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 March 31, 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
(State or other jurisdiction of
Incorporation or organization)
06-1386411
(I.R.S. Employer
Identification No.)
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 May 14, 1996, there were 3,451,952 shares outstanding of
the Company's Common Stock, $.01 par value
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance
Sheets as of March 31,
1996 and December 31, 1995
3-4
Consolidated Statements of
Operations for the Three
Months Ended March 31,
1996 and 1995
5
Consolidated Statements of
Cash Flows for the Three
Months Ended March 31,
1996 and 1995
6
Consolidated Statements of
Stockholders' Equity for
the Three Months Ended
March 31, 1996
7
Notes to Consolidated
Financial Statements
8-9
Item 2
Management's Discussion and
Analysis of Results of Operations
and Financial Condition
10-11
PART II OTHER INFORMATION
Signature Page
12
Item 1 Financial Statements
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(unaudited)
March 31, 1996 December 31, 1995
ASSETS
Current Assets:
Cash $341,467 $2,541,827
Accounts receivable, less allowance
for doubtful accounts of $975,000
and $685,000 at March 31, 1996 and
December 31, 1995, respectively 1,270,219 1,172,671
Carrier commissions receivable,
less unearned income 301,364 452,610
Inventories 89,304 49,076
Note receivable 71,126 59,136
Prepaid expenses and other current
assets 725,120 471,356
Receivable due from sale of assets - 1,077,856
Total current assets 2,798,600 5,824,532
Telecommunications and office
equipment, less accumulated
depreciation 2,290,455 2,157,685
Other assets:
Intangible assets, less accumulated
amortization 6,466,824 6,129,101
Deposits 208,130 142,080
Note receivable, net of current portion 112,417 124,407
Total other assets 6,787,371 6,395,588
Total Assets $11,876,426 $14,377,805
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Cellular, Inc.
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(unaudited)
March 31, 1996 December 31, 1995
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $400,000 $400,000
Accounts payable and other current
liabilities 5,070,317 5,838,718
Commissions payable 336,652 452,611
Due to parent 1,010,300 984,592
Total current liabilities 6,817,269 7,675,921
Note payable, less current portion 1,600,000 1,600,000
Stockholders' equity:
Preferred Stock, $.01 par value
5,000,000 shares authorized,
none outstanding
Preferred Stock, $.01 par value,
Series A Convertible, authorized,
issued and outstanding 300,000 shares 3,000 3,000
Common Stock, $.01 par value, authorized
10,000,000 shares issued and outstanding
3,151,952 shares outstanding at March 31,
1996 and 3,089,189 shares at December
31, 1995 31,520 30,892
Common stock subscription 5,000 5,000
Additional paid-in capital 9,176,955 9,172,583
Accumulated deficit (5,752,318) (4,104,591)
Note receivable arising from
stock purchase agreement (5,000) (5,000)
Total stockholders' equity 3,459,157 5,101,884
Total liabilities and stockholders'
equity $11,876,426 $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 March 31, 1996 and 1995
(unaudited)
March 31, 1996 March 31, 1995
Revenues:
Rental operations $3,199,683 $1,460,077
Activation/debit/agency operations 1,106,269 566,575
Total revenues 4,305,952 2,026,652
Cost of Revenues:
Rental operations 2,073,248 706,949
Activation/debit/agency operations 703,131 360,537
Total cost of revenues 2,776,379 1,067,486
Gross margin 1,529,573 959,166
Field - selling, general &
administrative expenses:
Rental operations 1,616,593 766,997
Activation/debit/agency operations 408,665 104,857
Total Field s,g&a expenses 2,025,258 871,854
Corporate - selling, general &
administrative expenses: 1,091,271 145,001
Operating loss (1,586,956) (57,689)
Interest expense (60,771) (16,979)
Net loss ($1,647,727) ($74,668)
Net loss per common share ($.52) ($.04)
Weighted average number of
common shares
outstanding 3,151,952 2,070,570
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Cellular, Inc
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31, 1996 and 1995
(unaudited)
March 31, 1996 March 31, 1995
Cash flows from operating activities:
Net loss ($1,647,727) ($74,668)
Adjustments:
Depreciation and amortization 368,776 173,773
Change in assets and liabilities:
(Increase) decrease in accounts receivable 980,308 (178,395)
Decrease in carrier commissions
receivable 151,246
(Increase) in inventory and supplies (40,228) (14,799)
(Increase) in other current assets (253,764) (57,008)
Increase (decrease) in accounts payable (768,401) 92,138
(Decrease) in commissions payable (115,959)
Net cash used in operating activities (1,325,749) (58,959)
Cash flows from investing activities:
(Increase) in other assets (557,459) (111,312)
Capital expenditures (347,860) (64,539)
Net cash used in investing activities (905,319) (175,851)
Cash flows from financing activities:
Payments on capital lease
obligations (2,327)
Deferred registration costs (145,682)
Advances from affiliates (28,958)
Advances from parent 25,708 409,264
Issuance of common stock 5,000
Net cash provided by financing activities: 30,708 232,297
Net decrease in cash (2,200,360) (2,513)
Cash, beginning of period 2,541,827 10,233
Cash, end of period $341,467 $7,720
Supplemental disclosures of cash flow
information:
Cash paid during the periods for interest $21,319 $16,979
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Cellular, Inc
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1996
(unaudited)
Series A Common
Preferred Stock Stock
Shares Amount Shares/Amount
Balance December 31, 1995 300,000 $3,000 3,089,189 $30,892
Issuance of common stock 62,763 $628
Net loss - -
Balance March 31, 1996 300,000 $3,000 3,151,952 $31,520
Common Stock Additional
Subscriptions Paid In
Capital
Balance December 31, 1995 $5,000 $9,172,583
Issuance of common stock $4,372
Net loss - -
Balance March 31, 1996 $5,000 $9,176,955
Accum. Note
Defecit Receivable
Balance December 31, 1995 ($4,104,591) ($5,000)
Issuance of common stock
Net loss (1,647,727) -
Balance March 31, 1996 ($5,752,318) ($5,000)
Total
Stockholders'
Equity
Balance December 31, 1995 $5,101,884
Issuance of common stock $5,000
Net loss ($5,647,727)
Balance March 31, 1996 $3,459,157
The accompanying notes are an integral part of these financial
statements.
Shared Technologies Cellular, Inc.
Notes to Consolidated Financial Statements
March 31, 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, statement of operations or cash
flows.
3. Acquisitions: In May 1995, the Company commenced
management of, and subsequently acquired 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. 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, STC 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. Also, STC
committed to PTCC to obtain financing in the amount of
$7,000,000 within six months of the acquisition date.
Unaudited pro forma consolidated statement of operations for the
three
months ended March 31, 1995 as though the acquisitions had been
made at the
beginning of the period is as follows:
1995
Revenues $5,321,112
Cost of revenues 3,905,710
Gross Margin 1,415,402
Operating Expenses 1,885,232
Net Loss ($469,830)
Loss per Common Share ($.21)
Weighted Average Number of
Common Shares Outstanding 2,220,570
4. Subsequent Events: 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 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 $1,058,276 in cash payable
over eight months, $1,697,724 in assumed liabilities, and the
balance through 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 exercizable as follows: 100,000
shares at $3.00 per share; 100,000 shares at $4.00 per share and
100,000 at $5.00 per share.
Pro forma financial information is not yet available for this
transaction
Item 2.
Management's Discussion and Analysis of Results of Operations
and
Financial Condition
Results of Operations:
Revenues
The Company's revenues of $4,306,000 in the quarter ended March
31, 1996 represented an increase of $2,279,000 (112%) over the
quarter ended March 31, 1995. This significant increase in revenue
was primarily due to two acquisitions made in fiscal 1995 and the
continued expansion of the portable cellular rental operations. The
Company had revenues of $1,384,000 in in-car cellular telephone
rentals during the quarter as a result of its purchase of the in-car
telephone rental business of PTC Cellular, Inc. ("PTCC") in
November 1995. The Company also had $577,000 in activation
revenues during the quarter as a result of its purchase of Cellular
Hotline, Inc., ("Hotline") in May 1995. The remainder of the
revenue increase during the quarter, $318,000, was from an
increase in the number of portable rental distribution outlets and
the introduction of debit, or prepaid, cellular calling cards.
Gross Margin
Gross margin decreased from 47% in the three months ended
March 31, 1995 to 36% in the three months ended March 31, 1996.
This was due to a change in the revenue mix as a result of the
acquisitions previously mentioned. The in-car operations and the
activation business have historically shown lower gross margins,
approximately 27% and 25% respectively, than the portable rental
operations (approximately 50%).
Operating Expenses
Operating expenses increased $2,100,000 in the period, from
$1,017,000 in the quarter ended March 31, 1995 to $3,117,000 in
the quarter ended March 31, 1996. As a percentage of revenue, the
Company experienced a significant increase to 72% for the quarter
ended March 31, 1996, compared to 50% for the period ended
March 31, 1995. The increase was partially due to the acquisitions
previously discussed. The acquisition of the in-car business
resulted in an increase of approximately $700,000 in operating
expenses during the quarter. The Company expects to finalize
consolidation of the in-car administrative functions into its existing
operations in the second quarter of 1996 and as a result will
experience a reduction in these costs. The acquisition of Hotline
in 1995 resulted in approximately $206,000 of additional
operating expenses during the quarter. In addition to Hotline's
successful activation business, Hotline is providing the Company's
entrance into the fast growing, but relatively new, debit phone
business.
The balance of the increase in operating expenses was due to the
increased investment in the Company's infrastructure that was
started in 1995. These significant investments should allow
management to quickly access and manage data to make critical
decisions as the Company continues its rapid expansion. The
Company has recently completed an in depth review of its
operating expenses to determine whether there are areas in which
cost savings can occur. As a result, cost savings of approximately
$250,000 per month were initiated.
Liquidity and Capital Resources:
The Company had a working capital deficit of $4,019,000 as of
March 31, 1996, compared to a deficit of $1,851,000 as of
December 31, 1995. Stockholders' equity at March 31, 1996 was
$3,459,000, compared to $5,102,000 at December 31, 1995.
Net cash used in operations increased approximately $1,267,000
for the three months ended March 31, 1996 over the same period
ended March 31, 1995. This was due primarily to the change in
operating results between the two periods.
The Company's capital investing activities increased approximately
$729,000 for
the three months ended March 31, 1996 over the same period
ended March 31, 1995. This was due to the purchase of additional
phones for the portable as well as the in-car operations and an
advance deposit of $250,000 on the Marlar acquisition previously
mentioned.
The Company's financing activities decreased approximately
$202,000 for the three months ended March 31, 1996 over the
same period ended March 31, 1995 primarily due to borrowings
from its parent, Shared Technologies Fairchild Inc.
Cash requirements for 1996 will include funds needed to sustain
the cash used in operations as a result of the growth in the
Company's operations, as well as from anticipated acquisitions.
Consequently, management believes that an infusion of cash via
either debt or equity will be necessary to expand operations and
complete anticipated acquisitions in the coming year. The
Company is currently in negotiations with various financial
institutions to raise the required funding. Management believes
that if
the Company is unable to obtain additional financing, it would
have to reduce
its existing operating expenses to a level necessary to generate cash
for operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
On January 11, 1996 the Company filed a report on
Form 8-K, item 5, regarding its $3 million private placement of
equity with International Capital Partners, Inc.
The Company included exhibits 4.1 and 4.2, in accordance with
Form 8-K item 7. The exhibits included the Certificates of
Designations, Preferences Stock, and Common Stock Warrant.
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
Chief Financial Officer
Date: May 15, 1996
