UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________________ to_______________________
Commission File Number: 0-22282
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USCI, INC.
formerly, Trinity Six Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-3702647
- - -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification incorporation
organization) or Number)
6140-C Northbelt Parkway
Norcross, Georgia 30071
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(Address of principal executive offices)
(zip code)
(770) 840-8888
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(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 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.
__X_Yes ___ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date, May 14, 1996.
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COMMON 10,186,267
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Class (Outstanding)
<PAGE>
FORM 10-Q for the Period Ended March 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1996 3
and December 31, 1995
Condensed Consolidated Statements of Operations and 4
Accumulated Deficit for the Three Months Ended
March 31, 1996 and March 31, 1995
Condensed Consolidated Statements of Cash Flows for the Three 5
Months Ended March 31, 1996 and March 31, 1995
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial Condition 9-11
and Results of Operations for the Three months ended March
31, 1996 and March 31, 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>
<PAGE>
Form 10-Q for the Quarter Ended March 31,1996
Part I, Item 1.
USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31
1996 1995*
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CURRENT ASSETS: (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $23,157,818 $24,928,189
Accounts receivable-trade, net of allowance of
$275,000 and $220,000 at March 31, 1996 and
December 31, 1995 respectively 1,291,740 1,507,771
Accounts receivable -other 645,418 595,171
Prepaid expenses 75,581 47,667
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Total current assets 25,170,556 27,078,798
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PROPERTY AND EQUIPMENT, NET 2,595,574 2,368,611
OTHER ASSETS 782,240 635,886
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TOTAL ASSETS $28,548,371 $30,083,295
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Commissions payable $ 969,539 $ 1,252,787
Accounts payable and accrued expenses 1,596,424 1,188,998
Deposits payable 275,115 221,125
Promotional deposits 211,000 284,600
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Total current liabilities 3,052,078 2,947,510
Common Stock, $.0001 par value, 1,973,216 and 2,721,771 shares
issued and outstanding at March 31, 1996 and
December 31, 1995, subject to rescission (Note 2) 6,593,641 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; 8,213,051 and 7,464,496 shares issued
and outstanding at March 31, 1996 and December 31, 1995,
respectively. 821 746
Additional paid in capital 27,044,670 24,629,023
Accumulated deficit (8,114,789) (6,552,263)
Treasury Stock at cost, 5,000 shares (28,050) (28,050)
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Total Stockholders' Equity 18,902,652 18,049,456
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,548,371 $30,083,295
=========== ===========
<FN>
*Condensed from audited financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of these condensed
onsolidated financial statements.
3
<PAGE>
Form 10-Q for the Quarter Ended March 31,1996
Part I, Item 1.
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Ended March 31,
(Unaudited)
1996 1995
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REVENUES:
Activation commissions from cellular carriers $ 1,180,024 $ 672,975
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OPERATING EXPENSE
Commission pass through to retailers 888,075 541,020
Selling, General and Administrative 2,126,812 836,219
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OPERATING LOSS (1,834,863) (704,264)
Interest Income (Expense), Net 272,337 (241,608)
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LOSS BEFORE INCOME TAXES (1,562,526) (945,872)
Income Taxes 0 0
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NET LOSS (1,562,526) (945,872)
Deficit Beginning of Period (6,552,263) (2,431,709)
----------- -----------
Deficit at End of Period $(8,114,789) $(3,377,581)
=========== ===========
Net Loss Per Common Share $ (0.15) $ (0.29)
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,186,267 3,248,743
========== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
Form 10-Q for the Quarter Ended March 31, 1996
Part I, Item 1.
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
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<S> <C> <C>
Net Loss $(1,562,526) $(945,872)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 253,266 307,603
Bad debt allowance 55,000 25,000
Changes in operating assets and liabilities:
Accounts receivable-trade 161,031 (51,452)
Accounts receivable-other (50,247) (20,572)
Prepaids and other assets (27,914) (196,393)
Commissions payable (283,248) 183,548
Accounts payable and accrued expenses 407,427 121,701
Deposits payable 53,989 17,900
Promotional deposits (73,600) 96,543
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Total adjustments 495,705 483,878
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Net cash used for operating activities (1,066,821) (461,994)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (626,583) (336,465)
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Net cash used for investing activities (626,583) (336,465)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs (76,966) 100,000
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Net cash provided (used) by financing activities (76,966) 100,000
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NET DECREASE IN CASH (1,770,371) (698,459)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,928,189 2,007,228
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $23,157,818 $1,308,769
=========== ==========
INTEREST PAID DURING THE PERIOD $ 475 $ 86,004
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
Form 10-Q for the Quarter Ended March 31, 1996
Part I, Item 1.
USCI, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 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 periods. 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-capital. Such costs amounted
to approximately $600,000. For the three months ended March 31, 1996,
the Company incurred $76,966 in costs associated 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 (which has not since been sold by those
stockholders) has been recorded as temporary equity in the
accompanying balance sheet at March 31, 1996 as the Company has been
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
6
<PAGE>
Form 10-Q for the Quarter Ended March 31, 1996
Part I, Item 1.
valuation of the temporary equity is 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 have
been sold by stockholders at prices above the rescission value of
$3.33 per share. As the right of rescission elapses upon such sale of
stock, these shares have been recorded as equity as of March 31, 1996.
The stockholders' equity in the Company of $18,902,652 at March 31,
1996 will increase 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. provided such rights are not exercised prior to
expiration, of which there is no assurance.
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
necessarily 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.
Three months ended
March 31, 1996 March 31, 1995
Revenues $ 1,180,024 $ 672,975
Net Loss $(1,562,526) $ (725,237)
Net loss per share $ (.15) $ (.12)
7
<PAGE>
Form 10-Q for the Quarter Ended March 31,1996
Part I, Item 1.
Note 3. Loss per Share
---------------
Net loss per share for the three months ended March 31, 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.
For the three months ended March 31, 1995, the net loss per share is
calculated using the weighted average number of shares of U.S.
Communications, Inc., multiplied by the exchange ratio (.79) referred
to in Note 2.
Common stock equivalents have not been included in the weighted
average number of shares of USCI, Inc. as the effect is anti-dilutive.
8
<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
Quarter Ended March 31, 1996 and March 31, 1995
Total revenues for the quarter ended March 31, 1996, consisting primarily of
commissions paid to the Company as a non-exclusive customer service and
activation agent for cellular carriers, were $1,180,024 as contrasted with
$672,975 for the quarter ended March 31, 1995.
The 75.3% increase in revenues between the 1996 and 1995 quarters resulted
primarily from the opening of additional cellular information and activation
centers in OfficeMax, Kmart, Lowes, Montgomery Wards, Service Merchandise, and
Meijers retail locations.
Operating expenses, consisting of commission pass-through expenses to retail
mass merchandisers, and selling, general and administrative expenses, increased
by 119% to $3,014,887 for the quarter ended March 31, 1996, from $1,377,239 for
the quarter ended March 31, 1995. These increases are directly related to the
expansion of the Company's operations throughout 1995 and the first quarter of
1996.
Commission pass-throughs to retail mass merchandisers, which range between
65% to 80% of the activation fees paid by cellular carriers to the Company,
increased 64% to $888,075 for the quarter ended March 31, 1996 from $541,020 for
the quarter ended March 31, 1995.
9
<PAGE>
Selling, general and administrative expenses for the quarter ended March 31,
1996 aggregated $2,126,812 as compared to $836,219 for the 1995 quarter.
Salaries and related employee benefits increased to $841,390 or by 151.2%, from
$334,939 for the comparable 1995 quarter. These increases reflect the Company's
expanded hiring of executive, managerial, customer service and information
systems personnel to support its growth. Telephone service costs in the first
quarter of 1996 were $143,825 as compared to $73,934 for the comparable 1995
quarter. The significant increases are again reflective of the Company's growth.
Legal and accounting fees totaled $155,176 in the first quarter of 1996, as
compared to $66,732 in the first quarter of 1995. The 132.5% increase from 1996
to 1995 was attributable in substantial part to the negotiation of contractual
relationships with retail mass merchandisers, direct marketing response
companies and additional cellular carriers.
Depreciation and amortization (excluding amortization of original issue
discount in 1995) for the first quarter of 1996 was $253,266 as compared to
$137,803 in the comparable 1995 quarter. The 83.8% increase from 1996 to 1995 is
primarily attributable to additional software development costs and purchases of
communications devices, cellular displays, computers, computer peripherals and
other capital equipment acquired by the Company and placed into service.
Interest income for the first quarter of 1996 and 1995 aggregated $275,581
and $14,195, respectively. Interest expense for the same periods aggregated $475
and $255,804, respectively. The increase in interest income during the first
quarter of 1996 related to the increase in cash and cash equivalents due to the
May 15, 1995 merger with Trinity and the exercise of the Company's 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. These debentures were repaid in the second quarter of 1995.
The Company incurred net losses of $1,562,526 and $945,872 for the first
quarter of 1996 and 1995, respectively. The Company expects to incur additional
losses for at least two more quarters, principally attributable to projected
start-up expenses associated with the provision of cellular telephone activation
services at new or additional retail locations.
Liquidity and Capital Resources
At March 31, 1996, the Company had working capital of $22,118,478, cash and
cash equivalents of $23,157,818 and a total stockholders' equity of $18,902,652.
10
<PAGE>
The stockholders equity in the Company of $18,902,652 at March 31, 1996 will
increase by $6,593,641 in May 1996 through the expiration of the right of
recission granted to the former stockholders of U.S. Communications, Inc.
provided such rights are not exercised prior to expiration, of which there is no
assurance.
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 Class A and Class B Common Stock
Purchase Warrants (the "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 IPO 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 in 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>
FORM 10-Q FOR THE PERIOD ENDED March 31, 1996
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.
USCI, Inc.
Dated: May 14, 1996
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/s/ Mark Rapoport
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Vice President of Finance and
Principal Financial Officer
12
