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 March 31, 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 (IRS Employer Identification No.)
of incorporation or organization)
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)
(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 May 15, 2001, 98,160,980 shares of $.0001 par value Common Stock
were outstanding.
USCI, INC.
FORM 10-QSB
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000................ 3
Condensed Consolidated Statements of Operations
and Accumulated Deficit for the Three months
ended March 31, 2001 and March 31, 2000............. 4
Condensed Consolidated Statements of Cash
Flows for the Three months ended March 31, 2001
and March 31, 2000.................................. 5
Notes to Condensed Consolidated
Financial Statements................................ 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 9
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.................... 13
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
USCI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
------------- ------------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $300,000 in 2001 and 2000 $ 331,508 $ 400,140
Advances to Unconsolidated Subsidiary 43,085 -
Prepaid expenses and other 2,725 3,610
---------- ----------
Total current assets 377,345 403,750
---------- ----------
PROPERTY AND EQUIPMENT, net 7,744 6,276
OTHER ASSETS 56,574 56,474
---------- ----------
Total Assets $ 441,662 $ 466,500
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Letter-of-credit advances $ 2,491,982 $2,491,982
Notes payable 468,640 183,497
Accounts payable and bank overdraft 2,510,727 2,598,715
Commissions payable 225,571 225,571
Accrued expenses and other 527,178 503,213
----------- ----------
Total current liabilities 6,224,098 6,002,979
----------- ---------
COMMITMENTS AND CONTINGENCIES
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 9,905 9,898
Additional paid-in capital 66,854,635 66,853,573
Accumulated deficit (72,618,941) (72,371,918)
Treasury stock, at cost, 5,500 shares (28,050) (28,050)
------------ -----------
Total stockholders' deficit (5,782,434) (5,536,479)
------------ -----------
Total liabilities and stockholders' deficit $ 441,662 $ 466,500
============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
Three Months Ended March 31,
2001 2000
------ ------
OPERATING REVENUES $ 225,995 $ 0
OPERATING EXPENSES
Selling, general and administrative 507,263 613,660
---------- --------
Total Operating Expenses 507,263 613,660
---------- --------
OPERATING LOSS (251,268) (613,660)
OTHER(EXPENSE)INCOME
Interest income 4,245 3,756
Loss from investment in Ameritel - (763,494)
---------- --------
Total other income (expense) 4,245 (759,738)
---------- --------
LOSS BEFORE INCOME TAXES (247,024) (1,373,398)
Income Taxes 0 0
---------- --------
NET LOSS (247,024) (1,373,398)
========== =========
Deficit at Beginning of Period (72,371,918) (101,201,310)
----------- ------------
Deficit at End of Period $(72,618,942) $(102,574,708)
============ =============
Basic and Diluted Net Loss per Share $ (0.00) $ (0.01)
============ =============
Basic and Diluted Weighted
Average Shares Outstanding 98,160,980 94,000,029
============ =============
The accompanying notes are an integral part of these condensed consolidated
financial statements
4
USCI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
2001 2000
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (247,024) $(1,373,398)
Adjustments to reconcile net loss to
net cash used in operating activities:
D preciation and amortization 640 0
Advances to Unconsolidated Subsidiary (43,085) 0
Loss from investment in subsidiary 0 763,494
Stock issued in settlement of payables 1,068 0
Changes in operating assets and liabilities:
Prepaid expenses and other assets 858 518,263
Accounts payable and accrued expenses (64,024) 122,456
Promotional deposits (100) 0
---------- -----------
Net cash provided by (used in)
operating activities (351,666) 30,815
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,108) (7,686)
--------- -----------
Net cash used in investing activities (2,108) (7,686)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes, payable, long-term debt and
credit facility 285,142 0
---------- -----------
Net cash provided by financing activities 285,142 0
---------- -----------
NET INCREASE (DECREASE) IN CASH (68,632) 23,129
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 400,140 300,000
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 331,508 $ 323,129
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
USCI, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 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 period ended March 31, 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, filed for
reorganization under Chapter 11 in October 1999. Investments in nonconsolidated
affiliates (wholly owned subsidiaries over which the Company does not exercise
control) are accounted for on the equity basis. Accordingly, due to Ameritel's
filing for reorganization under Chapter 11 in October 1999, the Company began
accounting for its investment in Ameritel under the equity method of accounting
retroactively, as of January 1, 1999.
The bankruptcy case was dismissed on June7, 2001. We have been advised by the
secured creditor that it intends to foreclose on the assets of Ameritel in order
to partially satisfy the debt owed to the secured creditor by Ameritel. If this
is done, then it is anticipated that, upon conclusion of such a sale, all
operations of Ameritel would immediately cease.
Note 2: CREDIT FACILITY/REORGANIZATION UNDER BANKRUPTCY PROCEEDINGS
On April 14, 1999, Ameritel Communications, Inc., a wholly owned subsidiary of
the Company ("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.
6
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 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, Tranche B, Inc. 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. We have been advised by the
secured creditor that it intends to foreclose on the assets of Ameritel in order
to partially satisfy the debt owed to the secured creditor by Ameritel. If this
is done, then it is anticipated that, upon conclusion of such a sale, all
operations of Ameritel would immediately cease.
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.
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.
7
Note 3: INVESTMENT IN AMERITEL
Summarized financial information of Ameritel as of March 31, 2000 and December
31, 2000 and for the Three Months Ended March 31, 2001 and 2000 were as follows:
As of: March 31, 2001 December 31,2000
-------------- ----------------
Total assets $403,062 $3,262,387
Total liabilities $51,505,957 $55,674,605
Stockholder's deficit ($51,102,895) ($52,412,218)
For the Three Months Ended March 31, 2001 2000
-------- --------
Revenues $265,777 $1,700,000
Other Income $1,636,303 0
Costs $598,392 $725,000
Interest expense $2,265 $359,192
Gain/(Loss) before income taxes $1,301,423 ($763,494)
Total liabilities include intercompany payables to USCI, Inc. of $21,606,822 and
$21,606,822 at March 31, 2001 and December 31, 2000, respectively. The
Investment in Ameritel is shown in the accompanying Consolidated Balance Sheets
as of December 31, 2000 as a liability and consists of the intercompany amounts
due to USCI offset by the Stockholder's deficit of Ameritel.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-QSB contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed herein.
Bankruptcy of 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. As a result of the
bankruptcy filing, operations of Ameritel have been presented under the equity
method and are not included in the consolidated financial statements of USCI.
The bankruptcy case was dismissed on June 7, 2001. We have been advised by the
secured creditor that it intends to foreclose on the assets of Ameritel in order
to partially satisfy the debt owed to the secured creditor by Ameritel. If this
is done, then it is anticipated that, upon conclusion of such a sale, all
operations of Ameritel would immediately cease.
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 the first quarter 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 their specific mass market channels. Negotiations are currently underway
to expand this agreement to include additional products and customers. 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.
TelCollect
Through our subsidiaries, we are engaged in the marketing of such
telecommunications products and services as IP Telephony, wireless telephone and
long distance calling cards. We have recently formed TelCollect, Inc.
(TelCollect), a wholly owned subsidiary of USCI which specializes in accounts
receivable management and the recovery of past due consumer and commercial
debts.
9
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.
TelCollect has in place agreements with other clients intent on using
TelCollect to remedy issues with their past due accounts. There can be no
assurances that this new business will be successful.
Results of Operations-- Three Months Ended March 31, 2001 Compared to Three
Months Ended March 31, 2000
Revenues. Consolidated revenues of USCI, excluding Ameritel, were
$255,995 during the quarter ended March 31, 2001 and $-0- during quarter ended
March 31, 2000.
Consolidated revenues during the 2001 period were attributable entirely
to A/R Management Services, which commenced during the fourth quarter of 2000.
Cost of sales. The Company reported $146,447 of cost of sales and
$109,548 of gross margin on a consolidated basis during 2001 and no cost of
sales or gross margin during 2000. Consolidated cost of sales during 2001 were
attributable to A/R Management Services.
Selling, general and administrative expenses ("SG&A"). SG&A for the
2001 Quarter aggregated $507,263 as compared to $613,660 for the 2000 Quarter.
Consulting fees totaled $300,000 in the 2000 Quarter due to an amortization of
the value of shares granted to a consultant under a consulting contract that
began in May, 1999. No similar consulting fees were recorded during the 2001
quarter. Depreciation expense decreased by approximately $304,979 in the 2001
Quarter due to a write down of certain long lived assets in 1999. Professional
and other fees decreased by approximately $511,981 in the 2001 Quarter due to a
reduced need for restructuring and general legal counsel during the 2001
Quarter.
Interest Income. Interest income aggregated $3,756 in the 2000 Quarter
and $4,245 in the 2001 Quarter.
10
Liquidity and Capital Resources
Working capital deficiency at March 31, 2001 was $5,800,000 compared to
$5,600,000 at December 31, 2000. Ameritel had a working capital deficiency of
$32,855,000 and $33,585,000 at March 31, 2001 and December 31, 2000,
respectively excluding amounts due to USCI and affiliates. Cash and cash
equivalents at March 31, 2001 totaled $332,000 compared to $400,000 at December
31, 2000 (of which $300,000 was restricted at March 31, 2001 and December 31,
2000 respectively). Ameritel had a cash balance of $86,000 at March 31, 2001 and
$286,000 at December 31, 2000 (of which $50,500 was restricted at December 31,
2000). The increase in working capital deficiency is primarily due to losses
suffered in the 2001 Quarter. We expect to continue to experience monthly losses
and negative cash flow from operations for the foreseeable future.
We continue to operate at a loss and have limited capital resources.
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,
having significant litigation instituted against us, 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.
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.
11
Our operations continue to be dependent upon operating cash flow and
funding pursuant to the credit facility assumed by Tranche B. At March 31, 2001,
approximately $13.4 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 not 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. 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. We have been advised by the secured creditor
that it intends to foreclose on the assets of Ameritel in order to partially
satisfy the debt owed to the secured creditor by Ameritel. If this is done, then
it is anticipated that, upon conclusion of such a sale, all operations of
Ameritel would immediately cease.
The financial statements as of and for the year ended December 31, 2000
and the quarter ended March 31, 2001, do not include any effect of the
bankruptcy which was filed on October 29, 1999.
Because the cost of implementing our new e-commerce strategies, which
began in the fourth quarter of 1999 with immaterial operations, 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 1. LEGAL PROCEEDINGS
In October 1999, our wholly-owned subsidiary, 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 June7, 2001.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K dated February 2, 2001 reporting under Item 4 the appointment of
Tauber and Balser as the Company's new independent public accountants.
Amendment to Form 8-K dated December 29, 2000 providing letter from
accountants relating to resignation of Arthur Andersen as the Company's
independent public accountants.
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: July 13, 2001