<PAGE> 1
FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): August 30, 1996
METROCALL, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-21924 54-1215634
- ----------------------------- ----------------------------- -----------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer Identification
of incorporation) No.)
</TABLE>
6677 Richmond Highway, Alexandria, Virginia 22306
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(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 660-6677
Not Applicable
------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITIONS OR DISPOSITIONS OF ASSETS
Satellite Paging and Message Network
On August 30, 1996, Metrocall, Inc. (the "Company") completed a transaction
pursuant to which the Company acquired substantially all of the assets of
Satellite Paging ("Satellite") and Message Network for total consideration of
approximately $28.0 million, consisting of $17.0 million in cash, and the
issuance of shares of the Company's common stock with a value of approximately
$11.0 million. Based on the Company's stock price at the time of closing, the
total number of shares of the Company's common stock to be issued in this
transaction was approximately 1.6 million. The Company has agreed to file a
registration statement under the Securities Act of 1933 relating to the resale
of the shares issued to the sellers. Upon effectiveness of such registration
statement, the final number of shares will be adjusted, if necessary, based upon
the average of the mid-points of closing bid and ask prices for the Company's
stock for the five trading day period ceasing on the second business day prior
to effectiveness of the registration statement. The cash portion of the purchase
price was funded primarily by borrowings under the Company's existing credit
facility. The acquisition of Satellite and Message Network adds approximately
100,000 subscribers to Metrocall's customer base. These customers and the
related system infrastructure are located throughout New York, New Jersey and
southern Florida. The transaction will be accounted for as a purchase for
financial reporting purposes.
Satellite and Message Network operate multi-regional paging and wireless
messaging networks in the United States, primarily in the New York/New Jersey
metropolitan area and southern Florida, respectively. The primary assets of
Satellite and Message Network include transmission equipment, subscriber paging
units and licenses issued by the Federal Communications Commission.
Other Acquisitions
On July 16, 1996, the Company completed the acquisition of Parkway Paging,
Inc. ("Parkway"). Financial Statements of Parkway have previously been filed and
the financial statements of Parkway are included herein to provide financial
data through June 30, 1996 for the purpose of incorporation by reference into
registration statements under the Securities Act of 1933.
In addition to the Satellite acquisition and the Parkway acquisition, the
Company has previously announced that it has entered into a Merger Agreement
dated May 16, 1996 with A+ Network, Inc. and entered into an Asset Purchase
Agreement dated April 22, 1996 with Page America Group, Inc. ("Page America")
relating to the purchase of substantially all of the assets of Page America. The
Company considers the acquisition of those assets probable and is filing
financial statements of A+ Network, Inc., Network Paging Corporation (which was
recently acquired by A+ Network, Inc.) and Page America for the purpose of
incorporation by reference into registrations statements under the Securities
Act of 1933.
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
Financial Statements of Acquired Businesses and Probable Acquisitions
O.R. ESTMAN, INC. AND DANA PAGING, INC. DBA SATELLITE PAGING AND MESSAGE NETWORK
Report of Arthur Andersen LLP, Independent Public Accountants
Combined Balance Sheets, December 31, 1995 and June 30, 1996
Combined Statements of Operations and Accumulated Deficit for the Year Ended
December 31, 1995 and the Six-Month Periods Ended June 30, 1995 and 1996
Combined Statements of Cash Flows for the Year Ended December 31, 1995 and the
Six-Month Period Ended June 30, 1995 and 1996
Notes to Combined Financial Statements
PARKWAY PAGING, INC.
Report of Hutton, Patterson & Company, Independent Public Accountants
Balance Sheets, December 31, 1994, 1995 and June 20, 1996
Statements of Income and Retained (Deficit) Earnings for the Years Ended
December 31, 1995, 1994 and 1993 and the Periods Ended June 20, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993
and the Periods Ended June 20, 1996 and 1995
Notes to Financial Statements
A+ NETWORK, INC.
Independent Auditors' Report, Deloitte & Touche LLP
Consolidated Balance Sheets, December 31, 1994, 1995 and June 30, 1996
(Unaudited)
Consolidated Statements of Operations Years Ended December 31, 1993, 1994 and
1995 and Six Months Ended June 30, 1995 and 1996 (Unaudited)
Consolidated Statements of Stockholders' Equity (Deficit) Years Ended December
31, 1993, 1994 and 1995 and Six Months Ended June 30, 1996 (Unaudited)
Consolidated Statements of Cash Flows Years Ended December 31, 1993, 1994 and
1995 and Six Months Ended June 30, 1995 and 1996 (Unaudited)
Notes to Consolidated Financial Statements
NETWORK PAGING CORPORATION
Report of Price Waterhouse LLP, Independent Certified Public Accountants
Consolidated Balance Sheets, December 31, 1993 and 1994
Consolidated Statements of Operations for the Years Ended December 31, 1993 and
1994
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1993 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994
Notes to Consolidated Financial Statements
NETWORK PAGING CORPORATION (UNAUDITED)
Unaudited Consolidated Statements of Operations Periods Ended October 31, 1994
and October 24, 1995
Unaudited Consolidated Statements of Shareholders' Equity Periods Ended October
31, 1994 and October 24, 1995
Unaudited Consolidated Statements of Cash Flows Periods Ended October 31, 1994
and October 24, 1995
Notes to Unaudited Consolidated Financial Statements
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND
EXHIBITS--(CONTINUED)
PAGE AMERICA GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors
Statements of Net Assets, December 31, 1994, 1995 and June 30, 1996 (Unaudited)
Statements of Operations and Net Assets for the Years Ended December 31, 1993,
1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)
Notes to Financial Statements
Pro Forma Financial Information
Unaudited Pro Forma Condensed Financial Data
Unaudited Pro Forma Condensed Combined Balance Sheets as of June 30, 1996
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1995
Unaudited Pro Forma Condensed Combined Statement of Operations for the Six-Month
Period Ended June 30, 1996
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Exhibits
<TABLE>
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2.1 Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a Satellite Paging,
Dana Paging, Inc. d/b/a Message Network, Bertram M. Wachtel, Edward R. Davalos,
Kevan D. Bloomgren and Metrocall, Inc., dated February 28, 1996.(a)
2.2 Amendment to the Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a
Satellite Paging, Dana Paging, Inc. d/b/a Message Network, Bertram M. Wachtel,
Edward R. Davalos, Kevan D. Bloomgren and Metrocall, Inc., dated August 30,
1996.(b)
23.1 Consent of Arthur Andersen LLP, as independent public accountants for O.R. Estman,
Inc. and Dana Paging, Inc. dba Satellite Paging and Message Network
23.2 Consent of Hutton, Patterson & Company, as independent public accountants for
Parkway Paging, Inc.
23.3 Consent of Deloitte & Touche LLP, as independent public accountants for A+
Network, Inc.
23.4 Consent of Price Waterhouse LLP, as independent public accountants for Network
Paging Corporation
23.5 Consent of Ernst & Young LLP, as independent public accountants for Page America
Group, Inc.
</TABLE>
- ---------------
(a) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996, filed with the Securities and Exchange
Commission on July 15, 1996.
(b) Previously filed.
<PAGE> 5
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.
METROCALL, INC.
/s/ VINCENT D. KELLY
--------------------------------------
VINCENT D. KELLY
Chief Financial Officer, Treasurer and
Vice President
Date: September 27, 1996
<PAGE> 6
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
O.R. ESTMAN, INC. AND DANA PAGING, INC. DBA SATELLITE PAGING AND MESSAGE NETWORK
Report of Arthur Andersen LLP, Independent Public Accountants........................ F- 1
Combined Balance Sheets, December 31, 1995 and June 30, 1996......................... F- 2
Combined Statements of Operations and Accumulated Deficit for the Year Ended December
31, 1995 and the Six-Month Periods Ended June 30, 1995 and 1996.................... F- 3
Combined Statements of Cash Flows for the Year Ended December 31, 1995 and
the Six-Month Period Ended June 30, 1995 and 1996.................................. F- 4
Notes to Combined Financial Statements............................................... F- 5
PARKWAY PAGING, INC.
Report of Hutton, Patterson & Company, Independent Public Accountants................ F-10
Balance Sheets, December 31, 1994, 1995 and June 20, 1996............................ F-11
Statements of Income and Retained (Deficit) Earnings for the Years Ended December 31,
1995, 1994 and 1993 and the Periods Ended June 20, 1996 and 1995................... F-12
Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 and
the Periods Ended June 20, 1996 and 1995........................................... F-13
Notes to Financial Statements........................................................ F-14
A+ NETWORK, INC.
Independent Auditors' Report, Deloitte & Touche LLP.................................. F-22
Consolidated Balance Sheets, December 31, 1994, 1995 and June 30, 1996 (Unaudited)... F-23
Consolidated Statements of Operations Years Ended December 31, 1993, 1994 and 1995
and Six Months Ended June 30, 1995 and 1996 (Unaudited)............................ F-24
Consolidated Statements of Stockholders' Equity (Deficit) Years Ended December 31,
1993, 1994 and 1995 and June 30, 1996 (Unaudited).................................. F-25
Consolidated Statements of Cash Flows Years Ended December 31, 1993, 1994 and 1995
and Six Months Ended June 30, 1995 and 1996 (Unaudited)............................ F-26
Notes to Consolidated Financial Statements........................................... F-27
NETWORK PAGING CORPORATION
Report of Price Waterhouse LLP, Independent Certified Public Accountants............. F-39
Consolidated Balance Sheets, December 31, 1993 and 1994.............................. F-40
Consolidated Statements of Operations for the Years Ended December 31, 1993 and
1994............................................................................... F-41
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended
December 31, 1993 and 1994......................................................... F-42
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994............................................................................... F-43
Notes to Consolidated Financial Statements........................................... F-44
NETWORK PAGING CORPORATION (UNAUDITED)
Unaudited Consolidated Statements of Operations Periods Ended October 31, 1994 and
October 24, 1995................................................................... F-53
Unaudited Consolidated Statements of Shareholders' Equity Periods Ended October 31,
1994 and October 24, 1995.......................................................... F-54
Unaudited Consolidated Statements of Cash Flows Periods Ended October 31, 1994 and
October 24, 1995................................................................... F-55
Notes to Unaudited Consolidated Financial Statements................................. F-56
</TABLE>
<PAGE> 7
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
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PAGE
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INC.Report of Ernst & Young LLP, Independent Auditors................................ F-57
Statements of Net Assets, December 31, 1994, 1995 and June 30, 1996 (Unaudited)...... F-58
Statements of Operations and Net Assets for the Years Ended December 31, 1993, 1994
and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited)........... F-59
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for
the Six Months Ended June 30, 1995 and 1996 (Unaudited)............................ F-60
Notes to Financial Statements........................................................ F-61
PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Combined Financial Data.......................................... F-66
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1996............. F-67
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended
December 31, 1995.................................................................. F-68
Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months
Ended June 30, 1996................................................................ F-69
Notes to Unaudited Pro Forma Condensed Combined Financial Statements................. F-70
</TABLE>
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
O.R. Estman, Inc. and Dana Paging, Inc.:
We have audited the accompanying combined balance sheet of O.R. Estman,
Inc. and Dana Paging, Inc. (the "Companies") as of December 31, 1995, and the
related combined statement of operations and accumulated deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
ROSELAND, NEW JERSEY
APRIL 24, 1996
F-1
<PAGE> 9
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2)........................ $ 848,985 $ 690,362
Restricted cash (Note 2).................................. 300,000 300,000
Accounts receivable, less allowance for doubtful accounts
of $97,511 and $32,812 as of December 31, 1995 and June
30, 1996, respectively................................. 470,069 472,460
Receivables, other........................................ 82,803 74,848
Inventories (Note 2)...................................... 429,276 423,128
Prepaid expenses and other current assets................. 30,337 31,076
------------- -------------
Total current assets.............................. 2,161,470 1,991,874
------------- -------------
FURNITURE AND EQUIPMENT, at cost (Note 2):
Paging equipment.......................................... 1,987,280 1,822,003
Transmission equipment.................................... 2,897,302 2,994,827
Furniture and office equipment............................ 1,095,823 1,118,357
------------- -------------
5,980,405 5,935,187
Less -- Accumulated depreciation.......................... (4,190,490) (4,235,797)
------------- -------------
Furniture and equipment, net...................... 1,789,915 1,699,390
------------- -------------
OTHER ASSETS (Note 3)....................................... 93,681 121,667
------------- -------------
Total assets...................................... $ 4,045,066 $ 3,812,931
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4)............. $ 307,774 $ 136,267
Deferred revenue (Note 2)................................. 1,006,601 889,248
Accounts payable and accrued expenses..................... 740,549 488,521
Taxes payable............................................. 48,426 --
Other liabilities (Note 6)................................ 625,184 533,577
------------- -------------
Total current liabilities......................... 2,728,534 2,047,613
------------- -------------
LONG-TERM DEBT (Note 4)..................................... 11,272,235 11,272,235
------------- -------------
Total liabilities................................. 14,000,769 13,319,848
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT (Note 4):
Common stock, no par value; 4,000 shares authorized; 1,222
shares issued and outstanding as of December 31, 1995
and June 30, 1996, respectively........................ 9,215,475 9,215,475
Additional paid-in capital................................ 23,240 23,240
Accumulated deficit....................................... (19,194,418) (18,745,632)
------------- -------------
Total stockholders' deficit....................... (9,955,703) (9,506,917)
------------- -------------
Total liabilities and stockholders' deficit....... $ 4,045,066 $ 3,812,931
============= =============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-2
<PAGE> 10
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -----------------------------
1995 1996 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Services, rent and maintenance revenue......... $ 10,722,832 $ 5,029,532 $ 5,331,723
Product sales.................................. 1,369,475 588,559 667,604
------------ ------------ ------------
Total revenues......................... 12,092,307 5,618,091 5,999,327
------------ ------------ ------------
OPERATING EXPENSES:
Services, rent and maintenance................. 3,917,891 1,826,324 1,919,383
Cost of products sold.......................... 1,556,650 622,011 914,095
Selling, general and administrative expenses... 4,280,770 1,790,243 2,260,463
Depreciation and amortization (Note 2)......... 1,064,254 339,079 754,971
------------ ------------ ------------
Total expenses......................... 10,819,565 4,577,657 5,848,912
------------ ------------ ------------
Income from operations................. 1,272,742 1,040,434 150,415
OTHER INCOME (EXPENSE):
Interest income................................ 35,290 17,982 42,568
Interest expense (Note 4)...................... (737,605) (524,613) (201,385)
Other expense.................................. (38,013) (72,746) --
------------ ------------ ------------
Income before reorganization and
extraordinary item................... 532,414 461,057 (8,402)
REORGANIZATION ITEMS (Note 1) -- Professional
fees........................................... 403,745 12,273 379,310
------------ ------------ ------------
Income (loss) before extraordinary
item................................. 128,669 448,784 (387,712)
EXTRAORDINARY ITEM (Note 4) -- Forgiveness of
debt........................................... 5,927,778 -- 5,927,778
------------ ------------ ------------
Net income (loss)...................... 6,056,447 448,784 5,540,066
ACCUMULATED DEFICIT, beginning of period......... (25,250,865) (19,194,418) (25,250,865)
------------ ------------ ------------
ACCUMULATED DEFICIT, end of period............... $(19,194,418) $(18,745,634) $(19,710,799)
============ ============ ============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-3
<PAGE> 11
O.R. ESTMAN, INC. AND DANA PAGING, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------------------
1995 1996 1995
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 6,056,447 $ 448,784 $ 5,540,066
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization................... 1,064,254 339,079 754,971
Forgiveness of debt............................. (5,576,071) -- (5,927,778)
Changes in assets and liabilities
(Increase) decrease in accounts receivables,
net........................................ 441,816 (2,391) 276,296
(Increase) decrease in inventories............ 126,852 6,148 145,394
Increase in prepaid expenses and other current
assets..................................... (17,067) (739) (6,503)
(Increase) decrease in receivables, other..... 3,152 7,955 (1,866)
(Increase) decrease in other assets........... 81,493 (27,986) 30,108
Increase (decrease) in deferred revenue....... (368,889) (117,353) 226,507
Increase (decrease) in accounts payable and
accrued expenses........................... (799,116) (252,028) (378,152)
Decrease in taxes payable..................... (466,786) (48,426) (129,892)
Decrease in due to stockholders............... (117,773) 0 (117,773)
Decrease in other liabilities................. (354,278) (91,607) (79,061)
------------ ---------- -----------
Net cash provided by operating
activities............................... 74,034 261,436 332,317
CASH FLOWS FROM INVESTING ACTIVITIES -- Purchases of
property, plant and equipment, net................. (807,465) (248,552) (637,921)
CASH FLOWS FROM FINANCING ACTIVITIES --
Net (repayments) borrowings of long-term debt...... (741,167) (171,507) (668,509)
------------ ---------- -----------
Net increase (decrease) in cash............ (1,474,598) (158,623) (974,113)
CASH AND CASH EQUIVALENTS, beginning of
period............................................. 2,623,583 1,148,985 2,623,583
------------ ---------- -----------
CASH AND CASH EQUIVALENTS, end of period............. $ 1,148,985 $ 990,362 $ 1,649,470
============ ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest........................................ $ 648,305 $ 94,565 $ 4,857
Taxes........................................... 10,403 373,797 169,557
============ ========== ===========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-4
<PAGE> 12
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
The combined financial statements include accounts of O. R. Estman, Inc.
("Estman"), a New Jersey corporation and Dana Paging, Inc. ("Dana"), a Florida
corporation (jointly, the "Companies") which are under common control. The
Companies are principally engaged in the business of selling pagers and
providing wireless paging and messaging services. The Companies serve various
regions of New Jersey, New York, Connecticut and Florida. The Companies do
business as Satellite Paging, Message Network, Area Paging, Connect-A-Beep and
Comm Center.
On December 30, 1993, the Companies filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"). The
cases were administratively consolidated by the Bankruptcy Court.
On April 24, 1995, a Plan of Reorganization (the "Plan") was confirmed by
the Bankruptcy Court and unanimously approved by all classes. In accordance with
bankruptcy law, the Plan became effective on May 24, 1995, 30 days after its
confirmation (the "effective date"). The Plan provided for a 60-day extension
from the effective date of the Plan to accept or reject the executory contracts
for Estman's Fairfield, New Jersey facility and Dana's Inverness, Florida sales
office. These executory contracts were rejected.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use Of Estimates In The Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles Of Combined Statements
All significant balances between Estman and Dana have been eliminated in
the combination.
Cash And Cash Equivalents
For purposes of cash flows, the Companies consider investments with a
maturity less than three months to be cash equivalents.
Restricted Cash
At December 31, 1995 certificates of deposit in the amount of $300,000 were
assigned to a bank as security for a letter of credit issued on behalf of Dana.
The assignment expires in July 1996.
Inventories
Inventories are stated at the lower of cost (specific identification
method) or market, and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pagers.............................................. $368,720 $ 369,231
Parts and accessories............................... 60,556 53,897
-------- --------
$429,276 $ 423,128
======== ========
</TABLE>
F-5
<PAGE> 13
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Furniture And Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Pagers........................................................... 3 years
Furniture and fixtures........................................... 5-7 years
</TABLE>
Income Taxes
Dana has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions Dana is not subject to Federal
corporate taxes, the stockholders are taxed on their proportionate share of
Dana's taxable income. Estman has elected to be taxed as a C Corporation for
Federal income tax purposes.
Revenue Recognition
The Companies recognize revenue under service, rental and maintenance
agreements with customers as the related services are performed. Advance
billings for services are deferred and recognized as revenue when earned. The
Companies lease certain pagers under a quarterly, semiannual and yearly basis.
Sales of pagers are recognized upon delivery.
(3) OTHER ASSETS
Other assets include intangibles, net of accumulated amortization, and are
composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Security deposits and other assets.................. $ 50,568 $ 59,542
Customer lists...................................... 43,113 62,125
-------- ---------
$ 93,681 $ 121,667
======== =========
</TABLE>
The cost of acquired customer lists was being amortized over five years on
a straight-line basis.
(4) LONG-TERM DEBT AND LIABILITIES
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Motorola notes payable (a)...................................... $11,000,000
Promissory note payable (b)..................................... 205,675
Prepetition priority tax claims payable (c)..................... 360,809
Other........................................................... 13,525
-----------
11,580,009
Less -- Current maturities...................................... 307,774
-----------
$11,272,235
===========
</TABLE>
(a) In connection with the Plan, on December 9, 1994, the Companies
executed a debt restructuring plan and agreement, as amended (the "Motorola
Restructuring Document"), with Motorola, Inc. ("Motorola") the largest secured
creditor of the Companies. Such debt totaled approximately $26,800,000. The
Motorola Restructuring Document provided that on the effective date, among other
things, (a) Dana paid the sum of $181,818 and issued a note for $2,000,000 to
Motorola (b) Estman paid the sum of $818,182, issued a
F-6
<PAGE> 14
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
note for $9,000,000, and issued 20% of its common stock of Estman to Motorola in
exchange for $9,200,000 of indebtedness subject to compromise (c) Motorola
forgave approximately $5,576,000 of Dana's prepetition debt. In addition, the
Motorola notes are secured by a first priority lien on substantially all of the
assets of the Companies, are guaranteed by the Companies' stockholders, and are
secured by 100% of the common stock of Dana and the 80% of the common stock of
Estman not owned by Motorola after the Plan's effective date. The Motorola notes
require interest payments on a monthly basis at 9.09%. The principal is due
30 months from the effective date of the Plan.
Pursuant to the Motorola Restructuring Document, the Companies'
stockholders entered into a Stockholder Agreement (the "Agreement") with
Motorola. The Agreement includes, among other things, terms for Companies'
stockholders to purchase Motorola's 20% interest in Estman, as defined.
(b) The promissory note payable bears interest at 9% and is payable in
monthly payments of principal and interest of $18,337 maturing in December 1996.
(c) The prepetition priority tax claims are payable to the State of Florida
Department of Revenue. Monthly payments of $6,327 bearing interest at 10% will
be made through 2002.
Aggregate principal payments subsequent to December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996............................................................ $ 307,774
1997............................................................ 11,051,201
1998............................................................ 56,570
1999............................................................ 62,495
2000............................................................ 69,038
Thereafter...................................................... 32,931
</TABLE>
<TABLE>
<CAPTION>
BEFORE AFTER
REORGANIZATION REORGANIZATION
------------------ -----------------
DANA ESTMAN DANA ESTMAN
------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Paid at consummation................... $ 0 $ 0 $ 182 $ 818
Motorola note.......................... 7,758 19,028 2,000 9,000
Common stock........................... 3 3 3 9,213
Debt forgiveness....................... 0 0 5,576 0
</TABLE>
On January 1, 1995, an officer of the Companies exercised all of his stock
options, pursuant to each Companies qualified stock option plan, at an exercise
price of $0 which resulted in the issuance of an additional 22 shares of common
stock of Estman and Dana.
Each Companies common stock capitalization before and after the
reorganization is shown below:
<TABLE>
<CAPTION>
BEFORE AFTER
REORGANIZATION REORGANIZATION
--------------- ---------------
DANA ESTMAN DANA ESTMAN
---- ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Bertram Wachtel............................. 100 100 100 360
Edward Davalos.............................. 100 100 100 360
Kevan Bloomgren............................. 0 0 22 80
Motorola, Inc............................... 0 0 0 200
--- --- --- -----
200 200 222 1,000
=== === === =====
</TABLE>
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (SOP 90-7), requires certain
disclosures for companies emerging from Chapter 11. Accordingly, under
F-7
<PAGE> 15
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SOP 90-7, the Companies have stated their liabilities at the value of the
amounts to be paid and have reflected the forgiveness of debt as an
extraordinary item.
(5) INCOME TAXES
The Companies have approximately $15,700,000 of net operating loss
carryforwards at December 31, 1995 which expire at various times through 2010.
The Companies adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). In accordance with SFAS 109, the
Companies have a deferred tax asset of $5,300,000 and a corresponding valuation
allowance because of the uncertainty of the realization of this asset.
(6) COMMITMENTS AND CONTINGENCIES
On March 12, 1991, Estman and Tel-Air Communications, Inc. ("Tel-Air")
entered into a contract ("Tel-Air Agreement") which provided for the sale of
substantially all of Tel-Air's assets to Estman. In November 1991, Estman filed
suit against Tel-Air seeking specific performance under the Tel-Air Agreement or
recovery of damages resulting from Tel-Air's breach.
On September 23, 1992, Estman was awarded a partial summary judgment
against Tel-Air in the amount of $574,488. On February 21, 1996, the Court also
granted Estman specific performance under the Tel-Air Agreement. On March 28,
1996, the Court further ordered Tel-Air to fully disclose to Estman all
information with respect to its operations and financial position so that Estman
might complete its due diligence associated with the transaction. Management
believes Tel-Air and its owners violated the terms of an injunction issued on
January 30, 1992 which proscribes, among other things, that Tel-Air not sell its
assets outside of the ordinary course of business, refinance its debt, or place
any additional liens on its assets. Estman is taking action to have the Court
unwind the violative transactions, and determine the final adjusted purchase
price. At December 31, 1995, Estman had a reserve of approximately $342,000 for
estimated remaining legal fees associated with the case. This amount is included
in other liabilities in accompanying combined balance sheets. Estman's
management believes that the remaining expenses to be incurred in connection
with the Tel-Air suit will not exceed this established reserve.
Estman and various employees were defendants in a suit filed by a former
employee alleging a claim of harassment and gender discrimination. The plaintiff
was noticed as a creditor in the Chapter 11 proceedings and did not file a proof
of claim by the bar date, accordingly, Estman was dismissed as a party to the
suit. Although not legally bound to pay for employees council, Estman has and
continues to pay council on behalf of the employee defendants. Accordingly,
Estman has reserved approximately $238,500 for potential legal fees to protect
the interest of its employees. This amount is reflected in other liabilities in
the accompanying combined balance sheet at December 31, 1995.
The Companies have operating leases for offices and officers' cars which
expire on various dates through 2000. In most cases, the Companies expect that
in the normal course of business leases will be renewed or replaced by other
leases.
Minimum annual rental commitments (exclusive of taxes, maintenance, etc.)
under all noncancellable operating leases at December 31, 1995 are as follows --
<TABLE>
<S> <C>
1996........................................ $330,027
1997........................................ 124,333
1998........................................ 9,921
1999........................................ 8,753
2000........................................ 6,565
</TABLE>
F-8
<PAGE> 16
O.R. ESTMAN, INC. AND DANA PAGING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense charged to operations for the year ended December 31,
1995 and the six-month periods ended June 30, 1995 and 1996 (unaudited) was
$322,225, $158,616 and $137,410, respectively.
(7) SUBSEQUENT EVENT
On February 28, 1996, the shareholders of the Companies entered into an
agreement to sell essentially all of the Companies' operating assets to
Metrocall, Inc. The sale is conditioned upon assignment of the Companies'
Federal Communications Commission ("FCC") licenses to Metrocall. As of April 24,
1996, all of the Companies' private carrier licenses had been assigned to
Metrocall and the assignment of the Companies' common carrier licenses are
pending before the FCC. Terms of the agreement specify a $28,000,000 cash
purchase price, subject to certain adjustments.
F-9
<PAGE> 17
[HUTTON, PATTERSON & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Parkway Paging, Inc.
Plano, Texas
We have audited the balance sheets of Parkway Paging, Inc. as of December
31, 1995 and 1994, and the related statements of income and retained (deficit)
earnings and cash flows for the years ended December 31, 1995, 1994 and 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parkway Paging, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
Hutton, Patterson & Company
February 13, 1996
(except for Note M, as to
which the date is September 30, 1996)
Dallas, Texas
F-10
<PAGE> 18
PARKWAY PAGING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994 AND JUNE 20, 1996
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, ----------
----------------------- JUNE 20,
1995 1994 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note A).................................................................... $ 7,103 $ 516,984 $ 267,001
Accounts receivable (Note A)..................................................... 628,473 511,094 927,800
Inventory (Note A)............................................................... 403,879 704,530 659,771
Notes receivable, current (Notes B & J).......................................... 9,920 22,032 10,323
Other receivables................................................................ 35,885 14,125 43,268
Prepaid taxes (Note I)........................................................... 56,477 122,818 56,477
Deferred income tax asset (Note I)............................................... 105,722 66,605 105,722
Prepaid expenses................................................................. 631 31,821 23,353
---------- ---------- ----------
TOTAL CURRENT ASSETS...................................................... 1,248,090 1,990,009 2,093,715
---------- ---------- ----------
PAGERS HELD FOR LEASE OR SALE (net of accumulated depreciation of $292,203,
$440,511 and $342,284 at December 31, 1995, 1994 and June 20, 1996, respectively)
(Notes A, F & G)................................................................. 257,349 180,956 215,902
---------- ---------- ----------
PROPERTY AND EQUIPMENT (net of accumulated depreciation) (Notes A, C, F & G)....... 3,078,019 2,515,488 2,685,683
OTHER ASSETS
Long-term notes receivable (Notes B & J)......................................... 57,613 67,023 51,838
Deferred income tax asset (Note I)............................................... 17,102 13,078 17,102
Other (Note D)................................................................... 18,748 36,284 9,481
---------- ---------- ----------
TOTAL OTHER ASSETS........................................................ 93,463 116,385 78,421
---------- ---------- ----------
$4,676,921 $4,802,838 $5,073,721
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................................. $ 77,573 $ 313,811 $ 458
Deferred revenue (Note A)........................................................ 706,473 761,335 1,193,345
Accrued and other liabilities (Note E)........................................... 92,738 107,804 53,690
Current maturities of notes payable (Note G)..................................... 256,351 183,199 596,873
Current maturities of obligations under capital leases (Note F).................. 2,149,708 1,544,712 1,770,162
---------- ---------- ----------
TOTAL CURRENT LIABILITIES................................................. 3,282,843 2,910,861 3,614,528
---------- ---------- ----------
LONG-TERM DEBT
Notes payable (Note G)........................................................... 419,943 236,109 489,209
Obligations under capital leases (Note F)........................................ 813,288 1,407,689 379,504
---------- ---------- ----------
TOTAL LONG-TERM DEBT...................................................... 1,233,231 1,643,798 868,713
---------- ---------- ----------
TOTAL LIABILITIES......................................................... 4,516,074 4,554,659 4,483,241
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes H, K and L)................................... -- -- --
STOCKHOLDERS' EQUITY (Note L)
Common stock (10,000,000 shares authorized, 24,398 shares issued and outstanding,
$1.00 par)..................................................................... 24,398 24,398 24,398
Additional paid-in capital....................................................... 364,602 364,602 364,602
Retained (deficit) earnings...................................................... (228,153) (140,821) 201,480
---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................ 160,847 248,179 590,480
---------- ---------- ----------
$4,676,921 $4,802,838 $5,073,721
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 19
PARKWAY PAGING, INC.
STATEMENTS OF INCOME AND RETAINED (DEFICIT) EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED JUNE 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, --------------------------
------------------------------------------- JUNE 20, JUNE 20,
1995 1994 1993 1996 1995
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Service, rent and maintenance revenues....... $ 7,403,225 $ 5,218,774 $ 4,216,416 $4,393,713 $ 3,251,030
Product sales................................ 2,344,026 1,909,991 1,433,461 846,956 1,211,279
----------- ----------- ----------- ---------- -----------
9,747,251 7,128,765 5,649,877 5,240,669 4,462,308
Cost of products sold (Note A)............... (2,261,776) (1,892,906) (1,265,761) (740,548) (1,182,415)
----------- ----------- ----------- ---------- -----------
7,485,475 5,235,859 4,384,116 4,500,121 3,279,893
----------- ----------- ----------- ---------- -----------
OPERATING EXPENSES
Service, rent and maintenance................ 2,329,764 1,674,627 1,068,198 1,874,789 1,293,265
Selling...................................... 1,113,808 712,554 412,138 520,505 443,168
General and administrative................... 2,541,642 1,710,251 1,422,447 889,012 732,079
Depreciation and amortization................ 1,153,896 929,069 899,433 613,547 444,219
----------- ----------- ----------- ---------- -----------
7,139,110 5,026,501 3,802,216 3,897,853 2,912,731
----------- ----------- ----------- ---------- -----------
INCOME FROM OPERATIONS......................... 346,365 209,358 581,900 602,267 367,162
----------- ----------- ----------- ---------- -----------
OTHER
(Loss) gain on disposal (Note A)............. (71,683) (65,748) -- 20,026 --
Interest expense (net of interest income of
$9,278, $15,591, $9,923, $2,827 and $6,621
at December 31, 1995, 1994 and 1993 and
June 30, 1996 and 1995, respectively....... (405,155) (359,299) (332,166) (192,661) (178,441)
----------- ----------- ----------- ---------- -----------
(476,838) (425,047) (332,166) (172,635) (178,441)
----------- ----------- ----------- ---------- -----------
NET (LOSS) INCOME BEFORE BENEFIT (PROVISION)
FOR FEDERAL INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE..... (130,473) (215,689) 249,734 429,632 188,721
BENEFIT (PROVISION) FOR FEDERAL INCOME TAXES
(Note I)..................................... 43,141 69,297 (78,025) -- --
----------- ----------- ----------- ---------- -----------
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE............... (87,332) (146,392) 171,709 429,632 188,721
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note I)........................... -- -- 51,996 -- --
----------- ----------- ----------- ---------- -----------
NET (LOSS) INCOME.............................. (87,332) (146,392) 223,705 429,632 188,721
RETAINED (DEFICIT) EARNINGS, beginning......... (140,821) 5,571 (218,134) (228,153) (140,821)
----------- ----------- ----------- ---------- -----------
RETAINED (DEFICIT) EARNINGS, ending............ $ (228,153) $ (140,821) $ 5,571 $ 201,480 $ 47,901
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 20
PARKWAY PAGING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND THE QUARTERS ENDED JUNE 20, 1996 AND 1995
<TABLE>
<CAPTION>
UNAUDITED
(NOTE M)
DECEMBER 31, ---------------------------
------------------------------------------- JUNE 20, JUNE 20,
1995 1994 1993 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income......................... $ (87,332) $ (146,392) $ 223,705 $ 429,632 $ 188,721
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities
Depreciation and amortization........... 1,153,896 929,069 899,433 613,547 444,219
Deferred federal income tax credit...... (43,141) (69,297) (10,385) -- --
Loss (gain) disposal.................... 71,683 65,748 -- (20,026 ) --
Changes in assets and liabilities
(Increase) decrease in accounts
receivable.......................... (117,379) 21,090 (457,525) (318,657 ) (196,931 )
Decrease (increase) in inventory...... 300,651 (496,661) (170,169) (305,961 ) 311,379
Increase in other receivables......... (21,760) (10,036) (4,089) 11,948 13,625
Decrease (increase) in prepaid
taxes............................... 66,341 (43,600) (79,218) -- --
Decrease (increase) in prepaid
expenses............................ 31,190 (31,821) -- (22,329 ) 31,821
(Increase) decrease in pagers held for
lease or sale (Note A).............. (145,073) 51,454 13,729 (8,634 ) 191,188
(Increase) decrease in deposits....... (1,001) (1,600) 5,102 (4,280 ) (401 )
(Decrease) increase in accounts
payable............................. (236,238) 236,733 41,597 (77,115 ) (73,034 )
(Decrease) increase in deferred
revenue............................. (54,862) 340,250 367,480 486,872 186,487
(Decrease) increase in accrued and
other liabilities................... (15,066) 14,745 39,036 (13,117 ) (76,580 )
----------- ----------- ----------- ----------- -----------
Net cash flows provided by operating
activities.............................. 901,909 859,682 868,696 771,880 1,020,494
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts on notes receivable.............. 21,522 25,875 15,425 5,371 11,496
Purchases of property and equipment....... (1,325,894) (782,849) (272,445) (134,812 ) (1,074,131 )
Proceeds on sale of fixed assets.......... 20,000 -- -- 21,000 --
----------- ----------- ----------- ----------- -----------
Net cash flows used in investing
activities.............................. (1,284,372) (756,974) (257,020) (108,441 ) (1,062,635 )
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Additional obligations under capital
leases for inventory.................... 1,693,215 2,071,434 1,315,616 1,134,292 411,502
Payments on obligations under capital
leases.................................. (2,077,619) (1,637,112) (1,466,779) (1,390,170 ) (577,855 )
Proceeds from bank loans.................. 511,475 -- -- -- 216,000
Payments on notes payable................. (254,489) (281,302) (270,186) (147,663 ) (123,363 )
----------- ----------- ----------- ----------- -----------
Net cash flows (used in) provided by
financing activities.................... (127,418) 153,020 (421,349) (403,541 ) (73,716 )
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH............. (509,881) 255,728 190,327 259,898 (115,857 )
CASH, beginning............................. 516,984 261,256 70,929 7,103 516,984
----------- ----------- ----------- ----------- -----------
CASH, ending................................ $ 7,103 $ 516,984 $ 261,256 $ 267,001 $ 401,127
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest................................ $ 417,258 $ 378,351 $ 334,307 $ 195,488 $ 185,062
----------- ----------- ----------- ----------- -----------
Income taxes............................ $ -- $ 43,600 $ 115,632 $ -- $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Acquisitions of pagers held for lease or
sale and property and equipment
through capital leases (Note F)....... $ 395,000 $ 237,498 $ 767,574 $1,134,292 $ 583,332
=========== =========== =========== =========== ===========
Acquisitions of property and equipment
through notes payable (Notes G & J)... $ -- $ -- $ 53,300 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 21
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Parkway Paging, Inc. (the Company) was formed on May 7, 1991, and
incorporated in the state of Texas. Operations began on October 1, 1991. The
Company was formed for the purpose of providing air time, leasing, wholesale and
retail sales of pagers and pager repairs and service in the Dallas-Fort Worth
Metroplex. During the year ended December 31, 1993, the Company expanded its
services to include long distance and additional voice messaging services. The
Company also purchased a tandem telephone switch which enabled the addition of
the long distance service and will allow the Company to expand into the cellular
telephone market and Local Exchange Carrier (LEC) billing.
As discussed below, the Company acquired operations through an acquisition
and merger of related companies. Parkway Communications, Inc. was formed in 1983
and has served the cellular, specialized mobile radio (SMR) and paging markets
since its inception. In 1989, Parkway Communications, Inc. leased its assets to
Parkway Paging I, Ltd. Prior to the merger, as described below, Parkway
Communications, Inc. sold its cellular and SMR business to concentrate on the
paging industry.
The Company purchased the assets of Parkway Paging I, Ltd. (a partnership)
through the issuance of 19,200 shares of common stock and the assumption of
liabilities on October 1, 1991. The assets purchased were recorded at their
estimated fair value at October 1, 1991, under the purchase method of accounting
in accordance with generally accepted accounting principals. The value of the
liabilities assumed and stock issued exceeded the estimated fair value of the
assets by $71,665. This excess was recorded as goodwill.
On October 1, 1991, the Company also affected a merger with Parkway
Communications, Inc. and Business Paging, Inc. through the exchange of stock.
The stockholders of Parkway Communications, Inc. and Business Paging, Inc.
received 4,800 shares of stock in the Company in exchange for their stock in
these two corporations. The assets, liabilities and equity of Parkway
Communications, Inc. and Business Paging, Inc. were recorded at the book value
as stated in the financial statements of these two corporations at September 30,
1991, under the pooling of interests method as prescribed under generally
accepted accounting principals.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance are
charged to expense as incurred. Upon retirement of equipment, the cost and the
related accumulated depreciation are removed from
F-14
<PAGE> 22
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the accounts. Depreciation and amortization are computed using straight-line and
accelerated methods based on the following estimated useful lives:
<TABLE>
<S> <C>
Broadcast equipment.................................... 3 to 15 years
Pagers held for lease or sale.......................... 3 years
Alpha dispatch equipment............................... 5 years
Pager repair equipment................................. 7 years
Office equipment....................................... 3 to 10 years
Leaseholds............................................. 7 to 39 years
Automobiles............................................ 5 years
</TABLE>
Reserve for Doubtful Accounts
The Company's policy is to expense accounts receivable of doubtful
collectibility after 75 days. Therefore, no reserve is provided.
Inventory
Inventory consists of pagers specifically purchased for resale and pager
parts utilized for repair of damaged pagers. Inventory is stated at the lower of
cost or market; cost being determined principally by use of the average-cost
method.
Pagers Held for Lease or Sale
The Company purchases specific brands of pagers which are primarily leased
to customers. These pagers are capitalized and depreciated in accordance with
the Company's depreciation policies as described above. Although the majority of
these pagers are leased, some are sold. Upon the sale of pagers, the cost of
pagers and the related accumulated depreciation are removed from the accounts
and the net book value is charged to costs of products sold. The proceeds on the
sales of such pagers is included in product sales. The cost of pagers sold is
removed from pagers held for lease or sale on a last-in-first-out basis. During
the year ended December 31, 1994, the Company recorded the disposal of obsolete,
missing and fully depreciated pagers. The loss on disposal totalled $65,748.
During the year ended December 31, 1995, additional disposals were recorded
resulting in a loss of $73,979.
Intangible Assets
Intangible assets consist of organization costs and goodwill. A portion of
the goodwill is attributable to the purchase of Parkway Paging I, Ltd. as
discussed previously. The remainder resulted from Parkway Communications, Inc.
transactions and was transferred to the Company during the merger. All
intangible assets are amortized over five years on a straight-line basis.
Deferred Revenue
Certain customers of the Company pay for services in advance. These advance
payments are deferred and recognized as revenue when earned. During the year
ended December 31, 1993, the Company purchased a new billing system which allows
the Company to bill on the 20th of each month for the subsequent month's
services. The Company records these advance billings as deferred revenue when
billed and recognizes them as revenue in the month for which the services are to
be provided. Advance payments for service are not refundable.
F-15
<PAGE> 23
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Cash
The Company maintains operating cash accounts with a financial institution
in excess of federally insured limits. The amount that would be at risk in the
event the institution is unable to continue business was $270,451 at December
31, 1995.
NOTE B -- NOTES RECEIVABLE
Notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Procom, Inc., receivable in monthly installments of
$1,365, including interest at 13%, final payment due
9/17/95................................................ $ -- $12,872
Abner, Inc., receivable in monthly installments of
$1,244, including interest at 8%, final payment due
7/11/01
(Note J)............................................... 67,533 76,183
------- -------
67,533 89,055
Current portion.......................................... 9,920 22,032
------- -------
$57,613 $67,023
======= =======
</TABLE>
These notes receivable were acquired as a result of the business
combinations described in NOTE A. Both arose in the ordinary course of business.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Broadcast equipment......................................... $5,379,692 $4,069,529
Alpha dispatch equipment.................................... 41,398 73,502
Pager repair equipment...................................... 89,681 73,080
Office equipment............................................ 505,520 414,772
Leaseholds.................................................. 243,201 140,859
Automobiles................................................. 13,615 2,042
---------- ----------
6,273,107 4,773,784
Less accumulated depreciation and amortization............ 3,195,088 2,258,296
---------- ----------
$3,078,019 $2,515,488
========== ==========
</TABLE>
F-16
<PAGE> 24
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- OTHER ASSETS
Other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Goodwill......................................................... $88,765 $88,765
Less accumulated amortization.................................... 75,447 57,697
------- -------
13,318 31,068
------- -------
Organization costs............................................... 3,927 3,927
Less accumulated amortization.................................... 3,207 2,421
------- -------
720 1,506
------- -------
Deposits......................................................... 4,710 3,710
------- -------
$18,748 $36,284
======= =======
</TABLE>
NOTE E -- ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Sales tax payable............................................... $34,193 $ 57,222
Interest payable................................................ 15,321 18,146
Payroll taxes payable........................................... 3,659 8,602
Accrued payroll................................................. 36,091 21,624
Customer deposits held.......................................... 586 850
Excise/use tax payable.......................................... 2,888 1,360
------- --------
$92,738 $107,804
======= ========
</TABLE>
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES
The Company is obligated under various capital leases which were incurred
in the acquisition of pagers and other property and equipment. The following is
a schedule, by years, of future minimum lease payments under capital leases with
the present value of the net minimum lease payments:
<TABLE>
<S> <C>
1996............................................................. $2,346,744
1997............................................................. 639,409
1998............................................................. 183,297
1999............................................................. 66,296
2000............................................................. 49,790
----------
Net minimum lease payments....................................... 3,285,536
Less amount representing interest................................ 322,540
----------
Present value of net minimum lease payments...................... 2,962,966
Less current portion............................................. 2,149,708
----------
$ 813,288
==========
</TABLE>
F-17
<PAGE> 25
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- OBLIGATIONS UNDER CAPITAL LEASES -- (CONTINUED)
The Company held the following assets under capital leases at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Pagers...................................................... $ 375,953 $ 256,751
Broadcast equipment......................................... 1,274,329 1,085,592
Pager repair equipment...................................... 14,608 14,608
---------- ----------
1,664,890 1,356,951
Less accumulated depreciation............................... 1,016,323 697,431
---------- ----------
$ 648,567 $ 659,520
========== ==========
</TABLE>
In addition, the Company assumed capital leases related to pagers and
broadcast equipment acquired in the business combinations described in Note A.
Consequently, specific assets acquired subject to capital leases were not
identified. The net book value of pagers and broadcast equipment acquired in the
business combinations was $170,767 and $268,611 at December 31, 1995 and 1994,
respectively. All assets acquired under capital leases are presented in the
accompanying balance sheet as property and equipment and pagers held for lease
or sale.
NOTE G -- NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable due in monthly installments of $2,917 through
6/6/97, with a final payment of $2,938 due on 7/6/97, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ $55,417 $87,500
Note payable due in monthly installments of $937 through
6/6/95, with a final payment of $879 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 5,560
Note payable due in monthly installments of $6,667 through
6/6/95, with a final payment of $6,715 due on 7/6/95, plus
interest at 8.75%, secured by equipment and stockholder's
certificates of deposit and stock............................ -- 40,000
Note payable due in monthly installments of $4,924 through
1/15/00, with a final payment of $4,968 due 2/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 246,229 --
Note payable due in monthly installments of $3,600 through
3/15/00, with a final payment of $3,632 due 4/15/00, plus
interest at 10.5%, secured by equipment and stockholder's
certificate of deposit and stock............................. 187,200 --
Note payable due in monthly installments of $3,333 through
6/17/97, plus interest at 7.25%, secured by stockholder's
certificates
of deposit................................................... 60,134 100,134
Note payable, Shareholder, due in monthly installments of
$2,084, including interest at 12%, maturing 6/26/97 (NOTE J),
unsecured.................................................... 38,973 53,786
</TABLE>
F-18
<PAGE> 26
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- NOTES PAYABLE -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable, Shareholder, due in monthly installments of
$1,335, including interest at 12%, maturing 9/17/95 (Note J),
unsecured.................................................... $ -- $11,433
Note payable, Shareholder, due in monthly installments of
$2,224, including interest at 12%, maturing 11/21/97 (Note
J),
unsecured.................................................... 45,014 65,418
Note payable, Shareholder, due in monthly installments of
$1,112, including interest at 12%, maturing 12/27/97 (Note
J),
unsecured.................................................... 26,074 33,486
Note payable, Shareholders, due in five annual installments
beginning 1/1/94, including interest at 10% (Note J),
unsecured.................................................... 17,253 21,991
-------- --------
676,294 419,308
Less current maturities........................................ 256,351 183,199
-------- --------
$419,943 $236,109
======== ========
</TABLE>
Maturities of notes payable over the next five years are as follows:
<TABLE>
<S> <C>
1996.............................................. $256,351
1997.............................................. 193,322
1998.............................................. 108,602
1999.............................................. 102,295
2000.............................................. 15,724
--------
$676,294
========
</TABLE>
The Company established a line of credit during the year ended December 31,
1995, providing for maximum borrowings of $300,000. Interest is due at the
bank's stated prime plus 1%. The line of credit is guaranteed by certain
shareholders who are officers of the Company. At December 31, 1995, there were
no draws on the line of credit.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable
operating leases. At December 31, 1995, the Company was obligated under these
leases as follows:
<TABLE>
<S> <C>
1996.............................................. $315,664
1997.............................................. 223,435
1998.............................................. 166,249
1999.............................................. 85,485
2000.............................................. 32,573
Thereafter........................................ --
--------
$823,406
========
</TABLE>
Rental expense under operating leases was $543,433, $358,312 and $279,427
for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company purchases pagers from three major suppliers. A significant
portion are purchased from NEC (Note J). However, due to competition and
technological advances, management believes that the
F-19
<PAGE> 27
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
failure of any of these suppliers to perform on future purchase agreements would
have no materially adverse effect on the Company.
NOTE I -- FEDERAL INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting
Standard No. 109. The cumulative effect of the adoption was the recognition of a
deferred tax asset in the amount of $51,996 which resulted from net operating
losses available to offset taxable income. The related deferred tax credit is
included in net income for the year ended December 31, 1993. The utilization of
these net operating losses resulted in a reduction of the deferred tax asset
during 1993. The temporary differences giving rise to the deferred tax asset
consist of net operating losses and limitations on the deductibility of goodwill
for tax purposes. For book purposes, goodwill is amortized over five years, for
tax purposes, goodwill is amortized over fifteen years.
The Company acquired $235,394 of net operating losses available to offset
future tax liabilities in the merger with Business Paging, Inc. (Note A). A
portion of these losses was utilized in 1991 and 1992. During the year ended
December 31, 1993, the Company used the remaining $118,531 of net operating
losses acquired.
The deferred tax asset consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Current-net operating loss.............................. $105,722 $66,605
Noncurrent-goodwill amortization........................ 17,102 13,078
-------- -------
$122,824 $79,683
======== =======
</TABLE>
No valuation allowance has been provided because based upon the weight of
available evidence it is more likely than not that the deferred tax asset will
be realized.
The benefit (provision) for federal income taxes at December 31, consists
of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Taxes currently payable...................... $ -- $ -- $(82,642)
Deferred
Cumulative effect of adoption of SFAS
109..................................... -- -- (51,996)
Goodwill amortization...................... 4,024 2,692 10,385
Net operating loss......................... 39,117 66,605 46,228
------- ------- --------
$43,141 $69,297 $(78,025)
======= ======= ========
</TABLE>
The Company made estimated tax payments of $43,600 during the year ended
December 31, 1994, and had alternative minimum tax credits from December 31,
1992 and 1993, of $26,779 and $29,698, respectively. In addition, overpayments
of $22,851 for the year ended December 31, 1993, were applied to 1994 taxes. Due
to a net operating loss of $197,193 for federal income tax purposes, there were
no federal income taxes due at December 31, 1994. This resulted in an
overpayment of $122,818. Of this balance, $56,477 represented alternative
minimum tax credits which may be applied against regular tax in future years
when regular tax exceeds alternative minimum tax. These credits may be carried
forward indefinitely. These credits remain available at December 31, 1995. The
Company has net operating losses available to offset future taxable income of
$310,949 which begin to expire in 2009. Due to the significant change in
ownership subsequent to year end (NOTE L), the availability of these net
operating losses is severely limited by the Internal Revenue Code. The extent of
the limitation has not been determined.
F-20
<PAGE> 28
PARKWAY PAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- RELATED PARTY TRANSACTIONS
The Company has notes payable to Ray Windle and Windle & Windle,
shareholders, as described in Note G. At December 31, 1994, the Company owed Ray
Windle and Windle & Windle $119,204 and $44,919, respectively. At December 31,
1995, the balances were $83,987 and $26,074, respectively. The Company also has
a note payable to a group of shareholders as described in Note G. The balance at
December 31, 1995 and 1994, was $17,253 and $21,991, respectively. All loans
from shareholders relate to the acquisition of property and equipment and the
business acquisitions described in Note A.
George Bush, president of the Company, owned a building which was leased to
the Company. Rent of $56,292 was paid to George Bush during 1993. During the
year ended December 31, 1994, Mr. Bush sold the building to another entity, 1200
Commerce, which is owned by various shareholders of the Company. Rent of $23,455
was paid to George Bush during 1994. For the years ended December 31, 1995 and
1994, rent of $83,890 and $36,764 was paid to 1200 Commerce.
Shareholders of the Company own 100% of Abner, Inc. The Company paid Abner,
Inc. $74,280 in rental for radio towers during 1995. Rental of $68,280 was paid
to Abner, Inc. for each of the years ended December 31, 1994 and 1993. In
addition, the Company held a note receivable from Abner, Inc. in the amount of
$67,533 and $76,183 at December 31, 1995 and 1994, respectively, as discussed in
Note B.
Several shareholders of the Company are officers of NEC. During the years
ended December 31, 1995, 1994 and 1993, the Company purchased pagers and parts
from NEC totalling approximately $1,852,748, $1,906,000 and $987,000,
respectively. In addition, the Company owed NEC $2,039,690 and $1,786,676 for
obligations under capital leases at December 31, 1995 and 1994, respectively.
The Company also sells pagers to an agent who is a director of the Company.
During the year ended December 31, 1995 and 1994, total sales to this agent were
$630,809 and $345,335, respectively. Sales in prior years were insignificant.
NOTE K -- RETIREMENT PLAN
Effective September 1, 1995, the Company adopted a 401(k) Pension and
Profit Sharing Plan (the Plan) covering substantially all of its employees.
Under the provisions of the Plan, employees may contribute up to 10% of their
gross wages. The Company may make discretionary contributions to the Plan, but
has elected not to do so for the year ended December 31, 1995.
NOTE L -- SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company entered into an agreement of
merger with Metrocall, Inc. and PPI Acquisition Corp. The agreement provides
that as of the date of closing, all issued and outstanding shares of the Company
common stock shall be converted in the aggregate into the right to receive cash
and shares of Metrocall, Inc. common stock. The purchase price includes payment
of a liability equivalent to 5% of the net proceeds of the merger, as calculated
by the Board of Directors of the Company, to certain officers of the Company.
NOTE M -- UNAUDITED FINANCIAL STATEMENTS
The balance sheets of Parkway Paging, Inc. as of June 20, 1996 and 1995,
and the related statements of income and retained earnings and cash flow for the
quarters then ended have been prepared by the Company without audit.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the quarters ended June 20, 1996 and 1995, are
not necessarily indicative of the results that may be expected for the full
year.
F-21
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Stockholders
A+ Network, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of A+ Network,
Inc. (formerly A+ Communications Inc.) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of A+ Network,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 28, 1996
F-22
<PAGE> 30
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 1, 2 and 13)...... $ 254,880 $ 12,500,438 $ 4,031,831
Short term investments (Notes 1, 3, 8 and 13)...... -- 43,151,125 22,301,664
Accounts receivable -- trade (net of allowance for
doubtful accounts of $278,531, $518,267 and
$1,066,329) (Notes 1, 2 and 13)................. 6,168,108 10,721,052 8,439,173
Inventory (Notes 1 and 2).......................... 2,486,729 4,164,077 6,387,416
Prepaid expenses (Note 2).......................... 827,882 732,275 1,216,222
Other current assets (Note 2)...................... 549,447 663,536 2,500,464
----------- ------------ ------------
Total current assets....................... 10,287,046 71,932,503 44,876,770
EQUIPMENT AND FIXTURES -- Net (Notes 1, 2, 4
and 6)............................................. 33,359,489 48,325,727 63,526,965
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
ACQUIRED -- Net (Notes 1, 2, 5 and 6).............. -- 49,608,772 57,117,724
INTANGIBLE AND OTHER ASSETS -- Net (Notes 1, 2, 5 and
6)................................................. 10,964,610 41,145,669 42,844,881
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,366,340
=========== ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable (Note 13)......................... $ 2,934,020 $ 4,927,517 $ 1,646,503
Accrued payroll related costs...................... 782,901 1,911,730 2,338,524
Accrued liabilities (Notes 1 and 14)............... 729,617 4,011,615 4,874,902
Deferred revenue and customer deposits (Note 7).... 2,781,817 5,778,147 7,224,077
Current maturities of long-term debt (Notes 8 and
13)............................................. 835,293 -- --
----------- ------------ ------------
Total current liabilities.................. 8,063,648 16,629,009 16,084,006
LONG-TERM DEBT (Notes 8 and 13)...................... 14,322,383 124,101,373 124,775,949
DEFERRED TAXES (Note 9).............................. -- 818,243 818,243
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY: (Notes 1, 11 and 12)
Preferred stock -- $.01 par value; 1,000,000 shares
authorized in 1994 and 1,500,000 shares
authorized in 1995 and at June 30, 1996,
respectively; issued and outstanding, none...... -- -- --
Common stock -- $.01 par value; 15,000,000 shares
authorized in 1994 and 30,000,000 shares
authorized in 1995 and at June 30, 1996,
respectively; 5,971,816, 10,263,255 and
10,888,516 shares issued and outstanding in
1994, 1995 and at June 30, 1996, respectively... 59,718 102,633 108,885
Additional paid-in capital......................... 38,936,524 90,584,065 98,873,087
Accumulated deficit................................ (6,771,128) (21,222,652) (32,293,830)
----------- ------------ ------------
Total stockholders' equity................. 32,225,114 69,464,046 66,688,142
----------- ------------ ------------
TOTAL................................................ $54,611,145 $211,012,671 $208,366,340
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE> 31
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES: (Note 1)
Mobile communication services....... $24,090,104 $34,507,051 $ 41,948,002 $18,502,705 $ 37,382,992
Equipment sales..................... 2,379,631 3,392,075 4,024,345 1,550,140 3,006,045
Telemessaging services.............. 10,064,980 11,226,952 11,359,426 5,584,132 5,785,872
----------- ----------- ------------ ----------- ------------
Total revenues.............. 36,534,715 49,126,078 57,331,773 25,636,977 46,174,909
Cost of equipment sales............. (4,563,438) (9,065,548) (7,878,474) (3,866,886) (4,158,575)
----------- ----------- ------------ ----------- ------------
31,971,277 40,060,530 49,453,299 21,770,091 42,016,334
COSTS AND EXPENSES:
Operating expenses -- exclusive of
depreciation and amortization.... 8,484,520 8,298,498 11,584,092 4,997,497 9,272,889
Depreciation and amortization
(Notes 1, 2, 4, 5 and 6)......... 4,318,298 7,475,503 14,834,510 6,310,311 13,235,904
Selling............................. 7,063,740 11,071,843 10,936,670 5,420,745 7,672,984
General and administrative.......... 12,568,046 16,742,814 21,565,970 9,902,468 15,929,434
Restructuring charges (Note 14)..... -- -- 669,406 -- 395,815
----------- ----------- ------------ ----------- ------------
32,434,604 43,588,658 59,590,648 26,631,021 46,507,026
----------- ----------- ------------ ----------- ------------
OPERATING LOSS........................ (463,327) (3,528,128) (10,137,349) (4,860,930) (4,490,692)
INTEREST EXPENSE...................... (914,770) (623,291) (4,334,229) (811,071) (7,561,419)
INTEREST INCOME....................... 98,388 76,464 626,762 -- 980,933
----------- ----------- ------------ ----------- ------------
(816,382) (546,827) (3,707,467) (811,071) (6,580,486)
----------- ----------- ------------ ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM........ (1,279,709) (4,074,955) (13,844,816) (5,672,001) (11,071,178)
EXTRAORDINARY ITEM (Note 8)........... (236,241) -- (606,708) -- --
----------- ----------- ------------ ----------- ------------
NET LOSS.............................. $(1,515,950) $(4,074,955) $(14,451,524) $(5,672,001) $(11,071,178)
=========== =========== ============ =========== ============
LOSS PER SHARE: (Note 1)
Loss before extraordinary item...... $ (0.35) $ (0.68) $ (2.03) $ (0.95) $ (1.07)
Extraordinary item.................. (0.07) -- (0.09) -- --
----------- ----------- ------------ ----------- ------------
Net loss per share.......... $ (0.42) $ (0.68) $ (2.12) $ (0.95) $ (1.07)
=========== =========== ============ =========== ============
AVERAGE NUMBER OF SHARES OUTSTANDING
(in thousands)
(Notes 1 and 11).................... 3,648 5,966 6,822 5,992 10,348
=========== =========== ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE> 32
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993................. 2,424,200 $ 24,242 $ 3,215,938 $ (1,180,223) $ 2,059,957
Sale of common stock................... 3,540,103 35,401 35,472,497 -- 35,507,898
Net loss............................... -- -- -- (1,515,950) (1,515,950)
---------- -------- ----------- ------------ ------------
BALANCE, December 31, 1993............... 5,964,303 59,643 38,688,435 (2,696,173) 36,051,905
Exercise of stock options.............. 7,513 75 62,639 -- 62,714
Stock options compensation............. -- -- 185,450 -- 185,450
Net loss............................... -- -- -- (4,074,955) (4,074,955)
---------- -------- ----------- ------------ ------------
BALANCE, December 31, 1994............... 5,971,816 59,718 38,936,524 (6,771,128) 32,225,114
Exercise of stock options.............. 91,445 915 888,441 -- 889,356
Issuance of common stock............... 4,199,994 42,000 50,759,100 -- 50,801,100
Net loss............................... -- -- -- (14,451,524) (14,451,524)
---------- -------- ----------- ------------ ------------
BALANCE, December 31, 1995............... 10,263,255 102,633 90,584,065 (21,222,652) 69,464,046
Exercise of stock options
(unaudited)......................... 56,574 565 702,735 -- 703,300
Issuance of common stock (unaudited)... 568,687 5,687 7,586,287 -- 7,591,974
Net loss (unaudited)................... -- -- -- (11,071,178) (11,071,178)
---------- -------- ----------- ------------ ------------
BALANCE, June 30, 1996 (unaudited)....... 10,888,516 $108,885 $98,873,087 $(32,293,830) $ 66,688,142
========== ======== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 33
A+ NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... $ (1,515,950) $ (4,074,955) $(14,451,524) $ (5,672,001) $(11,071,178)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization.................. 4,318,298 7,475,503 14,834,510 6,310,311 13,235,904
Provision for losses on accounts receivable.... 437,478 628,953 2,308,165 681,093 1,840,253
Write-off of loan origination fees............. 311,241 -- 606,708 -- --
Interest accrued on short-term investments..... -- -- (538,020) -- --
Stock options compensation..................... -- 185,450 -- -- --
Amortization of debt discount.................. -- -- -- -- 24,878
Loss on sale of equipment...................... -- -- -- -- 15,800
Changes in assets and liabilities, net of
acquisition of business:
Increase in accounts receivable................ (1,155,565) (2,748,757) (2,556,224) (725,494) 1,285,981
(Increase) decrease in inventory............... (209,569) (1,618,266) 416,737 775,991 (1,991,259)
(Increase) decrease in prepaid expenses........ (596,995) (72,913) 194,200 93,339 (450,096)
Decrease (increase) in other current assets.... 268,839 (477,357) 438,991 (3,647) (2,034,286)
Decrease (increase) in other assets............ 248,094 -- 53,138 -- (2,453,519)
(Decrease) increase in accounts payable........ (640,679) 974,708 (2,448,732) 1,624,351 (3,706,700)
Increase in accrued payroll related costs...... 252,969 152,622 1,128,829 124,449 429,799
Increase (decrease) in accrued liabilities..... 81,605 (1,155) 1,684,732 367,740 820,835
Increase in deferred revenue and customer
deposits..................................... 135,383 618,856 890,352 261,116 941,216
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. 1,935,149 1,042,689 2,561,862 3,837,248 (3,112,372)
INVESTING ACTIVITIES:
Acquisition of business.......................... -- -- (19,064,152) -- (4,614,500)
Net (increase) decrease in short-term
investments.................................... -- -- (55,571,616) (1,017,446) 20,849,461
Proceeds from sale of available-for-sale
investments.................................... -- -- 12,958,511 -- --
Purchase of South Central Bell paging assets..... (9,923,753) -- (1,232,062) (1,232,061) --
Purchase of equipment............................ (7,302,116) (19,097,901) (12,396,229) (6,066,341) (22,856,896)
Proceeds from sale of equipment.................. -- -- -- -- 565,734
Investments in consortium and other.............. -- (974,007) (6,744,600) -- --
Payment for intangible assets.................... (827,311) (1,411,033) (513,381) (634,859) --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities..... (18,053,180) (21,482,941) (82,563,529) (8,950,707) (6,056,201)
FINANCING ACTIVITIES:
Proceeds of long-term debt....................... 3,295,664 13,329,000 133,092,500 16,301,000 --
Repayment of long-term debt...................... (13,862,152) (892,484) (36,348,623) (11,685,874) (3,333)
Proceeds from sale of common stock............... 35,507,898 62,714 889,356 888,568 703,299
Payment of loan costs............................ (214,996) (619,584) (5,386,008) -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities.............................. 24,726,414 11,879,646 92,247,225 5,503,694 699,966
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 8,608,383 (8,560,606) 12,245,558 390,235 (8,468,607)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....... 207,103 8,815,486 254,880 254,880 12,500,438
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR............. $ 8,815,486 $ 254,880 $ 12,500,438 $ 645,115 4,031,831
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest........... $ 828,000 $ 490,000 $ 1,639,000 789,959 7,712,813
============ ============ ============ ============ ============
Cash paid during the year for income taxes....... -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in connection with
acquisition of business........................ $ -- $ -- $ 50,801,100 $ -- $ 7,591,974
============ ============ ============ ============ ============
Debt obtained in connection with acquisition of
business....................................... -- -- -- -- $ 653,031
============ ============ ============ ============ ============
Accounts payable converted to long-term debt..... $ 885,000 $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE> 34
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of A+ Network,
Inc. (formerly A+ Communications Inc.) and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions and balances have been
eliminated in consolidation.
THE COMPANY is engaged in two principal business segments, Mobile Network
Services and Telemessaging Services. The Company's Mobile Network Services
business segment provides paging, voice mail and other mobile communication
services and equipment and represents several cellular service providers for the
sale and distribution of cellular phones and services. In providing paging and
cellular services, paging and cellular equipment is frequently provided as part
of the total service/product package sold to the customer. The Company's
Telemessaging Services business segment provides a variety of message management
services over the telephone to a diverse client base. The Company's diversified
customer base provides for a lack of concentration of credit risk.
CASH AND CASH EQUIVALENTS consist of highly liquid investments which are
unrestricted as to withdrawal or use and with original maturities of less than
three months when purchased.
SHORT-TERM INSTRUMENTS are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, which requires investments to be
classified in three categories: held-to-maturity securities, trading securities,
or available-for-sale securities (See Note 3).
EQUIPMENT AND FIXTURES are recorded at cost. Depreciation is provided for
financial statement purposes principally on the straight-line method over the
estimated useful lives of the related assets.
INVENTORY, which consists of pagers and cellular mobile radios, purchased
for resale, is stated at lower of cost or market. Cost for cellular mobile
radios is determined on a first-in, first-out basis and pager cost is determined
by the average cost method.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED is being amortized
over 15 years utilizing the straight-line method. The amount reported is net of
accumulated amortization of $628,823 at December 31, 1995.
INTANGIBLE ASSETS are being amortized, generally utilizing the
straight-line method, over the period of the related asset as set forth in Note
5. The deferred preoperating costs consist of costs directly attributable to
entering a new geographic market and are expensed over twelve months beginning
when operations commence in that market. Loan costs are amortized to interest
expense utilizing the effective interest method over the life of the related
debt.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. The Financial
Accounting Standards Board has issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which will be effective for fiscal years beginning after December 15, 1995. SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company periodically assesses the recoverability of
intangibles and other long-lived assets utilizing the undiscounted cash flows
estimated to be received over the life of the related assets. Based on such
analyses, management believes that the application of SFAS No. 121 will not
materially affect the carrying value of such assets at December 31, 1995.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which will be effective for the Company beginning January 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply
F-27
<PAGE> 35
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
APB Opinion No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect of compensation cost under SFAS No. 123
on net income and earnings per share.
REVENUE is recognized as services are provided or as the product is
delivered to the customers. Billings to customers for services in advance of
providing such services are deferred and recognized as revenue when earned.
LOSS PER SHARE has been computed utilizing the weighted average number of
shares of common stock outstanding for the period. Stock options have been
excluded from the computation of net loss per share as their inclusion would
have had an antidilutive effect.
INCOME TAXES are accounted for in accordance with SFAS No. 109 for all
years presented.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CERTAIN RECLASSIFICATIONS have been made to the 1993, 1994 and 1995
components to conform with presentation utilized in the six months ended June
30, 1995 and 1996.
UNAUDITED INTERIM INFORMATION. The unaudited interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and results of operations. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for a full year.
2. ACQUISITIONS
On October 24, 1995, the Company acquired Network Paging Corporation and
its wholly-owned subsidiaries ("Network") for approximately $12,000,000 in cash,
4,199,994 shares of restricted unregistered common stock valued at $50,801,100
and incurred related expenses of approximately $3,100,000. Liabilities assumed
in the merger included an additional $500,000 of merger expenses incurred by
Network. Concurrent with the merger of the two companies, the Company changed
its name to A+ Network, Inc., issued $125,000,000 of 11 7/8% Senior Subordinated
Notes due 2005 (see Note 8), redeemed existing preferred stock of Network of
$4,680,000 and retired existing indebtedness of Network and the Company of
approximately $12,200,000 and $23,000,000, respectively. The acquisition was
accounted for using the purchase method; accordingly, the purchase price has
been allocated to the assets purchased and the liabilities assumed of the
acquired entities based upon their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of the
net assets acquired ("goodwill" of $50,237,595) is being amortized on a
straight-line basis over 15 years. Network's results of operations have been
included in the Consolidated Statements of Operations from the date of
acquisition.
F-28
<PAGE> 36
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets................................................ $ 7,802,095
Equipment and fixtures........................................ 14,327,677
Customer accounts and other intangibles....................... 19,404,000
Goodwill...................................................... 50,237,595
Liabilities assumed........................................... (21,154,663)
------------
$ 70,616,704
============
</TABLE>
The following table presents a summary of the unaudited pro forma
consolidated results of operations as if the Network acquisition had occurred on
January 1, 1994, with pro forma adjustments to give effect to the amortization
of goodwill, the issuance of the 11 7/8% Senior Subordinated Notes due 2005 (the
"Notes") and certain other adjustments, together with related income tax
effects. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have occurred had the acquisition and the issuance of the Notes
been made at the beginning of 1994 or of results which may occur in the future.
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Total revenues................................... $ 77,651,000 $ 86,043,000
Loss before income taxes......................... (26,394,000) (28,172,000)
Net loss......................................... (26,394,000) (28,779,000)
Loss per share................................... $ (2.60) $ (2.81)
</TABLE>
During 1994 and 1995, the Company acquired various telemessaging services
for $1,290,000 and $172,000, respectively. These acquisitions have been
accounted for as purchases and are included in the accompanying financial
statements from the dates of acquisition. The purchase price was assigned to the
fair value of the assets acquired, as follows:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Covenants not to compete.............................. $ 641,000 $ 20,000
Customer accounts..................................... 649,000 152,000
---------- --------
$1,290,000 $172,000
========== ========
</TABLE>
Pro forma consolidated results of operations for 1994 and 1995 giving
effect to these acquisitions as if they had taken place on January 1, 1994 would
not be significantly different than those reported.
3. SHORT-TERM INVESTMENTS
Short-term investments include U.S. Government securities and commercial
paper. The Company has classified its investment securities into
held-to-maturity and available-for-sale categories under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The U.S.
Government securities (consisting of issues of the U.S. Treasury and other
Government agencies) with a carrying value of $14,686,419 are pledged as
security for payment of the first two scheduled interest payments due on the
Notes (See Note 8) and are classified as held-to-maturity. The balance of the
investment securities consisting of commercial paper are classified as
available-for-sale. Securities classified as held-to-maturity are reported at
amortized cost and available-for-sale securities are reported at fair value
which at December 31, 1995 approximates amortized cost.
F-29
<PAGE> 37
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SHORT-TERM INVESTMENTS -- (CONTINUED)
Investment securities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
----------------- -------------------
<S> <C> <C>
U.S. Treasury and other Government agencies... $14,686,419 $ --
Commercial paper.............................. -- 28,464,706
----------- -----------
$14,686,419 $28,464,706
=========== ===========
</TABLE>
The Company's proceeds and gross realized gains from the sale of
available-for-sale securities were $12,958,511 and $93,061 in 1995. Investment
securities at December 31, 1995 mature at various times throughout 1996.
4. EQUIPMENT AND FIXTURES
Equipment and fixtures at December 31 consist of the following:
<TABLE>
<CAPTION>
LIVES
(YEARS) 1994 1995
-------- ------------ ------------
<S> <C> <C> <C>
Pagers and telemessaging equipment............... 4-5 $ 34,233,592 $ 50,562,502
Paging network equipment......................... 2-10 12,112,176 23,808,080
Furniture, fixtures and other equipment.......... 3-5 8,519,297 14,751,056
------------ ------------
54,865,065 89,121,638
Less accumulated depreciation and amortization... (21,505,576) (40,795,911)
------------ ------------
$ 33,359,489 $ 48,325,727
============ ============
</TABLE>
During the fourth quarter of 1994, the Company, in response to
announcements of new technology and other plans, revised the estimated remaining
useful lives of its pagers to more closely reflect expected remaining lives.
Estimated depreciable lives of pagers were reduced from seven to four years.
Additionally, during the fourth quarter of 1994, as the Company firmed up its
plans to upgrade the paging network equipment acquired from South Central Bell
(See Note 5), it changed the depreciable lives of such equipment from ten years
to approximately two years. The effect of these changes in estimated depreciable
lives resulted in an increase in the Company's depreciation expense and net loss
of $942,476 or $.16 per common share for 1994.
F-30
<PAGE> 38
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets at December 31 consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
1994 1995 PERIOD
----------- ----------- ----------------------
<S> <C> <C> <C>
Licenses and operating authorities..... $ 8,351,540 $ 9,706,017 Principally 40 years
Covenants not to compete............... 1,231,599 1,051,144 3 years
Customer accounts...................... 849,043 19,882,637 1 to 9 years
Loan costs............................. 659,131 5,095,550 3 to 10 years
Other.................................. 180,168 518,716 3 years
----------- -----------
11,271,481 36,254,064
Less accumulated amortization.......... (1,280,879) (2,804,838)
----------- -----------
9,990,602 33,449,226
Investments............................ 974,008 7,696,443
----------- -----------
$10,964,610 $41,145,669
=========== ===========
</TABLE>
The Company has entered into an agreement to purchase all of the common
stock of Page East, Inc., a paging company in North Carolina. Included in
investments in 1995 is $5,000,000, representing an escrow deposit as required by
the purchase agreement. Final closing of the purchase is subject to certain
conditions including the transfer of FCC licenses.
Additionally, the Company has invested $2.5 million in a consortium formed
to purchase licenses for regional narrow band paging frequencies.
6. PURCHASE OF TRANSMISSION EQUIPMENT AND LICENSES
In 1995, the Company purchased the South Central Bell paging assets in the
state of Louisiana for approximately $1,232,000. In 1993, the Company purchased
the South Central Bell paging networks in Mississippi and the tangible assets
employed in the South Central Bell paging networks in Tennessee and Alabama, at
an aggregate cost of approximately $9,924,000, of which $2,716,000 related to
Tennessee was placed in escrow. South Central Bell agreed to transfer its
operating authorities in Tennessee and Alabama to the Company upon obtaining the
required state approvals. During 1994, the required regulatory approvals were
obtained. As a result, the Company received operating authority for Tennessee
and Alabama and the $2,716,000 escrow balance was released. Allocation of the
purchase price for the transactions was recorded as follows:
<TABLE>
<S> <C>
Paging network equipment....................................... $ 1,930,000
Licenses and operating authorities............................. 9,226,000
-----------
$11,156,000
===========
</TABLE>
7. DEFERRED REVENUES
Customers are generally billed by the Company a month in advance of
providing the service. Deferred revenue related to such billings totaled
$1,753,000 and $4,674,000 at December 31, 1994 and 1995, respectively.
F-31
<PAGE> 39
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- ------------
<S> <C> <C>
11 7/8% Senior Subordinated Notes due 2005, net of
unamortized discount of $898,627........................ $ -- $124,101,373
Bank loans................................................ 13,329,000 --
Notes payable to vendor................................... 1,828,676 --
----------- ------------
15,157,676 124,101,373
Less current maturities.............................. (835,293) --
----------- ------------
$14,322,383 $124,101,373
=========== ============
</TABLE>
On October 24, 1995, the Company issued $125 million of 11 7/8% Senior
Subordinated Notes due 2005, priced at 99.274% to yield approximately 11.8%.
Interest on the Notes is payable semi-annually in May and November. The Notes
required the Company to purchase a portfolio of securities, initially consisting
of U.S. government securities ("Pledged Securities") which are pledged as
security for payment of the first two scheduled interest payments due on the
Notes. Amounts so pledged at December 31, 1995 were $14,686,419. The Notes are
subordinated in right of payment to all of the Company's existing and future
Senior Debt as defined in the Indenture governing the Notes. Such Indenture also
contains certain covenants, including, but not limited to, covenants with
limitations and restrictions on the following: (i) the incurrence of additional
indebtedness; (ii) restricted payments; (iii) asset dispositions; (iv) liens;
(v) sale and leaseback transactions; (vi) prohibition of dividends; (vii)
prohibition of dividend and other payment restrictions affecting certain
subsidiaries; (viii) consolidation, merger or sale of assets; (ix) investments;
(x) incurrence of indebtedness ranking senior to the Notes and junior to any
Senior Debt; and (xi) transactions with related parties. Additionally, the Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after November 1, 2000 at redemption prices set forth in the Indenture. The
Company used the net proceeds to retire all other outstanding debt, to finance
the acquisition of Network and to purchase the Pledged Securities. The balance
is available for general corporate purposes, including possible future
acquisitions.
Also in connection with the acquisition of Network, the Company entered
into an agreement with the First National Bank of Chicago to provide a $25
million credit facility (the "Credit Facility"). The Credit Facility agreed upon
is to be a secured two-year term loan, principal payable in quarterly
installments commencing December 31, 1997 and bearing an interest rate which is
computed at a base rate plus a margin fluctuating with the Company's ratio of
total debt to net operating cash flow. Borrowings under the Credit Facility
would be secured by a lien on all assets of the Company, including the stock of
its subsidiaries, to the extent permissible under the rules of the Federal
Communications Commission. The loan documents contain certain affirmative and
negative covenants, and include the maintenance of specified ratios, by the
Company, of net operating cash flows to interest expense on total debt, ratios
of total debt to equity and others. Additionally, the availability of borrowings
under the Credit Facility are limited by certain of these ratios. Until the
Company has achieved a substantial improvement in its results of operations or
completed a significant acquisition of one or more other paging providers on
favorable terms, management does not anticipate being able to borrow under the
Credit Facility. There were no amounts outstanding or available under the Credit
Facility at December 31, 1995.
The Company incurred extraordinary charges in 1993 and 1995 of $236,000 and
$606,708, respectively, or $.07 and $.09 per share, respectively, to write off
loan origination fees associated with debt retired from the proceeds of the
issuance of the Notes and its initial public offering, respectively.
Long-term debt outstanding at December 31, 1995 matures in 2005.
F-32
<PAGE> 40
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The provision for income taxes varies from the amount computed by applying
the federal statutory rate of 34% for the reasons summarized below:
<TABLE>
<CAPTION>
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Tax based on statutory rate..................... $(515,000) $(1,385,000) $(4,914,000)
State income taxes, net of federal income tax
benefit.................................... (37,000) (161,000) (538,000)
Amortization of goodwill...................... -- -- 214,000
Valuation allowance........................... 563,000 1,688,000 5,358,000
Other......................................... (11,000) (142,000) (120,000)
--------- ----------- -----------
$ -- $ -- $ --
========= ========== ==========
</TABLE>
Deferred tax balances at December 31, 1994 and 1995 are attributable to the
following temporary differences:
<TABLE>
<CAPTION>
1994 1995
--------------------------- ---------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net operating loss carryforwards........... $ 5,296,000 $ -- $ 9,338,000 $ --
Purchase accounting........................ -- -- -- 7,012,000
Alternative minimum and investment tax
credit carryforwards..................... 155,000 -- 96,000 --
Stock compensation......................... -- -- 2,280,000 --
Accelerated tax depreciation and
amortization............................. -- 2,876,000 -- 3,007,000
Other...................................... -- 149,000 619,000 --
Valuation allowance........................ (2,426,000) -- (3,132,000) --
----------- ----------- ----------- ------------
$ 3,025,000 $ 3,025,000 $ 9,201,000 $ 10,019,000
=========== =========== =========== ============
</TABLE>
At December 31, 1995, the Company has approximately $25,000,000 of net
operating loss carryforwards for federal tax purposes and $96,000 of alternative
minimum and investment tax credit carryforwards available to offset future
federal income taxes. The majority of these amounts expire in the years 2008
through 2010.
10. COMMITMENTS AND CONTINGENCIES
On August 2, 1995, the Company was named as one of several defendants in
Contact Communications, Inc. and ProNet Inc. vs. Page East, Inc., C.T, Spruill,
Network USA Paging Corp. and A+ Communications, Inc., which is pending in the
U.S. District Court for the Eastern District of Texas. Motions have been filed
by all defendants to transfer the action to the U.S. District Court for the
Eastern District of North Carolina. The suit alleges that the Company tortiously
interfered (by entering into a letter of intent to acquire Page East, Inc.) with
an alleged contract between the plaintiffs and Page East, Inc. and the sole
shareholder of Page East, Inc., which would have provided for the acquisition of
Page East, Inc. by the plaintiffs. The plaintiffs seek unspecified damages. The
Company intends to vigorously defend against this suit. The Company believes
that it has meritorious defenses and that the ultimate outcome of such action
will not have a material adverse effect on the financial condition of the
Company.
Additionally, there are other various legal actions, proceedings and claims
pending or which may be instituted against the Company. Litigation is subject to
many uncertainties and it is reasonably possible that some of such legal
actions, proceedings or claims could be decided unfavorably to the Company.
Although the ultimate liability with respect to these matters cannot be
ascertained, management of the Company believes that any resulting liability
will not materially affect the Company's financial position at December 31,
1995.
F-33
<PAGE> 41
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company has entered into lease agreements principally for office and
transmitting sites with lease terms ranging from one month to eight years and
expiring on various dates through 2001. In most cases, the Company expects that
in the normal course of business, leases will be renewed or replaced by other
leases. Total rent expense was $1,308,000, $2,666,000, and $3,446,000 in 1993,
1994, and 1995. The leases generally provide for payment of taxes and other
related expenses.
The Company leases office and warehouse space from a company owned by an
officer and director of the Company. The annual rental commitment under these
leases is approximately $393,000. Rental expense under these leases was
approximately $51,000 in 1995. The Company believes the terms of these leases
are at least as favorable as those that could be obtained from a non-affiliated
party.
Aggregate rental commitments under noncancelable operating leases as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1996......................................................... $ 3,509,957
1997......................................................... 3,096,460
1998......................................................... 2,674,877
1999......................................................... 1,740,018
2000......................................................... 1,365,116
Thereafter................................................... 721,700
-----------
$13,108,128
===========
</TABLE>
11. STOCKHOLDERS' EQUITY
On August 24, 1993, the Company and certain stockholders of the Company
sold an aggregate of 3,700,000 shares of common stock (3,200,000 shares from the
Company) in a public offering at a price of $11 per share. On September 22,
1993, pursuant to the underwriters exercise of their over-allotment options, an
additional 555,000 shares were sold to the public, of which 340,103 shares were
offered by the Company. Net proceeds to the Company from the sales amounted to
approximately $35.5 million. Approximately $9.9 million of the net proceeds were
used to acquire the South Central Bell paging assets in Alabama, Tennessee and
Mississippi.
In February 1995, the Company adopted a Shareholder's Rights Plan ("Plan")
that calls for a distribution of one preferred stock purchase right for each
outstanding share of common stock of the Company and the Board of Directors of
the Company declared a dividend distribution of such rights payable as of March
10, 1995 to shareholders of record as of that date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth ( 1/100) of a
share of preferred stock of the Company, designated as Series A Junior
Participating Preferred Stock ("Junior Preferred"), at an exercise price of $75
per one-hundredth of a share under certain circumstances as described below.
Each share of the Junior Preferred, if issued, would bear a dividend rate of 100
times the aggregate amount per share of any dividend declared on the common
stock and an aggregate amount per share equal to the amount per share of any
dividend declared on any other class or series of junior stock. Each share of
Junior Preferred would entitle the holder to 100 votes on all matters submitted
to a vote of the stockholders of the Company. Such shares provide for a
liquidation preference of the greater of $100 per share or an aggregate amount
per share equal to 100 times the aggregate amount to be distributed per share to
holders of common stock and are not subject to redemption. In connection with
the Plan, the Board of Directors reserved 500,000 shares of preferred stock
designated as Junior Preferred. At December 31, 1995, no preferred stock was
outstanding.
F-34
<PAGE> 42
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCKHOLDERS' EQUITY -- (CONTINUED)
The Rights become exercisable only in the event that a person or group
acquires 15 percent or more of the Company's common stock or announces a tender
offer or exchange offer which would result in the ownership by such person or
group of 15 percent or more of the Company's common stock without prior approval
of the Company's Board of Directors. The Plan also provides that if the Company
is acquired in a merger or business combination after a person or group has
acquired 15 percent of the Company's common stock, the holder of a right would
be entitled to purchase, at the exercise price, shares of the acquiring company
or surviving company having a market value twice the exercise price. The Company
may also exchange each Right for a share of its common stock at any time after a
person or group acquires 15 percent or more of the Company's common stock. The
Board of Directors may redeem the Rights for $.01 per right until a person or
group acquires 15 percent or more of the Company's common stock. The Plan
expires in ten years.
12. STOCK OPTIONS
Under the Company's Employee Stock Incentive Plans the Compensation
Committee of the Board of Directors has authority to grant stock options and
stock appreciation rights. The stock options may be incentive or non-qualified
stock options, however all of the stock options granted to date are
non-qualified stock options. Non-qualified stock options are granted at not less
than 80% of the fair market value as of the date of grant under the Company's
1987 Stock Incentive Plan and not less than 50% of the fair market value as of
the date of grant under the Company's 1992 Stock Incentive Plan. Awards are
exercisable subject to terms and conditions as determined by the Compensation
Committee with no term to exceed ten years after the date of grant.
The Company's 1993 Non-Qualified Stock Option Plan for non-employee
directors provides for the granting of up to 34,500 shares of stock to
non-employee directors of the Company. This plan provides for the grant of
options to purchase 1,035 shares to each such director following the
effectiveness of a public offering and each year thereafter, as long as shares
remain available under the Plan. The options granted shall be at market price on
date of grant, exercisable one year from date of grant and expire ten years from
date of grant. Under the Plan, options for 5,175, 6,210 and 4,140 shares were
granted at $16.25, $11.25 and $14.38 per share during 1993, 1994 and 1995,
respectively.
The Company also has available an approved Employee Stock Purchase Plan
which provides for stock sales of up to 69,000 shares. As of December 31, 1995,
no shares had been issued under this plan.
F-35
<PAGE> 43
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTIONS -- (CONTINUED)
Stock option activity for the 1987 and 1992 Employee Stock Incentive Plans
occurring during 1993, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
OPTION PRICE
OPTIONS SARS PER SHARE
-------- ------- -----------------
<S> <C> <C> <C>
Balance, December 31, 1992...................... 21,474 10,726
Granted....................................... 240,708 55,352 $10.23 to $17.50
-------- -------
Balance, December 31, 1993...................... 262,182 66,078
Granted....................................... 361,394 -- $4.35 to $14.75
Exercised..................................... (7,513) (3,756) $6.52 to $10.23
Canceled...................................... (146,563) (62,322) $4.35 to $10.23
-------- -------
Balance, December 31, 1994...................... 469,500 --
Granted....................................... 191,008 -- $13.50
Exercised..................................... (91,445) -- $4.35 to $13.25
Canceled...................................... (160,528) -- $10.23 to $14.75
-------- -------
Balance, December 31, 1995...................... 408,535 --
======== =======
</TABLE>
In February 1994, the Company's Board of Directors canceled 120,000 options
at $17.50 per share that had been granted to certain of the Company's employees
and granted them 120,000 options at $13.25 per share. The cancellation occurred
because the incentive purpose of the options had been significantly reduced by a
large negative spread between the then current market price and the exercise
price. The $13.25 option price assigned to the reissued options was the market
value of the Company's stock on the grant date of the options, and no
compensation expense has been recorded as a result of the transaction.
The options granted in 1994 include 54,044 options issued on October 6,
1994 as replacements for SARs canceled on that date. These options were issued
with the same vesting schedules and exercise prices as the SARs that they
replaced.
Outstanding stock options at December 31, 1995 have exercise prices ranging
from $10.23 to $14.75 per share. Of the options outstanding at December 31,
1995, approximately 133,200 were available for exercise.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS No. 107, Disclosures
About Fair Value of Financial Instruments, which requires certain disclosures
concerning the estimated fair value of financial instruments. The estimated fair
value amounts have been determined based on the Company's assessment of
available market information and appropriate valuation methodologies. The
estimates presented are not necessarily indicative of amounts the Company could
realize in a current market exchange.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
<S> <C> <C>
Short-term investments:
Held-to-maturity....................................... $ 14,686,419 $ 14,720,247
Available-for-sale..................................... 28,464,706 28,469,454
Long-term debt........................................... 124,111,945 126,875,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
F-36
<PAGE> 44
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Cash and cash equivalents, accounts receivable, and accounts payable: The
carrying value approximates the fair value due to the short maturity of these
instruments.
Short-term investments: The estimated fair value of short-term investments
is based upon quoted market prices for those or similar investments.
Long-term debt: The fair value of the Company's long-term debt is estimated
based on quoted market prices.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date, and current estimates of fair
value may differ significantly from the amounts presented herein.
14. RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company recorded restructuring charges
of $669,406. Included in the charges are the costs of employee separations and
expected costs of facility consolidations, asset retirements and related costs.
Approximately $650,000 of these charges are included in accrued liabilities at
December 31, 1995.
15. BUSINESS SEGMENT INFORMATION
A description of the Company's business segments is included in Note 1 to
the consolidated financial statements. Information with respect to such segments
is as follows:
<TABLE>
<CAPTION>
OPERATING DEPRECIATION
PROFIT TOTAL CAPITAL AND
REVENUES (LOSS) ASSETS EXPENDITURES AMORTIZATION
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1993
Mobile communications....... $26,838,380 $ 1,235,000 $ 30,506,768 $ 6,620,370 $ 2,878,642
Telemessaging............... 10,064,980 819,725 4,234,660 536,133 1,254,114
Corporate................... -- (2,518,052) 9,514,961 145,613 185,542
----------- ------------ ------------ ------------ ------------
$36,903,360 $ (463,327) $ 44,256,389 $ 7,302,116 $ 4,318,298
=========== ============ ============ ============ ============
December 31, 1994
Mobile communications....... $38,659,496 $ (245,960) $ 46,759,094 $ 17,633,555 $ 5,670,029
Telemessaging............... 11,226,952 438,759 5,380,536 987,884 1,484,954
Corporate................... -- (3,720,927) 2,471,515 476,462 320,520
----------- ------------ ------------ ------------ ------------
$49,886,448 $ (3,528,128) $ 54,611,145 $ 19,097,901 $ 7,475,503
=========== ============ ============ ============ ============
December 31, 1995
Mobile communications....... $47,082,514 $ (4,511,166) $142,637,533 $ 11,992,677 $ 12,554,867
Telemessaging............... 11,359,426 (377,206) 3,901,498 245,077 1,739,535
Corporate................... -- (5,248,977) 64,473,640 158,475 540,108
----------- ------------ ------------ ------------ ------------
$58,441,940 $(10,137,349) $211,012,671 $ 12,396,229 $ 14,834,510
=========== ============ ============ ============ ============
</TABLE>
F-37
<PAGE> 45
A+ NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENT, NOTE TO JUNE 30, 1996 FINANCIAL STATEMENTS
On May 16, 1996, the Company entered into an agreement and plan of merger
with Metrocall, Inc. whereby, subject to the process and approvals contemplated
in the agreement, the Company will merge with Metrocall, Inc.
F-38
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Network Paging Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Network Paging Corporation and its subsidiary at December 31, 1994
and 1993, and the results of their operations and their cash flows for the two
years ended December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 8, on August 2, 1995, the Company was named as one of
several defendants in a lawsuit. The plaintiffs seek unspecified damages. Legal
counsel is unable to form an opinion as to the ultimate outcome of this
litigation. The Company believes it has meritorious defenses, although no
assurance can be given to that effect. The ultimate outcome of this litigation
cannot be presently determined. Accordingly, no provision for any liability that
may result upon the outcome of this litigation has been made in these financial
statements.
PRICE WATERHOUSE LLP
Tampa, Florida
February 3, 1995, except as to the first
paragraph of Note 8 for which the date
is August 31, 1995
F-39
<PAGE> 47
NETWORK PAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 486,585 $ 563,312
Trade receivables, net of allowance for doubtful accounts of
$300,000 and $560,000, respectively............................. 2,148,665 3,733,179
Inventories........................................................ 155,462 1,483,035
Prepaid expenses................................................... 196,133 248,480
Other receivables.................................................. 113,685 147,223
----------- -----------
Total current assets....................................... 3,100,530 6,175,229
Property and equipment, net.......................................... 9,385,084 11,484,443
Note receivable from related party................................... 586,798 --
Other assets, net.................................................... 35,765 780,731
----------- -----------
Total assets............................................... $13,108,177 $18,440,403
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion..................................... $ 3,147,339 $ 900,000
Accounts payable................................................... 1,292,698 1,771,233
Advanced billings.................................................. 892,712 1,463,357
Accrued expenses................................................... 437,609 609,052
Income taxes payable............................................... -- 53,000
----------- -----------
Total current liabilities.................................. 5,770,358 4,796,642
Notes payable, less current portion.................................. 6,079,871 9,973,420
Notes payable to shareholder......................................... 712,933 --
Deferred taxes....................................................... -- 898,000
----------- -----------
Total liabilities.......................................... 12,563,162 15,668,062
----------- -----------
Commitments and contingencies (Note 8)
Mandatorily redeemable preferred stock, Series A, $.01 par value,
3,000,000 shares authorized, issued and outstanding................ -- 3,000,000
Note receivable -- shareholder....................................... -- (3,000,000)
Mandatorily redeemable preferred stock, Series B, $.01 par value,
4,000,000 shares authorized, issued and outstanding................ -- 4,119,949
Mandatorily redeemable convertible preferred stock, Series C, $.01
par value, 678,000 shares authorized, 677,849 shares issued and
outstanding........................................................ -- 2,059,975
----------- -----------
-- 6,179,924
----------- -----------
Shareholders' equity (deficit):
Common stock, no par value; 1,000 and 0 shares authorized, issued
and outstanding, respectively................................... 286,976 --
Common stock, $.01 par value; 0 and 13,000,000 shares authorized,
respectively; 0 and 2,040,000 shares issued and outstanding,
respectively.................................................... -- 20,400
Additional paid-in capital......................................... -- 522,962
Accumulated equity (deficit)....................................... 258,039 (3,950,945)
----------- -----------
Total shareholders' equity (deficit)....................... 545,015 (3,407,583)
----------- -----------
Total liabilities and shareholders' equity................. $13,108,177 $18,440,403
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE> 48
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994
----------- -----------
<S> <C> <C>
Revenues:
Pager lease and access fees................................... $13,821,722 $20,623,189
Product sales................................................. 4,070,377 7,829,759
Other income.................................................. 94,110 72,676
----------- -----------
Total revenues............................................. 17,986,209 28,525,624
Cost of products sold........................................... 3,666,084 6,801,285
----------- -----------
14,320,125 21,724,339
Expenses:
Operating..................................................... 2,959,085 4,456,541
Selling and marketing......................................... 4,767,661 6,778,711
General and administrative.................................... 3,459,189 5,442,634
Reorganization bonuses (Note 10).............................. -- 634,809
Depreciation and amortization................................. 1,914,578 2,949,417
----------- -----------
Operating income................................................ 1,219,612 1,462,227
Interest income................................................. 7,847 204,331
Interest expense................................................ 942,614 1,244,716
----------- -----------
Income before taxes............................................. 284,845 421,842
Provision for income taxes -- 1994.............................. -- 151,000
Provision for income taxes resulting from conversion to C
Corporation status (Note 7)................................... -- 800,000
----------- -----------
Net income (loss)............................................... 284,845 (529,158)
Pro forma provision for income taxes (unaudited)................ 108,000 --
Preferred stock dividend requirement............................ -- (423,440)
----------- -----------
Pro forma net income (loss) applicable to common shareholders
(unaudited)................................................... $ 176,845 $ (952,598)
=========== ===========
Pro forma income (loss) per share (unaudited):
Primary....................................................... $ .09 $ (.47)
=========== ===========
Fully diluted................................................. $ .09 $ (.47)
=========== ===========
Weighted shares outstanding (Note 1):
Primary....................................................... 2,040,000 2,040,000
=========== ===========
Fully diluted................................................. 2,040,000 2,040,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE> 49
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
$.01
NO PAR PAR ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN EQUITY
STOCK STOCK CAPITAL (DEFICIT)
--------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............... $ 286,976 -- -- $ (26,806)
Net income................................. -- -- -- 284,845
--------- ------- --------- -----------
Balance at December 31, 1993............... 286,976 -- -- 258,039
Net income (loss) prior to conversion to C
Corp. (January 1, 1994 through March 31,
1994).................................... -- -- $ (1,653) --
Constructive distribution of S Corporation
retained earnings........................ -- -- 258,039 (258,039)
Common stock retired....................... (286,976) -- -- --
--------- ------- --------- -----------
Balance at April 1, 1994................... -- -- 256,386 --
Common stock issued........................ -- $20,400 266,576 --
Issuance of Series A redeemable preferred
stock.................................... -- -- -- (3,000,000)
Dividends on preferred stock............... -- -- -- (423,440)
Net loss subsequent to conversion to C
Corporation (April 1, 1994 through
December 31, 1994)....................... -- -- -- (527,505)
--------- ------- --------- -----------
Balance at December 31, 1994............... $ -- $20,400 $ 522,962 $(3,950,945)
========= ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 50
NETWORK PAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 284,845 $ (529,158)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation......................................................... 1,909,778 2,879,321
(Gain) loss on sale of property and equipment........................ 18,501 38,878
Provision for bad debts.............................................. 735,067 960,091
(Increase) decrease in operating assets
Trade receivables.................................................. (1,622,229) (2,544,604)
Inventories........................................................ 77,896 (1,327,573)
Prepaid expenses................................................... (69,375) (52,347)
Other receivables.................................................. (41,881) (33,538)
Other assets, net.................................................. 83,696 (469,966)
Increase in operating liabilities
Accounts payable................................................... 818,220 478,535
Advanced billings.................................................. 329,447 570,645
Accrued expenses................................................... 43,895 171,443
Income taxes payable............................................... -- 53,000
Deferred taxes..................................................... -- 898,000
----------- -----------
Net cash provided by operating activities....................... 2,567,860 1,092,727
----------- -----------
Cash flows from investing activities:
Capital expenditures................................................... (5,383,584) (5,763,738)
Proceeds from sale of property and
equipment............................................................ 456,561 746,178
Deposit on pending acquisition......................................... -- (275,000)
----------- -----------
Net cash used in investing activities........................... (4,927,023) (5,292,560)
----------- -----------
Cash flows from financing activities:
Decrease in notes receivable........................................... -- 893,384
Increase in notes receivable........................................... (586,798) (3,306,586)
Proceeds from notes payable............................................ 7,211,976 19,944,636
Proceeds from notes payable to shareholder............................. 1,468,054 70,000
Reductions in notes payable............................................ (3,737,462) (18,298,425)
Reductions in notes payable to shareholder............................. (1,649,440) (782,933)
Proceeds from preferred stock Series B, net of issuance costs of
$61,969.............................................................. -- 3,938,031
Proceeds from preferred stock Series C, net of issuance costs of
$30,984.............................................................. -- 1,969,016
Dividends on preferred stock........................................... -- (150,563)
----------- -----------
Net cash provided by financing activities....................... 2,706,330 4,276,560
----------- -----------
Net increase in cash and cash equivalents................................ 347,167 76,727
Cash and cash equivalents at beginning of year........................... 139,418 486,585
----------- -----------
Cash and cash equivalents at end of year................................. $ 486,585 $ 563,312
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................. $ 952,393 $ 1,149,617
=========== ===========
Cash paid during the year for taxes.................................... $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE> 51
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background
Florida Network USA, Inc. ("Network USA"), a wholly owned subsidiary of
Network Paging Corporation ("Network"), was established in 1989, as a private
carrier paging company. Network has the ability to provide regional, corridor,
statewide or nationwide services to more than 6,000 American cities by linking
its paging system with those of independent paging companies ("Affiliates").
Network also provides its Affiliates with other services including pagers,
equipment, marketing, and training assistance.
Reorganization
In April 1994, Network USA signed an agreement with an investment group to
obtain a cash infusion of $6 million in exchange for $6 million of 10%
promissory notes which were exchangeable, in certain circumstances, for an
aggregate of 4 million shares of Series B redeemable preferred stock and 677,849
shares of Series C redeemable convertible preferred stock, as described below.
In connection with this cash infusion, Network USA amended and restated its
articles of incorporation, effective April 1, 1994, to authorize the issuance of
13 million shares of common stock (par value of $.01 per share) and 7.678
million shares of preferred stock (par value of $.01 per share) which resulted
in the change of its S Corporation status to C Corporation status. The preferred
stock consists of 3 million shares of Series A redeemable preferred stock,
bearing a cumulative annual dividend of 7.25%, redeemable at $1 per share; 4
million shares of Series B redeemable preferred stock, bearing a cumulative
annual dividend of 10%, redeemable at $1 per share; and 678,000 shares of Series
C redeemable convertible preferred stock, convertible at the option of the
holder into a minimum of 15%, increasing to 21% (dependent on the date of
conversion and the occurrence of specified events), of Network USA's then
outstanding common stock (see further description of shares issued, redemption
and conversion options at Note 11). Concurrent with the change in corporate
structure, Network USA effected a recapitalization by issuing 2.04 million
shares of common stock and 3 million shares of Series A redeemable preferred
stock in exchange for all previously outstanding common stock. As a result of
this change in Network USA's corporate status, the retained earnings and the
current year net loss, through the effective date of the change, was
reclassified to additional paid-in capital. The retained earnings balance at
December 31, 1994 represents earnings and dividends under the current corporate
status only.
Concurrent with the receipt of the funds referred to above, Network USA
loaned the common stock shareholder $3 million in the form of a note receivable
bearing a 7% interest rate, interest due monthly and the total balance due in
April 2001.
In July 1994, Network USA's sole shareholder and the investment group
formed a holding company, Network Paging Corporation, and merged Network USA
into a wholly-owned subsidiary of Network Paging Corporation. Concurrent with
this restructuring, the $6 million promissory notes were exchanged for the
Series B redeemable preferred stock and C redeemable convertible preferred stock
referred to above.
Trade Receivables -- Allowance for Doubtful Accounts
Trade receivables are reflected net of an allowance for doubtful accounts.
The allowance for doubtful accounts is established through a provision for bad
debts. Receivables are charged against the allowance for doubtful accounts when
management believes that collection is unlikely.
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified due to the large number of customers comprising Network's
customer base and their dispersion among various industries and geographic
areas.
F-44
<PAGE> 52
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at lower of cost or market, with cost determined by
specific identification. Inventories consist of new and used pagers held for
resale.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The cost of leasehold improvements is
amortized using the straight-line method over the term of the lease. When assets
are retired or otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts and any resulting
gain or loss is reflected in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and betterments
are capitalized.
Other Assets
Other assets consists primarily of deferred financing costs and money on
deposit. Money on deposit relates primarily to the pending acquisition of Call
Comm, Inc. and Telecommunications Associates, Inc. (see further discussion at
Note 8). Deferred financing costs will be amortized on a straightline basis over
their anticipated useful lives, which range from three to four years.
Revenue Recognition
Revenues from leased pagers and paging services principally are billed in
advance of services being provided. Such advance billings for these services are
deferred and recognized as revenue when earned. Affiliate access fees are
recognized on the accrual basis as the related services are performed. Revenues
from the sale of pagers are recognized on the accrual basis when title passes
from Network to the customer.
Income Taxes
As described above, Network changed its tax status to C Corporation status
in April 1994. Prior to April 1994, Network had elected to be taxed as an S
Corporation under the provisions of Section 1362 of the Internal Revenue Code.
Under those provisions, the shareholder included Network's income or loss in his
individual income tax return. A provision for income taxes has been recognized
for the difference in the reported tax basis and book basis of assets and
liabilities as a result of the change in Network's tax status and for the eight
month period ended December 31, 1994, and is reflected in these consolidated
financial statements.
Fair Value of Financial Instruments
The carrying amount for cash, short-term investments, accounts receivable,
accounts payable, accrued expenses and notes payable are a reasonable estimate
of their fair value.
Cash Flows
For the purpose of the statements of cash flows, cash equivalents include
highly liquid investments with original maturities of three months or less.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-45
<PAGE> 53
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
Earnings per share is computed by dividing net income (loss) by the
weighted average number of common and common share equivalents outstanding.
2. OTHER RECEIVABLES
Other receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Loans to employees............................................. $ 61,951 $ 61,185
Loans to officers.............................................. 28,362 125
Receivables from related parties............................... -- 67,611
Other.......................................................... 23,372 18,302
-------- --------
$113,685 $147,223
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Major classifications of property and equipment and related assets' lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
USEFUL LIFE (YEARS) 1993 1994
------------------- ----------- -----------
<S> <C> <C> <C>
Pagers held for lease................... 4 $ 6,532,560 $ 6,825,579
Transmittal equipment................... 7 4,202,379 5,836,327
Furniture, fixtures and equipment....... 5-7 1,517,746 3,494,150
Vehicles................................ 5 142,144 273,232
Equipment on loan to Affiliates......... 5 86,916 156,162
Leasehold improvements.................. 7 25,586 27,334
-----------
12,507,331 16,612,784
Less accumulated depreciation and amortization............... 3,710,060 5,995,152
-----------
8,797,271 10,617,632
Construction in progress..................................... 383,173
Satellite dishes and transmitters not yet placed in
service.................................................... 587,813 483,638
-----------
$ 9,385,084 $11,484,443
===========
</TABLE>
In 1993, pagers and transmittal equipment with a cost of $8,990,974 were
pledged as collateral for loans. At December 31, 1994, all assets, 100% of the
stock of Network USA, and 100% of the stock of all of its future subsidiaries
are pledged as collateral on the reducing revolving credit facility. On December
31, 1993 and 1994, total accumulated depreciation related to pagers held for
lease amounted to $2,037,021 and $3,219,725, respectively.
F-46
<PAGE> 54
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
------- --------
<S> <C> <C>
Financing costs, net of amortization of $57,062................. -- $418,292
Money on deposit................................................ $35,765 313,312
Other........................................................... -- 49,127
------- --------
$35,765 $780,731
======= ========
</TABLE>
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
-------- --------
<S> <C> <C>
Sales and use tax.............................................. $126,401 $246,328
Accrued bonuses and commissions................................ 127,497 132,101
Accrued interest............................................... 71,572 154,175
Other.......................................................... 112,139 76,448
-------- --------
$437,609 $609,052
======== ========
</TABLE>
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1994
---------- -----------
<S> <C> <C>
Borrowings under $12 million reducing revolving credit
facility................................................. -- $10,873,420
Notes payable to a commercial finance company due at
various dates through November 1998 and interest rates
from 10% to 12%, monthly installments vary in relation to
debt outstanding, secured by pagers or transmittal
equipment................................................ $8,216,995 --
Notes payable to commercial finance company, interest at
10% to 12.5%, monthly installments of $21,075 plus
interest through January 1999, secured by transmitters... 773,980 --
Other notes payable to banks, secured by fixed assets...... 124,689 --
Capital lease obligation with finance company, monthly
installments of $5,744, interest ranging from 5.32% to
11.75%, secured by pagers................................ 111,546 --
---------- -----------
9,227,210 10,873,420
Less notes payables, current portion....................... 3,147,339 900,000
---------- -----------
$6,079,871 $ 9,973,420
========== ===========
</TABLE>
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<S> <C>
1995............................................................ $ 900,000
1996............................................................ 2,400,000
1997............................................................ 3,000,000
1998............................................................ 3,600,000
1999............................................................ 973,420
------------
$ 10,873,420
============
</TABLE>
F-47
<PAGE> 55
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1994, Network entered into a $12 million reducing revolving credit
facility with a commercial bank. The level of available funds under this credit
facility will be reduced on a quarterly basis, commencing June 30, 1995. The
interest rate is tied to the bank's prime plus a specified percentage ranging
from .5% to 2% with such percentage being based on Network's leverage ratio (the
bank's prime rate and Network's interest rate were 8.5% and 10%, respectively,
at December 31, 1994). The final principal payment on this credit facility is
due June 30, 1999.
The credit facility also requires payment of a commitment fee on the
available funds balance at the rate of .5% per annum payable on a quarterly
basis. Borrowings are secured by all assets and 100% of the stock of Network
USA. Network incurred loan origination fees and direct financing costs
aggregating $316,165, which have been capitalized and are to be recognized as
interest expense over the life of the loan.
The credit facility agreement requires maintenance of certain specified
financial and operating covenants which prohibit incurrence of additional debt,
without approval by the bank, and restrict payment of cash dividends on common
stock during the term of the credit facility.
As of December 31, 1994, Network was eligible to borrow all of the
$1,126,580 remaining on the credit facility. Principal repayments based on the
amount outstanding at December 31, 1994, are $900,000 in 1995, $2.4 million in
1996, $3 million in 1997, $3.6 million in 1998, and $973,420 in 1999.
In September 1994, Network entered into an interest rate agreement which
provides a ceiling on interest costs with respect to $6 million of Network's $12
million credit facility in the event the bank's prime rate exceeds 9.75%.
Starting in June 1995, the dollar amount on which the interest rate agreement is
applicable decreases from $6 million to $3.225 million incrementally, on a
quarterly basis, through September 1997 when the agreement terminates. The
$109,000 cost of this agreement has been capitalized and included in other
assets and is being amortized over the three year life of the agreement.
7. INCOME TAXES
In connection with the reorganization in April 1994 (see Note 1), Network
changed from S Corporation status to C Corporation status for income tax
purposes. A provision for income taxes has been recognized for the difference in
the reported tax basis and book basis of assets and liabilities as a result of
the change from S Corporation status to C Corporation status for the eight month
period of operations ended December 31, 1994, as follows:
<TABLE>
<S> <C>
Current:
Federal......................................................... $ 47,000
State........................................................... 6,000
Deferred.......................................................... 898,000
---------
$ 951,000
=========
</TABLE>
The provision for income taxes at December 31, 1994, shown above, varied
from the statutory federal income tax rates for those periods as follows:
<TABLE>
<S> <C>
Federal income tax rate...................................................... 34.0%
State income taxes, net of federal tax benefit............................... 1.0
Non-deductible items......................................................... 1.8
Deferred taxes recognized on change from S Corporation to C Corporation
status..................................................................... 187.8
-----
Effective tax rate........................................................... 224.6%
=====
</TABLE>
F-48
<PAGE> 56
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes shown on the balance sheet are comprised of the following:
<TABLE>
<CAPTION>
APRIL 1, DECEMBER 31,
1994 1994
-------- ------------
<S> <C> <C>
Deferred tax assets -- current:
Allowance for bad debts.................................. $ 67,504 $ 166,000
Other.................................................... 12,456 12,000
-------- -----------
Total............................................ $ 79,960 $ 178,000
======== ==========
Deferred tax liability -- non-current:
Depreciation............................................. $854,544 $1,076,000
-------- -----------
Total............................................ $854,544 $1,076,000
======== ==========
</TABLE>
The pro forma provision for income taxes for December 31, 1993 was
determined based on the statutory federal income tax rates for those periods.
8. COMMITMENTS AND CONTINGENCIES
Litigation
On August 2, 1995, Network was named as one of several defendants in a suit
filed in the District Court of Collin County, Texas, by Contact Communications,
Inc. and ProNet Inc., which alleges that Network and other named defendants
tortiously interfered with an alleged contract between the plaintiffs, Page East
and the sole shareholder of Page East which would have provided for the
acquisition of Page East by the plaintiffs. The plaintiffs seek unspecified
damages. Network believes they have meritorious defenses and will vigorously
defend against this suit.
Capital Lease Obligations
At December 31, 1993, Network was the lessee of pagers and other equipment
under capital leases expiring at various dates from 1994 to 1998. Capital lease
obligations of $14,064 were incurred during 1993. In July 1994, upon entering
into the $12 million reducing revolving credit facility, these leases were paid
off in full. The cost of these pagers and equipment amounted to $169,149, and
related depreciation expense amounted to $40,670 and $42,287 at December 31,
1993 and 1994, respectively.
The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over the lower of their related lease terms
or their estimated productive lives. Depreciation of assets under capital leases
is included in depreciation expense.
Interest rates on capitalized leases during 1993 varied from 5.32% to
11.75% and were imputed based on the lower of Network's incremental borrowing
rate at the inception of each lease or the lessor's implicit rate of return.
Operating Lease Obligations
Network leases a building and a warehouse which are owned by a related
party (see Note 9) under operating leases, which expire in 1998, with monthly
payments of $25,320. These leases require payment of insurance and maintenance
costs in addition to rental payments.
Network also leases various transmittal sites and equipment under operating
leases which are cancelable upon 30 or 90 days notice. These leases require
payment of taxes, insurance and maintenance costs in addition to rental
payments.
F-49
<PAGE> 57
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rental expense under all operating leases was $858,560 and $1,740,149
in 1993 and 1994, respectively.
The operating leases for the building and warehouse space are not
considered month to month leases. Future lease obligations under these leases as
of December 31, 1994 are $303,840 in 1995; $303,840 in 1996; $303,840 in 1997;
and $282,840 in 1998.
Pending Acquisition
On December 1, 1994, Network began operating Call Comm, Inc., a paging
company, and Telecommunications Associates, Inc., a licensing company, under a
management agreement. Under the terms of the agreement, Network is performing
all operations aspects of these entities and has recorded related revenues and
costs of sales for the month of December.
Pending FCC approval, Network plans to acquire certain licenses and fixed
assets of Call Comm, Inc., and Telecommunications Associates, Inc. The total
purchase price will be $875,000, consisting of $200,000 cash and issuance of
promissory notes in the aggregate amount of $600,000, bearing interest at the
rate of 7.75% per annum. At December 31, 1994, Network has recorded money on
deposit in the amount of $275,000 which represents cash paid to the owners of
Call Comm, Inc., and Telecommunications Associates, Inc., as earnest money for
this pending acquisition. The excess of cost over fair value of tangible assets
included in this acquisition will be allocated to licenses and a covenant not to
compete and will be amortized on a straight-line basis over the respective
assets' anticipated useful lives, which range from three to four years.
9. RELATED PARTIES
Shareholder
Network has one common stock shareholder who advanced working capital funds
to Network. The amount due to the shareholder for such advances was $712,933 at
December 31, 1993. These advances were repaid by Network in full in 1994. In
April 1994, Network issued 3 million shares of Series A redeemable preferred
stock to the common stock shareholder, bearing a cumulative annual dividend of
7.25%, redeemable at $1 per share. Simultaneously, Network advanced the
shareholder $3 million in the form of a 7% note receivable, interest due
monthly, with the principal due in full in April 2001.
In December 1993, Network sold the building which houses its corporate
operations to Network Paging Corporation of Tennessee ("NPC") which is 100%
owned by the sole shareholder of Network USA. The sale transaction was recorded
at the net book value as originally recorded on Network's financial statements
which approximated fair market value at the time of the transaction. Upon sale
of the building, NPC assumed the underlying debt and issued Network a 9% note
receivable which had a balance of $586,798 at December 31, 1993. As of December
31, 1993, Network was the guarantor for NPC on a line of credit secured by the
building which houses Network's headquarters. The outstanding balance on the
line of credit was approximately $1.6 million as of December 31, 1993.
Subsequent to 1993, NPC converted the line of credit into a note agreement which
released Network as guarantor. Network currently leases its corporate offices
from NPC at a rate which approximates fair market value (see Note 8).
In connection with the reorganization discussed in Note 1, the shareholder
granted Network an option to acquire his 50% interest in Alabama Network USA,
Inc., a corporation formed by the shareholder and a third party to own and
operate transmission facilities in Birmingham and Tuscaloosa, Alabama. The
option provides that Network can acquire the shareholder's interest at the cost
of approximately $75,000 until 2001.
F-50
<PAGE> 58
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee and Officer Loans
Other receivables on Network's balance sheet include employee and officer
loans of $90,313 and $61,310 at December 31, 1993 and 1994, respectively.
Affiliates
Network has equipment with an original cost of $156,162 on loan to certain
paging Affiliates throughout the country. Depreciation is being recorded in
accordance with Network's standard policy.
Major Supplier
Network purchases the majority of its pagers from Motorola.
10. EMPLOYEE BENEFITS AND COMPENSATION
Employee Benefit Plan
During 1992, Network began sponsoring a defined contribution pension plan
that covers all employees. The plan allows employees to make voluntary
contributions. Network's contribution is based on a percentage of those
voluntary contributions. The amount of pension expense was $28,632 and $50,445
in 1993 and 1994, respectively.
Reorganization Bonuses
As a result of the successful reorganization and recapitalization of
Network in April 1994, the Board of Directors elected to grant discretionary
bonuses to key management personnel in the amount of $634,809, which were
distributed during 1994.
11. SHAREHOLDERS' EQUITY
Common Stock
In connection with the reorganization (Note 1), Network performed a
recapitalization by issuing 2.04 million shares of common stock and 3 million
shares of Series A redeemable preferred stock (as described below), in exchange
for all of the previously outstanding common stock. Under the terms of the
reorganization, Network may not declare and pay, or set aside funds for the
payment of, any dividends related to any common stock or any preferred stock
junior to the preferred stock discussed below.
Preferred Stock
Series A redeemable preferred stock provides an annual dividend of 7.25% of
the original purchase price payable quarterly and has liquidating preference
over common stock. As a result of the recapitalization referred to above, the
Series A redeemable preferred stock is recorded at its redemption value of $3
million and has been reflected as a reduction to retained earnings.
Series B redeemable preferred stock and Series C redeemable convertible
preferred stock, recorded at their fair market values of $4 million and $2
million less associated issuance costs of $61,969 and $30,984, respectively,
provide an annual dividend of 10% of the original purchase price and have
liquidating preference, at a rate of $1 and $2.95 per share for Series B
redeemable preferred stock and Series C redeemable convertible preferred stock,
respectively, over Series A redeemable preferred stock and common stock. The
issuance costs related to the Series B redeemable preferred stock and Series C
redeemable convertible preferred stock are being accreted over the period until
mandatory redemption. Series C redeemable convertible preferred stock carries
voting rights equivalent to the anticipated number of common shares, on an if
converted basis, and if still outstanding, becomes mandatorily convertible to
common stock on April 30,
F-51
<PAGE> 59
NETWORK PAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001. Upon any conversion of the Series C redeemable convertible preferred
stock, all accumulated and unpaid dividends shall be forgiven. Network has the
option of redeeming all, but not less than all, of the outstanding preferred
stock at its liquidation price upon the closing of a public offering (which
meets certain parameters) of Network's common stock. Upon certain conditions,
the holders of any class of preferred stock may request redemption of its stock,
commencing no sooner than April 1998.
Dividends on the Series A redeemable preferred stock in the amount of
$150,563 were distributed in December 1994; dividends on the Series B redeemable
preferred stock and Series C redeemable convertible preferred stock in the
amount of $181,918 and $90,959, respectively, have been accrued and included in
the redemption value of such series of preferred stock at December 31, 1994.
Stock Option Plan
In December 1993, Network established a Stock Option Plan which provides
for the granting of non-qualified and incentive stock options, as defined by the
Internal Revenue Code, to key employees of Network at prices which represent
fair market value at dates of grant. Under the Plan, options may be granted to
employees to purchase a maximum of 510,000 shares of common stock, as available.
Options granted under the Plan expire in ten years from the date of grant and
become exercisable at such dates and prices as are determined by Network's Board
of Directors. In December 1993, 435,000 shares with an option price of $3.73 per
share were granted and are outstanding at December 31, 1994. These options
become exercisable in four annual increments beginning in July 1995. No
compensation expense has been recorded in connection with the options
outstanding under this Plan.
12. SUBSEQUENT EVENTS (UNAUDITED)
On July 26, 1995, Network entered into a letter of intent with respect to
the proposed acquisition of Page East, Inc. ("Page East"), a Network Affiliate
headquartered in Windsor, North Carolina. Page East has entered into a
definitive agreement to acquire the assets of Coastal Carolina Communications,
Inc. ("Coastal"). At June 30, 1995, Page East and Coastal combined had
approximately 18,500 paging and voicemail subscriber units in service.
Under the terms of the letter of intent among Network, Page East and the
stockholders of Page East, the parties agree that Network is to acquire all of
the outstanding stock of Page East for a purchase price of $10.9 million,
subject to upward adjustment based upon a multiple of combined cash flows of
Page East and Coastal for the year ending December 31, 1995. The obligations of
Network under the letter of intent are subject to satisfactory due diligence
review and the absence of material adverse changes in the operations or
condition of Page East. The obligations of all parties are subject to the
negotiation of definitive agreements and to required regulatory approvals.
The letter of intent provides that in the event Network fails to execute
definite agreements prior to October 26, 1995 for any reason other than material
adverse findings during its due diligence review, it must pay the stockholders
of Page East liquidated damages of $1.0 million, as specified in the letter of
intent. The letter of intent also provides that if the stockholders of Page East
(i) fail to execute definitive agreements prior to October 26, 1995, or
otherwise fail to consummate the transaction over the objection of Network and
(ii) agree, prior to January 26, 1997, to sell the stock or assets of Page East
to any third party, Network will be entitled to liquidated damages of $1.0
million, as specified in the letter of intent.
F-52
<PAGE> 60
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED OCTOBER 31, 1994 AND OCTOBER 24, 1995
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 24,
1994 1995
------------ ------------
<S> <C> <C>
Revenues:
Mobile communication services................................. $ 16,643,329 $ 24,389,961
Equipment sales............................................... 6,029,098 4,321,145
------------ ------------
Total revenues............................................. 22,672,427 28,711,106
Cost of equipment sales......................................... 4,961,072 4,066,026
------------ ------------
17,711,355 24,645,080
Costs and expenses:
Operating expenses -- exclusive of depreciation and
amortization............................................... 3,803,257 5,533,275
Depreciation and amortization................................. 2,372,283 3,025,420
Selling....................................................... 4,898,896 7,401,218
General and administrative.................................... 5,253,112 12,022,929
Reorganization bonuses........................................ 634,809 --
------------ ------------
16,962,357 27,982,842
------------ ------------
Operating income (loss)......................................... 748,998 (3,337,762)
Interest expense................................................ (1,051,772) (935,918)
Interest income................................................. 168,038 175,623
------------ ------------
(883,734) (760,295)
------------ ------------
Loss before income taxes........................................ (134,736) (4,098,057)
Income tax benefit (expense).................................... 51,334 (706,500)
Provision for income taxes resulting from conversion to C
Corporation status............................................ (800,000) --
------------ ------------
Net loss........................................................ $ (883,402) $ (4,804,557)
============ ============
Loss per common share:
Primary....................................................... $ (0.43) $ (2.16)
============ ============
Fully diluted................................................. $ (0.43) $ (2.16)
============ ============
Weighted shares outstanding:
Primary....................................................... 2,040,000 2,229,159
============ ============
Fully diluted................................................. 2,040,000 2,229,159
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-53
<PAGE> 61
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD ENDED OCTOBER 31, 1994
<TABLE>
<CAPTION>
NO PAR $.01 PAR ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN EQUITY
STOCK STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993............ $286,976 $ -- $ -- $ 258,039 $ 545,015
Net loss prior to conversion to C
Corp. (January 1, 1994 through March
31, 1994)........................... -- -- (1,653) -- (1,653)
Constructive distribution of S
Corporation retained earnings....... -- -- 258,039 (258,039) --
Common stock retired.................. (286,976) -- -- -- (286,976)
-------- -------- --------- ----------- -----------
-- -- 256,386 -- 256,386
Common stock issued................... -- 20,400 266,576 -- 286,976
Issuance of Series A redeemable
preferred stock..................... -- -- -- (3,000,000) (3,000,000)
Net loss subsequent to conversion to C
Corporation (April 1, 1994 through
October 31, 1994)................... -- -- -- (883,402) (883,402)
-------- -------- --------- ----------- -----------
Balance, October 31, 1994............. $ -- $ 20,400 $ 522,962 $(3,883,402) $(3,340,040)
======== ======== ========= =========== ===========
</TABLE>
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD ENDED OCTOBER 24, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- TREASURY PAID-IN ACCUMULATED
SHARES AMOUNT STOCK CAPITAL DEFICIT TOTAL
--------- ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995...... 2,040,000 $20,400 $ -- $ 522,962 $(3,950,945) $(3,407,583)
Issuance of common stock...... 417,500 4,175 -- -- -- 4,175
Repurchase of common stock.... -- -- (145,950) -- -- (145,950)
Stock compensation............ -- -- -- 4,017,395 -- 4,017,395
Net loss...................... -- -- -- -- (4,804,557) (4,804,557)
--------- ------- -------- ---------- ----------- -----------
Balance, October 24, 1995..... 2,457,500 $24,575 $(145,950) $4,540,357 $(8,755,502) $(4,336,520)
========= ======= ======== ========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
F-54
<PAGE> 62
NETWORK PAGING CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED OCTOBER 31, 1994 AND OCTOBER 24, 1995
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 24,
1994 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ (134,736) $ (4,804,557)
Depreciation and amortization.................................... 2,337,106 3,025,420
Provision for lost and damaged pagers............................ -- 135,571
Provision for bad debts.......................................... 710,091 1,311,903
Gain on sale of asset............................................ 32,398 --
Stock compensation............................................... -- 4,017,395
(Increase) decrease in operating assets:
Trade receivables............................................. (1,762,627) (1,638,220)
Inventories................................................... (2,191,268) (725,321)
Other receivables............................................. (111,669) (405,857)
Prepaid expenses.............................................. (83,443) 149,886
Other assets.................................................. (749,190) (1,029,135)
Increase (decrease) in operating liabilities:
Accounts payable.............................................. 1,584,223 2,670,996
Advance billings.............................................. 516,651 642,621
Accrued liabilities........................................... 204,594 1,289,587
Provision for income taxes.................................... -- 591,212
Deferred taxes................................................ -- (898,000)
------------ ------------
Net cash provided by operating activities................ 352,130 4,333,501
------------ ------------
Cash flows from investing activities:
Capital expenditures............................................. (4,885,213) (7,072,351)
Proceeds from sale of fixed assets............................... 621,815 1,292,093
------------ ------------
Net cash used in investing activities.................... (4,263,398) (5,780,258)
------------ ------------
Cash flows from financing activities:
Issuance of note receivable...................................... (3,306,586) --
Decrease in notes receivable..................................... 893,384 --
Proceeds from notes payable...................................... 18,661,488 1,397,388
Payments on notes payable........................................ (18,296,355) (150,000)
Proceeds from notes payable to shareholder....................... 70,000 --
Payments on notes payable to shareholder......................... (782,933) --
Issuance of common stock......................................... 286,976 4,175
Repurchase of common stock....................................... -- (145,950)
Proceeds from preferred stock Series B, net of issuance cost..... 3,938,031 352,755
Proceeds from preferred stock Series C, net of issuance cost..... 1,969,016 176,529
------------ ------------
Net cash provided by financing activities................ 3,433,021 1,634,897
------------ ------------
Net (decrease) increase in cash.................................... (478,247) 188,140
Cash at January 1, 1994 and January 1, 1995, respectively.......... 486,585 563,312
------------ ------------
Cash at October 31, 1994 and October 24, 1995, respectively........ $ 8,338 $ 751,452
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
F-55
<PAGE> 63
NETWORK PAGING CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 24, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Network
Paging Corporation (the "Company" or "Network") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Operating
results for the period ended October 24, 1995 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1995.
These unaudited consolidated financial statements, footnote disclosures and
other information should be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's annual financial statements.
F-56
<PAGE> 64
REPORT OF INDEPENDENT AUDITORS
Boards of Directors
Metrocall, Inc.
Page America Group, Inc.
We have audited the accompanying Statements of Net Assets of Page America
Group, Inc. (New York and Chicago Operations) as of December 31, 1995 and
December 31, 1994, and the related statements of operations and net assets and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Page America Group, Inc.
(New York and Chicago Operations) at December 31, 1995 and December 31, 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared on a going concern
basis. Page America Group, Inc. (the "Parent") has incurred substantial losses
in recent years which has significantly weakened its financial condition. At
December 31, 1995 the Parent's current liabilities exceeded its current assets
by $52 million. This working capital deficiency includes borrowings of $48
million, of which $33 million relates to a credit facility with certain banks
which is secured by substantially all of the assets of the New York and Chicago
operations. The Parent intends to satisfy its obligations with proceeds it
expects to receive from the planned sale of the New York and Chicago Operations
pursuant to the Purchase Agreement described in Note B. If this transaction is
not completed as planned, there would be substantial doubt about the ability of
the Parent and the New York and Chicago Operations to continue as going
concerns. This matter, and management's plans with respect thereto, is more
fully discussed in Note A. The accompanying financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result if the transaction described in Note B is not completed as planned.
ERNST & YOUNG LLP
Hackensack, New Jersey
June 17, 1996
F-57
<PAGE> 65
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF NET ASSETS
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1996 1995 1994
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $223, $277, and $282....................... $ 858 $ 1,017 $ 1,345
Prepaid expenses and other current assets................. 540 442 460
------- -------
- -
-------
Total current assets.............................. 1,398 1,459 1,805
EQUIPMENT, less accumulated depreciation and amortization... 6,872 6,662 7,385
OTHER ASSETS:
Certificates of authority, net of accumulated amortization
of $3,518, $3,216, and $2,616.......................... 20,670 20,968 21,391
Customer lists, net of accumulated amortization of $8,280,
$7,992, and $7,150..................................... 3,489 3,776 4,618
Other intangibles, net of accumulated amortization of
$3,328, $3,184, and $2,882............................. 8,801 8,945 9,725
Deposits and other non-current assets..................... 310 400 832
------- -------
- -
-------
33,270 34,089 36,566
------- -------
- -
-------
$41,540 $42,210 $45,756
======= ======= =======
LIABILITIES AND NET ASSETS
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,090 $ 1,982 $ 3,948
Accrued expenses and other liabilities.................... 1,625 1,413 890
Customer deposits......................................... 276 299 359
Deferred revenue.......................................... 1,579 1,242 1,066
------- -------
- -
-------
Total current liabilities......................... 5,570 4,936 6,263
NET ASSETS.................................................. 35,970 37,274 39,493
------- -------
- -
-------
$41,540 $42,210 $45,756
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE> 66
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF OPERATIONS AND NET ASSETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service revenues......................... $10,499 $11,510 $22,387 $24,919 $26,586
Sales revenues........................... 1,037 1,223 2,330 3,453 3,648
------- ------- ------- ------- -------
Total revenues................. 11,536 12,733 24,717 28,372 30,234
OPERATING EXPENSES:
Cost of service........................ 1,059 979 2,031 1,963 1,837
Cost of sales.......................... 712 668 1,481 2,189 2,412
Selling................................ 2,188 2,439 5,017 5,104 4,879
General and administrative............. 3,276 3,493 7,342 7,891 8,686
Technical.............................. 1,795 1,773 3,507 3,325 3,340
Depreciation of equipment and
amortization of deferred warranty
costs............................... 1,913 2,066 4,458 5,131 6,868
Amortization and write-off of
intangibles and other assets........ 734 980 2,289 2,748 2,987
------- ------- ------- ------- -------
11,677 12,398 26,125 28,351 31,009
------- ------- ------- ------- -------
Operating (loss) profit................ (141) 335 (1,408) 21 (775)
OTHER INCOME (EXPENSES):
Gain (loss) on disposal of assets...... 18 -- 63 369 (53)
Other.................................. 103 (154) (200) (301) (683)
------- ------- ------- ------- -------
121 (154) (137) 68 (736)
------- ------- ------- ------- -------
NET (LOSS) INCOME........................ $ (20) $ 181 $(1,545) $ 89 $(1,511)
NET DISTRIBUTIONS (TO) FROM PARENT....... (1,284) (1,289) (674) (4,679) (4,066)
NET ASSETS AT BEGINNING OF PERIOD........ 37,274 39,493 39,493 44,083 49,660
------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD.............. $35,970 $38,385 $37,274 $39,493 $44,083
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE> 67
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income...................... $ (20) $ 181 $(1,545) $ 89 $(1,511)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization....... 2,647 3,046 6,747 7,879 9,855
Provision for losses on accounts
receivable........................ 371 140 548 1,373 1,130
Provision for lost pagers........... 90 76 249 263 688
Net book value of pagers sold....... 644 648 1,416 2,162 2,352
Loss (gain) on disposal of assets... (18) -- (63) (369) 53
Other............................... 12 26 -- -- --
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable..................... 101 134 (353) (749) (810)
Decrease (increase) in prepaid
expenses and other current
assets......................... (11) (438) 18 (214) 453
(Decrease) increase in accounts
payable........................ (237) (405) (1,966) 577 (2,445)
Increase (decrease) in accrued
expenses....................... (146) 278 523 (312) 376
------- ------- ------- ------- -------
Total adjustments.............. 3,453 3,505 7,119 10,610 11,652
------- ------- ------- ------- -------
Net cash provided by operating
activities................... 3,433 3,686 5,574 10,699 10,141
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures................... (2,145) (2,306) (5,044) (5,828) (5,759)
Licensing costs........................ (4) (111) (177) (594) (362)
Net proceeds from disposal of
equipment........................... -- 20 321 402 46
------- ------- ------- ------- -------
Net cash used in investing
activities................... (2,149) (2,397) (4,900) (6,020) (6,075)
------- ------- ------- ------- -------
FINANCING ACTIVITY -- Net distributions
(to) from parent....................... $(1,284) $(1,289) $ (674) $(4,679) $(4,066)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE> 68
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION -- The accompanying
financial statements include those accounts related to radio paging operations
in the New York and Chicago metropolitan areas (the "Companies") of Page America
Group, Inc. (the "Parent"). These entities are the subject of an Asset Purchase
Agreement dated April 22, 1996 under which the Parent and its subsidiaries have
agreed to sell substantially all of the Companies' assets and businesses to
Metrocall, Inc. Accordingly, accounts related to the Parent's financing and
capital structure and the operations of other businesses (primarily paging
operations in other geographic areas that were sold on or prior to July 28,
1995) have been excluded from these financial statements.
The Companies market and provide over-the-air messaging information,
products and services as radio common carriers ("RCC") under licenses from the
Federal Communications Commission. The Companies' diversified customer base
provides for a lack of concentration of credit risk.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
EQUIPMENT -- Equipment is stated at cost less accumulated depreciation and
amortization and includes pagers held for sale or lease. Depreciation is
computed by the declining balance method for pager equipment and the
straight-line method for all other equipment in amounts sufficient to allocate
the cost of depreciable assets to operations over their estimated useful lives.
Leasehold improvements are amortized over the shorter of the life of the
respective lease or service life of the improvement. Cost of sales and service
does not include depreciation expense, which is presented separately in the
accompanying statements of operations.
CERTIFICATES OF AUTHORITY -- The costs of certificates of authority related
to the conduct of RCC operations are amortized on a straight-line basis
principally over periods of 40 years.
CUSTOMER LISTS -- Customer lists generally consist of a portion of the cost
of business acquisitions assigned to the value of customer accounts and are
amortized on a straight-line basis over the estimated lives of those customers
which range up to fourteen years.
OTHER INTANGIBLES -- Other intangibles include the excess of the purchase
price over the fair market value of the net assets acquired and are amortized on
a straight-line basis principally over 40 year periods. Management routinely
evaluates the carrying value of all intangibles for impairment.
FINANCIAL CONDITION OF PARENT -- The accompanying financial statements have
been prepared on a going concern basis. The Parent has incurred substantial
losses in recent years which has significantly weakened its financial condition.
At December 31, 1995 the Parent's current liabilities exceeded its current
assets by $52 million. This working capital deficiency includes outstanding
borrowings of $33 million related to a credit facility with certain banks which
is secured by substantially all of the assets of the Companies and $15 million
related to subordinated notes. In 1995, as a result of non-compliance by the
Parent with certain covenants of the credit facility, the terms were modified to
accelerate the final maturity to December 29, 1995 and the subordinated notes
were modified to provide for a final maturity of six months thereafter. The
credit facility was not repaid at maturity causing the credit facility and the
subordinated notes to then be in default. On April 26, 1996, the terms of the
credit facility were modified to provide for an extended maturity date of the
earlier of November 30, 1996 or completion of the sale of substantially all of
the Parent's business and assets to Metrocall, Inc., pursuant to the agreement
described further in Note B. The Parent has subsequently been in default under
the modified credit facility with respect to the delivery of certain financial
statements in 1996.
F-61
<PAGE> 69
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Parent intends to satisfy its obligations with proceeds it expects to
receive from the planned transaction with Metrocall, Inc. If this transaction is
not completed as planned, there would be substantial doubt about the ability of
the Parent and the Companies to continue as going concerns. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result if the transaction with
Metrocall, Inc. is not completed as planned.
INTERIM FINANCIAL STATEMENTS -- The accompanying unaudited interim
financial statements as of June 30, 1996 and for each of the six month periods
ended June 30, 1996 and 1995 include all adjustments which, in the opinion of
management, are necessary for a fair presentation of the Companies' financial
position and results of operations and cash flows for the periods presented. All
such adjustments are of a normal recurring nature. The results of the Companies'
operations for the six months ended June 30, 1996 and 1995 are not necessarily
indicative of the results of operations for a full fiscal year.
NOTE B -- ASSET PURCHASE AGREEMENT WITH METROCALL
On April 22, 1996 the Parent and certain of its subsidiaries entered into
an agreement to sell substantially all of their remaining business and assets to
Metrocall, Inc. The transaction has been approved by the Boards of Directors of
the Parent and Metrocall. The assets to be sold consist of the Parent's radio
paging operations in the New York and Chicago metropolitan areas.
The agreement provides for a sales price, subject to adjustment as
discussed below, of $78.5 million, $55 million of which is payable in cash and
the balance is payable in shares of Metrocall common stock. Cash proceeds
totaling $4 million will be placed in escrow for up to 18 months. The number of
shares of Metrocall common stock to be received by the Parent will be based on
the average price of Metrocall common stock during the 20 trading days ending on
the trading day five trading days preceding the closing. The purchase price is
subject to downward adjustment if the actual operating results of the New York
and Chicago operations during the three-month period prior to closing are below
certain specified levels.
Completion of the transaction is subject to approval by the Parent's
stockholders at a special meeting to be held, approval by the Federal
Communications Commission, compliance with the Hart-Scott Rodino Antitrust
Improvements Act and satisfaction of other customary conditions.
F-62
<PAGE> 70
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE C -- BALANCE SHEET CLASSIFICATIONS ($ IN THOUSANDS)
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Pagers............................................ $ 8,144 $ 8,164 $ 10,378
Radio common carrier equipment.................... 13,144 12,914 12,571
Office equipment.................................. 3,951 3,946 3,810
Leasehold improvements............................ 614 614 509
Building and land................................. 64 64 64
--------- -------- --------
25,917 25,702 27,332
--------- -------- --------
Less accumulated depreciation and amortization.... (19,045) (19,040) (19,947)
--------- -------- --------
$ 6,872 $ 6,662 $ 7,385
========= ======== ========
</TABLE>
Accrued expenses and other liabilities comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------
1996 1995 1994
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Salaries............................................... $ 97 $ 228 $ 67
Bonuses................................................ 25 115 49
Professional services.................................. 64 95 0
Commissions............................................ 31 23 15
Taxes.................................................. 934 873 614
Other.................................................. 474 79 145
------- ------ ----
$ 1,625 $1,413 $890
======= ====== ====
</TABLE>
NOTE D -- NET ASSETS
A reconciliation of Page America Group, Inc. consolidated equity to net
assets included in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Page America Group, Inc. consolidated equity (deficit):
Series One Convertible Preferred Stock, 10% cumulative,
$.01 par value, authorized 310,000 shares; issued and
outstanding 286,361, 286,361 and 288,881 shares;
liquidation value -- $105, $105, and $100 per
share................................................ $ 30,068 $ 30,068 $ 28,888
---------- -------- --------
Common stock -- $.10 par value,
authorized -- 100,000,000 shares; issued and
outstanding 8,052,305, 8,052,305 and 7,101,868
shares............................................... 1,604 805 710
Paid-in capital......................................... 53,501 52,850 49,830
Accumulated deficit..................................... (100,145) (94,945) (78,989)
---------- -------- --------
Total Page America Group, Inc. Consolidated Equity
(Deficit)............................................... (14,972) (11,222) 439
Less: Assets and (Liabilities) which are not part of the
New York and Chicago Operations:
Cash and cash equivalents............................... 630 751 1,082
Net assets of radio paging operations in other
geographic areas..................................... -- 18,212
Debt.................................................... (50,347) (48,735) (57,991)
Other assets and liabilities -- net..................... (1,225) (512) (357)
---------- -------- --------
Net Assets of New York and Chicago Operations............. $ 35,970 $ 37,274 $ 39,493
========== ======== ========
</TABLE>
F-63
<PAGE> 71
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE E -- INCOME TAXES
The Companies join in the filing of a consolidated federal income tax
return with the Parent. No tax sharing agreement exists with the Parent and,
accordingly, the Companies have provided for taxes based upon a separate return
basis. Due to significant tax losses generated by the Companies during the years
ended December 31, 1993, 1994, and 1995, no income taxes have been provided.
As required, the Companies are accounting for income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes", which prescribes an asset and
liability method of accounting for income taxes. Under SFAS No. 109, deferred
tax assets are to be recognized unless it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Net deferred tax assets of $611,000, $925,000 and $1,250,000 at December
31, 1995, 1994, and 1993, respectively, consisting primarily of non-currently
deductible amortization, depreciation, bad debt reserves and commission expense
have been offset in full by a valuation allowance. The Companies' valuation
allowance decreased by approximately $314,000 and $325,000 as of December 31,
1995 and 1994, respectively and increased by approximately $448,000 as of
December 31, 1993. The changes in net deferred tax assets and the corresponding
valuation allowance were due principally to increases and decreases in
amortization and depreciation of intangibles.
NOTE F -- CONTINGENCIES
The Parent and its subsidiaries are involved in various lawsuits and
proceedings arising in the normal course of business. In the opinion of
management, the ultimate outcome of these lawsuits and proceedings will not have
a material effect on the financial position, results of operations or cash flows
of the Companies.
NOTE G -- TRANSACTIONS WITH PARENT
Page America Group, Inc. provides the Companies with marketing,
administrative and employee benefits services. Amounts charged for such services
(approximately $870,000 and $1,166,000 for the six month periods ended June 30,
1996 and 1995, respectively (unaudited), and $2,588,000, $2,123,000, and
$2,435,000 for the years ended December 31, 1995, 1994, and 1993, respectively)
are included in selling, general and administrative expenses and are allocated
based upon the total pager units in service. It is not practicable to determine
the amount of the above expenses that would have been incurred had the Companies
operated as unaffiliated entities. However, in the opinion of management, the
above allocation method is reasonable.
The Parent sponsors a 401(K) plan covering substantially all employees,
including those of the Companies. Employees who have completed ninety days of
service are eligible to participate. Under the provisions of the plan, employees
may contribute 1% to 4% of compensation on an after-tax basis and also defer
additional amounts of compensation in 1% increments on a pre-tax basis, subject
to limits established by the Internal Revenue Code. The Parent matches 100% of
each participant's after-tax contributions and 25% of each participant's pre-tax
contributions. The Companies' total cost of the plan amounted to $24,000 and
$37,000 for the six month periods ended June 30, 1996 and 1995, respectively
(unaudited), and $59,000, $112,000, and $141,000 for the years ended December
31, 1995, 1994, and 1993, respectively, relating to these matching
contributions.
The assets of the Companies serve as security under the Parent's lending
agreements. No amount for interest charged under these agreements has been
allocated to the Companies' operations. Interest expense on a consolidated basis
for the Parent was $3,225,000 and $3,253,000 for the six month periods ended
June 30, 1996 and 1995 respectively (unaudited), and $6,263,000, $5,102,000, and
$4,032,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
F-64
<PAGE> 72
PAGE AMERICA GROUP, INC. (NEW YORK AND CHICAGO OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE G -- TRANSACTIONS WITH PARENT -- (CONTINUED)
Substantially all cash transactions are executed on a consolidated basis by
the Parent. Accordingly, the Companies do not maintain separate cash balances
attributable to their operations.
NOTE H -- RENTALS
Rental expense was approximately $1,337,000 and $1,290,000, for the six
month periods ended June 30, 1996 and 1995, respectively (unaudited), and
approximately $2,546,000, $2,439,000, and $2,351,000 for the years ended
December 31, 1995, 1994, and 1993, respectively.
Future minimum annual payments (in thousands) under non-cancelable
operating leases for office space and transmitter sites, as of December 31,
1995, are as follows:
<TABLE>
<S> <C>
1996................................................................ $1,145
1997................................................................ 823
1998................................................................ 664
1999................................................................ 546
2000................................................................ 432
Thereafter.......................................................... 1,576
------
$5,186
======
</TABLE>
Certain leases are subject to increases in taxes, operating and other
expenses.
F-65
<PAGE> 73
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet under
the heading "Pro Forma Metrocall" gives effect to (a) the Parkway Acquisition
for cash of approximately $25.0 million, direct acquisition costs of
approximately $600,000 and the assumption of approximately $3.2 million in
long-term obligations, and (b) the Satellite Acquisition for cash of
approximately $17.0 million, approximately 1.6 million shares of Metrocall
Common Stock valued at approximately $11 million and direct acquisition costs of
approximately $500,000 as if each had occurred on June 30, 1996. The pro forma
condensed combined balance sheet under the heading "Pro Forma Combined Company"
gives effect to the acquisition of the remaining equity holdings of A+ Network
for approximately 9,042,000 shares of Metrocall Common Stock, an equal number of
VCRs, expected direct acquisition costs of approximately $7.8 million and the
assumption of $125 million of A+ Network debt as if the acquisition had occurred
on June 30, 1996. The pro forma condensed combined balance sheet under the
heading "Pro Forma Combined Company" also gives effect to the required issuance
of $25 million in Metrocall equity securities in order to obtain the debt
financing necessary to consummate the acquisitions of A+ Network and Page
America. The unaudited pro forma condensed combined balance sheet under the
heading "Pro Forma Combined Company and Page America" also gives effect to the
Page America Acquisition for cash of approximately $55 million, approximately
782,000 shares of Metrocall Common Stock and expected direct acquisition costs
of approximately $1.2 million as if the acquisition had occurred on June 30,
1996. The Page America Acquisition is subject to adjustment based upon the
financial performance prior to closing. In the accompanying pro forma
statements, these adjustments are estimated based upon financial performance for
the six month period ended June 30, 1996. Accordingly, the actual cash and stock
consideration to be issued by Metrocall could differ.
The unaudited pro forma condensed combined statements of operations for the
six month period ended June 30, 1996 and for the year ended December 31, 1995
give effect to (a) the Parkway and Satellite Acquisitions under the heading "Pro
Forma Metrocall" and (b) the Merger and the merger of Network Paging Corporation
into A+ Communications, Inc. on October 24, 1995 under the heading "Pro Forma
Combined Company" together with the required issuance of $25 million in
Metrocall equity securities as described above and (c) the pending acquisition
of Page America under the heading "Pro Forma Combined Company and Page America"
as if each had occurred on January 1, 1995.
Each of the recent and pending acquisitions will be accounted for by the
purchase method of accounting. The purchase prices have been allocated on a
preliminary basis to the assets to be acquired based upon the estimated value of
such assets. The final allocation of intangible assets will be based upon
appraised values.
This information should be read in conjunction with the notes included
herein and the Parkway Financial Statements, Satellite Financial Statements, A+
Network Consolidated Financial Statements, and Page America Financial Statements
included herewith. The unaudited pro forma condensed combined financial data do
not purport to represent what the Surviving Corporation's results of operations
or financial position actually would have been had such transactions and events
occurred on the dates specified, or to project the Surviving Corporation's
results of operations or financial position for any future period or date. The
pro forma adjustments are based upon available information and certain
adjustments that management of Metrocall believes are reasonable. In the opinion
of management of Metrocall, all adjustments have been made that are necessary to
present the unaudited pro forma condensed combined data.
F-66
<PAGE> 74
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------ PRO FORMA PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK ADJUSTMENTS
--------- ---------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and
short term investments...... $ 49,377 $ 267 $ 990 $ -- $ 50,634 $ 26,334 $ (45,166)(K)
Accounts receivable, net...... 10,788 971 548 -- 12,307 8,439 --
Inventory..................... -- 660 423 (1,083)(B) -- 6,387 (6,387)(B)
Prepaid expenses and
other current assets........ 2,021 196 31 (106)(D) 2,142 3,716 --
--------- --------- --------- ---------- --------- ---------- -----------
Total current assets.... 62,186 2,094 1,992 (1,189) 65,083 44,876 (51,553)
Furniture and equipment, net... 93,375 2,902 1,699 1,083(B) 99,059 63,527 6,387(B)
Intangibles, net............... 192,248 4 62 61,048(C) 253,362 99,963 119,962(C)
Equity investment in
A+ Network, Inc............... 26,759 -- -- -- 26,759 -- (26,759)(C)
Other assets................... 312 74 60 (21)(D) 425 -- --
--------- --------- --------- ---------- --------- ---------- -----------
Total Assets............ $374,880 $5,074 $ 3,813 $60,921 $444,688 $208,366 $ 48,037
========= ========= ======== ========== ========= ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations....... $ 271 $2,367 $ 136 $ (733)(E) $ 2,041 $ -- $ --
Accounts payable and accrued
expenses.................... 17,457 54 489 418(F) 18,418 8,860 6,951(F)
Obligation under tender
offer....................... 45,165 -- -- -- 45,165 -- (45,165)(C)
Deferred revenues and
subscriber deposits......... 2,759 1,193 889 43(G) 4,884 7,224 --
Other current liabilities..... 7,001 -- 534 (534)(G) 7,001 -- --
--------- --------- --------- ----------- --------- ---------- -----------
Total current
liabilities.......... 72,653 3,614 2,048 (806) 77,509 16,084 (38,214)
Capital lease obligation....... 2,745 380 -- -- 3,125 -- --
Long-term obligations.......... 150,918 489 11,272 31,787(H) 194,466 124,776 (25,000)(H)
Deferred income taxes.......... 11,471 -- -- 10,048(I) 21,519 818 80,601(I)
Minority interest.............. 500 -- -- -- 500 -- --
--------- --------- --------- ----------- --------- ---------- -----------
Total liabilities....... 238,287 4,483 13,320 41,029 297,119 141,678 17,387
Total stockholders' equity..... 136,593 591 (9,507) 19,892(J) 147,569 66,688 30,650(J)
--------- --------- --------- ----------- --------- ---------- -----------
Total liabilities and
stockholders' equity.......... $374,880 $5,074 $ 3,813 $60,921 $444,688 $208,366 $ 48,037
========= ========= ======== =========== ========= ========== ==========
<CAPTION>
COMBINED
PRO FORMA HISTORICAL COMPANY AND
COMBINED PAGE PRO FORMA PAGE
COMPANY AMERICA ADJUSTMENTS AMERICA
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and short
term investments................ $ 31,802 $ -- $ (30,000)(K) $ 1,802
Accounts receivable, net.......... 20,746 858 -- 21,604
Inventory......................... -- -- -- --
Prepaid expenses and other current
assets.......................... 5,858 540 -- 6,398
--------- ---------- ----------- -----------
Total current assets........ 58,406 1,398 (30,000) 29,804
Furniture and equipment, net....... 168,973 6,872 -- 175,845
Intangibles, net................... 473,287 32,960 26,514(C) 532,761
Equity investment in
A+ Network, Inc................... -- -- -- --
Other assets....................... 425 310 -- 735
--------- ---------- ----------- -----------
Total Assets................ 701,091 $ 41,540 $ (3,486) $ 739,145
======== ========== =========== ===========
Current liabilities:
Current maturities of long-term
obligations..................... $ 2,041 $ -- $ -- $ 2,041
Accounts payable and accrued
expenses........................ 34,229 3,715 1,225(F) 39,169
Obligation under tender offer..... -- -- -- --
Deferred revenues and subscriber
deposits........................ 12,108 1,855 -- 13,963
Other current liabilities......... 7,001 -- -- 7,001
--------- ---------- ----------- -----------
Total current liabilities... 55,379 5,570 1,225 62,174
Capital lease obligation........... 3,125 -- -- 3,125
Long-term obligations.............. 294,242 -- 25,000(H) 319,242
Deferred income taxes.............. 102,938 -- -- 102,938
Minority interest.................. 500 -- -- 500
--------- ---------- ----------- -----------
Total liabilities........... 456,184 5,570 26,225 487,979
Total stockholders' equity......... 244,907 35,970 (29,711)(J) 251,166
--------- ---------- ----------- -----------
Total liabilities and
stockholders' equity.............. $701,091 $ 41,540 $ (3,486) $ 739,145
========= ========= ============ ===========
</TABLE>
See accompanying notes A-Q to this unaudited statement.
F-67
<PAGE> 75
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK(L)
--------- ---------- --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Service, rent & maintenance
revenue............................ $ 92,160 $ 7,403 $10,723 $ -- $110,286 $ 77,698
Product sales....................... 18,699 2,344 1,369 -- 22,412 8,345
--------- ---------- --------- ----------- --------- -------------
Total revenues............... 110,859 9,747 12,092 -- 132,698 86,043
Net book value of products sold..... (15,527) (2,262) (1,557) -- (19,346) (11,944)
--------- ---------- --------- ----------- --------- -------------
95,332 7,485 10,535 -- 113,352 74,099
Service, rent & maintenance
expense............................ 27,258 2,330 3,918 -- 33,506 16,758
Selling, marketing, general and
administrative..................... 40,303 3,655 4,281 (689)(M) 47,550 45,872
Depreciation & amortization......... 31,504 1,153 1,064 3,502 (N) 37,223 25,052
Other............................... 2,050 -- 404 -- 2,454 --
--------- ---------- --------- ----------- --------- -------------
Total operating expenses..... 101,115 7,138 9,667 2,813 120,733 87,682
--------- ---------- --------- ----------- --------- -------------
(Loss) Income from operations....... (5,783) 347 868 (2,813) (7,381) (13,583)
Interest expense and other, net..... (10,522) (477) (740) (1,826)(O) (13,565) (14,589)
--------- ---------- --------- ----------- --------- -------------
Net (loss) income before
taxes....................... (16,305) (130) 128 (4,639) (20,946) (28,172)
Benefit (provision) for taxes....... 595 43 -- 810 (P) 1,448 --
--------- ---------- --------- ----------- --------- -------------
Net (loss) income before
extraordinary item.......... (15,710) (87) 128 (3,829) (19,498) (28,172)
Extraordinary item.................. (4,392) -- 5,928 -- 1,536 (607)
--------- ---------- --------- ----------- --------- -------------
Net (loss) income............ $(20,102) $ (87) $ 6,056 $(3,829) $(17,962) $ (28,779)
========== ============= ======== ============= =========== =================
Net Loss per common share before
extraordinary item................. $ (1.34) $ (1.47)
Extraordinary item, net of income
tax benefit........................ (0.38) 0.11
--------- ---------
Net loss per share.................. $ (1.72) $ (1.36)
Shares used in computing net loss
per share.......................... 11,668 13,222 (Q)
========== ===========
<CAPTION>
PRO FORMA COMBINED
PRO FORMA COMBINED HISTORICAL PRO FORMA COMPANY AND
ADJUSTMENTS COMPANY PAGE AMERICA ADJUSTMENTS PAGE AMERICA
----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Service, rent & maintenance
revenue............................ $ -- $187,984 $ 22,387 $ -- $210,371
Product sales....................... -- 30,757 2,330 -- 33,087
----------- --------- ------ ----------- ------------
Total revenues............... -- 218,741 24,717 -- 243,458
Net book value of products sold..... -- (31,290) (1,481) -- (32,771)
----------- --------- ------ ----------- ------------
-- 187,451 23,236 -- 210,687
Service, rent & maintenance
expense............................ -- 50,264 5,538 -- 55,802
Selling, marketing, general and
administrative..................... -- 93,422 12,359 -- 105,781
Depreciation & amortization......... 21,170(N) 83,445 6,747 4,342(N) 94,534
Other............................... -- 2,454 -- -- 2,454
----------- --------- ------ ----------- ------------
Total operating expenses..... 21,170 229,585 24,644 4,342 258,571
----------- --------- ------ ----------- ------------
(Loss) Income from operations....... (21,170) (42,134) (1,408) (4,342) (47,884)
Interest expense and other, net..... (2,672)(O) (30,826) (137) (2,188)(O) (33,151)
----------- --------- ------ ----------- ------------
Net (loss) income before
taxes....................... (23,842) (72,960) (1,545) (6,530) (81,035)
Benefit (provision) for taxes....... 5,375 (P) 6,823 -- -- 6,823
----------- --------- ------ ----------- ------------
Net (loss) income before
extraordinary item.......... (18,467) (66,137) (1,545) (6,530) (74,212)
Extraordinary item.................. -- 929 -- -- 929
----------- --------- ------ ----------- ------------
Net (loss) income............ $ (18,467) $(65,208) $ (1,545) $(6,530) $(73,283)
============= =========== ============== ============= ==============
Net Loss per common share before
extraordinary item................. $ (2.60) $ (2.84)
Extraordinary item, net of income
tax benefit........................ 0.03 0.04
--------- ------------
Net loss per share.................. $ (2.57) $ (2.80)
Shares used in computing net loss
per share.......................... 25,389 (Q) 26,172(Q)
=========== ==============
</TABLE>
See accompanying notes to this unaudited statement.
F-68
<PAGE> 76
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------- PRO FORMA PRO FORMA
METROCALL PARKWAY(A) SATELLITE ADJUSTMENTS METROCALL A+ NETWORK
--------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service, rent & maintenance revenue.... $ 48,829 $ 4,393 $ 5,030 $ -- $ 58,252 $ 43,169
Product sales.......................... 13,158 847 588 -- 14,593 3,006
--------- ---------- --------- ----------- --------- ----------
Total revenues.................. 61,987 5,240 5,618 -- 72,845 46,175
Net book value of products sold........ (10,560) (740) (622) -- (11,922) (4,159)
--------- ---------- --------- ----------- --------- ----------
51,427 4,500 4,996 -- 60,923 42,016
Service, rent & maintenance expense.... 16,498 1,875 1,827 -- 20,200 9,273
Selling, marketing, general and
administrative........................ 22,694 1,410 1,790 (464)(M) 25,430 23,602
Depreciation & amortization............ 25,098 613 339 2,429(N) 28,479 13,236
Other.................................. -- -- 12 -- 12 396
--------- ---------- --------- ----------- --------- ----------
Total operating expenses........ 64,290 3,898 3,968 1,965 74,121 46,507
--------- ---------- --------- ----------- --------- ----------
(Loss) Income from operations.......... (12,863) 602 1,028 (1,965) (13,198) (4,491)
Interest expense and other, net........ (5,890) (172) (579) (219)(O) (6,860) (6,580)
--------- ---------- --------- ----------- --------- ----------
Net (loss) income before
taxes.......................... (18,753) 430 449 (2,184) (20,058) (11,071)
Benefit (provision) for taxes.......... 108 -- -- 405(P) 513 --
--------- ---------- --------- ----------- --------- ----------
Net (loss) income............... $(18,645) $ 430 $ 449 $(1,779) $(19,545) $(11,071)
========= ========== ========= =========== ========= ==========
Net loss per share..................... $ (1.27) $ (1.21)
Shares used in computing net
loss per share........................ 14,626 16,180 (Q)
========= =========
<CAPTION>
PRO FORMA
PRO FORMA COMBINED HISTORICAL PRO FORMA COMPANY AND
ADJUSTMENTS COMPANY PAGE AMERICA ADJUSTMENTS PAGE AMERICA
----------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Service, rent & maintenance revenue.... $ -- $101,421 $ 10,499 $ -- $111,920
Product sales.......................... -- 17,599 1,037 -- 18,636
----------- --------- ------ ----------- ------------
Total revenues.................. -- 119,020 11,536 -- 130,556
Net book value of products sold........ -- (16,081) (712) -- (16,793)
----------- --------- ------ ----------- ------------
-- 102,939 10,824 -- 113,763
Service, rent & maintenance expense.... -- 29,473 2,854 -- 32,327
Selling, marketing, general and
administrative........................ -- 49,032 5,464 -- 54,496
Depreciation & amortization............ 10,422(N) 52,137 2,647 3,112(N) 57,896
Other.................................. -- 408 -- -- 408
----------- --------- ------ ----------- ------------
Total operating expenses........ 10,422 131,050 10,965 3,112 145,127
----------- --------- ------ ----------- ------------
(Loss) Income from operations.......... (10,422) (28,111) (141) (3,112) (31,364)
Interest expense and other, net........ (1,827)(O) (15,267) 121 (1,094)(O) (16,240)
----------- --------- ------ ----------- ------------
Net (loss) income before
taxes.......................... (12,249) (43,378) (20) (4,206) (47,604)
Benefit (provision) for taxes.......... 4,126(P) 4,639 -- -- 4,639
----------- --------- ------ ----------- ------------
Net (loss) income............... $ (8,123) $(38,739) $ (20) $(4,206) $(42,965)
=========== ========= ======== =========== ============
Net loss per share..................... $ (1.37) $ (1.47)
Shares used in computing net
loss per share........................ 28,348 (Q) 29,130(Q)
=========== ===========
</TABLE>
See accompanying notes to this unaudited statement.
F-69
<PAGE> 77
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The pro forma condensed combined financial statements assume a per share
price of $8.00 for the Metrocall Common Stock to be issued in connection with
the acquisitions of A+ Network and Page America. The pro forma condensed
combined financial statements also assume that the variable common rights to be
issued in connection with the A+ Network acquisition have no value. The purchase
price ultimately will be based upon the trading price of Common Stock on the
closing date of each acquisition. The purchase prices and allocations are
subject to change, which may be material, based upon a variety of factors
including actual share prices at closing of each acquisition, financial
performance prior to closing of the companies to be acquired, and asset
appraisals.
(A) Historical Parkway financial statements are as of June 20, 1996, for the 25
week period ending June 20, 1996, and the year-ended December 31, 1995.
(B) Reflects the reclassification of pagers held for resale or future rental,
from inventory to furniture and equipment for Parkway, Satellite and A+
Network to conform accounting practices to those of Metrocall.
(C) Reflects fair values assigned to intangible assets acquired which consist
of the following (in thousands):
<TABLE>
<CAPTION>
PARKWAY SATELLITE A+ NETWORK PAGE AMERICA
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
FCC License........................ $22,357 $ 22,832 $141,118 $ 31,521
Subscriber Lists................... 2,763 3,114 60,479 27,953
Non-compete........................ -- -- 1,950 --
Goodwill........................... 10,048 -- 81,419 --
Less: Historical Investment by
Metrocall........................ -- -- (65,041) --
Less: Historical Intangibles....... (4) (62) (99,963) (32,960)
------- --------- ---------- ------------
$35,164 $ 25,884 $119,962 $ 26,514
======= ======= ========= ==========
</TABLE>
As of June 30, 1996, Metrocall had purchased approximately 40% of the
outstanding common stock of A+ Network for approximately $91.8 million plus
direct acquisition costs which was reflected on Metrocall's balance sheet
as equity investment in A+ Network of $26.8 million and goodwill of $65.0
million.
Pursuant to the terms of the A+ Agreement, the merger is required to be
consummated by November 16, 1996. In the event that the merger is not
consummated or the merger agreement otherwise amended, the Company may be
required to sell its 40% investment in A+ Network. As of June 30, 1996, the
Company's investment in A+ Network together with related goodwill is
reflected on the Company's balance sheet at approximately $92 million which
resulted from a cash purchase price of $21.10 per share for approximately
4.4 million shares of A+ Network. The closing market price of A+ Network
common stock on September 27, 1996 was $7.75 per share or a decrease based
upon market value of approximately $58 million. Therefore, if the Company
were required to sell this investment at current market prices, the Company
would likely realize a substantial loss upon disposition which has not been
reflected in the accompanying pro forma statements.
(D) Reflects primarily the deferred tax asset of Parkway for which no value has
been assigned in the pro forma statements.
(E) Reclassifies assumed current maturities of long-term obligations related to
the Parkway Acquisition to noncurrent pursuant to the terms of Metrocall's
financing arrangements. Also, reflects the elimination of long-term
obligations included on Satellite's financial statements which are not
assumed pursuant to the terms of the acquisition agreement.
F-70
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(F) Reflects estimated accruals for direct acquisition costs together with
estimated accruals for costs of closing acquired duplicate facilities,
estimated severance for planned terminations of acquired employees and
share registration rights.
(G) Reflects the elimination of other liabilities included on Satellite's
financial statements which are not assumed pursuant to the terms of the
acquisition agreement and reclassifies $43,000 of subscriber deposits to
deferred revenue and subscriber deposits.
(H) Reflects cash payments for Parkway and Satellite of $25.5 million and $17
million, respectively, financed with long-term borrowings together with the
refinancing of assumed current maturities of Parkway debt ($0.6 million)
with noncurrent obligations less $11.3 million of long-term obligations of
Satellite not assumed.
Reflects application of proceeds from $25 million private placement of
equity securities by Metrocall prior to closing the merger with A+ Network.
Reflects cash payments of $55 million for Page America of which $30 million
is assumed to be paid from cash on hand and $25 million is assumed to be
financed with long-term debt.
(I) The Parkway Acquisition is structured as a stock purchase. The A+ Network
acquisition is structured as a tax free reorganization. The deferred income
tax liability represents the tax effect of the difference between the
amounts allocated to assets acquired and their tax basis.
(J) Reflects the shares of Metrocall Common Stock and VCRs expected to be
issued for these acquisitions, less historical equity amounts. Also
reflects the shares estimated to be issued related to the private placement
of equity required under the New Credit Facility. This issuance is presumed
for purposes of the pro forma statements to be a common stock offering,
however, neither the terms nor conditions of the Offering have been
established.
The accompanying statements under the heading "Pro Forma Combined Company"
include the expected issuance of approximately 467,000 shares of Metrocall
Common Stock for pending acquisitions of A+ Network. Historical financial
statements for these acquisitions have not been included in the
accompanying pro forma statements as they are not significant.
(K) Reflects the second payment under the tender offer for A+ Network shares
made on July 1, 1996 as if the payment was made on June 30, 1996.
Reflects cash payment of $55 million for Page America of which $25 million
is assumed to be financed as long-term debt.
(L) On October 24, 1995, A+ Network acquired Network in the A+/Network Merger
for approximately $12 million in cash, common stock valued at $50.8 million
and incurred related expenses of approximately $3.1 million. At the same
time, A+ Network sold $125,000,000 of 11 7/8% Senior Subordinated Notes due
2005 (the "Notes"). The acquisition was accounted for using the purchase
method. The following gives effect to the acquisition by A+ Network and the
sale of the Notes as if they had occurred on January 1, 1995. The unaudited
pro forma condensed financial data should be read in conjunction with A+
Network's historical consolidated financial statements and the consolidated
unaudited financial statements of Network and the notes thereto included
elsewhere herewith.
F-71
<PAGE> 79
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA PRO FORMA
A+ NETWORK NETWORK ADJUSTMENTS A+ NETWORK
---------- ------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service, rent and maintenance revenue.............. $ 53,308 $24,390 $ -- $ 77,698
Product sales...................................... 4,024 4,321 -- 8,345
-------- ------ --------- --------
Total revenues............................. 57,332 28,711 -- 86,043
Net book value of products sold.................... 7,878 4,066 -- 11,944
-------- ------ --------- --------
49,454 24,645 -- 74,099
Service, rent and maintenance expenses............. 11,584 5,533 (359)(1) 16,758
Selling, general and administrative................ 32,503 19,424 (38)(1) 45,872
(1,498)(1)
147(2)
(4,666)(3)
Depreciation and amortization...................... 14,835 3,026 7,191(4) 25,052
Reorganization..................................... 669 -- (669)(5) --
-------- ------ --------- --------
Total operating expenses................... 59,591 27,983 108 87,682
-------- ------ --------- --------
Loss from operations............................... (10,137) (3,338) (108) (13,583)
Interest expense, net.............................. (3,708) (760) (10,121)(6) (14,589)
-------- ------ --------- --------
Loss before income taxes and extraordinary item.... (13,845) (4,098) (10,229) (28,172)
Income taxes....................................... -- (707) 707(7) --
-------- ------ --------- --------
Loss before extraordinary item..................... (13,845) (4,805) (9,522) (28,172)
Extraordinary item................................. (607) -- -- (607)
-------- ------ --------- --------
Net loss........................................... $(14,452) $(4,805) $ (9,522) $(28,779)
======== ====== ========= ========
</TABLE>
----------------------
(1) Adjustment to eliminate specific operating and nonrecurring expenses
that would not have been incurred had the A+/Network Merger occurred
on January 1, 1995. Such savings are specifically identified as
follows (in thousands):
<TABLE>
<S> <C>
Reduction in long distance telephone charges................................ $ 267
Redundant paging terminals and related telephone expenses................... 92
Redundant yellow page advertising expense................................... 38
Salary costs of personnel not to be retained by A+/Network based on analysis
of A+/Network staffing requirements....................................... 1,498
------
Total............................................................... $1,895
======
</TABLE>
(2) Adjustment to provide for changes in compensation of certain
executive officers pertaining to employment contracts entered into at
the time the A+/Network Merger closed.
(3) Adjustment to eliminate compensation costs that would not have been
incurred had the A+/Network Merger occurred on January 1, 1995.
(4) To record amortization expense related to intangibles for the period
from January 1, 1995 to October 24, 1995 net of $304,000 in
historical amortization expense for intangibles recorded by Network
before the A+/Network Merger.
(5) To give effect to elimination of the non-recurring reorganization
expenses incurred by A+ Network as a result of the A+/Network Merger.
(6) Reflects interest expense on the Notes at 11 7/8% (plus amortization
of debt issuance costs of approximately $4.6 million and discount of
$907,500) net of interest expense ($5,270,000) applicable to all
existing long-term debt which was repaid with the proceeds from the
sale of the Notes.
(7) Adjustment to reverse the income tax provision applicable to Network,
as its taxable income would be offset by A+ Network's net operating
losses for income tax purposes had the A+/Network Merger occurred on
January 1, 1995.
(M) Reflects the elimination of certain executive salaries for Parkway and
Satellite executives terminated upon completion of the respective
acquisitions in July and August of 1996.
(N) Reflects incremental depreciation and amortization based upon the
preliminary allocation of depreciable and amortizable assets and assumed
useful lives of 5 years for subscriber lists and 15 years for FCC licenses
and goodwill. The $1.9 million assigned to non-compete agreements in
conjunction with the A+ Network acquisition will be amortized over 3 years.
F-72
<PAGE> 80
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(O) Represents the estimated incremental interest at a rate of 8.75% that would
have been incurred assuming all acquisitions were completed on January 1,
1995. Does not assume a refinancing of the A+ Network public debt.
(P) Represents the tax benefit resulting from the amortization of acquired
intangibles for A+ Network and Parkway assuming an effective income tax
rate of 40%.
(Q) Includes the effect of shares of Metrocall Common Stock assumed to be
issued in the Merger and the Pending Acquisitions as if each had occurred
as of the beginning of the period. Also assumes that the $25 million
private equity offering is consummated with common stock equivalents at $8
per share. Neither the terms nor the pricing of the equity offering have
been established.
F-73
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -----------------------------------------------------------------------------
<S> <C>
2.1 Asset Purchase Agreement by and among O.R. Estman, Inc. d/b/a Satellite
Paging, Dana Paging, Inc. d/b/a Message Network, Bertram M. Wachtel, Edward
R. Davalos, Kevan D. Bloomgren and Metrocall, Inc., dated February 28,
1996.(a).....................................................................
2.2 Amendment to the Asset Purchase Agreement by and among O.R. Estman, Inc.
d/b/a Satellite Paging, Dana Paging, Inc. d/b/a Message Network, Bertram M.
Wachtel, Edward R. Davalos, Kevan D. Bloomgren and Metrocall, Inc., dated
August 30, 1996.(b)..........................................................
23.1 Consent of Arthur Andersen LLP, as independent public accountants for O.R.
Estman, Inc. and Dana Paging, Inc. dba Satellite Paging and Message
Network......................................................................
23.2 Consent of Hutton, Patterson & Company, as independent public accountants for
Parkway Paging, Inc. ........................................................
23.3 Consent of Deloitte & Touche LLP, as independent auditors for A+ Network,
Inc. ........................................................................
23.4 Consent of Price Waterhouse LLP, as independent public accountants for
Network Paging, Corporation..................................................
23.5 Consent of Ernst & Young LLP, as independent public accountants for Page
America Group, Inc. .........................................................
</TABLE>
- ---------------
(a) Incorporated by reference to Metrocall's Quarterly Report on Form 10-Q/A for
the quarter ended March 31, 1996, filed with the Securities and Exchange
Commission on July 15, 1996.
(b) Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K/A into the Company's previously filed
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 27, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants we hereby consent to the use of our report
dated February 13, 1996, relating to the financial statements of Parkway
Paging, Inc. (and to all references to our firm) included in or made a part of
this 8-K.
/s/ HUTTON, PATTERSON & COMPANY
Hutton, Patterson & Company
Dallas, Texas
September 27, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements of
Metrocall, Inc. on Form S-3 (Nos. 33-92520 and 33-81606) and Form S-8 (Nos.
33-83452 and 33-99556) of our report dated February 28, 1996, on our audits of
the consolidated financial statements of A+ Network, Inc. and Subsidiaries as
of December 31, 1995 and 1994, and for the three years in the period ended
December 31, 1995, appearing in the Current Report on Form 8-K/A of Metrocall,
Inc. filed on October 1, 1996.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
September 26, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-83452 and 33-99556) and Form S-3 (Numbers
33-92520 and 33-81606) of our report dated February 3, 1995, except as to the
first paragraph of Note 8 for which the date is August 31, 1995, relating to
the financial statements of Network Paging Corporation, which is appearing in
the Current Report on Form 8-K/A of Metrocall, Inc.
PRICE WATERHOUSE LLP
Tampa, Florida
September 27, 1996
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the use of our report dated June 17, 1996 with respect to the
financial statements of Page America Group, Inc. (New York and Chicago
Operations) incorporated by reference into the Registration Statement (Form S-3
dated October 1, 1996) and related Prospectus of Metrocall, Inc. for the
registration of 1,544,014 shares of its common stock and included in this
Current Report (Form 8-K/A).
ERNST & YOUNG LLP
Hackensack, New Jersey
September 26, 1996
