FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
COMMISSION FILE NUMBER 33- 99998
GROUP LONG DISTANCE, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65- 0213198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1451 WEST CYPRESS CREEK ROAD, FORT LAUDERDALE, FLORIDA, 33309
(Address of principal executive offices)
(954) 771- 9696
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X NO__
Common Stock, no par value; 2,257,348 shares outstanding as of September 20,
1996.
Transition Small Business Disclosure Format (check one)
Yes No X
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GROUP LONG DISTANCE, INC.
Table of Content
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statement
Consolidated Balance Sheets 4
Statement of Earnings 5
Statement of Stockholders Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8-9
Item 2. Management's Discussion and Analysis
or Plan of Operation 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K 12
Exhibit 27-Financial Data Schedule 14
SIGNATURES 13
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GROUP LONG DISTANCE, INC.
FINANCIAL STATEMENT
FOR THE THREE MONTHS ENDED JULY 31, 1996
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GROUP LONG DISTANCE, INC.
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND APRIL 30, 1996
ASSETS
<TABLE>
<CAPTION>
JULY 31 APRIL 30
------- --------
(Unaudited)
<S> <C> <C>
Current assets
Cash $ 35,804 78,767
Accounts receivable less allowance for doubtful
accounts of $512,000 and $358,000 at July 31
and April 30, 1996 , respectively 3,660,402 1,201,710
Note receivable - related party 175,270 182,050
Deferred tax assets 184,895 147,900
Prepaid expenses and other current assets 446,640 92,313
---------- ---------
4,503,011 1,702,740
---------- ---------
Property and equipment net of accumulated depreciation of
$49,279 and $29,279 at July 31 and April 30, 1996 , respectively 349,414 77,276
Customer acquisition costs, net of accumulated amortization
of $493,532 and $134,602 at July 31 and April 30, 1996 5,908,074 886,917
Deferred offering costs 136,570 73,478
---------- --------
Total assets $10,897,069 $2,740,411
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit $ 87,836 $47,920
Accounts payable - trade 356,656 76,787
Accounts payable - carriers 1,393,927 1,466,931
Accrued expenses and other liabilities 433,680 245,138
Current portion of long-term debt 6,747,297 609,811
Capital lease obligations 46,578 22,024
---------- ----------
9,067,974 2,468,611
Long-term debt, net of current portion 157,564 83,159
Total liabilities 9,223,538 2,551,770
---------- ----------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, no par value, 1,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, no par value, 5,000,000 shares authorized;
2,257,348 and 2,057,348 shares issued and outstanding as of
July 31 and April 30, 1996 , respectively -- --
Additional paid-in capital 1,668,364 268,364
Retained earnings(Accumulated deficit) 5,167 (79,723)
--------- ---------
Total stockholders' equity 1,673,531 188,641
--------- ---------
Total liabilities and stockholders' equity $10,897,069 $2,740,411
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
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GROUP LONG DISTANCE, INC.
STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JULY 31 , 1996 AND 1995
1996 1995
---- ----
(Unaudited)
Sales $5,712,188 $3,190,144
Cost of sales 4,033,142 2,395,125
--------- --------
Gross profit 1,679,046 795,019
Selling, general and administrative expenses 1,470,262 697,248
Interest expense, net 43,630 2,895
--------- ----------
Earnings before income taxes 165,154 94,876
Income tax expense 80,264 34,000
----------- ------
Net earnings $84,890 $60,876
======= =======
Earnings per common and common
equivalent share $.04 $.03
==== ====
The accompanying notes are an integral part of these statements.
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GROUP LONG DISTANCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Shares of Additional Earnings Total
Common Common Paid-in (Accumulated Stockholders'
STOCK STOCK CAPITAL DEFICIT) EQUITY
----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1996 2,057,348 -- $268,364 $(79,723) $188,641
Issuance of common stock 200,000 -- 1,400,000 -- 1,400,000
Net earnings for the period -- -- -- 84,890 84,890
-- -- -- ------ ----------
Balance, July 31, 1996 2,257,348 $-- $1,668,364 $5,167 $1,673,531
========= === ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
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GROUP LONG DISTANCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings $84,890 $60,876
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 378,561 8,480
Provision for bad debts 184,930 79,000
Changes in assets and liabilities
(Increase) in accounts receivable (2,643,622) (239,414)
Decrease in notes receivable 6,780 --
(Increase) in deferred tax asset (36,995) --
(Increase)decrease in prepaid expenses and
other current assets (354,327) (288)
Increase in accounts payable - trade 279,869 7,417
Increase(decrease) in accounts payable - carriers (73,004) 258,429
Increase in Notes Payable 1,033,346 --
Increase in accrued expenses and
other liabilities 216,071 151,879
---------- -------
Net cash provided by operating activities (927,983) 326,379
-------- -------
Cash flows from investing activities
Acquisitions of property and equipment (291,769) (7,020)
Acquisitions of customer bases (5,387,930) (163,111)
Net cash used in investing activities (5,679,699) (170,131)
----------- ---------
Cash flows from financing activities
Net borrowings under line of credit agreement 50,000 --
Proceeds from loan originations 5,271,230
Principal repayments of long-term debt (90,444) (41,932)
Common Stock issued to acquire customer base 1,400,000 --
--
Principal repayments of capital lease obligations (2,975) --
Offering costs incurred (63,092) --
Net cash provided by financing activities 6,564,719 (41,932)
---------- --------
Net increase (decrease) in cash (42,963) 114,316
Cash at beginning of period 78,767 123,051
--------- -------
Cash at end of period $35,804 $237,367
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
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GROUP LONG DISTANCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all the information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles. Results of operations for the interim
periods are not necessarily indicative of the results to be attained for the
entire period. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position as of July 31, 1996 and results of operations and cash flows
for the three months ended July 31, 1996 and July 31, 1995. For a summary of
significant accounting policies and additional financial information, see the
Company's Annual Report on Form 10-KSB for the fiscal year ended April 30, 1996
("Form 10-KSB").
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2
On May 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 and 123 regarding impairment of long-lived assets and stock options,
respectively. The Company continues to apply the intrinsic value method of APB
25 to value options granted. The adoption of these statements had no impact on
the Company's results of operations or financial condition upon adoption.
NOTE 3 - ACQUISITIONS
In July 1996, the Company acquired all the common stock of Adventures in
Telecom, Inc. ("AIT"), in exchange for $5,271,230 and 200,000 shares of the
Company's common stock valued at $7.00 per share. The acquisition has been
accounted for as a purchase, and, accordingly, the operating results since the
effective date of the acquisition of AIT have been included in the accompanying
Financial Statements. The agreement specified that the Company is entitled to
all June billings and related costs for the AIT customer base, so that June 1,
1996 is considered to be the effective date. The AIT customer base includes in
excess of 30,000 accounts. In connection with such acquisition the Company
obtained a $5,521,230 loan from Tel-Save, Inc.,("Tel-Save") (including
approximately $250,000 previously advanced for unrelated matters) which provides
telecommunications services to the Company, and such loan is payable in monthly
installments of approximately $500,000 plus interest at 6.5% per annum. In
connection with the loan, the Company issued a warrant to Tel-Save to purchase
300,000 common shares at an exercise price of $5.75 per share exercisable
through July 11, 2001. The excess of cost of the acquisition over the net assets
acquired has been allocated to customer acquisition costs which will be
amortized over five years.
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In May 1996, the Company purchased, for $220,000, the stock and assets,
including the customer base, of Gulf Communications Services, Inc. ("Gulf").
Gulf has it's own switching equipment which allows it to act as an international
call back and call through provider. In addition, Gulf offers pre-paid calling
cards access, voice mail and fax broadcast services. The purchase price is
payable in installments of $10,000 a month through January 1998. This
acquisition has been recorded as a purchase, and , accordingly, the operating
results since the date of acquisition have been included in the accompanying
Financial Statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
This report on Form-10QSB contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk related
factors included in the Company's registration statement filed in March 1996 and
Form 10-K for the fiscal year ended April 30, 1996.
The Company had gross revenues of $5,712,188 for the three months ended July 31,
1996, compared to $3,190,144 for the three months ended July 31, 1995,
reflecting an increase of approximately 79%. The increased revenues are a result
of the acquisition in July 1996, effective June 1, 1996 of the customer base of
over 30,000 customers from Adventurers in Telecom, Inc.,( "AIT").
Cost of sales was 70.6.% of sales for the three months ended July 31, 1996
compared to 75.1% of sales for the three months ended July 31, 1995. There were
no significant price changes during the three months ended July 31, 1996.
However, it is anticipated that prices from the Company's major carrier,
Tel-Save, will decrease through the introduction of Tel-Save's own installed
switches in five strategic metropolitan centers in the U.S. which are
anticipated to be operational in the third quarter of the Company's current
fiscal year, although part of this cost reduction will be "passed through" to
the customers. Gross margin for the three months ended July 31, 1996 and 1995
were $1,679,046 and $795,019, respectively representing 29.4 % and 24.9 % of
sales of sales for each respective period. The improved gross margins on the
acquired AIT customer base are anticipated to further increase the overall gross
margin % during fiscal year 1997.
In May 1996, the Company purchased the stock and assets, including the customer
base, of Gulf Communications Services, Inc. ("Gulf"). Gulf has its own switching
equipment which allows it to act as an international call back and call through
provider. It's results of operations for the three month period ended July 31,
1996 are included with those of the Company. Gulf had a net operating loss for
the three months ended July 31, 1996 as a result of one time non-recurring set
up costs, including consulting fees and management fees. The change in long
distance carriers' and a reduction in costs is expected to have an effect on the
gross margin, and it is anticipated that Gulf will contribute to the net income
of the consolidated Company in the next quarter.
Selling, general and administrative costs increased for the three months ended
July 31, 1996 to $1,470,262 from $697,248 in the corresponding period in 1995,
representing an increase of $773,014. This increase was due primarily to
increased amortization costs resulting from the acquisition of the AIT customer
base and to a lesser degree increases in commissions paid to agents and
distributors in connection with the AIT customer base and payroll costs
resulting from the employment of additional sales and customer service staff to
handle the increased business. Selling, general and administrative costs for the
three months ended July 31, 1996 and July 31, 1995 were 25.7 % and 21.8%,
respectively, of net sales. Interest expense(net) for the three months ended
July 31, 1996 increased to $43,360 from $2,895 in the corresponding period in
1995. This increase in interest expenses was a result of the loan from Tel-Save
of $5,571,230 which was used to complete the AIT acquisition. Income taxes on
operations for the three months ended July 31, 1996 and 1995 were 1.5 % and at
1.1%, respectively, of net sales.
The company has recorded it's tax provision using an estimated annual effective
rate of 48.6% compared to the 46.2% effective rate in the 1996 fiscal year. This
rate is higher than the statutory rate of 36.7% (which was used for the three
months ended July 31, 1995) due to the valuation allowance established for the
deferred tax assets relating to the amortization of the customer acquisition
costs. The expected valuation allowance for the fiscal year 1997 is 33% of this
specific deferred tax asset which is the reduction from the 100% valuation
allowance applied in the 1996 fiscal year. The
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allowance % was reduced in recognition of the company's continuing profitability
and the significantly higher revenues to be generated from the AIT customer
base. However, there can be no assurances that the Company will continue to
expand profitability, or that the attrition on the AIT customer base will not be
higher than expected, and therefore the Company has provided a 33% valuation
allowance. This allowance will be reviewed upwards or downwards based upon the
Company's results of operations during the remainder of the 1997 fiscal year.
Such adjustments will cause the Company's effective rate to change from the
48.6% rate provided in the three months ended July 31, 1996.
Earnings per share of $.04 in the three months ended July 31, 1996 versus $.03
for the three months ended July 31, 1995. Net earnings increased by 39 % to
$84,890 in the three months ended July 31, 1996 as compared to $60,876 in the
corresponding period in 1995. This is largely attributable to the increase in
revenues, primarily a result of the acquisition of the AIT customer base.
Although no assurances are given, net earnings are anticipated to improve during
the fiscal year 1997 such acquisition has not significantly increased staff and
operating costs, which may contribute to overall improved profitability. It is
anticipated that the Company may experience some loss of customers from the
customer base acquired in the AIT acquisition. Based upon the Company's prior
experience, such attrition rate may be significant during the first year
following such acquisition with such attrition rate declining and such customer
base stabilizing in subsequent years. Reasons for attrition may be as a result
of offers from competitors which attract customers to such competitors'
services. The effect of any such attrition will be a decrease in revenues and
profitability from such customer base. Such anticipated attrition and the
consequence thereof have previously been considered by the Company in connection
with the purchase price paid for such customer accounts and in connection with
the amortization by the Company of such customer acquisition costs over their
useful life.
The Company's cash flow from operations reflected a net decrease of $927,983 in
the three months ended July 31, 1996 as compared to an increase of $326,379 for
the corresponding period in 1995. The decrease in cash flow from operations is
primarily the result of an increase in amortization of customer acquisition
costs and accounts receivable through the purchase of the AIT customer base. The
Company through April 30, 1996 had financed significantly all of its
acquisitions and purchases of property and equipment and deferred offering costs
through internally generated funds. In July 1996 the Company closed upon a
$5,521,230 loan from Tel-Save, a provider of certain telecommunication services
to the Company and the Company end-users and customers. Such borrowings were
principally utilized to fund the acquisition of the AIT customer base. Cash flow
of $6,564,719 was used in financing activities in the three months ended July
31,1996 as compared to cash flow used in financing activities in 1995 of
$41,932.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has experienced rapid growth through
both internal and external factors. The acquisition of customer bases has
required a substantial amount of working capital, which have been funded
primarily by a combination of internally generated funds, bank borrowings, loans
from shareholders and vendor financing. This resulted in a negative flow of
$42,963 for the three months ended July 31, 1996.
The Company's primary source of liquidity in the short-term is cash flow from
operations, which includes vendor financing. In July 1996, the Company converted
approximately $567,000 of accounts payable into a note payable to a vendor.
Although the note requires monthly payments, it will slow down and slightly
reduce the cash payments otherwise required in fiscal 1997.
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Vendor financing includes $547,500 payable to a long distance carrier pursuant
to the terms of a 1994 settlement agreement with such carrier. The Company has
been conducting ongoing negotiations during the 1996 fiscal year as well as
currently, to reduce such amount and modify the payment terms thereof. The
Company is currently in arrears on the full amount of this payable and does not
have adequate liquidity to pay it off in full if current settlement discussions
are not successful in reducing the amount owed or agreeing on a revised payment
schedule.
During July 1996 the Company closed upon a $5,521,230 loan transaction with
Tel-Save, a provider of certain telecommunication services to the Company and
the Company's end-users and customers. Such funds were principally utilized to
acquire the AIT customer base, consisting of over 30,000 long distance customers
with estimated current monthly revenues of approximately $1.5 million.
During June 1996, the Company entered into an arrangement with one of it's
carriers to convert part of a payable into a short term note payable. The terms
of the note include a repayment over nine months ending in June 1997 at an
interest rate of 15% per annum secured by the receivables created under the
service agreement with such carrier.
Although no assurances can be given, the Company believes that it can
successfully attract the capital required to expand its services, acquire new
customer bases and assets, reverse its negative cash flow and liquidate the
above-described settlement agreement obligation through internally generated
funds and by utilizing either debt or equity from institutional, corporate, or
public and/or private marketplace sources.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently a party to any material
litigation, and management has no knowledge of any
threatened material litigation by or against the
Company.
Item 5. Other Information
none
Item 6. Exhibits and Reports on Form 8K
(a) Exhibit 27 - financial Data Schedule
(b)Reports on Form 8K
none
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant had
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
GROUP LONG DISTANCE, INC.
Date: SEPTEMBER 21, 1996 By:___________________________
------------------
Gerald M. Dunne, Jr.,
Chief Executive Officer
Date: SEPTEMBER 21, 1996 By:___________________________
Sam D. Hitner,
Financial Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GROUP LONG DISTANCE, INC. FINANCIAL STATEMENTS ENDED JULY 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 35,804
<SECURITIES> 0
<RECEIVABLES> 4,172,402
<ALLOWANCES> (512,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,503,011
<PP&E> 398,693
<DEPRECIATION> (49,279)
<TOTAL-ASSETS> 10,897,069
<CURRENT-LIABILITIES> 9,067,974
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,673,531
<TOTAL-LIABILITY-AND-EQUITY> 10,897,069
<SALES> 0
<TOTAL-REVENUES> 5,712,188
<CGS> 4,033,142
<TOTAL-COSTS> 4,033,142
<OTHER-EXPENSES> 926,402
<LOSS-PROVISION> 184,930
<INTEREST-EXPENSE> 402,560
<INCOME-PRETAX> 165,154
<INCOME-TAX> 80,264
<INCOME-CONTINUING> 84,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,890
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
