-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HtK5atrFHAOZxJpLuSEwI5kIPle7urkiToEELR3cRKfwK5xjT+LtzMWbUONa/iVO Xq9Cg9RkO9fxBKpTRMvBAA== 0000817632-95-000016.txt : 19951119 0000817632-95-000016.hdr.sgml : 19951119 ACCESSION NUMBER: 0000817632-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES INC CENTRAL INDEX KEY: 0000817632 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 870424558 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17366 FILM NUMBER: 95592654 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: STE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 2032582400 MAIL ADDRESS: STREET 2: 100 GREAT MEADOW ROAD SUITE 104 CITY: WETHERSFIELD STATE: CT ZIP: 06109 10-Q 1 SEPTEMBER 30, 1995 10Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES AND EXCHANGE ACT OF 1934 For Quarterly Period Ended September 30, 1995 ------------------ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-17366 ------------------------------ SHARED TECHNOLOGIES INC. ------------------------ (exact name of registrant as specified in its charter) Delaware 87-0424558 ---------- ------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 100 Great Meadow Road, Suite 104 Wethersfield, CT 06109 ---------------------------------- (Address of principal executive offices) (203) 258-2400 ----------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 _ _ _ _ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date. Class Outstanding at November 14, 1995 ------------- --------------------------- Common Stock, $.004 par value 8,504,823 shares
PART I FINANCIAL INFORMATION PAGE -------- ---------------------- ----- Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 3-4 Consolidated Statements of Operations for the nine months ended September 30, 1995 and 5 1994 Consolidated Statements of Operations for the three months ended September 30, 1995 and 1994 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 7 Consolidated Statements of Stockholders' Equity for the nine months ended September 30, 1995 8 Notes to Consolidated Financial Statements 9-11 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 12-13 PART II OTHER INFORMATION 14 Signature Page 15
Item 1. Financial Statements ------------------------------------ Shared Technologies Inc. Consolidated Balance Sheets September 30, 1995 and December 31, 1994 (unaudited) September 30, December 31, 1995 1994 ---------- ------------- CURRENT ASSETS: Cash $1,410,374 $172,262 Accounts receivable, less allowance for doubtful accounts of $914,000 in 1995 and $584,000 in 1994 11,587,514 8,532,770 Other current assets 1,344,891 727,375 Deferred income taxes 550,000 550,000 -------- ------- Total current assets 14,892,779 9,982,407 ------------ ------------ Equipment, at cost: Telecommunications equipment 29,499,909 26,222,732 Office and data processing equipment 6,131,803 4,995,191 ------------ ------------ 35,631,712 31,217,923 Less - Accumulated depreciation 18,062,821 15,473,023 ------------ ------------ 17,568,891 15,744,900 ------------- ------------- Other Assets 14,617,414 12,197,929 ----------- ------------ Total Assets $47,079,084 $37,925,236 -------------- ----------------- -------------- ---------------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Balance Sheets September 30, 1995 and December 31, 1994 (unaudited) September December 31, 30,1995 1994 CURRENT LIABILITIES: Notes payable and current portion of long-term debt and capital lease obligations $2,437,710 $1,840,401 Accounts payable 10,664,246 8,191,350 Accrued expenses 2,666,048 2,381,736 Advance billings 1,248,382 1,260,158 ---------- ------------ Total current liabilities 17,016,386 13,673,645 ---------- ------------ Long-Term Debt and Capital Lease 4,012,234 2,886,365 Obligations less current portion ---------- ------------ Minority Interest in Net Assets of Subsidiaries 1,662,690 101,504 --------- --------- Redeemable Put Warrant 416,287 383,048 -------- -------- STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value: Series C, authorized 1,500,000 shares, outstanding 906,930 shares in 1995 and 1994 9,069 9,069 Series D, authorized 1,000,000 shares, outstanding 456,900 shares in 1995 and 1994 4,569 4,569 The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Balance Sheets September 30, 1995 and December 31, 1994 (unaudited) September 30, December 31, 1995 1994 Series E, authorized 400,000 shares, outstanding no shares in 1995 and 400,000 shares in 1994 4,000 Series F, authorized 700,000 shares, outstanding no shares in 1995 and 700,000 shares in 1994 7,000 Common Stock; $.004 par value, 20,000,000 shares authorized; 8,476,315 and 6,628,246 shares outstanding in 1995 and 1994 respectively 33,905 26,513 Additional paid-in capital 44,647,005 41,488,128 Accumulated deficit (20,723,061) (22,465,105) Obligations to issue common stock 1,806,500 ---------- ------------ Total stockholders' equity 23,971,487 20,880,674 ------------ ------------- Total liabilities and stockholders' $47,079,084 $37,925,236 equity -------------- ------------- -------------- ------------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statements of Operations For the Nine Months Ended September 30, 1995 and 1994 (unaudited) September 30, September 30, 1995 1994 Revenue: Shared tenant services $25,248,201 $20,450,338 Facility management services 9,266,253 3,443,468 Cellular services 9,160,128 7,620,195 ----------- ---------- Total Revenue 43,674,582 31,514,001 ----------- ----------- Cost of Revenue: Shared tenant services 13,933,976 11,224,004 Facility management services 7,163,639 2,796,147 Cellular services 5,530,558 3,969,979 ---------- ----------- Total Cost of Revenue 26,628,173 17,990,130 ---------- ----------- Gross Margin 17,046,409 13,523,871 Selling, General & Administrative Expenses: Field 12,659,071 8,700,681 Corporate 3,457,279 3,058,956 ----------- ---------- Operating Income 930,059 1,764,234 Gain on sale of subsidiary stock 1,374,544 - Interest Expense (574,209) (228,117) Interest Income 130,016 69,792 Minority Interest in Net (Income) Loss of Subsidiaries 213,445 (43,080) -------- ---------- Net Income 2,073,855 1,562,829 Preferred Stock Dividends (298,575) (349,974) --------- ------------ Net Income Applicable to Common Stock $1,775,280 $1,212,855 ---------------- -------------- ---------------- -------------- Net Income Per Common Share $0.20 $0.21 -------- --------- -------- --------- Weighted Average Shares Outstanding 8,698,207 5,699,483 ------------ ----------- ------------ ----------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statements of Operations For the Three Months Ended September 1995 and 1994 (unaudited) September 30, September 30, 1995 1994 Revenue: Shared tenant services $8,178,263 $8,101,762 Facility management services 3,916,491 2,691,972 Cellular services 3,870,059 3,699,285 ----------- ---------- Total Revenue 15,964,813 14,493,019 ----------- ----------- Cost of Revenue: Shared tenant services 4,353,841 4,667,446 Facility management services 2,913,726 2,137,853 Cellular services 2,451,861 1,854,885 ---------- ----------- Total Cost of Revenue 9,719,428 8,660,184 ---------- ----------- Gross Margin 6,245,385 5,832,835 Selling, General & Administrative Expenses: Field 4,678,533 3,954,061 Corporate 1,313,734 1,206,329 ----------- ---------- Operating Income 253,118 672,445 Interest Expense (244,596) (101,768) Interest Income 58,568 32,234 Minority Interest in Net Loss of Subsidiaries 124,600 -------- ---------- Net Income 191,690 602,911 ------------ --------- Preferred Stock Dividends (99,680) (130,772) --------- ---------- Net Income Applicable to Common Stock $92,010 $472,139 ----------- ---------- ----------- ---------- Net Income Per Common Share $0.01 $0.07 ---------- -------- ---------- -------- Weighted Average Shares Outstanding 8,751,048 6,549,668 ---------------- ----------- ------------ ----------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 1995 and 1994 (unaudited) September September 30, 30,1995 1994 Cash Flows Provided by Operating Activities Net Income $2,073,855 $1,562,829 Adjustments: Gain on sale of subsidiary stock (1,374,544) Depreciation & amortization 3,266,030 2,293,934 Minority interest in net income (loss) of subsidiaries (213,445) 43,080 Change in Assets and Liabilities: Accounts receivable (2,407,574) (2,126,013) Other current assets (593,696) (38,746) Other assets (309,640) 43,993 Accounts payable 1,541,358 1,046,443 Accrued expenses (57,756) (883,911) Advanced billings (46,776) 16,932 ---------- ------------ Net cash provided by operating activities 1,877,812 1,958,541 ---------- ------------ Cash Flows used in Investing Activities Acquisitions (2,482,793) (3,779,725) Capital expenditures (3,099,289) (2,521,417) ----------- ----------- Net cash used in investing activities (5,582,082) (6,301,142) ------------ ------------- Cash Flows From Financing Activities: Preferred stock dividends (298,575) (349,974) Net proceeds from sale of subsidiary stock 3,274,175 Purchase of subsidiary treasury stock (375,000) Proceeds from borrowings 2,929,193 2,121,547 Repayments of notes payable, long- term debt and capital lease obligations (1,750,860) (1,697,627) Net proceeds from sales of common 1,163,449 4,711,509 stock ---------- ---------- Net cash provided by financing activities 4,942,382 4,785,455 ----------- ----------- Net increase in cash 1,238,112 442,854 Cash, Beginning of Period 172,262 408,533 --------- ---------- Cash, End of Period $1,410,374 $851,387 ----------- ----------- ----------- ----------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for - Interest $568,963 $227,650 Income taxes $73,611 $25,032 Supplemental Disclosures of Noncash Investing and Financing Activities: Issuance of common stock in connection with acquisitions $1,806,500 - ------------ -------------- ------------ -------------- Issuance of preferred stock in connection with acquisition - $5,000,000 ------------ -------------- ------------ -------------- Dividend accretion on redeemable put warrant $33,236 - --------- ---------- --------- ---------- Issuance of stock to settle accrued $185,320 $66,946 expenses ------------ -------------- ------------ -------------- The accompanying notes are an integral part of these financial statements.
Shared Technologies Inc. Consolidated Statement of Stockholders' Equity For the period ended September 30, 1995 (unaudited) Series C Series D Preferred Preferred Stock Stock Shares Amount Shares Amount Balance, January 1, 1995 906,930 $9,069 456,900 $4,569 Issuance of Common Stock per obligation to issue - - - - Conversion of Preferred - - - - Stock Sale of Common Stock - - - - Common stock issued in lieu of compensation and other - - - - Net income - - - - Dividend accretion of redeemable put warrant - - - - Preferred stock dividends - - - - -------- ------- --------- ---------- Balance, September 30, 906,930 $9,069 456,900 $4,569 1995 -------- ------- -------- -------- -------- ------- -------- -------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statement of Stockholders' Equity For the period ended September 30, 1995 (unaudited) Series E Series F Preferred Preferred Stock Stock Shares Amount Shares Amount Balance, January 1, 1995 400,000 $4,000 700,000 $7,000 Issuance of Common Stock per obligation to issue - - - - Conversion of Preferred (400,000) ($4,000) (700,000) ($7,000) Stock Sale of Common Stock - - - - Common stock issued in lieu of compensation and other - - - - Net income - - - - Dividend accretion of redeemable put warrant - - - - Preferred stock dividends - - - - -------- -------- ---------- ----------- Balance, September 30, 0 $0 0 $0 1995 --- ----- -------- --------- --- ----- -------- --------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statement of Stockholders' Equity For the period ended September 30, 1995 (unaudited) Common Additional Stock Paid-in Shares Amount Capital Balance, January 1, 1995 6,628,246 $26,513 $41,488,128 Issuance of Common Stock per obligation to issue 405,395 1,621 1,804,879 Conversion of Preferred 1,100,000 4,400 6,600 Stock Sale of Common Stock 315,500 1,262 1,228,062 Common stock issued in lieu of compensation and 27,174 109 119,336 other Net income - - - Dividend accretion of redeemable put warrant - - - Preferred stock dividends - - - ----------- ----------- -------------- Balance, September 30, 8,476,315 $33,905 $44,647,005 1995 ----------- ----------- -------------- ----------- ----------- -------------- The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Consolidated Statement of Stockholders' Equity For the period September 30, 1995 (unaudited) Obligations Total Accumulated to Issue Stockholders' Deficit Common Stock Equity Balance, January 1, 1995 ($22,465,105) $1,806,500 $20,880,674 Issuance of Common Stock per obligation to issue - (1,806,500) (0) Conversion of Preferred - - (0) Stock Sale of Common Stock - - 1,229,324 Common stock issued in lieu of compensation and - - 119,445 other Net income 2,073,855 - 2,073,855 Dividend accretion of redeemable put warrant (33,236) - (33,236) Preferred stock dividends (298,575) - (298,575) ------------- ------------ ------------- Balance, September 30, ($20,723,061) $0 $23,971,487 1995 ------------- ------------- ------------- ------------- ------------- ------------ The accompanying notes are an integral part of these consolidated financial statements.
Shared Technologies Inc. Notes to Consolidated Financial Statements September 30, 1995 (Unaudited) 1. Basis of Presentation: The consolidated financial statements included herein have been prepared by Shared Technologies Inc. (the Company) pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's December 31, 1994 report on Form 10-K. Certain reclassifications to prior year financial statements were made in order to conform to the 1995 presentation. 2. Income Taxes: The Company and its subsidiaries file a consolidated federal income tax return but generally file separate state income tax returns. As of December 31, 1994, the Company has net operating loss carryforwards for federal income tax purposes of approximately $22.7 million, which expire, if unused, from 2001 to 2007. 3. Acquisitions: In June 1994, the Company acquired all of the partnership interests in Access Telecommunication Group, L.P. and Access Telemanagement, Inc. (collectively Access). The purchase price was $9,252,000, of which $4,252,000 was paid in cash and the balance through the issuance of 400,000 shares of Series E Preferred Stock valued at $3.75 per share and 700,000 shares of Series F Preferred Stock valued at $5.00 per share. On June 30, 1995 the Company purchased all of the outstanding capital stock of Office Telephone Management ("OTM"). OTM provides telecommunication management services primarily to businesses located in executive office suites. The purchase price is currently allocated as follows:
Goodwill $1,915,000 Property, Plant & Equipment 1,400,000 Accounts Receivable, (net) 400,000 Other current assets 20,000 Debt (current and long-term) (545,000) Accounts Payable (525,000) Accrued Expense (530,000) ------------ Net Purchase Price $2,135,000 ------------ ------------
In May and June 1995, the Company's cellular subsidiary Shared Technologies Cellular, Inc. ("STC") commenced management and subsequently completed its acquisition of the outstanding capital stock of Cellular Hotline, Inc. ("Hotline") for $617,000. The $617,000 was comprised of $367,000 in cash, paid at closing, and the issuance of 50,000 shares of STC common stock. At the discretion of the former Hotline stockholders, STC was required to repurchase all or a portion of the shares for $5.00 per share, at any time during the period commencing three months and ending six months after June 19, 1995. The former Hotline stockholders exercised their put option during that period. Additionally at closing, STC issued options to purchase 50,000 additional shares of STC common stock, exercisable at $7.50 per share for three years. The agreement provides for additional payments based upon attaining certain levels of activation revenues, as defined, over a one year period. Unaudited proforma consolidated statements of operations for the nine-month period ended September 30, 1994 and 1995 as through the acquisitions of Access, OTM and Hotline had been made at the beginning of the period are as follows: 1994 1995 Revenues $40,796,000 $46,401,000 Net Income $1,730,000 $1,697,000 Net Income Per Share $0.23 $0.20 Weighted Average Shares 7,488,054 8,698,207 4. Contingencies: While providing services at the Jacob K. Javits Convention Center in 1991, the Company licensed the right to provide certain public pay telephone services at the Center to Tel-A-Booth Communications, Ltd. In 1992, Tel-A-Booth filed a claim against the New York Convention Center Operating Corporation and its facilities manager, Ogden Allied Facility Management, and against the Company seeking $10,000,000 in damages for which no amounts have been provided in the accompanying consolidated financial statements. While any litigation contains an element of uncertainty, management is of the opinion based on the current status of the claim that the ultimate resolution of this matter should not have a material adverse effect upon either results of operations, cash flows or financial position of the Company. The Company's subsidiary, Shared Technologies Cellular, Inc. (STC) has entered into an agreement for partial settlement of certain litigation arising in connection with its purchase of certain assets from Road and Show South, Ltd. ("Road and Show") Pursuant to the settlement, STC has been indemnified against a claim from a former employee of an affiliate of Road and Show. As between STC and Road and Show, certain claims exist, which the parties have agreed to attempt to settle through mediation or arbitration. The Company's management believes that in the event such claims are resolved against STC that they would not, in the aggregate, have a material adverse effect on the Company's financial condition. 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 the Company's financial condition and results of operations. 5. Gain on sale of subsidiary stock: In April, 1995, the Company's cellular subsidiary Shared Technologies Cellular, Inc. ("STC") completed its SB-2 filing with the Securities and Exchange Commission and became a public company. Prior to this date STC had been an approximately 86% owned subsidiary of the Company. STC sold 950,000 shares of common stock at $5.25 which generated net proceeds of approximately $3,274,000, after underwriters' commissions and offering expenses. These proceeds are intended to be used to finance marketing activities relating to STC's cellular telephone rental service ($1.15 million), repayment of indebtedness to the Company ($1.25 million), acquisition of telecommunication equipment, billing technology management information systems and centralized reservation systems ($.5 million) and the balance for working capital and general corporate purposes. The net effect on the consolidated financial statements for the second quarter was a gain of approximately $1,375,000. 6. Subsequent Events: In November 1995 the Company signed an agreement under which Fairchild Industries Ind. ("FII"), following a reorganization transferring all non-communications assets to its parent RHI Holding Inc., will merge into the Company. The company will be called Shared Technologies Fairchild Inc. Under the proposed merger agreement the Company will issue 6 million shares of common stock, 1,000,000 shares of convertable preferred stock with a $25,000,000 liquidation preference and 1,000,000 shares of special preferred stock with an initial $20,000,000 liquidation preference and raise approximately $238 million through senior debt from banks and subordinated debt from the capital markets. The Company has entered into financing arrangements with CS First Boston which include a highly confident letter for all of the debt financing for the transaction. In November 1995 the Company's cellular subsidiary, STC, commenced management and subsequently completed its acquisition of certain assets of PTC Cellular, Inc. ("PTCC"). The purchase price was $3,800,000, comprised of $300,000 in cash, the assumption of $1,200,000 in assumed account payable, a 5-year promissory note in the principal amount of $2,000,000 and the issuance of 100,000 shares of STC common stock, $.01 par value. Additionally, the agreement allows for royalty payments in the amount of three percent (3%) of quarterly revenues generated from certain of the acquired assets not to exceed an aggregate of $2,500,000. Also, STC has committed to PTCC to obtain financing in the amount of $7,000,000 within six months of the acquisition date. Pro Forma financial information is not yet available. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations --------------------- The Company's revenues rose to $43,675,000 for the nine months ended September 30, 1995, an increase of $12,161,000 or 39% over the nine months ended September 30, 1994. Revenues rose to $15,965,000 for the three month period ended September 30, 1995 an increase of $1,471,000 or 9% over the three month period ended September 30, 1994. Each division continued to contribute significantly to the increase in revenue. Shared tenant services (STS) increased $4,798,000 or 23%, facility management services (FMS) grew $5,823,000 or 169% and cellular services (STC) rose $1,540,000 or 20% for the nine months ended September 30, 1995 over the nine months ended September 30, 1994. The majority of the growth in STS revenue was attributable to the June 1994 acquisition of Access Telecommunications Group, L.P. (Access). Growth in FMS revenue was attributable to the Access acquisition as well as the June 1995 acquisition of Office Telephone Management (OTM). $876,000 of the FMS revenue growth for the nine and three months ended September 30, 1995, was due to the addition of OTM. The growth in STC revenues was due to expanded operations through the opening of new locations and recent acquisitions. Gross margin dropped to 39% of revenue for the nine months ended September 30, 1995 from 43% for the nine months ended September 30, 1994. Gross margin decreased to 39% of revenue for the three months ended September 30, 1995 compared to 40% for the three months ended September 30, 1994. Changes in the Company's gross margin were impacted by changes in sales mix and the Company's continued growth in 1995. STS accounted for 58% and 51% of total sales for the nine and three months ended September 30, 1995 compared to 65% and 56% for the same periods ended September 30, 1994. FMS accounted for 21% and 25% of total sales for the nine and three months ended September 30, 1995 compared to 11% and 19% for the same periods ended September 30, 1994. STC accounted for 21% and 24% of total sales for the nine and three months ended September 30, 1995 compared to 24% and 25% for the same periods ended September 30, 1994. For the nine months ended September 30, 1995, STS produced a 45% gross margin and FMS a 23% gross margin compared to 45% and 19% for the period ended September 30, 1994 For the three months ended September 30, 1995 STS produced a 47% gross margin and FMS a 26% gross margin compared to 42% and 21% for the period ended September 30, 1994. Several factors have impacted the swings in gross margin for these divisions. The purchase of Access in 1994 added significantly to the revenue bases of both divisions and caused STS gross margin to drop while FMS gross margin increased. In the last quarter management successfully increased STS margins through reduction in direct costs and culling non profitable business from their revenue base. FMS margins improved over the last three months mainly due to the addition of OTM which recorded gross margins of 35% for the third quarter. STC gross margin dropped to 40% and 37% for the nine and three months ended September 30, 1995 from 48% and 50% for the nine and three months ended September 30, 1994. This drop was mainly due to the acquisition of Cellular Hotline, Inc. in May 1995, which produced lower gross margin than the core business and 1994 second quarter World Cup cellular rentals which produced unusually high gross margins. Selling, general and administrative expenses as a percentage of revenue were 37% and 38% for the nine and three months ended September 30, 1995 compared to 37% and 36% for the nine and three months ended September 30, 1994. The STS and FMS divisions have reduced cost as a percentage of revenue through synergy's created with the Company's overall growth. However this has been offset by STC which has added overhead costs related to aggressively growing the cellular business in the wake of its April 1995 public offering. As STC revenues grow, management expects to see a decrease in the percentage of selling, general and administration costs to revenue. Interest expense increased by $346,000 for the nine months ended September 30, 1995 over the nine months ended September 30, 1994 and $143,000 for the three months ended September 30, 1995 over the three months ended September 30, 1994. This is attributable to the addition of interest bearing debt since June 1994. In late April 1995 the Company successfully completed a public offering of its cellular subsidiary's stock. Following the sale the Company's percentage of ownership dropped from 86% to approximately 60%. The accounting treatment of the sale required the Company to record a gain of approzimately $1,375,000 for nine months ended September 30, 1995. Liquidity and Capital Resources ------------------------------- The Company's working capital deficit at September 30, 1995 was $2,124,000 compared to $3,691,00 at December 31, 1994. Stockholder's equity at September 30, 1995 was $23,971,000 compared to $20,881,000 at December 31, 1994. Net cash provided by operations decreased to $1,878,000 for the nine months ended September 30, 1995 versus $1,959,000 for the nine months ended September 30, 1994. The Company continues to utilize cash from operations to manage its working capital deficit. The Company continued to invest heavily in equipment at both new and existing locations. $3,099,000 was spent on capital expenditures for the nine months ended September 30, 1995 compared to $2,521,000 for the nine months ended September 30, 1994. The Company has also continued to expand through acquisition investing $2,483,000 in 1995 to acquire Office Telephone Management Inc. and Cellular Hotline Inc. During 1994 $3,780,000 was invested to acquire Access Telecommunication Group, L.P. (Access). Cash to finance this growth was provided mainly from financing activities. During the first nine months of 1995 $1,160,000 was raised from sales of new stock, $3,274,000 from an initial public offering of the Company's cellular subsidiary, and $2,929,000 from new borrowings. A portion of these proceeds were used to repay $1,751,000 in principal debt and repurchase $375,00 in STC stock. During 1994 $4,785,000 was raised from financing activities, the majority of the proceeds came from sales of stock and new borrowings. These proceeds were used to purchase equipment, finance the purchase of Access and repay existing debt. The Company plans to continue to manage the working capital deficit and to expand operations throughout 1995. This growth is expected to be financed with cash from operations and new borrowings from existing credit lines.
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits None (b) Reports on Form 8-K On June 30, 1995 the Company filed a Form 8-K, date of report June 19, 1995, in which, the Company reported the acquisition of Cellular Hotline, Inc. by its majority owned subsidiary Shared Technologies Cellular, Inc. On August 3, 1995 the Company filed a Form 8-K/A Amendment #3, date of report June 27, 1994, regarding its acquisition of Access Telecommunication Group, L.P.
SIGNATURE 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 INC. By: /s/ Vincent DiVincenzo ---------------------------- Vincent DiVincenzo Senior Vice President-Finance and Administration, Treasurer, Chief Financial Officer Date: November 14, 1995 EX-27 2 ART. 5 FDS FOR QUARTER END 10-Q
5 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1410 0 12502 914 0 14893 35632 18063 47080 17016 0 34 0 15 0 47080 43675 43675 26628 26628 16116 0 574 2074 0 699 0 1375 0 2074 0 .20
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