U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2001 -------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ___________________ Commission file number 0-14978 -------- PRE-CELL SOLUTIONS, INC. (Exact name of registrant as specified in its charter) COLORADO 84-0751916 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 385 East Drive, Melbourne, Florida 32904 (Address of principal executive offices) (Zip Code) (321) 308-2900 (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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate number or shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of March 1, 2001, 42,528,189 shares of the Registrant's Common Stock were issued and outstanding. PRE-CELL SOLUTIONS, INC. Form 10-Q TABLE OF CONTENTS Heading Page PART I. FINANCIAL STATEMENTS Item 1. Condensed Consolidated Financial Statements Balance Sheets - January 31, 2001 (unaudited) and April 30, 2000...........................................................3 Statements of Operations - Three and nine months ended January 31, 2001 and 2000 (unaudited)..............................4 Statements of Stockholders' Equity - Nine months ended January 31, 2001 (unaudited).......................................5 Statements of Cash Flows - Nine months ended January 31, 2001 and 2000 (unaudited)..........................................6 Notes to Consolidated Financial Statements.........................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................11 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................13 Item 2. Changes in Securities...............................................14 Item 3. Defaults Upon Senior Securities.....................................14 Item 4. Submission of Matters to a Vote of Securities Holders...............14 Item 5. Other Information...................................................14 Item 6. Exhibits and Reports on Form 8-K....................................14 SIGNATURES...................................................................15 Page 2 PART I Item 1. Financial Statements.

Pre-Cell Solutions, Inc. and Subsidiaries Consolidated Balance Sheets ~~October~~January 31, ~~2000~~2001 April 30, 2000 ---------------- -------------- (Unaudited) Assets Cash .................................................................... $ 9941,~~016~~316 $ 383,333 Restricted cash.......................................................... ~~466~~356,000 500,000 Accounts receivable, net................................................. ~~577~~506,~~390~~860 272,378 Inventory................................................................ ~~265~~74,~~975~~347 186,875 Prepaid expenses and other.............................................. 7444,~~500~~823 120,565 --------------- -------------- Total current assets...............................................~~...~~ 1,~~482~~023,~~881~~346 1,463,151 Furniture, fixtures and equipment, net................................... ~~477~~511,~~462~~904 343,175 Goodwill, net..........................................................~~....~~ 1921,~~678~~872,~~951~~945 18,331,219 Other assets........................................................... 918,~~464~~728 107,554 --------------- -------------- $ 2123,~~648~~426,~~758~~923 $ 20,245,099 =============== ============== Liabilities and Stockholders' Equity Current liabilities: Notes payable..........................................................~~...~~ $ ~~183~~1,~~491~~399,363 $ 31,716 Accounts payable.......................................................~~...~~ 1,~~236~~074,~~041~~778 505,847 Customers deposits ...................................................... ~~122~~101,~~266~~541 253,099 Due to stockholders....................................................~~...~~ 1,~~066~~124,~~199~~697 697,027 Accrued expenses ......................................................~~...~~ ~~709~~1,~~814~~095,322 601,830 --------------- -------------- Total current liabilities..........................................~~....~~ 34,~~317~~795,~~811~~701 2,089,519 --------------- -------------- Stockholders' equity: Preferred stock ....................................................... -- -- Common stock...........................................................~~....~~ 425,281 397,368 Additional paid in capital ............................................~~......~~ 2326,~~614~~582,898 20,519,992 Accumulated other comprehensive ~~gain~~income/(loss)..........................~~.....~~ 2030,~~321~~186 (3,894) Accumulated deficit ...................................................~~.....~~ (58,~~729~~407,~~553~~143) (2,757,885) --------------- -------------- Total stockholders' equity .................................................~~......~~ 18,~~330~~631,~~947~~222 18,155,581 --------------- -------------- $ 2123,~~648~~426,~~758~~923 $ 20,245,099 =============== ==============

See accompanying notes to consolidated financial statements Page 3

Pre-Cell Solutions, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended ~~October~~January 31, ~~Six~~Nine Months Ended ~~October~~January 31, ------------------------------ ----------------------------- 2001 2000 ~~1999~~2001 2000 ~~1999~~ ---- ---- ---- ---- Revenues................................... $ 12,~~759~~056,~~084~~570 $ 5362,~~427~~252 $ 24,~~413~~469,~~061~~631 $ 70133,~~999~~251 ------------- ------------- ------------ ------------- Expenses: Direct costs...........................~~...~~ ~~959~~1,~~138~~422,152 5731,~~374~~587 12,~~210~~632,~~303~~455 71103,~~697~~284 ~~Other~~Selling, ~~expenses~~General and Administrative ...~~.........................~~ 23,~~317~~009,~~163~~971 ~~132~~97,~~132~~834 36,~~660~~670,~~534~~505 ~~153~~234,~~784~~618 Goodwill amortization..................~~....~~ ~~254~~274,~~565~~959 825,500 ~~487~~762,~~502~~461 1759,~~000~~500 ------------- ------------- ------------ ------------- Total expenses 4,707,082 154,921 10,065,421 397,402 ------------- ------------- ------------ ------------- Operating loss.............................. (12,~~171~~650,~~782~~512) (~~144~~92,~~579~~669) (25,~~945~~595,~~278~~790) (~~171~~264,~~482~~151) Interest and other expense ................ (32,~~029)~~862 -- 5053,~~606~~468 -- --------------- -------------~~---~~ ------------- --------------- Net loss..................................... (12,~~768~~653,~~753~~374) (~~144~~92,~~579~~669) (25,~~995~~649,~~884~~258) (~~171~~264,~~482~~151) Other comprehensive income - foreign currency translation adjustments......... 169,~~896~~864 -- 2434,~~215~~080 -- --------------- -------------~~---~~ ------------- --------------- Comprehensive loss......................... $ (12,~~751~~643,~~857~~510) $ (~~144~~92,~~579~~669) $ (25,~~971~~615,~~669~~178) $ (~~171~~264,~~482~~151) =============== =============~~===~~ ============= =============== Basic and diluted loss per common share.... $ (.0406) $ -- $ (.0713) $ -- =============== =============~~===~~ ============= =============== ~~Weighted~~Basic and diluted weighted average number of common shares outstanding................ 42,~~189~~528,~~152~~189 33,852,730 41,~~254~~912,~~235~~616 33,852,730 =============== =============~~===~~ ============= ===============

See accompanying notes to consolidated financial statements Page 4

Pre-Cell Solutions, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Common Stock ------------ Accumulated Number Additional Other of Par Paid-In Comprehensive Accumulated Shares Value Capital Income (loss) Deficit Total ------ ----- ------- ------------ ------- ----- BALANCE, April 30, 2000 39,736,859 $ 397,368 $ 20,519,992 $ (3,894) $ (2,757,885) $ 18,155,581 Unaudited: Common stock issued for cash 2,133,330 21,333 1,578,667 -- -- 1,600,000 Exercise of common stock options 658,000 6,580 19,740 -- -- 26,320 Contingent stock consideration to be issued in connection with ~~acquisition~~acquisitions 1-- -- 3,~~496~~684,499 -- -- 13,~~496~~684,499 Contingent stock consideration to be issued in connection with note payable issued -- -- 30,000 -- -- 30,000 Warrants issued in settlement of accrued compensation -- -- 750,000 -- -- 750,000 Other comprehensive income - Foreign currency translation adjustment -- -- -- 2434,~~215~~080 -- 2434,~~215~~080 Net loss -- -- -- -- (25,~~971~~649,~~668~~258) (25,~~971~~649,~~668~~258) ---------- --------- ------------ ---------- ------------ ------------ BALANCE, ~~October~~January 31, ~~2000~~2001 (unaudited) 42,528,189 $ 425,281 $ 2326,~~614~~582,898 $ 2030,~~321~~186 $ (58,~~729~~407,~~553~~143) $ 18,~~330~~631,~~947~~222 ========== ========= ============ ========== ============= ============

See accompanying notes to consolidated financial statements Page 5

Pre-Cell Solutions, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) ~~Six~~Nine Months Ended ~~October~~January 31, 2001 2000 ~~1999~~ ---- ---- Cash flows from operating activities: Net loss.................................................................~~...~~ $ (25,~~971~~649,~~669~~258) $ (~~171~~264,~~481~~151) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.......................................... ~~554~~857,~~985~~752 3459,~~100~~675 ~~Translation~~Issuance ~~gain~~of common stock warrants for compensation.................... 750,000 -- Contingent stock issued in connection with note payable...............~~...................~~ 2430,~~215~~000 -- Changes in operating assets and liabilities (net of effects of ~~acquisition~~acquisitions): Restricted cash..................................................... 34144,000 -- Accounts receivable................................................. (~~278~~190,~~594~~832) (2115,~~157~~560) Inventory........................................................... ~~(76~~115,~~236)~~392 -- Prepaid expenses and deposits....................................... 4975,~~047~~742 (2,000) Accounts payable..................................................... ~~599~~1,~~362~~220,852 33,~~625~~961 Accrued expenses and other liabilities............................... 98434,~~179~~279 (7647) Due to stockholders/officers........................................ 4182,~~088~~586 60105,000 Due to related party................................................ -- 8288,~~763~~248 ------------- ------------~~---~~ Net cash provided by (used in) operating activities........................... (12,~~962~~029,~~623~~487) 155,~~774~~126 ------------- ------------~~---~~ Cash flows from investing activities: Purchase of property and equipment....................................... (7287,~~563~~021) (5,~~000~~633) ~~Decrease~~Increase in other assets................................................... ~~103~~(13,~~744~~230) -- Cash acquired in ~~acquisition~~acquisitions.............................................. 2617,~~802~~025 -- ------------- ------------~~---~~ Net cash provided by (used in) investing activities.......................... 57(83,~~983~~226) (5,~~000~~633) ------------- ------------~~---~~ Cash flows from financing activities: Proceeds from the sale of common stock and exercise of options............. 1,626,320 -- Proceeds from the issuance of debt instruments........................... 150,222 -- Repayment on note payable ............................................... (5,997) -- ------------- ------------~~---~~ Net cash provided by ~~investing~~financing activities..................................... 1,~~620~~770,~~323~~545 -- ------------- ------------ Effect of exchange rate changes on cash and cash equivalents................ 150 -- ------------- ------------ Net ~~increase~~ (decrease) in cash and cash equivalents................................. (~~284~~342,~~317~~018) ~~10,774~~(507) Cash at beginning of period................................................... 383,333 507 ------------- ------------~~---~~ Cash at end of period....................................................... $ 9941,~~016~~316 $ ~~11,281~~-- ============= =============== Supplemental disclosure of cash flow information and non-cash investing and financing activities is as follows: Cash paid for interest for the period..................................... $ 101,835 $ -- ------------- ---------------

See accompanying notes to consolidated financial statements Page 6 Pre-Cell Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements of Pre-Cell Solutions, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for a complete financial statement presentation. In the opinion of management, such unaudited interim information reflects all adjustments, consisting only of normal recurring adjustments, necessary to present the Company's financial position and results of operations for the periods presented. The results of operations and cash flows for interim periods are not necessarily indicative of the results to be expected for a full fiscal year. The consolidated balance sheet as of April 30, 2000 was derived from the audited consolidated financial statements as of that date but does not include all the information and notes required by generally accepted accounting principles. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as presented in the Company's annual report on Form 10-K. The report of our independent certified public accountants on the Company's 2000 financial statements contained an explanatory paragraph emphasizing that there was substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 2 - Acquisitions Transnational Communications On December 1, 2000, the Company's wholly owned subsidiary, Pre-Cell Solutions, Inc. a Florida corporation ("PCF"), entered into an agreement to acquire all of the outstanding shares of Transnational Communications, Inc. ("TNT"), a prepaid local exchange service company in San Antonio, Texas, for 1,000,000 shares of Pre-Cell common stock. Additionally, on December 1, 2000 PCF entered into an agreement to manage and control all the operations of TNT during the transition period for the customer accounts to be switched from TNT to PCF. The final closing of the transaction is subject only to the approval of the Public Utility Commissions Rules and Regulations, which approval is considered probable and is expected to be finalized within the Company's fourth fiscal quarter ending April 30, 2001. With this effective level of control management has consolidated the operations of TNT from December 1, 2000 forward. The acquisition described above was accounted for by the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the purchase price over the fair values of the net assets acquired was approximately $2,447,000 and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. The transaction was recorded as follows: Contingent stock consideration to be issued in connection with acquisition........................ 2,188,000 Less fair value of assets acquired...................... (86,280) Liabilities assumed..................................... 345,508 --------- Excess cost of net assets acquired...................... 2,447,228 ========= Teleconex On August 1, 2000, the Company's wholly owned subsidiary, Pre-Cell Solutions, Inc. a Florida corporation ("PCF"), entered into an agreement to acquire all of the outstanding shares of Teleconex, Inc. ("Teleconex"), a prepaid local exchange service company in Pensacola, Florida, for 683,333 shares of Pre-Cell common stock plus cash of $160,000. Additionally, on August 1, 2000 PCF entered into an agreement to manage and control all the operations of Teleconex during the transition period for the customer accounts to be switched from Teleconex to PCF. The final closing of the transaction is expected to occur during the fourth fiscal quarter ending April 30, 2001. This closing was subject only to the approval of the Public Utility Commissions Rules and Regulations, which approval was finalized within the Company's third fiscal quarter ended January 31, 2001. With this effective level of control management has consolidated the operations of Teleconex from August 1, 2000 forward. Page 7 The acquisition described above was accounted for by the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the purchase price over the fair values of the net assets acquired was approximately $1,857,000 and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. The transaction was recorded as follows: Contingent stock consideration to be issued in connection with acquisition.......................... 1,496,499 Due to owners.......................................... 160,000 ----------- Total consideration to be issued................. 1,656,499 Less fair value of assets acquired..................... (212,202) Liabilities assumed.................................... 412,662 ----------- Excess cost of net assets acquired..................... 1,856,959 =========== During the fiscal year ended April 30, 2000, the Company acquired 100% of the outstanding stock of two entities. US Intellicom, Inc. On April 4, 2000 (the "Closing Date"), Pre-Cell Solutions, Inc. ("Pre-Cell"), USI Merger Corp., a Georgia corporation and wholly-owned subsidiary of Pre-Cell ("USI Merger Subsidiary"), US/Intellicom, Inc., a Georgia corporation ("USI") and Ronald I. Kindland and each of the other stockholders of USI ("USI Stockholders") executed a Merger And Reorganization Agreement ("USI Merger Agreement"), pursuant to which USI merged ("USI Merger") with and into USI Merger Corp. In connection with the USI Merger, Pre-Cell issued an aggregate of 11,440,000 shares of Pre-Cell common stock to the stockholders of USI determined on the basis of a negotiated value of the business and proprietary technology developed by USI and the market value of Pre-Cell's common stock. Under the terms of the agreement, the holders of USI common stock were issued 8.8 shares of Pre-Cell common stock in exchange for each share of USI common stock. In connection with the acquisition and as a condition of closing, Pre-Cell established an option pool in the aggregate of 2,133,330 shares of common stock whereby certain stockholders of USI that had guaranteed USI's line of credit shall, until December 31, 2000, have the right to acquire Pre-Cell common stock. The line of credit was paid and closed during the quarter ended October 31, 2000, and the guarantees of certain shareholders were released. Concurrent with the release of the guarantees these shareholders exercised their option to acquire 2,133,330 additional shares of the Company's common stock. As these options are exercised the shareholder guarantees are released and the amount available under the USI line of credit is reduced by a corresponding amount. Additionally, all outstanding options to purchase USI shares became fully vested and were automatically converted into options to purchase Pre-Cell shares on a basis of 8.8 Pre-cell shares for each USI share entitled to be purchased under the USI options, at the per share price equal to the quotient of (i) the price contained in the USI options, divided by (ii) 8.8. Pre-Paid Solutions On April 4, 2000, Pre-Cell, Pre-Paid Acquisition Corp., a Florida corporation and wholly-owned subsidiary of Pre-Cell ("Pre-Paid Merger Subsidiary"), Pre-Paid Solutions, Inc., a Florida corporation ("Pre-Paid") and Thomas E. Biddix and each of the other stockholders of Pre-Paid ("Pre-Paid Stockholders") executed a Merger And Reorganization Agreement ("Pre-Paid Merger Agreement"), pursuant to which Pre-Paid was merged ("Pre-Paid Merger") with and into Pre-Paid Acquisition Corp. In connection with the Pre-Paid Merger, Pre-Cell issued an aggregate of 20,219,127 shares of Pre-Cell common stock to the stockholders of Pre-Paid determined on the basis of a negotiated value of the business and certain contracts of Pre-Paid and the market value of Pre-Cell's common stock. Under the terms of the agreement, the holders of Prepaid common stock were issued 2.81915 shares of Pre-Cell common stock in exchange for each share of Prepaid common stock. Additionally, all outstanding options and warrants to purchase Pre-Paid shares became fully vested and were automatically converted into options and warrants to purchase Pre-Cell shares on a basis of 2.81915 Pre-Cell shares for each Pre-Paid share entitled to be purchased under the Pre-Paid options, at the per share price equal to the quotient of (i) the price contained in the Pre-Paid options and warrants, divided by (ii) 2.81915. The acquisitions described above were accounted for by the purchase method of accounting and accordingly, the operating results have been included in the Company's consolidated results of operations from the date of acquisition. Page 8 The costs of the acquisitions have been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the purchase prices over the fair values of the net assets acquired was approximately $16,985,000 and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. Accordingly, the accompanying consolidated statements of operations do not include any revenues or expenses related to these acquisitions prior to the closing date. Pro Forma results Following are the Company's unaudited pro forma results for the three and nine months ended January 31, 2001 and 2000 assuming the acquisitions of US Intellicom, Pre-paid Solutions, Teleconex and TNT occurred on May 1, 1999:

~~Contingent~~Three ~~stock~~months ~~consideration~~ended toJanuary be31, ~~issued~~Nine inmonths ~~connection~~ended ~~with~~January ~~acquistion............ 1~~31,~~496,499~~ ~~Due~~------------------------------ to----------------------------- ~~owners........................................................................~~2001 ~~160,000~~2000 2001 2000 ---- ---- ---- ~~Total~~---- ~~consideration~~Net ~~to be issued~~revenues.................~~..............................~~ 1$ 2,~~656~~056,~~499~~570 ~~Less~~$ ~~fair~~2,514,311 ~~value~~$ of6,819,015 ~~assets~~$ ~~acquired~~6,176,567 Net loss.....................~~..............................~~ (~~212~~2,~~202~~677,589) ~~Liabilities~~(3,368,302) ~~assumed..................................................................~~(6,059,030) ~~412~~(2,~~662~~021,090) ~~-----------~~Basic ~~Excess~~and ~~cost~~diluted of net ~~assets~~loss ~~acquired~~per common share (.06) (.08) (.14) (.05) Weighted average outstanding shares.........~~......................................~~ 144,~~856~~211,~~959~~522 ~~===========~~40,754,567 43,595,949 40,754,567

The pro forma consolidated results of operations include adjustments to give effect to amortization of goodwill. The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the purchase been made at the beginning of the periods presented or the future results of the combined operations. Note 3 - Financing The Company had a line-of-credit available under which it could borrow up to $1,600,000 at an interest rate of 2.30% over the lender's commercial paper rate. The line was paid and closed during the quarter ended October 31, 2000, and the guarantees of certain shareholders were released. Concurrent with the release of the guarantees these shareholders exercised their option to acquire 2,133,330 additional shares of the Company's common stock for cash proceeds of $1.6 million. In addition, the Company converted $977,800 of its accounts payable to notes payable and issued $150,000 of new debt. Note 4 - Accrued expenses Accrued expenses consist of the following: January 31, 2001 April 30, 2000 ---------------- -------------- Accrued claim (see Note 5)..... $ 380,000 $ 380,000 Accrued interest............... 14,172 101,004 Accrued compensation........... 372,206 108,052 Accrued other.................. 328,944 12,774 ------------ ----------- $ 1,095,322 $ 601,830 ============ =========== Note 5 - Commitments and contingencies Employment agreements The Company has employment agreements with its executive officers. The agreements cover a three-year period beginning April 1, 2000 and are terminable for cause by either party. They also include provisions for discretionary bonuses and in one instance an incentive bonus for product development. Certain of the agreements provide for the grant of a total of 1,606,000 shares of the Company's common stock. The shares vest 20% on October 1, 2000, 30% on January 1, 2001 with the remaining 50% on April 1, 2001. The agreements include a covenant against competition with the Company and prohibit divulgence of confidential information. In October 2000 and in January 2001 one of these agreements including 856,000 granted shares of the Company's common stock was amended to provide that the initial vesting periods were extended to February 2001. There was no compensation expense related to this modification. The Company has recognized compensation expense of $285,333 during the nine months ended January 31, 2001 as a result of this stock grant. The remaining unvested Page 9 compensation expense of $142,667 as a result of the stock grant will be recognized in the fourth fiscal quarter ending April 30, 2001 as it becomes fully vested. In November 2000 one of these agreements including 750,000 granted shares of the Company's common stock was amended to eliminate the common stock grant and grant the executive a contingent five-year warrant to acquire 750,000 shares of the Company's common stock at an exercise price of $.01. This warrant is subject to a forbearance agreement preventing the executive from exercising any rights under the Warrant until such time as the Company increases its total authorized common stock to at least 100,000,000 shares at a meeting of its stockholders called for that purpose. The Company has recognized compensation expense of $750,000 during the nine months ended January 31, 2001 as a result of the stock grants. Letters of credit The Company is contingently liable under the terms of various letters of credit of up to $356,000 issued to secure credit from certain of its suppliers of cellular phone airtime. The letter of credit is secured by a $356,000 certificate of deposit. As of February 28, 2001 there were no claims against any of the letters of credit. Litigation On September 21, 1999, the two subsidiaries acquired during April 2000 were named as defendants in two lawsuits alleging patent infringement arising out of having made, used, offered for sale and/or sold in the United States products which infringe one or more claims of Patent No. 5,631,947 and Patent No. 5,577,100. The claims for monetary damages are undisclosed. While any litigation or investigation has an element of uncertainty, in the opinion of management and legal counsel, there is no reasonable probability at present of any substantial liabilities arising out of this matter. An action was brought against US Intellicom, Inc. (USI), a subsidiary of the Company, by RiverHawk Capital Resources, Inc., an affiliate of RiverHawk Holdings, Inc. (RiverHawk) before the American Arbitration Association, claiming that it is entitled to a "success" fee in connection with a letter agreement between the parties. On June 9, 2000 the Arbitrator found that RiverHawk was entitled to a success fee of $374,517, plus one-half of the costs and expenses of arbitration. The Company has accrued $380,000 at April 30, 2000 and January 31, 2001 and adjusted the purchase price of the USI acquisition. However, USI has filed a Motion to Vacate the Decision of the Arbitrator. If this motion is denied the Company intends to appeal. From time-to-time, the Company is involved in other legal proceedings incidental to the conduct of its business. The Company believes that this other litigation, individually or in the aggregate, to which it is currently a party is not likely to have a material adverse effect on our business, financial condition, results of operations, or cash flows. Note 6 - Income taxes There was no income tax expense/benefit for the Company for the three and nine months ended January 31, 2001. The Company maintains a valuation allowance to state its deferred tax assets at an estimated net realizable value, this balance at January 31, 2001 was zero due to the uncertainty related to realization of these assets through future taxable income. The recognition of any future tax benefits resulting from the net operating loss carryforwards acquired will reduce goodwill. Note 7 - Supplemental cash flow information Supplemental disclosure of cash flow information and non-cash investing and financing activities is as follows: Nine months ended January 31, 2001 2000 ---- ---- Cash paid for interest for the period...... $ 123,556 $ -- ------------- --------- Page 10 In addition to the above non-cash item, the following is a summary of non-cash transactions entered into for the acquisitions listed in Note 2: Contingent common stock to be issued.................... $ (3,684,499) Issuance of related party note payable.................. (160,000) ------------- Total non-cash consideration paid....................... (3,844,499) ------------- Accounts receivable acquired............................ 43,650 Inventory acquired...................................... 2,864 Property and equipment acquired......................... 175,475 Other assets acquired................................... 76,493 Goodwill acquired....................................... 4,304,187 ------------- Total non-cash acquisition of assets.................... 4,602,669 ------------- Notes payable assumed................................... (245,622) Accounts payable assumed................................ (208,250) Accrued liabilities assumed............................. (59,214) Related party notes payable assumed..................... (245,084) ------------- Total non-cash assumption of liabilities................ (758,170) ------------- Net cash paid........................................... $ 0 ============= During the quarter ended January 31, 2001 the Company converted $977,800 of accounts payable to notes payable. Item No. 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the Company's consolidated financial position and consolidated results of operations should be read in conjunction with the Company's condensed consolidated financial statements and related notes thereto included in Item 1. Forward-Looking Statements This report contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. Such forward-looking statements are within the meaning of the term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may include, but not be limited to, projections of revenues, income, or loss, estimates of capital expenditures, plans for future operations, products or services, and financing needs or plans, as well as assumptions relating to the foregoing. The words "believe," "expect," "anticipate," "estimate," "project," and similar expressions identify forward looking statements, which speak only as of the date the statement was made. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from that set forth in, contemplated by, or underlying the forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events, or otherwise. The following disclosures, as well as other statements in this Report on Form 10-Q, and in the notes to the Company's condensed consolidated financial statements, describe factors, among others, that could contribute to or cause such differences, or that could affect the Company's stock price. Overview Since 1995, we were inactive but structured to take advantage of business opportunities which management believed would be in the best interest of our shareholders. In December 1998, we acquired Pre-Cell Solutions (a Florida corporation) through the issuance of 32,156,000 shares of our common stock and we changed our name to Pre-Cell Solutions, Inc. In April 2000, we acquired Pre-Paid Solutions and US Intellicom through the issuance of 31,659,127 shares of our common stock. In August and in December 2000, we acquired two unrelated prepaid local exchange service companies through the contingent issuance of 1,683,333 shares of our common stock. We currently offer prepaid wireless, long distance and local telecommunication products and services through distributors and resellers as well as licensing prepaid wireless technology to other wireless resellers. Page 11 Results of Operations Three months ended January 31, 2001 compared to three months ended January 31, 2000 Revenues for the three months ended January 31, 2001 were $2,056,570 up $1,994,318 from $62,252 for the three months ended January 31, 2000. Of this increase $1,432,655 resulted from a decrease of ($58,654) in revenues of our historical Prepaid Dialtone business, offset by an increase of $1,491,309 in revenues from the newly acquired Teleconex and TNT businesses. Of the remaining $561,663 of the increase, $253,936 resulted from the operations of Pre-Paid Solutions, Inc. and $307,727 resulted from the operations of US Intellicom, Inc., both of which were acquired in April 2000. Direct costs for the three months ended January 31, 2001 were $1,422,152 up $1,390,565 from $31,587 for the three months ended January 31, 2001. Of this increase, $1,104,341 resulted from an increase of our Direct Dialtone business. The operations of Pre-Paid Solutions accounted for the balance of this increase of $286,223. Other operating expenses increased $2,912,137 from $97,834 in the three months ended January 31, 2000 to $3,009,971 in the three months ended January 31, 2001. The operations of US Intellicom accounted for $732,992 of the increase, the operations of our Direct Dialtone business accounted for $498,737 of the increase and $1,680,408 resulted from the operations of Pre-Paid Solutions and increases in corporate overhead as we emerged from an inactive entity and continued to establish the infrastructure necessary to accomplish our strategic business plans. The amortization of goodwill was $274,959 for the quarter ended January 31, 2001 as compared to $25,500 for the quarter ended January 31, 2000. This increase was the result of an increase in goodwill of approximately $16,985,000 associated with the acquisitions of Pre-Paid Solutions and US Intellicom that occurred in April 2000 and approximately $4,304,000 associated with the acquisitions of Teleconex effective August 1, 2000 and TNT effective December 1, 2000. This increase reflects three months of amortization in the current period, which will be approximately $1,141,000 annually. There was no income tax expense/benefit for the Company for the three months ended January 31, 2001 and 2000. The Company maintains a valuation allowance to state its deferred tax assets at an estimated net realizable value, this balance at January 31, 2001 was zero due to the uncertainty related to realization of these assets through future taxable income. The recognition of any future tax benefits resulting from the net operating loss carryforwards acquired will reduce goodwill. Net loss for the three months ended January 31, 2001 was $2,653,374 as compared to a loss of $92,669 for the three months ended January 31, 2000. This increase in net loss of $2,560,705 is primarily the result of the combined effects of the increased other operating expenses of $2,912,137 and increased goodwill amortization of $249,459 offset by approximately $603,753 in increased gross profit margins on revenues. Nine months ended January 31, 2001 compared to nine months ended January 31, 2000 Revenues for the nine months ended January 31, 2001 were $4,469,631 up $4,336,380 from $133,251 for the nine months ended January 31, 2000. Of this increase $2,265,731 resulted from a decrease of ($93,204) in revenues of our historical Prepaid Dialtone business, offset by an increase of $2,358,935 in revenues from the newly acquired Teleconex and TNT businesses. Of the remaining $2,070,649 of the increase, $758,026 resulted from the operations of Pre-Paid Solutions, Inc. and $1,312,623 resulted from the operations of US Intellicom, Inc., both of which were acquired in April 2000. Direct costs for the nine months ended January 31, 2001 were $2,632,455 up $2,529,171 from $103,284 for the nine months ended January 31, 2000. Of this increase, $1,736,870 resulted from an increase of our Direct Dialtone business. The operations of Pre-Paid Solutions accounted for $761,491 of the increase and the operations of US Intellicom accounted for $30,810 of the increase. Other operating expenses increased $6,435,887 from $234,618 in the nine months ended January 31, 2000 to $6,670,505 in the nine months ended January 31, 2001. The operations of US Intellicom accounted for $2,248,082 of the increase, the operations of Teleconex and TNT accounted for $589,214 of the increase and $3,598,591 resulted from the operations of Pre-Paid Solutions and increases in corporate overhead as we emerged from an inactive entity and continued to establish the infrastructure necessary to accomplish our strategic business plans. Page 12 The amortization of goodwill was $762,461 for the nine months ended January 31, 2001 as compared to $59,500 for the nine months ended January 31, 2000. This increase was the result of an increase in goodwill of approximately $16,985,000 associated with the acquisitions of Pre-Paid Solutions and US Intellicom that occurred in April 2000 and approximately $4,304,000 associated with the acquisition of Teleconex effective August 1, 2000 and TNT effective December 1, 2000. This increase reflects nine months of amortization in the current period, which will be approximately $1,141,000 annually. There was no income tax expense/benefit for the Company for the nine months ended January 31, 2001 and 2000. The Company maintains a valuation allowance to state its deferred tax assets at an estimated net realizable value, this balance at January 31, 2001 was zero due to the uncertainty related to realization of these assets through future taxable income. The recognition of any future tax benefits resulting from the net operating loss carryforwards acquired will reduce goodwill. Net loss for the nine months ended January 31, 2001 was $5,649,258 as compared to a loss of $264,151 for the nine months ended January 31, 2000. This increase in net loss of $5,385,107 is primarily the result of the combined effects of the increased other operating expenses of $6,435,887 and increased goodwill amortization of $702,961 offset by $1,807,209 in increased gross profit margins on revenues. Liquidity and Capital Resources For the nine months ended January 31, 2001, net cash used in operating activities was $2,029,487. This was mainly due to the operating loss for the period. As of January 31, 2001, we had cash of $41,316 and a net working capital deficit of $3,772,355. Net cash provided from financing activities for the nine months ended January 31, 2001 was $1,770,545. The financing of operating losses was provided by approximately $1,626,320 from the sale of our common stock and issuance of notes payable of $150,000. Our ability to meet our future obligations in relation to the orderly payment of our recurring, general and administrative expenses on a current basis is dependent on our ability to expand our current customer base, secure and develop new business opportunities and raise additional capital. We are unable to predict how long it may be able to survive without a significant infusion of capital from outside sources and we cannot predict whether such capital infusion, if available, will be on terms and conditions favorable to us. The Company's audited financial statements for the year ended April 30, 2000 and unaudited financial statements for the period ended January 31, 2001 were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. However, absent our ability to execute our plans to expand our current customer base, secure and develop new business opportunities and raise additional capital, we may be unable to continue as a going concern, which could significantly impact the liquidation or settlement value of our assets and liabilities. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On May 6, 1999 Telemac Cellular Corporation filed suit against US Intellicom, Inc., our wholly owned subsidiary, in the Northern District of California. Telemac Cellular alleges patent infringement arising out of US Intellicom's use of its prepaid cellular software products. Telemac is seeking, among other relief, an undetermined amount of damages. As there are numerous disputed facts and because Telemac has yet to quantify its claim, we cannot provide a range of potential loss. On September 21, 1999, two of our subsidiaries were named as defendants in lawsuits filed by Topp Telecom, Inc., alleging patent infringement arising out of having made, used, offered for sale and/or sold in the United States products which infringe one or more claims of Patent No. 5,613,947 and Patent No. 5,577,100. The claim for monetary damages are undisclosed. As this litigation is in the early stages, and Topp Telecom has yet to quantify its claim, we cannot provide a range of potential loss. On March 7, 2000 RiverHawk Capital Resources instituted an action against US Intellicom, Inc., in the Superior Court of Fulton County, Georgia. RiverHawk Capital Resources alleged breach of contract against U.S. Intellicom Page 13 seeking damages in excess of $300,000 in connection with a "success fee", pursuant to the letter agreement dated October 27, 1998 between RiverHawk Capital Resources and US Intellicom, on account of the merger transaction among U.S. Intellicom, Pre-Cell Solutions and USI Merger Corp. effective April 5, 2000. The complaint was amended to allege that a "success fee" of $2.5 million was owed to RiverHawk Resources. An arbitrator ruled on June 9, 2000 that US Intellicom pay to RiverHawk $374,517 as the success fee, plus expenses for the arbitration proceeding. On July 24, 2000 US Intellicom filed a Response to the claim and an Application to Vacate the Award in Arbitration. In the event of the arbitrators decision being upheld, we will be required to pay to RiverHawk $374,517. From time-to-time, we are involved in other legal proceedings incidental to the conduct of our business. We believe that this other litigation, individually or in the aggregate, to which we are currently a party is not likely to have a material adverse effect on our business, financial condition or results of operations. Item 2. Changes in Securities and Use of Proceeds. Described below are the sales of securities by the Company during the nine months ended January 31, 2001 that were not registered under the Securities Act of 1933, as amended (the "1933 Act"). On the issuance of these securities the Company relied on the exemption from registration under the 1933 Act set forth in Section 4(2) thereof, based on established criteria for effecting a private offering, including the number of offerees for each transaction, access to information regarding the Company, disclosure of information by the Company, restrictions on resale of the securities offered, investment representations by the purchasers, and the qualification of the offerees as "accredited investors." In July 2000, the Company sold 88,890 shares of its common stock for $66,667 to two private investors. Based on the knowledge, experience and economic strength of these investors, the Company believes this transaction was exempt from registration with the Commission under Section 4(2) of the Securities Act of 1933. In August and September 2000, the Company sold 2,044,440 shares of its common stock for $1,533,333 to seventeen private investors. Based on the knowledge, experience and economic strength of these investors, the Company believes this transaction was exempt from registration with the Commission under Section 4(2) of the Securities Act of 1933. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K.

~~Six~~(a) ~~months~~Exhibits ~~ended~~Exhibit ~~Year~~No. ~~ended~~Exhibit ~~October~~Description ~~30,1999~~Filed ~~April~~Herewith ~~30,~~or ~~2000~~Incorporated by Reference to: --- ------------------- ----------------------------------------------- ~~Net revenues~~2.~~.............................................~~3 $Agreement 2and plan of merger among Filed as an exhibit to report on Form 10-Q filed Pre-Cell Solutions,~~204~~ a Colorado corporation,~~314~~ $December 415,~~417~~ 2000. Pre-Cell Solutions,~~218~~ ~~Net~~a ~~loss...................................................~~Florida ~~(929~~corporation,~~399)~~ (3Teleconex,~~928,714)~~ ~~Basic~~Inc. and ~~diluted~~Teleconex ~~net~~Stockholders ~~loss~~2.4 ~~per~~Services ~~common~~Agreement ~~share.........~~among ~~(.02)~~Pre-Cell (.Filed as an exhibit to report on Form 10)-Q ~~Weighted~~filed ~~average~~Solution, ~~outstanding~~a ~~shares~~Florida corporation and December 15, 2000. Teleconex, Inc. Page 14 Exhibit No. Exhibit Description Filed Herewith or Incorporated by Reference to: --- ------------------- ----------------------------------------------- 2.5 Agreement and plan of merger among Filed herewith. Pre-Cell Solutions, a Colorado corporation, Transnational Acquisition Corp., a Texas corporation, Transnational Telecommunications, Inc. and Transnational Stockholders 2.~~.................~~6 39Services Agreement among Pre-Cell Filed herewith Solution,~~071,234~~ 39a Florida corporation and Transnational Telecommunications,~~148,838~~ Inc.

(b) Report on Form 8-K None SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 20, 2001. PRE-CELL SOLUTIONS, INC. By: /s/ Thomas E. Biddix ----------------------------------------- Thomas E. Biddix President and Chief Executive Officer 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 dates indicated. Signatures Title Date ---------- ----- ---- /s/ Thomas E. Biddix President and Chief Executive Officer March 20, 2001 -------------------- Thomas E. Biddix /s/ Thomas E Fricks Chief Operating Officer March 20, 2001 ------------------- (Principal Accounting Thomas E Fricks and Financial Officer) Page 15

October 31, 2000 April 30, 2000 ---------------- -------------- Accrued claim (see Note 5)...................... $ 380,000 $ 380,000 Accrued interest................................. 2,618 101,004 Accrued compensation........................... 100,517 108,052 Accrued other................................. 226,679 12,774 ---------- ----------- $ 709,814 $ 601,830 ========= =========

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