<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended June 30, 1996
/ / Transition report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
COMMISSION FILE NUMBER 33-97876
USTN HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-4042177
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4501 Intelco Loop, Lacey 98503
Washington
(Address of principal executive office) (Zip code)
(360) 493-6000
(Issuer's telephone number, including area code)
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 past 90 days. Yes /X/ No
At June 30, 1996, 5,161,152 shares of common stock, $0.01 per share par
value, and 2,675 shares of Series A convertible preferred stock, $0.01 per
share par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No /X/
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USTN HOLDINGS, INC.
INDEX TO 10-QSB FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1996
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
USTN Holdings, Inc. Consolidated Balance Sheet - June 30, 1996 2
USTN Holdings, Inc. Consolidated Statement of Operations -
Three Months and Six Months ended June 30, 1996 and 1995 4
USTN Holdings, Inc. Consolidated Statement of Cash Flows -
Six Months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements - June 30, 1996 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS 8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 14
ITEM 2: CHANGES IN SECURITIES 14
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 14
ITEM 5: OTHER INFORMATION 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
1
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PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
USTN HOLDINGS, INC.
Consolidated Balance Sheet
June 30
ASSETS 1996
------ ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 9,710,824
Accounts receivable, net of allowance
for doubtful accounts of $442,000 20,829,265
Prepaid expenses and other 371,616
----------
Total current assets 30,911,705
----------
Property and equipment:
Land 911,765
Building and leasehold improvements 6,904,554
Equipment and furniture 2,929,308
Network assets 18,594,422
Capitalized network costs 8,033,856
Computer hardware and software 15,113,717
----------
52,487,622
Less: Accumulated depreciation and amortization 23,475,152
----------
Total property and equipment 29,012,470
----------
Computer software product costs, net of
accumulated amortization of $482,000 2,376,630
Other assets, net of accumulated
amortization of $161,000 2,966,196
----------
$ 65,267,001
==========
See accompanying notes to consolidated financial statements.
2
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USTN HOLDINGS, INC.
Consolidated Balance Sheet, Continued
June 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1996
- ------------------------------------ ----
(Unaudited)
Current liabilities:
Trade accounts payable $ 4,036,370
Accrued expenses 2,209,031
Due to customers 18,173,270
Due to dissenting shareholders 408,322
Current portion of long-term debt 1,779,749
----------
Total current liabilities 26,606,742
----------
Long-term debt, excluding current portion 19,831,799
----------
Stockholders' equity:
Series A Convertible Preferred Stock,
par value $.01 per share, authorized
4,416 shares, outstanding 2,675 shares 27
Preferred Stock, par value $.01 per share,
authorized 14,995,584 shares, outstanding
0 shares -
Common Stock, par value $.01 per share,
authorized 30,000,000 shares, outstanding
5,161,152 shares 51,611
Additional paid-in capital 10,369,724
Retained earnings 8,407,098
----------
Total stockholders' equity 18,828,460
----------
$ 65,267,001
==========
See accompanying notes to consolidated financial statements.
3
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USTN HOLDINGS, INC.
Consolidated Statement of Operations
<TABLE>
<S>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------------ ----------------
(Unaudited) (Unaudited)
<C> <C> <C> <C>
Revenues $ 10,396,663 $ 4,043,227 $ 16,363,574 $ 7,495,747
--------- --------- ---------- ---------
Expenses:
Operating 2,320,150 2,526,565 4,633,223 4,993,303
Selling, general
and administrative 2,417,983 1,436,716 3,971,678 2,756,251
Depreciation and
amortization 1,590,814 718,794 2,697,380 1,370,259
Network operating
expenses 2,854,462 - 3,854,509 -
Merger expense - 458,550 350,067 458,550
---------- --------- ---------- ----------
Total expenses 9,183,409 5,140,625 15,506,857 9,578,363
---------- --------- ---------- ----------
Operating income (loss) 1,213,254 (1,097,398) 856,717 (2,082,616)
Interest income 120,767 67,924 209,857 123,135
Interest expense (378,007) (127,997) (558,077) (190,922)
---------- --------- ---------- ----------
Income (loss) before
income taxes 956,014 (1,157,471) 508,497 (2,150,403)
Income tax benefit - (393,540) - (731,137)
---------- --------- ---------- ----------
Net income (loss) $ 956,014 $ (763,931) $ 508,497 $(1,419,266)
========== ========= ========== =========
Weighted average
common shares 5,161,152 3,730,190 4,688,226 3,731,066
========= ========= ========= =========
Primary earnings (loss)
per common share $ 0.19 $ (0.20) $ 0.11 $ (0.38)
========== ========= ========== =========
Fully diluted earnings
(loss)per common share $ 0.17 $ (0.20) $ 0.11 $ (0.38)
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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USTN HOLDINGS, INC.
Consolidated Statement of Cash Flows
Six Months ended June 30
1996 1995
---- ----
(Unaudited) (Unaudited)
Cash flows from operating
activities:
Cash received from customers $ 71,316,169 $ 56,859,224
Interest received 231,568 118,544
Cash paid to customers, suppliers
and employees (65,244,075) (56,094,734)
Income tax refund 173,795 -
Interest paid (599,291) (209,356)
---------- ----------
Net cash provided by
operating activities 5,878,166 673,678
---------- ----------
Cash flows from investing activities:
Cash acquired in acquisition of Independent
Telecommunications Network, Inc. 613,086 -
Investment in Authentix, Inc. (400,000) -
Capital expenditures and software development (1,607,734) (1,796,277)
---------- ----------
Net cash used by investing activities (1,394,648) (1,796,277)
---------- ----------
Cash flows from financing activities:
Purchase of subordinated capital
certificates related to notes payable - (267,115)
Proceeds from issuance of notes payable - 2,671,515
Principal payments on notes payable (566,981) (291,607)
Acquisition of common stock - (19,911)
Payments to dissenting stockholders (1,197,919) -
---------- -----------
Net cash provided (used) by
financing activities (1,764,900) 2,092,882
---------- -----------
Net increase in cash and cash equivalents 2,718,618 970,283
Cash and cash equivalents at:
Beginning of period 6,992,206 4,126,159
---------- ----------
End of period $ 9,710,824 $ 5,096,442
========== ==========
See accompanying notes to consolidated financial statements.
5
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USTN HOLDINGS, INC.
Notes to Consolidated Financial Statements
June 30, 1996 (Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of USTN Holdings, Inc. ("USTN")
presented in this Form 10-QSB are unaudited and reflect, in the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of USTN's financial
position, results of its operations and its cash flows for each period
presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
USTN believes that the disclosures made are adequate to make the
information presented not misleading. The results of the interim periods
are not necessarily indicative of future results. These consolidated
financial statements should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in
USTN s 10-QSB for the quarter ended March 31, 1996 as filed with the
Securities and Exchange Commission on May 15, 1996.
(2) EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share is computed using the weighted
average number of common shares outstanding during each period. Fully
diluted earnings (loss) per share is computed as primary earnings (loss)
per share including the dilutive effect, if any, of outstanding
convertible USTN Series A Preferred Stock and USTN Debentures.
(3) ACQUISITION
USTN was incorporated for the purpose of effecting the merger of U.S.
Intelco Holdings, Inc. ("U.S. Intelco") and Independent
Telecommunications Network, Inc. ("ITN") that was consummated effective
February 23, 1996 ("Merger"). The Merger was accounted for as a purchase
business combination in accordance with generally accepted accounting
principles with U.S. Intelco designated as the acquiring company.
Accordingly, the consolidated statements of operations for the three
month and six month period ended June 30, 1995, and of cash flows for the
six month period ended June 30, 1995, presented in this Form 10-QSB
represent the stand-alone results of operations and cash flows of
U.S. Intelco. The results of ITN's operations are included in the
consolidated financial statements prospectively from the date of the
Merger.
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Assuming that the acquisition of ITN had taken place on January 1, 1995,
unaudited pro forma results of operations from continuing operations would
have been as follows:
Six Months Ended June 30,
----------------------------
1996 1995
---- ----
Revenues $20,172,801 $18,034,642
========== ==========
Net income (loss) $ 422,017 $ (542,036)
========== ==========
Income (loss) per common share $ 0.08 $ (0.10)
========== ==========
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
BASIS OF PRESENTATION
USTN Holdings, Inc., and its wholly-owned subsidiary, Illuminet, Inc.
("Illuminet", formerly named USTN Services, Inc.),(collectively referred to as
"USTN"), were incorporated for the purpose of effecting the merger of
U.S. Intelco Holdings, Inc. ("U.S. Intelco") and Independent
Telecommunications Network, Inc. ("ITN") that was consummated effective
February 23, 1996 ("Merger"). The Merger was accounted for as a purchase
business combination in accordance with generally accepted accounting principles
with U.S. Intelco designated as the acquiring company. Accordingly, the
consolidated statements of operations for the three month and six month period
ended June 30, 1995, and of cash flows for the six month period ended June 30,
1995, presented in this Form 10-QSB represent the stand-alone results of
operations and cash flows of U.S. Intelco. The results of ITN's operations are
included in the consolidated financial statements prospectively from the date of
the Merger. The pro forma information presented in this Management's Discussion
and Analysis or Plan of Operations item reflects the combined activities of U.S.
Intelco and ITN as if the Merger had occurred effective January 1, 1995.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1995
REVENUES. Revenues increased $8,867,827, or 118%, from $7,495,747 for the six
months ended June 30, 1995 to $16,363,574 for the comparable 1996 period.
The increase reflects four months of revenues resulting from the Merger with
ITN that accounted for $8,068,115 or 91% of the increase. Toll Clearinghouse
("TCH") revenues increased $1,100,006, or 46%, from $2,386,798 for the 1995
period to $3,486,804 for the comparable period in 1996, reflecting a 19%
increase in messages processed from 25.9 million in 1995 to 31.0 million in
1996 due to the addition of a large customer in the second quarter of 1995.
Line Information Data Base ("LIDB") services revenues decreased $360,090,
or 12%, from $2,989,522 to $2,629,432 for the 1995 and 1996 periods,
respectively, reflecting a 10% decrease in queries processed from 89.3 million
in 1995 to 80.3 million in 1996 due to a general decrease in volumes
processed.
On a pro forma basis, revenues increased $2,138,159, or 12%, from $18,034,642
for the six months ended June 30, 1995 to $20,172,801 for the comparable 1996
period. In addition to the changes noted in the preceding paragraph, recurring
network connectivity revenues increased $536,502, or 16%, from $3,433,355 for
the 1995 period to $3,969,857 for the comparable period in 1996, primarily due
to growth in chargeable customer links. LIDB Switch and Transport revenues
decreased $801,509, or 27%, from $2,930,754 to $2,129,245 for the 1995 and
1996 periods, respectively, primarily due to reduced prices brought on by
competition. Cellular Switch and Transport revenues increased $756,647, or
118%, from $643,950 in the 1995 period to $1,400,597 for the comparable 1996
period reflecting customer growth and increased utilization of the network
8
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with message volumes increasing 298% from 118.8 million for the 1995 period
to 473.0 million for the comparable 1996 period. The increase in messages was
offset by an approximate 60% decrease in price due to competition. Trunk
Signaling/CLASS revenues increased $752,797, or 55%, from $1,377,500 to
$2,130,297 for the 1995 and 1996 periods, respectively, as a result of new
customer growth.
EXPENSES. USTN's primary costs are related to network expenses, followed by
personnel costs, depreciation and amortization of hardware, software and
facilities assets, and software maintenance expenses. Expenses increased
$5,928,494, or 62%, from $9,578,363 for the six months ended June 30, 1995 to
$15,506,857 for the comparable 1996 period. The increase reflects four months
of expenses resulting from the Merger with ITN that accounted for the majority
of the increase.
On a pro forma basis, expenses increased $423,893, or 2%, from $18,781,644 for
the 1995 period to $19,205,537 for the comparable 1996 period. Operating
expenses decreased $1,258,979, or 20%, from $6,248,003 for the 1995 period to
$4,989,024 for the comparable 1996 period. This decrease is caused primarily
by reduced Personal Communications Services ("PCS") related business
development costs, software maintenance savings related to cost reduction
projects completed in 1995, and reduced personnel costs. The decrease in PCS
business development costs results from a change in focus from PCS limited
partnership sponsorship activities, with the completion of the FCC Block C
broadband radio spectrum license auction, to new service offerings requiring a
lower level of resources. Operating expense savings are offset by increased
operating costs of the AMAT7 and CDR7 computer software products for which
development was completed and introduction into the market occurred in mid-1995
and the end of 1995, respectively. Selling, general and administrative expenses
decreased $218,691, or 4%, from $5,028,062 to $4,809,371 for the 1995 and 1996
periods, respectively, due to a reduction in personnel costs. Network expenses
increased $1,112,849, or 25%, from $4,447,089 to $5,559,938 for the 1995
and 1996 periods, respectively, due to increased leased network connectivity,
link, and LATA access charges incurred to establish and maintain customer
connectivity to the SS7 Network.
Depreciation and amortization increased $599,935, or 24%, from $2,546,394 to
$3,146,329 for the 1995 and 1996 periods, respectively, primarily due to
depreciation and amortization of capitalized computer software costs associated
with the AMAT7 and CDR7 products, and of operating hardware and software placed
into production in the second half of 1995. Merger expenses increased $188,779,
or 37%, from $512,096 to $700,875 for the 1995 and 1996 periods, respectively,
primarily due to non-capitalizable Merger transaction costs, and severance costs
associated with USIH and ITN personnel terminated as a direct result of the
Merger.
INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $86,722, or
70%, from $123,135 for the six months ended June 30, 1995 to $209,857 for the
comparable 1996 period, resulting primarily from an increase in available cash
balances over the two periods resulting from the Merger with ITN.
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On a pro forma basis, interest income decreased by $57,342, or 20%, from
$284,604 for the 1995 period to $227,262 for the 1996 period resulting
primarily from a decrease in available cash balances over the two periods, on
a pro forma basis. The reduction in available cash was caused mainly by
purchases of fixed assets, merger activities including payments to dissenting
stockholders, and a $1,320,000 investment in Authentix, Inc., on a pro forma
basis.
Interest expense increased $367,155, or 192%, from $190,922 for the 1995
period to $558,077 for the 1996 period. The increase reflects four months of
interest expense resulting from the Merger with ITN that accounted for
$302,766, or 83%, of the increase. The remainder of the increase reflects a
higher aggregate outstanding debt balance resulting from two additional
twenty-year mortgage loans for a total of approximately $2.7 million obtained
by USTN from Rural Telephone Finance Cooperative ("RTFC") in March 1995 and a
loan obtained from RTFC in October 1995 for approximately $1.1 million.
On a pro forma basis, interest expense decreased $21,647, or 3%, from $794,156
for the 1995 period to $772,509 for the comparable 1996 period.
INCOME TAXES. USTN has Federal income tax net operating loss carryforwards
available to offset future taxable income for Federal income tax purposes
totaling $26,968,000 that expire as follows: 2004, $196,000;
2005, $1,277,000; 2006, $6,510,000; 2007, $5,772,000; 2008, $3,841,000;
2009, $2,698,000; 2010, $4,223,000; and 2011, $2,451,000. USTN's ability to
utilize such net operating loss carryforwards is dependent on USTN's ability
to generate sufficient taxable income from its operations.
EARNINGS
USTN's net income increased $1,927,763 from a net loss of $(1,419,266) for the
six months ended June 30, 1995 to net income of $508,497 for the comparable
1996 period primarily reflecting an increase in TCH revenues, a decrease in
PCS business development costs, and the impact of the Merger on reducing costs
as a percentage of revenues.
On a pro forma basis, USTN's net income increased $964,053 from a net loss of
$(542,036) to net income of $422,017 for the six months ended June 30, 1995
and 1996, respectively, primarily resulting from the offset of positive
revenue trends by one-time Merger costs incurred in 1996. Although USTN
believes that its primary existing services and products will continue to show
profit in 1996, overall company profitability will be dependent upon
successful deployment and sales of new services and products. Initial
revenues from new services and products may not exceed related start-up costs.
Longer term, USTN anticipates that increased expenditures in the development
of services and products will continue over the next several years. USTN
believes that its primary existing services and products will continue to be
profitable; however, overall profitability in the immediate future could be
negatively impacted by delays in obtaining new product revenues coupled with
related increases in new product operating costs during the development,
introduction and implementation period. USTN believes that it will achieve
higher earnings in the future through new product and customer diversification
and expansion into related telecommunications markets as well as achieving a
reduction in selling, general and administrative expenses as a result of the
Merger.
10<PAGE> 12
Three Months Ended June 30, 1996 and 1995
REVENUES. Revenues increased $6,353,436, or 157%, from $4,043,227 for the
three months ended June 30, 1995 to $10,396,663 for the comparable 1996
period. The increase reflects three months of revenues resulting from the
Merger with ITN that accounted for $6,205,016 or 98% of the increase.
TCH revenues increased $397,211, or 29%, from $1,377,160 for the 1995 period
to $1,774,371 for the comparable period in 1996, reflecting a 41% increase in
messages processed from 11.8 million in 1995 to 16.6 million in 1996 due to
the addition of a large customer in the second quarter of 1995. LIDB services
revenues decreased $250,306, or 16%, from $1,582,654 to $1,332,348 for the
1995 and 1996 periods, respectively, reflecting a 4% decrease in queries
processed from 42.7 million to 41.1 million for the 1995 and 1996 periods,
respectively, due to a general decrease in volumes processed.
On a pro forma basis, revenues increased $807,345, or 8%, from $9,671,008 for
the three months ended June 30, 1995 to $10,478,353 for the comparable 1996
period. In addition to the changes noted in the preceding paragraph, recurring
network connectivity revenues increased $259,486, or 15%, from $1,753,698 for
the 1995 period to $2,013,184 for the comparable period in 1996, primarily due
to growth in chargeable customer links. LIDB Switch and Transport revenues
decreased $472,423, or 30%, from $1,578,770 to $1,106,347 for the 1995 and
1996 periods, respectively, primarily due to reduced prices brought on by
competition. Cellular Switch and Transport revenues increased $461,289, or
113%, from $409,157 to $870,446 for the 1995 and 1996 periods, respectively,
reflecting customer growth and increased utilization of the network with
message volumes increasing 269% from 78.8 million for the 1995 period to 291.3
million for the comparable 1996 period. The increase in messages was offset
by an approximate 60% decrease in price due to competition. Trunk
Signaling/CLASS revenues increased $328,772, or 42%, from $782,310 to
$1,111,082 for the 1995 and 1996 periods, respectively, as a result of new
customer growth.
EXPENSES. USTN's primary costs are related to network expenses, followed by
personnel costs, depreciation and amortization of hardware, software and
facilities assets, and software maintenance expenses. Expenses increased
$4,042,784, or 79%, from $5,140,625 for the three months ended June 30, 1995
to $9,183,409 for the comparable 1996 period. The increase was primarily
caused by three months of expenses resulting from the Merger with ITN.
On a pro forma basis, expenses decreased $627,988, or 6%, from $9,684,571 for
the three months ended June 30, 1995 to $9,056,583 for the comparable 1996
period. Operating expenses decreased $872,213, or 27%, from $3,192,365 for
the 1995 period to $2,320,152 for the comparable 1996 period. This decrease
is caused primarily by reduced PCS related business development costs,
software maintenance savings related to cost reduction projects completed in
1995, and reduced personnel costs. The decrease in PCS business development
costs results from a change in focus from PCS limited partnership sponsorship
activities, with the completion of the FCC Block C broadband radio spectrum
license auction, to new service offerings requiring a lower level of
resources. Operating expense savings are offset by increased operating costs
of the AMAT7 and CDR7 computer software products for which development was
completed and introduction into the market occurred in mid-1995 and the end of
1995, respectively. Selling, general and administrative expenses decreased
$210,077, or 8%, from $2,569,542 to $2,359,465 for the 1995 and 1996 periods,
respectively, due to a reduction in personnel costs. Network expenses
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increased $678,587, or 32%, from $2,107,565 to $2,786,152 for the 1995 and
1996 periods, respectively, due to increased leased network connectivity,
link, and LATA access charges incurred to establish and maintain customer
connectivity to the SS7 Network. Depreciation and amortization increased
$272,811, or 21%, from $1,318,003 to $1,590,814 for the 1995 and 1996 periods,
respectively, primarily due to depreciation and amortization of capitalized
computer software costs associated with the AMAT7 and CDR7 products, and of
operating hardware and software placed into production in the second half of
1995. No merger expenses were incurred for the three months ended June 30,
1996 compared to $497,096 incurred during the comparable 1995 period.
INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $52,843, or
78%, from $67,924 for the three months ended June 30, 1995 to $120,767 for the
comparable 1996 period, resulting primarily from an increase in available cash
balances over the two periods resulting from the Merger with ITN.
On a pro forma basis, interest income was comparable at $114,937 and $120,767
for the three months ended June 30, 1995 and, 1996, respectively.
Interest expense increased $250,010, or 195%, from $127,997 for the three
months ended June 30, 1995 to $378,007 for the comparable 1996 period.
The Merger with ITN accounted for $265,740 or 106% of the change.
On a pro forma basis, interest expense decreased $44,781, or 11%, from
$422,788 for the three months ended June 30, 1995 to $378,007 for the
comparable 1996 period. The decrease reflects a reduction in principal
balances and interest rates over the two periods.
EARNINGS
USTN's net income increased $1,719,945 from a net loss of $(763,931) for the
three months ended June 30, 1995 to net income of $956,014 for the three
months ended June 30, 1996 primarily reflecting an increase revenues related
to the Merger with ITN.
On a pro forma basis, USTN's net income increased $1,103,623 from $60,907 to
$1,164,530 for the three months ended June 30, 1995 and 1996, respectively,
primarily resulting from the offset of positive revenue trends by one-time
Merger costs incurred in 1996.
LIQUIDITY AND CAPITAL RESOURCES
U.S. Intelco and ITN individually relied on a combination of cash generated
from operations, debt and equity to fund their service development and
expansion activities. Currently, USTN's operating activities are generating
positive cash flows. However, as USTN broadens its services and products to
those requiring larger investments coupled with longer periods before
subsequent revenues are generated, USTN believes there may be an increased
pressure on cash generated from operations. USTN anticipates continued high
levels of investment in the development of new services and products over the
next several years as USTN processes increased volumes relating to its
network, data base, and billing and collection services and broadens its
product base to keep pace with changing markets and satisfy the needs of its
customers.
12
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USTN's working capital (current assets minus current liabilities) was
$4,304,963 as of June 30, 1996. USTN's cash and cash equivalent balances
include $5,871,849 required as working capital to service USTN's
billing-and-collection customers. Such funds are received and disbursed on a
monthly basis. The increase in working capital of $1,498,462 from June 30,
1995 reflects the increase in cash balances from operations offset by an
increase in liabilities assumed from the Merger with ITN including accruals
for network expenses and dissenting shareholders and the current portion of
long-term debt financing. USTN believes that its existing cash balances,
funds generated from its operations and borrowings available under its
existing credit facilities will be sufficient to meet existing capital
expenditure and working capital needs for the immediate future.
USTN's expenditures for property and equipment including capitalized software
costs, were $1,607,734 for the six months ended June 30, 1996. Expenditures
for property and equipment were primarily for the Authentix, Inc. project.
Authentix, Inc., is a newly formed company which is developing a proprietary
cellular roaming fraud verification system. USTN has committed to a total
investment of $1,690,000 in Authentix, Inc. preferred stock.
At June 30, 1996, USTN has a secured line of credit through its subsidiary
Illuminet with RTFC that permits USTN to borrow up to $7,300,000, not to
exceed 80% of Illuminet's accounts receivable. This line of credit is
available on a month-to-month basis and will be automatically extended for a
term of five years upon completion of Merger-related documents. There were no
borrowings against the line of credit at June 30, 1996. USTN has a commitment
from RTFC for a two-year $5,000,000 line of credit, that is
to be secured with the stock of Illuminet, from which proceeds are to be used
specifically for administrative matters associated with the Merger.
Management has determined that this line of credit agreement will not be
executed. Additionally at June 30, 1996, USTN has $7,742,106 of unused loan
facilities established, or committed, with RTFC, maturing in the years 2000
and 2001, respectively.
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PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
On February 6, 1996, one ITN shareholder filed a lawsuit in Delaware
Chancery Court against ITN and its board of directors alleging
breaches of fiduciary duty on the part of the ITN board of directors
related to their approval of the Merger into USTN. The lawsuit does
not specify any monetary damages and is in the preliminary pleading
stage.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Annual Meeting of Stockholders of USTN Holdings, Inc., held
on June 13, 1996, the following numbers of votes were cast for the
matters indicated:
1. Proposal to amend USTN s by-laws to provide for three classes of
directors with the directors in each class serving three year terms.
At the 1996 Annual Meeting the Class I directors will be elected to
initial terms of office to expire at the 1997 Annual Meeting; the
Class II directors will be elected to initial terms of office to expire
at the 1998 Annual Meeting; and the Class III directors will be elected
to initial terms of office to expire at the 1999 Annual Meeting. At each
Annual Meeting beginning with the 1997 Annual Meeting persons elected
to fill the terms of directorships then expiring shall be elected for
three year terms:
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
3,770,106 36,647 16,938 1,605,061
2. Proposal to amend USTN s by-laws to require a two-thirds majority vote
of the shareholders to remove the provision classifying the Board of
Directors:
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
3,702,598 104,047 17,046 1,605,061
3. Proposal to amend USTN s by-laws to provide that, after January 1, 1997,
directors cannot be elected or re-elected to the Board after attaining
the age of 65. Those directors who attain the age of 65 during their
term will be allowed to complete their full term:
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
3,418,693 362,204 42,794 1,605,061
14
<PAGE> 16
4.a. Election of four Class III Directors of USTN:
Broker
Nominee For Against Abstain Non-Vote
-------------------- --- ------- ------- --------
Theodore D. Berns 3,790,398 10,000 23,293 1,605,061
Aubrey E. Judy 3,800,398 0 23,293 1,605,061
Richard A. Lumpkin 3,800,398 0 23,293 1,605,061
Gregory J. Wilkinson 3,790,398 10,000 23,293 1,605,061
4.b. Election of three Class II Directors of USTN:
Broker
Nominee For Against Abstain Non-Vote
-------------------- --- ------- ------- --------
Eugene L. Cole 3,800,398 0 23,293 1,605,061
James S. Quarforth 3,800,398 0 23,293 1,605,061
James W. Strand 3,800,398 0 23,293 1,605,061
4.c. Election of two Class I Directors of USTN:
Broker
Nominee For Against Abstain Non-Vote
-------------------- --- ------- ------- --------
Kenneth L. Lein 3,800,398 0 23,293 1,605,061
G.I. Ross 3,800,398 0 23,293 1,605,061
David C. Southwick 3,800,398 0 23,293 1,605,061
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601
OF REGULATION S-B
Exhibit 11 -Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1996.
15
<PAGE> 17
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
USTN HOLDINGS, INC.
Date: August 9, 1996 By:Daniel E. Weiss
---------------
Daniel E. Weiss, Vice President -
Finance and Treasurer
(Principal Accounting Officer)
16
<PAGE>
EX-11
USTN HOLDINGS, INC.
Computation of Earnings Per Share
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------------ ----------------
Primary:
Average common shares
outstanding 5,161,152 3,730,190 4,688,226 3,731,066
========= ========= ========= =========
Net income (loss) $956,014 $(763,931) $508,497 $(1,419,266)
======== ========= ======== ===========
Per share amount $ 0.19 $ (0.20) $ 0.11 $ (0.38)
======== ========= ======== ===========
Fully diluted:
Primary average common shares
outstanding 5,161,152 3,730,190 4,688,226 3,731,066
Assumed conversion of USTN
7.5% Debentures 946,853 - - -
Assumed conversion of USTN
Series A Preferred Stock 22,770 - - -
--------- --------- --------- ---------
Totals 6,130,775 3,730,190 4,688,226 3,731,066
========= ========= ========= =========
Net income (loss) $ 956,014 $(763,931) $508,497 $(1,419,266)
Add USTN 7.5% Debenture
interest, net of federal
income tax effect 68,177 - - -
---------- --------- -------- -----------
Totals $1,024,191 $(763,931) $508,497 $(1,419,266)
========== ========= ======== ===========
Per share amount $ 0.17 $ (0.20) $ 0.11 $ (0.38)
========== ========= ======== ===========
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Ex-27
USTN HOLDINGS, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF USTN HOLDINGS, INC. AS OF June 30, 1996,
AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<EXCHANGE-RATE> 1
<CASH> 9,710,824
<SECURITIES> 0
<RECEIVABLES> 21,271,265
<ALLOWANCES> (442,000)
<INVENTORY> 0
<CURRENT-ASSETS> 30,911,705
<PP&E> 52,487,622
<DEPRECIATION> 23,475,152
<TOTAL-ASSETS> 65,267,001
<CURRENT-LIABILITIES> 26,606,742
<BONDS> 19,831,799
0
27
<COMMON> 51,611
<OTHER-SE> 18,776,822
<TOTAL-LIABILITY-AND-EQUITY> 65,267,001
<SALES> 0
<TOTAL-REVENUES> 16,363,574
<CGS> 0
<TOTAL-COSTS> 14,958,790
<OTHER-EXPENSES> 350,067
<LOSS-PROVISION> 198,000
<INTEREST-EXPENSE> 558,077
<INCOME-PRETAX> 508,497
<INCOME-TAX> 0
<INCOME-CONTINUING> 508,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508,497
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
