-----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, P+0MUglyjIV5efMs4F3i9+aqmxq4KTVN135vVRWVDX5ij9bYATJLvoHVi6qJBy6i IKbyng/lguuIry/9h0f9CQ== 0000914039-99-000268.txt : 19990524 0000914039-99-000268.hdr.sgml : 19990524 ACCESSION NUMBER: 0000914039-99-000268 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 061386411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-13558 FILM NUMBER: 99632448 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582500 MAIL ADDRESS: STREET 1: C/O SHARED TECHNOLOGIES CELLULAR INC STREET 2: 100 GREAT MEADOW ROAD SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 10-K/A 1 AMENDMENT #2 TO FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A NO. 2 _ X _ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT Of 1934 For the fiscal year ended December 31, 1998 OR _ _ _ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________ to ________ Commission File Number 1-13732 SHARED TECHNOLOGIES CELLULAR, INC. (Exact name of registrant as specified in its charter) Delaware 06-1386411 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Great Meadow Road, Suite 104 Wethersfield, Connecticut 06109 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 258-2500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_ _X_ _ No _ _ _ _ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's Common Stock held by nonaffiliates as of March 29, 1999 was approximately $51,060,000 based on the average of the closing bid and asked prices as reported on such date in the over-the-counter market. The number of shares outstanding of the registrant's common stock as of March 29, 1999 was 7,650,107. 2 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION: YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Revenues for 1998 were $28,200,000, compared to $24,198,000 for 1997, an increase of $4,002,000 (17%). This increase was due to the expansion of the debit (prepaid) services, which grew by over 100%. The loss from operations, excluding non-recurring charges, was $4,194,000 in 1998 and $1,416,000 in 1997. The net loss for 1998 was $11,646,000, compared to a net loss of $3,695,000 for 1997. The basic and diluted loss per common share was $1.58 for 1998, compared to $0.63 for 1997. Revenues Debit, or prepaid, operations had revenues of $12,737,000 for 1998, compared to $6,299,000 for 1997. The increase in revenues of $6,438,000 (102%) was due to a new end-user program being marketed under the CellEase brand name. The Company experienced significant revenue growth from CellEase beginning in April 1998. The increase in the CellEase program was partially offset by a $2,796,000 reduction in revenues from a major distributor due to a price reduction given in order to keep the distributor competitive with the CellEase program. In addition, during the fourth quarter of 1998, the distributor transitioned its prepaid cellular phone business customers over to the Company's CellEase end-user program, which negatively impacted revenues. For the fourth quarter of 1998, revenues from the CellEase program were below Company expectations. This was a direct result of the deterioration of the Company's relationship with its main distributor, SmarTalk TeleServices, Inc. ("SmarTalk"). In the fourth quarter, SmarTalk introduced a new prepaid cellular phone to retailers that did not utilize the Company's' cellular service, which the Company has alleged in a lawsuit against SmarTalk was in violation of SmarTalk's contract with STC (see "Legal Proceedings"). Retailers were confused by conflicting directives, resulting in significant lost revenues to the Company, which was particularly detrimental to the Company's sales for the year-end holiday period. In January 1999, SmarTalk filed for bankruptcy. Cellular telephone rental operations had revenues of $14,037,000 for 1998, compared to $15,242,000 for 1997. The decrease in revenues of $1,205,000 (8%) was attributable to the Company de-emphazising the Special Events and Airlines programs due to local competition and the high costs to generate revenues from such operations. Revenues from the car rental companies were flat for the two years. However, during the second half of 1998, the Company changed its emphasis to be more of a sales-oriented business and less of a service-oriented business. As a result, revenues from the car rental companies for the last six months of 1998, compared to the last six months of 1997, increased 6%. Activation operations had revenues of $1,426,000 for 1998, compared to $2,657,000 for 1997. The decrease of $1,231,000 (46%) was mainly attributable to the discontinuance of operations at military bases in late 1997. In addition, the Company closed its Texas activation location in November 1997. Gross Margin Gross margin was 38% of revenues for 1998, compared to 44% of revenues for 1997. The decrease in gross margin was mainly due to a change in the revenue mix. The following table summarizes the change in the revenue mix and the corresponding gross margin for the two years: 3
1998 1997 Revenues Gross margin Revenues Gross margin Debit 45% 27% 26% 43% Rental 50% 48% 63% 46% Activation 5% 45% 11% 37% 100% 38% 100% 44%
The gross margin for the debit operations decreased as a result of a price reduction given to a major distributor and due to the end-user CellEase program having a lower margin than the distributor program. The distributor program accounted for most of the 1997 debit revenues. The gross margin for portable cellular rental operations improved slightly due to a slight reduction in carrier costs. The gross margin for the activation operations improved significantly due to a change in the product mix to more retail activations, which generally provided higher commissions to the Company than activations performed at the military bases. Selling, General and Administrative Expenses Selling, general and administrative expenses ("S,G&A") were $15,029,000 for 1998, compared to $12,083,000 for 1997, an increase of $2,946,000. As a percentage of revenues, S,G&A increased to 53% for 1998, compared to 50% for 1997. Revenues increased by $4,002,000 from fiscal 1997 to fiscal 1998. S,G&A, as a percentage of such revenues, would have remained constant, but for the fact that the Company's expenses increased by approximately $800,000 as a result of the acquisition of Shared Technologies Fairchild Inc. ("STFI"), the former parent of the Company, by Intermedia Communications, Inc., and the subsequent termination of a management agreement with STFI. STFI had been providing certain support and management services to the Company under this management agreement. Such additional expenses included payroll for certain former employees of STFI who had not previously received direct compensation from the Company. Therefore, of the $2,946,000 increase in S,G&A, approximately $2,146,000 represented the amount of S,G&A increase unrelated to the STFI transaction. The majority of the $2,146,000 increase was in field S,G&A, which,as a percentage of revenues, increased slightly to 41% in 1998, compared to 39% in 1997. As previously discussed, the Company did not achieve the anticipated fourth quarter 1998 CellEase revenues, even though the Company increased its field S,G&A in anticipation of the additional revenues. Bad debt expense, as a percentage of revenues, was 6% for 1998 and 1997. The majority of the bad debt expense related to the cellular rental business. The predominant amount of these sales are paid by credit card. Historically, the Company has experienced an amount of credit card charges that it is not able to collect. In addition, the Company receives some customer requests for amounts charged to be reversed for a variety of reasons. The Company diligently investigates these occurrences. However, the Company still experiences a large percentage of bad debt write-offs, as it continues to make efforts to address this problem. The Company therefore maintains a large allowance for doubtful accounts against its receivable balance, representing the unpaid accounts under investigation, and upon final resolution of the account, the amount is either collected or written off against the allowance. The investigation process is time consuming; documentation (typically itemized call detail for the rental period) must be generated and provided to the credit card processing company prior to the reversal of the claim. The Company regularly reviews the allowance for the amounts that are deemed truly uncollectable and writes them off against the allowance. The allowance represents only those receivables generated within the current operating cycle and does not have any amounts that are aged in excess of a 12-month period. Loss on Distributor Contract In December 1998 the Company terminated its relationship with SmarTalk and filed a lawsuit against SmarTalk (see "Legal Proceedings"). SmarTalk subsequently filed for bankruptcy protection. As a result, the Company recognized a one-time $6,494,000 charge related to the termination of its agreement with SmarTalk. The charge included approximately $1,975,000 of receivables owed by SmarTalk. An additional $3,121,000 pertains to the unamortized portion of prepaid assets relating to a subsidy the Company paid SmarTalk for cellular phone sales to retailers. The Company had been amortizing the subsidy against future revenues generated from end users. An additional $1,398,000 related to expenses incurred by the Company in the fourth quarter of 1998 in connection with the Company's contract with SmarTalk, including the addition of a new call center in Hartford and expansion of the existing call center in St. Louis. In addition, the Company purchased several thousand new cellular lines in anticipation of an increase in 4 volume. Most of the new lines required significant minimum commitment periods. The Company also incurred losses from the cost of lines for existing customers that could not purchase airtime as a result of the problems with SmarTalk. Interest Expense Interest expense was $952,000 for 1998, compared to $232,000 for 1997. Interest expense was mainly due to debt from acquisitions made in prior years, debt to STFI, and debt financing completed in May 1998. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Revenues for 1997 were $24,198,000, an increase of $3,284,000 (16%) over revenues for 1996. This increase was primarily due to the expansion of the debit business and the April 1996 purchase of the operations of the Company's sole franchisee, both of which were partially offset by the elimination of the in-car cellular rental operations. The loss from operations, excluding non-recurring charges, was $1,416,000 in 1997 and $6,888,000 in 1996. The net loss for 1997 was $3,695,000, compared to a net loss of $8,796,000 for 1996. The improvement was a result of the change in the revenue mix to more profitable lines of business and a reduction in operating expenses. The basic and diluted loss per common share was $0.63 for 1997, compared to $2.18 for 1996. Revenues The cellular telephone rental operations had revenues of $15,242,000 for 1997, compared to $16,339,000 for 1996. The decrease of $1,097,000 (7%) was attributable to two non-recurring sources of revenue in 1996. In 1996, the in-car operation generated revenues of $3,143,000; such line of business was discontinued in 1997. In the third quarter of 1996, the Company generated revenues of $1,434,000 from the summer's Olympic Games. These decreases for 1997 were offset by $2,259,000 in additional revenues in 1997 from the Summit acquisition. The remaining balance of the increase was mainly due to the addition of Avis, which allowed the Company to increase its penetration within existing portable cellular rental market areas. The debit operations had revenues of $6,299,000 for 1997, compared to $1,516,000 for 1996. This significant increase was due to the rapid expansion into the debit business in the first quarter of 1997. The Company increased the number of cellular prepaid lines with Rent A Center from 5,000 to 15,000 during that period. The activation operations had revenues of $2,657,000 for 1997, compared to $3,059,000 for 1996. This decrease was mainly due to a reduction in activation revenues by the Company's Texas location that was closed in November 1997. In addition, several national retailers ceased to offer cellular telephone activations through the Company in 1996. These revenue losses were offset by activations done at various retail locations. Gross Margin Gross margin increased to 44% of revenues for 1997, from 35% of revenues for 1996. This improvement was mainly due to significant changes in revenue mix. The in-car operations represented 15% of 1996 revenues but had no gross margin, compared to no revenues in 1997. As previously discussed, the in-car operations were discontinued in 1997. The gross margin for both the portable cellular rental and the debit operations improved due to a reduction in carrier costs as a result of better line management and lower carrier usage costs. As a percentage of revenue, the debit business increased from 7% in 1996 to 26% in 1997. The activation operations had a small reduction in gross margin due to lower activation commissions received from carriers. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") decreased $2,090,000 (15%), to $12,083,000 for 1997 from $14,173,000 for 1996. As a percentage of revenues, SG&A decreased to 50% for 1997, compared to 68% for 1996. This decrease was due to several factors. In the latter part of fiscal year 1996, the Company made a concerted effort to reduce its operating expenses. The Company consolidated its Special Events operation into its portable rental business, it transitioned its in-car cellular telephone rental operation to its portable cellular telephone rental business, and implemented other cost-cutting measures, such as staff reductions, office closings and travel restrictions that resulted in 5 an overall decrease in SG&A. The Company was also able to include the revenues from the Summit acquisition with minimal amounts of additional SG&A, which helped to reduce SG&A as a percentage of revenues. Loss on Discontinued Product Line During 1997, the Company completed the transition of its in-car rental accounts to portable rentals. In conjunction with this transition, the Company attempted to develop alternate uses for the in-car cellular telephones, as well as the capitalized software development costs associated with the in-car cellular rental business. Although management believes that there are viable uses for such assets, the probability that such usage will be successful is not known. As a result, the Company recognized a $2,037,000 writedown to reduce the in-car cellular phones and the capitalize software development costs to net realizable value and classified them on the balance sheet as assets held for disposition. Interest Expense Interest expense was $232,000 for 1997, compared to $906,000 for 1996. Interest expense in 1997 was mainly due to debt relating to the PTCC acquisition in November 1995 and the Summit acquisition in April 1996. LIQUIDITY AND CAPITAL RESOURCES: The Company had a working capital deficit of $16,099,000 at December 31, 1998, compared to a deficit of $6,955,000 at December 31, 1997. Stockholders' deficit at December 31, 1998 was $10,095,000, compared to stockholders' equity of $1,165,000 at December 31, 1997. Net cash used in operations for the year ended December 31, 1998 was $4,941,000. This was mainly due to the operating loss for the period, offset by delayed payments to carriers and other vendors. Carrier commissions receivable mainly pertain to commissions the Company is entitled to receive for carrier lines the Company activates. During fiscal 1998, the Company activated over 60,000 new carrier lines and was entitled to a commission on a small portion of those new lines. The Company recorded approximately $2.2 million of carrier commissions in fiscal 1998, of which approximately $1.4 million was collected as of December 31, 1998. The provision for uncollectible accounts, as it relates to these carrier commissions, is not material. The Company deferred the recognition of the carrier commissions over a 12-month period, the expected customer life. As of December 31, 1998, the Company had approximately $1,189,000 of such carrier commissions that had not yet been recognized Net cash used in investing activities for the year ended December 31, 1998 was $1,133,000. This was mainly attributable to the purchase of cellular phones for rental operations, computer and office equipment to support the CellEase program, and deposit requirements by carriers for additional lines. During the year ended December 31, 1998, the Company received $6,400,000 of debt financing, as previously discussed. The Company continued to make required payments on its existing debt. The Company will require additional funds in order to satisfy existing obligations arising from completed acquisitions, and to fund current expansion plans. In February 1999, the Company closed on a $15 million private placement of 15,000 shares of Series C Preferred Stock ("Series C Shares"). Each purchaser of the Series C Shares has the right, upon the occurance of certain events, to require the Company to redeem all or any part of such purchaser's Series C Shares, therefore, the Series C Shares will not be reflected in stockholders' equity (deficit). See Note 19 - Subsequent Event, for an in-depth discussion of the terms of the Series C Shares, including the purchaser's conversion rights. The funds will be used to repay approximately $5.5 million of outstanding indebtedness, improve the Company's working capital and for general corporate purposes. The Company will recognize a preferred stock dividend of approximately $229,000 per quarter related to the Series C Shares. Also, in March 1999, the Company signed a letter of intent with a financial institution the Company currently does business with to establish a $10 million credit facility, subject to the financial institution's satisfactory completion of a due diligence review of the Company. The $10 million credit facility will be for a period of two years and will be used for working capital and general corporate purposes. The availability of the credit facility will be based on a percentage of receivables, with approximately $3 million immediately available, and will include covenants requiring certain levels of prepaid lines and operating results over time. The Company believes the Series C Shares and the $10 million credit facility should allow the Company to maintain good relations 6 with its suppliers and give the Company the ability to expand rapidly and meet its current obligations. Management believes that ongoing operations, together with the equity financing and the credit facility, will provide the Company with sufficient funds to finance operations and planned expansion for at least the next 12 months, and long-term liquidity will depend on the Company's ability to attain profitable operations. YEAR 2000 COMPLIANCE: The Company has conducted a review of its computer systems and believes that the majority of its systems are properly adapted to avoid a Year 2000 problem. The Company believes that all its computer systems will be Year 2000 compliant by the end of the second quarter of 1999. The Company further intends to conduct extensive testing of its systems to assure that it is Year 2000 compliant by the end of the second quarter. The expense incurred by the Company to achieve compliance has not been material. The Company is currently working with outside vendors to obtain assurances that they are Year 2000 compliant. However, there can be no assurance that all of the Company's vendors, including carriers, will achieve compliance on a timely basis. In the event of any such noncompliance by vendors, a material adverse effect to the Company's operations and financial results could occur. The Company has not developed any contingency plan to address the possibility of vendor-related Year 2000 problems. 1999 COMPANY OUTLOOK The Company expects to show revenue growth in each of its operations in 1999. The wireless industry continues to diversify and expand with abundant opportunities. PCS, GSM and other wireless carriers are now entering the marketplace. Subscription growth continues to be double-digit as new products and services, such as pre-paid cellular, have been launched. The Company believes it is positioned to take advantage of these opportunities; offering travelers a communication device throughout the United States, offering pre-paid cellular and activation services through national retailers, and working with wireless carriers to offer their customers, who are relocating, a more economical activation process. The debit operations are expected to show considerable revenue growth in 1999. In February 1999, the Company signed an agreement with MCI WorldCom for the retail distribution of the Company's prepaid cellular services under the MCI WorldCom brand name, utilizing MCI WorldCom's extensive network of retail distribution locations. The cellular phone rental operations are expected to have moderate revenue growth in 1999. To achieve this, STC intends to refocus the car rental partner's efforts in soliciting more customers through training and improved policies and procedures, by improving awareness through marketing programs, and by penetrating the premiere traveler programs (e.g. Avis Preferred, Hertz Gold). In addition, the Company is in the process of analyzing a new product (handset), pricing structure and partner contribution in the solicitation of the cellular rental program. The activation operations are expected to have moderate revenue growth. The Company is working with various carriers to implement its MOVE/Customer Retention Program, which provides activation services for carriers' customers who are in the process of relocating. The Company has automated the activation process by establishing an activation Internet site, which should make the Program more attractive to carriers. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: THE MANAGEMENT'S DISCUSSION AND ANALYSIS MAY INCLUDE FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN ANY FORWARD-LOOKING STATEMENT. SUCH RISKS AND UNCERTAINTIES MAY INCLUDE, WITHOUT LIMITATION, TECHNOLOGICAL OBSOLESCENCE, PRICE AND INDUSTRY COMPETITION, FINANCING CAPABILITIES, DEPENDENCE ON MAJOR CUSTOMERS AND RELATIONSHIPS, DEPENDENCE ON RELATIONSHIPS WITH TECHNOLOGY LICENSORS AND TELECOMMUNICATIONS CARRIERS, AND THE COMPANY'S ABILITY TO EFFECTIVELY EXECUTE ITS BUSINESS PLAN WITH RESPECT TO SIGNIFICANT PROJECTED GROWTH IN ITS DEBIT SERVICES DIVISION, IN PARTICULAR, WITH RESPECT TO ITS VENTURE WITH MCI WORLDCOM. 7 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attached. 8 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE (ITEM 8)
Page Financial Statements: Independent Auditors' Report F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity (Deficiency) F-5 Consolidated Statements of Cash Flows F-6-7 Notes to Consolidated Financial Statements F-8-24 Financial Statement Schedule (a): Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1998, 1997 and 1996 S-1
NOTE: (a) All other schedules are not submitted because they are either not applicable, not required or the required information is included in the consolidated financial statements or notes thereto. 9 INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Shared Technologies Cellular, Inc. We have audited the accompanying consolidated balance sheets of Shared Technologies Cellular, Inc. and Subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows and financial statement schedule for each of the three years in the period ended December 31, 1998. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shared Technologies Cellular, Inc. and Subsidiary as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. ROTHSTEIN, KASS & COMPANY, P.C. Roseland, New Jersey March 5, 1999 F-2 10 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 ------------------ ------------------ ASSETS CURRENT ASSETS: Cash $ 229,000 $ 294,000 Accounts receivable, less allowance for doubtful accounts of $896,000 in 1998 and $991,000 in 1997 1,169,000 1,637,000 Carrier commissions receivable, less unearned income 992,000 163,000 Inventories 234,000 131,000 Current portion of note receivable 107,000 Prepaid expenses and other current assets 2,030,000 127,000 ------------------ ------------------ Total current assets 4,654,000 2,459,000 ------------------ ------------------ TELECOMMUNICATIONS AND OFFICE EQUIPMENT, net 1,125,000 985,000 ------------------ ------------------ OTHER ASSETS: Intangible assets, net 6,993,000 7,551,000 Deposits 715,000 326,000 Note receivable, less current portion 62,000 Assets held for disposition 153,000 ------------------ ------------------ 7,708,000 8,092,000 ------------------ ------------------ $ 13,487,000 $ 11,536,000 ================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES: Current portion of notes payable $ 5,913,000 $ 530,000 Accounts payable 7,439,000 3,876,000 Accrued expenses and other current liabilities 6,153,000 3,912,000 Deferred revenues 1,248,000 44,000 Due to former parent 1,052,000 ------------------ ------------------ Total current liabilities 20,753,000 9,414,000 ------------------ ------------------ NOTES PAYABLE, less current portion 2,829,000 957,000 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock, $.01 par value, authorized 5,000,000 shares, no shares issued or outstanding Common stock, $.01 par value, authorized 20,000,000 shares, issued and outstanding 7,567,000 shares in 1998 and 7,216,000 shares in 1997 76,000 72,000 Capital in excess of par value 18,183,000 17,801,000 Accumulated deficit (28,354,000) (16,708,000) ------------------ ------------------ Total stockholders' equity (deficiency) (10,095,000) 1,165,000 ------------------ ------------------ $ 13,487,000 $ 11,536,000 ================== ==================
See accompanying notes to consolidated financial statements F-3 11 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------------- ------------------ ------------------ REVENUES $ 28,200,000 $ 24,198,000 $ 20,914,000 COST OF REVENUES 17,365,000 13,531,000 13,629,000 ------------------- ------------------ ------------------ GROSS MARGIN 10,835,000 10,667,000 7,285,000 ------------------- ------------------ ------------------ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,450,000 10,742,000 12,401,000 BAD DEBT EXPENSE 1,579,000 1,341,000 1,772,000 LOSS ON DISCONTINUED PRODUCT LINE 2,037,000 LOSS ON DISTRIBUTOR CONTRACT 6,494,000 ------------------- ------------------ ------------------ 21,523,000 14,120,000 14,173,000 ------------------- ------------------ ------------------ LOSS FROM OPERATIONS (10,688,000) (3,453,000) (6,888,000) ------------------- ------------------ ------------------ OTHER INCOME (EXPENSE): Interest expense (952,000) (232,000) (906,000) Loss on contract cancellation (980,000) ------------------- ------------------ ------------------ (952,000) (232,000) (1,886,000) ------------------- ------------------ ------------------ LOSS BEFORE INCOME TAXES (11,640,000) (3,685,000) (8,774,000) INCOME TAXES (6,000) (10,000) (22,000) ------------------- ------------------ ------------------ NET LOSS (11,646,000) (3,695,000) (8,796,000) PREFERRED STOCK DIVIDENDS (112,000) ------------------- ------------------ ------------------ NET LOSS APPLICABLE TO COMMON STOCK $ (11,646,000) $ (3,695,000) $ (8,908,000) =================== ================== ================== BASIC AND DILUTED LOSS PER COMMON SHARE $ (1.58) $ (0.63) $ (2.18) =================== ================== ================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,375,000 5,900,000 4,082,000 =================== ================== ==================
See accompanying notes to consolidated financial statements F-4 12 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) Years Ended December 31, 1998, 1997 and 1996
Series A Series B Preferred Stock Preferred Stock Common Stock ----------------------------- ---------------------------- -------------------------- Shares Amount Shares Amount Shares Amount -------------- ------------- -------------- ------------ --------------- -------- BALANCES, January 1, 1996 300,000 $ 3,000 - $ - 3,089,000 $ 31,000 ISSUANCE OF COMMON STOCK 264,000 3,000 ISSUANCE OF PREFERRED STOCK 500,000 5,000 PREFERRED STOCK DIVIDEND 11,000 CONVERSION OF PREFERRED STOCK (311,000) (3,000) 1,147,000 11,000 ISSUANCE OF COMMON STOCK FOR ACQUISITIONS 300,000 3,000 COMMON STOCK SUBSCRIPTION 63,000 1,000 NET LOSS -------------- ------------- -------------- ------------ --------------- --------- BALANCES, December 31, 1996 - - 500,000 5,000 4,863,000 49,000 ISSUANCE OF COMMON STOCK 686,000 7,000 CONVERSION OF PREFERRED STOCK (500,000) (5,000) 1,667,000 16,000 NET LOSS -------------- ------------- -------------- ------------ --------------- --------- BALANCES, December 31, 1997 - - - - 7,216,000 72,000 ISSUANCES OF COMMON STOCK AND WARRANTS 271,000 3,000 EXERCISE OF WARRANTS AND OPTIONS 180,000 2,000 CANCELLATION OF COMMON STOCK (100,000) (1,000) NET LOSS -------------- ------------- -------------- ------------ --------------- --------- BALANCES, December 31, 1998 - $ - - $ - 7,567,000 $76,000 ============== ============= ============== ============ =============== =========
Total Common Capital in Stockholders' Stock Excess of Accumulated Note Equity Subscription Par Value Deficit Receivable (Deficiency) ------------- ----------------- ------------------- ----------- ------------------- BALANCES, January 1, 1996 $ 5,000 $ 9,173,000 $ (4,105,000) $ (5,000) $ 5,102,000 ISSUANCE OF COMMON STOCK 760,000 763,000 ISSUANCE OF PREFERRED STOCK 4,828,000 4,833,000 PREFERRED STOCK DIVIDEND 112,000 (112,000) - CONVERSION OF PREFERRED STOCK (8,000) - ISSUANCE OF COMMON STOCK FOR ACQUISITIONS 947,000 950,000 COMMON STOCK SUBSCRIPTION (5,000) 4,000 5,000 5,000 NET LOSS (8,796,000) (8,796,000) ------------- ------------------ ------------------- ------------- -------------------- BALANCES, December 31, 1996 - 15,816,000 (13,013,000) - 2,857,000 ISSUANCE OF COMMON STOCK 1,996,000 2,003,000 CONVERSION OF PREFERRED STOCK (11,000) - NET LOSS (3,695,000) (3,695,000) ------------- ------------------ ------------------- ------------- -------------------- BALANCES, December 31, 1997 - 17,801,000 (16,708,000) - 1,165,000 ISSUANCES OF COMMON STOCK AND WARRANTS 201,000 204,000 EXERCISE OF WARRANTS AND OPTIONS 547,000 549,000 CANCELLATION OF COMMON STOCK (366,000) (367,000) NET LOSS (11,646,000) (11,646,000) ------------- ------------------ ------------------- ------------- -------------------- BALANCES, December 31, 1998 $ - $ 18,183,000 $ (28,354,000) $ - $ (10,095,000) ============= ================== =================== ============= ====================
See accompanying notes to consolidated financial statements F-5 13 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------------- ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (11,646,000) $ (3,695,000) $ (8,796,000) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of interest on notes payable 75,000 30,000 Write-off of assets held for disposition 153,000 2,037,000 Depreciation and amortization 1,332,000 1,292,000 1,684,000 Common stock issued for compensation and services 104,000 71,000 40,000 Accrued interest, note receivable (11,000) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 468,000 (16,000) (429,000) Carrier commissions receivable (829,000) (110,000) 400,000 Inventories (103,000) (51,000) (31,000) Prepaid expenses and other current assets (1,903,000) 6,000 339,000 Accounts payable and other current liabilities 6,204,000 (980,000) 2,124,000 Deferred revenues 1,204,000 44,000 (404,000) ------------------- ------------------ ------------------ NET CASH USED IN OPERATING ACTIVITIES: (4,941,000) (1,413,000) (5,043,000) ------------------- ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of businesses (336,000) Purchases of equipment (744,000) (318,000) (953,000) Payments for intangible assets (514,000) (Increase) decrease in deposits (389,000) 47,000 (231,000) Collection of receivable from sale of assets 1,078,000 Collections of note receivable 45,000 ------------------- ------------------ ------------------ NET CASH USED IN INVESTING ACTIVITIES (1,133,000) (271,000) (911,000) ------------------- ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable 6,400,000 Payments for debt issuance costs (171,000) Payments on notes payable (530,000) (1,091,000) (1,080,000) Advances from (payments to) former parent (239,000) 993,000 274,000 Issuance of common and preferred stock 1,932,000 4,362,000 Exercise of warrants and options 549,000 ------------------- --------------- ---------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 6,009,000 1,834,000 3,556,000 ------------------- ------------------ ------------------ NET INCREASE (DECREASE) IN CASH (65,000) 150,000 (2,398,000) CASH, beginning of year 294,000 144,000 2,542,000 ------------------- ------------------ ------------------ CASH, end of year $ 229,000 $ 294,000 $ 144,000 =================== ================== ==================
See accompanying notes to consolidated financial statements F-6 14 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------------- ------------------ ------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 863,000 $ 379,000 $ 280,000 =================== ================== ================== Income taxes $ 6,000 $ 10,000 $ 20,000 =================== ================== ================== SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Cost of intangible assets included in accounts payable $ - $ - $ 88,000 =================== ================== ================== Issuance of common stock for acquisitions $ - $ - $ 950,000 =================== ================== ================== Note payable incurred for acquisition of assets $ - $ - $ 1,139,000 =================== ================== ================== Issuance of Series B Convertible Preferred Stock in exchange for amount due to parent $ - $ - $ 1,200,000 =================== ================== ================== Preferred stock issued for preferred stock dividend $ - $ - $ 112,000 =================== ================== ================== Cancellation of common stock to settle outstanding receivable $ 367,000 $ - $ - =================== ================== ================== Issuance of warrants in connection with certain promissory notes $ 100,000 $ - $ - =================== ================== ==================
See accompanying notes to consolidated financial statements F-7 15 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS Shared Technologies Cellular, Inc. (STC) together with its subsidiary (collectively the "Company") is a national cellular service provider offering rental, prepaid and activation services in over 690 of approximately 750 Cellular Geographical Service Areas within the United States. The Company rents cellular telephones to business and leisure travelers and to individuals at sporting events or in government agencies. As a reseller or agent for cellular and PCS carriers, the Company offers cellular service to approximately 96% of the U. S. population. STC also performs nationwide cellular activation services through a variety of retail and commercial outlets. The Company has expanded the scope of its prepaid (debit) cellular service to include a national activation, customer service and collection service operation through major mass merchants.. The Company's operations are subject to regulation by the Federal Communications Commission (FCC), which has generally preempted the regulatory jurisdiction of state agencies with respect to the business in which the Company is engaged. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of STC and its wholly-owned subsidiary. All material intercompany accounts and transactions have been eliminated in consolidation. Cash The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash. 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 approximates the carrying amounts presented in the consolidated balance sheets. Inventories Inventories, consisting of telecommunications equipment and parts expected to be sold to customers, are valued at the lower of cost, on the first-in, first-out (FIFO) method, or market. Impairment of Long-Lived Assets The Company reviews its long-lived assets, such as telecommunications and office equipment, identifiable intangibles and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. Impairment is the amount by which the carrying value of the asset exceeds its fair value. F-8 16 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Telecommunications and Office Equipment Telecommunications and office equipment are stated at cost. The Company records depreciation on the straight-line method over the estimated useful lives of the assets as follows: Telecommunications equipment 2-5 years Office equipment 3-5 years Intangible Assets Goodwill represents the excess of cost over the fair market value of net assets of acquired businesses and is amortized over periods ranging from 15 to 20 years from the respective acquisition dates. The Company monitors the cash flows of the acquired operations to assess whether any impairment of recorded goodwill has occurred. The Company amortizes the cost to obtain exclusive agreements to provide cellular telephone rentals at specific locations on the straight-line basis over the life of the respective agreements, generally five to six years. Debt Issuance Costs Costs incurred relating to the issuance of debt are deferred and are being amortized over the life of the related debt. The amortization of debt issuance costs included in interest expense was $83,000, nil and nil in 1998, 1997 and 1996, respectively. Revenue Recognition Revenues related to providing short-term cellular phone rental services are recognized as the service is provided. Debit card revenue is recognized over the estimated period in which the Company provides debit, or prepaid, cellular service to its customers. Customers purchase debit cellular service by buying debit cards and calling the Company to activate, or redeem, the debit cards. Customers may also call the Company directly to purchase debit cellular service. The Company gives the customer a series of numeric codes that are input into their phone that allow it to be activated for a specific number of minutes and days. The actual number of minutes will vary based upon the denomination of the card and the type of calls made (local or roaming). A typical $30 debit card expires after 60 days. However, most of the airtime is used within the first 30 days of redemption. Carrier commissions related to activation revenues are due from cellular carriers for new cellular telephone line activations done by the Company. The commissions are earned only after the cellular telephone user has remained on the cellular telephone network for a specified period of time (vesting period). The Company records an allowance, as a reduction to carrier commissions receivable, for estimated cancellations of cellular service by the user prior to the end of the aforementioned vesting period. Although there is a short-term vesting period for which the Company must wait in order to receive its commission, the Company believes that the revenue process has been completed and recognizes the revenue over the estimated life of the phone line, typically twelve months. F-9 17 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Advertising Costs The Company expenses costs of advertising and promotions as incurred. Advertising expenses included in selling, general and administrative expenses for the years ended December 31, 1998, 1997 and 1996 were approximately $308,000, $132,000 and $153,000, respectively. Income Taxes The Company filed its federal income tax returns on a consolidated basis with its former parent through April 1995, the date of its initial public offering ("IPO"). Subsequent to April 1995, the Company's income tax returns are being filed separately. 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. 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. Loss Per Common Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share". SFAS No. 128 requires dual presentation of basic and diluted earnings per share for all periods presented. Basic earnings per share excludes dilution and is computed by dividing loss applicable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Prior period loss information has been restated as required by SFAS No. 128. Diluted loss per common share is the same as basic loss per common share for the years ended December 31, 1998, 1997 and 1996. Unexercised stock options to purchase 699,000, 365,000 and 281,000 shares of the Company's common stock as of December 31, 1998, 1997 and 1996, respectively, were not included in the computations of diluted earnings per share because their effect would have been antidilutive as a result of the Company's losses. F-10 18 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - LIQUIDITY The Company has incurred cumulative net losses of approximately $28,350,000 through December 31, 1998 and has a working capital deficit of approximately $16,100,000 at December 31, 1998. In February 1999, the Company completed a $15,000,000 private placement of equity issuing an aggregate of 15,000 shares of Series C Convertible Preferred Stock (Note 19). Long-term liquidity is dependent on the Company's ability to attain profitable operations. NOTE 4 - ACQUISITIONS In April 1996, the Company completed its acquisition of substantially all of the assets of its only franchisee, Summit Assurance Cellular Inc. and its subsidiaries and affiliates (Summit). The purchase price was $3,563,000, comprised of $335,000 in cash, the assumption of $669,000 of accounts payable and $656,000 of notes payable, the issuance of a promissory note for $953,000, the issuance of 300,000 shares of the Company's common stock valued at fair market value of $3.125 per share and warrants to purchase an aggregate of 300,000 shares of the Company's common stock at prices of $3.00, $4.00 and $5.00 per share, respectively, for each 100,000 shares. These warrants were valued at $13,000, which represents the excess of the fair market value of the common stock over the exercise price on the date of issuance. The warrants vested immediately and expire in 2000. In 1998, the Company received 100,000 shares of its common stock which was issued in the Summit acquisition and assumed a $150,000 liability of Summit, in payment for the remaining balance of the note receivable from Summit. In addition, the Company issued to Summit a warrant for the purchase of 100,000 shares exercisable at $5 per share and expiring in 2001. The following unaudited pro forma condensed consolidated statement of operations for 1996 gives effect to the acquisition of Summit as if it had occurred on January 1, 1996:
Revenues $ 21,784,000 ============= Net loss $ (9,269,000) ============== Net loss applicable to common stockholders $ (9,382,000) ============== Basic and diluted loss per common share $ (2.25) ==============
NOTE 5 - PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current asset consist of the following at December 31, 1998 and 1997: 1998 1997 ---------- ---------- Prepaid telephone line charges $ 732,000 $ 88,000 Prepaid access fees 878,000 33,000 Marketable securities 408,000 Other 12,000 6,000 ---------- ---------- $2,030,000 $ 127,000 ========== ==========
F-11 19 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - TELECOMMUNICATIONS AND OFFICE EQUIPMENT Telecommunications and office equipment consist of the following at December 31, 1998 and 1997: 1998 1997 ---------- ---------- Telecommunications equipment $2,504,000 $2,341,000 Office equipment 1,411,000 835,000 ---------- ---------- 3,915,000 3,176,000 Accumulated depreciation 2,790,000 2,191,000 ---------- ---------- $1,125,000 $ 985,000 ========== ==========
Depreciation expense for the years ended December 31, 1998, 1997 and 1996 was $604,000, $650,000 and $902,000, respectively. NOTE 7 - INTANGIBLE ASSETS Intangible assets consist of the following at December 31, 1998 and 1997: 1998 1997 ---------- ---------- Goodwill $8,426,000 $8,426,000 Covenant not to compete 142,000 142,000 Rental car agreement 520,000 520,000 Debt issuance costs 171,000 ---------- ---------- 9,259,000 9,088,000 Accumulated amortization 2,266,000 1,537,000 ---------- ---------- $6,993,000 $7,551,000 ========== ==========
Amortization expense for the years ended December 31, 1998, 1997 and 1996 was $619,000, $642,000 and $782,000, respectively. NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following at December 31, 1998 and 1997:
1998 1997 ---------- ---------- Sales and other taxes $4,428,000 $3,174,000 Payroll and payroll taxes 124,000 137,000 Commissions 222,000 166,000 Other 1,379,000 435,000 ---------- ---------- $6,153,000 $3,912,000 ========== ==========
F-12 20 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - NOTES PAYABLE Notes payable consist of the following at December 31, 1998 and 1997:
1998 1997 ------------------ ------------------- Promissory note bearing interest at 8% per annum and payable in semi-annual principal installments of $225,000 through May 2000. The note is collateralized by certain of the Company's assets. $ 675,000 $ 1,125,000 Promissory notes bearing interest at 10% per annum and payable in monthly installments of $8,500 through March 2002. 281,000 362,000 Promissory notes bearing interest at prime rate (7.75% at December 31, 1998) plus 2.50% per annum and payable on or before July 1, 1999. The notes include warrants to purchase 400,000 shares of the Company's common stock at $5.00 per share through April 2003. 3,975,000 Convertible debt bearing interest at 5% per annum. Interest is payable quarterly, with principal, due in May 2005. The debt may be converted into shares of the Company's common stock, at $5.00 per share. 2,400,000 Promissory note, to former parent, bearing interest at Prime (7.75% at December 31, 1998) plus 2% per annum payable quarterly, with principal, due in November 1999. 1,411,000 - ------------------ ------------------- 8,742,000 1,487,000 Less current portion 5,913,000 530,000 ------------------ ------------------- $ 2,829,000 $ 957,000 ================== ===================
F-13 21 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - NOTES PAYABLE (CONTINUED) Aggregate future principal payments are as follows: Year Ending December 31, 1999 $5,913,000 2000 310,000 2001 94,000 2002 25,000 2003 Thereafter 2,400,000 ---------- $8,742,000 ==========
NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIENCY) The Company has reserved for issuance 3,316,000 shares of its common stock relating to common stock purchase warrants outstanding as of December 31, 1998, at prices ranging from $2.50 to $7.09 per share. In August and September 1997, the Company sold an aggregate of 407,000 units, at $3.00 per unit, through a private placement that included various members of the Company's management. Each unit consists of one share of common stock and one warrant to purchase one share of common stock at $3.00 per share. During December 1996, the Company entered into an agreement to sell an aggregate of 500,000 units, at $3.00 per unit, through a private placement. In December 1996, 250,000 units were sold, and the remaining 250,000 units were sold in January 1997. In August 1996, the Company sold 500,000 shares of Series B Convertible Preferred Stock (Series B) for $10 per share through a private placement, including 250,000 shares purchased by its former parent, Shared Technologies Fairchild Inc. (STFI). Each share of Series B, which pays no dividends was convertible into a minimum of 2.50 shares and a maximum of 3.33 shares of the Company's common stock, subject to certain adjustments. In addition, in 1996, the Company paid $125,000 and issued warrants to purchase 240,000 shares of common stock, at an exercise price of $3.00 per share, to a firm which provided advisory services to the Company. This advisory firm in which two of its principals are directors of the Company, was a party to the sale of 250,000 shares of Series B. During 1997, the Series B stockholders converted their shares into an aggregate of 1,667,000 shares of the Company's common stock. Upon conversion of the Series B shares, the holders received one warrant per common share to purchase an additional share of the Company's common stock at an exercise price of $3.00 per share. F-14 22 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - STOCK OPTION PLANS The Board of Directors adopted, and the Company's stockholders approved, as amended, a stock option plan (the Plan) pursuant to which 825,000 shares of the Company's common stock are reserved for issuance upon the exercise of options granted to officers, employees, consultants and directors of the Company. Options issued under the Plan are nonqualified stock options (NSO's) and the Board of Directors (Committee) will grant NSO's at an exercise price which is not less than the fair market value on the date such options are granted. The Plan further provides that the maximum period in which stock options may be exercised will be determined by the Committee, except that they may not be exercisable after ten years from the date of grant. At December 31, 1998, options to purchase 657,000 shares of common stock were outstanding. The Board of Directors adopted, and the stockholders approved, the Company's 1994 Director Option Plan (the Director Plan), as amended, pursuant to which 100,000 shares of the Company's common stock are reserved for issuance upon the exercise of options to be granted to non-employee directors of the Company. Under the Director Plan, an eligible director will automatically receive, at the commencement of the Director's one-year term, nonstatutory options to purchase 4,000 shares of the Company's common stock at an exercise price equal to the fair market value of such shares at the time of grant. Each such option vests ratably over a one-year period following the grant and is exercisable within the ten years from the date of grant, but generally may not be exercised more than 90 days after the date the director ceases to serve as a director of the Company. At December 31, 1998, options to purchase 42,000 shares of the Company's common stock were outstanding under the Director Plan. The activity in the Plan and the Director Plan are as follows:
Exercise Price Per Share Number of Weighted Options Range Average ----------------------------------------------------------- Balance outstanding, January 1, 1996 231,000 $ 1.63-5.00 $ 3.45 Granted 55,000 2.75-4.75 3.69 Expired (5,000) 3.68 3.68 --------------------------------------------------------- Balance outstanding, December 31, 281,000 1.63-5.00 3.33 1996 Granted 93,000 2.13-2.50 2.15 Expired (9,000) 3.68-5.00 4.22 --------------------------------------------------------- Balance outstanding, December 31, 365,000 1.63-4.75 3.01 1997 Granted 380,000 5.56-7.13 5.60 Exercised (28,000) 2.13-4.75 2.75 Expired (18,000) 2.13-6.50 4.10 --------------------------------------------------------- Balance outstanding, December 31, 699,000 $ 1.63-7.13 $ 4.38 1998 ========================================================= Exercisable, December 31, 1998 292,000 $ 1.63-7.13 $ 3.36 =========================================================
F-15 23 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - STOCK OPTION PLANS (CONTINUED) The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation". The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates, consistent with SFAS No. 123, the Company's net loss and net loss per share would have been adjusted to the pro forma amounts indicated below:
1998 1997 1996 Net loss applicable to common stockholders: As reported $ (11,646,000) $(3,695,000) $(8,908,000) Pro forma (12,009,000) (3,770,000) (8,920,000) Net loss per share applicable to common stockholders: As reported (1.58) (.63) (2.18) Pro forma (1.63) (.64) (2.19)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free interest rate of 5%, 6% and 6%, respectively; no dividend yield; expected lives of 3 to 10 years; and expected volatility of 91%, 64% and 62%, respectively. NOTE 12 - LOSS ON DISCONTINUED PRODUCT LINE During 1997, the Company completed the transition of the existing in-car rental accounts to portable rentals. In conjunction with this transition, the Company attempted to develop alternate uses for the in-car cellular telephones as well as the capitalized software associated with the in-car cellular rental business. Although management believes that there are viable uses for such assets, the probability that such uses will be successful is not known. As a result, the Company reduced the in-car cellular phones and the capitalized software to net realizable value and classified them on the balance sheet as assets held for disposition. The company wrote-off the balance of the in-car cellular phones during the year ended December 31, 1998. NOTE 13 - SAVINGS AND RETIREMENT PLAN In June 1996, the Company formed a savings and retirement plan (the Plan) which covers substantially all eligible employees. Participants in the Plan may elect to make contributions up to a maximum of 20% of their compensation. For each participant, the Company will make a matching contribution of one-half of the participant's contributions, up to 5% of the participant's compensation. Matching contributions may be made in the form of the Company's common stock and are vested at the rate of 33% per year based on years of employment. Prior to the formation of the Plan, the Company participated in a plan maintained by its former parent STFI. Matching contributions in STFI's plan were made in STFI common stock. For the years ended December 31, 1998, 1997 and 1996, the Company's matching contributions were $104,000, $71,000 and $40,000, respectively. F-16 24 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - INCOME TAXES A reconciliation of income tax benefit, to the federal statutory rate follows:
Years Ended December 31, ------------------------------------ 1998 1997 1996 Income tax benefit on reported pretax loss at federal statutory rate (34.0)% (34.0)% (34.0)% State net operating losses (6.0) (6.0) (6.0) Net operating loss carryforward not 40.0 40.0 40.0 recognized ---- ---- ---- Income taxes 0.0% 0.0% 0.0% ==== ==== ====
At December 31, 1998 and 1997, the Company recorded net deferred tax assets of approximately $9,702,000 and $5,511,000, respectively, and valuation allowances in the same amounts. The valuation allowances were increased by $4,191,000, $1,111,000 and $3,296,000, respectively, for the years ended December 31, 1998, 1997 and 1996, respectively. SFAS No. 109 requires that the Company record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax asset will not be realized". The ultimate realization of the deferred tax asset depends on the Company's ability to generate sufficient taxable income. The net deferred tax assets and liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 Deferred tax assets: Net operating loss carryforwards $ 9,289,000 $ 5,164,000 Allowance for doubtful accounts 367,000 390,000 Asset basis difference, intangible assets 57,000 --------------------------- --------------------------- 9,713,000 5,554,000 --------------------------- --------------------------- Deferred tax liabilities, asset basis difference for equipment and intangible assets (11,000) (43,000) --------------------------- --------------------------- Deferred tax asset, net 9,702,000 5,511,000 Valuation allowance for deferred tax asset (9,702,000) (5,511,000) --------------------------- --------------------------- $ - $ - =========================== ===========================
At December 31, 1998, the Company has federal net operating loss carryforwards of approximately $23,223,000, which can be utilized against future taxable income and expire through the year 2018. Net operating losses available for state income tax purposes are less than those for federal purposes and generally expire earlier. F-17 25 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - COMMITMENTS AND CONTINGENCIES The Company has leases for office facilities and equipment, which expire in various years through December 2002. Future aggregate minimum annual rental payments as of December 31, 1998 are as follows:
Year ending December 31 1999 $ 696,000 2000 688,000 2001 662,000 2002 112,000
Rent expense for the years ended December 31, 1998, 1997 and 1996 was approximately $558,000, $352,000 and $418,000, respectively. Leased equipment expense for the year ended December 31, 1998 was approximately $61,000. The Company, in the ordinary course of business, 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. In connection with a vendor's requirement, the Company has a standby letter of credit with a bank in the amount of $400,000. This letter of credit expires March 29, 1999 and is collateralized by certain assets of the Company. NOTE 16 - DEPENDENCE UPON KEY RELATIONSHIPS AND MAJOR CUSTOMERS Approximately 24% and 12%, related to the debit segment, and 19% and 10%, related to the rental segment, of the Company's revenues for 1998 were attributable to four customers. Approximately 26%, related to the debit segment, and 24%, 13% and 11%, related to the rental segment, of the Company's revenues for 1997 were attributable to four customers. Approximately 21%, 16%, and 13%, related to the rental segment of the Company's revenues for 1996 were attributable to three customers. The agreements with these companies are terminable with cause and require written notification, typically effective upon relatively short notice. The termination of any one of these agreements would have a material adverse effect on the Company. In 1998, certain of the agreements relating to 36% and 26% of the Company's revenues in 1998 and 1997, respectively, were terminated. NOTE 17 - LOSS ON CONTRACT CANCELLATION In 1996, in connection with the transition of the in-car cellular phone service to portable rentals, the Company recognized a loss of approximately $980,000 relating to the cancellation of a contract for the production of certain in-car telecommunications equipment. F-18 26 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - LOSS ON DISTRIBUTOR CONTRACT During 1998, the Company entered into an agreement with SmarTalk TeleServices, Inc. ("SmarTalk") which designated the Company as the exclusive nationwide cellular service provider for SmarTalk's prepaid cellular phone program with respect to certain retail distributor channels, including nationwide retail stores and television infomercials. The agreement required SmarTalk to provide the cellular phone to the customer and the Company to provide all services relating to the activation of the phone, including, but not limited to, the maintenance of all individual phone lines. Subsequent to the inception of the nationwide program, SmarTalk incurred financial difficulties and eventually filed for bankruptcy protection. Prior to the filing, STC entered into a new agreement (the "Transition Agreement") pursuant to which the Company and SmarTalk agreed to terminate their relationship through a brief transition period. Subsequent to signing of the Transition Agreement, SmarTalk failed to pay to the Company all amounts due under such agreement. As a result of its problems with SmarTalk, the Company elected to take a write-off of certain assets in 1998. In addition, the Company reclassified expenses incurred during the fourth quarter of 1998, in connection with the SmarTalk problems. NOTE 19 - SUBSEQUENT EVENT On February 5, 1999, the Company closed a $15 million private placement of equity with 20 investors, led by Marshall Capital Management, Inc., an affiliate of Credit Suisse First Boston, and a number of European-based institutional investors. Oakes, Fitzwilliams & Co. S.A. of London acted as placement agent for the Company in connection with the sales to the European investors. Pursuant to a Securities Purchase Agreement entered into between the Company and the investors (the "Securities Purchase Agreement"), the Company issued an aggregate of 15,000 shares of a new Series C Convertible Preferred Stock, $.01 per share, and Warrants to purchase an aggregate of 300,000 shares of Common Stock, $.01 par value, of the Company. These Warrants were valued at $75,000, the value will be treated as a "discount" to the Series C Shares and such discount will be accreted as a preferred stock dividend over the five year term of the Warrants. Each share of Series C Convertible Preferred Stock is convertible into Common Stock of the Company in accordance with the formula described below. The Company intends to use the proceeds from the offering to repay approximately $5.5 million of outstanding indebtedness and for general corporate purposes. Description of Series C Convertible Preferred Stock. The following description of the rights and preferences of the Series C Convertible Preferred Stock is a summary, and is qualified in its entirety by reference to the entire text of the Certificate of Designations, Preferences and Rights of the Series C Convertible Preferred Stock (the "Certificate of Designation"). Voting. The holders of shares of Series C Convertible Preferred Stock are not entitled to vote with respect to the business, management or affairs of the Company. For so long as any shares of Series C Convertible Preferred Stock are outstanding, the following matters, however, will require the approval of the holders of at least two-thirds of the then-outstanding shares of Series C Convertible Preferred Stock: (i) altering, changing, modifying or amending the terms of the Series C Convertible Preferred Stock or the terms of any other stock of the Company so as to adversely affect the Series C Convertible Preferred Stock; F-19 27 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SUBSEQUENT EVENT (CONTINUED) (ii) creating any new class or series of capital stock having a preference over or ranking pari passu with the Series C Convertible Preferred Stock as to redemption or distribution of assets upon a Liquidation Event (as defined in the Certificate of Designation) or any other liquidation, dissolution or winding up of the Company; (iii) increasing the authorized number of shares of Series C Convertible Preferred Stock; (iv) reissuing any shares of Series C Convertible Preferred Stock which have been converted or redeemed in accordance with the terms of the Certificate of Designation; (v) issuing any Pari Passu Securities or Senior Securities (each as defined in the Certificate of Designation) (other than non-convertible debt securities or debt securities which are convertible into or exchangeable for Common Stock of the Company or any other equity or convertible security of the Company junior to the Series C Convertible Preferred Stock); (vi) redeeming, declaring, paying or making any provision for any dividend or distribution with respect to the Common Stock of the Company or any other capital stock of the Company ranking junior to the Series C Convertible Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up of the Company; and (vii) issuing any Series C Convertible Preferred Stock except pursuant to the terms of the Securities Purchase Agreement. Dividends. The Series C Convertible Preferred Stock will not bear dividends, but will accrue a "Premium" payable upon conversion or liquidation as described below. Liquidation. Upon the liquidation, dissolution or winding up of the Company, the holders of Series C Convertible Preferred Stock, before any distribution to the holders of Junior Securities (as defined in the Certificate of Designation) but after payment to holders of Senior Securities, will be entitled to receive an amount equal to the Stated Value (defined below) plus the Premium (defined below) accrued on its Series C Convertible Preferred Stock in accordance with the terms of the Certificate of Designation (the "Liquidation Preference"). Conversion. Each share of Series C Convertible Preferred Stock is convertible into shares of Common Stock of the Company in accordance with the following formula: Number of Shares of = Stated Value plus accrued Premium --------------------------------- Common Stock Issuable Conversion Price The "Stated Value" is equal to $1,000 per share. The "Premium" is equal to 6%, per annum of the Stated Value, accruing from the date of issuance of the Series C Convertible Preferred Stock through and including the date of conversion, and is payable in Common Stock or cash, at the Company's option (subject to certain conditions), upon conversion. The Premium will be accounted for as a preferred stock dividend. The anticipated impact of the preferred stock dividend on the Company's financial statements is expected to be approximately $225,000 per quarter, until conversion. The "Conversion Price" is equal to the lesser of $7 and the Variable Conversion Price. The "Variable F-20 28 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SUBSEQUENT EVENT (CONTINUED) Conversion Price" is equal to the average of the lowest Closing Bid Prices (as defined in the Certificate of Designation) for the Common Stock of the Company on any five (5) consecutive trading days during the period of fifteen (15) trading days immediately prior to the conversion date. If the Company's Common Stock trades above $11 per share (subject to adjustment upon the occurrence of certain events, including but not limited to a stock split or dividend or a merger or consolidation of the Company) for ten (10) consecutive days, and if at all times during such period, certain conditions set forth in the Certificate of Designation are satisfied, the Conversion Price will be equal to $7 thereafter. If, following conversion, the Company fails to deliver shares of its Common Stock to an investor in accordance with the Certificate of Designation, it may incur monetary and other penalties (including, in certain circumstances, mandatory redemption of the Series C Convertible Preferred Stock). On February 5, 2004, all shares of Series C Convertible Preferred Stock then outstanding will be automatically converted into shares of Common Stock at the then-prevailing Conversion Price. Conversion Limitations. The number of shares of Common Stock issued upon conversion of all outstanding shares of Series C Convertible Preferred Stock may not exceed the following amounts during the periods specified (each, a "Conversion Limit Amount"), and the Conversion Limit Amount is subject to adjustment in accordance with the terms of the Certificate of Designation.
Conversion Period Limit Amount ------ ------------ During the 1st Year Following the Issue Date 3,975,000 During the 2nd Year Following the Issue Date 4,200,000 During the 3rd Year Following the Issue Date 4,425,000 During the 4th Year Following the Issue Date 4,650,000 Following the 4th Anniversary of the Issue Date 4,875,000
No purchaser of the Series C Convertible Preferred stock may be issued, upon conversion of such stock, shares of Common Stock in an amount greater than the product of (i) the applicable Conversion Limit Amount times (ii) a fraction, the numerator of which is the number of shares of Series C Convertible Preferred Stock issued to such purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of all of the shares of Series C Convertible Preferred Stock issued to the purchasers pursuant to the Securities Purchase Agreement, subject to certain adjustments set forth in the Certificate of Designation. In addition, until the Company obtains the approval of the holders of a majority of the Company's Common Stock, the number of shares of Common Stock issued upon conversion of Series C Convertible Preferred Stock or exercise of the Warrants may not exceed 19.99% of the number of shares of Common Stock outstanding on February 5, 1999, or 1,512,661 shares. The Company has agreed to seek such stockholder approval (the "Stockholder Approval") at a meeting of stockholders to be held no later than May 31, 1999. As of the date of this Current Report, but for the limitation described in the second preceding sentence, the 15,000 shares of Series C Convertible Preferred Stock would be convertible into approximately 2,142,857 shares of Common Stock of the Company, or 28% of the total number of shares of Common Stock issued and outstanding on February 5, 1999. Further, the total number of shares of Common Stock issuable upon conversion of the Series C Convertible Preferred Stock and exercise of the Warrants as of the date of this Current Report, but for the aforementioned limitation, would be approximately 2,442,857 shares, or 32% of the total number of shares of Common Stock issued and outstanding on February 5, 1999. F-21 29 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SUBSEQUENT EVENT (CONTINUED) Mandatory Conversion. The Company has the right to require conversion of all of the outstanding shares of Series C Convertible Preferred Stock at any time after February 5, 2000 if the Closing Bid Price for the Company's Common Stock is greater than $15.00 for fifteen (15) consecutive trading days, subject to satisfaction of certain conditions set forth in the Certificate of Designation. Mandatory Redemption. Each purchaser of Series C Convertible Preferred Stock will have the right upon the occurrence of a Mandatory Redemption Event (as such term is defined in the Certificate of Designation, which term includes, among other things, failure to receive the Stockholder Approval by May 31, 1999 ), to require the Company to redeem all or any part of such purchaser's Series C Convertible Preferred Stock for a price (the "Mandatory Redemption Price") equal to the greater of (a) the Liquidation Preference of the shares being redeemed multiplied by 115% and (b) an amount calculated on the basis of the applicable Conversion Price and the price at which the Common Stock of the Company is then trading. If the Corporation fails to pay the Mandatory Redemption Price within ten (10) business days of the mandatory redemption date, the holder of Series C Convertible Preferred Stock shall have the right to regain its rights as such a holder and, upon written notice to such effect from the holder, the Company shall return to such holder the certificates representing the Series C Convertible Preferred Stock delivered to the Company in connection with the mandatory redemption. In such event, the Conversion Price otherwise applicable to future conversions of the Series C Convertible Preferred Stock shall be reduced by one percent for each day beyond such tenth business day in which the failure to pay continued, until the date of such notice, but the maximum reduction of the Conversion Price shall be fifty percent. Optional Redemption. The Company will have the right, upon the satisfaction of certain Optional Redemption Conditions (as defined in the Certificate of Designation), to redeem any Series C Convertible Preferred Stock submitted for conversion at a Conversion Price that is less than $7 (subject to adjustment upon the occurrence of certain events set forth in the Certificate of Designation) for a price equal to an amount representing an annualized return of 110% on the Stated Value of the Series C Convertible Preferred Stock being redeemed, plus accrued Premium. Preemptive Rights. Pursuant to the Securities Purchase Agreement, each purchaser of the Series C Convertible Preferred Stock will have the right, upon the issuance of certain equity securities by the Company, to either purchase a pro rata share of such securities or, at the option of such purchaser, to exchange all or any part of such purchaser's shares of Series C Convertible Preferred Stock for an equal amount of such securities. Description of the Warrants. Pursuant to the Securities Purchase Agreement, each investor received a Warrant for the purchase of 20,000 shares of Common Stock of the Company for each $1 million of Series C Convertible Preferred Stock issued. The Warrants are exercisable at $9 per share (subject to adjustment upon the occurrence of certain events set forth in the Warrants). The Warrants will expire five (5) years after the date of issuance, and are subject to mandatory exercise, subject to certain conditions set forth therein, if the Company's Common Stock trades at or above $18 per share (subject to adjustment upon the occurrence of certain events set forth in the Warrants) for five (5) consecutive trading days. Cashless exercise is permitted under the terms of the Warrants and is required for any exercise after February 5, 2001. If, following exercise of the Warrants, the Company fails to deliver shares of its Common Stock to an investor in accordance with the terms of the Warrants, it may incur monetary and other penalties. F-22 30 SHARED TECHNOLOGIES CELLULAR, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - SUBSEQUENT EVENT (CONTINUED) Description of the Registration Rights Agreement. In accordance with the Securities Purchase Agreement, the Company entered into a Registration Rights Agreement with the investors, pursuant to which the Company is required, within thirty (30) days after February 5, 1999, to file with the Securities and Exchange Commission a registration statement on Form S-3 covering the resale of the Common Stock issuable upon conversion of the Series C Convertible Preferred Stock and exercise of the Warrants. The Company may incur monetary and other penalties (including in certain circumstances mandatory redemption of the Series C Convertible Preferred Stock) in the event that such registration statement is not filed within such 30-day period or declared effective in accordance with the terms of the Registration Rights Agreement, or if such registration statement becomes unavailable for the resale of shares of Common Stock of the Company and such unavailability continues for a period set forth in the Registration Rights Agreement. NOTE 20 - SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," effective January 1, 1998. SFAS 131 requires disclosures of segment information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Segment information listed below reflects the three principal business units of the Company (as described in Note 1). Each segment is managed according to the products which are provided to the respective customers and information is reported on the basis of reporting to the Company's Chief Operating Decision Maker (CODM). The Company's CODM uses segment information relating to the operations of each segment. However, a segment balance sheet data is not prepared or used by the CODM. F-23 31 NOTE 20 - SEGMENT INFORMATION (CONTINUED) Operating segment information for 1998, 1997, and 1996 is summarized as follows:
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED ------------ ------------ ------------ ----------- ------------ 1998 Revenues $ 14,037,000 $ 12,737,000 $ 1,426,000 $ -- $ 28,200,000 ============ ============ ============ =========== ============ Depreciation/amortization $ 399,000 $ 3,000 $ 930,000 $ 1,332,000 Bad debt $ 1,441,000 $ 122,000 $ 16,000 $ -- $ 1,579,000 Operating loss $ (777,000) $ (5,942,000) $ (365,000) $ (3,604,000) $(10,688,000) Interest expense (952,000) (952,000) ------------ ------------ ------------ ----------- ------------ Loss before income taxes $ (777,000) $ (5,942,000) $ (365,000) $ (4,556,000) $ (11,640,000) ============ ============ ============ ============ =============
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED ------------ ------------ ------------ ----------- ------------ 1997 Revenues $ 15,242,000 $ 6,299,000 $ 2,657,000 $ -- $ 24,198,000 ============ ============ ============ ============= ============ Depreciation/amortization $ 495,000 $ 14,000 $ 783,000 $ 1,292,000 Bad debt $ 1,309,000 $ 8,000 $ 24,000 $ -- $ 1,341,000 Operating income (loss) $ (965,000) $ 1,471,000 $ 86,000 $ (4,045,000) $ (3,453,000) Interest expense (232,000) (232,000) ------------ ------------ ------------ ----------- ------------ Income (loss) before income taxes $ (965,000) $ 1,471,000 $ 86,000 $ (4,277,000) $ (3,685,000) ============ ============ ============ ============ ============
RENTAL DEBIT ACTIVATION CORPORATE CONSOLIDATED ------------ ------------ ------------ ----------- ------------ 1996 Revenues $ 16,339,000 $ 1,516,000 $ 3,059,000 $ -- $ 20,914,000 ============ ============ ============ ============ ============ Depreciation/amortization $ 953,000 $ 12,000 $ 719,000 $ 1,684,000 Bad debt $ 1,568,000 $ -- $ 204,000 $ -- $ 1,772,000 Operating loss $ (2,920,000) $ (96,000) $ (160,000) $ (3,712,000) $ (6,888,000) Interest expense (906,000) (906,000) Other expense (980,000) (980,000) ------------ ------------ ------------ ----------- ------------ Loss before income taxes $ (3,900,000) $ (96,000) $ (160,000) $ (4,618,000) $ (8,774,000) ============ ============ ============ ============ ============
F-24 32
Balance at Charged to Balance at Beginning Costs and End Description of Year Expenses Deductions (1) of Year ----------- --------------- --------------- --------------- --------------- YEAR ENDED DECEMBER 31, 1998: Allowance for doubtful accounts $ 991,000 $ 1,579,000 $ 1,674,000 $ 896,000 =============== =============== =============== =============== YEAR ENDED DECEMBER 31, 1997: Allowance for doubtful accounts $ 1,392,000 $ 1,341,000 $ 1,742,000 $ 991,000 =============== =============== =============== =============== YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts $ 685,000 $ 1,772,000 $ 1,065,000 $ 1,392,000 =============== =============== =============== ===============
(1) Represents write off of uncollectible accounts, net of recoveries. S-1 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHARED TECHNOLOGIES CELLULAR, INC. (Registrant) By \ s\ Anthony D. Autorino Anthony D. Autorino Chief Executive Officer and Director Date: May 21, 1999 By \ s\ Vincent DiVincenzo Vincent DiVincenzo Chief Financial Officer and Director Date: May 21, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/Anthony D. Autorino By: William A. DiBella* By: Anthony D. Autorino William A. DiBella Bruce Carswell Chief Executive Officer Director Director and Director Date: May 21, 1999 Date: May , 1999 Date: May 21, 1999 By: By: Thomas H. Decker* Ajit G. Huthessing Thomas H. Decker Director Director Date: May , 1999 Date: May 21, 1999 By: /s/ Vincent DiVincenzo By: Nicholas E. Sinacori* Vincent DiVincenzo Nicholas E. Sinacori Chief Financial Officer Director and Director Date: May 21, 1999 Date: May 21, 1999 * By: /s/Anthony D. Autorino Anthony D. Autorino Attorney-in-fact
-----END PRIVACY-ENHANCED MESSAGE-----