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, 1997
[ ] 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
Incorporation or organization) 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 12, 1997, there were 5,120,407 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,
1997 and December 31, 1996 3-4
Consolidated Statements of
Operations for the Three
Months Ended March 31,
1997 and 1996 5
Consolidated Statements of
Cash Flows for the Three
Months Ended March 31,
1997 and 1996 6
Consolidated Statements of
Stockholders' Equity for
the Three Months Ended
March 31, 1997 7
Notes to Consolidated
Financial Statements 8-9
Item 2
Management's Discussion and
Analysis of Results of Operations
and Financial Condition 10-12
PART II OTHER INFORMATION 13
Signature Page 14
Item 1 Financial Statements
Shared Technologies Cellular, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 1997 December 31, 1996
(unaudited)
ASSETS
Current Assets:
Cash $70,848 $143,621
Accounts receivable, less allowance
for doubtful accounts of $1,668,993
and $1,392,176 in 1997 and 1996 2,688,144 1,621,317
Carrier commissions receivable,
less unearned income 65,416 52,967
Inventories 90,769 79,529
Current portion of note receivable 54,333 39,474
Prepaid expenses and other current
assets 143,211 132,813
Total current assets 3,112,721 2,069,721
Telecommunications and office
equipment, less accumulated
depreciation 1,993,286 2,130,713
Other assets:
Intangible assets, less accumulated
amortization 9,162,349 9,322,373
Deposits 402,272 373,074
Note receivable, net of current portion 106,290 118,994
Assets held for disposition 247,418 247,418
Total other assets 9,918,329 10 ,061,859
Total Assets $15,024,336 $14,262,293
The accompanying notes are an integral part of these consolidated
financial statements.
Shared Technologies Cellular, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 1997 December 31, 1996
(unaudited)
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $1,797,323 $2,218,406
Accounts payable and other current
liabilities 8,770,702 8,718,814
Commissions payable 17,675 48,441
Due to affiliate 784,746 58,809
Total current liabilities 11,370,446 11,044,470
Notes payable, less current portion 343,525 360,417
Stockholders' equity:
Preferred Stock, $.01 par value
Series B Convertible, authorized
1,250,000 shares, issued and outstanding
500,000 shares. 5,000 5,000
Common Stock, $.01 par value,
authorized 20,000,000 shares, issued and
outstanding 5,120,407 shares in 1997
and 4,862,737 in 1996 51,205 48,628
Capital in excess of par value 16,567,954 15,816,979
Accumulated deficit (13,313,794) (13,013,201)
Total stockholders' equity 3,310,365 2,587,406
Total liabilities and stockholders'
equity $15,024,336 $14,262,293
The accompanying notes are an integral part of these consolidated
financial statements
Shared Technologies Cellular, Inc. and Subsidiary
Consolidated Statements of Operations (unaudited)
For The Three Months Ended March 31,
1997 1996
Revenues:
Rental $3,676,895 $3,199,683
Debit 1,657,634 194,518
Activations 767,639 911,751
Total revenues 6,102,168 4,305,952
Cost of Revenues:
Rental 2,101,716 2,073,248
Debit 824,268 117,288
Activations 536,559 585,843
Total cost of revenues 3,462,543 2,776,379
Gross margin 2,639,625 1,529,573
Selling, general &
administrative expenses:
Field 2,458,949 2,428,892
Corporate 408,835 687,637
2,867,784 3,116,529
Loss from operations (228,159) (1,586,956)
Interest expense, net (72,434) (60,771)
Net loss ($300,593) ($1,647,727)
Net loss per common share ($0.06) ($0.52)
Weighted average number of
common shares outstanding 5,001,711 3,151,952
The accompanying notes are an integral part of these consolidated
financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For The Three Months Ended March 31,
1997 1996
Cash flows from operating activities:
Net loss ($300,593) ($1,647,727)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 335,140 368,776
Provision for doubtful accounts 305,707 189,369
Common stock used for compensation
and services 14,561
Accretion of interest on notes payable 31,500
Note receivable (2,155)
Change in assets and liabilities:
Accounts receivable (1,372,534) 790,939
Carrier commissions receivable (12,449) 151,246
Inventories (11,240) (40,228)
Prepaid expenses and other current assets (10,398) (253,764)
Accounts payable and other current
liabilities 20,388 (768,401)
Commissions payable (30,766) (115,959)
Net cash used in operating activities (1,032,839) (1,325,749)
Cash flows from investing activities:
Other assets (22,513) (557,459)
Capital expenditures (44,374) (347,860)
Net cash used in investing activities (66,887) (905,319)
Cash flows from financing activities:
Payments on notes payable (437,975)
Advances from affiliate 725,937 25,708
Issuance of common stock 738,991 5,000
Net cash provided by financing activities: 1,026,953 30,708
Net decrease in cash (72,773) (2,200,360)
Cash, beginning of period 143,621 2,541,827
Cash, end of period $70,848 $341,467
Supplemental disclosures of cash flow
information:
Cash paid during the periods for interest $151,995 $21,319
The accompanying notes are an integral part of these consolidated
financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (unaudited)
For the Three Months Ended March 31, 1997
Series B Common Capital in
Preferred Stock Stock excess of
Shares Amount Shares Amount Par Value
Balances, December
31, 1996 500,000 5,000 4,862,737 $48,628 $15,816,979
Issuance of common
Stock - - 257,670 2,577 $750,975
Net Loss - - - - -
Balances, March
31, 1997 500,000 5,000 5,120,407 $51,205 $16,567,954
Total
Accumulated Stockholders'
Deficit Equity
Balances, December
31, 1996 ($13,013,201) $2,857,406
Issuance of common
Stock - 753,552
Net Loss (300,593) ($300,593)
Balances, March
31, 1997 ($13,313,794) $3,310,365
Shared Technologies Cellular, Inc. and Subsidiary
Notes to Consolidated Financial Statements
March 31, 1997
(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, 1996 Form
10-K. Certain reclassifications to prior year financial statements were
made in order to conform to the 1997 presentation.
2. Litigation: In connection with the Company's purchase of certain
assets from PTC Cellular, Inc. ("PTCC") in November 1995, the Company
delivered a $2 million note to PTCC. The current principal balance on
such note was approximately $1,700,000 as of May 12, 1997, payable in
semi-annual installments of $225,000, plus interest of 8% through 1999.
The Company did not pay the November 1, 1996 installment due under the
note. Consequently, on January 16, 1997, PTCC filed a claim against the
Company for breach of the note, which claim was filed in the Circuit
Court of the 11th Judicial Circuit, Dade County, Florida. Although the
Company reserves certain defenses to PTCC's claim, it subsequently made a
partial payment of the missed installment payment and is actively in
negotiations with PTCC to resolve this matter. The Company also did not
pay the May 1, 1997 installment due under the note. In the event that
the Company does not reach a satisfactory resolution with PTCC, an
adverse outcome from this claim would be likely to have a materially
adverse effect to the Company's financial condition and cash flows.
The Company is not involved in any other litigation which, individually
or in the aggregate, if resolved against the Company would be likely to
have a materially adverse effect on the Company's financial condition,
results of operations, or cash flows.
3. Acquisitions: In April 1996, the Company completed its
acquisition of substantially all of the assets of its only franchisee,
Summit Assurance Cellular, Inc., and certain other parties (collectively
"Summit"). The purchase price was $3,562,662, comprised of $335,415 in
cash, the assumption of $668,564 of accounts payable and $665,822 of
notes payable, the issuance of a promissory note for $952,861, the
issuance of 300,000 shares of the Company's common stock valued at $3.125
per share, and warrants to purchase an additional 100,000 shares of the
Company's common stock at prices of $3.00, $4.00, and $5.00 per share,
respectively. These warrants, valued at $12,500, vest immediately and
expire in three years.
The acquisition was accounted for as a purchase, and the purchase price
was allocated on the basis of the relative fair market values of the net
assets acquired and net liabilities assumed, as follows:
Cash $20,000
Equipment 169,600
Excess of cost over net
assets acquired 3,373,062
$3,562,662
The following unaudited pro forma condensed combined statement of
operations for the three month period ended March 31, 1996 gives effect
to the acquisition of Summit as if it had occurred on January 1, 1996.
1996
Revenues $4,958,115
Net loss ($2,004,741)
Loss per common share ($.59)
Item 2.
Management's Discussion and Analysis of Results and Financial Condition
Results of Operations:
Revenues
The Company's revenues of $6,102,000 in the quarter ended March 31, 1997
represented an increase of $1,796,000 (42%) over the quarter ended March
31, 1996. This significant increase in revenues was primarily due to the
April 1996 purchase of the operations of the Company's only franchisee
and the expansion of the debit or prepaid business, offset by the
elimination of the in-car cellular phone rental operation. During the
quarter ending March 31, 1997 the Company had revenues of $1,147,000 in
portable cellular telephone rentals as a result of the Summit
acquisition. For the quarter ending March 31, 1997 the debit business
had revenues of $1,658,000, an increase of $1,463,000 over the quarter
ending March 31, 1996. These increases were partially offset by a
$1,384,000 reduction in revenues as a result of the elimination of the
in-car cellular telephone operation as of the fourth quarter 1996. The
in-car rental operation was eliminated due to unacceptable profit
margins, and the existing accounts were transitioned to portable rentals.
The balance of the increase in revenues ($570,000) occurred in the
portable rental operation. This was mainly due to increased penetration
within existing portable cellular rental locations, as well as the
transition of the in-car rental accounts into portable rentals.
Gross Margin
Gross margin increased from 36% for the three month period ended March
31, 1996 to 43% for the three month period ended March 31, 1997. This
was due to significant changes in the revenue mix, as previously
discussed. The following table summarizes the revenue mix and the
changes in the gross margin for the three month periods ended March 31,
1997 and 1996:
1997 1996
Revenues Gross Margin Revenues Gross Margin
Portable rentals 60% 43% 42% 40%
In-car rentals - - 32% 29%
Debit 27% 50% 5% 40%
Activations 8% 10% 13% 16%
Agency 5% 70% 8% 70%
Total 100% 43% 100% 36%
The gross margin for both the portable rental and the debit operations
improved due to a reduction in carrier costs as a result of better line
management and lower carrier usage charges. The activations operation
showed a reduction in the gross margin due to lower activation
commissions received from the carriers.
Operating Expenses
Operating expenses decreased $248,000, from $3,117,000 for the three
month period ended March 31, 1996 to $2,868,000 for the three month
period ended March 31, 1997. As a percentage of revenue, operating
expenses decreased from 72% to 47% during the three month periods ended
March 31, 1996 to 1997. The decrease was due to several factors. In the
latter part of fiscal 1996, the Company made a concerted effort to reduce
its operating expenses. The Company consolidated its Special Events
operation into its portable rental operation. It also transitioned its
in-car cellular telephone operation accounts into its portable rental
operation. The Company also implemented other cost-cutting measures, such
as staffing reductions, office closings and travel restrictions that
resulted in an overall decrease in operating expenses. Another factor
that helped reduce operating expenses as a percentage of revenue was the
acquisition of certain assets of Summit. The Company was able to absorb
Summit's operation with their existing field operating expenses but with
the elimination of its corporate expenses whose functions were absorbed
by existing Company personnel.
Interest Expense:
Interest expense was $72,000 for the three month period ended March 31,
1997, compared to $61,000 for the three month period ended March 31,
1996. Interest expense was mainly due to debt issued in conjunction with
the PTCC acquisition in November 1995 and the Summit acquisition in April
1996.
Liquidity and Capital Resources:
The Company had a working capital deficit of $8,258,000 at March 31,
1997, compared to a deficit of $8,975,000 at December 31, 1996.
Stockholders' equity at March 31, 1997 was $3,310,000, compared to
$2,857,000 at December 31, 1996.
Net cash used in operations for the three month period ended March 31,
1997 was $1,033,000. This was mainly due to the increase in its accounts
receivable balance at the end of the quarter due to a significant
increase in debit billings and the timing of the payments of those
billings. For the three month period ended March 31, 1996 the net cash
used in operating activities was $1,326,000. This was mainly due to
operating results for the period, net of noncash items.
Net cash used in investing activities for the three month period ended
March 31, 1997 was $67,000. This was mainly attributable to the purchase
of equipment accessories. For the three month period ended March 31,
1996, the Company focused its investing activities on the purchase of
portable and in-car cellular telephone equipment and an advance deposit
of $250,000 on the Summit acquisition.
Financing activities were focused primarily on raising capital to meet
the obligations incurred with previously mentioned acquisitions and for
working capital. During the three month period ended March 31, 1997 the
Company raised cash of $739,000, net of expenses, through the sale of
250,000 Units. Each Unit consisted of one share of the Company's common
stock, $.01 par value, and one warrant to purchase an additional share of
such common stock. The Units were priced at $3.00 each, and the warrants
have an exercise price of $3.00 per share. The Company also borrowed
$726,000 from its former parent, Shared Technologies Fairchild Inc.
(STFI).
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.
Item 3.
Not applicable
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In connection with the Company's purchase of certain assets from
PTC Cellular, Inc. ("PTCC") in November 1995, the Company delivered a $2
million note to PTCC. The current principal balance on such note was
approximately $1,700,000 as of May 12, 1997, payable in semi-annual
installments of $225,000, plus interest of 8% through 1999. The Company
did not pay the November 1, 1996 installment due under the note.
Consequently, on January 16, 1997, PTCC filed a claim against the Company
for breach of the note, which claim was filed in the Circuit Court of
the 11th Judicial Circuit, Dade County, Florida. Although the Company
reserves certain defenses to PTCC's claim, it subsequently made a partial
payment of the missed installment payment and is actively in negotiations
with PTCC to resolve this matter. The Company also did not pay the May
1, 1997 installment due under the note. In the event that the Company
does not reach a satisfactory resolution with PTCC, an adverse outcome
from this claim would be likely to have a materially adverse effect to
the Company's financial condition and cash flows.
The Company is not involved in any other litigation which, individually
or in the aggregate, if resolved against the Company would be likely to
have a materially adverse effect on the Company's financial condition,
results of operations, or cash flows.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 27
Financial Data Schedule
(b) Reports on Form 8-K
On January 22, 1997, the Company filed a report on Form 8-K,
Item 5, detailing that the Company entered into an agreement on December
27, 1996 to sell up to 1,500,000 common stock Units for an aggregate
purchase price of $4,500,000.
The Company included exhibits 4.1, 4.2 and 4.3, in accordance with Form
8-K item 5.
The exhibits included the Purchase Agreement, Common Stock Warrant
Certificate and Option Agreement, all dated December 27, 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
Chief Financial Officer
Date: May 14, 1997
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