FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13732
SHARED TECHNOLOGIES CELLULAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1386411
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
100 Great Meadow Road, Suite 102
Wethersfield, Connecticut 06109
(Address of principal executive offices)
(860) 258-2500
(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 Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X___ No ___ ___
As of November 14, 1996, there were 4,606,184 shares outstanding of the
Company's Common Stock, $.01 par value.
PART 1
FINANCIAL INFORMATION PAGE
Item 1.
Financial Statements
Consolidated Balance
Sheets as of September 30,
1996 and December 31, 1995 3-4
Consolidated Statements of Operations
for the nine months ending September
30,1996 and 1995 5
Consolidated Statements of Operations
for the three months ending September 30,
1996 and 1995 6
Consolidated Statements of
Cash Flows for the nine
months ended September 30, 1996 and 1995 7
Consolidated Statements of
Stockholders' Equity for
the nine months ended September 30, 1996 8
Notes to Consolidated Financial Statements 9-10
Item 2
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 11-13
PART II OTHER INFORMATION 14
Signature Page 15
Item 1. Financial Statements
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(unaudited)
September December
30, 1996 31, 1995
ASSETS
Current Assets:
Cash $54,124 $2,541,827
Accounts receivable, less
allowance for doubtful
accounts of $595,000
and $685,000 at September
30, 1996 and December 31,
1995, respectively 2,424,428 1,172,671
Carrier commissions receivable,
less unearned income 88,770 452,610
Inventories 90,988 49,076
Note receivable 51,019 59,136
Prepaid expenses and other
current assets 316,719 471,356
Receivable due from sale of assets - 1,077,856
Total current assets 3,026,048 5,824,532
Telecommunications and office
equipment, less accumulated
depreciation 3,607,463 2,157,685
Other assets:
Intangible assets, less accumulated
amortization 9,374,671 6,129,101
Deposits 365,274 142,080
Note receivable, less current
portion 87,525 124,407
Total other assets 9,827,470 6,395,588
TOTAL ASSETS $16,460,981 $14,377,805
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September December
30, 1996 31, 1995
Current liabilities:
Notes payable $2,284,227 $400,000
Accounts payable and other
current liabilities 6,765,800 5,838,718
Commissions payable 88,770 452,611
Due to parent 48,499 984,592
Total current liabilities 9,187,296 7,675,921
Notes payable, less current
portion 341,876 1,600,000
Stockholders' equity:
Preferred stock, $.01 par value,
Series A Convertible, authorized,
issued and outstanding 300,000
shares at December 31, 1995. - 3,000
Preferred stock, $.01 par value,
Series B Convertible, authorized
1,250,000 shares, issued and
outstanding 500,000 shares at
September 30, 1996. 5,000 -
Common stock $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 4,606,184
shares at September 30,1996 and
3,089,189 shares at December
31, 1995 46,062 30,892
Capital in excess of par value 14,969,609 9,172,583
Accumulated deficit (8,088,862) (4,104,591)
Total stockholders' equity 6,931,809 5,101,884
Total liabilities and stockholders'
equity $16,460,981 $14,377,805
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc.
Consolidated Statements of Operations
For The Three Months Ended
September 30,1996 and 1995
(unaudited)
September September
30, 1996 30, 1995
Revenues:
Rental operations $5,798,394 $2,216,019
Activation/Debit/Agency
operations 1,071,080 1,654,041
Total Revenues 6,869,474 3,870,060
Cost of revenues:
Rental Operations 3,385,357 1,201,482
Activation/Debit/Agency
operations 757,108 1,250,379
Total cost of revenues 4,142,465 2,451,861
Gross margin 2,727,009 1,418,199
Field - operating expenses:
Rental operations 2,596,813 1,069,975
Activation/Debit/Agency
operations 463,665 444,483
Total field operating
expenses 3,060,478 1,514,458
Corporate - operating
expenses: 493,869 210,088
3,554,347 1,724,546
Operating loss (827,338) (306,347)
Interest expense (132,418) (7,348)
Net loss ($959,756) ($313,695)
Net loss per common share ($0.21) ($0.10)
Weighted average number of
common shares outstanding 4,598,487 3,038,640
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc.
Consolidated Statements of Operations
For The Nine Months Ended
September 30,1996 and 1995
(unaudited)
September September
30, 1996 30, 1995
Revenues:
Rental operations $12,929,942 $5,468,977
Activation/Debit/Agency
operations 3,313,464 3,691,151
Total revenues 16,243,406 9,160,128
Cost of revenues:
Rental operations 7,959,765 2,867,088
Activation/Debit/Agency
operations 2,175,182 2,663,470
Total cost of revenues 10,134,947 5,530,558
Gross margin 6,108,459 3,629,570
Field - operating expenses:
Rental operations 6,747,185 2,857,926
Activation/Debit/Agency
operations 1,201,699 869,096
Total field operating
expenses 7,948,884 3,727,022
Corporate - operating
expenses 1,881,590 504,937
9,830,474 4,231,959
Operating loss (3,722,015) (602,389)
Interest expense (262,256) (22,520)
Net loss ($3,984,271) ($624,909)
Net loss per common share ($1.02) ($.24)
Weighted average number of
shares outstanding 3,909,656 2,640,827
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc.
Consolidated Statements of Cash Flows
For The Nine Months Ended
September 30, 1996 and 1995
(unaudited)
September September
30, 1996 30, 1995
Cash flows from operating activities:
Net loss ($3,984,271) ($624,909)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,248,943 340,012
Provision for doubtful accounts 900,359 89,697
Common stock shares issued in
lieu of compensation 26,646 -
Change in assets and liabilities,
net of effect of acquisitions:
Accounts receivable (2,116,787) (1,097,912)
Inventories (41,912) (32,066)
Other current assets 154,637 (244,558)
Accounts payable and other
current liabilities 208,740 1,112,456
Net cash used in operating
activities (3,603,645) (457,280)
Cash flows from investing activities:
Payments for intangible assets (347,731) (472,529)
Purchases of equipment (2,062,170) (266,337)
Acquisitions of businesses (290,407) (347,538)
Collections on note receivable for
sale of assets 1,077,856 15,047
Collections on note receivable 44,999 -
Payments for deposits (223,194) -
Net cash used in investing
activities (1,800,647) (1,071,357)
Cash flows from financing activities:
Payments on capital lease obligations (3,482) (7,194)
Payments on notes payable (982,485) -
Deferred registration costs - (693,316)
Issuance of common stock 5,000 4,255,446
Issuance of preferred stock 3,633,649 -
Repurchase of common stock - (375,000)
Advance from (payments to)
affiliated company 263,907 (781,301)
Net cash provided by financing
activities 2,916,589 2,398,635
Net increase (decrease) in cash (2,487,703) 869,998
Cash, beginning of period 2,541, 827 10,233
Cash, end of period $54,124 $880,231
Supplemental disclosure of cash flow
information:
Cash paid during the period for -
Interest $213,498 $50,165
Supplemental schedules of noncash
investing and financing activities:
Contribution to capital in excess of
par value of amount due to parent $1,200,000 $1,184,000
Issuance of common stock for
acquisitions $950,000 $250,000
Notes payable incurred for acquisition
of assets $1,898,995
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc.
Consolidated Statements of Stockholders' Equity
For The Nine Months Ended September 30, 1996
(unaudited)
Series A Series B
Preferred Stock Preferred Stock
Shares Amount Shares Amount
Balances, December 31,
1995 300,000 $3,000 - -
Issuance of common stock - - - -
Issuance of preferred stock - - 500,000 $5,000
Issuance of common stock
for acquisitions - - - -
Conversion of Series A
preferred stock to common
stock (300,000) (3,000) - -
Net loss - - - -
Balances, September 30,1996 0 $0 500,000 $5,000
Common Stock
Shares Amount
Balances, December 31,
1995 3,089,189 $30,892
Issuance of common stock 70,545 705
Issuance of preferred stock - -
Issuance of common stock
for acquisitions 300,000 3,000
Conversion of Series A
preferred stock to common
stock 1,146,450 11,465
Net loss - -
Balances, September
30,1996 4,606,184 $46,062
Capital in Total
Excess of Accumulated Stockholders'
Par Value Deficit Equity
Balances, December
31, 1995 $9,172,583 ($4,104,591) $5,101,884
Issuance of
common stock 30,941 - 31,646
Issuance of
preferred stock 4,827,550 - 4,832,550
Issuance of common
stock for
acquisitions 947,000 - 950,000
Conversion of Series A
preferred stock to
common stock (8,465) - -
Net loss - (3,984,271) (3,984,271)
Balances,
September
30,1996 $14,969,609 ($8,088,862) $6,931,809
Shared Technologies Cellular, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
(Unaudited)
1. Basis of Presentation: The consolidated financial statements included
herein have been prepared by Shared Technologies Cellular, Inc. ("STC" or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary
to present a fair statement of the results for interim periods. Certain
information and footnote disclosures have been omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
December 31, 1995 Form 10-K.
2. Litigation: The Company is not involved in any litigation which,
individually or in the aggregate, if resolved against the Company, would
have a materially adverse effect on the Company's financial condition,
results of operations or cash flows. However, the Company is in
default of certain financial obligations, including a promissory note
given to PTC Cellular, Inc,("PTCC") (see "Liquidity"), which such
defaults could result in a materially adverse effect to the Company if not
favorably resolved.
3. Acquisitions: In May and June 1995, the Company commenced
management of and subsequently completed its acquisition of the
outstanding capital stock of Cellular Hotline, Inc. ("Hotline"), a cellular
telephone activation service provider. The purchase price was $617,000,
comprised of $367,000 in cash, the assumption of $150,000 of certain
indebtedness and the balance through the issuance of 50,000 shares of the
Company's common stock ("Shares") valued at $5.00 per share.
Pursuant to the purchase agreement in September 1995, the
former Hotline stockholders caused the Company to repurchase from them all
of the Shares for $5.00 per share, for an aggregate amount of $250,000. The
Company subsequently retired those Shares. In connection with the
acquisition, the Company issued the former Hotline stockholders a three year
option to purchase an aggregate of 50,000 shares of the Company's common
stock at a price of $7.50 per share. In addition, the agreement provides
for additional payments based upon attaining certain levels of activation
revenues over a one year period.
In November 1995, the Company completed its acquisition of substantially all
of the assets of PTCC. The purchase price was $3,800,000, comprised of
$300,000 in cash, the assumption of $1,200,000 of accounts payable, a
promissory note of $2,000,000 and the issuance of 100,000 shares of the
Company's common stock. The agreement provides for a maximum of
$2,500,000 of royalty payments, computed at 3% of quarterly revenues
generated from certain of the acquired assets. No payments have been
made to date.
On April 27, 1996, the Company completed its acquisition of certain assets of
Cellular Global Investments of Northern California, Inc., Access Cellular
Corp., Summit Assurance Cellular, Inc., Road and Show Cellular Arizona Corp.,
Road and Show Cellular West., Northstar Cellular Corp., and Craig A.
Marlar ("Marlar"). The purchase price was approximately $3,500,000,
comprised of $1,058,000 in cash payable over eight months, $1,492,000 in
assumed liabilities, and the issuance of 300,000 shares of the
Company's common stock, $.01 par value. Additionally, the Company issued
three year warrants to purchase an aggregate of 300,000
additional shares of the Company's common stock $.01 par value. The
warrants are excersizable as follows: 100,000 at $3.00 per share, 100,000 at
$4.00 per share, and 100,000 at $5.00 per share.
These acquisitions were accounted for as purchases, and the purchase
prices were allocated on the basis of the relative fair market values of the
net assets acquired and the net liabilities assumed, as follows:
Hotline PTCC Marlar
Cash $19,462 - -
Accounts receivable 13,000 - $35,330
Commissions recei-
vable - net 465,869 - -
Prepaid expenses and
other current assets 70,431 $61,910 -
Equipment 50,000 1,806,480 141,850
Intangibles 520,000
Accounts payable and
other current liabilities (238,206) - (720,725)
Commissions payable (473,820)
Notes payable (779,255)
$(93,264) $2,388,390 $(1,322,800)
Unaudited pro forma consolidated statements of operations for the nine month
periods ended September 30, 1996 and 1995, as though the acquisitions had
taken place on January 1, 1995:
1996 1995
Revenues $17,112,956 $18,927,970
Cost of revenues 10,750,117 13,267,062
Gross margin 6,362,839 5,660,908
Operating expenses 10,540,684 7,326,826
Operating loss (4,177,845) (1,665,918)
Interest expense, net (278,900) (180,085
Net loss $(4,456,745) $(1,846,003)
Net loss per
common share $(1.10) $(.060)
Weighted average
number of common
shares outstanding 4,037,758 3,087,786
Item 2.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Revenues:
The Company's revenues of $16,243,000 for the nine month period ended
September 30, 1996 represented an increase of $7,083,000 (77%) over the nine
month period ended September 30, 1995. Revenues of $6,869,000 for the
three month period ended September 30, 1996 represented an increase of
$2,999,000 (78%) over the three month period ended September 30, 1995. The
increase in the nine month period was comprised of an increase of $7,461,000
in rental operations offset by a decrease of $378,000 in activation/debit/
agency operations. The increase in the rental operations resulted from
the following factors. $3,065,000 was due to revenues generated from the
acquisition of the in-car cellular telephone business from PTCC
in November 1995. $1,436,000 was due to revenues generated
from the acquisition of the portable cellular telephone business from
various companies owned by Marlar in April 1996. $1,419,000 was due to
revenues generated from the Summer Olympics. The remaining increase
of $1,541,000 was due to a 28% increase in market penetration within
existing locations. The decrease in revenues from activation/debit/agency
operations was due to several factors. $903,000 of the decrease was due
to the sale of the Connecticut resale operation in December 1995 and the
conversion of its sales force to an agency operation. $331,000 of the
decrease was due to a reduction in the activation business as a result of
several significant customers deemphasizing their retail sales of cellular
telephones. These decreases were offset by $856,000 in revenues
from the debit, or pre-paid business that was started in early 1996. The
increase in the three month period ended September 30, 1996, as compared
to the three month period ended September 30, 1995 was comprised of an
increase of $3,582,000 in revenues from rental operations, offset
by a decrease of $583,000 in activation/debit/agency operations. The
increase in rental operations revenues was comprised of $555,000 due to
the PTCC acquisition, $913,000 due to the Marlar acquisition, $1,419,000
due to the Summer Olympics and the balance of $695,000 was due to a
31% increase in market penetration within existing locations.. The
decrease in revenues from activation /debit/agency operations was
comprised of $333,000 due to the sale of the Connecticut resale business
and a $645,000 decrease in revenues from the activation business.
These decreases were offset by an increase of $395,000 in the debit
business as previously discussed.
Gross Margin:
Gross margin increased $2,479,000 (68%) for the nine month period ended
September 30, 1996 and $1,309,000 (92%) for the three month period ended
September 30, 1996 compared with the corresponding nine and three month
periods ended September 30, 1995. Gross margin as a percentage of revenues
decreased from 40% for the nine month periods ended September 30, 1995 to
38% for the nine month period ended September 30, 1996 and increased from
37% for the three month period ended September 30, 1995 to 40% for the
three month period ended September 30, 1996. The decrease in gross margin
as a percentage of revenues was due to a significant change in the revenue
mix as a result of the various acquisitions, the sale of the Connecticut
resale operation and the startup of the debit operation. The following
chart summarizes the impact of these changes on the gross margin for the
nine month periods ended September 30, 1996 and 1995:
1996 1995
Revenues Gross margin Revenues Gross margin
Portable rental 61% 45% 60% 48%
In-car rental 19% 19% - -
Debit 5% 22% - -
Activation 9% 17% 19% 22%
Agency 6% 68% 5% 66%
CT resale - - 16% 22%
Total 100% 38% 100% 40%
Operating Expenses:
Operating expenses increased $5,599,000 in the nine month period ended
September 30, 1996 and increased $1,831,000 in the three month period ended
September 30, 1996 over the corresponding periods ended September 30,1995.
The majority of the increases were attributable to the acquisitions
previously discussed. As a percentage of revenues, field operating
expenses were 41% for the nine month period ended September 30, 1995 as
compared to 49% during the comparable period ended September 30, 1996. Part
of this increase was due to the conversion of the resale operations sales force
into an agency operation. The sales force had approximately the same field
expenses but generated $903,000 less revenues. However, due to better margins
in the agency operations, the sales force generated about the same operating
profits. The balance of the increase in the field operating expenses as a
percentage of revenues was due to a drop in activation revenues, which
historically incurs low field operating expenses and a low gross margin.
Corporate operating expenses for both the nine month and the three month
periods ended September 30, 1996 increased significantly from the same
periods in 1995. The increase was primarily due to the various acquisitions
previously discussed, as well as the Company's significant investment in
its infrastructure for current revenue streams as well as those anticipated
from the international airline program starting in the fourth quarter of
this year.
Interest Expense:
Interest expense increased by $240,000 for the nine month period ended
September 30, 1996 over the nine month period ended September 30,
1995 and increased by $125,000 for the three month period
ended September 30, 1996 over the same period in 1995. This increase was
attributable to the $3,899,000 in debt assumed in conjunction with the
previously mentioned acquisitions.
Liquidity and Capital Resources:
The Company had a working capital deficit of $6,161,000 at September 30,
1996 compared to a deficit of $1,851,000 at December 31, 1995.
Stockholders' equity at September 30, 1996 was $6,932,000, compared to
$5,102,000 at December 31,1995. The September 30, 1996 working capital
deficit includes the $1,800,000 principal balance under a $2 million
promissory note delivered in connection with the November 1995 PTCC
acquisition. The Company defaulted on its November 1, 1996 semi-annual
payment of $225,000, plus interest of $45,689, required under the note.
The noteholder, PTCC, has made a demand for payment of the note. The
Company is in discussions with PTCC to attempt to resolve this matter.
Net cash used in operations for the nine month period ended September 30,
1996 was $3,604,000. This was mainly due to operating results for the
period, net of noncash items. In addition, the Company had a significant
increase in its accounts receivable balance at September 30, 1996 as a
result of the high revenues generated from the rental operations at the
Olympics in August 1996.
The Company continued to focus its investing activities on the purchase of
equipment and on growth through acquisitions. During the nine month
period ended September 30, 1996, $2,062,000 was invested in the purchase of
portable and in-car cellular telephone equipment and $290,000 was spent to
complete the Marlar acquisition.
Financing activities were focused primarily on raising capital to meet the
obligations incurred with the previously mentioned acquisitions and for
working capital. During the nine month period ended September 30, 1996 the
Company raised cash of $3,633,000, net of closing expenses, and had
$1,200,000 of preexisting debt converted from an affiliate, through the
private placement of 500,000 shares of Series B Convertible Preferred
Stock.
Cash requirements for the foreseeable future will include funds needed to
sustain operations and for existing obligations arising from completed
acquisitions. Management believes that an infusion of cash from
debt or equity financing is required. Management does not believe
that, at this time, existing operations can generate sufficient cash
to sustain operations as well as meet its existing obligations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
On September 5, 1996, the Company filed a report on Form 8-K, Item 5
regarding its $5 million private placement of equity.
The Company included exhibits, 4.1, 4.2 and 4.3 in accordance with Form
8-K, Item 5.
The exhibits included the Certificate of Designations, Preferences
and Rights of Series B Convertible Stock of Shared Technologies Cellular, Inc.
dated August 19, 1996.
Series B Convertible Preferred Stock Purchase Agreement
between International Capital Partners, Inc. and the Company dated August 19,
1996 (agreement between STFI and the Company is substantially the same)
including form of Common Stock Warrant.
Equity Holders Agreement by and among International Capital Partners,
Inc., Zesiger Capital Group, LLC and Shared Technologies Fairchild Inc.
dated August 19, 1996.
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 hereunto duly authorized.
SHARED TECHNOLOGIES CELLULAR, INC.
By: /s/ Vincent DiVincenzo
Vincent DiVincenzo
Chief Financial Officer
Date: November 14, 1996
[TYPE] EX-27
[DESCRIPTION] ART. 5 FDS FOR QUARTER END 10-Q
[ARTICLE] 5
[MULTIPLIER] 1000
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] SEPT-30-1996
[CASH] 54
[SECURITIES] 0
[RECEIVABLES] 3019
[ALLOWANCES] 595
[INVENTORY] 91
[CURRENT-ASSETS] 3026
[PP&E] 5323
[DEPRECIATION] 1716
[TOTAL-ASSETS] 16461
[CURRENT-LIABILITIES] 9187
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 5
[COMMON] 46
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 16461
[SALES] 12939
[TOTAL-REVENUES] 12930
[CGS] 10135
[TOTAL-COSTS] 10135
[OTHER-EXPENSES] 9830
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 262
[INCOME-PRETAX] (3984)
[INCOME-TAX] 0
[INCOME-CONTINUING] (3984)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (3984)
[EPS-PRIMARY] (1.02)
[EPS-DILUTED] (1.02)
