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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 September 30, 1999
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.)
580 Marshall Street, Phillipsburg, NJ 08865
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (908) 387-1673
Check whether the registrant (1) 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 November 11, 1999 the registrant had 6,108,700 shares outstanding
of its Common Stock, $.01 par value.
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
INDEX
Page
PART I. FINANCIAL INFORMATION......................................... 3
Item 1. Consolidated Financial Statements
Report of Independent Accountants............................ 3
Consolidated Balance Sheets (unaudited) at September 30, 1999
and December 31, 1998...................................... 4
Consolidated Statements of Operations (unaudited) for the
three months ended September 30, 1999 and September 30, 1998.. 6
Consolidated Statements of Operations (unaudited) for the
nine months ended September 30, 1999 and September 30, 1998.. 7
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1999 and September 30, 1998..... 8
Notes to Consolidated Financial Statements (unaudited)....... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk..... 17
PART II. OTHER INFORMATION............................................ 18
Item 2. Changes in Securities and Use of Proceeds..................... 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
SIGNATURES............................................................ 19
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PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Prime Cellular, Inc. and Subsidiary
We have reviewed the consolidated balance sheet of Prime Cellular, Inc. and
Subsidiary at September 30, 1999 and the related consolidated statement of
operations for each of the three-month and nine-month periods ended September
30, 1999 and consolidated statement of cash flows for the nine months ended
September 30, 1999 as set forth in the accompanying unaudited financial
statements. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists primarily of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet at December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein); and in our report dated April 1,
1999, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1998, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
RAICH ENDE MALTER LERNER & Co.
East Meadow, New York
October 29, 1999
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PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
Assets
Current Assets
Cash $ 18,835 $ 84,146
Certificate of deposit - restricted -- 200,000
Investment securities -- 5,096,557
Accounts receivable - less allowance
for doubtful accounts of $20,000 642,304 305,575
Unbilled services 99,812 23,799
Inventory 162,444 116,991
Prepaid expenses 21,239 8,728
------- ---------
944,634 5,835,796
------- ---------
Property, Plant and Equipment 1,676,202 1,522,516
Less: Accumulated depreciation and
amortization 595,238 518,792
------- ---------
1,080,964 1,003,724
--------- ---------
Other Assets
Investment securities 5,391,904 --
Investment securities receivable -- 4,978,947
Deferred financing costs - net of
accumulated amortization of $554
and $365 for 1999 and 1998,
respectively 7,027 7,216
------- ---------
5,398,931 4,986,163
--------- ---------
$ 7,424,529 $11,825,683
=========== ===========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
Liabilities and Stockholders' Equity
Current Liabilities
Collateralized investment loan $ -- $ 5,000,000
Note payable - bank -- 160,000
Current maturities of long-term debt 86,695 25,533
Accounts payable and accrued expenses 365,803 427,313
Customer deposits 244,094 270,143
Unearned revenue 66,265 42,387
----------- ---------
762,857 5,925,376
Non-Current Liabilities
Long-term debt - net of current
maturities 582,254 324,164
Stockholder loans-- net of current
maturities 520,518 501,860
-------- ---------
1,865,629 6,751,400
----------- ---------
Stockholders' Equity
Common stock 61,087 61,087
Additional paid-in capital 5,832,404 5,813,710
Accumulated deficit (334,591) (800,514)
---------- --------
5,558,900 5,074,283
----------- ---------
$7,424,529 $11,825,683
=========== ===========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
1999 1998
---- ----
Revenue
Contract revenue $ 720,008 $ 145,023
Sale of goods 397,458 252,936
------- -------
1,117,466 397,959
--------- ---------
Direct Costs
Contract revenue 289,085 251,412
Sale of goods 197,710 151,501
--------- ---------
486,795 402,913
--------- ---------
Income After Direct Costs
Contract revenue 430,923 (106,389)
Sale of goods 199,748 101,435
--------- ---------
630,671 (4,954)
--------- ---------
Other Operating Expenses
Contract revenue 176,903 155,162
Sale of goods 94,728 98,804
--------- --------
271,631 253,966
--------- ---------
Income (Loss) from Operations
Contract revenue 254,020 (261,551)
Sale of goods 105,020 2,631
--------- ---------
359,040 (258,920)
--------- ---------
Corporate Activities
Selling, general and administrative
expenses (126,041) (117,848)
Interest income 60,537 83,408
Interest expense (23,414) (28,086)
--------- ---------
(88,918) (62,526)
--------- ---------
Income (Loss) Before Provision for Income Taxes 270,122 (321,446)
Provision (credit) for Income Taxes 523 868
-------- --------
Net Income (Loss) $ 269,599 $ (322,314)
========== ==========
Net Income (Loss) Per Share - Basic $ .04 $ (0.05)
========== ==========
- Diluted $ .04 $ (0.05)
========== ==========
Weighted Average Shares - Basic 6,108,700 6,108,700
Outstanding ========== ==========
- Diluted 6,563,830 6,108,700
========== ==========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended
September 30,
1999 1998
---- ----
Revenue
Contract revenue $ 1,711,571 $ 753,598
Sale of goods 1,083,862 975,931
--------- ---------
2,795,433 1,729,529
--------- ---------
Direct Costs
Contract revenue 781,052 669,724
Sale of goods 536,404 537,894
--------- ---------
1,317,456 1,207,618
---------- ---------
Income After Direct Costs
Contract revenue 930,519 83,874
Sale of goods 547,458 438,037
--------- ---------
1,477,977 521,911
--------- ---------
Other Operating Expenses
Contract revenue 471,776 476,627
Sale of goods 248,227 355,435
--------- ---------
720,003 832,062
--------- ---------
Income (Loss) from Operations
Contract revenue 458,743 (392,753)
Sale of goods 299,231 82,602
--------- ---------
757,974 (310,151)
--------- ----------
Corporate Activities
Selling, general and administrative
expenses (415,408) (206,166)
Interest income 232,268 115,780
Interest expense (108,256) (69,496)
-------- ---------
(291,396) (159,882)
--------- --------
Income (Loss) Before Provision for Income Taxes 466,578 (470,033)
Provision (credit) for Income Taxes 655 (11,992)
--------- ---------
Net Income (Loss) $ 465,923 $ (458,041)
========== ==========
Net Income (Loss) Per Share - Basic $ .08 $ (0.07)
========== ==========
- Diluted $ .07 $ (0.07)
========== ==========
Weighted Average Shares
Outstanding - Basic 6,108,700 6,126,363
========== ==========
- Diluted 6,403,736 6,126,363
========== ==========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
1999 1998
---- ----
Cash Flows from Operating Activities
Net income (loss) $ 465,923 $ (458,041)
Adjustments to reconcile net (loss) to
net cash provided by (used in)
operating activities:
Depreciation and amortization 166,973 117,373
Accrued interest on stockholder loans 37,352 43,300
Changes in assets and liabilities:
Accrued interest on investment securities 24,307 42,829
Accounts receivable (336,729) 25,378
Unbilled services (76,013) 30,126
Inventory (45,453) (2,343)
Prepaid expenses (12,511) (21,213)
Accounts payable and accrued expenses (61,510) 188,407
Customer deposits (26,049) (286,231)
Unearned revenue 23,878 (20,229)
--------- ---------
160,168 (340,644)
--------- ---------
Cash Flows from Investing Activities
Acquisitions of property and equipment (244,024) (353,486)
Purchase of investment securities (340,707) --
Redemption of certificate of deposit 200,000 --
Sale of investment securities 5,000,000 --
Cash acquired in connection with merger -- 546,484
--------- ---------
4,615,269 192,998
--------- ---------
Cash Flows from Financing Activities
Net borrowings (repayments) on line
of credit -- (31,295)
Repayments of notes payable (160,000) (24,435)
Proceeds of long term debt 350,000 --
Repayments of long term debt (30,748) --
Options exercised -- 2,000
Payment of collateralized investment
loan (5,000,000) --
----------- ---------
(4,840,748) (53,730)
----------- ---------
Net Increase (Decrease) in Cash (65,311) (201,376)
Cash - beginning 84,146 743,683
---------- ---------
Cash - end $ 18,835 $ 542,307
========= =========
Supplemental Disclosures - cash paid
during the year:
Interest $ 70,904 $ 26,196
========= =========
Income taxes $ 988 $ 16,595
========= =========
See accompanying notes to consolidated financial statements
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PRIME CELLULAR, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: ORGANIZATION OF THE COMPANY AND NATURE OF ITS OPERATIONS
On May 29, 1998, Prime Cellular, Inc. ("Prime"), a Delaware corporation,
consummated a merger (the "Merger") with Cell & Molecular Technologies, Inc.,
another Delaware corporation ("CMT"), pursuant to which a wholly-owned
subsidiary of Prime was merged with and into CMT (collectively, Prime and CMT
are referred to hereinafter as the "Company"). Under the terms of the Merger,
all of the outstanding shares of capital stock of CMT were converted into an
aggregate of 1,611,000 shares of Common Stock, par value $.01 per share, of
Prime, representing approximately 26.4% (after consummation of the Merger) of
Prime's issued and outstanding Common Stock. This transaction was accounted for
as a reverse acquisition whereby CMT was the acquirer for accounting purposes.
The assets and liabilities were recorded at their historical amounts from the
date of acquisition. The historical consolidated financial statements prior to
May 29, 1998 are those of CMT with all common stock data restated into the
equivalent capital structure of Prime.
The Company is comprised of two separate divisions (segments) that provide goods
and services in the domestic biotechnology and pharmaceutical industries. The
Specialty Media Division ("SM") manufactures and sells, both direct and under
private label agreements, tissue culture media, cell lines and reagents for
biological research, focusing largely on products for generating transgenic
animals. The Molecular Cell Science Division ("MCS") provides research services
to pharmaceutical companies and other molecular and cell biology research and
development entities.
NOTE 2: UNAUDITED 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 nine and three months ended September 30, 1999, are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
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 Forms 10-K and 10-K/A for the year ended December 31, 1998.
NOTE 3: SEGMENT INFORMATION
The following is information pertaining to the Company's two operating segments:
SM, which manufactures and sells, both direct and under private label
agreements, tissue culture media, cell lines and reagents for biological
research, focusing largely on products for generating transgenic animals, and
MCS, which provides research services to pharmaceutical companies and other
molecular and cell biology research and development entities.
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<PAGE>
For the Nine Months Ended
September 30,
1999 1998
---- ----
Revenues:
MCS - $ 1,739,076 $ 753,598
Intersegment Revenues (27,505) --
---------- --------
MCS - Contract Revenues from External Customers 1,711,571 753,598
---------- --------
SM 1,101,936 989,469
Intersegment Revenues (18,074) (13,538)
---------- ---------
SM - Sales of goods to External Customers 1,083,862 975,931
---------- ---------
$ 2,795,433 $ 1,729,529
=========== ===========
Income (Loss) before Income Taxes:
MCS $ 458,743 $ (392,753)
SM 299,231 82,602
--------- ---------
757,974 (310,151)
Corporate income and expenses unallocated to
segments (291,396) (159,882)
--------- ---------
$ 466,578 $ (470,033)
========== ===========
For the Three Months Ended
September 30,
1999 1998
---- ----
Revenues:
MCS - $ 747,513 $ 145,023
Intersegment Revenues (27,505) --
-------- --------
MCS - Contract Revenues from External Customers 720,008 145,023
--------- --------
SM 397,458 257,888
Intersegment Revenues -- (4,952)
--------- ---------
SM - Sales of goods to External Customers 397,458 252,936
--------- ---------
$1,117,466 $ 397,959
========== ==========
Income (Loss) before Income Taxes:
MCS $ 254,020 $ (261,551)
SM 105,020 2,631
-------- ---------
359,040 (258,920)
Corporate income and expenses unallocated to
segments (88,918) (62,526)
-------- ---------
$ 270,122 $ (321,446)
=========== ===========
Grants-
The SM division is the recipient of a NIH (National Institute of Health) Federal
Phase II Grant for $ 757,532. The work to be performed under this grant covers
the period July 1998 to June 2000. For the nine months ended September 30, 1999,
the company recognized $ 197,000 in grant revenue under this grant which was
offset by a like amount in cost.
During 1999, MCS division was awarded a NIH Federal Phase I Grant for $ 100,270.
The work to be performed under this grant covers the period June 1999 to May
2000. No revenue has been recognized to September 1999 under this grant.
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NOTE 4: EARNINGS PER SHARE
Basic income (loss) per share is based on the weighted average number of common
shares outstanding for the respective periods. Diluted income (loss) per share
is based on the weighted average number of common shares outstanding, as
increased by 455,130 and 295,036 potential shares during the three month period
ended September 30, 1999 and the nine months ended September 30, 1999,
respectively, representing the effect of dilutive stock options utilizing the
"treasury stock method."
At September 30, 1999, there were an additional 43,000 options outstanding,
which were not considered in the computation because their inclusion would have
been anti-dilutive.
All prior year per share data has been restated for the effect of the May 29,
1998 reverse acquisition with CMT.
NOTE 5: EMPLOYMENT AGREEMENT
In May 1999, Prime entered into an employment agreement with Joseph K. Pagano
("Pagano") to serve as the President of Prime. This replaces the consulting
agreement that Prime had with Pagano which was terminated at the same time. The
agreement is for an initial term of one year and contains a provision for an
automatic one year extension.
In connection with the employment agreement, the termination date of 217,000
options previously granted to Pagano under the Company's 1990 Stock Option Plan
were extended an additional three years to May 24, 2004. In accordance with SFAS
123 the additional compensation recognized as of the modification date, if the
Company had accounted for its stock option plans under the fair value method,
would have been $45,570, which was estimated using the Black-Scholes pricing
model, with the following weighted average assumptions:
Before Modification After Modification
------------------- ------------------
Expected life of options 2 years 5 years
Risk free interest rate 5% 5%
Volatility of stock 158% 158%
Expected dividend yield -- --
NOTE 6: INCOME TAXES
The provision for income taxes differs from the amount using the federal income
tax rate (34%) due to the utilization of net operating loss carry forwards.
NOTE 7. ADJUSTMENT TO PREVIOUS YEAR'S QUARTERLY FINANCIAL INFORMATION
As reported in the Fourth Quarter Adjustment note in the December 31, 1998
Report on Form 10-K, the Company recorded an adjustment totaling $125,350 to
reclassify the results of operations of the legal acquirer for the period
January 1, 1998 through May 29, 1998, the date of the merger, to additional paid
in capital. A reconciliation of this adjustment follows:
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For the three For the nine
months ended months ended
Sept. 30, 1998 Sept. 30, 1998
-------------- --------------
Net (loss) - as previously reported $ (322,314) $ (583,391)
Adjustment described above. --- 125,350
--------- ---------
Net (loss) - as restated. (322,314) (458,041)
========= =========
Net (loss) per share - as previously
reported (.05) (.10)
Adjustment described above --- .03
--------- ---------
Net (loss) per share - as restated. $ (.05) $ (.07)
========= =========
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Item 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 statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
Company's: history of losses; need to obtain additional financing and the
ability to obtain such financing; outstanding indebtedness; the ability to hire
and retain key personnel; successful completion and integration of prior and any
future acquisitions; relationships with and dependence on third-party equipment
manufacturers and suppliers; uncertainties relating to business and economic
conditions in markets in which the Company operates; uncertainties relating to
government and regulatory policies and other political risks; uncertainty with
respect to the Year 2000 effect on the Company and its customers; uncertainties
relating to customer plans and commitments; cost of and availability of
component materials and inventories; effect of governmental export and import
policies; the highly competitive environment in which the Company operates;
potential entry of new, well-capitalized competitors into the Company's markets;
and the uncertainty regarding the Company's continued ability, through sales
growth, to absorb the increasing costs incurred and expected to be incurred in
connection with its business activities. The words "believe", "expect",
"anticipate", "intend", "plan", "will likely result", "will continue", and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statement was made.
Results of Operations
Comparison of Three Months Ended September 30, 1999 to Three Months Ended
September 30, 1998.
Revenue. Revenue for the three months ended September 30, 1999 was $1,117,466 as
compared to revenue of $397,959 for the three months ended September 30, 1998.
This increase of $719,507 was as a result of a $144,522 or a 57% increase in
sales of goods and a $574,985 or a 396% increase in contract revenue. During the
three months ended September 30, 1998, MCS was primarily focused on hiring and
recruiting personnel and setting up laboratory space and an internal
infrastructure to transition the majority of the research work from
subcontractors to in-house. This staff up and build out period was completed
late in 1998, which allowed the division to focus on aggressively promoting its
services. This anticipated increase in contract revenue materialized during the
three months ended March 31, 1999 and continued during the three months ended
June 30, 1999 as well as the three months ended September 30, 1999.
Income after Direct Costs. Income after direct costs for the three months ended
September 30, 1999 was $630,671 as compared to a loss after direct costs of
$(4,954) for the three months ended September 30, 1998. This increase in income
after direct costs is the result of a $98,313 or 97% increase from the sales of
goods plus a $537,312 or 505% increase from MCS. This increase from the contract
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revenue division was attributable to the more efficient utilization of manpower
and material which was achieved as a direct result of significant increase in
research contracts which resulted in higher margins for the three months ended
September 30, 1999 as compared to the three months ended September 30, 1998. The
margins for the SM division increased for the three months ended September 30,
1999 as compared to the three months ended September 30, 1998 as a result of an
increase in sales of higher gross profit items during the three months ended
September 30, 1999.
Corporate Activities. Corporate activities for the three months ended September
30, 1999 was a net expense of $88,918 as compared to net expense of $62,526 for
the three months ended September 30, 1998. This $26,392 net increase in net
expense resulted mainly from decreased interest income as a result of the lower
interest rate on the investment securities held by the company for the three
months ended September 30, 1999 as compared to the interest rate on the
investment securities held by the company for the three months ended
September 30, 1998.
Net Income (Loss). Net income for the three months ended September 30, 1999 was
$269,599 or $.04 per share basic and diluted, based on weighted average common
shares outstanding of 6,108,700, basic and 6,563,830, diluted, as compared to a
net loss of $322,314 or ($.05) per share based on 6,108,700 weighted average
shares outstanding, basic and diluted. The increase in net income was mainly the
result of the 180% increase in revenue, with higher margins, partially offset by
a small increase in other operating expenses and corporate activity.
Comparison of Nine Months Ended September 30, 1999 to Nine Months Ended
September 30, 1998.
Revenue. Revenue for the nine months ended September 30, 1999 was $2,795,433 as
compared to revenue of $1,729,529 for the nine months ended September 30, 1998.
This increase of $1,065,904 was as a result of a $107,931 or a 11% increase in
sales of goods and a $957,973 or a 127% increase in contract revenue. During the
nine months ended September 30, 1998, MCS was primarily focused on hiring and
recruiting personnel and setting up laboratory space and an internal
infrastructure to transition the majority of the research work from
subcontractors to in-house. This staff up and build out period was completed
late in 1998, which allowed the division to focus on aggressively promoting its
services. This anticipated increase in contract revenue materialized during the
nine months ended September 30, 1999.
Income after Direct Costs. Income after direct costs for the nine months ended
September 30, 1999 was $1,477,977 as compared to income after direct costs of
$521,911 for the nine months ended September 30, 1998. This increase in income
after direct costs is the result of a $109,421 or 25% increase from the sales of
goods plus a $846,645 or 1009% increase from MCS. This increase from the
contract revenue division was attributable to the more efficient utilization of
manpower and material which was achieved as a direct result of significant
increase in research contracts which resulted in higher margins for the nine
months ended September 30, 1999 as compared to the nine months ended September
30, 1998. The margins for the SM division increased for the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998 as a
result of an increase in sales of higher gross profit items during the nine
months ended September 30, 1999.
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<PAGE>
Corporate Activities. Corporate activities for the nine months ended September
30, 1999 was a net expense of $291,396 as compared to net expense of $159,882
for the nine months ended September 30, 1998. This $131,514 increase in net
expense resulted from increased selling, general and administrative expenses
plus interest expense, partially offset by interest income all of which resulted
from Prime which was only present from May 29, 1998 for the nine months ended
September 30, 1998 as the CMT merger was not consummated until May 29, 1998.
These income and expense items attributable, to Prime, were included from
January 1, 1999 for the nine months ended September 30, 1999.
Net Income (Loss). Net income for the nine months ended September 30, 1999 was
$465,923 or $.08 and $ .07 per share basic and diluted respectively, based on
weighted average common shares outstanding of 6,108,700, basic and 6,403,736,
diluted, as compared to a net loss of $458,041 or ($.07) per share based on
6,126,363 weighted average shares outstanding, basic and diluted. The increase
in net income was mainly the result of the 62% increase in revenue, with higher
margins, coupled with a decrease of 14% in other operating expenses partially
offset by an increase in corporate activity.
Liquidity and Capital Resources
At September 30, 1999, the Company had approximately $19,000 in cash and working
capital of approximately $182,000. The Company had, as of September 30, 1999,
readily marketable investment securities of approximately $5,400,000 included in
other assets.
Net cash provided by (used in) operating activities aggregated $160,168 and
$(340,644) for the nine months ended September 30, 1999 and 1998, respectively.
The $500,812 net increase provided by operating activities was principally
attributable to increased net income for the nine months ended September 30,
1999 as compared to the nine months ended September 30, 1998, plus a decrease in
customer deposits, partially offset by an increase in accounts receivable,
unbilled services, inventory and accounts payable.
Net cash provided by investing activities aggregated $4,615,269 for the nine
months ended September 30, 1999 as compared with $192,998 for the nine months
ended September 30, 1998. This net increase in cash provided by investing
activities was primarily attributable to the $5,000,000 sale of investment
securities reduced by $546,484 in cash acquired from Prime in connection with
the May 29, 1998 merger.
Net cash used by financing activities aggregated $4,840,748 for the nine months
ended September 30, 1999 as compared to $53,730 for the nine months ended
September 30, 1998. The increase was due primarily to the repayment of the
$5,000,000 collateralized investment loan during the nine months ended September
30, 1999.
During the nine months ended September 30, 1999, the Company financed its
operations primarily through working capital.
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<PAGE>
Impact of the Year 2000
The Company has evaluated the potential impact of the situation commonly
referred to as the "Year 2000" (Y2K) issue. This issue concerns the inability of
information systems to properly recognize and process date sensitive information
relating to the year 2000 and beyond. The inability to properly interpret dates
beyond the year 1999 could lead to business disruptions.
The Company has formed an internal Y2K team to assess the Company's products,
its internal information systems and processes, and its third party suppliers
for Y2K readiness. The team has identified existing systems which require action
and is in the process of developing and executing plans to make corrections in
affected areas prior to the issue causing any disruption of normal business
activities.
The Company has explored new operations and financial software packages for its
internal information systems and processes that are Y2K compliant and is
currently installing such software with respect to CMT. A Y2K compliant system
for Prime was updated prior to the end of the 1998 fiscal year.
All of the Company's products that have been installed have either successfully
passed Y2K compliance testing or have been deemed Y2K not-applicable by virtue
of the fact that they do not process date information in any manner. Although
the Company's Y2K compliant products have undergone the Company's normal quality
testing procedures, there can be no assurance that these products, or
third-party products used with the Company's products, do not contain undetected
errors or defects associated with Y2K date functions that may materially or
adversely affect the Company.
The Company primarily utilizes third party software packages for its internal
information systems and processes. Many of these packages have already been
rendered Y2K compliant by the manufacturers, and as a part of ongoing support
agreements with these manufacturers, the Company is able to upgrade to Y2K
compliant versions at minimal to no additional cost. As a result, efforts
required to modify the Company's business systems have been minimized. The
Company expects its principal internal management information systems to be
fully Y2K compliant by the end of November, 1999. The Company is examining and
taking steps to ensure that its manufacturing processes will not be interrupted
and its facilities infrastructure will not experience any failures or
difficulties as a result of the Y2K issues.
The Company also faces risks and uncertainties to the extent that third-party
suppliers of products, service and systems on which the Company relies do not
have business systems or products that comply with Y2K requirements. The Company
is initiating communications with all of its significant suppliers and
customers to determine the extent to which the Company's systems and products
are vulnerable to those third parties' failure to remediate their own Y2K issues
during the third and fourth quarters of 1999. There is no guarantee that the
systems or products of other companies on which the Company relies will be
timely converted and would not have an adverse effect on the Company's systems
or products. The Company's Y2K team is in the process of identifying what
actions are needed to minimize or eliminate any adverse effect on the Company's
business in the event customers' or suppliers' systems are not Y2K compliant.
-16-
<PAGE>
Based on the status of its assessment to date, the Company does not anticipate
significant costs or lost revenue associated with the Y2K issue that would have
a material adverse effect on the Company's operating results or financial
condition. However, there can be no assurance that the Company will not
experience unexpected difficulties in connection with the Year 2000 or that the
systems of other companies on which the Company's systems rely will be timely
converted.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
-17-
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 1, 1999 (the "Grant Date"), the Company granted to certain
key employees of the Company options pursuant to the Company's 1990 Stock Option
Plan to purchase up to an aggregate of 44,250 shares of the Company's Common
Stock, at an exercise price of $1.00. Such options shall vest and become
exercisable in five equal annual installments, commencing either (i) on the
Grant Date (in the case of employees having been employed for more than a year
as of the Grant Date) or (ii) on the one (1) year anniversary of the Grant Date
(in the case of employees having been employed for less than a year as of the
Grant Date). In connection with the granting of such options, the Company relied
on exemptions from registration provided under Section 4(2) under the Securities
Act of 1933, as amended, for transactions by an issuer not involving any public
offering.
Item 4: Submission of Matters to a Vote of Securityholders
The Company held its Annual Meeting of Stockholders on June 25, 1999.
At the meeting the directors nominated for re-election, Joseph K. Pagano,
Frederick R. Adler, Thomas Livelli, Richard Malavarca, Dr. Paul A. Marks and
Samuel A. Rozzi, were each re-elected with 5,167,238 shares voted in favor of
their re-election.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule (9/30/99)
(b) Reports on Form 8-K
None.
-18-
<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.
PRIME CELLULAR, INC.
November 12, 1999 By: /s/ ROBERT A. REINHART
----------------------------
Robert A. Reinhart,
Chief Financial Officer and
Principal Accounting Officer
-19-
<PAGE>
EXHBITS
Exhibit Description
------- -----------
27 Financial Data Schedule (9/30/99)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION
EXTRACTED FROM FORM 10 Q AT SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,835
<SECURITIES> 0
<RECEIVABLES> 662,304
<ALLOWANCES> 20,000
<INVENTORY> 162,444
<CURRENT-ASSETS> 944,634
<PP&E> 1,676,202
<DEPRECIATION> 595,238
<TOTAL-ASSETS> 7,424,529
<CURRENT-LIABILITIES> 762,857
<BONDS> 0
0
0
<COMMON> 61,087
<OTHER-SE> 5,497,813
<TOTAL-LIABILITY-AND-EQUITY> 7,424,529
<SALES> 2,795,433
<TOTAL-REVENUES> 2,795,433
<CGS> 1,317,456
<TOTAL-COSTS> 1,317,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108,256
<INCOME-PRETAX> 466,578
<INCOME-TAX> 655
<INCOME-CONTINUING> 465,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 465,923
<EPS-BASIC> .08
<EPS-DILUTED> .07
</TABLE>
