SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period of _________________to ______________
Commission file number: 0-18700
PRIME CELLULAR, INC.
(exact name of Registrant as specified in its charter)
Delaware 13-3570672
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 First Stamford Pl., Stamford, CT 06902
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (203)327-3620
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Sections 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan conformed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: As of October 18, 1996 the registrant had 8,667,000 shares
outstanding of its Common Stock, $.01 par value.
<PAGE>
PRIME CELLULAR, INC.
AND SUBSIDIARY
INDEX
Page
PART I. FINANCIAL INFORMATION.............................................. 3
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at August 31, 1996
(unaudited) and May 31, 1996 (audited).......................... 3
Consolidated Statements of Operations (unaudited) for the
three months ended August 31, 1996 and August 31, 1995.......... 4
Consolidated Statements of Cash Flows (unaudited) for
the three months ended August 31, 1996 and August 31, 1995...... 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
PART II. OTHER INFORMATION................................................ 9
SIGNATURES................................................................. 9
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PRIME CELLULAR, INC.
CONSOLIDATED BALANCE SHEETS
August 31, 1996 May 31, 1996
--------------- ------------
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $6,245,498 $184,684
Accounts Receivables 270,413 294,196
Inventory 216,465 268,707
Notes and Other Receivables 44,603 11,136
---------- --------
Total Current Assets 6,776,979 758,723
Property and Equipment 174,703 119,153
Other Assets 3,000 3,432
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TOTAL $6,954,682 $881,308
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses $745,665 $615,025
Deferred Revenue 225,135 -
Note Payable - 500,000
Due to Officers 40,340 76,561
---------- ----------
Total Current Liabilities 1,011,140 1,191,586
---------- ----------
Stockholders' Equity (Deficit):
Common Stock 84,500 43,000
Additional Paid-In Capital 6,422,025 (10,736)
Accumulated Deficit (562,983) (342,542)
---------
Total Stockholders' Equity (Deficit) 5,943,542 (310,278)
---------- ----------
TOTAL $6,954,682 $881,308
========== ========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
--------------------------
August 31, 1996 August 31, 1995
--------------- ----------------
Revenues:
Equipment $176,478 $109,304
Service 84,891 -
-------- --------
Total Revenues 261,369 109,304
-------- --------
Cost of Revenues:
Equipment 47,725 69,727
Service 76,445 -
-------- --------
Total Cost of Revenues 124,170 69,727
-------- --------
Gross Profit 137,199 39,577
Selling, General and Administrative 431,211 62,968
-------- --------
Loss From Operations (294,012) (23,391)
-------- --------
Other Income (Expenses)
Dividend and Interest Income 74,116 229
Interest Expense (545) -
-------- --------
Total Other Income 73,571 229
-------- --------
Net Loss $(220,441) $(23,162)
========= ========
Loss Per Share of Common Stock $(.03) $ (.01)
========= ========
Weighted Average Common Shares 8,450,000 4,300,000
Outstanding ========= ========
See accompanying notes to consolidated financial statements
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<TABLE>
<CAPTION>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
--------------------------
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(220,441) $ (23,162)
--------- ----------
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 7,810 --
Changes in operating assets and liabilities:
Accounts receivable 23,783 --
Inventory 52,242 (845,725)
Prepaid expenses and other receivables (33,467) 10,550
Due from officers -- 12,151
Other assets 432 (4,831)
Deferred revenue 225,135 --
Accounts payable and accrued expenses 130,640 850,441
--------- ----------
Total adjustments 406,575 22,586
--------- ----------
Net Cash provided by (used in) Operating Activities 186,134 (576)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (63,360) (3,360)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 75,000 --
Net cash acquired from sale of stock (Note 1) 5,899,261
Repayment of amounts due to officers (36,221) --
--------- ----------
Net Cash provided by Financing Activities 5,938,040 --
--------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents 6,060,814 (3,936)
Cash and Cash Equivalents - Beginning of Period 184,684 11,324
--------- ----------
Cash and Cash Equivalents - End of Period $6,245,498 $ 7,388
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. On June 11, 1996, Bern Associates, Inc. ("Associates") entered into a merger
agreement with Prime Cellular, Inc. ("Prime"). Under the agreement, all of the
outstanding shares of Associate's common stock were exchanged for 4,100,000
shares of Prime. Associates merged into a subsidiary of Prime, which was formed
to complete the merger, and simultaneously the subsidiary changed its name to
Bern Communications, Inc. ("Bern"). This transaction is being accounted for as a
reverse acquisition whereby Bern is the acquirer for accounting purposes.
In connection with the merger, Prime is investigating possible breaches of
certain representations and warranties of former stockholders of Associates in
connection with the merger and otherwise. In the event Prime concludes that such
breaches have occurred, Prime may seek to reduce the consideration paid in the
merger or pursue other remedies available to it including an action for damages,
rescission or equitable relief.
In July 1996, a stockholder, who is a former officer of Bern, attempted to
serve a summons on Prime seeking the release of the shares received by the
stockholder upon the merger of Bern with Prime, or alternatively, claiming
damages of $2,500,000. Prime has demanded a complaint which has not yet been
served. Prime's management believes the claims lack merit and that Prime has
counterclaims against the former officer.
The accompanying unaudited consolidated financial statements of Prime and
its subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
have been included. All significant intercompany transactions and balances have
been eliminated. Operating results for the three months ended August 31, 1996
are not necessarily indicative of the results that will be obtained for the
fiscal year ending May 31, 1997. These financial statements and notes should be
read in conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10K for the year ended May 31, 1996 and the
Company's report on Form 8K and 8-K/A filed in June 11, 1996 and August 26,
1996, respectively.
The Company sells computer equipment and provides services to telephone
companies providing internet services throughout the United States.
The unaudited pro forma results of operations which follow assume that the
acquisition occurred at June 1, 1995.
Three Months ended August 31, 1995
- --------------------------------------------------------------------------------
Revenues $109,304
Net Loss $ (7,352)
- --------------------------------------------------------------------------------
Loss per share of
common stock $ --
================================================================================
The pro forma information presented is for information purposes only and does
not purport to be indicative of the results which would actually have been
obtained if the combination had been in effect for the period indicated.
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<PAGE>
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
On June 11, 1996, Bern Associates, Inc. ("Associates") entered into a
merger agreement with Prime Cellular Inc. (Prime"). Under the agreement, all of
the outstanding shares of Associate's common stock were exchanged for 4,100,000
shares of Prime. Associates merged into a subsidiary of Prime, which was formed
to complete the merger, and simultaneously the subsidiary changed its name to
Bern Communications, Inc. ("Bern"). This transaction is being accounted for as a
reverse acquisition whereby Bern is the acquirer for accounting purposes.
In connection with the merger, Prime is investigating possible breaches of
certain representations and warranties of former stockholders of Associates in
connection with the merger and otherwise. In the event Prime concludes that such
breaches have occurred, Prime may seek to reduce the consideration paid in the
merger or pursue other remedies available to it including an action for damages,
rescission or equitable relief.
Bern provides software, equipment and services necessary to enable local
telephone companies to become Internet "providers" and provides support and
assistance to such companies and their Internet- user customers.
THREE MONTHS ENDED AUGUST 31, 1996 VS. 1995
Revenues increased to $261,369 for the three months ended August 31, 1996
from $109,304 for the three months ended August 31, 1995. The increase was due
to the Company adding help desk, network management or other internet services
after the three months ended August 31, 1995 and to an increase in revenue from
equipment sales. Equipment revenue was increased as a result of the Company
devoting substantially greater resources to these sales as compared to the
comparable period in 1995. The loss from operations for the three months ended
August 31, 1996 increased to ($294,012) from ($23,391) for the three months
ended August 31, 1995. The increased loss was due primarily to expenses (which
expenses are included in selling, general and administrative expenses) incurred
to increase equipment sales and revenues from services. Interest income
increased as a result of acquiring significant cash from the merged company.
Liquidity and Capital Resources
At August 31, 1996 the Company had approximately $6,245,000 in cash and
cash equivalents and had working capital of approximately $5,766,000.
Net cash provided by operating activities aggregated $186,134 for the three
month period ended August 31, 1996 compared with net cash used of $576 for the
prior year's comparable period. The increase in cash provided by operating
activities was attributable to increases in deferred revenue and accounts
payable offset by the increased loss from operations.
Net cash used in investing activities aggregated $63,360 for the three
months ended August 31, 1996, compared with net cash used of $3,360 for the
prior year comparable period. The increase in cash usage was attributable to
increases in purchases of property and equipment.
Cash flows from financing activities aggregated $5,938,040 for the three
month period ended August 31, 1996 compared with none for the prior year
comparable. The increase was as a result of the Merger between Bern and Prime.
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<PAGE>
Management believes that the Company has sufficient resources to provide
for operations for the next twelve months.
Inflation
Inflation has not historically had a material impact on the Company's
operations.
Seasonality
The operations of the Company are not considered to be seasonal.
-8-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K dated June 11, 1996, as
supplemented by that amendment on Form 8-K/A dated August 26, 1996.
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.
PRIME CELLULAR, INC.
October 21, 1996 By:/s/Joseph K. Pagano
------------------------
Joseph K. Pagano, President
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