17)
------------ -----------
(110) (44)
------------ -----------
Net loss (1,834) (1,855)
Dividends on preferred stock (716) (716)
------------ -----------
Net Loss applicable to common stock $(2,550) $(2,571)
=========== ==========
Net loss applicable to common stock, per share $(.16) $(.32)
============ =============
Weighted average number of shares outstanding 16,037,095 8,052,305
=========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
DECREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1997 1996(A)
---------- ----------
<S> <C> <C>
Net loss $(1,834) $(1,855)
Adjustments to net loss:
Depreciation and amortization 1,165 1,331
Net book value of pagers sold 171 304
Provision for losses on accounts receivable 181 200
Provision for lost pagers 46 45
Non-cash interest expense 487 487
Other 27 169
Change in assets and liabilities:
Increase in accounts receivable (92) (54)
(Increase) decrease in prepaid expenses
and other (137) 84
Decrease in accounts payable (432) (351)
Increase in accrued expenses 943 288
Increase in customer deposits and
deferred revenue 40 210
--------- --------
Net cash provided by operating activities 565 858
--------- --------
Cash flows from investing activities:
Capital expenditures (544) (989)
Licensing costs (13) --
Net proceeds from disposal of assets 251 --
--------- ---------
Net cash used in investing activities (306) (989)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt 87 84
Principal payments on debt (386) (128)
Costs related to financing of debt -- (3)
Cost related to planned Metrocall transaction (42) --
---------- ---------
Net cash used in financing activities (341) (47)
--------- ---------
Net decrease in cash and cash equivalents (82) (178)
Cash and cash equivalents at beginning of period 290 751
-------- -------
Cash and cash equivalents at end of period $208 $ 573
======== =======
(A) - Reclassified to conform with the current year presentation.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
---------- -------
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C>
Dividends accrued on preferred stock $ 716 $ 716
Capital expenditures in accounts payable
and accrued expenses 158 151
Capital expenditures financed 94 --
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
UNAUDITED
NOTE A - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include only normally recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows of the
Company for all interim periods presented have been made. The results of
operations for the period ended March 31, 1997 are not necessarily indicative of
the operating results that may be expected for the year ending December 31,
1997.
The accompanying unaudited financial statements have been prepared on a
going concern basis. The Company, since its inception, has experienced a
deficiency in working capital and recurring losses. In 1995, as a result of
non-compliance by the Company with certain covenants of its credit facility (the
"Credit Facility"), the terms were modified to accelerate the final maturity to
December 29, 1995, and the Subordinated Notes were modified to provide for a
final maturity of six months thereafter. On April 26, 1996, the Credit Facility
was again modified to provide for a revolving credit loan of $750,000, a waiver
of all existing defaults on certain financial and other covenants, the omission
of financial covenants effective April 30, 1996 and an extension of the maturity
date to the earlier of November 30, 1996 or the completion of the sale of the
Company's assets to Metrocall, Inc. The Credit Facility has not been repaid and
the lenders have declared the Company in default. In addition, the Subordinated
Notes matured at December 31, 1996 and are in default. Such debt is classified
as a current liability and the Company's current liabilities exceeded its
current assets by $60.4 million at March 31, 1997. The Company has entered into
a definitive agreement to sell substantially all of its assets to Metrocall,
Inc. The cash to be received by Page America from this sale will not be
sufficient for Page America to pay in full in cash its outstanding obligations
under the Credit Facility or under the Subordinated Notes or to pay its other
outstanding liabilities. Page America is negotiating with the creditors to
satisfy its obligations. In addition, the consent of Page America's lenders is
required for the sale to Metrocall. There is no assurance that Page America will
be able to reach agreement with its creditors, that this transaction will be
completed or that the Company will have sufficient funds to finance its
operations, which continue to show losses, through the year ending December 31,
1997.
All of these matters raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of liabilities that
may result from the outcome of this uncertainty.
Following completion of the sale of its assets to Metrocall, the Company
plans to liquidate.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
NOTE B - DIVIDENDS ON PREFERRED STOCK
Series One Convertible Preferred Stock has a 10 percent dividend, payable
semi-annually in arrears. Payment of dividends may be made in cash or in Common
Stock of the Company. Dividends in arrears aggregated $3,580,000, or $12.50 per
preferred share, at March 31, 1997.
NOTE C - LOSS PER SHARE
Loss per share is computed based upon the weighted average number of common
shares outstanding during the periods presented and is computed after giving
effect to preferred stock dividend requirements. Stock options, warrants and the
assumed conversion of the convertible preferred stock have not been included in
the calculation, since their inclusion would not be dilutive for each of the
periods presented.
NOTE D - PLANNED SALE OF NEW YORK AND CHICAGO OPERATIONS
On April 23, 1996, the Company entered into a definitive agreement to sell
substantially all of its assets to Metrocall Inc. On January 30, 1997, this
agreement was amended. The amended agreement provides for a purchase price of
(A) $25 million in cash, (B) 1,500 shares of series B Preferred Stock of
Metrocall having a stated value of $15 million, (C) 762,960 shares of Metrocall
Common Stock, and (D) shares of Metrocall Common Stock or other equity
securities having a share value equal to $15 million, subject to adjustment
based on changes in the Company's Working Capital Deficit and decreases in
service revenue below specified thresholds. Metrocall has the option to
substitute cash at closing for all or a portion of the stock consideration.
Excluded from the sale are cash, assets related to the employee benefit plans
and to the Florida and California operations which had been previously sold,
liabilities under the Credit Facility, subordinated debt agreement and NEC
America leasing contract and obligations with respect to federal, state and
local taxes. This sale is subject to the approval of the Company's shareholders.
There is no assurance that the transaction will be consummated.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
TOTAL REVENUES for the quarter ended March 31, 1997 were approximately $1.0
million (17.7 percent) lower than that of the 1996 quarter. The decrease
resulted from lower average revenue per unit (ARPU) and a reduction in units in
service. ARPU declined as a result of the emphasis on the sale of pagers (for
which the Company does not receive recurring equipment rental revenue) and rates
obtained from new subscribers were lower than the rates associated with lost
subscribers due to competitive pressure. While revenue rates associated with
leased units are higher than rates associated with customer owned units, the
Company does not believe that overall profitability of these arrangements is
substantially different because of the depreciation costs associated with leased
units. The Company had 210,000 units in service at March 31, 1997, an increase
of 5,000 units from the 205,000 units at December 31, 1996. The Company had
223,000 units in service at March 31, 1996, an increase of 2,000 units from the
221,000 units at December 31, 1995.
COST OF SERVICE decreased by $72,000 (13.6 percent) in the three month
period in 1997 over the same period in 1996 principally due to a decrease in the
resale of national paging services. COST OF SALES decreased by approximately
$139,000 (40.4 percent) in the 1997 quarter as compared to the same period in
1996. As a percent of sales revenues, cost of sales decreased from 67.5 percent
in the first quarter of 1996 to 63.3 percent in the same period in 1997,
primarily as a result of lower pager costs. The average per unit cost was $36 in
the 1996 quarter versus $25 in the same period in 1997.
SELLING expenses decreased by approximately $203,000 (18.4 percent) in the
1997 quarter as compared to 1996 primarily due to a reduction in personnel
($112,000) and advertising costs ($90,000).
GENERAL AND ADMINISTRATIVE expenses experienced a decrease of $294,000
(16.6 percent) in the first quarter of 1997 as compared to the same period in
the prior year. This was principally due to a reduction in personnel,
professional fees and other taxes.
TECHNICAL expenses for the first quarter of 1997 decreased by $131,000
(14.4 percent) when compared with the same period in 1996 primarily due to
cancellation of certain data lines and site leases in the third quarter of 1996.
DEPRECIATION expense decreased by $94,000 (10.1 percent) as a result of
lower average price of pagers purchased. AMORTIZATION EXPENSE decreased by
$48,000 (12.8 percent) principally due to certain customer lists becoming fully
amortized in the third quarter of 1996.
INTEREST EXPENSE decreased by approximately $134,000 (8.2 percent) in 1997
over 1996, principally due to the discount on the Subordinated Notes becoming
fully amortized in the second quarter of 1996.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
OTHER EXPENSES increased approximately $66,000 (150.0 percent) in 1997
primarily due to costs related to inactive transmitter sites in the first
quarter of 1997.
NET LOSS was $1.8 million (38.5 percent of total revenues) in the quarter
ended March 31, 1997, as compared to $1.9 million (32.0 percent of total
revenues) in the same quarter of 1996.
EBITDA (earnings before interest, taxes, depreciation and amortization) in
the 1997 quarter was $948,000 as compared to $1.1 million in the 1996 quarter.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency of approximately $60.4 million
at March 31, 1997 as compared to a deficiency of approximately $58.4 million at
December 31, 1996. The increase in working capital deficiency was primarily due
to increases in accrued interest and accrued dividends of $1.5 million and
$716,000, respectively.
The Company, since its inception, has experienced a deficiency in working
capital and recurring losses. In 1995, as a result of non-compliance by the
Company with certain covenants of its credit facility (the "Credit Facility"),
the terms were modified to accelerate the final maturity to December 29, 1995,
and the Subordinated Notes were modified to provide for a final maturity of six
months thereafter. On April 26, 1996, the Credit Facility was again modified to
provide for a revolving credit loan of $750,000, a waiver of all existing
defaults on certain financial and other covenants, the omission of financial
covenants effective April 30, 1996 and an extension of the maturity date to
November 30, 1996. The Credit Facility was not repaid at maturity causing the
Credit Facility to be in default. In addition, the Subordinated Notes matured at
December 31, 1996 and are in default. Such debt is classified as a current
liability and the Company's current liabilities exceeded its current assets by
$60.4 million at March 31, 1997. On April 23, 1996, Page America entered into a
definitive agreement to sell substantially all of its assets to Metrocall, Inc.
On January 30, 1997, this agreement was amended. The amended agreement provides
for a purchase price of (A) $25 million in cash, (B) 1,500 shares of series B
Preferred Stock of Metrocall having a stated value of $15 million, (C) 762,960
shares of Metrocall Common Stock, and (D) shares of Metrocall Common Stock or
other equity securities having a share value equal to $15 million, subject to
adjustment based on changes in the Company's Working Capital Deficit and
decreases in service revenue below specified thresholds. Metrocall has the
option to substitute cash at closing for all or a portion of the stock
consideration. Excluded from the sale are cash, assets related to the employee
benefit plans and to the Florida and California operations which had been
previously sold, liabilities under the Credit Facility, subordinated debt
agreement and NEC America leasing contract and obligations with respect to
federal, state and local taxes. This sale is subject to the approval of the
Company's shareholders. After expenses, it is anticipated that the sale will
result in a gain of approximately $21 million. There is no assurance that the
transaction will be consummated.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
Following completion of the sale of its assets to Metrocall, the Company
plans to liquidate. The cash to be received by Page America from this sale will
not be sufficient for Page America to pay in full in cash its outstanding
obligations under the credit facility or under the subordinated notes or to pay
its other outstanding liabilities. The Company anticipates paying off the
balance of its obligations from proceeds generated by the sale of Metrocall
Common Stock and Series B Preferred Stock.
The value of the assets of Page America to be available for distribution to
its shareholders upon liquidation cannot be ascertained at this time and will
depend, among other things, on the amount of its remaining liabilities, the
number of shares of Metrocall Common Stock to be returned to Page America from
the escrow and the sale or disposition of the Metrocall Common Stock and Series
B Preferred Stock to be received by Page America. Upon the completion of the
sale to Metrocall, Page America will not conduct any ongoing business operations
or generate any revenues by reason thereof. Accordingly, there can be no
assurance that there will be any assets available for distribution to Page
America's shareholders upon liquidation and dissolution.
The Company's operating activities generated $565,000 of cash flow in the
first three months of 1997. The Company does not have any material capital
expenditure commitments.
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
None
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PAGE AMERICA GROUP, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997
PAGE AMERICA GROUP, INC.
(Registrant)
/S/ KATHLEEN C. PARRAMORE
Kathleen C. Parramore
President and Chief Operating Officer
/S/ MARTIN KATZ
Martin Katz
Chief Financial Officer
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 208
<SECURITIES> 0
<RECEIVABLES> 1,082
<ALLOWANCES> 273
<INVENTORY> 0
<CURRENT-ASSETS> 1,576
<PP&E> 24,307
<DEPRECIATION> 19,218
<TOTAL-ASSETS> 38,711
<CURRENT-LIABILITIES> 61,967
<BONDS> 0
0
30,068
<COMMON> 1,604
<OTHER-SE> (54,968)
<TOTAL-LIABILITY-AND-EQUITY> 38,711
<SALES> 324
<TOTAL-REVENUES> 4,767
<CGS> 205
<TOTAL-COSTS> 4,981
<OTHER-EXPENSES> 110
<LOSS-PROVISION> 181
<INTEREST-EXPENSE> 1,510
<INCOME-PRETAX> (1,828)
<INCOME-TAX> 6
<INCOME-CONTINUING> (1,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,834)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
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