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 June 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 August 14, 1996, there were 4,598,402 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 June 30,
1996 and December 31, 1995 3-4
Consolidated Statements of Operations
for the six months ending June 30,1996
and 1995 5
Consolidated Statements of Operations
for the three months ending June 30,
1996 and 1995 6
Consolidated Statements of
Cash Flows for the six
months ended June 30, 1996 and 1995 7
Consolidated Statements of
Stockholders' Equity for
the six months ended June 30, 1996 8
Notes to Consolidated Financial Statements 9-10
Item 2
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 11-12
PART II OTHER INFORMATION 13
Signature Page 14
Item 1. Financial Statements
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(unaudited)
June 30, 1996 December 31, 1995
ASSETS
Current Assets:
Cash 120,286 $2,541,827
Accounts receivable, less allowance
for doubtful accounts of $679,000
and $685,000 at June 30, 1996
and December 31, 1995, respectively 1,633,925 1,172,671
Carrier commissions receivable,
less unearned income 58,715 452,610
Inventories 92,973 49,076
Note receivable 83,417 59,136
Prepaid expenses and other
current assets 502,210 471,356
Receivable due from sale of assets - 1,077,856
Total current assets 2,491,526 5,824,532
Telecommunications and office
equipment, less accumulated
depreciation 3,407,922 2,157,685
Other assets:
Intangible assets, less accumulated
amortization 9,455,015 6,129,101
Deposits 224,579 142,080
Note receivable, less current portion 100,126 124,407
Total other assets 9,779,720 6,395,588
TOTAL ASSETS $15,679,168 $14,377,805
The accompanying notes are an integral part of these financial statements.
<PAGE>
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1996 December 31, 1995
Current liabilities:
Notes payable $1,802,885 $400,000
Accounts payable and other current liabilities 8,096,879 5,838,718
Commissions payable 58,714 452,611
Due to parent 1,011,813 984,592
Total current liabilities 10,970,291 7,675,921
Notes payable, less current portion 1,677,607 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
Common stock $.01 par value, authorized
10,000,000 shares, issued and
outstanding 4,598,402 shares at June 30,1996
and 3,089,189 shares at December 31, 1995 45,985 30,892
Common stock subscription 5,000 5,000
Capital in excess of par value 10,114,391 9,172,583
Accumulated deficit (7,129,106) (4,104,591)
Note receivable arising from stock
purchase agreement (5,000) (5,000)
Total stockholders' equity 3,031,270 5,101,884
Total liabilities and stockholders' equity $15,679,168 $14,377,805
The accompanying notes are an integral part of these financial statements.
<PAGE>
Shared Technologies Cellular, Inc.
Consolidated Statements of Operations
For The Six Months Ended
June 30,1996 and 1995
(unaudited)
June 30, 1996 June
30,1995
Revenues:Rental operations $7,131,548 $3,252,959
Activation/Debit/Agency operations
2,242,384 2,037,110
Total Revenues 9,373,932 5,290,069
Cost of revenues:
Rental Operations 4,574,408 1,665,606
Activation/Debit/Agency operations 1,418,074 1,413,091
Total cost of revenues 5,992,482 3,078,697
Gross margin 3,381,450 2,211,372
Field - operating expenses:
Rental operations 3,301,851 1,787,951
Activation/Debit/Agency operations 738,034 424,613
Total field operating expenses 4,039,885 2,212,564
Corporate - operating expenses: 2,236,242 279,214
6,276,127
2,491,778
Operating loss (2,894,677) (280,406)
Interest expense (129,838) (30,808)
Net loss ($3,024,515) ($311,214)
Net loss per common share ($0.85) ($0.13)
Weighted average number of common
shares outstanding 3,561,455 2,441,920
The accompanying notes are an integral part of these financial statements.
<PAGE>
Shared Technologies Cellular, Inc.
Consolidated Statements of Operations
For The Three Months Ended
June 30,1996 and 1995
(unaudited)
June 30, 1996 June
30,1995
Revenues:
Rental operations $3,931,865 $1,792,882
Activation/Debit/Agency operations 1,136,115 1,470,535
Total revenues 5,067,980 3,263,417
Cost of revenues:
Rental operations 2,501,160 958,657
Activation/Debit/Agency operations 714,943 1,052,554
Total cost of revenues 3,216,103 2,011,211
Gross margin 1,851,877 1,252,206
Field - operating expenses:
Rental operations 1,685,258 1,020,954
Activation/Debit/Agency operations 329,369 319,756
Total field operating expenses 2,014,627 1,340,710
Corporate - operating expenses 1,144,971 134,213
3,159,598 1,474,923
Operating loss (1,307,721) (222,717)
Interest expense (69,067) (13,829)
Net loss ($1,376,788) ($236,546)
Net loss per common share ($0.35) ($.08)
Weighted average number of shares
outstanding 3,970,959 2,813,271
The accompanying notes are an integral part of these financial statements.
<PAGE>
Shared Technologies Cellular, Inc.
Consolidated Statements of Cash Flows
For The Six Months Ended
June 30, 1966 and 1995
(unaudited)
June 30, 1996 June 30,1995
Cash flows from operating activities:
Net loss ($3,024,515) ($311,214)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 742,906 218,677
Provision for doubtful accounts 430,084 40,924
Change in assets and liabilities, net of effect of acquisitions:
Accounts receivable (856,010) (819,062)
Inventories (43,897) (14,930)
Other current assets (30,854) (75,457)
Accounts payable and other current liabilities 1,537,436 758,298
Net cash used in operating activities (1,244,850) (202,764)
Cash flows from investing activities:
Payments for intangible assets (227,407) (183,230)
Purchase of equipment (1,557,260) (220,881)
Acquisition of businesses (417,316) (347,538)
Payments for deposits (82,499) -
Net cash used in investing activities (2,284,482) (751,649)
Cash flows from financing activities:
Payments on capital lease obligations (2,286) (4,673)
Collection on note receivable from sale
of assets 1,077,856 -
Deferred registration costs - (693,316)
Issuance of common stock 5,000 4,255,446
Repurchase of common stock - (125,000)
Advances from (payments to ) parent 27,221 (916,993)
Net cash provided by financing activities 1,107,791 2,515,464
Net increase (decrease) in cash (2,421,541) 1,561,051
Cash, beginning of period 2,541,827 10,233
Cash, end of period $120,286 $1,571,284
Supplemental disclosure of cash flow
information:
Cash paid during the period for -
Interest ($49,394) $30,808
Supplemental schedules of noncash
investing and financing activities:
Contribution to capital in excess of
par value of amount due to parent - $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 Six Months Ended June 30, 1996
(unaudited)
Series A
Common
Preferred Stock Common Stock Stock
Shares Amount Shares Amount Subscriptions
Balances, December 31, 1995 300,000 $3,000 3,089,189 $30,892 $5,000
Issuance of common stock - 62,763 628 -
Issuance of common stock
for acquisitions - 300,000 3,000 -
Conversion of Series A preferred stock
to common stock (300,000) (3,000) 1,146,450 11,465 -
Net loss - - -
- - -
Balances, June 30,1996 0 $0 4,598,402 $45,985 $5,000
Capital in Total
Excess of Accumulated Note Stockholders'
Capital Deficit Receivable Equity
Balances, December 31, 1995 $9,172,583 ($4,104,591) ($5,000) $5,101,884
Issuance of common stock 4,372 - - 5,000
Issuance of common stock for acquisitions 947,000 - - 950,000
Conversion of Series A preferred stock
to common stock (9,564) - - (1,099)
Net loss - (3,024,515) -
(3,024,515)
Balances, June 30,1996 10,114,391 ($7,129,106) ($5,000) $3,031,270
The accompanying notes are an integral part of these financial statements.
<PAGE>
Shared Technologies Cellular, Inc.
Notes to Consolidated Financial Statements
June 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, in the
opinion of management, individually or in the aggregate, if resolved against the
Company, would have a materially adverse effect on the Company's financial
condition, statement of operation or cash flows.
3. Acquisition: 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 PTC Cellular, Inc ("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. Also,
STC committed to use its best reasonable efforts to obtain financing in the
amount of $7,000,000 within six months of the acquisition 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, at closing, 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.
Unaudited pro forma consolidated statements of operations for the six month
periods ended June 30, 1996 and 1995, as though the acquisitions had been made
at the beginning of the corresponding periods, are as follows:
1996 1995
Revenues $10,243,482 $12,528,459
Cost of revenues 6,607,651 8,733,695
Gross margin 3,635,831 3,794,764
Operating expenses 6,987,645 4,622,852
Operating loss (3,351,814) (828,087)
Interest expense, net (145,906) (643,557
Net loss $(3,497,720) $(1,471,644)
Net loss per common
share $(0.93) $(.051)
Weighted average
number of common
shares outstanding 3,754,312 2,880,657
<PAGE>
Item 2.
Management's Discussion and Analysis of Results of Operations and
Financial Condition
Revenues
The Company's revenues of $9,374,000 for the six month period ended June
30, 1996 represented an increase of $4,084,000 (77%) over the six month period
ended June 30, 1995 and its revenues of $5,068,000 for the three month period
ended June 30, 1996 represented and increase of $1,805,000 (55%) over the three
month period ended June 30, 1995. The increase in the six month period ended
June 30, 1996 was comprised of an increase of $3,879,000 in the Company's rental
operations and a $205,000 increase in the Company's Activation/Debit/Agency
operations. The $3,879,000 increase in the rental operations is due to
acquisitions and the continued expansion of the portable cellular telephone
business through the car rental outlets. $2,510,000 of the increase is due to
the in-car cellular telephone revenues generated from the acquisition of certain
assets of PTC Cellular, Inc ("PTCC") in November 1995. $552,000 of the increase
is due to the portable cellular telephone revenues generated from the
acquisition of certain assets of various companies owned by Craig A. Marlar
("Marlar") on April 27, 1996. The balance of the increase in the rental
operations is due to the continued expansion of the portable cellular telephone
business referred to earlier. The $205,000 increase in the Company's
Activation/Debit/Agency operations is due to several factors. The acquisition of
Cellular Hotline, Inc. in May 1995 resulted in an increase of $314,000 in
activation revenues. The Debit business, which was started early 1996, resulted
in revenues of $461,000. These increases were offset by decreases of $570,000 in
revenues as a result of the sale of the resale operations in Connecticut in
December 1995 and the conversion of its sales force to an agency operation. The
revenue increase of $1,805,000 in the three month period ended June 30, 1996 as
compared to the three month period ended June 30, 1995 was comprised of an
increase of $2,139,000 in the rental operations which was slightly offset by a
decrease of $334,000 in the Activation/Debit/Agency operation. The $1,805,000
increase in the rental operations was comprised of $1,125,000 due to the PTCC
acquisition, $552,000 due to the Marlar acquisition and the balance of $128,000
is due to continued expansion of the portable cellular telephone business
previously discussed. The $334,000 decrease in the Activation/Debit/Agency
operations is due to the sale of the resale operations previously discussed.
Gross Margin
Gross margin increased $1,170,000 for the six month period ended June 30,
1996 and $600,000 for the three month period ended June 30, 1996 compared with
the corresponding six and three month periods ended June 30, 1995. Gross margin
as a percentage of revenues decreased from 42% for the six month period ended
June 30, 1995 to 36% for the six months period ended June 30, 1996 and decreased
from 38% in the three month period ended June 30, 1995 to 37% in the three month
period ended June 30, 1996. The decrease in the gross margin as a percentage of
revenues is due to the material change in the revenues mix as a result of the
various acquisitions, the sale of the resale operation and the Company's entry
into the debit business. The following chart summarizes the impact of all these
changes on the gross margin for the six month period ended June 30, 1996 and
1995:
1996 1995
Revenues Gross Margin Revenues Gross Margin
Portable rental 52% 42% 61% 49%
In-car rental 24% 25% - -
Debit 5% 29% - -
Activation 12% 20% 15% 26%
Agency 7% 69% 6% 65%
Resale - - 18% 22%
Total 100% 36% 100% 42%
Operating Expenses
Operating expenses increased $3,784,000 in the six month period ended June
30, 1996 and increased $1,684,000 in the three month period ended June 30, 1996
over the corresponding period ended June 30, 1995. The majority of the increase
is attributable to the previously discussed acquisitions. As a percentage of
revenues, the field operating expenses were consistent for the six month period
ended June 30, 1996 (43%) versus June 30, 1995 (42%). In addition, for the three
month period ended June 30, 1996, the field operating expenses, as a percentage
of revenues, decreased to 40%. This decrease is a result of the various cost
cutting measures started in the first quarter of 1996. Corporate operating
expenses for both the three month and the six month periods ended June 30, 1996
increased dramatically from the same periods in 1995. The increase is primarily
due to the various acquisitions, as well as the fact that the Company has made
significant investments in infrastructure, both human resources and systems, to
better manage, control and consolidate the various operations. In addition, the
Company has incurred higher than expected operating expenses in consolidating
the in-car administrative functions into its existing operations. The Company
has also continued to make investments in the development of the debit phone
business and in the programs needed to provide cellular phone rentals to inbound
international airline passengers starting in the third quarter of this year.
Liquidity and Capital Resources
The Company had a working capital deficit of $8,479,000 as of June 30, 1996
compared to a deficit of $1,851,000 as of December 31, 1995. Stockholders'
equity at June 30, 1996 was $3,031,000 compared to $5,102,000 at December 31,
1995.
Net cash used in operations for the six month period ended June 30, 1996
was $1,245,000. This was mainly due to the operating results for the period, net
of noncash items, offset by a $1,537,000 increase in accounts payable and other
current liabilities.
The Company continued to focus its investing activities on the purchase of
equipment and on growth through acquisitions. The Company invested approximately
$417,000 to complete the Marlar acquisition previously discussed. In addition,
the Company invested approximately $1,558,000 in new cellular telephones for the
in-car operations and the anticipated increase in portable cellular telephone
rentals at the Olympics in July and August of this year and the subsequent start
up of the portable cellular telephone rentals to in-bound international airline
passengers.
During the six month period ended June 30, 1996, the Company raised
$1,108,000 from financing activities. The majority of this amount was due to the
collection of a note receivable from the sale of the resale operation in
December 1995. The $2,515,000 raised during the six month period ended June 30,
1995 was principally due to the Company's completion of its initial public
offering in April 1995 and the subsequent repayment of a portion of advances
made by the Company's parent company, Shared Technologies Fairchild Inc.
("STFI").
Cash requirements for the second half of 1996 will include funds needed to
sustain operations and for existing obligations arising from completed
acquisitions.
The Company has recently negotiated an agreement with STFI in which STFI
has contributed $1,300,000 in cash to the Company. This cash infusion, together
with $1,200,000 of existing debt, is to be converted into $2,500,000 of the
Company's newly issued preferred shares. In conjunction with this agreement, the
Company has also signed a term sheet with International Capital Partners, Inc.
("ICP") for ICP to invest an additional $2,500,000 through the purchase of
shares of the Company's newly issued preferred stock.
Management believes that an additional infusion of cash from debt or equity
financing will be required. Management does not believe that existing operations
can generate sufficient cash to sustain operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
On August 2, 1996, the Company filed a report on Form 8-KA, Item 2 and Item
7 regarding its acquisition of Marlar.
The Company included exhibit 10.1, in accordance with Form 8-K, Item 7. The
exhibit was the Asset Purchase Agreement dated April 27, 1996.
<PAGE>
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: August 14, 1995
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