SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
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 CORPORATE ISSUERS: As of October 14, 1997, the
registrant had 5,259,250 shares outstanding of its Common Stock, $.01 par value.
<PAGE>
PRIME CELLULAR, INC.
AND SUBSIDIARY
INDEX
Page
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PART I. FINANCIAL INFORMATION............................................... 3
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at August 31, 1997
(unaudited) and May 31, 1997 (audited)............................ 3
Consolidated Statements of Operations (unaudited) for the
three months ended August 31, 1997 and August 31, 1996............ 4
Consolidated Statements of Cash Flows (unaudited) for
the three months ended August 31, 1997 and August 31, 1996........ 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
Item 1. Legal Proceedings................................................... 9
Item 6. Exhibits and Reports on Form 8-K.................................... 9
SIGNATURES................................................................... 10
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<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PRIME CELLULAR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, 1997 May 31, 1997
--------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 351,898 $ 779,216
Investments 4,973,908 4,969,512
Accounts Receivables, net of allowance of $3,500 54,549 44,744
Notes and Other Receivables 194,653 120,102
----------- -----------
Total Current Assets 5,575,008 5,913,574
Property and Equipment, net of accumulated depreciation
of $39,051 and $19,993 as of August 31, 1997 and
August 31, 1996, respectively 129,428 176,777
Other Assets 3,600 3,600
----------- -----------
TOTAL $ 5,708,036 $ 6,093,951
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses $ 337,703 $ 366,450
Deferred Revenue -0- 37,638
----------- -----------
Total Current Liabilities 337,703 404,088
----------- -----------
Stockholders' Equity (Deficit):
Common Stock 52,593 59,362
Additional Paid-In Capital 6,115,463 6,447,163
Accumulated Deficit (797,723) (816,662)
----------- -----------
Total Stockholders' Equity (Deficit) 5,370,333 5,689,863
----------- -----------
TOTAL $ 5,708,036 $ 6,093,951
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
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<PAGE>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
--------------------------
August 31, 1997 August 31, 1996
--------------- ---------------
Revenues:
Equipment $ -0- $ 176,478
Service 176,698 84,891
----------- -----------
Total Revenues 176,698 261,369
----------- -----------
Cost of Revenues:
Equipment -0- 47,725
Service 19,816 76,445
----------- -----------
Total Cost of Revenues 19,816 124,170
----------- -----------
Gross Profit 156,882 137,199
Selling, General and Administrative 225,268 431,211
----------- -----------
Loss From Operations (68,386) (294,012)
----------- -----------
Other Income (Expenses)
Dividend and Interest Income 87,325 74,116
Interest Expense -0- (545)
----------- -----------
Total Other Income 87,325 73,571
----------- -----------
Net Income (Loss) 18,939 $ (220,441)
=========== ===========
Income (Loss) Per Share of Common
Stock $ 0 $ (.03)
=========== ===========
Weighted Average Common Shares
Outstanding 5,914,113 8,450,000
=========== ===========
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
--------------------------
August 31, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 18,939 $ (220,441)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 9,042 7,810
Changes in operating assets and liabilities:
Accounts receivable (9,805) 23,783
Inventory -- 52,242
Prepaid expenses and other receivables (74,551) (33,467)
Other assets -- 432
Deferred revenue (37,638) 225,135
Accounts payable and accrued expenses (28,747) 130,640
----------- -----------
Total adjustments (141,699) 406,575
----------- -----------
Net Cash provided by (used in) Operating Activities (122,760) 186,134
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of Fixed Assets, net 38,307 --
Increase in Investments (4,396) --
Repurchase of Common Stock (338,469) --
Purchase of Property and Equipment -- (63,360)
----------- -----------
(304,558) (63,360)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 75,000
Net cash acquired from sale of stock -- 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 (427,318) 6,060,814
Cash and Cash Equivalents - Beginning of Period 779,216 184,684
----------- -----------
Cash and Cash Equivalents - End of Period $ 351,898 $ 6,245,498
=========== ===========
</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, Prime Cellular, Inc. ("Prime") consummated a merger
with Bern Associates, Inc. (the "Merger"). Bern Associates, Inc. merged with
Prime Cellular Acquisition Corp. ("Acquisition Corp."), an inactive subsidiary
of Prime formed to complete the Merger, and simultaneously Acquisition Corp.
changed its name to Bern Communications, Inc. ("Bern"). Under the merger
agreement, all of the outstanding shares of common stock of Bern Associates,
Inc. were exchanged for 1,586,187 shares of Prime. This transaction was
accounted for as a reverse acquisition whereby Bern was the acquirer for
accounting purposes.
Bern designs, installs, maintains, services and supports computer systems
to enable companies to provide Internet access to their subscribers as well as
develops Internet software. Bern is the sole operating entity of Prime Cellular,
Inc. and subsidiaries (collectively, the "Company").
On August 28, 1997, pursuant to a Settlement Agreement between Prime,
Prime's wholly-owned subsidiary, Bern and certain former stockholders of Bern
Associates, Inc. (the "Settling Shareholders"), an agreement was reached whereby
Prime purchased all of the shares of common stock from each Settling
Shareholder, which in the aggregate amounted to 676,937 shares, at $.50 per
share for a total amount of $338,469 (the "Settlement"). In addition, Prime and
Bern transferred their rights, title and interest in certain computer software
programs and certain computer equipment to certain of the Settling Shareholders
who were former officers and employees of Bern. In exchange, all Settling
Shareholders signed a general release and certain of the Settling Shareholders,
as applicable, confirmed their prior resignations as officers and/or directors
of Prime and/or Bern as well as terminated their respective options to purchase
securities of Prime or Bern.
In connection with the Settlement, Bern ceased soliciting further
opportunities or engaging in any further consulting services in connection with
its integrated Internet access service business. Moreover, all sales of computer
hardware and/or software of Bern were discontinued. Bern will continue to
provide help desk functions as well as network management services pursuant to
its existing contractual arrangements.
The accompanying unaudited consolidated financial statements of 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, 1997 are not necessarily indicative of the
results that will be obtained for the fiscal year ending May 31, 1998. 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
10-K for the year ended May 31, 1997 and the Company's report on Forms 8-K and
8-K/A filed on June 11, 1996 and August 26, 1996, respectively.
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
On June 11, 1996, Prime Cellular, Inc. ("Prime") consummated the merger
with Bern Associates, Inc., whereby Bern Associates, Inc. merged with an
inactive subsidiary of Prime formed to complete the merger (the "Merger") and
simultaneously changed its name to Bern Communications, Inc. ("Bern"). Under the
Merger, all of the outstanding shares of common stock of Bern Associates, Inc.
were exchanged for 1,586,187 shares of Prime.
In connection with the Merger, the Company entered into a Settlement
Agreement on August 28, 1997 (the "Settlement") with certain shareholders of
Prime as a result of claims made by Prime for possible breaches of certain
representations and warranties of the stockholders of Bern Associates, Inc. with
respect to the Merger and otherwise.
As a result of the Settlement, Bern ceased soliciting further opportunities
or engaging in any further consulting services in connection with its integrated
Internet access systems. Moreover, all sales of computer hardware and/or
software of Bern were discontinued. Bern will nevertheless continue to provide
help desk functions as well as network management services pursuant to its
existing contractual arrangements.
The Company has retained an outside consultant (since 1991) who is also a
shareholder of Prime, under an agreement, to assist it in finding a new business
opportunity for the Company.
Three Months Ended August 31, 1997 Compared to Three Months Ended August 31,
1996
Revenue decreased to $176,698 for the quarter ended August 31, 1997 as
compared to $261,369 for the quarter ended August 31, 1996. This decrease was
due to Company's decision to discontinue all sales of computer hardware and/or
software. There were no such sales for the quarter ended August 31, 1997.
Service revenue increased to $176,698 from $84,891 for the quarters ended August
31, 1997 and 1996, respectively. This was due to an increase in the Internet
revenue of the Company's customers which, because the Company's service revenue
is based upon a fixed percentage of its customers' revenues, resulted in an
increase in service revenues for the Company.
Gross profit increased to $156,882 for the quarter ended August 31, 1997,
as compared to $137,199 for the quarter ended August 31, 1996. This resulted
from one of the Company's customers staffing and managing its own "help desk"
functions during the quarter ending August 31, 1997. These services were
previously performed by Bern.
Dividend and interest income increased to $87,325 for the quarter ended
August 31, 1997, as compared to $74,116 for the quarter ended August 31, 1996.
This increase resulted from the Company investing in higher interest bearing
instruments during the 1997 quarter.
Net income increased to $18,939 for the quarter ended August 31, 1997, as
compared to a net loss of $220,441 for the quarter ended August 31, 1996. This
increase resulted from decreases in cost of revenue and selling, general and
administrative expenses and an increase in interest income for the quarter ended
August 31, 1997. Selling, general and administrative expenses decreased to
$225,268 for the quarter ended August 31, 1997, as compared to $431,211 for the
quarter ended August 31, 1996. This decrease arose from management's decision to
downsize the Company to support only the current customer base. The Company is
not soliciting any new service customers and has discontinued sales of
equipment.
Liquidity and Capital Resources
At August 31, 1997 the Company had approximately $5,326,000 in cash, cash
equivalents and investments and had working capital of approximately $5,200,000.
Net cash used in operating activities aggregated $122,760 for the three
months ended August 31, 1997, as compared with net cash provided of $186,1334
for the quarter ended August 31, 1996. The decrease in cash provided by
operating activities was attributable to a large decrease in deferred revenue
and accounts payable, partially offset by net income of $18,939 for the quarter
ended August 31, 1997,
-7-
<PAGE>
as compared to a net loss of $220,441 for the quarter ended August 31, 1996.
Net cash used in investing activity aggregated $304,558 and $63,360 for the
quarters ended August 31, 1997 and 1996, respectively. This was principally due
to the Company's repurchasing of its common stock for $338,469 pursuant to a
settlement agreement (see Item 1). Cash flow from financing activity aggregated
$0 and $5,938,040 for the quarters ended August 31, 1997 and 1996, respectively.
The cash flow from financing activity of $5,938,040 for the quarter ended August
31, 1996 was a result of the merger between Bern and Prime which occurred in
June 1996.
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 1. Legal Proceedings.
On or about December 20, 1996, Prime and Bern commenced an action in
Supreme Court of New York, Nassau County, against a former employee of Bern and
others. The Complaint alleges that such former employee made false and
fraudulent representations in connection with the Merger and breached her
obligations as an employee by, among other things, various acts of dishonesty,
breaches of fiduciary duty and corporate waste. In the action, Prime seeks an
unspecified amount of damages from the defendants and Prime seeks rescission to
recover the shares of Prime issued to such defendants pursuant to the Merger.
The former employee has filed a counterclaim against Prime and Bern that seeks
unspecified amounts for alleged breach of her employment agreement. Discovery in
the action has recently commenced.
On or about December 20, 1996, Bern commenced an action in Superior Court
of New Jersey, Bergen County, against another former employee, seeking
unspecified damages. The Complaint alleges that such former employee breached
his obligations as an employee of Bern by, among other things, various acts of
dishonesty, breaches of fiduciary duty and corporate waste. Bern also seeks a
declaration that the former employee's employment agreement is invalid because
it was not properly authorized by Bern. The former employee has filed a separate
action against Bern and Prime, which has been consolidated with Bern's action,
and which seeks unspecified amounts pursuant to the purported employment
agreement of the former employee. Discovery in the action has recently
commenced.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a report on Forms 8-K and 8-K/A dated each of August
4, 1997 and August 15, 1997, respectively, regarding the change of the
Company's principal accountants.
-9-
<PAGE>
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.
October 14, 1997 PRIME CELLULAR, INC.
By: /s/ Robert A. Reinhart
---------------------------
Robert A. Reinhart,
Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q AT AUGUST 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1997
<CASH> 351,898
<SECURITIES> 4,973,908
<RECEIVABLES> 58,047
<ALLOWANCES> 3,500
<INVENTORY> 0
<CURRENT-ASSETS> 5,575,008
<PP&E> 168,479
<DEPRECIATION> 39,051
<TOTAL-ASSETS> 5,708,036
<CURRENT-LIABILITIES> 337,703
<BONDS> 0
0
0
<COMMON> 52,593
<OTHER-SE> 5,317,740
<TOTAL-LIABILITY-AND-EQUITY> 5,708,036
<SALES> 176,698
<TOTAL-REVENUES> 176,698
<CGS> 19,816
<TOTAL-COSTS> 19,816
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,939
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,939
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
