SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
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 November 30, 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 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: As of January 16, 1998 the Registrant
had 4,490,500 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 November 30, 1997
(unaudited) and May 31, 1997 (audited)........................... 3
Consolidated Statements of Operations (unaudited) for the
three months ended November 30, 1997 and November 30, 1996........ 4
Consolidated Statements of Operations (unaudited) for the
six months ended November 30, 1997 and November 30, 1996......... 5
Consolidated Statements of Cash Flows (unaudited) for
the six months ended November 30, 1997 and November 30, 1996..... 6
Notes to Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 9
PART II. OTHER INFORMATION................................................ 11
Item 1. Legal Proceedings ............................................... 11
Item 6. Exhibits......................................................... 11
SIGNATURES................................................................. 12
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PRIME CELLULAR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 735,079 $ 779,216
Investments 4,978,256 4,969,512
Accounts Receivables, net of allowance of $0 and $3,500 9,350 44,744
Notes and Other Receivables 253,039 120,102
----------- -----------
Total Current Assets 5,975,724 5,913,574
Property and Equipment, net of accumulated
depreciation of $7,858 and $46,074 as of
November 30, 1997 and May 31, 1997,
respectively 45,711 176,777
Other Assets 3,600 3,600
----------- -----------
TOTAL $ 6,025,035 $ 6,093,951
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses $ 250,958 $ 366,450
Deferred Revenue 0 37,638
----------- -----------
Total Current Liabilities 250,958 404,088
----------- -----------
Stockholders' Equity (Deficit):
Common Stock 45,828 59,362
Additional Paid-In Capital 5,961,978 6,447,163
Accumulated Deficit (233,729) (816,662)
----------- -----------
Total Stockholders' Equity (Deficit) 5,774,077 5,689,863
----------- -----------
TOTAL $ 6,025,035 $ 6,093,951
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended
-----------------------------
November 30, November 30,
1997 1996
----------- ------------
Revenues:
Equipment $ 0 $ 445,644
Service 105,579 138,078
----------- -----------
Total Revenues 105,579 583,722
----------- -----------
Cost of Revenues:
Equipment 0 265,797
Service 14,604 57,502
----------- -----------
Total Cost of Revenues 14,604 323,299
----------- -----------
Gross Profit 90,975 260,423
Selling, General and Administrative 239,152 591,287
----------- -----------
Loss From Operations (148,177) (330,864)
----------- -----------
Other Income (Expenses)
Dividend and Interest Income 82,201 74,611
Interest Expense 0 (1,810)
Contract Settlement 629,970 0
----------- -----------
Total Other Income 712,171 72,801
----------- -----------
Net Income (Loss) $ 563,994 ($ 258,063)
=========== ===========
Income (Loss) Per Share of Common Stock $ .11 $ (.04)
=========== ===========
Weighted Average Common Shares
Outstanding 5,184,008 5,936,187
=========== ===========
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the six months ended
-----------------------------
November 30, November 30,
1997 1996
----------- ------------
Revenues:
Equipment $ 0 $ 622,122
Service 282,277 222,969
----------- -----------
Total Revenues 282,277 845,091
----------- -----------
Cost of Revenues:
Equipment 0 313,522
Service 34,420 133,947
----------- -----------
Total Cost of Revenues 34,420 447,469
----------- -----------
Gross Profit 247,857 397,622
Selling, General and Administrative 464,420 1,022,498
----------- -----------
Loss From Operations (216,563) (624,876)
----------- -----------
Other Income (Expenses)
Dividend and Interest Income 169,526 148,727
Interest Expense 0 (2,355)
Contract Settlement 629,970 0
----------- -----------
Total Other Income 799,496 146,372
----------- -----------
Net Income (Loss) $ 582,933 ($ 478,504)
=========== ===========
Income (Loss )Per Share of Common Stock $ .11 $ (.08)
=========== ===========
Weighted Average Common Shares
Outstanding 5,551,056 5,849,510
=========== ===========
See accompanying notes to consolidated financial statements
-5-
<PAGE>
PRIME CELLULAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
--------------------------
November 30, November 30,
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 582,933 $ (478,504)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation 20,773 16,462
Changes in operating assets and liabilities:
Accounts receivable 35,394 148,871
Inventory 0 117,147
Prepaid expenses and other receivables (132,937) (27,936)
Other assets 0 432
Deferred revenue (37,638) 162,636
Accounts payable and accrued expenses (115,492) 124,077
----------- -----------
Total adjustments (229,900) 541,689
----------- -----------
Net Cash provided by (used in) Operating Activities 353,033 63,185
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of Fixed Assets, net 110,293 0
Increase in Investments (8,744) 0
Repurchase of Common Stock (498,719) 0
Purchase of property and equipment 0 (80,952)
----------- -----------
Net Cash provided by (used in) Investing Activities (397,170) (80,952)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 75,000
Net cash acquired from sale of stock 0 5,899,261
Repayment of amounts due to officers 0 (62,471)
----------- -----------
Net Cash provided by (used in) Financing Activities 0 5,911,790
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (44,137) 5,894,023
Cash and Cash Equivalents - Beginning of Period 779,216 184,684
----------- -----------
Cash and Cash Equivalents - End of Period $ 735,079 $ 6,078,707
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
PRIME CELLULAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company. 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."), and simultaneously
Acquisition Corp. changed its name to Bern Communications, Inc. ("Bern"). Under
the terms of the merger agreement, as amended, all of the outstanding shares of
common stock of Bern Associates, Inc. were exchanged for 1,586,187 shares (the
"Merger Consideration") of Prime. The transaction was accounted for as a reverse
acquisition whereby Bern was the acquirer for accounting purposes.
Bern was the sole operating entity of Prime and its subsidiaries
(collectively, the "Company"), and engaged in the design, installation,
maintenance, service and support of computer systems enabling companies to
provide Internet access to their subscribers. Bern also developed Internet
software.
The operations of Bern were discontinued in the quarter ended November 30,
1997. During such period, Bern ceased soliciting further opportunities, did not
engage in any further consulting services in connection with its integrated
Internet access service business, discontinued all sales of computer hardware
and/or software and ceased all "help desk" service operations, which service
contracts either expired by their own terms or were mutually terminated by the
parties. In addition, the Company reacquired substantially all of the Merger
Consideration from the former stockholders of Bern Associates, Inc. and settled
certain disputes having arisen out of the Merger, as follows:
(a) On August 28, 1997, pursuant to a settlement between Prime, Bern
and certain former stockholders of Bern Associates, Inc. (the "Settling
Shareholders"), Prime purchased all of the common stock from the Settling
Shareholders (which in the aggregate amounted to 676,937 shares) at $.50
per share for the aggregate amount of $338,469 (the "Settlement"). In
addition, Prime and Bern transferred their respective rights, title and
interest in certain computer software programs and computer equipment to
certain of the Settling Shareholders, who had been officers and employees
of Bern. In exchange, all of the Settling Shareholders signed a general
release in favor of the Company 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.
(b) On October 15, 1997, the company entered into an agreement to
purchase 20,500 shares of Prime common stock, for the amount of $10,250,
from a former stockholder of Bern Associates, Inc.
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<PAGE>
(c) On November 21, 1997, the Company settled outstanding disputes
with a former employee/shareholder of Bern Associates, Inc. and a related
party, whereby an action commenced by the Company against such persons in
the New York Supreme Court was dismissed with prejudice. The settlement
provided that in exchange for a payment of $150,000, Prime purchased
656,000 shares of Prime common stock from the settling parties. The former
employee/settling party also confirmed and ratified her prior termination
as director, officer and employee of Prime and/or Bern and both of the
settling parties signed general releases.
(d) In January 1998, the Company settled with two additional former
stockholders of Bern Associates, Inc.
2. Income Taxes. There was no provision for federal and local income taxes
for the three and six month periods ended November 30, 1996 or November 30, 1996
as a result of net operating loss carryforwards. The amount of the net operating
loss carryforwards which may be utilized in any future period may be subject to
certain limitations, based upon changes in the ownership of the Company's common
stock.
3. Interim Statements. 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 six months ended November 30, 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 10K for the year ended May 31, 1997 and the Company's report on
Form 8K and 8-K/A filed in June 11, 1996 and August 26, 1996, respectively.
-8-
<PAGE>
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Report contains statements that are forward-looking, such as statements relating
to plans for future activities. Such forward-looking information involves
important risks and uncertainties that could significantly affect results in the
future and, accordingly, such results may differ from those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to the Company's
growth strategy, changes in federal or state laws and the administration of such
laws and the general condition of the economy and its effect on the securities
markets.
Results of Operations
Bern discontinued its operations during the quarter ended November 30,
1997.
The Company continues to retain an outside consultant, engaged since 1991
who is also a shareholder and officer of Prime, to assist the Company in finding
new business opportunities for the Company.
Three and Six Months Ended November 30, 1997 vs. 1996
Revenue decreased to $105,579 and $282,277 for the three and six months
ended November 30, 1997, respectively, as compared to $583,722 and $845,091 for
the three and six months ended November 30, 1996, respectively. This decrease
was due to the Company's decision to discontinue all sales of computer hardware
and/or software. There were no such sales for the three and six months ended
November 30, 1997. Service revenue decreased for the three months ended November
30, 1997 to $105,579 as compared to $138,078 for the three months ended November
30, 1996. This was attributed to the fact that all help desk service contracts
were terminated in October 1997. Despite the decline in service revenue for the
three months ended November 30, 1997, there was a net increase in service
revenue to the Company for the six months ended November 30, 1997 to $282,277,
as compared to $222,969 for the six months ended November 30, 1996. This
increase resulted from increased monthly service payments to the Company under
the service contracts based upon payment formulas providing for a fixed
percentage of the customers' revenues (rather than a fixed monthly sum). This
increase to customers' revenue resulted from higher Internet usage by such
customers' subscribers.
Gross profit decreased to $90,975 and $247,857 for the three and six months
ended November 30, 1997, respectively, as compared to $260,423 and $397,622 for
the three and six months ended November 30, 1996, respectively. This decrease
was due to the Company's lack of sales of computer hardware and/or software for
the six months ended November 30, 1997, offset by one of the Company's customers
electing to staff and manage its own "help desk" functions for the five months
ended October 31, 1997.
Dividend and interest income increased to $82,201 and $169,526 for the
three and six months ended November 30, 1997, respectively, as compared to
$74,611 and $148,727 for the three and six months ended November 30, 1996,
respectively. This increase resulted from the Company investing in higher
interest bearing instruments during 1997.
Net income increased to $ 563,994 and $582,933 for the three and six months
ended November 30, 1997, respectively, as compared to a net loss of $(258,063)
and $(478,504) for the three and six months ended November 30, 1996,
respectively. This increase resulted from
-9-
<PAGE>
decreases in cost of revenue and selling, general and administrative expenses,
coupled with an increase in interest income for the three and six months ended
November 30, 1997 and a negotiated cash payment to Bern by a principal customer
with respect to the early termination of its "help desk" service contract with
Bern.
Selling, general and administration expenses decreased to $239,152 and
$464,420 for the three and six months ended November 30, 1997, respectively, as
compared to $591,287 and $1,022,498 for the three and six months ended November
30, 1996, respectively. This decrease resulted from management's decision to
downsize the Company to support only its existing customer base. The service
contracts underlying such customer base were subsequently terminated in October
1997, either by the respective terms of such contracts or by mutual agreement of
the parties.
Liquidity and Capital Resources
At November 30, 1997 the Company had approximately $5,713,000 cash and cash
equivalent and had working capital of approximately $5,725,000.
Net cash provided by operating activity aggregated $353,033 for the six
months ended November 30, 1997 compared with $63,185 for the six months ended
November 30, 1996. The increase in cash provided by operating activities was
attributable to an increase of net income of $582,933 from a net loss of
$(478,504) for the six months ended November 30, 1997 and November 30, 1996
respectively, offset by a decrease in deferred revenue and accounts payable.
Net cash used in investing activity aggregated $397,170 for the six months
ended November 30, 1997 compared with $80,952 for the six months ended November
30, 1996. The increase in cash usage was attributable to the disposal of fixed
assets and the repurchase of the Company's common stock. The cash flow from
financing activity of $5,911,790 for the six months ended November 30, 1996 was
a result of the Merger between Bern Associates, Inc. and Prime's wholly-owned
subsidiary 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.
-10-
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
By a settlement agreement, dated November 21, 1997, the Company settled
outstanding disputes with certain former stockholders of Bern Associates, Inc.
and dismissed with prejudice that civil action previously commenced by the
Company in the Supreme Court of New York, Nassau County with respect to such
disputes.
On or about December 20, 1996, Bern commenced an action in Superior Court
of New Jersey, Bergen County, against a former employee, seeking unspecified
damages. The Complaint alleges that the 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 employment agreement is invalid because it was not properly
authorized by Bern. The former employee has filed a separate action against Bern
and Prime, seeking unspecified amounts under a purported employment agreement,
which action has been consolidated with Bern's action. The parties have entered
into settlement negotiations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
-11-
<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.
January 20, 1998 PRIME CELLULAR, INC.
By: /s/ Robert A. Reinhart
-------------------------
Robert A. Reinhart,
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED
FROM FORM 10-Q AT NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1997
<CASH> 735,079
<SECURITIES> 4,978,256
<RECEIVABLES> 9,350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,975,724
<PP&E> 53,569
<DEPRECIATION> 7,858
<TOTAL-ASSETS> 6,025,035
<CURRENT-LIABILITIES> 250,958
<BONDS> 0
0
0
<COMMON> 45,828
<OTHER-SE> 5,728,249
<TOTAL-LIABILITY-AND-EQUITY> 6,025,035
<SALES> 282,277
<TOTAL-REVENUES> 282,277
<CGS> 34,420
<TOTAL-COSTS> 34,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 582,933
<INCOME-TAX> 0
<INCOME-CONTINUING> 582,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 582,933
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
