UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________.
Commission File Number 0-22282.
USCI, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3702647
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5555 Triangle Parkway, Norcross, Georgia 30092
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(Address of principal executive offices)(Zip Code)
(678) 268-2300
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(Registrant's telephone number, including area code)
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(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 15, 2001, 98,593,504 shares of $.0001 par value Common
Stock were outstanding.
USCI, INC.
FORM 10-QSB
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000............................... 3
Condensed Consolidated Statements of Operations
and Accumulated Deficit for the three months and the six months
ended June 30, 2001 and June 30, 2000............................. 4
Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 2001
and June 30, 2000................................................. 5
Notes to Condensed Consolidated
Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 12
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
-------------- --------------
ASSETS (unaudited) (unaudited)
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $300,000 $ 349,111 $ 686,139
Accounts Receivable 196,719 174,468
Inventory 46,709 0
Prepaid expenses and other 84,780 25,614
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Total current assets 677,319 886,221
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PROPERTY AND EQUIPMENT, net 12,553 15,287
OTHER ASSETS 30,982 83,065
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Total Assets $ 720,855 $ 984,573
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Letter-of-credit advances $ 2,491,982 $2,491,982
Note Payable - Tranche B 11,946,874 11,762,517
Note Payable - AT&T 11,776,996 11,776,996
Notes payable 1,173,902 1,173,902
Accounts payable 6,103,865 7,305,840
Commissions payable 342,434 342,434
Accrued expenses and other 2,767,838 2,728,011
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Total current liabilities 36,753,891 37,581,682
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STOCKHOLDERS' DEFICIT:
Convertible preferred stock, $.01 par value;
5,000 shares authorized, 1,735 shares issued at
March 31, 2001 and December 31, 2000 18 18
Common stock, $.0001 par value; 100,000,000 shares
authorized 9,880 9,873
Additional paid-in capital 66,859,658 66,858,596
Accumulated deficit (102,724,542) (103,437,546)
Treasury stock, at cost, 5,500 shares (28,050) (28,050)
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Total stockholders' deficit (35,883,036) (36,597,109)
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Total liabilities and stockholders' deficit $ 720,855 $ 984,573
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Six Months Ended June 30 Three Months Ended June 30
2001 2000 2001 2000
-------------- ------------ ----------- ----------
OPERATING REVENUES $ 1,113,079 $ 3,059,958 $ 591,307 $1,372,355
COST OF SALES 593,755 1,319,682 278,937 595,376
------------- ----------- ----------- -----------
GROSS MARGIN 519,324 1,740,276 312,370 776,979
OPERATING EXPENSES
Selling, general and administrative 814,716 2,989,271 616,701 1,160,622
Subscriber Acquisition Costs 43,314 319,775 38,595 145,647
Depreciation 4,842 3,326 2,538 1,663
------------- ------------ ----------- ------------
Total Operating Expenses 862,872 3,312,372 657,834 1,307,932
OPERATING PROFIT (LOSS) (343,550) (1,572,096) (345,464) (530,953)
OTHER (EXPENSE) INCOME
Interest income (expense) net 10,577 7,901 4,068 3,876
Extinguishment of Debt 1,045,973 - - -
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PROFIT (LOSS) BEFORE
INCOME TAXES 713,004 (1,579,808) (341,396) (527,077)
Income Taxes 0 0 0 0
------------- ------------- ----------- ------------
NET PROFIT (LOSS) 713,004 (1,579,808) (341,396) (527,077)
============= ============= =========== ============
Basic and Diluted Net Loss per Share $ 0.01 $ (0.02) $ (0.00) $ (0.01)
============= ============= =========== ============
Basic and Diluted Weighted
Average Shares Outstanding 98,593,504 98,525,028 98,593,504 98,525,028
============= ============= =========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit (Loss) $ 713,004 $ (1,579,808)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 4,842 3,327
Changes in operating assets and liabilities:
Prepaid expenses and other assets 158,584 930,057
Accounts payable and accrued expenses (1,162,148) (52,049)
Promotional deposits (100) 100
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Net cash provided by (used in)
operating activities (258,818) (698,373)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,108) (7,675)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, long-term debt and
credit facility (49,102) 615,446
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NET INCREASE (DECREASE) IN CASH (337,028) (90,602)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 686,139 600,734
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 349,111 $510,132
============= ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
USCI, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(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 consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 2000. Footnote disclosure, which would substantially duplicate the
disclosure contained in those documents has been omitted. Operating results for
the three-month and the six-month periods ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2001.
The accompanying consolidated financial statements of the Company and its
subsidiaries include the assets, liabilities, revenues and expenses of all
majority-owned subsidiaries over which the Company exercises control, and for
which control is other than temporary. Intercompany transactions and balances
are eliminated in consolidation. The Company's subsidiary, Ameritel
Communications, Inc (Ameritel), filed for reorganization under Chapter 11 in
October 1999. The bankruptcy case was dismissed on June 7, 2001. The secured
creditor foreclosed on the assets of Ameritel effective July 31, 2001 in order
to partially satisfy the debt owed to the secured creditor by Ameritel. All
operations of Ameritel ceased as of that date.
Prior to the dismissal of the bankruptcy proceeding of Ameritel, on June 7,
2001, Ameritel was treated as an affiliate for accounting purposes using the
equity method of accounting. As a result of the dismissal of the bankruptcy
proceeding, Ameritel has been reclassified from an affiliate to a subsidiary and
the assets, liabilities, income, and expenses of Ameritel are included in the
Company's consolidated financial statements.
Financial information for prior year periods has been restated to reflect the
reclassification of Ameritel as a subsidiary and to include Ameritel in the
consolidated financial statements of the Company retroactive to the date of the
initial bankruptcy filing of Ameritel.
Note 2: EXTINGUISHMENT OF DEBT
On January 25, 2001, Ameritel transferred 2,570 Puerto Rican subscriber
contracts, including all accounts receivable related to these contracts, to
Celulares Telephonica for $1,160,328, which represented the exact amount that
Ameritel owed to Celulares. Ameritel earned a net profit of $986,303 on this
transaction, which is included in the category of "Extinguishment of Debt" in
the "Condensed Consolidated Statement of Operations" for the period ending June
30, 2001. On March 30, 2001, the Company entered into an agreement to issue
68,476 shares of common stock to Korn Ferry International in full payment of the
debt of $60,738 owed by the Company to Korn Ferry. Ameritel's net gain on this
transaction amounted to $59,670.
6
Note 3: CREDIT FACILITY
On April 14, 1999, Ameritel entered into an Amended and Restated Loan and
Security Agreement with Foothill Capital Corp. ("Foothill") in which the
original Loan and Security Agreement entered into on September 5, 1998 was
amended to restructure the existing credit facility by reducing the total
facility to $17.5 million. Additionally, certain of our preferred shareholders
and certain other persons have entered into a Participation Agreement with
Foothill in connection with the restructuring of the our outstanding $20 million
credit facility with Foothill. The participants in the Foothill facility made an
aggregate of $7 million available as term loans. Although the limit of the
credit facility was reduced from $20 million to $17.5 million, the $7 million
allocated for term loans was available for working capital upon certain
conditions. The $10.5 million limit was structured as part revolver, part term
loan and part letter of credit. Also, there were approximately $1 million in
standby letters of credit outstanding under the line. The Company guaranteed
payment of amounts due under the above Agreement.
On October 29, 1999, Ameritel filed a voluntary petition under Chapter 11 of
U.S.C. Title 11 with the United States Bankruptcy Court for the Southern
District of New York (Case No. 99-11081)(the "Bankruptcy Court").
On April 28, 2000, a Release of Guaranty and Termination of Security Interests
was reached between the Company, Tranche B, Inc. and Foothill. Tranche B, Inc.
is owned and controlled by shareholders that hold a controlling interest in the
Company. Under the terms of the agreement, Foothill agreed to sell, transfer and
assign without recourse, all rights, title and interest in and to claims of
Ameritel, including any and all security interests against Ameritel and
guarantees against the Company, together with their right to receive cash,
instruments or other property issued in connection with the proceedings in the
Bankruptcy Court. In addition, the transaction included the release of all
guarantees of that indebtedness by the Company and its affiliates other than
Ameritel. As consideration for the release and termination, Foothill received
4,000,000 shares of common stock of the Company. On the eighteenth month
anniversary of the agreement date, the Company shall also transfer to Foothill,
such additional shares of common stock of the Company to make the aggregate fair
market value of the shares in the initial transfer equal to $4,000,000, based on
an agreed upon weighted average formula. The number of additional shares to be
issued under the agreement will not exceed 2,000,000.
The bankruptcy case was dismissed on June 7, 2001. The secured creditor
foreclosed on the assets of Ameritel effective July 31, 2001 in order to
partially satisfy the debt owed to the secured creditor by Ameritel. All
operations of Ameritel ceased as of that date.
USCI does not have any commitments with regard to additional sources of
financing and there can be no assurance that any such commitments will be
obtained in the foreseeable future.
7
Failure to obtain such financing or restructure its debt may compel the Company
and all of its subsidiaries to seek protection under the federal bankruptcy
statutes or otherwise cease operating and wind up its business affairs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and the Notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000. This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties and actual results could differ
materially from those discussed in the forward-looking statements. For this
purpose, any statements contained in this Form 10-Q that are not statements of
historical fact may be deemed to be forward-looking statements.
Through our subsidiaries, we are engaged in the marketing of such
telecommunications products and services as IP Telephony products and services
and long distance calling cards based upon IP Telephony, as well as in accounts
receivable management and the recovery of past due consumer debts.
Ameritel
During 1999, Ameritel Communications, Inc., our primary operating
subsidiary, substantially downsized its operations, restructured certain loan
provisions, converted certain preferred stock into common stock and filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy case was
dismissed on June 7, 2001. The secured creditor foreclosed on the assets of
Ameritel effective July 31, 2001 in order to partially satisfy the debt owed to
the secured creditor by Ameritel. All operations of Ameritel ceased as of that
date.
Prior to the dismissal of the bankruptcy proceeding of Ameritel, on
June 7, 2001, Ameritel was treated as an affiliate for accounting purposes using
the equity method of accounting. As a result of the dismissal of the bankruptcy
proceeding, Ameritel has been reclassified from an affiliate to a subsidiary and
the assets, liabilities, income, and expenses of Ameritel are included in the
Company's consolidated financial statements.
Financial information for prior year periods has been restated to
reflect the reclassification of Ameritel as a subsidiary and to include Ameritel
in the consolidated financial statements of the Company retroactive to the date
of the initial bankruptcy filing of Ameritel.
Alteration of Operating Strategy
In the second half of 1999, we substantially altered our operations in
an effort to achieve profitability, including establishing an e-commerce
platform to market services and products, downsizing of staff and facilities and
other cost cutting efforts to reduce overhead and adoption of our IP Telephony
initiative. In April 2000, our wholly owned subsidiary, AmericomOnline.com,
Inc., entered into a marketing distribution agreement with Net2Phone, Inc. to
market their IP telephony products and services to and through specific mass
market channels. The products include telephones and headsets that connect to
computers allowing for domestic and international long distance calling over the
Net2Phone network at well below normal long distance rates. In July 2001 the
agreement was expanded to include all supermarkets and drug stores in the United
States as well as most major mass market and electronics retailers, office
superstores, warehouse clubs and the largest television home shopping
operations. While we expect that those efforts will position us favorably to
grow revenues, improve operating margins and minimize operating costs, there can
be no assurance that we will be successful in our IP Telephony marketing
activities, growing revenues or operating profitably.
8
TelCollect
TelCollect, Inc. ("TelCollect"), a wholly owned subsidiary of USCI,
specializes in accounts receivable management and the recovery of past due
consumer and commercial debts. As of June 30, 2001, TelCollect is managing and
collecting on more than $50,000,000 in receivables, up from approximately
$15,000,000 at December 31, 2000. TelCollect specializes in telecom and credit
card receivables, and is qualified to collect debts for clients in 38 states as
well as the District of Columbia and Puerto Rico.
To support the TelCollect operations, the company has developed and
deployed a proprietary collection/receivables management software application.
This web-based application is capable of handling data in a variety of formats,
and combines the benefits of standard collections systems with advanced employee
management and reporting systems in an integrated package. We have not found
this unique combination in any other collections systems available to the market
today.
Although TelCollect has experienced dramatic growth over the past six
months, there can be no assurances that this new business will continue to be
successful.
Results of Operations-- Six Months Ended June 30, 2001 Compared to Six Months
Ended June 30, 2000
Net Profit. The Company earned a net profit of $713,004 during the
first six months of 2001 as compared with a loss of $1,579,808 for the same
period in 2000. This was primarily due to a 74% decrease in operating expenses
in the first six months of 2001 as compared to the same period in 2000, and a
one-time profit of $986,303 on the transfer to Celulares Telephonica of 2,100
wireless subscribers during the 2001 period.
Revenues. Consolidated revenues totaled $1,113,079 for the six months
ended June 30, 2001 and $3,059,958 for six months ended June 30, 2000. The
decline in revenues was attributable to the winding down, and ultimate
cessation, of the wireless telephone service operations of Ameritel which
reported revenues of $618,138 during the 2001 period as compared to $3,057,421
during the 2000 period. The revenues attributable to other businesses, primarily
debt collection services, increased from $2,537 in the 2000 period to $494,491
in the 2001 period.
Cost of sales. The Company reported $593,755 of cost of sales and
$519,324 of gross margin on a consolidated basis during the first six months of
2001 and $1,319,682 of cost of sales and $1,740,276 of gross margin during the
same period in 2000. The decline in cost of sales and gross margin was primarily
attributable to the winding down of Ameritel's operations which accounted for
$290,269 of cost of sales and $327,869 of gross margin during the 2001 period as
compared to $1,319,682 of cost of sales and $1,740,276 of gross margin during
the 2000 period. Other businesses, primarily debt collection services, accounted
for $303,486 of cost of sales and $191,005 of gross margin during the 2001
period as compared to $0 of cost of sales and $2,537 of gross margin during the
2000 period.
9
Selling, general and administrative expenses ("SG&A"). SG&A for the
first six months of 2001 aggregated $814,716 as compared to $2,989,271 for the
first six months of 2000. While total marketing expenses remained almost
constant for the two periods, expenses related to activations, customer care and
collections declined from $692,982 to $417,817 and administration declined from
$1,730,970 to $345,393 due primarily to a decline in the number of subscribers,
a reversal in bad debt expense that had been over-accrued, a refund of Federal
excise taxes and a reduction in consulting fees.
Interest Income. Interest income aggregated $10,578 for the first six
months of 2001 as compared with $7,901 for the same period in 2000. Because of
the Ameritel bankruptcy, no interest accrued on the Ameritel debt during either
period.
Extinguishment of Debt. On January 25, 2001, Ameritel transferred 2,100
Puerto Rican subscriber contracts, including all accounts receivable related to
these contracts, to Celulares Telephonica for $1,160,328, which represented the
exact amount that Ameritel owed to Celulares. Ameritel earned a net profit of
$986,303 on this transaction, which is included in the category of "other
income" in the "Condensed Consolidated Statement of Operations" for the period
ending June 30, 2001. On March 30, 2001, the Company entered into an agreement
to issue 68,476 shares of common stock to Korn Ferry International in full
payment of the debt of $60,738 owed by the Company to Korn Ferry. Ameritel's net
gain on this transaction amounted to $59,670.
Liquidity and Capital Resources
The Company had a working capital deficiency at June 30, 2001 of
$36,076,572 compared to $36,695,461 at December 31, 2000. Cash and cash
equivalents at June 30, 2001 totaled $349,111 compared to $686,139 at December
31, 2000 (of which $300,000 was restricted at June 30, 2001 and December 31,
2000 respectively).
Although the company earned a profit for the first six months of 2001,
the gain for the period was primarily attributable to a one-time non-cash gain
from the assignment by Ameritel of subscriber account contracts, and it is
possible that the company will experience a loss for the year as a whole. We
expect to continue to experience monthly losses and negative cash flow from
operations for the foreseeable future
We currently require substantial amounts of capital to fund current
operations, for the settlement and payment of past due obligations, and the
deployment of our new business strategy. Due to recurring losses from
operations, an accumulated deficit, stockholders' deficit, negative working
capital, being in default under the terms of our letters of credit advances, and
our inability to date to obtain sufficient financing to support current and
anticipated levels of operations, our independent public accountant audit
opinion states that these matters raise substantial doubt about our ability to
continue as a going concern.
10
On April 14, 1999, we entered into an Amended and Restated Loan and
Security Agreement with Foothill Capital ("Foothill") in which the original Loan
and Security Agreement entered into on June 5, 1998 was amended to restructure
the existing credit facility by reducing the total facility to $17.5 million.
Additionally, certain of our preferred shareholders and certain other persons
have entered into a Participation Agreement with Foothill in connection with the
restructuring of the outstanding $20 million credit facility with Foothill. An
aggregate of $7 million was made available by the participants in the Foothill
facility as term loans.
On April 28, 2000, a Release of Guaranty and Termination of Security
Interests was reached between Tranche B, Inc. and Foothill. Tranche B, Inc. is
owned and controlled by shareholders that hold a controlling interest in the
Company. Under the terms of the agreement, Foothill agreed to sell, transfer and
assign without recourse, all rights, title and interest in and to claims of
Ameritel, including any and all security interests against Ameritel and
guarantees against the Company, together with their right to receive cash,
instruments or other property issued in connection with the proceedings in the
United States Bankruptcy Court. In addition, the transaction included the
release of all guarantees of that indebtedness by the Company and its affiliates
other than Ameritel. As consideration for the release and termination, the
secured lender received 4,000,000 shares of common stock of the Company. On the
eighteenth month anniversary of the agreement date, the Company shall also issue
to the secured lender, such additional shares of common stock of the Company to
make the aggregate fair market value of the shares in the initial transfer equal
to $4,000,000, based on an agreed upon weighted average formula. The number of
additional shares to be issued under the agreement will not exceed 2,000,000.
Our operations continue to be dependent upon operating cash flow and
funding pursuant to the credit facility assumed by Tranche B. At June 30, 2001,
approximately $13 million had been advanced under our credit facility. The term
credit facility is due in September 2002. There is no assurance that we will be
able to pay the credit facility when it comes due or that the credit facility
will be adequate to meet our capital needs for the next 12 months. The amounts
available from operating cash flows and funds available from our credit facility
with Tranche B are expected to be adequate to meet our expected operating needs
through the end of 2001. We are seeking an expansion of our cash collateral
financing and restructuring certain debt to support deployment of our new
business strategy. We do not have any commitments with regard to additional
sources of financing and there can be no assurance that any such commitments
will be obtained in the foreseeable future.
On October 29, 1999, Ameritel Communications, Inc., a wholly owned
subsidiary of the Company ("Ameritel"), filed a voluntary petition under Chapter
11 of U.S.C. Title 11 with the United States Bankruptcy Court for the Southern
District of New York (Case No. 99-11081)(the "Bankruptcy Court"). The bankruptcy
case was dismissed on June 7, 2001. The secured creditor foreclosed on the
assets of Ameritel effective July 31, 2001 in order to partially satisfy the
debt owed to the secured creditor by Ameritel. All operations of Ameritel ceased
as of that date.
11
Because the cost of implementing our new VoIP, E-Commerce, and A/R
Management strategies will depend upon a variety of factors (including our
ability to negotiate additional distribution agreements, our ability to
negotiate favorable wholesale prices with carriers, the number of new customers
and services for which they subscribe, the nature and penetration of services
that we may offer, regulatory changes and changes in technology), actual costs
and revenues will vary from expected amounts, possibly to a material degree, and
such variations will affect our future capital requirements.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment, dated July 17, 2001, to Marketing and Distribution
Agreement between Net2Phone, Inc. and AmericomOnline.com, Inc.
(b) Reports on Form 8-K
None
12
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.
By: /s/ Lee Feist
----------------------
Lee Feist,
CEO and President
Date: August 20, 2001