<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly period ended September 30, 1997
Commission File number 0-24098
UStel, Inc.
(Name of Small Business Issuer in its charter)
Minnesota 95-4362330
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
6167 Bristol Parkway, Suite 100, Culver City CA 90230
(Address of principal executive offices) (Zip code)
(310) 645-1770
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or 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_____.
State the number of shares outstanding of each of issuers's classed of
common equity as of the latest practicable date.
Class Outstanding as of November 10, 1997
Common Stock, $0.01 par value per share 6,872,778 shares
Transitional Small Business Disclosure Format (check one)
Yes______; No___X__
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USTEL, INC.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheet -
December 31, 1996 and September 30, 1997.............. 2
Condensed Consolidated Statement of Operations -
Three Months Ended September 30, 1996 and
September 30, 1997 and the Nine Months Ended
September 30, 1996 and September 30, 1997..............4
Condensed Consolidated Statement of Changes In
Stockholders' Equity For The Period
January 1, 1997 to September 30, 1997..................5
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1996 and
September 30, 1997.....................................6
Summary of Accounting Policies.........................7
Notes To Condensed Consolidated Financial Statements..10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................15
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable for the quarter ended
September 30, 1997.
Item 6 During the quarter ended September 30, 1997 the Company
filed one report on Form 8-K on September 25, 1997.
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<TABLE>
UStel, Inc.
Consolidated Balance Sheets
<CAPTION>
December 31, September 30,
1996 1997
ASSETS (Audited) (Unaudited)
Current Assets
<S> <C> <C>
Cash $ 225,926 $ 405,954
Accounts receivable, less allowance for
doubtful accounts of $1,123,000 and
$2,017,000 6,876,465 6,384,797
Inventory 0 22,983
Prepaid expenses 376,331 419,345
---------- ----------
Total current assets 7,478,722 7,233,079
---------- ----------
Property and equipment
Office furniture and equipment 2,537,268 3,099,976
Leasehold improvement 180,012 198,081
---------- ----------
2,717,280 3,298,057
Less accumulated depreciation (471,449) (879,522)
---------- ----------
Net property and equipment 2,245,831 2,418,535
---------- ----------
Goodwill 0 4,186,444
Related party receivables 301,475 311,732
Other receivables, less allowance for
doubtful accounts of $744,000 and
$559,000, respectively 138,936 144,544
Start-up costs less accumulated amortization
of $78,696 and $176,961 19,673 64,006
Deferred charges 1,182,308 798,611
----------- -----------
Total Assets $11,366,945 $15,156,951
=========== ===========
<FN>
See accompanying summary of accounting policies and notes to financial
statements.
</TABLE>
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<TABLE>
UStel, Inc.
Consolidated Balance Sheets
<CAPTION>
December 31, September 30,
1996 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (Audited) (Unaudited)
Current Liabilities
<S> <C> <C>
Notes payable to bank $ 2,225,608 $ 2,328,346
Notes payable to related parties 84,000 0
Notes payable - others 4,907,239 0
Accounts payable 1,178,818 3,721,160
Accrued revenue taxes 232,999 215,363
---------- -----------
Total current liabilities 8,628,664 6,264,869
Convertible subordinated debentures 500,000 500,000
---------- -----------
Total liabilities 9,128,664 6,764,869
---------- -----------
Commitments and contingencies
Stockholders' equity
Series A Convertible Preferred Stock,
$.01 par value, 5,000,000 shares
authorized and 550,000 and 275,000
shares, respectively,
outstanding (Liquidation
Preference $3,000,000 and $1,500,000) 5,500 2,750
Common stock, $.01 par value, 40,000,000
shares authorized; 2,126,851 and
6,787,778 shares issued and
outstanding, respectively 21,269 67,878
Additional paid-in capital 7,710,561 17,295,583
Accumulated deficit (5,499,049) (8,974,129)
----------- -----------
Total stockholders' equity 2,238,281 8,392,082
----------- -----------
Total Liabilities and Stockholders'
Equity $11,366,945 $15,156,951
=========== ===========
<FN>
See accompanying summary of accounting policies and notes to financial
statements.
-3-
</TABLE>
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<TABLE>
UStel, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------- ----------- ----------- -----------
<S> < C> <C> <C> <C>
Revenues:
Gross $ 5,804,706 $ 6,692,223 $16,513,648 $18,543,146
Less credits (164,865) (158,835) (347,304) (441,311)
----------- ----------- ----------- -----------
5,639,841 6,533,388 16,166,344 18,101,835
----------- ----------- ----------- -----------
Operating expenses
Cost of services sold 4,765,023 5,303,454 12,006,378 14,147,561
Selling 601,986 163,887 1,676,705 1,397,641
General and administrative 2,932,631 3,461,557 4,762,971 5,292,431
Depreciation and amortization 61,959 154,031 184,071 337,355
----------- ---------- ----------- -----------
Total operating expenses 8,361,599 9,082,928 18,630,125 21,174,988
----------- ---------- ----------- -----------
Loss from operations (2,721,758) (2,549,540) (2,463,781) (3,073,152)
Interest expense, net of interest income (127,916) (121,562) (313,928 (401,927)
----------- ----------- ----------- -----------
Net Loss $(2,849,674) $(2,671,102) $(2,777,709) $(3,475,080)
=========== =========== =========== ===========
Net Loss per share:
Primary $ (1.39) $ (0.40) $ (1.37) $ (0.68)
======== ========= ========== ==========
Weighted average number of common
shares outstanding:
Primary 2,055,518 6,622,031 2,025,740 5,129,826
========= ========= ========= =========
<FN>
See accompanying summary of accounting policies and notes to financial
statements.
-4-
</TABLE>
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<TABLE>
UStel, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For The Period January 1, 1997 to September 30, 1997
(Unaudited)
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
<C> <C>
Balance, January 1, 1997 550,000 $ 5,500 2,126,851 $ 21,269 $ 7,710,561 $(5,499,049) $ 2,238,281
Public Offering of
Common Stock and
Warrants 2,905,000 29,050 8,685,950 8,715,000
Conversion of
Preferred Stock (275,000) (2,750) 374,990 3,750 (1,000) -0-
Costs of Public
Offering (2,369,469) (2,369,469)
Acquisition of Consortium
2000, Inc. for
1,076,923 shares of
Common Stock 1,076,923 10,769 2,535,497 2,546,266
Acquisition of Pacific
Cellular, Inc. for
304,014 shares of
Common Stock 304,014 3,040 734,044 737,084
Net Loss For Period (3,475,080) (3,475,080)
------- ------- --------- -------- ----------- ------------ -----------
Balance, Sept. 30, 1997 275,000 $ 2,750 6,787,778 $ 67,878 $17,295,583 $(8,974,129) $8,392,082
======= ======= ========= ======== =========== ============ ===========
<FN>
See accompanying summary of accounting policies and notes to financial statements.
-5-
</TABLE>
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<TABLE>
UStel, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
<CAPTION>
(Unaudited) Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1997
------------ ------------
<S> <C> <C>
Net Loss $(2,777,709) $ (3,475,080)
Adjustments to reconcile net income
(loss) to net cash
used in operating activities:
Depreciation and amortization 184,070 363,740
Provisions for losses on accounts
receivable 1,469,151 1,597,085
Change in operations-assets and
liabilities:
Accounts receivable (2,497,116) (1,195,417)
Due from related parties 54,702 (10,257)
Other receivables (158,282) (5,608)
Prepaid expenses and other (44,496) (43,013)
Accounts payable and accrued expenses 1,414,363 2,674,707
Other 0 (22,983)
----------- -----------
Net cash used in operating
activities (2,355,317) (116,826)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (180,553) (730,777)
Prepaid acquisition and offering costs (161,240) (429,399)
----------- -----------
Net cash used in investing activities (341,793) (1,160,176)
----------- -----------
Cash flows from financing activities:
Liquidation of certificates of deposit 3,133,433 -0-
Proceeds from notes payable - related
parties 400,000 24,500
Proceeds from notes payable - others 19,647,390 18,011,118
Public offering of common stock and
warrants, net 0 6,345,531
Payments on debt-related parties (316,000) (108,500)
Payments on debt-others (19,774,787) (22,815,619)
----------- -----------
Net cash provided by financing
activities 3,090,036 1,457,030
----------- -----------
Net increase in cash 392,926 180,028
Cash, beginning of period 1,200 225,926
----------- -----------
Cash, end of period $ 394,126 $ 405,954
=========== ===========
Supplemental information:
Interest paid $ 361,837 $ 365,346
Income taxes paid 22,997 4,753
See accompanying summary of accounting policies and notes to financial statements.
-6-
</TABLE>
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UStel, Inc.
Summary of Accounting Policies
The Company:
UStel, Inc. (the "Company") was formed on March 11, 1992 as a long-distance
telephone service provider. The Company offers competitive discounted calling
plans which are available to customers in the United States, Puerto Rico, and
the Virgin Islands. On January 12, 1994, the Company effected a recapital-
ization of its capital stock in connection with its re-incorporation in
Minnesota. In connection with the recapitalization, the Company exchanged
all its outstanding common shares (1,000 shares) for 950,000 shares of the
reincorporated company's common shares. Accordingly, the financial statements
were retroactively restated.
Revenue Recognition:
Revenue is recognized upon completion of the telephone call.
Property And Equipment:
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis over lives
ranging from five to fifteen years. Leasehold improvements are amortized
over the shorter of the estimated life of the asset or the term of the lease.
Deferred Charges:
Deferred charges consist of loan fees, offering costs and certain costs
incurred in connection with expanding the Company's market position. Loan
fees are amortized over the life of the related loan. Offering costs have been
charged against paid-in capital when the offering with which they are associated
has been consummated. If the offering had not been consummated, such costs
would have been charged to operations during the period when it became evident
that the offering would not have been completed. Costs incurred to expand the
Company's market position are amortized over the period of benefit not to
exceed twenty-four months. It is the Company's policy to periodically review
and evaluate that the benefits associated with these costs are expected to be
realized and, therefore, deferral and amortization are justified.
Income Taxes:
Income taxes are accounted for under Financial Accounting Standards Board,
FAS No. 109, "Accounting for Income Taxes." Under this standard, deferred
tax assets and liabilities represent the tax effects, calculated at currently
effective rates, of future deductible taxable amounts attributable to events
that have been recognized on a cumulative basis in the financial statements.
Earnings Per Share:
Earnings per share are computed based upon the weighted average number of
common shares outstanding during the periods. Common stock equivalents
relating to stock options, warrants and convertible preferred stock are not
included in the computation at times when their effect is anti-dilutive.
Use of Estimates:
-7-
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UStel, Inc.
Summary of Accounting Policies
The preparation of 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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Significant Risks and Uncertainties
The Company is primarily a non-facilities based inter-exchange carrier that
routes customers' calls over a transmission network consisting primarily of
dedicated long distance lines secured by the Company from a variety of other
carriers. One of these carriers provides the call record information from
which the Company bills approximately 75% of its customer base. Management
believes other carriers could provide the same services on comparable terms.
Concentrations of Credit Risks:
The Company maintains cash balances at one financial institution. Deposits
not to exceed $100,000 are insured by the Federal Deposit Insurance
Corporation. At September 30, 1997, the Company has uninsured cash in the
amount of approximately $78,249.
Stock-based Compensation
Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123) establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from non-employees in exchange for equity
instruments. The Company adopted this accounting standard on January 1, 1996.
SFAS 123 also encourages, but does not require companies to record compensation
cost for stock-based employee compensation. The Company has chosen to continue
to account for stock-based compensation utilizing the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation cost for stock options
is measured as the excess, if any, of the fair market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire
the stock.
New Accounting Pronouncements:
Statements of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS No. 125) issued by the Financial Accounting Standards Board (FSAB) is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The
new standard provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. The Company
does not expect adoption to have a material effect on its financial position
or results of operations.
On March 3, 1997, the FASB issued Statement of Financial Accounting Standards
-8-
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UStel, Inc.
Summary of Accounting Policies
No. 128, "Earnings Per Share" (SFAS No. 128). This pronouncement provides a
different method of calculating earnings per share than is currently used in
accordance with APB No. 15, "Earnings Per Share". SFAS No. 128 provides for
the calculation of Basic and Diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding for
the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. This pronouncement is effective for fiscal years
and interim periods ending after December 15, 1997; early adoption is not
permitted. The Company has not determined the effect, if any, of adoption on
its earnings per share computations.
Disclosure About Fair Value of Financial Instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash, Restricted Cash, Accounts Receivable and Accounts Payable:
The carrying amount approximates fair value due to the short maturity of
those instruments.
Notes Payable:
The fair value of the Company's notes payable is based on quoted market prices
for similar issues of debt with similar remaining maturities.
Convertible Debenture:
The fair value of the Company's convertible debentures is estimated based upon
current market borrowing rates for loans with similar terms and maturities.
Reclassifications:
Certain financial statement items have been reclassified to conform to the
current year's presentation.
-9-
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UStel, Inc.
Notes to Consolidated Financial Statements
Note 1 - Interim Financial Statements
The interim consolidated financial statements for the nine months ended
September 30, 1997 and September 30, 1996, respectively, are unaudited.
In the opinion of management, such financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the results of the interim periods. The results
of operations for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results for the entire year.
Note 2 - Deferred Charges
Deferred charges consist of the following:
December 31, September 30,
1996 1997
Development costs....................... $ 131,437 $ 111,438
Offering costs........................... 739,672 31,794
Acquisition program costs................ -0- 302,410
Loan fees................................ 183,153 199,478
Calling card program..................... 138,108 138,108
Deposits and other....................... 128,202 221,063
---------- ----------
1,320,572 1,004,291
Accumulated amortization................. (138,264) (205,680)
---------- ----------
$1,182,308 $ 798,611
========== ==========
Note 3 - Notes Payable to Bank
In December 1995, the Company obtained a Senior Credit Facility ("Credit
Facility" and "Line") in the amount of up to $5 million with an asset-based
lender. Amounts drawn under the Credit Facility accrue interest at a variable
rate equal to the Bank of America Reference Rate plus 2% per annum. The line
is secured by accounts receivable and all of the Company's other assets.
Under the credit facility, the Company can borrow up to an amount which is
the lesser of $5 million or up to 85% of the Company's eligible receivables.
Subject to the $5 million maximum borrowing, in addition to amounts supported
by receivables, the Company may borrow on a 36-month term loan basis up to the
lesser of $1.5 million or a formula amount based on the fair value of new
equipment and the liquidation value of existing equipment. Amounts
outstanding under the credit facility at December 31, 1996 and September 30,
1997 were $2,225,608 and $2,328,346, respectively.
Note 4 - Related Party Transactions
(a) Related Parties Receivables
At December 31, 1996 and September 30, 1997, the Company has amounts due from
various related parties relating to loans as follows:
December 31, September 30,
1996 1997
Loans:
Related entities..........................$ 26,371 $ 27,909
Officers and former officers ............. 274,330 371,420
Employees................................. 774 12,403
---------- ----------
301,475 411,732
Less allowance -0- (100,000)
---------- ----------
$ 301,475 $ 311,732
========== ==========
(b) Related Parties Payable
During February, 1996 the Company borrowed $400,000 from a related party.
-10-
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UStel, Inc.
Notes To Consolidated Financial Statements
Note 4 - Related Party Transactions (Continued)
The note was payable on demand and bore interest at 12% per annum. In June,
1996, $116,000 of this borrowing was repaid. An additional repayment of
$200,000 was made in August 1996. Interest was payable at the earlier of
maturity or repayment of the full amount borrowed. The amount outstanding at
December 31, 1996 was $84,000. This loan was repaid in February, 1997.
(c) Shares Issued to Officer/Employee
On January 1, 1996 the Company issued warrants for the purchase of up to
200,000 shares of the Company's common stock in connection with the employ-
ment of the Company's Vice-President and General Counsel. Also in September
1996 the Company issued warrants for the purchase of up to 100,000 shares of
the Company's stock in connection with the employment of the Company's
representative in Israel. These warrants are issued at an exercise price
of $5.00 per share, which was the fair value at the date of the grant, and
are exercisable upon issuance.
(d) Sales Agent
On August 14, 1996, the Company and Consortium 2000, Inc. entered into a Merger
Agreement and Plan of Reorganization. Under the terms of the Agreement (a) the
Company merged with Consortium 2000, Inc., with the Company being the
surviving corporation in the merger, and (b) all of the capital stock of
Consortium 2000, Inc. was converted into an aggregate of 1,076,923
shares of the common stock of the Company. As a result of the Agreement,
Consortium 2000, Inc. is a wholly-owned subsidiary of the Company.
The transaction was completed in the first week of July 1997.
In August, 1994 the Company had retained Consortium 2000, Inc., on a
commission basis. As part of the consideration for its engagement, the
Company agreed to issue the sales agent warrants to purchase up to 300,000
shares of common stock. These warrants were canceled upon the completion
of the acquisition of Consortium 2000, Inc.
(e) Financial Consultant
In September 1995, the Company engaged the Diener Financial Group, a company
wholly-owned by Robert L.B. Diener, who is the son of Royce Diener, a director
of the Company. For assisting the Company in connection with a private
placement, the Company paid Robert L. B. Diener the sum of $25,000. In
November, 1995, the Company granted Mr. Diener 100,000 warrants exercisable
at $5.00 per share, expiring November, 2000. Robert L. B. Diener is now Chief
Executive Officer of the Company.
Note 5 - Notes Payable - Others
During June 1996 the Company borrowed $1,200,000 from an unrelated party. The
one year note bore interest at the annual rate of 12% and was unsecured.
Interest is payable at maturity. In conjunction with this loan the Company
agreed to issue warrants for acquisition of up to 540,000 of its common shares
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UStel, Inc.
Notes To Consolidated Financial Statements
Note 5 - Notes Payable - Others (Continued)
at a price of $5.00 per share. Warrants for the purchase of 120,000 common
shares were issuable at the time the loan was funded. Additional warrants
were to become issuable in increments of 60,000 common shares each at intervals
of ninety days after funding of the loan so long as the loan remained unpaid.
The amount outstanding at December 31, 1996 was $1,200,000. This loan was
paid off in February 1997. Total warrants of 240,000 had been granted as
of the date this loan was paid off.
As of September 9, 1996, the Company was indebted for transmission service to
WilTel, its primary long distance carrier, in the amount of $5,595,963 (before
application of certain volume discounts available under the transmission
service contract). Payment of this amount was settled by payment of $1,000,000
on September 9, 1996, the Company's agreement to pay an additional $735,688 by
September 27, 1996, and the Company's agreement to execute a promissory note
in the amount of $3,860,275. In connection with this agreement, the Company
had further agreed to pay future WilTel invoices within 30 days of
presentation. The initial due date of the promissory note was November 14,
1996, and it was later extended to December 31, 1996 and February 28, 1997.
The note bore interest at the rate of 15% per annum through November 14, 1996
and 18% thereafter and was secured by a second lien on all the Company's
assets. The promissory note was also guaranteed by Consortium 2000 and secured
by certain assets of Consortium 2000. The amount outstanding on the promissory
note at December 31, 1996 was $3,707,239. On February 28, 1997, the principal
balance and accrued interest under the promissory note was paid in full from
proceeds of the Company's public offering.
Note 6 - Commitments And Contingencies
Operating Leases
The Company occupies certain office and switching facilities under operating
leases expiring on various dates through 1998 with options to renew on
switching facilities. Insurance and maintenance expenses covering these
facilities are the Company's obligations.
Future minimum lease commitments were as follows:
Years Ended Office Switching Total
December 31, Space Space Amount
1997 $ 26,948 $ 71,926 $ 98,874
1998 26,948 29,964 56,912
1999 26,948 -0- 26,948
2000 26,948 -0- 26,948
2001 4,491 -0- 4,491
-------- --------- ---------
$112,283 $ 101,890 $ 214,173
======== ========= =========
Note 7 - Convertible Subordinated Debentures
In January 1994, the Company issued 12% Convertible Subordinated Debentures
-12-
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UStel, Inc.
Notes To Consolidated Financial Statements
Note 7 - Convertible Subordinated Debentures (Continued)
("Debentures") in the aggregate amount of approximately $500,000. The
Debentures bear interest at the rate of 12% per annum, payable on the first
day of each calendar quarter. Principal and accrued interest will be due and
payable on or before December 30, 1998. At any time prior to the payment in
full, the Debentures can be converted into shares of the Company's common
stock at the rate of $7.00 per share, subject to adjustment (as defined).
Note 8 - Preferred Stock
During September 1994, the Company issued 550,000 shares of $.01 par value
Series A Convertible Preferred Stock ("Preferred"). Each share of Preferred
entitles its holder to receive dividends at the same rate paid to common
stockholders. Unless the Company pays or declares dividends with respect to
common shares, the Company has no obligation to declare or pay dividends with
respect to the Preferred. Each share of Preferred was initially convertible
into one share of common stock, as adjusted, for such things as stock splits,
stock dividends and other similar dilutive occurrences. At any time
subsequent to October 16, 1995, each holder of record of Preferred may, at
his or her option, convert all or part of the Preferred shares held into
fully paid common shares.
On January 24, 1997, the Company agreed to amend the terms of the Series A
Convertible Preferred Stock to change the conversion ratio from 1:1 to
1.3636:1. As a result of this change, the 550,000 shares of Series A
Convertible Preferred Stock will be convertible into 749,980 shares of the
Company's Common Stock.
On May 23, 1997, 275,000 shares of the Series A Preferred Stock were
converted into 374,990 shares of the Company's Common Stock.
Note 9 - Common Stock
During 1994, the Company completed an initial public offering ("IPO"), of
650,000 shares of the Company's common stock. In connection with the IPO
described above, the Company granted to the underwriter, warrants to acquire
65,000 shares of the Company's common stock. The warrants are exercisable for
a period of four years commencing one year after the date of the prospectus
(June 22, 1994) at an exercise price of $6.25 (125% of the public offering
price). This warrant is outstanding as of September 30, 1997.
In February 1997, the Company completed the sale of 1,452,500 units, each
unit consisting of two shares of common stock and one redeemable common stock
purchase warrant, for $6.00 per unit. The net proceeds to the Company were
approximately $6,345,000 after deduction of offering costs and expenses.
Each warrant entitles the registered holder thereof to purchase, at any time
until February 14, 2002, one share of common stock at a price of $4.00 per
share. The warrants are subject to redemption by the Company at $0.01 per
warrant on 30 days' prior written notice to the warrantholders if the closing
bid price of the common stock as reported on the Nasdaq SmallCap Market
averages or exceeds $6.00 for a period of 20 consecutive trading days ending
within 30 days prior to the date of notice of redemption.
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UStel, Inc.
Notes To Consolidated Financial Statements
Note 10 - Income Taxes
At September 30, 1997, the Company has available net operating loss carry-
forwards of approximately $7,722,218 for income tax purposes, which expire
in varying amounts through 2011. Federal tax rules impose limitations on the
use of net operating losses following certain changes in ownership. Such a
change in control occurred during 1994. As a result, $3,208,000 of the net
operating loss carry-forwards are subject to limitation. The net operating
loss carryover may be utilized at a rate of approximately $402,000 per year.
The net operating loss carry-forward generated a deferred tax asset of
approximately $3,548,000. The deferred tax asset was not recognized since it
is more likely than not that they will not be realized accordingly, a 100%
valuation allowance was provided.
Note 11 - Other Events
In June 1997 the Company reported that it had signed a letter of intent to
acquire Arcada Communications, a privately held switched-based inter-exchange
carrier based in Seattle, WA. The transaction is subject to the execution of
a definitive agreement, due diligence and approval by the stockholders of both
companies.
On July 24, 1997 the Company reported that it had completed the acquisition of
Pacific Cellular, a Las Vegas-based reseller of wireless telecommunication
services for 304,014 shares of the Company's common stock. Pacific Cellular
will continue to operate as a wholly-owned subsidiary of the Company. This
transaction was accounted for as a purchase.
On July 8, 1997 the Company also completed the acquisition of Consortium 2000,
Inc., marketing organization, which was previously announced in August 1996.
This transaction was accounted for as a purchase.
-14-
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto and the other
financial data included elsewhere in this report. This report contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements.
In July 1997 the Company completed the acquisition of the Consortium
2000 marketing organization and the acquisition of the Pacific Cellular
wireless services organization. These acquisitions, when combined with
the Company's announced signing of a letter of intent for the acquisition of
Arcada Communications are consistent with the Company's strategy to evolve
from its historic emphasis on long distance service into a full-service
telecommunications company. The acquisition of Pacific Cellular, when
combined with the wireless division of Arcada Communications, will provide
the Company with a strong position in the wireless communications market in
the Western U.S.
In September 1997 management completed a thorough review of the accounts
and operations begun in August 1996 and concluded that it would be prudent
to increase the bad debt reserve by $1,171,377 and to make provision for the
write off and/or discontinuance of certain operations and lines of business
in the amount of $528,623. These additional allowances were provided in the
quarter ended September 30, 1997.
The accompanying consolidated financial statements include the
activities of Consortium 2000, Inc. and Pacific Cellular, Inc. since the
dates of their respective acquisitions in July 1997.
Results of Operations
UStel, Inc. was formed in March, 1992, although the Company did not
commence significant operations until January, 1993. Since January, 1993,
the Company's monthly revenues have grown from $10,000 to approximately
$2,380,000 in September 1997. In addition, the number of subscribers to the
Company's long distance telephone service and related services has grown to
in excess of 38,000 at September 30, 1997.
The Companies' primary cost is for local access services, which represents
the cost of originating and terminating calls through local networks owned and
operated by local telephone companies such as USWest and Pacific Telesis,
combined with the cost of utilizing usage-sensitive transmission facilities
and leasing long-haul bulk transmission lines from facilities-based carriers.
The Companies' profit margin depends, among other things, on the volume
of its operations, on the type of services provided and on the mix between use
of usage-sensitive transmission facilities and long-haul bulk transmission
lines. Initial increases in volume may increase the use of usage-sensitive
transmission facilities relative to fixed rate bulk transmission facilities.
-15-
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<PAGE>
The Company does not expect this to have a significant impact on profit margin
due to volume discounts that are available on usage-sensitive transmission
facilities and the ability to shift to fixed rate long-haul bulk transmission
facilities at relatively low volumes of activity.
Comparison of Results of Operations--Nine Months Ended September 30, 1997
Compared to Nine Months Ended September 30, 1996.
Revenues for the nine months ended September 30, 1997 were $18,101,835
as compared to $16,166,344 for the nine months ended September 30, 1996. The
increase in revenues in 1997 was the result of expansion from a customer base
of 9,000 at January 1, 1996 to a customer base in excess of 38,000 at
September 30, 1997, offset in part by increasing competition in the long
distance telecommunications marketplace in the past fifteen months and the
Company's need to shift to products with less gross margin to enable it to
compete.
Cost of services sold for the nine months ended September 30, 1997 was
$14,147,561 as compared to $12,006,378 for the nine months ended September
30, 1996. The increase in cost of services sold, similar to the increase
between periods in revenue, was the result of the expansion in the Company's
customer base. Cost of services sold for the nine months ended September 30,
1997 was 78.2% of the revenues produced in the nine months ended September 30,
1997. Cost of services sold for the nine months ended September 30, 1996 was
74.3% of the revenues produced in that period of 1996. This increase in the
cost of services sold, as a percentage of revenues, reflects the increasing
competition in the long distance telecommunications marketplace in the past
fifteen months and the Company's need to shift to products with less gross
margin to enable it to compete.
General and administrative expenses for the nine months ended September
30, 1997 were $5,292,431 (including the additional allowances resulting from
the September 1997 review of accounts and operations) as compared to $4,762,971
for the nine months ended September 30, 1996. The relatively flat position
reflects the Company's ability to absorb increased operations within the
existing staff and facilities. The third quarter 1996 includes additional
charges aggregating $1,693,704 for bad debt and other write downs.
Selling expenses for the nine months ended September 30, 1997 were
$1,397,641 as compared to $1,676,705 for the nine months ended September 30,
1996. The increase in selling expenses reflects the costs associated with the
expansion and retention of the Company's customer base from commencement
through September 30, 1997. As a result of the acquisition of Consortium 2000,
Inc. in July 1997 the major recipient of commission expense is eliminated in
the consolidated financial statements. Commission expenses paid to Consortium
during the third quarter 1997 (eliminated in consolidation) were $408,937.
Depreciation and amortization for the nine months ended September 30,
1997 was $337,355 as compared to $184,071 for the nine months ended September
30, 1996. Amortization of the Company's start-up cost asset was $14,756 for
both the nine month periods ended September 30, 1997 and September 30, 1996,
respectively. Depreciation for the nine months ended September 30, 1997 was
$277,634 as compared to $169,315 for the nine months ended September 30, 1996.
Expense for 1997 includes $44,965 amortization of goodwill related to the July
-16-
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<PAGE>
1997 acquisitions, which goodwill is being amortized over twenty years.
The increase in depreciation was the result of the Company's increasing
investments in telephone switching equipment and facilities to handle
increased telephone traffic and increased investment in the computer hardware
and software that supports the operations of the telephone equipment and
related billing activities. The Company's investment in these fixed assets
increased from approximately $1,604,000 at December 31, 1995 to approximately
$3,298,000 at September 30, 1997.
During the nine months ended September 30, 1997 the Company reported a
loss from operations of $3,073,152 versus a loss from operations of $2,463,781
for the nine months ended September 30, 1996.
Interest expense for the nine months ended September 30, 1997 was
$425,888 as compared to $409,205 for the nine months ended September 30, 1996.
In December, 1995, the Company obtained a senior credit facility (the "Credit
Facility") from a finance company in the amount of up to $5,000,000. This
Credit Facility bears interest at the Bank of America Reference Rate plus 2%
per annum, with a minimum of $15,000 interest expense per month. Interest
expense charged on the Credit Facility for the nine months ended September 30,
1997 was $207,010 including amortization of related loan fees over thirty-
six months.
Interest income for the nine months ended September 30, 1997 was $26,305
principally from the Company's accrual of interest on related party loans, as
compared to $95,277 for the nine months ended September 30, 1996, when
interest income also included earnings from certificates of deposit.
During the nine months ended September 30, 1997, the Company reported
a net loss of $3,475,080 versus net loss of $2,777,709 for the nine months
ended September 30, 1996.
Comparison of Results of Operations--Three Months Ended September 30, 1997
Compared to Three Months Ended September 30, 1996.
Revenues for the three months ended September 30, 1997 were $6,533,388
as compared to $5,639,841 for the three months ended September 30, 1996.
The change in revenues in 1997 was the result of expansion from a customer
base of 9,000 at January 1, 1996 to a customer base in excess of 38,000 at
September 30, 1997, offset in part by increasing competition in the long
distance telecommunications marketplace in the past fifteen months and the
Company's need to shift to products with less gross margin to enable it to
compete.
Cost of services sold for the three months ended September 30, 1997 was
$5,303,454 as compared to $4,765,023 for the three months ended September 30,
1996. The increase in cost of services sold, similar to the increase between
periods in revenue, was the result of the expansion in the Company's customer
base. Cost of services sold for the three months ended September 30, 1997 was
81.2% of the revenues produced in that period of 1997. Cost of services sold
for the three months ended September 30, 1996 was 84.5% of the revenues produced
in that period of 1996, after giving effect to a write down of revenues in the
-17-
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<PAGE>
third quarter of 1996. This increase in the cost of services sold, as a
percentage of revenues, reflects the increasing competition in the long
distance telecommunications marketplace in the past fifteen months and the
Company's need to shift to products with less gross margin to enable it to
compete.
General and administrative expenses for the three months ended September
30, 1997 were $3,461,556 (including the additional allowances resulting from
the September 1997 review of accounts and operations) as compared to $2,962,631
for the three months ended September 30, 1996. The third quarter 1996 includes
additional charges aggregating $1,693,704 for bad debt and other write downs.
The relatively flat position reflects the Company's ability to absorb increased
operations within the existing staff and facilities.
Selling expenses for the three months ended September 30, 1997 were
$163,887 as compared to $601,986 for the three months ended September 30,
1996. The increase in selling expenses reflects the costs associated with the
expansion and retention of the Company's customer base from commencement through
September 30, 1997. As a result of the acquisition of Consortium 2000, Inc, in
July 1997 the major recipient of commission expense is eliminated in the
consolidated financial statements. Commission expense paid to Consortium 2000,
Inc. during the third quarter of 1996 was $384,915.
Depreciation and amortization for the three months ended September 30,
1997 was $154,031 as compared to $61,959 for the three months ended September
30, 1996. Amortization of the Company's start-up cost asset was $4,917 for both
the three month periods ended September 30, 1997 and September 30, 1996,
respectively. Depreciation for the three months ended September 30, 1997 was
$104,149 as compared to $57,042 for the three months ended September 30, 1996.
Expense for 1997 includes $44,965 amortization of goodwill related to the July
1997 acquisitions, which goodwill is being amortized over twenty years.
The increase in depreciation was the result of the Company's increasing
investments in telephone switching equipment and facilities to handle
increased telephone traffic and increased investment in the computer hardware
and software that supports the operations of the telephone equipment and
related billing activities. The Company's investment in these fixed assets
increased from approximately $1,604,000 at December 31, 1995 to approximately
$3,298,000 at September 30, 1997.
During the three months ended September 30, 1997 the Company reported a
loss from operations of $2,549,540 versus a loss from operations of $2,721,758
for the three months ended September 30, 1996.
Interest expense for the three months ended September 30, 1997 was
$126,975 as compared to $136,276 for the three months ended September 30, 1996.
In December, 1995, the Company obtained a senior credit facility (the "Credit
Facility") from a finance company in the amount of up to $5,000,000. This
Credit Facility bears interest at the Bank of America Reference Rate plus 2%
per annum, with a minimum of $15,000 interest expense per month. Interest
expense charged on the Credit Facility for the three months ended September 30,
1997 was $74,698 including amortization of related loan fees over thirty-six
months.
-18-
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<PAGE>
Interest income for the three months ended September 30, 1997 was $5,413
principally from the Company's accrual of interest on related party loans, as
compared to $8,360 for the three months September 30, 1996, when interest income
also included earnings from certificates of deposit.
During the three months ended September 30, 1997, the Company reported a
net loss of $2,671,102 versus net loss of $2,849,674 for the three months ended
September 30, 1996.
Liquidity and Capital Resources
The Company's working capital position at September 30, 1997 was
approximately $968,210. During the nine months ended September 30, 1997,
the Company utilized net cash of $116,826 for operating activities.
Because the Company has not yet completed installation of an in-house
billing system, it is dependent upon a third-party billing services provider
to send out bills to the Company's customers for usage of the services
provided by the Company. This reliance on an outside billing service makes
it is uneconomical for the Company to render bills more frequently than once
a month. Typically, bills for services are being mailed out between 10 to 20
days after the end of the month in which the services are rendered. The
Company is generally required to pay for the use of third-party long distance
lines within 30 days of the end of month in which the service is rendered.
This strains the Company's working capital as it is required to seek sources
for financing the differences between the payables and receivables.
The Company is in the final stages of installation of a state-of-the-
art billing system that will handle customer billings for all companies
within the consolidated group and those in process of acquisition. This
in-house system will enable the Company to bill customers on a more timely
and efficient basis, as well as providing the reporting flexibility necessary
to meet customer information needs for both existing products and new products
being brought on line. This new in-house system is presently being operated
in parallel with the billing services being provided to the Company by
outsided services.
At September 30, 1997, the Company's accounts receivable, net of
allowance for doubtful accounts, was $6,529,341. In addition, through
September 30, 1997, the Company had invested $3,099,976 in switching and
related equipment and in computer hardware and software.
To raise funds to meet cash needs for operations and fixed asset
acquisitions, the Company has relied upon an initial public offering of
units comprising common stock and warrants, a secondary public offering of
common stock, a private placement of Series A Preferred Stock, a private
placement of convertible subordinated debentures, a private placement of
units comprised of common stock and warrants, a revolving credit facility
and periodic bridge financings.
In December, 1995, the Company obtained the Credit Facility in the
amount of up to $5,000,000 with an asset-based lender. Amounts drawn under
the Credit Facility accrue interest at a variable rate equal to the Bank of
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<PAGE>
America Reference Rate plus 2% per annum. The Credit Facility is secured by
accounts receivable and all of the Company's other assets.
Under the Credit Facility, the Company can borrow up to an amount which
is the lesser of $5,000,000 or up to 85% of the Company's eligible receivables
and unbilled calling records. Subject to the $5,000,000 maximum borrowing,
in addition to amounts supported by receivables, the Company may borrow on a
36-month term loan basis up to the lesser of $1,500,000 or a formula amount
based on the fair value of new equipment and the liquidation value of existing
equipment. The amount outstanding under the Credit Facility at September 30,
1997 was $2,328,346; however, the line was only approximately 47% drawn at that
point.
In February, 1996, the Company borrowed $400,000 from Kamel B. Nacif,
the holder of the Company's Series A Preferred Stock. This loan was payable
on demand and bore interest at the annual rate of 12%. At December 31, 1996,
the unpaid balance was $84,000. This loan was paid off in February 1997. In
addition, an 8% loan fee was paid at maturity.
In June, 1996, the Company borrowed $1,200,000 from an unrelated party.
The one-year note bore interest at the annual rate of 12% and was unsecured.
Interest was payable at maturity. In conjunction with this loan the Company
agreed to issue warrants for the acquisition of up to 540,000 shares of its
common stock at a price of $5.00 per share. Warrants for the purchase of
120,000 shares of common stock were issuable at the time the loan was funded.
This loan was paid off in February 1997. At the time of repayment the lender
was entitled to warrants to purchase 240,000 shares of the Company's common
stock.
As of September 9, 1996, the Company was indebted for transmission
service to WilTel, its primary long distance carrier, in the amount of
$5,595,963 (before application of certain volume discounts available under
the transmission service contract). Payment of this amount was settled by
payment of $1,000,000 on September 9, 1996, the Company's agreement to pay
an additional $735,688 by September 27, 1996 and the Company's agreement
to execute a promissory note in the amount of $3,860,275. In connection
with this agreement, the Company further agreed to pay future WilTel
invoices within 30 days of presentation. The initial due date of the
promissory note was November 14, 1996, and it was later extended to
December 31, 1996 and February 28, 1997. The note bore interest at the
rate of 15% per annum through November 14, 1996 and 18% thereafter and
was secured by a second lien on all of the Company's assets. The
promissory note was also guaranteed by Consortium 2000 and secured by
certain assets of Consortium 2000. On February 28, 1997, the principal
balance and accrued interest under the promissory note was paid in full
from the proceeds of the 1997 public offering.
In February 1997 the Company successfully completed a public
offering of 1,452,500 Units (with each Unit consisting of two shares of the
Company's Common Stock plus one redeemable Common Stock Purchase Warrant) for
$6.00 per Unit less underwriters discount, commissions and offering costs.
The net proceeds to the Company were approximately $6,345,000. With the net
proceeds of this offering the Company was able to pay off all of its outstand-
ing notes payable, with the exception of its senior credit facility.
-20-
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<PAGE>
EXHIBITS INCORPORATED BY REFERENCE:
Exhibit
Number Exhibits
2 Merger Agreement and Plan of Reorganization by and among UStel,
Inc., Consortium Acquisition Corporation and Consortium 2000, Inc.
dated August 13, 1996(4)
2.3 Asset Purchase and Sale Agreement Between UStel, Inc. and Pacific
Communications, Inc. dated July 23, 1997 (6)
3.1 Articles of Incorporation of the Company(1)
3.1-a,b (a) Statement of Designation of Preferences and Rights of Series
A Convertible Preferred Stock(2)
(b) Amendment to Statement of Designation of Preferences and
Rights of Series A Convertible Preferred Stock*
3.2 Bylaws of the Company(1)
4.1 Form of Certificate evidencing shares of Common Stock(l)
4.1-a Form of Warrant Agreement between the Company and American
Transfer & Trust, Inc.
4.2 Form of 12% Convertible Subordinated Debenture(1)
4.3 Form of Representative's Warrant between the Company and Barber
& Bronson Incorporated
4.4 Form of Warrant Certificate
4.5 Form of Unit Certificate
10.1 Federal Communications Commission Order, Authorization and
Certificate dated October 20, 1992(1)
10.3 Carrier Switched Services Agreement between the Company and
WilTel, Inc. dated March 10, 1993(1)
10.3.1 Collocate Agreement with WilTel, Inc., dated January 9, 1995(3)
10.5 Lease Agreement between the Company and California Mart, dated
June 11, 1993(1)
10.12-a,b,c (a) Leases for 3,400 square feet in Las Vegas, Rainbow Interim
Partners, dated June 19, 1995(3)
(b) NY Lease Forty-Seventh-Fifth Company, dated July, 1994(3)
(c) PacTel Meridian Systems, Equipment Agreement, dated April 15,
1994(3)
10.18 Employment Agreement between the Company and Noam Schwartz, dated
February 1, 1994(1)
10.19 Employment Agreement between the Company and Barry Epling,
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<PAGE>
Exhibit
Number Exhibit
dated December 1, 1993(1)
10.20 1993 Stock Option Plan(1)
10.21 Form of 1993 Option Agreement(1)
10.21a Amendment To Stock Option Plan dated May 28, 1997 (6)
10.22 Stock Option Agreement between Noam Schwartz and Barry Epling,
dated December 1, 1993(1)
10.23 Stock Option Agreement between David Schwartz and Barry Epling,
dated December 1, 1993(1)
10.24+ Employment Agreement between the Company and Abe Sher, as of
January 4, 1996
10.24-a+ Modification to Employment Agreement between the Company and Abe
Sher.
10.25 Consulting Agreement between the Company and Integrated Financial
Consultants ("IFC"), dated November 10, 1995, and Supplement and
Cancellation of Indebtedness Agreement between the Company and
IFC dated January 10, 1996(3)
10.26 Coast Business Credit Agreement, dated as of December 21, 1995(3)
10.28 Consortium 2000 Agreement, dated as of August 5, 1994(3)
10.29 Subscription Documents, 160 Units, January 15, 1996, Form of(3)
10.30 Registered Consulting Group Agreement, dated June 20, 1994(3)
10.33 Robert L. Diener Consulting Agreements, dated November 1, 1995,
August 15, 1995(3)
10.34 Service Agreement between the Company and Cardservice
International, dated December 21, 1993(3)
10.35 Interconnect Agreement between the Company and Euronet
International, dated December 17, 1994(3)
10.37 Service Agreement between the Company and Digital Communications
of America, Inc., dated October 14, 1992(3)
10.38 Carrier Transport and Switched Services Agreement, dated December
15, 1993(4)
10.39 Telecommunication Services Agreement between the Company and
WilTel, Inc., dated July 25, 1994, Confidential Redacted
Version (3)
10.41 Registration Rights Agreement, dated August 14, 1996 between the
Company and Consortium 2000 Shareholders (exhibit 10.1 to the
-22-
PAGE
<PAGE>
Exhibit
Number Exhibit
Company's report on Form 8-K filed with the SEC on August 27,
1996)(4)
10.42 Registration Rights Agreement, dated August 14, 1996 between the
Company and Noam Schwartz, David Schwartz, the RGB 1993 Family
Trust and the TAD 1993 Family Trust (exhibit 10.2 to the Company's
report on Form 8-K filed with the SEC on August 27, 1996)(4)
10.43 Promissory Note, and ancillary agreement, between the Company and
Kamel B. Nacif, dated February 29, 1996 (5)
10.44 Beverly Hills Switching Equipment Letter Agreement, among the
Company, Barry Epling individually and d/b/a TYC and TYC, Inc.,
dated June 5, 1996 (5)
10.45 Form of Employment and Non-Disclosure Agreement between the
Company and Danny Knoller, dated September 1, 1996 (5)
10.46 Consulting Agreement between the Company and Vanguard
Consultants, Inc., dated August 1, 1996 (5)
10.47 Indemnification Agreement between the Company and Noam Schwartz,
dated August 2, 1996 (5)
10.48 Letter Agreement between the Company and Consortium 2000, Inc.,
dated August 7, 1996 (5)
10.49 Amendment Number One to Loan and Security Agreement, Secured
Promissory Note and Amended and Restated Secured Promissory
Note between the Company and Coast Business Credit, dated
September, 1996 (5)
10.50 WilTel, Inc. Extension Documents:
(a) promissory note, dated September 10, 1996 (5)
(b) security agreement, dated September 19, 1996 (5)
(c) letter agreement, dated December 27, 1996 (5)
10.51 Sublease between Consortium 2000, Inc., and Primedex Corporation,
dated September 25, 1993 (5)
10.52 Sales Agency Agreement between Consortium 2000, Inc., and
WorldCom, Inc., d/b/a/ LDDS WorldCom, dated June 1, 1995
Confidential Redacted Version (5)
10.53 Hertz Technologies, Inc., Marketing Agreement and Amendments No.
1 and 2 thereto, between Consortium 2000, Inc., and Hertz
Technologies, Inc., dated July 7, 1995 Confidential Redacted
Version (5)
10.54 Distributor Program Agreement and Amendment No. 1 and 2 thereto,
between Consortium 2000, Inc., and LCI International Telecom
Corp., dated November 3, 1994, January 31, 1996 and March 26,
1996, respectively, Confidential Redacted Versions (5)
-23-
PAGE
<PAGE>
Exhibit
Number Exhibit
10.55 Marketing Services Agreement between Consortium 2000, Inc. and
New Enterprise Wholesale Telephone Services, Limited Partnership,
dated August 15, 1994, Confidential Redacted Version (5)
10.56 Consortium 2000 and Call Points, Inc. Agreement between
Consortium 2000 and Call Points, Inc., dated September 7, 1995,
Confidential Redacted Version (5)
10.57 Client Contract among Consortium 2000, Inc., Verifications Plus
and Advanced Data Com, Inc., dated January 24, 1996, Confidential
Redacted Version (5)
10.59 Promissory Note, Commercial Security Agreement and Letter
Agreement between Consortium 2000, Inc., and City National Bank,
dated May 28, 1996, May 28, 1996 and May 30, 1996, respectively
(5)
10.60-a,b,c,d (a) Letter Agreement between the Company and Jeflor, Inc.,
dated June 10, 1996 (5)
(b) Subordinated Convertible Debenture, dated June 19, 1996 (5)
(c) Warrant, dated June 21, 1996 (5)
(d) Guaranty of Loan by Noam Schwartz, Ronnie Schwartz and
Haskel Iny, dated June 17, 1996 (5)
10.61 Form of Employment and Non-Disclosure Agreement between the
Company and Robert B. Diener, effective as of August 15, 1996 (5)
10.62 Form of Employment and Non-Disclosure Agreement between the
Company and Jerry Dackerman, effective as of August 15, 1996 (5)
10.63 Form of Employment and Non-Disclosure Agreement between the
Company and Wouter van Biene, effective as of August 15, 1996 (5)
10.64 Form of Indemnification Agreement between the Company and Robert
B. Diener, effective as of August 15, 1996 (5)
10.65 Form of Indemnification Agreement between the Company and Jerry
Dackerman, effective as of August 15, 1996 (5)
10.66 Form of Indemnification Agreement between the Company and Wouter
van Biene, effective as of August 15, 1996 (5)
10.67 Form of Financial Consulting Agreement between the Company and
BC Capital Corp. (5)
10.68 Material Terms of Employment Agreement - Frank Bonadio
11 Computation of Earnings per Share (5)
(1) Incorporated by reference to the Company's Registration Statement and
Amendments No. 1 through No. 2 on Form SB-2 (Registration No.
-24-
PAGE
<PAGE>
Exhibit
Number Exhibit
33-75210-LA) declared effective June 21, 1994.
(2) Incorporated by reference to the Company's 10-KSB for the year ended
December 31, 1995, filed with the SEC on April 16, 1996 commission file
0-24098; same exhibit number.
(3) Incorporated by reference to the Company's Amendment No. 1 to 10-KSB
for the year ended December 31, 1995 filed with the SEC on August
27, 1996 commission file 0-24098.
(4) Incorporated by reference to the Company's report on Form 8-K, filed
with the SEC on August 27, 1996.
(5) Incorporated by reference to the Company's Registration Statement and
Amendments No. 1 through 3 on Form SB-2 (Registration No. 333-12981)
declared effective February 14, 1997.
(6) Incorporated by reference to the Company's Registration Statement on
Form S-4 (Registration No. 333-38831) filed on October 27, 1997.
-25-
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UStel, INC.
Date November 14, 1997 By: /s/ Robert L. B. Diener
Robert L. B. Diener
Chief Executive Officer
Date November 14, 1997 By: /s/ Edmund C. King, Jr.
Edmund C. King, Jr.
Chief Financial Officer
Date November 14, 1997 By: /s/ Richard C. Ward
Richard C. Ward
Controller
<PAGE>
/TEXT
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
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<RECEIVABLES> 9044906
<ALLOWANCES> 2515565
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