Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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, CT 06109
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(Address of principal executive offices)
(203) 258-2400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No _ _ _ _
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest
practicable date.
Class Outstanding at May 13, 1995
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Common Stock, $.004 par value 7,624,412 shares
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Consolidated Balance
Sheets as of March 31,
1995 and December 31, 1994 3-4
Consolidated Statements of
Operations for the three
months ended March 31,
1995 and 1994 5
Consolidated Statements of
Cash Flows for the three
months ended March 31,
1995 and 1994 6
Consolidated Statements of
Stockholders' Equity for
the three months ended
March 31, 1995 7
Notes to Consolidated
Financial Statements 8-11
Item 2 Management's Discussion and
Analysis of Results of
Operations and Financial
Condition 11-13
PART II OTHER INFORMATION 13
Signature Page 14
Item 1. Financial Statements
------------------------------------
Shared Technologies Inc.
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(unaudited)
March 31, December 31,
1995 1994
---------- -------------
CURRENT ASSETS:
Cash $300,051 $172,262
Accounts receivable, less allowance
for doubtful accounts of $523,000
in 1995 and $584,000 in 1994 8,685,784 8,532,770
Other current assets 939,937 727,375
Subscriptions receivable
Deferred income taxes 550,000 550,000
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Total current assets 10,475,772 9,982,407
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Equipment, at cost:
Telecommunications equipment 26,545,706 26,222,732
Office and data processing
equipment 5,500,864 4,995,191
------------ ------------
32,046,570 31,217,923
Less - Accumulated depreciation 16,350,445 15,473,023
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15,696,125 15,744,900
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Other Assets 12,189,403 12,197,929
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Total assets $38,361,300 $37,925,236
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Shared Technologies Inc.
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(unaudited)
March 31, December 31,
1995 1994
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt and capital lease
obligations $1,685,898 $1,840,401
Accounts payable 8,196,658 8,191,350
Accrued expenses 2,087,607 2,381,736
Advanced billings 1,228,059 1,260,158
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Total current liabilities 13,198,222 13,673,645
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Long-Term Debt and Capital Lease 2,399,807 2,886,365
Obligations less current portion ---------- ------------
Minority Interest in Net Assets of
Subsidiaries 90,961 101,504
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Redeemable Put Warrant 393,823 383,048
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value:
Series C, authorized 1,500,000 shares,
outstanding 906,930 shares in 1995 and
1994 9,069 9,069
Series D, authorized 1,000,000 shares,
outstanding 456,900 shares in 1995 and
1994 4,569 4,569
Shared Technologies Inc.
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(unaudited)
March 31, December 31,
1995 1994
Series E, authorized 400,000 shares,
outstanding, no shares in 1995 and
400,000 shares in 1994 4,000
Series F, authorized 700,000
shares, outstanding,
700,000 shares in 1995 and 1994 7,000 7,000
Common Stock; $.004 par value,
20,000,000 shares authorized;
7,624,412 and 6,628,246 shares
outstanding in 1995 and 1994
respectively 30,498
26,513
Additional paid-in capital 43,976,713 41,488,128
Accumulated deficit (22,290,362) (22,465,105)
Obligations to issue common stock 541,000 1,806,500
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Total stockholders' equity 22,278,487 20,880,674
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Total liabilities and stockholders' $38,361,300 $37,925,236
equity
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Inc.
Consolidated Statements of Operations
For the Three Months Ended
March 31, 1995 and 1994
(unaudited)
March 31, March 31,
1995 1994
Revenue:
Shared tenant services $8,333,728 $6,092,244
Facility Management Services 2,482,876 380,996
Cellular services 2,026,656 1,423,120
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Total Revenue 12,843,260 7,896,360
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Cost of Revenue:
Shared tenant services 4,730,209 3,312,787
Facility Management Services 1,954,521 333,294
Cellular services 1,067,486 780,913
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Total Cost of Revenue 7,752,216 4,426,994
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Gross Margin 5,091,044 3,469,366
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Selling, General & Administrative
Expenses: 4,672,434 3,161,097
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Operating Income 418,610 308,269
Interest Expense (166,332) (56,673)
Interest Income 21,910 24,942
Minority Interest in Net (Income)
Loss of Subsidiaries 10,543 (20,010)
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Net Income 284,731 256,528
Preferred Stock Dividends (99,215) (109,601)
Net Income Applicable to Common Stock $185,516 $146,927
Net Income Per Common Share $0.02 $0.03
Weighted Average Shares Outstanding 8,578,231 5,190,960
Shared Technologies Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31, 1995 and 1994
(unaudited)
March 31, March 31,
1995 1994
Cash Flows Used in Operating Activities
Net Income $284,731 $256,528
Adjustments:
Minority interest in net income of (10,543) 20,010
subsidiaries
Change in Assets and Liabilities:
Accounts receivable (153,014) (508,845)
Other current assets (212,562) (426,389)
Other assets (217,255) 58,245
Accounts payable 5,308 873,069
Accrued expenses (245,538) (415,878)
Advanced billings (32,099) (8,001)
Net cash provided by operating
activities 468,317 404,920
Cash Flows Used in Investing Activities
Capital expenditures (774,733) (247,502)
Net cash used in investing activities (774,733) (247,502)
Cash Flows From Financing Activities:
Preferred stock dividends (97,736) (109,601)
Repayments of notes payable, long-term
debt and capital lease obligations (641,059) (300,111)
Proceeds from sales of common and
preferred stock 1,173,000
Expenses related to sale of preferred (1,050)
stock
Net cash provided by (used in) 434,205 (410,762)
financing activities
Net increase (decrease) in cash 127,789 (253,344)
Cash, Beginning of Period 172,262 358,533
Cash, End of Period $300,051 $105,189
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for -
Interest $149,632 $56,673
Income taxes $33,398 $5,813
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Inc.
Consolidated Statement of
Stockholders' Equity
For the three months ended
March 31, 1995
(unaudited)
Series C Series D
Preferred Preferred
Shares Amount Shares Amount
Balance, December 31, 1994 906,930 $9,069 456,900 $4,569
Issuance of Common Stock
per obligation to issue - - - -
Conversion of Preferred E - - - -
Sale of Common Stock - - - -
Common stock issued in
lieu of compensation and
other - - - -
Net income - - - -
Dividend accretion of
redeemable put warrant - - - -
Preferred stock dividends - - - -
Balance, December 31, 1994 906,930 $9,069 456,900 $4,569
Shared Technologies Inc.
Consolidated Statement of
Stockholders' Equity
For the three months ended
March 31, 1995
(unaudited)
Series E Series F
Preferred Preferred
Shares Amount Shares Amount
Balance, December 31, 1994 400,000 $4,000 700,000 $7,000
Issuance of Common Stock
per obligation to issue - - - -
Conversion of Preferred E (400,000) ($4,000) - -
Sale of Common Stock - - - -
Common stock issued in
lieu of compensation and
other - - - -
Net income - - - -
Dividend accretion of
redeemable put warrant - - - -
Preferred stock dividends - - - -
Balance, December 31, 1994 0 $0 700,000 $7,000
Shared Technologies Inc.
Consolidated Statement of
Stockholders' Equity
For the three months ended
March 31, 1995
(unaudited)
Common Additional
Stock
Paid-in
Shares Amount Capital
Balance, December 31, 1994 6,628,246 $26,513 $41,488,128
Issuance of Common Stock
per obligation to issue 283,992 1,136 1,264,364
Conversion of Preferred E 400,000 1,600 2,400
Sale of Common Stock 300,000 1,200 1,171,800
Common stock issued in
lieu of compensation and 12,174 49 50,021
other
Net income - - -
Dividend accretion of
redeemable put warrant - - -
Preferred stock dividends - - -
Balance, December 31, 1994 7,624,412 $30,498 $43,976,713
Shared Technologies Inc.
Consolidated Statement of
Stockholders' Equity
For the three months ended
March 31, 1995
(unaudited)
Obligations Total
Accumulated to Issue
Stockholders'
Deficit Common Stock Equity
Balance, December 31, 1994 ($22,465,105) $1,806,500 $20,880,674
Issuance of Common Stock
per obligation to issue - (1,265,500) (0)
Conversion of Preferred E - - 0
Sale of Common Stock - - 1,173,000
Common stock issued in
lieu of compensation and - - 50,070
other
Net income 284,731 - 284,731
Dividend accretion of
redeemable put warrant (10,773) - (10,773)
Preferred stock dividends (99,215) - (99,215)
Balance, December 31, 1994 ($22,290,362) $541,000 $22,278,487
Shared Technologies Inc.
Notes to Consolidated Financial Statements
March 31, 1995
(Unaudited)
1. Basis of Presentation: The consolidated financial statements
included herein have been prepared by Shared Technologies Inc.
(the Company) pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments,
consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary to present a fair statement
of the results for interim periods. Certain information and
footnote disclosures have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading.
It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's December 31, 1994
report on Form 10-K. Certain reclassifications to prior year
financial statements were made in order to conform to the 1995
presentation.
2. Income Taxes: The Company and its subsidiaries file a
consolidated federal income tax return but generally file
separate state income tax returns. As of December 31, 1994, the
Company has net operating loss carryforwards for federal income
tax purposes of approximately $22.7 million, which expire, if
unused, from 2001 to 2007.
3. Acquisitions: In December and October 1993, the 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 March 31, 1995, 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.
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.
These 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.
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 give effect to the Access acquisition, as if it occurred on
January 1, 1994:
1994
Revenues $54,547,694
Cost of revenues 32,612,238
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Gross margin 21,935,456
Selling, general and administrative expenses 19,573,151
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Operating income 2,362,305
Other expense, net (459,378)
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Income before income tax credit 1,902,927
Income tax credit 550,000
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Net income 2,452,927
Preferred stock dividends (538,159)
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Net income applicable to common stock $1,914,768
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Net income per common share:
Net income $.25
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Weighted average number of common shares outstanding 7,753,409
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4. Contingencies: While providing services at the Jacob K.
Javits Convention Center in 1991, the Company licensed the right
to provide certain public pay telephone services at the Center to
Tel-A-Booth Communications, Ltd. In 1992, Tel-A-Booth filed a
claim against the New York Convention Center Operating
Corporation and its facilities manager, Ogden Allied Facility
Management, and against the Company seeking $10,000,000 in
damages for which no amounts have been provided in the
accompanying consolidated financial statements. While any
litigation contains an element of uncertainty, management is of
the opinion based on the current status of the claim that the
ultimate resolution of this matter should not have a material
adverse effect upon either results of operations, cash flows or
financial position of the Company.
On January 17, 1995, the Company's subsidiary Shared Technologies
Cellular, Inc. ("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
judgment 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.
In addition to the above matters, the Company is a party to
various legal actions, the outcome of which, in the opinion of
management, will not have a material adverse effect on the
Company's financial condition and results of operations.
5. Subsequent Events: In April 1995, the Company's cellular
subsidiary Shared Technologies Cellular, Inc. ("STC") completed
its SB-2 filing with the Securities and Exchange Commission and
became a public company. Prior to this date STC had been an
approximately 86% owned subsidiary of the Company. STC sold
950,000 shares of common stock at $5.25 which generated net
proceeds of $3,788,750, after underwriters' commissions and
estimated offering expenses. These proceeds are intended to be
used to finance marketing activities relating to STC's cellular
telephone rental service ($1.15 million), repayment of
indebtedness to the Company ($1.25 million), acquisition of
telecommunication equipment, billing technology management
information systems and centralized reservation systems, ($.5
million) and working capital and general corporate purposes (.9
million). The net effect on the consolidated financial
statements for the second quarter will be a gain of approximately
$1.0 million.
Item 2.
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Management's Discussion and Analysis of Results of Operations and
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Financial Condition
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Results of Operations:
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The Company's revenues rose to $12,843,000 for the three months
ended March 31, 1995, an increase of $4,947,000 or 63% over the
three months ended March 31, 1994. Each division produced
significant revenue growth, shared tenant services ("STS")
increased $2,241,000 or 37%, facility management services ("FMS")
increased $2,102,000 or 552% and cellular services grew $604,000
or 42%. $1,873,000 of the STS growth and all of the FMS growth
was attributable to the June 1994 acquisition of Access
Telecommunications Group, L.P. ("Access"). The remaining revenue
growth was achieved mainly at operations in existence at March
31, 1994.
Gross margin dropped to 39.6% of revenue for the three months
ended March 31, 1995 from 43.9% for the three months ended March
31, 1994. This decrease was mainly due to changes in the
Company's revenue mix. STS revenue accounted for 64.9% of total
revenue in 1995 versus 77.2% in 1994, FMS revenue increased to
19.3% of total revenue in 1995 from 4.8% in 1994 and cellular
services revenue dropped to 15.8% of total revenue in 1995 as
compared to 18.0% in 1994. Associated with this change in
revenue mix is the fact that each division produced significantly
different gross margins.
The STS division achieved a gross margin of 43.2% for the three
months ended March 31, 1995 compared to 45.6% for the three
months ended March 31, 1994. The decrease is mainly attributable
to the STS locations added in the Access acquisition. These
locations have historically achieved gross margins of
approximately 33%. The FMS division produced a gross margin of
21.3% for the three months ended March 31, 1995 compared to 12.5%
for the three months ended March 31, 1994. The cellular services
division produced a gross margin of 47.3% and for the three
months ended March 31, 1995, versus 45.1% for the three months
ended March 31, 1994. The following table illustrates the effect
of sales percentage and gross margin by division on total gross
margin for the three months ended March 31, 1995:
Contribution
% Gross to total
% Sales Margin gross margin
STS 64.9% 43.2% 28.0%
FMS 19.3% 21.3% 4.1%
Cellular services 15.8% 47.3% 7.5%
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TOTAL 39.6%
Selling general and operating expenses as a percentage of revenue
decreased to 36.4% for the three months ended March 31, 1995
versus 40.0% for the three months ended March 31, 1994. This
improvement is mainly due to the cost synergies created with the
overall growth of the Company, as there are significant fixed
costs that do not increase with sales volume.
Interest expense increased by $110,000 in the three months ended
March 31, 1995 over the three months ended March 31, 1994. This
increase is primarily due to the addition of a larger amount of
interest bearing debt during the third and fourth quarters of
1994.
Due to the factors above, the Company generated net income of
$285,000 for the three months ended March 31, 1995 compared to
$257,000 for the same period ended March 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's working capital deficit at March 31, 1995 was
$2,722,000 compared to $3,692,000 at March 31, 1994.
Stockholders' equity at March 31 1995 was $22,278,000 compared to
$9,568,000 at March 31, 1994.
Net cash provided by operations increased to $468,000 for the
three months ended March 31, 1995 versus $405,000 for the three
months ended March 31, 1994. Cash from operations was used to
reduce the working capital deficit through repayment of
outstanding debt and to pay preferred stock dividends.
The Company increased investing activities substantially for the
three months ended March 31, 1995 compared to the same period
last year. The Company invested $775,000 on capital expenditures
for the three months ended March 31, 1995 compared to $248,000
for the three months ended March 31, 1994. These investments
were made to upgrade equipment and expand operations at existing
locations.
During the first quarter of 1995 $1,173,000 was raised through
stock sales. These proceeds were used to help repay outstanding
debt and to finance capital expenditures. Net cash provided by
financing activities was $424,000 for the three months ended
March 31, 1995 compared to $411,000 used in financing activities
for the three months ended March 31, 1994.
The Company plans to continue to reduce the working capital
deficit and to expand operations throughout 1995. Cash for these
purposes is expected to be provided from operations, additional
debt and the completion of an initial public offering for the
Company's cellular subsidiary Shared Technologies Cellular, Inc.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SHARED TECHNOLOGIES INC.
By: /s/ Vincent DiVincenzo
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Vincent DiVincenzo
Senior Vice President-Finance
and Administration, Treasurer,
Chief Financial Officer
Date: May 12, 1995