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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to _____________________
Commission File Number 1-13002
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PAGING PARTNERS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 22-3281446
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Freehold Office Plaza
4249 Route 9N, Bldg. 2
Freehold, New Jersey 07728
(address of principal executive offices)
(908) 409-7088
(Issuer's telephone number)
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(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,657,143 shares of Common
Stock, $.01 par value, were outstanding, as of July 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes __ No X
<PAGE>
Form 10-QSB
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
PAGING PARTNERS CORPORATION
CONDENSED BALANCE SHEETS
June 30, December 31,
A S S E T S 1996 1995
------------ ------------
Current assets: (Unaudited)
Cash and cash equivalents ................ $ 1,040,000 $ 553,000
Accounts receivable ...................... 1,092,000 1,073,000
Inventory ................................ 450,000 382,000
Other .................................... 47,000 35,000
------------ ------------
Total current assets .................. 2,629,000 2,043,000
Property and equipment ......................... 5,016,000 4,948,000
Licenses ....................................... 669,000 733,000
Other assets ................................... 35,000 22,000
------------ ------------
$ 8,349,000 $ 7,746,000
============ ============
LIABILITIES
Current liabilities:
Current maturities of notes payable ...... $ 215,000 $ 96,000
Accounts payable and accrued expenses .... 646,000 345,000
Deferred revenues ........................ 432,000 477,000
------------ ------------
Total current liabilities ........... 1,293,000 918,000
Notes payable (less current maturities) ....... 1,250,000 930,000
------------ ------------
2,543,000 1,848,000
------------ ------------
STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock ............................. 57,000 48,000
Additional paid-in capital ............... 11,954,000 10,663,000
Accumulated deficit ...................... (6,207,000) (4,813,000)
------------ ------------
5,806,000 5,898,000
------------ ------------
$ 8,349,000 $ 7,746,000
============ ============
See accompanying notes to financial statements.
3
<PAGE>
PAGING PARTNERS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30 June 30,
------------------ ------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Service revenue ...................................... $ 2,348,000 $ 1,453,000 1,203,000 $ 761,000
Equipment sales revenue .............................. 1,000,000 838,000 562,000 549,000
----------- ----------- ----------- -----------
3,348,000 2,291,000 1,765,000 1,310,000
----------- ----------- ----------- -----------
Expenses:
Service .............................................. 1,609,000 1,013,000 846,000 528,000
Cost of equipment sold ............................... 1,082,000 920,000 608,000 601,000
Selling .............................................. 650,000 528,000 334,000 330,000
Administrative ....................................... 823,000 728,000 417,000 345,000
----------- ----------- ----------- -----------
4,164,000 3,189,000 2,205,000 1,804,000
----------- ----------- ----------- -----------
Loss from operations before depreciation
and amortization ...................................... (816,000) (898,000) (440,000) (494,000)
Depreciation and amortization .......................... 525,000 327,000 268,000 173,000
----------- ----------- ----------- -----------
Loss from operations ................................... (1,341,000) (1,225,000) (708,000) (667,000)
Interest and other income (expense) - net .............. (51,000) 46,000 (26,000) 18,000
----------- ----------- ----------- -----------
NET LOSS ............................................... $(1,392,000) $(1,179,000) $ (734,000) $ (649,000)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE .............................. $ (.28) $ (.25) $ (.14) $ (.14)
=========== =========== =========== ===========
Weighted average common shares outstanding ............. 5 ,040,000 4,800,000 5,280,000 4,800,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
PAGING PARTNERS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................ $(1,392,000) $(1,179,000)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and Amortization ....................... 525,000 327,000
Changes in operating assets and liabilities ......... 142,000 (206,000)
----------- -----------
Net cash provided (used) by operating activities (725,000) (1,058,000)
----------- -----------
Cash flows from investing activities:
Redemption of marketable securities .................... -0- 3,595,000
Acquisition of property and equipment .................... (63,000) (593,000)
----------- -----------
Net cash provided (used) by investing activities ....... (63,000) 3,002,000
----------- -----------
Cash flows from financing activities:
Net proceeds from private equity placement ............ 1,300,000 -0-
Repayment of notes payable ............................ (25,000) (1,800,000)
----------- -----------
Net cash provided (used) by financing activities ........ 1,275,000 (1,800,000)
----------- -----------
Net increase in cash and cash equivalents ................ 487,000 144,000
Cash and cash equivalents-beginning of period ............ 553,000 303,000
----------- -----------
Cash and cash equivalents-end of period .................. $ 1,040,000 $ 447,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ................................. $ 65,000 $ 79,000
Debt incurred for the purchase of equipment ............ 452,000 -0-
Unrealized gain on marketable securities ............... -0- 36,000
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PAGING PARTNERS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The Company and basis of presentation:
The financial statements presented herein as of June 30, 1996 and for the
three and six month periods ended June 30, 1996 and 1995 are unaudited and,
in the opinion of management, include all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of
financial position and results of operations. Such financial statements do
not include all of the information and footnote disclosures normally
included in audited financial statements prepared in accordance with
generally accepted accounting principles. The results of operations for the
three and six month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the full year ended
December 31, 1996. It is suggested that these financial statements be read
in conjunction with the financial statements and notes thereto included in
the Company's 1995 Annual Report on Form 10-KSB.
2. On May 10, 1996, the Company completed a private placement of 857,000
shares of its Common Stock for gross proceeds of $1.5 million yielding net
proceeds of $1.3 million.
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<PAGE>
Item 2. Management's Discussion And Analysis Of Operations And Financial
Condition
Overview
Paging Partners Corporation (the "Company") operates a radio common carrier
paging system (the "Metro System") which provides one-way wireless messaging
services in the New York Metropolitan area and in portions of five states (New
York, New Jersey, Connecticut, Pennsylvania, and Delaware). The Company
purchased certain licenses and related assets in the Baltimore/Washington area
for the frequency on which the Metro System broadcasts and will seek to expand
the service area of the Metro System from the New York Metropolitan area to
Baltimore/Washington, D.C.
In May 1994, the Company completed its initial public offering. A
substantial portion of the proceeds of this offering were used to construct a
one-way paging system (the "Corridor System") operating on a single frequency in
the territory along Interstate 95 from Baltimore/Washington to Boston.
Construction of the Corridor System was recently completed and the Company
currently operates both the Metro and Corridor Systems. In May 1996 the Company
completed a Private Placement from which it derived net proceeds of $1.3
million. The Company anticipates that a substantial portion of these monies will
be utilized to increase marketing efforts and further develop the Company's
AlphaPlus(R) family of data services for pagers.
Results of Operations
The table below presents certain items in the Company's statements of
operations in dollars and as percentages of total revenues including changes
therein for the six and three month periods ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995 Change
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service 2,348,000 70.1 1,453,000 63.4 895,000 61.6
Equipment Sales 1,000,000 29.9 838,000 36.6 162,000 19.3
---------- ----- ---------- ----- ---------
Total Revenue 3,348,000 100.0 2,291,000 100.0 1,057,000 46.1
---------- ----- ---------- ----- ---------
Operating Expenses:
Service 1,609,000 48.1 1,013,000 44.2 596,000 58.8
Cost of Equipment Sold 1,082,000 32.3 920,000 40.2 162,000 17.6
Selling 650,000 19.4 528,000 23.1 122,000 23.1
Administrative 823,000 24.6 728,000 31.8 95,000 13.1
---------- ----- ---------- ----- ---------
4,164,000 124.4 3,189,000 139.3 975,000 30.6
---------- ----- ---------- ----- ---------
EBITDA (816,000) (24.4) (898,000) (39.3) 82,000 9.1
Depreciation and Amortization 525,000 15.7 327,000 14.2 198,000 60.6
---------- ----- ---------- ----- ---------
Loss from Operations (1,341,000) (40.1) (1,225,000) (53.5) (116,000) (9.5)
Interest and Other Expense Income (51,000) (1.5) 46,000 2.0 (97,000) (210.9)
---------- ----- ---------- ----- ---------
Net Loss (1,392,000) (41.6) (1,179,000) (55.5) (213,000) (18.1)
---------- ----- ---------- ----- ---------
</TABLE>
- ------------------
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30
1996 1995 Change
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Service 1,203,000 68.1 761,000 58.1 442,000 58.1
Equipment Sales 562,000 31.9 549,000 41.9 13,000 2.4
---------- ----- ---------- ----- ---------
Total Revenue 1,765,000 100.0 1,310,000 100.0 455,000 34.7
---------- ----- ---------- ----- ---------
Operating Expenses:
Service 846,000 48.0 528,000 40.3 318,000 60.2
Cost of Equipment Sold 608,000 34.4 601,000 45.9 7,000 1.2
Selling 334,000 18.9 330,000 25.2 4,000 1.2
Administrative 417,000 23.6 345,000 26.3 72,000 20.9
---------- ----- ---------- ----- ---------
2,205,000 124.9 1,804,000 137.7 401,000 22.2
---------- ----- ---------- ----- ---------
EBITDA (440,000) (24.9) (494,000) (37.7) 54,000 10.9
Depreciation and Amortization 268,000 15.2 173,000 13.2 95,000 54.9
---------- ----- ---------- ----- ---------
Loss from Operations (708,000) (40.1) (667,000) (50.9) (41,000) (6.1)
Interest and Other Expense Income (26,000) (1.5) 18,000 1.4 (44,000) (214.4)
---------- ----- ---------- ----- ---------
Net Loss (734,000) (41.6) (649,000) (49.5) (85,000) (13.1)
---------- ----- ---------- ----- ---------
</TABLE>
- ----------------
The service component of revenue increased during the periods presented
reflecting the continuing penetration of both the Metro System and initial
activations on the Corridor System.
Service cost includes transmission site rentals, telephone interconnect
services, message dispatch costs, and the costs (mostly personnel-related) of
the Company's engineering function. The increases in such costs are primarily
attributable to an increase in the number of transmission sites, which grew from
164 as of June 30, 1995 to over 220 as of June 30, 1996; increased telephone
expenses reflecting both the growth in utilization of the Company's Metro System
and the initial infrastructure for the Corridor System; and increased message
dispatch costs resulting from greater alphanumeric penetration.
Cost of equipment sold increased primarily as the result of increases in
the value of paging units sold. The high cost of equipment sold relative to
sales revenue reflects the Company's policy of selling pagers as an
accommodation to Resellers and not as a source of profit. This gap has widened
during 1996 due to more aggressive pricing by the Company's competitors. The
Company anticipates that it will maintain its policy of selling pagers as an
accommodation to Resellers for the immediate future. Pagers are available from a
variety of sources and the Company encourages its Resellers to buy pagers
directly from the manufacturer rather than from the Company. Nevertheless, the
Company anticipates that the cost of equipment sold will continue to increase as
the Company accelerates the number of subscribers served by both of its Systems.
Selling expenses increased as a direct result of an increase in the number
of the Company's sales and marketing personnel from thirteen full-time
equivalent positions at June 30, 1995, to twenty as of June 30, 1996. The
increase would have been more dramatic, but during the first half of 1995 the
Company incurred unusually high one-time market launching expenses in connection
with its Corridor System.
Increases in general and administrative expenses were also driven by
personnel increases,
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<PAGE>
specifically in the areas of accounting and information systems.
EBITDA reflects the Company's earnings (excluding interest and
non-operating items) before taxes, depreciation and amortization, and measures
the Company's operating cash flows, which the Company considers to be a
significant measure of performance. EBITDA is commonly used in the paging
industry and by financial analysts and others who follow the industry to measure
operating performance, but should not be considered in isolation or as an
alternative to measures of operating performance or cash flows pursuant to
generally accepted accounting principles. EBITDA improved in the periods ended
June 30, 1996 from the same periods in 1995 as revenue growth outpaced expense
growth during the period.
Depreciation increased as the Company put into service equipment purchased
for the Corridor System. Additionally, in recognition of the faster pace of
product obsolescence in the telecommunications industry, the company is
depreciating this equipment more rapidly than in the past.
Net loss increased as increases in depreciation and interest expense more
than offset improved EBITDA.
Liquidity and Capital Resources
In May 1994 the Company completed its initial public offering of 1,800,000
Units from which it derived net proceeds of $8,942,000. In June 1995, the
Company secured $1.5 million of equipment financing from Motorola. Borrowings
under this financing bear interest at the 90-day commercial paper rate plus 6%
and are collateralized by the Company's assets. The principal balance of each
borrowing is payable in 48 equal monthly installments beginning one year after
the date of the advance. The financing agreement with Motorola contains various
financial covenants and restrictions. The Company was not in compliance with one
of these financial covenants as of June 30, 1996, but has received a waiver of
its non-compliance from Motorola. As of June 30, 1996, the Company had utilized
$1,400,000 of the amount available from Motorola.
By the end of the first quarter of 1996 the Company had expended substantially
all of the proceeds from its initial public offering. Consequently, in May 1996,
the Company completed a private placement of 857,143 shares of its Common Stock
from which it derived net proceeds of $1,300,000. If the Company were to
continue to operate as it is now, the cash available would not be sufficient to
enable it to achieve its goals. Management is currently assessing the Company's
operations to develop a plan which would enable the Company's operation to
develop a plan which would enable the Company to achieve profitable operations.
As part of any such plan, the Company may seek to obtain additional debt or
equity financing.
By relying primarily upon Resellers to build its subscriber base, the
Company has been able to avoid many of the expenses associated with the
solicitation and servicing of subscribers. Nevertheless, the construction and
initial operation of a paging system requires substantial expenditures which can
only be recouped, if at all, from the subsequent operation of the system.
Consistent with the Company's expectations, capital expenditures and operating
expenses were $1,644,000 for 1995, primarily as a result of the construction of
the Company's Corridor System. These capital expenditures continued at a high
rate ($515,000) during the first half of 1996 as the Company supplemented its
Corridor System, but should be reduced in the second half of 1996. Nevertheless,
the Company's operating expenses should remain near
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their current levels as the Company continues its aggressive marketing of its
Corridor System and Metro System. In addition, the Company will continue to
incur the expenses associated with its efforts to develop software to facilitate
the receipt and transmission of data.
The Company used net cash of $725,000 from operations during the first six
months of 1996 and used $1,058,000 of cash in the same period in 1995. This use
of cash reflects primarily the expenditures associated with the operation and
initial marketing activities related to the Corridor System and the Company's
software development efforts.
Interest and other expense was $51,000 in the six months ended June 30,
1996, reflecting interest expense for the Company's equipment financing with
Motorola. This compares to interest income of $46,000 for the same period in
1995, reflecting interest income on unused proceeds of the Company's initial
public offering.
Further, in July 1995, the Company agreed to pay $340,000, $130,000 of
which is payable in service credits, in connection with the acquisition of
licenses and related assets intended to expand its Metro System to the
Washington, D.C. market. Of the $210,000 to be paid in cash, $160,000 has
already been paid and $50,000 is due in quarterly installments during 1996 and
1997.
On May 10, 1996, the Company completed a Private Placement of 857,143
shares of its Common Stock from which it obtained net proceeds of $1,300,000.
The Company anticipates that a substantial portion of these monies will be
utilized to increase marketing efforts and further develop the Company's
AlphaPlus(TM) family of enhanced data services to pagers.
PART II. OTHER INFORMATION
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAGING PARTNERS CORPORATION
/s/Jeffrey M. Bachrach
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Dated: August 9, 1996 By: Jeffrey M. Bachrach
Vice President and Principal Financial
and Accounting Officer
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