UNITED STATES
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 March 31, 1997
Commission File Number 0-22282.
USCI, 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.)
6115-A Jimmy Carter Blvd., 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 May 13, 1997, 10,266,209 shares of $.0001 par value
Common Stock were outstanding.<PAGE>
<PAGE>
USCI, INC.
FORM 10-Q
INDEX
<TABLE>
<S> <C> <C>
Part I FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
of March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations and Accumulated Deficit for
the Three month period ended
March 31, 1997 and March 31, 1996 4
Condensed Consolidated Statements of Cash
Flows for the Three months ended
March 31, 1997 and March 31, 1996 5
Notes to Condensed Consolidated
Financial Statements 6-7
Item 2 Management's Discussion and Analysis of 8-10
Financial Condition and Results of
Operations for the Three months ended
March 31, 1997 and March 31, 1996
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
The following exhibits are included herein:
(11) Statements regarding Computation
of Per Share Earnings
Three Months ended March 31, 1997
and 1996
</TABLE>
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1997.
2
<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1997 1996*
(unaudited)
----------- ------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $11,156,335 $15,581,244
Accounts receivable - trade, net of allowances
of $375,000 and $437,000 at March 31, 1997
and December 31, 1996, respectively 2,809,838 2,581,251
Accounts receivable - other 1,309,826 1,680,112
Inventory 245,765 351,652
Prepaid expenses 92,522 66,234
----------- -----------
Total Current Assets 15,614,286 20,260,493
PROPERTY AND EQUIPMENT, NET 4,736,601 4,829,621
Other Assets 1,588,917 1,304,868
TOTAL ASSETS $21,939,804 $26,394,982
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Commissions payable $ 1,467,958 $ 1,779,733
Accounts payable 1,765,962 2,886,772
Accrued expenses 989,910 732,389
Consumer deposits 308,504 283,194
Promotional deposits 1,211,414 1,400,474
----------- ----------
Total Current Liabilities $ 5,743,748 7,082,562
Stockholders' Equity
Preferred stock, $.01 par value; 5,000
shares authorized; no shares issued and
outstanding 0 0
Common stock, $.0001 par value; 100,000,000
shares authorized; 10,225,746
issued and outstanding at March 31, 1997 and
December 31, 1996, respectively. 1,023 1,023
Additional paid in capital 33,675,423 33,675,423
Accumulated deficit (17,452,340) (14,335,976)
Treasury Stock at cost, 5,000 shares (28,050) (28,050)
------------ ------------
Total Stockholders' Equity 16,196,056 19,312,420
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,939,804 $26,394,982
============ ============
</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 March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
============ ============
<S> <C> <C>
REVENUES
Activation Commissions $1,410,219 $ 1,180,024
Subscriber Sales 154,231 0
Other Operating Revenue 101,372 82,343
------------ ------------
Total Revenues 1,665,822 1,262,367
OPERATING EXPENSES
Commissions pass-through and 872,098 888,075
other direct costs
Selling, general and administrative 4,069,809 2,209,155
------------ ------------
OPERATING LOSS (3,276,085) (1,834,863)
Other Income (Expense), Net 159,721 272,337
------------ ------------
LOSS BEFORE INCOME TAXES (3,116,364) (1,562,526)
Income Taxes 0 0
------------ ------------
NET LOSS (3,116,364) (1,562,526)
Deficit at Beginning of Period (14,335,976) (6,552,263)
------------ -------------
Deficit at End of Period $(17,452,340) $(8,114,789)
============= ============
Net Loss Per Common Share $ (0.30) $ (0.15)
============ ============
Weighted Average Common Shares Outstanding 10,225,746 10,186,267
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
<PAGE>
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
============= =============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,116,364) $(1,562,526)
Adjustments to reconcile net loss to
net cash used for operating activities:
Depreciation and amortization 489,063 253,266
Bad debt allowance (61,548) 55,000
Changes in operating assets and liabilities:
Accounts receivable - trade (167,039) 161,031
Accounts receivable - other 370,286 (50,247)
Inventory 105,887 13,947
Prepaids and other assets (310,337) (41,861)
Commissions payable (311,774) (283,248)
Accounts payable and accrued expenses (863,289) 407,427
Deposits payable 25,310 53,989
Consumer and promotional deposits (189,060) (73,600)
----------- -------------
Total adjustments (912,501) 495,705
Net cash used for operating activities (4,028,865) (1,066,821)
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (396,044) (626,583)
----------- -------------
Net cash used for investing activities (396,044) (626,583)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of costs 0 (76,966)
------------ ------------
Net cash provided (used) by financing
activities 0 (76,966)
------------ ------------
NET DECREASE IN CASH (4,424,909) (1,770,371)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 15,581,244 24,928,189
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,156,335 $23,157,818
============ =============
INTEREST PAID DURING THE PERIOD $ 1,958 $ 475
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
<PAGE>
USCI, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1: BASIS OF PRESENTATION
The unaudited financial information furnished herein in the opinion of
management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash
flows. For further information, refer to the combined financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1996. Footnote disclosure which would substantially duplicate
the disclosure contained in those documents has been omitted.
Note 2: MERGER WITH TRINITY SIX INC.
On May 15, 1995, Trinity Six Inc. (Trinity) completed a merger (the "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 three months ended March 31, 1996, the
Company incurred $76,967 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. During the fiscal year
ended December 31, 1995, 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. Accordingly, these shares were
reclassified as common stock and additional paid in capital and are included
in equity as of March 31, 1997.
During the fiscal year ended December, the right of rescission expired on the
remaining shares associated with the Merger. Accordingly, these shares were
reclassified as common stock and additional paid in capital and are included
in equity at March 31, 1997.
6
<PAGE>
<PAGE>
Note 3: LOSS PER SHARE
For the three months ended March 31, 1996, the weighted average number of
shares includes the shares which were subject to rescission. For the three
months ended March 31, 1997, all such shares were reclassified as common stock
and additional paid in capital and are included in the weighted average number
of shares.
Common Stock equivalents have not been included in the weighted number of
shares of USCI, Inc. as the effect is anti-dilutive.
During the first quarter of 1997, the Financial Accounting Standards Board
("FASB") issued Statement 128, Earnings Per Share. This statement sets out
new guidelines for the calculation and presentation of earnings per share.
There are no differences between basic and diluted earnings per share as
defined in FASB No. 128 as the impact of the common stock equivalents is anti-
dilutive.
Note 4: RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
7
<PAGE>
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF USCI, INC.
GENERAL
Trinity Six Inc. ("Trinity"), the Company's predecessor, was organized in
September 1992 for the purpose of raising funds to effect a merger, exchange
of capital stock, asset acquisition or other similar business combination with
an operating business. In September 1993, Trinity completed an initial public
offering of equity securities pursuant to which it received net proceeds of
approximately $9,981,000. On May 15, 1995, Trinity completed a merger (the
"Merger") with U.S. Communications, Inc. pursuant to which U.S.
Communications, Inc. became a wholly owned subsidiary of Trinity, and Trinity
changed its name to USCI, Inc. (the "Company").
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 was principally engaged in organizational activities, raising
capital and in the development of its activation and processing systems.
Unless the context indicates otherwise, all references below to the "Company"
are deemed to include U.S. Communications, Inc. prior to completion of the
Merger and USCI, Inc. and its subsidiaries subsequent to the Merger.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and March 31, 1996
Revenues
Total revenues for the three months ended March 31, 1997 ("1997 Quarter"),
consisting primarily of activation commissions, subscriber sales and market
development funds were $1,665,822 as compared to $1,262,367 for the three
months ended March 31, 1996 ("1996 Quarter").
Activation commission revenues increased by 19.5% between the 1997 Quarter and
the 1996 Quarter as a result of a significant increase in the number of paging
activations. Paging activations, which were initiated in a pilot program in
the third quarter of 1995, increased to approximately 21,000 in the 1997
Quarter from approximately 1,300 in the 1996 Quarter. The increase in paging
activations was partially offset by a decrease in the number of cellular
activations performed during the 1997 Quarter.
During the fourth quarter of 1996, the Company began reselling cellular and
paging services through its wholly owned subsidiary, Ameritel Communications,
Inc.. Cellular and paging subscriber revenues amounted to $154,231 for the
1997 Quarter.
Market development funds, which consist of payments or obligations from
carriers and manufacturers for promotional expenditures, remained constant
between the 1997 Quarter and 1996 Quarter.
Commission pass through and other direct costs
Commission pass through and other direct costs amounted to $872,098 for the
1997 Quarter, compared to $888,075 for the 1996 Quarter. Such expenses
consist primarily of commissions paid to retail mass merchandisers, which range
between 65% and 80% of the activation fees earned from cellular carriers, and
the cost from carriers relating to services provided to cellular and paging
subscribers.
8
<PAGE>
<PAGE>
Commission pass through costs decreased by 17.6% as a result of the change in
the mix of cellular and paging activations. The decrease in commission costs
was offset by subscriber service direct costs and other direct costs
incurred in connection with the resale of cellular and paging services to
the Company's subscribers. No such costs were incurred during the 1996
Quarter as reselling services were initiated during the fourth quarter of 1996.
Selling, general and administrative expenses for the 1997 Quarter aggregated
$4,069,809 as compared to $2,209,155 for the 1996 Quarter, reflecting the
Company's growth. Salaries and related employee benefits increased by 85.4%
to $1,528,076 for the 1997 Quarter from $824,055 for the 1996 Quarter,
reflecting the Company's expanded hiring of executive, managerial, customer
service and information systems personnel to support its growth. Legal and
accounting fees increased to $180,697 for the 1997 Quarter from $155,176 for
the 1996 Quarter due in substantial part to the negotiation of contractual
relationships with retail mass merchandisers, direct marketing response
companies and additional cellular and paging carriers. Depreciation and
amortization for the 1997 Quarter was $489,063 as compared to $253,266 for the
1996 Quarter as the Company incurred additional software development costs and
purchased and placed into service additional communications devices, cellular
and paging displays, computers, computer peripherals and other capital
equipment. Advertising expenses, which consist of both the Company's
contribution to its customers' advertising costs and advertising initiated
directly by the Company, decreased $177,233 in the 1997 Quarter due to
substantially lower levels of customer advertising. Client installation
expenses decreased $54,500 in the 1997 Quarter due to decreased telephone
interconnect expenses incurred in opening new cellular locations. Travel
expense for the 1997 Quarter was $229,181 as compared to $169,484 for the 1996
Quarter due to the increase in employees and expanding markets. Rebate costs
increased to $70,884 for the 1997 Quarter from $26,285 for the 1996 Quarter.
Rebate costs represent cash-back promotional programs designed to provide
consumers with an incentive to purchase cellular or paging products and
Services. Rebate programs have become much more prevalent in recent years and
have proven to be an effective sales promotional tool.
Other income and expense consists primarily of interest income (net of
expense) which aggregated $173,992 and $275,581 for the 1997 Quarter and 1996
Quarter, respectively. The decrease in interest income during the 1997
Quarter related to the decrease in cash and cash equivalents due to the
increase in operating expenses and capital expenditures as discussed above.
The Company incurred net losses of $3,116,364 and $1,562,526 for the 1997
Quarter and 1996 Quarter, respectively. The Company expects to incur
additional losses for at least the balance of 1997, principally attributable
to the costs of acquiring additional cellular and paging subscribers, and to a
lesser extent, projected start-up expenses associated with providing cellular
telephone and paging activation services at additional retail locations,
depreciation of computer equipment and software and the hiring of additional
management and staff personnel.
In the opinion of the Company management, achieving profitability will be in
large measure dependent upon the willingness and ability of the Company's mass
merchandiser customers to significantly increase the sale of wireless products
and services through continued chain wide advertising. In order to enhance
its national coverage of wireless services the Company is continuing to enter
into reseller agreements with certain cellular carriers, under the terms of
which the Company will act as a non-facilities based provider of cellular and
paging services in markets where the Company does not currently have agency
agreements with carriers.
9
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $9,870,538, cash and
cash equivalents of $11,156,335 and a total stockholders' equity of
$16,196,056. The stockholders equity increased by $9,086,329 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 believes that its existing capital resources, as well as
anticipated revenues from operations, will provide the Company with sufficient
funds to finance its current level of business operations for at least the
next 12 months. However, the Company plans to significantly expand and
further develop its non-facilities based reselling operations through
acquisition of, or merger with, other non-facilities based wireless carriers
and the negotiation of additional reseller agreements with wireless carriers.
The Company also anticipates expending approximately $1,000,000 through the
end of 1997 on continued development and refinement of its software programs
and systems in order to efficiently accommodate increased levels of business
and to maintain the Company's competitive position. This planned expansion
and development will require substantial financing. The Company currently has
no commitments or arrangements for such financing and there can be no
assurance that any such financing will be available on satisfactory terms, if
at all.
Unlike the agency business which generates an immediate activation commission,
the resale of wireless services requires immediate investment in subscriber
acquisition costs as well as on-going costs generated from the purchase of air
time from carriers and for administrative support. These costs are
recoverable from the long-term revenue stream created by the continuation of
subscribers' services. The Company's ability to capture such revenue streams
may be adversely affected by service cancellations before subscriber
acquisition costs are recovered and by losses caused by the fraudulent use of
service which, by law, are not recoverable from subscribers.
The foregoing statements regarding the Company's future profitability, the
adequacy of its financial resources and the expansion of its non-facilities
based reselling operations are forward looking statements made in good faith
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. There are several factors that could cause actual results
to differ materially from those contained in such forward looking statements,
including the unwillingness or inability of the Company's customers to
initiate and continue continuous chain wide advertising and the failure of
such advertising to generate sufficiently increased sales, the availability of
any required financing on satisfactory terms, the inability of the Company to
hire and retain experienced executives to operate its non-facilities based
sale of wireless communication services and increased competitive pressures
from current and additional suppliers of wireless communications services and
products.
INFLATION
To date, inflation has not had any significant impact on the Company's
business.
10<PAGE>
<PAGE>
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997
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: May 14, 1997
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Loss from continuing operations $(3,116,364) $(1,562,526)
Loss from discontinued operations 0 0
----------- ------------
Net Loss $(3,116,364) $(1,562,526)
============ ============
Weighted Shares Outstanding 10,225,746 10,186,267
Net Loss per common share:
Loss from continued operations $ (0.30) $ (0.15)
Loss from discontinued operations 0.00 0.00
----------- -----------
Net Loss $ (0.30) $ (0.15)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907069
<NAME> USCI, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,156,335
<SECURITIES> 0
<RECEIVABLES> 4,494,664
<ALLOWANCES> 375,000
<INVENTORY> 245,765
<CURRENT-ASSETS> 15,614,286
<PP&E> 7,102,356
<DEPRECIATION> 2,365,755
<TOTAL-ASSETS> 21,939,804
<CURRENT-LIABILITIES> 5,743,748
<BONDS> 0
0
0
<COMMON> 1,023
<OTHER-SE> 16,196,056
<TOTAL-LIABILITY-AND-EQUITY> 21,939,804
<SALES> 0
<TOTAL-REVENUES> 1,665,822
<CGS> 0
<TOTAL-COSTS> 872,098
<OTHER-EXPENSES> 4,069,809
<LOSS-PROVISION> 88,528
<INTEREST-EXPENSE> 1,958
<INCOME-PRETAX> (3,116,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,116,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,116,364)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
