-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uc67LfpqWIdUPP8CMxFH1h2pExFsaVUndfvkYe7xPfO3j6xoLyP4xvQZ4XV1A9Ce 591nVY0WBO3nlq9A3m+KRg== 0000933583-96-000006.txt : 19960517 0000933583-96-000006.hdr.sgml : 19960517 ACCESSION NUMBER: 0000933583-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960315 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 061386411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13558 FILM NUMBER: 96565845 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 2032582500 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13732 SHARED TECHNOLOGIES CELLULAR, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of Incorporation or organization) 06-1386411 (I.R.S. Employer Identification No.) 100 Great Meadow Road, Suite 102 Wethersfield, Connecticut 06109 (Address of principal executive offices) (860) 258-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No___ As of May 14, 1996, there were 3,451,952 shares outstanding of the Company's Common Stock, $.01 par value PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 3-4 Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 6 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1996 7 Notes to Consolidated Financial Statements 8-9 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 10-11 PART II OTHER INFORMATION Signature Page 12 Item 1 Financial Statements Shared Technologies Cellular, Inc. Consolidated Balance Sheets March 31, 1996 and December 31, 1995 (unaudited) March 31, 1996 December 31, 1995 ASSETS Current Assets: Cash $341,467 $2,541,827 Accounts receivable, less allowance for doubtful accounts of $975,000 and $685,000 at March 31, 1996 and December 31, 1995, respectively 1,270,219 1,172,671 Carrier commissions receivable, less unearned income 301,364 452,610 Inventories 89,304 49,076 Note receivable 71,126 59,136 Prepaid expenses and other current assets 725,120 471,356 Receivable due from sale of assets - 1,077,856 Total current assets 2,798,600 5,824,532 Telecommunications and office equipment, less accumulated depreciation 2,290,455 2,157,685 Other assets: Intangible assets, less accumulated amortization 6,466,824 6,129,101 Deposits 208,130 142,080 Note receivable, net of current portion 112,417 124,407 Total other assets 6,787,371 6,395,588 Total Assets $11,876,426 $14,377,805 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. Consolidated Balance Sheets March 31, 1996 and December 31, 1995 (unaudited) March 31, 1996 December 31, 1995 LIABILITIES and STOCKHOLDERS' EQUITY Current liabilities: Note payable $400,000 $400,000 Accounts payable and other current liabilities 5,070,317 5,838,718 Commissions payable 336,652 452,611 Due to parent 1,010,300 984,592 Total current liabilities 6,817,269 7,675,921 Note payable, less current portion 1,600,000 1,600,000 Stockholders' equity: Preferred Stock, $.01 par value 5,000,000 shares authorized, none outstanding Preferred Stock, $.01 par value, Series A Convertible, authorized, issued and outstanding 300,000 shares 3,000 3,000 Common Stock, $.01 par value, authorized 10,000,000 shares issued and outstanding 3,151,952 shares outstanding at March 31, 1996 and 3,089,189 shares at December 31, 1995 31,520 30,892 Common stock subscription 5,000 5,000 Additional paid-in capital 9,176,955 9,172,583 Accumulated deficit (5,752,318) (4,104,591) Note receivable arising from stock purchase agreement (5,000) (5,000) Total stockholders' equity 3,459,157 5,101,884 Total liabilities and stockholders' equity $11,876,426 $14,377,805 The accompanying notes are an integral part of these financial statements Shared Technologies Cellular, Inc. Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 (unaudited) March 31, 1996 March 31, 1995 Revenues: Rental operations $3,199,683 $1,460,077 Activation/debit/agency operations 1,106,269 566,575 Total revenues 4,305,952 2,026,652 Cost of Revenues: Rental operations 2,073,248 706,949 Activation/debit/agency operations 703,131 360,537 Total cost of revenues 2,776,379 1,067,486 Gross margin 1,529,573 959,166 Field - selling, general & administrative expenses: Rental operations 1,616,593 766,997 Activation/debit/agency operations 408,665 104,857 Total Field s,g&a expenses 2,025,258 871,854 Corporate - selling, general & administrative expenses: 1,091,271 145,001 Operating loss (1,586,956) (57,689) Interest expense (60,771) (16,979) Net loss ($1,647,727) ($74,668) Net loss per common share ($.52) ($.04) Weighted average number of common shares outstanding 3,151,952 2,070,570 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1996 and 1995 (unaudited) March 31, 1996 March 31, 1995 Cash flows from operating activities: Net loss ($1,647,727) ($74,668) Adjustments: Depreciation and amortization 368,776 173,773 Change in assets and liabilities: (Increase) decrease in accounts receivable 980,308 (178,395) Decrease in carrier commissions receivable 151,246 (Increase) in inventory and supplies (40,228) (14,799) (Increase) in other current assets (253,764) (57,008) Increase (decrease) in accounts payable (768,401) 92,138 (Decrease) in commissions payable (115,959) Net cash used in operating activities (1,325,749) (58,959) Cash flows from investing activities: (Increase) in other assets (557,459) (111,312) Capital expenditures (347,860) (64,539) Net cash used in investing activities (905,319) (175,851) Cash flows from financing activities: Payments on capital lease obligations (2,327) Deferred registration costs (145,682) Advances from affiliates (28,958) Advances from parent 25,708 409,264 Issuance of common stock 5,000 Net cash provided by financing activities: 30,708 232,297 Net decrease in cash (2,200,360) (2,513) Cash, beginning of period 2,541,827 10,233 Cash, end of period $341,467 $7,720 Supplemental disclosures of cash flow information: Cash paid during the periods for interest $21,319 $16,979 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc Consolidated Statement of Stockholders' Equity For the Three Months Ended March 31, 1996 (unaudited) Series A Common Preferred Stock Stock Shares Amount Shares/Amount Balance December 31, 1995 300,000 $3,000 3,089,189 $30,892 Issuance of common stock 62,763 $628 Net loss - - Balance March 31, 1996 300,000 $3,000 3,151,952 $31,520 Common Stock Additional Subscriptions Paid In Capital Balance December 31, 1995 $5,000 $9,172,583 Issuance of common stock $4,372 Net loss - - Balance March 31, 1996 $5,000 $9,176,955 Accum. Note Defecit Receivable Balance December 31, 1995 ($4,104,591) ($5,000) Issuance of common stock Net loss (1,647,727) - Balance March 31, 1996 ($5,752,318) ($5,000) Total Stockholders' Equity Balance December 31, 1995 $5,101,884 Issuance of common stock $5,000 Net loss ($5,647,727) Balance March 31, 1996 $3,459,157 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. Notes to Consolidated Financial Statements March 31, 1996 (Unaudited) 1. Basis of Presentation: The consolidated financial statements included herein have been prepared by Shared Technologies Cellular, Inc. (STC or the Company) pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's December 31, 1995 Form 10-K. 2. Litigation: The Company is not involved in any litigation which, individually or in the aggregate, if resolved against the Company, would have a materially adverse effect on the Company's financial condition, statement of operations or cash flows. 3. Acquisitions: In May 1995, the Company commenced management of, and subsequently acquired the outstanding capital stock of Cellular Hotline Inc., ("Hotline"), a cellular telephone activation service provider. The purchase price was $617,000 comprised of $367,000 in cash, the assumption of $150,000 of certain indebtedness and the balance through the issuance of 50,000 shares of the Company's common stock ("Shares") valued at $5.00 per share. Pursuant to the purchase agreement in September 1995, the former Hotline stockholders caused the Company to repurchase from them all of the Shares for $5.00 per share, for an aggregate amount of $250,000. In connection with the acquisition, the Company issued the former Hotline stockholders a three-year option to purchase an aggregate of 50,000 shares of the Company's common stock at a price of $7.50 per share. In addition, the agreement provides for additional payments based upon attaining certain levels of activation revenues over a one-year period. In November 1995, STC completed its acquisition of substantially all of the assets of PTC Cellular Inc., ("PTCC"). The purchase price was $3,800,000, comprised of $300,000 in cash, the assumption of $1,200,000 of accounts payable, a promissory note of $2,000,000 and the issuance of 100,000 shares of the Company's common stock. The agreement provides for a maximum of $2,500,000 of royalty payments, computed at 3% of quarterly revenues generated from certain of the acquired assets. Also, STC committed to PTCC to obtain financing in the amount of $7,000,000 within six months of the acquisition date. Unaudited pro forma consolidated statement of operations for the three months ended March 31, 1995 as though the acquisitions had been made at the beginning of the period is as follows: 1995 Revenues $5,321,112 Cost of revenues 3,905,710 Gross Margin 1,415,402 Operating Expenses 1,885,232 Net Loss ($469,830) Loss per Common Share ($.21) Weighted Average Number of Common Shares Outstanding 2,220,570 4. Subsequent Events: On April 27, 1996, the Company completed its acquisition of certain assets of Cellular Global Investments of Northern California, Inc., Access Cellular Corp., Summit Assurance Cellular, Inc., Road and Show Arizona Corp., Road and Show Cellular West., Northstar Cellular Corp. and Craig A. Marlar ("Marlar"). The purchase price was approximately $3,500,000, comprised of $1,058,276 in cash payable over eight months, $1,697,724 in assumed liabilities, and the balance through the issuance of 300,000 shares of the Company's common stock, $.01 par value. Additionally, at closing, the Company issued three-year warrants to purchase an aggregate of 300,000 additional shares of the Company's common stock $.01 par value. The warrants are exercizable as follows: 100,000 shares at $3.00 per share; 100,000 shares at $4.00 per share and 100,000 at $5.00 per share. Pro forma financial information is not yet available for this transaction Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations: Revenues The Company's revenues of $4,306,000 in the quarter ended March 31, 1996 represented an increase of $2,279,000 (112%) over the quarter ended March 31, 1995. This significant increase in revenue was primarily due to two acquisitions made in fiscal 1995 and the continued expansion of the portable cellular rental operations. The Company had revenues of $1,384,000 in in-car cellular telephone rentals during the quarter as a result of its purchase of the in-car telephone rental business of PTC Cellular, Inc. ("PTCC") in November 1995. The Company also had $577,000 in activation revenues during the quarter as a result of its purchase of Cellular Hotline, Inc., ("Hotline") in May 1995. The remainder of the revenue increase during the quarter, $318,000, was from an increase in the number of portable rental distribution outlets and the introduction of debit, or prepaid, cellular calling cards. Gross Margin Gross margin decreased from 47% in the three months ended March 31, 1995 to 36% in the three months ended March 31, 1996. This was due to a change in the revenue mix as a result of the acquisitions previously mentioned. The in-car operations and the activation business have historically shown lower gross margins, approximately 27% and 25% respectively, than the portable rental operations (approximately 50%). Operating Expenses Operating expenses increased $2,100,000 in the period, from $1,017,000 in the quarter ended March 31, 1995 to $3,117,000 in the quarter ended March 31, 1996. As a percentage of revenue, the Company experienced a significant increase to 72% for the quarter ended March 31, 1996, compared to 50% for the period ended March 31, 1995. The increase was partially due to the acquisitions previously discussed. The acquisition of the in-car business resulted in an increase of approximately $700,000 in operating expenses during the quarter. The Company expects to finalize consolidation of the in-car administrative functions into its existing operations in the second quarter of 1996 and as a result will experience a reduction in these costs. The acquisition of Hotline in 1995 resulted in approximately $206,000 of additional operating expenses during the quarter. In addition to Hotline's successful activation business, Hotline is providing the Company's entrance into the fast growing, but relatively new, debit phone business. The balance of the increase in operating expenses was due to the increased investment in the Company's infrastructure that was started in 1995. These significant investments should allow management to quickly access and manage data to make critical decisions as the Company continues its rapid expansion. The Company has recently completed an in depth review of its operating expenses to determine whether there are areas in which cost savings can occur. As a result, cost savings of approximately $250,000 per month were initiated. Liquidity and Capital Resources: The Company had a working capital deficit of $4,019,000 as of March 31, 1996, compared to a deficit of $1,851,000 as of December 31, 1995. Stockholders' equity at March 31, 1996 was $3,459,000, compared to $5,102,000 at December 31, 1995. Net cash used in operations increased approximately $1,267,000 for the three months ended March 31, 1996 over the same period ended March 31, 1995. This was due primarily to the change in operating results between the two periods. The Company's capital investing activities increased approximately $729,000 for the three months ended March 31, 1996 over the same period ended March 31, 1995. This was due to the purchase of additional phones for the portable as well as the in-car operations and an advance deposit of $250,000 on the Marlar acquisition previously mentioned. The Company's financing activities decreased approximately $202,000 for the three months ended March 31, 1996 over the same period ended March 31, 1995 primarily due to borrowings from its parent, Shared Technologies Fairchild Inc. Cash requirements for 1996 will include funds needed to sustain the cash used in operations as a result of the growth in the Company's operations, as well as from anticipated acquisitions. Consequently, management believes that an infusion of cash via either debt or equity will be necessary to expand operations and complete anticipated acquisitions in the coming year. The Company is currently in negotiations with various financial institutions to raise the required funding. Management believes that if the Company is unable to obtain additional financing, it would have to reduce its existing operating expenses to a level necessary to generate cash for operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K: (a) Exhibits None (b) Reports on Form 8-K On January 11, 1996 the Company filed a report on Form 8-K, item 5, regarding its $3 million private placement of equity with International Capital Partners, Inc. The Company included exhibits 4.1 and 4.2, in accordance with Form 8-K item 7. The exhibits included the Certificates of Designations, Preferences Stock, and Common Stock Warrant. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SHARED TECHNOLOGIES CELLULAR, INC. By: /s/ Vincent DiVincenzo Chief Financial Officer Date: May 15, 1996 -----END PRIVACY-ENHANCED MESSAGE-----