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Coopers Certified Public Accountants
&Lybrand
PUBLIC TELEPHONE CORPORATION
----------
Financial Statements
for the year ended June 30, 1993
------
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Coopers certified public accountants
&Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors,
Public Telephone Corporation.
We have audited the accompanying balance sheet of Pubic Telephone
Corporation as of June 30, 1993, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We 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 financial position of Public
Telephone Corporation as of June 30, 1993, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company changed
its depreciation method of property, plant and equipment in fiscal 1993.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has limited liquidity which raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Coopers & Lybrand
Fort Wayne, Indiana,
August 13, 1993.
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Financial Statements
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PUBLIC TELEPHONE CORPORATION
BALANCE SHEET
As of June 30, 1993
--------
ASSETS
Current assets:
Cash $ 45,031
Accounts receivable 3,750
Prepaid expenses 1,916
Telephone parts 45,656
--------
Total current assets 96,353
Property, plant and equipment, at cost:
Telephone equipment 529,274
Capital lease assets 169,633
Furniture and fixtures 31,900
Vehicles 2 800
--------
733,607
Less accumulated depreciation and
amortization 119,609
--------
613,998
Intangible assets, net of accumulated
amortization of $11,084 7,537
--------
$717,888
========
<FN>
The accompanying notes are an integral part
of the financial statements.
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LIABILITIES
Current liabilities:
Accounts payable $ 1,080
Accrued expenses 3,316
Current portion, long-term debt (Note 5) 90,977
Current portion, capital lease obligation (Note 6) 44,893
--------
Total current liabilities 140,266
Long-term debt, less current portion (Note 5) 48,134
Capital lease obligation, less current
portion (Note 6) 105,398
--------
Total liabilities 293,798
--------
STOCKHOLDERS' EQUITY
Class A common stock, no par value, 100,000
shares authorized, 951 shares issued and
890 shares outstanding 951,000
Class B common stock, no par value, 100,000
shares authorized, none issued and outstanding -
Preferred stock, no stated value, 100,000 shares
authorized, none issued and outstanding
Accumulated deficit (465,910)
--------
485,090
--------
Treasury stock, at cost, 61 class A common shares (61,000)
--------
Total stockholders' equity 424,090
--------
$717,888
========
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PUBLIC TELEPHONE CORPORATION
STATEMENT OF OPERATIONS
For the year ended June 30, 1993
--------
Revenue:
Coin revenue $ 475,997
Non coin revenue 118,751
Service and other 35,215
---------
629,963
Operating expenses:
Salesman commissions 45,130
Site owner commissions 79,993
Telephone line charges 145,236
Depreciation - telephone equipment 94,071
---------
Gross margin 265,535
Administrative expenses 353,383
Selling expenses 55,612
---------
Operating loss (143,460)
Other expense 10,092
Interest expense 24,649
---------
Net loss before cumulative effect
of a change in accounting
principle (178,201)
Cumulative effect of change in
depreciation method (Note 3) 34,397
---------
Net loss $(143,804)
=========
<FN>
The accompanying notes are an integral part
of the financial statements.
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PUBLIC TELEPHONE CORPORATION
CHANGES IN STOCKHOLDERS' EQUITY
for the year ended June 30, 1993
--------
PTC/IL
PTC Common PTC/IL Common PTC Common Additional
Stock Stock Stock Subscribed paid capital
---------- ------------ ---------------- ------------
Balance at June 30, 1992 $585,000 $ 396 $ 15,000 $ 70,349
Receipt of subscription
receivable 15,000 - (15,000) -
Issuance of 126 shares
at $1,000 per share 126,000 - - -
Purchase 100 shares at
$1,000 per share - - - -
Merger of companies (Note 4) 225,000 (396) - (70,349)
Purchase 65 shares at
$1,000 per share - - - -
Issuance of 104 treasury
shores at $1,000 per share - - - -
Net loss - - - -
-------- ------ -------- --------
Balance at June 30, 1993 $951,000 $ - $ - $ -
======== ====== ======== ========
Retained
earnings Treasury
(deficit) stock Total
--------- -------- --------
Balance at June 30, 1992 $(167,851) - $502,894
Receipt of subscription
receivable - - -
Issuance of 126 shares
at $1,000 per share - - 126,000
Purchase 100 shares at
$1,000 per share - (100,000) (100,000)
Merger of companies (Note 4) (154,255) - -
Purchase 65 shares at
$1,000 per share - (65,000) (65,000)
Issuance of 104 treasury
shares at $1,000 per share - 104,000 104,000
Net loss (143,804) - (143,804)
--------- -------- --------
Balance at June 30, 1993 $(465,910) $(61,000) $424,090
========= ======== ========
<FN>
The accompanying notes are an integral part
of the financial statements.
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PUBLIC TELEPHONE CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 1993
--------
Cash flows from operating activities:
Net loss $(143,804)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 107,949
Loss on sale of assets 21,350
Cumulative effect of change in
depreciation method (34,397)
Changes in assets and liabilities:
Accounts receivable 1,800
Prepaid expenses 2,940
Telephone parts (5,007)
Accounts payable (1,538)
Accrued expenses (5,957)
--------
Net cash used in operating activities (56,664)
--------
Cash flows from investing activities:
Telephone equipment acquisitions and other (388,403)
Proceeds from sale of assets 42,249
--------
Net cash used in investing activities (346,154)
--------
Cash flows from financing activities:
Principal payments on notes payable (68,166)
Proceeds received from notes payable 122,960
Principal payments on notes payable -
former stockholders for repurchase of stock (106,000)
Principal payments on capital leases (17,695)
Proceeds from collection of notes receivable 1,400
Proceeds received from issuance of stock 245,000
Payments made to repurchase stock (15,000)
--------
Net cash provided by financing activities 162,499
--------
Net change in cash (240,319)
Cash, beginning of year 285,350
--------
Cash, end of year $ 45,031
========
Supplemental disclosure of non cash investing and financing activities:
During fiscal 1993 the Company reacquired 150 shares of stock by issuing
$150,000 interest bearing notes. Capital lease obligations of $153,480 were
incurred during the period when the Company entered into leases for new
equipment. A note payable to a stockholder of $7,200 was issued in exchange
for new equipment.
Cash paid during the period for interest: $ 25,055
========
<FN>
The accompanying notes are an integral
part of the financial statements.
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NOTES TO FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
General
- -------
Public Telephone Corporation (PTC) owns, operates and maintains pay telephones
connected to the network of regulated telephone companies at various third
party property owner locations. PTC also derives revenue from routing calls
to operator service companies. PTC commenced significant installation and
operation of pay telephones in April, 1992. PTC previously was incorporated
and operated under the name American Public Telephone Company. The name was
changed in fiscal 1993 after a merger with a company whose operations are
similar to PTC's and which commenced operations in January, 1991.
Intangible Assets
- -----------------
Included under this caption are deferred financing costs, organization and
start-up costs. Deferred financing costs are amortized over the term of the
debt to which the costs relate using the straight-line method (approximately
30 months). Organization and start-up costs are amortized over a period of
five years using the straight-line method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the respective
assets commencing when the equipment is installed and placed in service.
Costs and related accumulated depreciation are removed from the accounts for
assets retired from service and a gain or loss on disposition is recorded in
income when realized. Expenditures for normal repairs and maintenance are
charged to expense as incurred.
Income Taxes
- ------------
PTC accounts for certain income and expense items differently for financial
reporting and income tax purposes. Provisions for deferred taxes are made in
recognition of these temporary differences in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
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NOTES TO FINANCIAL STATEMENTS (Continued)
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2. GOING CONCERN
------------------
PTC has experienced recurring losses from operations, negative cash flow
from operations and its current liabilities exceed its current assets by
approximately $43,900. These factors raise substantial doubt about
PTC's ability to continue as a going concern. Management is currently
seeking additional financing to support operations. PTC is a start up
organization having operated only fifteen months, however, PTC has
experienced significant growth in revenue and anticipates similar growth
during the next year and beyond. This aggressive growth has occurred
through acquisitions of pay telephones (telephones in service grew from
approximately 110 at June 30, 1992 to approximately 350 at June 30,
1993). Subsequent to year-end, PTC purchased an additional 170 pay
telephones already in service. PTC has successfully obtained financing
to support growth and management is confident that sufficient financing will
be available in the future.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
3. CHANGE IN ACCOUNTING PRINCIPLE
----------------------------------
During fiscal 1993, PTC changed its method of depreciation from an
accelerated method to the straight-line method for all existing and newly
acquired assets included in property, plant and equipment. Management
feels that the straight-line method more accurately depicts actual
depreciation due to the nature of their assets. The cumulative affect of
this change in accounting method reduced the current year net loss by
$34,397. If the straight-line depreciation method had been used in
fiscal 1992 to compute depreciation expense, the companies net loss for
fiscal 1992 would have been reduced by approximately $8,000.
4. MERGER
---------
On March 18, 1993, PTC merged with Public Telephone Corporation (PTC/IL), an
Illinois corporation whose operations are similar to those of the Company.
The transaction was affected through the issuance of 225 common shares of
PTC stock for all of the issued and outstanding shares of PTC/IL. The
merger has been accounted for as a pooling of interests and accordingly, the
statement of operations reflects the combined year-to-date results of
operations.
Net revenues and net earnings of the individual entities are as follows:
Nine months ending
March 31, 1993: PTC PTC/IL Combined
--- ------ --------
Net revenues 41,481 360,731 402,212
Net earnings (loss) (164,113) (7,310) (171,423)
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NOTES TO FINANCIAL STATEMENTS (Continued)
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5. LONG-TERM DEBT
-----------------
Long-term debt at June 30, 1993 consisted of the following:
7.5% note due in monthly principal and
interest installments of $2,548 through
December 22, 1994 $ 43,251
8% note due in monthly principal and
interest installments of $896 through
June 8, 1995 19,800
Note payable due in monthly principal
installments of $960 through October 11, 1994 14,400
Other 10,460
--------
87,911
Notes payable to former stockholders:
------------------------------------
8.5% note due in monthly principal and
interest installments of $2,000 through
April 15, 1995 44,000
Other 7,200
--------
Total outstanding debt 139,111
Less current maturities 90,977
--------
$ 48,134
========
The aggregate maturities of the above long-term debt obligation are as
follows:
Fiscal year
ending
-----------
1994 $ 90,977
1995 48,134
--------
$139,111
========
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NOTES TO FINANCIAL STATEMENTS (Continued)
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6. CAPITAL LEASE AGREEMENTS
- ---------------------------
Amounts capitalized in connection with capital leases have been included in
property, plant and equipment as follows:
1993
----
Telephones and related equipment $169,633
Less accumulated depreciation 12,805
--------
$156,828
========
Lease amortization has been included in accumulated depreciation and
depreciation expense.
Future lease payments are as follows for each fiscal year ending June 30:
1994 $ 66,303
1995 67,645
1996 48,724
1997 9,648
--------
192,320
Less amount representing interest 42,029
--------
Present value of future lease payments 150,291
Current portion 44,893
--------
Capital lease obligations, net of current
portion $105,398
========
7. OPERATING LEASES
- -------------------
PTC leases office space with aggregate monthly rental payments of
$1,550. The lease terms expire in March, 1994 and August, 1994. Total
rental expense for the period ending June 30, 1993 was $16,790.
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NOTES TO FINANCIAL STATEMENTS (Continued)
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8. INCOME TAXES
---------------
PTC calculated its income tax provision in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
At June 30, 1993, PTC had net operating loss (NOL) carryovers for tax purposes
of approximately $375,000, which will expire as follows:
Fiscal year NOL
ending amount
----------- ------
2005 $ 43,000
2006 88,000
2007 43,000
2008 201,000
--------
$375,000
========
Of these loss carryover amounts, approximately $138,000 is subject to
limitation on its use in accordance with Internal Revenue Code section 382.
This section restricts the annual usage of loss carryovers when a significant
change in ownership has occurred, such as the merger discussed in Note 4.
The net deferred income taxes at June 30, 1993 were comprised of the
following:
Deferred tax liability $ -
Deferred tax asset $114,000
Valuation allowance (114,000) -
-------- --------
Net deferred income taxes $ 0
========
At June 30, 1993, the deferred tax asset primarily resulted from tax net
operating loss carryforwards and differences in depreciation expense for
financial statement and tax purposes. The deferred tax asset at June 30, 1993
was reduced by a valuation allowance to zero as the realization of the asset
is uncertain.
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