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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 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, PA 08865
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number, including area code (908) 387-1673
Check whether the issuer (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 May 20, 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
Independent Accountant Report .................................... 3
Consolidated Balance Sheets (unaudited) at March 31, 1999
and December 31, 1998......................................... 4
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and March 31, 1998.......... 6
Consolidated Statements of Cash Flows (unaudited) for
the three months ended March 31, 1999 and March 31, 1998...... 7
Notes to Consolidated Financial Statements........................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......... 11
PART II. OTHER INFORMATION.................................................. 12
Item 2. Changes in Securities............................................... 12
Item 6. Exhibits and Reports on Form 8-K.................................... 12
SIGNATURES.................................................................. 13
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<PAGE>
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 March 31, 1999 and the related consolidated statement of
operations and consolidated statement of cash flows for the three months then
ended 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 the three months ended
March 31, 1999 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 these consolidated financial
statements.
RAICH ENDE MALTER LERNER & Co.
East Meadow, New York
May 14, 1999
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Assets
Current Assets
Cash $ 175,163 $ 84,146
Cash deposit - restricted 202,733 200,000
Investment securities -- 5,096,557
Accounts receivable - less allowance
for doubtful accounts of $20,000 450,133 305,575
Unbilled services 120,261 23,799
Inventory 105,680 116,991
Prepaid expenses 9,013 8,728
----------- -----------
1,062,983 5,835,796
----------- -----------
Property and Equipment 1,663,712 1,522,516
Less: Accumulated depreciation 571,355 518,792
----------- -----------
1,092,357 1,003,724
----------- -----------
Other Assets
Investment Securities 5,035,580 --
Investment securities receivable -- 4,978,947
Deferred Financing Costs - net of
accumulated amortization of $428 and
$365 for 1999 and 1998, respectively 7,153 7,216
----------- -----------
5,042,733 4,986,163
----------- -----------
$ 7,198,073 $11,825,683
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</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Collateralized investment loan $ -- $ 5,000,000
Note payable bank 100,000 160,000
Current maturities of long-term debt 26,007 25,533
Accounts payable and accrued expenses 528,211 427,313
Customer deposits 384,596 270,143
Unearned revenue 100,634 42,387
------------ ------------
1,139,448 5,925,376
------------ ------------
Non-Current Liabilities
Notes payable - net of current maturities 318,640 324,164
Stockholder loans - net of current maturities 514,438 501,860
------------ ------------
1,972,526 6,751,400
------------ ------------
Stockholders' Equity
Common stock 61,087 61,087
Additional paid-in capital 5,813,710 5,813,710
Accumulated deficit (649,250) (800,514)
------------ ------------
5,225,547 5,074,283
------------ ------------
$ 7,198,073 $ 11,825,683
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenue
Contract revenue $ 542,706 $ 337,747
Sale of goods 318,933 301,509
----------- -----------
861,639 639,256
----------- -----------
Direct Costs
Contract revenue 228,535 216,801
Sale of goods 169,758 153,929
----------- -----------
398,293 370,730
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Income After Direct Costs
Contract revenue 314,171 120,946
Sale of goods 149,175 147,580
----------- -----------
463,346 268,526
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Other Operating Expenses
Contract revenue 155,269 154,469
Sale of goods 73,068 107,510
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228,337 261,979
----------- -----------
Income (Loss) from Operations
Contract revenue 158,902 (33,523)
Sale of goods 76,107 40,070
----------- -----------
235,009 6,547
----------- -----------
Corporate Activities
Selling, general and administrative expenses (131,617) (9,156)
Interest income 110,733 4,634
Interest expense (62,591) (15,008)
----------- -----------
(83,475) (19,530)
----------- -----------
Income (Loss) Before Provision for Income Taxes 151,534 (12,983)
Provision for Income Taxes 270 (5,618)
----------- -----------
Net Income (Loss) $ 151,264 $ (7,365)
=========== ===========
Basic and Diluted Net Income (Loss) Per Share $ .02 $ (0.00)
=========== ===========
Weighted Average Shares Outstanding - Basic 6,108,700 1,611,000
=========== ===========
- Diluted 6,291,624 1,611,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 151,264 $ (7,365)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 52,626 29,854
Accrued interest on stockholder loans 12,578 10,299
Changes in assets and liabilities:
Accrued interest on investment securities 37,191
Accounts receivable (144,558) 4,815
Unbilled services (96,462) (128,033)
Inventory 11,311 (960)
Prepaid expenses (285)
Accounts payable and accrued expenses 100,898 (122,651)
Customer deposits 114,453 (2,890)
Unearned revenue 58,247 (50,378)
----------- -----------
297,263 (267,309)
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Cash Flows from Investing Activities
Acquisitions of property and equipment (141,196) (187,894)
Sale of investment securities 5,000,000
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4,858,804 (187,894)
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Cash Flows from Financing Activities
Net borrowings (repayments) on line of credit (31,295)
Repayments of notes payable (60,000) --
Repayments of long term debt (5,050) (8,655)
Payment of collateralized investment loan (5,000,000)
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(5,065,050) (39,950)
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Net Increase (Decrease) in Cash 91,017 (495,153)
Cash - beginning 84,146 743,683
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Cash - end $ 175,163 $ 248,530
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Supplemental Disclosures
Cash paid during the year:
Interest $ 50,013 $ 4,709
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Income taxes $ 555 $ (5,618)
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</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
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") is a manufacturer and wholesaler of cell culture
media and reagents. 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 three months ended March 31, 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 wholesales cell culture media and reagents, and MCS,
which provides research services to pharmaceutical companies and other molecular
and cell biology research and development entities.
-8-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
MCS - Contract Revenues from External Customers $ 542,706 $ 337,747
--------- ---------
SM 325,948 301,509
Intersegment Revenues (7,015) --
--------- ---------
SM - Sales of goods to External Customers 318,933 301,509
--------- ---------
$ 861,639 $ 639,256
========= =========
Income (Loss) before Income Taxes:
MCS $ 158,902 $ (33,523)
SM 76,107 40,070
--------- ---------
235,009 6,547
Corporate income and expenses unallocated to segments (83,475) (19,530)
--------- ---------
$ 151,534 $ (12,983)
========= =========
</TABLE>
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 182,924 potential shares during the three month period ended March
31, 1999, representing the effect of dilutive stock options utilizing the
"treasury stock method."
At March 31, 1999, there were an additional 260,000 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.
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<PAGE>
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
following: the Company's history of losses; the Company's 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" and
"plan" 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 March 31, 1999 to Three Months Ended March 31,
1998.
Revenue. Revenue for the three months ended March 31, 1999 was $861,639 as
compared to revenue of $639,256 for the three months ended March 31, 1998. This
increase of $222,383 was as a result of a $17,424 or a 6% increase in sales of
goods and a $204,959 or a 61% increase in contract revenue. During the three
months ended March 31, 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.
Income after Direct Costs. Income after direct costs for the three months ended
March 31, 1999 was $463,346 as compared to income after direct costs of $268,526
for the three months ended March 31, 1998. This increase in income after direct
costs is the result of a $1,595 increase from the sales of goods plus a $193,225
or 160% 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.
Corporate Activities. Corporate activities of $83,475 resulted in a net expense
for the three months ended March 31, 1999 as compared to net expense of $19,530
for the three months ended March 31, 1998. This $63,945 increase in expense
resulted from increased selling, general and administrative expenses plus
interest expense, partially offset by interest income from Prime which was not
present for the three months ended March 31, 1998 as the CMT merger was not
consummated until May 29, 1998.
Net Income (Loss). Net income for the three months ended March 31, 1999 was
$151,264 or $.02 per share basic and diluted, based on weighted average common
shares outstanding of 6,108,700, basic and 6,291,624, diluted, as compared to a
net loss of $7,365 or ($.00) per share based on 1,611,000 weighted average
shares outstanding. The increase in net income was mainly the result of the 61%
increase in contract revenue which resulted in $158,902 in income from
operations - contract revenue for the three months ended March 31, 1999 as
compared to a loss from operations - contract revenue of $33,523 for the three
months ended March 31, 1998. This $192,425 increase was partially offset by a
net expense increase of corporate activities for the three months
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<PAGE>
ended March 31, 1999 as compared to the three months ended March 31, 1998 which
resulted from Prime's activity which was not present for the three months ended
March 31, 1998.
Liquidity and Capital Resources
At March 31, 1999, the Company had approximately $375,000 in cash. Although, the
Company had a working capital deficit of approximately $75,000, the Company had,
as of March 31, 1999, readily marketable investment securities of approximately
$5,000,000 included in other assets.
Net cash provided by (used in) operating activities aggregated $297,263 and
$(267,309) for the three months ended March 31, 1999 and 1998, respectively. The
$564,572 net increase provided by operating activities was principally
attributable to increased net income for the three months ended March 31, 1999
as compared to 1998 as well as an increase in accounts payable and accrued
expense, partially offset by an increase in accounts receivable.
Net cash provided by investing activities aggregated $4,858,804 for the three
months ended March 31, 1999 as compared with net cash used in investing
activities of $(187,894) for the three months ended March 31, 1998. This net
increase in cash provided by investing activities was primarily attributable to
the $5,000,000 sale of investment securities.
Net cash used by financing activities aggregated $5,065,050 for the three months
ended March 31, 1999 as compared to $39,950 for the three months ended March 31,
1998. The increase was due primarily to the repayment of the $5,000,000
collateralized investment loan during the three months ended March 31, 1999.
During the three months ended March 31, 1999, the Company financed its
operations primarily through working capital.
Impact of the Year 2000
The Company continues to explore new operations and financial software
packages that are Year 2000 compliant and intends to install such software
during the second and third quarters of the 1999 fiscal year with respect to
CMT. The system for Prime was updated prior to the end of the 1998 fiscal year.
The Company is also currently assessing the compatibility with third party
suppliers and customers of any proposed software package as part of its efforts
to minimize or eliminate any adverse effect on the Company's business in the
event customers or suppliers systems have a Year 2000 problem. Although the
Company does not expect significant costs or disruptions to its operations as a
result of the inability of any of its suppliers and customers to achieve Year
2000 compliance, the Company cannot predict what effect such noncompliance may
have upon the operations of the Company.
The Company does not expect expenditures relating to the Year 2000 issues
to be material and does not expect costs associated with the Year 2000 to have a
significant impact on the Company's results of operations or financial position.
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.
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<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 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
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<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.
May 21, 1999 PRIME CELLULAR, INC.
By: /s/ ROBERT A. REINHART
---------------------------------
Robert A. Reinhart,
Chief Financial Officer and
principal accounting officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
FORM 10 Q AT MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 377,896
<SECURITIES> 0
<RECEIVABLES> 470,133
<ALLOWANCES> 20,000
<INVENTORY> 105,680
<CURRENT-ASSETS> 1,062,983
<PP&E> 1,663,712
<DEPRECIATION> 571,355
<TOTAL-ASSETS> 7,198,073
<CURRENT-LIABILITIES> 1,139,448
<BONDS> 0
0
0
<COMMON> 61,087
<OTHER-SE> 5,164,460
<TOTAL-LIABILITY-AND-EQUITY> 7,198,073
<SALES> 861,639
<TOTAL-REVENUES> 861,639
<CGS> 398,293
<TOTAL-COSTS> 398,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,591
<INCOME-PRETAX> 151,534
<INCOME-TAX> 270
<INCOME-CONTINUING> 151,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,264
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
