SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1998 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 0-24061
-------
U S LEC Corp.
- -----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- -----------------------------------------------------
(State or other jurisdiction of incorporation or organization)
56-2065535
- -----------------------------------------------------
(I.R.S. Employer Identification No.)
212 South Tryon Street, Suite 1540 Charlotte, North Carolina 28281
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 319-1000
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes . No X .
---- -----
As of May 22, 1998, there were 10,180,000 shares of Class A Common Stock and
17,075,270 shares of Class B Common Stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
US LEC Corp.
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Statements of Operations - Three month periods ended
March 31, 1998 and 1997
Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows- Three month periods ended March
31, 1998 and 1997.
Consolidated Statement of Stockholders' Equity - Three months ended March 31,
1998.
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
US LEC Corp.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
1998 1997
---- ----
Revenue $13,630 $ 1
Cost of Services 6,473 423
------- -----
Gross Margin 7,157 (422)
Selling, General and Administrative Expenses 4,426 1,049
Depreciation and Amortization 442 14
------ ------
Operating Income (Loss) 2,289 (1,485)
Interest Income (50) 0
Interest Expense 140 67
------ ------
Income (Loss) Before Income Taxes 2,199 (1,552)
Provision for Income Taxes 880 0
------ ------
Net Income (Loss) $1,319 ($1,552)
====== =======
Earnings (Loss) Per Common and Equivalent Share $0.06 ($0.09)
====== =======
=====================================================
Weighted number of shares outstanding: (in thousands)
=====================================================
Basic 20,695 17,310
Diluted 21,321 17,310
EBITDA $2,731 ($1,471)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
US LEC Corp.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
March 31, December 31,
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,237 $ 3,189
Certficates of deposit 349 349
Accounts receivable 14,444 6,006
Prepaid expenses and other assets 473 111
---------- ----------
Total current assets 17,503 9,655
PROPERTY AND EQUIPMENT, NET 25,160 12,890
OTHER ASSETS 470 136
---------- ----------
TOTAL ASSETS $ 43,133 $ 22,681
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 17,860 $ 8,201
Deferred revenue 182 1,142
Accrued expenses 8,681 2,299
Accrued interest payable-related party 422 282
---------- ---------
Total current liabilities 27,145 11,924
---------- ---------
NOTES PAYABLE-STOCKHOLDERS 3,289 5,000
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock-Class A (72,924,728 authorized shares,
3,855,000 outstanding at March 31, 1998) 38 38
Common stock-Class B (17,075,272 authorized shares,
17,075,270 outstanding at March 31, 1998) 171 166
Additional paid-in capital 18,042 11,174
Accumulated deficit (5,552) (5,621)
---------- --------
Total stockholders' equity (deficiency) 12,699 5,757
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 43,133 $ 22,681
========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
US LEC Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 1,319 $ (1,552)
---------- ---------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 441 14
Stock compensation 75 0
Deferred compensation expense 23 0
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (8,438) (1)
Prepaid expenses and other assets (225) 137
Other assets 55 (62)
Accounts payable 826 154
Deferred revenue (960) 0
Accrued expenses 6,382 199
Accrued interest payable-related party 140 67
----------- ---------
Total adjustments (1,681) 508
----------- ---------
Net cash used in operating activities (362) (1,044)
----------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,879) (1,798)
Repayment from stockholder 0 200
----------- ---------
Net cash used in investing activities (3,879) (1,598)
----------- ---------
FINANCING ACTIVITIES:
Proceeds of notes payable-stockholders 3,289 3,000
Repayment of notes payable-stockholder 0 (600)
----------- ---------
Net cash provided by financing activities 3,289 2,400
----------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (952) (242)
----------- ---------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,189 726
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,237 $ 484
========== =========
</TABLE>
<PAGE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING
ACTIVITIES-(1) At December 31, 1997 and March 31, 1998, $7,267,191 and
$16,100,219, respectively, of property and equipment additions are included in
outstanding accounts payable.
(2) The Company's majority stockholder exchanged a note payable in the amount of
$5,000,000 on February 14, 1998 for 480,770 shares of Class B Common Stock. The
fair market value of the Class B Common Stock on the effective date of the
exchange was $13 per share. The difference between the carying value of the debt
and the fair value of the Class B Common Stock issued in the exchange
($1,250,010) was recorded as a non-cash dividend.
(3) In connection with the grants of incentive stock options issued during the
quarter ended March 31, 1998, the Company recorded the difference between the
fair market value of the underlying shares and the exercise price ($548,400)
as deferred compensation, which will be amortized over a period of 48 months.
Amortization expense for the quarter ended March 31, 1998 was $22,850.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
US LEC Corp.
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1998
(Unaudited)
(In Thousands, Except Share and Loan Amounts)
Class A Class B Additional Accumulated
Common Stock Common Stock Paid-in-Capital Deficit Total
------------ ------------ --------------- ------- -----
Balance at January 1, 1998 $38 $166 $11,174 ($5,621) $5,757
Conversion of $5,000,000 stockholder loans
for 480,770 shares of Class B Common Stock 0 5 4,995 0 5,000
Dividend 0 0 1,250 (1,250) 0
Issuance of employee stock options 0 0 548 0 548
Issuance of stock warrants 0 0 75 0 75
Net income 0 0 0 1,319 1,319
--------- ------- ------ ------ ------
Balance at March 31, 1998 $38 $171 $18,042 ($5,552) $12,699
========= ======= ======= ======= =======
</TABLE>
US LEC Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements of US LEC
Corp. and its subsidiaries ("US LEC" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation for the periods
indicated have been included. Operating results for the three months ended March
31, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. The balance sheet at December 31, 1997 has
been derived from the audited balance sheet at that date, but does not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. The accompanying financial
statements should be read in conjunction with the audited financial statements
(including the notes thereto) for the year ended December 31, 1997 included in
the Company's prospectus dated April 23, 1998, which is on file with the U.S.
Securities and Exchange Commission (the "Commission"). Certain amounts in the
1997 financial statements have been reclassified to conform to the 1998
presentation.
2. Earnings (Loss) Per Common and Common Equivalent Share
Earnings (loss) per common and common equivalent share has been calculated in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share, and is based on net income (loss) divided by the weighted
average common and common equivalent shares outstanding during the period. The
weighted average shares outstanding used in the calculation for 1997 has been
determined by giving retroactive effect to the merger of the predecessor limited
liability company into the Company, which occurred on December 31, 1997 (based
on the share conversion ratios utilized in the merger). Outstanding options and
warrants are included in the calculation to the extent they are dilutive. Loss
per share on a fully diluted basis is not presented as the effect is
antidilutive.
<PAGE>
3. Initial Public Offering
On April 29,1998, US LEC completed the sale of 5,500,000 shares of Class A
Common Stock through an initial public offering. The offering resulted in net
proceeds of approximately $75,825,000, which US LEC intends to use to further
expand and develop its telecommunications network. On May 12, 1998, US LEC
issued an additional 825,000 shares of Class A Common Stock in connection with
the underwriters' exercise of their option to cover over-allotments. This
additional sale resulted in net proceeds to the Company of $11,508,750.
4. Income Taxes
US LEC was organized as an S Corporation for the period from inception to
December 31, 1996, and as a limited liability company for the period from
January 1, 1997 to December 31, 1997, on which date it was effectively converted
to C Corporation status. Effective January 1, 1998, US LEC began recognizing
income tax expense associated with its taxable income. Accordingly, US LEC
recognized income tax expense in the amount of $880,000 applicable to taxable
income for the quarter ended March 31, 1998. At March 31, 1998, deferred tax
assets and liabilities related to its operations were not significant.
5. Commitments and Contingencies
A portion of the Company's revenue is derived from reciprocal compensation
payments from incumbent local exchange carriers ("ILECs") such as BellSouth
Communications, Inc. ("BellSouth"). Management believes that such payments are
due pursuant to its interconnection agreements with ILECs. However, in August
1997, BellSouth notified US LEC and other CLECs that it would not pay or collect
reciprocal compensation under interconnection agreements for traffic terminated
to enhanced service providers ("ESPs"), including information service providers
such as internet service providers ("ISPs"). On February 26, 1998, following a
petition by US LEC, the North Carolina Utilities Commission ("NCUC") ordered
BellSouth to bill and pay for all such traffic. Following a motion filed by
BellSouth, the NCUC stayed enforcement of its order until June 1, 1998. On April
27, 1998, BellSouth filed a petition for judicial review of the NCUC's order and
an action for declaratory judgement and other relief with the United States
District Court for the Western District of North Carolina. This action was filed
against US LEC and the NCUC. An answer has not yet been filed, but US LEC
intends to vigorously oppose this action.
<PAGE>
A significant portion of US LEC's estimated total revenue for 1998 and 1999 is
expected to be derived from reciprocal compensation from BellSouth for traffic
terminated on US LEC's network to ESPs and ISPs in North Carolina. Management
believes that the Company will ultimately be successful in this proceeding.
However, if a decision adverse to US LEC is issued by the U.S. District Court,
or on any appeal or review of a favorable decision by the U.S. District Court,
US LEC's ability to serve existing and future ESP and ISP customers profitably
would be limited, which would have a material adverse effect on US LEC's
operating results, financial condition and current business strategy.
Based upon the favorable decision of the NCUC, US LEC elected to recognize
$1,141,386 of previously deferred reciprocal compensation as revenue during the
quarter ended March 31, 1998.
6. Stock Options
US LEC adopted the US LEC Corp. Omnibus Stock Plan (the "Plan") in January 1998.
During the quarter ended March 31, 1998, the Company granted options to purchase
an aggregate of 212,500 shares of Class A Common Stock under the Plan.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Except for the historical information provided below, the matters discussed in
this item are forward-looking statements that involve a number of risks and
uncertainties. US LEC's actual liquidity needs, capital resources and results
may differ materially from the discussion set forth or implied in the
forward-looking statements. Important factors that may cause the actual results,
performance or achievements of the Company to be materially different from those
expressed or implied by the forward-looking statements are summarized in the
"Risk Factors" section and elsewhere in the Company's prospectus dated April 23,
1998, which is on file with the Commission.
<PAGE>
OVERVIEW
US LEC is a rapidly growing competitive local exchange carrier ("CLEC") that
provides switched local, long distance and enhanced telecommunications services
primarily to medium and large-sized organizations located in selected markets in
the southeastern United States. US LEC was founded in June 1996 after passage of
the Telecommunications Act of 1996, which enhanced the competitive environment
for local exchange services. US LEC initiated service in Charlotte, North
Carolina in March 1997, becoming one of the first CLECs in North Carolina to
provide switched local exchange services, and subsequently initiated service in
Raleigh and Greensboro, North Carolina, Atlanta, Georgia and Memphis, Tennessee.
US LEC currently plans to enter additional markets in the southeastern United
States by the end of 1999.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared With The Three Months Ended March 31,
1997
US LEC did not commence operations until March 1997, consequently it generated
only a nominal amount of revenue during the quarter ended March 31, 1997. Total
revenue for the quarter ended March 31, 1998 was $13.6 million. As expected, a
majority of this revenue was comprised of reciprocal compensation derived from
traffic terminated by US LEC that was originated by customers of ILECs in the
Company's North Carolina markets. (See Note 5 to the condensed consolidated
financial statements appearing elsewhere in this report for a discussion of
certain contingencies associated with this revenue). The balance of US LEC's
revenue was comprised of recurring and non-recurring charges paid by the
Company's new and existing customers. Billable minutes of use (MOUs) increased
from approximately 40,000 in the first quarter 1997 to 1.36 billion in the
first quarter of 1998. Billable trunks increased from 47 to 12,399 and
equivalent access lines increased from 288 to 75,536 at March 31, 1997 and 1998,
respectively.
Cost of services is currently comprised primarily of leased transport charges
and to a lesser extent, reciprocal compensation related to calls that originate
with a US LEC customer and terminate on the network of the ILEC or another CLEC.
These costs increased from $423,000 in the first quarter of 1997 to $6.5 million
in the first quarter of 1998 primarily as a result of increases in the size of
US LEC's network and increased usage by its customers.
<PAGE>
Selling, general and administrative expenses for the first quarter of 1998
increased to $4.4 million, or 32% of revenue as compared with $1.0
million, or 919% of revenue, for the first quarter of 1997 primarily as a
result of costs associated with developing the infrastructure of the
Company, such as personnel, sales and marketing, occupancy, administration
and billing.
Depreciation and amortization for the first quarter of 1998 increased to
$442,000 from $14,000 in the comparable 1997 quarter due to the increase in
depreciable assets in service related to US LEC's network expansion.
Depreciation and amortization will continue to increase in conjunction with
spending on capital asset deployment related to US LEC's network expansion.
The Company had interest earnings of $50,000 in the first quarter of 1998
related to funds invested in short-term investments.
Interest expense for the first quarter of 1998 was $140,000, a 209%
increase from the comparable quarter in 1997. The increase resulted from an
increase in the Company's outstanding indebtedness during the period.
Net earnings before interest, taxes, depreciation and amortization ("EBITDA")
and net income were $2.7 million and $1.3 million, respectively, for the quarter
ended March 31, 1998, the first quarter in which US LEC generated positive
EBITDA and net income on a consolidated basis. While EBITDA does not represent
cash flow or results of operations in accordance with generally accepted
accounting principles, it is a measure of financial performance commonly used in
the telecommunications industry. Management attributes the Company's ability to
generate positive EBITDA and net income after a relatively short period of
operations to its capital efficient network strategy, which does not require a
lengthy "build-out" period to construct a fiber optic transmission network, and
to efficient network utilization associated with the high traffic volume of its
customer base. As a result of these factors, management expects continued
improvement in the Company's EBITDA and net income during the execution of its
current expansion plan.
LIQUIDITY AND CAPITAL RESOURCES
US LEC's business is capital intensive and its operations will require
substantial capital expenditures for the purchase and installation of
network switches and related electronic equipment. The Company's capital
expenditures were $12.7 million and $1.8 million for the quarter ended
March 31, 1998 and 1997, respectively. US LEC will have substantial capital
requirements in connection with its planned expansion into additional
locations throughout the southeastern United
<PAGE>
States by the end of 1999. US LEC anticipates additional capital
expenditures of approximately $26 million during the remainder of 1998 and
$29 million in 1999. US LEC intends to fund these expenditures with the
proceeds of its initial public offering of Class A Common Stock.
To date, US LEC has funded a substantial portion of its capital
expenditures through the private sale of equity securities and to a lesser
extent, borrowings from its two principal stockholders.
At December 31, 1997, US LEC was indebted to Richard T. Aab, the Company's
principal stockholder, Chairman and Chief Executive Officer, in the amount
of $5.0 million. On February 14, 1998, Mr. Aab exchanged this loan for
480,770 shares of Class B Common Stock. During the first quarter of 1998,
Tansukh V. Ganatra, US LEC's President and Chief Operating Officer and
Melrich Associates, L.P. ( an entity of which Mr. Aab is a general partner)
loaned the Company a total of $3.3 million.
Cash used in operating activities was $.4 million and $ 1.0 million during
the first quarter of 1998 and 1997, respectively. The decrease was
primarily related to the growth in the demand for US LEC's products and
services.
Cash used in investing activities increased from $1.6 million to $3.9
million during the first quarter of 1997 and 1998, respectively. The
increase was related to purchases of switching and related
telecommunications equipment during the period.
Cash provided by financing activities increased to $ 3.3 million for the
first three months of 1998 versus $2.4 million for the comparable period in
1997 as a result of increased borrowings from the Company's principal
stockholders.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
US LEC is not currently a party to any legal proceedings, other than the NCUC
and U.S. District Court proceedings related to reciprocal compensation from
BellSouth for ISP and ESP traffic. Note 5 to the Company's condensed
consolidated statements included elsewhere in this report is incorporated by
reference into the Company's response to this Item.
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
Information regarding sales of unregistered securities by US LEC during the
quarter ended March 31, 1998 has been previously reported in the Company's
Registration Statement on Form S-1 (File No. 333-46341) (the "Registration
Statement").
Use of Proceeds from Registered Securities
On February 13, 1998, US LEC filed the Registration Statement to register up to
6,325,000 shares of its Class A Common Stock (the "Common Stock") for sale by
the Company. The Registration Statement was declared effective on April 23, 1998
and the offering commenced on April 24, 1998. The offering closed on April 29,
1998 at which time all of the registered securities (except 825,000 shares
covered by the over-allotment option granted to the underwriters in connection
with the offering) were sold for an aggregate offering price of $82,500,000, or
$15.00 per share. The managing underwriter for the offering was Smith Barney
Inc. Underwriting discounts and commissions deducted from the gross proceeds of
the offering totaled $5,775,000, and the Company currently estimates that other
expenses incurred in connection with the offering will total $900,000. On May
12, 1998, the underwriters exercised their over-allotment option. The issuance
of 825,000 additional shares of Class A Common Stock in connection therewith
resulted in net proceeds to the Company of $11,508,750. Because the effective
date of the Registration Statement occurred subsequent to March 31, 1998, no
proceeds of the offering were available for use during the period covered by
this report.
<PAGE>
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
In connection with the Company's preparations for the initial public offering
described elsewhere in this report, a number of actions were taken by the
Company's shareholders through written consent to action without meeting. These
actions are described below.
A proposal to amend the Certificate of Incorporation to increase the authorized
number of Class B shares from 16,458,000 to 16,594,502 and to reduce the
authorized number of Class A shares from 73,542,000 to 73,405,498 was approved
on January 14, 1998 as follows:
Class A shares voted for: 2,355,000
Class B shares voted for: 16,594,500
Class A shares not voted: 1,500,000
Class B shares not voted: 0
A proposal to designate Richard T. Aab and Tansukh V. Ganatra as Class B
directors was approved on January 16, 1998 as follows:
Class B shares voted for: 16,594,500
Class B shares not voted: 0
A proposal to change the terms of loans from Richard T. Aab, Tansukh V. Ganatra,
and Melrich Associates, L.P. was approved on January 16, 1998 as follows:
Class A shares voted for: 2,355,000
Class B shares voted for: 16,594,500
Class A shares not voted: 1,500,000
Class B shares not voted: 0
A proposal to approve cancellation of $5,000,000 in debt to Richard T. Aab in
exchange for 480,770 shares of Class B Common Stock and to amend the Certificate
of Incorporation to increase the authorized number of shares of Class B Common
Stock from 16,594,502 to 17,075,272 and to reduce the authorized number of Class
A shares from 73,405,498 to 72,924,728 was approved on February 14, 1998 as
follows:
<PAGE>
Class A shares voted for: 2,355,000
Class B shares voted for: 16,594,500
Class A shares not voted: 1,500,000
Class B shares not voted: 0
A proposal to amend and restate the Certificate of Incorporation was approved on
March 24, 1998 as follows:
Class A shares voted for: 2,355,000
Class B shares voted for: 17,075,270
Class A shares not voted: 1,500,000
Class B shares not voted: 0
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
----------- ---------------------------
3.1 Restated Certificate of Incorporation*
3.2 By-laws*
3.3 Amendment No. 1 to By-laws*
11.1 Statement Regarding Computation of
Earnings per Share
27 Financial Data Schedule
----
* Incorporated by reference to the corresponding
exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-46341).
(b) US LEC filed no Current Reports on Form 8-K during the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
US LEC Corp.
By:_______________________
David N. Vail
Executive Vice President-Finance and
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
US LEC Corp.
Computation of Earnings (Loss) Per Share
Three Months Ended
March 31,
1998 1997
---- ----
Net earnings (loss) $ 1,318,997 ($1,551,684)
=========== ===========
Weighted average number of shares outstanding:
Basic 20,695,227 17,310,000
========== ==========
Diluted 21,320,697 17,310,000
========== ==========
Earnings (loss) per share:
Basic $0.06 ($0.09)
========== ==========
Diluted $0.06 ($0.09)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001054290
<NAME> US LEC CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,586
<SECURITIES> 0
<RECEIVABLES> 14,444
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,503
<PP&E> 26,049
<DEPRECIATION> 889
<TOTAL-ASSETS> 43,133
<CURRENT-LIABILITIES> 27,145
<BONDS> 0
0
0
<COMMON> 209
<OTHER-SE> 12,490
<TOTAL-LIABILITY-AND-EQUITY> 43,133
<SALES> 0
<TOTAL-REVENUES> 13,630
<CGS> 0
<TOTAL-COSTS> 6,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 2,199
<INCOME-TAX> 880
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,319
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
