-----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, F37L2BdnibM9ptb0/aMD+arGqE6wYgVwq3exvEBhWnajtaj1W8vtenCouYj1vQYk 5MvUT8w3aypVSIuOlgShRw== 0000933583-97-000014.txt : 19970821 0000933583-97-000014.hdr.sgml : 19970821 ACCESSION NUMBER: 0000933583-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 DATE AS OF CHANGE: 19970819 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: 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: 97664332 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 June 30, 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 (IRS Employer Identification No.) Incorporation or organization) 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 August 14, 1997, there were 5,960,511 shares outstanding of the Company's Common Stock, $.01 par value. PART 1 FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996 3-4 Consolidated Statements of Operations for the six months ending June 30,1997 and 1996 5 Consolidated Statements of Operations for the three months ending June 30, 1997 and 1996 6 Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 7-8 Consolidated Statements of Stockholders' Equity for the six months ended June 30, 1997 9 Notes to Consolidated Financial Statements 10-11 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 12-15 PART II OTHER INFORMATION 16 Signature Page 17 Item 1. Financial Statements Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Balance Sheets June 30, 1997 December 31, 1996 (unaudited) ASSETS Current Assets: Cash $415,268 $143,621 Accounts receivable, less allowance for doubtful accounts of $887,269 and $1,392,176 in 1997 and 1996 2,046,281 1,621,317 Carrier commissions receivable, less unearned income 258,784 52,967 Inventories 74,533 79,529 Current portion of note receivable 89,726 39,474 Prepaid expenses and other current assets 165,297 132,813 Total current assets 3,049,889 2,069,721 Telecommunications and office equipment, less accumulated depreciation 1,904,514 2,130,713 Other assets: Intangible assets, less accumulated amortization 9,001,714 9,322,373 Deposits 505,695 373,074 Note receivable, less current portion 73,930 118,994 Assets held for disposition 247,418 247,418 Total other assets 9,828,757 10,061,859 TOTAL ASSETS $14,783,160 $14,262,293 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Balance Sheets LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1997 December 31, 1996 (unaudited) Current liabilities: Current portion of notes payable $953,704 $2,218,406 Accounts payable and other current liabilities 8,152,927 8,718,814 Commissions payable 255,091 48,441 Due to affiliate 1,011,962 58,809 Total current liabilities 10,373,684 11,044,470 Notes payable, less current portion 1,154,236 360,417 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 5,127,177 shares in 1997 and 4,862,737 shares in 1996 51,272 48,628 Capital in excess of par value 16,582,377 15,816,979 Accumulated deficit (13,383,409) (13,013,201) Total stockholders' equity 3,255,240 2,857,406 Total liabilities and stockholders' equity $14,783,160 $14,262,293 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) For the Six Months Ended June 30, 1997 1996 Revenues: Rental 7,705,300 $7,131,547 Debit 3,678,794 461,260 Activations 1,482,824 1,781,125 Total Revenues 12,866,918 9,373,932 Cost of revenues: Rental 4,343,219 4,574,408 Debit 1,874,295 327,940 Activations 1,040,914 1,090,134 Total cost of revenues 7,258,428 5,992,482 Gross margin 5,608,490 3,381,450 Selling, general and administrative expenses: Field 4,987,246 4,888,871 Corporate 850,236 1,387,256 5,837,482 6,276,127 Loss from operating (228,992) (2,894,677) Interest expense (net) (141,216) (129,838) Net loss ($370,208) ($3,024,515) Net loss per common share ($0.07) ($0.85) Weighted average number of common shares outstanding 5,061,424 3,561,455 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Operations (unaudited) For the Three Months Ended June 30, 1997 1996 Revenues: Rental $4,028,405 $3,931,865 Debit 2,021,160 266,741 Activations 715,185 869,374 Total revenues 6,764,750 5,067,980 Cost of revenues: Rental 2,241,503 2,501,160 Debit 1,050,027 210,652 Activations 504,355 504,291 Total cost of revenues 3,795,885 3,216,103 Gross margin 2,968,865 1,851,877 Selling, general and administrative expenses: Field 2,528,297 2,459,937 Corporate 441,401 699,661 2,969,698 3,159,598 Loss from operations (833) (1,307,721) Interest expense (net) (68,782) (69,067) Net loss ($69,615) ($1,376,788) Net loss per common share ($0.01) ($0.35) Weighted average number of common shares outstanding 5,120,481 3,970,959 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) For The Six Months Ended June 30, 1997 1996 Cash flows from operating activities: Net loss ($370,208) ($3,024,515) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 641,833 742,906 Provision for doubtful accounts 631,965 430,084 Common stock issued for compensation and services 29,051 Accretion of interest on notes payable 51,650 Note receivable (5,188) Change in assets and liabilities Accounts receivable (1,056,929) (856,010) Carrier commissions receivable (205,817) (43,897) Inventories 4,996 (30,854) Prepaid expenses and other current assets (32,484) Accounts payable and other current liabilities (617,537) 1,537,436 Commissions payable 206,650 Net cash used in operating activities (722,018) (1,244,850) Cash flows from investing activities: Acquisition of businesses (417,316) Other assets (118,639) (82,499) Purchase of equipment (108,956) (1,557,260) Collection of receivable from sale of assets 1,077,856 Payments for intangible assets (227,407) Net cash used in investing activities (227,595) (1,206,626) Cash flows from financing activities: Payments on notes payable (470,883) (2,286) Advances from affiliate 953,153 27,221 Issuance of common stock 738,990 5,000 Net cash provided by financing activities 1,221,260 29,935 Net increase (decrease) in cash 271,647 (2,421,541) Cash, beginning of period 143,621 2,541,827 Cash, end of period $415,268 $120,286 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (continued) For The Six Months Ended June 30, 1997 1996 Supplemental disclosure of cash flow information: Cash paid during the period for - Interest $228,064 $49,394 Supplemental schedules of noncash investing and financing activities: Issuance of common stock for acquisitions $0 $950,000 Notes payable incurred for acquisition of assets $0 $1,139,000 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (unaudited) For The Six Months Ended June 30, 1997 Series B Preferred Stock Common Stock Shares Amount Shares Amount Balances, December 31, 1996 500,000 $5,000 4,862,737 $48,628 Issuance of common stock - - 264,440 2,644 Net loss - - - - Balances, June 30,1997 500,000 $5,000 5,127,177 $51,272 Capital in Total Excess of Accumulated Stockholders' Par Value Deficit Equity Balances, December 31, 1996 $15,816,979 ($13,013,201) $2,857,406 Issuance of common stock 765,398 - $768,042 Net loss - (370,208) ($370,208) Balances, June 30,1997 $16,582,377 ($13,383,409) $3,255,240 The accompanying notes are an integral part of these financial statements. Shared Technologies Cellular, Inc. and Subsidiaries Notes to Consolidated Financial Statements June 30, 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 report on Form 10-K. Certain reclassifications to prior year financial statements were made in order to conform to the 1997 presentation. 2. Litigation: On July 28, 1997, the Company entered into a settlement agreement to resolve certain litigation with PTC Cellular, Inc ("PTC") concerning an alleged default by the Company on payments under a promissory note delivered to PTC in connection with the Company's 1995 purchase of certain assets from PTC (the "Note"). Pursuant to the settlement agreement, the Company has agreed to pay PTC an aggregate of $400,000 in several installments, with the last such installment due no later than August 31, 1997, representing settlement of the claimed arrearages due under the Note. Thereafter, the Company has agreed to pay future installments under the Note in accordance with the original terms on the Note. As a result of the settlement agreement the Company has classified a portion of the note as a long-term liability. 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 three-year warrants each to purchase 100,000 shares of the Company's common stock at prices of $3.00, $4.00, and $5.00 per share, respectively. These warrants were 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 six month period ended June 30, 1996 gives effect to the acquisition of Summit as if it had occurred on January 1, 1996. 1996 Revenues $10,243,482 Net loss ($3,497,720) Loss per common share ($.93) 4. Subsequent Events: On July 3, 1997 the Company signed an agreement with MS Comm LLC ("MS") to grant MS the non-exclusive option (the "Option") to purchase up to 500,000 shares of the Company's Common Stock at a purchase price of $3.00 per share. The Option initially expired on July 23, 1997, however, the Company has agreed to extend the option until September 1, 1997. Under the agreement the Company also committed to issue warrants to MS subject to the Company's achievement of certain revenue targets from accounts referred by MS in connection with a separate agreement (the "Referral Agreement") whereby MS was appointed as an independent sales representative of the Company. In the event that the Company generates revenues of at least $2,000,000 from the Referral Agreement during the first year of the Referral Agreement, then MS will receive a common stock purchase warrant representing the right to purchase 1,000,000 shares of Common Stock at a purchase price of $3.00 per share. In the event that the Company generates revenues of at least $4,000,000 from the Referral Agreement during the second year of the Referral Agreement, then MS will receive a Common Stock purchase warrant representing the right to purchase 1,000,000 shares of Common Stock at a purchase price of $4.00 per share. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The following management's discussion and analysis of results of operations and financial condition include forward-looking statements with respect to the Company's future financial performance. These forward-looking statements are subject to various risks and uncertainties which could cause actual results to differ materially from historical results of those currently anticipated. Results of Operations: Six months ended June 30, 1997 compared to June 30, 1996 Revenues The Company's revenues of $12,867,000 in 1997 represented an increase of $3,493,000 (37%) over revenues in 1996. This significant increase was primarily due to the expansion of the debit or prepaid business and the April 1996 purchase of the operations of the Company's sole franchisee, offset by the elimination of the in-car operation. The debit business had revenues of $3,679,000, an increase of $3,218,000 over debit revenues in 1996. During 1997 the Company had an increase in revenues over 1996 of $1,777,000 in portable cellular telephone rentals as a result of the Summit acquisition. These increases were partially offset by a $2,505,000 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 ($1,003,000) 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 to 44% of revenues for 1997 from 36% for 1996. This improvement was mainly due to significant changes in the revenue mix, as previously discussed. The following table summarizes the impact of these changes on the gross margin for 1997 and 1996: 1997 1996 Revenues Gross Margin Revenues Gross Margin Portable rentals 60% 44% 49% 42% In-car rentals - - 27% 25% Debit 29% 49% 5% 29% Activations 11% 30% 19% 39% Total 100% 44% 100% 36% The gross margin for both the portable rental operation and the debit operation improved due to a reduction in carrier costs as a result of better line management and lower carrier charges. The activations operation showed a reduction in the gross margin due to lower activation commissions received from the carriers. Selling, general and administrative expenses Selling, general and administrative expenses ("SG&A") decreased $439,000 (7%), to $5,837,000 for 1997 from $6,276,000 for 1996. As a percentage of revenues, SG&A decreased to 45% for 1997 compared to 67% for 1996. The decrease is due to several factors. In the latter part of fiscal year 1996, the Company made a concerted effort to reduce its operating expenses. The Company consolidated its Special Events operation into the portable rental operation. It also transitioned its in-car cellular telephone operation into its portable rental operation. The Company also implemented other cost-cutting measures, such as staff reductions, office closings and travel restrictions that resulted in an overall decrease in SG&A. Another factor that helped reduce SG&A as a percentage of revenues, was the acquisition of certain assets of Summit. The Company was able to reduce expenses through certain synergies. Interest expense Interest expense net of interest income was $141,000 for 1997 compared to $130,000 for 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. Three months ended June 30, 1997 compared to June 30, 1996 Revenues The Company's revenues of $6,765,000 in 1997 represented an increase of $1,697,000 (33%) over revenues in 1996. This significant increase was primarily due to the expansion of the debit or prepaid business, and the April 1996 purchase of the operations of the Company's sole franchisee, offset by the elimination of the in-car operation. The debit business had revenues of $2,021,000, an increase of $1,754,000 over revenues in 1996. During 1997 the Company had an increase in revenues over 1996 of $625,000 in portable cellular telephone rentals as a result of the Summit acquisition. These increases were partially offset by a $1,124,000 reduction in revenues as a result of the elimination of the in-car cellular telephone operation as of the fourth quarter 1996. The balance of the increase in revenues ($442,000) 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 to 44% of revenues for 1997 from 37% for 1996. This improvement was mainly due to the significant changes in the revenue mix, as previously discussed. The following table summarizes the impact of these changes on the gross margin for 1997 and 1996: 1997 1996 Revenues Gross Margin Revenues Gross Margin Portable rentals 60% 44% 55% 43% In-car rentals - - 23% 21% Debit 30% 48% 5% 21% Activations 10% 30% 17% 42% Total 100% 44% 100% 37% The gross margin for both the portable rental operation and the debit operation improved due to a reduction in carrier costs as a result of better line management and lower carrier charges. The activations operation showed a reduction in the gross margin due to lower activation commissions received from the carriers. Selling, general and administrative expenses Selling, general and administrative expenses decreased $190,000 (6%), to $2,970,000 for 1997 from $3,160,000 for 1996. As a percentage of revenues, SG&A decreased to 44% for 1997 compared to 62% for 1996. The decrease is due to cost cutting measures implemented by the Company in the latter part of fiscal year 1996. See the previous SG&A discussion for a detailed explanation. Interest expense Interest expense net of interest income was $69,000 for both 1997 and 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 $7,324,000 at June 30, 1997, compared to a deficit of $8,975,000 at December 31, 1996. Stockholders' equity at June 30, 1997 was $3,255,000, compared to $2,857,000 at December 31, 1996. Net cash used in operations for the six month period ended June 30, 1997 was $722,000. This was mainly due to the increase in its accounts receivable balance at the end of the quarter due to the significant increase in debit billings and the timing of the payments of those billings. For the six month period ended June 30, 1996 the net cash used in operating activities was $1,245,000. This was mainly due to operating results for the period, net of noncash items partially offset by an increase in accounts payable and other current liabilities. Net cash used in investing activities for the six month period ended June 30, 1997 was $228,000. This was mainly attributable to the purchase of equipment accessories and deposit requirements by carriers for additional lines. For the six month period ended June 30, 1996, the Company focused its investing activities on the purchase of cellular telephone equipment and on growth through acquisition. In addition, the Company collected on a note receivable from the sale of the resale operation in December 1995. Financing activities were focused primarily on raising capital to meet the obligations incurred with previously mentioned acquisitions and for working capital. During the six month period ended June 30, 1997 the Company raised cash of $739,000, net of expenses, through the sale of 250,000 Units. Each Unit consists 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 $953,000 from its former parent, Shared Technologies Fairchild Inc. (STFI). Cash from operations has been sufficient to fund ongoing operations, however funds are needed to satisfy existing obligations arising from completed acquisitions and prior year losses. In order to address the Company's immediate cash requirements, the Company is engaged in efforts to raise capital through a private placement of up to 333,333 Common Stock units (`Units") at $3.00 per Unit. Each Unit consisting of one share of Common Stock and one warrant to purchase an additional share of Common Stock at an exercise price of $3.00 per share. It is expected that certain of the Company's directors and members of management will participate in this private placement. Management believes that with this anticipated infusion of cash the Company can meet its existing short-term obligations. However, an additional infusion of cash from debt or equity may be required to meet its long-term obligations. Item 3. None PART II. OTHER INFORMATION Item 1. Legal Proceedings On July 28, 1997, the Company entered into a settlement agreement to resolve certain litigation with PTC Cellular, Inc ("PTC") concerning an alleged default by the Company on payments under a promissory note delivered to PTC in connection with the Company's 1995 purchase of certain assets from PTC (the "Note"). Pursuant to the settlement agreement, the Company has agreed to pay PTC an aggregate of $400,000 in several installments, with the last such installment due no later than August 31, 1997, representing settlement of the claimed arrearages due under the Note. Thereafter, the Company has agreed to pay future installments under the note in accordance with the original terms on the Note. 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 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of the Company was held on May 23, 1997. Three matters of business were held to a vote for the following purposes: (1) the election of seven directors of the Company for the ensuing annual term ("Proposal 1"); (2) the ratification of an amendment to the 1994 Stock Option Plan to increase the number of shares of the Company's Common Stock available for awards from 274,797 to 525,000 ("Proposal 2"); and (3) the reappointment of the Company's auditors, Rothstein, Kass & Company P.C. ("Proposal 3"). A total of 5,492,792 votes were cast, out of a total of 7,120,407 potential votes. Proposal 1 Directors For Withheld Anthony D. Autorino 5,435,042 57,750 Thomas H. Decker 5,434,792 58,000 William A. DiBella 5,434,792 58,000 Vincent DiVincenzo 5,435,292 57,500 Ajit G. Hutheesing 5,435,292 57,500 Craig A. Marlar 5,435,292 57,500 Nicholas E. Sinacori 5,435,292 57,500 Proposal 2 For Against Abstain 5,433,682 55,610 3,500 Proposal 3 For Against Abstain 5,462,792 27,600 2,400 Item 6. Exhibits and Reports on Form 8-K: (a) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K None 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 Vincent DiVincenzo Chief Financial Officer Date: August 14, 1997 EX-27 2 ART. 5 FDS FOR QUARTER END 10-Q
5 1000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 415 0 3192 887 75 3050 4007 2102 14783 10374 0 0 5 51 3199 14783 12867 12867 7258 7258 5837 0 141 (370) 0 (370) 0 0 0 (370) (0.07) (0.07)
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