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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 June 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 August 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 June 30, 1999
and December 31, 1998...................................... 4
Consolidated Statements of Operations (unaudited) for the
three months ended June 30, 1999 and June 30, 1998......... 6
Consolidated Statements of Operations (unaudited) for the
six months ended June 30, 1999 and June 30, 1998........... 7
Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1999 and June 30, 1998...... 8
Notes to Consolidated Financial Statements (unaudited)....... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk..... 15
PART II. OTHER INFORMATION............................................ 16
Item 2. Changes in Securities and Use of Proceeds..................... 16
Item 6. Exhibits and Reports on Form 8-K.............................. 16
SIGNATURES............................................................ 17
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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 June 30, 1999 and the related consolidated statement of operations
for each of the three-month and six-month periods ended June 30, 1999 and
consolidated statement of cash flows for the six months ended June 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
August 11, 1999
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<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999 December 31, 1998
-------------- ------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 209,327 $ 84,146
Certificate of deposit - restricted 204,823 200,000
Investment securities -- 5,096,557
Accounts receivable - less allowance
for doubtful accounts of $20,000 635,084 305,575
Unbilled services 102,632 23,799
Inventory 138,462 116,991
Prepaid expenses 17,458 8,728
---------- ----------
1,307,786 5,835,796
---------- ----------
Property, Plant and Equipment 1,621,740 1,522,516
Less: Accumulated depreciation and amortization 535,958 518,792
---------- ----------
1,085,782 1,003,724
---------- ----------
Other Assets
Investment securities 4,992,842 --
Investment securities receivable -- 4,978,947
Deferred financing costs - net of
accumulated amortization of $491 and
$365 for 1999 and 1998, respectively 7,090 7,216
---------- ----------
4,999,932 4,986,163
---------- ----------
$ 7,393,500 $11,825,683
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities
Collateralized investment loan $ -- $ 5,000,000
Note payable- bank 48,300 160,000
Current maturities of long-term debt 26,583 25,533
Current maturities of stockholder loans 527,333 --
Accounts payable and accrued expenses 742,217 427,313
Customer deposits 332,969 270,143
Unearned revenue 82,012 42,387
---------- ----------
1,759,414 5,925,376
Non-Current Liabilities
Note payable - bank 51,700 --
Long-term debt - net of current maturities 311,779 324,164
Stockholder loans - net of current maturities 0 501,860
---------- ----------
2,122,893 6,751,400
---------- ----------
Stockholders' Equity
Common stock 61,087 61,087
Additional paid-in capital 5,813,710 5,813,710
Accumulated deficit (604,190) (800,514)
---------- ----------
5,270,607 5,074,283
---------- ----------
$ 7,393,500 $ 11,825,683
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
June 30, 1999 June 30, 1998
------------- ------------
<S> <C> <C>
Revenue
Contract revenue $ 448,857 $ 270,828
Sale of goods 367,471 421,486
--------- ---------
816,328 692,314
--------- ---------
Direct Costs
Contract revenue 263,432 201,511
Sale of goods 168,936 232,464
--------- ---------
432,368 433,975
--------- ---------
Income After Direct Costs
Contract revenue 185,425 69,317
Sale of goods 198,535 189,022
--------- ---------
383,960 258,339
--------- ---------
Other Operating Expenses
Contract revenue 139,604 166,996
Sale of goods 80,431 149,121
--------- ---------
220,035 316,117
--------- ---------
Income (Loss) from Operations
Contract revenue 45,821 (97,679)
Sale of goods 118,104 39,901
--------- ---------
163,925 (57,778)
--------- ---------
Corporate Activities
Selling, general and administrative expenses (157,750) (79,162)
Interest income 60,998 27,738
Interest expense (22,251) (26,402)
--------- ---------
(119,003) (77,826)
--------- ---------
Income (Loss) Before Provision for Income Taxes 44,922 (135,604)
Provision (credit) for Income Taxes (138) (7,242)
--------- ---------
Net Income (Loss) $ 45,060 $ (128,362)
========= =========
Basic and Diluted Net Income (Loss) Per Share $ .01 $ (.02)
========= =========
Weighted Average Shares Outstanding - Basic 6,108,700 6,101,500
========= =========
- Diluted 6,308,216 6,101,500
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Revenue
Contract revenue $ 991,563 $ 608,575
Sale of goods 686,404 722,995
--------- ---------
1,677,967 1,331,570
--------- ---------
Direct Costs
Contract revenue 491,967 418,312
Sale of goods 338,694 386,393
--------- ---------
830,661 804,705
--------- ---------
Income After Direct Costs
Contract revenue 499,596 190,263
Sale of goods 347,710 336,602
--------- ---------
847,306 526,865
--------- ---------
Other Operating Expenses
Contract revenue 294,873 321,465
Sale of goods 153,499 256,631
--------- ---------
448,372 578,096
--------- ---------
Income (Loss) from Operations
Contract revenue 204,723 (131,202)
Sale of goods 194,211 79,971
--------- ---------
398,934 (51,231)
--------- ---------
Corporate Activities
Selling, general and administrative expenses (289,367) (88,318)
Interest income 171,731 32,372
Interest expense (84,842) (41,410)
--------- ---------
(202,478) (97,356)
--------- ---------
Income (Loss) Before Provision for Income Taxes 196,456 (148,587)
Provision (credit) for Income Taxes 132 (12,860)
--------- ---------
Net Income (Loss) $ 196,324 $(135,727)
========= =========
Basic and Diluted Net Income (Loss) Per Share $ .03 $ (0.02)
========= =========
Weighted Average Shares Outstanding - Basic 6,108,700 6,132,250
========= =========
- Diluted 6,300,205 6,132,250
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
-7-
<PAGE>
PRIME CELLULAR, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 196,324 $ (135,727)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 107,630 72,614
Accrued interest on stockholder loans 25,473 23,649
Changes in assets and liabilities:
Accrued interest on investment securities 77,839 (25,586)
Accounts receivable (329,509) (50,487)
Unbilled services (78,833) (69,627)
Inventory (21,471) (22,364)
Prepaid expenses (8,730) (26,534)
Accounts payable and accrued expenses 314,904 (13,896)
Customer deposits 62,826 (189,861)
Unearned revenue 39,625 (36,666)
--------- --------
386,078 (474,485)
--------- --------
Cash Flows from Investing Activities
Acquisitions of property and equipment (189,562) (290,330)
Sale of investment securities 5,000,000 -
Cash acquired in connection with merger - 546,484
--------- --------
4,810,438 256,154
--------- --------
Cash Flows from Financing Activities
Net borrowings (repayments) on line of credit - (31,295)
Repayments of notes payable (60,000) (17,606)
Repayments of long term debt (11,335) -
Payment of collateralized investment loan (5,000,000) -
--------- --------
(5,071,335) (48,901)
--------- --------
Net Increase (Decrease) in Cash 125,181 (267,232)
Cash - beginning 84,146 743,683
--------- --------
Cash - end $ 209,327 $ 476,451
========= ========
Supplemental Disclosures - cash paid during the year:
Interest $ 49,032 $ 17,761
========= ========
Income taxes $ 417 $ 15,727
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
-8-
<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 six and three months ended June 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 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.
-9-
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Revenues:
MCS - Contract Revenues from External Customers $ 991,563 $ 608,575
-------- --------
SM 704,478 731,581
Intersegment Revenues (18,074) (8,586)
-------- --------
SM - Sales of goods to External Customers 686,404 722,995
-------- --------
$ 1,677,967 $ 1,331,570
======== ========
Income (Loss) before Income Taxes:
MCS $ 204,723 $ (131,202)
SM 194,211 79,971
-------- --------
398,934 (51,231)
Corporate income and expenses unallocated to segments (202,478) (97,356)
-------- --------
$ 196,456 $ (148,587)
======== ========
For the Three Months Ended
-----------------------------
June 30, 1999 June 30, 1998
------------- -------------
Revenues:
MCS - Contract Revenues from External Customers $ 448,857 $ 270,828
-------- --------
SM 378,530 430,072
Intersegment Revenues (11,059) (8,586)
-------- --------
SM - Sales of goods to External Customers 367,471 421,486
-------- --------
$ 816,328 $ 692,314
======== ========
Income (Loss) before Income Taxes:
MCS $ 45,821 $ (97,679)
SM 118,104 39,901
-------- --------
163,925 (57,778)
Corporate income and expenses unallocated to segments (119,003) (77,826)
-------- --------
$ 44,922 $ (135,604)
======== ========
</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 199,516 and 191,505 potential shares during the three month period
ended June 30, 1999 and the six months ended June 30, 1999, respectively,
representing the effect of dilutive stock options utilizing the "treasury stock
method."
At June 30, 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.
-10-
<PAGE>
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:
For the three For the six
months ended months ended
June 30, 1998 June 30, 1998
------------- --------------
Net (loss) - as previously reported (173,952) (261,077)
Adjustment described above. 45,590 125,350
-------- --------
Net (loss) - as restated. (128,362) (135,727)
======== =======
Net (loss) per share - as previously
reported (.03) (.04)
Adjustment described above .01 .02
-------- -------
Net (loss) per share - as restated. (.02) (.02)
======== =======
NOTE 8: SUBSEQUENT EVENT- Note Payable Bank
The note payable- bank, for $100,000 as of June 30, 1999, which was due July 1,
1999, has been refinanced. During August 1999, CMT entered into a five year note
payable agreement for $350,000, the proceeds of which were partially used to
satisfy the $100,000 note. This new note is payable in equal monthly
installments of $7,223 including interest stated at 8 3/4 % and matures August
1, 2004. This note is guaranteed by Prime which has agreed to keep unencumbered
liquid assets of two times the outstanding loan balance at all times.
Accordingly $51,700 of the $100,000 note payable balance at June 30, 1999 has
been reclassified as non-current.
-11-
<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
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 June 30, 1999 to Three Months Ended June 30,
1998.
Revenue. Revenue for the three months ended June 30, 1999 was $816,328 as
compared to revenue of $692,314 for the three months ended June 30, 1998. This
increase of $124,014 was as a result of a $54,015 or a 13% decrease in sales of
goods and a $178,029 or a 66% increase in contract revenue. During the three
months ended June 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.
Income after Direct Costs. Income after direct costs for the three months ended
June 30, 1999 was $383,960 as compared to income after direct costs of $258,339
for the three months ended June 30, 1998. This increase in income after direct
costs is the result of a $9,513 or 5% increase from the sales of goods plus a
$116,108 or 167% 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 three months ended
June 30, 1999 as compared to the three months ended June 30, 1998. The margins
for the SM division increased for the three months ended June 30, 1999 as
compared to the three months ended June 30, 1998 as a result of an increase in
sales of higher gross profit items during the three months ended June 30, 1999.
-12-
<PAGE>
Corporate Activities. Corporate activities for the three months ended June 30,
1999 was a net expense of $119,003 as compared to net expense of $77,826 for the
three months ended June 30, 1998. This $41,177 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 three months ended June 30,
1998 as the CMT merger was not consummated until May 29, 1998. These income and
expense items attributable, to Prime, were included from April 1, 1999 to June
30, 1999 for the three months ended June 30, 1999
Net Income (Loss). Net income for the three months ended June 30, 1999 was
$45,060 or $.01 per share basic and diluted, based on weighted average common
shares outstanding of 6,108,700, basic and 6,308,216, diluted, as compared to a
net loss of $128,362 or ($.02) per share based on 6,101,500 weighted average
shares outstanding, basic and diluted. The increase in net income was mainly the
result of the 18% increase in revenue, with higher margins, coupled with a
decrease of 30% in other operating expenses partially offset by an increase in
corporate activity.
Comparison of Six Months Ended June 30, 1999 to Six Months Ended June 30, 1998.
Revenue. Revenue for the six months ended June 30, 1999 was $1,677,967 as
compared to revenue of $1,331,570 for the six months ended June 30, 1998. This
increase of $346,397 was as a result of a $36,591 or a 5% decrease in sales of
goods and a $382,988 or a 63% increase in contract revenue. During the six
months ended June 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 six months ended June 30,
1999.
Income after Direct Costs. Income after direct costs for the six months ended
June 30, 1999 was $847,306 as compared to income after direct costs of $526,865
for the six months ended June 30, 1998. This increase in income after direct
costs is the result of a $11,108 or 3% increase from the sales of goods plus a
$309,333 or 163% 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 six months ended
June 30, 1999 as compared to the six months ended June 30, 1998. The margins for
the SM division increased for the six months ended June 30, 1999 as compared to
the six months ended June 30, 1998 as a result of an increase in sales of higher
gross profit items during the six months ended June 30, 1999.
Corporate Activities. Corporate activities for the six months ended June 30,
1999 was a net expense of $202,478 as compared to net expense of $97,356 for the
six months ended June 30, 1998. This $105,122 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 six months ended June 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
six months ended June 30, 1999
-13-
<PAGE>
Net Income (Loss). Net income for the six months ended June 30, 1999 was
$196,324 or $.03 per share basic and diluted, based on weighted average common
shares outstanding of 6,108,700, basic and 6,300,205, diluted, as compared to a
net loss of $135,727 or ($.02) per share based on 6,132,250 weighted average
shares outstanding, basic and diluted. The increase in net income was mainly the
result of the 26% increase in revenue, with higher margins, coupled with a
decrease of 22% in other operating expenses partially offset by an increase in
corporate activity.
Liquidity and Capital Resources
At June 30, 1999, the Company had approximately $415,000 in cash. Although, the
Company had a working capital deficit of approximately $450,000, the Company
had, as of June 30, 1999, readily marketable investment securities of
approximately $5,000,000 included in other assets.
Net cash provided by (used in) operating activities aggregated $386,078 and
$(474,485) for the six months ended June 30, 1999 and 1998, respectively. The
$860,563 net increase provided by operating activities was principally
attributable to increased net income for the six months ended June 30, 1999 as
compared to the six months ended June 30, 1998 as well as an increase in the
change of accounts payable and accrued expense, customer deposits and unearned
revenue, partially offset by an increase in accounts receivable.
Net cash provided by investing activities aggregated $4,810,438 for the six
months ended June 30, 1999 as compared with $256,154 for the six months ended
June 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 $5,071,335 for the six months
ended June 30, 1999 as compared to $48,901 for the six months ended June 30,
1998. The increase was due primarily to the repayment of the $5,000,000
collateralized investment loan during the six months ended June 30, 1999.
During the six months ended June 30, 1999, the Company financed its operations
primarily through working capital.
Subsequent to June 30, 1999, CMT entered into a five-year note payable agreement
for $350,000, the proceeds of which were partially used to satisy the $100,000
note payable-bank.
Impact of the Year 2000
The Company is in the process of evaluating 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 intends to
install such software during the third and fourth quarters of the 1999 fiscal
year with respect to CMT. A Y2K compliant system for Prime was updated prior to
the end of the 1998 fiscal year.
-14-
<PAGE>
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 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
intends to initiate 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.
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.
-15-
<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 (6/30/99)
(b) Reports on Form 8-K
None.
-16-
<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.
August 11, 1999 By: /s/ ROBERT A. REINHART
--------------------------
Robert A. Reinhart,
Chief Financial Officer and
Principal Accounting Officer
-17-
<PAGE>
EXHBITS
Exhibit Description
----------- -----------
27 Financial Data Schedule (6/30/99)
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q AT JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 414,150
<SECURITIES> 0
<RECEIVABLES> 655,084
<ALLOWANCES> 20,000
<INVENTORY> 138,462
<CURRENT-ASSETS> 1,307,786
<PP&E> 1,621,740
<DEPRECIATION> 535,958
<TOTAL-ASSETS> 7,393,500
<CURRENT-LIABILITIES> 1,759,414
<BONDS> 0
0
0
<COMMON> 61,087
<OTHER-SE> 5,209,520
<TOTAL-LIABILITY-AND-EQUITY> 7,393,500
<SALES> 1,677,967
<TOTAL-REVENUES> 1,677,967
<CGS> 830,661
<TOTAL-COSTS> 830,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,842
<INCOME-PRETAX> 196,324
<INCOME-TAX> 132
<INCOME-CONTINUING> 196,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,324
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
