SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_ X _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED
DECEMBER 31, 1994
_ _ _ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD _ _ _ TO _ _ _
Commission File Number 0-17366
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SHARED TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0424558
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
100 Great Meadow Road, Suite 104
Wethersfield, Connecticut 06109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 258-2400
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.004 par value
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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. [ ]
The aggregate market value of the registrant's Common Stock held
by nonaffiliates as of April 13, 1995 was approximately
$14,029,058, based on the average of the closing bid and asked
prices as reported on such date in the over-the-counter market.
Indicate the number of shares outstanding of each of the
registrant's classes of Common Stock, as of April 13, 1995
7,624,412 shares of Common Stock
$.004 par value
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The following document is hereby incorporated by reference into
Part III of this Form 10-K: The registrant's Proxy Statement for
its Annual Meeting of Stockholders to be held on May 23, 1995 to
be filed with the Securities and Exchange Commission in
definitive form on or before April 28, 1995.
PART I
Item 1.
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Business
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(a) General Development of Business - Shared Technologies
Inc., which was incorporated on January 30, 1986, its
subsidiaries and affiliated partnerships (collectively, the
"Company") are engaged in providing shared tenant services
("STS") to tenants of modern, multi-tenant office buildings. As
an STS provider, the Company generally obtains the exclusive
right from a building owner (the "Owner/Developer") to install an
on-site communications system, called a private branch exchange
("PBX"), or an off-site communications system, called centrex,
and to market telecommunications and office automation services
and equipment to tenants.
In May 1991, the Company acquired the stock of Boston
Telecommunications Company (BTC), a provider of STS in the Boston
area. The Company paid $1,097,000 consisting of acquisition cost
less cash received of $197,000, stock purchase warrants valued at
$300,000 and a $600,000 promissory note payable. In May 1989,
the Company acquired interests in four entities providing STS in
the greater Chicago area from Shared Services, Inc. and I.S.E.,
Inc. for $180,000. Additionally, in February 1989, the Company
purchased the stock of Multi-Tenant Services, Inc. (MTS) a former
division of BellSouth Corporation for $4,048,000 of which
$391,000 was paid in cash and in payment of the balance the
Company assumed existing lease obligations. MTS was a provider
of STS in nine metropolitan areas.
The Company is a provider of telecommunications services and
equipment, including basic telephone equipment, local and long-
distance network services and on-site maintenance. The Company
also offers its customers data services, as well as data
processing and office automation equipment, service and support.
Additionally, the Company sells and rents cellular telephones in
several locations both to its existing customers and the general
marketplace.
In December and October 1993 the Company commenced
management and subsequently completed the acquisition of certain
assets and liabilities of Road and Show South, Ltd. and Road and
Show Cellular East, Inc., respectively. The purchase price for
South was $1,261,611 which represents $46,111 cash and an
obligation to issue 221,000 shares of the Company's common stock.
The purchase price for East was $750,245 which represents
$209,245 cash and an obligation to issue 108,200 shares of the
Company's common stock. The number of shares of common stock
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related to these acquisitions was adjusted on December 1, 1994
based on the price of the Company's common stock at that date,
for which an aggregate of 64,966 additional shares will be
issued. As of December 31, 1994, no shares of common stock had
been issued for the East acquisition. The shares in connection
with the South acquisition have been issued, but have not been
delivered pending the outcome of certain claims against, and by,
the former owners of South (see Note 16 of Notes to Consolidated
Financial Statements).
In June 1994, Shared Technologies Inc., completed its
acquisition of the partnership interests of Access
Telecommunication Group, L. P. ("Access") for $9,000,000, subject
to certain post closing adjustments. The $9,000,000 includes
$4,000,000, paid at closing with the proceeds from the private
placement sale of approximately 1,062,000 shares of the Company's
Common Stock, and the issuance to the sellers of 400,000 shares
of Series E Preferred stock, valued at $1,500,000 and 700,000
shares of Series F Preferred stock valued at $3,500,000.
(b) Recent Developments - During 1992, the Company
completed a restructuring due to its working capital deficit and
the maturity of its principal financing arrangements which were
due to the FDIC, as receiver for the Company's principal lender.
The restructuring included Shared Technologies Inc. and all of
its subsidiaries. The restructuring resulted in the Company
recording a gain of $5,162,000 before related expenses of
$1,361,000 for consulting fees related to the restructuring and
income taxes of $45,000. As a result of the restructuring,
approximately $900,000 of vendor payables and $1,500,000 of
capital lease obligations were forgiven and $3,300,000 of vendor
payables were converted to three year non-interest bearing notes
payable (see Note 7 of Notes to Consolidated Financial
Statements). Additionally, a settlement agreement was entered
into with the Federal Deposit Insurance Corporation ("FDIC") as
receiver for the Company's principal lender which resulted in the
Company paying off its term loan and revolving credit
arrangements and recognizing a gain of approximately $2,700,000
(see Note 3 of Notes to Consolidated Financial Statements). In
April 1994 the Company entered into a settlement agreement which
provides for the payment of $750,000 plus interest at 10% which
resulted in an accrued extraordinary loss of $150,000 in 1993.
In connection with the restructuring, the Company also
raised equity capital of approximately $5,780,000 from certain
institutional investors, net of expenses. Such offering was
exempt from registration based upon Regulation S. A firm, one of
whose principals is a director and stockholder of the Company
served as underwriter for the offering. The Company paid this
firm underwriting commissions and expenses totaling $446,750 for
the offering. No other parties to the restructuring were
affiliated with the Company. The Company also entered into
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agreements with Series A and B Preferred Stockholders to convert
their holdings, including $327,920 of the accrued dividends
related thereto, into Series C Preferred Stock. As part of this
conversion, $40,990 of the accrued dividends was forgiven by the
stockholders (see Note 9 of Notes to Consolidated Financial
Statements).
In September 1992 the Company effected a one-for-four
reverse stock split of Common Stock and increased the par value
of Common Stock from $.001 to $.004 per share. All per share
amounts contained herein have been retroactively adjusted to
reflect this split.
(c) Financial Information about Industry Segments - The
Company is engaged in one industry segment, the
telecommunications industry, providing a wide range of
telecommunications and office automation services and equipment.
(d) Narrative Description of Business
(1) (i) Products and Services
Shared Tenant Services (STS)
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As an STS provider, the Company generally obtains the
exclusive right from a building owner (the "Owner/Developer") to
install an on-site communications system, called a private branch
exchange ("PBX"), or an off-site communications system, called
centrex, and to market telecommunications and office automation
services and equipment to tenants. An STS project requires
significant expenditures for capital equipment and installation
costs. The initial cost of capital equipment to establish STS in
a new building ranges from $50,000 to $300,000 with additional
start-up working capital requirements ranging from $10,000 to
$100,000.
The STS provider often leases space within the building for
on-site support staff. STS provides an Owner/Developer with an
important building amenity and provides a tenant with the
availability of one-stop shopping for a wide range of
telecommunications and office automation equipment and services
as well as on-site training, maintenance and support, without any
capital investment.
The Company's services are provided to its customers under
the concept of one-stop shopping for basic telecommunications,
voice and data transmission, and office automation services and
equipment which include:
-Access to cost-effective centralized digital switching
-Broad selection of telephone equipment
-Discounted, quality long-distance service
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-Local telephone service
-System maintenance, management and administration
-Customized call reporting and billing
-Office automation equipment including computer, facsimile
and peripherals
-On-site training and assistance
-Cable and wiring design and maintenance
-Equipment service and support
-Cellular sale and rental
To date, the Company has concentrated primarily on
developing the telephone portion of its business. The Company's
telephone services consist of selecting and installing telephone
equipment on tenants' premises and providing ongoing service to
train tenants, to perform moves, adds and changes, and to
maintain the telephone equipment. Tenants are quoted a monthly
charge for leased equipment which includes a rental fee for the
equipment, a charge for access to the PBX owned by the Company
and installed in the buildings or to the centrex service, and a
local access charge based on the cost of the trunk lines which
connect the building to the central office of the local telephone
company. In addition, tenants are charged for special services
and usage, including IN-WATS lines, dedicated circuits, directory
listings, local message units (where applicable), directory
assistance, credit card calls, third-party billing calls, and
long-distance at a discount from the standard rates charged by
long distance providers.
As the telecommunications business is established in each
building, the Company increases its emphasis on the sale or lease
of personal computers and peripherals, and the marketing of
computer time sharing, voice mail, message centers, local area
networks for computers, voice messaging, facsimile transmission,
copying equipment and data transmission. The Company also sells
computer equipment and peripherals, and sells or rents cellular
phones, to customers who are not tenants in buildings in which it
provides STS.
The Company provides a monthly statement to each customer
delineating all STS charges. The Company bills for the prior
month's usage, installation, moves, adds and changes on the first
of the following month. The statements also include equipment,
local and system access and other special service charges in
advance for the succeeding month. The local access charge
reflects the cost to the Company of the trunk lines connecting
the building to the central office of the local telephone company
and is levied on the Company by the local telephone company. In
general, the Company passes this cost through to tenants.
Customers are billed for all telecommunications usage,
including long-distance calls. Currently, the Company offers a
discount of 15% to 40% from the AT&T direct distance dial
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published rates, which discounts can be changed by the Company on
30 days' notice. The Company currently purchases long-distance
services from many providers. The Company estimates that by
efficiently managing its long-distance network, it can provide
long-distance services at a discount of up to 40% of the AT&T
direct distance dial rates.
Facilities Management Services (FMS)
------------------------------------
The Company provides facilities management services to
customers who have a preference or requirement for a dedicated
PBX system. Certain of these customers own their own equipment,
and the Company provides management and maintenance for that
equipment. The Company also has facilities management contracts
with customers who have leased equipment owned by the Company,
including PBX and handset equipment. The Company's objective
with these customers is to become the provider of choice for all
long distance, local access and system features, if those
services are not part of the initial contract.
Cellular
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Through its subsidiary Shared Technologies Cellular, Inc.,
("STC") the Company is a provider of short-term portable cellular
telephone services in the United States. STC rents portable
cellular telephones, primarily to travelers, persons organizing
and attending special events such as conventions and sporting
events, as well as local businesses and government agencies.
Through the acquisitions (collectively, the "Road and Show
Acquisition") of certain assets from Road and Show Cellular East,
Inc., and Road and Show South, Ltd. (collectively, "Road and
Show"), in December 1993, STC obtained a national distribution
network, including relationships with national car rental
companies and hotels, which STC has significantly expanded since
that date.
STC markets its cellular telephone service principally
through car rental agencies, airlines, hotels and telephone
companies. STC has agreements with the Hertz Corporation
("Hertz") and National Car Rental System Inc. ("National") to
offer its portable telephones at designated car rental locations,
primarily at airport terminals throughout the United States.
These agreements provide that no competing services may be
offered at any location covered. STC's agreements with Hertz and
National are terminable by either party upon 120 and 90 days'
notice, respectively. In addition, the Company markets its
cellular telephone services at conventions and sporting events.
STC has also operated as a direct reseller of cellular
services to corporate and high volume individual customers at
selected locations in Connecticut since 1989 and has provided
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such services in Dallas, Texas as a sales agent for one of the
two local cellular carriers since July 1994.
Equipment
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The Company offers its telecommunications services through
either a PBX or centrex-based system.
A PBX is a telecommunications switch that has the following
characteristics:
-is owned by a private user, not a telephone company
-automatically switches incoming and outgoing calls over
trunk lines so that dedicated telephone lines are not
required
-functions like a telephone company central office, except
that it is under the direct control of its owner
-offers more features than are typically available through
private business lines, key systems or centrex services
-is typically capable of handling from 100 to 2,000 users
The Company owns or leases PBXs and other equipment
manufactured by InteCom Inc., Northern Telecom, AT&T, NEC and
Mitel. This equipment can be acquired from a variety of sources.
The Company employs its own technicians to maintain its PBXs,
which have, on average, an estimated useful life of approximately
eight to twelve years. From time to time, the Company upgrades
its PBXs by adding additional software and hardware which can
increase the capabilities and extend the useful life of a PBX
beyond the ordinary eight to twelve year period.
An alternative to the PBX is digital centrex, a service
offered by the local regulated telephone company. Recently, a
number of local telephone companies have enhanced their digital
centrex offerings to be more competitive with PBXs in terms of
both features and price. In addition, some telephone companies
have petitioned their local regulatory commission to permit them
to negotiate pricing with large users (defined as a company using
over 100 lines), rather than charging tariffed rates. In
response to these developments, the Company has entered into an
arrangement with Illinois Bell to provide service in downtown
Chicago via digital centrex, eliminating the need for a PBX in
each building, and has entered into an exclusive agreement with
the Owner/Developers of two buildings to provide STS/centrex.
Additionally, in 1993 the Company began providing centrex
services in Indianapolis.
The Company offers a full range of customer premise
equipment, including telephones, computers and peripherals, and
facsimile and voice mail equipment compatible with its PBX and
centrex-based systems. The Company has no long-term contracts
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establishing the price at which it acquires equipment, but can
negotiate pricing due to the availability of multiple sources of
supply.
STS Buildings
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As of December 31, 1994, the Company was providing STS to
tenants in 93 buildings located in 15 metropolitan areas. In
those cities where the Company provides STS to tenants in more
than one building, the Company is able to realize significant
operating economies by sharing management, administrative, sales
and technical staff across a number of buildings. The following
table sets forth as of December 31, 1994, on a city-by-city
basis, the Net Leasable Square Feet and the Potential Lines of
Service in each building where the Company provides STS to
tenants as estimated by management.
Net Potential Number of Number
Leasable Lines of Lines in of
City Sq. Ft. Service Service Buildings
----------------- ------------ --------- ---------- ------------
Atlanta, GA 3,777,000 12,589 3,552 9
Birmingham, AL 1,435,000 1,450 1,157 3
Boston, MA 4,846,000 15,144 2,660 11
Chicago, IL 3,567,000 11,890 3,145 9
Hartford, CT 2,032,000 6,773 3,408 9
Los Angeles, CA 895,000 2,983 212 2
Mahwah, NJ 625,000 1,067 1,069 2
Memphis, TN 320,000 1,067 181 1
Nashville, TN 972,000 3,240 776 2
New Orleans, LA 3,226,000 9,511 3,371 5
Phoenix, AZ 2,484,000 8,280 2,426 12
Indianapolis, IN 1,044,000 3,480 945 9
Seattle, WA 4,482,000 14,940 2,840 8
Dallas, TX 10,125,000 26,591 5,662 11
Myrtle Beach, SC 140,000 155 20 1
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TOTAL 39,970,000 119,160 31,424 93
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Of the potential 119,160 lines of service, the Company has
under contract 31,424 lines (26.4%). Accordingly, management
believes that the opportunity exists for the Company to increase
penetration and revenues in the buildings to which it currently
provides STS.
Owner/Developer Agreements
--------------------------
In most buildings where it provides STS, the Company or its
assignor has entered into a contractual agreement
("Owner/Developer Agreement") with the building Owner/Developer.
Subject to specific provisions contained in certain
Owner/Developer Agreements, the Owner/Developer Agreements
generally grant the Company the exclusive right to provide STS in
the building and the Owner/Developer is precluded from entering
into a "materially similar arrangement" with a third party. In
addition, the Company is granted a right of first refusal in the
building for the offering of additional STS, such as telephone
answering services, word and data processing, telex, copier
services and certain other STS. The term of the agreement is
generally for ten years and may contain one or two five-year
renewal options.
The Owner/Developer Agreements generally provide for the
payment of royalties to the Owner/Developer which may be based on
a percentage of gross revenues or on a percentage of rental, sale
and service income or net long-distance revenues. Such royalty
payments may commence at the initial service date, at some later
date, typically 18 to 24 months after the Company commences to
provide STS to the building, or at the time the Company achieves
a certain level of market penetration in the building.
The Company is responsible for the costs and expenses
incurred in operating and maintaining the STS equipment in the
building and must obtain the Owner/Developer's approval to make
any modification in the STS equipment which would affect the
building structure. The agreement is assignable by the
Owner/Developer upon the sale of the building. Certain
Owner/Developers also have the right to purchase the Company's
STS equipment in the building at a nominal or fair market price
if the agreement is terminated.
Each Owner/Developer Agreement either contains a lease, or
references a separately executed lease, for the space necessary
for the Company's on-site personnel and equipment. These leases
generally provide for a deferral of rental payments until a
certain occupancy percentage has been obtained in the building,
or a certain period of time, typically 12 to 24 months, after the
Company commences operations.
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Tenant Contracts
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The Company is a party to a Master Shared Tenant Services
Agreement ("Tenant Contract") with substantially all of its
customers. The Tenant Contract contains terms and conditions
governing the provision of STS. Subsequent to signing a Tenant
Contract, tenants submit individual customer orders for specific
equipment rentals and STS. In addition to the typical Tenant
Contracts for STS, the Company has agreements with several
tenants who have their own PBX to maintain the system and manage
the tenant's telephone call billing system, and the Company
receives a monthly fee for its services.
The Company generally signs contracts for a period of five
years or a term coterminous with the customers lease in the
building. The Company has contracts ranging from month to month
to five years. The Company feels it has staggered the contracts
such that there is no time when a material amount of contracts
come due at the same time. Additionally, the Company does not
have any individual contracts which are material.
(ii) Government Regulation
As a provider of telephone services, the Company's
operations are materially affected by regulatory developments on
both a federal and state level. The Federal Communications
Commission ("FCC") regulates interstate communications and the
state public utility commission ("PUCs") regulate intrastate
communications. The FCC has determined that STS providers,
sharing a PBX and related equipment within the same premises,
should be characterized as end users, as opposed to interexchange
carriers for access charge purposes, thereby entitling them to a
more favorable rate structure. Although there is currently no
major effort underway to modify the existing FCC regulatory
scheme with regard to STS providers, any change in the liability
of such providers for access charges or any substantial change
with regard to other regulatory constraints could have a material
adverse effect on the Company's business. PUCs may regulate STS
providers through direct regulatory requirements as well as
through the terms, conditions of service and rates contained in
the tariffs of the underlying local exchange carrier covering
service offerings to STS providers. To date, the Company has, to
some degree, elected to operate in states which maintain a
comparatively favorable regulatory environment for STS providers
sharing a PBX and related equipment. All of the states in which
the Company now operates do not currently require a certification
of or otherwise directly regulate STS providers with the
exception of Alabama, which has granted such certification to the
Company. The Company also has obtained certification to resell
certain intrastate long-distance services in California, which
requires such certification. Although at present none of these
states have any proceeding or other effort underway to materially
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modify their regulatory treatment of such STS providers, no
assurance can be given that such proceedings will not be
initiated in the future. Further, regulatory agencies in many
states have not yet generally addressed the issue of sharing
centrex lines and the regulatory consequences of such operations
are uncertain; however, the Company to date has only engaged in
sharing centrex lines in states (Illinois and Indiana) where
regulatory agencies have expressly permitted such operations.
The Company intends to expand its use of centrex lines to
additional states in the future. It will take appropriate
measures to investigate the regulatory environment in each state
and intends to comply with applicable requirements for sharing of
these lines on a state-by-state basis.
(iii) Marketing
The Company employs a marketing concept involving the
establishment of a hub STS building in close proximity with other
satellite STS buildings which can be managed by one regional
director and which share sales and administrative and technical
personnel.
After an appropriate building has been identified, the
Company begins marketing its services to the Owner/Developer to
obtain the exclusive right to provide STS in the building. On
occasion, an Owner/Developer will issue a formal request for
proposal and seek competitive bids. Once agreement with the
Owner/Developer has been reached, marketing efforts with tenants
are commenced. Tenant marketing occurs during the leasing
process of a building, which is during the planning stage of the
tenant's move. The Company also has the opportunity to increase
penetration in highly leased and popular buildings by:
- When there is a new tenant replacing a moving out
tenant, the Company is invited by the leasing manager
to present the "building's communication amenity
package" provided by the Company.
- When a current tenant who is up for lease renewal, the
leasing manager will again recommend that the tenant
consider using the "building's communication amenity
package" provided by the Company.
In most cases the building management company or the
building owners point out to the perspective lessee or renewal
tenant the cost savings by taking advantage of the "building's
communication amenity package" which can save the perspective
company between $1.25 and $1.75 per square foot.
Typically, the Company's marketing initially concentrates on
working in conjunction with the building's leasing agent to
provide STS to prospective tenants. Once the tenant has
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committed to a lease, marketing efforts are focused on tenant
subscription to the STS offerings within the building.
The Company's customers consist primarily of small to
medium-size tenants, such as brokerage, accounting and law firms.
While the majority of the Company's customers are tenants in STS
buildings, the Company also provides services and sells and
leases equipment to end-users who are not located in STS
buildings.
(iv) Patents, Trademarks, Licenses, Franchises, Concessions
See Item 1(d) (i) - "Owner/Developer Agreements" herein.
Additionally, Shared Technologies Inc. is a registered trademark.
The Company does not operate any franchises. However, the
Company's subsidiary STI Cellular Franchise Corp., is engaged in
franchise operations relating to the rental of portable cellular
telephones.
(v) Seasonality
While the Company's STS business is not generally seasonal,
the Company has experienced, over the last several years, a
reduction in local and long distance revenues in the month of
December which is believed to be associated with the holiday
season.
(vi) Working Capital
To date, the Company has funded its working capital
shortfall through borrowings and sales of its securities. See
Item 1(a) - "General Development of Business"; "Management's
Discussion and Analysis of Results of Operations and Financial
Condition". The Company requires working capital due to the
nature of its business which requires an upfront capital
investment that is recovered over a period of time.
In May 1994, the Company entered into an agreement with a
bank for $5,000,000 in financing. The financing provides for a
$1,000,000 two-year term loan, six months interest only, with
quarterly amortization and a balloon payment of $700,000 and a
$4,000,000 secured revolving credit line for expansion in the
core business, aggregate draws converted semi-annually to a
three-year term loan with level monthly amortization. These
loans bear interest at the bank's prime rate plus 2% and are
secured by certain assets of the Company. The Company has issued
a warrant to the bank for 184,000 shares of Common Stock.
(vii) Dependence on a Single Customer
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No single customer or building accounts for 10% or more of
the Company's revenues. The Company's business is not dependent
upon a single or a few customers.
(viii) Backlog
At any given period the Company maintains new contracts
signed but not yet installed due to the term of the contract
which further adds to this backlog. The number of additional
lines not yet installed related to new contracts cannot be
determined due to changes that occur through the installation
date. Therefore, backlog information cannot be quantified.
(ix) Competition
While the Company competes with other STS providers to
obtain exclusive STS rights from the Owner/Developer of an STS
office building, this competition is not severe due to the number
of office buildings available, their location and the location of
an appropriate STS provider.
The Company believes its competitive advantage is city
based. The Company has operations in some cities where it is the
only STS provider. In this case the competitive advantage is
with the Company. The Company has offices across the country
with many developers and is not dependent on any developer for
any material amount of business.
The sale of telecommunication services is a competitive
business. The major discriminating factors for telecommunication
buyers are price and service. The Company provides on site
technical service to most of its buildings. The Company feels it
can offer a superior level of service to its customers, since the
Company provides all aspects of telecommunication services and
takes responsibility for the complete satisfaction of its
customer. This differs from multi-vendor environments where
responsibility is fragmented.
The Company prices its products in a competitive
environment. Due to this the Company has to remain flexible with
its pricing. The Company's main competitive advantages are the
Company's ability to negotiate a lower per minute rate with long-
distance vendors due to volume discounts and the elimination of
up-front capital expenditures for customers due to equipment
rentals from the Company.
When the Company obtains the exclusive STS rights for a
building, it then must compete with local telephone companies,
long distance telephone service suppliers and equipment/system
suppliers in the solicitation of tenants in the building to
subscribe to its services. Local telephone companies are
regulated and, in the case of the Bell operating companies and
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the general telephone operating companies, cannot sell long-
distance telephone service. Local telephone companies can sell
lines or trunks from their local central office and centrex
service directly to the tenant. Local telephone company services
are subject to tariff regulation and such entities do not
typically offer office automation products. Long-distance
telephone service suppliers (such as AT&T, MCI and Sprint)
typically offer volume discount plans and market to tenants
directly, but do not at this time generally provide local
telephone service.
The Company must also compete with equipment/system
suppliers and distributors who sell PBXs and other office
automation equipment and who provide or arrange for installation,
maintenance and service of such equipment. Major companies such
as AT&T, Northern Telecom, NEC and Siemens compete in this area.
(x) Employees
As of March 15, 1995, the Company employed 278 persons; 17
in management, 79 in administration, 161 in sales and service and
21 in technical positions. The Company's employees are not
represented by a union. The Company regards its relations with
its employees to be good.
Item 2.
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Property
--------
The Company does not own any real estate and has no present
plans to purchase any real estate. The Company's principal
executive offices are leased and are located at 100 Great Meadow
Road, Suite 104, Wethersfield, Connecticut 06109.
The Company leases space for its on-site staff and its PBX
equipment in many of the buildings in which it operates an STS
project. (See Note 14 of Notes to Consolidated Financial
Statements herein for information concerning the Company's leases
at December 31, 1994.) These leases are for offices located in
the following buildings:
ATLANTA MAHWAH, NJ
Atlanta Financial Center Crossroads Corporate Center
Atlanta Plaza
Buckhead Plaza MEMPHIS
Crown Pointe Morgan Keegan Tower
The Terraces
Park Central
NASHVILLE
-13-
BIRMINGHAM Third National
Riverchase Galleria Financial Center
Riverchase Galleria Dominion Tower
Highland Ridge
BOSTON NEW ORLEANS
One International Place Lakeway Center
World Trade Center Boston Metairie Galleria
Rowes Wharf Place St. Charles
Marketplace Center
75 State Street
CHICAGO
Chemical Plaza PHOENIX
North Pier Biltmore Financial Center
Oakbrook Terraces Camelback Esplanade
One Financial Place 24th & Highland
Sherman Place 2600 N. Central Avenue
LaSalle Atrium Paradise Village Office Park
Gateway Chicago
HARTFORD SEATTLE
CityPlace Columbia Seafirst Center
100 Pearl Street Koll Center Bellevue
Putnam Park Koll Market Place Tower
Two Union Square
LOS ANGELES 1000 Second Avenue
Citicorp Center Skyline Tower
Fourth & Blanchard
STAMFORD
Metro Center INDIANAPOLIS
The Pyramids
101 West Ohio Street
DALLAS
Texas Commerce Tower
Texas Commerce Bank-Las Colinas
2121 San Jacinto Street
Maxus Tower
Abrams Center
Bryan Tower
Dallas Market Center
Plaza of the Americas
Preston Sherry Plaza
2001 Ross Avenue
4641 Production Drive
Infomart
Item 3.
-------
Legal Proceedings
-----------------
-14-
In 1993, the Company settled a lawsuit with The New York
State Convention Center Operating Corp. ("CCOC"), which arose in
connection with the Company's operations at the Jacob K. Javits
Convention Center in New York City, which operations were
terminated in December, 1991. However, as part of the
termination of such operations, the Company's departure from the
Convention Center resulted in the termination of its agreement
with Tel-A-Booth Communications, Ltd. ("Tel-A-Booth"), the
payphone service provider for the building.
Tel-A-Booth is currently in a Chapter 7 bankruptcy
proceeding, pursuant to which the Company is listed as a creditor
of Tel-A-Booth in the amount of $300,000.
The Company is named as a co-defendant in a lawsuit brought
by Tel-A-Booth arising out of the termination of its agreement
with the Company. The lawsuit, which was commenced in New York
State Supreme Court, County of New York, on January 10, 1992 is
now proceeding toward trial. Tel-A-Booth has claimed damages of
$10,000,000, primarily for lost profits. The Company has
asserted various counterclaims against the plaintiff. The Company
views that it has substantial defenses to the plaintiff's claims,
and, based on information obtained from discovery, the Company
believes that the plaintiff suffered no recoverable damages.
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 impact on the Company's
financial condition and results of operations (see Notes 14 and
16 of Notes to Consolidated Financial Statements).
Item 4.
-------
Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5.
-------
Market for Registrant's Common Stock and Related Stockholder
Matters
-----------------------------------------------------------------
The Company's shares of Common Stock (trading symbol: STCH)
have been quoted and traded in the over-the-counter market since
December 13, 1988. Over-the-counter market quotations reflect
interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
-15-
BID ASK
-------------------- ------------------
1994 HIGH LOW HIGH LOW
First Quarter $4 1/8 $2 7/8 $4 5/8 $3
Second Quarter 3 3/4 3 1/8 4 3 3/8
Third Quarter 5 1/8 2 1/2 5 3/8 2 3/4
Fourth Quarter 4 5/8 3 5/8 5 4
BID ASK
-------------------- ------------------
1993 HIGH LOW HIGH LOW
First Quarter $7 $4 $7 1/4 $4 5/8
Second Quarter 4 7/8 3 1/2 5 1/4 4
Third Quarter 5 3/4 2 1/2 6 3
Fourth Quarter 5 5/8 3 1/8 6 3 1/2
Number of beneficial holders of the Company's Common Stock as of
December 31, 1994 is 1,196.
Item 6.
-------
Selected Financial Data
-----------------------
The following table sets forth the selected financial data of the
Company for each of the last five years. Financial statements
for 1991 and 1990 are not presented in this filing. Such
selected financial data were derived from audited consolidated
financial statements not included herein. The selected financial
data of the Company should be read in conjunction with the
Consolidated Financial Statements and related notes appearing
elsewhere in this Form 10-K. In September 1992 the Company
effected a one-for-four reverse stock split of common stock and
increased the par value of common stock from $.001 to $.004 per
share. Weighted average common shares outstanding and per share
information have been retroactively adjusted to reflect this
split. All amounts, except per share amounts, are in thousands.
-16-
Statement of Operations
Data: 1994 1993 1992 1991 1990
---------------------- ------- -------- -------- -------- ----
Revenue $45,367 $25,426 $24,077 $23,172 $21,804
Gross margin 19,195 10,912 9,254 6,358 5,786
Selling, general
and administrative
expenses 16,972 10,102 9,959 10,717 10,246
Operating income(loss) 2,223 810 (705) (4,359) (4,460)
Interest expense, net (359) (438) (290) (1,268) (950)
Minority interest in
net (inc.)losses of
subsidiaries (128) (82) (37) 4 29
Loss on settlement
agreement - - - - (489)
Extraordinary Item -
Loss) gain on
restructuring - (150) 3,756 - -
Income tax benefits 550 - - - -
Net income (loss) 2,286 140 2,724 (5,623) (5,869)
Net income (loss) per
common share .27 (.04) .59 (1.59) (1.63)
Weighted average common
shares outstanding 6,792 5,132 4,063 3,730 3,601
Cash dividends declared
per preferred share .29 .32 .30 .30 -
Cash dividends paid
per preferred share .29 .32 .38 .18 -
Cash dividends declared - - - - -
or paid per common
share
Balance Sheet Data:
Working capital deficit (3,691) ($ 3,874) ($ 4,506) ($15,615) ($5,751)
Total assets 37,925 20,601 18,752 18,436 14,531
Notes payable,
convertible promissory
notes payable,other
long-term debt (incl.
current portion) and
redeemable preferred
stock 4,727 3,719 4,745 10,030 6,927
Stockholders' equity
(deficit) 20,881 9,302 6,034 (3,148) (999)
-17-
Item 7.
-------
Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
Results of Operations
---------------------
Shared Technologies' revenues rose to a record $45,367,000
in 1994, an increase of $19,941,000 or 78% over 1993 revenues of
$25,426,000. This was a substantial increase over the 6% and 4%
increases in 1993 and 1992 respectively. Acquisitions were the
major contributors to revenue growth in 1994 and 1993
respectively.
$8,942,000 of the 1994 revenue increase was attributable to
the June 1994 acquisition of Access Telecommunication Group, L.P.
("Access"). Another $8,017,000 was due to the expanded
operations of the Cellular division. The Cellular division was
dramatically expanded in the fourth quarter of 1993 through the
acquisition of Road and Show East and Road and Show South
nationwide rental phone business ("Road and Show"). The Company
also continued to expand operations at existing locations. The
remaining revenue increase of $2,982,000 was achieved mainly at
existing shared tenant services ("STS") locations.
The Company's revenue of $25,426,000 for the year ended
December 31, 1993 represented an increase of $1,349,000 or 6%,
over the year ended December 31, 1992. Of this increase,
$288,000 was due to an increase in STS revenue and $256,000 was
due to an increase in Facilities Management Services ("FMS")
revenue. The remaining increase of $805,000 was attributable to
the fourth quarter acquisitions of Road and Show.
Gross margin dipped slightly in 1994 to 42.3% of revenues
from 42.9% of revenues in 1993. This drop was the result of
significant changes in the Company's revenue mix in 1994.
The FMS and Cellular Service divisions grew dramatically in
1994 due to the acquisitions mentioned earlier. The FMS division
revenues accounted for 14.3% of the total revenues in 1994 as
compared to 6.0% in 1993, and the Cellular division revenues were
responsible for 22.5% of total revenues in 1994 as compared to
8.7% in 1993. The STS division accounted for 63.2% of total
revenues in 1994 as compared to 85.3% in 1993.
Although the change in sales mix resulted in only a small
change in overall gross margin, each division produced gross
margin at a different rate. STS cost of revenues as a percentage
-18-
of revenue increased slightly in 1994 resulting in gross margin
of 45.2% versus gross margin of 46.4% in 1993. The main reason
for the decrease was the addition of several STS buildings
through the acquisition of Access. These buildings historically
have achieved lower gross margins than those at existing STS
locations The FMS division produced a gross margin of 20.4% in
1994 which is up from 16.9% in 1993. The FMS division focuses on
the sale of long distance services outside the STS buildings, and
operates in a competitive environment which prevents high gross
margin. Improved margin was achieved through increased sales
volume and lower rates negotiated in 1994. The Cellular division
produced a gross margin of 48.2% in 1994 which is up from a 27.1%
gross margin produced in 1993. The rental component of the
Cellular division was greatly expanded through the acquisition of
Road and Show in the fourth quarter of 1993. Cellular rental
revenues produce gross margins near 50%.
Gross margin increased to 42.9% of revenues for the year
ended December 31, 1993 compared to 38.4% of revenues for the
year ended December 31, 1992. This improvement was due almost
entirely to the improved margin on long distance and local access
services as a result of increased volume which enabled the
Company to negotiate better rates with its vendors.
Pretax income increased by $1,446,000 or 499% to a record
$1,736,000 from $290,000 in 1993. This compares to a $1,322,000
increase in 1993 from a pretax loss of $1,032,000 in 1992.
These increases were achieved through increased sales
volume, and reductions in selling, general and administrative
expenses as a percentage of revenue. Selling, general and
administrative expenses as a percentage of revenue, continued to
drop in 1994, down to 37% from 40% in 1993. This improvement was
made through the synergies created with the acquisition of Access
and management's ongoing efforts to contain overhead costs.
Selling, general and administrative expenses as a percentage
of revenue dropped to 40% in 1993 compared to 41% for 1992. The
decrease was achieved despite the addition of 10 new STS
buildings and the acquisition of Road and Show which added
approximately $200,000 of selling general and administrative
expenses. The improvement was due to a decrease in consulting
expenses associated with the settlement of certain obligations of
the Company, settlement of the Javits litigation for less than
previously provided and the capitalization of startup costs
associated with certain new operations.
During 1994 the Company was successful in controlling
interest expense despite the addition of $2,300,000 of new,
interest bearing, debt. Interest expense decreased to $522,000
in 1994 from $529,000 in 1993. Interest expense, net of interest
income, increased $148,000 in the year ended December 31, 1993
-19-
compared to the year ended December 31, 1992 due to approximately
$292,000 accrued related to estimated interest and penalty
payments to taxing authorities that may arise from late payments.
Effective January 1, 1993, the Company implemented Statement
of Financial Accounting Standards No. 109, " Accounting for
Income Taxes", (SFAS 109). This statement requires the adoption
of an asset and liability approach to accounting for income
taxes. The Company's income tax provision is substantially less
than the amount derived by applying the federal statutory rates
to pre-tax income principally due to the availability of net
operating loss carryforwards from prior years. As discussed in
the Notes to the Company's financial statements, for the year
ended December 31, 1994, the Company had recorded a tax benefit
of $550,000, and reserved the balance of approximately $7,357,000
through a valuation allowance.
SFAS No. 109, requires that the Company record a valuation
allowance when it is "more likely than not the some portion or
all of the deferred tax asset will not be realized". The
ultimate realization of this deferred tax asset depends on the
ability to generate sufficient taxable income in the future.
While management believes that the total deferred tax asset may
be fully realized by future operating results together with tax
planning opportunities, the losses in recent years and the desire
to be more conservative makes it appropriate to record a
valuation allowance.
The Company restated its 1993 financial statements to
reflect the write-off of certain startup costs of approximately
$120,000, previously capitalized, related to certain cellular
telephone operations.
In 1992 the Company settled certain obligations to its
lenders and other creditors. This resulted in an extraordinary
gain for the year ended December 31, 1992 of $5,162,000 before
restructuring expenses of $1,361,000 and income taxes of $45,000
and an adjustment to the restructuring gain which resulted in an
extraordinary loss for the year ended December 31, 1993 of
$150,000.
Liquidity and Capital Resources
-------------------------------
During 1994 Shared Technologies continued to effectively
manage a working capital deficit and produce record earnings from
operations. Net cash provided by operations reached a record
$3.0 million in 1994 compared to $2.2 million in 1993 and
$571,000 in 1992. This helped reduce the working capital deficit
to $3,691,000 at December 31, 1994 compared to $3,874,000 for
December 31, 1993.
-20-
The Company continued to focus investing activities on
growth through acquisition and on upgrading telecommunication
equipment at existing locations. Over the past three years Shared
Technologies has invested $7.3 million in equipment purchases to
increase line counts and remain competitive. At the same time,
the Company invested $4.2 million to complete two major
acquisitions; Access in June 1994 and Road and Show in the fourth
quarter of 1993. Both companies have been integrated into the
Company's operations and have produced favorable results.
Financing activities were focused primarily on raising
capital to provide cash for investing activities. In 1994 the
Company entered an agreement with a bank to obtain a $1.0 million
dollar term note and a $4.0 million revolver. During 1994 the
Company borrowed $1.3 million against the revolver to help
finance the current year's equipment purchases. In addition the
Company raised $4.6 million from sales of common stock to help
finance the acquisition of Access. During 1993 and 1992
approximately $7.5 million was raised from sales of common and
preferred stock to help the Company fund operations. During the
past three years the Company has made $8.3 million in repayments
of notes payable, long term debt and capital lease obligations.
Cash requirements for 1995 will include normal ongoing
operations, and capital expenditures. The Company plans to
invest heavily in growth through the addition of several STS
buildings and the expansion of the centrex component of the STS
division. This growth will be financed through cash from
operations and the bank agreement previously mentioned.
Item 8.
-------
Financial Statements and Supplementary Data
-------------------------------------------
Attached.
Item 9.
-------
Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
On January 25, 1995 the Company filed a Form 8K announcing a
change in independent public accountants to Rothstein, Kass &
Company, P.C. from Arthur Andersen LLP for the year end December
31, 1994.
-21-
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
INDEPENDENT AUDITORS' REPORT
ROTHSTEIN, KASS & COMPANY, P.C. F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ARTHUR ANDERSEN LLP F-3
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6-7
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENT F-10-24
FINANCIAL STATEMENT SCHEDULE:
Schedule VIII Valuation and Qualifying Accounts
for the years ended
December 31, 1994, 1993 and 1992 F-25
Notes:
(a)All other schedules are not submitted because they are not applicable,
not required or because the required information is included in the
consolidated financial statements or notes thereto.
(b)Individual financial statements of the Company have been omitted since
(1) consolidated statements of the Company and its subsidiaries are
filed, and (2) the Company is primarily an operating company and all
subsidiaries included in the consolidated financial statements filed are
majority-owned and do not have a material amount of debt to outside
persons.
F-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Shared Technologies Inc.
We have audited the accompanying consolidated balance sheets of Shared
Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of operations, stockholders' equity and
cash flows for the years then ended. These consolidated financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and 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 financial position of Shared
Technologies Inc. and Subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index on
page F-1 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
Roseland, New Jersey
March 24, 1995, except for Notes 7 and 11
as to which the date is April 11, 1995
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To Shared Technologies Inc.:
We have audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of Shared
Technologies Inc. (a Delaware corporation) and subsidiaries
for the year ended December 31, 1992. These financial
statements and the schedule referred to below are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We have conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
operations and cash flows of Shared Technologies Inc. for
the year ended December 31, 1992 in conformity with
generally accepted accounting principles.
As discussed in Note 14 to the consolidated financial
statements, the Company and others have been named in a
lawsuit seeking damages of approximately $10 million,
including $1.4 million for equipment purchased, for which
no provision has been made in the accompanying consolidated
financial statements. The Company has filed answers to this
complaint denying the material allegations of the claim.
Although the claim is being contested by the Company, the
outcome of this matter is uncertain at this time.
Our audit was made for the purposes of forming an opinion on
the basic financial statements taken as a whole. The
schedule listed in the index on page F-1 is presented for
purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. The information in the schedule for the year
ended December 31, 1992 has been subjected to the auditing
procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all
material respects the financial data required to be set
forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 23, 1993 (except with respect to the matter discussed
in the second paragraph of Note 14, as to which the date is
April 14, 1994)
F-3
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
1994 1993
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash $172,262 $408,533
Accounts receivable, less
allowance for doubtful
accounts and discounts
of $584,000 in 1994
and $310,000 in 1993 8,532,770 4,614,188
Other current assets 727,375 545,071
Deferred income taxes 550,000
-------------- --------------
Total current assets 9,982,407 5,567,792
-------------- --------------
EQUIPMENT:
Telecommunications 26,222,732 21,298,405
Office and data processing 4,995,191 4,358,275
-------------- --------------
31,217,923 25,656,680
Less accumulated depreciation
and amortization 15,473,023 13,545,303
-------------- --------------
15,744,900 12,111,377
-------------- --------------
OTHER ASSETS:
Intangible assets 11,197,887 2,347,958
Other 1,000,042 573,535
-------------- --------------
12,197,929 2,921,493
-------------- --------------
$37,925,236 $20,600,662
============== ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt and capital lease
obligations $1,840,401 $1,941,876
Accounts payable 8,191,350 4,482,239
Accrued expenses 2,381,736 2,068,771
Advance billings 1,260,158 948,938
-------------- --------------
Total current liabilities 13,673,645 9,441,824
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less
current portion 2,886,365 1,777,431
-------------- --------------
MINORITY INTERESTS IN NET ASSETS
OF SUBSIDIARIES 101,504 78,971
-------------- --------------
REDEEMABLE PUT WARRANT 383,048
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par
value:
Series C, authorized 1,500,000
shares, outstanding
906,930 shares in 1994 and
987,930 in 1993 9,069 9,879
Series D, authorized 1,000,000
shares, outstanding
456,900 shares in 1994 and
453,158 in 1993 4,569 4,532
Series E, authorized 400,000
shares in 1994 and no shares
in 1993, outstanding 400,000
shares in 1994 4,000
Series F, authorized 700,000
shares in 1994 and no shares
in 1993, outstanding 700,000
shares in 1994 7,000
Common stock, $.004 par
value, authorized 20,000,000
shares, outstanding
6,628,246 shares in 1994 and
5,190,335 in 1993 26,513 20,761
Capital in excess of par value 41,488,128 31,759,048
Accumulated deficit (22,465,105) (24,248,284)
Obligations to issue common stock 1,806,500 1,756,500
-------------- --------------
Total stockholders' equity 20,880,674 9,302,436
-------------- --------------
$37,925,236 $20,600,662
============== ==============
See accompanying notes to consoloidated financial statements.
F-4
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
REVENUES: ------------ ------------ ------------
Shared tenant services $28,666,574 $21,683,186 $21,395,125
Facility management services 6,482,637 1,542,893 1,287,452
Cellular telephone services 10,217,300 2,199,727 1,394,387
------------ ------------ ------------
Total revenues 45,366,511 25,425,806 24,076,964
------------ ------------ ------------
COST OF REVENUES:
Shared tenant services 15,716,890 11,627,939 12,727,935
Facility management services 5,161,130 1,282,064 1,082,643
Cellular telephone services 5,293,845 1,604,040 1,011,642
------------ ------------ ------------
Total cost of revenues 26,171,865 14,514,043 14,822,220
------------ ------------ ------------
GROSS MARGIN 19,194,646 10,911,763 9,254,744
OPERATING EXPENSES, selling,
general, and administrative 16,971,416 10,101,985 9,959,366
------------ ------------ ------------
OPERATING INCOME (LOSS) 2,223,230 809,778 (704,622)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (522,112) (529,565) (410,830)
Interest income 162,951 91,889 120,815
Minority interests in net income
of subsidiaries (128,084) (81,928) (37,391)
------------ ------------ ------------
(487,245) (519,604) (327,406)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX
CREDIT AND EXTRAORDINARY ITEM 1,735,985 290,174 (1,032,028)
INCOME TAX CREDIT 550,000
------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 2,285,985 290,174 (1,032,028)
EXTRAORDINARY ITEM, (loss) gain
on restructuring (in 1992,
net of restructuring expenses
of $1,361,000, and income
taxes of $45,000, after
extraordinary benefit
of utilizing net operating
loss carryforwards of $3,000,000) - (150,000) 3,756,327
------------ ------------ ------------
NET INCOME 2,285,985 140,174 2,724,299
PREFERRED STOCK DIVIDENDS (478,159) (344,650) (334,478)
------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $1,807,826 ($204,476) $2,389,821
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before
extraordinary item 0.27 (0.01) (0.33)
Extraordinary item (0.03) 0.92
------------ ------------ ------------
Net income (loss) 0.27 (0.04) 0.59
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,792,277 5,132,296 4,062,710
============ ============ ============
See accompanying notes to consoloidated financial statements.
F-5
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock
=============== =============== ===============
Shares Amount Shares Amount Shares Amount
--------- --------- --------- --------- ------- -------
BALANCE, January 914,750 $9,147 - $ - - $ -
1, 1992
Dividends on
preferred stock
Conversion of
Series A
Preferred Stock
to Series C 110,000 1,100
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C (914,750) (9,147) 914,750 9,147
Preferred Stock
Conversion of
preferred stock
dividends
payable to 81,980 820
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of
expenses of
$470,000
Common stock
issued in lieu
of
compensation and
other
Exercise of
common stock
options
Exercise of
common stock
warrants
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 1,106,730 11,067
31, 1992
Dividends on
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549 453,158 4,532
Redemption of
Series C
Preferred
Stock (118,800) (1,188)
Common stock to
be issued
for acquisitions
Common stock
issued in lieu
of compensation
Common stock
issued in lieu
of deferred
financing fees
Exercise of
common stock
options
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 987,930 9,879 453,158 4,532
31, 1993
Preferred stock
dividends
Dividend
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants
Proceeds from
sale of Series D
Preferred Stock 3,742 37
Issuances for
acquisitions
Proceeds from
sale of common
stock, net
of expenses of
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C (81,000) (810)
Preferred Stock
and other
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December
31, 1994 - $ - 906,930 $9,069 456,900 $4,569
======== ======== ======== ======== ====== ======
See accompanying notes to consolidated financial statements.
F-6
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(CONTINUED)
Series E Series F Common
Preferred Stock Preferred Stock Stock
=============== =============== ===============
Shares Amount Shares Amount Shares Amount
--------- --------- ------------------ ------- -------
BALANCE, January - $ - $ - - 3,740,732 $ 14,963
1, 1992
Dividends on
preferred stock
Conversion of
Series A
Preferred Stock
to Series C
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C
Preferred Stock
Conversion of
preferred stock
dividends
payable to
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of 1,250,000 5,000
expenses of
$470,000
Common stock
issued in lieu
of
compensation and 31,985 128
other
Exercise of 53,938 216
common stock
options
Exercise of 15,542 62
common stock
warrants
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 5,092,197 20,369
31, 1992
Dividends on
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549
Redemption of
Series C
Preferred
Stock
Common stock to
be issued
for acquisitions
Common stock
issued in lieu
of compensation 49,345 197
Common stock
issued in lieu
of deferred 13,793 55
financing fees
Exercise of 35,000 140
common stock
options
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 5,190,335 20,761
31, 1993
Preferred stock
dividends
Dividend
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants 26,061 104
Proceeds from
sale of Series D
Preferred Stock
Issuances for 400,000 4,000 700,000 7,000
acquisitions
Proceeds from
sale of common
stock, net
of expenses of 1,328,700 5,315
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C 83,150 333
Preferred Stock
and other
Net income
--------- --------- --------- --------- ------- -------
BALANCE, December 400,000 $ 4,000 700,000 $ 7,000 6,628,246 $ 26,513
31, 1994
======== ======== ======== ======== ====== ======
See accompanying notes to consolidated financial statements.
F-7
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
(CONTINUED)
Capital in Obligations Total
Excess of Accumulated to Issue Stockholders'
Par Value Deficit Common Stock Equity
--------- --------- --------- ---------
BALANCE, January $23,261,185 $(26,433,629) $ - $(3,148,334)
1, 1992
Dividends on (334,478) (334,478)
preferred stock
Conversion of 438,900 440,000
Series A
Preferred Stock
to Series C
Preferred Stock
Conversion of
Series B
Preferred Stock
to Series C
Preferred Stock
Conversion of
preferred stock
dividends
payable to 327,100 327,920
Series C
Preferred Stock
Proceeds from
sale of common
stock
including
subscriptions of
$162,980
collected
subsequent to
December 31,
1992 and net of 5,775,000 5,780,000
expenses of
$470,000
Common stock
issued in lieu
of
compensation and 127,558 127,686
other
Exercise of 110,827 111,043
common stock
options
Exercise of 6,155 6,217
common stock
warrants
Net income 2,724,299 2,724,299
--------- --------- --------- ---------
BALANCE, December 30,046,725 (24,043,808) 6,034,353
31, 1992
Dividends on (344,650) (344,650)
preferred stock
Proceeds from
sale of Series D
Preferred Stock,
net of expenses
of $411,549 1,736,601 1,741,133
Redemption of
Series C
Preferred
Stock (384,912) (386,100)
Common stock to
be issued
for acquisitions 1,756,500 1,756,500
Common stock
issued in lieu
of compensation 228,229 228,426
Common stock
issued in lieu
of deferred 49,945 50,000
financing fees
Exercise of 82,460 82,600
common stock
options
Net income 140,174 140,174
--------- --------- --------- ---------
BALANCE, December 31,759,048 (24,248,284) 1,756,500 9,302,436
31, 1993
Preferred stock (478,159) (478,159)
dividends
Dividend (24,647) (24,647)
accretion of
redeemable put
warrant
Exercise of
common stock
options
and warrants 71,320 71,424
Proceeds from
sale of Series D
Preferred Stock (1,511) (1,474)
Issuances for 4,989,000 5,000,000
acquisitions
Proceeds from
sale of common
stock, net
of expenses of 4,556,243 4,561,558
$371,067
Common stock
issued in lieu of
compensation and
conversion of
Series C 114,028 50,000 163,551
Preferred Stock
and other
Net income 2,285,985 2,285,985
--------- --------- --------- ---------
BALANCE, December $41,488,128 $(22,465,105) $1,806,500 $20,880,674
31, 1994
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
F-7A
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,285,985 $140,174 $2,724,299
Adjustments to reconcile net income to
net cash provided by operating
activities:
Loss (gain) on restructuring 150,000 (5,162,576)
Depreciation and amortization 3,702,004 2,562,024 2,447,925
Provision for doubtful accounts 412,617 253,000
Common stock of subsidiary issued for
services 16,500
Stock options and common stock issued
in lieu of compensation and other 113,551 278,426 127,686
Minority interests 128,084 81,928 37,391
Gain on sale of franchises (202,033)
Deferred income taxes (550,000)
Amortization of discount on note 52,267
Change in assets and liabilities:
Accounts receivable (2,147,159) (990,468) (468,931)
Other current assets (179,462) 131,664 123,015
Other assets (429,835) (243,689)
Accounts payable 1,629,214 963,950 1,504,715
Accrued expenses (1,707,272)(1,211,878) (783,854)
Advance billings (66,679) 91,531 21,826
--------- --------- ---------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 3,057,782 2,206,662 571,496
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net (3,223,420)(2,034,760) (2,014,182)
Acquisitions of Road and Show South
and East (255,356)
Acquisition of Access (3,947,649)
Long-term deposits (1,557) (296,994)
Proceeds from restricted investments 852,698
Other investments (95,548)
Deferred registration costs (182,135)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (7,353,204)(2,291,673) (1,554,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable, long-term
debt and capital lease obligations (2,409,274)(1,895,419) (3,962,571)
Proceeds from borrowings 2,315,075
Proceeds from sales of common and
preferred stock 4,631,509 1,823,733 5,734,280
Redemption of preferred stock (386,100)
Preferred stock dividends paid (478,159) (344,650) (88,538)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,059,151 (802,436) 1,683,171
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH (236,271) (887,447) 700,641
--------- --------- ---------
CASH, beginning of year 408,533 1,295,980 595,339
--------- --------- ---------
CASH, end of year $172,262 $408,533 $1,295,980
========= ========= =========
See accompanying notes to consoloidated financial statements.
F-8
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION,
cash paid during the year
for interest $441,272 $386,134 $401,208
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of accrued expenses to
note payable in connection with
litigation settlement $ - $460,478 $ -
--------- --------- ---------
Obligations to issue common stock
in connection with acquisitions $50,000 $1,756,500 $ -
--------- --------- ---------
Conversion of accounts payable to
long-term debt $ - $ - $3,288,236
--------- --------- ---------
Conversion of preferred stock
dividends payable
to Series C Preferred Stock $ - $ - $327,920
--------- --------- ---------
Issuance of preferred stock in
connection with acquisition $5,000,000 $ - $ -
--------- --------- ---------
Redeemable put warrant issued
in connection with bank financing $358,401 $ - $ -
--------- --------- ---------
Capital lease obligation incurred
for lease of new equipment $63,589 $ - $ -
--------- --------- ---------
Dividend accretion on redeemable
put warrant $24,647 $ - $ -
--------- --------- ---------
Costs of intangible assets
included in accounts payable $202,985 $ - $ -
--------- --------- ---------
Note received for sale of franchise $202,033 $ - $ -
--------- --------- ---------
See accompanying notes to consoloidated financial statements.
F-9
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS AND ORGANIZATION:
The Company is in the shared tenant services (STS) and facility
management services (FMS) industry, providing telecommunications and
office automation services and equipment to tenants of office
buildings. One of the Company's subsidiaries, Shared Technologies
Cellular, Inc. (STC), is a provider of short-term portable cellular
telephone services.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition - Revenues are recognized as services are
performed. The Company bills customers monthly in advance for
equipment rentals and local telephone access service and defers
recognition of these revenues until the service is provided.
Enhanced office service revenues (included in both STS and FMS
revenues), which consists primarily of product and equipment sales,
is recognized at the time of shipment.
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.
Equipment - Equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method over the
following estimated useful lives:
Telecommunications equipment 8 years
Office and data processing equipment 3-8 years
Effective January 1, 1992, the Company prospectively changed the
estimated depreciable life of telecommunications equipment purchased
prior to January 1, 1991 from five to eight years. The change
resulted in approximately $933,000 ($.23 per common share) less
depreciation expense for the year ended December 31, 1992 than would
have been recorded using the previous estimated depreciable life of
five years. Excluding the impact of this change, the loss before
extraordinary item per common share for 1992 would have been $.56.
Major renewals and betterments are capitalized. The cost of
maintenance and repairs which do not materially prolong the useful
life of the assets are charged to expense as incurred.
Rent - Certain leases require escalating base rents or provide for
rent abatements for a period of time. The Company is expensing the
rents on a straight-line basis over the terms of the leases.
F-10
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Intangible Assets:
Goodwill - Goodwill represents the excess of the purchase prices over
the fair values of the net assets of businesses acquired. The
Company monitors the profitability of the acquired businesses to
assess whether any impairment of recorded goodwill has occurred.
Goodwill is amortized over periods ranging from 5 years to 40 years.
Deferred Startup Costs - Costs relating to the startup of operations
in certain new locations have been deferred and amortized over one to
two years upon commencement of the related operations.
Software Development Costs - In connection with its cellular
subsidiary (SafeCall) operations, the Company has incurred certain
software development costs relating to the "privacy network" and are
amortized over 5 years starting with the implementation of the
related software.
Other Intangible Assets - Other intangible assets are being amortized
over 5 years.
Deferred Registration Costs - The Company has deferred legal fees,
other fees and costs incurred in connection with a proposed public
offering of a subsidiary. These costs will be charged to capital in
excess of par value upon completion of the offering, otherwise the
costs will be charged to operations. At December 31, 1994,
approximately $182,000 of these costs are included in other assets.
Income Taxes - Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards (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 annually for differences
between 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 effect taxable income.
Valuation allowances are established, when necessary, to reduce the
deferred income tax assets to the amount expected to be realized.
Prior to adopting SFAS No. 109, the Company accounted for income
taxes using the deferral method as required by Accounting Principles
Board Opinion No. 11. The adoption of SFAS 109 had no material
impact on the Company's financial statements since the Company fully
reserved for the tax benefits flowing from its net operating losses
(Note 13).
Income (Loss) Per Common Share - Primary income (loss) per common
share is computed by deducting preferred stock dividends from net
income in order to determine net income applicable to common stock,
which is then divided by the weighted average number of common shares
outstanding including the effect of options, warrants and obligations
to issue common stock, if dilutive.
Fully diluted income (loss) per common sh are is computed by dividing
net income applicable to common stock by the weighted average number
of common and common equivalent shares and the effect of preferred
stock conversions, if dilutive. Fully diluted income (loss) per
common share is substantially the same as primary income (loss) per
common share for the years ended December 31, 1994, 1993 and 1992.
Reclassifications - Certain reclassifications to prior years
financial statements were made in order to conform to the 1994
presentation.
F-11
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RESTRUCTURING:
During 1992, the Company completed a restructuring which resulted in
recording a gain of $5,162,000 before related expenses of $1,361,000
and income taxes of $45,000. As a result of the restructuring,
approximately $900,000 of vendor payables and $1,500,000 of capital
lease obligations were forgiven and $3,300,000 of vendor payables
were converted into three year non-interest bearing notes payable
(Note 7). Additionally, an agreement was entered into with the
Federal Deposit Insurance Corporation (FDIC), as receiver for the
Company's principal lender, whereby the Company paid off its term and
revolving credit loans for $2,450,000 and recognized a gain of
approximately $2,700,000. Had interest been accrued, the gain on
restructuring and interest expense would have each increased by
approximately $440,000. In connection with settling his guarantee of
these obligations, the Company's president issued to the FDIC a non-
interest bearing promissory note for $675,000 due in 1997 and pledged
100,000 shares of his common stock and his options to purchase 25,000
shares of common stock of the Company as collateral.
As of December 31, 1993, the Company was negotiating the settlement
of a $600,000 promissory note (Note 7), which was settled in 1994 by
issuance of a $750,000 promissory note. Accordingly, for the year
ended December 31, 1993, the Company recorded, as an extraordinary
item, an expense of $150,000 in connection with the completion of the
restructuring.
In connection with the restructuring, the Company sold common stock,
resulting in net proceeds of approximately $5,780,000 (which included
$163,000 of subscriptions receivable as of December 31, 1992) and
entered into agreements with Series A and B Preferred stockholders to
convert their holdings, including $327,920 of accrued dividends
related thereto, into Series C Preferred Stock.
NOTE 4 - ACQUISITIONS:
In December and October 1993, t he Company commenced management of,
and subsequently acquired certain assets and assumed certain
liabilities of Road and Show South, Ltd. (South) and Road and Show
Cellular East, Inc. (East), respectively. The purchase price for
South was $1,261,611, of which $46,111 was paid in cash and the
balance through the issuance of 221,000 shares of the Company's
common stock valued at $1,215,500. The purchase price for East was
$750,245, of which $209,245 was paid in cash and the balance through
the issuance, upon demand, of 108,200 shares of the Company's common
stock valued at $541,000. The number of shares of common stock
related to these acquisitions was adjusted on December 1, 1994 based
on the price of the Company's common stock at that date, for which an
aggregate of 64,966 additional shares will be issued. As of
December 31, 1994, no shares of common stock had been issued for the
East acquisition. The shares in connection with the South
acquisition have been issued, but have not been delivered pending the
outcome of certain claims against, and by, the former owners of South
(Note 16).
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 $9,252,031, of
which $4,252,031 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.
F-12
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - ACQUISITIONS (CONTINUED):
The acquisitions were accounted for as purchases, and the purchase
prices were allocated on the basis of the relative fair market values
of the net assets.
The excess of costs over fair value of the net assets acquired is
recorded as goodwill (aggregating approximately $10,289,000) in the
accompanying consolidated financial statements. Amortization of
goodwill approximated $181,000 and $15,000 in 1994 and 1993,
respectively.
Additional payments may be required for the East acquisition based
upon the attainment of certain future revenues of the Company and
will be charged to goodwill when they become earned.
The following unaudited pro forma statements of operations for 1994
and 1993 give effect to the acquisitions, as if they occurred on
January 1 in each year:
1994 1993
---------- -----------
Revenues $54,547,694 $47,479,720
Cost of revenues 32,612,238 30,774,241
---------- -----------
Gross margin 21,935,456 16,705,479
Selling, general and
administrative expenses 19,573,151 16,846,048
---------- -----------
Operating income 2,362,305 (140,569)
Other expense, net (459,378) (572,072)
---------- -----------
Income (loss) before income tax
credit and extraordinary item 1,902,927 (712,641)
Income tax credit 550,000
---------- -----------
Income (loss) before
extraordinary item 2,452,927 (712,641)
Extraordinary item (150,000)
---------- -----------
Net income (loss) 2,452,927 (862,641)
Preferred stock dividends (538,159) (464,650)
---------- -----------
Net income (loss) applicable
to common stock $1,914,768 $(1,327,291)
---------- -----------
Net income (loss) per common share:
Income (loss) before
extraordinary item $ .25 $ (.21)
Extraordinary item (.03)
---------- -----------
Net income (loss) $ .25 $ (.24)
---------- -----------
Weighted average number of
common shares outstanding 7,753,409 5,526,492
========== ============
F-13
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1994 and
1993:
1994 1993
---------- ----------
Goodwill $11,185,606 $2,307,692
Deferred startup costs 491,246 172,689
Software development costs 186,334 68,000
Other 198,129 175,756
----------- ----------
12,061,315 2,724,137
Accumulated amortization 863,428 376,179
----------- ----------
$11,197,887 $2,347,958
=========== ===========
NOTE 6 - ACCRUED EXPENSES:
Accrued expenses at December 31, 1994 and 1993 consist of the
following:
1994 1993
--------- ----------
State sales and excise taxes $ 861,406 $1,194,746
Deferred lease obligations 149,986 153,805
Compensation 416,773 76,787
Property taxes 140,102 72,443
Concession fees 101,835 64,754
Other 711,634 506,236
--------- ----------
$2,381,736 $2,068,771
========== ===========
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt and capital lease obligations at December 31, 1994 and
1993 consist of the following:
1994 1993
------------ --------
Revolving $4,000,000 credit line, due in
monthly installments of approximately
$36,500 commencing March 1995 and bearing
interest at 2% above prime rate (10.5% at
December 31, 1994) (Note 8) $1,008,939 $ -
Initial term loan, due in quarterly
installments of $50,000 commencing
November 24, 1994, with final payment
of $700,000 due May 1996 and bearing
interest at 2% above prime rate 950,000 $ -
F-14
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED):
1994 1993
Notes payable to vendors, non-interest bearing
due in aggregate quarterly installments of
approximately $249,000 through June 1995 497,595 1,615,490
Promissory note payable in semi-annual
installments through May 31, 1996 and
bearing interest at 10% per annum
(see below) 268,300 750,000
Promissory note, $550,000 original face
amount discounted at 7.75%, payable in
quarterly installments of $25,000 through
March 31, 1999, collateralized by
commitment to issue 106,250 shares of
Series C Preferred Stock 359,193 428,003
Promissory note, $450,000 original face
amount, non-interest bearing, payable in
quarterly installments of $16,071 through
June 30, 1999 289,068 353,353
Capital lease obligations, collateralized
by related telecommunications and data
processing equipment and all of the assets
acquired from Access (Note 4) 1,353,671 572,461
--------- ---------
4,726,766 3,719,307
Less current portion 1,840,401 1,941,876
--------- ---------
$2,886,365 $1,777,431
========== ==========
In connection with the Company's 1992 restructuring (Note 3),
approximately $3,300,000 of vendor payables were converted to non-
interest bearing notes payable. As part of the restructuring, the
Company also renegotiated the terms of a $450,000 promissory note.
Prior to the restructuring, the note provided for interest at the
prime rate plus 1% and was due in 1990. As of December 31, 1992,
the Company was negotiating the settlement of a $600,000 promissory
note, which was subsequently settled for a $750,000 promissory note,
with interest at 10% per annum. In connection with the
restructuring, approximately $1,500,000 of capital lease obligations
was forgiven. As of December 31, 1992, one settlement requiring a
cash payment of $588,000 had not been completed. A payment of
$588,000 plus penalties and interest of $50,000 was made in 1993.
F-15
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED):
In May 1994, the Company entered into a $5,000,000 financing
agreement with a bank. The agreement provides for a revolving
credit line for a maximum, as defined, of $4,000,000 to be used for
expansion in the shared tenant services business. Aggregate
drawings on the line convert semi-annually, through May 1996, to
three year term loans. In addition, the agreement provides for a
$1,000,000 term loan. The loans are collateralized by certain
assets of the Company. The agreement provides for, among other
things, the Company to maintain certain financial covenants. As of
December 31, 1994, the Company was in violation of certain of these
covenants and on March 31, 1995 received a waiver of those covenants
for the year ended December 31, 1994.
Scheduled aggregate payments on long-term debt and capital lease
obligations are as follows:
Capital Lease
Year ending December 31: Long-Term Debt Obligations
1995 $1,343,645 $ 596,262
1996 1,279,796 413,471
1997 499,663 332,947
1998 193,540 190,299
1999 56,451 28,278
----------- ----------
$3,373,095 1,561,257
===========
Less amount representing interest 207,586
-----------
Present value of future payments,
including current portion of $496,756 $1,353,671
===========
Telecommunications and data processing equipment includes assets
acquired under capital leases with a net book value of approximately
$1,534,000 and $514,000 as of December 31, 1994 and 1993,
respectively.
NOTE 8 - REDEEMABLE PUT WARRANT:
In connection with the bank financing agreement, the Company issued
the bank a redeemable put warrant for a number of common shares equal
to 2.25% of the Company's outstanding common stock, subject to anti-
dilution adjustments. The warrant is redeemable at the Company's
option prior to May 1996, and at the bank's option at any time after
May 1997. As defined in the agreement, the Company has guaranteed
the bank a minimum of $500,000 upon redemption of the warrant, and
therefore, has valued the warrant at the present value of the minimum
guarantee discounted at 11.25%. The discount is being amortized on a
straight-line basis over four years.
NOTE 9 - STOCKHOLDERS' EQUITY:
The Company is authorized to issue 10,000,000 shares of preferred
stock, issuable from time to time in one or more series with such
rights, preferences, privileges and restrictions as determined by the
directors. In 1994, the Company increased its authorized number of
shares of common stock to 20,000,000.
F-16
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED):
On August 28, 1992, the Board of Directors approved a one-for-four
reverse stock split of common stock and the par value of common stock
was increased from $.001 to $.004 per share. The applicable number
of common share and per common share information herein have been
retroactively restated to reflect the effect of the reverse split.
In September 1992, the Company completed a private placement to sell
to certain investors 1,250,000 shares of its common stock at $5 per
share. The Company received $5,780,000, net of underwriters'
commissions of $470,000 and including subscriptions totalling
$162,980 collected subsequent to December 31, 1992. A commission of
$446,750 was paid to a firm, one of whose principals is a director
and stockholder of the Company.
In connection with the 1992 restructuring (Note 3), all Series A and
B Preferred Stock, including $327,920 of accrued dividends, were
converted into Series C Preferred Stock. At that time, Series A and
Series B Preferred Stock were eliminated. Series C Preferred Stock
is entitled to a liquidation value of $4 per share and dividends of
$.32 per share per annum payable quarterly in arrears, and the shares
are non-voting. These shares are convertible into common stock, at
the holder's option, on a one share of common stock for two shares of
Series C Preferred Stock basis, at any time, subject to certain anti-
dilution protection for the Preferred Stockholders. At the Company's
option, the Series C Preferred Stock is redeemable, in whole or in
part, at any time after June 30, 1993, at $6 per share plus all
accrued dividends.
In December 1993, the Company commenced a private placement to sell
to certain investors units consisting of one share of Series D
Preferred Stock and one warrant to purchase one share of common
stock. As of December 31, 1994, the Company had sold 456,900 units
for net proceeds of $1,739,659, after deducting expenses of $430,616.
Series D Preferred Stock is entitled to dividends of 5% per annum
payable quarterly and may be redeemed for $7 per share, plus all
accrued dividends, at the option of the Company. The shares are non-
voting and are convertible into shares of the Company's common stock
on a one-for-one basis at the holder's option. The shares rank
senior to all shares of the Company's common stock and junior to
Series C Preferred Stock. The common stock purchase warrants are
exercisable at a per share price of $5.75. In connection with the
offering, the investment banking firm received warrants to purchase
15,600 shares of the Company's common stock at an exercise price of
$5.75 per share. The Company has the right to require the holder to
exercise the warrants, and if not exercised, they will expire in the
event that the Company's common stock trades at or above $8.50 per
share. As of December 31, 1994, no warrants had been exercised.
In May and June 1994, the Company sold, through a private placement
to certain investors, 1,328,700 shares of common stock and an equal
number of warrants, for net proceeds of $4,511,558, after deducting
expenses of $371,067. The warrants are exercisable prior to June 26,
1999 at a per share price of $4.25, subject to certain anti-dilution
protection. As of December 31, 1994, no warrants had been exercised.
The proceeds from this offering were used for the Access acquisition
(Note 4).
In June 1994, the Company issued 400,000 shares of Series E Preferred
Stock, $.01 par value, and 700,000 shares of Series F Preferred
Stock, $.01 par value, in connection with the Access acquisition.
F-17
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED):
Series E Preferred Stock is entitled to a liquidation value of $3.75
per share and dividends of $.30 per share per annum, payable
cumulatively in the form of cash or the Company's common stock, and
the shares are non-voting. The shares rank senior to common stock,
junior to Series C Preferred Stock and on par with Series F
Preferred Stock. The Series E Preferred Stock previously issued was
converted into 400,000 shares of common stock in January 1995. In
addition, upon conversion, the holders received warrants, which
expire on December 31, 1999, to purchase 175,000 shares of common
stock, at an exercise price of $4.25 per share, subject to certain
anti-dilutive provisions.
Series F Preferred Stock is entitled to a liquidation value of $5.00
per share and no dividends. The shares are senior to common stock
and junior to Series C Preferred Stock. These shares are
convertible on July 1, 1995 into common stock at the liquidation
value, as adjusted and defined, and subject to certain anti-dilution
adjustments.
Additionally, the Company issued warrants to the sellers of Access
to purchase 225,000 shares of the Company's common stock at an
exercise price of $4.25 per share, subject to certain anti-dilution
adjustments.
The following table summarizes the number of common shares reserved
for issuance as of December 31, 1994. There were no preferred
shares reserved for issuance as of December 31, 1994.
Common stock purchase warrants 2,935,223
Preferred stock 2,134,504
----------
5,069,727
==========
NOTE 10 - RESTATEMENT OF 1993 FINANCIAL STATEMENTS:
The Company has restated its 1993 financial statements to reflect
the write-off of certain startup costs of approximately $120,000,
previously capitalized, relating to certain cellular telephone
operations.
Income before extraordinary item:
As previously reported $410,221
As adjusted 290,174
Net income:
As previously reported 260,221
As adjusted 140,174
Net income (loss) per common share
before extraordinary item:
As previously reported .01
As adjusted (.01)
Net loss per common share:
As previously reported (.02)
As adjusted (.04)
Accumulated deficit:
As previously reported 24,128,237
As adjusted 24,248,284
F-18
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCK OPTION PLANS:
The Company has non-qualified stock option plans which provide for
the grant of common stock options to officers, directors,
employees and certain advisors and consultants at the discretion
of the Board of Directors (Committee). All options granted are
exercisable at a minimum price equal to the fair market value of
the Company's common stock at the date of grant, and are
exercisable in accordance with vesting schedules set individually
by the Committee. As of December 31, 1994, as amended on April
11, 1995, 1,157,146 shares of common stock are reserved for
options, including options exercised to date, and the term of the
options granted is from five to ten years. The April 11, 1995
amendment is awaiting stockholder approval. The activity in the
plans was as follows:
Exercise Price Per Share
Number of Weighted
Options Range Average
Balance outstanding, Jan. 1, 1992 368,187 $1.72-24.50 $4.08
Granted 61,375 5.00 5.00
Expired (21,583) 2.84-24.50 17.09
Exercised (53,938) 1.72- 2.84 2.06
---------
Balance outstanding, Dec. 31, 1992 354,041 1.72-12.00 3.77
Granted 173,500 4.00- 5.50 5.32
Expired (28,780) 2.84-12.00 10.19
Exercised (35,000) 1.72- 2.84 2.36
---------
Balance outstanding, Dec. 31, 1993 463,761 1.72-11.00 4.06
Granted 317,000 3.25-4.50 3.60
Expired (59,062) 4.00-5.50 5.43
Exercised (25,000) 2.84 2.84
--------- --------- ---------
Balance outstanding, Dec. 31, 1994 696,699 $1.72-11.00 $3.78
======= ======= =======
At December 31, 1994, options to purchase 314,695 shares of common
stock were exercisable.
In September 1994, the Board of Directors adopted the 1994 Director
Option Plan (the Director Plan) pursuant to which 250,000 shares of
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 non-
statutory options to purchase 15,000 shares of common stock at an
exercise price equal to the fair market value of such shares at the
date of the grant. Each option shall vest over a three year
period, but generally may not be exercised more than 90 days after
the date an optionee ceases to serve as a director of the Company,
and expires after ten years from date of grant. As of December 31,
1994, options to purchase 105,000 shares of common stock have been
granted at an exercise price of $4.38. The Plan is awaiting
stockholder approval.
F-19
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - RETIREMENT AND SAVINGS PLAN:
On March 3, 1989, the Company adopted the Shared Technologies Inc.
Savings and Retirement Plan (the Plan). The Plan covers
substantially all of the Company's employees and the Company is
applying for compliance with section 401(k) of the Internal
Revenue Code. Participants in the Plan may elect to make
contributions up to a maximum of 20% of their compensation. For
each participant with one year of service, the Company will make a
matching contribution of one-half of the participant's before and
after tax contributions up to 5% of the participant's
compensation. Matching contributions may be made in the form of
the Company's common stock. Participants vest in the matching
contributions at the rate of 33% per year. The Company's expense
relating to the matching contributions was approximately $163,000,
$116,000 and $51,000 for 1994, 1993 and 1992, respectively.
NOTE 13 - INCOME TAXES:
For 1992, the Company recorded a provision for minimum federal and
state income taxes of $45,000, after the benefit of utilizing net
operating loss (NOL) carryforwards of approximately $3,000,000.
At December 31, 1994, the Company's NOL carryforward for federal
income tax return purposes is approximately $22,700,000 expiring
between 2001 and 2007. NOL's available for state income tax
purposes are less than those for federal purposes and generally
expire earlier than the federal NOL's. Limitations will apply to
the use of NOL's in the event certain changes in Company ownership
occur in the future.
For the years ended December 31, 1994 and 1993, taxes computed at
the statutory federal rate differ from the Company's effective
rate due primarily to the availability of NOL's.
The components of deferred income tax assets (liabilities) as of
December 31, 1994 and 1993 are as follows (in thousands):
1994 1993
Tax effect of net operating loss
carryforwards $ 9,011 $ 9,789
Financial reserves not yet tax
deductible 233 130
Equipment (1,200) (1,114)
Goodwill (107)
--------- ---------
Deferred income tax asset 7,937 8,805
Valuation allowance (7,387) (8,805)
--------- ---------
Net deferred tax asset $ 550 $ -
========= =======
F-20
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - INCOME TAXES (CONTINUED):
At December 31, 1994, the Company's net operating losses of
$22,700,000 are included in the gross deferred income tax asset of
$7,937,000, of which $550,000 was recorded as a deferred tax
asset, and the balance reserved through a valuation allowance of
$7,387,000.
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 this deferred tax asset depends on the ability to
generate sufficient taxable income in the future. The Company has
undergone substantial restructuring resulting in a lower and more
competitive cost structure. While management believes that the
total deferred tax asset will be fully realized by future
operating results together with tax planning opportunities, the
losses in recent years and a desire to be conservative make it
appropriate to record a valuation allowance.
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
Contingencies - The Company had been the provider of
telecommunications services at the Jacob K. Javits Convention
Center (the Center) in New York City. Effective January 1, 1992,
as a result of a contractual dispute with the New York Convention
Center Operating Corporation (CCOC), the Company no longer
provided services at the Center. A claim for approximately
$5,400,000 was filed against the Company by CCOC for damages. In
November 1993, the litigation with CCOC was settled and provided
for the Company to pay $25,000 and issue a $550,000 note payable
over five years, with no interest. The present value of the note
was accrued by the Company (Note 7).
While providing services at the Center, the Company licensed the
right to provide certain public pay telephone services at the
Center to Tel-A-Booth Communications, Ltd. (Tel-A-Booth). Tel-A-
Booth has filed a claim against the Company which seeks
$10,000,000 in damages including $1,400,000 for equipment
purchased, for which no amounts have been provided in the
accompanying consolidated financial statements.
Discovery was completed in early 1995 and revealed certain
inconsistencies in plaintiff's claims, which cast in doubt the
bona fides of plaintiff's demand for $10 million on each of its
claims against the Company. Of the $10 million in claimed
damages, all but $1.4 million represents plaintiff's estimation of
lost profits as a result of the Company's alleged breach of
contract. The remaining $1.4 million represents the cost of the
400 telephones which plaintiff purportedly purchased for
installation at The Center, pursuant to the contract, but which
were ultimately not installed.
Furthermore, the Company has asserted that the pertinent contract
between plaintiff and the Company bars plaintiff's recovery of
lost profits. More specifically, the contract provides that "[n]
either party hereto shall be liable, directly or through any
indemnification provision herein, for consequential (including
lost profits) or indirect damages arising in any way out of this
Agreement." Although plaintiff has argued that the language
surrounding this clause limits its application to claims brought
by third parties and thus the clause was not intended to limit
damage claims between plaintiff and the Company, management
believes this is a further defense to the claim.
F-21
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
With respect to the $1.4 million damage claim, discovery has
revealed that plaintiff borrowed this entire amount from a private
lender, using the telephones to be purchased as collateral.
Subsequent to plaintiff's termination at The Center, the lender
took possession of the collateral (which was then sold) and
forgave the entire indebtedness in exchange. Arguably, plaintiff
suffered no direct damage from the alleged breach of contract
since plaintiff was restored to its initial position following
this transaction.
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 sales and use tax returns in certain jurisdictions
are currently under examination. Management believes these
examinations will not result in a material change from liabilities
provided.
STC is a party to an employment claim which arose prior to STC's
acquisition of South. STC is seeking indemnification from South
(Note 16).
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.
In November 1994, a subsidiary signed a letter of intent with an
investment banking firm for the purpose of underwriting an initial
public offering. If the public offering is successful and
depending on the number of shares sold, the Company's investment
in the subsidiary would be reduced from approximately 85% to
approximately 60%.
Commitments - The Company has entered into operating leases for
the use of office facilities and equipment, which expire through
October 2004. Certain of the leases are subject to escalations
for increases in real estate taxes and other operating expenses.
Rent expense amounted to approximately $1,856,000, $1,700,000 and
$1,676,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
Aggregate approximate future minimum rental payments under these
operating leases are as follows:
Year ending December 31:
1995 $1,863,000
1996 1,483,000
1997 1,150,000
1998 988,000
1999 815,000
Thereafter 1,178,000
-----------
$7,477,000
===========
F-22
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
In January 1994, the Company entered into a consulting agreement
for financial and marketing services, which expires in November
1996. The agreement provides for the following compensation;
$30,000 upon signing, $3,000 per month retainer, and $150,000 upon
the attainment of a specific financial ratio, which as of December
31, 1994 had not been attained. In addition, the consultant was
issued a three year warrant to purchase 300,000 shares of the
Company's common stock at a purchase price of $5.75 and a five
year warrant to purchase 250,000 shares of the Company's common
stock at a purchase price of $7.00 per share. The consultant may
not compete with the Company during the term of this agreement and
for two years thereafter.
The consultant, through its affiliate, acquired from the Company
approximately 1.5% (31,381 shares) of STC's common stock at a
price of $.08 per share.
In connection with the acquisit ion of East, STC entered into a
three year consulting agreement, providing that during the first
two years of the agreement the former owner is to be paid an
annual consulting fee equal to 3% of STC's total cellular
telephone rental revenues in excess of $4,000,000. In addition,
an annual bonus of $100,000 is payable if total cellular telephone
rental revenues exceed $5,000,000 per annum. The former owner may
not engage in any business competing with STC, within a certain
geographical area. For the year ended December 31, 1994,
approximately $203,000 of fees relating to this agreement were
incurred.
In February 1994, the Company entered into a consulting agreement
with a company controlled by the founder of Road and Show. The
agreement, which was amended effective September 1, 1994 and
expires December 31, 1996, provides for compensation of $205,000
and $200,000 for 1995 and 1996, respectively. In addition, the
original agreement provided for the issuance of 31,381 shares of
STC common stock, with a value ascribed thereto of $2,500 ($.08
per share). During the term of the agreement and for two years
thereafter, the consultant may not compete with STC in the
business of renting cellular telephones anywhere in the United
States, Mexico and Canada. The consultant also received options
to purchase 31,381 shares of STC's common stock at an exercise
price, as amended, of $4.20 per share, pursuant to STC's stock
option plan.
In connection with the Access acquisition, the Company has entered
into two employment agreements with former owners of Access. Each
agreement is for three years expiring in June 1997. If terminated
without cause, the Company shall pay all compensation due under
the agreements for the lesser of eighteen months or the time
remaining in the initial term. Aggregate minimum payments under
the agreements during the years ending December 31, 1995, 1996 and
1997 are $330,000, $342,500 and $175,000, respectively.
F-23
SHARED TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RELATED PARTY TRANSACTIONS:
In 1992, the Company issued 12,500 shares of common stock to a
Board of Directors member and former shareholder of a Company
acquired (BTC). The shares were issued since the Company was
unable to obtain the release of his guarantee of certain BTC
obligations in connection with the 1992 restructuring (Note 3).
The Company has also agreed to indemnify the individual for any
future amounts incurred by him related to his guarantee. The fair
value of the shares issued was recorded as an expense in 1992.
As of December 31, 1993, approximately $288,000 had been paid for
life insurance premiums made on behalf of the Company's president,
which was to be repaid from the proceeds of a $2,500,000 face
value life insurance policy which was owned by the president. In
January 1994, the beneficiary on the policy was changed to the
Company in order to reduce the premium payments required by the
Company. As of December 31, 1994, the amount due to the Company
for premiums paid exceeded the cash surrender value of the policy
by approximately $135,000. Accordingly, the President has agreed
to reimburse the Company for this amount. The receivable and cash
surrender value are reflected in other assets in the accompanying
consolidated balance sheets.
NOTE 16 - SUBSEQUENT EVENTS:
During January 1995, the Company commenced a private placement to
sell to a certain investor 300,000 shares of common stock at $4.25
per share, pursuant to Regulation S of the Securities Act of 1933.
In connection with this transaction, the underwriter received a
commission of $120,000 and a five year common stock purchase
warrant to acquire 30,000 shares of the Company's common stock for
$5.00 per share.
On January 17, 1995, STC filed a complaint against South (which
includes its affiliates). The complaint alleges that the failure
by South to disclose a certain claim constituted a breach of the
asset purchase agreement. STC seeks damages and a declaratory
judgement that the payment in the Company's common stock to South,
pursuant to the agreement, should be reduced by the amount of any
damages caused to the Company by such breach. In addition, the
Company seeks indemnification from South, including requiring
South to defend the Company from and against such claim.
On January 27, 1995, South commenced an action against STC
alleging, among other things, that STC's failure to deliver to
South the Company's common stock under the asset purchase
agreement constituted a breach of contract and fraud. South is
seeking unspecified actual and punitive damages of not less than
$10,000,000. STC sought a stay of this action and is considering
depositing the Company's common stock with the Court. Although it
has not received an opinion of counsel with regard to this matter,
STC believes it has meritorious defenses to this action. In the
event of an adverse outcome in this action, the Company does not
believe that damages payable would be material unless the market
value of the Company's common stock materially decreases prior to
delivery thereof.
F-24
SCHEDULE VIII
SHARED TECHNOLOGIES INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1994, 1993 AND 1992
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
Description of Year Expenses Accounts Deductions(1) of Year
December 31, 1992:
Allowance for doubtful
accounts and discounts $291,000 $96,000 $- $ 90,000 $297,000
December 31, 1993:
Allowance for doubtful
accounts and discounts 297,000 253,000 240,000 310,000
December 31, 1994:
Allowance for doubtful
accounts and discounts 310,000 412,617 138,617 584,000
(1) Represents write off of uncollectible accounts, net of recoveries.
F-25
PART III
Items 10, 11, 12 and 13.
------------------------
The Company incorporates by reference in response to these
items its Proxy Statement for its Annual Meeting of Stockholders
to be held on May 23, 1995 (to be filed with the Securities and
Exchange Commission in definitive form on or before April 28,
1995).
PART IV
Item 14.
--------
Exhibits, Financial Statement Schedules and Reports on Form 10-K
----------------------------------------------------------------
Financial Statements (a)
--------------------
Independent Auditors' Report: Rothstein, Kass & Company, P.C.
Report of Independent Public Accountants: Arthur Andersen LLP
Consolidated Balance Sheets as of December 31, 1994 and 1993.
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flow for the years ended December
31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements
Financial Statements Schedule: Schedule VIII
(b) Reports on Form 8-K
-------------------
On January 25, 1995 the Company filed a Form 8K announcing a
change in independent public accountants to Rothstein, Kass &
Company, P.C. from Arthur Andersen LLP for the year end December
31, 1994.
(c) Exhibits
--------
Exhibit No. Description of Exhibit
=========== ======================
-22-
3.1 Restated Certificate of Incorporation of the
Registrant.
3.2 By-laws of the Registrant, as amended.
4.1 Specimen Certificate for Common Stock, as
amended to reflect the reverse one-for-four
stock split and corresponding change in par
value. Incorporated by reference from
Exhibit 4.1 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1992.
4.2 Certificates of Designation for Series D
Preferred Stock. Incorporated by reference
from Exhibit 4.2 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
4.3 Form of Warrant Certificate associated with
Series D Preferred Stock offering.
Incorporated by reference from Exhibit 4.3 of
the Company's Form 10-K/A Amendment No. 1 for
December 31, 1993.
4.4 Form of Registration Rights Agreement
associated with Series D Preferred Stock
Offering. Incorporated by reference from
Exhibit 4.4 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.1 Promissory Note dated June 4, 1990 in the
principal amount of $5,000,000 from
Registrant to Central Bank with Loan and
Security Agreement, Pledge Agreement,
Guaranty Agreement and Collateral Assignment
of Tenant Services Agreement. Incorporated
by reference from Exhibit 10.7 of the
Company's Form 10-K for December 31, 1990.
10.2 Revolving Note dated February 20, 1991 in the
principal amount of $750,000 from Registrant
to Central Bank with Letter Agreement and
Commercial Revolving Loan and Security
Agreement. Incorporated by reference from
Exhibit 10.4 of the Company's Form 10-K for
December 31, 1991.
10.3 Workout Agreement dated July 27, 1992 between
the Registrant and the Federal Deposit
Insurance Corporation in its capacity as
receiver for Central Bank and Trust Company.
-23-
Incorporated by reference from Exhibit 10.5
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1992.
10.4 Form of Non-Bank Creditor Agreement.
Incorporated by reference from Exhibit 10.6
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1992.
10.5 Form of Assent to Plan for a Common Law
Composition of all Non-Bank Creditors of
Registrant. Incorporated by reference from
Exhibit 10.7 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1992.
10.6 Asset purchase agreement by and between Road
and Show East, Inc. and Shared Technologies
Cellular, Inc. Incorporated by reference from
Exhibit 10.8 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.7 Asset purchase agreement by and between Road
and Show South, Ltd. acting by Road and Show
South, Inc. and Shared Technologies Cellular,
Inc. Incorporated by reference from Exhibit
10.9 of the Company's Form 10-K/A Amendment
No. 1 for December 31, 1993.
10.8 Revolving Credit and Term Loan Agreement
between State Street Bank and Trust Company
and Shared Technologies Inc., Multi-Tenant
Services, Inc., and Boston Telecommunications
Group, Inc. Incorporated by reference from
Exhibit 10.10 of the Company's Form 10-K/A
Amendment No. 1 for December 31, 1993.
10.9 Purchase Agreement between Shared
Technologies Inc. and International Capital
Partners, Inc. and others. Incorporated by
reference from Exhibit 10.11 of the Company's
Form 10-K/A Amendment No. 1 for December 31,
1993.
10.10 Form of Common Stock Purchase Warrant.
Incorporated by reference from Exhibit 10.12
of the Company's Form 10-K/A Amendment No. 1
for December 31, 1993.
10.11 Partnership Interests and Share Purchase
Agreement by and among Access Telemanagement,
Inc., Access Trust, Ronald E. Scott, Kevin
-24-
Schottlaender and Shared Technologies Inc.
dated June 27, 1994. Incorporated by
reference to the Company's Form 8-K dated
June 27, 1994 and filed on July 8, 1994.
10.12 Accounts Security Agreement by and between
Access Telecommunication Group, L.P. and
MARTINET, Inc. for Access Trust, Ronald E.
Scott, Kevin Schottlaender and Trammel S.
Crow. Incorporated by reference to the
Company's Form 8-K dated June 27, 1994 and
filed on July 8, 1994.
10.13 Pledge Agreement between Shared Technologies
Inc. and MARTINET, Inc. for Access Trust,
Ronald E. Scott, Kevin Schottlaender and
Trammel S. Crow. Incorporated by reference
to the Company's Form 8-K dated June 27, 1994
and filed on July 8, 1994.
10.14 Registration Rights Agreement by and among
Shared Technologies Inc., Access Trust,
Ronald E. Scott and Kevin Schottlaender.
Incorporated by reference to the Company's
Form 8-K dated June 27, 1994 and filed on
July 8, 1994.
10.15 Form of Common Stock Purchase Warrant.
Incorporated by reference to the Company's
Form 8-K dated June 27, 1994 and filed on
July 8, 1994.
10.16 Consulting Agreement between Shared
Technologies Inc. and Vertical Financial
Holding.
11 Computation of Earnings Per Share and
Weighted Average Number of Shares
Outstanding.
21 List of subsidiaries of the Registrant.
-25-
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 INC.
------------------------
(Registrant)
By /s/ Anthony D. Autorino
----------------------------------
Anthony D. Autorino
President, Principal Executive
Officer and Director
Date: April 11, 1995
By /s/ Vincent DiVincenzo
------------------------------
Vincent DiVincenzo
Senior Vice President - Finance and
Administration, Treasurer, Chief
Financial Officer and Director
Date: April 11, 1995
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 /s/ William A. DiBella
---------------------------- ---------------------------
Anthony D. Autorino William A. DiBella,
President, Principal Executive Director
Officer and Director Date: April 11, 1995
Date: April 11, 1995
By /s/ James D. Rivette By /s/ Jo McKenzie
--------------------------- ------------------------
James D. Rivette, Director Jo McKenzie, Director
Date: April 11, 1995 Date: April 11, 1995
By_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ By /s/ Thomas H. Decker
--------------------------
Lewis M. Rambo, Ph.D., Director Thomas H. Decker, Director
Date: April 11, 1995 Date: April 11, 1995
-26-
By /s/ Ajit Hutheesing By_ _ _ _ _ _ _ _ _ _ _ _ _
---------------------
Ajit Hutheesing, Herbert L. Oakes, Jr.
Director Director
Date: April 11, 1995 Date: April 11, 1995
By /s/ Edward J. McCormack, Jr. By /s/ Vincent DiVincenzo
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Edward J. McCormack, Jr. Vincent DiVincenzo,
Director Director
Date: April 11, 1995 Date: April 11, 1995
/s/ Ronald E. Scott By
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Ronald E. Scott
Director
Date: April 11, 1995
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