SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-KA
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) :
April 27, 1996
SHARED TECHNOLOGIES CELLULAR, INC.
DELAWARE 1-13732 06-386411
(State or other (Commission (I.R.S.
jurisdiction of File Number) Employer
incorporation) Identification
No.)
100 Great Meadow Road, Suite 102
Wethersfield, CT 06109
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code
(860-258-2500)
Total number of sequentially numbered paged in this filing, including exhibits
hereto: 1
Item 2. Acquisition or Disposition of Assets
On April 27, 1996, Shared Technologies Cellular, Inc ("STC" or the
"Company") completed its acquisition of certain assets of Cellular Global
Investments of Northern California, Inc., Access Cellular Corp., Summit
Assurance Cellular, Inc., Road and Show Cellular Arizona Corp., Road and Show
Cellular West, Northstar Cellular Corp. and Craig A. Marlar. The purchase price
was approximately $3,500,000, comprised of $1,058,276 in cash payable over eight
months, $1,697,724 in assumed liabilities, and the issuance of 300,000 shares of
the Company's common stock, $.01 par value. Additionally, at closing, the
Company issued three-year warrants to purchase an aggregate of 300,000
additional shares of the Company's common stock $.01 par value. The warrants are
excersizable as follows: 100,000 shares at $3.00 per share; 100,000 shares at
$4.00 per share and 100,000 at $5.00 per share.
Item 7. Financial Statements and Exhibits
(a)Financial statements of business acquired
Audited balance sheets of Summit Assurance Cellular, Inc and
Subsidiaries and Affiliates as of December 31, 1995 and 1994, and the related
audited statements of operations and stockholder's earnings (deficit), and cash
flows for the years ended December 31, 1995 and 1994, including the noted
thereto.
(b) Pro Forma financial information
(i) Pro forma consolidated statements of operations for the year
ended December 31, 1995.
(ii) Pro forma consolidated statements of operations for the three
months ended March 31, 1996.
2
(c) Exhibits
Exhibit No. Description Page No.
10.1 Asset Purchase Agreement dated April 27, 1996
Incorporated by reference from Exhibit 10.1 of the
Company's Form 8-K filed May 9, 1996.
SUMMIT ASSURANCE CELLULAR INC.
AND SUBSIDIARIES AND AFFILIATES
COMBINED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1995 AND 1994
CONTENTS
Independent Auditors' Report 1
Combined Financial Statements
Combined Balance Sheets 2
Combined Statements of Operations and
Retained Earnings (Deficit) 3
Combined Statements of Cash Flows 4
Notes to Combined Financial Statements 5-12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Summit Assurance Cellular Inc. and
Subsidiaries and Affiliates
We have audited the accompanying combined balance sheets of Summit Assurance
Cellular Inc. and Subsidiaries and Affiliates as of December 31, 1995 and 1994
and the related combined statements of operations and retained earnings
(deficit) and cash flows for the years then ended. These combined financial
statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan an perform the audit
to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
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 provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position
of Summit Assurance Cellular Inc. and Subsidiaries and Affiliates as of
December 31, 1995 and 1994 and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
As discussed in Note 8 to the combined financial statements, substantially all
of the assets of the Company were sold in April 1996 for approximately
$3,250,000.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
July 3, 1996
COMBINED BALANCE SHEETS
December 31, 1995 1994
ASSETS
Current assets
Cash $2,617 $63,213
Due from affiliates 587,966 206,351
Prepaid expenses and other current assets 27,454 28,622
Total current assets 618,037 298,186
Telecommunications and office equipment, less
accumulated depreciation and amortization 227,104 309,144
Intangible assets,less accumulated amortization 885,678 476,533
$1,730,819 $1,083,863
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $174,270 $84,190
Accounts payable 852,137 493,413
Accrued expenses and other current liabilities 275,116 8,073
Total current liabilities 1,301,523 585,676
Notes payable, less current portion 598,434 169,487
Commitments and contingencies
Stockholders' equity
Common stock 1,100 285,198
Retained earnings (deficit) (170,238) 43,502
Total stockholders' equity (169,138) 328,700
$1,730,819 $1,083,863
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Years Ended December 31, 1995 1994
Revenues $3,499,380 $3,277,532
Cost of revenues 1,997,157 1,806,305
Gross margin 1,502,223 1,471,227
Selling, general and administrative expenses 1,815,553 1,427,898
Income (loss) from operations (313,330) 43,329
Interest expense 47,842 4,025
Income (loss) before income taxes (credit) (361,172) 39,304
Income taxes (credit) (150,000) 16,000
Net income (loss) (211,172) 23,304
Retained earnings, beginning of year 43,502 20,198
Retained earnings of affiliates acquired
which were previously combined (2,568)
Retained earnings (deficit), end of year $(170,238) $43,502
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 1994
Cash flows from operating activities
Net income (loss) $(211,172) $23,304
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Tax allocation from parent (150,000) 16,000
Accretion of discount on notes payable 25,310
Depreciation and amortization 177,430 113,791
Change in assets and liabilities:
Prepaid expenses and other current assets 1,168 (23,838)
Accounts payable 358,724 382,292
Accrued expenses and other current liabilities 267,043 (1,979)
Net cash provided by operating activities 468,503 509,510
Cash flows from investing activities
Purchases of equipment (12,339) (142,237)
Payments to former shareholders (180,000)
Net cash used in investing activities (192,339) (142,237)
Cash flows from financing activities
Advances to affiliates (231,615) (268,099)
Payments on notes payable (105,145) (41,114)
Issuance of common stock 1,000
Net cash used in financing activities (336,760) (326,213)
Net increase (decrease) in cash (60,596) 41,120
Cash, beginning of year 63,213 22,093
Cash, end of year $2,617 $63,213
Supplemental disclosures of cash flow information,
cash paid during the year for interest $- $4,025
Supplemental disclosures of non-cash investing and
financing activities
Note payable and capital lease obligation incurred for
acquisition of equipment $34,830 $92,758
Note payable incurred for acquisition of
franchise license $- $202,033
Notes payable incurred for the acquisition
of net assets and goodwill of affiliates
previously combined $564,032 $-
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant accounting policies Business and Organization
Summit Assurance Cellular Inc. ("SAC") together with its
subsidiaries and affiliates is a provider of short-term cellular
telephone services in certain regions in the United States. SAC
and certain of its affiliates are subsidiaries of Summit Assurance,
Inc.
Principles of Combination
The combined financial statements include the accounts of SAC and its affiliate
Access Cellular Corporation ("Access"), Cellular Global Investments of Northern
California, Inc. ("Global"), Northstar Cellular Corporation ("Northstar"), Road
and Show Cellular Arizona Corporation ("Arizona") and Road and Show Cellular
West Corporation ("West") (collectively the "Company"). These corporations are
under common control and while their statements have been combined, the
financial position, results of operations and cash flows presented herein, do
not represent those of a single legal entity.All material intercompany accounts
and transactions have been eliminated in combination.
Fair Value of Financial Instruments
The fair value of the Company's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards No. 107
approximate the carrying amounts presented in the balance sheets.
Telecommunications and Office Equipment
Telecommunications and office equipment is stated at cost. The Company records
depreciation and amortization on the straight-line method over the estimated
useful lives of the assets as follows:
Telecommunications equipment 3 years
Office equipment 5-7 years
Intangible Assets
Goodwill represents the excess of cost over the net assets of acquired
businesses which is amortized over 20 years from the acquisition date. The
Company monitors the profitability of the acquired operations to assess whether
any impairment of recorded goodwill has occurred.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Franchise licensing fees relate to the costs
of acquiring a license for short-term cellular telephone rental
operations within certain regions of the United States. These
costs are amortized over 20
years.
Income Taxes
The Company files its federal income tax return on a
consolidated basis with its parent. The parent allocates income taxes to its
subsidiaries on a pro rata basis. During the years ended December 31, 1995 and
1994, the parent had no income tax liability.
The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes", which requires
an asset and liability approach to financial reporting for income taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
the deferred tax assets to the amount expected to be realized. The adoption of
SFAS No. 109 had no material impact on the Company's financial statements since
the Company, and its parent, fully reserved the tax benefits flowing from its
operating losses.
Impairment on Long-lived Assets
In March 1995, Statement of Financial Accounting Standards No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be Disposed of" was
issued. The Company will adopt SFAS No. 121 in the first quarter
of 1996. The impact on the Company's financial position and
results of operations is not expected to be material.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of significant
accounting policies
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 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.
2. Acquisitions
In January 1995, SAC commenced management of, and subsequently acquired,
all of the outstanding capital stock of Arizona and West.The purchase price was
$248,598 and $495,434, respectively, comprised of $180,000 of cash and
promissory notes aggregating $564,032 (Note 6). These acquisitions were
accounted for as purchases and the purchase prices were allocated on the basis
of relative fair market values of the net assets acquired and net liabilities
assumed, as follows:
Arizona West
Cash $- $67,463
Prepaid expenses and
other current assets 1,032 12,701
Equipment 9,300 36,373
Intangibles 250,370 409,496
Accounts payable and
other current
liabilities (12,104) (30,599)
$248,598 $495,434
In connection with the acquisition of the aforementioned
affiliates, common stock and retained earnings were reduced by $284,098 and
$2,568, respectively, in 1995.
Assets and liabilities and statements of operations for Arizona
and West for the year ended December 31, 1994 are included within
the combined financial statements. A pro forma financial statement for the year
ended December 31, 1994 would not be materially different from the combined
presentation and, therefore, not included.
NOTES TO COMBINED FINANCIAL STATEMENTS
3. Due from affiliates
Amounts due from affiliates are non-interest bearing advances payable on
demand.
4. Telecommunications and office equipment Telecommunications and
office equipment consist of the following at December 31, 1995 and 1994:
1995 1994
Telecommunications
equipment $357,776 $335,546
Office equipment 129,699 104,760
487,475 440,306
Accumulated depreciation
and amortization 260,371 131,162
$227,104 $309,144
Depreciation and amortization expense for the years ended
December 31, 1995 and 1994 amounted to $129,209 and $98,541, respectively.
5. Intangible assets
Intangible assets consist of the following at December 31, 1995 and 1994:
1995 1994
Goodwill $457,366 $-
Franchise licenses 507,033 507,033
964,399 507,033
Accumulated amortization 78,721 30,500
$885,678 $476,533
Amortization expense for the years ended December 31, 1995 and
1994 was $48,221 and $15,250, respectively.
NOTES TO COMBINED FINANCIAL STATEMENTS
6. Notes payable Notes payable consist of the following at
December 31, 1995 and 1994:
1995 1994
Note payable (face amount of $250,000) for the acquisition of a license,
is due in monthly installments of $5,000 through April 1999. In discounting
the note to $202,033, interest has been imputed at 10% per annum
$183,543 $202,033
Notes payable (face amounts aggregating $118,000) for the acquisition of Arizona
and West common stock, is due in monthly installments aggregating $3,278
through March 1998. In discounting the notes to $101,532, interest has been
imputed at 10% per annum 84,558
Notes payable (face amount aggregating $518,750) for the acquisition of Arizona
and West common stock, is due in 60 monthly installments of $8,479 commencing
April 1997. In discounting the note to $327,057, interest has been
imputed at 10% per annum 352,467
Note payable (face amount of $150,000) for the acquisition of West common stock,
is due in monthly installments of $6,250 through March 1997. In discounting the
note to $135,443, interest has been imputed at 10% per annum 119,951
NOTES TO COMBINED FINANCIAL STATEMENTS
6. Notes payable
(continued) 1995 1994
Note payable for the acquisition of telecommunication equipment is due in
monthly installments of $8,860 including interest at 10% per annum through June
1995 51,644
Capital lease obligations,
collateralized by related
telecommunications and office
equipment 32,185
772,704 253,677
Less current portion 174,270 84,190
$598,434 $169,487
Scheduled aggregate payments on notes payable and capital lease
obligations are as follows:
Capital
Notes Lease
Payable Obligations
Year Ending December 31
1996 $157,444 $19,287
1997 177,641 16,072
1998 141,301
1999 96,676
2000 85,158
$658,220 35,359
Less amount representing
interest 3,174
Present value of future
payments, including current
portion of $16,826 $32,185
Telecommunication and office equipment include assets acquired
under capital leases with a net book value of approximately $29,000 as of
December 31, 1995.
NOTES TO COMBINED FINANCIAL STATEMENTS
7 Commitments and contingencies
In connection with the acquisitions of Arizona and West, the Company
entered into a two year employment agreement with the former majority
shareholder. The agreement expires in March 1997 and provides for annual
compensation of $88,800. In addition, the former shareholder may not compete
with the Company in certain businesses, as defined, in certain regions of the
United States through March 1999.
The Company leases office facilities and office equipment, which expire in
various years through 1998. Future minimum aggregate annual rental payments as
of December 31, 1995 are as follows:
Year Ending December 31
1996 $91,900
1997 57,300
1998 14,000
Rent expense for the years ended December 31, 1995 and 1994 was
approximately $190,000 and $161,000, respectively.
In March 1996, the Company settled a lawsuit with a cellular carrier.
The settlement requires the Company to pay $175,000 on or before May 1,
1996, which amount has been recorded as of December 31, 1994.
The Company is a defendant in litigation for rent owed on certain
premises previously leased by the Company. A settlement offer by the
Plaintiff of $15,000 is currently outstanding, which has been recorded as
of December 31, 1995.
The Company is a party to litigation in which it is claimed that the
Company received certain priority payments from an affiliated entity. This
litigation is in the discovery process. While any litigation contains an
element of uncertainty, management is of the opinion that the ultimate
resolution of the matter should not have a material adverse effect upon
results of operations, cash flows or financial position of the Company.
In addition to the above matters, the Company is a party to
various legal actions, the outcome of which, in the opinion of
management, will
not have a material adverse effect on results of operations, cash flows or
financial position of the Company.
NOTES TO COMBINED FINANCIAL STATEMENTS
8. Subsequent event In April 1996, the Company sold
substantially all of its assets less liabilities assumed of
approximately $1,450,000, for approximately $1,800,000.
SUMMIT ASSURANCE CELLULAR INC.
AND SUBSIDIARIES
AND AFFILIATES
SUMMIT ASSURANCE CELLULAR INC.
AND SUBSIDIARIES
AND AFFILIATES
SUMMIT ASSURANCE CELLULAR INC.
AND SUBSIDIARIES
AND AFFILIATES
See accompanying notes to combined financial statements. 5
SUMMIT ASSURANCE CELLULAR INC.
AND SUBSIDIARIES
AND AFFILIATES
Shared Technologies Cellular, Inc.
Pro Forma Statement of Operations
For The Year Ended December 31, 1995
(Unaudited)
Shared Summit
Technologies Assurance
Cellular, Inc. Inc. and Affiliates
Revenues $13,613,161 $3,499,380
Cost of Revenues 8,587,272 1,997,157
Gross Margin 5,025,889 1,502,223
Selling, General and
Administrative Expenses 8,015,184 1,815,553
Loss From Operations (2,989,295) (313,330)
Interest Expense 136,395 47,842
Net Loss Before
Income Tax (3,125,690) (361,172)
Income Taxes 47,924 150,000
Net Loss $(3,173,614) $(211,172)
Net Loss Per Common Share $(1.15)
Weighted Average Number of
Shares Outstanding 2,748,288
A To record goodwill amortization for the acquisition
B To record interest for the entire year on the liabilities assumed
from Summit
Shared Technologies Cellular, Inc.
Pro Forma Statement of Operations
For The Year Ended December 31, 1995
Continued
(Unaudited)
Pro
Forma
Adjustment Total
Revenues $17,112,541
Cost of Revenues 10,584,429
Gross Margin 6,582,112
Selling, General and
Administrative Expenses 179,775 A 10,010,512
Loss From Operations (179,775) (3,482,400)
Interest Expense 6,000 B 190,237
Net Loss Before Income Tax (185,775) (3,672,637)
Income Taxes 150,000 47,924
Net Loss $(335,775) $(3,720,561)
Net Loss Per Common Share $(1.22)
Weighted Average Number of
Shares Outstanding 300,000 3,048,288
A To record goodwill amortization for the acquisition
B To record interest for the entire year on the liabilities assumed
from Summit
Shared Technologies Cellular, Inc.
Pro Forma Statement of Operations
For The Three Months Ended March 31, 1996
(Unaudited)
Shared Summit
Technologies Assurance
Cellular, Inc. Inc. and
Affiliates
Revenues $4,305,952 $874,845
Cost of Revenues 2,776,379 499,289
Gross Margin 1,529,573 375,556
Selling, General and
Administrative Expenses 3,116,529 453,888
Loss From Operations (1,586,956) (78,333)
Interest Expense 60,771 13,375
Net Loss Before Income Tax
Income Taxes (1,647,727) (91,708)
Net Loss $(1,647,727) $(51,708)
Net Loss Per Common Share $(.52)
Weighted Average Number of
Shares Outstanding 3,151,952
A To record goodwill amortization for the acquisition
Shared Technologies Cellular, Inc.
Pro Forma Statement of Operations
For The Three Months Ended March 31, 1996
Continued
(Unaudited)
Pro
Forma Total
Revenues $5,180,797
Cost of Revenues 3,275,668
Gross Margin 1,905,129
Selling, General and
Administrative Expenses 44,944 A 3,615,361
Loss From Operations (44,944) (1,710,232)
Interest Expense 74,146
Net Loss Before Income Tax
Income Taxes (44,944) (1,784,378)
Net Loss $(84,944) $(1,784,378)
Net Loss Per Common Share $(.52)
Weighted Average Number of
Shares Outstanding 300,000 3,451,952
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Shared Technologies
Cellular, Inc.
By: /s/ Vincent DiVincenzo
Vincent DiVincenzo
Chief Financial Officer
Date: May 9, 1996 3
