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, 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 (IRS 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, 1997, there were 5,960,511 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,
1997 and December 31, 1996 3-4
Consolidated Statements of Operations
for the six months ending June 30,1997
and 1996 5
Consolidated Statements of Operations
for the three months ending June 30,
1997 and 1996 6
Consolidated Statements of
Cash Flows for the six
months ended June 30, 1997 and 1996 7-8
Consolidated Statements of
Stockholders' Equity for
the six months ended June 30, 1997 9
Notes to Consolidated Financial Statements 10-11
Item 2
Management's Discussion and Analysis of
Results of Operations and Financial
Condition 12-15
PART II OTHER INFORMATION 16
Signature Page 17
Item 1. Financial Statements
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1997 December 31, 1996
(unaudited)
ASSETS
Current Assets:
Cash $415,268 $143,621
Accounts receivable, less allowance
for doubtful accounts of $887,269
and $1,392,176 in 1997 and 1996 2,046,281 1,621,317
Carrier commissions receivable,
less unearned income 258,784 52,967
Inventories 74,533 79,529
Current portion of note receivable 89,726 39,474
Prepaid expenses and other
current assets 165,297 132,813
Total current assets 3,049,889 2,069,721
Telecommunications and office
equipment, less accumulated
depreciation 1,904,514 2,130,713
Other assets:
Intangible assets, less accumulated
amortization 9,001,714 9,322,373
Deposits 505,695 373,074
Note receivable, less current portion 73,930 118,994
Assets held for disposition 247,418 247,418
Total other assets 9,828,757 10,061,859
TOTAL ASSETS $14,783,160 $14,262,293
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1997 December 31, 1996
(unaudited)
Current liabilities:
Current portion of notes payable $953,704 $2,218,406
Accounts payable and other current
liabilities 8,152,927 8,718,814
Commissions payable 255,091 48,441
Due to affiliate 1,011,962 58,809
Total current liabilities 10,373,684 11,044,470
Notes payable, less current portion 1,154,236 360,417
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 5,127,177
shares in 1997 and 4,862,737 shares
in 1996 51,272 48,628
Capital in excess of par value 16,582,377 15,816,979
Accumulated deficit (13,383,409) (13,013,201)
Total stockholders' equity 3,255,240 2,857,406
Total liabilities and
stockholders' equity $14,783,160 $14,262,293
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
For the Six Months Ended June 30,
1997 1996
Revenues:
Rental 7,705,300 $7,131,547
Debit 3,678,794 461,260
Activations 1,482,824 1,781,125
Total Revenues 12,866,918 9,373,932
Cost of revenues:
Rental 4,343,219 4,574,408
Debit 1,874,295 327,940
Activations 1,040,914 1,090,134
Total cost of revenues 7,258,428 5,992,482
Gross margin 5,608,490 3,381,450
Selling, general and administrative
expenses:
Field 4,987,246 4,888,871
Corporate 850,236 1,387,256
5,837,482 6,276,127
Loss from operating (228,992) (2,894,677)
Interest expense (net) (141,216) (129,838)
Net loss ($370,208) ($3,024,515)
Net loss per common share ($0.07) ($0.85)
Weighted average number of common
shares outstanding 5,061,424 3,561,455
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
For the Three Months Ended June 30,
1997 1996
Revenues:
Rental $4,028,405 $3,931,865
Debit 2,021,160 266,741
Activations 715,185 869,374
Total revenues 6,764,750 5,067,980
Cost of revenues:
Rental 2,241,503 2,501,160
Debit 1,050,027 210,652
Activations 504,355 504,291
Total cost of revenues 3,795,885 3,216,103
Gross margin 2,968,865 1,851,877
Selling, general and administrative
expenses:
Field 2,528,297 2,459,937
Corporate 441,401 699,661
2,969,698 3,159,598
Loss from operations (833) (1,307,721)
Interest expense (net) (68,782) (69,067)
Net loss ($69,615) ($1,376,788)
Net loss per common share ($0.01) ($0.35)
Weighted average number of common
shares outstanding 5,120,481 3,970,959
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
For The Six Months Ended June 30,
1997 1996
Cash flows from operating activities:
Net loss ($370,208) ($3,024,515)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 641,833 742,906
Provision for doubtful accounts 631,965 430,084
Common stock issued for compensation
and services 29,051
Accretion of interest on notes payable 51,650
Note receivable (5,188)
Change in assets and liabilities
Accounts receivable (1,056,929) (856,010)
Carrier commissions receivable (205,817) (43,897)
Inventories 4,996 (30,854)
Prepaid expenses and other current
assets (32,484)
Accounts payable and other current
liabilities (617,537) 1,537,436
Commissions payable 206,650
Net cash used in operating activities (722,018) (1,244,850)
Cash flows from investing activities:
Acquisition of businesses (417,316)
Other assets (118,639) (82,499)
Purchase of equipment (108,956) (1,557,260)
Collection of receivable from sale of assets 1,077,856
Payments for intangible assets (227,407)
Net cash used in investing activities (227,595) (1,206,626)
Cash flows from financing activities:
Payments on notes payable (470,883) (2,286)
Advances from affiliate 953,153 27,221
Issuance of common stock 738,990 5,000
Net cash provided by financing
activities 1,221,260 29,935
Net increase (decrease) in cash 271,647 (2,421,541)
Cash, beginning of period 143,621 2,541,827
Cash, end of period $415,268 $120,286
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited) (continued)
For The Six Months Ended June 30,
1997 1996
Supplemental disclosure of cash flow
information:
Cash paid during the period for -
Interest $228,064 $49,394
Supplemental schedules of noncash
investing and financing activities:
Issuance of common stock for acquisitions $0 $950,000
Notes payable incurred for acquisition
of assets $0 $1,139,000
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (unaudited)
For The Six Months Ended June 30, 1997
Series B
Preferred
Stock Common Stock
Shares Amount Shares Amount
Balances, December 31, 1996 500,000 $5,000 4,862,737 $48,628
Issuance of common stock - - 264,440 2,644
Net loss - - - -
Balances, June 30,1997 500,000 $5,000 5,127,177 $51,272
Capital in Total
Excess of Accumulated Stockholders'
Par Value Deficit Equity
Balances, December 31, 1996 $15,816,979 ($13,013,201) $2,857,406
Issuance of common stock 765,398 - $768,042
Net loss - (370,208) ($370,208)
Balances, June 30,1997 $16,582,377 ($13,383,409) $3,255,240
The accompanying notes are an integral part of these financial statements.
Shared Technologies Cellular, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 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 report on Form 10-K. Certain reclassifications to prior year
financial statements were made in order to conform to the 1997
presentation.
2. Litigation: On July 28, 1997, the Company entered into a settlement
agreement to resolve certain litigation with PTC Cellular, Inc ("PTC")
concerning an alleged default by the Company on payments under a
promissory note delivered to PTC in connection with the Company's 1995
purchase of certain assets from PTC (the "Note"). Pursuant to the
settlement agreement, the Company has agreed to pay PTC an aggregate of
$400,000 in several installments, with the last such installment due no
later than August 31, 1997, representing settlement of the claimed
arrearages due under the Note. Thereafter, the Company has agreed to
pay future installments under the Note in accordance with the original
terms on the Note. As a result of the settlement agreement the Company
has classified a portion of the note as a long-term liability.
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
three-year warrants each to purchase 100,000 shares of the Company's
common stock at prices of $3.00, $4.00, and $5.00 per share,
respectively. These warrants were 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 six month period ended June 30, 1996 gives effect
to the acquisition of Summit as if it had occurred on January 1, 1996.
1996
Revenues $10,243,482
Net loss ($3,497,720)
Loss per common share ($.93)
4. Subsequent Events: On July 3, 1997 the Company signed an agreement
with MS Comm LLC ("MS") to grant MS the non-exclusive option
(the "Option") to purchase up to 500,000 shares of the Company's Common
Stock at a purchase price of $3.00 per share. The Option initially
expired on July 23, 1997, however, the Company has agreed to extend the
option until September 1, 1997. Under the agreement the Company also
committed to issue warrants to MS subject to the Company's achievement
of certain revenue targets from accounts referred by MS in connection
with a separate agreement (the "Referral Agreement") whereby MS was
appointed as an independent sales representative of the Company. In
the event that the Company generates revenues of at least $2,000,000
from the Referral Agreement during the first year of the Referral
Agreement, then MS will receive a common stock purchase warrant
representing the right to purchase 1,000,000 shares of Common Stock
at a purchase price of $3.00 per share. In the event that the Company
generates revenues of at least $4,000,000 from the Referral Agreement
during the second year of the Referral Agreement, then MS will receive
a Common Stock purchase warrant representing the right to purchase
1,000,000 shares of Common Stock at a purchase price of $4.00
per share.
Item 2.
Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following management's discussion and analysis of results of
operations and financial condition include forward-looking statements
with respect to the Company's future financial performance. These
forward-looking statements are subject to various risks and uncertainties
which could cause actual results to differ materially from historical
results of those currently anticipated.
Results of Operations:
Six months ended June 30, 1997 compared to June 30, 1996
Revenues
The Company's revenues of $12,867,000 in 1997 represented an increase of
$3,493,000 (37%) over revenues in 1996. This significant increase was
primarily due to the expansion of the debit or prepaid business and the
April 1996 purchase of the operations of the Company's sole franchisee,
offset by the elimination of the in-car operation. The debit business had
revenues of $3,679,000, an increase of $3,218,000 over debit revenues in
1996. During 1997 the Company had an increase in revenues over 1996 of
$1,777,000 in portable cellular telephone rentals as a result of the
Summit acquisition. These increases were partially offset by a
$2,505,000 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 ($1,003,000) 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 to 44% of revenues for 1997 from 36% for 1996.
This improvement was mainly due to significant changes in the revenue
mix, as previously discussed. The following table summarizes the impact
of these changes on the gross margin for 1997 and 1996:
1997 1996
Revenues Gross Margin Revenues Gross Margin
Portable rentals 60% 44% 49% 42%
In-car rentals - - 27% 25%
Debit 29% 49% 5% 29%
Activations 11% 30% 19% 39%
Total 100% 44% 100% 36%
The gross margin for both the portable rental operation and the debit
operation improved due to a reduction in carrier costs as a result of
better line management and lower carrier charges. The activations
operation showed a reduction in the gross margin due to lower activation
commissions received from the carriers.
Selling, general and administrative expenses
Selling, general and administrative expenses ("SG&A") decreased $439,000
(7%), to $5,837,000 for 1997 from $6,276,000 for 1996. As a percentage
of revenues, SG&A decreased to 45% for 1997 compared to 67% for 1996.
The decrease is due to several factors. In the latter part of fiscal
year 1996, the Company made a concerted effort to reduce its operating
expenses. The Company consolidated its Special Events operation into
the portable rental operation. It also transitioned its in-car cellular
telephone operation into its portable rental operation. The Company also
implemented other cost-cutting measures, such as staff reductions, office
closings and travel restrictions that resulted in an overall decrease
in SG&A. Another factor that helped reduce SG&A as a percentage of
revenues, was the acquisition of certain assets of Summit. The Company
was able to reduce expenses through certain synergies.
Interest expense
Interest expense net of interest income was $141,000 for 1997 compared to
$130,000 for 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.
Three months ended June 30, 1997 compared to June 30, 1996
Revenues
The Company's revenues of $6,765,000 in 1997 represented an increase of
$1,697,000 (33%) over revenues in 1996. This significant increase was
primarily due to the expansion of the debit or prepaid business, and the
April 1996 purchase of the operations of the Company's sole franchisee,
offset by the elimination of the in-car operation. The debit business had
revenues of $2,021,000, an increase of $1,754,000 over revenues in 1996.
During 1997 the Company had an increase in revenues over 1996 of $625,000
in portable cellular telephone rentals as a result of the Summit
acquisition. These increases were partially offset by a $1,124,000
reduction in revenues as a result of the elimination of the in-car
cellular telephone operation as of the fourth quarter 1996. The balance
of the increase in revenues ($442,000) 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 to 44% of revenues for 1997 from 37% for 1996.
This improvement was mainly due to the significant changes in the revenue
mix, as previously discussed. The following table summarizes the impact
of these changes on the gross margin for 1997 and 1996:
1997 1996
Revenues Gross Margin Revenues Gross Margin
Portable rentals 60% 44% 55% 43%
In-car rentals - - 23% 21%
Debit 30% 48% 5% 21%
Activations 10% 30% 17% 42%
Total 100% 44% 100% 37%
The gross margin for both the portable rental operation and the debit
operation improved due to a reduction in carrier costs as a result of
better line management and lower carrier charges. The activations
operation showed a reduction in the gross margin due to lower activation
commissions received from the carriers.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $190,000 (6%), to
$2,970,000 for 1997 from $3,160,000 for 1996. As a percentage of
revenues, SG&A decreased to 44% for 1997 compared to 62% for 1996.
The decrease is due to cost cutting measures implemented by the Company
in the latter part of fiscal year 1996. See the previous SG&A discussion
for a detailed explanation.
Interest expense
Interest expense net of interest income was $69,000 for both 1997 and
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 $7,324,000 at June 30, 1997,
compared to a deficit of $8,975,000 at December 31, 1996. Stockholders'
equity at June 30, 1997 was $3,255,000, compared to $2,857,000 at
December 31, 1996.
Net cash used in operations for the six month period ended June 30, 1997
was $722,000. This was mainly due to the increase in its accounts
receivable balance at the end of the quarter due to the significant
increase in debit billings and the timing of the payments of those
billings. For the six month period ended June 30, 1996 the net cash used
in operating activities was $1,245,000. This was mainly due to operating
results for the period, net of noncash items partially offset by an
increase in accounts payable and other current liabilities.
Net cash used in investing activities for the six month period ended June
30, 1997 was $228,000. This was mainly attributable to the purchase of
equipment accessories and deposit requirements by carriers for
additional lines. For the six month period ended June 30, 1996, the
Company focused its investing activities on the purchase of cellular
telephone equipment and on growth through acquisition. In addition, the
Company collected on a note receivable from the sale of the resale
operation in December 1995.
Financing activities were focused primarily on raising capital to meet the
obligations incurred with previously mentioned acquisitions and for
working capital. During the six month period ended June 30, 1997 the
Company raised cash of $739,000, net of expenses, through the sale of
250,000 Units. Each Unit consists 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 $953,000 from its former parent, Shared Technologies Fairchild
Inc. (STFI).
Cash from operations has been sufficient to fund ongoing operations,
however funds are needed to satisfy existing obligations arising from
completed acquisitions and prior year losses. In order to address the
Company's immediate cash requirements, the Company is engaged in efforts
to raise capital through a private placement of up to 333,333 Common Stock
units (`Units") at $3.00 per Unit. Each Unit consisting of one share of
Common Stock and one warrant to purchase an additional share of Common
Stock at an exercise price of $3.00 per share. It is expected that
certain of the Company's directors and members of management will
participate in this private placement. Management believes that with
this anticipated infusion of cash the Company can meet its existing
short-term obligations. However, an additional infusion of cash from
debt or equity may be required to meet its long-term obligations.
Item 3.
None
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 28, 1997, the Company entered into a settlement
agreement to resolve certain litigation with PTC Cellular, Inc ("PTC")
concerning an alleged default by the Company on payments under a
promissory note delivered to PTC in connection with the Company's 1995
purchase of certain assets from PTC (the "Note"). Pursuant to the
settlement agreement, the Company has agreed to pay PTC an aggregate of
$400,000 in several installments, with the last such installment due no
later than August 31, 1997, representing settlement of the claimed
arrearages due under the Note. Thereafter, the Company has agreed to
pay future installments under the note in accordance with the original
terms on the Note.
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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May 23,
1997. Three matters of business were held to a vote for the following
purposes: (1) the election of seven directors of the Company
for the ensuing annual term ("Proposal 1"); (2) the ratification of an
amendment to the 1994 Stock Option Plan to increase the number of shares
of the Company's Common Stock available for awards from 274,797 to
525,000 ("Proposal 2"); and (3) the reappointment of the Company's
auditors, Rothstein, Kass & Company P.C. ("Proposal 3"). A total of
5,492,792 votes were cast, out of a total of 7,120,407 potential votes.
Proposal 1
Directors For Withheld
Anthony D. Autorino 5,435,042 57,750
Thomas H. Decker 5,434,792 58,000
William A. DiBella 5,434,792 58,000
Vincent DiVincenzo 5,435,292 57,500
Ajit G. Hutheesing 5,435,292 57,500
Craig A. Marlar 5,435,292 57,500
Nicholas E. Sinacori 5,435,292 57,500
Proposal 2
For Against Abstain
5,433,682 55,610 3,500
Proposal 3
For Against Abstain
5,462,792 27,600 2,400
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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, 1997
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