SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
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
(203-258-2400)
Total number of sequentially numbered paged in this filing, including exhibits
hereto:
<PAGE>
Item 7. Financial Statement and Exhibits
(a) Financial Statements of business acquired
The Financial Statements of PTCC are unaudited since management ofPTCC
was unable to satisfy their auditors relating to the amount of
impairment if any, of its long-lived assets at December 31, 1994. STI
will provide audited Financial Statements for PTCC as soon as
practical.
(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
months ended September 30, 1995 and 1994. Unaudited
statements of operation statements of changes in
stockholders' (deficit) equity and statements of cash flows
for the nine months ended September 30, 1995 and 1994
including the notes thereto. 16
(b) Pro-forma financial information
(i) Pro-forma consolidated balance sheet at September 30, 1995
(ii) Pro-forma consolidated statements 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>
<TABLE>
<CAPTION>
PTC Cellular, Inc.
Balance Sheet
(Unaudited)
<S> <C> <C>
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 145,010 57,195
------- ------
Total current assets 1,354,096 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)
$11,011,759 $11,906,981
======================================================== ===========
Liabilities and Shareholder's (Deficit) Equity
Current liabilities
Accounts payable 1,804,147 1,636,559
Accrued expenses 1,301,730 1,424,450
--------- ---------
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)
Note receivable arising from stock purchase
agreement (50,000) -
Total shareholders' (deficit) equity (5,619,123) 1,859,439
- - - - - - - - - - - -
Total liabilities and shareholders'
(deficit) equity $11,011,759 $11,906,981
============ ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
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<TABLE>
<CAPTION>
PTC Cellular, Inc.
Statements of Operations and Accumulated Deficit
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Year Ended
From inception,
December 31, December 31, April 30, 1992 to
1994 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.205,747 - 782,586
Telephone equipment write-down
1,010,900 - -
Total costs and 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
</TABLE>
<TABLE>
<CAPTION>
PTC Cellular, Inc.
Statement of Changes in Shareholders' (Deficit) Equity
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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>
</TABLE>
<TABLE>
<CAPTION>
PTC Cellular, Inc.
Statements of Cash Flows
(Unaudited)
<S> <C> <C> <C>
<C>
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) (817,788) (21,320)
Increase in prepaid expenses and other current
assets
(137,815) 59,285 (17,509)
Increase (decrease) in accounts payable and
accrued expenses
44,868 2,102,595 122,043
Increase in unearned income
67,267 - -
Expenses allocated from People's Telephone
Company, Inc.
1,142,286 362,715 -
-------------------- ------------------- --------------------
Net cash used in operating activities
(1,933,624) (698,865) (139,082)
-------------------- ------------------- --------------------
Cash flows from investing activities:
Acquisition of PCC, net of cash acquired
(2,436,922)
Property and equipment additions
(2,033,109) (5,622,414) (602,082)
Software and Smart Phone development
(1,336,505) - -
Intangible assets additions
(85,878) (825,124) (175,000)
Goodwill deletions (additions)
25,274 - -
Proceeds from sale of telephones
80,000 - -
Increase in other assets
(208,901) (43,907) -
-------------------- ------------------- --------------------
-------------------- ------------------- --------------------
Net cash used in investing activities
(3,559,119) (8,928,367) (777,082)
-------------------- ------------------- --------------------
Cash flow from financing activities:
Invested capital
- - 340,000
Issuance of common stock
137,499 3,629,471 -
Net borrowing from Peoples Telephone Company,
Inc.
5,328,919 6,021,717 602,101
Net cash provided by financing activities
5,466,418 9,651,188 942,101
--------- ---------
Net (decrease) increase in cash and cash
(26,325) 23,956 25,937
equivalents
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. The purchase price of PCC was
allocated on the basis of the relative fair market values of net assets acquired
as follows: Cash $63,078 Accounts Receivable 227,938 Prepaid expenses and other
current assets 98,971 Property and equipment 1,038,656 Intangible Assets 556,392
Goodwill 1,351,336 Accounts Payable (836,371)
$2,500,000
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 of PCC were capitalized. The Company paid an
additional $69,305 for acquisition 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 lives December 31,
1994 1993 (in years)
----------
--------------------- ----------------------
Installed telephones and related equipment $6,353,893 $6,613,183 3-5
Furniture, fixtures and office equipment 818,783 615,243 5
Other 35,651 34,726 5
------ ------
7,208,327 7,263,152
Less: Accumulated depreciation 1,958,800 911,923
---------- -------
$5,249,527 $6,351,229
========== ==========
Depreciation expense of $2,003,911, $848,147 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 and ending in 2009. 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 $25,000. 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.
PTC Cellular, Inc.
</TABLE>
<TABLE>
<CAPTION>
Balance Sheets
September 30, 1995 and 1994
(unaudited)
<S> <C> <C>
September 30, 1995 September 30, 1994
ASSETS
Current assets:
Cash $18,607 $213,199
Accounts receivable, net of allowance at Sept
30 1995 and 1994 of $589,351 and
$1,256,532, respectively. 810,449 864,353
PrePaid Expenses and Other Current Assets
405,777
Total current assets
1,234,833 963,372
Property and Equipment, net of allowance at Sept,
30 1995 and 1994
of $2,824,081 and $1,920,299, respectively.
Intangible Assets, net of allowance at Sept 30,
1995 and 1994 of $881,903
8,609,659 7,261,421
and $635,543, respectively.
2,351,673 2,448,250
Deferred Tax Asset
0 2,752,229
Other Assets
96,018 16,574
--------------------- ---------------------
Total assets $12,292,183 $13,441,846
============ ===========
LIABILITIES and STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and Accrued Expenses $2,370,096 $2,599,732
Creditanstalt Note Payable 1,600,000 0
------------- ---------------------
Total current liabilities 3,970,096 2,599,732
---------- ---------
Long Term Liabilities:
Payable to PTC 17,142,823 11,645,935
Other Long Term Liabilities 0 45,310
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 5,001
Additional paid-in capital 4,659,323 4,704,327
Accumulated deficit (13,530,059) (5,558,459)
------------ -----------
Total stockholders' deficit (8,820,736) (849,131)
----------- ---------
Total liabilities and stockholders'
deficit $12,292,183 $13,441,846
============ ===========
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
PTC Cellular, Inc.
Statements of Operations
For the Nine Months Ended
September 30, 1995 and 1994
(unaudited)
<S> <C> <C>
September 30,
1995 1994
---- ----
Revenues $5,801,328 $7,272,998
Cost of reve 5,297,067 7,342,289
---------- ---------
Gross profit 504,261 (69,291)
Selling, general & administrative expenses: 2,861,907 2,274,296
---------- ---------
Operating loss (2,357,646) (2,343,587)
Interest expense (893,967) (502,487)
--------- ---------
Net loss ($3,251,613) ($2,846,074)
============ ============
</TABLE>
The accompanying notes are an integral part of these
Financial Statements
<PAGE>
<TABLE>
<CAPTION>
PTC Cellular, Inc.
Statements of Cash Flows
For the Nine Months Ended
September 30, 1995 and 1994
(unaudited)
<S> <C> <C>
September 30,
1995 1994
---------------- ---------------
Cash Flows Provided by Operating Activities:
Net Loss ($3,251,613) ($2,846,074)
Adjustments:
Depreciation and amortization 1,620,791 1,792,576
Loss on Sale of Portable 119,007 0
Deferred Tax Asset 0 (1,639,188)
Change in Assets and Liabilities:
Decrease in accounts receivable 377,279 491,654
Decrease (Increase) in Prepaid expenses and other (238,100) 171,375
current assets
Decrease in Other Assets 156,790 27,333
Decrease in accounts payable and accrued expenses
(735,781) (461,277)
Increase (Decrease) in other long term liabilities (67,267) 45,310
Net cash provided by operating activities (2,018,894) (2,418,291)
Cash Flows Used in Investing Activities:
Increase in Property and Equipment (3,413,885) (2,281,717)
Increase in Intangible Assets (82,267) (13,588)
Proceeds from sale of portable 225,000 80,000
-------- ------
Net cash used in investing activities (3,271,152) (2,215,305)
----------- -----------
Cash Flows Provided by Financing Activities:
Loans from PTC 3,685,085 4,659,402
Creditanstalt Note 1,600,000 0
Issuance of common stock 0 137,500
-- -------
Net cash provided by financing activities 5,285,085 4,796,902
---------- ---------
Net increase (decrease) in cash (4,961) 163,306
Cash, Beginning of Period 23,568 49,893
------- ------
Cash, End of Period $18,607 $213,199
======== ========
The accompanying notes are an integral part of these Financial Statements
</TABLE>
<PAGE>
<PAGE>
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 $25 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.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited
pro forma Shared Technologies Inc. consolidated financial statements give
effect, on a purchase accounting basis, to the acquisitions of Office Telephone
Management Inc. (OTM) and Access Telecommunications Group, L.P. and Access
Telemanagement, Inc. (collectively "Access"). The unaudited pro forma Shared
Technologies Inc. financial statements also reflect the STC Equity Adjustment.
The unaudited pro forma Shared Technologies Inc. consolidated financial
statements are not necessarily indicative of the results or financial position
which actually would have occurred if the acquisitions of OTM and Access and the
STC Equity Adjustment had been in effect since January 1, 1994, nor are they
necessarily indicative of future results or financial position. The unaudited
pro forma Shared Technologies Inc. consolidated statements of operations gives
effect to the acquisitions of OTM and Access and the STC Equity Adjustment as if
they had occurred on January 1, 1994, and the unaudited pro forma Shared
Technologies Inc. consolidated balance sheet gives effect to these items as if
they had occurred on September 30, 1995 for the purpose of presenting the
unaudited pro forma Shared Technologies Inc. consolidated financial statements.
<TABLE>
<CAPTION>
Shared Technologies Inc.
Pro Forma Consolidated Balance Sheet
September 30, 1995
(Unaudited)
<S> <C> <C> <C>
(1) STC Equity
Adjustment Pro Forma
In thousands STI STI
--------------
Current assets
Cash $(880) $530 $1,410
Accounts receivable, less allowance for doubtful
accounts
(2,241) 9,344 11,588
Other current assets
(480) 1,415 1,895
----- -------------------
Total current assets
(3,601) 11,292 14,893
------- ------ ------
Equipment, at cost:
Telecommunications equipment
(1,314) 28,186 29,500
Office and data processing equipment
(440) 5,692 6,132
(1,754) 33,878 35,632
Less-Accumulated depreciation
592 (17,471) (18,063)
--- --------- --------
(1,162) 16,407
- ------- ------
17,569
Other Assets
(3,610) 11,007 14,617
Investment in STC
2,903 2,903
- ----- -----
Total Assets
$(5,470) $41,609 $47,079
-------- ------- -------
Current Liabilities
Notes payable and current portion of long-term debt
and capital lease obligations
$(7) $2,431 $2,438
Accounts payable
(3,770) 6,894
10,664
Accrued expenses
2,666
2,666
Advance billings
(29) 1,219
---- -----
1,248
-----
Total current liabilities (3,806) 13,210 17,016
------- -------- ------
Long-Term Debt and Capital Lease Obligations, less
current portion
(1) 4,011
--- -----
4,012
-----
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
Total liabilities and stockholders' equity
$47,079 $(5,470) $41,609
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Shared Technologies Inc.
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended
September 30, 1995
<S> <C>
In thousands
1) STC Equity (5) PTC (2) OTM Pro Forma Pro Forma STI
STI Adjustment Acquisition Acquisition Adjustments
- ----------------- ----------------- --------------- ----------------
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) 14,142 725
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) (48) (1,003)
(4)
Interest Expense
(574) 24 (119) (2) (34) (774)
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
==== ================ =============== ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shared Technologies Inc.
Pro Forma Consolidated Statement of Operations
For the Year Months Ended
December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
(1) STC
Equity (5) Pending (2) OTM (3)Access Pro Forma Pro Forma STI
In thousands
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 56 29,573
- ------ ------- ----- ------------ -- ------
(3)
---
Gross Margin
19,195 (4,924) 1,200 2,797 (56) 18,212
Selling,
General &
Administrative
Expenses
16,972 (4,274) 1,214 2,496 128
------- ----- ------------ ---
(2)
106 16,642 (3)
-------------- --- ------ ---
Operating
Income (Loss)
2,223 (650) (14) 301 (290) 1.520
Minority
interest in net
loss of
subsidiary
(128) 85 (43)
Equity in
earnings of STC
517 (1,905) (265) (1,653)
(4)
Interest Expense
(522) 65 (151) (67) (817)
(2)
(142)
(2)
Interest Income
163 (17) 28 174
- --- ---- ------ ---
Net income
(Loss)before
taxes
1,736 - (1,905) (165) 329 (764) (769)
Income Tax
Credit
550 550
- --- ---
Net income
(Loss) before
preferred
dividends
2,286 - (1,905) (165) 329 (764) (219)
----- - ------- ----- ----- ----- =====
Prefered Stock
Dividends
(478) (60) (538)
----- --------------- ---- -----
(3)
---
Net Income
(Loss)
Applicable to
Common Stock
$1,808 $- $(1,905) $(165) $ 329 $(824) (757)
====== == ======== ====== ======= ====== =====
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% which 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 statements of operationswere 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 $800,000 note payable in quarterly installments of
$30,000 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 ("PTCC").
Although the transaction was consummated November 13, 1995m, the effective date
of the asset purchase was retroactive to November 1, 1995. The purchase price
was $3,800,000, comprised of $300,000 in cash and $1,200,000 in assumed accounts
payable, a five-year promissory note in the principal amount of $2,000,000
bearing interest at the rate of eight percent (8%) per year, and the issuance of
100,000 shares of STC's common stock, $.01 par value. PTCC recorded revenues of
$11,580,620 and $5,801,328 for the year ended December 31, 1994 and the nine
months ended September 30, 1995, respectively. On a pro forma basis the STC
statements of operations were negatively impacted by the net losses of
$3,213,293 and $917,434 due to recording of this pending acquisition of PTCC for
the year ended December 31, 1994 and the nine months ended September 30, 1995,
respectively. 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. The Financial
Statements of PTCC are unaudited as management of PTCC was unable to satisfy its
auditors relative to the amount of impairment, if any, of its long-lived assets
at December 31, 1994. STI will provide audited Financial Statements for PTCC as
soon as available. SIGNATURES Pursuant to the requirements of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized. Shared Technologies Inc. By: /s/
Vincent DiVincenzo --------------------------------- Vincent DiVincenzo Senior
Vice President-Finance and Administration, Treasurer and Chief Financial Officer
Date: February 9, 1996
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