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EXHIBIT (a)1
INTERNATIONAL PAYPHONES, INC.
Financial statements
December 31, 1995 amd December 31, 1994
page 4 of 18 pages
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International Payphones, Inc.
Table of contents
Page
Auditors' opinion 1
Balance Sheets, December 31, 1995 and December 31, 1994 2
Statements of Earnings and Retained Earnings, For the
years ended December 31, 1995 and December 31, 1994 3
Statements of cash flows, for the years ended December 31, 1995
and December 31, 1994. 4
Notes to financial statements, December 31, 1995 and December 31, 1994 5
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[ERNEST M. SEWELL, CPA, PA LETTERHEAD]
To The Stockholders
International Payphones, Inc.
Hilton Head Island, South Carolina
We have audited the accompanying Balance Sheets of International Payphones, Inc.
(a Tennessee corporation) as of December 31, 1995 and December 31, 1994, and the
related Statements of Earnings and Retained Earnings and Cash Flows for years
then ended. These financial statements are the responsibility of the 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 International Payphones, Inc.
and the results of its operations and its cash flows for the years ended
December 31, 1995 and 1994 in conformity with generally accepted accounting
principles.
/s/ Ernest M. Sewell, CPA
Bluffton, South Carolina
April 24, 1996
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INTERNATIONAL PAYPHONES, INC.
BALANCE SHEETS
As of December 31, 1995 and 1994
1995 1994
--------------- ---------------
ASSETS
Current Assets
Cash $ 17,321.08 $ 25,530.67
Accounts receivable - trade 48,996.42 35,913.21
Other amounts receivable (Note D) 5,600.00 25,574.54
Parts and supplies inventory 9,420.00 11,625.00
--------------- ---------------
Total Current Assets 81,337.50 98,643.42
Property and Equipment
Property and equipment (Note B and F) 816,148.89 720,142.61
Accumulated depreciation (539,338.28) (455,592.94)
--------------- ---------------
Net Property and Equipment 276,810.61 264,549.67
--------------- ---------------
TOTAL ASSETS $ 358,148.11 $ 363,193.09
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt (Note F) $ 73,978.08 $ 48,761.05
Accounts payable - trade 2,717.23 7,822.66
Accrued payroll and payroll taxes - 10,265.07
Other accrued liabilities (Note E) 18,391.81 24,220.91
Deferred income taxes (Note C) 6,000.00 5,100.00
--------------- ---------------
Total Current Liabilities 101,087.12 96,169.69
Long-term debt - net of current portion (Note F) 118,654.10 81,515.83
--------------- ---------------
TOTAL LIABILITIES 219,741.22 177,685.52
Shareholders' Equity
Common stock 3,321.00 3,321.00
Additional paid-in capital 106,000.00 106,000.00
Retained earnings 29,085.89 76,186.57
--------------- ---------------
Total Shareholders' Equity 138,406.89 185,507.57
--------------- ---------------
TOTAL LIABILITIES AND EQUITY $ 358,148.11 $ 363,193.09
=============== ===============
The accompanying notes are an integral part of this statement.
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INTERNATIONAL PAYPHONES, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
For the years ended December 31, 1995 and 1994
1995 1994
--------------- ---------------
Revenue $ 1,194,620.91 $ 1,135,734.73
Direct costs 608,061.14 553,336.70
--------------- ---------------
Gross Profit 586,559.77 582,398.03
General and Administrative Expenses 563,028.15 546,365.04
--------------- ---------------
Earnings from operations 23,531.62 36,032.99
Other income (expense):
Interest income (665.84) -
Gain (loss) on asset sale 916.16 (2,731.45)
--------------- ---------------
Earnings before taxes 25,113.62 33,301.54
Provision for income tax expense (Note C) 2,300.00 2,535.00
--------------- ---------------
Net earnings 22,813.62 30,766.54
BEGINNING RETAINED EARNINGS 76,186.57 88,677.65
--------------- ---------------
99,000.19 119,444.19
Less dividend distributions
(69,914.30) (43,257.62)
--------------- ---------------
ENDING RETAINED EARNINGS $ 29,085.89 $ 76,186.57
=============== ===============
The accompanying notes are an integral part of this statement.
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INTERNATIONAL PAYPHONES, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 and 1994
1995 1994
--------------- ---------------
Cash Flows From Operating Activities
Net income (loss) $ 22,813.62 $ 30,766.54
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Depreciation 91,174.16 96,689.77
(Gain) loss on disposal of property (916.16) 2,731.45
(Increase) decrease in accounts receivable (13,083.21) (4,610.68)
(Increase) decrease in inventories 2,205.00 32,152.00
Increase (decrease) in accounts payable (5,105.43) (16,981.09)
Increase (decrease) in income taxes payable 3,000.00 (5,280.00)
Increase (decrease) in other accrued expenses (5,829.10) 3,112.86
Increase (decrease) in payroll taxes (10,265.07) 9,691.53
--------------- ---------------
Total adjustments 61,180.19 117,505.84
--------------- ---------------
Net Cash Provided (Used) by Operating Activities 83,993.81 148,272.38
Cash Flows From Investing Activities
Proceeds from disposal of property 18,250.06 5,312.20
Purchases of fixed assets (71,329.00) (18,225.16)
Leasehold improvements - (10,274.42)
--------------- ---------------
Net Cash Provided (Used) by Investing Activities (53,078.94) (23,187.38)
Cash Flows From Financing Activities
Proceeds from long-term debt 96,329.00 30,893.30
Decrease in other accounts receivable 19,974.54 29,012.38
Repayment of long-term debt (49,068.19) (52,552.75)
Repayment of capital lease obligations (34,345.51) (59,869.12)
Repayment of stockholder loans - (22,575.20)
Dividends paid (72,014.30) (43,257.62)
--------------- ---------------
Net Cash Provided (Used) by Financing Activities (39,124.46) (118,349.01)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH (8,209.59) 6,735.99
CASH AT BEGINNING OF YEAR 25,530.67 18,794.68
--------------- ---------------
CASH AT END OF YEAR $ 17,321.08 $ 25,530.67
=============== ===============
Supplemental Disclosures
Noncash Investing and Financing Activities:
Assets acquired through capital lease $ (49,440.00) $ (66,598.00)
Capital lease used to acquire assets 49,440.00 66,598.00
Cash Paid During the Year for:
Interest $ 13,489.00 $ 20,919.00
Income taxes 2,300.00 2,535.00
The accompanying notes are an integral part of this statement.
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INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and December 31, 1994
Note A - General
International Payphones, Inc. is a Tennessee corporation formed in 1985 to
sale, install, lease and maintain pay telephone equipment. The majority of the
Company's operations are in the eastern region of the the state of Tennessee
where it owns approximately 500 telephones and receives pay telephone coin
income and long distance commissions. Under agreements with pay phone site
location owners the Company collects the pay phone coin revenue and the long,
terms run distance comission income and pays a percentage of this revenue to the
site location owner each month. These agreements cover periods ranging from five
to twenty years.
Note B - Property and equipment
Property and equipment is stated at cost and is depreciated using the
straight-line method over useful lives ranging from 5 to 7 years for equipment
and vehicles and 31.5 years for leasehold improvements. Repairs and maintenance
are charged to expense when incurred and improvements which substantially
prolong the useful lives of the assets involved are capitalized and depreciated.
The cost of assets classified by major categorys is as follows:
1995 1994
--------------- ---------------
Furniture & fixtures $ 58,120.58 $ 58,120.58
Office equipment 35,998.97 35,998.97
Telephone equipment 515,563.78 466,123.78
Leasehold improvements 74,802.66 74,802.66
Vehicles 131,662.90 85,096.62
--------------- ---------------
Total cost 816,148.89 720,142.61
Note C - Income taxes
The Company is an S corporation for Federal income tax purposes. As a
result, no provision for Federal income taxes is made by the Company because the
individual stockholder's report and pay Federal income tax on their allocated
percentage of the corporation's net earnings. The Company does pay Tennessee
state excise tax on its net earnings at a 6% tax rate. There are timing
differences in how items of income and expense are reported on the tax return
and in the financial statements. These differences involve trade receivables for
long distance commission income which is reported as income when earned in the
financial statements but is reported as received for tax purposes. In addition,
depreciation expense is claimed under IRS Code Section 179 and using accelerated
writeoff methods for tax purposes while the straigthtline writeoff method is
used for financial reporting. State excise tax is provided for in the financial
statements as the items of income and deduction are recognized therein
regardless of when they are reported on the income tax return. As a result of
these timing differences, deferred tax liabilities of $ 6,000 and $ 3,000,
respectively, have been accrued at December 31, 1995 and December 31, 1994.
Note D - Other amounts receivable:
The Company is affiliated through common stock ownership and control with
other companys involved in the telecommunications industry. Loans to these
affiliates on open account totaled $ 19,886 at December 31, 1994. Loans to
employees at December 31, 1994 totaled $ 7,937.
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INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATEMENTS - Continued
December 31, 1995 and December 31, 1994
Note E - Other accrued liabilities:
Other accrued liabilities include the Company's estimate of accrued site
commissions due as of December 31, 1995 and December 31, 1994. Under the terms
of the Company's royalty agreements with its customers, site commissions are
payable after the end of the month in which the net coin and long distance
revenue is received. As of December 31, 1995 and December 31, 1994, the Company
has accrued approximately two months, respectively, of unpaid site commissions.
Note F - Long-term debt:
Long-term debt at December 31, 1995 and December 31, 1994 includes the
following:
1995 1994
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Note payable to First National Bank of Gatlinburg dated
November 2, 1994 in the face amount of $ 17,000 payable in 18
monthly installments of $ 1,000 including interest at prime
plus 1.5% $ 4,377.89 $ 15,269.36
Note payable to Conquest Communications dated in December,
1993 in the face amount of $ 25,000 payable in monthly
installments with interest. - 5,117.01
Note payable to First Union Bank of Georgia dated October 11,
1993 in the face amount of $ 24,763 payable in 60 monthly
installments of $ 487 including interest at 6.75%. This note is
collateralized by a 1994 Ford Explorer. - 19,773.54
Notes payable (two) to First Union Bank of South Carolina
dated September 17, 1993 in the face amounts of $15,022 each, both
payable in 60 monthly installments of $292 including interest at
6.25%. These notes are collateralized by two 1993 Ford cargo vans. 18,219.80 23,457.12
Note payable to First Tennessee Bank dated January 31, 1994 in
the face amount of $ 13,893 payable in 60 monthly installments of
$ 289 including interest at 9.00%. This note is collateralized by
a 1994 Toyota Corolla. 9,422.68 11,681.97
Note payable to Nationsbank of South Carolina dated December
14, 1993 in the face amount of $ 15,596 payable in 60 monthly
installments of $ 309 including interest at 7.00%. This note is
collateralized by a 1994 Ford Econoline. 10,187.33 12,867.48
Note payable to First National Bank of Gatlinburg dated August
28, 1995 in the face amount of $ 25,000 payable in 23 monthly
installments of $ 1,000 including interest at prime plus 2.362%.
This note is collateralized by pay phones and royalty contracts. 21,890.59 -
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INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATEMENTS - Continued
December 31, 1995 and December 31, 1994
Note F - Long-term debt -continued:
Capitalized lease purchase agreement dated January 26, 1994 in
the original sum of $ 66,370, due in monthly installments of $
2,139 through December, 1996, decreasing to $ 1,123 through
March, 1997, including sales tax and finance charges at 14%. 21,412.70 42,110.40
Capitalized lease purchase agreement dated May 5, 1995 in the
original sum of $ 49,440, due in monthly installments of $ 1,842
through March, 1998, including sales tax and finance charges
at 19%. 36,981.01 -
Note payable to Nationsbank of South Carolina dated November
4, 1995 in the face amount of $ 71,329 payable in 60 monthly
installments of $ 1,484 including interest at 8.95%. This note is
collateralized by a 1995 Mercedes 70,140.18 -
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192,632.18 130,276.88
Less current portion (73,978.08) (48,761.05)
--------------- ---------------
$ 118,654.10 $ 81,515.83
=============== ===============
Note G - Operating leases
The Company leases its office space from one of the stockholders under an
oral agreement at a monthly rate of $ 1,000 plus utilities, taxes, repairs,
maintenance and leasehold improvements. The Company also leases three vehicles
under separate noncancelable operating lease agreements dated March 25, 1993,
January 22, 1994 and April 21, 1995. These agreements call for monthly lease
payments of $ 509, $ 1,006, and $ 444, respectively, including sales tax. Each
agreement allows for additional charges for excess milage upon expiration of the
lease. Future minimum annual lease payments under the vehicle leases are as
follows:
Year ended December 31, 1995 $ 22,183.00
Year ended December 31, 1996 18,936.00
Year ended December 31, 1997 11,371.00
Year ended December 31, 1998 1,333.00
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$ 53,823.00
Note H - Events subsequent to December 31, 1995
Effective March 15, 1996 the Company entered into a merger agreement with
PhoneTel Technologies, Inc. under which 100% of the Company stock was acquired
by Phonetel and the Company ceased to exist as a seperate entity.
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