<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 1995
PRONET INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-16029 75-1832168
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
incorporation) Number)
600 DATA DRIVE
SUITE 100
PLANO, TEXAS 75075
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (214) 964-9500
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and pro forma financial information are
attached hereto and filed as part of this report:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
- Audited Balance Sheets of Signet Paging of Charlotte, Inc. as of
December 31, 1994 and 1993.
- Audited Statements of Income and Cash Flows for Signet Paging of
Charlotte, Inc. for the years ended December 31, 1994 and 1993.
- Unaudited Balance Sheet of Signet Paging of Charlotte, Inc. as of
February 28, 1995.
- Unaudited Statement of Income and Cash Flows for Signet Paging of
Charlotte, Inc. for the two months ended February 28, 1995.
(b) PRO FORMA FINANCIAL INFORMATION.
- Unaudited Consolidated Balance Sheet for the Registrant as of
March 31, 1995, consolidating the assets and certain liabilities
of Signet Paging of Charlotte, Inc.
- Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Registrant for the year ended December 31, 1994 and the
three months ended March 31, 1995, incorporating the operating
revenues and expenses of Contact Communications, Inc., Radio Call
Company, Inc. and Affiliates, the RCC Division of Chicago
Communication Service, Inc., High Tech Communications Corp. and
Signet Paging of Charlotte, Inc.
At the time of the original filing of the Current Report on Form 8-K, it was
impracticable to present the financial information of Signet Paging of
Charlotte, Inc ("Signet"). Thus, this amendment is being filed pursuant to
Item 7(a)(4) to incorporate the audited, unaudited and pro forma financial
information. Separate Forms on 8-K/A were previously filed for the
acquisitions of Contact Communications, Inc. ("Contact"), Radio Call
Company, Inc. ("Radio Call") and the RCC Division of Chicago Communication
Service, Inc. ("ChiComm"). There was no Form 8-K filed for the acquisition
of High Tech Communications Corp. ("High Tech") as it did not meet the test
for a significant subsidiary.
We have included the Consolidated Balance Sheet of ProNet Inc. (the
"Company") as of March 31, 1995, as opposed to a pro forma balance sheet since
the March 31, 1995 Consolidated Balance
<PAGE>
Sheet for the Company includes Signet's actual Balance Sheet and all of
the appropriate purchase accounting adjustments.
The Pro Forma Condensed Consolidated Statements of Operations include
reasonable estimates of costs and expenses which will be incurred by the
Company in connection with the operation of Contact, Radio Call, ChiComm,
High Tech and Signet. Operating results for the three month period are not
necessarily indicative of results that may be expected for the full year. The
pro forma condensed consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of the
Registrant and the financial statements of Signet included in this Form 8-K/A.
(c) EXHIBITS.
[none]
<PAGE>
SIGNATURE
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 hereunto duly authorized.
PRONET INC.
(Registrant)
Date: May 12, 1995 By: /s/ Jan E. Gaulding
-----------------------
Jan E. Gaulding
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
<PAGE>
PRONET INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1995
----------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................. $ 5,369
Trade accounts receivable, net of allowance for doubtful accounts..................... 4,654
Inventories -- Note A................................................................. 3,848
Other current assets -- Note A........................................................ 2,696
----------
16,567
EQUIPMENT
Pagers................................................................................ 25,257
Communications equipment.............................................................. 14,931
Security systems equipment............................................................ 10,843
Office and other equipment............................................................ 3,743
----------
54,774
Less allowance for depreciation....................................................... (26,880)
27,894
GOODWILL AND OTHER ASSETS, net of amortization -- Note A................................ 42,511
----------
$ 86,972
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables........................................................................ $ 1,421
Other accrued expenses and liabilities -- Note A...................................... 7,761
----------
9,182
LONG-TERM DEBT, less current maturities -- Note B....................................... 27,232
DEFERRED TAX LIABILITIES................................................................ 146
STOCKHOLDERS' EQUITY -- Note A..........................................................
Common stock.......................................................................... 65
Additional capital.................................................................... 49,685
Retained earnings..................................................................... 2,092
Less treasury stock at cost........................................................... (1,430)
----------
50,412
----------
$ 86,972
==========
</TABLE>
<PAGE>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED
-------------------------------------------------------------
SIGNET
PAGING OF
PRONET INC. CHARLOTTE, INC. PRO FORMA
----------- --------------- SIGNET THREE MOS ENDED
MARCH 31, FEBRUARY 28, PRO FORMA MARCH 31,
1995 1995 ADJUSTMENTS 1995
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
NET REVENUES $10,618,295 $871,852 $ 0 $11,490,147
COSTS OF SERVICES 2,466,451 273,378 0 2,739,829
EXPENSES
Sales, General & Administrative 4,638,132 366,837 (38,333) 4,966,636
Depreciation and amortization 2,744,868 17,300 79,531 2,841,699
----------- -------- --------- -----------
7,383,000 384,137 41,198 7,808,335
----------- -------- --------- -----------
OPERATING INCOME (LOSS) 768,844 214,337 (41,198) 941,983
OTHER INCOME (EXPENSE) (344,677) (51,909) (39,434) (436,020)
INCOME (LOSS) BEFORE
INCOME TAXES 424,167 162,428 (80,632) 505,963
Provisions for income taxes 358,422 0 29,887 388,309
----------- -------- --------- -----------
NET INCOME (LOSS) $ 65,745 $162,428 $(110,519) $ 117,654
=========== ======== ========= ===========
EARNINGS PER SHARE $ 0.01 $ 0.02
=========== ============
WEIGHTED AVERAGE SHARES 6,627,131 6,627,131
=========== ============
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL RESULTS FOR THE PERIOD FROM JANUARY 1, 1994 TO THE DATE INDICATED
-------------------------------------------------------------------------------------------------
RCC DIVISION
CONTACT RADIO CALL OF CHICAGO HIGH TECH SIGNET
COMMUNICATIONS COMPANY, INC. COMMUNICATION COMMUNICATIONS PAGING OF
PRONET INC. INC. AND AFFILIATES SERVICE, INC. CORP. CHARLOTTE INC.
------------ -------------- -------------- ------------- -------------- --------------
DECEMBER 31, FEBRUARY 28, JULY 29, JULY 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994 1994 1994
------------ -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES $33,074,391 $1,385,750 $3,401,529 $2,266,765 $ 290,716 $4,761,180
COST OF SALES AND SERVICES 9,184,861 201,783 754,757 486,000 86,159 1,148,968
EXPENSES
Sales, General & Administrative 12,126,202 1,021,828 2,180,698 792,000 219,951 2,287,592
Depreciation and amortization 8,573,909 92,921 689,403 412,925 127,585 626,714
----------- ---------- ---------- ---------- --------- ----------
20,700,111 1,114,749 2,870,101 1,204,925 347,536 2,914,306
----------- ---------- ---------- ---------- --------- ----------
OPERATING INCOME (LOSS) 3,189,419 69,218 (223,329) 575,840 (142,979) 697,906
OTHER INCOME (EXPENSE) (1,601,065) (46,019) (43,781) (140,221) 0 (287,377)
INCOME (LOSS) BEFORE
INCOME TAXES 1,588,354 23,199 (267,110) 435,619 (142,979) 410,529
Provision for income taxes 895,452 0 (58,896) 0 0 0
----------- ---------- ---------- ---------- --------- ----------
NET INCOME (LOSS) $ 692,902 $ 23,199 $ (208,214) $ 435,619 $(142,979) $ 410,529
=========== ========== ========== ========== ========= ==========
EARNINGS PER SHARE $ 0.16
===========
WEIGHTED AVERAGE SHARES 4,392,863
===========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS BY COMPANY
-------------------------------------------
PRO FORMA
CONTACT RADIO CALL CHICOMM HIGH TECH SIGNET YEAR ENDED
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA DECEMBER 31,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS 1994
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES $ 0 $ 0 $ 0 $ 0 $ 0 $45,180,331
COST OF SALES AND SERVICES 0 0 0 0 0 11,862,528
EXPENSES
Sales, General & Administrative (425,228)(3) (534,617)(3) 58,333 (3) 0 (3) (210,000)(3) 17,516,759
Depreciation and amortization 196,558 (1) 170,284 (1) 397,650 (1) 76,514 (1) 477,184 (1) 11,841,647
--------- --------- --------- --------- --------- -----------
(228,670) (364,333) 455,983 76,514 267,184 29,358,406
--------- --------- --------- --------- --------- -----------
OPERATING INCOME (LOSS) 228,670 364,333 (455,983) (76,514) (267,184) 3,959,397
OTHER INCOME (EXPENSE) (138,981)(2) (227,381)(2) (176,146)(2) (32,813)(2) (265,833)(2) (2,959,617)
INCOME (LOSS) BEFORE
INCOME TAXES 89,689 136,952 (632,129) (109,327) (533,017) 999,780
Provision for income taxes 109,163 (4) 11,339 (4) (60,292)(4) (97,747)(4) (44,755)(4) 754,264
--------- --------- --------- --------- --------- -----------
NET INCOME (LOSS) $ (19,474) $ 125,613 $(571,837) $ (11,580) $(488,262) $ 245,516
========= ========= ========= ========= ========= ===========
EARNINGS PER SHARE $ 0.06
===========
WEIGHTED AVERAGE SHARES 4,392,863
===========
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statements.
</TABLE>
<PAGE>
PRONET INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On March 1, 1994, ProNet Inc. (the "Company") completed the acquisition of
all of the outstanding capital stock of Contact Communications, Inc.
("Contact") for approximately $19 million and filed a Form 8-K/A on May 12,
1994. Effective August 1, 1994, the Company completed two additional
acquisitions. The first of these acquisitions involved the purchase of
substantially all of the paging assets of Radio Call Company, Inc. ("Radio
Call") and certain of its affiliates for approximately $7.8 million in cash.
The second acquisition completed on August 1, 1994, involved the purchase of
substantially all of the Chicago area paging assets of the RCC Division of
Chicago Communication Service, Inc. ("ChiComm") for consideration of
approximately $9.8 million, comprised of approximately $8.9 million paid in
cash at closing and a $950,000 deferred payment. The Company filed a Form
8-K/A on October 14, 1994, for the Radio Call and ChiComm acquisitions.
Effective December 31, 1994, ProNet completed the acquisition of
substantially all of the paging assets of High Tech Communications Corp.
("High Tech") for approximately $900,000, comprised of $700,000 paid in
cash at closing and a $200,000 deferred payment. There was no Form 8-K filed
by the Company for this acquisition as it did not qualify as a significant
subsidiary of the Company in accordance with the definition of significant
subsidiary in Rule 1-02 (v) of Regulation S-X.
Effective March 1, 1995, Contact Communications Inc., a Delaware corporation
("CCI") and wholly-owned subsidiary of the Company, completed the
acquisition of substantially all of the paging assets of Signet Paging of
Charlotte, Inc., a North Carolina corporation ("Signet"), for approximately
$4.8 million paid in cash at closing and a $4.2 million deferred payment
which is due and payable on or before March 1, 1996, and is payable, at the
Company's discretion, either in shares of common stock of the Company, or
cash, pursuant to an Asset Purchase Agreement dated as of November 30, 1994,
by and among Signet, Eileen L. Knight, John R. Knight, Sr., and John R.
Knight, Jr. (collectively, the "Shareholders" and, together with Signet,
the "Sellers") and CCI. Concurrently with the closing of the Signet
acquisition, CCI entered into noncompetition agreements with the Sellers.
The unaudited pro forma condensed financial statements reflect the
transactions as though Contact, Radio Call, ChiComm, High Tech and Signet had
been acquired at the beginning of the periods presented. Signet's year-end is
December 31, which is consistent with the Company. Since Contact was acquired
on March 1, 1994, Contact's results of operations for the two months ended
February 28, 1994 are used to arrive at the pro forma results for the year
ended December 31, 1994. Because Radio Call and ChiComm were acquired on
August 1, 1994, their results of operations for the seven months ended
<PAGE>
July 31, 1994, are used to arrive at the pro forma results for the year ended
December 31, 1994. Because Signet was acquired March 1, 1995, their results
of operations for the two months ended February 28, 1995, are used to arrive
at the pro forma results for the three months ended March 31, 1995.
The accompanying Pro Forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1994, and the three months ended March 31,
1995, have been prepared by combining the historical results of Contact,
Radio Call, ChiComm, High Tech and Signet for such periods and reflect the
following adjustments:
(1) Pro forma adjustments are made to the statements of operations to
reflect depreciation and amortization expense on the fair value of the
assets acquired as if the acquisitions had occurred at the beginning of
the periods presented. Pro forma depreciation is computed by the
straight-line method over the estimated useful lives of the assets.
The noncompetition agreements are amortized on a straight-line method
over a five year term. Goodwill is amortized on the straight-line
method over a fifteen year term.
(2) Pro forma adjustments reflect the impact on interest expense due to the
financing of the acquisition which includes amounts borrowed under the
Company's line of credit and term loan facility and amounts due pursuant
to the Signet deferred payment.
(3) The pro forma adjustments to selling, general and administrative expenses
are representative of expenses that either would or would not have been
incurred if the acquisitions had occurred at the beginning of the periods
presented. For Radio Call and Contact, cost savings relate to decreased
salaries, office rent and professional fees. For ChiComm, additional
costs relate to increased salaries and office rent. For Signet, cost
savings relate to decreased salaries and professional fees and additional
costs relate to increased office rent. For High Tech, no pro forma
adjustments to selling, general and administrative expenses are recorded.
(4) A pro forma adjustment is made to reflect the effect on the income tax
provision as if the acquisitions had occurred at the beginning of the
periods presented. The primary differences in the effective tax rate
between the Company's historical financial statements and the pro forma
statements are state taxes and the amortization of goodwill related to
the Contact acquisition which is assumed not to be deductible for tax
purposes.
The pro forma condensed financial information presented is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place at the beginning of the periods presented or of
future results of operations of the combined operations.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Signet Paging of Charlotte, Inc.:
We have audited the accompanying balance sheets of Signet Paging of
Charlotte, Inc. as of December 31, 1994 and 1993 and the related statements
of operations and retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the Company'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 an 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 Signet Paging of
Charlotte, Inc. as of December 31, 1994 and 1993 and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
GREER & WALKER, L.L.P.
April 13, 1995
Charlotte, North Carolina
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ February 28,
1994 1993 1995
----------- ----------- -----------
<S> <C> <C> <C>
(unaudited)
CURRENT ASSETS:
Cash..................................................................... $ 522,960 $ 301,961 $ 512,056
Accounts receivable:
Trade.................................................................. 610,661 444,596 609,444
Other.................................................................. 565 29,982 1,385
Inventory................................................................ 609,231 396,711 578,040
Prepaid expenses......................................................... 3,190 -- --
Refundable income taxes.................................................. -- 11,398 --
----------- ----------- -----------
Total current assets..................................................... 1,746,607 1,184,648 1,700,925
PROPERTY:
Pagers in service........................................................ 2,740,265 2,758,333 2,691,722
Transmission equipment................................................... 691,447 607,264 692,496
Office furniture and equipment........................................... 232,097 217,145 235,692
Automobiles.............................................................. 49,028 23,765 49,028
Leasehold improvements................................................... 12,130 12,130 13,341
----------- ----------- -----------
Total.................................................................... 3,724,967 3,618,637 3,682,279
Less accumulated depreciation and amortization........................... 1,573,753 1,307,813 1,673,520
----------- ----------- -----------
Property, net............................................................ 2,151,214 2,310,824 2,008,759
DEPOSITS................................................................. 15,652 10,035 10,460
----------- ----------- -----------
TOTAL.................................................................... $ 3,913,473 $ 3,505,507 $ 3,720,144
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of:
Notes and finance agreements payable................................... $ 862,731 $ 827,678 68,509
Capital lease obligations.............................................. 263,731 188,236 9,207
Accounts payable -- Trade................................................ 179,251 101,153 176,156
Deferred revenue......................................................... 702,186 507,040 729,335
Accrued liabilities:
Salaries and bonuses................................................... 24,940 37,956 36,865
Commissions............................................................ 29,054 39,394 25,921
Payroll taxes.......................................................... -- 5,854 --
Sales tax.............................................................. 3,843 9,068 --
----------- ----------- -----------
Total current liabilities................................................ 2,065,736 1,716,379 1,045,993
LONG-TERM DEBT:
Notes and finance agreements payable..................................... 1,057,570 1,177,040 1,592,308
Capital lease obligations................................................ 154,265 284,539 282,772
----------- ----------- -----------
Total long-term debt..................................................... 1,211,835 1,461,579 1,875,080
ADVANCES FROM STOCKHOLDERS............................................... 517,368 488,083 534,614
STOCKHOLDERS' EQUITY:
Common stock -- $1 par; 100,000 shares authorized; 400 shares issued and
outstanding............................................................. 400 400 400
Additional paid-in capital............................................... 359,600 359,600 359,600
Accumulated deficit...................................................... (241,466) (520,534) (95,543)
----------- ----------- -----------
Total stockholders' equity (deficit)..................................... 118,534 (160,534) 264,457
----------- ----------- -----------
TOTAL.................................................................... $ 3,913,473 $ 3,505,507 $ 3,720,144
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Two Months
YEAR ENDED DECEMBER 31, Ended
-------------------------- February 28,
1994 1993 1995
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
REVENUES:
Product sales............................................................ $ 1,099,976 $ 613,520 $ 109,268
Services, rent and maintenance revenues.................................. 4,750,322 3,199,252 871,772
------------ ------------ ----------
Total.................................................................... 5,850,298 3,812,772 981,040
Less cost of products sold............................................... 1,089,118 668,427 109,188
------------ ------------ ----------
Net revenues............................................................. 4,761,180 3,144,345 871,852
COSTS AND EXPENSES:
Operating expenses, exclusive of depreciation and amortization........... 1,885,498 1,276,091 273,378
Depreciation and amortization............................................ 626,714 530,369 17,300
General and administrative expenses...................................... 870,891 530,931 240,447
Selling expenses......................................................... 680,171 576,366 126,391
------------ ------------ ----------
Total.................................................................... 4,063,274 2,913,757 657,516
------------ ------------ ----------
INCOME FROM OPERATIONS................................................... 697,906 230,588 214,336
OTHER INCOME (EXPENSE):
Interest expense......................................................... (292,167) (244,358) (53,566)
Interest income.......................................................... 4,790 396 1,658
Gain on sale of equipment................................................ -- 4,295 --
------------ ------------ ----------
Total.................................................................... (287,377) (239,667) (51,908)
------------ ------------ ----------
INCOME (LOSS) BEFORE INCOME TAXES........................................ 410,529 (9,079) 162,428
PROVISION FOR INCOME TAXES............................................... -- 12,159 --
------------ ------------ ----------
NET INCOME (LOSS)........................................................ 410,529 (21,238) 162,428
RETAINED EARNINGS (DEFICIT), BEGINNING OF PERIOD......................... (520,534) (499,296) (110,005)
DISTRIBUTIONS TO STOCKHOLDERS............................................ (131,461) -- (147,966)
------------ ------------ ----------
RETAINED EARNINGS (DEFICIT), END OF PERIOD............................... $ (241,466) $ (520,534) $ (95,543)
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
See notes to financial statements.
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Two Months
YEAR ENDED DECEMBER 31, Ended
------------------------- February 28,
1994 1993 1995
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ 410,529 $ (21,238) $ 162,428
Adjustments to reconcile net income or loss to cash flows from operating
activities:
Depreciation and amortization.......................................... 626,714 530,369 49,278
Interest accrued on advances from stockholders......................... 29,285 31,872 17,246
Changes in operating assets and liabilities:
Accounts receivable.................................................. (136,648) (223,487) 397
Other assets......................................................... 2,591 (1,104) 8,381
Accounts payable..................................................... 78,098 1,667 (2,945)
Deferred revenue..................................................... 195,146 163,852 27,149
Accrued liabilities.................................................. (34,435) 21,417 4,799
------------ ----------- -----------
Net cash provided by operating activities................................ 1,171,280 503,348 266,733
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property.................................................... (106,820) (142,463) (4,644)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in advances from stockholders, net.............................. -- 26,097 --
Cash distributions to stockholders....................................... (131,461) -- (16,505)
Proceeds from additional notes payable................................... 510,426 598,557 --
Principal payments on notes and finance agreements payable............... (947,386) (591,823) (194,815)
Principal payments on capital lease obligations.......................... (275,040) (250,324) (61,673)
------------ ----------- -----------
Net cash applied to financing activities................................. (843,461) (217,493) (272,993)
------------ ----------- -----------
NET INCREASE IN CASH..................................................... 220,999 143,392 (10,904)
CASH BALANCE, BEGINNING OF PERIOD........................................ 301,961 158,569 522,960
------------ ----------- -----------
CASH BALANCE, END OF PERIOD.............................................. $ 522,960 $ 301,961 $ 512,056
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See notes to financial statements.
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
The Company provides telemessaging services through pagers and other
communication equipment. In addition to these services, pagers and accessory
equipment are frequently provided as part of the total service/product
package delivered to the customer. The Company provides service primarily in
North and South Carolina; however, through network agreements, the Company
provides access throughout the United States.
REVENUE RECOGNITION
The Company recognizes income from sales of equipment when the product is
delivered to the customer. The Company recognizes income from equipment
rentals and from telemessaging services ratably over the contractual period.
Billings to customers for services in advance of providing such services are
deferred and recognized as revenue when earned.
CASH
The Company maintains a significant amount of its cash balances in one
bank. A potential loss exposure exists to the extent of any uninsured
deposits in excess of $100,000 at an individual bank in the event that such
bank becomes insolvent at a later date.
ACCOUNTS RECEIVABLE
The Company provides credit to its customers, a significant portion of
which are located in North and South Carolina. The Company uses the specific
write-off method for doubtful receivables. As of December 31, 1994 and 1993,
all remaining accounts receivable were considered collectible by management
and, therefore, no allowance has been provided.
INVENTORY
Inventory, which consists of new paging equipment held for lease or
resale, is valued at the lower of cost or market, with cost being determined
on the first-in, first-out basis.
PROPERTY
Property is stated at cost. Depreciation and amortization are provided
over estimated useful lives using straight-line and accelerated methods based
on the following estimated useful lives:
<TABLE>
<S> <C>
Pagers in service......................................... 5 years
Transmission equipment.................................... 5-7 years
Office furniture and equipment............................ 5-7 years
Automobiles............................................... 5 years
Leasehold improvements.................................... 5 years
</TABLE>
INCOME TAXES
Under provisions of the Internal Revenue Code, effective April 1, 1993
the Company elected to be taxed as an "S" corporation. Under such election,
the Company's taxable income or loss and tax credits are passed through to
the individual stockholders for inclusion in their respective individual
income tax returns. Temporary differences exist between income or loss
recognized for financial reporting and income tax purposes. Such differences
relate primarily to differing methods of revenue recognition.
Under the provisions of the Internal Revenue Code, the federal tax
liability of a "C" corporation is the greater of its regular tax or the
alternative minimum tax ("AMT"). For the income tax period ended March 31,
1993, the Company's AMT exceeded its regular tax by $18,928. The portion of
that amount which applied to operations included in the year ended December
31, 1993 has been recorded as a provision for income taxes in the
accompanying 1993 statement of operations. The excess of the AMT over regular
tax can generally be carried forward to reduce regular tax liabilities of
future years and the effect of such carryforwards would be
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded as a deferred tax benefit for financial reporting purposes. As noted
above, the Company elected "S" corporation status effective April 1, 1993
and, accordingly, such AMT credit carryforwards were not retained. Therefore,
no deferred tax benefit has been recorded for the effect of such AMT
carryforwards in the accompanying 1993 financial statements.
FISCAL YEAR
In connection with the "S" Corporation election noted above, during 1993
the Company changed its fiscal year-end from March 31 to December 31. The
accompanying financial statements have been prepared on the basis of a
financial reporting year ending on December 31 for both years presented.
NOTE 2 -- ADVANCES FROM STOCKHOLDERS
The Company has received advances from certain of its stockholders. Such
advances bear interest at 8% and are payable on demand. Interest expense
accrued on such advances totaled $29,285 and $31,872 for the years ended
December 31, 1994 and 1993, respectively, and such amounts have been combined
with the advance balances in the accompanying balance sheets. The
stockholders have indicated that they will not require repayment of these
advances until at least January 1996 and, accordingly, such advances have
been classified as noncurrent in the accompanying balance sheets.
NOTE 3 -- NOTES AND FINANCE AGREEMENTS PAYABLE
The Company purchases a substantial portion of its pagers from Motorola,
Inc. under conditional sales contracts that are subsequently sold to a
commercial finance company. The purchase price of the pagers, together with
interest, is payable in terms ranging from 4 to 42 months. Stated interest
rates on these finance agreements range from 10% to 15%. The aggregate
principal balance of such finance agreements totaled $1,789,100 and
$1,865,321 as of December 31, 1994 and 1993, respectively.
The Company also has certain notes payable to a commercial finance
company with principal balances totaling $102,115 and $123,325 as of December
31, 1994 and 1993, respectively. These notes bear interest at rates ranging
from 8.90% to 11.11% and are payable in monthly installments, including
interest, generally over a 42 month period.
The Company also has notes payable to a bank with remaining principal
balances of $29,086 and $16,072 as of December 31, 1994 and 1993,
respectively. These notes payable are collateralized by automobiles and are
payable in monthly installments totaling $789 including interest at rates
from 8.07% to 8.95% through March 1999.
Scheduled principal maturities under the above notes payable and finance
agreements are $862,731, $629,443, $340,642, $86,956 and $529 in the years
ending December 31, 1995 through 1999, respectively.
Substantially all of the Company's property and inventory are pledged as
collateral under the notes payable and finance agreements as of December 31,
1994.
NOTE 4 -- LEASES
The Company has a lease financing facility with another supplier of
pagers which provides for total financing capacity of $2,171,031 as of
December 31, 1994. The purchase price of the pagers, together with interest,
is payable in terms ranging from 6 to 42 months under these agreements which
are recorded as capital leases. The aggregate principal balance of lease
agreements outstanding under this facility totaled $348,861 and $351,563 as
of December 31, 1994 and 1993, respectively.
The Company also leases certain transmission equipment and its office
telephone equipment under agreements which are classified as capital leases.
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- LEASES (CONTINUED)
Cost and accumulated amortization of property under capital leases as of
December 31, 1994 was as follows:
<TABLE>
<S> <C>
Pagers in service......................................... $ 624,608
Transmission equipment.................................... 185,876
Office equipment.......................................... 13,450
---------
Total..................................................... 823,934
Less accumulated amortization............................. 230,599
---------
Total, net................................................ $ 593,335
---------
---------
</TABLE>
The following is a schedule of future minimum lease payments under all
capital leases together with the present value of the minimum lease payments
as of December 31, 1994:
<TABLE>
<S> <C>
Year ending December 31:
1995.................................................... $ 295,204
1996.................................................... 137,511
1997.................................................... 28,991
---------
Total future minimum lease payments..................... 461,706
Less amounts representing interest...................... 43,710
---------
Present value of net minimum lease payments............. 417,996
Less current portion.................................... 263,731
---------
Long-term portion....................................... $ 154,265
---------
---------
</TABLE>
The Company leases its office space, certain tower transmission sites and
an automobile under agreements which are classified as operating leases.
Total rent expense for the years ended December 31, 1994 and 1993 under such
operating leases was $116,687 and $69,742, respectively. Future minimum
rental payments under noncancellable lease agreements with terms in excess of
one year as of December 31, 1994 are $65,566, $62,252, $59,961 and $11,038 in
the years ending December 31, 1995 through 1998, respectively.
NOTE 5 -- RETAINED EARNINGS
As of December 31, 1994 the retained earnings deficit consisted of the
following:
<TABLE>
<S> <C>
Pre "S" corporation retained earnings deficit............ $(572,104)
"S" corporation accumulated adjustment account balance as
of December 31, 1994.................................... 625,719
Cumulative differences in the recognition of income, and
expenses for financial reporting and income tax purposes
(Note 1)................................................ (295,081)
---------
Total accumulated deficit................................ $(241,466)
---------
---------
</TABLE>
<PAGE>
SIGNET PAGING OF CHARLOTTE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash payments for interest...................................... $ 262,882 $ 212,486
Property acquisitions financed by capital lease
obligations.................................................... -- $ 481,776
Property and inventory acquisitions financed by the assumption
of debt........................................................ $ 572,804 $1,696,245
</TABLE>
NOTE 7 -- STOCKHOLDERS' EQUITY
The stockholders of the Company are subject to an agreement which
stipulates the terms under which the Company's shares can be sold. Among
other things, the agreement gives the Company the first option to acquire the
shares of a stockholder wishing to sell his or her shares. The agreement also
stipulates that the price to be paid by the Company for such shares is to be
the initial price paid by the stockholder who wishes to sell his or her
shares.
The Company has a stock appreciation right agreement with an employee. This
agreement is for 13 rights and the employee becomes vested in those rights at
the rate of 16.67% per year. As of December 31, 1994 the employee was 66.68%
vested in the rights. Under the terms of the agreement, the employee is to
receive compensation to the extent the book value of the Company's shares, as
defined by the agreement, exceeds $703.60 per share. Compensation expense
related to this agreement was not significant for either of the years ended
December 31, 1994 or 1993. The agreement defines certain events which cause
mandatory redemption of the vested rights, including a 50% or greater change
in ownership of the Company. In connection with the transaction discussed in
Note 8 the redemption of these rights became mandatory.
NOTE 8 -- SUBSEQUENT EVENT
In October 1994, the Company entered into an agreement to sell
substantially all of its paging assets to Contact Communications, Inc.
("Contact"). This sale was completed on March 1, 1995 and Contact purchased
certain assets with a remaining book value of $4,095,931 as of December 31,
1994 and assumed the Company's deferred revenue obligation. The Company
received proceeds of $8,994,190 comprised of cash of $4,811,892 and a note
receivable of $4,182,298. This note receivable bears interest at 5% and is
due on or before March 1, 1996. In connection with this transaction,
substantially all of the Company's remaining notes payable and capital lease
obligations were retired.
