<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 March 31, 1998
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 #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 May 12, 1998
Common Stock, $0.01 par value per share 7,046,111 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 March 31, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998.................. 2
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and
March 31, 1998.........................................4
Condensed Consolidated Statement of Changes In
Stockholders' Equity For The Period
January 1, 1998 to March 31, 1998......................5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and
March 31, 1998.........................................6
Summary of Accounting Policies.........................7
Notes To Condensed Consolidated Financial Statements..11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS..................16
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable for the quarter ended
March 31, 1998.
Item 6 No reports on Form 8-K were required to be filed during
the quarter ended March 31, 1998.
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<TABLE>
UStel, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<CAPTION>
December 31, March 31,
1997 1998
Assets (Notes 4 and 8) (Audited) (Unaudited)
Current
<S> <C> <C>
Cash $ 135,689 $ 101,338
Accounts receivable, less allowance for
doubtful accounts of $1,696,000 and
$1,825,000, respectively 6,937,179 8,005,358
Prepaid expenses and other current assets 606,067 662,088
---------- ----------
Total current assets 7,678,935 8,768,784
---------- ----------
Property and equipment
Office furniture and equipment 3,073,452 3,192,102
Leasehold improvement 197,616 198,099
---------- ----------
3,271,068 3,390,201
Less accumulated depreciation (873,198) (973,610)
---------- ----------
Net property and equipment 2,397,870 2,416,591
---------- ----------
Goodwill, net of accumulated amortization
of $102,454 and $157,972, respectively
(Note 6) 4,333,049 4,277,753
Related party receivables (Note 5 (a)) 348,308 354,677
Other receivables, less allowance for
doubtful accounts of $559,000 and
$559,000, respectively 149,170 149,170
Start-up costs less accumulated amortization
of $162,538 and $164,321, respectively 78,429 76,646
Deferred charges (Note 3) 982,938 1,500,672
----------- -----------
Total Assets $15,968,699 $17,544,293
=========== ===========
<FN>
See accompanying summary of accounting policies and notes to condensed
consolidated financial statements.
</TABLE>
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<TABLE>
UStel, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<CAPTION>
December 31, March 31,
1997 1998
Liabilities and stockholders' equity (Audited) (Unaudited)
Current
<S> <C> <C>
Notes payable to bank (Note 4) $ 3,338,592 $ 4,576,780
Notes payable - others (Note 8) 1,561,532 1,561,532
Accounts payable and accrued expenses 3,066,322 4,214,639
Accrued revenue taxes 282,311 276,302
---------- -----------
Total current liabilities 8,248,757 10,629,253
Convertible subordinated debentures
(Note 10) 500,000 500,000
---------- -----------
Total liabilities 8,748,757 11,129,253
---------- -----------
Commitments and contingencies (Note 9)
Stockholders' equity
Series A Convertible Preferred Stock,
$.01 par value, 5,000,000 shares
authorized and 275,000 and 275,000
shares outstanding (Liquidation
Preference $1,500,000) (Note 11) 2,750 2,750
Common stock, $.01 par value, 40,000,000
shares authorized; 6,911,515 and
6,911,515 shares issued and
outstanding (Note 12) 69,115 69,115
Additional paid-in capital 18,238,940 18,238,940
Accumulated deficit (11,090,863) (11,895,765)
----------- -----------
Total stockholders' equity 7,219,942 6,415,040
----------- -----------
Total Liabilities and Stockholders'
Equity $15,968,699 $17,544,293
=========== ===========
<F/N>
See accompanying summary of accounting policies and notes to condensed
consolidated financial statements.
</TABLE>
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<TABLE>
UStel, Inc.
Condensed Consolidated Statements of Operations
<CAPTION> (Unaudited)
Three Months Ended March 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues $ 5,887,745 $ 7,051,642
----------- -----------
Operating expenses
Cost of services sold 4,359,838 5,428,988
General and administrative 815,106 1,587,869
Selling 611,219 299,654
Depreciation and amortization 85,875 218,277
---------- -----------
Total operating expenses 5,872,038 7,534,788
---------- -----------
Loss from operations 15,707 (483,146)
Interest income 11,892 6,657
Interest expense (185,741) (328,413)
----------- -----------
Net loss $ (158,142) $ (804,902)
=========== ==========
Net loss per common
shareholder $ (0.246) $ (0.116)
======== ========
Weighted average number of common
shares outstanding 3,578,851 6,911,515
========= ==========
<FN>
See accompanying summary of accounting policies and notes to condensed
consolidated financial statements.
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</TABLE>
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<TABLE>
UStel, Inc.
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1998
(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, 1998 275,000 $ 2,750 6,911,515 $ 69,115 $18,238,940 $(11,090,863) $ 7,219,942
Net loss for period -0- -0- -0- -0- -0- (804,902) (804,902)
------- ------- --------- -------- ----------- ------------ -----------
Balance, March 31, 1998 275,000 $ 2,750 6,911,515 $ 69,115 $18,238,940 $(11,895,765) $ 6,415,040
======= ====== ========= ======== =========== ============ ===========
<FN>
See accompanying summary of accounting policies and notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
UStel, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
<CAPTION> (Unaudited)
Three Months Ended March 31,
1997 1998
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (158,142) $ (804,902)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 85,875 218,277
Provisions for losses on accounts receivable 145,186 138,855
Increase (decrease) from change in:
Accounts receivable (178,663) (1,207,034)
Prepaid expenses and other 49,923 (56,021)
Accounts payable and accrued expenses (681,530) 1,142,309
Other items (84,428) 48,926
------------ ------------
Net cash used in operating activities (821,779) (519,590)
------------ ------------
Cash flows from investing activities:
Purchase of equipment (189,254) (119,133)
Costs of offering and acquisition program -0- (133,816)
------------ ------------
Net cash used in investing activities (189,254) (252,949)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable - banks 5,850,274 6,404,511
Proceeds from related party debt 24,500 -0-
Proceeds from sale of common stock 7,368,815 -0-
Payments on debt-related parties (108,500) -0-
Payments on debt (11,613,080) (5,666,323)
------------ ------------
Net cash provided by financing activities 1,522,009 738,188
------------ ------------
Net increase (decrease) in cash 510,976 (34,351)
Cash, beginning of period 225,926 135,689
------------ ------------
Cash, end of period $ 736,902 $ 101,338
============ ============
Supplemental Data:
Interest Paid $ 365,493 $ 134,254
Income Taxes Paid 1,973 4,040
<F/N>
See accompanying summary of accounting policies and notes to condensed
consolidated financial statements.
</TABLE>
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UStel, Inc. and Subsidiaries
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.
Financial Statements
This quarterly statement on Form 10-QSB should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto filed on
Form 10-KSB for the year ended December 31, 1997.
Principles of Consolidation
The balance sheets reflects the accounts of UStel, Inc., and its wholly-owned
subsidiaries Consortium 2000, Inc., Pacific Cellular and Will Call
Communications. The condensed consolidated statements of operations for the
three months ended March 31, 1997 do not include the results of operations
of the above subsidiaries of UStel, Inc., because their acquisition dates
were in the third quarter of 1997. All significant intercompany transactions
and balances have been eliminated in consolidation.
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 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 are
charged against paid-in capital if the public offering is consummated. If the
public offering is not consummated, such costs will be charged to operations
during the period it becomes evident that the above mentioned transaction will
not be 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,
SFAS 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
On March 31, 1997, the FASB issued Statement of Financial Accounting Standards
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
during 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
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UStel, Inc. and Subsidiaries
Summary of Accounting Policies
and interim periods ending after December 15, 1997. The Company has adopted
this pronouncement and it had no effect on its loss per share computations.
For the purpose of calculating loss per share for quarter ended March 31,
1997, net loss was increased by $722,000 for deemed dividend to the preferred
shareholder as a result of the January 24, 1997 change in the conversion
features of the Series A Convertible Preferred Stock (Note 11).
Loss per share is based on the weighted average number of common stock
outstanding during each period presented. For three-month periods ended
March 31, 1997 and 1998, outstanding stock options, warrants and convertible
preferred stock and debentures outstanding are not included in the diluted
earnings per share calculation since their effect would be anti-dilutive.
Use of Estimates
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 Risk
The Company maintains cash balances at one financial institution. Deposits
not to exceed $100,000 are insured by the Federal Deposit Insurance
Corporation. At March 31, 1998, the Company had no uninsured cash.
Stock-based Compensation
Statement 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. Also in accordance with SFAS No. 133, the Company has provided
footnote disclosure with respect to stock-based employee compensation. The
cost of stock-based compensation is measured at the grant date on the value
of the award and recognizes this cost over the service period. The value of
the stock-based award is determined using a pricing model whereby compensation
cost is the excess of the fair market value of the stock as determined
by the model at grant date or other measurement date over the amount an
employee must pay to acquire the stock.
New Accounting Pronouncements
Disclosure of Information About Capital Structure
Statement of Financial Accounting Standard No. 129, "Disclosure of Information
About Capital Structure," (SFAS No. 129) issued by the FASB is effective for
financial statements with fiscal years ending after December 15, 1997. The
new standard reinstated various securities disclosure requirements previously
in effect under Accounting Principles Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company adopted SFAS No. 129 as of December
31, 1997 and it had no effect on its financial position or results of
operations.
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UStel, Inc. and Subsidiaries
Summary of Accounting Policies
Reporting Comprehensive Income
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," (SFAS No. 130) issued by the FASB is effective for financial
statements with fiscal years beginning after December 15, 1997. Earlier
adoption is permitted. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The Company has adopted SFAS 130 as of
January 1, 1998 and it had no effect on its financial position or results of
operations.
Disclosure About Segments Of An Enterprise And Related Information
Statement of Financial Accounting Standard No. 131, "Disclosure About
Segments Of An Enterprise And Related Information," (SFAS No. 131) issued
by the FASB is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is permitted. SFAS
No. 131 requires that public companies report certain information about
operating segments, products, services and geographical areas in which
they operate and their major customers. The Company adopted SFAS 131 as
of January 1, 1998 and it had no effect on its financial position or
results of operations.
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, Accounts Receivable and Accounts Payable
The carrying amount approximates fair value due to the short maturity of those
instruments.
Notes Payable
The carrying amount of the Company's notes payable approximates fair value
because the interest rates on these instruments approximate 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
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UStel, Inc. and Subsidiaries
Summary of Accounting Policies
Related Party Receivables and Notes Payable To Related Parties
The fair value of related party receivables and notes payable to related
parties cannot be determined due to their related party nature.
Reclassification
Certain financial statement items have been reclassified to conform to the
current year's presentation.
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UStel, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note 1 - Going Concern
The Company has suffered recurring losses from operations and had a net loss
of $4,869,814 and $804,902 for the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively. Also, as of December 31,
1997 and March 31, 1998, the Company had a working capital deficit of $569,822.
and $1,860,469, respectively. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Recently, management has made changes in the Company's cost structure that they
believe bring the Company close to or exceeding breakeven operating cash flows
on a monthly basis. These changes include a reduction in underlying long
distance carrier rates and a reduction in workforce primarily through attrition.
The "Sutro Private Placement" will be used primarily to restructure existing
debt obligations and to provide working capital for future growth and network
infrastructure.
Management believes that the merger between the Company and Arcada
Communications, Inc. (Note 6), along with proceeds from the "Sutro Private
Placement" will result in substantial and immediate benefits to the Company.
However, no assurance can be given that the Company will be successful in
raising additional capital. Further, should the Company be successful in
raising additional capital, there is no assurance that the Company will
achieve profitability or positive cash flow. If the Company is unable to
obtain adequate additional financing, management may be required to
curtail the operations of the Company, or sell all or part of the Company's
assets.
Note 2 - Interim Financial Statements
The interim condensed consolidated financial statements for the three-month
periods ended March 31, 1997 and March 31, 1998 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 three-
month periods ended March 31, 1998 are not necessarily indicative of the
results for the entire year.
Note 3 - Deferred Charges
Deferred charges consist of the following:
December 31, March 31,
1997 1998
Development costs $ 111,437 $ 111,437
Acquisition costs - Arcada 365,966 372,609
Offering costs 34,361 150,272
Loan fees 274,478 774,478
Calling card program 138,108 138,108
Deposits and other 321,128 347,879
---------- ----------
1,245,478 1,894,783
Accumulated amortization (262,540) (394,111)
---------- ----------
$ 982,938 $1,500,672
========== ==========
Note 4 - 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
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UStel, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
Note 4 - Notes Payable To Bank (Continued)
outstanding under the Credit Facility at December 31, 1997 and March 31,
1998 were $3,338,592 and $4,576,780, respectively.
Note 5 - Related Party Transactions
(a) Related Party Receivables
At December 31, 1997 and March 31, 1998, the Company has amounts due from
various related parties relating to loans as follows:
December 31, March 31,
1997 1998
Loans:
Related entities..........................$ 337,329 $ 343,986
Officers.................................. 102,904 101,857
Employees................................. 8,075 8,834
--------- ---------
448,308 454,677
Less allowance for bad debt (100,000) (100,000)
--------- ---------
$ 348,308 $ 354,677
========= =========
(b) Related Party Payable
In October 1995, the Company entered into a revolving credit agreement with a
related party that provides for secured borrowing aggregating $1.5 million
and expiring in October, 1996. Borrowing under the agreement bears interest
at 10% per annum on a daily principal balance outstanding during the three
calendar months prior to each interest payment date. The credit agreement
was collateralized by a security interest in the Company's unrestricted
deposit accounts and accounts receivable. The agreements called for the
issuance of warrants for the purchase of up to 100,000 shares of the Company's
common stock at $5.00 per share, exercisable over a period of five years.
Borrowing under the credit agreement amounted to $1.5 million at December 31,
1995. This loan was repaid in January 1996 by the issuance of 160,000 common
shares of the Company plus $725,000 in cash.
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.
(c) Financial Consultant
Effective as of September 1995, the Company engaged the Diener Financial
Group, a company wholly-owned by Robert L.B. Diener, who is currently the
Chief Executive Officer of the Company and the son of Royce Diener, a
director of the Company.
For assisting the Company in connection with a private placement (Note 12),
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.
Note 6 - Acquisitions
On July 8, 1997, the Company completed the acquisition of Consortium 2000,
Inc., its principal sales source since mid-1994. 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 acquisition,
Consortium 2000, Inc. is now a wholly-owned subsidiary of the Company.
The transaction was accounted for as a purchase as the assets and
liabilities were recorded at their fair values and the operations were
included as of the date of the acquisition. Goodwill created
in the acquisition is being amortized over twenty years.
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UStel, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
Note 6 - Acquisitions (Continued)
On July 25, 1997, the Company completed the acquisition of the Pacific
Cellular Division of Pacific Communications, Inc., in exchange
for an aggregate of 304,014 shares of the common stock of the Company.
During the period January 23, 1998 and April 23, 1998 the shareholders of
Pacific Communications, Inc., have the right to put, i.e., to sell back to
the Company up to 50% of the shares of UStel, Inc., common stock received
from the Company in the transaction. The price at which the shares must be
purchased by the Company upon exercise of the put option is $3.81 per share.
If the Company's common stock received by the shareholders in the trans-
action have not been registered by the Company with the Securities and
Exchange Commission by April 23, 1998, the put exercise extends to 100%
of the 304,014 shares of the Company's common stock. As a result of the
acquisition, Pacific Cellular is now a wholly-owned subsidiary of the
Company. The transaction was accounted for as a purchase as the assets
and liabilities were recorded at their fair values and the operations were
included as of the date of the acquisition. Goodwill created in the
acquisition is being amortized over twenty years.
On October 1, 1997, the Company completed the acquisition of Will Call
Communications in exchange for an aggregate of 38,737 shares of the common
stock of the Company. As a result of the acquisition, Will Call
Communications is now a wholly -owned subsidiary of the Company. The
transaction was accounted for as a purchase as the assets and liabilities
were recorded at their fair values and the operations were included as of
the date of the acquisition. Goodwill created in the acquisition is being
amortized over twenty years.
Note 7 - Pending Acquisition
In June 1997 the Company signed a letter of intent to acquire Arcada
Communications, Inc., a privately held switch-based interexchange 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.
A definitive agreement was signed in September 1997. The definitive agreement
was approved by the shareholders of both companies in December 1997. The
Company expects to close the transaction concurrent with the "Sutro Private
Placement" (Management's Discussion and Analysis).
Note 8 - Notes Payable To Others
During June 1996 the Company borrowed $1,200,000 from an unrelated party. The
one-year note bears interest at the annual rate of 12% and is 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
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
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 remains unpaid.
This loan was paid off in February 1997. Total warrants of 240,000 granted
and remaining outstanding as of December 31, 1997 were for 240,000 shares of
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)(the "1996 Promissory Note"). 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
1996 Promissory Note was November 14, 1996, and it was later extended to
December 31, 1996 and February 28, 1997. The 1996 Promissory 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
1996 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 proceeds of a public offering. The amount outstanding on the 1996
Promissory Note, $3,707,239, was paid off in February 1997.
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PAGE
<PAGE>
UStel, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
Note 8 - Notes Payable To Others (Continued)
On October 15, 1997 the Company executed a second Promissory Note payable
to Worldcom (formerly WilTel, Inc.) in the principal amount of $1,561,532
in payment for telecommunications services provided to the Company. This
note bears interest at the annual rate of 16%. This note was initially due
on December 31, 1997. However, under the terms of the note, the Company
elected to extend the due date until January 31, 1998, with the annual
interest rate increasing to 20% for the period of January 1, 1998 to
January 31, 1998. Further, if the note was not paid in full by January
31, 1998, the annual interest rate for the period of execution of the
note until it is paid in full becomes 18%. As of December 31, 1997 and
March 31, 1998, the unpaid principal on this note was $1,561,532. The
note was later extended to April 30, 1998.
Note 9 - Commitments And Contingencies
Legal Proceedings
The Company is a party from time to time to litigation or proceedings
incident to its business. There are no pending legal proceedings to
which the Company is party that in the opinion of management is likely
to have a material adverse effect on the Company's business, financial
condition or results of operations.
Operating Leases
The Company occupies certain office and switching facilities under operating
leases expiring on various dates through 2002 with options to renew on
switching facilities. Insurance and maintenance expenses covering these
facilities are the Company's obligations.
At December 31, 1997 future minimum lease commitments were as follows:
Office Switching Total
December 31, Space Space Amount
1998 $ 219,752 $ 28,574 $ 248,326
1999 153,288 26,950 180,238
2000 130,788 26,950 157,738
2001 130,788 4,492 135,280
2002 119,889 -0- 119,889
-------- -------- ---------
$754,505 $ 86,966 $ 841,471
======== ======== =========
Employment Contracts
The Company has employment agreements with certain executive officers and
employees, the terms of which expire on various dates through August, 1999.
Such agreements provide for minimum salary levels and incentive bonuses to be
determined at the discretion of the Board of Directors.
Note 10 - Convertible Subordinated Debentures
In January 1994, the Company issued 12% Convertible Subordinated Debentures
("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 11 - 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 is 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
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<PAGE<PAGE>
Ustel ,Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
Note 11 - Preferred Stock (Continued)
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 750,000 shares of the
Company's Common Stock and also resulted in a deemed dividend of $722,000.
During May 1997 275,000 shares of the Series A Preferred stock were converted
into 374,990 shares of common stock.
Note 12 - Common Stock
During June 1994 the Company completed an initial public offering ("IPO")
of 650,000 shares of its common stock. In connection with the IPO, 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
remains outstanding as of March 31, 1998.
In January 1996, the Company completed a private placement of 160,000 Units
(consisting of 160,000 shares of common stock and 160,000 redeemable common
stock purchase warrants) raising net proceeds of approximately $775,000. For
assisting the Company with the private placement, the Company paid Robert L.B.
Diener the sum of $25,000 and granted him 100,000 warrants at $5.00 per share,
expiring November 2000.
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. The net proceeds to the Company were $6,349,313.
In 1997 the Company issued 85,000 of its common shares to a consultant in
exchange for the services of that individual over a two-year period
commencing October 1, 1997. The shares were valued at the fair value at
the date of issuance. The services to be provided by the consultant
are in the areas of international negotiations, both with customers and
telecommunications service providers.
Note 13 - Income Taxes
At December 31, 1997, the Company has available net operating loss carry-
forwards of approximately $12,040,066 for income tax purposes, which expire
in varying amounts through 2012. 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 carryforwards 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 carryforward generated a deferred tax asset of
approximately $4,454,825 as of December 31, 1997. 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.
-15-
PAGE
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto filed on Form 10-KSB for
the year ended December 31, 1997. This quarterly report, as well as the
Annual Report on Form 10-KSB, 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.
As a result of competition in the industry, UStel has since the beginning of
1997 experienced a decline in operating margins due to a decline in revenue
per minute of usage from its customer base. While management of UStel
expects to mitigate this trend by achieving greater cost efficiency from the
acquisition of additional switches and providing a broader range of value -
added services which may allow for higher pricing, there can be no assurance
that UStel will be successful in these efforts.
In 1997 UStel completed the acquisition of Consortium 2000, Inc. and its
marketing organization, the acquisition of the Pacific Cellular wireless
services assets, and the acquisition of the Will Call assets. These
acquisitions, when combined with the pending acquisition of Arcada are
consistent with UStel's strategy to evolve from its historic emphasis on
long distance service into a full-service telecommunications company.
UStel also announced in September 1997 that as a result of a management review,
certain unprofitable services and products will be discontinued. As a result,
UStel recorded a charge of $1,700,000 in its third quarter 1997 results. The
charge comprised a write-down of discontinued services and an increase in
bad debt expense related to those operations, services and products and
severance expenses. There can be no assurance that charges to
earnings will not occur in the future.
Sutro Private Placement
In July 1997, UStel retained Sutro & Co., (the "Sutro Private Placement")
to use its best efforts to effect a private placement of UStel securities.
The terms of the private placement have not yet been determined. If the
Sutro Private Placement is completed, UStel will be required to pay Sutro
& Co. a cash placement fee of 6% of the aggregate dollar amount of securities
placed plus a warrant to purchase 2% of the outstanding UStel Common Stock
on a fully diluted basis. The warrant would be exercisable for five years
at an exercise price, subject to adjustment, equal to the average closing
price of the UStel Common Stock 10 trading days prior to the closing of
such financing. In addition, UStel is required to reimburse Sutro & Co.,
for its out-of-pocket expenses in acting as placement agent. Although
UStel is seeking to raise up to $15,000,000 by means of the Sutro Private
Placement, there can be no assurance that this or any amount will be
raised in the Sutro Private Placement.
Management believes that the merger between the Company and Arcada along
with proceeds from the "Sutro Private Placement" will result in
substantial and immediate benefits to the Company.
Results of Operations
UStel's 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.
UStel's 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. Increases in volume may increase the use of usage-sensitive
transmission facilities relative to fixed rate bulk transmission facilities.
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--Three Months Ended March 31, 1998 Compared
to Three Months Ended March 31, 1997:
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<PAGE> <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Revenues for the three months ended March 31, 1998 were $7,051,642 as compared
to $5,887,745 for the three months ended March 31, 1997. The increase in
revenues in 1998 was the result of expansion from a customer base of 18,000 at
January 1, 1997 to a customer base in excess of 30,000 at March 31, 1998,
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.
The growth in the Company's customer base accounted for approximately $0.1
million in incremental revenues. This growth in revenues was offset by
approximately $0.3 million due to a reduction in revenues per minute charged.
Revenues were also affected by the acquisitions of Consortium 2000 and Pacific
Cellular during the second half of 1997, with combined revenues of
$1,371,204 in the first quarter of 1998. It is expected that future
revenues will continue to be affected by these acquisitions.
Cost of services sold for the three months ended March 31, 1998 was $5,428,988
as compared to $4,359,838 for three months ended March 31, 1997. 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 and recent
acquisitions. Cost of services sold for the three months ended March 31, 1998
was 77.0% of the revenues produced in the three months ended March 31, 1998.
Cost of services sold for the three months ended March 31, 1997 was 74.0% of
the revenues produced in that period of 1997. 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
eighteen months and the Company's need to shift to products with less gross
margin to enable it to compete. It is also expected that future costs of
services will be affected by the recent acquisitions.
General and administrative expenses for the three months ended March 31,
1998 were $1,587,869 as compared to $815,106 for the three months ended
March 31, 1997. The increase in general and administrative expenses reflects
the addition of Consortium 2000 and Pacific Cellular, which were acquired
in July 1997.
Selling expenses for the three months ended March 31, 1998 were $299,654 as
compared to $611,219 for the three months ended March 31, 1997. The
decrease is attributable to the elimination of certain selling expenses
in 1998 as a result of the consolidation of Consortium 2000 with the Company.
Depreciation and amortization for the three months ended March 31, 1998 was
$218,277 as compared to $85,875 for the three months ended March 31, 1997.
Depreciation for the three months ended March 31, 1998 was $111,679 as compared
to $80,958 for the three months ended March 31, 1997. 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 $2,717,000 at January 1, 1997 to approximately $3,390,000 at
March 31, 1998.
During the three months ended March 31, 1998, the Company reported a loss from
operations of $483,146 versus income from operations of $15,707 for the
three months ended March 31, 1997.
Interest expense for the three months ended March 31, 1998, was $328,413 as
compared to $185,741 for the three months ended March 31, 1997. 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 March 31,
1998 was $235,336 including amortization of related loan fees over thirty-
six months, the period of the credit facility.
Interest income for the three months ended March 31, 1998 was $6,657
principally from the Company's accrual of interest on related party loans,
as compared to $11,892 for the three months ended March 31, 1997, when
interest income also included earnings from certain certificates of deposit.
During the three months ended March 31, 1998, the Company reported a net
loss of $804,902 versus a net loss of $158,142 for the three months ended
March 31, 1997.
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<PAGE> <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Liquidity and Capital Resources
UStel's negative working capital at March 31, 1998 was $1,860,469.
During the year ended December 31, 1997, UStel utilized net
cash of $519,590 for operating activities.
At March 31, 1998, UStel's accounts receivable, net of allowance for
doubtful accounts, was $8,154,528.
To raise funds to meet cash needs for operations and fixed asset
acquisitions, the Company has relied upon an initial public offering of common
stock, a secondary public offering of units comprising common stock and
warrants, 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, UStel obtained a 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 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, UStel 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. In addition, the Company may borrow up to 95% of the
wholesale value of unbilled call records. The amount outstanding under the
Credit Facility at March 31, 1998 was $4,576,780.
In February, 1996, UStel 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, UStel 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, UStel 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 trans-
mission service contract). Payment of this amount was settled by payment of
$1,000,000 on September 9, 1996, UStel'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, UStel 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 UStel'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, UStel 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
underwriter's discount, commissions and offering costs. The net proceeds to
UStel were approximately $6,349,000. With the net proceeds of this offering
UStel was able to pay off all of its outstanding notes payable, with the
exception of its Credit Facility.
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<PAGE> <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In the fall of 1997, UStel retained Sutro & Co. to raise up to $15,000,000
via a private placement of UStel securities for the purpose of financing the
$5,000,000 cash Merger consideration, to expand UStel's switch network and
for working capital. There can be no assurance that such placement will be
accomplished.
On October 15, 1997, UStel executed a promissory note in favor of WorldCom
Network Services, Inc., its primary long distance carrier, in the amount of
$1,561,532 which represented all past due amounts under the Company's
transmission service contract. The initial due date of the promissory note
was December 31, 1997, and it was later extended to January 31, 1998 and April
30, 1998. The note bears interest at the rate of 16% per annum through
December 31, 1997 and 18% thereafter and is secured by a second lien on all of
UStel's assets. The note was later extended to April 30, 1998. The
Company intends to repay this obligation from the proceeds of its private
placement of securities.
Going Concern
The Company has suffered recurring losses from operations and had a net loss
of $4,869,814 and $804,902 for the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively. Also, as of December 31, 1997 and
March 31, 1998, the Company had a working capital deficits of $569,822 and
$1,860,469, respectively.
Recently, management has made changes in the Company's cost structure that they
believe brings the Company close to or exceeding breakeven operating cash flows
on a monthly basis. These changes include a reduction in underlying long
distance carrier rates and a reduction in workforce primarily through attrition.
The "Sutro Private Placement" will be used primarily to restructure existing
debt obligations and to provide working capital for future growth and network
infrastructure.
Management believes that the merger between the Company and Arcada
Communications, Inc., along with proceeds from the "Sutro Private
Placement" will result in substantial and immediate benefits to the Company.
However, no assurance can be given that the Company will be successful in
raising additional capital. Further, should the Company be successful in
raising additional capital, there is no assurance that the Company will
achieve profitability or positive cash flow. If the Company is unable to
obtain adequate additional financing, management may be required to
curtail the operations of the Company, or sell all or part of the Company's
assets. The Company's independent public accountants have included an
explanatory paragraph in their report on the financial statements included
in Form 10-KSB for December 31, 1997 filed March 31, 1998 indicating there
is substantial doubt with respect to the Company's ability to continue as
a going concern.
Year 2000
The Company has conducted a comprehensive review of its computer systems
to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue. The Year
2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a major system failure or miscalculations. The Company
presently believes that, with modifications to existing software and
converting to new software, which the Company expects to implement on
a timely basis, the Year 2000 problem will not pose significant
operational problems for the Company's computer systems as so modified
and converted. Estimated costs associated with this conversion are
anticipated to be minimal. However, if such modifications and
conversions are not completed timely, the Year 2000 problem may have a
material adverse impact on the operations of the Company.
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<PAGE> <PAGE>
EXHIBITS
Exhibit
Number Exhibit
2 Merger Agreement and Plan of Reorganization by and among UStel,
Inc., Consortium Acquisition Corporation and Consortium 2000, Inc.
dated August 13, 1996(4)
2.1 Form of Reincorporated Merger Agreement between UStel, Inc. and
UStel Merger Corporation(5)
2.2 Merger Agreement and Plan of Reorganization by and among UStel,
Inc. and Consortium 2000, Inc., dated August 14, 1996(4)
2.3 Asset Purchase and Sale Agreement between UStel, Inc. and Pacific
Communications, Inc., dated July 23, 1997.
3.1 Articles of Incorporation of the Company(1)
3.1-a Statement of Designation of Preferences and Rights of Series
A Convertible Preferred Stock(2)
3.1-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,
dated December 1, 1993(1)
10.20 1993 Stock Option Plan(1)
10.21 Form of 1993 Option Agreement(1)
10.22 Stock Option Agreement between Noam Schwartz and Barry Epling,
dated December 1, 1993(1)
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PAGE
<PAGE>
Exhibit
Number Exhibit
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)
10.40 Registration Rights Agreement dated August 14, 1996 between
UStel, Inc. and Consortium 2000 Shareholders (Exhibit 10 to
the Company's report on Form 8-K filed with the SEC on
August 27, 1996(4)
10.41 Registration Rights Agreement, dated August 14, 1996 between the
Company and Consortium 2000 Shareholders (exhibit 10.1 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
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
10.45+ Form of Employment and Non-Disclosure Agreement between the
Company and Danny Knoller, dated September 1, 1996
10.46+ Consulting Agreement between the Company and Vanguard
Consultants, Inc., dated August 1, 1996
10.47+ Indemnification Agreement between the Company and Noam Schwartz,
dated August 2, 1996
10.48+ Letter Agreement between the Company and Consortium 2000, Inc.,
dated August 7, 1996
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<PAGE>
Exhibit
Number Exhibit
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
10.51+ Sublease between Consortium 2000, Inc., and Primedex Corporation,
dated September 25, 1993
10.52+ Sales Agency Agreement between Consortium 2000, Inc., and
WorldCom, Inc., d/b/a/ LDDS WorldCom, dated June 1, 1995
Confidential Redacted Version
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
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
10.55+ Marketing Services Agreement between Consortium 2000, Inc. and
New Enterprise Wholesale Telephone Services, Limited Partnership,
dated August 15, 1994, Confidential Redacted Version
10.56+ Consortium 2000 and Call Points, Inc. Agreement between
Consortium 2000 and Call Points, Inc., dated September 7, 1995,
Confidential Redacted Version
10.57+ Client Contract among Consortium 2000, Inc., Verifications Plus
and Advanced Data Com, Inc., dated January 24, 1996, Confidential
Redacted Version
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
10.60-a,b,c,d+(a) Letter Agreement between the Company and Jeflor, Inc.,
dated June 10, 1996
(b) Subordinated Convertible Debenture, dated June 19, 1996
(c) Warrant, dated June 21, 1996
(d) Guaranty of Loan by Noam Schwartz, Ronnie Schwartz and
Haskel Iny, dated June 17, 1996
10.61+ Form of Employment and Non-Disclosure Agreement between the
Company and Robert B. Diener, effective as of August 15, 1996
10.62+ Form of Employment and Non-Disclosure Agreement between the
Company and Jerry Dackerman, effective as of August 15, 1996
10.63+ Form of Employment and Non-Disclosure Agreement between the
Company and Wouter van Biene, effective as of August 15, 1996
10.64+ Form of Indemnification Agreement between the Company and Robert
B. Diener, effective as of August 15, 1996
10.65+ Form of Indemnification Agreement between the Company and Jerry
Dackerman, effective as of August 15, 1996
10.66+ Form of Indemnification Agreement between the Company and Wouter
van Biene, effective as of August 15, 1996
10.67+ Form of Financial Consulting Agreement between the Company and
BC Capital Corp.
10.68 Employment Agreement between UStel, Inc. and Frank Bonadadio,
Summary
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PAGE
<PAGE>
Exhibit
Number Exhibit
10.69 Professional Consulting Agreement between UStel, Inc. and MDC
Group, Inc., dated January 1, 1998.
+ Previously filed as an exhibit and 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.
* Document to be filed when available.
(1) Incorporated by reference to the Company's Registration Statement and
Amendments No. 1 through No. 2 on Form SB-2 (Registration No.
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.
-23
PAGE
<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 May 13, 1998 By:_/s/_Robert L. B. Diener______
Robert L. B. Diener
Chief Executive Officer
Date May 13, 1998 By:_/s/_Edmund C. King, Jr,______
Edmund C. King, Jr.
Chief Financial Officer
Date May 13, 1998 By:_/s/_Richard C. Ward
Richard C. Ward
Controller
-24
<PAGE>
/TEXT
<PAGE>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>2
<DESCRIPTION>ARTICLE 5 FIN. DATA SCHEDULE FOR 1998 FORM 10-QSB
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 101338
<SECURITIES> 0
<RECEIVABLES> 9979528
<ALLOWANCES> 1825000
<INVENTORY> 0
<CURRENT-ASSETS> 8768784
<PP&E> 3390201
<DEPRECIATION> 973610
<TOTAL-ASSETS> 17544293
<CURRENT-LIABILITIES> 10629253
<BONDS> 500000
0
2750
<COMMON> 69115
<OTHER-SE> 6343175
<TOTAL-LIABILITY-AND-EQUITY> 17544293
<SALES> 7051642
<TOTAL-REVENUES> 7051642
<CGS> 5428988
<TOTAL-COSTS> 7534788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (321756)
<INCOME-PRETAX> (804902)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (804902)
<EPS-PRIMARY> (0.116)
<EPS-DILUTED> 0
</TABLE>
