SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) : November 13, 1995
SHARED TECHNOLOGIES INC.
DELAWARE 0-17366 87-0424558
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.
incorporation)
100 Great Meadow Road, Suite 104
Wethersfield, CT 06109
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code
(860-258-2400)
Total number of sequentially numbered paged in this filing, including exhibits
hereto:
<PAGE>
Item 7 Financial Statements and Exhibits
(a) Financial Statements of business acquired
(i) Unaudited balance sheets for PTC Cellular, Inc. for the years ended
December 31, 1994 and 1993. Unaudited statements of operation statements of
changes in stockholders' (deficit) equity and statements of cash flow for the
years ended December 31, 1994 and 1993 and the period ended December 31, 1992
from inception, including the notes thereto. 3
(ii) Unaudited balance sheets for PTC Cellular, Inc. for the nine month
ended September 30, 1995 and 1994. Unaudited statements of operation statements
of changes in stockholders' (deficit) equity and statements of cash flow for the
nine months ended September 30, 1995 and 1994 16 including the notes thereto.
(b) Pro-forma financial information
(i) Pro-forma consolidated balance sheet at September 30, 1995 (ii)
Pro-forma consolidated statemetns of operation for the nine months ended
September 30, 1995 (iii) Pro-forma consolidated statement of operations for the
year ended December 31, 1994 (iv) Pro-forma consolidated statement of operations
and balance sheet for the nine-months ended September 30, 1995. (v) Notes to
Pro-forma statements
<PAGE>
PTC Cellular, Inc.
Financial Statements
December 31, 1994
<PAGE>
PTC Cellular, Inc.
Balance Sheet
(Unaudited)
December 31
1994 1993
Assets
Current assets:
Cash and cash equivalents $23,568 $49,893
Accounts receivable, net of allowance for doubtful
accounts 1,185,518 1,067,046
of $285,917 and $246,813
Prepaid expenses and other current assets 195,010 57,195
------- ------
Total current assets 1,404,096 1,174,134
Software and Smart Phone Development 1,336,505 -
Property and equipment, net of $1,958,800 and $911,923
accumulated depreciation 5,249,527 6,351,229
Intangible assets, net of $602,262 and $239,935
accumulated amortization 1,040,132 1,316,581
Goodwill, net of $149,724 and $45,600 accumulated
amortization 1,778,691 1,908,089
Deferred income taxes net of valuation allowance of
$3,291,111 and $0 - 1,113,041
Other assets 252,808 43,907
------- ------
Total assets (pledged for parent company
debt, see Note 5) $11,061,759 $11,906,981
=========== ===========
Liabilities and Shareholder's (Deficit) Equity
Current liabilities
Accounts payable and accrued expenses $3,105,877 $3,061,009
---------- ---------
Total current liabilities 3,105,877 $3,061,009
Payable to Peoples Telephone Company, Inc.
13,457,738 6,986,533
Unearned income 67,267 --
------ -------- --
16,630,882 10,047,542
---------------------- ----------------------
Commitments and contingencies - -
Shareholders' (deficit) equity:
Common stock, $.01 par value, 25,000,000 shares
authorized, 5,000,000 and 100 shares issued and
outstanding as of December 31, 1994 and 1993 50,000 1
Capital in excess of par value 4,659,323 4,571,823
Accumulated deficit
(10,278,446) (2,712,385)
------------ -----------
Total shareholders' (deficit) equity
(5,569,123) 1,859,439
---------------- --------------
Total liabilities and shareholders'
(deficit) equity $11,061,759 $11,906,981
============ ===========
The accompanying notes are an integral part of these financial statements
<PAGE>
PTC Cellular, Inc.
Statements of Operations and Accumulated Deficit
(Unaudited)
From inception,
December 31, December 31, April 30, 1992 to
94 1993 December 31, 1992
Revenues
Cellular $11,472,639 $5,992,594 $1,498,532
Service and other 107,981 33,265 -
------- ------ ----------
Total revenues 11,580,620 6,025,859 1,498,532
Cost and expenses:
Telephone charges 5,867,726 3,414,254 434,591
Commissions 766,815 845,790 270,780
Cost of operations 3,292,712 2,130,635 517,959
Depreciation and
amortization 2,470,362 1,114,830 82,628
Selling, general and
administrative 1,639,910 1,110,097 483,464
Provision for bad
debts 1,842,929 568,040 14,034
Allocations from Peoples
Telephone Company, Inc. - 359,700 156,968
Interest on Payable to Peoples Telephone
Company, Inc. - 782,586 205,747
Telephone equipment
write-down 1,010,900 - -
---------- -------- --------
Total costs &
expenses 18,033,640 9,546,361 1,803,456
---------- --------- ---------
Loss before taxes (6,453,020) (3,520,502) (304.924)
Income tax
(provision)/benefit(1,113,041) 1,113,041 -
----------- --------- ---------
Net loss (7,566,061) (2,407,461) (304,924)
Accumulated deficit,
beginning of period (2,712,385) (304,924) -
----------- --------- --------
Accumulated deficit,
end of period $(10,278,446) $(2,712,385) $(304,924)
============= ============ ==========
The accompanying notes are an integral part of these financial statements
<PAGE>
PTC Cellular, Inc.
Statement of Changes in Shareholders' (Deficit) Equity
(Unaudited)
Common Stock
Invested Capital in (Accumulated)
Shares Amount Capital Excess of Par Deficit) Total
Balance
at January
1, 1992 - - - - - -
Invested Capital
from Peoples
Telephone
Company, Inc. - - $340,000 - $340,000
Net loss - - - - (304,924) (304,924)
-------- -------- ------- ------ ----------- ---------
Balance at
December 31,
1992 - - 340,000 - (304,924) 35,076
Issuance of
Common Stock 100 1 (340,000) 3,969,470 - 3,629,471
Pushdown of purchase
of 25%
from Nationwide
by Peoples
Telephone
Company, Inc. - - - 602,353 - 602,353
Net loss - - - - (2,407,461) (2,407,461)
------------ ------ ------- --------- ----------- -----------
Balance at December
31, 1993 100 1 - 4,571,823 (2,712,385) 1,859,439
Issuance of additional shares
of Peoples telephone Company,.
Inc. for no consideration
4,499,900 44,999 - (44,999) - -
Exercise of stock
options 500,000 5,000 - 132,499 - 137,499
Net loss - - - - (7,566,061) (7,566,061)
--------- -------- --------- ---------- ------------- ------------
Balance at
December 31,
1994 5,000,000 50,000 - 4,659,323 (10,278,446) (5,569,123)
============= ============ =========== ======== ============= ===========
The accompanying notes are an integral part of these financial statements
<PAGE>
PTC Cellular, Inc.
Statements of Cash Flows
(Unaudited)
For the year ended December 31,
1994 1993 1992
Cash flows from operating
activities:
Net loss $(7,566,061) $(2,407,461) $(304,924)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation of property
and equipment 2,003,911 848,147 63,776
Amortization of intangible
assets 362,327 221,083 18,852
Amortization of goodwill 104,124 45,600 -
Deferred income taxes 1,113,041 (1,113,041) -
Provision for telephone
equipment losses 1,010,900 - -
Write-off capitalized
fee 40,000 - -
Changes in assets and liabilities:
Increase in accounts
receivable (118,472) (1,045,726) (21,320)
Increase in prepaid expenses
and other current (137,815) (39,686) (17,509)
assets
Increase in other
assets (208,901) (43,907) -
Increase (decrease) in
accounts payable and 44,868 2,938,966 122,043
accrued expenses
Increase in unearned
income 67,267 - -
Net cash used in operating
activities (3,284,811) (596,025) (139,082)
------------ ---------------- --------------------
Cash flows from investing activities:
Property and equipment additions
(2,033,109) (6,661,070) (602,082)
Software and Smart Phone development
(1,336,505) - -
Intangible assets additions
(85,878) (1,381,516) (175,000)
Goodwill deletions (additions)
25,274 (1,958,689) -
Proceeds from sale of telephones
80,000 - -
----------------- ------------------- ------------------
Net cash used in investing
activities (3,350,218) (9,996,275) (777,082)
-------------------- ------------------- --------------------
Cash flow from financing activities:
Invested capital - - 340,000
Issuance of common
stock 137,499 3,629,471 -
Capital in excess of par-goodwill, 25%,
acquisition-PCC - 602,353 -
Net borrowing from Peoples Telephone Company,
Inc. 6,471,205 6,384,432 602,101
------------------ ------------------- --------------------
Net cash provided by
financing activities 6,608,704 10,616,256 942,101
-------------------- ------------------- --------------------
Net (decrease) increase in cash and cash
equivalents (26,325) 23,956 25,937
Cash and cash equivalents at
beginning of period 49,893 25,937 -
-------------------- ------------------- --------------------
Cash and cash equivalents at
end of period 23,568 49,893 25,937
================== =================== ====================
The accompanying notes are an integral part of these financial statements
<PAGE>
PTC Cellular, Inc.
Notes to Financial Statements
December 31, 1994
1. General
Description of business
PTC Cellular, Inc. ("the Company") is a provider of in-car wireless
telephone service to persons who rent cars from certain domestic cart rental
companies. The Company is a 90% owned subsidiary of Peoples Telephone Company,
Inc. ("Peoples"). The Company was developing new car phones known as "smart
phones". It intended
that these smart phones would periodically signal the Company. This signal would
be expected to enable the Company to detect when phones are inoperable. With
this change in technology the Company anticipates less down time for phones.
With the use of smart phones the Company anticipates being able to change the
cellular telephone number without physically being there.
As reflected in the accompanying financial statements, the Company has sustained
losses from operations since inception. As a result, the Company depended
substantially on Peoples for funding. In December 1994 the parent company
approved the divestiture of the cellular telephone operations and reported this
segment of the business as a discontinued operation in its consolidated
financial statements. This was an effort on the part of Peoples to return its
focus to its core public paytelephone business, which resulted in curtailed
financing to the Company. The Company has concentrated its efforts on obtaining
third party financing, and ultimately a purchaser, to sustain operations and to
finance the development and production of the smart phone technology(See Note
10).
Acquisitions
The Company was incorporated on February 11, 1993 to acquire the assets of
Portable Cellular Communications, Inc. ("PCC"). The Company also acquired from
Peoples all of the assets of Carifone Cellular Phone Rentals, Inc. ("Carifone").
These assets were acquired by Peoples in 1992 for $340,000 in cash and the
issuance of 7,500 shares of the Peoples outstanding common stock. This
transaction was accounted for as a purchase as of April 30, 1992 (inception)
and, accordingly, the results of operations of Carifone have been included in
the consolidated financial statements of Peoples from the date of acquisition.
When the Company was incorporated, the assets of Carifone were transferred to
the Company's books.
During 1993 the Company acquired the assets of PCC, a majority owned subsidiary
of Nationwide Cellular Services, Inc. ("Nationwide"), for $2.5 million in cash
and the issuance of 25% of the Company's outstanding common stock. This
transaction was accounted for as a purchase as of July 1, 1993 and, accordingly,
the results of operations of the company acquired have been included in the
consolidated financial statements of the Company from the date of acquisition.
In July 1994 Peoples acquired the 25% interest in the Company owned by
Nationwide for $275,000. This transaction was pushed down to the Company by
Peoples, resulting in a $602,353 charge to goodwill. Also, the Company issued
additional stock. The Company originally had 100 shares issued and outstanding,
and, subsequently, the Company issued 4,499,900 additional shares to Peoples for
no additional consideration. Furthermore, the Company issued and sold 500,000
shares (a 10% interest in the Company) to its President for consideration of
$87,500 and a note receivable of $50,000. The note bears interest at 7.5% per
annum, and matures July 18,1995.
The following unaudited consolidated pro forma combined condensed statements of
income for the years ended December 31, 1993 and 1992 have been prepared to
reflect the Carifone and PCC acquisitions by the Company, as if they were
consummated as of January 1, 1992, after giving effect to certain pro-forma
adjustments as described below.
For the year ended December 31
1993 1992
Total revenues $8,027,975 $5,484,246
(Loss) before extraordinary item (2,724,978) (1,082,287)
Net (loss) (2,724,978) (1,082,287)
Pro forma adjustments reflect depreciation of fixed assets, amortization of
intangible assets acquired and accrual for income taxes. There is no adjustment
for interest expense because these was no debt issued in relation to this
purchase.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company defines cash and cash equivalents as those highly liquid investments
purchased with an original maturity of three months or less.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and the intercompany debt to the parent company approximate their fair
values.
Software and Smart Phone Development
The smart phone development costs relate to the costs for outside companies to
develop and test the smart phones technology.
The software is also being developed through the use of outside companies, as
well as, consultants. This software will be used in conjunction with the smart
phones to tract the phones both operationally and for usage.
All related costs are capitalized when incurred after feasibility has been
reached. Management has assessed the software and smartphone development to be
feasible. These costs will be amortized over the estimated useful lives once the
smart phones are placed in service.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of the assets commencing when the equipment is installed or placed
in service. Installation, maintenance and repair costs are charged to expense.
Intangible Assets
Location contracts and intangible assets primarily result from business
combinations and include owner contracts, agreements not to compete and other
identifiable intangible assets. these assets are being amortized on the
straight-line basis over the estimated life, assuming, in some instances,
renewal of the underlying contracts (3 to 6 years). In 1992 Peoples acquired a n
on-compete contract from the founder of Carifone for $175,000. An additional
$214,500 was paid to the founder in 1993 to extend the non-compete agreement
terms. In 1993 the Company acquired from PCC location contracts with an
estimated value of $556,392. Costs of $627,197 related to the acquisition
start-up of PCC were capitalized. The Company paid an additional $69,305 for
start-up costs in 1994 which were also capitalized. Amortization expense for
1994, 1993 and 1992 was $362,327, $221,083 and $18,852, respectively.
Goodwill
Goodwill primarily arising from the PCC acquisition during 1993 is being
amortized on a straight-line basis over 10 years. Amortization expense for 1994
and 1993 was $104,124 and $45,600, respectively.
Revenue Recognition
Revenues are recognized when earned. The Company recognized revenue from the
rental of cellular telephones monthly, as the calls are made.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS109),, Accounting for Income Taxes.
SFAS 109 requires companies to record deferred tax liabilities or assets for the
deferred tax consequences of all temporary differences and requires ongoing
adjustments for enacted changed in tax rates and regulations. A valuation
allowance reducing the deferred tax asset recognized must be recorded if it is
determined it is more likely than not the asset will not be realized.
Accounts Receivable
Accounts receivable of $1,471,435 and $1,313,859 at December 31, 1994 and 1993,
respectively, consists primarily of amounts due from billings in the ordinary
course of business.
Use of Estimates
The preparation of financial statements in accordance with Generally Accepted
Accounting Principles requires the use of management's estimates.
3. Property and Equipment
Property and equipment is summarized as follows:
Estimated useful
December 31, lives
1994 1993 (in years)
Installed telephones and related
equipment $6,353,893 $6,613,183 3-5
Furniture, fixtures and
office equipment 818,738 615,243 5
Other 35,651 34,726 5
------ ------
7,208,322 7,263,152
Less: Accumulated depreciation 1,958,800 911,923
--------- -------
$5,249,527 $6,351,229
Depreciation expense of $2,003,911, $818,147 and $63,776 was recognized for
1994, 1993 and 1992, respectively.
4. Accounts payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
1994 1993
----------------------------------
Telecommunications Charges $1,041,546 $970,680
Commissions 52,884 87,927
Telephone Equipment Purchased 762,910 772,902
Bill Processing Services 370,803 -
Other 877,734 1,229,500
------- ---------
$3,105,877 $3,061,009
5. Commitments and Contingencies
Lease Commitments
The Company occupies space in Peoples Miami Florida offices and did not have a
written lease agreement and as such has no lease commitment. The Company,
however, is allocated expenses from the parent company, which includes the
payment of rent (see Note 6).
Debt Guarantee
Under the terms of Peoples $125 million credit facility the Company acts as a
guarantor and has pledged certain assets as collateral for this debt. During
July 1995, Peoples completed the sale of $100 million of Senior Notes due 2002
(the "Senior Notes") and the issuance of 150,000 shares of Series C Cumulative
Convertible Preferred Stock (the "Preferred Stock") for $15 million. The net
proceeds of approximately $109.5 million from the Senior Notes and the Preferred
Stock were used to repay the outstanding balance due under Peoples $125 million
credit facility and certain other notes payable of approximately $105.1 million,
in the aggregate. Simultaneously with the sale of the Senior Notes and the
issuance of the Preferred Stock, Peoples executed the Fourth Amended and
Restated Loan and Security Agreement (the "Loan Agreement") with Creditanstalt
Bankverein (the "Bank"). The Loan Agreement provides for a new $40 million
credit facility. The Loan Agreement is secured by substantially all of Peoples
and the Company's assets and contains certain restrictive covenants.
Contingent Liabilities
"Cloning" is an industry term which describes the illegal programming of
cellular telephone numbers into unauthorized telephones so that cloners can sell
airtime which is billed to subscriber or customer of the cellular telephone and
not the actual user of the cloned telephone. Carriers in general provide a
credit for airtime attributable to a cloned telephone provided the Company
complies with that carrier's policy on notification of a cloned telephone;
therefore, the Company excludes the fraudulent calls from its payments to its
carriers and claims a credit for such calls. As of December 31, 1994 the
unrecorded liability for these unapproved credits taken by the Company amounted
to approximately $2,110,000; $650,000 relates to McCaw Cellular Communications
of Florida, Inc. (d/b/a Cellular One); $1,200,000 relates to L.A. Cellular,
which was subsequently credited; and the remaining amount relates to NYNEX and
various other carriers. In connection with cellular cloning fraud disputes
involving Cellular One and NYNEX, Peoples has filed a claim. The insurance
company has preliminarily denied coverage for this claim and Peoples intends to
file suit against insurance company in connection with said denial.
Patent
QuickCall Corporation ("QuickCall") filed suit asserting claims of patent
infringement, alleging that the Company infringed upon patented technology
related to this operation of cellular phones, but without reference to time or
place of that infringement or particular equipment. The Company has filed a
response to QuickCall's Complaint in the form of a motion for more definite
statement, due to the vague nature of QuickCall's allegations. That motion is
still pending before the Court, together with a motion filed on behalf of
Peoples to dismiss QuickCall's claims for failure to state a claim. The Company
anticipates that it will dispute the validity of the patents upon which
QuickCall bases its action. QuickCall has not specified the amount of damages it
claims to have incurred due to any conduct by the Company and has not tendered a
settlement demand. Because of the preliminary nature of the litigation,
management and the Company's outside counsel are unable to predict the outcome
of such litigation. Accordingly, the financial statements do not include any
adjustments that might result from this uncertainty.
Litigation
On March 24, 1995 the Company commenced a lawsuit against Ericsson GE Mobile
Communications, Inc., arising from the purchase of mobile telephones. The
Company alleges that Ericsson breached certain warranties given in connection
with Ericsson's sale of mobile telephones to the Company. The Company has
accrued, as of December 31, 1994, a liability for equipment received from
Ericsson in the approximate amount of $664,000 and has not authorized payment of
these invoices based on Ericsson's alleged breach of warranty and the resulting
damages sustained by the Company. The amount of damages sought by the Company
substantially exceeds the accrued liability.
On September 6, 1995 Peoples, the majority shareholder of the Company, commenced
a lawsuit against Cellular One, a vendor which has provided cellular telephone
services to the Company. The claim involves approximately $800,000 in fraudulent
telephone charges incurred in connection with the Company's telephone rental
operations. Cellular One has demanded payment of the full amount in dispute,
despite the fact that all, or substantially all, of the charges were generated
through unauthorized, improper cloning of the Company's cellular telephone
numbers. In connection with this litigation Cellular One has countersued Peoples
for this amount. The Company does not believe that it is liable for payment of
the fraudulent cloning charges. At this juncture, management and the Company's
outside counsel are unable to evaluate the likelihood of an unfavorable outcome
in this matter.
6. Related Party Transactions
The Company has been substantially dependent upon Peoples to provide sufficient
funding to meet its cash requirements. The Company also relies on certain
functions provided by Peoples such as legal, MIS, Finance and human resources.
During 1994 and 1993 Peoples allocated to the Company administrative expenses of
$359,700 and $156,968, respectively. The allocations to the Company were based
on estimated usage. Employees who worked on Peoples and its subsidiaries were
asked to segregate their estimated time, by division, for the month. These
estimates were updated in mid-1994 and these allocations remained for the year
ended December 31, 1994. Peoples also charges the Company rent expense of
$25,000 per month. Charges by Peoples for provided services are not necessarily
indicative of what would be negotiated with independent third parties.
The payable to Peoples for funding as of December 31, 1994 and 1993 was
$13,457,738 and $6,986,533, respectively. Interest accrues on the intercompany
balance plus overdrafts at a rate of one half percent above Peoples' borrowing
rate (9.75% at December 31, 1994).
Employees of the Company are included in the savings plan under the provisions
of section 401(k) of the Internal Revenue Code and the stock option plan for
Peoples.
7. Income Taxes
The Company has net operating losses of approximately $10 million for financial
reporting purposes and approximately $9.4 million for tax purposes which are
available to reduce future taxable income and income taxes, if any. These
carryforwards expire commencing in 2008. The net operating loss carryforward for
financial reporting purposes differs from the tax amount primarily due to
differences in the treatment of reserves (inventory and bad debt) and
depreciation.
A valuation allowance reducing the asset recognized must be recorded if it is
determined that it is more likely than not that the asset will not be realized.
In 1993, a deferred tax benefit of $1,113,041 was recorded. In 1994, due to the
uncertainty surrounding realizability of future tax benefits arising from
cumulative losses, a valuation allowance in the amount of $3,291,111, which
represents the full amount of the future tax benefit associated with the
cumulative net operating loss carryforwards, has been established. The result is
a $1,113,041 net tax provision in 1994.
8. Major Contracts
The Company utilizes one main channel of distribution, rental car companies. As
such, the Company has agreements with rental car companies to install cellular
phones in their rental cars.
The Company has a five year contract with Avis Rent A Car System, Inc. (Avis)
effective March 1, 1995. This is an exclusive contract for Avis locations.
Effective October 1995 the Company amended its Avis contract. Under this amended
agreement, the Company must, among other things, have installed 10,000 Ericsson
or smart phones by January 1, 1996 and replace all Ericsson phones so that
10,000 smart phones are installed by December 31, 1996. Additionally, the
contract contains minimum commission payments. About 87% of the Company's
revenues are currently generated through Avis locations.
The Company has a three-year exclusive agreement, effective January 23, 1995,
for several major corporate Budget Rent-A-Car markets across the United States.
The Company has agreed to install phones in 10% of the fleet specified by Budget
in each market. Once a deployment schedule is established, the Company is
obligated under the agreement to deploy the 10% minimum within six months. To
date, no deployment schedule has been set and, therefore, the Company has not
been required to meet the 10% minimum.
9. Bank Loan
In May 1995 the Company signed an agreement with Creditanstalt Corporate
Finance, Inc. for a one year loan for up to $2.5 million, with interest rate
fluctuating daily, equal to the higher of the Creditanstalt prime rate or the
Federal Funds Rate plus l/2 of 1%. This loan is guaranteed by Peoples and is
collateralized by the smart phone.
10. Sale of Certain Assets Subject to Certain Liabilities
On July 21, 1995 the Company sold certain portable cellular phone assets to
Shared Technologies Cellular, Inc. ("STC") for $225,000. On November 13, 1995,
Peoples sold certain assets subject to certain liabilities as well as assigned
certain contracts of the Company to Shared Technologies Cellular, Inc. ("STC")
for approximately $6.1 million. Of the $6.1 million, $2.5 million represents
consideration contingent upon future earnings which is not recognizable for
financial reporting purposes at the time of the sale. Accordingly, recognizable
consideration amounted to $3.6 million: $0.3 million in cash; a $2.0 million
promissory note bearing interest at 8.0% per annum, with principal interest
payable semiannually through 2000; STC will pay certain of the Company's
liabilities, net of trade receivables as of November 1, 1995, for a total of
$1.2 million; and 100,000 shares of STC common stock with an adjusted, estimated
value of approximately $100,000.
The sale included the following assets of the Company: The entire in-car phone
fleet of approximately 15,000 Ericsson phones; patents pending on the computer
operating system including the smart phone technology and 1,530 smart phones;
and computer equipment. The Company's contracts with rental car companies (see
Note 8) and with certain carriers were assigned to STC along with manufacturing
and royalty agreements for the smart phone.
Upon the November 13, 1995 sale, the Company ceased its business operations.
Peoples retained all liabilities in excess of $1.2 million assumed by STC,
including any potential liabilities arising from the lawsuits described in Note
5 and the approximate $1.6 million outstanding on the Bank Loan described in
Note 9 at November 13, 1995.
During 1995 the Company made significant additional investments in the
development and manufacture of the smart phone. The recognizable consideration
received of $3.6 million (exclusive of the $2.5 million potential revenue earn
out due to its contingent nature) was not sufficient to recoup the carrying
amounts of the long lived assets, as of December 31, 1994 and the significant
subsequent capital additions. As a result the sales transaction resulted in a
loss. Management of the Company is unable to estimate the impact of the loss on
this sale transaction on the long-lived assets of the Company as of December 31,
1994, accordingly no loss has been provided in the accompanying financial
statements.
<PAGE>
PTC Cellular, Inc.
Balance Sheets
September 30, 1995 and 1994
(unaudited)
September 30, 1995
ASSETS
Current assets:
Cash $18,607
Accounts receivable, net of allowance
at Sept 30 1995 and 1994 of 810,449
$589,351 and $1,256,532,
respectively.
Pre-Paid Expenses and Other Current Assets 405,777
----------------
Total current assets 1,234,833
-----------------
Property and Equipment, net of allowance at
Sept, 30 1995 and 1994 8,609,659
of $2,824,081 and $1,920,299,
respectively.
Intangible Assets, net of allowance at Sept
30, 1995 and 1994 of 2,351,673
$881,903 and $635,543, respectively.
Deferred Tax Asset 0
Other Assets 96,018
-------------------
Total assets $12,292,183
===================
LIABILITIES and STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and Accrued Expenses $2,370,096
Creditanstalt Note Payable 1,600,000
-------------------
Total current liabilities 3,970,096
-------------------
Long Term Liabilities:
Payable to PTC 17,142,823
Other Long Term Liabilities 0
Stockholders' deficit
Common Stock; $.01 par value, 25,000,000 shares authorized,
5,000,000 and 500,100 shares issued and outstanding as of
Sept 30, 1995 and 1994.
50,000
Additional paid-in capital 4,659,323
Accumulated deficit (13,530,059)
-------------------
Total stockholders' deficit (8,820,736)
------------------
Total liabilities and stockholders' deficit $12,292,183
================
PTC Cellular, Inc.
Statements of Operations
For the Nine Months Ended
September 30, 1995 and 1994
(unaudited)
September 30,1995
-------------------
Revenues $5,801,328
Cost of revenues 5,297,067
-------------------
Gross profit 504,261
Selling, general & administrative expenses: 2,861,907
-------------------
Operating loss (2,357,646)
Interest expense (893,967)
-------------------
($3,251,613)
===================
PTC Cellular, Inc.
Statements of Cash Flows
For the Nine Months Ended
September 30, 1995 and 1994
(unaudited)
September 30,1995
-------------------
Cash Flows Provided by Operating Activities:
Net Loss ($3,251,613)
Adjustments:
Depreciation and amortization 1,620,791
Loss on Sale of Portable 119,007
Deferred Tax Asset 0
Change in Assets and Liabilities:
Decrease (Increase) in accounts receivable 377,279
Decrease (Increase) in Prepaid expenses
and other current assets (238,100)
Decrease (increase) in Other Assets 156,790
Increase (Decrease) in accounts payable and
accrued expenses (735,781)
Increase (Decrease) in other long term liabilities (67,267)
----------
Net cash provided by operating activities (2,018,894)
-------------------
Cash Flows Used in Investing Activities:
Decrease (Increase) in Property and Equipment (3,413,885)
Decrease (Increase) in Intangible Assets (82,267)
Proceeds from sale of portable 225,000
--------------
Net cash used in investing activities (3,271,152)
---------------
Cash Flows Provided by Financing Activities:
Loans from PTC 3,685,085
Creditanstalt Note 1,600,000
Issuance of common stock 0
-------------------
Net cash provided by financing activities 5,285,085
-------------------
Net increase in cash (4,961)
Beginning of Period 23,568
-------------------
Cash, End of Period $18,607
===================
===================
PTC Cellular, Inc.
Notes to Financial Statements
September 30, 1995
(unaudited)
Note 1 - General
Description of business
PTC Cellular, Inc. ("PTCC" or the "Company") is a provider of in-car wireless
telephone service to persons who
rent cars from certain domestic car rental companies. The Company is a 90%
owned subsidiary of Peoples Telephone
Company, Inc. ("Peoples").
The Company was developing new car phones known as "smart phones". These smart
phones will periodically signal the Company. This signal enables the Company to
detect when phones are inoperable. With this change in technology the Company
anticipates less down time for phones and ultimately increased revenues.
As reflected in the accompanying financial statements, the Company has sustained
losses from operations. As a result, the Company depended substantially on
Peoples for funding. In December 1994, the parent company approved the
divestiture of the cellular telephone operations and reported this segment of
the business as a discontinued operations in its consolidated financial
statement. This was an effort on the part of Peoples to return its focus to its
core public pay telephone business, which resulted in curtailed financing to the
Company. The Company has concentrated its efforts on obtaining third party
financing, and ultimately a purchaser, to sustain operations and to finance the
development and production of the smart phone technology (see note 9).
Acquisitions
In July 1994 Peoples acquired the 25% interest in the Company owned by
Nationwide Cellular Services, Inc. This transaction was pushed down to the
Company by Peoples, resulting in a $602,353 charge to goodwill. Also, the
Company issued additional stock. The Company originally had 100 shares issued
and outstanding, and, subsequently, the Company recapitalized by issuing
4,499,900 additional shares. Furthermore, the Company issued and sold 500,000
shares (a 10% interest in the Company) to its President for consideration of
$87,500 and a note receivable of $50,000. The note bears interest at 7.5% per
annum, and matures July 18, 1995.
Note 2 - Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company defines cash and cash equivalents as those highly liquid investments
purchased with an original maturity of three months or less.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalent, accounts receivable, accounts
payable, and the intercompany debt to the parent company approximate their fair
values.
Software and Smart Phone Development
Includes software and developmental costs, for internal use, with a useful life
of over five years, externally developed from scratch after the feasibility of
the projects had been determined. These costs will be amortized over a five year
period when the smart phone becomes operational.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets commencing when the equipment is installed or placed
in service. Installation, maintenance and repair costs are charged to expense.
Intangible Assets
Location contracts and intangible assets primarily result from business
combinations and include owner contracts, agreements not to compete and other
identifiable intangible assets. These assets are being amortized on the
straight-line basis over the estimated life, assuming, in some instances,
renewal of the underlying contracts (3 to 6 years).Amortization expense for the
nine months ended September 30, 1995 and 1994 was $ 235,380 and $236,602,
respectively.
Goodwill is being amortized on a straight-line basis over 10 years. Amortization
expense for the nine months ended September 30, 1995 and 1994 was $144,757 and
$113,406, respectively.
Revenue Recognition
Revenues are recognized when earned. The Company recognizes revenue from the
rental of cellular telephones monthly, as the calls are made.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
SFAS 109 requires companies to record deferred tax liabilities or assets for the
deferred tax consequences of all temporary differences and requires ongoing
adjustments for enacted changes in tax rates and regulations. A valuation
allowance reducing the deferred tax asset recognized must be recorded if it is
determined it is more likely than not the asset will not be realized.
Note 3 - Property and Equipment
Property and equipment is summarized as follows:
September 30, Estimated
1995 1994 Useful Lives
---------- ----------
(in years)
Installed telephones and related
equipment ........................ 10,536,625 8,398,723 3-5
Furniture, fixtures and office
equipment .................... 862,556 748,438 5
Other ............................ 34,559 34,559 5
---------- ----------
11,433,740 9,181,720
Less: Accumulated depreciation .. 2,824,081 1,920,299
---------- ----------
8,609,659 7,261,421
Depreciation expense of $1,240,654 and $1,442,568, was recognized for the nine
months ended September 30, 1995 and 1994, respectively.
Note 4-Commitments and Contingencies
Lease Commitments
The Company's offices are located in Miami, Florida. The Company occupies space
in Peoples's offices and did not have a written lease agreement and as such no
lease commitment. The Company, however, is allocated expenses from the parent
company, which include the payment of rent.
Debt Guarantee
Under the terms of Peoples $125 million credit facility, the Company acts as a
guarantor and has pledged certain assets as collateral for this debt. During
July 1995, Peoples completed the sale of $100 million of Senior Notes due 2002
(the "Senior Notes") and the issuance of 150,000 shares of Series C Cumulative
Convertible Stock (the "Preferred Stock") for $1.5 million. The net proceeds of
approximately $109.5 million from the Senior Notes and the Preferred Stock were
used to repay the outstanding balance due under Peoples $125 million credit
facility and certain other notes payable at approximately $105.1 in the
aggregate. Simultaneously with the sale of the Senior Notes and issuance of the
Preferred Stock, Peoples executed the Fourth Amended and Restated Loan and
Security Agreement (the "Loan Agreement") with Creditanstalt Bankverein (the
"Bank"). The Loan Agreement provides for a new $40 million credit facility . The
Loan Agreement is secured by substantially all of Peoples and the Company's
assets and contains certain restrictive covenants.
Contingent Liabilities
"Cloning" is an industry term which describes the illegal programming of
cellular telephone numbers into unauthorized telephones so that cloners can sell
air-time which is billed to the subscriber or customer of the cellular telephone
and not the actual user of the cloned telephone. Carriers in general provide a
credit for air-time attributable to a "cloned telephone" provided the Company
complies with that carrier's policy on notification of a cloned telephone;
therefore, the Company excludes the fraudulent calls from its payments to its
carriers and claims a credit for such calls. As of September 30, 1995 the
unrecorded liability for these unapproved credits taken by the Company amounted
to approximately $2,110,000. $650,000 related to Mc Caw Cellular Communications
of Florida, Inc (dba Cellular One); $1,200,000 relates to LA Cellular, which was
subsequently credited; and the remaining amount relates to NYNEX and various
other carriers. In connection with the cellular cloning fraud disputes involving
Cellular One and NYNEX, Peoples has filed a claim. The insurance company has
preliminary denied coverage for this claim and Peoples intends to file suit
against the insurance company in connected with said denial. Patent
QuickCall Corporation ("QuickCall") filed suit asserting claims of patent
infringement, alleging that the Company infringed upon the patent technology
related to this operation of cellular phones, but without reference to time or
place of that infringement or particular equipment. The Company has filed a
response to QuickCall's complaint in the form of a motion for more definite
statement, due to the vague nature of QuickCall's allegations. This motion is
still pending before the court, together with a motion filed on behalf of
Peoples to dismiss QuickCalls' claims for failure to state a claim. The Company
anticipates that it will dispute the validity of the patents upon which
QuickCall bases its action. QuickCall has not specified the amount of damages it
claims to have incurred due to and conduct by the Company and has not tendered a
settlement demand. Because of the preliminary nature of the litigation,
management and the Company's outside council are unable to predict the outcome
of such litigation. Accordingly, the financial statements do not include any
adjustments that might result from this uncertainty.
Litigation
On March 24, 1995 the Company commenced a lawsuit against Ericcson GE Mobile
Communications, Inc., arising from the purchase of mobile telephones. The
Company alleges that Ericcson breached certain warranties given in connection
with Ericcson's sale of mobile telephones to the Company. The Company has
accrued, as of September 30, 1995, a liability for equipment received from
Ericcson in the approximate amount of $ 664,000 and has not authorized payment
of these invoices based on Ericcson's alleged breach of warranty and the
resulting damages sustained by the Company. The amount of damages sought by the
Company substantially exceeds the accrued liability.
On September 6, 1995 Peoples, commenced a lawsuit against Cellular One, a vendor
which has provided cellular telephone services to the Company. The claim
involves approximately $ 800,000 in fraudulent telephone charges incurred in
connection with the Company's telephone rental operations. Cellular One has
demanded payment of the full amount in dispute, despite the fact that all, or
substantially all, of the charges were generated through unauthorized, improper
"cloning" of the Company's cellular telephone numbers. In connection with this
litigation, Cellular One has countersued Peoples for this amount. The Company
does not believe that it is liable for payment of the fraudulent cloning
charges. At this juncture, management and the Company's outside counsel are
unable to evaluate the likelihood of an unfavorable outcome in this matter.
Note 5 - Related Party Transactions
The Company has been substantially dependent upon Peoples to provide sufficient
funding to meet its cash requirements. The Company also relies on certain
functions provided by Peoples such as legal MIS, finance, and human resources.
During the nine months ended September 30, 1995 and 1994, Peoples allocated to
the Company administrative expenses of $183,672 and $197,815, respectively.
Charges by Peoples for provided services are not necessarily indicative of what
would be negotiated with independent third parties.
The payable to Peoples for funding as of September 30, 1995 and 1994 was
$17,142,823 and $11,645,935, respectively. Interest accrues on the intercompany
balance plus overdrafts at a rate of one half percent above Peoples' borrowing
rate (9.75% as of December 31, 1994).
Employees of the Company are included in the saving plan under the provisions of
section 401(k) of the Internal revenue Code and the stock option plan for
Peoples.
Note 6 - Income Taxes
The Company has net operating losses of approximately $10 million for financial
reporting purposes and approximately $9.4 million for tax purposes which are
available to reduce future taxable income and income taxes, if any. These
carryforwards expire commencing in 2008. The net operating loss carryforward for
financial purposes differs from the tax amount primarily due to differences in
the treatment of reserves (inventory and bad debt) and depreciation.
A valuation allowance reducing the asset recognized must be recorded if it is
determined that it is more likely than not that the asset will not be realized.
A valuation allowance in the amount of $3,291,111, which represents the full
amount of the future tax benefit associated with the cumulative new operating
loss carryforwards, has been established. The result is a $1,113,041 new tax
provision in 1994.
Note 7 - Major Supplier
The Company utilizes one main channel of distribution, rental car companies. As
such, the Company has agreements with rental car companies to install cellular
phones in their rental cars.
The Company has a five year contract with Avis Rent A Car System, Inc. ("Avis")
effective March 1, 1995, amended effective October 1, 1995. This is an exclusive
contract for Avis locations. Under this agreement, the Company must have
installed 10,000 Ericcson or "Smart" phones by January 1, 1996 and 10,000
"Smart" phones by December 31, 1996. About 87% of the Company's sales are
through AVIS locations.
The Company has a three-year exclusive agreement, effective January 23, 1995,
for several major corporate Budget Rent-A-Car markets across the United States.
The Company has agreed to install phones in 10% of the fleet specified by Budget
in each market. Once a deployment schedule is established, the Company is
obligated under the agreement to deploy the 10% minimum within six months. To
date, no deployment schedule has been set and, therefore, the Company has not
been required to meet the 10% minimum.
Note 8 - Bank Loans
In May 1995 the Company signed an agreement with Creditanstalt Corporate
Finance, Inc. for a one year loan up to $2.5 million, with an interest rate
fluctuating daily, equal to the higher of the Creditanstalt prime rate of the
Federal Funds Rate plus 1/2 of 1%. This loan is guaranteed by Peoples and is
collateralized by the Smart Phone.
Note 9 - Subsequent Events
On July 21, 1995 the Company sold certain portable cellular phone assets to
Shared Technologies Cellular, Inc ("STC") for $225,000. On November 13, 1995,
Peoples sold certain assets subject to certain liabilities as well as assigned
certain contracts of the Company to STC for approximately $6.3 million. Of the
$6.3 million, $2.5 million represents consideration contingent upon future
earnings which is not recognizable for financial reporting purposes at the time
of the sale. Accordingly, recognizable consideration amounted to $3.8 million:
$0.3 million in cash; a $2.0 million promissory note bearing interest at 8.0%
per annum, with principal and interest payable semiannually through 2000; STC
will pay certain of the Company's liabilities, net of trade receivables as of
November 1, 1995 for a total of $1.2 million; and 100,000 shares of STC common
stock with an estimated value of approximately $225,000.
The sale included the following assets of the Company; the entire in-car phone
fleet of approximately 15,000 Ericcson phones; patents pending on the computer
operating system including Smart Phone technology and 1,530 Smart Phones; and
computer equipment. The Company's contracts with rental car companies (see Note
7) and with certain carriers were assigned to STC along with manufacturing and
royalty agreements for the Smart Phone.
Upon the November 13, 1995 sale, the Company ceased its business operations.
Peoples retained all liabilities in excess of $1.2 million assumed by STC,
including any potential liabilities arising from the lawsuits described in note
4 and the approximately $1.6 million outstanding on the Bank Loan described in
Note 8 at November 13, 1995
<PAGE>
Shared Technologies Inc.
Pro Forma Consolidated Balance Sheet
September 30, 1995
(unaudited)
(1)
STC Equity Pro Forma
In thousands STI Adjustment STI
---------- ------------ ----------
CURRENT ASSETS:
Cash $1,410 $ (880) $ 530
Accounts receivable, less
allowance for doubtful accounts 11,588 (2,241) 9,347
Other current assets 1,895 (480) 1,415
---------- ------------ ----------
Total current assets 14,893 (3,601) 11,292
---------- ------------ ----------
Equipment, at cost:
Telecommunications equipment 29,500 (1,314) 28,186
Office and data processing
equipment 6,132 (440) 5,692
---------- ------------ ----------
35,632 (1,754) 33,878
Less - Accumulated depreciation (18,063) 592 (17,471)
---------- ------------ ----------
17,569 (1,162) 16,407
---------- ------------ ----------
Other Assets 14,617 (3,610) 11,007
Investment in STC
2,903 2,903
Total assets $47,079 $(5,470) $41,609
========== ============ ==========
CURRENT LIABILITIES:
Notes payable and current portion of
long-term
debt and capital lease
obligations $ 2,438 $ (7) $2,431
Accounts payable 10,664 (3,770) 6,894
Accrued expenses 2,666 2,666
Advanced billings 1,248 (29) 1,219
---------- ------------ ----------
Total current liabilities 17,016 (3,806) 13,210
---------- ------------ ----------
Long-Term Debt and Capital Lease Obligations,
less current portion 4,012 (1) 4,011
---------- ------------ ----------
Minority Interest in Net Assets of
Subsidiaries 1,663 (1,663) -
---------- ------------ ----------
Redeemable Put Warrant 416 416
---------- ------------ ----------
STOCKHOLDERS' EQUITY:
STI Series C preferred stock 9 9
STI Series D preferred stock 5 5
Common Stock 34 34
Additional paid-in capital 44,647 44,647
Accumulated deficit (20,723) (20,723)
---------- ------------
Total stockholders' equity 23,972 - 23,972
---------- ------------ ----------
Toral liabilities & stockholders' equity
47,079 $ 41,609 (5,470)
========== ============ ==========
Shared Technologies Inc.
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended
September 30, 1995 (1) (5) (2)
STC Equity PTC OTM Pro Forma Pro Forma
STI Adjustment Acquisition Acquisition Adjustments STI
In thousands
Revenues
$43,674 $(9,160) $ $1,958 $ $36,472
Cost of Revenue
26,628 (5,531) 1,233 22,330
- ---------- -------- ------- ---------- --------- -----------
Gross Margin
17,046 (3,629) 725 14,142
Selling, General & Administrative Expenses
16,116 (4,231) 626 (2) 64 12,575
- --------- --------- --------- ---------- -------- ---------
Operating Income (Loss)
930 602 99 (64) 1,567
Minority interest in net loss of subsidiary
213 (213)
Gain on sale of subsidiary stock
1,375 1,375
Equity in (loss) of STC
(411) (544) (4) (48) (1,003)
Interest Expense
(574) 24 (119) (2) (34) (774)
(2) (71)
Interest Income
130 (2) 128
- ----------- ------------ --------- ---------- -------- --------
Net Income (Loss)
2,074 - (544) (20) (217) 1,293
Preferred Stock Dividends
(299) (299)
- --------- --------- --------- ---------- -------- -----------
Net Income(Loss) Applicable to
Common Stock
1,775 $ - (544) (20) (217) 994
============ ============ ========= ========== ========= =========
Shared Technologies Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended
December 31, 1994
(1) (5) (2) (3)
STC Equity PTC OTM Access Pro Forma
STI Adjustment Acquisition Acquisition Acquisition Adjustments
Revenues
$45,367 $(10,217) $ $3,454 $9,181 47,785
Cost of Revenue
26,172 (5,293) 2,254 6,384 (3) 56 29,573
- ----- -------- ------- ------- -------- ------- ----------
Gross Margin
19,195 (4,924) 1,200 2,797 (56) 18,212
Selling, General & Administrative Expenses
16,972 (4,274) 1,214 2,496 (2) 128 16,642
(3) 106
- ------- ---------- --------- ---------- -------- -------- -----
Operating Income (Loss)
2,223 (650) (14) 301 (290) 1,570
Minority interest in net income of subsidiaries
(128) 85 (43)
Equity in earnings of STC
517 (1,905) (4) (265) (1,653)
Interest Expense
(522) 65 (151) (2) (67) (817)
(2) (142)
Interest Income
163 (17) 28 174
Net Income(Loss) before taxes
1,736 - (1,905) (165) 329 (764) (769)
Income tax credit
550
Net Income (Loss) before preferred dividends
2,286 - (1,905) (165) 329 (764) (219)
Preferred Stock Dividends
(478) (3) (60) (538)
Net Income (Loss) Applicable to Common Stock
1,808 $ (1,905) (165) 329 (824) (757)
<PAGE>
SHARED TECHNOLOGIES INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) STI owns 60.28% of the outstanding common stock of STC; formerly a
consolidated subsidiary of STI. During December 1995 STC issued approximately
$3,000,000 in voting preferred stock to third parties. While STI's ownership
percentage did not change, the voting rights assigned to the voting preferred
stock reduced STI's voting interest in STC to 42.7% this resulted in a loss of
voting control over STC operations. Consequently the pro forma consolidated
balance sheet was adjusted to account for STC on the equity basis; all assets
and liabilities of STC were eliminated and a non current asset of $2,903,000 was
recorded to reflect STI's equity investment in STC at September 30, 1995. The
pro forma consolidated financial statements were adjusted to record STC's income
or loss on the equity basis.
(2) In June 1995, STI purchased all the outstanding capital stock of OTM for an
aggregate purchase price of $2,135,000. OTM provides telecommunications
management services primarily to businesses located in executive office suites.
The purchase was paid with $1,335,000 in cash and the issuance of a $800,00 note
payable in quarterly installments of $30,0000 including interest at 8.59% over
ten years . The acquisition was recorded as a purchase and the unallocated
purchase price over fair market value of assets acquired was $1,915,000 which is
being amortized over 15 years. The unaudited pro forma consolidated statements
of operations for the year ended December 31, 1994 and the nine months ended
September 30, 1995 include adjustments to record OTM operations for the periods
prior to the acquisition in June 1995. Adjustments of $128,000 and $64,000 were
recorded for additional goodwill amortization for the year ended December 31,
1994 and the nine months ended September 30, 1995 respectively. Adjustments for
additional interest expense were recorded of $67,000 and $34,000 for the year
ended December 31, 1994 and the nine months ended September 30, 1995
respectively related to the $800,000 note. Adjustments for additional interest
expense were recorded of $142,000 and $71,000 for the year ended December 31,
1994 and the nine months ended September 30, 1995 respectively related to the
estimated interest cost at 10.5% on additional borrowings of $1,355,000 required
to obtain the cash paid to acquire OTM.
(3) In June 1994, STI acquired all of the partnership interests in Access. The
purchase price was $9,252,000, of which $4,252,000 was paid in cash and the
balance through the issuance of 400,000 shares of Series E Preferred Stock
valued at $3.75 per share and 700,000 shares of Series F Preferred Stock valued
at $5.00 per share. The acquisition was recorded as a purchase and the
unallocated purchase price over fair market value of assets acquired was
$8,500,000, which is being amortized over 40 years. The pro forma consolidated
statements of operations for the year ended December 31, 1994 include an
adjustment to record Access operations for the first six months of 1994. An
adjustment of $106,000 was recorded to reflect additional goodwill amortization
expense for the year ended December 31, 1994. Additional depreciation expense,
related to fair market value of fixed assets acquired, of $56,000 was recorded
for the year ended December 31, 1994. Additional preferred stock dividends of
$60,000 was recorded to reflect an additional six months on 400,000 shares with
an 8% coupon and a value of $3.75 per share for the year ended December 31,
1994.
(4) In May and June 1995 STI's subsidiary STC completed its purchase of Cellular
Hotline Inc. for $617,000. The $617,000 was comprised of $367,000 in cash and
the issuance of 50,000 shares of STC common stock. Adjustments were recorded to
reflect the effect of this acquisition on the equity in earnings or loss for the
year ended December 31, 1994 and the nine months ended September 30, 1995
respectively.
(5) In November 1995 STI's subsidiary STC completed its purchase of certain
assets and liabilities of PTC Cellular Inc. Adjustments were recorded to reflect
the effect of this "pending acquisition" on the equity in earnings or loss for
the year ended December 31, 1994 and the nine months ended September 30, 1995
respectively.
<PAGE>
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 hereunto duly authorized.
SHARED TECHNOLOGIES INC.
By: /s/ Vincent DiVincenzo
Vincent DiVincenzo
Senior Vice President-Finance
and Administration, Treasurer,
Chief Financial Officer
Date: February 2, 1996
