UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
AMENDMENT NO. 3 TO
FORM 8-K
(Amending Form 8-K/A filed on September 23, 1998,
which amended Form 8-K/A filed on June 29, 1998
which amended Form 8-K filed on June 26, 1998)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 8, 1998
APPLIED CELLULAR TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
000-26020
- --------------------------------------------------------------------------------
(Commission File Number)
43-1641533
- --------------------------------------------------------------------------------
(IRS Employer Identification No.)
400 Royal Palm Way, Suite 410, Palm Beach, Florida 33480
- --------------------------------------------------------------------------------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: 561-366-4800
<PAGE>
Item 7. Financial Statements and Exhibits.
In a Report on Form 8-K filed June 26, 1998, the Registrant
reported that, on June 8, 1998, the Registrant purchased an 85%
interest in Signature Industries Limited, a company registered in
England ("Signature"). In the Registrant's Amendment No. 2 to such Form
8-K, filed September 23, 1998, the Registrant indicated that financial
statements of Signature are not required to be filed pursuant to Rule
3.05(b) of Regulation S-X of the Securities Exchange Act of 1934.
Moreover, the Registrant indicated that it was not required to file Pro
Forma financial information pursuant to Rule 11-01 of Regulation S-X of
the Securities Exchange Act of 1934, even though such information had
been included in the Registrant's quarterly report on Form 10-Q for the
quarterly period ended June 30, 1998, filed with the commission on
August 14, 1998 (Commission File Number:000-26020) and was incorporated
into Amendment No. 2 by reference.
The Registrant has subsequently discovered that the
calculations previously made in this regard were not accurate, and that
financial statements of Signature and pro forma information for the
Registrant are required. Those financial statements and pro forma
financial information are being filed by this amendment.
(a) Financial statements of business acquired
Financial statements of Signature for the fiscal year ended
March 31, 1998 are attached as Exhibit 99.2 hereto.
(b) Pro forma financial information
Pro forma financial information is attached as Exhibit 99.3
hereto.
(c) Exhibits
99.2 Financial Statements of Signature for the fiscal year
ended March 31, 1998.
99.3 Pro forma financial information
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
APPLIED CELLULAR TECHNOLOGY, INC.
(Registrant)
Date: March 10, 1999
/s/ David A. Loppert
Vice President
Exhibit 99.2
Signature Industries Limited
- --------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNTS
for the years ended 31 March 1998 and 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Notes (pound)000 (pound)000
<S> <C> <C> <C>
TURNOVER 2 12,266 14,820
Cost of sales 7,499 8,590
---------- ----------
Gross profit 4,767 6,230
Administrative expenses 5,693 5,337
---------- ----------
OPERATING (LOSS)/PROFIT 3 (926) 893
Bank interest receivable 26 23
Interest payable 6 (138) (151)
---------- ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (1,038) 765
Taxation 7 (57) 145
---------- ----------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (981) 620
Dividends on non-equity shares 8 282 332
---------- ----------
RETAINED (LOSS)/PROFIT FOR THE YEAR (1,263) 288
========== ==========
</TABLE>
There are no recognised gains or losses other than as shown above.
A statement of the movement on reserves is shown in note 19 to the accounts.
A summary of the significant adjustments to (loss)/profit on ordinary activities
after taxation that would be required if United States generally accepted
accounting principles were to be applied instead of those generally accepted in
the United Kingdom is shown in note 23 to the accounts.
<PAGE>
Signature Industries Limited
- --------------------------------------------------------------------------------
BALANCE SHEETS
at 31 March 1998 and 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Notes pound)000 pound)000
<S> <C> <C> <C>
FIXED ASSETS
Intangible assets 9 1,246 1,371
Tangible assets 10 951 1,111
Investments 11 290 290
------- -------
2,487 2,772
------- -------
CURRENT ASSETS
Stocks 12 1,514 1,555
Debtors 13 1,979 3,321
Cash at bank and in hand 2 1,032
------- -------
3,495 5,908
CREDITORS: amounts falling due within one year 14 2,944 4,758
------- -------
NET CURRENT ASSETS 551 1,150
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 3,038 3,922
CREDITORS: amounts falling due after more than one year 16 171 159
------- -------
2,867 3,763
======= =======
CAPITAL RESERVES
Called up share capital 18 370 370
Share premium account 19 3,330 3,330
Profit and loss account 19 (833) 63
------- -------
Shareholders' funds (including non-equity interests) 19 2,867 3,763
======= =======
</TABLE>
A summary of the significant adjustments to shareholders' funds that would be
required if United States generally accepted accounting principles were to be
applied instead of those generally accepted in the United Kingdom is shown in
note 23 to the accounts.
<PAGE>
Signature Industries Limited
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
for the years ended 31 March 1998 and 31 March 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Notes (pound)000 (pound)000
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 3(b) 24 1,273
----------- -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 26 23
Interest paid (36) (75)
Interest element of finance lease rental payments (17) (2)
Preference dividends paid (400) -
----------- -----------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (427) (54)
----------- -----------
TAXATION
Corporation tax paid (201) (10)
----------- -----------
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (79) (280)
Receipts from sales of tangible fixed assets - 16
----------- -----------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (79) (264)
----------- -----------
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (683) 945
=========== ===========
FINANCING
Repayments of borrowings 17 500 500
Capital element of finance lease rental payments 17 66 15
----------- -----------
NET CASH OUTFLOW FROM FINANCING 566 515
(DECREASE)/INCREASE IN CASH (1,249) 430
----------- -----------
(683) 945
=========== ===========
</TABLE>
<TABLE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
(Decrease)/increase in cash in the year (1,249) 430
Net cash outflow from decrease in debt and lease financing 566 515
----------- -----------
Change in net cash resulting from cash flows (683) 945
New finance leases (115) (215)
----------- -----------
Movement in net (debt)/funds in the year (798) 730
Net funds/(debt) at beginning of year 186 (544)
----------- -----------
Net (debt)/funds at end of year (612) 186
=========== ===========
</TABLE>
A summary of the significant differences between the cashflow statements
presented above and those required under United States generally accepted
accounting principles were to be applied instead of those generally accepted in
the United Kingdom is shown in note 23 to the accounts.
<PAGE>
Signature Industries Limited
- --------------------------------------------------------------------------------
NOTES TO THE ACCOUNTS
at 31 March 1998 and 31 March 1997
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention and in accordance
with applicable United Kingdom accounting standards.
Group accounts
The company is not required to prepare group accounts by virtue of S229(5) of
the Companies Act 1985, on the grounds that the inclusion of its subsidiary
undertaking is not material for the purpose of giving a true and fair view.
The accounts therefore present information about the company as an individual
undertaking and not about its group.
Goodwill
Goodwill is the difference between the amount paid on the acquisition of the
business and the aggregate fair value of its separable net assets. It is being
written off in equal annual instalments over its estimated economic life of 15
years.
Depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost less estimated residual value, of each asset evenly over its
expected useful life, as follows:
Short leasehold buildings - 10 - 20 years
Plant and machinery - 2 - 10 years
Fixtures and fittings - 10 years
Computer equipment - 5 years
Stocks
Stocks are stated at the lower of cost and net realisable value as follows:
Cost incurred in bringing each product to its present location and condition:
Raw materials and goods for resale - purchase cost on a first-in,
first-out basis.
Work in progress and finished goods - cost of direct materials and labour
plus attributable overheads based on a normal level of activity.
Net realisable value is based on estimated selling price less any further costs
expected to be incurred to completion and disposal.
Research and development
Research and development expenditure is now written off as incurred.
<PAGE>
1. ACCOUNTING POLICIES (continued)
Provision for warranties
Provisions for the estimated costs of maintenance under warranties are charged
to the profit and loss account in the year of sale.
Deferred taxation
Deferred taxation is provided on the liability method on all timing differences
which are expected to reverse in the future without being replaced, calculated
at the rate at which it is estimated that taxation will be payable.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction.
Leasing and hire purchase commitments
Assets held under finance leases, which are leases where substantially all the
risks and rewards of ownership of the asset have passed to the company, and hire
purchase contracts are capitalised in the balance sheet and are depreciated over
their useful lives. The capital elements of future obligations under the leases
and hire purchase contracts are included as liabilities in the balance sheet.
The interest elements of the rental obligations are charged in the profit and
loss account over the periods of the leases and hire purchase contracts and
represent a constant proportion of the balance of capital repayments
outstanding.
Rentals paid under operating leases are charged to income on a straight line
basis over the lease term.
Pensions
The company operates a defined contribution pension scheme. Contributions are
charged to the profit and loss account as they become payable in accordance with
the rules of the scheme.
Statutory accounts
These accounts do not comprise the company's statutory accounts within the
meaning of the Companies Act 1985. Statutory accounts for years ended 31 March
1998 and 1997, on which the auditors reports were unqualified, have been
delivered to the registrar of Companies for England and Wales.
2. TURNOVER
Turnover, which is stated net of value added tax, represents amounts invoiced to
third parties and is attributable to the principal activity of the company, all
of which is continuing.
An analysis of turnover by geographical market is given below:
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
United Kingdom 10,065 11,524
Other European Union 1,325 1,415
Other 876 1,881
----------- -----------
12,266 14,820
=========== ===========
</TABLE>
<PAGE>
3. OPERATING (LOSS)/PROFIT
(a) This is stated after charging/(crediting):
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Auditors' remuneration - audit services 21 18
- non-audit services 19 18
Depreciation on owned assets 306 250
Depreciation on assets held under finance leases 44 14
Amortisation of goodwill 125 125
Operating lease rentals - plant and machinery 36 33
- land and buildings 213 206
- other 170 207
Rentals receivable from short term hire of assets (351) (168)
Investment and bringing to market new products 511 459
Redundancy and reorganisation costs 156 -
========== ==========
</TABLE>
(b) Reconciliation of operating (loss)/profit to net cash inflow from operating
activities:
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Operating (loss)/profit (926) 893
Depreciation 350 264
Amortisation of goodwill 125 125
Loss/(gain) on disposal of tangible fixed assets 4 (5)
Loss on disposal of intangible fixed assets - 34
Decrease in stocks 41 192
Decrease/(increase) in debtors 1,455 (725)
(Decrease)/increase in creditors (1,025) 495
----------- ----------
Net cash inflow from continuing operating activities 24 1,273
=========== ==========
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Payments to third parties in respect of services as directors 46 37
Other emoluments 228 259
Pension scheme contributions 19 18
Ex Gratia payments 22 -
---------- -----------
315 314
=========== ==========
</TABLE>
The number of directors to whom retirement benefits are accruing in respect of
qualifying services under a money purchase scheme is 3 (1997 - 3).
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Emoluments of the highest paid director:
Other emoluments 101 117
Pension scheme contributions 9 8
----------- -----------
110 125
=========== ==========
</TABLE>
<PAGE>
5. STAFF COSTS
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Sub-contract/temps 526 587
Wages and salaries 3,821 3,898
Social security costs 325 340
Other pension costs 97 97
----------- -----------
4,769 4,922
=========== ==========
</TABLE>
The average weekly number of employees during the year was as follows:
<TABLE>
<CAPTION>
1998 1997
No. No.
<S> <C> <C>
Sales and office management 118 119
Manufacturing 145 154
----------- -----------
263 273
=========== ==========
</TABLE>
6. INTEREST PAYABLE
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Bank loan and overdraft and other loans wholly
repayable within five years 36 75
Unpaid preference dividends 85 74
Finance charges payable under finance leases
and hire purchase contracts 17 2
----------- -----------
138 151
=========== ==========
</TABLE>
7. TAXATION
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
UK corporation tax (110) 145
Corporation tax overprovided in prior year (44) -
ACT written off 97 -
----------- -----------
(57) 145
=========== ==========
</TABLE>
A deferred tax asset, arising from timing differences in respect of depreciation
charged in advance of capital allowances, has not been recognised.
<PAGE>
8. DIVIDENDS ON NON-EQUITY SHARES
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
10% cumulative `A' preference shares 202 185
5% cumulative `B' preference shares 80 70
Preferred ordinary shares - 77
----------- -----------
282 332
=========== ==========
</TABLE>
Due to the non-redemption of 400,000 `A' preference shares on 30 April 1996 and
30 April 1997, and the non-redemption of 280,000 `B' preference shares on 30
April 1997, the dividend rate on these shares has increased from 10% to 14% and
5% to 9% respectively with effect from that date.
9. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Development
Goodwill expenditure Total
(pound)000 (pound)000 (pound)000
<S> <C> <C> <C>
Cost:
At 1 April 1996 1,871 46 1,917
Written off during the year - (46) (46)
----------- ----------- -----------
At 31 March 1997 and 31 March 1998 1,871 - 1,871
----------- ----------- -----------
Amortisation:
At 1 April 1996 375 12 387
Provided during the year 125 - 125
Written off - (12) (12)
----------- ----------- -----------
At 31 March 1997 500 - 500
Provided during the year 125 - 125
----------- ----------- -----------
At 31 March 1998 625 - 625
----------- ------------ -----------
Net book value at 31 March 1998 1,246 - 1,246
=========== =========== ===========
Net book value at 1 April 1997 1,371 - 1,371
=========== =========== ===========
</TABLE>
Goodwill arising on the acquisition of various divisions from FKI Communications
Limited is being amortised over the directors' estimate of its useful economic
life of 15 years.
<PAGE>
10. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Short Plant Fixtures
leasehold and and Computer
buildings machinery fittings equipment Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C> <C>
Cost:
At 1 April 1996 285 941 62 313 1,601
Additions 2 445 27 21 495
Disposals - (86) (6) (16) (108)
----------- ----------- ----------- ----------- -----------
At 31 March 1997 287 1,300 83 318 1,988
Additions - 147 19 28 194
Disposals - (21) (1) (2) (24)
----------- ----------- ----------- ----------- -----------
At 31 March 1998 287 1,426 101 344 2,158
----------- ----------- ----------- ----------- -----------
Depreciation:
At 1 April 1996 94 381 16 219 710
Provided during the year 32 178 17 37 264
Disposals - (78) (4) (15) (97)
----------- ----------- ----------- ----------- -----------
At 31 March 1997 126 481 29 241 877
Provided during the year 31 259 17 43 350
Disposals - (17) (1) (2) (20)
----------- ----------- ----------- ----------- -----------
At 31 March 1998 157 723 45 282 1,207
----------- ----------- ----------- ----------- -----------
Net book value:
At 31 March 1998 130 703 56 62 951
=========== =========== =========== =========== ===========
At 1 April 1997 161 819 54 77 1,111
=========== =========== =========== =========== ===========
</TABLE>
Included within plant and machinery are assets available for short term hire at
a cost of (pound)244,740 (1997 - (pound)193,734) and a related accumulated
depreciation charge of (pound)131,866 (1997 - (pound)85,709). Also, included
within plant and machinery are assets held under finance leases with a net book
value of (pound)264,053 (1997 - (pound)205,224).
<PAGE>
11. INVESTMENTS
Subsidiary Subsidiary
undertaking undertaking
1998 1997
(pound)000 (pound)000
Cost at 31 March 1997 and 31 March 1998 290 290
=========== ===========
The investment represents the cost of 100% of the issued share capital of
Keyswitch Varley Limited, a company registered in England and Wales. This
company does not trade. The aggregate amount of its capital and reserves at 31
March 1998 was (pound)290,523 (1997 - (pound)290,523).
It is the opinion of the directors that the aggregate value of the investment is
not less than the amount stated above.
12. STOCKS
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Raw materials and consumables 594 734
Work in progress 584 716
Finished goods and goods for resale 336 105
----------- -----------
1,514 1,555
=========== ===========
</TABLE>
The difference between purchase price or production cost of stocks and their
replacement cost is not material.
13. DEBTORS
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Trade debtors 1,642 2,964
Corporation tax 113 -
Other debtors 27 30
Prepayments and accrued income 197 327
----------- -----------
1,979 3,321
=========== ===========
</TABLE>
<PAGE>
14. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Current instalment due on bank loan - 500
Bank overdraft 365 146
Payments received in advance - 203
Trade creditors 1,530 2,288
Obligations under finance leases (note 15) 78 41
Corporation tax - 145
Other taxes and social security costs 229 340
Other creditors 141 561
Accruals 601 534
----------- -----------
2,944 4,758
=========== ===========
</TABLE>
The bank loan is secured by a fixed and floating charge over the assets of the
company.
The overdraft is secured by a mortgage debenture over the assets of the company.
Included within other creditors is(pound)10,107 (1997 -(pound)10,318) relating
to outstanding contributions payable to the pension scheme.
15. OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE CONTRACTS
The maturity of these amounts is as follows:
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
Amounts payable:
<S> <C> <C>
Within one year 91 55
In two to five years 185 184
----------- -----------
276 239
Less:
Finance charges allocated to future periods (27) (39)
----------- -----------
249 200
=========== ===========
</TABLE>
Finance leases and hire purchase contracts are analysed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Current obligations 78 41
Non-current obligations 171 159
----------- -----------
249 200
=========== ===========
</TABLE>
16. CREDITORS: amounts falling due after more than one year
1998 1997
(pound)000 (pound)000
Obligations under finance leases (note 15) 171 159
=========== ===========
<PAGE>
17. ANALYSIS OF CHANGES IN NET FUNDS/(DEBT)
<TABLE>
<CAPTION>
At Other At Other At
1 April Cash non-cash 31 March Cash non-cash 31 March
1996 flow changes 1997 flow changes 1998
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C> <C> <C> <C>
Cash at bank and in hand 542 490 1,032 (1,030) 2
Overdrafts (86) (60) (146) (219) (365)
------------ ---------- ---------- ----------- ----------
456 430 886 (1,249) (363)
Debt due after one year (500) 500 - - -
Debt due within one year (500) - (500) 500 -
Finance leases - 15 (215) (200) 66 (115) (249)
------------ ---------- ----------- ---------- ------------ ------- -------------
(1,000) 515 (215) (700) 566 (115) (249)
------------ ---------- ----------- ---------- ------------ ------- -------------
(544) 945 (215) 186 (683) (115) (612)
============ ========== =========== ========== ============ ======= =============
</TABLE>
18. SHARE CAPITAL
<TABLE>
<CAPTION>
Allotted called up
Authorised and fully paid
1998 1997 1998 1997
No. No. (pound)000 (pound)000
<S> <C> <C> <C> <C> <C>
Ordinary shares of 10p each 240,000 240,000 24 24
Preferred ordinary shares of 10p each 360,000 360,000 36 36
`A' preference shares of 10p each 1,700,000 1,700,000 170 170
`B' preference shares of 10p each 1,400,000 1,400,000 140 140
--------------- -------------- ----------- -----------
3,700,000 3,700,000 370 370
=============== ============== =========== ===========
</TABLE>
The `A' and `B' preference shares entitle the holders to a fixed cumulative
preferential dividend at the rate of 10% and 5% per annum on the subscription
price, respectively. On a winding up the holders are entitled in priority to all
other shareholders to participate in the surplus assets of the company to the
extent of an amount equal to the subscription price for the preference shares
together with any dividend arrears.
The `A' preference shares entitle the holders to attend general meetings of the
company but do not entitle the holders to vote upon any resolution unless the
dividend thereon is two months or more in arrears or the company fails to redeem
the shares on the redemption date or the business of the meeting includes a
resolution for the winding up of the company or reducing its share capital or
the approval of the giving of financial assistance or the purchase by it of any
of its shares, in which event each holder will be entitled to one vote.
The `B' preference shares entitle the holders to attend general meetings of the
company but do not entitle the holders to vote upon any resolution unless the
resolution directly or indirectly varies, modifies, alters or abrogates any of
the rights attaching to the `B' preference shares or is for the winding up of
the company or reducing its share capital or the purchase by it of any of its
shares, in which event each holder will be entitled to one vote.
<PAGE>
18. SHARE CAPITAL (continued)
The preferred ordinary shares entitle the holders to a cumulative cash dividend
of 10% of profit before tax from the accounting period ending 31 March 1996. On
a winding up the holders are entitled, subject to the rights of the `A' and `B'
preference shareholders but in priority to all other shareholders, to
participate in the surplus assets of the company to the extent of an amount
equal to the subscription price for the preferred ordinary shares together with
any dividend arrears. Thereafter, they shall rank pari-passu with the ordinary
shareholders after the ordinary shareholders shall have received an amount equal
to the subscription price for the shares. The preferred ordinary shares entitle
the holders to attend general meetings of the company and vote on all
resolutions.
The `A' and `B' preference shares shall be redeemed at the subscription price at
the option of the shareholder on the occurrence of certain events, or with at
least 14 days' notice from the company, but in any event, on the following
dates:
`A' preference `B' preference
shares shares
30 April 1998 400,000 280,000
30 April 1999 500,000 280,000
30 April 2000 - 280,000
30 April 2001 - 280,000
On 30 April 1996 and 30 April 1997 400,000 `A' preference shares were due to be
redeemed and on 30 April 1997 280,000 `B' preference shares were due to be
redeemed. These redemptions did not take place and hence the dividend on those
shares not redeemed has increased from 10% to 14% and 5% to 9% respectively per
annum in accordance with the terms of the shareholder agreement.
On the occurrence of certain events, the preferred ordinary shares shall be
converted and re-designated as ordinary shares or deferred shares at the option
of the shareholder.
19. MOVEMENTS ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
Share Profit
Share premium and loss
capital account account Total
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
At 1 April 1996 370 3,330 (231) 3,469
Retained profit for the year 288 288
Unpaid preference dividends 332 332
Interest on unpaid preference dividends 74 74
Transfer to current liabilities (400) (400)
----------- ----------- ----------- -----------
At 31 March 1997 370 3,330 63 3,763
Retained loss for the year (1,263) (1,263)
Unpaid preference dividends 282 282
Interest on unpaid preference dividends 85 85
----------- ----------- ----------- -----------
At 31 March 1998 370 3,330 (833) 2,867
=========== =========== =========== ===========
</TABLE>
<PAGE>
19. MOVEMENTS ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS (continued)
Shareholders' funds are analysed as follows:
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Equity interests (1,752) (499)
Non-equity interests:
Preferred ordinary 449 449
`A' preference shares 2,478 2,220
`B' preference shares 1,692 1,593
----------- -----------
2,867 3,763
=========== ===========
</TABLE>
20. PENSION COMMITMENTS
The company operates a defined contribution pension scheme for its directors and
employees. The assets of the scheme are held separately from those of the
company in an independently administered fund.
21. OTHER FINANCIAL COMMITMENTS
At 31 March 1998 the company had annual commitments under non-cancellable
operating leases as set out below:
<TABLE>
<CAPTION>
Land and buildings Other
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
<S> <C> <C> <C> <C>
Operating leases which expire:
within one year - - 29 28
within two to five years 9 9 114 126
in over five years 210 198 - 32
----------- ----------- ----------- ----------
219 207 143 186
=========== =========== =========== ==========
</TABLE>
22. POST BALANCE SHEET EVENTS
On 30 April 1998, 400,000 `A' preference shares and 280,000 `B' preference
shares were due to be redeemed at the subscription price. This event did not
take place and therefore the rate of the preference dividend on those shares not
redeemed will increase from 10% to 14% for the `A' shares and from 5% to 9% for
the `B' shares until they have been redeemed.
On 8 June 1998 Applied Cellular Technology Inc. purchased 85% of the share
capital of Signature Industries Limited. From that date Applied Cellular
Technology Inc. became Signature Industries Limited's ultimate parent company.
The accounts of that company are available from 400 Royal Palm Way, Suite 410,
Palm Beach, Florida 33480.
<PAGE>
23. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The company prepares its accounts in accordance with accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ from United
States generally accepted accounting principles ("US GAAP"). The significant
differences as they apply to the company are summarised below.
Deferred taxation
Under UK GAAP, the company provides for deferred taxation using the liability
method on all timing differences which are expected to reverse in the future
without being replaced, calculated at the rate at which it is estimated that
taxation will be payable. Deferred tax assets are recognised if their
realisation is probable.
Under US GAAP, deferred taxation is provided for on all temporary differences
between the book and tax bases of assets and liabilities. Deferred tax assets
are recognised to the extent their recoverability is more likely than not.
Consolidation
Under UK GAAP, the company's subsidiary does not have to be consolidated.
Under US GAAP, the subsidiary would be consolidated.
Preference shares
Under US GAAP, the company's `A' and `B' preference shares which are mandatorily
redeemable by April 1999 and April 2001, respectively, would not be included in
shareholders' equity.
The following is a summary of the significant adjustments to income and
shareholders' funds which would be required in US GAAP were to be applied
instead of UK GAAP:
<TABLE>
<CAPTION>
1998 1997
Income (pound)000 (pound)000
<S> <C> <C>
(Loss)/profit on ordinary activities after taxation as reported under
UK GAAP (981) 620
Adjustments:
Deferred tax 135 (91)
ACT write off 97 -
--------- --------
Net (loss)/income under US GAAP (749) 529
========= ========
</TABLE>
<TABLE>
<CAPTION>
1998 1997
Shareholders' funds (pound)000 (pound)000
<S> <C> <C>
Shareholders' funds as reported under UK GAAP 2,867 3,763
Adjustments:
Deferred tax (assets) 135 (91)
ACT recoverable 97 -
Share capital:
`A' preference shares (170) (170)
`B' preference shares (140) (140)
Share premium (2,790) (2,790)
--------- --------
Shareholders' funds under US GAAP (1) 572
========= ========
</TABLE>
<PAGE>
23. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued) Cash flows The cash flow statements prepared
under UK GAAP present substantially the same information as those required under
US GAAP but they differ with respect to the classification of items within them
and as regards the definition of cash under UK GAAP and cash and cash
equivalents under US GAAP.
Under UK GAAP, cash comprises cash at bank and in hand less bank overdrafts.
Under US GAAP, cash and cash equivalents would not include bank overdrafts which
would be treated as borrowings. Under US GAAP, only three categories of cash
flow would be presented: operating, investing and financing as compared with the
five under UK GAAP. Under US GAAP, cash flows from taxation and returns on
investments and servicing of finance would be included in operating activities,
under US GAAP, the payment of dividends would be included as a financing
activity and capital expenditure would be included as an investing activity.
The categories of cash flow activity under US GAAP can be summarised as follows:
<TABLE>
<CAPTION>
1998 1997
(pound)000 (pound)000
<S> <C> <C>
Cash inflow/(outflow) from operating activities (604) 1,209
Cash inflow/(outflow) from investing activities (79) (264)
Cash inflow/(outflow) from financing activities (347) (455)
--------- ---------
Increase in cash and cash equivalents 1,030 490
Cash and cash equivalents at 1 April 1,032 542
--------- ---------
Cash and cash equivalents at 31 March 2 1,032
========= =========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS to the directors of Signature Industries Limited
We have audited the balance sheets of Signature Industries Limited as at 31
March 1998 and 1997, and the related profit and loss accounts and statements of
cash flows for each of the years in the period ended 31 March 1998. These
accounts are the responsibility of the company's management. Our responsibility
is to express an opinion on these accounts based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the accounts are free of
material misstatement. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall accounts presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accounts referred to above present fairly, in all material
respects, the financial position of Signature Industries Limited at 31 March
1998 and 1997, and the results of its operations and its cash flows for each of
the years in the period ended 31 March 1998 in conformity with accounting
principles generally accepted in the United Kingdom which differ in certain
respects from those followed in the United States (see note 23 of notes to the
accounts).
Ernst & Young
London
England
6 August 1998 except for
note 23 - differences between United Kingdom and
United States Generally Accepted Accounting Principles
as to which the date is December 2, 1998
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying unaudited pro forma condensed consolidated financial statements
reflect the consolidated financial position of Applied Cellular Technology, Inc.
(the "Company") as of March 31, 1998, and the results of its consolidated
operations for the year ended December 31, 1997 and the three months ended March
31, 1998 after giving pro forma effect to the purchase of an eighty five percent
interest in Signature Industries Limited ("Signature") completed on June 8,
1998.
The unaudited pro forma financial information does not purport to be indicative
of actual results that would have been achieved had the acquisition actually
been completed as of the dates indicated on the following pages nor which may be
achieved in the future.
<TABLE>
<CAPTION>
Applied Cellular Technology, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 1998
Company Pro Forma
As Reported Signature Proforma Consolidated
March 31, 1998 (a) Industries (a) Adjustments March 31, 1998
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,923,000 $ 3,000 $ 5,926,000
Accounts receivable, net 24,574,000 3,265,000 27,839,000
Inventories 12,635,000 2,498,000 15,133,000
Other current assets 2,254,000 - 2,254,000
Total current assets 45,386,000 5,766,000 - 51,152,000
Property, plant & equipment, net 6,597,000 1,569,000 - 8,166,000
Goodwill 16,381,000 - 942,000 b 17,323,000
Other assets 4,703,000 2,536,000 - 7,239,000
- -
Total assets $ 73,067,000 $ 9,871,000 $ 942,000 $ 83,880,000
- -
Accounts payable and accrued expenses $ 19,785,000 $ 4,858,000 $ - $ 24,643,000
Other current liabilities 5,524,000 5,524,000
Total current liabilities 25,309,000 4,858,000 - 30,167,000
Long-term debt 2,355,000 282,000 - 2,637,000
Total liabilities 27,664,000 5,140,000 - 32,804,000
Minority interest 1,869,000 - 710,000 b 2,579,000
Redeemable preferred stock 700,000 - - 700,000
Stockholders' equity:
Common stock 25,000 6,105,000 (6,104,000) b 26,000
Additional paid-in capital 39,597,000 - 4,962,000 b 44,559,000
Retained earnings 3,183,000 (1,374,000) 1,374,000 b 3,183,000
Other 29,000 29,000
Total stockholders' equity 42,834,000 4,731,000 232,000 47,797,000
Total liabilities and stockholders' equity $ 73,067,000 $ 9,871,000 $ 942,000 $ 83,880,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applied Cellular Technology, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the three months ended March 31, 1998
Company Pro Forma
As Reported Signature Proforma Consolidated
March 31, 1998 (c) Industries (d) Adjustments March 31, 1998
<S> <C> <C> <C> <C>
Net Revenues $ 38,784,000 $ 4,750,515 $ - $ 43,534,515
Direct Costs 28,298,000 3,297,360 - 31,595,360
Gross Profit 10,486,000 1,453,155 - 11,939,155
Operating Expenses 9,131,000 2,670,030 11,778 e 11,812,808
Operating Income (Loss) 1,355,000 (1,216,875) (11,778) 126,347
Interest Income 106,000 200 - 106,200
Interest Expense (234,000) (6,440) - (240,440)
Minority Interest (94,000) - 126,592 f 32,592
Provision for income tax (518,000) 379,166 3,651 g (135,183)
Net Income (Loss) 615,000 (843,949) 118,465 (110,484)
Dividends (18,000) - - (18,000)
Net income (loss) applicable to
common shareholders $ 597,000 $ (843,949) $ 118,465 $ (128,484)
Net Income per common share - Basic $ 0.03 $ (0.01)
Net Income per common share - Diluted $ 0.02 $ (0.01)
Weighted average number of common shares 23,711,000 24,817,351
outstanding - basic
Weighted average number of common shares 24,956,000 26,062,068
outstanding - diluted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Applied Cellular Technology, Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 1997
Company Pro Forma
As Reported Signature Proforma Consolidated
December 31, 1997 (h) Industries (i) Adjustments December 31, 1997
<S> <C> <C> <C> <C>
Net Revenues $ 103,159,114 $ 20,238,900 $ - $ 123,398,014
Direct Costs 69,407,816 12,373,350 - 81,781,166
Gross Profit 33,751,298 7,865,550 - 41,616,848
Operating Expenses 28,159,417 9,393,450 47,113 j 37,599,980
Operating Income (Loss) 5,591,881 (1,527,900) (47,113) 4,016,868
Interest Income 192,646 42,900 - 235,546
Interest Expense (978,339) (227,700) - (1,206,039)
Minority Interest (697,200) - 255,173 k (442,027)
Provision for income tax (1,768,679) 476,850 14,605 l (1,277,224)
Net Income (Loss) 2,340,309 (1,235,850) 222,665 1,327,124
Dividends (72,000) (465,300) - (537,300)
Net income (loss) applicable to
common shareholders $ 2,268,309 $ (1,701,150) $ 222,665 $ 789,824
Net Income per common share - Basic $ 0.18 $ 0.06
Net Income per common share - Diluted $ 0.15 $ 0.05
Weighted average number of common 12,632,130 13,747,412
shares outstanding - basic
Weighted average number of common 15,245,183 16,360,465
shares outstanding - diluted
</TABLE>
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1997 gives effect to the consolidated results of
operations for the year ended December 31, 1997 as if the acquisition of
Signature occurred at January 1, 1997. The unaudited pro forma condensed
consolidated statement of operations for the three months ended March 31, 1998
gives effect to the consolidated results of operations for the three months
ended March 31, 1998 as if the acquisition of Signature occurred at January 1,
1998. These results are not necessarily indicative of the consolidated results
of operations of the Company as they may be in the future, or as they might have
been had these events been effective at January 1, 1997 and 1998, respectively.
The unaudited pro forma condensed consolidated balance sheet gives effect to the
financial position at March 31, 1998, as if the acquisition of Signature
occurred at March 31, 1998. Such consolidated financial position is not
necessarily indicative of the consolidated financial position of the Company as
it may be in the future, or as it might have been had these events been
effective at March 31, 1998. The unaudited pro forma condensed consolidated
financial information should be read in conjunction with the historical
financial statements of the Company and Signature and related notes thereto.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET AT MARCH 31, 1998 ARE AS FOLLOWS:
a. Represents the historical financial position of the Company and Signature
at March 31, 1998.
b. Reflects the adjustment necessary to record the purchase of Signature and
the issuance of 1,118,336 shares of the Company's common stock.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 ARE AS
FOLLOWS:
c. Represents the historical condensed consolidated results of the Company for
the three months ended March 31, 1998.
d. Represents the historical condensed results of Signature for the three
months ended March 31, 1998.
e. Represents the net increase to amortization ($11,778) of the cost over the
net book value of Signature amortized over a period of twenty years.
f. Represents the minority interest in the net loss of Signature attributable
to the percentage interest not acquired by the Company (15%).
g. Represents a decrease in the tax provision due to the proforma reduction in
earnings, before nondeductible dividend expense.
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 ARE AS FOLLOWS:
h. Represents the historical condensed consolidated results of the Company for
the year ended December 31, 1997.
i. Represents the historical condensed results of Signature for the year
ended March 31, 1998.
j. Represents the net increase to amortization ($47,113) of the cost over the
net book value of Signature amortized over a period of twenty years.
k. Represents the minority interest in the net loss of Signature attributable
to the percentage interest not acquired by the Company (15%).
l. Represents a decrease in the tax provision due to the proforma reduction in
earnings, before nondeductible dividend expense.
