<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
Current Report Pursuant
To Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 14, 1996
USTEL, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota
(State or Other Jurisdiction of incorporation)
0-24098 95-4362330
(Commission File Number) (I.R.S. Employer Identification No.)
2775 South Rainbow Blvd., #102
Las Vegas, Nevada 89102
(Address of Principal Executive Offices, Including Zip Code)
(702) 247-7400
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 7: FINANCIAL STATEMENTS
(a) Financial Statements of Consortium 2000, Inc. as of June 30, 1996,
attached hereto, as Exhibit 99.1
(b) Proforma Financial Information, attached hereto as Exhibit 99.2
(c) Exhibits.
There is attached hereto the following exhibits:
EXHIBITS
Exhibit No. Description of Exhibits
----------- -----------------------
23 Consent of BDO Seidman, LLP
99.1 Financial Statements of Consortium 2000, Inc.
as of June 30, 1996
99.2 Proforma Financial Information
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 hereunto duly authorized.
UStel, Inc.
By: /s/ Wouter van Biene
------------------------------------
Wouter van Biene
Chief Financial Officer
Dated: February 19, 1997
---------------------------------
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Shareholders of
UStel, Inc.
We hereby consent to the use in the amended 8-K dated February 19,
1997 of our report dated April 4, 1996, relating to the financial statements
of UStel, Inc. and to our report dated September 20, 1996, relating to the
financial statements of Consortium 2000, Inc. which are contained in that
Registration Statement.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Los Angeles, California
February 19, 1997
<PAGE> 1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Consortium 2000, Inc.
Culver City, California
We have audited the accompanying balance sheet of Consortium 2000, Inc. as
of June 30, 1996, and the related statements of operations, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the financial position of
Consortium 2000, Inc. at June 30, 1996, and the results of its operations and
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
September 20, 1996
F-22
<PAGE> 2
CONSORTIUM 2000, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
Current
Cash.......................................................................... $ 116,068
Accounts receivable, less allowance for doubtful accounts of $115,000......... 810,470
Due from related parties (Note 1, a).......................................... 52,242
Employee advances............................................................. 18,642
Prepaid expenses.............................................................. 103,092
Loans to officers (Note 1, b)................................................. 8,254
----------
Total current assets.................................................. 1,108,768
----------
Furniture and equipment
Furniture and fixtures........................................................ 22,107
Professional equipment........................................................ 79,327
----------
101,434
Less accumulated depreciation................................................. (54,844)
----------
Net furniture and equipment........................................... 46,590
----------
Other assets
Deposits...................................................................... 5,000
Intangible assets, less accumulated amortization of $74,510 (Note 2).......... 68,088
----------
Total assets.......................................................... $ 1,228,446
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank loan (Note 3)............................................................ $ 100,000
Accounts payable.............................................................. 6,026
Accrued agent fee............................................................. 405,342
Accrued expenses.............................................................. 84,170
Deferred salaries............................................................. 37,381
Dividends payable............................................................. 10,764
----------
Total current liabilities............................................. 643,683
----------
Commitments and contingencies (Note 4)
Stockholders' equity
Common stock, no par value, with a stated value of $0.01 each, 30,000,000
shares authorized; 6,753,009 shares issued and 6,750,009 shares
outstanding................................................................ 67,530
Additional paid-in deficit.................................................... 1,036,166
Accumulated deficit........................................................... (518,933)
----------
Total shareholders' equity............................................ 584,763
----------
Total liabilities and shareholders' equity............................ $ 1,228,446
==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-23
<PAGE> 3
CONSORTIUM 2000, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30, 1996
------------------
<S> <C>
Revenues................................................................. $3,416,851
Cost of service provided................................................. 1,500,187
----------
Gross profit........................................................ 1,916,664
----------
Operating expenses
Depreciation and amortization.......................................... 9,000
General and administrative............................................. 2,071,656
----------
Loss from operations..................................................... (163,992)
----------
Other income (expense)
Other income........................................................... 71,541
Interest income........................................................ 4,301
Interest expense....................................................... (3,717)
----------
Net loss before income tax............................................... (91,867)
Income tax provision..................................................... 800
----------
Net loss............................................................ $ (92,667)
==========
Net loss per share....................................................... $ (0.01)
==========
Weighted average number of shares outstanding............................ 6,751,676
==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-24
<PAGE> 4
CONSORTIUM 2000, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995............ 6,753,009 $67,530 $1,036,166 $(361,529) $742,167
Dividend paid................... -- -- -- (61,866) (61,866)
Treasury stock purchased
(Note 5)..................... (3,000) -- -- (2,871) (2,871)
Net loss for period............. -- -- -- (92,667) (92,667)
--------- ------- ---------- --------- --------
Balance, June 30, 1996............ 6,750,009 $67,530 $1,036,166 $(518,933) $584,763
========= ======= ========== ========= ========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-25
<PAGE> 5
CONSORTIUM 2000, INC.
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JUNE 30, 1996
------------------
<S> <C>
Cash flows from operating activities
Net loss.................................................................. $(92,667)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.......................................... 15,600
Change in operating assets and liabilities
Accounts receivable.................................................. 208,098
Prepaid expenses and other........................................... (50,569)
Accounts payable and accrued expenses................................ 1,262
Payments for deferred salaries....................................... (57,585)
Other items.......................................................... 2,811
--------
Net cash provided by operating activities......................... 26,950
--------
Cash flows from investing activities
Purchase of equipment..................................................... (26,673)
--------
Net cash used in investing activities............................. (26,673)
--------
Cash flows from financing activities
Dividends paid............................................................ (61,866)
Treasury stock purchased.................................................. (2,871)
Proceeds from bank loans.................................................. 100,000
--------
Net cash provided by financing activities......................... 35,263
--------
Net increase in cash........................................................ 35,540
Cash, beginning of period................................................... 80,528
--------
Cash, end of period......................................................... $116,068
========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-26
<PAGE> 6
CONSORTIUM 2000, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS
Consortium 2000, Inc. (the "Company") was formed in December 1988 under the
laws of the State of California. The major business of the Company is to conduct
consultative marketing service for designing, developing, operating and managing
a telecommunication users group to produce savings for its member clients. The
Company provides services to various clients who are connecting with long
distance carriers throughout the nation.
REVENUE RECOGNITION
Revenue is recognized upon completion of the telephone call.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required 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 UNCERTAINTIES
The Company's commission revenue is based upon its clients' usage of
telephone services with various long distance carriers. A majority of its
commission revenue comes from the Company's business clients. Generally, any
economic fluctuation in business client's operations will have significant
impact on their telephone usage. Accordingly, the fluctuation in the usage of
the Company's clients will have affected the commission revenue of the Company.
CASH AND CASH EQUIVALENTS
For purposes of cash flows, the Company considers all short-term debt
securities purchased with an original maturity of three months or less to be
cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides an allowance for all doubtful accounts. The balance of
the allowance is based on review of the current status of accounts receivable.
The allowance for doubtful accounts was $115,000 as of June 30, 1996.
EQUIPMENT AND FURNITURE
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis as follows:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Professional Equipment.............................................. 5 years
Furniture and fixtures.............................................. 5 years
</TABLE>
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for maintenance
and repairs are charged to expense as incurred.
INTANGIBLE ASSETS
Intangible assets consists of start-up costs which are stated at cost.
Amortization is computed using the straight-line method over twenty years.
F-27
<PAGE> 7
CONSORTIUM 2000, INC.
SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
INCOME TAX
The Company has adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," which requires the Company to recognize deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement carrying amounts and tax basis of
assets using enacted rates in effect in the years in which the differences are
expected to reverse.
At June 30, 1996, the Company has available net operating loss
carryforwards of approximately $500,000 for income tax purposes, which expire in
varying amounts through 2010. Federal tax rules impose limitations on the use of
net operating losses following certain changes in ownership.
The loss carryforward generated a deferred tax asset of approximately
$185,000. The deferred tax asset was not recognized due to uncertainties
regarding its realization, accordingly, a 100% valuation allowance was provided.
During fiscal year 1996, the Company incurred a loss. As a result, the tax
provision of $800 represents the minimum payment required for State income tax
purposes.
EARNINGS PER SHARE
Earnings per share was computed by dividing net loss for the year ended
June 30, 1996 by the weighted average number of shares for the year ended June
30, 1996.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board is effective
for financial statements for fiscal years beginning after December 15, 1995. The
new standard establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment, certain identifiable
intangible assets and goodwill, should be recognized and how impairment losses
should be measured. The Company does not expect adoption to have a material
effect on its financial position or results of operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. The Company does not expect adoption to have a material effect on
its financial position or results of operations.
Statement 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 (FASB) 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 applications are 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.
F-28
<PAGE> 8
CONSORTIUM 2000, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- RELATED PARTY TRANSACTIONS
(a) Due from Related Party
R & R Ventures, Inc. (R&R) is an agent which markets residential services
and is engaged by the Company. A board member and shareholder of the Company
owns 50% of R&R. In November, 1995, the Company and R&R agreed that R&R would
allow the Company to deduct R&R's commission from the Company to offset the
$75,422 that R&R owes to the Company. As a result of deducting commissions
earned by R&R from the Related Receivables, the remaining balance due from R&R
as of June 30, 1996 was $52,242.
(b) Officer Loan Receivables
The balance due to the company from an officer is $8,254. Interest accrues
monthly at seven percent per annum.
NOTE 2 -- INTANGIBLE ASSETS
Intangible assets as of June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Start-up cost..................................................... $142,598
Less accumulated amortization..................................... 74,510
--------
$ 68,088
========
</TABLE>
NOTE 3 -- BANK LOAN
In May of 1996, the Company obtained a revolving line of credit of $200,000
from a commercial bank for working capital purposes. The loan matures at March
1, 1997 and has a variable interest rate (1% over the bank's prime rate). The
revolving line of credit is subject to certain restrictive covenants and is
collateralized by substantially all of the Company's assets. At June 30, 1996,
the Company was in violation of all of the financial ratio requirements due to
the write-off of $775,943 which was due from UStel, Inc. The Company obtained a
waiver of default from the lender which temporarily waives the specific events
of default for a period not to exceed sixty days.
NOTE 4 -- OPERATING LEASES
The Company conducts its operations from facilities that are leased under a
56 month noncancelable operating lease expiring in June 1998.
The following is a schedule of future minimum rental payments required
under the above operating lease as of June 30, 1996.
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
------------
<S> <C>
1997............................................................... $60,000
1998............................................................... 60,000
</TABLE>
NOTE 5 -- SHAREHOLDERS' EQUITY
In October of 1995, the Company repurchased 3,000 shares of common stock
from one of its shareholders for $3,750 and agreed to sell these shares to a key
employee. Per the employee stock purchase agreement, the employee will make
installment payment each payroll period, and has made 15 installment payments.
When the employee fulfills his performance, the Company will make a contribution
for the difference between the
F-29
<PAGE> 9
CONSORTIUM 2000, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employee's installment payments and the stock price of $3,750. As of June 30,
1996, the treasury stock balance was $2,871.
NOTE 6 -- SUBSEQUENT EVENT
On August 14, 1996, UStel, Inc. ("UStel"), Consortium Acquisition
Corporation (a wholly-owned subsidiary created by the Company) and Consortium
2000, Inc. entered into a Merger Agreement and Plan of Reorganization ("Merger
Agreement"). Under the terms of the Merger Agreement, (a) Consortium Acquisition
Corporation will be merged with Consortium 2000, Inc., with Consortium 2000,
Inc. being the surviving corporation in the merger; and (b) all of the capital
stock of Consortium 2000, Inc. will be converted into an aggregate of 1,076,923
shares of the Common Stock of UStel. As a result of the Merger Agreement,
Consortium 2000, Inc. will become a wholly-owned subsidiary of UStel.
As a result of entering into the Merger Agreement, Consortium 2000 agreed
to write off a one time difference of $775,943 between UStel's commission
expenses to Consortium 2000 and Consortium 2000's commission revenue from UStel
during the fiscal year ended June 30, 1996. This difference was included in
general and administrative expenses. The management of Consortium 2000 agreed
not to pursue collection of bad debt from UStel.
F-30
<PAGE> 10
CONSORTIUM 2000, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
JUNE 30, 1996 ------------------
------------- (UNAUDITED)
(AUDITED)
<S> <C> <C>
Current
Cash......................................................... $ 116,068 $ 68,671
Accounts receivable, less allowance for doubtful accounts of
$115,000.................................................. 810,470 854,124
Due from related parties (Note 2)............................ 60,496 51,717
Prepaid expenses and other................................... 121,734 120,591
---------- ----------
Total current assets................................. 1,108,768 1,095,103
---------- ----------
Furniture and equipment........................................
Furniture and fixtures....................................... 22,107 22,107
Professional equipment....................................... 79,327 79,667
---------- ----------
101,434 101,774
Less accumulated depreciation................................ (54,844) (57,844)
---------- ----------
Net furniture and equipment............................... 46,590 43,930
---------- ----------
Other assets
Deposits..................................................... 5,000 5,000
Investments.................................................. -- 115,000
Intangible assets, less accumulated amortization of $74,510
and $76,310, respectively (Note 3)........................ 68,088 66,288
---------- ----------
Total assets......................................... $ 1,228,446 $1,325,321
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank loan (Note 4)........................................... $ 100,000 $ 200,000
Accounts payable and accrued expenses........................ 495,538 609,958
Deferred salaries............................................ 37,381 37,381
Dividends payable............................................ 10,764 10,764
---------- ----------
Total current liabilities............................ 643,683 858,103
---------- ----------
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock, no par value, with a stated value of $0.01
each, 30,000,000 shares authorized; 6,753,009 shares
issued and 6,750,009 shares outstanding................... 67,530 67,530
Additional paid-in deficit................................... 1,036,166 1,036,166
Accumulated deficit.......................................... (518,933) (636,478)
---------- ----------
Total shareholders' equity........................... 584,763 467,218
---------- ----------
Total liabilities and shareholders equity............ $ 1,228,446 $1,325,321
========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to condensed financial
statements.
F-31
<PAGE> 11
CONSORTIUM 2000, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------------
1995 1996
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues, net....................................................... $ 843,662 $ 748,954
Cost of service provided............................................ 327,227 483,653
---------- ----------
Gross profit................................................... 516,435 265,301
---------- ----------
Operating expenses
Depreciation and amortization..................................... 2,200 4,800
General and administrative........................................ 321,497 387,006
---------- ----------
Income (loss) from operations....................................... 192,738 (126,505)
---------- ----------
Other income (expense)
Other income...................................................... 11,136 12,556
Interest income................................................... 535 361
Interest expense.................................................. (1,531) (3,957)
---------- ----------
Net income (loss) before income tax................................. 202,878 (117,545)
Income tax provision................................................ 66,000 --
---------- ----------
Net income (loss).............................................. $ 136,878 ($ 117,545)
========== ==========
Net income (loss) per share......................................... $ 0.02 ($ 0.02)
========== ==========
Weighted average number of shares outstanding....................... 6,751,676 6,751,676
========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to condensed financial
statements.
F-32
<PAGE> 12
CONSORTIUM 2000, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 1, 1996 THROUGH SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1996.......... 6,750,009 $67,530 $1,036,166 $(518,933) $ 584,763
Net loss for period............ -- -- -- (117,545) (117,545)
--------- ------- ---------- ---------- ----------
Balance, September 30, 1996.... 6,750,009 $67,530 $1,036,166 $(636,478) $ 467,218
========= ======= ========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to condensed financial
statements.
F-33
<PAGE> 13
CONSORTIUM 2000, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
----------------------
1995 1996
-------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................................... $136,878 $(117,545)
Adjustments to reconcile net income (loss) to net cast provided by
operating activities:
Depreciation and amortization.................................... 2,200 4,800
Amounts due from related party................................... -- (115,000)
Change in operating assets and liabilities
Accounts receivable............................................ 11,917 (35,375)
Prepaid expenses and other..................................... (83,521) 1,643
Accounts payable and accrued expenses.......................... (8,193) 114,420
-------- ---------
Net cash provided by (used in) operating activities......... 59,281 (147,057)
-------- ---------
Cash flows from investing activities
Purchase of equipment............................................... (10,010) (340)
-------- ---------
Net cash used in investing activities....................... (10,010) (340)
-------- ---------
Cash flows from financing activities
Proceeds from related party loans................................... 51,420 --
Proceeds from bank loans............................................ -- 100,000
-------- ---------
Net cash provided by financing activities................... 51,420 100,000
-------- ---------
Net increase (decrease) in cash....................................... 100,691 (47,397)
Cash, beginning of period............................................. 80,527 116,068
-------- ---------
Cash, end of period................................................... $181,218 $ 68,671
======== =========
</TABLE>
See accompanying summary of accounting policies and notes to condensed financial
statements.
F-34
<PAGE> 14
CONSORTIUM 2000, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 AND SEPTEMBER 30, 1996
NOTE 1 -- INTERIM FINANCIAL INFORMATION
The interim financial statements for the three months ended September 30,
1995 and 1996 are unaudited. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair representation of the results of the interim periods. The
results of operations for the three-month period ended September 30, 1996 are
not necessarily indicative of the results for the entire year.
NOTE 2 -- RELATED PARTY TRANSACTIONS
(a) Due from Related Party
R & R Ventures, Inc. (R&R) is an agent which markets residential services
and is engaged by the Company. A board member and shareholder of the Company
owns 50% of R&R. In November, 1995, the Company and R&R agreed that R&R would
allow the Company to deduct R&R's commission from the Company to offset the
$75,422 that R&R owes to the Company. As a result of deducting commissions
earned by R&R from the Related Receivables, the remaining balance due from R&R
as of June 30, 1996 and September 30, 1996 was $52,242 and $43,963,
respectively.
(b) Officer Loan Receivables
The balance due to the Company from an officer at June 30, 1996 and
September 30, 1996 is $8,254 and $7,754, respectively. Interest accrues monthly
at seven percent per annum.
NOTE 3 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1996
-------- -------------
<S> <C> <C>
Start-up cost....................................... $142,598 $ 142,598
Less accumulated amortization....................... 74,510 76,310
-------- --------
$ 68,088 $ 66,288
======== ========
</TABLE>
NOTE 4 -- BANK LOAN
In May of 1996, the Company obtained a revolving line of credit of $200,000
from a commercial bank for working capital purposes. The loan matures at March
l, 1997 and has a variable interest rate (1% over the bank's prime rate). The
revolving line of credit is subject to certain restrictive covenants and is
collateralized by substantially all of the Company's assets. At June 30, 1996,
the Company was in violation of all of the financial ratio requirements due to
the write-off of $775,943 which was due from UStel, Inc. The Company obtained a
waiver of default from the lender which temporarily waives the specific events
of default for a period not to exceed sixty days.
NOTE 5 -- OPERATING LEASES
The Company conducts its operations from facilities that are leased under a
56 month noncancelable operating lease expiring in June 1998.
F-35
<PAGE> 1
PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
On August 14, 1996, UStel, Consortium Acquisition Corporation (a
wholly-owned subsidiary created by the Company) and Consortium 2000 entered into
a Merger Agreement and Plan of Reorganization (the "Merger Agreement" and
"Merger"). Under the terms of the Merger Agreement, Consortium Acquisition
Corporation will be merged with Consortium 2000, with Consortium 2000 being the
surviving corporation in the Merger. The following unaudited Pro Forma Condensed
Financial Statements give effect to the Merger and are based on the estimates
and assumptions set forth herein and in the notes to such statements. The Merger
will be accounted for as a purchase, with the assets acquired and liabilities
assumed at fair values, and the results of Consortium 2000's operations included
in UStel's financial statements from the date of acquisition. The Merger was
accounted for as a purchase since all of the criteria for a pooling of interests
were not met. This pro forma information has been prepared utilizing the
historical financial statements and notes thereto.
The unaudited Pro Forma Condensed Financial Statements do not purport to be
indicative of the results which actually would have been obtained had the Merger
been effected on the dates indicated or of the results which may be obtained in
the future.
The unaudited Pro Forma Condensed Financial Statements are based on the
purchase method of accounting for the aforementioned transaction. The unaudited
Pro Forma Condensed Balance Sheet and the unaudited Pro Forma Condensed
Statement of Operations and the related notes should be read in conjunction with
UStel's Audited Financial Statements and Unaudited Financial Statements
contained elsewhere in this Prospectus. In management's opinion, all adjustments
necessary to reflect the acquisition have been made.
18
<PAGE> 2
USTEL, INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------- PRO FORMA
USTEL, INC. CONSORTIUM 2000, INC. ADJUSTMENTS PRO FORMA
----------- --------------------- ---------- -----------
<S> <C> <C> <C> <C>
Cash........................... $ 394,126 $ 68,671 $ -- $ 462,797
Accounts receivable............ 7,241,162 854,124 (293,175)(4a(2)) 7,802,111
Prepaid expenses and other..... 551,320 172,308 -- 723,628
----------- ---------- ---------- -----------
8,186,608 1,095,103 (293,175) 8,988,536
Property & equipment........... 2,573,941 101,774 -- 2,675,715
Accumulated depreciation....... (410,491) (57,844) -- (468,335)
----------- ---------- ---------- -----------
2,163,450 43,930 -- 2,207,380
Other assets................... 1,010,261 186,288 (115,000)(4a(3)) 1,081,549
Goodwill....................... -- -- 3,732,782(4a(1)) 3,732,782
----------- ---------- ---------- -----------
$11,360,319 $ 1,325,321 $3,324,607 $16,010,247
=========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable & accrued
expense...................... $ 594,117 $ 620,722 $ (293,175)(4a(2)) $ 921,664
Accrued revenue taxes.......... 250,229 -- -- 250,229
Deferred salaries.............. -- 37,381 -- 37,381
Notes payable.................. 7,582,206 200,000 -- 7,782,206
----------- ---------- ---------- -----------
8,426,552 858,103 (293,175) 8,991,480
Long-term debt................. 500,000 -- -- 500,000
Stockholders' equity........... 2,433,767 467,218 3,617,782(4a) 6,518,767
----------- ---------- ---------- -----------
$11,360,319 $ 1,325,321 $3,324,607 $16,010,247
=========== ========== ========== ===========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
19
<PAGE> 3
USTEL, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
USTEL, CONSORTIUM PRO FORMA
INC. 2000, INC. ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $16,127,575 $3,148,773 $(1,398,706)(4b) $17,877,642
Cost of services sold............. 11,542,374 1,149,972 (1,398,706)(4b) 11,293,640
----------- ---------- ---------- -----------
Gross profit.................... 4,585,201 1,998,801 -- 6,584,002
Selling........................... 1,460,010 -- -- 1,460,010
General & administrative.......... 3,071,788 1,617,364 -- 4,689,152
Depreciation & amortization....... 177,971 9,000 180,762(4b) 367,733
----------- ---------- ---------- -----------
Income (loss) from operations... (124,568) 372,437 (180,762) 67,107
Interest expense.................. 136,377 10,674 -- 147,051
Relocation costs.................. 110,766 -- -- 110,766
----------- ---------- ---------- -----------
Income (loss) before taxes...... (371,711) 361,763 (180,762) (190,710)
Income taxes...................... -- 112,146 -- 112,146
----------- ---------- ---------- -----------
Net income (loss)............... $ (371,711) $ 249,617 $ (180,762) $ (302,856)
=========== ========== ========== ===========
Pro forma information:
Net loss per share.............. $ (0.23) $ (0.11)
=========== ===========
Shares used in per share
calculation.................. 1,600,000 2,676,923
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
20
<PAGE> 4
USTEL, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------- PRO FORMA
USTEL, INC. CONSORTIUM 2000, INC. ADJUSTMENTS PRO FORMA
----------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net.............. $16,166,344 $ 2,563,596 $(1,607,950)(4b) $17,121,990
Cost of services sold...... 12,006,378 1,281,381 (1,607,950)(4b) 11,679,809
----------- ---------- ---------- -----------
Gross profit..... 4,159,966 1,282,215 -- 5,442,181
Selling.................... 1,676,705 -- -- 1,676,705
General & administrative... 4,762,971 1,496,744 -- 6,259,715
Depreciation &
amortization............. 184,071 10,800 139,979(4b) 334,850
----------- ---------- ---------- -----------
Loss from
operations..... (2,463,781) (225,329) (139,979) (2,829,089)
Other income............... -- 12,556 -- 12,556
Interest................... (313,928) (1,185) -- (315,113)
----------- ---------- ---------- -----------
Loss before
taxes.......... (2,777,709) (213,958) (139,979) (3,131,646)
Income taxes............... -- -- -- --
----------- ---------- ---------- -----------
Net loss......... $(2,777,709) $ (213,958) $ (139,979) $(3,131,646)
=========== ========== ========== ===========
Pro forma information:
Net loss per share....... $ (1.37) $ (1.01)
=========== ===========
Shares used in
per share
calculation.... 2,025,740 3,102,663
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed financial statements.
21
<PAGE> 5
USTEL, INC.
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER AGREEMENT AND PLAN OF REORGANIZATION
On August 14, 1996, UStel, Inc. ("UStel"), Consortium Acquisition
Corporation (a wholly-owned subsidiary of UStel) and Consortium 2000, Inc.
("Consortium 2000") entered into a Merger Agreement and Plan of Reorganization
("Merger Agreement" and "Merger"). Under the terms of the Merger Agreement, (a)
Consortium Acquisition Corporation will be merged with Consortium 2000, with
Consortium 2000 being the surviving corporation in the Merger; and (b) all of
the capital stock of Consortium 2000 will be converted into an aggregate of
1,076,923 shares of the Common Stock of UStel. As a result of the Merger,
Consortium 2000 will become a wholly-owned subsidiary of UStel.
2. EFFECT OF ACQUISITION
The adjustments to the Pro Forma Condensed Balance Sheet as of September
30, 1996 reflect the Merger as if it occurred on September 30, 1996. The Pro
Forma Condensed Statements of Operations for the year ended December 31, 1995
and for the nine month period ended September 30, 1996 reflect the acquisition
as if it occurred on the first day of each period.
3. HISTORICAL FINANCIAL STATEMENTS OF CONSORTIUM 2000, INC.
Consortium 2000 has a June 30 fiscal year end. In order to bring Consortium
2000's statement of operations up to UStel's December 31 fiscal year end, the
results of Consortium 2000's operations for the six month period ended June 30,
1995 were combined with its results of operations for the six month period ended
December 31, 1995. In order to bring Consortium 2000's statement of operations
up to UStel's nine months ended September 30, 1996, the results of Consortium
2000's operations for the six month period ended June 30, 1996 were combined
with its results of operations for the three month period ended September 30,
1996.
4. PRO FORMA ADJUSTMENTS
a. The pro forma adjustments to the condensed balance sheet are as follows:
(1) To reflect the acquisition of Consortium 2000 and the allocation of
the purchase price on the basis of the fair values of the assets
acquired and liabilities assumed. The components of the purchase
price and its allocation to the assets and liabilities of Consortium
2000 are as follows:
<TABLE>
<S> <C>
Total purchase price (1,076,923 shares X $3.90)....................... $4,200,000
Book value of Consortium 2000......................................... (467,218)
----------
Goodwill.............................................................. $3,732,782
==========
</TABLE>
(2) To eliminate intercompany receivable on Consortium 2000's books
against intercompany payable on UStel's books.
(3) To reclassify shares held by Consortium 2000 as treasury shares.
22
<PAGE> 6
b. The pro forma adjustments to the condensed statements of operations are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
(1) Adjustment to revenue for elimination of
intercompany sales................................ $ 1,398,706 $ 1,607,950
(2) Adjustment to cost of services sold for
elimination of intercompany sales................. (1,398,706) (1,607,950)
(3) Amortization of goodwill over 20 years............ 180,762 139,979
----------- -----------
$ 180,762 $ 139,979
=========== ===========
</TABLE>
23
