Item 1. BUSINESS
General
Page America Group, Inc. (the "Company" or "Page America") provides paging, messaging and information products and services through networks which it owns and operates as a radio common carrier ("RCC") under licenses from the Federal Communications Commission ("FCC"). As of December 31, 1995, the Company provided paging services through 11 offices in 14 states to approximately 221,000 pagers in geographic areas encompassing a total population of 34 million people.
The Company's strategy is to concentrate its operations in major metropolitan markets in which it can achieve both critical mass and a substantial market share position. The Company targets specific user segments and, through its broad distribution capabilities, markets and delivers its comprehensive package of paging and value-added messaging services to each particular segment. The Company has secured licenses for multiple channels in each of its markets and has developed, and continues to develop, networks which can support significant future growth in paging units as well as value-added messaging and information services. The Company emphasizes customer ownership of pagers, as compared to leasing of pagers, which significantly reduces the Company's capital costs. At March 1, 1996, approximately 74 percent of the Company's units in service were customer owned.
The accompanying financial statements have been prepared on a going concern basis. The Company, since its inception, has experienced a deficiency in working capital and recurring losses. In 1995, as a result of non-compliance by the Company with certain covenants of its credit facility, the terms were modified to accelerate the final maturity to December 29, 1995, and the subordinated notes were modified to provide for a final maturity of six months thereafter. The credit facility was not repaid at maturity causing the credit facility and the subordinated notes to be in default (see Note E of Notes to Consolidated Financial Statements). Such debt is classified as a current liability and the Company's current liabilities exceeded its current assets by $52.4 million at December 31, 1995. The Company intends to pay the balance due under the credit facility and the subordinated notes in 1996 from cash generated by the sale of its assets. Alternatively, the Company intends to complete a refinancing which repays the balance due under the credit facility and amends and extends the subordinated notes. The successful completion of one of these efforts is essential as the Company has no other immediate plans that will provide sufficient cash flows to satisfy its obligations. There can be no assurance that the Company will have sufficient funds to finance its operations, which continue to show losses, through the year ending December 31, 1996.
All of these matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classifications of liabilities that may result from the outcome of this uncertainty.
Since October 1995, Daniels & Associates L.P. has been retained by the Company as its non-exclusive financial advisor to render financial advisory services to the Company in connection with the possible sale of one or more of the Company's paging operations.
Page America was incorporated in 1976 under the laws of the State of New York. The Company's principal executive offices are located at 125 State Street, Hackensack, New Jersey 07601, and its telephone number is (201) 342-6676. Unless the context indicates otherwise, the terms "Company" and "Page America" as used herein refer to Page America Group, Inc. and its subsidiaries.
Sale of California and Florida Operations
On July 28, 1995, the Company sold to Paging Network of Florida, Inc. its California and Florida paging assets for a cash purchase price of $19.4 million. Approximately $1.0 million of the purchse price is held in escrow. Management expects that the escrow will be released to the Company in accordance with the time frame set forth in the agreement. The assets sold had a net book value of approximately $19.1 million and consisted of the assets which the Company acquired from Crico Communications Corporation ("Crico") on December 30, 1993 and the 900 Mhz channel which is licensed to provide state-wide coverage in California which the Company acquired in 1994 for a purchase price of $500,000. The purchase price paid by the Company for the Crico assets consisted of $12,650,000 in cash paid to Crico's lenders, the issuance of an aggregate of 1,435,903 shares of Common Stock to Crico's lenders and the issuance of 240,000 shares of Common Stock and warrants to purchase 130,000 shares of Common Stock at an exercise price of $5.00 per share to a company related to certain shareholders of Crico. After expenses, the sale resulted in a loss of approximately $718,000.
Restructuring of Debt
On July 28, 1995, concurrent with the sale of the Company's Florida and California paging assets, the Company's senior secured credit facility with certain banks ("Credit Facility") was amended. Among other things, the amendment provided for an acceleration of the final maturity to December 29, 1995 and modified the financial covenants so that the Company would not be in default as of the amendment date. The Company used a portion of the net proceeds from the sale of its Florida and California operations to reduce the debt by $11.8 million and prepay interest at the LIBOR rate from August 1, 1995 through December 29, 1995. In its third fiscal quarter the Company recorded a charge of approximately $1.8 million related to the amended agreement which included the write-down of deferred financing costs of approximately $1.1 million. The Credit Facility was not repaid and the lenders have declared the Company in default. The Credit Facility is secured by substantially all the assets of the Company.
On July 28, 1995, the Company's 12 percent subordinated notes due 2003 were modified to provide for a final maturity of six months subsequent to the final maturity of the Credit Facility and to defer the cash payment of interest until maturity. As a result of the default under the Credit Facility, the Company is in default of the subordinated notes. Commencing January 1, 1995, interest is increased from 12 to 15 percent per annum, compounded semi-annually, and is satisfied by the issuance of additional promissory notes with terms substantially identical to the subordinated notes, as amended. In 1995 the Company recorded a charge of approximately $500,000 related to the modified agreement, which includes the write-down of deferred financing costs of approximately $479,000. If a change in control of the Company occurs, the note holders will have the right to require the Company to repurchase the notes at par plus accrued interest.
Background of the Paging Industry
Radio paging began more than four decades ago as an adjunct to telephone answering services, delivering tone-only messages to subscribers. Beginning in the 1970's, cost-effective technological innovations and regulatory reforms helped to accelerate the use of paging services. Advances in microprocessor technology facilitated dramatic reductions in the size and weight of pagers. In 1982, the FCC increased the number of available channels for paging, further stimulating growth of the industry.
During the 1980's, the paging industry expanded significantly. Factors contributing to the growth in the paging industry include: (i) a continuing shift towards a service-based economy and a resultant need to keep in contact; (ii) increasing mobility among workers; (iii) increasing awareness of the benefits of mobile communications; (iv) a reduction in the price of pagers; (v) product distribution at the retail level; and (vi) increasing availability of information service-based offerings.
In addition, the benefits of mobile and wireless communications have gained widespread acceptance as a result of the growth in cellular communications. The Company believes that paging will continue to grow with the wireless communications industry generally, because it believes paging is the most cost-effective form of mobile communication. Since paging is a form of one-way communication, it is less expensive than communicating by cellular telephones. Pagers and air time required to transmit an average message cost less than equipment and air time for cellular telephones. In fact, some users of cellular telephones use a pager in conjunction with their telephones to screen incoming calls and to minimize usage-based charges.
The availability of value-added paging products and services is creating demand within certain market segments which previously had not been attracted by the benefits of basic paging services alone. Demand for paging services is anticipated to increase further as a result of technological advances which permit messaging to be integrated into business tools (such as lap top and palm top computers) and into consumer products (such as wristwatches).
Business Strategy
The Company's objective is to maximize revenues by focusing on a business strategy which emphasizes the following elements: (i) major metropolitan market focus; (ii) broad product distribution capabilities; (iii) network infrastructure and channel capacity; (iv) comprehensive service options; (v) targeted market segments; (vi) value-added services; and (vii) customer ownership of pagers.
Major Metropolitan Market Focus. The Company presently operates in the New York and Chicago metropolitan area markets serving an aggregate population of 34 million. Based upon its knowledge and experience in these markets, the Company believes that in each of its markets, the four largest competitors serve approximately 80 percent of pager users. Significant barriers to entry exist in the New York and Chicago metropolitan area markets, since there are no more FCC paging channels currently available for license and substantial capital would be required to construct and operate efficient and competitive paging systems.
Broad Product Distribution Capabilities. The Company has developed and is continuing to expand multiple distribution channels which reach targeted market segments. Products are distributed through a number of different outlets, including 11 sales offices, four company-owned retail stores, a direct sales force and resellers.
Network Infrastructure and Channel Capacity. The Company believes that controlling licenses to a large number of FCC-allocated paging channels is important to adequately service both current and future demand for paging and messaging services. The New York network utilizes 220 transmitters over 14 available paging channels to provide service to 140,000 pagers throughout most of Connecticut, New York State south of Albany (including Long Island), New Jersey and Eastern Pennsylvania. The Chicago network consists of 80 transmitters over 11 available paging channels. This network provides service to 81,000 pagers from the Wisconsin border, throughout Illinois, Northern Indiana and into Western Michigan. The Company has substantial capacity to expand in its New York and Chicago metropolitan area markets utilizing its existing network without the need for more licenses or significant additional capital expenditures for transmission and telephony infrastructure.
Comprehensive Service Options. Since the Company has multiple channels, it is able to offer customers the widest possible choice in services (tone, tone/voice, numeric, alphanumeric), geographic coverage and pricing options. Customers select from a wide variety of pagers, which come with both silent and audible alerts. Convenience, as evidenced by the location of the sales offices, and flexible policies regarding service plan options are significant components of why customers select Page America.
Targeted Market Segments. The Company has designed its product and service offerings to attract defined user groups. The Company's marketing efforts are focused on four principal market segments: mobile workers; medical and other on-call professionals; business professionals seeking a competitive advantage and the home market.
Value-Added Services. The Company provides subscribers with value-added services, such as voice mail messaging and operator-assisted alphanumeric messaging, as well as equipment related services, including loss and damage protection and paging maintenance programs. Such offerings include: PageTalkSM, a voice mail system; PageGramSM, which involves delivery of messages from a personal computer; Group Calling, which allows notification of several pager users simultaneously with a common telephone number; and Nationwide Paging which enables a subscriber to be paged in over 200 cities across the United States. Provision of value-added services enables the Company to maximize revenues.
Customer Ownership of Pagers. The Company emphasizes customer ownership of pagers, as compared to leasing, since customer ownership significantly reduces the Company's capital costs and reduces potential exposure to changes in technology. Approximately 74 percent of the Company's units in service are customer owned (including resellers).
Paging Services
Paging operations consist of a process of signaling, through the use of a radio transmission network, a portable pocket size, battery-operated radio receiver carried by a subscriber, commonly called a "pager" or a "beeper". Each paging subscriber is assigned a distinct telephone number. When a telephone call for a subscriber is received at one of the Company's computerized paging terminals, the Company transmits a radio signal to the subscriber's pager, which causes the pager to emit a beep, vibrate or generate another signal and, in certain cases, provides the subscriber with additional information from the caller.
The Company currently provides the following four types of pagers:
Type of Pager Functions
Tone Only Alerts the user with a signal, so the user will know to call a pre-determined telephone number (such as the office).
Tone and Voice Alerts the user with a signal, followed by a brief voice message.
Numeric (Digital) Display Visually displays numbers (such as a telephone number or a coded message) on a screen to communicate with the user.
Alphanumeric Display Visually displays up to one-third of a page of text and/or numbers on a screen so the user receives actual messages, instead of just a telephone number or coded message.
The table below sets forth the number of various types of pagers in service with subscribers of the Company at the dates indicated:
Types of Pagers in Service with Subscribers of the Company
The Company sells and leases a variety of paging models, including credit card-sized pagers, pen-like pagers, wristwatch pagers and conventional pagers, with a range of available options, such as silent vibrating alert and extended message memory. The Company provides its subscribers with local, wide-area and national coverage. While the Company continues to purchase most of its pagers from NEC America, Inc., it intends to purchase pagers from a number of sources.
The Company's value-added services include PageTalkSM, which combines the features of an answering machine and paging, enabling a caller to leave a voice message in the private mailbox of an end user on the Company's voice mail system, which in turn pages the end user to call the mailbox and retrieve the message; PageGramSM, which permits people originating messages to the end user to use either an operator or a personal computer to send a message to an end user who carries an alphanumeric pager; Group Calling, which allows the notification of several pager users simultaneously with a common telephone number; and Nationwide Paging, which allows a pager user to be paged in over 200 cities across the United States on a common frequency.
The Company provides paging services to pagers that are either (i) owned by the Company and leased to its subscribers, (ii) owned by its subscribers or (iii) owned by third party resellers which buy pagers from the Company, lease or sell such pagers to their own subscribers and resell the Company's paging services as resellers under agreements with the Company. Subscribers who own their own pagers pay a monthly paging service fee to the Company. Subscribers who lease pagers pay a monthly rental fee which is combined with a monthly paging service fee. Service fees, leasing rates and purchase prices for pagers vary widely by region served, service type and number of pagers purchased or leased by the subscriber.
The following table sets forth the respective numbers and percentages of pagers that are (i) serviced directly by the Company and owned by the Company, (ii) serviced directly by the Company and owned by subscribers and (iii) serviced by the Company through third party resellers, which may be owned by the third party resellers or by their subscribers.
Ownership of Pagers in Service with Subscribers of the Company
Technical Facilities
The Company owns and operates RCC network facilities in each of its two markets. Page America presently provides service over six primary channels in New York and three primary channels in Chicago enabling the Company to provide a wide range of coverage, pricing and product offerings. One channel in New York, for example, is devoted exclusively to alphanumeric service. The Company's operations are highly automated and centralized, with all sales offices linked to a centralized billing, inventory and customer service computer system, and allowing direct interfacing from its resellers.
The Company completed construction of its own RCC system in New York in 1985. On July 13, 1990, the Company acquired the New York metropolitan area paging assets and business of NYNEX Mobile Communications Company and its affiliates ("NYNEX"). This acquisition increased the Company's number of units in service by approximately 74,000 pagers. The New York technical facilities currently consist of seven paging terminals. The New York network utilizes 220 transmitters over 14 available channels to provide service to 140,000 pagers throughout most of Connecticut, New York State south of Albany (including Long Island), New Jersey and Eastern Pennsylvania.
The Chicago RCC facilities, which were acquired by the Company in 1984, serve approximately 81,000 pagers in the Illinois and Northwestern Indiana areas. The Chicago technical facilities consist of three paging terminals, and the Chicago network consists of 80 transmitters over 11 available channels. This network provides service from the Wisconsin border, throughout Illinois, Northwestern Indiana and into Western Michigan.
Marketing
The Company's customers include individuals, corporations and other organizations whose business or personal needs involve field operations or require substantial mobility, accessibility and the need to receive timely information. Potential users of pagers include people in every industry. The Company services four principal market segments: mobile workers; medical and other on-call professionals; business professionals seeking a competitive advantage and the home market.
In order to reach these markets, the Company has developed four channels of distribution: a direct sales force, resellers, independent retail dealers and retail stores. Each of the Company's distribution channels focuses on those market segments which it addresses most cost effectively. At December 31, 1995, the Company employed 86 persons in direct sales and marketing support positions.
The following table sets forth the respective revenues and percentages of revenues that are attributed to (i) the Company's direct sales force, including retail dealers, (ii) third party resellers and (iii) retail stores.
Channels of Distribution
The Company's own direct sales force operates out of 11 sales offices. The direct sales effort is supported through a multimedia marketing campaign with advertising, promotion and subscriber enhancement campaigns. The Company also advertises in print media, including periodicals and yellow pages.
The Company also has a sales force which sells products and services in bulk to resellers and retail dealers. Resellers purchase service at wholesale rates from the Company, and in turn, provide service to their own customers. Resellers contribute to the Company's profits without the Company having to incur any significant selling or administrative overhead. Independent retail dealers, consisting of electronics and video stores, also market the Company's products.
The Company, in order to market its products directly to the consumers and reduce its cost of sales has opened three Company-owned stores in New York and one in Illinois. These stores sell cellular as well as paging products and maintain a high end, high tech appearance attracting consumers at all levels.
The Company's marketing strategies have been focused on small to medium-sized customer accounts, with the result that the Company is not dependent on any single customer or reseller. No single customer or reseller accounted for more than one percent of the Company's total revenues in the fiscal year ended December 31, 1995.
Regulation
The construction and operation of RCCs are subject to both federal and state regulation, principally by the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Company believes it is in compliance with all applicable federal and state regulations.
The FCC's review and revision of rules affecting paging companies is ongoing and the regulatory requirements to which the Company is subject may be modified significantly. The FCC recently has proposed adopting a market area licensing scheme for all paging channels under which carriers would be licensed to operate on a particular channel throughout a broad geographic area, rather than being licensed on a site-by-site basis. Under the proposal, existing paging facilities would be entitled to protection as grandfathered systems. The ability of paging carriers to make major modifications to their current systems may be affected during the transition to the market area licensing process. On February 8, 1996, the FCC announced a temporary cessation in the acceptance of applications for new paging stations, and placed certain restrictions on the extent to which current licensees can expand into new territories on existing channels. The FCC has initiated an expedited comment period in which it will consider whether these interim processing procedures should be relaxed. The FCC also has proceedings underway that may have a significant impact on the manner in which telephone numbers are assigned and utilized by common carriers, including paging companies. Some of the alternatives under consideration by the FCC, if adopted, could adversely affect the Company.
RCC operations may be conducted only on channels assigned by the FCC. The FCC grants a license for the use of such channels only upon compliance with FCC regulations. Upon receiving a grant, a licensee is authorized to construct and operate an RCC facility in the assigned area using the designated channel. In the Company's markets all available channels have been allocated.
The FCC licenses granted to the Company are for terms of 10 years, at the end of which time renewal applications must be approved by the FCC. The Company's current licenses all expire in 1999. In the past, FCC renewal applications routinely have been granted upon a demonstration of compliance with FCC regulations and adequate service to the public. The FCC has granted each renewal license the Company has filed. Although the Company is unaware of any circumstances which would prevent the grant of any renewal applications, no assurance can be given that any of the Company's licenses will be renewed by the FCC. In addition, the FCC has the authority to revoke or modify licenses. No licenses owned by the Company have ever been revoked.
The Communications Act requires licensees such as the Company to obtain prior approval from the FCC for the transfer of control of any construction permit or station license, or any rights thereunder. The Communications Act also requires prior approval by the FCC of acquisitions by the Company of other paging companies and transfers by the Company of a controlling interest in any of its licenses or construction permits. The FCC has approved each acquisition and transfer of control for which the Company has sought approval.
The Communications Act also limits foreign ownership of entities that hold licenses from the FCC. All the Company's FCC licenses are owned by wholly-owned subsidiaries of the Company. As a result, no more than 25 percent of the Company's stock may be owned or voted by aliens or their representatives, a foreign government or its representatives, or a foreign entity.
In addition to regulation by the FCC, certain states impose various regulations on certain paging operations of the Company. Such regulations may require the Company to obtain certificates of public convenience and necessity before constructing paging facilities or offering paging services and before modifying, expanding or abandoning such services. The Company may also be subject to regulations requiring the submission, for prior approval, of the rates, terms and conditions under which it plans to provide service, or any changes to those rates. Contracts for service and financial information regarding the Company may also be required to be filed. Those states which regulate paging services may also require the Company to obtain prior approval for the sale or acquisition of controlling interests in any other paging company certificates, licenses, construction permits or assets. The Company believes that to date all such required certificates and state approvals have been granted. Although no assurances can be given with respect to future approvals, the Company knows of no reason to believe such approvals will not be granted to the Company in connection with anticipated future requests.
From time to time, legislation which could potentially affect the Company, either beneficially or adversely, is proposed by federal and state legislators. In 1993, federal legislation was enacted which permits auction of new radio spectrum allocated by the FCC to new or existing services which may have the effect of increasing competition for scarce spectrum and affecting costs of operation in markets in which the Company operates.
Competition
The Company experiences competition, from independent companies as well as Regional Bell Operating Companies, in its efforts to attract and retain customers for its services in the markets in which it operates. Competition for subscribers to the Company's paging services is based primarily on the quality, price and breadth of services offered (including geographic coverage in each market served). Since the transmitting and receiving equipment is virtually identical, companies differentiate themselves by marketing, channels of distribution, price competition, the variety of service options and breadth of service coverage (more transmitters covering a larger territory). The Company believes that based on the quality, price and breadth of services offered, it generally competes effectively with its competitors.
Many RCCs in the United States are small companies serving limited market areas; however, some of the Company's competitors, including Regional Bell Operating Companies, are larger, have greater financial resources and are more established than the Company.
In addition, future technological advances in the telecommunications industry could create new services or products competitive with the paging services currently provided by the Company. There can be no assurance that the Company would not be adversely affected in the event of such technological change.
Employees
At February 29, 1996, Page America employed 162 persons, none of whom was represented by a labor union. Page America believes that its relations with its employees are good.
Item 2.

Item 2. Properties
The Company leases approximately 15,200 square feet of office space at 125 State Street, Hackensack, New Jersey, under a lease expiring in 2000, at an annual base rent of $281,000, approximately 10,715 square feet of office space at 1919 South Highland Avenue, Lombard, Illinois, under a lease expiring in 2005, at an annual base rent of $151,000 and approximately 500 square feet of retail space at 41 East 42nd Street, New York, New York, under a lease expiring in 2004, at an annual base rent of $84,000. The Company has several other leases for office and retail space which are not material individually and which aggregate $472,000 per year expiring at various dates between 1996 and 2005. The Company does not own any material real property. The Company also leases sites for its transmitters on commercial broadcast towers, buildings and other fixed sites at various rentals for various terms. The Company believes its facilities are suitable and adequate for its purposes.
Item 3.

Item 3. Legal Proceedings
The Company is involved in various lawsuits and proceedings arising in the normal course of business. In the opinion of management of the Company, the ultimate outcome of these lawsuits and proceedings will not have a material effect on the results of operations, financial position or cash flows of the Company.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Common Stock of the Company is listed on the American Stock Exchange ("AMEX") under the symbol PGG. The Company does not meet certain financial and other guidelines of the AMEX for continued listing of its Common Stock on the AMEX. As a result, the staff of the AMEX has determined to remove the Company's Common Stock from trading on the AMEX; however, the Company has appealed this determination. The appeal is presently pending and the Company believes that its Common Stock will continue to be traded on the AMEX pending the determination of its appeal. The following table sets forth for the calendar periods indicated the closing sales prices on the AMEX. High Low First Quarter $5.13 $4.13 Second Quarter 4.25 3.50 Third Quarter 5.13 3.00 Fourth Quarter 4.38 2.88
First Quarter $3.75 $2.50 Second Quarter 3.38 0.50 Third Quarter 1.00 0.56 Fourth Quarter 0.75 0.13
There were approximately 2,043 shareholders of record of Common Stock as of February 29, 1996. This number does not include beneficial owners holding shares through nominee or "street" names.
Dividend Policy
The Company has never declared or paid cash dividends on its Common Stock and does not anticipate paying cash dividends to the holders of its Common Stock in the foreseeable future. The payment of dividends on Common Stock and Preferred Stock is also restricted pursuant to the provisions of the Company's Credit Agreement (the "Credit Agreement"). The Company's outstanding series of Series One Convertible Preferred Stock provides that the Company may not declare or pay dividends on its Common Stock unless all accrued dividends on the Series One Convertible Preferred Stock have been paid in full. Payment of dividends on the Series One Convertible Preferred Stock may be made in cash or in Common Stock of the Company registered under the Securities Act of 1933. At December 31, 1995, accrued and unpaid dividends on the Company's outstanding Series One Convertible Preferred Stock aggregated $1,432,000. It is anticipated that such dividends will be paid by the issuance of approximately 7,900,000 shares of the Company's Common Stock.
Item 6.

Item 6. Selected Financial Data
The following selected consolidated financial data for the nine-month period ended December 31, 1991 and each of the four years in the period ended December 31, 1995 are derived from the Consolidated Financial Statements of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto contained elsewhere in this report.
(1) EBITDA for the nine-month period ended December 31, 1991 and for the years ended December 31, 1992, 1993, 1994 and 1995 was $8.0 million, $10.6 million, $9.1 million, $9.4 million, and $5.5 million respectively. EBITDA is a standard measure of financial performance in the paging industry but should not be construed as an alternative to operating income or cash flows from operating activities as determined in accordance with generally accepted accounting principles. EBITDA is also the operating measure by which the Company's financial covenants are calculated under its Credit Agreement. (2) In July 1995, the Company sold its California and Florida paging assets. Concurrently with the sale, the Company amended its Credit Facility providing, among other things, for an accelerated maturity date of December 29, 1995 and its subordinated notes were modified to provide for a final maturity of six months thereafter. Such debt, which was classified as long term at December 31, 1994, is in default and is classified as a current liability at December 31, 1995. (3) In August, 1994 and March, 1995, the Company issued shares of its Common Stock as full payment of fiscal year 1994 dividends on Series One Convertible Preferred Stock. On June 30, 1995, in exchange for the waiver of the dividend payment on Series One Convertible Preferred Stock, the accrued dividends were added to the liquidation value. See Note G of Notes to Consolidated Financial Statements. (4) On December 30, 1993, the Company acquired Crico and refinanced its senior and subordinated debt and redeemable Preferred Stocks. See Notes C and E of Notes to Consolidated Financial Statements. (5) In June of 1992, the Company repurchased its subordinated note payable. (6) The Company has never paid any cash dividends on its Common Stock.
(7) Effective January 1, 1992, the Company changed its method of depreciation for pager equipment from the straight line method to the double declining balance method.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table presents certain items in the Consolidated Statement of Operations and as a percentage of total revenues for the periods indicated.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Total revenues for fiscal 1995 were approximately $8.2 million (21.9 percent) lower than that of 1994. The sale of the operations in Florida and California accounted for a decrease of approximately $4.5 million while the Company's other operations experienced a $3.7 million decrease in total revenues as compared to 1994. Average revenue per subscriber declined as the result of the emphasis on the sale of pagers (for which the Company does not receive recurring equipment rental revenue) and rates obtained from new subscribers were lower than the rates associated with lost subscribers due to competitive pressure. Subscriber growth in 1994 and 1995 was limited as pager purchases were constrained by limited available capital. The Company's units in service at December 31, 1995 showed a decrease of 90,000 units from the 311,000 units in service at December 31, 1994. A substantial portion of this decrease (78,000 units) is attributable to the sale of the Florida and California operations.
Cost of service decreased $303,000 (10.3 percent) in 1995. This decrease was principally due to cost of service associated with the sold operations. Cost of sales decreased by approximately $1 million (37.7 percent) in 1995. As a percent of sales revenues, cost of sales increased from 61% of sales revenues in 1994 to 64% in 1995, primarily as a result of lower selling prices due to competitive pressure.
Selling expense decreased by approximately $776,000 (11.3 percent) in 1995 as compared to 1994. $661,000 of the decrease was due to selling expenses associated with the sold operations.
General and administrative expenses decreased by $1.7 million (16.2 percent). A decrease of $1 million was due to expenses associated with the sold operations. The Company's remaining operations experienced a decrease of $700,000 primarily due to a reduction in bad debt expense and, to a lesser extent, reductions in personnel.
Technical expenses decreased by $423,000 (9.0 percent), principally as a result of the sale of the Florida and California operations, partially offset by an increase in personnel costs.
Depreciation expense decreased by $1.1 million (17.8 percent), $462,000 of which was due to the sale of depreciable assets in Florida and California. The decrease experienced by the Company's existing operations resulted from the lower average price of pagers purchased in 1995 and the decrease in pagers on lease to customers, partially offset by a $465,000 valuation adjustment of pager assets in the fourth quarter of 1995.
Amortization expense decreased by approximately $1.1 million (24.7 percent) in 1995 over 1994, principally due to the elimination of intangible assets related to the Florida and California operations and certain customer lists becoming fully amortized in the second quarter of 1994 and first quarter of 1995, partially offset by a write off of certain intangibles related to the Nynex acquisition.
Interest expense increased by approximately $1.2 million (22.8 percent) in 1995 primarily due to higher interest rates, in the current period, on borrowings outstanding under the Company's senior credit facility and subordinated debt agreement.
Other expenses increased approximately $3.3 million (682 percent) in 1995. The increase was primarily due to a write-down of deferred financing costs related to the senior debt and subordinated debt amounting to $1.6 million, loss realized on the sale of the Florida and California operations of approximately $718,000 and costs associated with the debt restructuring in the amount of $726,000.
Net loss was $13.1 million (45.0 percent of total revenues) in the year ended December 31, 1995, as compared to $7.0 million (18.9 percent of total revenues) in the year ended December 31, 1994.
EBITDA (earnings before interest, taxes, depreciation and amortization) in 1995 was $5.5 million as compared to $9.4 million in 1994.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
Total revenues for fiscal 1994 were approximately $7 million (23.1 percent) higher than that of 1993. The operations acquired in the Crico transaction accounted for increases of approximately $8.8 million while the Company's other operations experienced a $1.8 million decrease in total revenues as compared to 1993. Subscriber growth, primarily in the Company's New York operation, was not sufficient to offset the overall lower average revenue per subscriber. Average revenue per subscriber declined as the result of the emphasis on the sale of pagers (for which the Company does not receive recurring equipment rental revenue) and rates obtained from new subscribers were lower than the rates associated with lost subscribers due to lower monthly rates caused by competitive pressure. Subscriber growth in 1993 and 1994 was limited as pager purchases were limited, by management, to an amount necessary to maintain the subscriber base in order to conserve capital. The Company had 311,000 units in service at December 31, 1994, an increase of 6,000 units over the 305,000 units in service at December 31, 1993.
Cost of service increased $1.1 million (60 percent) in 1994. This increase was principally due to cost of service associated with the operations acquired from Crico. Cost of sales increased by approximately $353,800 (15 percent) in 1994. As a percent of sales revenues, cost of sales decreased from 66% of sales revenues in 1993 to 61% in 1994. This decrease in cost of sales as a percent of sales revenues is principally a result of lower current costs of pagers.
Selling expense increased by approximately $1.9 million (40 percent) in 1994 as compared to 1993. The increase was due to selling expenses associated with the acquired operations.
General and administrative expenses increased by $1.9 million (23.0 percent). This increase was due to expenses associated with the acquired operations, partially offset as the Company's existing operations experienced a decrease of $449,600 primarily due to a reduction in salaries and related benefits.
Technical expenses increased by $1.3 million (40.1 percent) as a result of the operations acquired from Crico.
Depreciation expense decreased by approximately $497,800 (7.3 percent). This resulted from the decrease in the renting of pagers to customers, in favor of the sale of pagers, the ensuing decrease in pager assets, and from the Company's $934,000 valuation adjustment of pager assets in the fourth quarter of 1993 which left a lower depreciable pager asset base. These offset the depreciation associated with the fixed assets acquired from Crico.
Amortization expense increased by approximately $1.5 million (52.0 percent) in 1994 over 1993, due to intangibles acquired in the Crico transaction.
Interest expense increased by approximately $1.1 million (26.6 percent) in 1994 as a result of higher interest bearing debt resulting from the December 30, 1993 acquisition financing and refinancing and higher interest rates in 1994.
Other expenses decreased approximately $1.3 million (73.6 percent) in 1994. In 1993 approximately $677,400 was written off in deferred financing cost resulting from the debt refinancing. Fiscal year 1994 includes a second quarter gain of approximately $178,400 recognized on the sale of shares of stock in a cellular interest, owned by a subsidiary of the Company, and a gain of $175,000 recognized in the third quarter on the sale of a paging license in the State of Wisconsin.
Net loss was $7.0 million (18.9 percent of total revenues) in the year ended December 31, 1994, as compared to $6.5 million (21.6 percent of total revenues) in the year ended December 31, 1993.
EBITDA in 1994 was $9.4 million as compared to $9.1 million in 1993.
Liquidity and Capital Resources
The Company had a working capital deficiency of approximately $52.4 million at December 31, 1995 as compared to a deficiency of $9.5 million at December 31, 1994. The increase in working capital deficiency was primarily due to an increase in current debt maturities of $47.6 million, which include $33.2 million and $14.7 million related to the senior credit facility and subordinated debt, respectively.
To reduce indebtedness and improve liquidity, the Company sold its California and Florida paging assets for a cash sale price of $19.4 million. One million dollars of the sale price is being held in escrow and is scheduled to be released to the Company over a two year period, as provided for in the agreement. In connection with this sale, the Company incurred expenses amounting to approximately $1.0 million. The Company used a portion of the net proceeds from this sale to reduce the balance due on its Credit Facility by $11.8 million and prepay interest at the LIBOR rate from August 1, 1995 through December 29, 1995.
The accompanying financial statements have been prepared on a going concern basis. The Company, since its inception, has experienced a deficiency in working capital and recurring losses. In 1995, as a result of non-compliance by the Company with certain covenants of its credit facility, the terms were modified to accelerate the final maturity to December 29, 1995, and the subordinated notes were modified to provide for a final maturity of six months thereafter. The credit facility was not repaid at maturity causing the credit facility and the subordinated notes to be in default (see Note E of Notes to Consolidated Financial Statements). Such debt is classified as a current liability and the Company's current liabilities exceeded its current assets by $52.4 million at December 31, 1995. The Company intends to pay the balance due under the credit facility and the subordinated notes in 1996 from cash generated by the sale of its assets. Alternatively, the Company intends to complete a refinancing which repays the balance due under the credit facility and amends and extends the subordinated notes. The successful completion of one of these efforts is essential as the Company has no other immediate plans that will provide sufficient cash flows to satisfy its obligations. There can be no assurance that the Company will have sufficient funds to finance its operations, which continue to show losses, through the year ending December 31, 1996.
All of these matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classifications of liabilities that may result from the outcome of this uncertainty.
Sustaining market share requires substantial capital expenditures, primarily for paging equipment. Management estimates that capital expenditures in 1996 will be approximately $4.8 million ($4.1 million for pagers and $700,000 for RCC equipment). The Company does not have any material capital expenditure commitments.
At December 31, 1995 the Company had net operating losses of approximately $71.5 million for federal income tax purposes which will expire at varying dates between 1998 and 2010. Certain stockholder transactions have resulted in an ownership change, as defined, which, under the Internal Revenue Code, limits the utilization of the net operating loss carryforwards.
The Company maintains a policy for delinquent customers of billing and attempting to collect the balance of the unexpired term of their contracts and the value of unreturned leased pagers. In 1995, the Company wrote off approximately $900,000 of accounts receivable against the allowance for doubtful accounts.
Inflation and Changing Prices
Inflation has not materially affected the sale of paging services by the Company. Paging systems equipment, leasing costs and transmission costs have not risen significantly, nor has the Company substantially increased its charges to customers. Pager costs have actually declined in recent years. This reduction in cost has generally been reflected in lower prices charged to subscribers. Overhead expenses are, however, subject to inflationary pressure.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The Financial Statements and supplementary data required by Part II, Item 8, are included in Part IV, as indexed at Item 14(a)(1).
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are as follows:
(1) Member of the Audit Committee (2) Member of the Compensation Committee
The Directors are presently elected for one year terms which expire at the next annual meeting of shareholders. Executive officers are elected annually by the Board of Directors to hold office until the first meeting of the Board following the next annual meeting of shareholders and until their successors are chosen and qualified.
Ms. Parramore has been President and Chief Operating Officer of the Company since March 1995 and was Vice President from December 1990 until 1995. She has been employed by the Company since April 1990. From 1989 to 1990, she was general manager of Nationwide Cellular; from 1987 to 1989, she was Chief Financial Officer of American Mobile Communications; and from 1984 to 1987, she was Chief Financial Officer of AT&T Intelliserve.
Mr. Contrera has been Vice President--RCC Engineering of the Company since July 1985 and has been employed by the Company since November 1983. In 1983, Mr. Contrera was a Project Manager for 3M Corporation and from 1973 through 1982 held various positions with U.A. Columbia Cablevision, Inc., including Director of Operations.
Mr. Katz has been Vice President-Administration and Chief Financial Officer since April 1995. From 1987 through 1994, Mr. Katz was Chief Financial Officer and Vice President of Finance and Business Affairs at CEL Communications, Inc.
Mr. Neidell has been Secretary of the Company since 1983. For more than the past five years, Mr. Neidell has been a partner of Stroock & Stroock & Lavan, counsel to the Company.
Mr. Barry has been President of Bariston Associates, Inc. since April 1986. He has been acting as Chairman of the Board and Chief Executive Officer of the Company since August 1, 1995. Mr. Barry was Managing Director and Principal of Winthrop Financial Associates from September 1982 to April 1986. Prior thereto Mr. Barry was a Managing Director of Paine Webber Incorporated.
The Company's non-employee Directors are entitled to annual fees of $1,500 and $250 for each meeting attended, plus reimbursement for expenses in attending meetings.
Item 11.

Item 11. Executive Compensation
The following table sets forth information concerning compensation paid to the Company's Chief Executive Officer and to each of the other most highly compensated executive officers of the Company whose salary and bonus for 1995 exceeded $100,000.
(1) Consists of Company matching contributions under the Company's Stock Purchase Plan and $650 in premiums on an insurance policy on the life of Ms. Parramore under which she designates the beneficiaries.
Agreements
Ms. Parramore is employed under an employment agreement with the Company which expires on February 28, 1997, and provides for an annual salary at the rate of $165,000 per year, plus a discretionary bonus. This agreement is automatically extended for successive one year periods unless terminated by the Company or Ms. Parramore at least three months prior to any expiration date. The Company may terminate the agreement at any time, with or without cause; provided, however, that if such termination is without cause, Ms. Parramore will be entitled to continue to receive her salary for one year.
Effective August 1, 1995, Mr. Sinn resigned as Chairman of the Board and Chief Executive Officer of the Company. Mr. Sinn entered into a consulting and non-competition agreement with the Company pursuant to which Mr. Sinn agreed to serve as a consultant to the Company for one year at compensation of $250,000. Mr. Sinn also agreed pursuant to the agreement not to compete with the Company during his one year consulting term. During 1995, Mr. Sinn was paid $100,962 pursuant to the consulting agreement.
Stock Option Grants and Exercises
The table below shows information regarding the grant of stock options made to the Company's Chief Executive Officer and the other most highly compensated executive officers during the fiscal year ended December 31, 1995. The amounts shown for each officer as potential realizable values are based on arbitrarily assumed annualized rates of stock price appreciation over the term of the options. Actual gains, if any, on stock option exercises are dependent on the future performance of the Company's Common Stock. There is no assurance that such potential realizable values will be achieved.
The following table sets forth information with respect to the named executives concerning exercise of options during the fiscal year ended December 31, 1995 and unexercised options held at December 31, 1995. The value of unexercised, in-the-money options at December 31, 1995 is the difference between the exercise price of options and the fair market value of Page America's Common Stock on December 31, 1995, which was $.125 per share.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to beneficial ownership of Common Stock at February 1, 1996 by (i) each person known by the Company to beneficially own more than five percent of outstanding Common Stock, (ii) each Director of the Company, (iii) each of the most highly compensated executive officers of the Company and (iv) all Directors and executive officers of the Company as a group. Except as noted below, each person or entity has sole voting and investment power with respect to all shares listed as owned by such person or entity.
(1) Assumes exercise of options or warrants to purchase shares of Common Stock and conversion of shares of Series One Convertible Preferred Stock into shares of Common Stock.
(2) David A. Barry is a director of the Company elected by the holders of the Company's Series One Convertible Preferred Stock. Mr. Barry and Jack Kadis are the general partners of BHI Associates VI, L.P., which is the sole general partner of Bariston Paging Partners, L.P. ("Bariston Paging"). Messrs. Barry and Kadis are the controlling shareholders of Bariston Holdings, Inc., which is the sole shareholder of Bariston Associates, Inc. ("Bariston") and Bariston Securities, Inc. The total number of shares listed above include 156,242 shares of Series One Convertible Preferred Stock owned by Bariston Paging; 2,254 shares of Series One Convertible Preferred Stock owned by Bariston Associates; 378 shares of Series One Convertible Preferred Stock owned by Mr. Barry, which are convertible into an aggregate of 3,530,180 shares of Common Stock; 125,778 shares of Common Stock issuable upon exercise of warrants owned by BHI Associates VI, L.P.; 41,672 shares of Common Stock issuable upon exercise of warrants owned by Bariston; 17 shares of Common Stock owned by Bariston Paging; 7,563 shares of Common Stock owned by Bariston; and 17,001 shares of Common Stock owned by Mr. Barry. Messrs. Barry and Kadis disclaim beneficial ownership of the portion of the foregoing shares in which they have no actual pecuniary interest.
(3) Consists of 20,000 shares of Series One Convertible Preferred Stock convertible into an aggregate of 444,400 shares of Common Stock; warrants to purchase 711,111 shares of Common Stock at an exercise price of $3.50 per share; and 556,900 shares of Common Stock.
(4) T. Rowe Price Strategic Partners Associates, Inc. is the general partner of T. Rowe Price Strategic Partners Fund, L.P. (the "Fund") and T. Rowe Price Strategic Partners Fund II, L.P. ("Fund II"). Consists of 5,642 shares of Series One Convertible Preferred Stock convertible into an aggregate of 125,365 shares of Common Stock and warrants to purchase 15,200 shares of Common Stock at an exercise price of $3.50 per share owned by the Fund and 12,918 shares of Series One Convertible Preferred Stock convertible into an aggregate of 287,037 shares of Common Stock and warrants to purchase an aggregate of 34,800 shares of Common Stock at an exercise price of $3.50 per share owned by Fund II.
(5) Sandler Mezzanine General Partnership is the investment General Partner of each of Sandler Mezzanine T-E Partners, L.P. ("TE"), Sandler Mezzanine Partners, L.P. ("SM") and Sandler Mezzanine Foreign Partners, L.P. ("FP"). Consists of 5,390, 12,020, and 2,590 shares of Series One Convertible Preferred Stock owned by TE, SM, and FP, respectively, which are convertible into an aggregate of 444,400 shares of Common Stock; 15,333, 34,196 and 7,367 shares of Common Stock owned by TE, SM and FP, respectively; and warrants to purchase 119,823, 267,200 and 57,422 shares of Common Stock owned by TE, SM, and FP, respectively, at an exercise price of $3.50 per share.
(6) Includes 20,000 shares of Series One Convertible Preferred Stock convertible into an aggregate of 444,400 shares of Common Stock.
(7) Includes 10,000 shares of Common Stock issuable upon exercise of options and 15,757 shares of Common Stock vested under the Company's Stock Purchase Plan.
(8) Includes 162,500 shares of Common Stock issuable upon exercise of options and 5,724 shares of Common Stock vested under the Company's Stock Purchase Plan.
(9) Consists of 75,000 shares of Common Stock issuable upon exercise of options.
(10) Includes 247,500 shares of Common Stock issuable upon exercise of options owned by all executive officers and Directors; 21,481 shares of Common Stock vested under the Company's Stock Purchase Plan; and 378 shares of Series One Convertible Preferred Stock which are convertible into 8,399 shares of Common Stock.
Item 13.

Item 13. Certain Relationships and Related Transactions
Bariston Associates, Inc. ("Bariston") has been engaged by the Company to provide investment banking functions for which it receives an annual fee of $105,000, subject to cost of living adjustments. This agreement will terminate upon the earlier to occur of Bariston and its affiliates ceasing to control a majority of the Series One Convertible Preferred Stock or Common Stock issued upon conversion thereof or Bariston and its affiliates owning less than 20 percent of the Company's full diluted shares of Common Stock.
Holders of a majority of Series One Convertible Preferred Stock, as a class, have the right to elect two directors of the Company. In addition, if any dividend payments are not made to the holders of shares of Series One Convertible Preferred Stock, the dividend rate will increase to 15% per annum and the holders of a majority of Series One Convertible Preferred Stock will be entitled to elect an additional director of the Company. If a change in control of the Company occurs, the holders of Series One Convertible Preferred Stock have the right to cause the Company to repurchase such stock at its liquidation value, plus accrued dividends. Bariston Paging Partners, L.P. holds a majority of the Series One Convertible Preferred Stock. Mr. Barry is the director elected by the holders of Series One Convertible Preferred Stock. The holders of a majority of the Series One Convertible Preferred Stock have agreed that as long as they continue to own a majority of such stock they will vote for a nominee designated by the holders of a majority of such stock.
David A. Barry, a director of the Company, is affiliated with Bariston Securities, Inc. and Bariston.
All of the terms and provisions of the foregoing transactions were determined on an arms length basis. The Company believes that the terms of these transactions were no less favorable to the Company than those which could have been obtained from unaffiliated third parties.
Part IV
Item 14.

Item 14. Exhibits and Financial Statement Schedules and Reports on Form 8-K.
(a)(1). Financial Statements. The following consolidated financial statements of Page America Group, Inc. and Subsidiaries, required by Part II, Item 8, are included in Part IV of this report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1995 and December 31, 1994.
Consolidated Statements of Operations for the years ended December 31, 1995, December 31, 1994, and December 31, 1993.
Consolidated Statements of Cash Flows for the years ended December 31, 1995, December 31, 1994, and December 31, 1993.
Consolidated Statement of Stockholders' Equity (Deficit) for the years ended December 31, 1995, December 31, 1994 and December 31, 1993.
Notes to Consolidated Financial Statements.
(a)(2). Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
Exhibits
(a)(3) Exhibits:
Exhibit No.
3.1 Restated Certificate of Incorporation of the Registrant, as amended. Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K for the fiscal year ended December 31, 1993 ("1993 10-K"). 3.2 By-Laws of the Registrant. Incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (File No. 33-46333). 10.1 Employment Agreement, dated as of March 1, 1995, between the Registrant and Kathleen Parramore. Incorporated by reference to Exhibit 10.1 Annual Report on Form 10-K for the fiscal year ended December 31, 1994 ("1994 10-K"). 10.2 Asset Acquisition Agreement dated as of September 27, 1993, as amended, by and among Page America Group, Inc., Crico Communications Corporation and the stockholders thereof. Incorporated by reference to Exhibit 2(a) to Current Report on Form 8-K dated January 14, 1994. 10.3 Credit Agreement dated as of December 30, 1993 by and among Page America Group, Inc., its subsidiaries and NationsBank of Texas, N.A., Canadian Imperial Bank of Commerce, Fleet National Bank and State Street Bank and Trust Company. Incorporated by reference to Exhibit 10.3 to 1993 10-K. 10.4 Subordinated Promissory Note, Preferred Stock, Common Stock and Warrant Purchase Agreement dated as of December 30, 1993, by and among Page America Group, Inc., its subsidiaries and various purchasers parties thereto. Incorporated by reference to Exhibit 10.4 to 1993 10-K. 10.5 Second Amended and Restated Registration Rights Agreement dated as of December 30, 1993. Incorporated by reference to Exhibit 10.5 to 1993 10-K. 10.6 Subordinated Promissory Note Registration Rights Agreement dated as of December 30, 1993. Incorporated by reference to Exhibit 10.6 to 1993 10-K. 10.7 Series One Convertible Preferred Stock Voting Agreement dated as of December 30, 1993. Incorporated by reference to Exhibit 10.7 to 1993 10-K. 10.8 Investment Banking Agreement dated December 30, 1993 between Bariston Associates, Inc. and Page America Group, Inc. Incorporated by reference to Exhibit 10.8 to 1993 10-K. 10.9 Purchase and Sale Agreement dated August 10, 1993 between Page America Group, Inc. and Forsyth Company. Incorporated by reference to Exhibit 10.9 to 1994 10-K. 10.10 Asset Purchase Agreement dated as of February 24, 1995 by and among Paging Network of Florida, Inc., Page America Group, Inc. and various subsidiaries of Page America Group, Inc. Incorporated by reference to Exhibit 10.10 to 1994 10-K. 10.11 Consulting and Non-Competition Agreement dated August 1, 1995 between Registrant and Steven L. Sinn. 10.12 Third Amendment dated as of July 28, 1995 to Credit Agreement dated as of December 30, 1993 by and among Page America Group, Inc., its subsidiaries, and bank lenders. 10.13 Indenture dated as of June 30, 1994 among Page America Group, Inc., its subsidiaries, and American Stock Transfer and Trust Company, as Trustee. Incorporated by reference to Exhibit 4 to Registration Statement on Form S-4 (File No. 33-77832). 10.14 Amendment dated as of July 28, 1995 to Indenture dated as of June 30, 1994 by and among Page America Group, Inc., its subsidiaries, and American Stock Transfer and Trust Company, as Trustee. 21. Subsidiaries of the Registrant. Incorporated by reference to Exhibit 21 to 1994 10-K. 23. Consent of Ernst & Young LLP.
(b) Reports on Form 8-K
None
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1995 and December 31, 1994
Consolidated Statements of Operations for the years ended December 31, 1995, December 31, 1994, and December 31, 1993
Consolidated Statements of Cash Flows for the years ended December 31, 1995, December 31, 1994, and December 31, 1993
Consolidated Statement of Shareholders' Equity (Deficit) for the years ended December 31, 1995, December 31, 1994, and December 31, 1993
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Page America Group, Inc.
We have audited the accompanying consolidated balance sheets of Page America Group, Inc. and subsidiaries as of December 31, 1995 and December 31, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audit also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 consolidated financial position of Page America Group, Inc. and subsidiaries at December 31, 1995 and December 31, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that Page America Group, Inc. will continue as a going concern. As shown in the financial statements, the Company has incurred a loss of $13 million for the year ended December 31, 1995. Losses from operations in recent years have significantly weakened the Company's financial position and its ability to purchase paging equipment and meet current operating expenses. Further, as discussed in Note A, the Company is in default of its debt agreements under which it has outstanding borrowings of $48 million, including $33 million of borrowings under a credit facility with certain banks which is secured by substantially all of the assets of the Company. Such debt is classified as a current liability and the Company's current liabilities exceeded its assets by $52 million at December 31, 1995. Management's plans in regard to these matters are also described in Note A.
The matters referred to in the preceding paragraph raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classifications of liabilities that may result from the outcome of this uncertainty.
Ernst & Young LLP
Hackensack, New Jersey March 15, 1996
Page America Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS ($ In Thousands)
The accompanying notes are an integral part of these statements.
Page America Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued) ($ In Thousands, except share data)
The accompanying notes are an integral part of these statements.
Page America Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS ($ In Thousands, except per share data)
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of this statement.
Page America Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business--The Company is a radio paging company which markets and provides over-the-air messaging information, products and services in the New York and Chicago metropolitan area markets through facilities which it owns and operates as a radio common carrier ("RCC") under licenses from the Federal Communications Commission. The Company's diversified customer base provides for a lack of concentration of credit risk.
Basis of Presentation--Certain amounts in the prior year financial statements have been reclassified to conform with the current year presentation.
Principles of Consolidation--The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents--The Company considers all highly liquid debt instruments purchased with a maturity of three months or less, at date of acquisition, to be cash equivalents.
Equipment--Equipment is stated at cost less accumulated depreciation and amortization and includes pagers held for sale or lease. Depreciation is computed by the declining balance method for pager equipment and the straight-line method for all other equipment in amounts sufficient to allocate the cost of depreciable assets to operations over their estimated useful lives. Leasehold improvements are amortized over the shorter of the life of the respective lease or service life of the improvement. Cost of sales and service does not include depreciation expense, which is presented separately in the accompanying statements of operations.
Certificates of Authority--The costs of certificates of authority related to the conduct of RCC operations are amortized on a straight-line basis principally over periods of 40 years.
Customer Lists--Customer lists generally consist of a portion of the cost of business acquisitions assigned to the value of customer accounts and are amortized on a straight-line basis over the estimated lives of those customers which range up to fourteen years.
Other Intangibles--Other intangibles include the excess of the purchase price over the fair market value of the net assets acquired and are amortized on a straight-line basis principally over 40 year periods. The Company routinely evaluates the carrying value of all of its intangibles for impairment.
Interest Rate Protection--On December 30, 1993, the Company entered into a new senior credit facility with certain banks. On February 15, 1994, the Company entered into an interest rate cap agreement which protects the Company against increases in interest rates on $25 million of this debt. The unamortized cost of this agreement is included in prepaid expenses in the consolidated balance sheet and is being amortized over the three year life of the agreement. The fair value of the instrument, as further described in Note E, was based upon a quote from an independent financial institution.
Loss Per Share--Loss per share is computed based upon the weighted average number of common shares outstanding during the periods presented and is computed after giving effect to preferred stock dividend requirements. Stock options, warrants and the assumed conversion of the convertible preferred stock have not been included in the calculation, since their inclusion would not be dilutive for each of the periods presented.
Net Losses and Management's Plans--The accompanying financial statements have been prepared on a going concern basis. The Company, since its inception, has experienced a deficiency in working capital and recurring losses. In 1995, as a result of non-compliance by the Company with certain covenants of its credit facility, the terms were modified to accelerate the final maturity to December 29, 1995, and the subordinated notes were modified to provide for a final maturity of six months thereafter. The credit facility was not repaid at maturity causing the credit facility and the subordinated notes to be in default (see Note E). Such debt is classified as a current liability and the Company's current liabilities exceeded its current assets by $52.4 million at December 31, 1995. The Company intends to pay the balance due under the credit facility and the subordinated notes in 1996 from cash generated by the sale of its assets. Alternatively, the Company intends to complete a refinancing which repays the balance due under the credit facility and amends and extends the subordinated notes. The successful completion of one of these efforts is essential as the Company has no other immediate plans that will provide sufficient cash flows to satisfy its obligations. There can be no assurance that the Company will have sufficient funds to finance its operations, which continue to show losses, through the year ending December 31, 1996.
All of these matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts or classifications of liabilities that may result from the outcome of this uncertainty.
NOTE B--SALE OF FLORIDA AND CALIFORNIA OPERATIONS
On July 28, 1995, the Company sold its California and Florida paging assets for a cash sale price of $19.4 million. One million dollars of the sale price is being held in escrow and is scheduled to be released to the Company over a two year period, as provided for in the agreement. Part of the proceeds was used to reduce the Company's senior debt by $11.8 million and to prepay interest of $1.2 million through December 29, 1995. In connection with this sale, the Company incurred expenses amounting to approximately $1.0 million. This sale included approximately 78,000 pagers, two statewide and several regional frequencies. The assets sold had a net book value of approximately $19.1 million and consisted of the assets which the Company acquired from Crico Communications Corporation ("Crico") on December 30, 1993 and the 900 Mhz channel which is licensed to provide state-wide coverage in California which the Company acquired in 1994 for a purchase price of $500,000. The purchase price paid by the Company for the Crico assets consisted of $12,650,000 in cash paid to Crico's lenders, the issuance of an aggregate of 1,435,903 shares of Common Stock to Crico's lenders and the issuance of 240,000 shares of Common Stock and warrants to purchase 130,000 shares of Common Stock at an exercise price of $5.00 per share to a company related to certain shareholders of Crico. As a result of the sale, the Company incurred a loss of approximately $718,000.
NOTE C--1993 REFINANCING AND ACQUISITION FINANCING
On December 30, 1993, contemporaneous with the Crico acquisition, the following occurred:
Credit Facility
The Company entered into a new senior secured credit facility, replacing the Company's then existing credit facility. The new agreement provided for an $11.27 million reducing revolving credit and a $45 million term loan facility, each with a final maturity of March 31, 2000. In connection with this transaction, the Company wrote off $677,400 of deferred financing costs related to the retired credit facility. The terms of this credit facility were subsequently modified. See Note E.
Subordinated Note Financing
The Company sold $13 million aggregate principal amount of 12 percent Subordinated Notes originally due 2003. Payments on the Subordinated Notes initially were to be interest only with mandatory principal payments of $1.3 million due semi-annually beginning on June 30, 1999. The terms of these notes were subsequently modified. See Note E.
In connection with the issuance of the notes, the Company also issued warrants to purchase an aggregate of 1,155,556 shares of Common Stock, at a purchase price of $3.50 per share. The warrants expire ten years from issuance. The Company may accelerate the expiration of the warrants at any time after December 31, 1996 if the average closing price of the Common Stock for both the 60 day and the five day periods preceding the notice date was equal to or greater than 150 percent of the warrant exercise price. The holders will be entitled to anti-dilution protection under certain circumstances. If a change of control of the Company occurs at less than a 25 percent premium over the exercise price, the warrant holders will have the right to cause the Company to pay to them the difference between the exercise price and 125 percent of the exercise price; provided, however, the warrants must be exercised.
Preferred and Common Stock Issuance
The Company sold $8 million of a new series of Series One Convertible Preferred Stock (See Note G). As part of this transaction, the Company also sold 500,000 shares of Common Stock at a price of $4.00 per share. The Series One Convertible Preferred Stock has a 10 percent dividend, payable semi-annually in arrears and is convertible into Common Stock at $4.50 per share, subject to certain anti-dilution provisions. Payment of dividends may be made in cash or in Common Stock of the Company registered under the Securities Act of 1933. Any dividend payments not made when permitted under the Credit Facility and the Subordinated Note Financing will result in, among other things, an increase in the dividend rate to 15 percent per annum and entitle holders of the majority of the Series One Convertible Preferred Stock to elect an additional representative to the Board of Directors of the Company. Holders of the Series One Convertible Preferred Stock were originally entitled to a preference in liquidation of $100 per share plus any accrued but unpaid dividends. In 1995 the holders of the Series One Convertible Preferred Stock waived their rights to receive the dividend payment of $1,432,000 due on June 30, 1995. In exchange, this amount was added to the liquidation value of the shares thereby increasing the liquidation value to $105 per share. The Company may redeem the Series One Convertible Preferred Stock if the average closing price of the Common Stock for both the preceding 60 day and five day periods has equalled or exceeded 150 percent of the conversion price. After December 31, 2000, the Series One Convertible Preferred Stock may be redeemed at par, plus accrued dividends. If the Company calls the Series One Convertible Preferred Stock for redemption, the holders may convert to shares of Common Stock. Upon any redemption, accrued dividends must be paid by the Company in cash. Upon conversion of the Series One Convertible Preferred Stock, the Company will have the option to pay accrued dividends by issuing additional shares of its Common Stock. Holders of the Series One Convertible Preferred Stock will be entitled to vote as if their shares of Series One Convertible Preferred Stock were converted into shares of Common Stock. Holders of a majority of the Series One Convertible Preferred Stock, as a class, will be entitled to elect two representatives to the Board of Directors. If a change in control in the Company occurs, the holders of Series One Convertible Preferred Stock will have the right to cause the Company to repurchase such stock at the liquidation value, plus accrued dividends. The Company has registered for resale under the Securities Act of 1933 the Series One Convertible Preferred Stock, Common Stock issued in payment of dividends and the Common Stock issuable upon conversion of the Series One Convertible Preferred Stock. The Company also registered the warrants issued on December 30, 1993 and shares of Common Stock issuable upon exercise thereof.
Preferred Stock Exchange
The Company also issued $23 million of Series One Preferred Stock in exchange for (i) all outstanding shares of Series A Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock (which were reflected outside of shareholders' equity due to redemption provisions); (ii) warrants to purchase 1,276,289 shares of Common Stock having an exercise price of $6.761 per share and (iii) $8,065,960 of dividends accrued through December 31, 1993 on the exchanged preferred stock. As the result of the exchange, all the outstanding Series A, Series A-2 and Series B Preferred Stock were canceled and provisions relating to change in control and rights to terminate were terminated. The terms of the exchange were negotiated between independent members of the Board of Directors of the Company and the holders of the preferred stock.
NOTE D--BALANCE SHEET CLASSIFICATIONS ($ In Thousands)
Prepaid expenses and other current assets comprise the following:
NOTE E--LONG-TERM DEBT
Long-term debt is as follows:
On December 30, 1993, the Company entered into a senior secured credit facility with certain banks. The bank credit facility ("Credit Facility"), replacing the Company's then existing credit facility, provided for an $11.27 million reducing revolving credit line and a $45 million term loan facility, each with an original final maturity of March 31, 2000. The interest rate is based either on prime or LIBOR, at the option of the Company, with further adjustment depending on the Company's ratio of total debt to operating cash flow, as defined. Due to the existence of a default at December 31, 1995, the interest rate was based on prime plus the aforementioned adjustment. At December 31, 1995, the interest rate was prime of 8.5 percent plus 1.75 percent. At closing, the Company paid a fee to the Banks in the amount of $951,550. The Company was also required to pay the Banks a commitment fee of 0.5 percent on the unused balance of the revolving credit facility and annual fees of $55,000. The Company canceled its revolving credit facility effective November 29, 1994. Payments on the Credit Facility initially were to be interest only with mandatory principal payments due quarterly beginning on September 30, 1995.
On July 28,1995, concurrent with the sale of the Company's Florida and California paging assets, the Credit Facility was amended. Among other things, the amendment provided for an acceleration of the final maturity to December 29, 1995 and modified the financial covenants so that the Company would no longer be in default as of the amendment date. The Company used the net proceeds from the sale of its Florida and California operations to reduce the debt by $11.8 million and prepay interest at the LIBOR rate from August 1, 1995 through December 29, 1995. In its third fiscal quarter, the Company recorded a charge of approximately $1.8 million related to the amended agreement which includes the write-down of deferred financing costs of approximately $1.1 million. The Credit Facility has not been repaid and the lenders have declared the Company in default. The Credit Facility is secured by substantially all the assets of the Company.
On December 30, 1993 the Company sold $13 million aggregate principal amount of 12 percent Subordinated Notes originally due 2003, with warrants, pursuant to a Note Purchase Agreement. Payments on the Subordinated Notes initially were to be interest only with mandatory principal payments of $1.3 million due semi-annually beginning on June 30, 1999. All payments on the notes are subordinated to the prior payment in full of all amounts outstanding under the Credit Facility. The notes are governed by certain financial covenants. In July, 1994, the Company exchanged the notes for identical notes which were registered under the Securities Act of 1933.
On July 28, 1995, the subordinated notes were modified to provide for a final maturity of six months subsequent to the final maturity of the Credit Facility and to defer the cash payment of interest until maturity. As a result of the default under the Credit Facility, the Company is in default of the subordinated notes. Commencing January 1, 1995, interest is increased from 12 to 15 percent per annum, compounded semi-annually and is satisfied by the issuance of additional promissory notes with terms substantially identical to the subordinated notes, as amended. In 1995 the Company recorded a charge of approximately $500,000 related to the modified agreement, which includes the write-down of deferred financing costs of approximately $479,000. If a change in control of the Company occurs, the note holders will have the right to require the Company to repurchase the notes at par plus accrued interest.
On February 15, 1994, in accordance with the terms of the Credit Facility, the Company entered into an interest rate cap agreement for which the Company paid $65,000. This agreement protects the amount of $25 million against LIBOR rates in excess of 7.5 percent and expires in February of 1997. There was no impact on the weighted average borrowing rate or the reported interest expense during 1994 and 1995 as the LIBOR rate did not exceed 7.5 percent. The estimated fair value of this instrument at December 31, 1995 and March 31, 1995 was $0 and $137,000, respectively. The net carrying value of the instrument at December 31, 1995 was $24,000.
NOTE F--CUMULATIVE SERIES C PREFERRED STOCK EXCHANGE
On March 7, 1994, the Company offered the holders of its Cumulative Series C Preferred Stock to exchange each share of such stock, and undeclared dividends thereon, for 2.725 shares of common stock. The holders of 112,509 shares of Series C elected to accept this offer. Accordingly, 306,581 shares of Common Stock of the Company were issued in exchange for those shares of Series C and the holders' right to $970,400 of associated undeclared dividends. In accordance with the original terms, on September 12, 1994, the remaining shares outstanding were mandatorily converted to shares of Common Stock of the Company and accrued dividends of $17,500 were paid.
NOTE G--SHAREHOLDERS' EQUITY
Series One Convertible Preferred Stock--Series One Convertible Preferred Stock has a 10 percent dividend, payable semi-annually in arrears and is convertible into Common Stock at an initial price of $4.50 per share, subject to certain anti-dilution provisions. Payment of dividends may be made in cash or in Common Stock of the Company. On August 11, 1994 and March 8, 1995, the Company issued 406,220 shares and 437,629 shares of its Common Stock, respectively, to the holders of Series One Convertible Preferred Stock, as full payment of dividends for the year ended December 31, 1994. On June 30, 1995, the Preferred shareholders waived their rights to receive the dividend payment of $1,432,000 due on the same date. In exchange, this amount was added to the liquidation value of the shares. As of December 31, 1995, accrued dividends aggregated $1,432,000. It is anticipated that such dividends will be paid by the issuance of approximately 7,900,000 shares of the Company's Common Stock. See Note C.
Common Stock Reserved For Issuance--As of December 31, 1995, unissued Common Stock of the Company was reserved for issuance in accordance with the terms of outstanding warrants (1,511,238), stock options (251,700), convertible preferred stock (6,363,578) and preferred stock dividends (7,900,000).
Stock Options--The Company's 1983 Stock Option Plan, as amended, provides for the granting of options to purchase an aggregate of 235,000 shares of the Company's Common Stock to key employees. The option prices cannot be less than the fair market value of Common Stock at dates of grant. Options may not be exercised until specified time restrictions have lapsed and option periods cannot exceed five years. In August, 1995, 100,000 options held by the former President of the Company were canceled. No more options may be granted under this plan.
The Company's 1990 Stock Option Plan provides for the grant by the Company of options to purchase not more than 555,000 shares of Common Stock to key employees and directors. The exercise price per share is the fair market value of a share of Common Stock for options granted after December 29, 1992, and the greater of (i) the fair market value of a share of Common Stock or (ii) $7.00, for options granted on or before December 29, 1992. Options to be granted under the 1990 Stock Option Plan may not be exercised prior to one year from the date of grant and options may be exercised 20 percent per year thereafter. Exercise of such options will be accelerated if the Company is sold, a change in control occurs or as the Compensation Committee of the Board of Directors deems appropriate. In August, 1995, 252,508 options held by the former President of the Company were canceled. In October, 1995, 150,000 and 75,000 options were granted to the President and the Chief Financial Officer of the Company, respectively. These options have an exercise price of $.75 per share and will expire in October, 2002.
The following summarizes the changes in stock options:
The stock options outstanding at December 31, 1995 expire at various dates through October, 2002. As of December 31, 1995 and December 31, 1994, 308,300 and 266,292 options were available for grant, respectively.
NOTE H--INCOME TAXES
The Tax Reform Act of 1986 enacted a complex set of rules limiting the utilization of net operating loss and tax credit carryforwards to offset future taxable income following a corporate "ownership change". In general, an ownership change occurs if the percentage of stock of a loss corporation owned (actually, constructively and, in some cases, deemed ownership) by one or more "5 percent shareholders" has increased by more than 50 percentage points over the lowest percentage of such stock owned by those persons during a three year testing period. If an ownership change occurs it would limit the utilization of the net operating loss carryforwards for federal income tax purposes. The Company has determined that there has been an ownership change as of December 31, 1993. As of December 31, 1995, the Company had net operating losses of approximately $71.5 million for federal income tax purposes which will expire at various dates between 1998 and 2010. $52.6 million of the total net operating losses of $71.5 million are subject to the aforementioned limitations. In addition, the Company has investment tax credit carryforwards of approximately $670,000 which expire principally in 1997 through 2000, which are also subject to limitation.
The effects of temporary differences that gave rise to deferred tax assets and liabilities are as follows:
The Company's valuation allowance increased by approximately $4,315 to $29,712 as of December 31, 1995 due principally to the increase in the net operating losses.
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is:
NOTE I--CONTINGENCIES
The Company is involved in various lawsuits and proceedings arising in the normal course of business. In the opinion of management of the Company, the ultimate outcome of these lawsuits and proceedings will not have a material effect on the results of operations, financial position or cash flows of the Company.
NOTE J--RELATED PARTY TRANSACTIONS
A company (the "Related Company") whose president is a Director of the Company acted as a placement agent in connection with the sale by the Company of shares of Series One Convertible Preferred Stock and subordinated notes and the entering into of the bank credit facility. As a result, the Related Company received a fee of $532,500 plus reimbursement of its out-of-pocket expenses which was paid in December, 1993.
The Related Company has been engaged to provide investment banking functions for which it receives an annual fee of $105,000, subject to cost of living adjustments. This agreement will terminate if the Related Company ceases to control a majority of the Series One Convertible Preferred Stock (or Common Stock issued upon conversion thereof) or owns less than 20% of the Company's fully diluted shares of Common Stock. At December 31, 1995, investment banking fees accrued but unpaid were $151,000.
In 1993 the Related Company repaid $421,000 of indebtedness owed to the Company by surrendering for cancellation 4,210 shares of Series One Convertible Preferred Stock which had a value of $100 per share.
NOTE K--RENTALS
Rental expense for the fiscal years 1995, 1994 and 1993 was approximately $3,062,000, $3,236,000, and $2,353,000 respectively.
Future minimum annual payments under non-cancelable operating leases for office space and transmitter sites, as of December 31, 1995, are as follows:
Certain leases are subject to increases in taxes, operating and other expenses.
NOTE L--EMPLOYEE BENEFIT PLAN
The Company has a 401(K) plan covering substantially all of its employees. All employees who have completed ninety days of service are eligible to participate. Employees may contribute 1% to 4% of compensation to the plan on an after-tax basis and also defer additional amounts of compensation in 1% increments on a pre-tax basis, subject to limits established by the Internal Revenue Code. The Company matches 100% of after-tax and 25% of pre-tax contributions with shares of its common stock. The total cost of the plan amounted to $69,400, $124,800, and $140,700 in 1995, 1994 and 1993, respectively.
(a) Accounts written off as uncollectible.
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.
PAGE AMERICA GROUP, INC.
March 28, 1996 By:/s/ Kathleen C. Parramore ------------------------ Kathleen C. Parramore President
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.
Name Title Date
/s/ David A. Barry Chairman of the Board David A. Barry and Chief Executive Officer March 28, 1996
/s/ Martin Katz Chief Financial Officer March 28, 1996 Martin Katz