<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 1998
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: 0-22944
US WATS, INC.
-------------
(Exact name of Registrant as specified in its charter)
New York 22-3055962
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 Presidential Boulevard
Bala Cynwyd, Pennsylvania 19004
- ------------------------- -----
(Address of principal executive offices) (Zip Code)
(610) 660-0100
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Outstanding at
Common Stock May 7, 1998
------------ -----------
$.001 19,794,394
<PAGE>
US WATS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page (s)
--------
PART I
======
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997 3 - 4
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II
=========
OTHER INFORMATION 15
SIGNATURE PAGE 16
-2-
<PAGE>
PART I
=========
Financial Information
ITEM 1.
- ------
FINANCIAL STATEMENTS
US WATS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 (unaudited) 1997
---------------- ----
Assets
------
Current Assets
Cash and cash equivalents $ 871,971 $1,588,267
Accounts receivable, net of allowance for
doubtful accounts of $1,584,793 for 1998,
and $1,498,749 for 1997 7,008,487 6,899,082
Prepaid expenses and other 119,765 108,683
---------- ----------
Total Current Assets 8,000,223 8,596,032
--------- ----------
Property and Equipment
Telecommunications equipment 3,882,908 3,881,857
Equipment 1,615,445 1,579,435
Software 651,153 647,797
Office furniture and fixtures 155,553 155,553
Leasehold improvements 36,432 36,432
--------- ----------
6,341,491 6,301,074
Less accumulated depreciation and amortization 3,538,686 3,286,435
--------- ----------
Total Property and Equipment, net 2,802,805 3,014,639
--------- ---------
Other assets, principally deposits 198,430 202,804
--------- ---------
$11,001,458 $11,813,475
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
US WATS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 (unaudited) 1997
---------------- ----
Liabilities and Shareholders' Equity
------------------------------------
Current Liabilities
Note payable $1,181,776 $ 690,826
Capital lease obligations, current portion 268,331 273,095
Accounts payable 6,356,243 6,975,779
Accrued commissions 878,254 943,556
Accrued expenses and other 838,960 1,007,980
State and Federal taxes payable 1,121,298 1,293,417
Deferred revenue 11,873 75,494
---------- ----------
Total Current Liabilities 10,656,735 11,260,147
---------- ----------
Long-Term Liabilities
Capital lease obligations, net of
current portion 318,253 380,260
------- -------
Commitments and Contingencies
Redeemable preferred stock, $.01 par, authorized
150,000 shares, issued and outstanding:
30,000 shares in 1998, 30,000 shares in 1997
Redemption value: $11.00 per share 330,000 330,000
------- -------
Common Shareholders' Equity
Common stock issuable 106 166
Common stock, $001 par, authorized
30,000,000 shares; issued:
17,940,334 shares in 1998
17,654,100 shares in 1997 17,941 17,654
Additional paid-in capital 5,587,200 5,328,982
Accumulated Deficit (5,908,527) (5,503,484)
---------- ----------
(303,280) (156,682)
Common stock held in treasury (250) (250)
(250,000 shares), at cost --------- ---------
(303,530) (156,932)
--------- ---------
$11,001,458 $11,813,475
=========== ===========
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
US WATS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1998 1997
----------- -----------
Revenues $11,871,250 $13,507,072
Cost of sales 8,615,837 9,622,812
----------- -----------
Gross profit 3,255,413 3,884,260
Selling, general and administrative expenses 3,611,047 3,956,961
----------- -----------
Income (loss) from operations (355,634) (72,701)
Other Income (expense)
Interest income 16,932 19,085
Interest expense (59,590) (74,924)
----------- -----------
Income (loss) before income taxes (398,292) (128,540)
Income taxes -- --
----------- -----------
Net income (loss) (398,292) (128,540)
Preferred dividends 6,750 6,750
----------- -----------
Net income (loss) applicable to common shareholders $ (405,042) $ (135,290)
=========== ===========
Earnings (loss) per share applicable
to common shareholders: $ (.02) $ (.01)
=========== ===========
Weighted Average Number of Shares
Outstanding in Computation 17,730,787 15,922,649
========== ===========
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
US WATS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1998 1997
----------- -----------
OPERATING ACTIVIES
<S> <C> <C>
Net income (loss) before preferred dividends $ (398,292) $ (128,540)
Adjustments to reconcile net income (loss)
to net cash provided by (used-in) operating activities
Depreciation and amortization 256,625 255,414
Provision for bad debts 272,220 4,669
Changes in assets and liabilities which provided
(used) cash:
Accounts receivable (381,625) (2,270,526)
Prepaid expenses and other (11,082) (48,482)
Other assets -- (205)
Deferred revenue (63,621) (26,121)
Accounts payable and accrued expenses (853,858) 844,275
State and Federal Taxes payable (172,119) 10,179
----------- -----------
Net cash (used in) provided by operating activities (1,351,752) (1,359,337)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (40,416) (117,488)
----------- -----------
Net cash (used in) provided by investing activities (40,416) (117,488)
----------- -----------
FINANCING ACTIVITIES
Proceeds from stock option exercises 258,443 25,000
Increase in notes payable, net 490,950 820,271
Repayment of capital lease obligations (66,771) (48,722)
Preferred stock dividend (6,750) (6,750)
----------- -----------
Net cash provided by (used in) financing activities 675,872 789,799
----------- -----------
Net (decrease) increase in cash (716,296) (687,026)
Beginning cash 1,588,267 1,455,186
----------- -----------
Ending cash $ 871,971 $ 768,160
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
US WATS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
- --------------
US WATS, Inc. ("the Company") is a switch-based interexchange carrier providing
long distance telephone communications services primarily to small and medium-
size business customers. The Company also provides inbound-800 long distance
services, as well as other telecommunications services such as travel cards
(calling cards), cellular, paging, internet service, dedicated access, data
services, pre-paid calling cards (debit cards), International Callback and
carrier termination. The Company uses its own switches and facilities to
originate, transport and terminate calls for customers located in the Mid-
Atlantic region as well as all of California with the exception for select
Independent Telephone Company territories. Approximately 85% of the calls billed
by the Company each month are processed through the Company's own switches. For
calls originating or terminating outside the Company's own network (off-net
area), the Company utilizes the services provided by other long distance
companies.
The Company's revenues are derived primarily from the transport of outgoing and
incoming calls which are billed by the Company to end-users at specified rates.
Transport costs of these calls are billed to the Company from other carriers at
contractual rates. These carriers supply the Company with call detail
information which enables the Company to bill its customers depending upon the
Company's individual rates. The combination of the efficiency of the Company's
network and facilities, and the purchase of long distance services in bulk from
other carriers allow the Company to offer competitive rates to small and medium-
sized businesses.
The Company differentiates itself from a price-only sales approach by offering
various value-added services for its customers, provided by its customized
proprietary software. The Company's outbound long distance services, inbound
800 services, cellular services, as well as paging and internet services are
provided on one combined bill which includes various management reports. The
Company believes its consultative approach to meeting its customers' needs
distinguishes it from its larger competitors. All of the Company's customer
support functions, such as customer service, credit and collections, and
administrative services are centrally located at the Company's offices at 111
Presidential Boulevard, Suite 114, Bala Cynwyd, Pennsylvania 19004. The
Company's telephone number at that location is (610) 660-0100.
The accompanying unaudited interim consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission and in the opinion of management, include all
adjustments necessary for a fair presentation of such financial statements.
Such adjustments consist only of normal recurring items. Certain information
and note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. Where appropriate, certain amounts in
the prior period financial statements have been reclassified to conform to the
current period presentation. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of results to be expected
for the full year.
The accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the financial statements and related
notes included in the Company's Form 10-K for the year ended December 31, 1997.
-7-
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its three wholly-owned subsidiaries, USW Corporation, USW Enterprises, Inc., and
Carriers Group Inc., after elimination of all inter-company accounts,
transactions and profits. The Company's investment in an internet service
provider is accounted for under the cost method.
REVENUE RECOGNITION
The Company recognizes revenue based upon the customer's usage of services. The
Company primarily bills its customers for service on a monthly basis, however,
in some instances, it bills certain customers on a more frequent basis.
CASH AND CASH EQUIVALENTS
The Company considers cash in its bank and repurchase agreements with a maturity
of three months or less when purchased as cash and cash equivalents.
At certain times during the year, the Company has balances in its operating
accounts that in the aggregate exceed the $100,000 Federal Deposit Insurance
Corporation insurance limit.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated for
financial reporting purposes using the straight line method over the estimated
useful lives of the assets:
Telecommunications equipment........ 7 years
Furniture fixtures and other........ 5 years
DEFERRED FINANCING COSTS
Loan origination costs are amortized by the straight-line method over the term
of the related loan, and are included in other assets.
ACCOUNTS PAYABLE
Accounts payable includes the cost of access charges due local telephone
companies and long distance transport purchased from long distance carriers.
-8-
<PAGE>
MARKETING
All costs related to marketing and advertising the Company's products and
services are expensed in the period incurred.
USE OF ESTIMATES
The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(LOSS) INCOME PER COMMON SHARE APPLICABLE TO COMMON SHAREHOLDERS
(Loss) income per common share applicable to common shareholders is computed by
dividing net (loss) income, after deduction of preferred stock dividends, by the
weighted average number of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which was adopted by the Company effective for the year ended December
31, 1997, as required by the statement. For the three months ended March 31,
1998 and 1997, the Company's potential common stock equivalents have an
antidilutive effect on (loss) income per share applicable to common shareholders
and, therefore, diluted (loss) income per common share applicable to common
shareholders has not been presented.
The following table summarizes those securities that could potentially dilute
(loss) income per common share applicable to common shareholders in the future
that were not included in determining the fully diluted (loss) income per common
share applicable to common shareholders as the effect is antidilutive.
<TABLE>
<CAPTION>
Three Months Ended March 31,
Potential Common Shares resulting from: 1998 1997
--------------------- ----------------------
<S> <C> <C>
Stock Options 844,453 415,686
Stock Warrants 539,654 234,018
Cumulative, Convertible, Redeemable Preferred Stock 300,000 300,000
--------- -------
1,684,107 949,704
========= =======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments such as accounts
receivable, accounts payable, and note payable approximate their carrying
amounts.
-9-
<PAGE>
CARRYING VALUE OF LONG-TERM ASSETS
The Company evaluates the carrying value of long-term assets, including
property, plant and equipment, and other intangibles, based upon current and
anticipated undiscounted cash flows, and recognizes an impairment when it is
probable that such estimated cash flows will be less than the carrying value of
the asset. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." This statement, establishes standards for reporting and disclosure for
comprehensive income. The Company adopted this statement during the first
quarter of fiscal year 1998. Adoption of this statement had no impact on the
Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and requires
the reporting of selected information about operating segments in interim
financial statements. SFAS No. 131 is not required to be applied to interim
financial statements in the initial year of application. Reclassification of
segment information for earlier periods presented for comparative purposes is
required under SFAS No. 131. As this statement only requires additional
disclosures in the Company's consolidated financial statements, its adoption
will not have any impact on the Company's consolidated financial position,
results of operations or cash flows. The Company will adopt SFAS No. 131 in its
December 31, 1998 annual financial statements.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement improves disclosure
about pensions and other postretirement benefits. The Company adopted this
statement during the quarter ended March 31, 1998. Adoption of this statement
had no impact on the Company's consolidated financial statements.
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, Accounting
For the Costs of Computer Software Developed For or Obtained for Internal-Use.
The SOP is effective for the Company in 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The Company
has not yet assessed what the impact of the SOP will be on the Company's future
earnings or financial position.
RECLASSIFICATION OF ACCOUNTS
Certain reclassifications have been made to conform prior years' balances to the
current year presentation.
3. NOTE PAYABLE
- ----------------
On May 11, 1995, the Company entered into a Loan and Security Agreement with
Century Business Credit Corporation for a revolving credit facility of
$2,000,000. The loan was established for an initial period of two years, and
was automatically renewed for two successive years on March 11, 1997. Interest
on the loan is currently calculated at prime plus 3 3/4% with a minimum loan
value of $750,000. The loan is collateralized by accounts receivable and fixed
and intangible assets of the Company.
-10-
<PAGE>
4. LITIGATION
- ---------------
The Company is party, in the ordinary course of business, to litigation
involving services rendered, contract claims and other miscellaneous causes of
action arising from its business. Management does not consider that any such
matters will materially effect the Company's financial condition or results of
operations.
On June 13, 1997, Mark Scully, the former President and Chief Operating Officer
of the Company, filed a complaint against the Company and several officers
and/or Directors in the United States District Court for the Eastern District of
Pennsylvania. Mr. Scully asserts various claims in connection with his
termination of employment with the Company on December 30, 1996. In particular,
he alleges, among other things, breach of contract in connection with the
termination of certain stock options, breach of the alleged contract for
employment, breach of an asserted duty of good faith and fair dealing,
fraudulent and negligent misrepresentation, and civil conspiracy. Mr. Scully
alleges damages of at least $1.6 million, plus attorneys' fees, costs and other
disbursements and the cost of COBRA payments and interest; $1 million of the
alleged damages claimed are punitive. The Company contests the allegations of
the complaint and intends to vigorously defend against the action.
5. SUBSEQUENT EVENTS
- --------------------
In April 1998, the Company's Chairman and Chief Executive Officer each exercised
300,000 options and 569,000 warrants for a total of $2,034,124. In addition,
short-swing profits of $1,439,644 were remitted to the Company as a result of a
violation of Section 16(b) of the Securities Exchange Act of 1934 by a
beneficial owner.
-11-
<PAGE>
ITEM 2.
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue for the quarter ended March 31, 1998 decreased approximately $1,636,000
(12%) versus the quarter ended March 31, 1997. Approximately $640,000 (39%) of
the decrease was due to a decrease in the Company's revenue derived from retail
sales through the agent and reseller channels. Throughout the first quarter of
1998, the Company was involved with integration plans associated with the
proposed merger agreement with ACC Corp. This had a significant impact on the
Company's business as sales and operating initiatives were delayed during this
period. Since the termination of the merger agreement took place in March, the
Company has issued aggressive pricing to the agents. The Company has also
reinstituted an aggressive agent recruitment program by hiring three new agent
managers to be located in on-net markets. These strategies will allow the
Company to build the revenue base beyond previous levels in the near term.
In addition, approximately $746,000 (46%) of the overall revenue decrease was
related to the international callback channel. This revenue decrease is
attributed to the Company's decision to discontinue service to two international
callback wholesalers as a result of their operational problems. The Company
plans to pursue other international callback wholesale customers in the second
quarter of 1998.
For the quarter ended March 31, 1998, gross profit as a percentage of revenue
was approximately 27% versus 29% for the quarter ended March 31, 1997. The
decrease in gross profit margin is attributed to two main factors. First, the
Company experienced an increase in carrier revenue as a percentage of overall
revenue, increasing from approximately 22% for the quarter ended March 31, 1997
to approximately 26% for the quarter ended March 31, 1998. Carrier revenue has
lower gross margins than other revenue streams. Therefore, as a result of this
percentage increase in carrier revenue to total revenue, the Company's overall
gross margin declined. Also, in the quarter ended March 31, 1998, the rate per
minute for retail sales decreased .015 cents versus the quarter ended March 31,
1997, due to competitive pressures in the industry. The Company has recently
negotiated lower rates from two significant off-net vendors which management
believes will benefit gross profit margins going forward. Overall, the
Company's gross profit decreased approximately $629,000, mainly due to the
decrease in revenue as noted above.
Selling, general and administrative ("SG&A") expenses for the quarter ended
March 31, 1998 decreased approximately $346,000 versus the amount incurred in
the quarter ended March 31, 1997. The decrease in SG&A expense is mainly due to
a decrease in commissions paid to resellers and agents of approximately
$358,000, as a result of the decrease in revenue through these channels. Salary
expense also decreased by approximately $237,000 in the quarter ended March 31,
1998 compared to the quarter ended March 31, 1997. This is a result of a
decrease in headcount, including the termination of high salaried management
personnel occurring in the third and fourth quarters of 1997. These decreases
in SG&A expenses were offset by an increase in bad debt expense of approximately
$268,000. The Company's bad debt expense is approximately (2%) of revenue for
the quarter ended March 31, 1998 compared with (0%) for the quarter ended March
31, 1997. Bad debt expense in the quarter ended March 31, 1998 represents a
normal and recurring provision made by the Company. The increase from the prior
year comparative quarter is as a result of minimal bad debt expense recorded in
the quarter ended March 31, 1997. SG&A expense as a percentage of revenue
increased from approximately 29% for the quarter ended March 31, 1997 to
approximately 30% for the quarter ended March 31, 1998. This marginal increase
is mainly due to the decrease in overall revenue.
-12-
<PAGE>
Interest expense for the quarter ended March 31, 1998 decreased versus the
amount incurred in the quarter ended March 31, 1997 by approximately $15,000.
This is due to an average decrease in the Company's revolving line of credit for
the quarter ended March 31, 1998 compared to the quarter ended March 31, 1997.
The net loss for the quarter ended March 31, 1998 was approximately $398,000, an
increase of approximately $270,000 versus the quarter ended March 31, 1997. The
increased loss is mainly due to the decrease in gross profit margin as noted
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital ratio decreased from .76:1.00 at December 31, 1997
to .75:1.00 at March 31, 1998. The Company's cash balance decreased
approximately $716,000 from its balance at December 31, 1997. This was due to a
faster turnover of accounts payable offset by proceeds from stock options and an
increase in the note payable.
Accounts receivable net of the allowance for doubtful accounts increased
approximately 2% from December 31, 1997 to March 31, 1998 versus a 10% decrease
in gross revenue for the quarter ended March 31, 1998 compared to the quarter
ended December 31, 1997. Bad debt expense for the quarter ended March 31, 1998
was approximately (2%) of revenue.
In April 1998, the Company was notified by the NASD that as of December 31, 1997
the Company did not meet the minimum capital and surplus requirements to remain
listed in The NASDAQ Small Cap Market. However, the Company's cash and equity
positions were improved in April 1998. The Company's Chairman and Chief
Executive Officer each exercised 300,000 options and 569,000 warrants for a
total of $2,034,124. In addition, short-swing profits of $1,439,644 were
remitted to the Company as a result of a violation of Section 16(b) of the
Securities Exchange Act of 1934 by a beneficial owner. The Company has responded
to the NASD's letter with a pro forma balance sheet including these
transactions. As of the date of this filing, the Company is awaiting the NASD's
review of the documentation submitted.
The Company has been able to finance its growth to date with limited equity
capital which has been sufficient for current needs. The Company's plans for
continued growth includes both substantial internal growth and the potential
acquisition of other long distance companies. In order to achieve the Company's
plans for growth in the long distance business as well as its entry into the
local exchange arena, the Company may require additional equity and is currently
seeking sources of funding. The Company cannot give assurance as to the
potential success of these efforts. However, the Company's subsequent
improvement in cash and working capital position should provide the Company with
better funding alternatives then it has had in the past.
YEAR 2000
- ---------
The Company is in the preliminary stages of a project to determine the impact of
the Year 2000 issue on the Company's computer systems. The Company is currently
assembling a list of, and analyzing, its internally developed software,
purchased software, hardware, and external data feeds, including
-13-
<PAGE>
switches used by carriers who terminate the Company's off-net traffic, that
utilize embedded date codes which may experience operational problems when the
Year 2000 is reached. The Company currently plans to complete its analysis by
the end of 1998 and will continue to make required modifications to the
identified problem areas through the early part of 1999.
Preliminary results to date indicate that that the Company will be required to
replace its switch located in Philadelphia. Management has estimated the cost
of replacement at approximately $1.7 million and anticipate such replacement
will occur in the third quarter of 1998. The total remaining cost of making the
Company "Year 2000 Compliant" cannot be accurately determined at this time. In
addition, the Company currently cannot assess the effect of incomplete or
untimely resolution of Year 2000 issues on its operations.
ITEM 3
- ------
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
-14-
<PAGE>
PART II
=======
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Financial Data Schedule, Exhibit No. 27.
(b) Reports on Form 8-K: None.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
US WATS, Inc.
(Registrant)
By: /s/ Steven Parker
--------------------
STEVEN PARKER,
President & Chief Executive Officer,
Treasurer, Director
By: /s/ Michael McAnulty
-----------------------
MICHAEL McANULTY
Chief Financial Officer
Dated: May 14, 1998
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS SET FORTH IN THIS FORM 10-Q FOR THE FISCAL QUARTER ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 871,971
<SECURITIES> 0
<RECEIVABLES> 8,593,280
<ALLOWANCES> 1,584,793
<INVENTORY> 0
<CURRENT-ASSETS> 8,000,223
<PP&E> 6,341,491
<DEPRECIATION> 3,538,686
<TOTAL-ASSETS> 11,001,458
<CURRENT-LIABILITIES> 10,656,735
<BONDS> 318,253
330,000
0
<COMMON> 17,941
<OTHER-SE> (321,471)
<TOTAL-LIABILITY-AND-EQUITY> 11,001,458
<SALES> 0
<TOTAL-REVENUES> 11,871,250
<CGS> 0
<TOTAL-COSTS> 8,615,837
<OTHER-EXPENSES> 3,611,047
<LOSS-PROVISION> 272,220
<INTEREST-EXPENSE> 59,590
<INCOME-PRETAX> (398,292)
<INCOME-TAX> 0
<INCOME-CONTINUING> (398,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (398,292)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
