-----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, TGa35w71DPT852Aep56tIkbGBFXDobqGuacG+S0TJIPZSoOZ8jbD27IY9bE5dwVv rwe6zvgEOCHnuwYomxpV+g== 0000933583-97-000013.txt : 19970515 0000933583-97-000013.hdr.sgml : 19970515 ACCESSION NUMBER: 0000933583-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] 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: 97605171 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582474 MAIL ADDRESS: STREET 1: C/O SHARED TECHNOLOGIES CELLULAR INC STREET 2: 100 GREAT MEADOW ROAD SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 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, 1997 [ ] 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 06-1386411 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) 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 12, 1997, there were 5,120,407 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, 1997 and December 31, 1996 3-4 Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 6 Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1997 7 Notes to Consolidated Financial Statements 8-9 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 10-12 PART II OTHER INFORMATION 13 Signature Page 14 Item 1 Financial Statements Shared Technologies Cellular, Inc. and Subsidiary Consolidated Balance Sheets March 31, 1997 December 31, 1996 (unaudited) ASSETS Current Assets: Cash $70,848 $143,621 Accounts receivable, less allowance for doubtful accounts of $1,668,993 and $1,392,176 in 1997 and 1996 2,688,144 1,621,317 Carrier commissions receivable, less unearned income 65,416 52,967 Inventories 90,769 79,529 Current portion of note receivable 54,333 39,474 Prepaid expenses and other current assets 143,211 132,813 Total current assets 3,112,721 2,069,721 Telecommunications and office equipment, less accumulated depreciation 1,993,286 2,130,713 Other assets: Intangible assets, less accumulated amortization 9,162,349 9,322,373 Deposits 402,272 373,074 Note receivable, net of current portion 106,290 118,994 Assets held for disposition 247,418 247,418 Total other assets 9,918,329 10 ,061,859 Total Assets $15,024,336 $14,262,293 The accompanying notes are an integral part of these consolidated financial statements. Shared Technologies Cellular, Inc. and Subsidiary Consolidated Balance Sheets March 31, 1997 December 31, 1996 (unaudited) LIABILITIES and STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable $1,797,323 $2,218,406 Accounts payable and other current liabilities 8,770,702 8,718,814 Commissions payable 17,675 48,441 Due to affiliate 784,746 58,809 Total current liabilities 11,370,446 11,044,470 Notes payable, less current portion 343,525 360,417 Stockholders' equity: Preferred Stock, $.01 par value Series B Convertible, authorized 1,250,000 shares, issued and outstanding 500,000 shares. 5,000 5,000 Common Stock, $.01 par value, authorized 20,000,000 shares, issued and outstanding 5,120,407 shares in 1997 and 4,862,737 in 1996 51,205 48,628 Capital in excess of par value 16,567,954 15,816,979 Accumulated deficit (13,313,794) (13,013,201) Total stockholders' equity 3,310,365 2,587,406 Total liabilities and stockholders' equity $15,024,336 $14,262,293 The accompanying notes are an integral part of these consolidated financial statements Shared Technologies Cellular, Inc. and Subsidiary Consolidated Statements of Operations (unaudited) For The Three Months Ended March 31, 1997 1996 Revenues: Rental $3,676,895 $3,199,683 Debit 1,657,634 194,518 Activations 767,639 911,751 Total revenues 6,102,168 4,305,952 Cost of Revenues: Rental 2,101,716 2,073,248 Debit 824,268 117,288 Activations 536,559 585,843 Total cost of revenues 3,462,543 2,776,379 Gross margin 2,639,625 1,529,573 Selling, general & administrative expenses: Field 2,458,949 2,428,892 Corporate 408,835 687,637 2,867,784 3,116,529 Loss from operations (228,159) (1,586,956) Interest expense, net (72,434) (60,771) Net loss ($300,593) ($1,647,727) Net loss per common share ($0.06) ($0.52) Weighted average number of common shares outstanding 5,001,711 3,151,952 The accompanying notes are an integral part of these consolidated financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) For The Three Months Ended March 31, 1997 1996 Cash flows from operating activities: Net loss ($300,593) ($1,647,727) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 335,140 368,776 Provision for doubtful accounts 305,707 189,369 Common stock used for compensation and services 14,561 Accretion of interest on notes payable 31,500 Note receivable (2,155) Change in assets and liabilities: Accounts receivable (1,372,534) 790,939 Carrier commissions receivable (12,449) 151,246 Inventories (11,240) (40,228) Prepaid expenses and other current assets (10,398) (253,764) Accounts payable and other current liabilities 20,388 (768,401) Commissions payable (30,766) (115,959) Net cash used in operating activities (1,032,839) (1,325,749) Cash flows from investing activities: Other assets (22,513) (557,459) Capital expenditures (44,374) (347,860) Net cash used in investing activities (66,887) (905,319) Cash flows from financing activities: Payments on notes payable (437,975) Advances from affiliate 725,937 25,708 Issuance of common stock 738,991 5,000 Net cash provided by financing activities: 1,026,953 30,708 Net decrease in cash (72,773) (2,200,360) Cash, beginning of period 143,621 2,541,827 Cash, end of period $70,848 $341,467 Supplemental disclosures of cash flow information: Cash paid during the periods for interest $151,995 $21,319 The accompanying notes are an integral part of these consolidated financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statement of Stockholders' Equity (unaudited) For the Three Months Ended March 31, 1997 Series B Common Capital in Preferred Stock Stock excess of Shares Amount Shares Amount Par Value Balances, December 31, 1996 500,000 5,000 4,862,737 $48,628 $15,816,979 Issuance of common Stock - - 257,670 2,577 $750,975 Net Loss - - - - - Balances, March 31, 1997 500,000 5,000 5,120,407 $51,205 $16,567,954 Total Accumulated Stockholders' Deficit Equity Balances, December 31, 1996 ($13,013,201) $2,857,406 Issuance of common Stock - 753,552 Net Loss (300,593) ($300,593) Balances, March 31, 1997 ($13,313,794) $3,310,365 Shared Technologies Cellular, Inc. and Subsidiary Notes to Consolidated Financial Statements March 31, 1997 (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, 1996 Form 10-K. Certain reclassifications to prior year financial statements were made in order to conform to the 1997 presentation. 2. Litigation: In connection with the Company's purchase of certain assets from PTC Cellular, Inc. ("PTCC") in November 1995, the Company delivered a $2 million note to PTCC. The current principal balance on such note was approximately $1,700,000 as of May 12, 1997, payable in semi-annual installments of $225,000, plus interest of 8% through 1999. The Company did not pay the November 1, 1996 installment due under the note. Consequently, on January 16, 1997, PTCC filed a claim against the Company for breach of the note, which claim was filed in the Circuit Court of the 11th Judicial Circuit, Dade County, Florida. Although the Company reserves certain defenses to PTCC's claim, it subsequently made a partial payment of the missed installment payment and is actively in negotiations with PTCC to resolve this matter. The Company also did not pay the May 1, 1997 installment due under the note. In the event that the Company does not reach a satisfactory resolution with PTCC, an adverse outcome from this claim would be likely to have a materially adverse effect to the Company's financial condition and cash flows. The Company is not involved in any other litigation which, individually or in the aggregate, if resolved against the Company would be likely to have a materially adverse effect on the Company's financial condition, results of operations, or cash flows. 3. Acquisitions: In April 1996, the Company completed its acquisition of substantially all of the assets of its only franchisee, Summit Assurance Cellular, Inc., and certain other parties (collectively "Summit"). The purchase price was $3,562,662, comprised of $335,415 in cash, the assumption of $668,564 of accounts payable and $665,822 of notes payable, the issuance of a promissory note for $952,861, the issuance of 300,000 shares of the Company's common stock valued at $3.125 per share, and warrants to purchase an additional 100,000 shares of the Company's common stock at prices of $3.00, $4.00, and $5.00 per share, respectively. These warrants, valued at $12,500, vest immediately and expire in three years. The acquisition was accounted for as a purchase, and the purchase price was allocated on the basis of the relative fair market values of the net assets acquired and net liabilities assumed, as follows: Cash $20,000 Equipment 169,600 Excess of cost over net assets acquired 3,373,062 $3,562,662 The following unaudited pro forma condensed combined statement of operations for the three month period ended March 31, 1996 gives effect to the acquisition of Summit as if it had occurred on January 1, 1996. 1996 Revenues $4,958,115 Net loss ($2,004,741) Loss per common share ($.59) Item 2. Management's Discussion and Analysis of Results and Financial Condition Results of Operations: Revenues The Company's revenues of $6,102,000 in the quarter ended March 31, 1997 represented an increase of $1,796,000 (42%) over the quarter ended March 31, 1996. This significant increase in revenues was primarily due to the April 1996 purchase of the operations of the Company's only franchisee and the expansion of the debit or prepaid business, offset by the elimination of the in-car cellular phone rental operation. During the quarter ending March 31, 1997 the Company had revenues of $1,147,000 in portable cellular telephone rentals as a result of the Summit acquisition. For the quarter ending March 31, 1997 the debit business had revenues of $1,658,000, an increase of $1,463,000 over the quarter ending March 31, 1996. These increases were partially offset by a $1,384,000 reduction in revenues as a result of the elimination of the in-car cellular telephone operation as of the fourth quarter 1996. The in-car rental operation was eliminated due to unacceptable profit margins, and the existing accounts were transitioned to portable rentals. The balance of the increase in revenues ($570,000) occurred in the portable rental operation. This was mainly due to increased penetration within existing portable cellular rental locations, as well as the transition of the in-car rental accounts into portable rentals. Gross Margin Gross margin increased from 36% for the three month period ended March 31, 1996 to 43% for the three month period ended March 31, 1997. This was due to significant changes in the revenue mix, as previously discussed. The following table summarizes the revenue mix and the changes in the gross margin for the three month periods ended March 31, 1997 and 1996: 1997 1996 Revenues Gross Margin Revenues Gross Margin Portable rentals 60% 43% 42% 40% In-car rentals - - 32% 29% Debit 27% 50% 5% 40% Activations 8% 10% 13% 16% Agency 5% 70% 8% 70% Total 100% 43% 100% 36% The gross margin for both the portable rental and the debit operations improved due to a reduction in carrier costs as a result of better line management and lower carrier usage charges. The activations operation showed a reduction in the gross margin due to lower activation commissions received from the carriers. Operating Expenses Operating expenses decreased $248,000, from $3,117,000 for the three month period ended March 31, 1996 to $2,868,000 for the three month period ended March 31, 1997. As a percentage of revenue, operating expenses decreased from 72% to 47% during the three month periods ended March 31, 1996 to 1997. The decrease was due to several factors. In the latter part of fiscal 1996, the Company made a concerted effort to reduce its operating expenses. The Company consolidated its Special Events operation into its portable rental operation. It also transitioned its in-car cellular telephone operation accounts into its portable rental operation. The Company also implemented other cost-cutting measures, such as staffing reductions, office closings and travel restrictions that resulted in an overall decrease in operating expenses. Another factor that helped reduce operating expenses as a percentage of revenue was the acquisition of certain assets of Summit. The Company was able to absorb Summit's operation with their existing field operating expenses but with the elimination of its corporate expenses whose functions were absorbed by existing Company personnel. Interest Expense: Interest expense was $72,000 for the three month period ended March 31, 1997, compared to $61,000 for the three month period ended March 31, 1996. Interest expense was mainly due to debt issued in conjunction with the PTCC acquisition in November 1995 and the Summit acquisition in April 1996. Liquidity and Capital Resources: The Company had a working capital deficit of $8,258,000 at March 31, 1997, compared to a deficit of $8,975,000 at December 31, 1996. Stockholders' equity at March 31, 1997 was $3,310,000, compared to $2,857,000 at December 31, 1996. Net cash used in operations for the three month period ended March 31, 1997 was $1,033,000. This was mainly due to the increase in its accounts receivable balance at the end of the quarter due to a significant increase in debit billings and the timing of the payments of those billings. For the three month period ended March 31, 1996 the net cash used in operating activities was $1,326,000. This was mainly due to operating results for the period, net of noncash items. Net cash used in investing activities for the three month period ended March 31, 1997 was $67,000. This was mainly attributable to the purchase of equipment accessories. For the three month period ended March 31, 1996, the Company focused its investing activities on the purchase of portable and in-car cellular telephone equipment and an advance deposit of $250,000 on the Summit acquisition. Financing activities were focused primarily on raising capital to meet the obligations incurred with previously mentioned acquisitions and for working capital. During the three month period ended March 31, 1997 the Company raised cash of $739,000, net of expenses, through the sale of 250,000 Units. Each Unit consisted of one share of the Company's common stock, $.01 par value, and one warrant to purchase an additional share of such common stock. The Units were priced at $3.00 each, and the warrants have an exercise price of $3.00 per share. The Company also borrowed $726,000 from its former parent, Shared Technologies Fairchild Inc. (STFI). Cash requirements for the foreseeable future will include funds needed to sustain operations and for existing obligations arising from completed acquisitions. Management believes that an infusion of cash from debt or equity financing is required. Management does not believe that, at this time, existing operations can generate sufficient cash to sustain operations as well as meet its existing obligations. Item 3. Not applicable PART II. OTHER INFORMATION Item 1. Legal Proceedings In connection with the Company's purchase of certain assets from PTC Cellular, Inc. ("PTCC") in November 1995, the Company delivered a $2 million note to PTCC. The current principal balance on such note was approximately $1,700,000 as of May 12, 1997, payable in semi-annual installments of $225,000, plus interest of 8% through 1999. The Company did not pay the November 1, 1996 installment due under the note. Consequently, on January 16, 1997, PTCC filed a claim against the Company for breach of the note, which claim was filed in the Circuit Court of the 11th Judicial Circuit, Dade County, Florida. Although the Company reserves certain defenses to PTCC's claim, it subsequently made a partial payment of the missed installment payment and is actively in negotiations with PTCC to resolve this matter. The Company also did not pay the May 1, 1997 installment due under the note. In the event that the Company does not reach a satisfactory resolution with PTCC, an adverse outcome from this claim would be likely to have a materially adverse effect to the Company's financial condition and cash flows. The Company is not involved in any other litigation which, individually or in the aggregate, if resolved against the Company would be likely to have a materially adverse effect on the Company's financial condition, results of operations, or cash flows. Item 6. Exhibits and Reports on Form 8-K: (a) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K On January 22, 1997, the Company filed a report on Form 8-K, Item 5, detailing that the Company entered into an agreement on December 27, 1996 to sell up to 1,500,000 common stock Units for an aggregate purchase price of $4,500,000. The Company included exhibits 4.1, 4.2 and 4.3, in accordance with Form 8-K item 5. The exhibits included the Purchase Agreement, Common Stock Warrant Certificate and Option Agreement, all dated December 27, 1996. 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 14, 1997 EX-27 2 ART. 5 FDS FOR QUARTER END 10-Q
5 1000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 71 0 4227 1669 91 3113 3979 1985 15024 11370 0 0 5 51 0 15024 6102 6102 3463 3463 2868 0 72 (301) 0 (301) 0 0 0 (301) (0.06) (0.06)
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