SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 333-16265
USN COMMUNICATIONS, INC. Delaware
(Exact name of registrant as (State or other jurisdiction of
specified in its charter) incorporation or organization)
36-3947804
(I.R.S. Employer Identification No.)
10 South Riverside Plaza, Suite 401, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 906-3600
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 [X] No
[ ]
As of August 11, 1997, there were 721,251 shares outstanding of the
registrant's Class A Common Stock, par value $.01 per share.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,720,248 $ 60,818,478
Accounts receivable, net 8,029,610 3,004,408
Prepaid expenses 683,353 187,051
Other receivables 179,128 172,567
------------- -------------
Total current assets 24,612,339 64,182,504
PROPERTY AND EQUIPMENT - Net 10,081,179 3,507,350
OTHER ASSETS 9,452,057 10,362,438
------------- -------------
TOTAL ASSETS $ 44,145,575 $ 78,052,292
============= =============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND COMMON STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 9,723,803 $ 7,907,654
Accrued expenses and other liabilities 7,953,322 3,176,762
Capital lease obligations - current 401,812 277,844
Current maturities on notes payable 121,722 386,522
------------- -------------
Total current liabilities 18,200,659 11,748,782
Capital lease obligations - noncurrent 478,235 312,280
Notes payable 26,513 49,727
14% Senior Discount Notes, net of Original 33,429,596 31,242,614
Issue Discount
9% Convertible Subordinated Discount Notes, 29,531,236 28,259,555
net of Original Issue Discount
------------- -------------
Total liabilities 81,666,239 71,612,958
REDEEMABLE PREFERRED STOCK:
9% Cumulative Convertible Pay-In-Kind
Preferred stock: par value $1:
30,000 shares authorized; 10,450 and
10,000 shares outstanding at 1997 and 1996 10,450 10,000
Accumulated unpaid dividends 235,126 225,000
Additional paid-in capital 10,259,735 9,810,185
------------- -------------
Total redeemable preferred stock 10,505,311 10,045,185
COMMON STOCKHOLDERS' DEFICIT:
Common stock: par value $.01: 2,500,000 shares
authorized; 722,251 and 718,526
shares issued at 1997 and 1996 7,223 7,185
Additional paid-in capital 54,482,126 54,179,423
Accumulated deficit (102,514,247) (57,791,382)
Common stock held in Treasury: 1997 and 1996 -
1,000 shares (1,077) (1,077)
------------- -------------
Total common stockholders' deficit (48,025,975) (3,605,851)
------------- -------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND COMMON TOCKHOLDERS' DEFICIT $ 44,145,575 $ 78,052,292
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
THREE MONTHS ENDED JUNE 30,
--------------------------------
1997 1996
-------------- --------------
(unaudited) (unaudited)
NET SERVICE REVENUE $ 7,804,451 $ 2,522,928
COST OF SERVICES 7,084,813 2,117,583
------------ ------------
Gross margin 719,638 405,345
EXPENSES:
Sales and marketing 17,144,604 1,942,586
General and administrative 8,550,800 3,371,192
------------ ------------
OPERATING LOSS (24,975,766) (4,908,433)
OTHER INCOME (EXPENSE):
Interest income 366,161 204,192
Interest expense (2,092,874) (12,699)
Other income 643 2,304
------------ ------------
Other income (expense) - net (1,726,070) 193,797
------------ ------------
NET LOSS $(26,701,836) $ (4,714,636)
============ ============
ACCUMULATED UNPAID PREFERRED
DIVIDENDS $ 235,126 $ 6,144,668
============ ============
NET LOSS PER COMMON SHARE $ (37.35) $ (25.44)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 721,250 426,863
============ ============
See Notes to Condensed Consolidated Financial Statements
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
SIX MONTHS ENDED JUNE 30,
1997 1996
--------------- --------------
(unaudited) (unaudited)
NET SERVICE REVENUE $ 11,721,290 $ 4,803,557
COST OF SERVICES 10,519,835 4,078,236
------------ ------------
Gross margin 1,201,455 725,321
EXPENSES:
Sales and marketing 27,335,250 3,545,805
General and administrative 15,013,143 6,335,803
------------ ------------
OPERATING LOSS (41,146,938) (9,156,287)
OTHER INCOME (EXPENSE):
Interest income 1,009,451 352,590
Interest expense (4,129,201) (19,539)
Other income 3,948 8,096,117
------------ ------------
Other income (expense) - net (3,115,802) 8,429,168
------------ ------------
NET LOSS $(44,262,740) $ (727,119)
============ ============
ACCUMULATED UNPAID PREFERRED DIVIDENDS $ 235,126 $ 6,144,668
============ ============
NET LOSS PER COMMON SHARE $ (61.70) $ (16.12)
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 721,250 426,378
============ ============
See Notes to Condensed Consolidated Financial Statements
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(26,701,836) $ (4,714,636)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 681,076 86,237
Amortization of organization costs and
intangibles 246,883 178,794
Interest accreted on debt obligation 2,067,172 --
Stock compensation award expense 172,947 33,000
Changes in:
Accounts receivable, net (3,683,128) (371,792)
Prepaid expenses (292,121) 20,170
Other receivables (10,795) 161,292
Other assets (48,528) (1,084)
Accounts payable 3,107,807 (74,653)
Accrued expenses and other liabilities 3,997,178 174,016
------------ ------------
Net cash flows from operating activities (20,463,345) (4,508,656)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,253,860) (307,026)
------------ ------------
Net cash flows from investing activities (4,253,860) (307,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 4,098 3
Deposits (15,532) (138,888)
Repayment of notes payable (191,436) (156,331)
Repayment of capital lease obligations (97,504) (21,406)
------------ ------------
Net cash flows from financing activities (300,374) (316,622)
------------ ------------
NET DECREASE IN CASH (25,017,579) (5,132,304)
CASH AND CASH EQUIVALENTS - Beginning of period 40,737,827 18,359,244
------------ ------------
CASH AND CASH EQUIVALENTS - End of period $ 15,720,248 $ 13,226,940
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Declared Unpaid Dividends $ 235,126 $ 1,181,702
============ ============
Capital Lease Obligations Incurred $ 444,903 $ 352,116
============ ============
CASH PAID FOR INTEREST $ 23,398 $ 12,003
============ ============
CASH PAID FOR INCOME TAXES -- --
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(44,262,740) $ (727,119)
Adjustments to reconcile net loss to net
cash flows from operating activities
Depreciation and amortization 1,042,319 159,672
Amortization of organization costs and 611,529 357,588
intangibles
Interest accreted on debt obligation 4,083,363 --
Stock compensation award expense 298,644 33,000
Gain on disposal of assets (8,078,901)
Changes in:
Accounts receivable, net (5,025,205) (1,002,454)
Prepaid expenses (496,300) 57,866
Other receivables (6,561) (163,850)
Other assets (342,866) 98,691
Accounts payable 1,816,148 148,381
Accrued expenses and other liabilities 4,776,561 (60,435)
------------ ------------
Net cash flows from operating activities (37,505,108) (9,177,561)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,171,245) (344,712)
Proceeds from sale of assets 9,532,600
------------ ------------
Net cash flows from investing activities (7,171,245) 9,187,888
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 4,098 3,301
Repurchase of common stock (1,077)
Deposits 17,018 (230,671)
Repayment of notes payable (288,013) (277,766)
Repayment of capital lease obligations (154,980) (43,214)
------------ ------------
Net cash flows from financing activities (421,877) (549,427)
------------ ------------
NET DECREASE IN CASH (45,098,230) (539,100)
CASH AND CASH EQUIVALENTS - Beginning of period 60,818,478 13,766,040
------------ ------------
CASH AND CASH EQUIVALENTS - End of period $ 15,720,248 $ 13,226,940
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Dividend Paid in Kind $ 450,000 --
============ ============
Declared Unpaid Dividends $ 235,125 $ 2,334,668
============ ============
Capital Lease Obligations Incurred $ 444,903 $ 352,116
============ ============
CASH PAID FOR INTEREST $ 49,862 $ 19,631
============ ============
CASH PAID FOR INCOME TAXES -- --
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited, condensed consolidated financial statements of USN
Communications, Inc. (the "Company") included herein have been prepared
in accordance with the rules and regulations of the Securities and
Exchange Commission. The interim financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. The
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's latest annual report on Form 10-K. The results of
operations for the interim periods should not be considered indicative of
results to be expected for the full year.
GAIN CONTINGENCY
In 1995, a subsidiary of the Company, USN Communications Northeast,
Inc. ("USNCN"), submitted a claim of approximately $1.4 million with
TelCo One requesting that certain revenues, purportedly not billed by
TelCo One to its USNCN customers, be paid to USNCN. In the fourth quarter
of 1996, USNCN recorded $867,000 of this claim as revenue. In 1997, this
claim was resolved at the amount previously recorded as revenue, to the
mutual satisfaction of both parties.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
Statements in this report concerning future results or performance
are forward-looking statements. Actual results or performance could
differ materially from those expressed or implied by such forward-looking
statements as a result of known and unknown risks, uncertainties and
other factors including those described below and those identified in the
Company's other filings with the Securities and Exchange Commission.
OVERVIEW
The Company commenced operations in April 1994 as a provider of
local and long distance telecommunications services to meet the needs of
small and medium-sized business subscribers, through the purchase of US
Network Corporation ("US Network"). US Network had four months of
operations prior to being acquired by the Company. Operations during this
four month period included limited administrative expenses and no
revenues, and assets consisted primarily of cash and organization costs.
In October 1995, the Company, through a newly formed wholly owned
acquisition subsidiary, Quest United, Inc. ("Quest"), acquired certain
assets and assumed certain liabilities of Quest America, LP., a
telecommunications reseller and consulting firm (the "Quest
Acquisition").
Initially, the Company entered the local telecommunications market
as a facilities-based competitive access provider with network facilities
in Ohio. Due to the high costs associated with the initial construction,
installation and expansion of each local network facility, including
right-of-way costs, franchise fees, interconnection charges and other
operating expenses and in anticipation of the impact of the passage of
the Telecommunications Act of 1996, the Company refocused its
operations. The Company sold its existing facilities in Ohio and certain
other assets in February 1996, and transferred certain liabilities with
respect to those facilities, to pursue a non-facilities-based approach
to the local telecommunications market.
The Company negotiated the first broad-based resale agreement with
Ameritech for local services, which was signed in November 1995, and
negotiated with NYNEX for a comprehensive local resale agreement which
was signed in July 1996. The Company also consummated various other
agreements in 1996 with certain carriers for the resale of long distance
and enhanced and other value-added services. The Company commenced the
marketing and provisioning of services under those agreements during the
latter half of 1996. Although management believes that its current
strategy will have a positive effect on the Company's results of
operations over the long-term, by continuing to seek other providers of
local, long distance and enhanced and other value-added services in order
to increase its subscriber base and product offerings and reduce
expenses, this strategy is expected to have a negative effect on the
Company's results of operations over the short-term. The Company
anticipates losses and negative cash flow for the foreseeable future,
attributable in part to significant investments in operating, sales,
marketing, management information systems and general and administrative
expenses. To date, the Company's growth, including capital expenditures,
has been funded primarily by the capital contributions of Chase Venture
Capital Associates, L P., CIBC Wood Gundy Ventures, Inc., Hancock Venture
Partners IV Direct Fund, L.P., BT Capital Partners, Inc., Northwood
Capital Partners LLC, Northwood Ventures and Enterprises &
Transcommunications, LP and by the proceeds from the September 30, 1996
sale to Merrill Lynch Global Allocation Fund, Inc. of debt securities and
warrants to purchase common stock.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net service revenue increased 209% to $7.8 million for the three
months ended June 30, 1997 from $2.5 million for the three months ended
June 30, 1996. In addition, net service revenue increased 99% from the
first quarter 1997 revenue of $3.9 million. The number of new local
access lines sold in the second quarter were 43,924 and cumulative access
lines sold as of June 30, 1997 were 79,321. The number of local access
lines provisioned in the second quarter was 46,585 and cumulative access
lines provisioned as of June 30, 1997 were 65,142. This substantial
increase in net service revenue and local access lines was due primarily
to the significant change in the Company's business strategy and the
corresponding deployment of a large direct sales organization. This
business strategy change resulted in a very substantial increase in the
subscriber base in the Company's geographic markets (from approximately
1,200 customers at June 30, 1996 to approximately 6,000 customers in
service at June 30, 1997).
Gross margin for the three months ended June 30, 1997 increased 78%
to $0.7 million compared to $0.4 million for the three months ended June
30, 1996. Gross margin for the second quarter for the new resale products
increased to 14.5%, which was slightly ahead of expectations for the
quarter, versus 10.5% in the first quarter of 1997 and negative margins
in the fourth quarter of 1996. The Company's legacy products sold under
the 1994 limited service offering agreement with NYNEX experienced lower
margins. Consolidated gross margins are expected to continue to improve
each quarter primarily as the mix of revenues from higher margin products
increases and the mix of revenue from the lower margin legacy products
decreases. In addition, the Company has continued to negotiate price
reductions with its carriers, the full impact of which is not yet fully
reflected in the results of operations. Due to the significant change in
the Company's business strategy and corresponding change in cost
structure from the original facilities-based business, the year to year
gross margins are not comparable.
Sales and marketing expenses increased $15.2 million from $1.9
million for the three months ended June 30, 1996 to $17.1 million for the
three months ended June 30, 1997. The increase was due primarily to the
substantial increase in the number of sales and marketing employees from
approximately 100 at June 30, 1996 to approximately 520 at June 30, 1997.
The higher headcount resulted in increases to salaries and benefits of
approximately $7.9 million, recruitment, training and travel costs of
approximately $2.5 million, and facility and office related expenses of
approximately $1.1 million. Additionally, advertising and promotional
costs increased approximately $2.0 million due to product launches in the
Company's target markets.
General and administrative expenses increased $5.2 million to $8.6
million for the three months ended June 30, 1997 versus $3.4 million for
the three months ended June 30, 1996. The increase was due primarily to
the substantial increase in the number of operations and administrative
employees from approximately 80 at June 30, 1996 to over 240 at June 30,
1997. This increase resulted in increases to salaries and benefits of
approximately $2.8 million, facility and office related costs of
approximately $0.6 million and approximately $0.5 million in training and
travel expenses. Additionally, professional fees increased approximately
$0.4 million, primarily relating to the development and expansion of the
Company's customer service, billing and administrative information
systems and facilities.
Interest and other income increased to $0.4 million for the three
months ended June 30, 1997 from $0.2 million for the three months ended
June 30, 1996 due to an increase in the average cash balance of $28.3
million for the three month period ended June 30, 1997 versus $15.2
million for the three month period ended June 30, 1996.
Interest expense increased to $2.1 million for the three months
ended June 30, 1997 from $13,000 for the three months ended June 30,
1996. This increase was due primarily to interest expense attributable to
the Senior Notes and Convertible Notes issued in September 1996.
As a result of the factors described above, the Company had a net
loss of $26.7 million for the three months ended June 30, 1997 compared
to a net loss of $4.7 million for the three months ended June 30, 1996.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net service revenue increased 144% to $11.7 million for the six
months ended June 30, 1997 from $4.8 million for the six months ended
June 30, 1996, resulting from the significant change in the Company's
business strategy and the corresponding growth in access lines and
customers noted above.
Gross margin for the six months ended June 30, 1997 increased 66%
to $1.2 million compared to $0.7 million for the six months ended June
30, 1996. Gross margin for the first six months of 1997 for the new
resale products was 13.5%, which was slightly ahead of expectations.
Consolidated gross margins are expected to continue to improve each
quarter primarily as the mix of revenues from higher margin products
increases and the mix of revenue from the lower margin legacy products
decreases. Due to the significant change in the Company's business
strategy and corresponding change in cost structure from the original
facilities-based business, the year to year gross margins are not
comparable.
Sales and marketing expenses increased $23.8 million from $3.5
million for the six months ended June 30, 1996 to $27.3 million for the
six months ended June 30, 1997. The increase was due primarily to the
aforementioned increase in the number of sales and marketing employees
which resulted in increases to salaries and benefits of approximately
$12.4 million, recruitment, training and travel costs of approximately
$4.0 million, and facility and office related expenses of approximately
$1.9 million. Additionally, advertising and promotional costs increased
approximately $3.8 million due to product launches in the Company's
target markets.
General and administrative expenses increased $8.7 million to $15.0
million for the six months ended June 30, 1997 versus $6.3 million for
the six months ended June 30, 1996. The increase was due primarily to the
aforementioned increase in the number of operations and administrative
employees which resulted in increases to salaries and benefits of
approximately $4.5 million, facility and office costs of approximately
$0.8 million, and training and travel costs of approximately $0.5
million. Additionally, professional fees increased approximately $0.8
million, primarily relating to the development and expansion of the
Company's customer service, billing and administrative information
systems and facilities.
Interest and other income decreased to $1.0 million for the six
months ended June 30, 1997 from $8.4 million for the six months ended
June 30, 1996 due primarily to an $8.1 million non-recurring gain on the
sale of the Company's switching facilities in Ohio in February 1996.
Interest expense increased to $4.1 million for the six months ended
June 30, 1997 from $20,000 for the six months ended June 30, 1996. This
increase was due primarily to interest expense attributable to the Senior
Notes and Convertible Notes issued in September 1996.
As a result of the factors described above, the Company had a net
loss of $44.3 million for the six months ended June 30, 1997 compared to
a net loss of $0.7 million for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily
through cash from its investors. As of June 30, 1997, the Company had
cash and cash equivalents of $15.7 million and working capital of $6.4
million. The increase in the company's current assets, excluding cash,
and current liabilities is primarily due to the substantial increase in
the size of the business. The Company's operating activities utilized
cash of approximately $20.5 million and $37.5 million for the three and
six month periods ended June 30, 1997, respectively, versus $4.5 million
and $9.2 million for the three and six month periods ended June 30, 1996,
respectively.
The Company's investing activities have consisted primarily of
property and equipment purchases of $4.3 million and $7.2 million for the
three and six month periods ended June 30, 1997, respectively, and $0.3
million and $0.4 million for the three and six month periods ended June
30, 1996, respectively. In 1997, these expenditures were primarily
related to sales office expansion in several of the Company's target
markets. In February 1996, the Company received $9.5 million in proceeds
from the December 1995 sale of facilities in Ohio.
Although at June 30, 1997, the Company had working capital of
approximately $6.4 million, the projected cash usage in 1997 combined
with an anticipated net losses in 1997, absent the infusion of additional
capital resources, is anticipated to fully deplete the Company's working
capital by the end of the third quarter . Such events would place
substantial doubt about the Company's ability to continue as a going
concern. The Company has undertaken various initiatives to address its
need for additional capital resources. The Company has engaged in efforts
to issue high yield securities in a private placement with institutional
investors. In addition, the Company has engaged in discussions with
certain of its existing investors and at least one new institutional
investor to purchase equity securities of the Company in connection with
the high yield offering. Although the Company's management believes that
the Company will be able to raise sufficient funds to meet its operating
expenses and other cash requirements, there can be no assurance that the
Company would be able to complete such contributions or financing or that
any such contributions or financing would be completed on terms
satisfactory to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
which simplifies the method for computing earnings per share. Under the
new requirements, primary earnings per share will be replaced with basic
earnings per share. The statement, which will not impact the results of
operations, financial position or cash flows of the Company, is effective
for financial statements issued for periods ending after December 15,
1997 and will be adopted by the Company in the fourth quarter of 1997.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is party to routine litigation and
proceedings in the ordinary course of its business. The Company and its
subsidiaries are not aware of any current or pending litigation that the
Company believes would have a material adverse effect on the Company's
results of operations or financial condition. The Company and its
subsidiaries continue to participate in regulatory proceedings before the
FCC and state regulatory agencies concerning the authorization of
services and the adoption of new regulations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1997, the Company held its annual meeting of
stockholders, at which the Company's stockholders elected directors and
voted on the ratification of the appointment of Deloitte & Touche as the
Company's independent accountants for 1997. At such meeting, each of the
Company's directors, Richard J. Brekka, J. Thomas Elliott, Thomas C.
Brandenburg, Dean M. Greenwood, Donald J. Hofmann, Jr., William A.
Johnston, Ian Kidson, Paul S. Lattanzio and Eugene A. Sekulow, was
elected by a vote of 678,972 for, 0 withheld and 0 abstaining. The
appointment of Deloitte & Touche was ratified by a vote of 678,972 for, 0
withheld and 0 abstaining.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11. Statement Re Computation of Net Loss per Common Share
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
SIGNATURE
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.
USN COMMUNICATIONS, INC.
(Registrant)
Date: August 11, 1997 /s/ GERALD J. SWEAS
Executive Vice President and Chief Financial
Officer
(Duly authorized officer and principal
financial officer of the registrant)
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
11 Statement Regarding Computation of Per Share
Earnings 17
27 Financial Data Schedule 19
EXHIBIT 11
COMPUTATION OF NET LOSS PER COMMON SHARE
A. Primary: See the Condensed Consolidated Statements of Operations
in Item 1.
B. Full Dilution: The weighted average number of common shares
outstanding was adjusted for the net effects of the exercise of stock
options and warrants and the conversion of convertible debt and
preferred stock.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
<S> <C> <C>
Net loss $(26,701,836) $ (4,714,636)
Less accumulated unpaid preferred dividends 235,126 6,144,668
------------ ------------
Net loss to common shareholders $(26,936,962) $(10,859,304)
============ ============
Average common and common equivalent shares:
Average common shares outstanding per primary
computation 721,250 426,863
Assuming conversion of preferred stock 73,801 --
Assuming conversion of convertible debt 268,497 --
Assuming exercise of stock options 119,591 15,013
Assuming exercise of stock warrants 61,550 --
------------ ------------
Average common and anti-dilutive common
equivalent shares as adjusted 1,244,689 441,876
============ ============
Net loss per common share assuming full dilution $ (21.65) $ (24.58)
============ ============
</TABLE>
This calculation is submitted in accordance with Regulation S-K item
601(b) (11) of the Securities Exchange Act, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
EXHIBIT 11
COMPUTATION OF NET LOSS PER COMMON SHARE
A. Primary: See the Condensed Consolidated Statements of Operations in
Item 1.
B. Full Dilution: The weighted average number of common shares
outstanding was adjusted for the net effects of the exercise of stock
options and warrants and the conversion of convertible debt and
preferred stock.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
<S> <C> <C>
Net loss $(44,262,740) $ (727,119)
Less accumulated unpaid preferred dividends 235,126 6,144,668
------------ ------------
Net loss to common shareholders $(44,497,866) $ (6,871,787)
============ ============
Average common and common equivalent shares:
Average common shares outstanding per primary
computation 721,250 426,378
Assuming conversion of preferred stock 72,208 --
Assuming conversion of convertible debt 268,497 --
Assuming exercise of stock options 117,740 16,698
Assuming exercise of stock warrants 61,550 --
------------ ------------
Average common and anti-dilutive common
equivalent shares as adjusted 1,241,245 443,076
============ ============
Net loss per common share assuming full dilution $ (35.85) $ (15.51)
============ ============
</TABLE>
This calculation is submitted in accordance with Regulation S-K item
601(b) (11) of the Securities Exchange Act, although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive
result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Schedule contains summary financial information
extracted from the Condensed Consolidated Balance Sheets
as of June 30, 1997 of USN Communications, Inc. and
Subsidiaries and the related Condensed Consolidated
Statements of Operations for the six months ended June 30,
1997 and is qualified in its entirety by reference to such
financial statements.
<S> <C> <C>
<FISCAL-YEAR-END> Dec-31-1996 Dec-31-1996
<PERIOD-START> Apr-01-1997 Jan-01-1997
<PERIOD-END> Jun-30-1997 Jun-30-1997
<PERIOD-TYPE> 3-mos 6-mos
<CASH> 15,720 15,720
<SECURITIES> 0 0
<RECEIVABLES> 8570 8570
<ALLOWANCES> 540 540
<INVENTORY> 0 0
<CURRENT-ASSETS> 24,612 24,612
<PP&E> 11,493 11,493
<DEPRECIATION> 1,412 1,412
<TOTAL-ASSETS> 44,146 44,146
<CURRENT-LIABILITIES> 18,201 18,201
<BONDS> 62,961 62,961
10,505 10,505
0 0
<COMMON> 54,488 54,488
<OTHER-SE> (102,514) (102,514)
<TOTAL-LIABILITY-AND-EQUITY> 44,146 44,146
<SALES> 7,946 11,935
<TOTAL-REVENUES> 7,946 11,935
<CGS> 7,226 10,733
<TOTAL-COSTS> 7,226 10,733
<OTHER-EXPENSES> 25,695 42,348
<LOSS-PROVISION> 210 432
<INTEREST-EXPENSE> 2,093 4,129
<INCOME-PRETAX> (26,702) (44,263)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (26,702) (44,263)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (26,702) (44,263)
<EPS-PRIMARY> (37.35) (61.70)
<EPS-DILUTED> (21.65) (35.85)
</TABLE>
