<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarter ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period ------------- to ------------
Commission file number - 33-93962
APPLIED CELLULAR TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
MISSOURI 43-1641533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Highway 160 & CC, Suite 5, Nixa, Missouri 65714
(Address of principal executive offices) (Zip Code)
(417) 725-9888
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve months (or such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
file such filing requirements for the past thirty days.
Yes X No
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report:
2,439,920 Shares of Common Stock ($.001 par value)
(Title of Class)
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE> 2
APPLIED CELLULAR TECHNOLOGY, INC.
PART I: Financial Information
ITEM 1 - Financial Statements
ITEM 2 - Management's discussion and analysis of financial
condition and results of operations
PART II: Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS:
---------------------
<PAGE> 4
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Applied Cellular Technology, Inc.
Springfield, Missouri
We have reviewed the accompanying consolidated balance sheet of
Applied Cellular Technology, Inc. and subsidiaries as of June 30, 1996
and the related consolidated statements of operations, stockholders'
equity and cash flows for the three month periods ended June 30, 1995
and 1996 and for the six month periods ended June 30, 1995 and 1996.
These consolidated financial statements are the responsibility of the
company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally 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 reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial
statements in order for them to be in conformity with generally
accepted accounting principles.
We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995 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 March 8, 1996, 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, 1995 is fairly stated in
all material respects in relation to the consolidated financial
statements from which it has been derived.
August 1, 1996
<PAGE> 5
<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
PAGE 1 OF 2
<CAPTION>
ASSETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 125,469 $ 114,045
Accounts receivable 522,548 1,162,683
Unbilled receivables 104,111 126,032
Inventory 504,859 1,188,339
Prepaid expenses 51,840 135,905
Note receivable - officer 12,982 13,002
Note receivable - Cadkey, Inc. 87,057 91,800
- -----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,408,866 2,831,806
EQUIPMENT, LEASEHOLD IMPROVEMENTS AND
COMPUTER SOFTWARE 138,489 164,964
INVESTMENT IN CADKEY, INC. COMMON STOCK 577,399 577,399
NOTE RECEIVABLE - CADKEY, INC. 292,627 245,397
GOODWILL 906,626 1,329,697
PURCHASED COMPUTER SOFTWARE 667,443 726,219
OTHER ASSETS 140,035 238,965
DEFERRED INCOME TAX ASSET -- 22,000
- -----------------------------------------------------------------------------------------------
$ 4,131,485 $ 6,136,447
===============================================================================================
- -----------------------------------------------------------------------------------------------
See the acompanying review report and notes to consolidated financial statements. Page 2
</TABLE>
<PAGE> 6
<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
PAGE 2 OF 2
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 29,999 $ 157,500
Notes payable - officers 280,095 173,678
Capital lease obligation - current 23,360 20,284
Accounts payable 564,692 670,193
Accrued expenses 105,146 477,749
- -----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,003,292 1,499,404
- -----------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Capital lease obligation 19,251 30,331
- -----------------------------------------------------------------------------------------------
MINORITY INTEREST 57,002 209,650
- -----------------------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK -- 900,000
- -----------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock:
Authorized 10,000,000 shares of $.001 par value;
issued and outstanding 2,267,749 at December 31, 1995
and 2,439,920 shares at June 30, 1996 2,268 2,440
Additional paid-in capital 3,358,072 3,701,426
Retained earnings (deficit) (308,400) (206,804)
- -----------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 3,051,940 3,497,062
- -----------------------------------------------------------------------------------------------
$ 4,131,485 $ 6,136,447
===============================================================================================
- -----------------------------------------------------------------------------------------------
See the acompanying review report and notes to consolidated financial statements. Page 3
</TABLE>
<PAGE> 7
<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TOTAL
----------------------- ---------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1995 20,000 $200,000 1,336,750 $1,337 $1,075,287 $(487,760) $ 788,864
NET INCOME -- -- -- -- -- 59,839 59,839
ISSUANCE OF COMMON STOCK -- -- 92,037 92 119,750 -- 119,842
ISSUANCE OF RESTRICTED COMMON STOCK -- -- 200,000 200 499,800 -- 500,000
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1995 20,000 $200,000 1,628,787 $1,629 $1,694,837 $(427,921) $1,468,545
============================================================================================================================
BALANCE - JANUARY 1, 1996 -- $ -- 2,267,749 $2,268 $3,358,072 $(308,400) $3,051,940
NET INCOME -- -- -- -- -- 101,596 101,596
ISSUANCE OF COMMON STOCK -- -- 138,677 139 208,791 -- 208,930
ISSUANCE OF COMMON STOCK - IN
ACQUISITION OF PURCHASED SOFTWARE -- -- 33,494 33 92,076 -- 92,109
50% OF PRINCIPAL PAYMENTS RECEIVED
ON NOTE RECEIVABLE - CADKEY, INC. -- -- -- -- 42,487 -- 42,487
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1996 -- $ -- 2,439,920 $2,440 $3,701,426 $(206,804) $3,497,062
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
See the accompanying review report and notes to consolidated financial statements. Page 4
</TABLE>
<PAGE> 8
<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 30,
--------------------------------------------------------
1995 1996 1995 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Programming services $ 124,044 $ 227,230 $ 141,573 $ 384,177
Hardware products 69,622 1,509,424 159,839 2,278,861
Software licensing revenue 14,591 50,818 86,964 100,160
Packaged software sales -- 150,000 40,839 384,465
Other revenue 1,405 29,297 3,283 52,340
- ------------------------------------------------------------------------------------------------
TOTAL REVENUES 209,662 1,966,769 432,498 3,200,003
- ------------------------------------------------------------------------------------------------
DIRECT COSTS
Costs of programming services 69,903 166,725 107,446 285,330
Costs of hardware products 46,492 863,711 106,775 1,349,132
Costs of software licensing revenue 11,229 34,434 44,582 46,354
Costs of packaged software sales -- 107,994 14,495 239,685
Other costs 377 74,528 377 75,028
Royalty expense 2,861 -- 3,983 --
- ------------------------------------------------------------------------------------------------
TOTAL DIRECT COSTS 130,862 1,247,392 277,658 1,995,529
- ------------------------------------------------------------------------------------------------
GROSS PROFIT 78,800 719,377 154,840 1,204,474
- ------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Marketing and sales 25,737 216,070 32,933 351,527
Administrative 40,140 427,979 87,307 731,039
- ------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 65,877 644,049 120,240 1,082,566
- ------------------------------------------------------------------------------------------------
OPERATING INCOME 12,923 75,328 34,600 121,908
INTEREST INCOME 26,696 21,437 26,441 42,106
INTEREST EXPENSE 601 16,913 1,202 25,221
- ------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME
TAX 39,018 79,852 59,839 138,793
PROVISION FOR INCOME TAXES -- -- -- --
- ------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTEREST 39,018 79,852 59,839 138,793
MINORITY INTEREST -- (17,723) -- (37,197)
- ------------------------------------------------------------------------------------------------
NET INCOME $ 39,018 $ 62,129 $ 59,839 $ 101,596
================================================================================================
NET INCOME PER COMMON SHARE $ .03 $ .03 $ .04 $ .04
================================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,543,468 2,313,042 1,417,589 2,300,200
================================================================================================
- ------------------------------------------------------------------------------------------------
See the accompanying review report and notes to consolidated financial statements. Page 5
</TABLE>
<PAGE> 9
<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
FOR THE SIX
MONTHS ENDED JUNE 30,
-------------------------------------
1995 1996
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 59,839 $ 101,596
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 7,211 182,823
Minority interest -- 37,197
Loss on sale of assets 519 --
Insurance proceeds 1,650 --
Change in assets and liabilities:
Increase in accounts receivable (149,997) (430,863)
Increase in unbilled receivables (1,292) (21,921)
Increase in inventories (22,224) (206,505)
Increase in prepaid expenses (122,405) (59,125)
Increase in due from employees (1,346) --
Increase in deferred income tax asset -- (22,000)
Increase in accounts payable and accrued expenses 151,969 366,458
- ------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (76,076) (52,340)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in notes receivable - officer -- (20)
Decrease in notes receivable - related party 75,579 --
Payments received on note receivable - Cadkey, Inc. -- 84,974
Increase in other assets (20,288) (64,220)
Payments for equipment, leasehold improvements
and computer software (22,410) (9,548)
Payments for costs of 80% business acquisition (net of
cash balance acquired) -- (9,573)
Payments for costs related to asset acquisitions -- (49,910)
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 32,881 (48,297)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net amounts received (paid) on notes payable (62,303) 278,096
Payments on capital lease obligation (2,185) (16,396)
Decrease in notes payable - officers -- (106,417)
Issuance of common stock 92 --
Increase in additional paid-in capital 119,750 --
Payments for stock related expenses -- (66,070)
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 55,354 89,213
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 12,159 (11,424)
CASH - BEGINNING OF PERIOD 2,651 125,469
- ------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 14,810 $ 114,045
================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,202 $ 25,221
Income taxes paid -- 3,441
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
See the accompanying review report and notes to consolidated financial statements. Page 6
</TABLE>
<PAGE> 10
APPLIED CELLULAR TECHNOLOGY, INC.
AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 And 1996
(Unaudited)
1. Summary Of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Tech
Tools, Inc. and ACT Financial Corp. which were formed in November
1994 and April 1995, respectively, and its majority-owned
subsidiaries, Atlantic Systems, Inc., Elite Computer Services,
Inc. and Burling Instruments, Inc., in which an 80% interest was
acquired by the Company in August 1995, September 1995 and March
1996, respectively. All significant intercompany investments,
transactions and account balances have been eliminated in
consolidation.
Use Of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Cash And Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Allowance For Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to
the estimated collection losses that will be incurred in
collection of all receivables. The estimated losses are based
on historical collection experience coupled with a review of the
current status of the existing receivables.
Unbilled Receivables
The Company records an unbilled receivable to account for salary
expenses and certain other expenses that apply to customer
projects not yet billed.
- --------------------------------------------------------------------------------
Page 7
<PAGE> 11
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Inventories
The Company's inventories consist mainly of new and used
computers, computer parts and software. The inventory is valued
at the lower of cost or market, determined by the FIFO (first-in,
first-out) method. The Company closely monitors its inventory
and analyzes it for potential obsolescence and slow-moving items
based upon the aging of the inventory listing and the inventory
turns by product. The Company will provide an allowance for
obsolete inventory if deemed necessary from the analysis.
Equipment And Leasehold Improvements
Equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed using
straight-line and accelerated methods. The assets are
depreciated and amortized over periods ranging from three to five
years.
Organization Costs
Organization costs, such as legal fees and incorporation costs,
are capitalized and amortized over five years.
Loan Fees
Loan fees are capitalized using the straight-line amortization
method over the life of the loan.
Investment In Common Stock
The Company acquired a 29% interest in Cadkey, Inc. in December
1994. The Company accounts for this investment using the cost
method. The Company does not currently, and has not since early
in 1995, exercised significant influence over Cadkey, Inc. and
therefore has not recorded this investment under the equity
method. Management's bases for considering that it no longer
exercises significant influence over Cadkey, Inc. stems from the
fact that the majority ownership of Cadkey is concentrated among
a small group of shareholders who operate the investee without
regard to the views of the Company, the Company had attempted
unsuccessfully to obtain interim financial statements from
Cadkey, Inc. and the Company has tried unsuccessfully to obtain
representation on Cadkey's Board of Directors.
- --------------------------------------------------------------------------------
Page 8
<PAGE> 12
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The Company's policy for making on-going determinations of the
net realizable value for the investment in Cadkey, Inc. includes
receiving quarterly unaudited financial statements received as
a requirement under its note agreement and annual audited
financial statements that management uses as an integral part of
its on-going assessment. Management also conducts an on-going
review of readily available industry statistics and compares
these results to the investee company's results to assess the
investee company's operating performance relative to other
industry participants and to assess the on-going prospects for
the investee company's industry as a whole.
Note Receivable - Cadkey, Inc.
The Company's policy for making on-going determinations of the
net realizable value of the note receivable from Cadkey, Inc. is
not only to review the overall performance of Cadkey, Inc. as
discussed within the Investment in Common Stock footnote, but
also to closely monitor the note repayment schedule agreed to by
Cadkey, Inc. in order to assess the continuing likelihood of
repayment and the on-going net realizable value of the Cadkey,
Inc. note. The carrying value of the note receivable has been
reduced by 50%, as a result of the discounting of the value of
the shares exchanged to acquire the note receivable because of
the restricted nature and the limited market of those common
shares.
Goodwill
The goodwill resulting from the purchase of 80% ownership in
Atlantic Systems, Inc. and Elite Computer Services, Inc. is being
amortized over 10 years. The goodwill resulting from the
purchase of 80% ownership in Burling Instruments, Inc. is being
amortized over 20 years.
The Company's policy for making on-going determinations of the
net realizable value of the goodwill is to monitor the net income
of Atlantic Systems, Inc., Elite Computer Services, Inc. and
Burling Instruments, Inc. and to determine if the expected income
levels over the remainder of the 10 or 20 year amortization
period would exceed the carrying value of the goodwill. If
impairment of the goodwill appears likely, a reduction in the
carrying value would be recorded at that time.
- --------------------------------------------------------------------------------
Page 9
<PAGE> 13
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Purchased Computer Software
Purchased computer software is stated at cost less accumulated
amortization. The purchased computer software is at the stage
of technological feasibility which is considered to have occurred
when a product design and working model of the software product
have been completed and the completeness of the working model and
its consistency with the product design have been confirmed by
testing. Amortization is computed over the greater of current
revenues divided by the total of expected revenues or straight-
line over the number of years of expected revenue. The straight-
line life is determined to be 5 years. The "Databoss" computer
software purchased by Tech Tools, Inc. in November 1994 has been
amortized beginning in July 1995 when it was available for
release to customers. Amortization began for the software
acquired from Baler Software Corporation in August 1995 at the
date of its acquisition. Amortization began for the software
acquired from Quality Solutions, Inc. in February 1996 at the
date of its acquisition.
Revenue Recognition
For programming, consulting and software licensing services, the
Company recognizes revenue based on the percent complete for
fixed fee contracts, with the percent complete being calculated
as either the number of direct labor hours in the project to date
divided by the estimated total direct labor hours or based upon
the completion of specific task orders. It is the Company's
policy to record contract losses in their entirety in the period
in which such losses are foreseeable. For non- fixed fee jobs,
the revenue is recognized based on the actual direct labor hours
in the job times the standard billing rate and adjusted to
realizable value if necessary. For product sales, the Company
recognizes revenue upon shipment. There are no significant post
contract support obligations at the time of revenue recognition.
The Company's accounting policy regarding vendor and post-
contract support obligations is according to the customers
contract, billable upon the occurrence of the post-sale support.
The Company does not experience many product returns, and
therefore, Company management is of the opinion that no allowance
for sales returns is necessary. The Company has no obligation
for warranties on hardware sales, because the warranty is given
by the manufacturer. The Company does not offer a warranty
policy for their services to customers.
- --------------------------------------------------------------------------------
Page 10
<PAGE> 14
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Proprietary Software In Development
In accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," the Company has capitalized
certain computer software development costs upon the
establishment of technological feasibility. Technological
feasibility is considered to have occurred upon completion of a
detailed program design which has been confirmed by documenting
and tracing the detail program design to product specifications
and has been reviewed for high-risk development issues, or to the
extent a detailed program design is not pursued, upon completion
of a working model that has been confirmed by testing to be
consistent with the product design. Amortization of computer
software costs is provided based on the greater of the ratios
that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product
or the straight-line method over the estimated useful life of the
product. The straight-line life is determined to be 5 years.
Amortization began in 1996 when the products were ready for
release to the general public. Amortization expense on
proprietary software in development amounted to $8,475 for the
six months ended June 30, 1996.
Net Income Per Common Share
Net income per common share is computed based on the weighted
average number of common and dilutive common equivalent shares
outstanding during the period. Dilutive common equivalent shares
consist of convertible preferred stock and common stock issuable
upon exercise of stock option and warrants (using the treasury
stock method). Under the rules of the Securities and Exchange
Commission, common stock issued by the Company during the 12-
month period prior to the initial public offering and stock
options granted during the same period, that had an exercise
price that was less then the IPO price, have been included in the
calculation of common and common equivalent shares using the
treasury stock method as if they were outstanding for all
applicable periods (pre IPO periods only).
Income Taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consists of taxes
currently due plus deferred taxes related primarily to
differences between the basis of goodwill, investment in 29%
owned company, equipment and leasehold improvements, and net
operating loss carryforwards for financial and income tax
reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities
are recovered or settled.
- --------------------------------------------------------------------------------
Page 11
<PAGE> 15
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The Company and its subsidiaries file consolidated tax returns.
Income taxes are paid by the parent company and allocated to each
subsidiary through intercompany charges.
2. Operations
Applied Cellular Technology, Inc. was incorporated in May 1993
under its former name, Great Bay Acquisition Company. On May 21,
1993, Great Bay Acquisition Company acquired the assets of Axcom
Computer Consultants, Inc. Effective September 1993, Great Bay
Acquisition Company changed its name to Axcom Information
Technology, Inc. and became the sole subsidiary of Great Bay
Technology Group, Inc. Effective March 1994, Axcom Information
Technology, Inc. changed its name to Applied Cellular Technology,
Inc. The Company is a software development and services company
and has applied technologies in tailored solutions for a number
of major American corporations. The Company's market is
primarily retail, manufacturing and distribution firms and its
operations are conducted from the home office in Missouri, with
customers throughout the United States.
In November 1994, the Company formed a subsidiary, Kedwell
International, Inc. by issuing 180,000 shares at $1.25 of its
$.001 par value common stock. The subsidiary purchased software
in exchange for its 180,000 shares of Applied Cellular
Technology's common stock valued at $1.25 per share and for the
issuance of 120,000 warrants at no value as described in Note 17.
Effective April 1995, Kedwell International, Inc. changed its
name to Tech Tools, Inc. Tech Tools, Inc. is a software
development and services company. The Company's office is
located in New Hampshire, with customers throughout the United
States.
During 1994, the Company acquired 570,712 shares of Cadkey, Inc.,
a software technology company, in exchange for 456,570 shares of
its $.001 par value common stock valued at $1.25 per share,
resulting in a 29% investment in this company.
During April 1995, the Company formed a subsidiary, ACT Financial
Corp., which acts as a holding company.
In August 1995, Tech Tools, Inc. purchased software and certain
other related assets and liabilities of Baler Software
Corporation in exchange for the issuance of 113,009 shares of
common stock of Applied Cellular Technology, Inc.
- --------------------------------------------------------------------------------
Page 12
<PAGE> 16
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Additionally, in August 1995, the Company issued 124,066 shares
of its common stock in exchange for an 80% investment in Atlantic
Systems, Inc., a software support company mainly for the liquor
industry, with its office located in New Jersey and customers
throughout the United States.
In September 1995, the Company issued 102,160 shares of its
common stock in exchange for an 80% investment in Elite Computer
Services, Inc., a distributor of computer parts, with its office
located in New Jersey and customers throughout the United States.
The acquisitions of Atlantic Systems, Inc. and Elite Computer
Services, Inc. have been accounted for using the purchase method.
The results of operations of the acquired companies are included
in the accompanying financial statements since the dates of
acquisition.
In February 1996, the Company issued 33,494 shares of its common
stock in exchange for software and certain other related assets
and liabilities of Quality Solutions, Inc.
In March 1996, the Company acquired 80% of Burling Instruments,
Inc., in exchange for 9,000 shares of 8% redeemable preferred
stock at $100 per share of Applied Cellular Technology, Inc. for
a total value of $900,000. The redeemable preferred shares were
issued in August 1996.
3. Note Receivable - Officer
The note is unsecured, bears interest at the prime lending rate
and is due on demand.
- --------------------------------------------------------------------------------
Page 13
<PAGE> 17
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
4. Note Receivable - Cadkey, Inc.
The note is unsecured and bears interest at 10.5%. Principal and
interest payments of $20,483 are due monthly, with the final
payment due October 1, 1999.
The note is valued as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
Shares issued (200,000 x $5.00) $ 1,000,000 $ 1,000,000
50% discount given to shares issued (500,000) (500,000)
------------------------------------------------------------------------------------------------
Original carrying value of the note receivable 500,000 500,000
50% of principal payments received 120,316 162,803
------------------------------------------------------------------------------------------------
379,684 337,197
Current portion (87,057) (91,800)
------------------------------------------------------------------------------------------------
Long-term portion $ 292,627 $ 245,397
================================================================================================
</TABLE>
The 200,000 shares of stock issued were restricted as to voting
rights.
Due to the 50% reduction in the face value of the note, as
payments are received, 50% of the amounts are credited to the
note receivable and the remaining 50% to paid-in capital.
5. Equipment And Leasehold Improvements
Equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 180,630 $ 673,332
Computer equipment 66,909 69,345
Leased vehicles 113,210 141,665
Leasehold improvements 1,087 1,087
-----------------------------------------------------------------------------------------------
361,836 885,429
Less: Accumulated depreciation and
amortization 223,347 720,465
-----------------------------------------------------------------------------------------------
$ 138,489 $ 164,964
===============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Page 14
<PAGE> 18
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Included in equipment are vehicles acquired under capital lease
obligations in the amount of $113,210 and $141,664 at
December 31, 1995 and June 30, 1996, respectively. Related
accumulated depreciation amounted to $42,777 and $49,278 at
December 31, 1995 and June 30, 1996, respectively.
Depreciation and amortization charged against income amounted to
$6,496 and $33,557 for the six months ended June 30, 1995 and
1996, respectively.
6. Investment In Cadkey, Inc. Common Stock
Investment in Cadkey, Inc. common stock consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------------------------------
<S> <C> <C>
Original investment:
Investment in Cadkey, Inc. common stock $ 570,713 $ 570,713
Additional costs of acquisition 6,686 6,686
-----------------------------------------------------------------------------------------------
$ 577,399 $ 577,399
===============================================================================================
</TABLE>
The original investment was calculated as follows:
<TABLE>
<S> <C>
Shares issued (456,670 x $2.50) $ 1,141,425
50% discount given to shares issued (570,712)
----------------
$ 570,713
================
</TABLE>
- --------------------------------------------------------------------------------
Page 15
<PAGE> 19
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
7. GOODWILL
Goodwill consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
Shares issued in the Atlantic Systems, Inc.
80% purchase (124,066 x $5.50) $ 682,363 $ 682,363
Shares issued in the Elite Computer Services, Inc.
80% purchase (102,160 x $8.94) 913,310 913,310
50% discount given to shares issued (797,836) (797,836)
Preferred shares issued in the Burling
Instruments, Inc. 80% purchase
(9,000 x $100.00) -- 900,000
------------------------------------------------------------------------------------------------
Net value of shares issued 797,837 1,697,837
Additional costs of acquisitions 173,682 213,137
80% of net book value of companies acquired (26,825) (488,629)
Accumulated amortization (38,068) (92,648)
------------------------------------------------------------------------------------------------
Carrying value $ 906,626 $ 1,329,697
================================================================================================
</TABLE>
Amortization expense amounted to $54,580 for the six months ended June 30,
1996.
8. PURCHASED COMPUTER SOFTWARE
Purchased computer software consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
Shares issued in the purchase of the Baler Software
Corporation net assets (113,009 x $5.125) $ 579,171 $ 579,171
Shares issued in the purchase of the Databoss
software (180,000 x $2.50) 450,000 450,000
Warrants issued in the purchase of the Databoss
software (120,000 x $1.50) 180,000 180,000
Shares issued in the purchase of the Quality
Solutions Software (33,494 x $5.50) -- 184,217
50% discount given to the shares issued (514,586) (606,694)
100% discount given to the warrants issued (180,000) (180,000)
Net value of shares issued 514,585 606,694
Additional costs of acquisitions 217,500 267,410
Accumulated amortization (64,642) (147,885)
------------------------------------------------------------------------------------------------
Carrying value $ 667,443 $ 726,219
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Page 16
<PAGE> 20
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Amortization expense amounted to $83,243 for the six months ended
June 30, 1996.
The additional costs of acquisitions include any cash payments
according to the acquisition agreements plus costs for
investment banking services, legal services and accounting
services, that were essential costs in acquiring these assets.
9. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
--------------------------------------
<S> <C> <C>
Elite Computer Services, Inc., $100,000 line of
credit - bank, secured by accounts receivable
and inventories and bears interest at the prime
rate plus 2%, due on demand $ 29,999 $ --
ACT Financial, note payable, unsecured, bears
interest at 8%, due on demand -- 20,000
Applied Cellular Technology, Inc., note
payable - related party, $500,000 line of credit,
unsecured, bears interest at 7%, due on demand -- 50,000
Burling Instruments, Inc., note payable - bank,
unsecured, bears interest at the prime rate plus
1.5%, due on demand -- 87,500
-----------------------------------------------------------------------------------------------
$ 29,999 $ 157,500
===============================================================================================
</TABLE>
Interest expense on the notes payable amounted to $1,202 and $11,140
for the six months ended June 30, 1995 and 1996, respectively.
The weighted average dollar amount of borrowings for the year ended
December 31, 1995 was $79,979 and $67,976 for the six months
ended June 30, 1996. The weighted average interest rate paid
was 9% for the year ended December 31, 1995 and 10.5% for the
six months ended June 30, 1996.
10. NOTES PAYABLE - OFFICERS
The notes are non=interest bearing, unsecured and are due on demand.
Imputed interest has been recorded at a market rate of 7%.
- --------------------------------------------------------------------------------
Page 17
<PAGE> 21
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
11. CAPITAL LEASE OBLIGATIONS
Future payments for capital lease obligations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
YEAR 1995 1996
-----------------------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 28,337 $ --
1997 15,750 26,565
1998 8,489 19,207
1999 -- 8,945
2000 -- 6,116
2001 -- 1,529
-----------------------------------------------------------------------------------------------
Total minimum lease payments 52,576 62,362
Less: Amount representing interest 9,965 11,747
-----------------------------------------------------------------------------------------------
Capital Lease Obligation 42,611 50,615
Less: current maturities 23,360 20,284
-----------------------------------------------------------------------------------------------
Long-term Capital Lease Obligation $ 19,251 $ 30,331
===============================================================================================
</TABLE>
Interest expense on the capital leases amounted to $7,446 for the
six months ended June 30, 1996. There was no interest for the six
months ended June 30, 1995.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
ACCOUNTS RECEIVABLE AND UNBILLED RECEIVABLES
The carrying amounts approximate fair value.
NOTE RECEIVABLE - OFFICER
The carrying amount approximates fair value because the stated
interest rate fluctuates with market rates.
- --------------------------------------------------------------------------------
Page 18
<PAGE> 22
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
NOTE RECEIVABLE - CADKEY, INC.
The carrying value of the note approximates fair value because the
interest rate of the note approximates the current rate that
the Company could receive on a similar note, and also because
this agreement was renegotiated in the current year.
NOTE PAYABLE - LINE OF CREDIT
The carrying amount approximates fair value because the stated
interest rate fluctuates with current market rates.
NOTES PAYABLE - OFFICERS
The carrying amount approximates fair value as the interest being
charged is at a current market rate.
ACCOUNTS PAYABLE
The carrying amount approximates fair value.
Estimated fair values of the Company's financial instruments, all of
which are held for nontrading purposes, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 125,469 $ 125,469 $ 114,045 $ 114,045
Accounts receivable and
unbilled receivables 626,659 626,659 1,288,715 1,288,715
Note receivable - officer 12,982 12,982 13,002 13,002
Note receivable - Cadkey, Inc. 379,684 379,684 337,197 337,197
Notes payable (29,999) (29,999) (157,500) (157,500)
Notes payable - officers (280,095) (280,095) (173,678) (173,678)
Accounts payable (564,692) (564,692) (670,193) (670,193)
</TABLE>
The estimated fair value amounts presented herein have been
determined using available market information and appropriate
valuation methodologies and are not necessarily indicative of
the amount the Company could realize in a current market
exchange.
- --------------------------------------------------------------------------------
Page 19
<PAGE> 23
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
13. INCOME TAXES
The Company has computed its income tax provision in accordance with
Statement of Financial Accounting Standards No. 109
("SFAS109"), which was effective for 1993 and years
thereafter.
The provision for income taxes includes current taxes and deferred
taxes computed on the temporary differences in the basis of
certain assets and liabilities between financial statement and
income tax reporting purposes. The principal source of
deferred income taxes as of December 31, 1995 and June 30,
1996 consists of differences in the basis of goodwill,
equipment and leasehold improvements and net operating loss
carryforward.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1995 1996
---------------------------------------
<S> <C> <C>
Current taxes at statutory rates $ 14,000 $ 54,000
Current taxes covered by net
operating loss carryforward (14,000) (32,000)
------------------------------------------------------------------------------------------------
Current income tax provision -- 22,000
Deferred income taxes -- (22,000)
------------------------------------------------------------------------------------------------
$ -- $ --
================================================================================================
</TABLE>
The components of the deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
----------------------------------------
<S> <C> <C>
DEFERRED TAX ASSET (LIABILITY)
Goodwill basis difference $ 11,000 $ 29,000
Equipment and leasehold improvements
basis differences (5,000) (7,000)
Net operating loss carryforward 30,000 --
Valuation allowance (36,000) --
------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ -- $ 22,000
================================================================================================
</TABLE>
SFAS109 requires a valuation allowance be recorded when it is "more
likely than not that some portion or all of the deferred tax
assets will not be realized." At December 31, 1995, the
Company had elected to record a valuation allowance of $36,000
to offset the deferred tax asset.
- --------------------------------------------------------------------------------
Page 20
<PAGE> 24
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The reconciliation of the effective tax rate with the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------
1995 1996
-----------------------------------
<S> <C> <C>
% %
-----------------------------------
Statutory rate 18 34
State income taxes 5 5
Realization of deferred tax asset valuation allowance -- (16)
Surtax exemptions (23) --
------------------------------------------------------------------------------------------------
0 0
</TABLE>
Under the carryforward provisions of the Internal Revenue Code and
applicable state income tax law, the Company has available for future
periods the following carryforwards:
<TABLE>
<CAPTION>
YEAR YEAR OF
INCURRED EXPIRATION AMOUNT
------------------------------------------------
<S> <C> <C> <C>
Net operating loss 1994 2009 $ 95,000
============
</TABLE>
The net operating loss available of $95,000 is the amount remaining
from December 31, 1995 available for 1996.
14. COMMITMENTS
The Company was obligated to pay a royalty to Axon Investments,
Inc., formerly Axcom Computer Consultants, Inc., in the amount of
2% of gross collected revenues for 120 months beginning July 1,
1993. This royalty agreement was terminated in July 1995.
The Company has contracted with a registered broker-dealer to receive
financial consulting and investment banking services through
September 1996. The Company must pay the broker-dealer $5,000
each month in the form of cash or in the form of shares of
capital stock.
- --------------------------------------------------------------------------------
Page 21
<PAGE> 25
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Applied Cellular Technology, Inc. is obligated under a one-year lease
for its office space, expiring June 1997. Tech Tools, Inc. is
obligated under a month-to-month lease for its office space.
Elite Computer Services, Inc. is obligated under a five-year
lease for its office space, expiring May 2001. Atlantic
Systems, Inc. is obligated under a three-year lease for its
office space, expiring December 1998. Burling Instruments,
Inc. is obligated under a month-to-month lease for its office
and warehouse space.
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------------
<S> <C>
1997 $ 68,510
1998 79,356
1999 61,956
2000 43,956
2001 18,315
-------------------------------------------------
$ 272,093
=================================================
</TABLE>
Rent expense amounted to $11,680 and $63,057 for the six months
ended June 30, 1995 and 1996, respectively.
In September 1995, the Company entered into two employment contracts
with officers of Elite Computer Services, Inc. which call for
services to be provided for a period of two years, and total
annual salaries of $180,000.
In February 1996, the Company entered into two employment contracts
with officers of Atlantic Systems, Inc. which call for
services to be provided for a period of three years, at annual
salaries of $50,000 for each officer with an additional bonus
based on 25% of quarterly earnings before income taxes in
excess of $58,400 not to exceed $50,000 to each officer.
In February 1996, the Company entered into an employment contract
with an officer of Quality Solutions, Inc. for a period of
three years with an annual salary of $60,000, and an
additional bonus based on 10% of gross profit of all sales
closed during the fiscal year to be paid in the form of common
shares of the Corporation. Upon issuance of these shares,
officer's compensation expense will be recorded based on the
number of shares issued times the market price of the shares.
An additional bonus may be earned in the first year of
service, on sales from $200,000 to $450,000, with a maximum
amount being paid of $25,000.
The Company will continue the employment contract with an officer of
Burling Instruments, Inc. which calls for an annual salary of
$84,000.
- --------------------------------------------------------------------------------
Page 22
<PAGE> 26
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
15. PROFIT SHARING PLAN
Elite Computer Services, Inc. has a qualified, noncontributory
401(k) plan for all eligible employees. The Company contributes,
at its discretion, up to 15% of the participant's annual
compensation. Profit sharing expense amounted to $2,045 for
the six months ended June 30, 1996.
Atlantic Systems, Inc. has a qualified, noncontributory 401(k)
plan for all eligible employees. The amount of the employer
contribution is determined annually by the employer at its
discretion. Profit sharing expense amounted to $544 for the
six months ended June 30, 1996.
16. STOCKHOLDERS' EQUITY
The Board of Directors approved a 420-for-1 stock split effective
March 1994. The Board of Directors also approved an increase
in the number of authorized shares of common stock to
10,000,000, with par value of .0024 per share, and authorized
the issuance of 20,000 shares of redeemable preferred stock,
par value $10 per share. In April 1994, the Articles of
Incorporation were amended to change the par value to $.001
per common share. The preferred stock shares were to be
redeemable by the Company at any time but were required to be
redeemed by the Company at such time as it had received a
cumulative total of $500,000 in funding or capitalization
through private placement, warrant exercise, public offering
or any other such means excluding lines of credit or revenue
from sales and excluding funds received from the sale of said
preferred stock.
Subsequently the terms of the preferred stock were changed to five-
year, noncumulative, 6% redeemable shares with the dividend
and redemption solely at the option of the Board of Directors
of Applied Cellular Technology, Inc.
In March 1994, the Company received $200,000 from an investor for
the preferred stock mentioned above.
In 1995 the Company redeemed the preferred shares and issued 11,765
shares of common stock and paid the preferred shareholder $147,392.
- --------------------------------------------------------------------------------
Page 23
<PAGE> 27
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Effective March 1994, the Company authorized the issuance of common
stock purchase warrants as follows: 200,000 A warrants
exercisable at a rate of 1 warrant plus $4.75 to purchase one
share of common stock and 200,000 B warrants exercisable at 1
warrant plus $20 to purchase one share of common stock and
45,000 class C warrants exercisable for a period of three
years from the date of issuance at the rate of 1 warrant plus
$1.50 for one share of common stock. Both the A & B purchase
warrants are effective for a period of 4 years from the date
of issuance and shall be callable with 30 days notice for a
price of $.001 per warrant.
The Company declared a dividend to the shareholders of record
effective March 21, 1994. Said dividend was in the form of A
and B common stock purchase warrants. The dividend was at a
rate of one A and one B warrant for each .305 shares of common
stock owned.
In March 1994, the Company entered into an agreement with Pratt,
Wylce & Lords, Ltd. ("Pratt"), for services to be provided in
connection with the registration and other consulting
services. In March 1994, the Company issued 86,500 shares to
Pratt. The shares were issued at the fair value as of the
date of issuance in direct payment for services related to the
registration.
In November 1994, 120,000 redeemable E warrants were issued as part
of the acquisition of software by Tech Tools, Inc. No value
was attributed to these warrants because the exercise price
significantly exceeded the fair value of the underlying common
shares. Each warrant can be exercised, at any time subsequent
to Applied Cellular Technology's market price reaching $7.50
per share, to acquire one common share of Applied Cellular
Technology, Inc. at the price of $5.00 per common share, or
one redeemable class A convertible preferred share of Tech
Tools, Inc. at the price of $5.00, or, if Tech Tools, Inc.
becomes a public company, into an amount equal to 40% of its
total outstanding common shares. Tech Tools, Inc.'s preferred
stock pays a cumulative dividend, compounded annually, of 8%
of the aggregate value of $600,000. The preferred stock has
cash redemption rights five years after issuance at the option
of the holder. The redemption price is $5.00 per preferred
share. In August 1995, the Class E warrants were redeemed for
120,000 shares of Applied Cellular Technology, Inc.
In December 1994, 300,000 class F warrants were authorized for
issuance. The class F warrants shall be exercisable for a
period of five years from the date of issuance and shall be
exercisable at the rate of 1 warrant plus $2.50 for each
common share.
- --------------------------------------------------------------------------------
Page 24
<PAGE> 28
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
In March 1995, restricted common stock was issued to purchase a note
receivable. The Company issued 200,000 common shares at a
market price of $5.00 with a 50% discount, due to the limited
market of the common shares, bringing the value down to $2.50
each. The stock was restricted as to voting rights until the
bid price per share equaled or exceeded $7.50 for a period of
48 hours or more, which occurred in the third quarter of 1995.
Due to this discount, 50% of all principal payments being
received are recorded as additional paid-in capital. This
amount was $120,316 and $20,967 for 1995 and the three month
period ended March 1, 1996, respectively.
In August 1995, 350,000 class H warrants were authorized for
issuance. The class H warrants shall be exercisable for a
period of 5 years from the date of issuance and shall be
exercisable at the rate of 1 warrant plus $4.75 for each
common share.
On August 4, 1995, the Company acquired software and related net
assets of Baler Software Corporation (Baler) in exchange for
the payment of debt of $14,000, the issuance of 88,009 shares
of the Company's common stock for full payment of $451,046
debt of Baler's secured creditors, and the issuance of 25,000
shares of the Company's common stock to one of Baler's
shareholders, in payment for the acquired software and certain
other assets and liabilities. The then current market trading
value of $5.125 a share has been discounted by 50% due to
limited market of the common shares, resulting in a value of
$2.56 a share.
On August 9, 1995, the Company issued 124,066 shares of its common
stock in exchange for an 80% investment in Atlantic Systems,
Inc. The then current market trading value of $5.50 a share
has been discounted by 50% due to the limited market of the
shares, resulting in a value of $2.75 a share.
On September 6, 1995, the Company issued 102,160 shares of its
common stock in exchange for an 80% investment in Elite Computer
Services, Inc. The then current market trading value of $8.94
a share has been discounted by 50% due to the limited market
of the shares, resulting in a value of $4.47 a share.
In January 1996, the Board of Directors authorized the issuance of
450,000 class I warrants to certain shareholders and officers.
The warrants will be exercisable for a period of five years
from the date of issuance at the rate of one warrant plus
$2.87.
- --------------------------------------------------------------------------------
Page 25
<PAGE> 29
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
In February 1996, Atlantic Systems, Inc. purchased a liquor store
software package (with exclusive rights to sell and support
the software, hardware and software support contracts with
current customers) and certain equipment from Quality
Solutions, Inc., in consideration for cash of $40,784 and
33,494 shares of common stock of Applied Cellular Technology,
Inc. The then current market trading value of $5.50 a share
has been discounted by 50% due to the limited market of the
shares, resulting in a value of $2.75 a share.
In March 1996, the Company acquired 80% of Burling Instruments,
Inc., in exchange for 9,000 shares of 8% redeemable preferred
stock at $100 per share of Applied Cellular Technology, Inc. for a
total value of $900,000. The redeemable preferred shares were
issued in August 1996.
If and to the extent the redeemable preferred shares have not been
converted to Common Stock by the second anniversary of the
initial issuance of the shares, the Company shall redeem the
redeemable preferred shares by paying $100 per share. Each
holder of the redeemable preferred shares may convert their
redeemable preferred shares into common stock at a rate of
$5.75 per $100 of redeemable preferred stock, for two years
from the issuance date.
17. SUPPLEMENTAL CASH FLOW INFORMATION
The Company had the following noncash investing and financing
activities:
In March 1995, the Company acquired a note receivable from Cadkey,
Inc. in exchange for the issuance of 200,000 restricted shares
of its common stock valued at $2.50 each.
In February 1996, Atlantic Systems, Inc. purchased a liquor store
software package (with exclusive rights to sell and support
the software, hardware and software support contracts with
current customers) and certain equipment from Quality
Solutions, Inc., in consideration for cash of $40,784 and
33,494 shares of common stock of Applied Cellular Technology,
Inc. The then current market trading value of $5.50 a share
has been discounted by 50% due to the limited market of the
shares, resulting in a value of $2.75 a share.
During 1996, the Company issued 9,000 shares of its redeemable
preferred stock at $10 per share in exchange for an 80%
investment in Burling Instruments, Inc. The related goodwill
of approximately $440,000 is being amortized over 20 years.
- --------------------------------------------------------------------------------
Page 26
<PAGE> 30
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
During 1996, the Company entered into a capital lease in the amount
of $24,400.
During 1996, the Company issued 5,000 shares of common stock at $5
per share for development services.
During 1996, the Company issued 25,000 shares of its common stock in
exchange for payment of $250,000 of note payable - related party.
18. STOCK REGISTRATION
During 1994, the Company completed a registration regarding
distribution of its shares of common stock to shareholders of
Pratt, Wylce & Lords, Ltd., a consultant to the Company.
Additionally, the Company registered on behalf of the selling
shareholders 192,851 shares of common stock, 200,000 class A
warrants, 200,000 class B warrants and 45,000 class C
warrants. The class A warrants are exercisable into one
common share at the purchase price of $4.75 and the class B
warrants are exercisable into one common share at the purchase
price of $20. The class A and class B warrants shall be
effective for a period of four years from the date of issuance
and shall be redeemable by the Company at $.001 per class A or
class B warrant upon thirty day's notice. The class C
warrants were to be exercisable for a period of three years
from the date of issuance at the rate of one warrant plus
$1.50 for one share of common stock. The class C warrants
were exercised in December 1994 for $67,500.
In connection with this registration, the Company incurred $249,722
in stock registration costs for the year ended December 31, 1994.
In July 1996, the Company completed a registration on Form SB-2, for
1,000,000 shares of common stock, 300,000 common shares to be
issued upon exercise of the class F warrants, and 1,459,301
common shares registered on behalf of the selling security
holders.
19. RESTATEMENT
The Company has restated its balance sheet and income statement for
the six months ended June 30, 1995 to reflect the recording of
the investment in Cadkey, Inc. on the cost method, instead of
as previously shown under the equity method. The Company does
not currently, and has not since early in 1995, exercised
significant influence over Cadkey, Inc. and therefore the
investment should not have been recorded under the equity
method.
- --------------------------------------------------------------------------------
Page 27
<PAGE> 31
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The effect of this change is to reduce net income for the six months
ended June 30, 1995 by $117,359, which reduced the net income
per common share by $.09 per share, from $.13 to $.04.
20. PROFORMA INFORMATION (UNAUDITED)
The following pro forma consolidated statement of operations of
Applied Cellular Technology, Inc. and subsidiaries for the six
months ended June 30, 1996 gives effect to the acquisition of
Burling Instruments, Inc. as if it were effective at January
1, 1996. The statement gives effect to the acquisition under
the purchase method of accounting and the assumptions in the
accompanying notes to the pro forma financial statements.
In March 1996, the Company acquired 80% of Burling Instruments,
Inc., in exchange for 9,000 shares of 8% redeemable preferred
stock at $100 per share of Applied Cellular Technology, Inc. for a
total value of $900,000.
If and to the extent the redeemable preferred shares have not been
converted to Common Stock by the second anniversary of the
initial issuance of the shares, the Company shall redeem the
redeemable preferred shares by paying $100 per share. Each
holder of the redeemable preferred shares may convert their
redeemable preferred shares into common stock at a rate of
$5.75 per $100 of redeemable preferred stock, for two years
from the issuance date.
The pro forma statements may not be indicative of the results that
would have occurred if the acquisitions had been effective on
the dates indicated or of the results that may be obtained in
the future. The pro forma statements should be read in
conjunction with the financial statements and notes thereto of
the Company.
- --------------------------------------------------------------------------------
Page 28
<PAGE> 32
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
PROFORMA
-------------------------------
AS BURLING PRO FORMA
REPORTED INSTRUMENT JUNE 30,
JUNE 30, INC. 1996
1996 (UNAUDITED) (UNAUDITED)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Revenues $ 3,200,003 $ 250,064 $ 3,450,067
Direct costs 1,995,529 203,362 2,198,891
--------------------------------------------------------------------------------------------------------------
Gross profit 1,204,474 46,702 $ -- 1,251,176
Operating expenses 1,082,566 102,200 3,672<F2> 1,188,438
--------------------------------------------------------------------------------------------------------------
Operating income (loss) 121,908 (55,498) (3,672) 62,738
Interest income 42,106 -- -- 42,106
Interest expense (25,221) (1,700) (26,921)
Minority interest (37,197) -- (11,440)<F3> (48,637)
Provision for income tax -- -- -- --
--------------------------------------------------------------------------------------------------------------
Net income (loss) 101,596 (57,198) (15,112) 29,286
Dividends -- -- (36,000)<F4> (36,000)
--------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to
common shareholders $ 101,596 $ (57,198) $ (51,112) $ (6,714)
==============================================================================================================
Net Income Per Common Share $ 0.04 $ --
==============================================================================================================
Weighted Average Number Of
Common Shares Outstanding 2,300,200 2,300,200
==============================================================================================================
<FN>
Note: The Pro Forma Consolidated Statement of Operations gives effects to
the following pro forma adjustments:
1) Represents the results of operations of Burling
Instruments, Inc. for the two months ended February 29,
1996 that would have been consolidated with the Company if
the acquisition would have taken place on December 31,
1995.
2) Represents the amortization expense for the goodwill on the
Burling Instruments, Inc. acquisition, in the amount of
$3,672 ($440,696 divided by 20 years times 2/12 of a
year).
3) Represents the 20% minority interest on the earnings
(losses) of Burling Instruments, Inc. for the two months
ended February 29, 1996 of $(57,198).
4) Represents expense for the dividends that would have been
accrued on the 8% preferred stock issued in the Burling
Instruments, Inc. acquisition (9,000 x $100 x 8% x 1/2).
</TABLE>
- --------------------------------------------------------------------------------
Page 29
<PAGE> 33
APPLIED CELLULAR TECHNOLOGY, INC.
PART I (cont.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS.
- --------------------------
TRENDS AND UNCERTAINTIES. The Company has tried to eliminate the major
variables of interest rates and operating expense. However, as the Company
has little or no control as to the demand for its products and services,
inflation and changing prices could have a material effect on the future
profitability of the Company.
The Company's lease in Nixa, Missouri expires at June 30, 1997, Elite's lease
expires on May 31, 2001, Atlantic's lease expires December 1998, and both Tech
Tools and Burling currently have month to month leases. The Company intends to
negotiate a smaller space for probably less rent at the same office complexes.
In all of these locations, there are many other lease opportunities at
different facilities at similar rates. The Company does not anticipate that
there shall be any material impact on its cashflow due to the expiration of
these leases and current cashflow is sufficient to continue to pay the lease
amounts.
CAPITAL RESOURCES AND SOURCE OF LIQUIDITY. The Company currently has no
material commitments for capital expenditures. The Company currently has a
negative cash flow from investing activities, and operating activities, however,
the Company has positive cash flow from financing activities which is
sufficient to cover the Company's working capital needs on a short-term basis.
The Company registered outstanding Common Shares and Class A, B and C Warrants
on behalf of selling securityholders. To date, the Company received a total of
$943,046 from the exercise of its Class A Warrants and $67,500 from the
exercise of its Class C Warrants. These proceeds shall be used to increase
operations, to develop new products and for working capital.
In July 1996, the Company completed a registration on Form SB-2, for 1,000,000
shares of common stock, 300,000 common shares to be issued upon exercise of
the class F warrants, and 1,459,301 common shares registered on behalf of the
selling security holders.
For the six months ended June 30, 1995, the Company had a decrease in notes
receivable - related party of $75,579. The Company had an increase in other
assets of $20,288. Payments for equipment, computer software and leasehold
improvements were made in the amount of $22,410. Net cash provided by investing
activities for the six months ended June 30, 1995 was $32,881.
For the six months ended June 30, 1996, the Company applied $84,974 of
receipts to the note receivable from Cadkey, Inc. The Company had an increase
in other assets of $64,220. Payments for equipment, computer software and
leasehold improvements were made in the amount of $9,548. Payments for
acquisitions in the amount of $59,483 were made. Net cash used in
investing activities for the six months ended June 30, 1996 was $48,297.
<PAGE> 34
For the year ended December 31, 1995, the Company had a decrease in notes
receivable - shareholder of $108,437. Payments were received on the note
receivable from Cadkey, Inc. of $240,632. The Company had an increase in other
assets of $107,958. Payments for equipment, computer software and leasehold
improvements were made in the amount of $40,199. The Company had payments for
costs of 80% acquisitions (net of cash balances acquired) of $183,208 and had
payments for costs of the acquisitions of $119,355. Net cash used in investing
activities for the year ended December 31, 1995 was $100,793.
For the six months ended June 30, 1995, the Company paid $2,185 on its
capital lease obligations. The issuance of common stock resulted in an increase
of $119,842 in additional paid-in capital and common stock. The Company paid
net amounts of $62,303 on notes payable. All of the above resulted in $55,354
net cash provided by financing activities for the six months ended June 30,
1995. These monies were used to continue and increase operations.
For the six months ended June 30, 1996, the Company received funds on new
notes payable in the net amount of $278,096. The Company paid $16,396 on its
capital lease obligations. The Company had a decrease in notes payable officers
of $106,417. The Company paid 66,070 for stock related expenses. All of the
above resulted in $89,213 net cash provided by financing activities for the
six months ended June 30, 1996.
For the year ended December 31, 1995, the Company paid $171,048 on all lines of
credit and $15,318 on its capital lease obligation. The issuance of common
stock resulted in $516,778 in additional paid-in capital. The redemption of its
Class A preferred stock by Daniel E. Penni Trust resulted in a decrease in cash
flow of $147,392. All of the above resulted in $96,171 net cash provided by
financing activities for the year ended December 31, 1995. These monies were
used to continue and increase operations.
On a long term basis, liquidity is dependent on increased revenues from
operations, additional infusions of capital and debt financing. The Company
believes that additional capital and debt financing in the short term will
allow the Company to increase its marketing and sales efforts and thereafter
result in increased revenue and greater liquidity in the long term. The
Company believes that its increased revenue from operations in addition to
proceeds received from the recent offering, if any, will result in sufficient
working capital and liquidity in the long term. However, there can be no
assurance that the Company will be able to obtain additional equity or debt
financing in the future, if at all.
Plan of Operation. The Company plans to increase its current revenues and
net earnings by two measures. One is to use the Company's current industry
knowledge to expand sales in high-tech areas, the other is to acquire
businesses within similar industries that have a history of profitable
operations and are managed by skilled owners or professional managers.
<PAGE> 35
The current operating divisions of the Company generated approximately
$2,335,999 in revenues in the fiscal year 1995 and are projected to generate
approximately $5,500,000 in 1996. The Company's operating divisions are in
market segments, computer software and hardware, that are growing. No external
matters in the industry have occurred that have effected the Company in an
adverse way. The Company has not experienced any labor difficulties or any
other internal impediments.
The nature of the Company's business, computer software development and
distribution and the marketing of purchased computer hardware and hardware
components, do not require any significant ongoing capital expenditures, only
increases in working capital. Any proceeds utilized from the sale of the
common shares registered in the recent offering would be used primarily to fund
the increased working capital needs of the existing affiliated companies and to
retire some existing debt. Management can also pursue lines of credit and
increase the factoring arrangement (90% of receivables under 60 days) at the
Company or it may pursue a private sale of its preferred stock. Management
plans to establish a factoring arrangement for TechTools, Inc. and a line of
credit for Atlantic Systems, Inc. if required.
Additional acquisitions by the Company could increase the revenue base.
The recently completed registration of common shares was for the express
purpose of acquiring three or four companies that would be strategic additions
to the existing core companies or divisions. The acquisitions are part of the
Company's strategy to build a major international software, manufacturing and
technology business through strategic, consolidating acquisitions. The
acquisition strategy of the Company is to acquire companies at favorable prices
with steady cash flows. The Company plans to increase profits through the
projected gross margin objectives of 40-45% for hardware and 80-85% for
software products. Broadened product lines will allow each division to increase
its customer base, which will result in an increase in earnings. The Company's
objective to increase profitability of each division is to continue growth
through 1) acquisition of established successful business with above average
expansion or growth potential 2) internal expansion of existing businesses 3)
introduction of new products into existing sales channels and 4) the
development of new ventures and expanded market opportunities for existing
products.
The cost investment in Cadkey has no effect on the Company's cash flow and,
consequently, does not have any effect on the Company's ability to survive.
For the six months ended June 30, 1995, the Company had a negative cash flow
from operations of $76,076. This was mainly due to an increase in accounts
receivable ($149,997) and prepaid expenses ($122,405). The preliminary estimate
for 1996 indicates that the Company's performance should be able to obtain a
positive cash flow in the third quarter of 1996 and that its cash flow needs
can be met through current operations along with the issuance of its common
stock. Management's assessment of future performance is limited to projections
based on current conditions and does not include any uncertainties which may
arise. Potential investors should not attribute undue certainty to
management's assessment. Management does not intend to furnish updated
projections.
For the six months ended June 30, 1996, the Company had a negative
cash flow from operations of $52,340. This was mainly due to an increase
in accounts receivable, unbilled receivables, prepaids and inventories.
RESULTS OF OPERATIONS:
Services, sales, fees, licensing and other revenue increased to $3,200,003 for
the six months ended June 30, 1996 from $432,498 for the six months ended
June 30, 1995 mainly due to the Company's recent acquisitions which resulted
in an increase in revenue from the sale of hardware products from $159,839
for the six months ended June 30, 1995 to $2,278,861 for the six months ended
June 30, 1996 and packaged software sales of $384,465 compared to $40,839 for
the six
<PAGE> 36
months ended June 30, 1995 (received as a result of one of the recent
acquisitions). Software licensing revenue increased from $86,964 for the six
months ended June 30, 1995 to $100,160 for the six months ended June 30,
1996.
Services, sales, fees, licensing and other revenue increased to $1,966,769
for the three months ended June 30, 1996 from $209,662 for the three months
ended June 30, 1995 mainly due to the Company's recent acquisitions which
resulted in an increase in revenue from the sale of hardware products from
$69,622 for the three months ended June 30, 1995 to $1,509,424 for the three
months ended June 30, 1996 and packaged software sales of $150,000 compared
to $0 for the three months ended June 30, 1995 (received as a result of one
of the recent acquisitions). Software licensing revenue increased from $14,591
to $50,818 for the three months ended June 30, 1996.
Direct costs increased from $277,658 for the six months ended June 30, 1995
to $1,995,529 for the six months ended June 30, 1996 due to costs related
mainly to hardware products ($1,349,132) packaged software sales ($239,685),
costs of programming services ($285,330) and costs of software licensing
revenue ($46,354) while operating expenses increased from $120,240 to
$1,082,566 (mainly from an increase in administrative expenses from $87,307 to
$731,039 and marketing and sales expenses from $32,933 to $351,527 for the
same periods). This resulted in operating income of $121,908 for the six months
ended June 30, 1996 compared to operating income of $34,600 for the six
months ended June 30, 1995. Programming services provided 32.7% of the total
revenue for the six months ended June 30, 1995 as compared to 12.01% for the
six months ended June 30, 1996 due to the Company's change in business focus.
Direct costs comprised 64.2% of total revenue for the six months ended
June 30, 1995 as compared to comprising 62.36% for the same period in 1996.
The decrease in the direct cost to revenue percentage is due to the Company's
change in business focus and its recent acquisitions. The Company received
revenue of $1,966,769 in the second quarter of 1996 and the
Company expects the revenue level will continue in the third quarter of 1996,
and the Company will continue its marketing efforts to obtain increased
revenues.
Direct costs increased from $130,862 for the three months ended June 30, 1995
to $1,247,392 for the three months ended June 30, 1996 due to costs related
mainly to hardware products ($863,711), packaged software sales ($107,994),
costs of programming services ($166,725) and costs of software licensing
revenue ($34,434) while operating expenses increased from $65,877 to $644,049
(mainly from an increase in administrative expenses from $40,140 to $427,979
and marketing and sales expenses from $25,737 to $216,070 for the same
periods). This resulted in operating income of $75,328 for the three months
ended June 30, 1996 compared to operating income of $12,923 for the three
months ended June 30, 1995. Programming services provided 59.16% of the
total revenue for the three months ended June 30, 1995 as compared to 11.55%
for the three months ended June 30, 1996 due to the Company's change in
business focus, and due to the recent acquisitions. Direct costs comprised
62.42% of total revenue for the three months ended June 30, 1995 as
compared to comprising 63.42% for the same period in 1996. The increase in
the direct cost to revenue percentage is due to the Company's recent
acquisitions and the increase in hardware sales with lower gross profit.
Service, sales, fees, licensing and other revenue increased to $2,335,999 for
the year ended December 31, 1995 from $322,769 for the year ended December 31,
1994 mainly due to the Company's recent acquisitions which resulted in an
increase in revenue from the sale of hardware products from $102,661 to
$1,281,101 for year ended December 31, 1995 and packaged software sales of
$417,600 (received as a result of one of the recent acquisitions). Software
licensing revenue increased from $29,582 for the year ended December 31, 1994
to $151,229 for the year ended December 31, 1995 due to its change in its
business focus as described above and increased operations.
Direct costs increased from $269,868 for the year ended December 31, 1994 to
$1,186,213 for the year ended December 31, 1995 due to costs related mainly to
hardware products ($676,838) packaged software sales ($159,388), costs of
programming services ($271,174) and costs of software licensing revenue
($74,306) while operating expenses increased from $533,046 to $981,212 (mainly
from an increase in administrative expenses from $421,864 to $634,376 and
marketing and sales expenses from $83,326 to $346,836 for the same periods).
This resulted in operating income of $168,574 for the year ended December 31,
1995 compared to an operating loss of $(480,145) for the year ended December
31, 1994. Programming services provided 57.11% of the total revenue for the
year ended December 31, 1994 as compared to 18.96% for the year ended December
31, 1995 due to the Company's change in business focus. Direct costs comprised
83.61% of total revenue for the year ended December 31, 1994 as compared to
comprising 50.78% for the same period in 1995. The decrease in the direct
cost to revenue percentage is due to the Company's change in business focus and
its recent acquisitions. The Company received revenue of $2,335,999 in fiscal
year 1995 and the Company expects the revenue level will continue in the first
quarter of 1996, and the Company will continue its marketing efforts to obtain
increased revenues.
<PAGE> 37
The Company is seeking to reduce its operating expenses while increasing its
customer base and operating revenues. The Company is focusing on decreasing
administrative costs, however, these amounts have increased as a result of the
purchase of the software "DataBoss" in November, 1994 and "Baler" in 1995 by
the Corporation's subsidiary Tech Tools, Inc. and the other acquisitions by
the Company. Additionally, increased marketing expenses will probably occur in
future periods as the Company attempts to further increase its marketing and
sales efforts.
Pro Forma Consolidated Results of Operations. Giving effect to the acquisition
- ---------------------------------------------
of Burling Instruments, Inc. as of January 1, 1996, the proforma June 30, 1996
net revenues increased to $3,450,067 for the six months ended June 30, 1996
compared to $3,200,003 for that same period if the acquisitions had not
occurred as of January 1, 1996. Direct Costs increased from $1,995,529 for the
six months ended June 30, 1996 to $2,198,891 for the six months ended June 30,
1996 giving effect to the acquisition as of January 1, 1996. As a result, gross
profit for the six months ended June 30, 1996 was $1,204,474 compared to the
proforma amount of $1,251,176 for the same period. Operating expenses increased
from $1,082,566 to $1,188,438 for the six months ended June 30, 1996 giving
effect to the acquisitions. Dividend expense in the amount of $36,000 had to be
expensed in the proforma income statement for the six months ended June 30,
1996 giving effect to the acquisition, and recording the 8% preferred stock
dividend. Net income applicable to common shareholders decreased from $101,596
to $(6,714) for the six months ended June 30, 1996 giving effect to the
acquisition as of January 1, 1996.
<PAGE> 38
APPLIED CELLULAR TECHNOLOGY, INC.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
None
(b) Reports on Form 8-K
None
<PAGE> 39
SIGNATURE
Pursuant to the requirements 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.
/s/ Garrett Sullivan
Date: July 13, 1996 ------------------------------
Garrett Sullivan, President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 114,045
<SECURITIES> 0
<RECEIVABLES> 1,162,683
<ALLOWANCES> 0
<INVENTORY> 1,188,339
<CURRENT-ASSETS> 2,831,806
<PP&E> 885,429
<DEPRECIATION> (720,465)
<TOTAL-ASSETS> 6,136,447
<CURRENT-LIABILITIES> 1,499,404
<BONDS> 0
<COMMON> 2,440
900,000
0
<OTHER-SE> 3,494,622
<TOTAL-LIABILITY-AND-EQUITY> 6,136,447
<SALES> 2,278,861
<TOTAL-REVENUES> 3,200,003
<CGS> 1,349,132
<TOTAL-COSTS> 1,995,529
<OTHER-EXPENSES> 1,082,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,221
<INCOME-PRETAX> 138,793
<INCOME-TAX> 0
<INCOME-CONTINUING> 101,596
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,596
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
