UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-26020
APPLIED CELLULAR TECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
MISSOURI
(State or other jurisdiction of incorporation or organization
43-1641533
(IRS Employer Identification number)
James River Professional Center,
Highway 160 & CC, Suite 5, Nixa, Missouri 65714
(Address of principal executive offices)
Issuer's telephone number: (417) 725-9888
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1997, the period covered by this report:
7,343,381 Shares of Common Stock ($.001 par value)
Page 1 of 13
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APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
- ---- ------------------------------------------------------------------- -----
PART I -- FINANCIAL INFORMATION
1. Financial Statements 3-7
2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-10
PART II -- OTHER INFORMATION
2. Changes in Securities 11
5. Other Information 11
6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBITS 13
Page 2 of 13
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ITEM 1. FINANCIAL STATEMENTS
Interim unaudited consolidated financial statements of the Company appear on
pages 4 through 7 of this report.
Page 3 of 13
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<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
ASSETS
MARCH 31, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................................................ $ 1,184,764 $ 809,711
Accounts receivable and unbilled receivables (net of allowance for
doubtful accounts of $101,000 in 1996 and 1997) ............................... 8,862,623 6,874,808
Inventories ...................................................................... 6,689,329 4,290,681
Notes receivable ................................................................. 860,078 1,646,773
Prepaid expenses and other current assets ........................................ 976,246 264,716
--------------- ---------------
TOTAL CURRENT ASSETS ....................................................... 18,573,040 13,886,689
LAND, EQUIPMENT AND LEASEHOLD IMPROVEMENTS .......................................... 4,148,819 2,915,056
NOTES RECEIVABLE .................................................................... 1,154,504 575,000
GOODWILL ............................................................................ 14,494,318 14,267,985
PURCHASED COMPUTER SOFTWARE ......................................................... 117,373 638,397
OTHER ASSETS ........................................................................ 1,079,093 924,966
--------------- ---------------
$ 39,567,147 $ 33,208,093
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable .................................................................... $ 5,800,042 $ 3,920,057
Current maturities of long-term debt ............................................. 374,913 333,833
Current portion of capital lease obligations ..................................... 131,011 159,227
Accounts payable and accrued expenses ............................................ 8,011,558 7,280,419
Due to investment company ........................................................ -- 521,000
--------------- ---------------
TOTAL CURRENT LIABILITIES .................................................. 14,317,524 12,214,536
--------------- ---------------
LONG-TERM LIABILITIES
Long-term debt ................................................................... 2,113,744 1,247,158
Capital lease obligations ........................................................ 171,027 138,444
--------------- ---------------
TOTAL LONG-TERM LIABILITIES ................................................ 2,284,771 1,385,602
--------------- ---------------
TOTAL LIABILITIES ................................................................... 16,602,295 13,600,138
--------------- ---------------
MINORITY INTEREST ................................................................... 731,903 456,139
--------------- ---------------
REDEEMABLE PREFERRED SHARES ......................................................... 10,900,000 10,900,000
--------------- ---------------
SHAREHOLDERS' EQUITY
Common shares:
Authorized 20,000,000 shares in 1997 and 1996,
of $.001 par value; issued and outstanding 7,343,381
and 5,798,701 shares in 1997 and 1996, respectively ........................ 7,344 5,799
Additional paid-in capital ....................................................... 10,729,037 7,928,198
Retained earnings ................................................................ 596,568 317,819
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY ................................................. 11,332,949 8,251,816
--------------- ---------------
39,567,147 $ 33,208,093
=============== ===============
</TABLE>
Page 4 of 13
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APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
1997 1996
------------ ------------
NET OPERATING REVENUE ............................ $ 18,126,797 $ 1,233,234
COST OF GOODS SOLD ............................... 12,079,435 748,137
------------ ------------
GROSS PROFIT ..................................... 6,047,362 485,097
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..... 5,340,955 438,517
------------ ------------
OPERATING INCOME ................................. 706,407 46,580
INTEREST INCOME .................................. 49,245 20,669
INTEREST EXPENSE ................................. (181,520) (8,308)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST ......................... 574,132 58,941
PROVISION FOR INCOME TAXES .................... 207,065 --
------------ ------------
INCOME BEFORE MINORITY INTEREST ............... 367,067 58,941
MINORITY INTEREST ............................. 70,318 19,474
------------ ------------
NET INCOME .................................... 296,749 39,467
PREFERRED STOCK DIVIDENDS ..................... 18,000 --
------------ ------------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS .. $ 278,749 $ 39,467
============ ============
NET INCOME PER COMMON SHARE ................... $ .05 $ .02
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ..................... 6,144,683 2,309,516
============ ============
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<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................. $ 278,749 $ 39,467
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .................................... 329,461 83,416
Minority interest ................................................ 70,318 19,474
Loss on sale of equipment ........................................ 1,458 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled
receivables ................................................ 428,812 (285,642)
Increase in inventories ....................................... (747,681) (49,311)
Increase in prepaid expenses .................................. (212,767) (77,912)
Increase in deferred tax asset ................................ (69,732) --
Increase (decrease) in accounts payable and accrued
expenses ................................................... (713,677) 114,295
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ...................... (635,059) (156,213)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in notes receivable - officers ................................ 786,695 --
Payments received on note receivable - Cadkey, Inc. .................... -- 20,967
Increase in other assets ............................................... (143,614) (38,508)
Payments for equipment, computer software
and leasehold improvements .......................................... (548,606) (7,941)
Proceeds from (payments for) costs of asset and business
acquisitions (net of cash balances acquired) ........................ 480,781 (41,671)
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................. 575,256 (67,153)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net amounts borrowed on notes payable and long-term debt .............. 424,598 181,101
Payments on capital lease obligations .................................. (44,140) (7,103)
Decrease in notes payable - officers ................................... -- (64,944)
Issuance of common stock ............................................... 54,398 21,124
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................. 434,856 130,178
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 375,053 (93,188)
CASH AND CASH EQUIVALENTS- BEGINNING OF PERIOD ............................ 809,711 125,469
----------- -----------
CASH AND CASH EQUIVALENTS- END OF PERIOD .................................. $ 1,184,764 $ 32,281
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid .......................................................... $ 219,887 $ 8,308
----------- -----------
</TABLE>
Page 6 of 13
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<TABLE>
APPLIED CELLULAR TECHNOLOGY, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------ PAID-IN EARNINGS SHAREHOLDERS'
NUMBER AMOUNT CAPITAL (DEFICIT) EQUITY
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1996 .............................. 2,267,749 $ 2,268 $ 3,358,072 $ (308,400) $ 3,051,940
Net Income .......................................... -- -- -- 39,467 39,467
Issuance Of Common Stock ............................ 8,273 8 25,148 -- 25,156
Issuance Of Common Stock - In
Acquisition Of Purchased Software ................... 33,494 34 92,076 -- 92,110
50% OF PRINCIPAL PAYMENTS RECEIVED
ON NOTE RECEIVABLE - CADKEY, INC .................... -- -- 20,967 -- 20,967
----------- ----------- ----------- ----------- -------------
BALANCE - MARCH 31, 1996 ............................ 2,309,516 $ 2,310 $ 3,496,263 $ (268,933) $ 3,229,640
----------- ----------- ----------- ----------- -------------
BALANCE - JANUARY 1, 1997 ........................... 5,798,701 $ 5,799 $ 7,928,198 $ 317,819 $ 8,251,816
Net income .......................................... -- -- -- 278,749 278,749
Issuance of common shares ........................... 373,866 374 555,034 -- 555,408
Issuance of common shares for
acquisitions ..................................... 1,160,814 1,161 2,225,815 -- 2,226,976
Class "H" warrants redeemed ......................... 10,000 10 19,990 -- 20,000
----------- ----------- ----------- ----------- -------------
BALANCE - MARCH 31, 1997 ............................ 7,343,381 $ 7,344 $10,729,037 $ 596,568 $ 11,332,949
=========== =========== =========== =========== =============
</TABLE>
Page 7 of 13
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
For the ninth consecutive quarter the Company reported record net operating
revenue (NOR). For the three months ended March 31, 1997, NOR was $18,126,797, a
1,370% increase over the first quarter of 1996. Moreover, first quarter 1997 NOR
was 91.2% of the Company's NOR of $19,883,400 for the 12 months ended December
31, 1996. NOR increases are attributable to the growth of our existing
businesses and to the growth contributed by the five acquisitions the Company
made during the latter half of 1996 and the four acquisitions during the first
quarter of 1997. These latter four acquisitions contributed $7,757,000 of NOR in
the first quarter of 1997.
During the first quarter of 1997, 44.0% of NOR was contributed by the computer
group, 41.9% was contributed by the retail group and 14.1% by the manufacturing
group. In the first quarter of 1996, the Company operated in one market segment.
Cost of goods sold (COGS) increased by 1,515% from the first quarter of 1996 to
the first quarter of 1997. The growth in COGS during these quarters is
attributable to the Company's growth through acquisition. COGS as a percentage
of NOR was 66.6% in the first quarter of 1997 compared to 60.7% in the
comparable period in 1996. The increase in COGS from the first quarter of 1996
to the first quarter of 1997 is attributable to our continued growth and to the
change in the Company's business mix.
Our gross profit percentage was 33.4% in the first quarter of 1997 compared to
39.3% in the same period in 1996. Our gross profit increased by 1,147% from the
fof 1996 to the first quarter of 1997, selling, general and administrative
expenses (SG&A) increased by 1,118%. SG&A, as a percentage of NOR, was 29.5% and
35.6% in the first quarters of 1997 and 1996, respectively. SG&A includes
amortization of goodwill of $170,551 and $23,618 in the first quarters of 1997
and 1996, respectively. Depreciation and amortization of equipment, leasehold
improvements, purchased computer software and other intangible assets included
in SG&A amounted to $158,910 and $59,798 in the first quarters of 1997 and 1996,
respectively. The increases between the first quarter of 1996 and the comparable
period in 1997 are again attributable to the Company's acquisitions during these
periods.
Operating income increased 1,417% from the first quarter of 1996 to the first
quarter of 1997. Operating income as a percentage of NOR was 3.9% and 3.8% in
the first quarters of 1997 and 1996, respectively.
Interest income was $49,245 and $20,669 for the first quarters of 1997 and 1996,
respectively. Interest income increased by 138.3% from the first quarter of 1996
to the first quarter of 1997. The increase in the first quarter of 1997
represents higher average interest rates on investments in 1997, coupled with
the exchange of our Investment in Cadkey, Inc. for a 76.67% interest in a note
receivable.
Interest expense was $181,250 and $8,308 for the first quarters of 1997 and
1996, respectively. Interest expense increased 2,085% from the first quarter of
1996 to the first quarter of 1997. The
Page 8 of 13
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increases are relatively modest in dollar terms. As a percentage of NOR,
interest expense was 1.0% and 0.7% in the first quarters of 1997 and 1996,
respectively.
The Company's effective income tax rate increased to 36.1% in the first quarter
of 1997 from 0% in the first quarter of 1996. In the first quarter of 1996 the
Company benefitted from tax net operating loss carryforwards.
FINANCIAL CONDITION:
As of March 31, 1997, cash and cash equivalents totaled $1,184,764, up from1996.
Cash of $635,059 and $156,213 was used in operating activities in the first
quarters of 1997 and 1996, respectively. During the first quarter of 1997, we
used cash to invest in inventory and prepaid expenses, and to pay down accounts
payable. The net effect of these two activities was to use $1,674,125 of
operating cash in the first quarter of 1997. In the first quarter of 1996, we
used cash to invest in inventory and prepaid expenses, and to sustain increases
in both accounts receivable and accounts payable. The net effect of these four
activities was to use $298,570 of operating cash in the first quarter of 1996.
One of the Company's objectives is to maximize our cash flow as we believe it
offers evidence of financial strength. As the Company experiences substantial
growth, our investment needs are more substantial than those of more mature
companies with modest investment needs. So is our need to use cash in operating
activities to finance growth in our operating assets and liabilities and to
finance this growth through our sources of financing activities.
Inventory levels, particularly finished goods, increased by 55.9% from December
31, 1996 to March 31, 1997. This increase was primarily attributable to our
growth through acquisitions and to the resulting increased level of business.
The 28.9% increase in accounts and unbilled receivables from December 31, 1996
to March 31, 1997 reflects revenue growth from both existing and acquired
businesses. Accounts payable and accrued expenses increased modestly during this
period, again attributable to our growth and the resulting increased level of
business.
Investing activities provided $575,256 of cash in the three months ended March
31, 1997 and used $67,153 of cash in the three months ended March 31, 1996. In
the first quarter of 1997, investing activities consisted principally of
payments received on notes receivable - officers, and the cash acquired through
acquisitions, net of acquisition costs, during this period, offset by payment
for equipment and leasehold improvements and net increases in other assets. In
the first quarter of 1996, investing activities consisted principally of costs
associated with our acquisitions, increases in other assets, payment for
equipment and leasehold improvements, offset by cash received from notes
receivable.
The Company obtained positive cash flows of $434,856 and $130,178 from financing
activities in the first quarters of 1997 and 1996. The major financing sources
of cash in the first quarter of 1997 were proceeds from the sale of the
Company's common shares and net bank borrowing, offset by payments on capital
lease obligations. The major financing sources of cash in the first quarter of
1996 were net bank borrowing and proceeds from the sale of common shares, offset
by payments on notes payable to officers and capital lease obligations.
Page 9 of 13
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Other sources of liquidity include the Company's ability to obtain term loans
and revolving lines of credit for its operating subsidiaries, the sale of common
and preferred shares, the exercise of warrants, and the raising of other forms
of debt or equity through private placement. We believe that we have the
financial resources to meet our future business requirements.
OUTLOOK:
The outlook section contains a number of statements which are based on current
expectations. These statements are forward looking in nature, and actual results
may differ materially.
The Company's objective is to continue to grow from existing business segments
and through acquisitions, both domestically and abroad. Our strategy has been,
and continues to be, to invest in, and acquire, businesses that complement and
add to our existing business base. The Company has expanded significantly
through acquisition in the last twelve months and continues to do so. Our
financial results are substantially dependent on not only our ability to sustain
and grow existing businesses, but to continue to grow through acquisition. The
Company expects to continue to pursue its acquisition strategy for the remainder
of 1997, but there can be no assurance that management will successfully be able
to continue to find, acquire and integrate high quality companies at attractive
prices.
Statements about the Company's future results of operations and other
forward-looking statements contained in this outlook, in particular the
statements regarding the growth of existing businesses, growth opportunities and
anticipated benefits of our business strategies, and all other statements in
this section, other than historical facts, are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
based largely on our expectations and are subject to a number of risks and
uncertainties, certain of which are beyond our control. Actual results could
differ materially from these forward-looking statements as a result of, among
others, regulatory or economic influences, business conditions and growth in the
industries in which the Company operates, changes in customer order patterns,
competition from competitors with far greater financial and other resources than
that of the Company, risk of inventory obsolescence due to shifts in market
demand, litigation and other economic and consumer issues.
Page 10 of 13
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PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
Effective as of January 1, 1997, holders of 100,000 shares of the Company's
Second Series Preferred Stock, having a par value of $10.00 per share and a
liquidation and redemption value of $100.00 per share, agreed to eliminate the
8% dividend payable on such Second Series Preferred Stock. In consideration
therefor, the Company agreed to pay the holders $200,000 quarterly for services
relating to acquisitions for so long as such Second Series Preferred Stock
remains outstanding.
On April 18, 1997, the Company filed a Registration Statement on Form S-3 under
the Securities Act of 1933, (Registration No. 333-25431), to register 1,918,053
outstanding Common Shares on behalf of selling shareholders. The registration
statement has not yet become effective.
ITEM 5. OTHER INFORMATION
On April 2, 1997, the Company filed a Report on Form 8-K regarding the
acquisition of Hopper Manufacturing Company, Inc. In regard to Items 7 (a) and
(b) thereof, the Company had not determined if financial statements and
pro-forma financial information with respect to Hopper Manufacturing Company,
Inc. was required to be filed and, if required, the Company would file such
information by May 2, 1997. Subsequently, on April 21, 1997, the Company filed a
Report on Form 8-K/A amending such filing date to June 1, 1997. The Company has
now determined that financial statements of Hopper Manufacturing Company, Inc.
and pro-forma information relating to the acquisition are not required to be
filed because the acquisition does not meet the filing requirements prescribed
in Item 310 of Regulation S-B.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit 27 - Financial Data Schedule - on page 13 of this report is
incorporated herein by reference
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the Company between
January 1, 1997 and the date of filing this report:
(1) the Company's current report on Form 8-K filed on February 3, 1997;
(2) the Company's current report on Form 8-K filed on
February 19, 1997;
(3) the Company's current report on Form 8-K filed on April 2, 1997;
(4) the Company's current report on Form 8-K filed on April 11, 1997;
and
(5) the Company's current report on Form 8-K filed on April 15, 1997.
Page 11 of 13
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SIGNATURE
In accordance with 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, in the County of St. Louis, State of
Missouri, on May 14, 1997.
APPLIED CELLULAR TECHNOLOGY, INC.
By:
-----------------------------------
David A. Loppert, Vice President,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR
THE THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000924642
<NAME> APPLIED CELLULAR TECHNOLOGY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,184,764
<SECURITIES> 0
<RECEIVABLES> 8,963,623
<ALLOWANCES> 101,000
<INVENTORY> 6,689,329
<CURRENT-ASSETS> 18,573,040
<PP&E> 7,020,890
<DEPRECIATION> 2,872,071
<TOTAL-ASSETS> 39,567,147
<CURRENT-LIABILITIES> 14,317,524
<BONDS> 2,284,771
10,900,000
0
<COMMON> 7,344
<OTHER-SE> 11,325,605
<TOTAL-LIABILITY-AND-EQUITY> 39,567,147
<SALES> 17,779,245
<TOTAL-REVENUES> 18,126,797
<CGS> 12,079,435
<TOTAL-COSTS> 12,079,435
<OTHER-EXPENSES> 5,340,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,520
<INCOME-PRETAX> 574,132
<INCOME-TAX> 207,065
<INCOME-CONTINUING> 367,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,749
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
