SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
Commission File Number 0-22282.
USCI, INC.
(formerly Trinity Six Inc.)
(Exact name of registrant as specified in its charter)
Delaware 13-3702647
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6140-C Northbelt Parkway, Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
(770) 840-8888
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of August 9, 1996, 10,186,267 shares of $.001 par value
Common Stock were outstanding.<PAGE>
<PAGE>
USCI, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Part I FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
of June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Operations and Accumulated Deficit for
the Three month period ended
June 30, 1996 and June 30, 1995 4
Condensed Consolidated Statements of
Operations and Accumulated Deficit for
the Six month period ended
June 30, 1996 and June 30, 1995 5
Condensed Consolidated Statements of Cash
Flows for the Six months ended
June 30, 1996 and June 30, 1995 6
Notes to Condensed Consolidated
Financial Statements 7-8
Item 2 Management's Discussion and Analysis of 9-11
Financial Condition and Results of
Operations for the Six month and Three
month periods ended June 30, 1996 and
June 30, 1995
PART II OTHER INFORMATION
Item 1 Legal Proceedings - None
Item 2 Changes in Securities - None
Item 3 Default 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 - None
SIGNATURES 12
</TABLE>
2
<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1996 1995*
(unaudited)
----------- ------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $21,143,618 $24,928,189
Accounts receivable - trade, net of allowance
of $46,200 and $64,900 at June 30, 1996
and December 31, 1995, respectively 1,286,389 1,507,771
Accounts receivable - other 871,767 595,171
Prepaid expenses 161,293 47,667
----------- -----------
Total Current Assets 23,463,067 27,078,798
Property and Equipment, Net 2,705,236 2,368,611
Other Assets 827,526 635,886
TOTAL ASSETS $26,995,829 $30,083,295
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commissions payable $ 841,194 $ 1,252,787
Accounts payable and accrued expenses 1,608,890 1,188,998
Deposits payable 296,090 221,125
Promotional deposits 295,850 284,600
----------- ----------
Total Current Liabilities $ 3,042,024 2,947,510
Common Stock, $.0001 par value, 2,721,771
shares issued and outstanding at
December 31, 1995, subject to rescission
(Note 2) 0 9,086,329
Stockholders' Equity
Preferred stock, $.01 par value; 1,000,000
shares authorized; no shares issued and
outstanding 0 0
Common stock, $.0001 par value; 100,000,000
shares authorized; 10,186,267 and 7,464,496
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively. 1,029 746
Additional paid in capital 33,638,202 24,629,023
Accumulated deficit (9,657,376) (6,552,263)
Treasury Stock at cost, 5,000 shares (28,050) (28,050)
------------ ------------
Total Stockholders' Equity 23,953,805 18,049,456
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,995,829 $30,083,295
============ ============
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Three Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 1,243,502 $ 974,412
------------ ------------
Operating Expenses:
Commission pass through to retailers 598,057 561,397
Selling, General and Administrative 2,436,845 965,802
------------ ------------
Operating Loss (1,791,400) (552,787)
Interest Income (Expense), Net 248,813 (74,094)
------------ ------------
Loss Before Income Taxes and
Extraordinary Item (1,542,587) (626,881)
Income Taxes 0 0
------------- -------------
Loss Before Extraordinary Item (1,542,587) (626,881)
Extraordinary Item:
Loss on Early Extinguishment of Debt (Note 3) 0 (679,178)
-------------- --------------
NET LOSS (1,542,587) (1,306,059)
Deficit at Beginning of Period (8,114,789) (3,377,581)
--------------- --------------
Deficit at End of Period $(9,657,376) $(4,683,640)
=============== ==============
Loss Per Common Share
Before Extraordinary Item $ (0.15) $ (0.13)
Extraordinary Item Loss Per Common Share - (0.14)
--------------- --------------
Net Loss Per Common Share $ (0.15) $ (0.27)
=============== ==============
Weighted Average Common Shares Outstanding 10,186,267 4,817,290
=============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Six Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 2,485,719 $ 1,579,408
------------ ------------
Operating Expenses:
Commission pass through to retailers 1,486,132 1,102,417
Selling, General and Administrative 4,625,850 1,708,400
------------ ------------
Operating Loss (3,626,263) (1,231,409)
Interest Income (Expense), Net 521,150 (341,344)
------------ ------------
Loss Before Income Taxes and
Extraordinary Item (3,105,113) (1,572,753)
Income Taxes 0 0
------------- -------------
Loss Before Extraordinary Item (3,105,113) (1,572,753)
Extraordinary Item:
Loss on Early Extinguishment of Debt (Note 3) 0 (679,178)
-------------- --------------
NET LOSS (3,105,113) (2,251,931)
Deficit at Beginning of Period (6,552,263) (2,431,709)
--------------- --------------
Deficit at End of Period $(9,657,376) $(4,683,640)
=============== ==============
Loss Per Common Share
Before Extraordinary Item $ (0.30) $ (0.39)
Extraordinary Item Loss Per Common Share - (0.17)
--------------- --------------
Net Loss Per Common Share $ (0.30) $ (0.56)
=============== ==============
Weighted Average Common Shares Outstanding 10,186,267 4,032,658
=============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
------------- -------------
<S> <C> <C>
Net Loss $ (3,105,113) $ (2,251,931)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 486,650 206,305
Bad debt allowance 101,000 291,674
Loss on Disposal of Assets 74,150
Write off remaining original issue discount
and other bond related costs on
extinguishment of subordinated debentures 679,178
Changes in operating assets and liabilities:
Accounts receivable - trade 120,382 (114,221)
Accounts receivable - other (268,186) 14,110
Prepaids and other assets (113,626) 181,414
Commissions payable (411,593) (83,978)
Accounts payable and accrued expenses 419,892 (8,854)
Deposits payable 74,965 53,650
Promotional deposits 11,250 (71,300)
------------- -------------
Total adjustments 494,884 1,147,978
------------- -------------
Net cash used for operating activities (2,610,229) (1,103,953)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,097,476) (661,377)
------------- -------------
Net cash used for investing activities (1,097,476) (661,377)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debentures and
equity, net of costs 0 100,000
Repayment of subordinated debentures 0 (3,450,000)
Proceeds from issuance of common stock,
net of costs (76,866) 9,123,448
Purchase of treasury stock 0 (28,500)
------------- -------------
Net cash provided (used) by financing activities (76,866) 5,744,948
NET INCREASE/(DECREASE) IN CASH (3,784,571) 3,979,618
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,928,189 2,007,228
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,143,618 $ 5,986,846
============= =============
INTEREST PAID DURING THE PERIOD 789 341,344
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE>
<PAGE>
USCI, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(Unaudited)
Note 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim period. The results of operations
for the period are not necessarily indicative of the results to be expected
for the full year.
Note 2: MERGER WITH TRINITY SIX INC.
On May 15, 1995, Trinity Six Inc. (Trinity) completed a Merger with U.S.
Communications, Inc. Under the terms of the Merger each share of U.S.
Communications Inc. stock was exchanged for approximately 0.79 shares of
Trinity stock. In connection therewith, Trinity issued approximately
3,250,000 shares of its common stock in exchange for all of the issued and
outstanding shares of U.S. Communications, Inc. As a result of the Merger,
U.S. Communications, Inc. became a wholly owned subsidiary of Trinity and
Trinity's Certificate of Incorporation was amended as of the effective date
of the Merger to change Trinity's name to USCI, Inc. (the "Company"). The
Merger has been treated for accounting purposes as a capital transaction,
equivalent to the issuance of common stock by U.S. Communications, Inc. for
the net monetary assets of Trinity, accompanied by a recapitalization of
U.S. Communications, Inc. The net monetary assets realized by U.S.
Communications, Inc., consisting of cash and cash equivalents amounted to
approximately $9,750,000.
All costs incurred in connection with the merger have been charged to equity
as a reduction of additional paid in capital. Such costs amounted to
approximately $600,000. For the six months ended June 30, 1996, the Company
incurred $76,966 in costs incurred with the Nasdaq listing and the exercise
of the Company's warrants. These costs have been charged to equity as a
reduction of additional paid in capital.
The common stock issued to U.S. Communications, Inc. stockholders as a result
of the Merger was previously recorded as temporary equity. The Company was
advised of a possible violation of Section 5 of the Securities Act which
would result in these shares constituting temporary equity due to the right
of rescission that may be afforded such stockholders. The valuation of the
temporary equity was based on management's estimate of USCI's fair market
value as of the date of the Merger determined to be $10,829,484. This amount
was determined by dividing Trinity's pre-Merger equity of $9,996,447 by 48%
(Trinity's ownership percentage after the Merger) and applying 52% (USCI's
ownership percentage after the Merger) to that amount. Since the Merger,
1,276,784 shares of common stock of the Company with rights of rescission
attached were sold by stockholders at prices above the rescission value of
$3.33 per share. These shares have been recorded as equity as of June 30, 1996.
7
<PAGE>
<PAGE>
The stockholders' equity in the Company of $23,953,805 at June 30, 1996
increased by $6,593,641 through the expiration of the right of rescission
granted to the former stockholders of U.S. Communications, Inc.
The following unaudited pro forma information has been prepared as if the
Merger had occurred on January 1, 1995. The information is based on unaudited
historical results of the separate companies and may not necessary be
indicative of the results that could have been achieved or the results that
may occur in the future. The pro forma information includes the elimination
of U.S. Communications, Inc.'s interest expense and Trinity's income assuming
the proceeds of the merger were used to retire U.S. Communications, Inc.'s
debt and the additional costs of employment contracts entered into in
connection with the Merger based upon the historical compensation costs of
those individuals.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
<S> <C>
Revenues $ 1,548,099
Net loss $ (1,521,846)
Net loss per share $ (0.24)
</TABLE>
Note 3: LOSS PER SHARE
Net loss per share for the three and six months ended June 30, 1996 is
calculated using the weighted average number of shares of USCI, Inc.
This average comprises both the number of shares subject to rescission
and those shares without any attached rescission rights.
Net loss per share for the three and six months ended June 30, 1995 is
calculated using the weighted average number of shares of USCI, Inc.
outstanding after the Merger plus the weighted average number of U.S.
Communications, Inc. shares outstanding prior to the Merger, multiplied by
the exchange ratio (.79) applied to the U.S. Communications, Inc. shares in
conjunction with the Merger. This average comprises both the number of
shares subject to rescission and those shares without any attached
rescission rights.
Common Stock equivalents have not been included in the weighted number of
shares of USCI, Inc. as the effect is anti-dilutive.
Note 4: RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
8
<PAGE>
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF USCI, INC.
GENERAL
U.S. Communications, Inc. was organized in 1991, and did not
commence operations of its cellular activation and processing systems
with its first retail mass merchandiser, OfficeMax, until mid-1993.
Prior to that time, U.S. Communications, Inc. was principally engaged
in organizational activities, raising capital and in the development
of its activation and processing systems. On May 15, 1995, U.S.
Communications, Inc. merged with a subsidiary of Trinity Six Inc., a
company which was formed in September 1992 to serve as a vehicle to
effect a merger or other similar business combination with an operating
business. As a result of the Merger, U.S. Communications, Inc. became
a wholly owned subsidiary of Trinity and Trinity's Certificate of
Incorporation was amended as of the effective date of the Merger to
change Trinity's name to USCI, Inc.
RESULTS OF OPERATIONS
Six Months and Three Months Ended June 30, 1996 and June 30, 1995
Total revenues for the six months ended June 30, 1996, consisting
primarily of commissions paid to the Company as a non-exclusive customer
service and activation agent for cellular carriers, were $2,485,719 as
contrasted with $1,579,408 for the six months ended June 30, 1995.
Total revenues for the three months ended June 30, 1996 were $1,243,502
as contrasted with $974,412 for the quarter ended June 30, 1995.
The 57.4% increase in revenues between the 1996 and 1995 six month
periods and the 27.6% increase in revenues between the three month
periods ended June 30, 1996 and 1995 resulted primarily from the
opening of additional cellular information and activation centers in
OfficeMax and Kmart retail locations and a significant increase in
market development revenue between the 1996 and 1995 periods. Market
development revenue, consisting of payments from the cellular carriers
for promotional expenditures, increased primarily due to increased
activity at the activation centers and the new retail locations.
Commission pass-throughs to retail mass merchandisers, which range
between 65% and 80% of the activation fees paid by cellular carriers to
the Company, aggregated $1,486,132 and $598,057, respectively, for the
six and three month periods ended June 30, 1996 as contracted with
$1,102,417 and $561,397 for the six and three month periods ended
June 30, 1995, respectively.
Selling, general and administrative expenses for the six months ended
June 30, 1996 aggregated $4,625,850 as compared to $1,708,400 for the
six months ended June 30, 1995. Salaries and related employee benefits
increased by 139% to $1,680,492 from $702,017 for the comparable 1995
9
<PAGE>
<PAGE>
period due to the Company's increased hiring of executive, managerial,
customer service and information systems personnel to support its
growth. Legal and accounting fees increased to $341,192 for the first
six months of 1996, from $143,957 for the first six months of 1995 due
in substantial part to the negotiation of contractual relationships
with retail mass merchandisers, direct marketing response companies and
additional cellular carriers. Depreciation and amortization for the
first six months of 1996 was $486,650 as compared to $206,305 for the
comparable six months of 1995 as the Company incurred additional
software development costs and purchased and placed into service
additional communications devices, cellular displays, computers,
computer peripherals and other capital equipment. Advertising
expenses, which consist of the Company's contribution to its
customers' advertising costs, increased $409,609 in the first six
months of 1996 due to substantially increased levels of customer
advertising. Client installation expenses increased $147,827 in the
first six months of 1996 due to increased telephone interconnect expenses
incurred in opening new cellular locations. Travel expense for the
first six months of 1996 was $323,784 as compared to $51,347 for the
comparable six months of 1995 due to the increase in employees and
expanding markets. Marketing, creative and printing expense for the
first six months of 1996 was $220,597 as compared to $19,958 for the
comparable six months of 1995 due to expenses incurred for collateral
support of new market programs and financial printing required as a
result of public company requirements.
Selling, general and administrative expenses for the three months ended
June 30, 1996 aggregated $2,436,845 as compared to $965,802 for the
three months ended June 30, 1995. Salaries and related employee
benefits increased by 129% to $839,102 from $367,078 for the comparable
1995 period as a result of the Company's increased hiring of executive,
managerial, customer service and information systems personnel to
support its growth. Legal and accounting fees totaled $186,017 for the
three months ended June 30, 1996, as compared to $77,225 for the
comparable 1995 period due in substantial part to the negotiation of
contractual relationships with retail mass merchandisers, direct
marketing response companies and additional cellular carriers.
Depreciation and amortization was $242,562 as compared to $101,456
for the comparable three months of 1995 as the Company incurred
additional software development costs and purchased and placed into
service communications devices, cellular displays, computers, computer
peripherals and other capital equipment. Advertising expenses, which
consist of the Company's contribution its customers' advertising costs,
increased $259,435 in the three months ended June 30, 1996 due to
substantially increased levels of customer advertising. Client
installation expenses increased $97,827 in the three months ended
June 30, 1996 due to increased telephone interconnect expenses incurred
in opening new cellular locations. Travel expense totaled $154,299 for
the three months ended June 30, 1996, as compared to $30,042 for the
comparable 1995 period due to the increase in employees and expanding
markets. Marketing, creative and printing expense totaled $113,363 for
the three months ended June 30, 1996, as compared to $11,032 for the
comparable 1995 period due to expenses incurred for collateral support
for new market programs and financial printing required as a result of
public company requirements.
10
<PAGE>
<PAGE>
Interest income (net of expense) aggregated $521,150 and $248,813 for the
six months and three months ended June 30, 1996, respectively. Interest
expense (net of income) aggregated $341,344 and $74,094 for the six
months and three months ended June 30, 1995, respectively. The increase
in interest income during the first six months of 1996 related to the
increase in cash and cash equivalents due to the May 1995 merger with
Trinity and the exercise of the Company's Class A and Class B Common
Stock Purchase Warrants ("Warrants") in the fourth quarter of 1995. The
1995 interest expense consisted primarily of the amortization of original
issue discounts recorded in connection with the sale and issuance of U.S.
Communications, Inc.'s Subordinated Debentures in 1994 and January 1995.
The Company incurred $679,178 as an extraordinary charge as a result of
the early extinguishment of the Subordinated Debentures during the second
quarter of 1995. The Company incurred net losses of $3,105,113 and
$2,251,931 for the six month periods ended June 30, 1996 and 1995,
respectively. The Company incurred net losses of $1,542,587 and
$1,306,059 for the three month periods ended June 30, 1996 and 1995,
respectively. The Company expects to incur additional losses for at
least the balance of 1996, principally attributable to projected start-up
expenses associated with providing cellular telephone and paging
activation services at additional retail locations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $20,421,043, cash
and cash equivalents of $21,143,618 and a total stockholders' equity of
$23,953,805. The stockholders equity increased by $6,593,641 in May
1996 through the expiration of the right of rescission granted to the
former stockholders of U.S. Communications, Inc.
As a consequence of the completion of the Merger with Trinity in May 1995,
the Company received cash and cash equivalents of approximately
$9,750,000, of which $3,450,000 was used to repay debt. In October 1995,
the Company issued a notice of redemption for all of its outstanding
Warrants. Upon expiration of the warrant exercise period, the Company
had received net proceeds of approximately $21,850,000 from the exercise
of the Warrants.
The Company expects that its existing capital resources, including the
cash received in the Merger and from the exercise of the Warrants, as
well as anticipated revenues from operations, will provide the Company
with sufficient funds to finance projected expenses for operations and
current expansion projects. Current expansion plans contemplate the
opening of additional cellular and paging information and activation
centers to total approximately 3,000 retail locations by the end of 1996.
The Company also anticipates expending approximately $1,000,000 through
the end of 1996 upon continued development and refinement of its
software programs and systems.
INFLATION
To date, inflation has not had any significant impact on the Company's
business.
11
<PAGE>
<PAGE>
FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
USCI, INC.
/S/ ROBERT J. KOSTRINSKY
---------------------------
Robert J. Kostrinsky,
Executive Vice President;
Chief Financial Officer
Date: August 9, 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907069
<NAME> USCI, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,143,618
<SECURITIES> 0
<RECEIVABLES> 1,332,589
<ALLOWANCES> 46,200
<INVENTORY> 0
<CURRENT-ASSETS> 23,463,067
<PP&E> 3,648,472
<DEPRECIATION> 943,236
<TOTAL-ASSETS> 26,995,829
<CURRENT-LIABILITIES> 3,042,024
<BONDS> 0
0
0
<COMMON> 1,029
<OTHER-SE> 23,952,776
<TOTAL-LIABILITY-AND-EQUITY> 26,995,829
<SALES> 0
<TOTAL-REVENUES> 2,485,719
<CGS> 0
<TOTAL-COSTS> 1,486,132
<OTHER-EXPENSES> 4,579,850
<LOSS-PROVISION> 46,000
<INTEREST-EXPENSE> 789
<INCOME-PRETAX> (3,105,113)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,105,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,105,113)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
