U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1999
Commission file number 0-14978
Pre-Cell Solutions, Inc.
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(Name of Registrant in its Charter)
Colorado 84-0751916
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
255 East Drive, Suite C, Melbourne, Florida 32904
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(Address of Principal Executive Offices) (Zip Code)
(321) 308-2900
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Act:
None.
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-X contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year. $ 22,936.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $317,900
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 33,848,426 as of October 1, 1999.
This report contains a total of 81 pages.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Other than historical and factual statements, the matters and items
discussed in this Annual Report on Form 10-K are forward-looking statements that
involve risks and uncertainties. Actual results of the Company may differ
materially from the results discussed in the forward-looking statements. Certain
factors that could contribute to such differences are discussed with the
forward-looking statements throughout this report.
General
Corporate Background
Pre-Cell Solutions, Inc. (the "Company") was organized under the laws
of the State of Colorado on July 20, 1981 under the name Oil Field Service
Company, Inc. ("Oil Field"). On January 2, 1986, Oil field changed its name to
Transamerican Petroleum Company ("Transamerican") by virtue of a certificate of
amendment from the Secretary of State of Colorado. At the time, Transamerican
was a wholly owned subsidiary of PTP Resource Corporation, a Canadian
Corporation whose stock was traded on the Vancouver Stock Exchange and Nasdaq.
Pursuant to a request filed with the Chief Counsel, division of Corporate
Finance, of the United States Securities and Exchange Commission ("SEC"), on
March 27, 1986 permission was granted for the stock of Transamerican to be
distributed on a pro-rated bases to all shareholders of PTP Resource
Corporation. The stock was issued on April 24, 1986.
In the past, the Company had provided a vehicle to take advantage of
business opportunities which management believed from time to time were in the
best interest of the Company's shareholders.
Acquisition of Pre-Cell Solutions, Inc.
On December 1, 1998, The Company acquired Pre-Cell Solutions, Inc, a
Florida corporation. ("Pre-Cell") through the issuance of 32,156,000 shares of
its common stock (see "certain transactions"). On December 6, 1998, the Company
filed an amendment to its Article of Incorporation changing its name from
Transamerican to Pre-Cell Solutions, Inc. The business of Pre-Cell has become
the business of the Company. The Company anticipates that the acquisition of
Pre-Cell will significantly increase its revenues and provide it with an
opportunity to acquire market share in an emerging industry.
The Company is a non-facilities based provider of prepaid
telecommunications services primarily to residential customers. The Company
currently offers pre-paid residential local and long distance telecommunications
services to consumers who reside in the state of Florida. The Company markets
its services to consumers who are unable to obtain credit from the Incumbent
Local Exchange Carrier ("ILEC") or other Competitive Local Exchange Carriers
("CLECs"). In particular, a significant number of low-income individuals are
unable to obtain local telephone service from the ILEC or other CLECS because of
a bad credit history or no credit history at all. Most ILECs and CLECs provide
local exchange and/or long distance telecommunications services strictly on a
credit basis. The Company provides its telecommunications services to these
consumers only on a pre-paid basis.
Because no credit is involved, the Company can provide these services
without risk even when a security deposit cannot be provided by the consumer
(which is generally required by the ILEC or other CLECs when service is
requested by low-income, credit deprived consumers). The Company's services are
immediately available to the customer after the establishment of an account and
appropriate payment. The
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service is ideal for consumers with limited income who are unable to obtain
credit from the ILEC or other CLEC, but who desire to place telephone calls from
their home.
Pre-paid phone service is available to certain ILEC and CLEC customers
for their local exchange services, however, these providers do not customarily
provide a combined full service local and long distance exchange service. The
Company believes that it is the only CLEC that has developed the capability of
bundling these services into a single carrier product offering the non-credit
worthy consumer market.
The Company has an agreement to purchase local exchange
telecommunications services from BellSouth Telecommunications, Inc.
("BellSouth") in each of the eleven states where BellSouth provides local
exchange services. Additionally, the Company acquires domestic and international
long distance telecommunication services from Sprint. The Company provides its
customers domestic and international long distance services through a
proprietary switching and customer account based software application, furnished
by a third party Florida based interconnection switching facility.
The company has designed its services to meet the basic
telecommunication needs of the unique customers in its niche target markets
while maintaining a fully featured array of telephone services. Management
believes that Pre-Cell's sensitivity to consumer demands coupled with its
customer care personnel will enable it to tailor its service offerings to meet
customers' needs and to creatively package its services to provide "one-stop
shopping" solutions for those customers.
Local Exchange Services.
Pre-Cell offers local telephone services, including local dial tone as
well as other features such as:
o call forwarding;
o call waiting;
o caller ID;
o voice mail;
o 3 way calling;
o speed dial;
o repeat dial; and
o call return and call block.
Long Distance Services.
Pre-Cell offers a full range of domestic long distance services, such
as:
o interLATA, which are calls that pass one "Local Access and Transport
Area" or "LATA" to another, and such calls must be carried across the
LATA boundary by a long-distance carrier; and
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o international long distance services.
These services including "1+" outbound calling, and such complementary
services as travel cards and operator assistance.
The Company is pursuing a growth strategy to capitalize on its early
entrance into the emerging and expanding markets for prepaid telecommunications
services. Significant components of the Company's strategy include: (i) expand
its customer base within the state of Florida; (ii) expand its customer base to
include consumers who reside in the ten other states where BellSouth provides
local exchange services where the Company has an agreement to acquire and
re-sell local exchange services; (iii) expand its customer base to include
consumers who reside in non-BellSouth states where it can negotiate favorable
re-sale agreements with the ILEC or other facilities based CLECs; (iv) offer its
customers a variety of other prepaid telecommunications products and services,
including, prepaid cellular, prepaid paging, prepaid Internet access and other
enhanced prepaid telecommunications services; and (v) pursue the acquisition of
companies that fit within the Company's business strategy.
Market Overview
Telecommunications Services
The traditional U.S. market for telecommunications services can be
divided into three basic sectors: (1) long distance services, (2) local exchange
services and (3) Internet access services. It is estimated that in 1999 that
local exchange services market accounted for revenues of $92.4 billion, long
distance services market generated revenues of $104.6 billion and Internet
services market revenues totaled $6.3 billion. Revenues for both local exchange
and long distance services include amounts charged by long distance carriers and
subsequently paid to ILECs (or, where applicable, CLECs) for long distance
access.
Long Distance Services. A long distance telephone call can be
envisioned as consisting of three segments. Starting with the originating
customer, the call travels along an ILEC or CLEC network to a long distance
carrier's point of presence ("POP"). At the POP, the call is combined with other
calls and sent along a long distance network to a POP on the long distance
carrier's network near where the call will terminate. The call is then sent from
this POP along an ILEC or CLEC network to the terminating customer. Long
distance carriers provide only the connection between the two local networks,
and pay access charges to LECs for originating and terminating calls.
Local Exchange Services. A local call is one that does not require the
services of a long distance carrier. In general, the local exchange carrier does
provide the local portion of most long distance calls.
Internet Services. Internet services are generally provided in at least
two distinct segments. A local network connection is required from the ISP
customer to the ISP's local facilities. For residential users, these connections
are generally connections through the public switched telephone network obtained
on a dial-up access basis as a local exchange telephone call. Once a local
connection is made to the internet service provider's ("ISP") local facilities,
information can be transmitted and obtained over a packet-switched internet
protocol data network, which may consist of segments provided by many
interconnected networks operated by a number of ISPs. This collection of
interconnected networks makes up the Internet. A key feature of Internet
architecture and packet switching is that a single dedicated channel between
communication points is never established, which distinguishes Internet-based
services from the public switched telephone network.
Strategy
The Company is pursuing a growth strategy to capitalize on its early
entrance into the emerging and expanding markets for prepaid telecommunications
services. The Company intends to focus its sales and
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marketing efforts on the credit-challenged consumer. Additionally, the Company
intends to pursue individual and business consumers who desire to utilize the
Company's prepaid products and services as a mechanism to budget their
telecommunications costs.
Significant components of the Company's strategy include: (i) expand
its customer base within the state of Florida; (ii) expand its customer base to
include consumers who reside in the ten other states where BellSouth provides
local exchange services where the Company is pursuing a growth strategy to
capitalize on its early entrance into the emerging and expanding markets for
prepaid telecommunications services. Significant components of the Company's
strategy include: (i) expand its customer base within the state of Florida; (ii)
expand its customer base to include consumers who reside in the ten other states
where BellSouth provides local exchange services where the Company already has
an agreement in place to acquire and re-sell local exchange services; (iii)
expand its customer base to include consumers who reside in non-BellSouth states
where it can negotiate favorable re-sale agreements with the ILEC or other
facilities based CLECs; (iv) offer its customers a variety of other prepaid
telecommunications products and services, including, prepaid cellular, prepaid
paging, prepaid Internet access and other enhanced prepaid telecommunications
services; and (v) pursue the acquisition of companies that fit within the
Company's business strategy.
Trademarks
None
Sales And Marketing
Distribution Strategy. The Company's distribution strategy is to
utilize alternative distribution channels to sell and market its products and
services. Through the combination of a direct sales force and alternative
distribution channels, the Company believes that it will be able to more rapidly
access markets and increase revenue-producing traffic.
As part of its distribution strategy, the Company is developing several
alternative distribution channels. These include agents and resellers. Agents
are independent organizations that sell the Company's products and services
under the Pre-Cell brand name to end-users in exchange for revenue based
commissions. The Company recruits agents that specialize in marketing products
and services to consumers with demographic characteristics similar to those of
the Company's unique customers. The Company's agents may not necessarily be well
versed in telecommunications, because they are generally convenience stores,
drugstores or supermarkets that offer the Company's products to their retail
customers. Sales through this alternative distribution channel require the
Company to provide the same type of services that would be provided in the case
of sales through its own direct sales force such as order fulfillment, billing
and collections, customer care and direct sales management.
Resellers are independent companies, including other competitive local
exchange companies, that purchase the Company's products and services and then
"repackage" these services for sale to their customers under their own brand
name. Resellers generally require access to certain of the Company's business
operating systems in connection with the sale of the Company's services to the
resellers' customers. Sales through this distribution channel generally do not
require the Company to provide order fulfillment, billing and collection and
customer care.
Government Regulation
Federal
The Telecommunications Act was intended to remove some of the barriers
between the long distance and local telecommunications markets, allowing service
providers from each of these sectors (as well as cable television operators and
others) to compete in all communications markets. The FCC must issue regulations
to address various requirements of the Telecommunications Act. For instance, the
Telecommunications Act generally requires ILECs to (1) allow competitors such as
the Company to interconnect with the ILECs'
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networks and (2) give competitors nondiscriminatory access to the ILEC's
networks on more favorable terms than have been available in the past. In August
1996, the FCC adopted regulations intended to detail the requirements of the
Telecommunications Act relating to interconnection (the "Interconnection
Order"). The Interconnection Order includes detailed provisions regarding the
interconnection of ILEC networks with those of new competitors as well as
requirements that the ILECs make certain of their network elements and services
available to competitors.
In October 1996, portions of the Interconnection Order were stayed by
the United States Court of Appeals for the Eighth Circuit. This court later
invalidated certain of those provisions, including ones in which the FCC
asserted jurisdiction over the pricing of interconnection elements and the
"pick-and-choose" provisions which allow carriers to adopt select provisions of
other carriers' interconnection agreements. The FCC appealed this decision to
the United States Supreme Court. In January 1999, the Supreme Court reversed a
majority of the Eighth Circuit's decision, upholding in many respects the FCC's
local competition rules as set out in the Interconnection Order. Some of the key
elements of the Supreme Court's decision are:
(1) The Court upheld the FCC's pricing authority with regard to
interconnection, resale of ILEC services and competitors' use
of unbundled network elements (i.e., individual elements,
features and functions of an ILEC's network infrastructure
such as access lines, transport lines, operator service and
switching features);
(2) The Court upheld the FCC's "pick and choose" rules (allowing
requesting carriers to select from among individual provisions
of interconnection agreements approved by state commissions);
(3) The Court upheld the FCC's jurisdiction to require all local
phone companies to implement intra LATA presubscription, the
process by which local telephone customers pre-select
interexchange carriers for short-haul long distance calls; and
(4) The Court remanded for further consideration the FCC's rule
that defines those network elements which, under the
Telecommunications Act, must be unbundled by the ILECs and
made available to competitors.
The Court found that the FCC did not impose the limiting standard
required by the Telecommunications Act, which mandates a determination as to
whether those elements are necessary for competitors or the failure to obtain
access to them would impair competitors' ability to provide service. The Supreme
Court's decision has added uncertainty to the regulatory landscape in which
other CLECs and we operate. For example, the FCC is commencing a new and
potentially lengthy rulemaking proceeding to determine which unbundled network
elements the ILECs must make available to competitors. This uncertainty may
adversely impact CLECs, such as the Company, which rely on the facilities of the
ILECs to deliver their telecommunications services.
The FCC recently issued an order addressing the manner in which dial-up
calls to ISPs are to be treated for both jurisdictional and reciprocal
compensation purposes. The FCC ruled that dial-up calls to ISPs constitute a
single call that is interstate in nature and subject to FCC jurisdiction. The
FCC stated, however, that its decision was not intended to impact previous
decisions by state regulators that had declared inter-carrier reciprocal
compensation applicable to these calls. This order has been appealed to the FCC
and several ILECs have requested that state regulators reverse their prior
rulings and hold that dial-up ISP traffic is not subject to reciprocal
compensation under extant interconnection agreements. It is unclear at this time
how such proceedings will conclude. However, in light of the limited amount of
revenues we have generated from reciprocal compensation for ISP traffic, we do
not expect the resolution of this issue to have a material impact on our ongoing
operations in most markets.
The FCC also recently issued an order (the "Collocation Order")
expanding the options available to competitive providers for collocation and
access to unbundled loops from the ILECs. In the Collocation Order, the FCC
significantly expanded the rights of competitive carriers to collocate with
ILECs through a variety of methods, including cage less and shared space
collocation. As a result, the FCC has expanded the manner in which unbundled
local loops could be accessed from the ILECs. The FCC has also issued orders
under the Telecommunications Act reforming LEC access charges and universal
service requirements. Under the access reform order, ILECs that are subject to
price cap regulation are required to reduce the rates they charge long
6
distance service providers for interstate switched local access. In October
1998, AT&T filed a petition with the FCC seeking a ruling that long distance
carriers may elect not to purchase switched access services offered under tariff
by CLECs. This could also cause increased FCC scrutiny and regulation of CLEC
interstate access rates. The petition is pending.
Under the FCC's universal service order, all telecommunications service
providers are required to pay for universal service support based on a
percentage of their end user telecommunications revenues to be established
quarterly by the FCC.
Providers of telecommunications services are coming under intensified
regulatory scrutiny for marketing activities that result in alleged unauthorized
switching of customers from one service provider to another, particularly in the
long distance sector. The FCC and a number of state authorities have begun
adopting more stringent regulations to curtail the intentional or erroneous
switching of customers, which include, among other things, the imposition of
fines, penalties and possible operating restriction son entities which engage or
have engaged in unauthorized switching activities. In addition, the FCC has
adopted regulations imposing procedures for verifying the switching of customers
and additional remedies on behalf of carriers for unauthorized switching of
their customers.
The FCC also oversees the administration and assigning of local
telephone numbers. It has designated Lockheed Martin as the numbering plan
administrator. Extensive regulations have been adopted governing telephone
numbering, area code designation, dialing procedures that may be imposed by the
ILECs and the imposition of related fees by the ILECs. In addition, carriers are
required to contribute to the cost of numbering administration through a formula
based on their revenues. In 1996, the FCC permitted businesses and residential
customers to keep their numbers when changing local phone companies (referred to
as number portability). The availability of number portability is important to
competitive carriers like us since customers, may be less likely to switch to a
competitive carrier if they cannot retain their existing telephone numbers. The
FCC has been working with industry groups and companies to address potential
problems stemming from the depletion in certain markets of the pool of telephone
numbers which telecommunications companies can make available to their
customers. If a sufficient amount of telephone numbers are not available in the
market, our operations in that market may be adversely affected or we may be
unable to enter that market until sufficient numbers become available.
State
Some of the Company's services are classified as intrastate and
therefore are subjected to state regulation, generally administered by the
state's PUC. The nature of these regulations varies from state to state and in
some cases may be more extensive than FCC regulations. In most instances, the
Company is required to obtain certification from a state PUC before providing
services in that state. We are certified to provide intrastate non-switched
service and switched local (i.e., CLEC) services in the State of Florida. We
expect that as our business and product lines expand and as more pro-competitive
regulation of the local telecommunications industry is implemented, we will
offer additional intrastate services.
Interstate and intrastate regulatory requirements are changing rapidly
and will continue to change.
Pre-Cell being a reseller of telecommunications services is protected
by the Telecommunications Act of 1996 (the "Telecom Act") which mandated
significant changes in the then regulation of the telecommunications industry.
The Telecom Act is intended to increase competition, to promote competitive
development of new service offerings, to expand public availability of
telecommunications services and to streamline regulation of the industry. The
Act opened the local services market to companies such as Pre-Cell by requiring
ILECs to permit interconnection to their networks and establishing ILEC
obligations with respect to:
o Reciprocal Compensation - Requires all local exchange carriers
to complete calls originated by competing local exchange
carriers under reciprocal arrangements at prices based on
tariffs or negotiated prices.
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o Resale - Requires all ILECs and CLECs to permit resale of
their telecommunications services without unreasonable
restrictions or conditions. In addition, ILECs are required to
offer wholesale versions of all retail services to other
telecommunications carriers for resale at discounted rates,
based on the costs avoided by the ILEC in the wholesale
offering.
o Interconnection - Requires all ILECs and CLECs to permit their
competitors to interconnect with their facilities. Requires
all ILECs to permit interconnection at any technically
feasible point within their networks, on nondiscriminatory
terms, at prices based on cost, which may include a reasonable
profit. At the option of the carrier seeking interconnection,
collocation of the requesting carrier's equipment in the
ILECs' premises must be offered, except where an ILEC can
demonstrate space limitations or other technical impediments
to collocation.
o Unbundled Access - Requires all ILECs to provide
nondiscriminatory access to unbundled network elements
including, network facilities, equipment, features, functions,
and capabilities, at any technically feasible point within
their networks, on nondiscriminatory terms, at prices based on
cost, which may include a reasonable profit.
o Number Portabilty - Requires all ILECs and CLECs to permit
users of telecommunications services to retain existing
telephone numbers without impairment of quality, reliability
or convenience when switching from one telecommunications
carrier to another.
o Dialing Parity - Requires all ILECs and CLECs to provide "1+"
equal access to competing providers of telephone exchange
service and toll service, and to provide nondiscriminatory
access to telephone numbers, operator services, directory
assistance, and directory listing with no unreasonable dialing
delays.
o Access to Rights-of-Ways - Requires all ILECs and CLECs to
permit competing carriers access to poles, ducts, conduits and
rights-of-way at regulated prices.
ILECs are required to negotiate in good faith with carriers, such as
the Company, requesting any or all of the above arrangements. If the negotiating
carriers cannot reach agreement within a prescribed time, either carrier may
request binding arbitration of the disputed issues by the state regulatory
commission. Where an agreement has not been reached, ILECs remain subject to
interconnection obligations established by the FCC and state telecommunication
regulatory commissions.
The Telecommunications Act codifies the ILECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. The
Telecommunications Act also contains special provisions that replace prior
antitrust restrictions that prohibited the regional Bell operating companies
from providing long distance services and engaging in telecommunications
equipment manufacturing. The Telecommunications Act permitted the regional Bell
operating companies to enter the out-of-region long distance market immediately
upon its enactment. Further, provisions of the Telecommunications Act permit a
regional Bell operating company to enter the long distance market in its
in-region states if it satisfies several procedural and substantive
requirements, including:
o obtaining FCC approval upon a showing that the regional Bell
operating company has entered into interconnection agreements
or, under some circumstances, has offered to enter into such
agreements in those states in which it seeks long distance
relief;
o the interconnection agreements satisfy a 14-point "checklist"
of competition requirements; and
o the FCC is satisfied that the regional Bell operating
company's entry into the long distance markets is in the
public interest.
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To date, several petitions by regional Bell operating companies for
such entry have been denied by the FCC, and non have been granted. However, it
is likely that additional petitions will be filed in 1999 and it is possible
that regional Bell operating companies may receive approval to offer long
distance services in one or more states. This may have an unfavorable effect on
Pre-Cell's business. Pre-Cell is legally able to offer its customers both long
distance and local exchange services, which the regional Bell operating
companies currently cannot. This ability to offer "one-stop shopping" gives
Pre-Cell a marketing advantage that it would no longer enjoy if the regional
Bell operating companies receive approval to offer long distance services on one
or more states.
Competition
The telecommunications market is intensely competitive and currently is
dominated by the ILECs and the large, established long distance companies. We
have not obtained significant market share nor do we expect to, given the size
of the telecommunications services market, the intense competition and the
diversity of customer requirements. The ILECs and the large, established long
distance companies have long-standing relationships with their customers and
have the potential to subsidize competitive services with revenues from a
variety of business services (to the extent lawful). While legislative and
regulatory changes have provided us and other competitive providers with
increased business opportunities, these changes have also given the incumbent
providers flexibility in the pricing of their services. This may allow the ILECs
and the large, established long distance companies to offer special discounts to
potential customers. Further, as competition increases in the telecommunications
market, we expect general pricing competition and pressures to increase
significantly.
In addition, the Telecommunications Act establishes procedures under
which an RBOC may compete in the long distance business in its region. These
procedures include compliance with a 14-point competitive checklist designed to
open the RBOC's local market to competition. Once an RBOC is authorized to
compete in the long distance business in its region, it may be an even more
significant competitor. In addition to competition from the incumbent providers,
we also face competition from a growing number of other companies.
We also may face competition from cable companies, electric utilities,
ILECs operating outside their current local service areas, long distance
carriers and other entities in the provision of local telecommunications
services. Moreover, the consolidation of telecommunications companies and the
formation of strategic alliances within the telecommunications industry, which
are expected to accelerate, could give rise to significant new or stronger
competitors. We believe that the principal competitive factors affecting our
market share are (i) direct customer contact; (ii) customer service; (iii)
pricing;(iv) quality of service; and (v) a variety of offered services. Our
ability to compete effectively will depend also upon our ability to continue to
provide a broad range of high capacity telecommunications services at attractive
prices.
Employees
The Company currently has 2 executive employees. All other services
utilized by the Company are obtained through an Administrative Services
Agreement with Pre-Paid Solutions, Inc. (see "Certain Relationships and Related
Transactions")
The Company's address and telephone number are: 255 East Drive, Suite
C, Melbourne, Florida 32904, (321) 308-2900.
The Company's SEC filings are available to the public over the Internet
at the SEC's website at http://www.sec.gov. You may also read and copy any
document the Company files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company currently subleases approximately 750 square feet of office space at
its Melbourne, Florida corporate headquarters from Pre-Paid Solutions, Inc. (see
"Certain Relationships and related Transactions"). Its monthly lease payments
are $463.75. The remaining term of the lease is two years, commencing June 15,
1999 and ending June 14, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material litigation
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under the symbol
"TDCM." In December 1998, the Company changed it trading symbol to "TDCM" from
"TAMP." The following table sets forth the high and low bid quotations for the
common stock for the calendar periods indicated as reported by Nasdaq. These
quotations reflect prices between dealers, do not include retail mark-ups,
markdowns, commissions and may not necessarily represent actual transactions.
This table gives retroactive effect to reverse stock splits at the rates of 1:7
effected in December 1998.
Calendar Period High Low
- --------------- ---- ---
Second Quarter ended 6/30/97 .21 .14
Third Quarter ended 9/30/97 .28 .14
Fourth Quarter ended 12/31/97 .28 .035
First Quarter ended 3/31/98 .035 .035
Second Quarter ended 6/30/98 .035 .035
Third Quarter ended 9/30/98 .28 .035
Fourth Quarter ended 12/31/98 .25 .20
First Quarter ended 3/31/99 .29 .02
As of October 25, 1999, there were approximately 584 holders of record of the
33,852,730 shares of common stock that were issued and outstanding. The transfer
agent for the common stock is Interstate Transfer Company, (801) 281-9746.
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The Company has never paid cash dividends on its common stock, and presently
intends to retain future earnings, if any, to finance the expansion of its
business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
The Securities and Exchange Commission has adopted regulations which generally
define a "penny stock" to be any equity security that has a market price (as
defined) of less than $5.00 per share, subject to certain exceptions. The
Company's common stock may be deemed to be a "penny stock" and thus will become
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the common stock is listed on The
Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the
ability of broker/dealers to sell the Company's securities, and may adversely
affect the ability of holders of the Company's common stock to resell their
shares in the secondary market.
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Recent Sales of Unregistered Securities
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
Date of Sale Title of Security Number Sold Consideration Exemption If Option, Warrant or
Received and From Convertible Security,
Description of Registration Terms of Exercise or
Underwriting or Other Claimed Conversion
Discounts to Market
Price Afforded to
Purchasers
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
Common Issues and 4(2)
Outstanding Shares in
12/1/98 25,485,353 Pre-Cell
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
Options to Purchase Options Granted in 4(2) Exercisable from
Common Stock Connection with 12/1/99 to 12/1/04 at
Employment of an exercise price of
12/1/98 4,000,000 Executive $.04 per share
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
Options to Purchase Options Granted in 4(2) Exercisable from
Common Stock Connection with 12/1/99 to 12/1/04 at
Employment of an exercise price of
12/1/98 3,000,000 Executive $.04 per share
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
12/1/98 Common Stock 1,661,863 Consulting Services 4(2)
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
12/1/98 Common Stock 4,181,694 Consulting Services 4(2)
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
12/1/98 Common Stock 238,545 Consulting Services 4(2)
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
12/1/98 Common Stock 238,545 Consulting Services 4(2)
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
12/1/98 Common Stock 350,000 Consulting Services 4(2)
- -------------- --------------------- ----------------- ----------------------- -------------- -------------------------
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," each of which is included elsewhere in this Form 10-K. The
consolidated statements of operations data for the fiscal year ended April 30,
1999, and the balance sheet data at April 30, 1999, are derived from audited
financial statements included elsewhere in this Form 10-K. The consolidated
statement of operations data for the fiscal years ended April 30, 1998, 1997,
1996, and 1995, and the balance sheet data at April 30, 1998, 1997, 1996, and
1995, are derived from audited financial statements not included in this Form
10-K.
- ---------------------------------------------------- ---------------------------------------------------------------
Fiscal Year Ended April 30,
- ---------------------------------------------------- ---------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Net Sales $22,936 0 0 $10,000 $6,243
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Net income (loss) from continuing operation ($146,366) - $341 ($14,163) ($9,990)
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Income (loss) from continuing operations per share ($.01) - - - -
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Total assets $1,493,522 - - - $749
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Long term obligations and re-deemable preferred - - - - -
stock including long-term debts, capital leases,
and redeemable performed stock
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
Cash dividends declared per common share - - - - -
- ---------------------------------------------------- ------------- ---------- --------- -------------- -------------
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The forward-looking statements contained
in this Report are subject to certain risks and uncertainties. Actual results
could differ materially from current expectations. Among the factors that could
affect the Company's actual results and could cause results to differ from those
contained in the forward-looking statements contained herein is the Company's
ability to implement its business strategy successfully, which will depend on
business, financial, and other factors beyond the Company's control. There can
be no assurance that the Company will continue to be successful in implementing
its business strategy. Other factors could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
Words used in this Report such as "expects," "believes," "estimates" and
"anticipates" and variations of such words and similar expressions are intended
to identify such forward-looking statements.
The following should be read in conjunction with the Financial Statements of the
Company and the notes thereto included elsewhere in this report.
OVERVIEW
Since 1995, the Company was inactive but structured to take advantage of
business opportunities which management believed would be in the best interest
of the Company's shareholders. In December 1998, the Company acquired Pre-Cell
Florida through the issuance of 32,156,000 shares of its common stock and
changed its name to Pre-Cell Solutions, Inc. The Company currently offers
pre-paid residential local and long distance telecommunications services to
customers who reside in the state of Florida.
13
Results of Operations
The operating results as reported the Company's financial statements for the
year ended April 30, 1999 are all the result of acquisition of Pre-Cell
Solutions, Inc. the Florida corporation. Since the Company had been inactive for
the year ended April 30, 1998 there is no comparative analysis for these two
periods.
Liquidity and Capital Resources
For the year ended April 30, 1999, net cash used in operating activities was
$44,644. As of April 30, 1999, the Company had cash and cash equivalents of
approximately $3,500 and a net working capital deficit of approximately
$340,000. The Company's ability to meet its future obligations in relation to
the orderly payment of its recurring, general and administrative expenses on a
current basis is totally dependent on its ability to expand its current customer
base and secure and develop new business opportunities through acquisitions or
other venture opportunities. Since the Company has no current source of
liquidity, the Company is unable to predict how long it may be able to survive
without a significant infusion of capital from outside sources and it is further
unable to predict whether such capital infusion, if available, will be on terms
and conditions favorable to the Company.
10
In order to generate future operating activities, the Company intends to
implement its plan to expand its business and search for, investigate and
attempt to secure and develop business opportunities through acquisitions,
mergers or other business combinations and strategic alliances. There can be no
assurance that the Company will be successful in its plan to expand its customer
base or locate businesses in the same or similar industry for acquisition.
Although the Company engages in these discussions from time to time, it is not
at present party to any agreement or contract.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 issue
relates to whether computer systems will properly recognize and process
information relating to dates in and after the year 2000. These systems could
fail or produce erroneous results if they cannot adequately process dates beyond
the year 1999 and are not corrected. Significant uncertainty exists in the
software industry concerning the potential consequences that may result from the
failure of software to adequately address the Year 2000 issue. The Company has
analyzed software and hardware used internally by the Company in all support
systems to determine whether they are Year 2000 compliant. The Company believes
that all of its software has already been upgraded by the manufacturers thereof
or was recently developed or purchased and is Year 2000 compliant. The Company
does not believe that the aggregate cost for the Year 2000 issue will be
material due to the nature of its business. The Company, however, cannot predict
the effect of the Year 2000 issue on entities with which the Company transacts
business, and there can be no assurance that the effect of the Year 2000 issue
on such entities will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Any new software, hardware or support systems implemented in the future will be
Year 2000 compliant or will have updates or upgrades or replacements available
before the Year 2000 to enable the system to be Year 2000 compliant.
The Company is dependent on BellSouth to provide local exchange services and
Sprint for long distance services. To the extent these service providers fail to
address Year 2000 issues which might interfere with their ability to fulfill
their obligations to the Company, such interference could have a material
adverse effect on
14
future operations. If other telecommunication carriers are unable to resolve
Year 2000 issues, it is likely that the Company will be affected to a similar
degree as others in the telecommunications industry.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS
The financial statements required by this report are appended hereto commencing
on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
15
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions with the Company and ages of
the executive officers and directors of the Company. Officers are elected by the
Board and their terms of office are governed by employment contract, at the
discretion of the Board.
Name Age Positions Held
Thomas E. Biddix 30 Director, Chief Executive Officer,
President, Treasurer
Timothy F. McWilliams 36 Director, Chief Operating Officer,
Secretary
Thomas E. Biddix. Since December 1998, Mr. Biddix has served as Chairman of the
Company's Board of Directors, Chief Executive Officer, and President of the
Company. From May 1997 until December 1998, Mr. Biddix served as Chairman of the
Board of Directors, Chief Executive Officer, and President of Pre-Cell.
Currently Mr. Biddix also serves as the Chairman of the Board of Directors,
Chief Executive Officer and President of Pre-Paid Solutions, Inc. ("Pre-Paid"),
a nationwide provider of prepaid cellular products and services. From February,
1996 until October, 1996, Mr. Biddix was General Manager of Suntree Cellular,
Inc., a Florida based AT&T Authorized Cellular Dealer. From March, 1994 until
June, 1996, Mr. Biddix was a real estate salesman for RE/MAX Alternative Realty.
Timothy McWilliams. Since December 1, 1998, Mr. McWilliams has served as a
Director, Chief Operating Officer and Secretary of the Company. From May 1997
through December 1998, Mr. McWilliams served as Chief Operating Officer,
Secretary and a Director of Pre-Cell. Currently, Mr. McWilliams is also Chief
Operating Officer of Pre-Paid, a nationwide provider of prepaid cellular
products and services. From March, 1994 to December, 1999, Mr. McWilliams was
President of RE/MAX Alternative Realty and RE/MAX Alternative II, Florida based
real estate brokerages. Since January 1994 to the present, Mr. McWilliams has
also served as President of Ventana Development Company, Inc., a developer of
single family residential developments
ITEM 11. EXECUTIVE COMPENSATION
Cash Compensation
The following table shows, for the year ended April 30, 1999, the cash and other
compensation paid by the Company to its Chief Executive Officer and to each of
the executive officers of the Company who had annual compensation in excess of
$100,000.
16
SUMMARY COMPENSATION TABLE
- --------------------------- ------- ------------------------------- ----------------------------------- -----------
Annual Compensation Long-Term Compensation
------------------------------- -----------------------------------
Awards
-----------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LIP Compen-
Position Year Salary Bonus sation Award(s) SAYS Payout sation
($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
Thomas E. Biddix 1998 0 0 0 0 0 0 0
Chief Executive Officer 1999 0 0 0 0 0 0 0
- --------------------------- ------- --------- --------- ----------- ------------ ------------- -------- -----------
17
Employment Agreements
The Company has entered into an employment agreement with each of
Thomas Biddix, its Chairman of the Board, Chief Executive Officer and President
and Timothy McWilliams, its Chief Operating Officer and Secretary. Each of Mr.
Biddix's and Mr. McWilliams employment agreement provides for an initial term of
three years commencing December 1, 1998 and requires Mr. Biddix and Mr.
McWilliams to devote a sufficient portion of his business time, energies and
attention to the performance of his duties. Mr. Biddix's employment agreement
provides for an annual base salary of $180,000. Mr. McWilliams' employment
agreement provides for a base annual salary of $95,000. The Company has accrued
its salary obligations to each of Messrs. Biddix and McWilliams as a part of its
financial statements but has not paid either of them since inception.
Option Grants in Last Fiscal Year
In connection with their employment agreements, Mr. Biddix and Mr.
McWilliams were granted options to purchase 4,000,000 and 3,000,000 shares,
respectively, of the Company's common stock at an exercise price of $.04 per
share.
The following table summarizes the number of shares and the terms of
stock options granted to the Named Executive Officers during the fiscal year
ended April 30, 1999.
- --------------------------------------------------------------------------------------------------------------------
Option/Share Grants During Fiscal Year Ended April 30, 1999
- --------------------------------------------------------------------------------------------------------------------
Name and Position During Options/Shares % of Total Options/Shares Exercise Price Expiration Date
Period Granted Granted to Employees in ($/Share)
Fiscal Year
- ----------------------------- ----------------- ---------------------------- ----------------- ---------------------
Thomas E. Biddix 57% $.04
Chief Executive Officer 4,000,000 December 1, 2004
- ----------------------------- ----------------- ---------------------------- ----------------- ---------------------
Timothy F. McWilliams 3,000,000 43% $.04 December 1, 2004
- ----------------------------- ----------------- ---------------------------- ----------------- ---------------------
The following table summarizes the number of exercisable and
unexercisable options held by the Named Executive Officers at April 30, 1999,
and their value at that date if such options were in the money.
- --------------------------------------------------------------------------------------------------------------------
Aggregate Fiscal Year End Option Values at April 30, 1999
- --------------------------------------------------------------------------------------------------------------------
Name and Position During Period Number of Unexercised Options at Value of Unexercised In-The-Money
April 30, 1999 Options at April 30, 1999 (#)(1)
----------------------------------- ----------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------- -------------- -------------------- ----------------- ----------------------
Thomas E. Biddix
Chief Executive Officer 0 4,000,000 0 0
- --------------------------------------- -------------- -------------------- ----------------- ----------------------
Timothy F. McWilliams
Chief Operating Officer 0 3,000,000 0 0
- --------------------------------------- -------------- -------------------- ----------------- ----------------------
(1) Represents the difference between the aggregate market value at April 30,
1999, of the common stock underlying the options (based on a last sale price
of $.04 on that date) and the options' aggregate exercise price.
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
common stock, par value $.01 beneficially owned as of October 1, 1999 for (i)
each stockholder known by the Company to be the beneficial owner of five (5%)
percent or more of the Company's outstanding common stock, (ii) each of the
Company's directors, (iii) each named executive officer, and (iv) all executive
officers and directors as a group. At October 1, 1999 there were 33,844,426
shares of common stock outstanding.
Name and Address of Amount and Nature of Percent
Beneficial Owner(1) Beneficial Ownership(2) of Class
- ------------------- ----------------------- --------
Thomas E. Biddix 29,485,353(3) 87%
Timothy McWilliams 3,000,0004) 9%
All directors and officers
as a group (4 persons)(5) 96%
- ----------------------
(1) Unless otherwise indicated, the address of each of the persons named in
the table is 255 East Drive, Suite C, Melbourne, Florida 32904. Unless
otherwise noted, the Company believes that each of the persons named in
the table have sole voting and dispositive power with respect to all the
shares of common stock of the Company beneficially owned by such person.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of warrants or
options or the conversion of convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days have been exercised.
(3) All of shares owned by Mr. Biddix were acquired in connection with the
acquisition of Pre-Cell Florida. (See "Certain Relationships and Related
Transactions.") Includes an option to acquire 4,000,000 shares granted to
Mr. Biddix as provided in Mr. Biddix's Employment Agreement with the
Company. (See "Executive Compensation")
(4) Includes an option to acquire 3,000,000 shares granted to Mr. McWilliams
as provided in Mr. McWilliams' Employment Agreement with the Company.
(See "Executive Compensation")
(5) Includes those individuals whose holdings are described in notes 3 and 4,
above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1998, the Board of Directors of the Company approved an
amendment to its certificate of Incorporation to effect a one-for-seven reverse
stock split. All per share data and references to the numbers of shares have
been retroactively restated to give effect to the reverse stock split.
19
The company entered into a Share Exchange Agreement as of December 1,
1998 pursuant to which it acquired all of the issued and outstanding capital
shares of Pre-Cell Florida in exchange for 32,156,000 shares of the Company's
common stock. Thomas Biddix, the Company's Chairman of the Board, Chief
Executive Officer and President, was the sole shareholder of Pre-Cell Florida.
Also on December 1, 1998, the company entered into an Administrative
Services Agreement with Pre-Paid Solutions, Inc. ("Pre-Paid") pursuant to which
Pre-Paid performs all of the administrative functions of the company, such as
accounting, legal, tax compliance and all other administrative functions.
Pursuant to the Administrative Services Agreement, the Company pays Pre-Paid
$1,000 per month. Pre-Paid is controlled by Thomas Biddix, the Company's
Chairman of the Board, Chief Executive Officer and President.
The Company subleases its corporate headquarters from Pre-Paid, a company
controlled by Thomas Biddix. The Company subleases 750 square feet of space at a
current rental rate of $486.95 per month. The Company has an option to extend
the sublease commencing on June 15, 2000 and terminating on June 14, 2001 at the
monthly rental rate of $511.26.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibits Description of Documents
10.1 Share Exchange Agreement entered into between the Company and Pre-Cell
Solutions, Inc., a Florida corporation
10.2 Employment Agreement between the Company and Thomas E. Biddix
10.3 Stock Option Agreement between the Company and Thomas E. Biddix
10.4 Employment Agreement between the Company and Timothy F. McWilliams
10.5 Stock Option Agreement between the Company and Timothy F. McWilliams
10.6 Administrative Services Agreement between the Company and Pre-Paid
Solutions, Inc.
10.7 Sublease between the Company and Pre-Paid Solutions, Inc. for the
property located at 255 East Drive, Suite C, Melbourne, Florida
20
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRE-CELL SOLUTIONS, INC.
(Registrant)
Date: December 30, 1999 By: /s/ Thomas E. Biddix
-----------------------------------
Thomas E. Biddix
Chief Executive Officer/Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
Date: December 30, 1999
By:/s/ Timothy McWilliams
--------------------------------
Timothy McWilliams, Director
21
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6
22
INDEPENDENT AUDITOR'S REPORT
Pre-Cell Solutions, Inc.
Melbourne, Florida
We have audited the accompanying consolidated balance sheets of Pre-Cell
Solutions, Inc. (A Colorado corporation) as of April 30, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
April 30, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Certified Public Accountants
November 12, 1999
F-1
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
CONSOLIDATED BALANCE SHEETS
April 30, 1999 and 1998
ASSETS
1999 1998
------------- -------------
CURRENT ASSETS:
Cash $ 507 $ -
Certificate of deposit, 4.26% matures June 28, 2000 3,000 -
Stock subscription receivable 3,000 -
Prepaid Service Fees 5,000 -
------------- -------------
TOTAL CURRENT ASSETS 11,507 -
------------- -------------
EQUIPMENT - net of accumulated
Depreciation of $150 1,713 -
------------- -------------
INTANGIBLE ASSETS - net of accumulated amortization
OF $43,000 (Note 2) 1,480,302 -
------------- -------------
$ 1,493,522 $ -
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 5,003 $ -
Accrued liabilities 82 -
Due to stockholders/officers (Note 4) 330,000 -
Due to Related Party (Note 4) 18,563 -
------------- -------------
TOTAL CURRENT LIABILITIES 353,648 -
------------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred Stock - $.10 par value;
5,000,000 shares authorized;
none outstanding - -
Common Stock - $.01 par value;
45,000,000 shares authorized 338,484 118,470
Additional paid-in capital 2,318,346 1,252,120
Accumulated Deficit (1,516,956) (1,370,590)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,139,874 -
------------- -------------
$ 1,493,522 $ -
============= =============
See notes to consolidated financial statements.
F-2
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended April 30, 1999 and 1998
1999 1998
------------- -------------
REVENUE $ 22,936 $ -
COST OF REVENUE 17,340 -
------------- -------------
GROSS PROFIT 5,596 -
GENERAL AND ADMINISTRATIVE EXPENSES 151,962 -
------------- -------------
NET LOSS $ (146,366) $ -
============= =============
LOSS PER SHARE $ (.01) $ -
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,999,623 11,846,985
============= =============
See notes to consolidated financial statements.
F-3
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended April 30, 1999 and 1998
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (146,366) $ -
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 150 -
Amortization 43,000 -
Net increase (decrease) in cash flows from changes in:
Prepaid service fees (5,000) -
Stock subscription receivable (3,000) -
Other (6,062) -
Accounts payable 5,003 -
Accrued liabilities 82 -
Due to stockholders/officers 50,000 -
Due to Related Party 18,563 -
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (43,630) -
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of certificate of deposit (3,000) -
Sale of certificate of deposit 12,000 -
Purchase of Equipment (1,863) -
------------- -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 7,137 -
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
ISSUANCE OF COMMON STOCK OF SUBSIDIARY 37,000 -
NET CASH FLOW FROM FINANCING ACTIVITIES 37,000 -
------------- -------------
NET INCREASE IN CASH 507 -
CASH - BEGINNING OF YEAR - -
------------- -------------
CASH - END OF YEAR $ 507 $ -
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On December 1, 1998, the Company issued 31,328,910 shares of common
stock for the net liabilities of Pre-Cell Solutions, Inc., a Florida
Corporation, and 827,090 of common stock for services rendered.
Additionally, the Company declared a 1 for 7 stock split.
See notes to consolidated financial statements.
F-4
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended April 30, 1999 and 1998
COMMON STOCK Additional
Shares Paid-In Accumulated
OUTSTANDING AMOUNT CAPITAL DEFICIT TOTAL
------------- ------------ ------------- ------------- --------------
BALANCE - April 30, 1997 11,846,985 $ 118,470 $ 1,252,120 $ (1,370,590) $ -
NET INCOME - - - - -
------------- ------------ ------------- ------------- --------------
BALANCE - April 30, 1998 11,846,985 118,470 1,252,120 (1,370,590) -
Effect of 1 for 7 stock split (10,150,255) (101,546) 101,546 - -
Issuance of stock in exchange for
the stock in Pre-Cell Solutions, Inc.
(a Florida corporation) 31,328,910 313,289 939,867 - 1,253,156
Issuance of common stock for
services rendered 827,090 8,271 24,813 - 33,084
NET LOSS - - - (146,366) (146,366)
------------- ------------ ------------- ------------- --------------
BALANCE - APRIL 30, 1999 33,852,730 $ 338,484 $ 2,318,346 $ (1,516,956) $ 1,139,874
============= ============ ============= ============= ==============
See notes to consolidated financial statements.
F-5
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30, 1999 and 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Pre-Cell Solutions, Inc. (the Company) f/k/a
Transamerican Petroleum Corporation ("Transamerican"), was
incorporated in Colorado in 1981. The Company, located in
Melbourne, Florida, operates as a competitive local exchange
carrier (CLEC), utilizing Bell South interconnection services.
Such local telephone service is provided throughout Florida.
Prior to December 1, 1998, the Company had been virtually
inactive since 1995.
PRINCIPLES OF CONSOLIDATION - These consolidated financial
statements present the Company and its wholly-owned
subsidiary, Pre-Cell Solutions, Inc., a Florida corporation.
All intercompany transactions and balances have been
eliminated.
USE OF ESTIMATES - The preparation of the consolidated
financial statements in conformity with generally accepted
accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from
those estimates.
CASH - Cash consists of bank deposits, which at times may
exceed federally insured limits.
EQUIPMENT - Equipment is recorded at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets, generally five years. Expenditures
for repairs and maintenance are charged to operations as
incurred.
GOODWILL - The excess of purchase price over net liabilities
acquired in a business combination is accounted for as
goodwill, which is being amortized over fifteen years
utilizing the straight-line method.
INCOME TAXES - The Company accounts for income taxes pursuant
to Statement of Financial Accounting Standards No. 109 (SFAS
109). SFAS 109 requires the recognition of deferred tax assets
and liabilities and adjustments to deferred tax balances for
changes in tax law and rates. In addition, future tax benefits
such as net operating loss carryforwards are recognized to the
extent recognition of such benefits is more likely than not.
F-6
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30, 1999 and 1998
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
EARNINGS OR LOSS PER SHARE - Earnings or loss per share is
computed based on the weighted average number of common shares
outstanding. The number of shares used in computing the loss
per common share at April 30, 1999 and 1998 was 14,999,623 and
11,846,985, respectively.
NOTE 2 ACQUISITION
On December 1, 1998, the Company exchanged 31,328,910 shares
of its common stock for the outstanding common stock of
Pre-Cell Solutions, Inc., a Florida corporation in a
transaction accounted for as a purchase. The total purchase
price approximated $1,523,000. The excess of the purchase
price over the net liabilities assumed is accounted for as
goodwill.
NOTE 3 INCOME TAXES
At April 30, 1999 and 1998, the Company has approximately
$370,000 of net operating loss carryforwards expiring through
2014, which would have resulted in a deferred tax asset of
approximately $275,000 at April 30, 1999 and 1998. The Company
has not recognized the deferred tax asset applicable to the
carryforward as the balance is offset by a valuation
allowance.
NOTE 4 RELATED PARTY TRANSACTIONS
The Company leases its offices from a related party under a
sublease. The agreement calls for monthly rental payments
totaling approximately $500 with annual renewal options
through June, 2001. Total rent for the year ended April 30,
1999 approximated $4,600 and is included in current
liabilities at April 30, 1999.
The Company has entered into an administrative services
agreement with a related party totaling $1,000 per month
through June 30, 2001. Total fees under this agreement for the
year ended April 30, 1999 totaled $10,000 and is included in
current liabilities at April 30, 1999.
F-7
PRE-CELL SOLUTIONS, INC.
(A COLORADO CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended April 30, 1999 and 1998
NOTE 4 RELATED PARTY TRANSACTIONS - Continued
The Company has entered into employment agreements with two
stockholders/officers. Such agreements require annual payments
totaling $180,000 and $95,000, respectively, to each executive
per year through June 30, 1999. Fees under this agreement
totaled $330,000 and are included in current liabilities.
Additionally, the agreements provide for the executives to
receive a total of 4,000,000 and 3,000,000 options,
respectively to purchase common stock at $.04 per share. These
options vest on December 1, 1999 and are exercisable for a
term of five years.
NOTE 5 CONTINGENCIES
The Company is an over-the-counter (OTC) bulletin board
company. In July, 1999, the Company changed its trading symbol
from TAMP to TDCM. However, the Company remains delinquent in
its S.E.C. filings; the last Form 10-K was filed for the year
ended June 30, 1995.
Additionally, the Company is delinquent in its filings with
the Internal Revenue Service.
The effects, if any, of any penalties relating to the above
are not reflected in these consolidated financial statements.
NOTE 6 YEAR 2000 (UNAUDITED)
Management has assessed the Company's exposure to date
sensitive computer hardware and software programs that may not
be operative subsequent to 1999 and has implemented a
requisite course of action to minimize Year 2000 risk and
ensure that neither significant costs nor disruption of normal
business operations are encountered. However, because there is
no guarantee that all systems of outside vendors or other
entities affecting the Company's operations will be 2000
compliant, the Company remains susceptible to consequences of
the Year 2000 Issue.
F-8